Oak Investment Partners v Boughtwood

Shares must be valued by reference to assets and rights owned by the company at the relevant valuation date. Intellectual property developed by a separate purchaser using its own resources for its own benefit does not form part of the company’s assets merely because the purchaser used intellectual property previously owned by the company. The value of that use may nevertheless be reflected through a reasonable royalty for the company’s existing intellectual property. The court will not give further directions to an expert valuer where the proposed basis has no reasonably arguable legal or factual foundation and would cause unnecessary delay and cost.

Mr Boughtwood applied for directions concerning the valuation of his shares in QED Group Limited. The valuation was being conducted by an expert valuer following an order requiring Oak Investment Partners to purchase his shares.

QED had acquired intellectual property from PML Flightlink Limited under a deed of assignment. After PML entered administration, its business was sold to Electric Motor Works, which continued developing the Hi-pa drive motor and related intellectual property using its own assets and employees. Mr Boughtwood sought directions requiring the valuer to include that later-developed intellectual property in the value of QED. Oak opposed the application, relying on the scope of the assignment and the parties’ earlier valuation submissions.

1. Application refused. The court gave no further directions to the valuer. The valuation was to be finalised on the basis of the existing directions.
2. The intellectual property transferred to QED comprised the intellectual property owned by PML at the date of the assignment and future intellectual property developed by PML. The assignment did not extend to intellectual property subsequently developed by Electric Motor Works, which was not a party to it.
3. Mr Boughtwood had not shown any reasonably arguable case that Electric Motor Works had undertaken an obligation to QED to assign its intellectual property or treat it as QED’s property. Electric Motor Works had developed the relevant intellectual property using its own resources and for its own benefit.
4. The proper valuation method was to assess the reasonable royalty earning stream attributable to the intellectual property owned by QED. Any value arising from Electric Motor Works’ use of QED’s intellectual property could be reflected in the assessment of a reasonable royalty. That did not justify treating the subsequently developed intellectual property itself as an asset of QED.
5. The expert evidence from both sides supported valuation by reference to the intellectual property owned by QED. In the circumstances, further directions would serve no proper purpose and would risk additional delay and unrecoverable cost.

Not stated in the judgment.