England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
Chancery Division

		Royal Courts of Justice Strand, London, WC2A 2LL
		18 October 2007

Mr Robert Ham, QC:

Introduction

1. This case is about a piece of software known as StratX. StratX was developed in 2005–6 for use by the Consumer Healthcare UK division ("CHUK") of GlaxoSmithKline ("GSK"). It is described as integrated financial forecasting software, and in general terms is intended to produce a consensus forecast based on data from different departments of CHUK that could be used in managing the whole of its business. The name StratX was not coined until quite late on, but everyone has found it convenient to refer to the software by that name right from the beginning.
2. During the trial, it became common ground that:–

(1) the third defendant ("Mr Aldersley") was the sole author of the source code of StratX and so was its first owner; and

(2) Mr Aldersley wrote the source code while working as an independent contractor for the second defendant ("IP Enterprises") after 9 January 2006.

That is the date of a meeting at the Crowne Plaza Hotel at Heathrow Airport ("the January meeting") at which an oral agreement ("the January agreement") was made for IP Enterprises to complete the outstanding work on StratX in place of the claimant ("Meridian International"). Meridian International says that it was an express or implied term of the January agreement that (in effect) the copyright would be assigned to it. The main question in the case is whether there was any such term.

3. Meridian International also claims that computers, telephones and software provided for use on its projects should be returned to it; and the defendants claim, as a fallback position, that CHUK had a perpetual licence to use StratX entitling it to deal directly with them without reference to Meridian International, as they would like it to do.

Representation

4. Mr James St Ville appeared for the claimant and Mr Richard Davis for the defendants.

Witnesses

5. I had evidence from five witnesses:–

(1) Nigel Keating, the only director of Meridian International;

(2) Richard Butler, a computer consultant who works (through a company) for Meridian International;

(3) John Bobeckyj, the only shareholder and CEO of Meridian International;

(4) The first defendant, Ian Richardson, a former employee of Meridian International – Mr Richardson and his wife also own the shares in IP Enterprises; and

(5) Mr Aldersley

all of whom provided witness statements and were cross-examined.

6. No challenge was made to the truthfulness of the evidence of Mr Butler and Mr Aldersley, and in my judgment rightly so. I am satisfied that they were trying to assist the Court to the best of their recollection. However, Mr Butler's evidence – which was technical in nature – was largely directed to whether some of the StratX source code was written before the January meeting, an allegation that is no longer maintained; and neither he nor Mr Aldersley was present at the meeting. Their evidence does not therefore directly help in deciding what was agreed.
7. I will return to that question, and the credibility of the three witnesses present at the meeting, after outlining the facts.

The facts

8. Mr Bobeckyj joined Glaxo in 1989 as a planning manager, and in 1992 he took over as senior operations manager responsible for the overall supply of products. While in that position he recruited Mr Richardson direct from university. In 1992 Mr Bobeckyj himself was awarded a BA in business and finance from Thames Valley University. In 1994 he moved to SmithKline Beecham ("SKB") where he undertook a project looking at global forecasting process and systems. He again recruited Mr Richardson, as one of three regional managers, and also recruited Mr Aldersley, the IT manager for SKB in New Zealand.
9. In 1999 Mr Bobeckyj set up his own company, Meridian Associates Limited ("Meridian Associates") and recruited for it some of the people who had worked for him at SKB, including Mr Richardson and Mr Aldersley. He gave Mr Richardson a 20% share in the equity, and made him a director and company secretary. In 2001 Mr Aldersley returned to his home in New Zealand, but continued to work for Meridian Associates from there, coming to Europe when necessary.
10. In 2001–2 Meridian Associates was commissioned to carry out a project for CEE, as a result of which it developed a piece of software named Sherlock. Its function is similar to that of StratX. It was originally designed for the CEE's Polish division but later rolled out to CEE divisions in other parts of central and eastern European with identical processes and systems. This was, however, the only occasion when Meridian Associates was able to supply a product designed for one business to other businesses, the requirements of the other CEE divisions being identical to those of the Polish division. In general the software that Meridian Associates developed for its customers was bespoke software, and would only be suitable for another customer in the unlikely event that its processes and systems were identical. Mr Aldersley told me that he found it simpler to start anew rather than an attempt to modify a product developed for one customer for use by another.
11. Customers of Meridian Associates also included Heinz and SC Johnson ("SCJ"), for the latter of whom Meridian Associates developed a product called Dashboard. The finance director of SC Johnson was a personal friend of Mr Bobeckyj.
12. In December 2003 Meridian Associates attempted to sell Sherlock to CHUK, but CHUK rejected it.
13. In 2004 Mr Richardson resigned as a director of Meridian Associates, because he was unhappy about the way its business was being run.
14. By August 2005 Meridian Associates was in serious financial difficulties, and Mr Bobeckyj told Mr Richardson that he was going to "phoenix" the company. Mr Richardson did not understand what that meant, and Mr Bobeckyj explained to him that he intended to start a new company with a similar name operating essentially the same business as Meridian Associates.
15. In the event, that is exactly what happened. Meridian International was incorporated on 1 September 2005 with Mr Bobeckyj as sole shareholder, and Meridian Associates went into creditors' voluntary liquidation on 28 October 2005. The statement of its affairs as at that date signed by Mr Bobeckyj showed a deficiency as regards creditors of £339,508, largely made up of debts to the Inland Revenue and Customs & Excise.
16. However, from the perspective of customers nothing appeared to have changed. So, in all the documents that went to CHUK, Meridian International was (with one exception mentioned at [65] below) referred to simply as "Meridian" (instead of Meridian Associates Limited as before), and it was able to take advantage of Meridian Associates' status as a preferred supplier to GSK, something that it would not otherwise have been able to achieve. Email addresses continued to be @meridianassociates.co.uk (Mr Bobeckyj owns the domain name personally). Even today the web site is in the name of Meridian Associates. Meridian International bought the goodwill of Meridian Associates from the liquidator on 9 December 2005 and 26 April of this year, after these proceedings began, it also bought its intellectual property rights.
17. Mr Bobeckyj described himself as Meridian International's CEO, but never became a director. He told me this was the result of "sheer apathy" and gave a similar explanation for not changing the email addresses.
18. Under the terms of the contract with CEE it became entitled to the intellectual property rights in respect of Sherlock on the insolvency of Meridian Associates. However, there was no evidence that the insolvency or its consequences in this respect were ever disclosed to CEE.
19. Meridian Associates' financial difficulties had meant that it was unable to pay its employees and contractors, whose payments for each calendar month were due on the 20th of the month, and there were also outstanding expenses claims. This was an understandable cause of concern to Mr Richardson and Mr Aldersley, but Mr Bobeckyj assured them (and others) that he would pay Meridian Associates' employees and contractors from his own pocket out of a sense of moral obligation. He did not feel the same sense of obligation to other creditors, such as the Inland Revenue and Customs.
20. At about this time Mr Wickens, having recently been promoted to finance director of CHUK, approached Mr Bobeckyj about a new project for CHUK. It was intended as an interim measure pending implementation of SAP software, which was to be introduced within GSK world-wide. Mr Bobeckyj and Mr Richardson carried out what was described as a mini-scoping exercise in order to understand what would be required, producing on 7 September what was called a Scoping Document for Project Vista (as it was known). They discussed the cost of the project and the price that should be charged for it. The estimated cost was £97,000, which they doubled and rounded up to £200,000, and on 26 September they produced a Proposal for Project Vista.
21. In late September and early October 2005, Mr Richardson and Mr Aldersley were in Cyprus working on the Dashboard project for SCJ. On 12 October 2005, Mr Bobeckyj, Mr Richardson and Mr Aldersley made a 2 hour presentation to a commercial review meeting of GSK CHUK at its offices in Brentford. CHUK agreed to go ahead with Project Vista at a total price of £200,000. The project was broken down into two phases: the price for phase 1, the design and documentation of a best practice process fitting the requirements of the CHUK business, was £40,000 and the price for phase 2 was £160,000 to cover programming and implementation. Mr Wickens required board approval for the full amount of the contract, but authorised phase 1 and £20,000 of programming work from phase 2.
22. After the successful presentation, Mr Bobeckyj, Mr Richardson and Mr Aldersley went to a nearby pub. Despite Mr Bobeckyj's assurances, Mr Richardson and Mr Aldersley had not been paid in September and were worried about this. Mr Bobeckyj asked several times whether they were committed to the CHUK project and continuing to work with him. They told him they wanted to do the project, provided they were paid on a proper and regular basis and that the sums due to them from Meridian Associates were also met. Mr Richardson had already prepared a spreadsheet showing a proposed payment schedule, which was discussed, and Mr Bobeckyj agreed to meet that schedule. He said that he would, if necessary, borrow to meet the payments. As before, Mr Richardson to be paid £5,400 per month by Meridian International and Mr Aldersley £6,000 per month.
23. That evening Mr Richardson sent the spreadsheet to Mr Bobeckyj under cover of an e-mail in the following terms:–

"As discussed … once we have agreement this is our 'contract', please acknowledge that you agree/can pay dates, Paid on this day, and as we said you will have our commitment to all the fun that you can arrange!"

24. The first payment of £4,000 to Mr Aldersley was due at once and was duly made. But the next payments of £5,400 for Mr Richardson and £6,000 for Mr Aldersley due on 20 October 2005 – only 8 days later – were not made on time. Mr Richardson chased Mr Bobeckyj, who told him that he needed more time and Mr Richardson and Mr Aldersley agreed to put back the schedule of payments for two weeks. Mr Richardson emailed Mr Bobeckyj a new payment schedule.
25. In the latter part of October and November Mr Richardson and Mr Aldersley were heavily engaged on other work for Meridian and in particular on the SCJ and CEE projects. For example, Mr Richardson was in Cyprus from 8–12 November for the SCJ project. The unchallenged evidence of Mr Aldersley – the only programmer with Meridian International – was that he was under considerable pressure to complete the SCJ and CEE projects in November and December.
26. As for Project Vista, there was the following progress:–

(1) CHUK provided information about its existing processes and there were several meetings with CHUK to discuss this aspect of the project and to review progress. A project room was established at CHUK's premises.

(2) In early November Mr Richardson consulted Mr Aldersley on the development options in terms of software and he passed on certain options to CHUK under cover of a memorandum of 10 November. The options referred to versions 1.1 and 2.0 of a Microsoft product called .Net, which figure in the story at a later stage. The introductory note to the covering memorandum of 19 November stressed that it was not concerned with the CHUK forecasting system software or the intellectual property in that product, and referred to the Contract for that purpose.

(3) That does not mean that a Contract was in existence at the time, because on the same day Mr Richardson was emailing Mr Bobeckyj about pricing and the need for IP to remain with the design and to avoid "a CEE style cock up with the contract this time" – see [18] above. This was prompted by a suggestion from CHUK that, to facilitate approval, the project should be presented as an extension of the CEE project. Mr Richardson accepted that he saw a draft of the Contract at about this time. But there no draft in evidence, only the final Contract signed in April 2006.

(4) About 21–3 November Mr Wickens informed Meridian International that he had been given approval to go ahead with Project Vista in full. Mr Keating's evidence was that this was in no small measure due to the fact that Meridian International was already a preferred supplier and had several years' history with CEE of successful process and systems implementations. This was of course not the case: Meridian International had only recently been incorporated and had no track record with anyone.

(5) The culmination of phase 1 of the project – the process work – was the preparation of a "Business Brief". Mr Richardson referred to this in an email dated 25 November 2005 to the relevant individuals at CHUK, attaching a plan that he had prepared showing the intended timetable for the project. He said that the key date for consideration was the next Wednesday, when Meridian would be submitting a "business brief" attempting to outline the current business requirements and process agreement that had been agreed by then.

(6) The plan called for the Business Brief to be signed off on 2 December and for "Meridian IT" to begin work on phase 2 – developing the software.

(7) On 28 November Mr Richardson sent the first draft of the Business Brief – to which both Mr Keating and Mr Richardson had contributed – to CHUK with process maps appended to it. It is an extremely detailed document. But Mr Richardson asked for it to be signed off at the meeting on Wednesday – two days later. CHUK immediately queried this, and Mr Richardson and Mr Bobeckyj confirmed that sign off by the end of the first week of December would be acceptable.

(8) In the event, the Business Brief was not approved until well into December. It is clear that it had not been signed off by the time of a steering committee meeting on 14 December and Mr Keating's evidence was that it was signed off in the week beginning 19 December.

(9) In the meantime, a draft Contract had been supplied to CHUK by 9 December when Mr Wickens emailed Mr Bobeckyj about it.

27. There were continuing difficulties about timely payment to Mr Richardson and Mr Aldersley. On 15 November there was a further meeting at which Mr Bobeckyj agreed to meet the payments schedule. But once again the promise was not kept, and Mr Richardson and Mr Aldersley told me of their mounting frustration with Mr Bobeckyj. On 18 December both Mr Richardson and Mr Aldersley emailed Mr Bobeckyj about the position, and the following morning Mr Bobeckyj replied with further assurances. Mr Richardson told me that he discussed the position with his wife that evening, and she told him to "wake up and smell the coffee" – that is to face facts. Mr Richardson and Mr Aldersley also spoke on the telephone at about this time and agreed that things could not continue.
28. The December payment to Mr Richardson was due on the 20th, but did not arrive in his account then and Mr Richardson met Mr Bobeckyj at CHUK's offices. He spoke to him in the corridor and suggested that they might find a room, but Mr Bobeckyj said "No, say it here", and what Mr Bobeckyj describes as a heated discussion took place in the corridor. Mr Richardson asked whether Mr Bobeckyj intended to honour the agreed terms about payment. Mr Bobeckyj said he would not, and Mr Richardson told him that was unacceptable, that he could not continue and that he was leaving. Mr Bobeckyj brought the conversation to an end by walking off. They did not meet again until the January meeting.
29. A few days later, on 23 December, Mr Bobeckyj telephoned Mr Aldersley in New Zealand to tell him that Mr Richardson had resigned and to ask whether he was prepared to go on working for Meridian International. Mr Aldersley told Mr Bobeckyj that he would not do so without Mr Richardson. On this occasion he also told Mr Bobeckyj that none of the StratX software had yet been written, something that Mr Bobeckyj says came as a shock to him.
30. The following day Mr Aldersley called Mr Richardson and they told one another the gist of the conversations with Mr Bobeckyj. Mr Aldersley was about to go on holiday and they agreed to speak in the New Year. They did so on 5 January 2006 when Mr Richardson called Mr Aldersley and spoke about getting in touch with Mr Bobeckyj to try and move things forward. Mr Aldersley thought he was mad to do so, given the recent breakdown in relationships, but agreed that Mr Richardson could go and talk to Mr Bobeckyj on his behalf. He told me that he did not remember the detail of Mr Richardson's plan, but that he remembered that it involved two things: (i) to try and recover their outstanding money and (ii) that they would be free to go direct to CHUK at the end of at the end of Project Vista, that is to bill CHUK direct.
31. Meanwhile, Mr Richardson had dealt with a few routine emails to CHUK. They were much of a holding nature. But no real work had been done on the project since the breakdown of relationships on 20 December.
32. In one of the emails sent by Mr Richardson to Fritz Worsch of GSK on 3 January said that if they could not use the software versions as stated and needed to use the previous framework – 1.1 – (see [26(2)] above) they would not be able to use the components as intended and that initial estimates were for an additional 15 days programming..
33. On 6 January Mr Richardson sent Mr Bobeckyj an email, copied to Mr Aldersley, in the following terms:–

"Following our discussion before Christmas, I would like to present two possible ways of moving forward …

Option 1 – Ian and Peter bill the existing work through a new company and pay you a 20% finder's fees on specific projects as outlined below.

CEE Project:

o As per the Meridian contract with GSK, GSK now own the CEE project code as Meridian has gone into administration. This refers to all components that were developed and provided to GSK while Meridian was still in business. Peter and I will finish this project and bill GSK directly through a separate company for the remaining value in lieu of our outstanding payments.

CHUK Vista project:

o The currently invoiced 40K for process work which is yours. Peter and I will take over and complete the software component of the project and will bill GSK directly through a separate company. You will receive a 20% finder's fee for sub-contracting this component to myself and Peter i.e. we will pay you £36k after we receive final payment on project completion.

SCJ support:

o Peter and I will take over the contract for support and manage this. Any future work you obtain with SCJ, I suggest a 20% finder's fee as above, payable in agreed phases between us.

Other Projects:

o Any other work you want us to sub-contract on we will negotiate a rate at that time.

Option 2 – Ian and Peter approach customers and offer services directly through a separate company – We will do this next week …

•    We offer our services directly to the customers and let them decide on how to move forward.

I look forward to discussing the options with you in the near future, hopefully before next week, and hope that we can find a way of making these business changes occur as smoothly as possible for all parties."

That email was the precursor of the January meeting.

34. On the afternoon of 6 January in the presence of Mr Keating, Mr Bobeckyj telephoned Mr Andy Eaton of SCJ who told him that he had no wish to deal with Mr  Richardson and Mr Aldersley. At about this time Mr Bobeckyj also asked Mr Butler whether he could take over the programming but was told by him that it would take about 6 months from scratch and that he was better off using the programmers he already had in place.
35. On the evening of 8 January (a Sunday) Mr Richardson sent an email enclosing a revised plan showing that programming work had not begun. Mr Bobeckyj told me that he had not read it,
36. The meeting was arranged for noon on Monday 9 January, and Mr Keating and Mr Bobeckyj had arranged a meeting with Mr Wickens for 2 o'clock. Mr Richardson was late so there was not much time. It was an angry and difficult meeting. Though it cannot have lasted much more than three quarters of an hour, Mr Richardson told me that it felt more like two hours to him.
37. There is a consensus that Mr Richardson asked Mr Bobeckyj and Mr Keating for their response to the email of 6 January and that they went over the email and discussed each of the three projects in turn. There is also consensus that, while Mr Keating said that he thought this was too generous, agreement was soon reached on CEE on the basis that the outstanding payment that was due would be paid to IP Enterprises. Mr Bobeckyj's idea was that this would more than make up for the outstanding money owed by Meridian Associates.
38. Moving on to StratX, there was at first an impasse. But eventually it was agreed that 30% of the balance of the outstanding payments due from CHUK would be for Meridian International to cover the time of Mr Bobeckyj and Mr Keating to finish the project. Mr Richardson says this was a finder's fee as he had originally suggested though of a greater percentage, but Mr Bobeckyj and Mr Keating do not accept that description which they say was never used. They go on to say that they made it clear that the new StratX technology was belong to them, that is to Meridian International. This is categorically denied by Mr Richardson. There was, he says, no suggestion of this.
39. They then went on to discuss the SCJ project, but no agreement was reached though there is disagreement as to why this was. However, nothing turns on this and I need not go into it. There was also discussion of how to explain the delay in the project to the client.
40. Early on the morning of 10 January Mr Richardson sent Mr Bobeckyj an email (copied to Mr Keating and Mr Aldersley) in the following terms:

Subject: Agreement / Contract…

John,

This is as I understand the situation as we agreed yesterday – if you do not agree please let me know, today:

CEE

All CEE work will be paid to us, (IP Enterprises Ltd) including any future work if any with CEE in full, if we secure any future work we will bill through you as sub-contractors.

All CEE support is handled and billed by us – again through you in the short term

GSK

For the system work you will be paid £27,500 of the remaining to be billed £160k, we will agree the payment schedule with Brian jointly, and the Meridian milestones for success.

For the support of this system at the end of the contract – this will be handed over to us for the appropriate fee – 15% of the project cost to be incorporated into the contract – I would like to do this before the end of this week.

John to provide us with the contract as now with GSK.

SCJ

I think we still need to discuss SCJ and how we move forward with this. Discussion of ownership etc who owns code for the bigger picture versus SCJ, can do this anytime you wish.

Support you said you will pick this up is that still the case how do you want that to be done?

Gerallt will be billed by us from Jan 1 – please send his info, P45 to us from Meridian so that I can set him up as an employee.

Payments to us should occur no more than 3 working days after payment into your account."

41. Mr Bobeckyj did not take up the invitation to let Mr Richardson know if he did not agree with the summary in that email.
42. Sometime shortly after the meeting Mr Richardson also spoke to Mr Aldersley and told him that he had achieved the two points mentioned at the end of [30] above.
43. Thereafter the project continued:--

(1) There was a steering committee meeting on 11 January, and the papers for that meeting stated that the sales part of the system had been delayed by three weeks due to the need for some reprogramming.

(2) On 16 January Mr Richardson flew out to New Zealand so that he and Mr Aldersley could work together on additional enhancements required by CEE. This was in accordance with their normal method of working, which involved sitting together with Mr Richardson explaining to Mr Aldersley what was required which he then produced. By 26 January 2006 they had completed this work.

(3) They were then able to commit some serious time to StratX.

(4) Meanwhile, on 25 January Mr Richardson wrote a memorandum (using a Meridian Associates memorandum form) with the subject ".Net 2.0 Timeline impact". It stated that Meridian had developed all modules for use within CHUK project within SQL 2005 and .Net 2.0 environment and that to rework this code to the .Net 1.1 Meridian had encountered various time delays, which would take an additional three weeks of elapsed time, equating to 53 man-days.

(5) Mr Richardson returned to the UK on 3 February where he had meetings with CHUK to finalise the system requirements and at about this time the data repository was received from CHUK.

(6) Following this Mr Aldersley was able to begin writing the source code which he did on 13 February and 1 March Mr Aldersley emailed part of StratX to Richardson for first time.

(7) However, the work took much longer than expected and the final marketing modules were not completed until August, though the sales module had gone live as early as April.

44. In March Mr Richardson told Mr Bobeckyj and Mr Keating that he was applying for a contractor position at another division of GSK known as OPERA, which he got. He continued to work on StratX in the mornings and evenings and at weekends.
45. At some stage in February or March there was a discussion between Mr Keating and Mr Richardson about the terms of the contract with GSK, Mr Keating says they went through the contract in detail and that he drew Mr Richardson's attention particularly to the IPR clause in the contract stating that all intellectual property developed for Meridian International remained its sole property. In contrast, Mr Richardson says that Mr Keating readily agreed that Meridian did not own the rights and that they would need to make sure the supply agreement for CHUK properly reflected the position as to IP Enterprises' ownership of the software.
46. The Project Vista Contract was eventually signed in April, by Mr Bobeckyj on behalf of Meridian International on the 20th and by Mr Wickens on behalf of CHUK on the 24th. The following provisions are material:–

(1) The coversheet is dated November 2005 and the proposal is described as one to carry out work to be completed by 7 April 2006.

(2) The total cost was £200,000.

(3) There was to be Service Level Agreement fee of £20,000 payable in April for ongoing maintenance and support. It was to be subject to a separate contract. Above this section of the Contract appear the words "To be discussed" initialled by the signatories.

(4) Meridian warranted that:

it has all the rights necessary to perform its obligations under this agreement and that no third party has or is entitled to claim any intellectual property right or interest in any of the software licensed by Meridian hereunder

(5) Against the side-note Intellectual Property Rights:

Meridian represents and warrants to GSK that any software licensed or designed by, or on behalf of, Meridian hereunder, and its use for the purposes set out in any project documentation, has been designed on behalf of GSK. However, all software designed by, or on behalf of Meridian, remains the intellectual property of Meridian International Services ltd and may not be used, other than in areas agreed to contractually by Meridian, without the consent of Meridian International Services ltd.

In connection with the above, GSK agrees that:

(1) GSK shall adhere to the terms of the IPR stated above.

(2) GSK shall not make any admission as to liability or agree to any settlement of or compromise any IPR Claim without the prior written consent of Meridian; and will not enter into separate third party discussions related to IPR and software development to the detriment of Meridian International Services ltd

(bold in original)

(6) GSK undertook not to manipulate, change or use without permission Meridian assets nor to recruit or retain Meridian staff or contractors without express written consent.

47. In September Mr Bobeckyj had a closeout meeting with CHUK at which he was asked to provide a draft SLA and Mr Richardson provided a draft StratX Service Licence and Support Agreement in which Meridian International said that it licensed the StratX software to CHUK from April 2006 to April 2007.
48. The origins of the current litigation begin on in late 2006. Mr Richardson describes pressing Mr Bobeckyj for the transfer of the support contract with CHUK. Eventually, in December he told Mr Wickens that he had set up his own business and proposed dealing with CHUK directly. Angry exchanges followed until on 28 February 2007 Meridian International wrote to Mr Richardson terminating the sub-contract to provide services to GSK, requiring delivery up of the StratX files, software and code and requiring return of personal computers, servers, phones and software provided for use on Meridian's projects.
49. Proceedings followed three weeks later, with an application for an interim injunction which was dealt with by the Court accepting undertakings from the Defendants.
50. Meanwhile, on 8 March 2007 Mr Aldersley agreed to assign in writing his legal interest in the intellectual property in the StratX product to IP Enterprises, and on 13 March he duly did so. On the other side, Meridian International bought the intellectual property of Meridian Associates from its liquidator.

The terms of the January agreement

51. I must now consider whether I accept Meridian International's version of the January meeting, and for this purpose I will start with my general assessment of the three witnesses present at that meeting in the order in which they gave evidence.
52. I consider that for the most part Mr Keating was doing his best to assist the Court. But much of his evidence was based on his and Mr Bobeckyj's joint "understanding" rather than his own recollection, and he seemed ready to toe the claimant's line. For example, he was prepared in cross-examination to describe as a lie something he himself had written. I do not regard Mr Keating's evidence as reliable.
53. Still less do I regard the evidence of Mr Bobeckyj as reliable: –

(1) As Mr Davis said in his closing speech, Mr Bobeckyj came across like a salesman with an answer for everything. Whether he was, as Mr Davis invited me to say, making his evidence up as he went along, I need not decide. He may well have convinced himself of the truth of some of it.

(2) Mr Bobeckyj's behaviour in "phoenixing" Meridian Associates into Meridian International showed a willingness to behave wrongfully to further his own interests.

(3) So too did his evidence in support of Meridian's application for an interlocutory injunction in this claim. That evidence was exaggerated to the point of dishonesty in respect of both the need for an injunction and the assets of Meridian available to back its cross-undertaking in damages. Thus, one may contrast Mr Bobeckyj's evidence on the application for an interlocutory injunction of opportunities that needed to be taken forward right away or be lost for ever, with his evidence to me that he was unwilling to go ahead with those opportunities until the proceedings were resolved. And the evidence given on the defendants' security for costs applications showed that Mr Bobeckyj had overstated the assets of Meridian International's assets on the injunction application.

(4) Mr Bobeckyj's evidence before me was similarly dishonest. For instance, his evidence that he did not become a director of the new company through apathy was palpably a lie. Other instances could be given.

(5) In my judgment, much of Mr Bobeckyj's evidence was untrue and dishonest. I do not accept that evidence on anything controversial unless corroborated by something beyond Mr Keating's evidence.

54. Mr Richardson was occasionally evasive in his evidence, and both he and Mr Aldersley went along with the phoenixing, though they knew it was wrong. Moreover, he appears to have been the originator of the .Net lie that was told to CHUK to explain away delay in Project Vista. In my view, that was more than a white lie, but I do not attach to it the significance that Mr St Ville invited me to. There are other respects in which Mr Richardson's evidence is open to criticism. But on the whole, I found Mr Richardson to be a truthful witness.
55. The fact that I consider Mr Richardson a more reliable witness than Mr Bobeckyj and Mr Keating does not necessarily mean that I must accept his evidence of the crucial discussion and the terms of the January agreement, and in any event it does not necessarily matter whether I accept his account of the meeting. What matters is whether I accept the evidence of Mr Bobeckyj and Mr Keating.
56. I am unable to do so for the following reasons: –

(1) For the reasons already given, I thought their evidence unreliable.

(2) They gave more than one version of the critical discussion. Mr Davis helpfully set this out in a table, which is appended to this judgment. The inconsistencies in their accounts further reduce the weight to be attached to their evidence.

(3) The opposite conclusion would be inconsistent with the discussions between Mr Richardson and Mr Aldersley both before and after the January meeting – see [30] and [42] above.

(4) The terms of the email (quoted at [40] above) that Mr Richardson sent summarising what had been agreed can only be reconciled with Meridian International's case by saying that it was not a comprehensive summary. But it is most unlikely that such an important term would have been left out, and despite the request to Mr Bobeckyj to let Mr Richardson know if he did not agree with the summary he said nothing. This is inconsistent with the importance that Mr Bobeckyj and Mr Keating now say that they attached to having the intellectual property rights in StratX. I was unconvinced by the explanations they give for not going back to Mr Richardson on this – that they were walking on eggshells in dealing with him. At the end of the January meeting there was a consensus, and if the email did not accurately reflect what had been agreed there was no reason not to say so.

57. It follows that in my judgment Meridian International has not established its claim based on an express term of the January agreement.

Implied term

58. I turn therefore to consider whether a term is to be implied.
59. In Robin Ray v Classic FM plc [1998] EWHC Patents 333 [45] & ff Lightman J gave what Jacob LJ has described as a masterful summary of the general principles governing the rights of a person ('the contractor') who has brought into existence a copyright pursuant to a contract for services with another ('the client'):–

"(1) the contractor is entitled to retain the copyright in default of some express or implied term to the contrary effect;

(2) the contract itself may expressly provide who shall be entitled to the copyright in work produced pursuant to the contract …

(3) the mere fact that the contractor has been commissioned is insufficient to entitle the client to the copyright … In all other cases the client has to establish the entitlement under some express or implied term of the contract;

(4) the law governing the implication of terms in a contract has been firmly established (if not earlier) by the decision of the House of Lords in Liverpool City Council v Irwin ('Liverpool'). In the words of Lord Bingham MR in Philips Electronique v BSB, the essence of much learning on implied terms is distilled in the speech of Lord Simon of Glaisdale on behalf of the majority of the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v The President, Councillors and Ratepayers of the Shire of Hastings:

… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.'

Lord Bingham added an explanation and warning:

'The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power...

The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong.'

(5) where (as in the present case) it is necessary to imply the grant of some right to fill a lacuna in the contract and the question arises how this lacuna is to be filled, guidance is again to be found in Liverpool. The principle is clearly stated that in deciding which of various alternatives should constitute the contents of the term to be implied, the choice must be that which does not exceed what is necessary in the circumstances. In short a minimalist approach is called for. An implication may only be made if this is necessary, and then only of what is necessary and no more;

(6) accordingly if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only;

(7) circumstances may exist when the necessity for an assignment of copyright may be established … these circumstances are, however, only likely to arise if the client needs in addition to the right to use the copyright works the right to exclude the contractor from using the work and the ability to enforce the copyright against third parties. Examples of when this situation may arise include: (a) where the purpose in commissioning the work is for the client to multiply and sell copies on the market for which the work was created free from the sale of copies in competition with the client by the contractor or third parties; (b) where the contractor creates a work which is derivative from a pre-existing work of the client, e.g. when a draughtsman is engaged to turn designs of an article in sketch form by the client into formal manufacturing drawings, and the draughtsman could not use the drawings himself without infringing the underlying rights of the client; (c) where the contractor is engaged as part of a team with employees of the client to produce a composite or joint work and he is unable, or cannot have been intended to be able, to exploit for his own benefit the joint work or indeed any distinct contribution of his own created in the course of his engagement … In each case it is necessary to consider the price paid, the impact on the contractor of assignment of copyright and whether it can sensibly have been intended that the contractor should retain any copyright as a separate item of property;

(8) if necessity requires only the grant of a licence, the ambit of the licence must be the minimum which is required to secure to the client the entitlement which the parties to contract must have intended to confer upon him. The amount of the purchase price which the client under the contract has obliged himself to pay may be relevant to the ambit of the licence …

'it seems to me that the principle involved is this; that the engagement for reward of a person to produce material of a nature which is capable of being the subject of copyright implies a permission, or consent, or licence in the person giving the engagement to use the material in the manner and for the purpose in which and for which it was contemplated between the parties that it would be used at the time of the engagement.'

(9) the licence accordingly is to be limited to what is in the joint contemplation of the parties at the date of the contract, and does not extend to enable the client to take advantage of a new unexpected profitable opportunity …"

(Citations omitted.)

60. The present case is more complicated than the simple case of client and contractor. Here the original commission came from CHUK to Meridian International (or, as CHUK supposed, Meridian Associates), which then reached an arrangement with IP Enterprises (whose role was not disclosed to CHUK), which in turn engaged Mr Aldersley, as an independent contractor, to do the actual work of writing the source code and was the author of it. But the principles are in my judgment the same. An implication may only be made if it is necessary, and then only of what is necessary and no more. The test is, as has been said elsewhere, one of strict necessity.
61. Mr St Ville relied on the following matters as making the alleged implication necessary:–

(1) The terms of the Project Vista contract which provided for:–

(a) Meridian International to retain the ownership of the copyright;

(b) a warranty;

(c) licence.

(2) It was necessary to be able to stop GSK using StratX outside CHUK.

(3) Without ownership of the copyright, Meridian International's strategy of reselling the software to other customers would not have been possible.

(4) There was a specific commercial need to stop IP Enterprises from going off to other customers, particularly when it was understood that the whole project was a loss leader for Meridian International, which would have derived no commercial benefit from the contract unless it owned the copyright.

(5) The price paid by Meridian International to IP Enterprises was high, as the planned budget for paying Mr Richardson and Mr Aldersley to produce the software was significantly lower than the amounts handed over to IP Enterprises, and this made it a loss leader.

(6) The software incorporated confidential information that was part of the business brief.

62. The implication of terms is part of the process of interpretation of contracts, and even when dealing with an oral as opposed to a written contract, it is necessary to consider the matter in the light of the background. The subjective intentions of the parties are not relevant, and the matter must be judged objectively. Moreover, subsequent events and discussions are not material.
63. In relation to the first matter upon which Mr St Ville relies, the background relied upon consists of the terms of the Project Vista contract. However it was not signed until over three months later. A draft was in existence but has not been produced. There is no evidence as to its terms except the testimony of Mr Bobeckyj and Mr Keating that it was in the same terms as the contract ultimately signed. But for the reasons I have already given, I am not willing to accept that uncorroborated evidence. Nor do I accept the contention that the terms of the draft contract were accepted by conduct; no conduct referable to the draft was pleaded or proved. The most that can be said therefore was that there was a draft contract in existence.
64. In my judgment, the existence of a draft contract the terms of which are not known but which were still open to negotiation is an insufficient basis for the implication of a term. No contract having been entered into, it would have possible to adapt the terms of the contract to the January agreement and it was not necessary to imply a term in order to make the January agreement workable. The contract with GSK could have been adapted to bring it into line with the January agreement. Nor in my judgment was it so obvious as to go without saying that a term should be implied.
65. I would add two things:–

(1) The Project Vista contract does not in fact contain any express licence.

(2) The most relevant part of the contract is set out at [46(5)] above. It is striking in two respects:–

(a) it is only part of the contract that is emboldened; and

(b) it is the only part of the contract that refers to "Meridian International Services ltd [sic]".

I think it is likely that this was a late addition to the contract, and it may well have been added in or after Mr Richardson decided to go to work for GSK in March 2006. However, this point was not explored in cross-examination and I do not rest my judgment upon it.

66. Next, Mr St Ville argues that an implied term was necessary for Meridian International to be able to stop GSK using StratX outside CHUK. One answer to that is that, terms not having been agreed with GSK, it could have been dealt with by contract. More fundamentally, this argument appears to beg the question. An implication can only be necessary on this basis if one presupposes what has to be decided – that Meridian International was to be beneficially entitled to the copyright that statute gave in the first instance to Mr Aldersley.
67. Mr St Ville's third point is that without ownership of the copyright, Meridian International's strategy of reselling the software to other customers would not have been possible. I am not satisfied that there was any such strategy. This was bespoke software. It could only be resold to other customers in the unlikely eventuality that there processes were identical to CHUK, and I accept the evidence that it would have been as easy to start from scratch to produce similar software for a different customer. At most there was, in my judgment, an aspiration on the part of Mr Bobeckyj to be able to sell to other customers. In any event, I cannot see how this makes it necessary to make the contract workable or so obvious as to go without saying.
68. This whole argument looks at the matter entirely from the point of view of Meridian International, and not from that of the other parties to the January agreement. They were Mr Richardson, Mr Aldersley and IP Enterprises. In my judgment, there was no necessity from the point of view of any them for Meridian International to be able to stop IP Enterprises going off to other customers. In particular, that was not necessary from the point of view of Mr Aldersley, the first owner of the copyright in question. In the ordinary case of a two-sided contract the courts only imply a term on the grounds that it is obvious that both parties must have intended it, so obvious indeed that if an officious bystander had asked them whether there was to be such a term, both would have suppressed it testily: "Yes, of course". Here there was a multi-lateral agreement, and while one can imagine that response from Meridian International, it is difficult to see why Mr Richardson on behalf of himself, Mr Aldersley and IP Enterprises should have responded to the officious bystander in that way.
69. Fourthly, Mr St Ville says that there was a specific commercial need to stop IP Enterprises from going off to other customers, particularly when it was understood that the whole project was a loss leader for Meridian International, which would have derived no commercial benefit from the contract unless it owned the copyright. Again this argument is in my judgment flawed because it looks at the matter exclusively from the point of view of Meridian International.
70. The suggestion that the whole project was a loss leader, also features in Mr St Ville's fifth point, that the price paid by Meridian International to IP Enterprises was high, as the planned budget for paying Mr Richardson and Mr Aldersley to produce the software was significantly lower than the amounts handed over to IP Enterprises, and this made it a loss leader. That the price paid can be a relevant factor is clear from the last sentence of principle (7) in the Robin Ray case, where Lightman J mentions it as one of the factors to be taken into account in considering whether "it can sensibly have been intended that the contractor should retain any copyright as a separate item of property". But the commercial context of the present case was unusual. Meridian International had embarked on the StratX project and, following the breakdown of relations in December, was not in a position to able to deliver. The connection with GSK was an important one for Mr Bobeckyj, which would have been prejudiced if it could not complete the project. In other words, Meridian International was over a barrel. It was desperate for cash, and the prospects of receiving payment from CHUK or further work from GSK can hardly have been good if it had had to admit that it could not complete Project Vista. To consider whether the project was a loss leader is really beside the point against that commercial background. As Mr Bobeckyj said in one of his witness statements, all he really wanted was to complete the project successfully.
71. Finally, Mr St Ville says that the software incorporated confidential information that was part of the business brief. I am not satisfied that this was the case, but even if were, that does not in my judgment lead to the conclusion that there was an implied term as to ownership of the copyright. To the extent that the software embodies confidential information the use of that information can be restrained on the basis of breach of confidence. It is unnecessary to make any implication about copyright.
72. Accordingly, Meridian International has not in my judgment established its claim based on an implied term of the January agreement

Return of equipment

73. This is very much a side issue, and during the trial I expressed sympathy with Mr Davis's description of it as trivial. After some discussion, Mr St Ville told me that he was not asking me to grant any separate relief in respect of it, though he formally reserved his position until judgment was handed down.
74. I therefore say no more about this issue now.

The counterclaim

75. As a fall back position the Defendants argued that the contract between Meridian and CHUK gave CHUK a full licence to use StratX as it pleases, enabling it to get third parties (such as the defendants) to perform both (1) service and maintenance and (2) augmentation and development of StratX. Hence insofar as the defendants assist CHUK to maintain and develop StratX, they cannot be infringing any copyright that the Court finds is vested in Meridian International. In this connection, they note that the potential dealings with CHUK are the only allegations of infringement relied upon and, in fact, all the defendants want to do since StratX is a bespoke program and not suitable for sale to third parties.
76. On its face, the Project Vista contract actually says nothing about a user licence. But, say the defendants, CHUK clearly has permission to use the StratX for otherwise the entire contract would be ineffective. There must be an implied term that CHUK could use the software (otherwise the contract would lack business efficacy) However, there is no reason why there ought to be implied into that term any sort of restriction on use. Such an implication goes beyond the minimum necessary to give business efficacy to the contract as required by Robin Ray.
77. In the light of the conclusions I have reached, it is unnecessary for me to decide this. But I would have rejected it on the ground that what is to be implied is the licence, rather than a restriction on the licence, and the implied licence suggested goes beyond what is necessary.

Result

78. In the result I will declare that IP Enterprises is the legal and equitable owner of all copyright in StratX, and I invite counsel to agree the terms of a minute of order embodying such a declaration and such ancillary relief as may be appropriate. If that cannot be agreed, I will hear counsel on the terms of the order.


 


The 9 January 2006 Meeting – the changing stories of Keating & Bobeckyj

Keating	Keating	Keating	Keating
Story 1: 1st witness statement	Story 2: 2nd witness statement	Story 3: Examination in Chief	Story 4: Cross examination
"I was very clear to emphasise to Ian and Peter [?] that they would deliver up all of the code necessary for the StratX [?] project on completion…" [NK 1st ¶24] "I was very firm in stating that we would not relinquish any rights on our new [?] technology including GSK CHUK. … I remember making the point explicitly…" [NK 1st ¶26] [NB: The former paragraph is so carefully considered he cannot even get right who was present at the meeting. The latter paragraph only relates to 'relinquishing' rights not ownership of rights]	"As I said in my earlier statement once matters at the meeting had been resolved … I asked him outright, are you prepared to give up these things on completion of the StratX project [?]. He said I'll give you the software on completion. I am absolutely clear about this. [NB: No mention of 'rights']	[of CEE] "Therefore I wanted it to be clear that they were going to return everything that belonged to Meridian that was the source code, the PCs, servers , telephones." [2/180/19-181/9] [NB: 1st mention of source code] [after discussion of subcontracting Vista] "I did make it clear. John confirmed it after I finished my sentence that again the rights in this software that was being written, the PCs, the phones, servers all belonged to Meridian, they are all assets of Meridian and that they should be returned" [NB: 1st mention of JB saying anything of the sort]	… The issue with words used, hang on, would have been "the source code", would have been the words that I used in terms of software. Q. You said "source code". You said, what, deliver up"? A. Probably "let us have". Q. "Let us have the software". A. The emphasize is the source code, OK. [NB: If the emphasises is the source code, why wasn't it mentioned in the 1st or 2nd stories] … As well as the PCs, laptops, servers. I also made it clear that Meridian owned the rights in this software. Q. What words did you use? A. "The rights". Q. "The rights". [NB: consistent with X, using the words "the rights"] A. I did use the word "rights". I also recollect that Mr. Bobeckyj confirmed that with (sic) IP. [NB: 1st indication that JB ever 'confirmed' using the words IP]

Bobeckyj	Bobeckyj	Bobeckyj
Story 1: 1st witness statement [B tab 3]	Story 3: Examination in Chief	Story 4 Cross examination
During that meeting Ian specifically agreed that Meridian International would get the source codes and program files of the software produced for use in GSK CHUK on completion of the project. [¶102] In return [for CEE], however, we [?] made clear that the new Project Vista, StratX technology [?] and the SC Johnson technology were Meridian International projects and belonged to us. … At this point Nigel said that this included all intellectual property rights and code. Nigel also said that all code developed by lan and Peter on behalf of Meridian International on these projects would belong to Meridian International and be handed over upon completion. Ian said "okay" and agreed to this. [¶105]	Mr. Keating said, "That does not mean we relinquish the rights; it remains ours", and I said, we also make clear that the SE Johnson work that had just been completed and the CHUK work currently under development were also ours, also belonged to Meridian. [3/325/14-18] … When Mr. Keating said basically, you can have -- "All right, you can have the money for the work but we are not relinquishing any rights to CEE products", and I said, "That applies also to the SE Johnson work just completed and the CHUK work currently under development". I said, "You know, the old and new technology all belongs to Meridian." [3/325/20-25] Q. Could you turn over the page on page 38 and can you read the sentence that begins "At this point Nigel". Could you just read that sentence through? A. OK, yes. Q. Is there anything that you would like to correct about that? A. I think that Nigel probably said actually this includes all rights and code, in fact. [3/326/10-16]	A. … Mr. Keating made clear that if we were going to go ahead with them that all the rights would belong to us. I said the IP would belong to us. Q. What did Mr. Keating say? A. He said, "At the end of the project, basically, it all belongs to us. We want everything in the project." I said, "That includes all the IP and code." [4/464/1-8] Q… I want to know what you said. A. I confirmed what Mr. Keating said that the IP and code would belong to us on the CHUK product. Q. So Mr. Keating said it and you said it? A. And I said it. Q. Mr. Keating used the word "IP and code" and you then said, "Yes, he means IP and code"? A. Yes, intellectual property rights and I said, "IP and code", yes. Q. Let me get this right. Mr. Richardson used the words "intellectual property rights". A. Mr. Keating. Q. Mr. Keating used the words "intellectual property rights". A. Yes. Q. Those are the exact words he used? A. I believe he actually said, "All the rights belong to us." I said, "That is the IP and code." [4/466/4-20] Q. Not a dickie-bird here that you ever said Mr. Keating means the IP rights? A. Mr. Keating said "intellectual property" and I agreed with him. I said, "That means the IP and code". Q. No. Let us get it absolutely clear what was said. Mr. Keating said "intellectual property rights". Agree or disagree? A. Yes. Q. OK. You said, "I agree with Mr. Keating". Correct or not correct? A. Correct. That is the IP and code. Q. No. I just want to find out exactly what you said. Did you say "I agree with him" or do you say, "That is the IP and code"? Which is it? A. That is right. Q. Which is it? A. The IP and code, yes. Q. You said, "That is the IP and code." A. Yes. Q. So Mr. Richardson uses the words "intellectual property". A. Mr. Keating. Q. Mr. Keating uses the words "intellectual property" and you feel it is necessary to abbreviate them in order to make it clear? A. I was just confirming what Mr. Keating had said. [4/467/7-468/9]