Societa Esplosivi Industriali SPA v Ordnance Technologies (UK) Ltd & Ors

This case concerns various classes of intellectual property rights in connection with Multiple Warhead Systems. The features of a Multiple Warhead System (“MWS”) are identified in paragraph 1 of a reserved judgment in this action delivered by Lewison J on 21^st January 2004 after a hearing of some 11 days. In that judgment Lewison J dealt with all the issues in the action which were then susceptible of judgment but there were a number of issues (identified in the Judge’s Order of 18^th December 2003, at the end of the hearing but before release of the reserved judgment) which the learned Judge adjourned. It falls to me to decide such of those adjourned issues as have remained worthwhile answering and in dispute. But before I describe those in more detail I need to say something of the parties.

Società Esplosivi Industriali SpA (“SEI”) is a manufacturer of explosives for both military and civil uses. It is incorporated under the laws of Italy. It also manufactures munitions and weapon systems but at the relevant time it did not have expertise in designing warheads of the shaped charge variety. It is that variety with which I shall be concerned. SEI is the Claimant in the action. It appears before me by Mr Martin Howe QC leading Mr James Bailey, as it had throughout the hearing before Lewison J in late 2003, the hearing which I will refer to as “the first trial”.

The First Defendant, Ordnance Technologies (UK) Limited, was formerly called SEI (UK) Ltd. Contrary to what one might expect of a company of that latter description, whilst it had contractual arrangements made with SEI, its shares were not owned, wholly or at all, by SEI, nor did SEI have nominee-directors on its board nor the ability to appoint directors to its board. For a good part of the time with which I shall be concerned it remained under its earlier name but then changed to its present name but it will be convenient, to avoid confusion with SEI, to refer to the First Defendant as “OTL” whether or not that was the name of the First Defendant at the time. OTL went into compulsory liquidation on 15^th August 2007. On 23^rd October 2007 Blackburne J lifted the stay imposed by section 130 of the Insolvency Act 1986 and accordingly proceedings have continued against OTL. I have not seen the statement of affairs in OTL’s liquidation, nor have I been told what sort of dividend, if any, can be expected by its unsecured creditors.

OTL was represented at the first trial by leading counsel but, save for a brief attendance on the first day of the hearing before me during which, I was told, a representative of the liquidator had a watching brief, OTL has taken no part in the hearing before me. Although, at a constitutional level, as I shall come on to, OTL could be described as a “one-man band”, it was not as small a company as, and was more organised than, that description might suggest. It had within it a high proportion of the United Kingdom’s expertise in shaped charge warhead design. It was, it seems, in terms of the destructive performance of its shaped charge devices, amongst world leaders in that esoteric technology, a technology more fully explained in Lewison J’s judgment which, for the purposes of this judgment, I shall take to have been read.

The Second Defendant, Impact Sciences Limited, is a company which had its own experience of shaped charge technology but its relevant assets were purchased by OTL. No relief is sought by the Claimants against Impact Sciences Limited, not even costs. Very shortly before the beginning of the hearing before me (which I shall call “the second trial”) I received a letter on behalf of Impact Sciences Limited indicating that they were not proposing to attend and no further part was taken by that company.

The Third Defendant, Stephen Keith Cardy, was, at the first trial, represented by the same leading counsel as appeared for OTL. Indeed, at the first trial, all defendants appeared by the same counsel. Mr Cardy is, I am told, the only director of and the only shareholder in OTL. I have not seen OTL’s memorandum or articles, nor any minutes of any board or general meeting. Mr Cardy describes himself and has held himself out as the Managing Director of OTL although I do not understand any resolution conferring such office to have been passed. He emerged poorly from the first trial, he or his evidence having been found to be not reliable, evasive, deliberately deceptive and deceitful. He, as a litigant in person, has taken an active part in the second trial.

There have been two further parties to the action, Mr Robin Moat and Mr David Haigh. At or before the first trial SEI abandoned its claim against Mr Moat personally and, in the course of the first trial, the personal claim against Mr Haigh failed. At the first trial Mr Moat had given evidence for OTL and, as a Defendant, in his own right. Lewison J held him to be an honest witness. Although, in point of form, the amended Particulars of Claim continue to include allegations against him, the Claimant seeks no relief against Mr Moat at the second trial and, indeed, Mr Moat, at the second trial, gave evidence for the Claimant.

It follows from this that the only active dispute at the second trial was between the Claimant and, as Third Defendant, Mr Cardy.

Another person which plays a part in the material events, although not a party to the action, was Raytheon Company (“Raytheon”), a corporation incorporated under the laws of the State of Arizona, U.S.A. and one of the largest weapons manufacturers in the world. Raytheon showed interest in and funded work by OTL and on 27^th February 2002 contracted with OTL. Work done by OTL in performance or attempted performance of that contract – work which I shall call “MMM work”, as I shall later explain - is one of the two main areas of work as to which SEI complains.

Other persons playing a part in the events, although not parties to the action, were the U.K. Ministry of Defence (“MoD”) and its then associate QinetiQ. Work done by OTL in performance or attempted performance of arrangements made with MoD or QinetiQ – work which I shall call “DMP work”, as I shall later explain - is the other of the two main areas of work as to which SEI complains.

I shall turn to each in more detail later but, to give just a glance at the acronyms at this stage, MMM work concerns a trade study project for a Multi-Mission Missile and DMP work for a Dense Metal Penetrator (although a penetrator of that description was to be only a part of the whole warhead).

Whilst some documents were looked at, there was very little in the way of detail from individual witnesses; only three gave evidence. SEI called Dr Nigel Davies as an expert witness. He submitted a report and also gave oral evidence. I need say nothing about his evidence at this stage save that I refer to it in paras 27 et seq below. SEI also called Mr R.D. Moat, OTL’s programme manager for its warhead programmes. I found him to be a reliable witness.

The other witness was Mr Cardy. His evidence was almost entirely oral. He was occasionally evasive in his answers and, upon his departing radically from evidence given on a particular topic at the first trial, he raised doubts as to which, if either, of his versions of the events relative to that topic was true: doubts as to the reliability of his evidence in general thus became inevitable. However, whilst I cannot describe him as a reliable witness, I have no need to brand him worse than that.

The main or only reason why Lewison J did not deal with but rather adjourned some issues – broadly speaking MMM and DMP issues, the issues now before me – was that by the time of the first trial there had been either no or inadequate discovery as to OTL’s MMM work and DMP work. Orders for discovery by OTL had been made before the first trial on 19^th March 2003 and 30^th July 2003 and, during the first trial, on 4^th December 2003. The Order that represented the outcome of the first trial, Lewison J’s Order of 21^st January 2004, included provision for the delivery up to SEI of a wide description of documents. There was further provision of documents by OTL to SEI after the first trial on 14^th January 2004, 20^th April 2004, 21^st and 22^nd September 2004 and 10^th December 2004. A fresh batch of papers was supplied by OTL on 5^th April 2005 and an Order as to the costs of SEI’s application for yet further disclosure was made on 9^th May 2005 in SEI’s favour. Despite this long history, Dr Nigel Davies, SEI’s expert witness, speaks, for example, of absent computer modelling files, missing detailed initiation system drawings and absent input sheets. However, I have not understood Dr Davies, when speaking of material being absent, to be necessarily asserting that it must have once existed, still less that it had been deliberately concealed or destroyed.

SEI has, in effect, taken the tactical decision to proceed as best it can on the information already to hand rather than laying out yet more time and money in what could be a futile attempt to prove persisting breaches in relation to discovery by OTL or by Mr Cardy. At one or two points in its argument SEI asked me to draw inferences in relation to information that was missing.

By 1995 a team consisting of SEI and ISL had designed and made a MWS to which they gave the name Lancer – see Lewison J’s judgment at paragraph 19. Those companies carried their work forward under a First Teaming Agreement of 11^th January 1996 and a second of 1^st January 1998. Mr Cardy had played a part in their coming together and in late 1998 he caused the incorporation of OTL. On 29^th October 1998 OTL entered into a Consultancy Agreement with SEI to which I shall later refer. Also in October 1998 Mr Cardy made a presentation to Raytheon which sufficiently impressed the latter for it to commission a design of an MWS which was intended to contain Raytheon’s penetrator. ISL conducted mathematical modelling using its Parajet and Pisces predictive modelling computer programs and, after many variations were tried, a design began to emerge to which the name Lancer 2 was given. By May 1999 Lancer 2 existed in the form of drawings recorded in Computer Assisted Design Files. Next a prototype was made and there was a jet characterisation test in December 1999. In December 2000 OTL acquired the business and assets of ISL and further development of Lancer 2 ensued. There was a static firing testing of it in California on 21^st January 2001. Raytheon was sufficiently impressed to require embarkation on “the Lancer Number 2 Dynamic Firing Project”. The dynamic firing test was to take place at the Pendine Firing Range in Wales, owned by the Defence Evaluations Research Agency. In a dynamic as opposed to a static firing test the kinetic effect of the warhead, which would be a feature of its actual use, was, so far as possible, replicated so as the better to judge the overall effect of the system used. Lewison J held that by May or June 2001 Mr Cardy had formed the intention that the contracts then emerging for the dynamic firing project and subsequent development would be placed with OTL and not with SEI. SEI was to be cut out. SEI, not knowing of that intent, entered, as I shall later explain, into a Third Teaming Agreement with OTL. But, confining myself here to what was going on technically at the time, arrangements for the dynamic firing, a test that was expected to cost in the order of £450,000, proceeded. The test firing took place on 5^th December 2001. It was a success. Moreover, the results achieved were sufficiently close to those predicted by the Parajet program as to have validated the Parajet modelling system. Thus by December 2001 there existed a tested MWS by the name of Lancer 2 which had been tested successfully; it was ahead of any comparable system which had been developed or tested by that time. It was an MWS the initial intellectual property rights in respect of which were plainly valuable and further developments from which, including those arrived at by way of the validated Parajet modelling program, could prove to be at least as valuable again. But to whom did the various rights within that bundle of rights belong? In some respects SEI’s written closing submissions, without, in most cases, formally abandoning claims raised in the pleadings and in the written opening submissions, seem to deal with a smaller range than was open to SEI. It will thus be safer for me to attempt to deal with the full range. I shall accordingly need to look at rights deriving from contract (including contractual provisions as to confidentiality), from equitable confidence, from copyright and by way of unregistered design right. I first look at rights arising under contract.

On 25^th June 2001 a number of written agreements were made between SEI and OTL. Each was applicable not merely to matters dealt with at the first trial but also to the matters before me. Of course, Lewison J was not concerned with breaches of contract as to MMM or DMP work but his conclusions as to what were the basic contractual arrangements in general carry forward to such work. Chief of the agreements of 25^th June 2001 was the “Third Teaming Agreement”. The terms of that agreement, so far as relevant, both for his purposes and mine, were set out by Lewison J. in his judgment at paragraphs 61 et seq.

The agreement set out something of the history of the relationship between the parties, including that OTL had on the 18^th December 2000 acquired the business of ISL. There is a recital that SEI had expertise and resources for the manufacture of a wide range of high-quality explosive ordnance and that OTL had expertise in the design of a class of warhead systems to defeat various types of targets and had the expertise also to assess the effectiveness of such warheads. The recitals included that:

“the two companies wished to join their expertise and resources to develop competitive and cost effective new generation Multiple Warhead Systems (MWS), for use with current or future missiles (such as but not limited to Airhawk, Tomahawk, Centaur and US Hard and Deep Buried Bunker) torpedoes warheads (such as but not limited to Stingray, MU90, Impact …) shaped charges for SEI products”.

Earlier agreements between SEI and OTL were cancelled and clause 3 – Lewison J at his para 63 – set out the relationship between the parties as follows:

“a)

In the bid process, and in any contract gained for the design, development and production of the MWS, SEI will be the Design Authority and lead warhead contractor.

b)

[OTL] will be the exclusive sub-contractor to SEI for the design concept, the performance assessments and the engineering design and testing support to development program, leading to manufacture of the MWS.

c)

[OTL] will not offer its designs, design expertise, assessment capability or development support expertise to any third party in the context of MWS.

d)

In case of a UK classified programme or contract in which SEI cannot participate, [OTL] will be able to participate after written agreement from SEI .”

Lewison J concluded at his paragraph 148 that the provisions of clause 3(c) and 3(d) supra (contrary to OTL’s argument) were not void as unreasonable constraints on trade and there has been no appeal against that conclusion. At his paragraph 65 Lewison J turned to the ownership of intellectual property rights and began by citing relevant passages from the Third Teaming Agreement at clause 4 as follows:-

“i.

“Background” Intellectual Property Rights (IPR) means all information, including inter alia, Patents, Registered Designs, process expertise (and proprietary rights as identified in the Confidentiality Agreement referred to in Clause 1 above) which SEI or [OTL] use in the achievement of the contract requirements and

ii.

“Foreground” IPR is that which results from the bid preparation or from work on MWS sub-contract by the application of background information to the contract requirements.”

Lewison J observed at his paragraph 66 that clause 4(b) then went on to allocate ownership of IPR as follows. He then cited the provisions thus:

“Subject to the terms of the contract negotiated with the FINAL CUSTOMERS:

i.

Background IPR used in the bidding phase or MWS development phase contract shall be owned by each party performing its respective bid preparation or development work, and

ii.

Warhead system foreground IPR arising from MWS bid preparation or development contract shall be owned by SEI who shall be deemed to be the warhead system Design Authority;

iii.

Warhead subsystem foreground IPR arising from MWS bid preparation or development contract shall be owned as follows:

the forward shaped charge warhead jointly by SEI and [OTL] who shall be deemed to be the Joint Design Authority, and the rear penetrating, blast warhead (if a SEI design) by SEI who shall be deemed to be the Design Authority.

iv.

SEI shall have free user rights of the joint SEI/[OTL] shaped charge warhead designs emanating from the activities covered by this agreement.”

Clause 4(c) – here I am quoting from Lewison J’s paragraph 67 – said that both parties would require the written permission of the other “to exploit the specific MWS studies or components”. There was provision in the third teaming agreement that it could be terminated by mutual agreement or by one party relying upon material breach by the other party but that, subject thereto, it was to run until 31^st December 2010. Its clause 10(b) provided that neither party should collaborate on the same subject with any other party whilst the agreement was in force.

I said there were a number of agreements entered into on the 25^th June 2001. One of the others was a so-called Agency Agreement by which SEI entrusted OTL with the task of being its dealing agent. Clause 22 provided:-

“The Agent commits him/herself to maintain strictly confidential and not to reveal to anybody and for no reason data, news, technical papers, trading, operational, production and managing information or any other information concerning SEI know-how, neither directly nor indirectly, either during or after the termination of this agreement.

In case of non-fulfilment, at any time, the Agent will be held to pay to SEI an amount, as for penalty, equal to GBP180,000, anyway, provided SEI right to claim any further damages.”

I shall come back to that reference to “SEI know-how”.

Another of the agreements of the 25^th June 2001 was a Support Services and Consultancy Agreement to the particulars terms of which I need not further refer (Mr Howe indicated he did not rely on its para 2.2) but I should refer to the Confidentiality and Non-Disclosure Agreement of the same day. That agreement (“the CNDA”) defined confidential information as requiring that, if in writing, it should be marked as such. It set out at length the duties of the parties with regard to confidential information; it provided (similarly but not identically as in clause 22 of the Agency Agreement supra) for a payment by the “non-fulfilling party” of £150,000 upon its breach. It was governed by Italian law and provided that all controversy in relation to it should be solved by arbitration, which was to be in Zurich.

Lewison J held that OTL was in breach of the terms of clause 3(a) supra of the Third Teaming Agreement by causing itself to become the lead contractor rather than procuring the award of a contract to SEI with OTL being merely a sub-contractor. At the hearing before him, OTL accepted that there had been such a breach of contract. The learned Judge also held that OTL was in breach of fiduciary duty by putting its own interests above those of SEI. Moreover, held Lewison J, OTL had committed a breach of the duty of confidentiality, the duty having arisen out of the terms of the Third Teaming Agreement. Those breaches had all been concerned with or had grown out of or been evidenced by the programme that had led, on 5^th December 2001, to the dynamic firing at Pendine of the Lancer 2 device.

As I have mentioned, it is the same contracts that were relevant before Lewison J which are relevant in this second trial. If I may thus broadly summarise the contractual position as it was between SEI and OTL in relation to the use of Lancer 2 technology under the Third Teaming Agreement and the other agreements to which I have referred, it was as follows:

The Claimant, as I have noted, called as an expert witness Dr Nigel Davies. Mr Cardy sought to belittle his evidence on the ground that he was not an expert in shaped charge design. I do not accept that his evidence fell short. In the sense that he previously had never had charge of the actual design of a shaped charge, the accusation was true but he had not claimed to be an expert of that kind. Instead he had long familiarity with high explosives and munitions, including shaped charge weapons, in both practical and academic roles and I found his evidence, both in his written report and throughout his cross-examination by Mr Cardy, to be balanced, well informed, thoroughly reliable and very helpful.

He explained how, as early as the 19^th century, it had been found that, by lining the inside of the cavity that bore the explosive charge with a thin metal cone, the overall effect of the charge could be varied and that, by positioning the charge to explode somewhat away from, rather than in contact with, the target (“stand-off”), the detonation could be tailored so as to make a deep and narrow spike-like hole in various types of target. At his paragraph 16 he explained, in relation to modern shaped charges:

“When the detonation wave sweeps through the explosive and hence the conical liner it exerts such a huge pressure on it that the solid metal flows like a liquid. The cone collapses towards its axis and cone material is injected forwards as a very fast thin jet travelling at perhaps in excess of 10,000 metres per second”.

The density of the metal used as the liner affects the performance, as does the shape of the cone, which has a great effect upon the jet which will be created. In recent years computer programs have been created to seek to predict as accurately as may be the potential performance of particular combinations of cone metal, cone shape, distance of stand-off and of the various types and amounts of explosives substance which can be used. It can readily be imagined how difficult and expensive it is to arrange actual explosive trials and hence how valuable a tool is a computer program that has been validated in the sense of having been found accurately to predict results. OTL, as I have mentioned, had such programs.

Both naval and military needs proved such that it became not sufficient merely to create a hole through whatever dense material, be it concrete or armour, that was sought to be penetrated. A hole in, say, a tank, a frigate or a gun emplacement would not necessarily deny it a continuing dangerous capability; there needed, after penetration, to be an explosion within the tank, frigate or emplacement. A need for two stages using two distinct warheads within the same munition thus emerged but some finesse was needed. If the warhead went clean through the tank or frigate, to explode in the air beyond, then plainly the effect would be less effectively destructive than would have been an explosion within it.

Dr Davies’ report explains how weapons accordingly became designed so as first to penetrate either “soft” targets (no more than 150 millimetres of concrete) or “hard” targets. He explains how the Second Defendant, ISL, had worked on shaped charges for some years, how OTL continued such studies and how very many design variations having been tried, designs called Lance 1 and Lance 2 emerged to be further developed to become Lancer 1 and Lancer 2.

It then became desirable in military terms to look into the possibility of the development of a multi-mission missile – an “MMM” - which could deal successfully with both soft and hard targets. I have mentioned that in this regard OTL contracted with Raytheon. The object of OTL’s exercise for Raytheon was to produce a shaped charge weapon which, when set to have a soft target, would penetrate by simple kinetic energy with its follow-through penetrator then detonating after passage through the hole in the “soft” thickness of concrete created by the kinetic effect of the first part of the weapon. Yet where set to be against a hard target, the intention was that the very same basic munition would be capable of being arranged so as to detonate before impact; the jet thus created would be intended to damage the “hard” concrete of the target and the penetrator would then perforate what was by then damaged concrete and there would be a fresh detonation within whatever space lay beyond the outer hard shell. Dr Davies speaks of computer modelling being used by OTL on no less than 80 variations of Lancer 2 with the intent of emerging with this dual hard and soft target capability but my impression from the evidence as a whole is that the 80 variations spoken of were but a small part of many many more, most of which probably subsisted for no more than a little while before being further varied in OTL’s chief computer modelling system, Parajet.

Dr Davies sets out in a table the performance of 7 main iterations within Parajet, the first of which, serial 1, was or was substantially the Lancer 2 design as used in the Pendine dynamic firing in December 2001. The development program moved forward until it arrived at serial 7. By serial 6 there had, by way of computer modelling, been a sequential optimisation of liner apex angle, liner thickness and liner profile and serial 7 was that optimised design but with a more powerful explosive.

It was Dr Davies’ opinion that the design of the shaped charge warhead for the MMM benefited from the design and trials work of the Lancer 2 program in that a combination of liner and initiation system known to perform well against the type of target concerned had already been designed and demonstrated and that the predictive capability of the computer models used in Parajet and the associated program, Pisces, had been validated in the sense that the static and dynamic tests had already had actual results which closely accorded or sufficiently accorded with what Parajet, in particular, had predicted.

Dr Davies concluded that the MMM warhead study – it remained a study because OTL’s MMM work never got beyond a study stage, no MMM warhead was actually made – had been based on the warhead used in Lancer 2. He also said that, without the information from the Lancer 2 programme, a significant although not readily quantifiable amount of extra work would have been necessary to achieve a design which gave the required predicted performance and confidence in the prediction would have been less in the absence of the earlier experimental validation of Lancer 2 by way of the static and dynamic tests. I shall need to return to the subject of MMM design but, because no MMM drawings or input sheets for the computer modelling have ever been disclosed by OTL, it was not possible, said Dr Davies, to determine just how far the last achieved MMM design in the hands of OTL differed from Lancer 2 but he added (with my emphasis):

“It seems certain from the information provided that it would differ in detail rather than in any fundamental change in the concept”.

This use of the word “would” suggests that what he had been looking at was work in progress rather than anything regarded as perfected or final.

Mr Cardy’s cross-examination made, in my judgment, no inroads into Dr Davies’ conclusions as I have summarised them and which I accept. I have no doubt but that, in its MMM work for Raytheon, OTL was in breach of its contracts with SEI in relation to the use of Lancer 2 intellectual property. It could only properly have used warhead system foreground IPR (as on Dr Davies’ evidence I hold it did) with SEI’s consent, which it did not have. OTL was in breach also by its insinuation of itself as the main contractor with Raytheon to the exclusion of SEI. In breach of contract, it procured a role for itself other than as SEI’s sub-contractor. In breach of contract, it offered its design expertise to a person, Raytheon, other than SEI. In breach of contract, it competed in business with SEI in the sense that, having kept knowledge of its dealings with Raytheon from SEI, it then did work which SEI (with OTL, by way of the Third Teaming Agreement) could have done.

As for breach of contractual obligations of confidence deriving from the contracts between SEI and OTL, although in the course of MMM work, information was given to Raytheon, I am left in doubt as to whether it was information which was of sufficient stature to be regarded as confidential within the material provisions or to be describable as “SEI know-how” within clause 22 supra, upon which, in any event, Mr Howe ultimately did not rely.

Moreover, reference to the CNDA – see para 24 supra - gives rise to further doubts: was the material said to be confidential sufficiently identified as such pursuant to the CNDA; was that identification required in all cases as a prerequisite of material being regarded as confidential; should not complaint as to breach have been taken to arbitration and, if the only specified remedy for breach was the apparent provision by way of penalty, would that not be impermissible under English law? Had the argument as to contractual confidence been developed orally before me it could be that such doubts would have been dispelled but the subject of contractual confidence was barely mentioned save for it to be abandoned, at least in parts, and the doubts remain. In practical terms, relief in respect of breach of contractual confidence would be likely to yield SEI nothing significant in addition to relief to be granted under other headings, which was, no doubt, why the subject was not developed and, in the result, my being left in doubt is unlikely to be of any real consequence. I do not find OTL to have been in breach of contract as to confidentiality in relation to MMM material, the only material which I am here considering.

The DMP program, at the behest of MoD or QinetiQ, was intended to lead to the design of a UK stand-off weapon which would, albeit with a relatively light weapon, destroy hard targets. The intention was that there would be a shaped charge which would create an initial hole which would be such as then to allow a follow-up from within the very same overall weapon by a tungsten alloy or similar heavy metal penetrator. Two articles to such a design were actually constructed; one was statically fired on the 10^th April 2003 and the other dynamically fired on 13^th August 2003. Dr Davis concluded that the dimensions for the full diameter, the outer cone angle, the radius of the outer surface of the apex and the width of the lip at the cone mouth were identical to those of Lancer 2. There were slight differences between the two designs in several minor respects but the effect on performance of those minor respects was, in his view, likely to be no more than trivial. He concluded that the shaped charge warhead and initiation system considered for the DMP program appeared to be essentially that developed for the Lancer 2 program.

As was the case with MMM, there is no room for any conclusion other than that, in the course of the DMP program, OTL used IPR related to Lancer 2 which could not properly have been used without SEI’s consent, which OTL did not have. Again, Mr Cardy’s cross-examination of Dr Davies made no inroads that prevent such a conclusion and I accept Dr Davies’ evidence. OTL was, in my judgment, in breach, in addition, in procuring that, in relation to a form of MWS development, it, rather than SEI, was the contractor, in breach in procuring for itself a role other than as SEI’s sub-contractor and in breach also in offering its other skills to a person other than SEI. As for contractual requirements as to confidence in relation to DMP material, for reasons, corresponding, mutatis mutandis, to those in relation to MMM material, I do not hold OTL to have been in breach of contractual confidence.

Copyright, whilst mentioned in para 54.4 of the Amended Particulars of Claim, in para 4 of the prayer to those Particulars, in the Claimant’s Skeleton Argument and (in the very same words) in the Claimant’s Closing Submissions, was not developed orally at all. The algorithms, software and data in respect of which copyright was claimed were not further identified in the pleadings nor was the occasion on which it was said that some of the same had been supplied to Raytheon. The injunction sought in the prayer was vague at the outset and was left vague. I accept, of course, that under section 173(2) of the 1988 Act the use of jointly owned copyright material requires the licence of both or all of its co-owners and that it may well have been that OTL was guilty of relevant use without SEI’s consent as co-owner of the material. However, there are two matters that, in my view, stand in the way of findings and relief in SEI’s favour. Firstly, there is the exceptional vagueness which I have mentioned; even an absent party such as OTL and, a fortiori, a present litigant in person such as Mr Cardy is, in my judgment, entitled to something more specifically and clearly alleged and proved to be the case in respect of copyright. Secondly, I am asked to draw “appropriate inferences”, adverse to OTL and Mr Cardy, from the absence, from the material disclosed to SEI in the action by OTL, of computer files of the kind in respect of which copyright is claimed. But neither the Liquidator nor anyone else from OTL itself was summoned to explain the absence of such documents from the disclosure and Mr Cardy was not cross-examined before me as to the reason for that absence. I have thus been left without the opportunity to observe any testing of whether the absence was deliberate, evasive and blameworthy and hence such as to justify adverse inference or was explicable in some innocent way. In those circumstances, it would, in my judgment, be unfair to draw adverse inferences. Those two factors combine to lead me to decline to find breach by OTL in respect of copyright in MMM or DMP material and to decline relief in respect thereof.

I was not addressed on how far, if at all, the protection usually afforded to trade secrets under the equitable doctrine of confidence, a doctrine which can confer protection even when there is no relevant contract, is to be taken to be qualified where the parties are in contract together and where their contract does make express provision on the subject of confidentiality. It seems to me to be at least arguable in such a case that the express provisions of the contract should be taken to have replaced pro tanto or altogether those of the equitable doctrine. Especially might that be so where, as here, one of the parties is an overseas party and where the agreement most fully dealing with confidentiality – the CNDA of 25^th June 2001 - provided at its clause 14 that it was governed by “the Italian law”, as was the Agency Agreement made on the same day. The CNDA has all the appearances of a contract that was intended, with the other contracts of the same day, to comprise a complete code between the parties so far as concerned confidence. I hold that to be the case and, on that basis, I hold that it is only by reference to the contractual provisions related to confidence that SEI can claim in confidence. To that extent I need add nothing, either in relation to MMM or DWP, in respect of possible liability of OTL to SEI under the equitable doctrine of confidence.

Section 213 in Part III – “Design right” - of the Copyright, Designs and Patents Act 1988 provides as follows:

“213Design right

(1)

Design right is a property right which subsists in accordance with this Part in an original design.

(2)

In this Part “design” means the design of any aspect of the shape or configuration (whether internal or external) of the whole or part of an article.

(3)

….

(4)

A design is not “original” for the purposes of this Part if it is commonplace in the design field in question at the time of its creation.

(5)

Design right subsists in a design only if the design qualifies for design right protection by reference to—

(a)

the designer or the person by whom the design was commissioned or the designer employed (see sections 218 and 219), or

(b)

the person by whom and country in which articles made to the design were first marketed (see section 220),

or in accordance with any Order under section 221 (power to make further provision with respect to qualification).

(6)

Design right does not subsist unless and until the design has been recorded in a design document or an article has been made to the design.

(7)

Design right does not subsist in a design which was so recorded, or to which an article was made, before the commencement of this Part.”

That section gives rise to a number of questions. Thus, as will have been seen, under section 213(4) a design is not “original” and hence becomes undeserving of the protection afforded by section 226 if it is “commonplace in the design field in question at the time of its creation” – see section 213(1) and section 226(1). Mr Cardy took a point as to that. The term “commonplace” is not defined by the Act and accordingly, if this is possible in its context in the Act, it is to be given its ordinary meaning, namely, with respect to an object, one which, albeit in its own design field (here the very specialised design field of shaped charge warheads) is an ordinary every day object, having nothing out of the common, an object devoid of originality or novelty.

Whilst, in that design field, conical liners, for example, are not at all unusual, it has been made clear to me that small variations in shape, internal and external, can make large difference to the charges’ performance. So far as concerns the shape, the thickness, constant or otherwise, in the walls of the cone, the rectilinearity or curve of the sides of the cones, the angle of the sides of the cone to one another, the extent to which the point of the cone is sharp or is rounded and its thickness at that point are all factors varying from one design to another and which lead to significantly different performance. Liners, albeit commonly broadly conical, are, so to speak, bespoke, tailored, along with the whole of the shaped charge, very much to the classes of targets at which they are intended to be aimed and which they are intended to destroy and tailored also to how they are to be delivered to the target. Further, evidence was given to me of Lancer 2 shaped charges having a performance which, at the time, was unmatched anywhere in the world, a performance in the attainment of which the particular shaped charge liner and the shape of that crucial component was, with other features, an important factor. That tends to suggest the shape of the relevant liners was uncommon. No evidence was led which suggested the ordinariness of the Lancer 2 shaped charge either as a whole or as to any of its parts and I am left in no doubt but that neither in whole or in part was the Lancer 2 shaped charge warhead “commonplace” within the intendment of section 213(4). Both the design of its parts and the design of the whole were original designs for the purposes of the Act.

Design documents are defined in section 263(1) of the 1988 Act so as to include records of a design existing by way of being data stored in a computer. Moreover, articles have been made to the Lancer 2 design. In both cases the storing of the data and the making of the articles occurred long after the commencement of Part 3 of the 1988 Act. Accordingly the requirements of section 213(6) are satisfied.

There are several alternative statutory routes by which design right in the Lancer 2 shaped charge warhead may be found to be owned by SEI or by it and OTL jointly. Thus it may be so owned by way of the commissioning of the design, by its first marketing, by employment of the designer or by written agreement between prospective owners signed before the creation of the design. By one or other of a number of routes the ownership of the design right could have come to be either in OTL, as an United Kingdom corporation, jointly with SEI, as a corporation of a Member State of the EC, or in SEI alone. As such sole or joint ownership of design right in SEI has not been disputed before me by OTL and has been claimed by SEI, I need not go further into which of the several routes to that conclusion is or are applicable.

Where there is joint ownership, section 258(2) of the 1988 Act provides:

“Where design right (or any aspect of design right) is owned by more than one person jointly, references in this Part to the design right owner are to all the owners, so that, in particular, any requirement of the licence of the design right owner requires the licence of all of them.”

I thus proceed on the basis that design right in Lancer 2 shaped charge warhead design resided either (it matters not which for immediate purposes) in SEI alone or jointly in SEI and OTL.

Given that a governmental department – the MoD – or its associate – QinetiQ – was a party engaged or contracting with OTL as to DMP work, the possibility of there having been Crown use within section 240 of the 1988 Act was touched upon but no authority in writing such as section 240 requires nor any contract as between MoD or QinetiQ and OTL was produced at the second trial. I thus mention Crown use only to dispose of the subject.

“Secondary” infringement of design right is defined in section 227 of the 1988 Act but it is accepted not here to be relied upon. In particular, it is accepted that OTL’s possession – section 227(1)(b) – was not itself in breach. Instead, it is primary infringement which is here asserted and, for that, the provisions of section 226 are relevant. They provide, so far as material, as follows:-

“226Primary infringement of design right

(1)

The owner of design right in a design has the exclusive right to reproduce the design for commercial purposes—

(a)

by making articles to that design, or

(b)

by making a design document recording the design for the purpose of enabling such articles to be made.

(2)

Reproduction of a design by making articles to the design means copying the design so as to produce articles exactly or substantially to that design, and references in this Part to making articles to a design shall be construed accordingly.

(3)

Design right is infringed by a person who without the licence of the design right owner does, or authorises another to do, anything which by virtue of this section is the exclusive right of the design right owner.

(4)

For the purposes of this section reproduction may be direct or indirect, and it is immaterial whether any intervening acts themselves infringe the design right.”

Throughout section 226(1) it is to be borne in mind that the word “design” includes design of any aspect of the shape or configuration of parts of the article as well as of its whole – section 213(2).

It is required of the infringer by section 226(3) that he must have done something or authorised something to be done. A mere omission is no infringement. What it is that has to have been done or authorised to be done is required to have fitted within at least one of two main classes. The first main class of things – which I shall call the making class - that may be regarded as a primary infringement is divisible into two sub-classes, the first of which consists of reproduction of the design by way of the making for commercial purposes of one or more articles to the protected design – section 226(1)(a). Commercial purposes are, for the purposes of section 226(1), defined by section 263(3); what is done needs to have been done with a view (the definite article is used) to the article in question being sold or hired in the course of a business. Having a “purpose” is thus seen there to relate to a particular state of mind - “done with a view to …”. The other sub-class of the making class is an enlargement of the first sub-class as – section 226(2) – it is to include (with my emphasis) copying the design “so as to produce articles exactly orsubstantially to that design”.

The draftsmanship of section 226(1) and (2) is not without curiosity. Section 226(1)(a) is concerned, it would seem, with the reproduction of the design by the actual making of articles to that design. But then subsection (2) gives a particular meaning (and not an inclusive but an exclusive meaning) to the expression “reproduction of a design by making articles to the design” notwithstanding that that expression is never used. However, the expression so given meaning in subsection (2) is close enough to what is intended by section 226(1)(a) to be understood to indicate exclusively what 226(1)(a) is to mean. Section 226(2), as I have mentioned, plainly enlarges 226(1)(a) by including the reproduction of articles only “substantially” rather than “exactly” to the protected design. But do the words “so as to produce” in 226(2) represent a further enlargement so that there can be an infringement (not involving the making of a design document, as that would fall within 226(1)(b)) in the making class even where no offending article is ever made? Put another way, are the words “copying … so as to produce articles” satisfied, so far as concerns infringement, if a defendant copies the design (in a non-documentary way) with a view to making infringing articles commercially (leaving aside who has to have that view) or do made articles actually have to emerge?

I do not see that I here need to look further into that question as I do not understand that whatever copying might here have taken place without its leading to actual manufacture or to have been here intended in any case not including actual manufacture was other than by the use of documents. Section 226(1)(a) and (b) are linked by an “or” and are contemplated as alternatives (though not so as to preclude a defendant being “guilty” on both counts). Many articles or parts of articles that are protected will, no doubt, be capable of being copied without the involvement of design documents; the protected part may be used, say, as a template for the making of others like it. In the DMP case there was actual manufacture; if the manufacture was in breach there is no need to look at documentary section 226(1)(b) breach. But I have not understood that actual parts of Lancer 2, still less the whole of Lancer 2, were made in the course of the MMM work of varying Lancer 2 in such a way that any part of Lancer 2 or of a variation of it was copied without the use for design documents. It is not as if there was evidence that some Lancer 2 cone, for example, was left over as a spare part and could be used as a template. So far as I have understood the matter, at the times with which I am concerned, Lancer 2’s design existed only in either physical drawings or the equivalent of drawings recorded in one or more computers. That, combined with the fact that no copies of any part of Lancer 2 were actually made in the course of MMM work, seems to me to render 226(1)(a) as explained by 226(2) as not applicable to MMM. In other words, design right, so far as concerns MMM, was either infringed by way of 226(1)(b) or not at all, whereas, for DMP, if there was infringement by way of a copying of the design in actually making the 2 articles, there will be no need further to inquire into whether design documents were improperly used in the course of DMP work.

So much for the making class. The other class of infringement is what I shall call the document class and is not divided into any sub-classes. It arises where the infringer for commercial purposes has reproduced the protected design by making a design document recording the protected design “for the purpose of enabling such articles to be made” – section 226(1)(b). “Such articles” are articles to the protected design. “Design documents” are broadly defined within section 263(1) to be “any record of a design, whether in the form of a drawing, a written description, a photograph, data stored in a computer or otherwise”. It is notable that, whilst, as I have mentioned, the making class is expressly enlarged (by section 226(2)) so as to include the production of articles “substantially” to the protected design, neither section 226(2) nor any other provision enlarges the documents class and the “expressio unius” argument stands in the way of any attempt to do so.

It will have been seen that words that may be said to require a particular purpose or intent in the infringer are included within the legislation: the presence of a commercial purpose is required in both the making and documents classes and there is, in addition, in the making class, as may or may not involve a further purpose, a requirement that copying of the design shall be “so as to produce” the described articles. The documents class requires the making of the design document recording the design to be “for the purposes of enabling” the described articles to be made.

At this point a question arises: leaving aside proof of a commercial purpose, do the words “by making a design document recording the design for the purpose of enabling such articles to be made” in section 226(1)(b) require the proof of a particular state of mind in the infringer in the (unenlarged) documents class? Mr Howe, not only Counsel for SEI but also editor of the 7^th edition of Russell-Clarke & Howe on Industrial Designs, tells me that there is no authority on it.

It could perhaps be that the words “recording the design for the purpose of enabling such articles to be made” do no more than describe the type of design document as to which the owner has an exclusive right of reproduction and which, accordingly, by way of section 226(3), a defendant must not himself reproduce for commercial purposes. That, though, would in my view be an excessively tortuous reading; had that been the intent the more natural way of expressing it would have been either to include within the definition of “design document” for the purposes of section 226(1)(b) a requirement that the document should be of a kind such that relevant articles could be made from it or (if this would be different) were enabled to be made by it, or for section 226(1)(b) to have been altered to read something such as “by making a design document recording the design and by which such articles are enabled to be made”. Neither of those more natural courses was adopted. The more natural way of reading section 226(1)(b) as it is in fact framed is, in my judgment, to read the words “for the purpose of enabling such articles to be made” to relate back so as to qualify the words “by making ….” so that it is the making of the document which is required to have been for the specified purpose.

Whilst the provision is not “with the purpose” but “for the purpose”, it is to be noted that the words “so as to” in section 226(2), whatever they might mean, are not here used. Phrases that would avoid any assessment of the infringer’s subjective state of mind, as, for example, “of a kind such as would enable” or “such as to enable” the making of the design are not used. Moreover, the first specified purpose – “for commercial purposes” – plainly requires a particular view to be demonstrated to be in the infringer and it would at least be consistent to require that the other specified purpose - “for the purpose of enabling such articles to be made” - should similarly require a state of mind to be demonstrated to have been or be in the infringer.

I can see that such a construction might be inconvenient from a claimant’s point of view in that a further subjective element (beyond “commercial purpose”) is introduced into infringement but some such a requirement may be needed to keep design right within reasonable bounds. Let it be supposed that a commercial producer of decorative prints for hanging on walls decides fully and accurately to reproduce, for sale as such prints, the design of a famous article – say part of a well-known internal combustion engine or of a celebrated pistol or gun. The prints are run off. He will have made, for commercial purposes, a design document recording the protected design and which would have enabled the engine, pistol or gun to have been made. However, as I read 226(1)(b), he would not have done so “for the purpose of enabling such articles to be made” but rather for the purpose of walls being decorated with his prints. But that, as it seems to me, represents no great dent in the protection which design right confers. The moment someone uses the print for the commercial purpose of making part of the engine, the gun or the pistol, then the owner of the design (even if he has not been able to assert other rights earlier) will be able to assert his rights under section 226(1)(a).

It is worth noting that, quite aside from “commercial purposes”, a particular state of mind (knowing or having reason to believe) is referred to in section 230(1)(b), as also is innocence (did not know and had no reason to believe) in section 233. That may furnish an argument that, when the draftsman needed to refer to a state of mind, he knew how to do so and that, not having used any comparable language in section 226, he had not intended reference to any state of mind. But I do not find that possibility at all compelling; the Court still has to find a meaning for “by making …. for the purpose of enabling” and the word “purpose” is used in the Act in a way which requires a particular state of mind – see the definition of commercial purposes in section 263(3). I do not feel that arguments deriving from section 230(1)(b) and section 233 are strong enough on their own to exclude that section 226(1)(b) requires a particular state of mind (aside from commercial purpose) to be proved if there is to be an infringement falling within it.

For these reasons, in my judgment, it is, in point of construction, a necessary component of a successful allegation within the documents class of section 226(1)(b) that it should be proved of the alleged infringer that at the material time what he did or authorised to be done by way of the making of a design document recording the design in question was done with the purpose in him that articles to the design should thereby be enabled to be made. It is not required that he should have the purpose that he or he whom he authorises should himself or themselves make or be enabled to make such articles but rather that within the infringer there should be the purpose of enabling the articles to be made. Moreover, as with any other state of mind, its proof is not necessarily to be negatived by a denial by the defendant concerned; whether the necessary purpose did or did not exist at some material time is likely to require an evaluation of all surrounding circumstances, amongst which the defendant’s own denial, if there has been one, is merely a part and not necessarily a credible part.

I have dealt at some length with the “purpose” element of section 226(1)(b) because, as I have mentioned, in relation to MMM work, no relevant article was ever made. If I am right as to the construction of section 226 which I have explained above then I must now seek to apply that construction to the facts.

As for DMP work, I have already set out in para 39 above that the DMP programme, which included the making of two articles, was, in Dr Davies’ view (which I have accepted) essentially that developed for the Lancer 2 programme. The test as to “exactly or substantially” in section 226(2) is, in my judgment, satisfied, in particular as to cone design. Whether the weapon was wholly or in part made by others – for example, a sub-contractor to OTL – is immaterial; it was made and its making was authorised by OTL. As for whether there was the required commercial purpose, the contractual arrangements between OTL on the one side and MoD or QinetiQ on the other, are not available but that OTL was acting for commercial reward is not denied and is undeniable. It could be debated whether the arrangement between OTL and MoD or QinetiQ was one for the sale or hiring of the articles in question. The two articles made were made with a view to their being, and they were, exploded. Neither I nor SEI has seen the contract between OTL and MoD or QinetiQ, so whether the two articles were sold (a hiring seems improbable) is unclear. However, I am prepared to assume that, for a monetary consideration, they were so put at MoD’s or QinetiQ’s disposition that there was a sale or something analogous to it. I shall take it that there was thus a commercial purpose within the meaning of section 226 and section 263(3). I thus hold that in relation to design right and DMP work, SEI’s design right was infringed by OTL.

The case as to design right and MMM work presents greater difficulties. Here, if I am right, it is only within the documents class that there can have been any infringement. That OTL had Lancer 2 design documents within its computer is not complained of. OTL then used the Lancer 2 documents as a starting point, and, as I have mentioned in para 33 above, developed or varied the design through several iterations within their computer. As no relevant article was ever made, I shall need to look into whether, in the course of MMM work, OTL ever made a design document of a part or of the whole of Lancer 2 warhead for the purpose of enabling there to be made any article to the design of a corresponding part, or of the whole, of the Lancer 2 design.

The relevant MMM work is work done after the events considered by Lewison J in respect of which he granted relief. It is, unfortunately, far from clear what became of the MMM project; as I understand the matter, Raytheon pulled out as it became likely, in Raytheon’s view, that the US military would not become a customer for any MMM which was then contemplated as likely or possible to emerge at the end of the development work which OTL and Raytheon had agreed upon. Further MMM work thus became pointless. The MMM project was essentially one of design study and evaluation rather than for manufacture. It was not intended merely by manufacture to replicate Lancer 2 or any particular parts of it. That would not have required the contract for design study that was entered into. The design was to be developed by change.

Mr Howe draws attention to the table to which I have earlier referred, one which, beginning with serial 1 (which represented or corresponded closely to Lancer 2) showed some varying features and the varying performances, as predicted by the Parajet and Pisces computer programs, of varying designs which were never made. The goods I am concerned with – shaped charge warheads in particular – are goods of a kind in which, as I have mentioned, very small differences in shape, size and material used can lead to significant changes in performance. Fine engineering is surely required, and close tolerances. But nothing in Dr Davies’ report suggests that an MMM article or any other article could have been made from the design material which he had seen. There was, it is true, a relevant schematic drawing that he saw but it was not detailed and showed only the general arrangement. It was not even possible to determine, from the material which Dr Davies had, the details of the by then thus-far contemplated MMM shaped charge or its initiation system. Of course, OTL’s disclosure may have been inadequate but it was not put to Mr Cardy that drawings (within or outside any computer) of a kind such that MMM articles could be or were intended to be made from them had ever existed but had been concealed or destroyed. In the absence of his being questioned on such lines, it would not be right, in my view, for me to infer, merely from a possibly defective disclosure, and I do not so infer, that any such design drawings ever existed.

Although the table of serials gives a further 6 serials down to No. 7, about 80 variations had been made within the computer. The table was contained in a “Technical (progress) Report” made to Raytheon on 13^th May 2002. The Progress Report describes itself as representing “the second stage payment milestone” and was plainly interim; it more than once refers to “the next progress report”. It refers to drawings as “being prepared” rather than as already existing. Its summary, as might be expected of what was intended as a technical study, was that a design giving adequate performance “can be” produced, rather than that a design or an article had been or would be. The very reference to drawings “being prepared” perhaps suggests that no article (be it Lancer 2, in whole or in any part, or some development or variation thereof) could by then have been made directly from what then lay within the computer.

Of the 7 serials to which Mr Howe referred, he accepted that those at numbers 2 to 5 were not carried to the stage and were not presented as something which could be taken forward and manufactured. Stages 6 and 7, though, he said, were different. However, in my view, whilst Mr Howe was right to accept as he did with respect to serials 2 to 5, there is, on the evidence, no material distinction between them and serials 6 and 7 save that, as it would seem, 6 and 7 happened to be the last and best serials arrived at by the time further work ceased. There was no evidence that the drawings which would seem then to have been contemplated or required were drawn after the interim technical progress report. Indeed, no evidence was given that it would have been possible to make an infringing or any relevant article from, or (if this is different) that the making of the same was enabled by, such design documents (within the statutory meaning of that phrase) which have been shown to have existed in OTL’s hands. Nor, indeed, were the 7 serials to which Mr Howe referred the only ones. Those 7 were within “Option 1” in the Technical (progress) Report but, to underline the inchoate nature of the work done, the Report continued with “Option 2” (serials running to serial 13) and “Option 3” (to serial 16).

To approach the same issue from a different angle, I am not satisfied that by the time that work on MMM stopped or earlier there had already emerged in the course of that development a design which either OTL or Raytheon regarded as such a design that, had it been manufactured, would have represented an MMM of a kind likely to attract the US military, the only then-contemplated prospective end-user, or, indeed, to attract any other end-customer. The events which actually happened demonstrated that Raytheon had no intent of manufacturing or paying for or requiring someone else – i.e. OTL – to manufacture, unless an end-customer was likely thereby to be attracted. But that seemed never to have become the case. I do not see the use of a protected document as a starting point for the making of further design documents which are variations upon the protected original, even where that making has been in the course of a commercial purpose, as, without more, constituting an infringement within the document class of design right infringements. Were that to be an infringement the words in section 226(1)(b) “for the purpose of enabling such articles to be made” would have been made redundant.

Moreover, there could have been a legislative purpose in support of the view of construction I have taken. Nothing, in industrial and commercial terms, might be thought to have been likely to be gained by permitting persons to cheat by making articles exactly or substantially to protected designs. But, by contrast, where all that is done is that a protected design is used as a starting point for further development and variation, with no view to the manufacture of anything unless and until there had emerged an article which (it may be) neither exactly nor substantially reproduced the original design, it could well have been thought that such use of the original design, if not actually to be encouraged, at least need not be prohibited, in order that research, development and innovation of such a kind should not be made unlawful.

I accept that failure to achieve a purpose does not, of itself, prove that the purpose had never existed but there is here a combination of material factors. The combination includes this: OTL’s work in relation to MMM was for a study into possibilities; changes in design were to be considered. It was a process which was stopped at an interim stage when all that had been gleaned was that a potentially satisfactory design could be, rather than had been, produced. There was no evidence that OTL ever intended to make any relevant article unless Raytheon required that and was willing to pay for it but there was no evidence that Raytheon had either required an article to be made or that it would pay for it if it was. Quite what the satisfactory design which it was thought could emerge would have been is left unclear; that would, presumably, have depended on further iterations in the uncompleted process of design variation. How far it would by then have resembled Lancer 2 is also left unknown, but it surely would have been premature for OTL to have had any realistic view to a sale or a hiring of any article (let alone of the article) when not even its design had emerged at the interim stage. To go further with this combination, there was no contract for the making of any infringing article. There was no evidence of the existence of any design document from which an infringing article could be made. No infringing article was in fact made. No oral evidence on the subject of OTL’s purpose was led and, in particular, Mr Cardy was not cross-examined with the intent of showing that OTL’s purpose must have at least included the purpose of enabling infringing articles to be made. This combination of features leaves me not satisfied that in relation to MMM, in breach of section 226(1)(b) and (3), OTL for a commercial purpose made any design documents recording the Lancer 2 design for the purpose of enabling articles infringing the protected design to be made.

I have dealt above with ten forms of claim against OTL; under each of five different descriptions – contract, contractual confidence, equitable confidence, copyright and design right – there has been separate consideration as to MMM and DMP. Given that OTL is in liquidation, it may be that relief under the three of those descriptions in respect of which SEI has, in my judgment, succeeded – contract as to both MMM and DMP and design right as to DMP – will not greatly advantage SEI and, unsurprisingly therefore, a sizeable part of the hearing was spent on the law and the facts as to SEI’s claims that Mr Cardy was so involved in his company’s breaches as to have become personally liable to SEI as, with OTL, a joint tortfeasor. It has not been claimed that Mr Cardy was what one might call an independent tortfeasor; his liability here is either as a joint tortfeasor with OTL or it fails. As the only tort by OTL as to which I have been satisfied is as to design right in relation to DMP, it is his role in relation to DMP to which I shall need to return but first I shall look at the vexed subject of the law which relates to directors or shareholders becoming personally liable jointly with their companies.

Mr Cardy, as I have mentioned, was the sole shareholder in and the sole director of OTL. He had conferred on himself the title and has held himself out as its Managing Director.

The most recent comprehensive consideration of the law relevant to the subject of a director or shareholder being held to be a joint tortfeasor with his company is to be found in the judgment of Chadwick LJ (with which Simon Brown and Tuckey LJJ agreed) in MCA Records Inc v Charly Records Limited [2002] FSR 26 401 CA. After his review of the cases, Chadwick LJ drew out four propositions.

Thus, at page 423 he said:

“First, a director will not be treated as liable with the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company – that is to say, by voting at board meetings. That, I think, is what policy requires if a proper recognition is to be given to the identity of the company as a separate legal person. Nor, as it seems to me, will it be right to hold a controlling shareholder liable as a joint tortfeasor if he does no more than exercise his power of control through the constitutional organs of the company – for example by voting at general meetings and by exercising the powers to appoint directors.”

In argument before me that passage was subjected to some close analysis; thus “that is to say, by voting at board meetings”, which could be said to be a phrase which excludes other activity in the governance of the company – was compared with “for example, by voting at general meetings…” which is clearly no more than an example. I am far from sure that the sentences were intended to be proof against such examination; the words are in a judgment not a statute.

But Mr Howe goes further: responding to questions as to the applicability of such a “constitutional” exception, he first pointed out that there is nothing that suggests the existence of such an exception in some earlier Court of Appeal and House of Lords authorities such as Rainham Chemical Worksv Belvedere Fish Guano Company Limited [1921] 2 AC 465 and Performing Right Society v Ciryl Theatrical Syndicate [1924] 1 QB 1 CA – see Atkin LJ at pages 14-15 where he said:

“If the directors themselves directed or procured the commission of the act they would be liable in whatever sense they did so, whether expressly or impliedly."

Going further, problems arise where, as in OTL, there is only one shareholder and only one director. In such circumstances, it may be asked, how could there be a meeting of shareholders or a meeting of directors? How could there be an act made constitutional by a vote at a board meeting? Is a sole director to be at a material disadvantage in that he can never, by himself, fall within the constitutional exception or, conversely, does it become appropriate in such circumstances to take a relaxed view of constitutional formalities and accordingly allow freer rein to the constitutional exception? But that could lead to the paradoxical position that, the more complete a director’s power over his own company, the less likely he would be to find himself personally liable for harm caused by its activity. This, too, may be asked; if one seeks to find the broad justice of a case, should it really affect the complainant’s recoverability whether the sole director and sole shareholder took the modest trouble, say, first to appoint his wife a fellow director and have his activity confirmed by a board meeting and trouble also to lodge the relatively rarely-seen type of paper that can legitimise a sole shareholder’s meeting by way of section 382B of the Companies Act 1989, a provision inserted as from 15^th July 1992 but repealed from 1^st October 2007?

However, for immediate purposes, I need look no further at the “constitutional” exception. Notwithstanding that in Charly the relevant defendant was merely a de facto or “shadow” director (and hence that Chadwick LJ’s first proposition could be said to be obiter), the Court was plainly intending to give general guidance. Accordingly, I shall take myself to be bound by Charly to accept the existence and nature of the exception and, on the facts, given that there has been no evidence of any board meeting, any shareholders’ meeting and no instrument lodged in compliance with section 382B, there is no reason to treat Mr Cardy as having fallen with it.

Chadwick LJ’s second proposition is as follows:

“Second, there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a joint tortfeasor if he is not exercising control through the constitutional organs of the company and the circumstances are such that he would be so liable if he were not a director or controlling shareholder.”

The hypothesis “if he were not a director or controlling shareholder” can create difficulty; in a company such as OTL, were it to be postulated that Mr Cardy was not a director or controlling shareholder then whether any acts of the kind complained of would have occurred would be far from clear. But Chadwick LJ continued:

“In other words, if, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability because he could have procured those same acts through the exercise of constitutional control.”

If I am right in treating Mr Cardy, by reason of there having been no board or company meeting, as having participated or involved himself in the activity of OTL “in ways which go beyond the exercise of constitutional control”, then, under the second proposition, there is, as it seems to me, no reason why he should escape liability simply because he could have procured the same acts by way of proper constitutional control.

Chadwick LJ’s third proposition, at page 424, is as follows:

“Third, the question whether the individual is liable with the company as a joint tortfeasor – at least in the field of intellectual property - is to be determined under principles identified in CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013 and Unilever Plc v Gillette (UK) Limited [1989] RPC 583. In particular, liability as a joint tortfeasor may arise where, in the words of Lord Templeman in CBS Songs v Amstrad at page 1058E to which I have already referred, the individual "intends and procures and shares a common design that the infringement takes place".

Here, too, there is a difficulty. It is common enough for a person to be taken to have “intended” the natural and probable consequences of his acts. A corresponding view, on many sets of facts, would no doubt be appropriate also to “procurement” by him where the person who had the deemed intention had the power to ensure that it was carried into effect. But the requirement that a defendant should “share a common design” may be said to add a subjective requirement, namely that, independent of what, in point of law, he could be taken to have intended, there should be proved to have existed in him a subjective intention or desire that the events complained of should occur. That is a question to which I shall have to return when I look at the facts but, on a different point, and given, again, that what is being looked at is a judgment rather than a statute, I would see no difficulty in extending that reference to a “common design that the infringement takes place” to a “common design that the events complained of and said to constitute the infringement take place”. That, in a tort of strict liability, such as infringement of design right, would seem to me to be an irresistible extension of the proposition under discussion.

The fourth proposition laid down by Chadwick LJ, again at page 424, is as follows:

“Fourth, whether or not there is a separate tort of procuring an infringement of a statutory right, actionable at common law, an individual who does "intend, procure and share a common design" that the infringement should take place may be liable as a joint tortfeasor.”

At page 424 line 53 Chadwick LJ said:

“In the light of the authorities which I have reviewed I am satisfied that no criticism can be made of the test which the judge applied. But, in my view, the test can, perhaps, be expressed more accurately in these terms: in order to hold [the fourth defendant, Mr Young] liable as a joint tortfeasor for acts of copying, and of issuing to the public, in respect of which [the company, CRL of which he was a shadow director] was the primary infringer and in circumstances in which he was not himself a person who committed or participated directly in those acts, it was necessary and sufficient to find that he procured or induced those acts to be done by [that company] or that, in some other way, he and [that company] joined together in concerted action to secure that those acts were done.”

The relevant director there, Mr Young, was, as I mentioned, only a de facto officer of the company; he could not conceivably fall within the constitutional exception. It is, though, notable that in that last phrase Chadwick LJ, whilst speaking of procuring and inducing, makes no reference to a “sharing” of a common design and he adds what, as I have already indicated, is to my mind an acceptable gloss to his third proposition, when he speaks of the required procurement or inducement being “that those acts were done” rather than “that the infringement takes place”, the former phrase not suggesting that it would be a necessary element that the director sought to be made liable should have been aware that the acts amounted to an infringement.

The test which had been applied at first instance and which was thus approved in the Court of Appeal is to be found at Charly page 418 where, at line 37, Chadwick LJ said as follows:-

“The judge observed, at paragraph 12 of his judgment, that:

‘It has . . . long been recognised that a director or other officer of a company may in certain circumstances be personally liable for the company's torts, although he will not be liable merely because he is an officer: he must be personally involved in the commission of the tort to an extent sufficient to render him liable. Whether he is sufficiently involved is a question of fact, requiring an examination of the particular role played by him in the commission of the tort.’

With the qualification that, if he is liable for the company's tort, it is because he is liable with the company as a joint tortfeasor – so that the relevant enquiry is whether he has been personally involved in the commission of the tort to an extent sufficient to render him liable as a joint tortfeasor – I would accept that as a correct statement of the law.”

The circularity of the test is obvious but, as Le Dain J pointed out in the Federal Court of Appeal of Canada in Mentmore Manufacturing Co Ltd v. National Merchandising Manufacturing Co Inc (1978) 89 D.L.R. (3d) 195 cited in Charly supra at page 423, this is an area of the law that raises an elusive question and a very difficult question of policy. That being so, then, just as was the case as to a framing of universally applicable tests for “proximity” and “fairness” in the context of negligence in Caparo Industries plc v Dickman [1990] 2 AC 605 at 618 – it may have to be accepted that a precise definition such as would be necessary to frame a practical test for the director’s or shareholder’s liability in all cases may be more than can be expected. Rather, as in Caparo, one may have to move incrementally, case-by-case, and by reference to a detailed look at the facts. On that basis it is to the facts in relation to Mr Cardy’s and OTL’s activity that I now turn.

Although OTL, at a constitutional level, was a one-man company, it was, as I have mentioned, larger and more organised than that term often suggests. Mr Cardy spoke of it as having as many as 17 or 18 employees and its own company documents show an organisation with individuals having separate titles and roles such as Managing Director, Director of Engineering, Programme Manager, Project Manager, Head of Modelling, Mathematical Modeller, Department Head and so on. It also had work that was unconnected with warhead work of the kind at which I have been looking. Individuals within the company reported upwards in the usual way.

In relation to DMP work, Mr Moat was Programme Manager for the warhead programmers, including the DMP warhead. He prepared slides for a presentation to QinetiQ in 2002. By then the shaped charge and case tooling was complete but the whole warhead had not yet been manufactured. The slides made plain that the basic shaped charge generally was “similar to 1999-2002 design” and that there had been a “validation through 1999 Pendine Jet Characterisation Trial”. Those were both references to Lancer 2 design and to the static and dynamic tests which had been carried out using Lancer 2. I accept Mr Moat’s evidence that Mr Cardy was present at the presentation. Mr Cardy must have appreciated, even if (as seems to me highly improbable) he had not understood before, that DMP work was a development and use of Lancer 2 material. I accept Mr Moat’s evidence that he believed that Mr Cardy must have known that the DMP work as undertaken by OTL would utilise Lancer 2 technology and I take that belief to have been well-founded.

Quite apart from Mr Cardy’s presence at the presentation, there were day-to-day discussions in the office. It was Mr Moat’s evidence also that, if OTL had not had the benefit of Lancer 2, the DMP project could not have gone ahead as it did. There were many differences, I accept, between Lancer 2 and the DMP warhead; the design concept, the explosive load material and its mass were all different. There may have been a different type or size of initiation to procure the explosion of the charge. Indeed, the DMP work could have been done without any recourse to Lancer 2 material, albeit at greater cost to OTL in time and money and without the validation, by way of the Pendine trials, that was an important and attractive feature of use of Lancer 2 material. But, for all the differences, Lancer 2 material was used, including its use in providing reference data for the front part of the system.

Mr Cardy did not give direct instructions in any detail to Mr Moat or to Mr Townsend, the Director of Engineering, on how to design any warhead but the design team within OTL assumed from the discussions which they had, including with Mr Cardy, that they should start DMP work with Lancer 2 or something like Lancer 2 as a reference point. Mr Moat added:

“From my point of view and from the discussions it was never ever even discussed that we would use anything for that other than Lancer 2.”

He added that there was no reason to use something else when OTL had Lancer 2 available to it. He understood from discussions which had included Mr Cardy and also the customer, QinetiQ, that the customer was enthusiastic about the use of Lancer 2 technology as it could see the benefits of reducing risk by using something which was already in existence and something which had to an extent been validated by the earlier static and dynamic trials. Mr Cardy, I accept, was not himself a warhead designer nor even someone who could use the Parajet program but I have no doubt but that Mr Cardy knew that, in its DMP work, OTL was using Lancer 2 technology. I have noted differences between Lancer 2 and the DMP warhead but, despite such, DMP is properly to be regarded as an adaptation of Lancer 2 with only such changes as were necessary to introduce within it the particular dense metal penetrator which QinetiQ wished to incorporate.

However, although Mr Cardy in his evidence accepted, albeit ultimately and reluctantly, that, from a warhead designer’s point of view, the Lancer 2 design was not just a starting point but probably the natural starting point for the DMP project, I am not able to hold that he instructed Mr Moat or anyone else to use it as part of the DMP project. Time after time Mr Cardy said that he had no recollection of giving any instruction that Lancer 2 design or material should be used in the DMP project. He emphasised, as I have accepted, that he was not a warhead designer and that it was right that he should have given a free hand to those that were. He had no wish, he said, to prescribe how they should approach the task they were given.

I found his lack of recollection unconvincing. I would have been entitled to reflect that not only had he been found an unreliable witness at the first trial but that before me his evidence on oath at one point involved such a radical change from what he had said at the first trial that he put his credibility before me in issue. Had Mr Moat, the only other material witness, said otherwise I would have been likely to have disbelieved Mr Cardy on this issue and to have found that he did give an instruction that Lancer 2 design was to be used. However, albeit in relation to the MMM, Mr Moat, asked by Mr  Cardy whether he, Mr Cardy, had personally instructed Mr Moat to use Lancer 1 or Lancer 2 technology answered:

“That I cannot say. I cannot remember whether there was a specific statement or not”.

A little later, Mr Moat, cross-examined by Mr Cardy, was asked:

“Q. Did I [Mr Cardy] again at any time instruct you to use Lancer 1 or Lancer 2 warhead solutions or technology in the multi-mission missiles trade study?

A. As far as I am aware, I cannot recollect, I do not have the recollection that we were advised or told to use it”.

Mr Cardy agreed that using Lancer 2 as a starting point was the easy option and that, whilst the team could have started elsewhere had they so chosen, unless the designers and managers were instructed to do otherwise, they could be expected to have used that easy option. From an expediency and time point of view, he said, it may have seemed to them the most obvious option. Mr Cardy accepted that he had no positive reason to believe that they would not start from Lancer 2. He accepted that he gave no instruction such that Lancer 2 designs were not to be used as the designers’ in the DMP program. He gave them no instructions, he said, to use it or not to use it. He accepted that one of his roles was to protect the company from infringement of other persons’ rights such as might lead to financial or other claims against it.

On the evidence and so far as concerns DMP, the position, in my judgment, was thus as follows. OTL committed breaches of SEI’s design right. Performance by OTL of its (unseen) contract as to DMP did not necessarily involve breach of SEI’s design right but Mr Cardy knew that, unless he took appropriate steps, such breach would occur if OTL’s employees were, in broad terms, merely told to proceed with creation of the DMP. Had Mr Cardy taken appropriate steps the misuse of SEI’s design right in Lancer 2 in the DMP project would not have occurred and Mr Cardy, as the person holding himself out as Managing Director of OTL and as its sole director and shareholder, had, amongst his tasks, the directing of OTL away from its committing any such breach. I was given no reason to think that Mr Cardy did not have that total control over OTL and its operations which his roles as the only director, the only shareholder and the professed Managing Director should be taken to have given him. Nonetheless Mr Cardy omitted to take any steps that would have procured the absence of such breach. Yet, for all that, it has not been proved that he gave any instruction which in terms was that SEI’s ownership (sole or shared) of design right should be ignored or breached, nor any instruction that would necessarily have led to its breach. Rather, knowing that breach could be expected unless he took steps, knowing that he could have stopped any breach and knowing that it was for him to steer OTL away from breach, he merely left it to others to proceed with the DMP work. Thus, as he must have expected, the breach of design right took place.

If that is the factual basis, as I hold it to be, can it be said, within Chadwick LJ’s third proposition supra in Charly, that Mr Cardy intended and procured and shared a common design that the events that amounted to an infringement should take place? Plainly Mr Cardy had failed to prevent OTL’s tortious acts, but would that be enough? Mr Howe was not able to draw my attention to any case in which a defendant had become a joint tortfeasor by means only of having failed to prevent the primary tortfeasor’s tortious activity despite the defendant having power to do so. It could, perhaps, be said that Mr Cardy must be taken to have intended and procured the breach, given that the breach was the natural and probable consequence, as he knew it to be, of his failing to instruct OTL’s employees not to use Lancer 2 design. But, if his case were only one of such omission, could enough be derived from his omission to stop the acts complained of for it fairly to be said that he shared with OTL a common design that those acts should take place (given also that the notion of his sharing mental decision-making with the company is itself somewhat fictional as within his head was the only decision-making process for either himself or the company)?

Plainly a case resting only on omission raises difficult questions; I am conscious, if a mere omission to prevent a tort can make a director personally liable for wrongful acts of his company, that that could represent a considerable shift away from the traditional approach of the law. However, in this particular case, there is, in my judgment, one particular aspect of the facts which arguably moves the case away from being merely one of omission on Mr Cardy’s part.

That aspect is this. At the first trial (at which, as in the second, Mr Moat gave evidence but then, at the first trial, on the OTL-Cardy side) Mr Howe cross-examined Mr Moat and obtained the answer that he, Mr Moat, had considered that questions as to ownership of IPR were matters for Mr Cardy rather than for he, Mr  Moat, to consider. Mr Moat, understood that SEI were generally in agreement with what was taking place. Mr Moat understood that, he said at the first trial, from what Mr Cardy had told him.

At the second trial, the relevant passage was put to Mr Cardy. Mr Cardy accepted that that was what Mr Moat had understood at the time from him, Mr Cardy. Mr Howe asked Mr Cardy:

“Q. Is this right, that because Mr Moat believed that [SEI] were in agreement to [OTL] being the lead contractor on the Pendine trial, he would not have to worry about any infringement of [SEI’s] intellectual property rights during that project?

A.

That is correct, yes.”

Mr  Moat’s written evidence at the second trial included that he had understood from Mr Cardy that SEI were perfectly content for OTL to be doing the MMM work.

In his oral evidence in chief in the second trial Mr Moat was asked how he had derived his understanding from Mr Cardy. He answered:

“As far as I can recollect, just from the fact that we were continuing, we were told that the work was carrying on, that [SEI] did not wish to take part in it for various reasons which I cannot remember but they were still on side”.

But Mr Cardy in his own evidence said that he had no grounds for holding that SEI were happy for OTL to do that work. Indeed, he added, “Quite the opposite”. In his oral evidence Mr Cardy also accepted that he had not told Raytheon about the breakdown in relationship between SEI and OTL. Whilst these answers may be said, when they were specific, to relate to the MMM rather than DMP, they arguably represent Mr Cardy going beyond a mere omission to have prevented breach and his moving into an encouragement or procurement of it. Why else should he, with no grounds for believing that SEI were happy for OTL to do the work, tell Mr Moat that SEI was content? Mr Cardy would surely not have told Mr Moat that he had no need to worry about SEI’s IPR unless, but for Mr Cardy’s assurance, Mr Moat might have worried about it. Why should Mr Cardy have falsely indicated that SEI did not wish to take part in work other than to indicate that what was being done was unobjectionable? Moreover, if it may be said that these passages relate only to MMM, then unless Mr Cardy had reason to believe that his assurance as to MMM work being proper would not also have been taken to have been assurance that DMP work was proper, it would have been incumbent on Mr Cardy, had his intentions been unexceptionable, to explain to Mr Moat and others that it was only MMM and not DMP work which SEI was content that OTL should do. Mr Cardy gave no evidence that he had expected or had reason to expect that his assurances would be taken to relate only to DMP work and I did not take Mr Moat’s view that SEI were still “on-side” as being limited to MMM work but to reflect the overall picture created and, in my view, intended to be created by assurances which Mr Cardy knew to be false.

The matters I have dealt with in the immediately preceding paragraphs do, in my judgment, make Mr Cardy’s case not one of his merely omitting to prevent breach by OTL; he was not resting on mere omission but was acting in a manner (absent any contrary explanation, and none was given) which is to be taken to be a facilitation of breach with a view to there being breach. In my view, in so far as it is required to separate him and his company, he did share with OTL a common design that the acts complained of as to DMP should take place. He satisfies the third and fourth of Chadwick LJ’s propositions in Charly supra and, as to DMP, was, in my judgment, personally involved in the commission of the tort as to DMP to an extent sufficient to render him personally liable.

I should add that if, contrary to my view as to the construction and effect of the 1988 Act in relation to design right and MMM, OTL were to have committed a design right tort as to MMM, I would, for the like reasons as those given in relation to DMP (and, if anything, a fortiori of those reasons) have held Mr Cardy to be personally liable for OTL’s breach as to MMM.

It will be convenient if I were here to summarise the conclusions indicated above. Firstly, so far as concerns arguments of SEI that have not succeeded, I find no contractual breach of confidence by OTL in relation to MMM work – para 37 - or DMP work – para 40. I find no breach as to copyright – para 41. I find no breach of equitable confidence – para 42. As for design right, I find no infringement in relation to MMM work - – para 72.

As for arguments of SEI which have succeeded, I have not been asked here and now to quantify or award damages. In the Order of Lewison J of 21^st January 2004, which, as I have mentioned, represented the conclusions arrived at at the first trial, there were a number of inquiries as to damages ordered, none of which has yet been further pursued. SEI has wished to complete this second trial before venturing further with those inquiries. A convenient course would now seem to me to be that I, too, should order inquiries as to damages and for such inquiries then to march with those ordered by Lewison J. I shall raise with Counsel and with Mr Cardy the most appropriate forms of wording but, in principle, there are to be inquiries as to damages suffered by SEI by reason of OTL’s several breaches of contract as to MMM work – para 36 – and DMP work – para 40 - and as to OTL’s infringement of design right in relation to DMP work – para 64.

In each of the categories as to which I have ordered an inquiry as to damages the probability, in my view, is that SEI suffered some damage, although, as I have mentioned, I have not been concerned with any quantification. However, it may be that there is overlap between the categories. That leads to two points: firstly, care will need to be taken to ensure that there is no double recovery for that which is, in substance, the same loss. Secondly, it may be that SEI will find it unnecessary further and simultaneously to pursue every one of the inquiries I have ordered. As that may prove to be the case and for the avoidance of doubt, I intend to give to SEI an express right (exercisable when further directions are given as to the inquiries) to elect which of such inquiries to pursue, which to have stayed and which, if any, to abandon.

I hold Mr Cardy to be personally liable in respect of OTL’s infringement of design right relating to DMP work – para 103; there is to be a declaration to that effect – and accordingly he, too, should be enabled to take part in the enquiry as to damages under that heading and be jointly liable in respect of any sum thus found due.

After seeing this judgment in draft form but before the handing down of this final form, Mr Howe, thus learning of my holding in paragraph 36 that OTL was in breach of contract in a number of ways, invited me to go further and to hold that Mr Cardy was personally liable for the tort of inducing those breaches of contract. Such a holding would, no doubt, have been within SEI’s pleaded case and would have accorded with Lewison J’s holding on corresponding parts of the action with which he had to deal but neither the form of SEI’s written Skeleton Argument nor that of its written final submissions would have put Mr Cardy on notice that SEI was claiming that he was, beyond being a joint tortfeasor, also an independent tortfeasor by way of his inducing breaches of contract by OTL. No oral argument to such effect was put at the second trial and Mr Cardy thus never had an opportunity to respond to it. I thus decline to extend Mr Cardy’s personal liability to the tort of inducing those breaches of contract.

I shall now discuss with the parties the framing of an Order to give effect to the conclusions at which I have arrived.