Elsworth Ethanol Company Ltd & Anor v Hartley & Ors

A de facto directorship is determined by considering all relevant circumstances. There is no single decisive test. Important factors include whether the individual acted on an equal footing with appointed directors, whether the company held the individual out as a director, and whether the individual formed part of the company’s corporate governing structure. Equal participation in directing the company is especially important. Where conduct is equally referable to a consultancy or another capacity, the benefit of the doubt is given to the individual. Participation in a project, discussions about intellectual property and dealings with potential investors do not, without more, establish corporate governance or a de facto directorship.

The claimants sought transfer, or alternatively joint ownership, of patent rights derived from GB 0605890.3. They alleged that Professor Hartley and Drs Yazdi and Javed had been de facto directors of the first claimant and had breached fiduciary duties by filing the application in the name of Bioconversion Technologies Ltd. They also alleged agreements under which the first claimant was to fund the research and be named as applicant.

The fifth defendant, Ensus Ltd, had acquired the relevant patent rights from Bioconversion Technologies Ltd. The issues tried were whether the alleged de facto directorships existed, whether fiduciary duties had been breached, and whether either alleged agreement had been concluded.

1. The claim was dismissed. The court held that Professor Hartley and Drs Yazdi and Javed were never de facto directors of the first claimant.
2. Applying the principles stated in Holland v Commissioners for HMRC [2010] UKSC 51, there was no single test. The relevant circumstances included whether the individuals acted on an equal footing with the appointed director, whether they were held out as directors or used that title, and whether they formed part of the company’s corporate governing structure. Equal footing with true directors was particularly important, and ambiguous conduct had to be given the benefit of the doubt.
3. The meetings were project meetings, not board meetings of the first claimant or another identified company. The individuals’ work on patent applications, business plans, potential investors and commercial contacts showed participation in the bio-ethanol project, but not control of the company. The evidence did not establish that they represented themselves, or were represented by others, as company directors. Corporate governance remained under Mr Bookless’s sole control.
4. Even assuming the alleged de facto directorships, no fiduciary breach was established. The instruction to file GB 890 in the name of Bioconversion Technologies Ltd was not improper. Mr Bookless was present and did not object, and there was no relevant change of circumstances requiring the application to be transferred or refiled.
5. The contractual claims also failed. The parties had not reached a concluded agreement identifying which company was to own or apply for the patents. A provisional discussion or informal consensus was insufficient to create either alleged contract.