Sprint Electric Ltd v Buyer's Dream Ltd & Anor

Employment status and copyright ownership depend on the parties’ true relationship and the substance of the arrangements, not merely contractual labels or the interposition of a service company. Where source code is created for a business, contractual terms may require its delivery and assign copyright if that is necessary for commercial and practical coherence. A contract for investigatory software work may also require delivery of the useful fruits of the investigation. In a quasi-partnership, exclusion of a minority shareholder from management is ordinarily unfairly prejudicial unless accompanied by a reasonable buy-out offer. The usual valuation is pro rata, without a minority discount, at the date of the buy-out order.

The proceedings comprised a source-code and copyright dispute brought by Sprint Electric Ltd against Buyer's Dream Ltd and Dr Potamianos, together with an unfair-prejudice petition brought by Dr Potamianos concerning Sprintroom Ltd and Mr Prescott. The source-code dispute concerned ownership of, access to and delivery of software source code created under successive service arrangements. The petition concerned Dr Potamianos’ exclusion from management and removal as a director, and the appropriate basis for a buy-out.

The court determined the contractual, copyright, employment-status and unfair-prejudice issues, while leaving valuation evidence and certain consequential matters for a further hearing.

1. Source-code claim. The court held that the true relationship between Sprint Electric and Dr Potamianos under the 1997 Contract was one of employment. The parties’ labels and use of BDL as a service company did not determine the legal relationship. Applying the substance of the arrangements, Dr Potamianos personally provided services, was integrated into the business, bore no material financial risk and worked using the company’s equipment.

2. Under section 11(2) of the Copyright, Designs and Patents Act 1988, Sprint Electric therefore owned copyright in works created in the course of that employment. Alternatively, the 1997 Contract contained an implied obligation to provide the source code and related documents, and an implied assignment of copyright where necessary. A contract under which the company paid for software but had no access to the source code would lack commercial and practical coherence.

3. The 2000 Contract was construed as requiring delivery of source code and documents. “Contract Works” was not confined to the descriptions in the Schedules, and clause 39 applied to source code as work performed in, or preparatory to, the Contract Works. Clause 38 likewise required delivery of documents relating to the Contract Works. The 2015 Contract also contained an implied obligation to provide the useful fruits of investigatory work, although the claim concerning Schedule No 130116 failed insofar as it alleged non-performance beyond delivery of materials.

4. Dr Potamianos was under a duty to give Sprint Electric a candid and direct account of the location and accessibility of the source code. His evasive and misleading conduct breached duties owed to the company. The copyright infringement counterclaim failed because Sprint Electric was entitled to ownership or equitable rights sufficient to defeat the claim.

5. Unfair prejudice. Sprintroom was a quasi-partnership. The relationship involved a substantial minority shareholding acquired in recognition of Dr Potamianos’ contribution, participation in management, restrictions on transfer, shared profit arrangements and mutual trust and confidence. The affairs of Sprintroom included those of Sprint Electric because the companies were controlled and operated in practical terms as a single business.

6. It was inequitable to exclude Dr Potamianos from management without giving him a reasonable opportunity to withdraw his capital. His removal as a director was not justified by his conduct. The unfair-prejudice claim therefore succeeded subject to determination of whether any of Mr Prescott’s offers was reasonable. The buy-out should be valued at the date of the order, without a minority or marketability discount and without allowance for the unfairly prejudicial conduct. The Source Code claim succeeded; BDL’s copyright counterclaim and the claim concerning Schedule No 270416 were dismissed; the claim concerning Schedule No 200815 succeeded; and the claim concerning Schedule No 130116 failed except as to delivery of materials.