Sprint Electric Ltd v Buyer's Dream Ltd & Anor (Liability Judgment)

This judgment resolves two linked sets of proceedings: SEL’s "Source Code" claim seeking delivery up and the right to exploit source code and related documents written by Dr Aristides Potamianos, and the petitioner’s "Unfair Prejudice" petition arising from disputes between the principal shareholders of Sprintroom Limited (SRL) and its trading subsidiary, Sprint Electric Limited (SEL).

The court held that (i) on the true analysis of the contractual arrangements and, in particular, on the 1997 and 2000 consultancy contracts, SEL was entitled to the source code and related documents created by Dr Potamianos during those contracts (the judge construed Clause 39 of the 2000 Contract and also implied terms where necessary); (ii) the 2007 assignment did not undermine that conclusion and was influenced by fiscal considerations; (iii) BDL’s counterclaim for copyright infringement failed because SEL owned the copyright in the relevant code (section 11(2) CDPA applies to work made in the course of employment or, where appropriate, equitable principles entitle SEL to assignment); and (iv) certain contractual disputes over specific schedules were resolved (Schedule No 200815 breached by BDL; Schedule No 270416 not proved against BDL; Schedule No 130116 failed except insofar as delivery up relief under the 2015 Contract survived). The court also found that SRL had features of a quasi-partnership and that unfairly prejudicial conduct had occurred: a buy-out order for the petitioner’s shares was appropriate in principle, with detailed valuation and reasonableness of offers to be determined at a further hearing.

Background and parties:

• Sprint Electric Limited ("SEL") sued Buyer's Dream Limited ("BDL", the service company of Dr Aristides George Potamianos) and Dr Potamianos himself claiming rights to source code, object code and associated documentation used in SEL motor controllers. BDL counterclaimed for ownership of copyright and injunction/remedies. Separately, Dr Potamianos petitioned under section 994 Companies Act 2006 for unfair prejudice against Sprintroom Limited (SRL) and its majority shareholder Mr Edwin Prescott seeking a buy-out of his SRL shares. The two proceedings were tried together.

Nature of the claims and issues:

• Source Code claim: whether SEL was entitled (by express or implied contractual terms, by operation of section 11(2) CDPA or by equitable principles) to delivery up and rights to the source code and related documents for the PL/X and JL/X firmware; whether BDL owned copyright; whether SEL or BDL had breached various schedules and invoices.
• Unfair Prejudice petition: whether SRL was a quasi-partnership or otherwise subject to equitable protections, whether the petitioner had been unfairly prejudiced by exclusion from management and related conduct, and if so the appropriate remedy (buy-out), valuation date and treatment of offers.

Issues framed:

• Inter alia: construction of the 1997, 2000 and 2015 contracts; implication of terms (M&S test); application of CDPA s.11(2) to work made in course of employment; effect of the 2007 Assignment; whether SEL entitled to delivery up, and whether BDL infringed copyright; liability on discrete schedules and invoices; whether SRL was a quasi-partnership; whether conduct was unfairly prejudicial; remedy and valuation issues.

Court’s reasoning (concise account):

• Contracts and copyright: the court examined the express terms (notably Clause 39 of the 2000 Contract and the delivery/assignment provisions in the 1997 and 2015 agreements) and applied recognised principles of contractual interpretation (Wood v Capita; Arnold v Britton). Where necessary the court implied terms under the stringent M&S test to give business efficacy. The judge found that the 1997 agreement and, critically, Clause 39 of the 2000 Contract (and implied terms in the 2015 contract) required delivery up/assignment of source code and related documents created while the contracts subsisted. The court expressly analysed the effect of fiscal motivations (IR35 and related arrangements) and treated them as part of the factual matrix.
• Employment/tax and equitable considerations: the court analysed whether the relationship was in reality one of employment (IR35 context) and concluded that, in respect of the 1997 Contract at least, the relationship answered the tests of an employment-like relationship so that section 11(2) CDPA made SEL first owner of copyright in works created in the course of that service; alternatively equitable principles (and established authority such as Griggs v Evans) could support SEL’s entitlement to assignment despite formality requirements. The 2007 Assignment was treated against that commercial and fiscal background and did not displace the principal conclusions.
• Remedies and discrete contracts: SEL was entitled to delivery up and other relief in the Source Code claim; BDL’s counterclaim for copyright infringement failed. On the invoices/schedules: SEL succeeded on Schedule No 200815 (breach by BDL); SEL failed on Schedule No 270416; Schedule No 130116 failed except where the court’s delivery-up analysis under the 2015 Contract applies.
• Unfair prejudice: the court found SRL had qualities of a quasi-partnership (significant minority holding, participation in management, restrictions on transfer and mutual expectations) and that exclusion from management without a reasonable buy-out was inequitable. The court held in principle that a buy-out order should be made against SRL, but left valuation-related issues (valuation date, the reasonableness of offers, expert valuation) to a further hearing in accordance with the earlier case management order.

First instance determination: The court found for SEL on the core Source Code claim. The court held that, by construction and necessary implication of the 1997 and 2000 contracts (and by application of section 11(2) CDPA where appropriate), SEL was entitled to the source code and associated documents created during the relevant contracts and BDL’s counterclaim for copyright infringement failed. SEL succeeded on its claim in respect of Schedule No 200815; SEL’s claims in respect of Schedule No 270416 and Schedule No 130116 largely failed except insofar as the 2015 Contract gives rise to delivery-up obligations. On the unfair prejudice petition the court found SRL had quasi-partnership features and that unfair prejudice had been established in principle: a buy-out order should be made (to be directed against SRL in the first instance) but the reasonableness of offers and valuation matters were reserved for further determination. The court’s reasoning combined textual construction, implication of terms where necessary, statutory copyright principles (CDPA s.11(2), s.50A–C, s.90) and equitable considerations concerning company relationships and directors’ duties.