Societa Esplosivi Industriali SPA v Ordnance Technologies Ltd. & Ors

On 15 November Mr Moat sent an e-mail to Chuck Norris at ARC to make arrangements for attendance at the test. In the course of his e-mail he inquired about the progress of the Teaming Agreement. Mr Norris replied on 18 November that the Teaming Agreement had been signed and returned to Mr Sgarzi. On 19 November Mr Moat chased payment of SEI (UK)’s invoice. Dr Obst’s letter of 14 November must have arrived before 23 November, because on that day Mr Cardy e-mailed Mr Sgarzi to say that before any arrangements were made about attendance at the trial "we need to resolve the points in Olivier’s recent letter."

On 26 November Mr Norris sent Mr Cardy and Mr Moat a copy of the draft Teaming Agreement between ARC and SEI. The copy had been signed on behalf of ARC.

Shortly before the anticipated date of the firing test, SEI (UK) produced a written programme for the day’s events. Presentations on the SEI (UK) side were to be made by Mr Cardy and Mr Moat. There was no slot given either to SEI or to ARC. Mr Sgarzi was concerned that SEI had been excluded from the presentations.

On 4 December Mr Moat met Ing. Gatti in Wales. Mr Moat says that among the matters they discussed was the fixing of logos to the test vehicle. He says that he and Ing. Gatti agreed that both SEI’s logo and SEI (UK)’s logo would be fixed to the test vehicle. Ing. Gatti agrees that he had an amicable discussion with Mr Moat on 4 December. But he says that the question of logos was not discussed, and that he had not brought any of SEI’s logos with him from Italy.

The test firing took place on 5 December. Mr Sgarzi was due to attend, but he missed his connecting flight, and so did not arrive. Ing. Gatti was there, accompanied by representatives of the Italian Air Force. Mr Cardy gave a briefing before the test took place. Ing. Gatti says that he was embarrassed by the briefing, because SEI’s name was not mentioned once. He also says that he did not speak during the briefing. He was concerned that the representatives of the Italian Air Force and Raytheon would ask themselves precisely what SEI’s contribution to the Lancer programme was, and he was also concerned that the briefing would leave its audience with a negative impression about the lack of co-operation between SEI and SEI (UK). His cross-examination on this topic (through the interpreter) proceeded as follows:

Mr Cardy, Mr Moat and Dr Castillo (the latter attending in the capacity of a consultant to Raytheon) all said that Ing. Gatti himself made a presentation. Mr Cardy also said that in the course of his own presentation he mentioned all the team members including SEI. There is plainly a sharp conflict of evidence on this question. I prefer Ing. Gatti’s evidence for the following reasons. First, no representative of SEI appeared as a presenter on the type-written programme for the briefing. Second, I think that Ing. Gatti would have remembered having made a presentation. Not only would such a presentation have been in English, which is not his first language; but also it would have been a presentation that was required to be made at short notice, since the really fluent English speaker at SEI, namely Mr Sgarzi, had been expected to attend but had missed his flight. Third, it was not put to Ing. Gatti in cross-examination that he had made a presentation, as opposed to having been invited to do so. So far as Mr Cardy’s own presentation is concerned, what was put to Ing. Gatti was that it was natural for him to speak only of SEI (UK) since SEI (UK) had carried out all the technical work. I reject Mr Cardy’s evidence on this point too. Fourth, Mr Moat’s written evidence, contained in his witness statement, was far more equivocal about Ing. Gatti’s participation in the presentations. So far as Mr Cardy’s own presentation is concerned, what was put to Ing. Gatti was that it was natural for him to speak only of SEI (UK) since SEI (UK) had carried out all the technical work. I reject Mr Cardy’s evidence on this point too.

The test proceeded. SEI’s logo did in fact appear on the test vehicle, as did SEI (UK)’s. There was a dispute whether Ing. Gatti had consented in advance to SEI (UK)’s logo appearing on the test vehicle. He said he did not. Mr Moat said that he did. I think it probable that Ing. Gatti knew, before the test firing actually took place, that SEI (UK)’s logo would be on the test vehicle, and did not protest. I do not think it matters whether he knew that the evening before the test or on the morning of the test itself. The test was judged a success. In the evening, following the test, there was a dinner at the hotel. Ing. Gatti, Mr Moat and Mr Cardy, together with the representatives of the Italian Air Force participated. Ing. Gatti paid the bill. Ing. Gatti says that he organised the dinner to cover up the embarrassment that the briefing had caused him, and to reinforce the impression of collaboration between SEI and SEI (UK).

Immediately after the test the MoD decided that all outputs should, provisionally, be classified as "UK Secret". However, this was revisited shortly afterwards, and different levels of security classification, ranging from "Unclassified" to "UK Secret" were given to different outputs. Among those which remained classified as "UK Secret" were the target defeat capability (including the impact and exit velocity), the engineering drawings and the trials report.

On 6 December 2001 Mr Sgarzi queried a number of changes that had been made to the draft Teaming Agreement with ARC. This provoked a response from Mr Cardy the purport of which was to urge Mr Sgarzi to sign up.

On 12 December Mr Sgarzi and Mr Cardy met at SEI (UK)’s premises in Basingstoke. The meeting was wide ranging. Mr Cardy said that he compiled contemporaneous minutes of the meeting, although their accuracy and authenticity is in issue. It is agreed that in the course of the meeting Mr Cardy alleged that as both parties had breached the Teaming Agreement it was "null and void". I deal in more detail with this meeting when I come to consider the evidence about the meeting on 25 June 2001 which culminated in the signing of the third Teaming Agreement.

On January 20 2002 Mr Sgarzi e-mailed Mr Cardy chasing "the documentation you promised me on the Lancer dynamic firing." It was needed to show the Italian Ministry of Defence. Mr Cardy replied that Mr Moat would send some pictures.

On 25 January 2002 Raytheon produced a Statement of Work for a Trade Study of the Lancer warhead system for the tactical Tomahawk missile. The purpose of the study was explained as follows:

The Statement of Work went on to say that the work would be procured from SEI (UK). Under the terms of the Statement of Work SEI (UK) was to perform the following tasks:

SEI (UK) was also to recommend testing procedures and provide a final report summarising the results of the study. On 7 February 2002 Raytheon asked SEI (UK) for a firm fixed price quotation for the study. SEI (UK) quoted on 11 February 2002. The quoted price was $299,999.

Although the Statement of Work indicated clearly that the work was to be done by SEI (UK), Raytheon seems to have been in some confusion about the relationship between SEI and SEI (UK). Mr Cardy went to a meeting with Raytheon in Tucson at which he explained the relationship. He relayed his explanation to Mr Sgarzi in an e-mail on 1 February. He said:

He went on to say that there was a tension within Raytheon between the engineers and the offset people. The former wanted to contract with the company that actually did the work, and did not want to pay extra for no added technical value. The latter were always looking to exploit opportunities to satisfy offset, but this was of no interest to the engineers. He concluded:

By this time Mr Cardy regarded the Teaming Agreement as inapplicable to research contracts. He viewed his discussions with Raytheon as relating to research contracts. In my judgment it is clear that he was not promoting SEI’s interests to Raytheon. He did not tell Raytheon that SEI had any interest in the intellectual property rights associated with the shaped charge warhead. In not revealing this he was preferring SEI (UK)’s interests to SEI’s. Had Raytheon been aware of the true position, it might well have included SEI in the contractual arrangements.

On 7 February 2002 Mr George Mavko of Raytheon e-mailed Mr Cardy, again expressing doubt about the precise status of SEI (UK). Mr Cardy replied that SEI (UK) was independent of SEI and gave details of the company registration.

On 12 February 2002 Mr Moat sent Mr Sgarzi a version of the trials report for the Lancer dynamic firing test. However, the report was a "sanitised" version. SEI were not shown the full version until I ordered it to be disclosed on the third day of the trial.

On 5 March 2002 Mr Cardy sent a fax to SEI purporting to terminate the Teaming Agreement. He said:

SEI responded to this letter on 28 March. Dr Obst accepted that he had identified breaches by SEI (UK) but said that he had not started the 30 period running. He denied that SEI was in breach of the agreement, and pointed out that no agreement between SEI and ARC had actually been concluded. He concluded by saying that "we do not accept your notification of the termination of the Agreement".

Termination of the Teaming Agreement by SEI (UK) on account of its own breaches of the agreement is plainly impermissible. So far as the allegation of breach of the agreement by SEI is concerned, it is unsustainable. Quite apart from the fact that SEI had not entered into any teaming agreement with ARC, it was envisaged from the very start that ARC would be part of Team Lancer; and, as the narrative shows, not only did Mr Cardy know that, but he also persistently encouraged SEI to sign up. Even after Mr Cardy had received a copy of the agreement as signed by ARC he raised no complaint about its detailed terms, until, at the earliest, 12 December 2001. His explanation for his failure to express any concerns over its terms, in particular in his e-mail of 6 December 2001, was one which I found incredible.

On 5 April 2002 Mr Cardy gave notice terminating the agency agreement on 5 July 2002 and the support services and consultancy agreement on 5 October 2002. SEI accepts that these two agreements have been validly terminated.

On 22 April 2002 Withers LLP, SEI’s solicitors, wrote to SEI (UK) rejecting the termination of the Teaming Agreement and asserting that it was still valid and binding between the parties. However, both parties agree that the Teaming Agreement is now at an end. The precise legal route to this conclusion is a little obscure; but if for no other reason it has been discharged by agreement.

On 23 August 2002 SEI (UK) (by now renamed Ordnance Technologies (UK) Ltd) produced the Trade Study for which Raytheon had produced the Statement of Work in January 2002. Only a few pages of this study were disclosed until I ordered disclosure on the third day of the trial. The study begins:

The details of the Trade Study referred at various points to the outcome of the Pendine test firings. These included the depth of the predicted crater made by the shaped charge jet; the reduction in length of the penetrator bomb, and the success of the aluminium liner. On the subject of the need for test firings, the Trade Study said:

In his witness statement Mr Allen of Raytheon described the genesis of the Study as follows:

This seems to me to tally with the way in which the introduction to the report is framed. Although Mr Allen’s evidence was not tested by cross-examination, I accept it. It is clear, therefore, that the Warhead trade Study flowed out of the success of the dynamic firing test of the Lancer 2 warhead. And, as I have said, if Raytheon had been aware of SEI’s entitlement to intellectual property rights, it might have included SEI in the contractual arrangements for the study.

I now backtrack to deal with the circumstances in which the third Teaming Agreement came to be signed. Although the claim to rectify the agreement has been abandoned, it seems to me that whether the terms of the agreement were truly agreed is relevant to Mr Cardy’s credibility, and may also have some bearing on the question whether they are an unreasonable restraint of trade. As Lord Reid explained in Esso Petroleum Co Ltd v. Harpers Garage (Stourport) Ltd [1968] AC 269 at 300:

In A Schroeder Music Publishing Co Ltd v. Macaulay [1974] 1 WLR 1308 at 1314 Lord Reid again emphasised the importance of the question whether the clauses under attack had been the subject of negotiation.

The draft agreement was prepared by the commercial office within SEI. It was sent to Mr Cardy shortly before the projected meeting on 25 June 2001. Clause 3 c) of the draft read:

Mr Cardy added in manuscript:

At this stage there was no clause 3 d) in Mr Cardy’s draft. Mr Cardy’s manuscript amendment to clause 3 c) did not survive into the signed agreement. But instead the signed agreement contained clause 3 d). That said:

Final discussions about the terms of the agreement were held between Dr Obst and Mr Cardy. At the conclusion of the discussions, both men signed the agreement and also initialled each page of it. The agreement takes up about three and a half pages.

Dr Obst said that the agreement was in the form that he intended to sign. He said that clause 3 d) took the form it did because of a compromise between him and Mr Cardy. Dr Obst’s concern was that SEI (UK) might use the alleged secrecy of a programme to keep work away from SEI, and that it was important for him to achieve transparency so that SEI knew, as far as it could, what was going on. Thus, he said, they agreed that SEI (UK) could undertake work on UK classified programmes, but only with SEI’s consent. That consensus was reflected in the final form of the agreement. In his first witness statement, Dr Obst said that he did not recall having assured Mr Cardy that his amendments had been incorporated. This evidence was not challenged in cross-examination, and I accept it. It was not suggested to Dr Obst that he made a mistake in signing the document in the form in which it was signed. Nor was it suggested to him that he knew or suspected that Mr Cardy was mistaken, or that he tricked Mr Cardy into signing.

In his oral evidence Mr Cardy backed off, to some extent, from the allegation that Dr Obst was personally guilty of trickery. He suggested that the fault may have lain with SEI’s contract department. He said that he had seen an annotated draft with comments by Dr Obst in Italian, which left Dr Obst’s office and went to the contracts department. This was not in his witness statements, was not put to Dr Obst; and the annotated draft was neither disclosed on disclosure, nor formed the subject of an application for specific disclosure. If Mr Cardy’s evidence about an annotated draft is to be believed, these omissions are inexplicable.

Despite the fact that Mr Cardy says that he was tricked into signing the Teaming Agreement, there was no written complaint made to SEI until after these proceedings had been started. Mr Cardy said that he telephoned Mr Sgarzi to protest on 26 June 2001; and that he raised the matter again at the meeting between the two men on 12 December 2001. In his second witness statement Mr Sgarzi said that there had been no such telephone call. This was not challenged in cross-examination, and I accept his evidence.

The minutes of the December meeting on the topic of the Teaming Agreement read as follows:

In his second witness statement Mr Sgarzi said that there was no discussion of the alleged differences between the signed agreement and what had been agreed. He said that Mr Cardy did not allege that there had been an intentional deception. He adhered to this in cross-examination. He said in his oral evidence that Mr Cardy did not complain that the draft agreement with ARC inferentially stated that SEI owned SEI (UK). He also said that there were other important matters that had been discussed between them which were not recorded in the minutes. This was not challenged in cross-examination. Mr Cardy, however, said that the minutes were an accurate record of the discussion, and that he did allege that there had been an intentional deception on the part of SEI. He, too, adhered to his evidence in cross-examination. He also said that Mr Sgarzi told him that all the problems could be resolved if he (Mr Cardy) recommenced talks on selling SEI (UK) to SEI. This suggestion was not made in Mr Cardy’s witness statement and was not put to Mr Sgarzi in cross-examination.

In his witness statement Mr Cardy originally said that copies of the minutes were faxed to SEI on 18 December. Even after Mr Sgarzi denied having received them, Mr Cardy persisted in saying that they had been sent. He produced a fax transmission sheet showing that a three page document had been faxed to SEI on 18 December. However, further investigation by SEI showed that although there was a fax of the length of the minutes transmitted on 18 December, it was in fact a completely different document. Moreover, the minutes were supposed to have attachments to them, so that any fax transmission of them would have been more than three pages. Mr Cardy corrected his witness statement before verifying it to accept that the minutes may not have been sent to SEI after all. I find that they were not. In my view, as he conceded in cross-examination, Mr Cardy changed his evidence because he was "forced to".

I accept Mr Sgarzi’s evidence. First, I find the absence of any prior written protest by Mr Cardy extraordinary. His explanation for his silence, namely that he did not wish to jeopardise his relationship with SEI, is incredible. Second, if Mr Cardy had alleged intentional deception on the part of SEI, it is incredible that SEI did not respond to the accusation. I reject both Mr Cardy’s account of the signing on 25 June 2001 and his account of the meeting on 12 December.

I mention by way of footnote that clause 10 of the Support Agreement, which was also signed on 25 June 2001, contains, at the end of clause 10, a provision in identical terms to clause 3 d) of the third Teaming Agreement. Mr Cardy made no complaint about the terms of the Support Agreement either at the time, or during the progress of this case. On the face of it, his absence of complaint is inconsistent with his evidence about the signing of the third Teaming Agreement. However, since this clause was not put to Mr Cardy, and he did not comment on it, I place very little weight on it, and it does not affect the conclusion to which I would have come anyway.

I find that clause 3 c) and clause 3 d) of the third Teaming Agreement were negotiated and agreed between Dr Obst and Mr Cardy on 25 June 2001. They represented an agreed compromise between the competing aspirations of the two parties.

SEI (UK) says that the provisions of the agreements alleged to have been broken by it are unlawful and unreasonable restraints of trade. Hence they are void at common law. The provisions of the third Teaming Agreement to which this plea is directed are clause 3 b) (SEI (UK) to be the exclusive sub-contractor to SEI); clause 3 c) (SEI (UK) not to offer its designs etc. to third parties in the context of MWS); clause 3 d) (SEI (UK) to participate in classified programs only with the consent of SEI); clause 4 c) (consent of both parties required for exploitation of specific MWS studies) and clause 10 b) (No collaboration with third parties). In his closing submissions Mr Young QC focused his attack on clause 3 c) and 3 d).

As I have said, the allegation that these clauses were also invalidated by section 2 of the Competition Act 1998 was abandoned. It was not argued that the common law doctrine of restraint of trade had been affected either by Articles 81 and 82 of the EC Treaty or the Competition Act 1988. I shall assume that the common law has survived intact.

Where a contract is attacked as being in restraint of trade, the court’s first task is to determine the extent of the restraint. Only when that has been done can the court form a view about whether the restraint is valid. As Lindley LJ said in Mills v. Dunham [1893] 1 Ch 577 at 587: "You are to construe the contract, and then see whether it is legal."

The process of interpretation is the ascertainment of the meaning that the contract would convey to a reasonable reader with all the background knowledge of the parties.

I set out clause 3 c) and clause 3 d) again for ease of reference:

It is common ground that clause 3 c) prevents SEI (UK) from offering its specialist mathematical modelling skills to others "in the context of MWS". It is also common ground that "MWS" means multi-warheads carried by missiles, and that a missile is a self-propelled projectile which is guided through the air in some way. Thus clause 3 c) would not have prevented SEI (UK) from offering to model a multi-warhead for, say, a torpedo. But it is also common ground that, at the date of the agreement, there was no immediate prospect of anyone being interested in actually developing a multi-warhead for torpedoes. Clause 3 c) must be read together with clause 3 d). It was common ground that what was covered by clause 3 d) fell into two categories:

Mr Howe QC submitted, and I did not understand Mr Young QC strenuously to dispute, that SEI would not be entitled to withhold consent unreasonably. Where one party to a contract is dependent on the consent of another party to it, the court will often imply a term to the effect that consent may not be unreasonably withheld. In Abu Dhabi National Tanker Co v. Product Star Shipping Ltd (No. 2) [1993] 1 Lloyd’s Rep 397 Leggatt LJ said:

The Court of Appeal took a similar (though not identical) approach in Gan Insurance Co Ltd v. Tai Ping Insurance Co Ltd (No 2) [2002] 2 All E.R. (Comm) 299 and Paragon Finance plc v. Nash [2001] 1 WLR 685. In my judgment a term to similar effect must be implied into clause 3 d), particularly since the agreement required the parties to work as a team in a relationship of trust and co-operation.

Thus the overall scheme of the restrictions is as follows. First, SEI (UK) may not offer their skills in MWS to a third party. They must bring the offer of work to SEI. If SEI chooses to undertake the work, the contractual arrangements, by which SEI will be the contractor, and SEI (UK) will be the sub-contractor, will apply. If the work is work in which SEI cannot participate, then SEI (UK) may carry out the work under its own contract with the third party, with SEI’s consent, such consent not to be unreasonably withheld. The gap in the scheme is a case in which SEI can participate in the work, but chooses not to. There is no express obligation placed on SEI to undertake whatever work relating to MWS SEI (UK) brings to its attention, nor is there any obligation placed on SEI to seek out such work. I do not consider that it would be permissible to imply terms to that effect.

It is common ground that clause 3 c) and 3 d), taken together, amount to a restraint on trade. It is also common ground that the burden lies on SEI to justify the restraint as being reasonable. In Manchester Sheffield and Lincolnshire Railway Co v. Brown (1888) 8 App. Cas. 703 Lord Bramwell said:

Mr Young’s complaints can, I think, be summarised as follows:

The lack of a reciprocal obligation may be an important feature in deciding whether a restraint on trade is reasonable. This was the case in A Schroeder Music Publishing Co Ltd v. Macaulay [1974] 1 WLR 1308. The plaintiff was a young and unknown songwriter who entered into a standard form of contract with a music publisher. The contract was to last for 5 years. During the currency of the contract the songwriter was to render services exclusively to the publisher, and assigned to the publisher all copyright in every musical composition and lyric. He was to be paid by royalties on the sales receipts of published songs. Although the publisher could determine the agreement, the songwriter could not. The House of Lords held that the agreement was an unreasonable restraint of trade, and therefore void. I refer to two passages in the speech of Lord Reid (which I quote in the reverse order to that in which they appear in the speech):

My conclusions on this issue are as follows:

I add to this four further considerations. First, the impetus for a novation of the second Teaming Agreement (which contained all the restrictions on MWS with the exception of the MoD research contracts) came from Mr Cardy himself. Second, the clauses under attack were the product of negotiations between Mr Cardy and Dr Obst. Third, Mr Cardy was not an ingénu. He was a man with wide experience in the defence industry, and knew the commercial potential of "Lancer technology". He himself said that the agreement was intended to be "a balanced agreement, mutually beneficial to both sides". Fourth, the third Teaming Agreement bears a close resemblance to the first and second agreements. While they may not have achieved the status of standard industry forms, they were acceptable to ISL, who may also be taken to be commercially aware.

I conclude, for these reasons, that clause 3 c) and 3 d) are not void as unreasonable restraints on trade.

SEI claims that it is an implied term of the third Teaming Agreement that SEI (UK) must provide SEI with copies of materials embodying "Foreground IPR". Foreground IPR is, according to the agreement, owned either by SEI alone or by SEI and SEI (UK) jointly. Those elements that are owned by SEI alone are "warhead system" foreground IPR and the rear penetrating warhead, if designed by SEI. The element that is jointly owned is the forward shaped charge warhead. SEI also has free user rights of the jointly owned shaped charge warhead designs.

In essence, SEI says that unless it can have copies of the materials embodying foreground IPR its rights of ownership and free use are useless. How can it use a design that it cannot see? In my judgment this submission is unanswerable, and Mr Young did not seriously contest it. The principal area of dispute was the scope of the intellectual property rights to which SEI was entitled under the Teaming Agreement. To that I now turn.

Section 213 of the Copyright Designs and Patents Act 1988 provides:

Although section 213 speaks of "an article" it is clear that the article does not have to exist in reality. A design which could be turned into an article (once recorded in a design document) is protected by design right, even if it is never made by the designer and even if the designer has no intention of making it.

Section 226 provides:

Section 227 (1) provides:

Section 258 (2) of the Act provides:

For ease of reference I set out clause 4 again.

Mr Young stressed what he said was the commercial purpose of the Teaming Agreement. SEI was a manufacturer of high quality ordnance, as the agreement itself recited. By contrast SEI (UK)’s expertise lay in the design and assessment of warheads. The purpose of the agreement was that stated in clause 2 a), namely bids, in the name of SEI, to win contracts for the design, development and production of the MWS. But he said that SEI’s practical and technical responsibility arose only at the stage when something had to be manufactured. This was reinforced by the deeming provisions of clause 4 which deemed SEI to be the design authority or joint design authority. A design authority is a concept which arises under a defence contract for the development and production of a weapon. Until a contract has been placed it is meaningless to speak of a design authority. Thus what SEI was entitled to by way of information was that which was necessary to enable it to perform its contemplated tasks. That was limited to manufacturing drawings, and final reports on the various practical tests. Moreover, he said, clause 4 is headed "Design Rights" and does not mention copyright at all. Accordingly, what was contemplated by clause 4 was that SEI would be able to operate as design authority once a contract had been placed based on a design generated by SEI (UK). Variations examined and discarded by SEI (UK) in the course of the mathematical modelling not only do not relate to the subject matter of the bid; they are of no practical utility to anyone else, and consequently SEI have no right to see them. The free user rights allocated to SEI are limited to free use of a specific design generated by SEI (UK) for the purposes of a specific bid. They do not allow SEI to exploit a design for any application outside the specific bid for which the design has been generated.

Mr Howe submitted that the Teaming Agreement was intended to operate throughout the world. It was made between a UK company and an Italian corporation, and it was contemplated that at least one, and probably two, American corporations would ultimately be members of the team in which SEI would be contractor and SEI (UK) sub-contractor. Thus the parties must have contemplated that intellectual property rights might have to be enforced anywhere in the world. It was wrong, therefore, to submit, as Mr Young did, that the intellectual property rights were limited to design right in the sense in which that phrase is used in English law. He took me on a tour d’horizon of the systems of protection of industrial design both in the EC and elsewhere, to demonstrate the diversity of different forms of protection. Many such systems depend wholly or partly on the law of copyright to protect industrial designs. Even in domestic law there is no bright line distinction between copyright and design right. A design document may be protected by both, in different circumstances.

The phrase "intellectual property rights" (IPR) is defined by the agreement itself. That must be the starting point for determining what the parties have agreed. The definition is a wide one. It begins with "all information". It is difficult to conceive of a wider definition. It also encompasses registered designs and patents. It does not mention unregistered designs, which are the subject of design right in domestic law, at all. So if, as is accepted, design right falls within the scope of the definition, it must be because it falls within "all information". But why stop at design right? In my judgment Mr Howe is correct in submitting that materials protected by copyright also fall within the scope of the definition. This conclusion is, in my judgment, reinforced by the multi-national considerations referred to above.

Mr Howe also submitted that Mr Young took too narrow a view of what a design document was. It was not limited to production drawings. A design, he said, evolved. It might begin as a sketched out concept, leaving much detail to be worked up later. Each stage of an evolving design, provided that it was recorded in a design document, was entitled to the protection of design right. He illustrated this by reference to A Fulton Co Ltd v. Totes Isotoner (UK) Ltd [2003] EWCA Civ. 1514. In that case the Court of Appeal held that there had been infringement of design right. The design in question took the form of a sketch, with approximate dimensions, of a case for a folding umbrella. Jacob LJ said that the sketch "conveys all you need to know". Plainly the sketch could not have been directly used for manufacture. Patterns would have needed to be designed, measured and cut. So the "you" in Jacob LJ’s dictum must be a designer who understands how the sketch could be translated into a physical product. Moreover, Mr Howe submitted, the production drawings in the present case had been produced for a very limited purpose; namely to enable the assembly of the warhead and the construction of the test vehicle for the dynamic firing test. If, following a successful dynamic firing, the project had moved to the development phase, the design would have to be modified in order to integrate it into a specific missile, and to design out "clutter". If that had happened, the designer would not take the production drawings as his starting point. He would revert to the products of the mathematical modelling exercise. Thus it is those outputs, rather than the production drawings, that are the real design. Mr Moat produced examples of the variations considered during the mathematical modelling. Each variant resulted in an output of three pages. The first page recorded the shape of the shape charge, its dimensions, material composition, and similar information about the warhead casing. The second and third pages depicted in graphic form the predicted jet and its penetrative capability. Mr Howe submitted that the first page was a design document, and protected by design right; and the second and third pages, while not design documents, were protected by copyright. In either case they fell within the definition of IPR in clause 4. Although the discarded variants were not used in the further development of Lancer 2, they were by no means useless. If a customer wanted a shaped charge that would produce a differently shaped hole (e.g. shorter and fatter than the requirements of Lancer 2), one of the discarded variants might provide a useful starting point. I accept these submissions.

The final question under this head is whether the IPR are foreground IPR or background IPR. The scope of foreground IPR is, in my judgment, determined by "the contract requirements". The relevant contracts must be contracts with third parties, such as Raytheon. In the defence industry the scope of the contract is defined by the "statement of work". In my judgment IPR generated by activities covered by a statement of work is foreground IPR. The variants produced by Mr Moat (and the others of which they were samples) were, in my judgment, produced in fulfilment of the contract awarded by Raytheon. They are, therefore, foreground IPR. Since they are foreground IPR relating to the design of the shaped charge (or are otherwise part of a warhead subsystem), the foreground IPR is owned jointly by SEI and SEI (UK), and SEI is entitled to free user rights.

SEI claim that SEI (UK) owed it fiduciary duties arising out of the Agency Agreement. Mr Young points out that under the terms of the Agency Agreement SEI (UK) had no authority to bind SEI contractually. Thus, he submitted: "No fiduciary duty can arise from what is in effect merely an agreement to promote sales of SEI’s products or certain products which SEI may have an interest in manufacturing in the future." His submission, as he developed it orally, was that unless an agent could bind his principal, no fiduciary duty could arise. This submission confuses, as it seems to me, the contract between the agent and the principal, which is the relevant contract that gives rise to fiduciary duties; and a contract with a third party made by the agent, purporting to bind the principal vis-à-vis that third party, which the contract of agency may or may not actually authorise the agent to make. Of course the scope of the fiduciary duties will be moulded by the terms of the contractual relationship between agent and principal: Kelly v. Cooper [1993] AC 205. But there is no requirement for the agent to be able to bind the principal vis-à-vis third parties before fiduciary duties arise. To take two familiar examples, no one doubts that a solicitor or an estate agent owes fiduciary duties to his principal, but in neither case is he ordinarily authorised to bind his principal contractually.

The basic features of fiduciary duties were explained by Millett LJ in Bristol & West Building Society v. Mothew [1998] Ch. 1 at 18 as follows:

In my judgment all these duties were imposed upon SEI (UK) in its capacity as SEI’s agent; and in particular in its capacity as agent promoting SEI’s services in connection with both MWS and fuzes and associated equipment.

SEI had registered its logo as a Community Trade Mark. The logo consisted of the letters "SEI" in a box. Above the letters was a white circle against a black background. The circle itself contained two right-angled bars arranged in the rough shape of a cross. Projecting from the circle were white rays. The mark was registered in respect of a number of categories, including:

Until the late autumn of 2001 SEI (UK) used SEI’s logo on its own stationary, including letterheads, fax cover sheets, invoices and reports. However, from about November 2001 SEI (UK) used a modified form of the logo in which the white rays were replaced by a stylised Union Jack. The earliest example in the bundle is, I think, an agenda prepared for a meeting held on 8 November 2001. SEI (UK) used the modified logo in correspondence with, among others, SEI itself. The letters of 5 March 2002, purporting to terminate the third Teaming Agreement, and the letter of 5 April 2002, terminating the agency and consultancy agreements, all bear the modified logo. Withers LLP objected to the use of the mark by letter dated 10 May 2002, and asked for confirmation within seven days that the mark would be removed from the letterhead. Although the written confirmation was not given, the next letter from SEI (UK), dated 6 June 2002, bears a completely different logo which bears no resemblance to SEI’s mark. It did, however, continue to bear the letters "SEI". The agency agreement terminated on 5 July 2002. On 30 July 2002 SEI (UK) changed its name to Ordnance Technologies (UK) Ltd. Thereafter not even the letters "SEI" appeared on its stationery.

SEI’s complaint is two-fold. First, it says that use of the modified logo is an infringement of the mark. Second, it says that use of the letters "SEI" after the termination of the agency agreement is also an infringement of the mark.

An examination of SEI’s web site through to the late summer of 2002 shows that it held itself out to the public as having an office in the UK. That can only have been a reference to SEI (UK). There are examples in the documents of Dr Obst expressing the view that SEI and SEI (UK) should be seen to be acting as a multi-national team. SEI (UK) placed its own logo on the test vehicle at the dynamic firing test. However, I have found that Ing Gatti knew in advance that that would happen and did not protest. In the light of all that, and in the light of SEI (UK)’s swift reaction to Withers’ letter of complaint, I conclude that SEI tacitly consented to any infringement of its mark that SEI (UK) committed before the termination of the agency agreement. So far as the use of the letters "SEI" is concerned for the few weeks between termination of the agreements and the change of name to Ordnance Technology Ltd, SEI (UK) was using its own name. In my judgment there was no infringement of SEI’s mark.

Breach of contract. SEI claims that SEI (UK) was in breach of clause 3 a) of the Teaming Agreement by itself becoming the lead contractor, rather than procuring the award of a contract to SEI, with SEI (UK) as sub-contractor. SEI (UK) accept that this was a breach of contract. SEI do not claim damages at this stage, but seek an inquiry into damages if liability exists. Mr Young says, and I accept, that an inquiry is pointless if I am satisfied that the breach could have caused no possible damage to SEI. If I am so satisfied, I should simply award nominal damages to SEI. I will return to this later.

Conversion. SEI claims that SEI (UK) converted chattels belonging to it when it instructed PAL to proceed to assemble the warhead in preparation for the Pendine test firing. PAL assembled the warhead using a charge case and liner which had already been manufactured for the static firing test and it also used an initiator assembly similarly manufactured. I find that SEI had paid for all three items, and all three items belonged to SEI.

In Kuwait Airways Corporation v. Iraqi Airways Co (Nos. 4 and 5) [2002] AC 883, Lord Nicholls of Birkenhead said:

Infringement of design right. SEI claims that the assembly of the warhead by PAL, on the instructions of SEI (UK) infringed its design right. First, it says that it owned the design right in the design of the warhead and initiation system. This is the "warhead system" of which the foreground IPR belonged to SEI. The assembly of the complete warhead involved the making of an article to that design. Thus there was a breach of section 226 (1) (a) of the 1988 Act. In addition, it says that the re-importing of the filled warhead from Sweden (where it had been filled by NAMMO) was a further infringement. This was a breach of section 227 (1)(a) of the Act.

Both the claim in conversion and the claim for infringement of design right are claims in tort. Each are dependent on the absence of consent to the allegedly tortious act. In my judgment it is clear that SEI consented to the assembly of the warhead for the purposes of the dynamic firing test. It instructed PAL to carry out that process. The process of assembly included the export of the warhead to NAMMO in Sweden for filling, and the importation of the filled warhead. Although the ITP placed a limit on liability on the part of SEI of £5,000, I do not think that that detracts from the substance of the consent. If PAL had gone ahead with the whole of the assembly despite the limitation of financial liability, SEI could have had no complaint. Mr Sgarzi accepted as much in his evidence. Mr Howe’s real complaint was that SEI (UK) had "taken over" the contract. But at the same time he was at pains to establish that, at least in the minds of PAL and Raytheon, the contract continued with SEI. In my judgment that does not amount to conversion or infringement of design right; or, if it does, it has not caused any damage to SEI. The claim in conversion and the claim for infringement of design right therefore fail.

Passing off. The complaint here relates to SEI (UK)’s logo. SEI (UK)’s logo was placed on the test vehicle, and it also featured on some of its correspondence. There is, I think, no doubt that the logo would have led a reasonable person to believe that SEI and SEI (UK) were, to put it loosely, part of the same organisation. Mr Howe accepted that he had established no damage arising out of this. However, he submitted that a cause of action in passing off is complete if there is a likelihood of damage, and that there is no need to prove actual damage. My initial reaction to this submission was scepticism, since it was not clear to me what damages could be awarded if a claimant proved merely a likelihood of damage but no actual damage.

In Reckitt & Coleman Products Ltd v. Borden Inc [1990] 1 WLR 491 (the "Jif" lemon case) Lord Oliver said:

In Conzorzio del Prosciutto di Parma v. Marks & Spencer plc [1991] RPC 351 Nourse LJ described the classical trinity of (1) a reputation or goodwill acquired by the claimant in his goods (2) a misrepresentation by the defendant leading to confusion or deception causing (3) damage.

These passages suggest that, except in an action to restrain a threatened wrong by injunction, it is necessary for a claimant to prove actual damage, otherwise the tort is not complete. However, Mr Howe relied on Draper v. Trist [1939] 3 All E.R. 513. In that case Sir Wilfrid Greene MR said:

Draper v. Trist was not cited in the Jif lemon case. I do not, therefore, think that I can assume that it has been disapproved. In the light of that authority, I am bound to hold that a case of liability in passing off can be established, even if no actual damage has been proved.

However, for the same reasons that led me to conclude that the claim for infringement of trademark fails (i.e. tacit consent by SEI), the claim in passing off fails too.

Following the circulation of my draft judgment, Mr Howe invited me to reconsider my finding on passing off. He submitted that he had put his case on a wider basis than a complaint merely about the logo. He said that it was passing off for SEI (UK) to have represented itself both to Raytheon and PAL as a branch or agency for SEI, when it was attempting to take the benefit of the dynamic firing test contract for itself. However the fact remains that SEI itself represented to the world that SEI (UK) was its branch or agent. I am not persuaded that I should alter my conclusion.

Breach of fiduciary duty. It is evident, as Mr Cardy himself accepted, that there was a conflict of interest between SEI and SEI (UK). SEI (UK) put its own interests above those of SEI. Thus there was, in my judgment, a breach of fiduciary duty. If SEI (UK) made any profit out of the dynamic firing test, it is liable to account to SEI for that profit. Although it has not been proved that SEI (UK) did make a profit, the figures that Mr Cardy gave to SEI suggest that it may well have. This can be investigated in an inquiry.

Disclosure of confidential information. The dynamic firing test resulted in a report which was sent to (among others) the MoD. SEI says that this report involved the disclosure of confidential information. Mr Moat accepted that the computer modelling involved in the production of the report involved using computer input files from the Lancer project. I am not convinced that disclosure of this information was a breach of clause 22 of the agency agreement. In carrying out the dynamic firing test, and producing the report, SEI (UK) was not acting as SEI’s agent, and the carrying out of such a test was not within the scope of the agency agreement. If the allegation of misuse or disclosure of confidential information is to be sustained, it must be on non-contractual grounds.

The conventional elements of a claim for breach of an obligation of confidentiality are that:

In the present case:

That leaves the admitted breach of clause 3 a) of the Teaming Agreement. Mr Young submits that there can have been no possible damage to SEI, and hence I should not order an inquiry, for the following reasons:

My conclusions on these points are as follows:

I do not mean to pre-empt the outcome of an inquiry into damages, but I am not satisfied that no possible damage has been caused to SEI. I propose therefore to order an inquiry into damages.

SEI claims that in accepting the contract from Raytheon to produce the warhead study, SEI (UK) was in breach of clauses 3 a) and 3 c) of the Teaming Agreement and in breach of fiduciary duty. SEI (UK) concede that, if clause 3 c) is valid (as I have held it is), there was a breach of that clause.

The SEI (UK) witnesses, Mr Cardy and Mr Moat, suggested that the subject-matter of the Warhead Trade Study was not a "design" but a "concept". In the context of the Teaming Agreement this is, to my mind, a distinction without a difference. Clause 3 a) speaks of contracts for the "design" of MWS, whereas clause 3 b) entitled SEI (UK) to be the sub-contractor for the "design concept". Clause 5, which sets out the workshare, allocates to SEI (UK) the "generation of design data". The latter is, in my judgment, apt to include the mathematical modelling. The report which SEI (UK) produced also refers to their work as "design". In my judgment there was a breach of clause 3 a) as well as 3 c).

In addition, once again, SEI (UK) had a conflict of interest. Once again it preferred its own interests to those of SEI. In my judgment it was also guilty of breach of fiduciary duty.

I will order an inquiry into damages in relation to these two causes of action.

SEI also claim that in carrying out work for the Raytheon Trade Study SEI (UK) infringed its intellectual property rights under the Teaming Agreement. It was not possible to investigate this in the course of the trial as SEI (UK) had refused to disclose the relevant documents. I made an order for disclosure which is in the course of being complied with. That issue will have to wait for another day.

One of the munitions in use by the UK military was a laser-guided bomb called Paveway III. The bomb must, of course, be detonated. The process of detonation begins with a multi-function bomb fuze which arms itself on impact. The fuze ignites a booster, which in turn detonates the bomb. In domestic terms, the fuze is a match, the booster is a firelighter and the bomb is the fire. The MoD had already commissioned a UK fuze. Paveway is a bomb manufactured by Raytheon. When the UK decided to buy that bomb, the MoD insisted that Raytheon fit the UK fuze into the bomb. The fuze had to be adapted in order to fit the bomb, and because it was not powerful enough on its own to ignite the bomb, a booster was also needed. SEI had previously designed an adaptor and booster for the United States, so Raytheon selected SEI as sub-contractor. Thus it came about that SEI was the design authority for the booster adaptor. The contract was known as the Multi-Activity Contract ("the MAC contract").

However, the fuze had developed technical problems, the details of which do not matter. On 13 March 2001 a meeting took place between representatives of DERA and Messrs Haigh and Groves, both recorded in the minutes of the meeting as representing SEI (UK). However, the minutes were signed by Mr Haigh on behalf of SEI and they were printed out on SEI notepaper, giving the Italian address. DERA was the Defence Evaluation and Research Agency. During various stages arising out of privatisation, this agency subsequently changed its name to New DERA (NDERA) and then to QinetiQ, but I shall refer to it throughout as DERA. The meeting was convened at least partly to discuss a work share in order to overcome the technical problem that had arisen. Again the details do not matter, save to say that they concerned the performance of the fuze, but it was agreed at the meeting that the work would be shared between SEI and DERA. So far as timing was concerned, the minutes say that live weapon trials were scheduled for February 2002; consequently the trials of the new booster would have to be completed by September/October 2001. The minute concluded:

By 30 March it seems that Raytheon Systems Ltd was in discussion about Paveway III with the Air Launched Munitions Air Group, part of the Defence Logistics Organisation. Raytheon proposed an analysis of the two possible technical solutions. It is clear from their letter that they envisaged that the work would be undertaken as a design modification under the MAC contract. Their recommendation was as follows:

On 1 May 2001 Mr Haigh prepared a quotation for the booster project. The front sheet stated that the copyright in the document belonged to SEI and that it was supplied by SEI. The quotation began with a general description of SEI’s business and facilities. A copy was sent to SEI, where it was received on 10 May. On 11 May 2001 Mr Haigh wrote to SEI about Paveway III. He referred to the meeting with DERA "at which DERA requested SEI to quote". However, he continued:

On 31 May Mr Cardy sent a fax to SEI about the booster programme. He said:

Mr Haigh said that Ing. Gatti had supplied him with prices in order to enable him to prepare the quotation. He identified a document dated 12 April which contained the figures. That document indicated that the boosters could be produced within about 10 weeks. So there does not appear to have been any production difficulty in manufacturing the trial boosters by "September/October". The problem, it seems, was in obtaining an export licence from the Italian authorities. Mr Cardy suggested in his oral evidence that restrictions on export licences could be overcome by a request from the UK government to the Italian government, followed by the despatch of RAF transport to take ownership of the equipment in Italy. He said that this procedure was commonplace in time of war or conflict. This seemed to me to be an implausible solution. First, he said that one of the reasons for the alleged secrecy of the program was to prevent the technical problems becoming known outside the UK. If so, revealing the nature of the operational requirements to the Italian government is hardly calculated to advance that purpose. Second, if the solution was so simple, it is surprising that Mr Cardy did not mention it to SEI. He said that he had discussed this personally with Mr Sgarzi, but, yet again, this suggestion emerged for the first time in his oral evidence, and was not put to Mr Sgarzi. I reject it. Third, what was involved was a trial of a modification, not the shipping of live weapons in time of war.

On 8 October 2001 Mr Groves prepared a proposal for the booster. This time the copyright notice said that copyright belonged to SEI (UK) and that the document was supplied by SEI (UK).

On 12 December 2001 there was a meeting held at Raytheon’s UK facility in Bedford to discuss the Paveway III booster. It began at 9.30 a.m. and finished at 12.30 p.m. Mr Haigh and Mr Banks (the latter of Raytheon) attended. Various attendees, including SEI, made presentations to the meeting. SEI had produced a computer model showing how a modified booster would work. The meeting agreed that this should be explored further. It is clear that, despite the apparent urgency of the program, no physical trials had yet taken place. None of the witnesses could explain why not. This meeting was held the same day as the day on which Mr Cardy and Mr Sgarzi met in Basingstoke. The minutes of the latter meeting record:

Mr Sgarzi’s evidence was that this discussion did not take place. He said that the Raytheon booster program was not mentioned at the meeting on 12 December. Mr Cardy says that it was. I have already rejected Mr Cardy’s account of the meeting so far as concerns the claim to rectify. One of the themes that ran through his oral evidence was that he did not know about the day to day running of that program. He seemed to me to be at pains to distance himself from it. He agreed with Mr Howe that he had not himself communicated anything about the booster program to SEI between June 2001 and the spring of 2002. I myself asked him whether he accepted that suggestion and he said that he did. It was only when he was re-examined and his attention was drawn to the part of the minute I have quoted that he asserted that he did, after all, communicate information about the program to Mr Scarzi. I reject this part of his evidence too. I am forced to the conclusion that the purported minutes are not authentic, but are a later fabrication.

However, on 6 February 2002 DERA issued a "stop notice" bringing work to a halt. The notice itself gave no details of the reasons, but Mr Banks explained that there were two reasons. First, there was a problem over licensing by the US State Department. Second, there was an issue over intellectual property rights. However, both DERA and SEI (UK) asserted that the modified booster was an entirely new design, and owed nothing to the original design developed by SEI.

On 20 March 2002 SEI (UK) prepared a proposal for the certification of the adaptor/booster. Again the copyright notice said that copyright in the proposal belonged to SEI (UK) and that the document had been supplied by SEI (UK). The introduction said:

On 30 April 2002 a meeting was convened to discuss the solution to the problem with Paveway III. Mr Sgarzi and Ing. Gatti attended on behalf of SEI. There was no one present from SEI (UK). There were also representatives of Raytheon, DERA and others. The upshot of the meeting was that a two part solution seemed the best prospect, and Raytheon were given the task of overseeing the project.

On 22 July 2002 Mr Banks of Raytheon wrote to the Air Launched Munitions Group. He said that ALM had developed a modification and that it would be released to Raytheon and SEI. Raytheon would accept design responsibility for the modification and SEI would accept design authority responsibility for the final design. Thus the eventual outcome was that SEI retained its position under the MAC contract.

SEI claims that SEI (UK) committed breaches of the Agency Agreement and breaches of fiduciary duty in entering into this contract. There can, in my view, be no doubt that the adaptor booster was a product covered by the Agency Agreement since it was an electronic fuze or equipment associated with it. A modification to that adaptor booster would also, in my view, have fallen within the scope of the Agency Agreement, since it would either have been a different type of associated equipment, or services associated with such equipment. On the face of it entry into the contract for Paveway III was a breach of clauses 8 a) and 23 of the Agency Agreement. Since entry into the contract also amounted to the preferring by SEI (UK) of its own interests over those of SEI, on the face of it, it amounted to a breach of fiduciary duty as well.

SEI (UK)’s defence is threefold. First, it says that since the contract was only a feasibility study, it did not fall within the scope of the Agency Agreement. The argument is that because the agent is remunerated by commission calculated by reference to "the sale price" it can only relate to the sale of goods. Bearing in mind that the Agency Agreement bears all the hallmarks of having been translated from the Italian (and was to be governed by Italian law), this seems to me to be an unduly technical interpretation.

Second, SEI (UK) says that SEI consented to the manner in which the Paveway II contract was set up. However, in my judgment this defence would only run if SEI (UK) had obtained the informed consent of SEI. It did not.

Third, SEI (UK) says that SEI has suffered no loss, since, in the event, the actual modification of the adaptor booster took place under the MAC contract, under which SEI was the design authority. There is, to my mind, considerable force in this submission. However, it more properly belongs to the scope of the inquiry into damages that I propose to order.

SEI abandoned its claims against Mr Moat personally. I will therefore dismiss the claims against him. However, the personal claims against Mr Cardy and Mr Haigh were pursued. I will deal with Mr Haigh first, since he was only involved in the Paveway III contract.

The two substantive claims that SEI has in relation to the Paveway III contract is a claim for breach of contract, arising out of the agency agreement, and a claim for breach of fiduciary duty. Thus the two possible claims against Mr Haigh personally are: a claim in tort for inducing a breach of contract by SEI (UK); and an equitable claim for dishonest assistance in the commission of a breach of fiduciary duty.

In my judgment there are two reasons why Mr Haigh is not liable for inducing a breach of contract by SEI (UK). First, he was merely an employee of SEI (UK) and he was acting on the instructions of Mr Cardy. He was not the decision maker. Second, he did not know about the contractual arrangements between SEI and SEI (UK). In JT Stratford & Son Ltd v. Lindley [1965] AC 269 at 332 Lord Pearce said:

Mr Haigh’s evidence (which I accept) was that although he knew that there was some contractual arrangement between SEI and SEI (UK), he had not read the agency agreement; and that contractual arrangements were a matter for Mr Cardy. It was not put to Mr Haigh that he knew that the Paveway III contract amounted to a breach of SEI (UK)’s contract with SEI; and in my judgment he did not know that it was. In my judgment that is insufficient to found liability in tort.

So far as dishonest assistance in a breach of fiduciary duty is concerned, a finding of dishonesty is a necessary ingredient. For this purpose "dishonesty" means that the defendant has been dishonest by the standards of reasonable and honest people; and that he himself had realised that, by those standards, his conduct was dishonest: Twinsectra Ltd v. Yardley [2002] 2 All E.R. 377. However, a court cannot make a finding of dishonesty against a defendant unless the allegation of dishonesty has been fairly put to him in cross-examination, and he has had a proper opportunity to deal with it. It was not suggested to Mr Haigh that he was dishonest. Consequently, I decline to make a finding of dishonesty against him.

It follows that the personal claims against Mr Haigh fail.

I turn next to Mr Cardy. Unlike Mr Haigh, Mr Cardy was the decision-maker so far as SEI (UK) was concerned. Unlike Mr Haigh, he knew the terms of the agency agreement. So the two reasons why Mr Haigh was not liable for inducing a breach of contract do not apply to Mr Cardy. The circumstances in which a director of a company can be jointly liable with the company were considered by the Court of Appeal in MCA Records v Charly Records [2002] FSR 401. Chadwick LJ identified a number of principles that can be derived from the case law. The relevant principles, for present purposes, may be summarised as follows;

SEI (UK) was both owned and controlled by Mr Cardy. He was the decision maker. In so far as SEI (UK) had an intention it was Mr Cardy’s intention. There does not appear to have been any formal corporate governance, in the sense explained by Chadwick LJ. SEI (UK) simply did what Mr Cardy made it do. In my judgment Mr Cardy is liable for the tort of inducing a breach of contract. His liability extends to;

So far as dishonest assistance is concerned, it is fair to say that on many occasions in the course of his cross-examination Mr Howe put to Mr Cardy that his evidence was untruthful. However, it is important to distinguish between untruthful evidence, given in the witness box, and dishonest conduct said to found liability for dishonest assistance. Having re-read the transcript, I do not consider that it was suggested to Mr Cardy that his conduct in relation to the Paveway III contract was dishonest in the sense explained in Twinsectra. I decline to make a finding of dishonesty against him, and consequently the claim for dishonest assistance fails.

After the circulation of my draft judgment Mr Howe invited me to reconsider my conclusion on the allegation of dishonesty against Mr Cardy. During Mr Howe’s closing submissions I invited him, if he wished to, to draw my attention to any passages in the transcript in which he submitted that an allegation of dishonest was put to Mr Cardy. I invited him to do so in writing while I was considering my judgment. He did not do so until after my draft judgment had been circulated in which I declined to make a finding of dishonesty. I do not consider that it would be fair to Mr Cardy to re-open that question at this late stage, and I decline to do so.

I will ask counsel to draw up a minute of order to give effect to this judgment.