Vitof Ltd v Altoft

On a summary judgment application, the court must determine whether a party has a real prospect of success without conducting a documentary trial. Where factual conflicts or issues requiring cross-examination remain, the claim should proceed to trial.

A director who creates intellectual property for the company’s business may hold the rights on trust for the company, even if he is not an employee and even if some work was undertaken before incorporation in contemplation of the company’s formation. The court may nevertheless grant summary judgment on a distinct, sufficiently clear issue while leaving related issues for trial.

Vitof and Mr Altoft were equal shareholders and directors of a company established to design and sell labelling equipment. Their relationship broke down, producing disputes concerning source code, circuit-board designs, confidential information, company property, restrictive covenants, share valuation and alleged shareholder loans.

Both parties made applications for summary judgment. Vitof also sought to strike out parts of Mr Altoft’s counterclaim, while Mr Altoft sought security for costs and reverse summary judgment. The central questions were which claims could properly be resolved summarily and which required trial.

1. Summary judgment. The applicant must show that the respondent has no real prospect of success. A real prospect is more than fanciful or merely arguable. The court must not conduct a trial on documents without disclosure or cross-examination. Applying those principles, only issues sufficiently clear on the evidence were determined summarily.
2. Source-code copyright. The 29 May 2004 source code was an original literary work notwithstanding that Mr Altoft said approximately 90 per cent derived from Label-Aire code. The post-incorporation modifications were created by a director for Vitof’s labelling business, during Vitof’s time and pursuant to his contractual and fiduciary obligations. Mr Altoft therefore held the copyright on trust for Vitof and was ordered to assign it.
3. The same conclusion applied to the smaller portion of the code created before incorporation. The work was undertaken in contemplation of, and for the benefit of, the company later formed. Vitof was entitled to a declaration and assignment.
4. Other intellectual property. The court held that the circuit-board designs qualified as designs and that design right subsisted. However, evidence from UKE gave Mr Altoft a real prospect of showing that legal or equitable title belonged to UKE. Vitof therefore obtained a declaration that Mr Altoft did not own those rights, but not a declaration that Vitof did.
5. Mr Altoft had a real prospect of establishing a defence to the copyright and confidence claims arising from sending source code to Label-Aire. The statutory purpose of judicial proceedings could potentially cover the copying, and a public-interest defence was also arguable.
6. The claims concerning holding out, the restrictive covenant, infringement, misuse of confidential information and alleged breaches involving company transactions depended on unresolved factual or legal issues and were not suitable for summary determination. The restrictive covenant issues, including repudiation, construction and restraint of trade, required trial.
7. Mr Altoft’s claim for repayment of £29,000 in cash advances succeeded summarily. Vitof had not established set-off. His expenses claim was left open pending inspection of receipts. The share-valuation counterclaim was largely struck out, although the alleged breach of the Shareholders’ Agreement concerning auditors remained arguable.
8. Vitof received its costs of obtaining delivery up of company property, business records and source code. The remaining interim costs were reserved. Mr Altoft was entitled to security for costs in an appropriate amount.

First-instance judgment determining applications for summary judgment, strike out, security for costs and related costs directions. No appellate history was stated in the judgment.