On 4 June 2008, the English Court of Appeal upheld a ruling of Deputy Judge Robert Ham QC in Meridian International Services Ltd v Richardson [2008] EWCA Civ 609 that it was neither necessary nor obvious to imply into an oral agreement a term that the copyright in computer software for a financial forecasting system belonged to the Claimant. The Court dismissed all of the Claimant’s arguments on appeal, including the submission that the “necessity” sufficient to justify the implication of such a term does not have to be mutual.

BACKGROUND

In September 2005, Meridian Associates Ltd produced a paper for the Consumer Healthcare UK division (CHUK) of GlaxoSmithKline (GSK) setting out various proposals for the introduction of an integrated financial forecasting system called Project Vista. In October 2005, Meridian Associates went into creditors’ voluntary winding up and the promotion of Project Vista was continued by Meridian International Ltd, which was incorporated on 1 September 2005. Project Vista led to the creation of computer software called StratX for which the source code was written by the third Defendant, Mr Aldersley, after 9 January 2006. The Project Vis ta contract was executed by Meridian International and CHUK in April 2006.

On 9 January 2006, a meeting was held at which an oral agreement was made, according to which the second Defendant, IP Enterprises Ltd (a company incorporated on 12 October 2005 by the first Defendant, Mr Richardson) and Mr Aldersley, would complete the outstanding work on Project Vista and StratX. At the meeting, Mr Bobeckyj, the founder and principal shareholder in both Meridian Associates and Meridian International, assured Mr Richardson and Mr Aldersley, to whom substantial sums were due by way of salary and expenses, that they would be paid. When no further payments were forthcoming, both men refused to do any further work for Meridian.

Meridian issued proceedings claiming that it was an express or implied term of the January agreement that the copyright in StratX should be assigned to it. At first instance, the deputy judge rejected the claim.

Meridian’s case on appeal was that the deputy judge had been wrong to find that no such term had been implied by the January agreement since such an implication was in fact “necessary for its business efficacy and/or so obvious as to go without saying”. According to Meridian, the deputy judge had erred in several respects. First, by failing to appreciate that there had in fact been a concluded contract between Meridian and CHUK at the time of the January 2006 meeting. Secondly, in holding that the necessity sufficient to justify the implication of a term had to be looked at from the point of view of the Defendants as well as Meridian. Thirdly, by failing to ascertain the express terms of the January agreement and to consider the question of necessity from the cumulative effect of all the factors relied on by Meridian on those exp ress terms.

COURT OF APPEAL

Sir Andrew Morritt and Lord Justices Rix and Rimer dismissed the appeal. It was held that on the evidence, the judge had been entitled to find that at the time of the January agreement no contract between Meridian and CHUK had been entered into. There was no further evidence, as Meridian now argued, to the contrary. Essentially, whilst Meridian had gone on to sign a contract with CHUK in April 2006 warranting that it was the owner of all the relevant IP rights in StratX, at the time of the January 2006 agreement that contract was still in draft form. There was, therefore, no basis upon which to interfere with the judge’s finding that the existence of a draft contract, the terms of which were not known but which were still open to discussion, was an insufficient basis for the implication of a term. The Court was not convinced that there was evidence that CHUK had by conduct already accepted the terms of the April 2006 contract or that the defendants had prior knowledge to this effect. Nor was it so obvious as to go without saying that a term should be implied.

The Court also considered that the judge had not erred in law by rejecting Meridian’s argument that their ownership of the copyright was implied on the basis that without it their strategy of reselling the software to other customers would not be possible. According to Meridian, the judge had been wrong to dismiss the argument on the basis that it looked at the matter entirely from the point of view of Meridian and not from the other parties to the January agreement. On appeal, Meridian sought to rely on the House of Lord’s decision in Equitable Life v Hyman [2002] 1 AC 408 to argue that the necessity sufficient to justify the implication of a term does not have to be mutual. The Court, however, saw no such support for that proposition in Equitable Life. To the contrary, in that case, Lord Steyn had been at pains to point out that the implication precluding the use of a director’s discretion in the manner of which complaint was made “was essential to give the effect to the reasonable expectation of the parties”. Had Lord Steyn been intending to apply the principle of which Meridian contended he would have referred to the policy-holder and not generally “the parties”.

Finally, it was clear to the Court of Appeal that the judge had been well aware of the express terms of the January agreement and that he had considered extensive oral evidence as to the course of the January meeting. Nor could he be criticised for considering the points on which Meridian relied individually, for such value and force as they might individually possess, if only as a preliminary to considering their cumulative effect. But, if their individual value and force were nothing, their cumulative effect was also nothing. The judge was therefore entitled to find that Meridian had not established its claim based on an implied term of the January agreement.

COMMENT The CHUK contract was clearly at odds with the deputy judge’s conclusion. That, however, did not make that conclusion wrong. What Mr Bobeckyj thought, or liked to think, was that the situation in respect of ownership of the copyright in the software had little bearing on actual ownership in the absence of clear evidence that the circumstances leading up to the agreement to go ahead and develop the software were such that, objectively, it was necessary to imply a term as to ownership of copyright that was contrary to entitlement under statute. As the deputy judge remarked at first instance, Meridian was over a barrel—it was half way through Project Vista and facing the prospect of being unable to deliver. It had become dependent upon the Defendants to complete what was a one-off project for a significant client.