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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Magical Marking Ltd & Anor v Holly & Ors  EWHC (Ch) 2428 (16 October 2008)
Cite as:  EWHC (Ch) 2428
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Strand, London, WC2A 2LL
B e f o r e :
| Magical Marking Limited
Andrew Warden Phillis
|- and -
|Sean Patrick Holly
Education & Special Projects Limited
NextGen Technical Services Limited
Mr Jonathan D C Turner and Miss Marianne Perkins (instructed by Taylors Solicitors) for the Third and Seventh Defendants
Hearing dates: 7,8,10,11,14-18th July 2008
Crown Copyright ©
Mr Justice Norris :
(a) that Magical owned the copyright that subsisted in each of the designs created for painting onto playgrounds:
(b) that Magical owned the copyright that subsisted in the instruction sheets for the preparation and installation of the playground designs and the production of the furniture:
(c) that Magical owned the copyright that subsisted in the training and assessment material used in relation to Magical's staff:
(d) that Magical owned the copyright that subsisted in the pricing models and progress charts used in the course of Magical's business:
(e) that Magical owned the copyright in all of the business documents generated in the course of Magical's business (in particular marketing materials, customer contracts and correspondence, and customer enquiries):
(f) that Magical owned the goodwill in the name "Magical Marking" when used in connection with playground designs and playground furniture:
(g) that Magical is the owner of the database rights subsisting in the ACT database (containing 7000 customers) residing on its server and networked computers, the data residing in the detailed order book spreadsheet and associated response spreadsheets and in the spreadsheets containing the pricing models:
(h) that Magical is the owner of confidential information relating to the business and customers of Magical contained in the various databases maintained on Magical's computer system.
(For the sake of clarity I should make plain that my finding and holdings, although expressed by reference to the various proprietary rights in the identified categories of documents, in fact relate to each proprietary right in each of the closely specified and listed documents set out in the sundry schedules to the lengthy Re-amended Particulars of Claim. I have summarised the position in the interests of brevity).
(a) Mr Holly's primary role as Director was to provide business development consultancy services, that is to say, financial and business advice to Mrs Phillis as effective proprietor of the business. He did not directly undertake daily management tasks relevant to Magical's business save in relation to financial matters (where he took a lead in co-ordinating the financial record keeping, analysing the management accounts, liaising with the accountants, and explaining the financial position to Mrs Phillis). She did not, however, delegate to him financial decision making which, as one might expect in a relatively small company, continued to be the joint responsibility of Mrs Phillis (as Director and 75% shareholder) and Mr Holly (as the other Director and 25% shareholder). It was, for example, Mrs Phillis who selected the company accountants and auditors. The rare occasions when Mr Holly acted without Mrs Phillis' prior approval (e.g. in repaying certain loans to Andrew Phillis) stand out as exceptions.
(b) His role as company secretary appears to have been a purely formal one. The evidence did not establish that any particular executive authority was attached to the role. Perhaps the most significant was that as Director and company secretary Mr Holly chaired and set the agenda for management meetings of Magical, which at times could last all day:
(c) The fact that Mr Holly's role was broadly strategic and consultative does not diminish its importance to Magical's business. Mrs Phillis was very ready to acknowledge that Mr Holly had made a major contribution to Magical's business and gave no sign of regret at having given Mr Holly a 25% shareholding. Indeed, when the split between Mr Holly and herself came she described herself as devastated by it and sought to re-establish a working relationship with him and to bring him back into the business:
(d) Although Mr Holly's primary focus was on the financial and business side of Magical's affairs, he was also involved in other areas including staff recruitment and training (particularly sales staff), the setting of staff budgets, variation of employee remuneration and bonus schemes, and obtaining advice from human resources consultants. The evidence however falls short of establishing that he discharged these functions alone. The occasions when he did so appear to have been notable and to have stood out (for example in relation to his adjustment of Mr Hargreaves's bonus scheme).
(e) So far as information technology is concerned, Mr Holly had limited experience to offer and no definite role to play. One of the first pieces of advice which Mr Holly tendered when he became involved in Magical was that Mrs Phillis should purchase the ACT database (a programme used by one of Mr Holly's other businesses) and to transfer the paper based customer records onto computer. Mrs Phillis again accepted this recommendation and decided to purchase the database. In cross examination Mrs Phillis said that "possibly" Mr Holly had ordered it. If he did so it was because Mrs Phillis made the purchase decision. By October 2002 Magical had identified one employee (Mr Scarfe) as having the primary IT responsibility within Magical: and the computer network then operating had been selected and installed by Andrew Phillis.
(f) So far as dealings with third parties are concerned Mr Holly was undoubtedly known as a Director of Magical, he attended meetings with Mrs Phillis as such, and he would represent Magical in negotiations. He was involved in the commissioning of architects to prepare alterations to the company's premises, and with the obtaining and consideration of quotations for the relevant work: but the evidence is clear that the ultimate decisions were taken jointly by Mrs Phillis and Mr Holly. The evidence does not establish that Mr Holly ever exercised any sole authority to commit Magical to any contract for the provision of consultancy or other services or for the supply of materials. The clear picture that emerges from the evidence is that Mr Holly would make recommendations, they would be considered by Mrs Phillis and Mr Holly together and a decision taken, which decision was then implemented using whatever contacts Mrs Phillis or Mr Holly had.
(g) In reaching this conclusion I have not overlooked the evidence of Mark Booth (one of Magical's witnesses) that Mr Holly seemed to be responsible for the sales and business side of the business, and that Mr Holly would attend Magical's premises once or twice a week and explain what he wanted to happen and how he wanted it to happen. In the context of the evidence as a whole this evidence does not provide a sure foundation for the proposition that Mr Holly exercised extensive unilateral authority.
"I have also spoken to the staff and let them know that at this moment you are still a director and a shareholder but you wish to have a non-operational role at this time within Magical Marking."
I find that that correctly reflects Mr Holly's then current role and encapsulates what Magical was saying about it to staff and third parties.
"Following the disruptive nature of your visit to the offices yesterday I must insist that you do not make any further visits to the site without my prior approval."
But the terms of the letter made clear that Mr Holly would be invited to a directors' meeting. However, Mr Holly appears to have made another visit to Magical's premises at a time when he knew Mrs Phillis was not there and to have sought information from the staff in such a way that Mrs Phillis felt that he was not working in unison with herself or other members of the management team. On 14 January 2003 she therefore confirmed Mr Holly's "immediate exclusion from the company premises [because] your presence is not in the best interests of the company", and she gave notice of an extraordinary meeting of the company to be held at noon on 13 February 2003 in York (about 45 minutes drive from Magical's premises). The purpose of the EGM was to remove Mr Holly as a director and as secretary of Magical and to appoint Andrew and Mark as directors in his place. The covering letter made clear that Mr Holly had a right to be heard on the resolution and to make representations, and it invited their receipt by 24 January.
(a) Andrew: he remains much involved in the affairs of Magical and has taken an active part in this litigation. I judged him to be a straight forward witness, but one whose evidence needed to be approached with care precisely because of his continued involvement, and because of the speed with which events occurred and the number of occasions that he has subsequently been called upon to recollect them. I have sought to be alert to the distinction between recollection and reconstruction in relation to his evidence.
(b) Mark: I regarded him as an unflinchingly honest witness. He parted company with Magical in 2004 and has no reason favourably to colour his recollection. He was confronted by Mr Turner (Counsel for Mr Canavan and NextGen) with a passage in Andrew's evidence in which Andrew expressed the opinion that Mark had been faced with a challenge of standing up to his mentor, Mr Holly, but had singularly failed to demonstrate leadership qualities. Mark could easily have sought to justify his conduct that day: but with total honesty he told me that there are defining moments in our lives, that he was put in a position which called for action and with hindsight wished he had taken action, but he froze, and that credit should be given to Andrew for facing up to the appalling situation, when he did not. He was an impressive witness.
(c) Nigel Scarfe: he had joined Magical in April 2002 but parted company in May 2007. At the date of his witness statement (5 February 2008) he had no apparent reason to view Magical favourably and I regarded him as a reliable and independent witness. He had been in charge of IT at Magical, and I was alert to the possibility that his evidence might be coloured by a desire to demonstrate that he had done a professionally competent job of protecting Magical's computer network. He had made a note immediately after the events in question, though it was not available to him when he made his statement.
(d) Paul Hargreaves: he was the former production manager of Magical, but is no longer so employed. I regarded him as a reliable witness. He had been invited to make a note of events immediately after 13 February, though he had not consulted this note in the preparation of his witness statement. The two were largely consistent, although the witness statement was of course much fuller, since subsequent events enabled one to see what of the extraordinary events of 13 February was truly significant.
(e) The witness statements of Jean Murphy and of Simon Mountain were not challenged.
"It follows that [Magical] cannot complain of acts carried out by [Mr Canavan] in accordance with [Mr Holly's] instructions and within his actual or ostensible authority as a Director of [Magical]. And furthermore…[Mr Canavan] is not liable for carrying out such instructions, even if [Mr Holly] had an ulterior motive, an ulterior illicit motive, unless [Mr Canavan] was aware of the motive so that the instructions were outside [ Mr Holly's] ostensible authority."
That, in a nutshell, is the issue before me at trial.
(a) Mr Canavan's expert commented on the quality of Magical's server and said that it demonstrated the value which Magical placed on its information. A company which values its information is unlikely to omit taking the simple step of applying password protection in some measure.
(b) Andrew had installed Magical's computer system. He told me that when he did so he applied password protection. He fairly said that he could not be sure that it had subsequently been removed: but I can think of no circumstances which would make it probable that the protection was disapplied.
(c) Mr Scarfe told me that the system was password protected and that Mr Canavan repeatedly demanded that the passwords be given to him. It is telling that this is recorded in Mr Scarfe's near contemporaneous note, made at a time when no-one knew what Mr Canavan had actually done to the system and well before anyone could anticipate what the significance of system password protection might be.
(d) Mr Hargreaves says that he could see Mr Scarfe becoming very agitated and that he advised him firmly to disclose the passwords because of the threats of violence. Mr Hargreaves says he believes Mr Scarfe did provide the passwords (though he is not sure): Mr Scarfe says he did not provide the passwords. Mr Hargreaves' evidence was convincing and survived cross examination. I consider it likely that there were passwords which protected some (if not all) of the functions and files.
(e) Mr Wood (a witness who was not called by either side) had given Mr Holly a witness statement to the effect that passwords had been inserted on the work stations with a view to denying Mr Holly access to them: this evidence was adopted on behalf of Mr Canavan and put to Magical's witnesses (in support of a case that Mr Holly was being wrongly excluded from the business). The evidence so introduced confirms that passwords were installed on part of the system, and I can see no reasonable grounds for thinking that they were installed on the work stations but not on the server.
"1.00 Feb activities unit price £652.50."
Mr Fernando (Counsel for Magical) suggested to Mr Canavan that this was his fee for the February "raid", drawing attention to the lack of any specific description, or to any spreadsheet or to any timesheet (this being a period after Mr Canavan had acquired time recording software). Mr Canavan denied this saying that it was simply for general activities at Quest (which at his usual unit rate would have amounted to fourteen and a half hours work). He said that this was for installing a new computer network. I find that this is an invoice rendered to Quest for the work Mr Canavan undertook on Magical's computer system on 13 February and possibly subsequent work. It did not relate to the installation of a computer network at Quest. I have already drawn attention to the invoice of 10 February 2003 for just such work. There was a further invoice for the installation of three computers rendered on 31 March 2003 (again charging £90 for the installation of the first and £45 each for the installation of subsequent machines). So this invoice does not relate to that work. Mr Canavan has disclosed details of no other work undertaken at Quest such as would justify this charge. His explanation that it is for an accumulation of minor jobs is undermined both by the absence of a supporting spreadsheet or timesheet, and by the form of the invoice as apparently charging for a single item of work for a fee of £652.50.
"Where there is suspicion and lack of cooperation, a director is all the more entitled, perhaps even obliged, to inspect company accounts to protect the interests of the company and its shareholders. The right is not only to be exercised or the duty imposed where there is harmony within the company".
Mr Turner therefore argued that the dispute between Mrs Phillis and Mr Holly imposed on Mr Holly the obligation to protect the interests of the company and its shareholders and the authority to do whatever he thought fit in performance of those duties (including the authority to instruct Mr Canavan to protect Magical's computer system and the integrity of its data).
"A company secretary is a much more important person nowadays…he is an officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role which he plays in the day to day business of companies….He regularly makes representations on behalf of the company and enters into contracts on its behalf which come within the day to day running of the company's business. So much so that he may be regarded as held out as having authority to do such things on behalf of the company."
Mr Holly was indeed company secretary. But he never purported to act as such in relation to the raid and Mr Canavan gave no evidence that he was ever told that Mr Holly was Magical's company secretary. The evidence simply did not disclose that in relation to Magical the company secretary exercised any executive authority or in his capacity as such had any authority to enter contracts. I hold that Mr Holly did not, as company secretary, have actual authority to engage Mr Canavan either to "protect" Magical's IT system (or make it "secure") in whatever way Mr Canavan chose: nor did he have actual authority as company secretary to engage Mr Canavan to make a complete electronic record of Magical's designs and business documents and to deliver it to him. Moreover, because of my finding that Mr Holly was not acting bona fide in the interests of the company, any actual authority he had as company secretary was not being exercised.
(a) That a representation that Mr Holly had authority to enter on behalf of Magical into a contract of the kind entered into by Mr Canavan was made to Mr Canavan;
(b) That the representation was made by a person or persons who had actual authority to manage the business (either generally or in respect of IT matters);
(c) That Mr Canavan was induced by Mr Holly's representations of authority to enter into the contract and so relied on the representations;
(d) That under its constitution Magical was not disabled from or prevented from entering into a contract of the type entered into by Mr Canavan.
It might be thought that, under this formulation, the representation about the scope of the agent's authority would have to be made by someone other than the purported agent. But this is not so. In Hely-Hutchinson v Brayhead  1 QB 549 at 593 Lord Pearson identified "an awkward question…as to how the representation which creates the ostensible authority is made by the principal to the outside contractor". He addressed the question in this way:-
"…there is not usually any direct communication in such cases between the Board of Directors and the outside contractor. The actual communication is made immediately and directly…by the agent to the outside contractor. It is therefore necessary in order to make a case of ostensible authority to show in some way that such communication which is made directly by the agent is made ultimately by the responsible parties, the Board of Directors. That may be shown by inference from the conduct of the Board of Directors in a particular case by, for instance, placing the agent in a position where he can hold himself out as their agent and acquiescing in his activities, so that it can be said they have in effect caused the representation to be made. They are responsible for it and, in the contemplation of law, they are to be taken to have made the representation to the outside contractor."
" Selling materials for the purpose of infringing a patent to the man who is going to infringe it, even although the party who sells it know that he is going to infringe it and indemnifies him, does not by itself make the person who so sells an infringer. He must be a party with the man who so infringes, and actually infringe"
i) Between February 2003 and early June 2003 Mr Holly made a large number of unwanted and intimidating calls to Andrew (established by the "Caller ID" facility on Andrew's phone) in the course of which he used foul and abusive language and accused Andrew of "killing" his mother;
ii) At 2 p.m. on 4 June 2003 Mr Holly made a telephone call which was recorded by Andrew in the course of which Mr Holly said :-" You are a liar, you're a cheat and I'm going to spend the rest of my working life getting even with you…… I will spend every penny that I have, every moment of the rest of my working life finishing you man. Finishing you. You watch me mate. You will be taking some calls very shortly from people who want explanations from you as to why the company you're involved in has got a winding up petition against it".
iii) Following this Mr Holly received a police warning. The immediate consequence was a threatening telephone call from one of Mr Holly's "thugs" to Andrew announcing that he was coming "to sort you out and make sure this is finished", in the course of which call a large 4 x 4 entered and did a spin turn in the drive of Andrew's house, the call then concluding with the words "You do not know who you are messing with. Sean [Holly] is the man".
iv) In early July Andrew went fishing alone at a remote pond. As soon as he sat down the same "thug" made a telephone call and said"Like a bit of fishing do you? Good time to be on your own. We thought we would just let you know we are around."
v) On 16 July 2003 Mr Holly telephoned Andrew indicating that he wanted settlement of his claim to a shareholding and warning Andrew that "the boys from Manchester would be in touch".
These are serious acts of harassment. I hold that a breach of the 1997 Act is established for which Andrew is entitled the damages. I adjourn the assessment of the damages to the enquiry which is to proceed in relation to the other heads of claim.
Mr Justice Norris……………………………………………………...16 October 2008