Optaglio Ltd v Tethal & Anor

Summary judgment may determine a disputed factual issue only where one party’s evidence has no real prospect of acceptance. Contemporary documents may expose an assertion as unreal, but the court must not conduct a mini-trial or weigh competing evidence. A judge who disbelieves a witness at this stage should explain with reasonable particularity why the record justifies that conclusion.

Shareholder ratification of a director’s alleged breach requires informed consent. Mere access to information does not establish actual knowledge. Difficulty in proving loss must also be distinguished from the absence of an arguable loss.

An apparently proper claim should be struck out for an ulterior purpose only in a clear and obvious case. A conditional order requires more than a merely weak claim.

Optaglio Limited claimed that two former directors breached their contractual and statutory duties by procuring or participating in the withdrawal of a patent application made for its benefit. The defendants maintained that withdrawal was a reasonable commercial condition of continued collaboration with another technology company and had been authorised by Optaglio’s shareholders.

On a summary judgment application, HHJ Purle QC held that no breach, want of shareholder consent or recoverable loss was realistically arguable. He also held that the second defendant was not a party to the decision. The claim was accordingly dismissed in [2014] EWHC 3351 (Ch).

Optaglio appealed. The central question was whether the disputed issues concerning the application’s value, commercial pressure, shareholder consent, the second defendant’s involvement and loss could properly be resolved without a trial. The respondents alternatively sought dismissal for abuse or defective pleading, or a conditional order.

Appeal allowed unanimously; summary judgment set aside. Floyd LJ gave the judgment, with which Lewison LJ and Black LJ agreed.

1. A court may reject a factual assertion on summary judgment where contemporary documents demonstrate that it has no real prospect of acceptance. It must not weigh competing evidence as at a trial. A judge who gives summary judgment because a witness’s account should be disbelieved must explain with reasonable particularity which material justifies that conclusion: ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472 applied.

2. The alleged breach of directors’ duty was triable. It was not established to the summary judgment standard that Optaglio regarded the patent application as weak, that confidentiality issues made protection untenable, or that commercial pressure left no reasonable alternative to withdrawal. The documents permitted competing inferences about the invention’s value and the parties’ negotiating positions. Whether the decision fell below the standard required by section 174 of the Companies Act 2006 therefore required a trial.

3. Shareholder acquiescence was also triable. Consent to an alleged breach must be informed. It was insufficient that the majority shareholder might have received documents or had the means of learning that the application had been withdrawn. His actual knowledge and consent were disputed, and the lower court had not identified material capable of making his denial unreal.

4. The claim against the second defendant could not summarily be dismissed merely because he had ceased to be a director when withdrawal was formally completed. His earlier recommendation, execution of an evaluation agreement contemplating withdrawal and the instructions given to patent attorneys supported an arguable case that he participated in the decision.

5. The difficulty of proving loss did not establish that there was no arguable loss. Evidence concerning the technology and its possible exploitation required investigation at trial. The failure of the later collaboration did not conclusively determine the counterfactual position had patent protection been maintained.

6. The claim did not approach the exacting threshold for dismissal as an abuse brought for an ulterior purpose. Nor did its alleged weakness or suspected lack of bona fides justify a conditional order. The proposed amended particulars of claim were allowed.

1. Court of Appeal (Civil Division): In [2015] EWCA Civ 1002, unanimously allowed the claimant’s appeal, set aside summary judgment and allowed amendments to the particulars of claim.
2. High Court, Chancery Division: In [2014] EWHC 3351 (Ch), HHJ Purle QC granted summary judgment for the defendants, holding that no breach of duty, absence of shareholder authorisation or recoverable loss was realistically arguable and that the second defendant was not a party to the decision.