Flogas Britain Ltd v Calor Gas Ltd

In this action Flogas Britain Limited (“Flogas”) seeks damages from the Defendant, Calor Gas Limited (“Calor”) for misuse of a copy of part of Flogas’s customer database. Flogas has elected to receive damages rather than an account of profits. The claim originally had two components: the first arises from the use of Flogas’s domestic customer details extracted from Flogas’s database for the purposes of a direct mail shot in mid-October 2010. The second arose from the use of a list of commercial customer details but there is now no issue between the parties on this part of the claim.

In relation to breach of confidence this is a trial of quantum only since liability is admitted. Calor admits that it used customer details obtained from the Flogas database. There is a significant difference between the experts in their evidence largely because of the differences in the methodology they have respectively adopted. The expert instructed by Flogas, Mr Sat Praha of BDO LLP, values the claim in the range of £6.5m-£8.1m, the expert instructed by Calor, Mr Nicholas Good of KPMG LLP, values the claim in the range £125,823- £224,255 only.

Both experts are Fellows of the Institute of Chartered Accountants in England and Wales, both are partners in firms of high repute and both have extensive experience as expert witnesses in the field of forensic accounting. I should make it clear that they have a genuine difference of opinion and that they both faced considerable difficulties because certain matters necessary to their assessments have to be resolved by the court. Both gave the required Expert’s Declaration pursuant to CPR Part 35. I take such a declaration very seriously. Both experts are aware of their duties to the court and have striven to fulfil those duties properly. Such an observation is necessary, partly because of the tone of part of the cross-examination and partly because ultimately I have to favour one methodology over the other.

I heard oral evidence over eight days from personnel at Flogas and Calor; Directors, Managers, IT specialists, Customer Service representatives including a Telesales representative, a senior in-house lawyer and the two expert witnesses. It seemed to me that all the witnesses were open and honest but there is no doubt on the one hand that Flogas is suspicious of Calor and on the other that Calor believes that Flogas’s claim is inflated.

The LPG market is relatively small with around 150,000 consumers nationwide. Mr Gannon, Flogas’s Managing Director, said that identifying new customers is like trying to find a needle in a haystack. Calor has more than 50% of the market; Flogas about 19%. That means that Calor has over 75,000 customers and Flogas some 28,500. In April 2009 a Competition Commission ruling came into force intended to increase competition in the market, including measures prescribing a two-year maximum for exclusive contracts, a requirement to inform customers of upcoming expiry of contracts through the medium of a “wake-up letter” and the option for a new supplier to purchase the tank in situ from the old supplier. However the churn rates relating to change of suppliers still remain below the energy sector average of 15% since switching within the LPG market is the exception rather than the norm. Prior to the Competition Commission ruling churn rates were less than 1% but thereafter increased to 4.1% across the industry. The low rate is largely owing to so-called “sticky customers”, defined by Mr Plyte, Flogas’s Finance Director, to mean customers who will stay with their supplier as they come out of contract regardless of changes of price and opportunities to switch provided they do not have any serious issues over service or value.

Flogas maintains a database with information on its customers which it has compiled over a number of years. This database holds information such as name, address and contact details of customers, contract dates, pricing and other information. In December 2006 a Mr David Hughes, a Flogas Sales Director, had resigned from Flogas. On 1 March 2007, Mr Matthew Finch, an employee of Flogas, imported into an Excel spreadsheet information on Flogas’s bulk customers (that is, customers who receive delivery of LPG to a storage tank on their premises) from Flogas’s database. Mr Finch subsequently copied the information onto his personal computer. In April 2007, Mr Finch’s employment with Flogas was terminated but he retained the information from the Flogas database. Mr Finch gave a copy of the information from Flogas to Mr Hughes when they were dealing with the sale of a website business. In January 2010 Mr Hughes joined Calor as an Area Sales Manager and provided a copy of the information to Ms Sarah Haythornthwaite, then the Calor Head of Marketing responsible for mail shots, who had budget authority for mail shots up to £50,000.

In spring 2010 Mr Hughes created two computer files on Calor’s system containing this information. On 7 June he saved a form of file which it is believed was a cut down version of the first of these two files.

It is common ground between the parties that in June 2010 Mr Hughes copied some of the information in this file (to which I will refer as “the Flogas Database”) on to a memory stick provided to him for the purpose by Ms Haythornthwaite.

In or about September 2010 Flogas told its existing customers of a price increase which was to be implemented on 1 October 2010. Calor wanted to use the opportunity to try and win some of the disaffected customers. On 11 October 2010 Calor sent a legitimate mail shot to the Flogas customers who were listed on its own Flogas Prospects database. This comprised only some 1,754 people.

Then, only a week or so later, Ms Haythornthwaite used the Flogas Database to send a further mail shot. The plan was to send the mail shot in three tranches. The first two were sent on 18 October: 9,600 by first class post and 9,600 by second class post. They contained an invitation to switch to Calor as the customers’ LPG supplier and they offered £100 of free LPG to those who made the switch. It is clear from the evidence of Mr Roberts and of Mrs Stanley, a Calor Marketing Executive, that the usual process for obtaining and cleansing data for these mail shots (in particular the use of Calor’s Strategic Planning Department) was bypassed by Ms Haythornthwaite. The plan was to send a third tranche of 12,537 mail shots on 25 October 2010 but, in circumstances to which I shall return, this third tranche of mail shots was cancelled.

On 19 October 2010 Flogas received a surge of telephone calls from its customers about Calor’s mail shot requiring Flogas to meet the Calor offer. Mr Cubbon, then Flogas’s Managing Director, immediately raised his concern that this may have been as a result of unlawful use of a customer database with Mr Rennie, Calor’s Managing Director.

On 21 October 2010 Mr Cubbon called again. Mr Rennie realised that something was wrong and inquiries revealed that the data for the mail shots had come from Ms Haythornthwaite, and that she had received it from Mr Hughes.

On 25 and 26 October Mr Hughes and Ms Haythornthwaite respectively were subjected to a disciplinary hearing by Calor. They were both then summarily dismissed from Calor. I was taken through the transcript of Ms Haythornthwaite’s hearing in some detail as she alleged that she was simply a scapegoat and that others at Calor were also involved in the misuse of the Flogas Database. The person at Calor named by Ms Haythornthwaite at her disciplinary hearing, Mr Stephen Sulley (a member of Calor’s Business Management team), gave evidence to this court strenuously denying any wrongdoing and indeed denying knowledge at the time of the existence of the Flogas Database. Mr Lundie cross-examined him to no avail although he pressed on me in closing that, “It is likely that he was involved but is in no position now to admit to his involvement.” No evidence was given at this trial by Ms Haythornthwaite (whose interview notes are in any event confusing and in some cases incomprehensible), Mr Hughes or Mr Finch and in my judgment Mr Sulley’s evidence must prevail.

Again, much doubt was thrown at the evidence of Calor’s in-house lawyer, Mrs Marshall-Rowan. At her disciplinary hearing Ms Haythornthwaite said that Mrs Marshall-Rowan had led her to believe that use of the Flogas Database was “okay”. Mrs Marshall-Rowan’s evidence was very different. She said that Ms Haythornthwaite was vague and asked about competition law in a hypothetical way. As soon as Mrs Marshall-Rowan found out about the mail shot, about a month after the conversation with Ms Haythornthwaite, she made an attendance note of the conversation they had had. Mrs Marshall-Rowan insisted that she did not know that Ms Haythornthwaite had the Flogas Database, adding “If I had thought that I would have gone straight to Stephen Rennie.” She said,

“…I didn’t think for a minute the conversation had any particular significance. Sarah wafted in, wafted out again, and I thought she was probably talking about Russell Burrows or Andy Kellett, who had recently joined, and she would go back to them and say: look if you’ve got any information it can’t be used. And that would have been the end of the matter. If I’d thought the conversation had any significance I’d have made a file note.”

Again, in the absence of any evidence from Ms Haythornthwaite to the contrary I accept the evidence of Mrs Marshall-Rowan. It would be perverse not to do so.

At some stage before 1 November 2010, Mr Rennie ordered Cogent Elliot, Calor’s marketing and advertising agency, to destroy the third tranche of letters which were to have been sent out on 25 October 2010 and all the agents’ copies of the underlying database, which had been cleansed by UK Changes, a data cleansing agency. Cogent Elliot, UK Changes and another agent, ProCo, all destroyed their copies and confirmed by letter that this had been done. Flogas is very suspicious of Mr Rennie’s order. Flogas was not involved in the decision which was, it is said, contrary to Mr Cubbon’s instruction to Calor by letter of 27 October to retain data. The result is that neither Flogas nor Calor has been able to identify which customers received the mail shots as no records were kept of which customer was in which tranche.

Again, however, to my mind Mr Lundie made no headway in his cross-examination of Mr Rennie on this issue. Mr Rennie’s position was that the decision to have the materials destroyed was taken in order to prevent the promotional material ending up in the wrong hands. He returned data to Flogas but did not believe that the promotional material should be retained. Mr Cubbon did not express any objection to the destruction immediately after it had taken place and indeed said in cross-examination that he “believe[d] that they [Calor’s staff] were doing their best”. In the circumstances I do not find Mr Rennie’s explanation implausible. I note too that prior to Mr Lundie’s skeleton argument no complaint was made under this head and it is nowhere mentioned in the pleadings, correspondence, witness statements or Mr Plaha’s report.

Calor claims that Mr Rennie took immediate steps to rectify the situation. First, he stopped the third tranche from being sent. Secondly, disciplinary proceedings were brought against Ms Haythornthwaite and Mr Hughes followed by their summary dismissal.

Thirdly, Mr Rennie says Calor quoted price increases in order to deter customers that Calor believed to be expressing an interest in switching as a result of the mail shot. This was hotly disputed, Flogas contending that the price increases did not happen and are not supported by the evidence. It would go too far to say that the evidence on price increases is conclusive. They are only supported up to a point by the disclosed records, and Flogas customers were being offered a low price by Calor as late as November 2010. However I do accept that there is evidence that price increases were mentioned. For example, Miss Hutt (a Calor Telesales Team Leader) demonstrated in evidence that the Calor records show a price of 65p per litre being quoted to customers associated with the mail shots.

Calor’s assertion is that it quoted such increased prices to anyone associated with the campaign code. It is now common ground that no campaign code appeared on the mail shots, although Mr Rennie continued to refer to customers quoting campaign codes. However, Miss Hutt’s evidence was that staff were trained to recognise calls originating from the illegitimate mail shots. She said that staff asked the customers why they were calling and whether they had received a mail shot and if so, when they had received it. Mr Gannon accepted in cross-examination that the “vast majority” of people who telephoned because they had had a lower price from Calor would mention the fact.

Fourthly, Mr Rennie says that he gave instructions to decline customers who wanted to switch. I am not satisfied that enough evidence was presented to find in favour of Calor on this issue. However it is important to note that Flogas’s forensic experts were allowed extensive access to Calor’s systems, namely its WiRE CRM database which is the software which holds information on contacts made with customers and prospective customers.

Fifthly, Mr Rennie said that he took other steps to minimise Flogas’s loss. Thus he said, and Miss Hutt confirmed, that resources were moved away from the telephone line mentioned in the mail shots even though the same line was used for lawful purposes as well. He also said (and again Miss Hutt confirmed) that more people were moved to making outbound calls. I asked her whether this departure from normal working practice did not cause gossip in the office and I also asked her whether the staff were on commission and therefore had an interest in taking over Flogas’s customers. She confirmed that it did and they were but stoutly maintained that her instructions were firm, that she passed them on equally firmly to the staff and, importantly, that the staff followed them. It is thus surmise to say, as Mr Lundie does, that “it would be hardly surprising if these ‘instructions’ (in so far as they were given) did not receive full implementation at the Calor ‘front line’.”

There was some further evidence that Calor declined customers on engineering grounds; indeed Mr Rennie described this step as successful. However Calor has been unable to identify any customer declined on engineering grounds and I make no finding to that effect.

Calor further asserted that details of Flogas customers who had called after the mail shots were quarantined and that Calor staff were instructed not to record details of Flogas customers suspected of being the targets of the mail shots. However although the data that was recorded was not used in later mail shots, Calor’s systems are such that it remained available to the sales team through postcode searches. Mr Lundie therefore contended that Calor still stands to benefit from the data and will do so after the conclusion of this case.

Miss Hutt’s evidence (confirmed by Mr Rennie) was that the high incoming call volumes soon tailed off. Miss Hutt says within three or four days; Mr Rennie says within a couple of weeks. Calor has obtained telephone call statistics from British Telecom in relation to the phone number cited on the mail shots. The data shows the volume of calls received by this number by date and hourly time period, how many were answered, were engaged or unable to be put through because the customer rang off before answer and the average call duration of those answered. They show that there was a peak in volumes starting at 10 am on 19 October 2010, lasting until 27 October 2010. The later peaks correspond to later campaigns. Mr Roberts, Calor’s Database Manager and part of the Strategic Planning Department at the time, relies on these statistics.

Before I look at the individual heads of loss I should make a preliminary observation. Causation is a very significant source of the dispute between the parties. An issue that accounts for a great deal of the difference between the parties is the length of time for which loss was caused. The nature of the case was such that the experts had a difficult task in assessing loss. Both make their calculations on the basis of certain assumptions as to causation. Both accepted that causation was a matter for the court but, in particular in the case of Mr Plaha, this made the expert evidence difficult to follow. Just when one reached a difficult pass, Mr Plaha would backtrack and say that he was unable to comment on matters of causation:

“All I’ve done is the accounting methodology to capture the flow of losses….So all I’ve set out really is the flow of losses and for the causation issue to be dealt with on those…. It’s an accounting methodology which I’ve used. Ultimately…there’s a causation argument which determines the whole impact and the period of that impact.”

I make the following findings of fact from the evidence. First, one cannot simply assume that all recipients of the mail shots transferred their business away from Flogas because of the relevant mailshots. Although I accept that causation is a matter for the court I do need expert evidence to enable me to come to a decision. Secondly, Calor did undoubtedly take steps to mitigate the effect of the mail shots. Thirdly, Flogas could have replicated Calor’s mail shots in October 2012 (that is, after the two year contract period of exclusivity) to the customers it lost to Calor in an effort to win them back. One does not know what the lost customers would have done if they had not in fact received the mail shots. It is possible that customers who switched because of price might have done so in any event. Flogas requires the court to assume that sticky customers abandoned Flogas but then become so loyal to the new supplier that they would not switch back in the foreseeable future.

Flogas has categorised its loss under different heads. These are in summary:

Mr Lundie submits that the assessment of the damages will necessarily involve some conjecture, and that the need for conjecture is caused by the defendant’s misconduct. Accordingly, he says that any doubts that the Court may have with regard to damages should be resolved in favour of the claimant. He cites Roger Bullivant Ltd v Ellis [1987] ICR 464 at 475A, Universal Thermosensors Ltd v Hibben [1992] 1 WLR 840 at 850G-851B and Fearns v Anglo-Dutch Paint & Chemical Co Ltd [2010] EWHC 1708 (Ch) at [70]:

“To assess what profits were lost as a result of the loss of the franchisees, it is necessary to consider what would have happened if the Defendants had acted lawfully and had not induced the franchisees to transfer their business to Anglo Dutch in June 2005. This necessarily involves a large element of conjecture. The need for such conjecture, however, is itself a consequence of the Defendants' conduct. It seems to me that, as in cases where the court has to form a view of what would have happened in hypothetical circumstances in order to evaluate a lost chance, the principle in Armory v Delamirie (1722) 1 Stra 505, 93 ER 664, [1558-1774] All ER 121 applies. In essence, this requires the court to resolve uncertainties by making assumptions generous to the Claimant where it is the Defendant's wrongdoing which has created those uncertainties: see e.g. Browning v Brachers [2005] EWCA Civ 753, [2005] PNLR 44 at paras 204-212; Phillips & Co v Whatley [2008] Lloyd's IR 111, 121 at para 45. This also accords with the second of the two principles stated by Lord Wilberforce in the General Tyre & Rubber Co case which I referred to earlier.”

Mr Lundie submits that a broad approach should be taken, using the evidence that is available, even where an assessment of the loss is difficult. He referred to McGregor at para. 8-002:

“where it is clear that some substantial loss has been incurred, the fact that an assessment is difficult because of the nature of the damage is no reason for awarding no damages or merely nominal damages.”

I was also referred to the following passage in Chaplin v Hicks [1911] 2KB 786 at 792:

“But the fact that damages cannot be assessed with certainty does not relieve the wrong-doer of the necessity of paying damages for his breach of contract.”

Mr Campbell referred me to a passage in Douglas v Hello! Ltd [2005] EWCA Civ 595 at [240] which indicated that on the issue of remoteness the determination must be one which depends on the facts of the case:

“While the resolution of the question of remoteness will often involve issues of law, it is normally a fact-sensitive determination, which must carry with it a degree of inference and value judgment. As Laws LJ said in McManus v Beckham [2002] 1WLR 2982, at paragraph 39, in connection with a slander action, ‘The reality is that the court has to decide whether, on the facts before it, it is just to hold [the defendant] responsible for the loss in question’.”

I was also referred to Biggin v Permanite [1951] 1 KB 422 at 438, where Devlin J commented that the court must “do the best it can” where precise evidence is not obtainable.

Mr Lundie further submitted that the destruction by Calor of the printed mail shots and refusal to give disclosure should bring into play the principle in Armory v Delamirie that a strong evidential presumption should be made against the defendant. Damages should be liberally assessed following Double G Communications v News Group International Ltd [2011] EWHC 961 (QB) at [4]-[5] and [99].

However, as Mr Campbell pointed out, the Court of Appeal considered the principle in Zabihi v. Janzemini [2009] EWCA Civ 851 (applied by Hamblen J in Porton Capital Technology Funds v. 3M UK Holdings Limited [2011] EWHC 2895 (Comm) at [243]). In Zabihi both the Chancellor and Moore-Bick LJ made it plain that the presumption is not of unlimited application and is subject to limitations. At [31] the Chancellor cited his own statement in Malhotra v. Dhawan [1997] Med LR 319 at 322 as follows:

“First if it is found that the destruction of the evidence was carried out deliberately so as to hinder the proof of the plaintiff’s claim then such finding will obviously reflect on the credibility of the destroyer. In such circumstances it would enable the court to disregard the evidence of the destroyer in the application of the presumption. That is not this case.

Second, if the court has difficulty in deciding which party’s evidence to accept then it would be legitimate to resolve that doubt by the application of the presumption.

But, thirdly, if the judge forms a clear view, having borne in mind all the difficulties which may arise from the unavailability of material documents, as to which side is telling the truth I do not accept that the application of the presumption can require the judge to accept evidence he does not believe or to reject evidence he finds to be truthful.”

Moore-Bick LJ restated this (at [51]):

“In particular, whatever assumptions the judge makes must in my view be consistent with his findings of fact and the evidence before him.”

I turn to the guidance in the cases about quantum for breach of confidence claims in particular. As Arnold J said in Force India Formula One Team v 1 Malaysia Racing Team [2012] EWHC 616, Ch at [374]

“It is very difficult to find a clear, accurate and comprehensive statement of the principles applicable to the assessment of damages or equitable compensation for breach of confidence. The case law is very confused, and none of the existing commentaries deal entirely satisfactorily with it.”

While breach of confidence is not a tort (see Kitechnology BV v Unicor GmbH Plastmaschinen [1995] FSR 766 at 777-778 as cited in Force India at [388]), monetary relief can and should be awarded to a claimant who has suffered financial loss as result of a defendant’s breach of an equitable obligation of confidence (see Force India at [393]).

I was also referred to Dowson & Mason Ltd v Potter [1986] 1 WLR 1419, a Court of Appeal decision about confidential information (including pricing information) about the claimant’s suppliers which was used by one of the defendants. The Court of Appeal decided that it was the loss of profits that constituted the loss suffered by the claimant, and not the value of the confidential information (see at p. 1426-1427 per Slade LJ), applying General Tire & Rubber Co. v Firestone Tyre & Rubber Co. Ltd [1975] 1 WLR 819.

I was also referred to JN Dairies v Johal Dairies [2012] EWHC 1689, Gorne v Scales [2006] EWCA Civ 311 and the recent decision in Vestergaard v Bestnet [2013] EWCA Civ 428 which approves of Dowson at [20]-[27]. Mr Campbell accepts that this court is bound by the Court of Appeal’s decision in Dowson.

It is not easy to derive a clear guiding principle on the appropriate measure of damages for breach of confidence based on the cited case law. However, I adopt the principle followed in Dowson which regarded the loss of profits as the important factor, awarding monetary relief to a claimant who has suffered financial loss as result of a defendant’s breach, following Force India. After all, it is the loss to the claimant’s business that should be at issue, and it would be unjust in my view to restrict the claimant to an assessment of the value of the confidential information.

I have had the advantage of being able to consider the decision of the Court of Appeal in Force India [2013] EWCA Civ 780, which was decided after the hearing in this case had concluded. I did not ask for submissions (and none was offered) as the Court of Appeal confirms Arnold J’s decision, stating that his approach to the measure of damages was correct in principle (see [100]–[108]), taking into account both the loss suffered and the benefit to the wrongdoing party. While the decision does not address the issue specifically, there is no retraction from Arnold J’s view that monetary relief can be awarded to a claimant who has suffered financial loss as a result of a defendant's breach of an equitable obligation of confidence. This is another reason for me to endorse the position regarding the award of damages that I have just set out above, and I will proceed to assess the expert evidence on this basis.

Bearing in mind these guiding principles on causation and remoteness, I turn to consider the expert evidence under the heads of loss.

I should start by saying that there is agreement on margins and overheads saved and also on profit on the sale of tanks so that I need say no more about them.

Mr Plaha’s method was to include in the claim those Flogas customers that were on the Flogas Database and left Flogas after the mail shots, and then to make an adjustment to these figures using what he termed ‘normalisation’. This was intended to reveal the customers who left as a result of the mail shot, over and above normal leavers. The normalisation process was in effect a mathematical comparison to leaver figures of the previous year: “divide the total for the previous year by 12”, but ignoring negative numbers. Thus Mr Plaha used average figures to identify loss of Flogas customers, whereas Mr good used actual figures for customers he identified.

Mr Plaha’s method does not address the question whether the number of leavers he ascertains can be said to have been caused to leave Flogas because of the mail shot. I appreciate that in cases of doubt I should make assumptions in favour of Flogas, but the normalisation process merely shows whether, rather than why, customers moved away from Flogas. I note the agreement of Mr Ablett, Flogas’s Commercial Director, that the effects of the Competition Commission ruling were still being felt in 2011.

In a witness statement Mr Ablett sought to show that in the period prior to the mail shot Calor was suffering net losses to Flogas which had not been reversed by a television advertising campaign. However, plotting his figures on a graph shows that Flogas in fact did worse during 2010 than it had in 2009 with the exception of the month of October 2010 which was the month of the mail shots.

Mr Ablett accepted in cross-examination that in absolute terms Flogas’s customer wins were lower in 2010 than in 2009. However he said that,

“we wouldn’t actually look at customer numbers and are more likely to look at tonnage gained…The key drivers for the financial loss are actually the amount of the shortfall in tonnes from- in the period.”

The problem with this approach is that Calor did not have the opportunity to consider it. The only tonnage figures disclosed were those exhibited in the form of a brief schedule to a witness statement of Mr Ablett. Mr Good says that if he had realised that tonnages were in issue (and it was reasonable for him not to do so as they are not mentioned in the particulars of claim) he would have wanted to see the tonnages for individual customers. In other words, the goalposts for Mr Good were constantly being moved.

There was a spike in October 2010 of switchers to suppliers other than Calor. However, there was no evidence that this was owing to Calor’s mail shots waking up Flogas customers in a way which Flogas’s own wake-up letters (which it was obliged to send to its customers to tell them when they were coming out of contract) and price increases did not. As Mr Good pointed out, this assumption of causation also ignores the fact that so many of Flogas’s customers were out of contract.

I found Mr Good’s methodology for selecting the customers that had switched to Calor a reasonable one. He analysed all customers who had left between 19 October 2010 (the day after the mail shot) and his cut-off date of 31 January 2011. He then reviewed Flogas’s Customer Relationship Management (“Memopad”) entries for these customers, i.e. the notes in the Flogas electronic system which were made by Flogas employees in connection with their phone calls with the customers.

Mr Good used three reviewers to assist him in the analysis of the Memopad entries. The first two were trainee chartered accountants. One had a law degree and had worked as a solicitor, the second had a doctorate and both had worked for some three years at KPMG. The third was a chartered accountant who had worked for Mr Good for some nine years. At the time of his report, Mr Good checked a sample of some 60-70 entries himself, all of the persons excluded as movers to Calor (some 120) plus (by the time of trial) all 224 of the price reducers. I do not accept Flogas’s criticisms of this process.

Mr Good’s method was to review Memopad on the basis that if a customer satisfied one of three criteria that customer was treated as leaving because of the mail shots. The first was any case where the customer arguably referred specifically to the Calor mail shots. The second was any case where the mail shots may have been the tipping point, even in circumstances where the customer had already complained to Flogas about price before the mail shots. The third criterion was where the switch took place around the time of the mail shots, even if there was no other corroborative evidence.

Many arguments were advanced regarding the reliability, or lack of it, of the Memopad system. There were three different objections to its use: (1) lack of completeness due to instances of human error, (2) the system not being operational at all times, (3) information not being routinely recorded. However I observe that Mr Geere, Flogas’s Head of IT, only relied on the first of these objections. Again, Mr Gannon explained that staff members were trained to record customer intelligence on Memopad and he accepted that in “most instances” it would be so recorded. This was confirmed by Miss Ball, Flogas’s Customer Services Manager, who said that while staff did not make as many entries as they should when there was pressure of calls, there was no systematic error. As she said, “everything is down to human error and sometimes the staff will make mistakes and not make a Memopad entry.”

I accept that Memopad does not comprise a perfect record of the conversations that took place between customers and Flogas employees. It is indeed likely that errors were made when creating the entries which may affect the analysis of why the customer intended to switch away from Flogas. However, I am not persuaded that the potential flaws in the Memopad entries render them irrelevant to the question of Flogas’s loss, and in my view the cross-examination did not indicate that the Memopad entries ought to be disregarded. While the entries are not a perfect tool, they are to my mind the best available in circumstances where it is difficult to determine Flogas’s loss, and causation of the loss, at all. Importantly I note also that Mr Plaha himself referred to Memopad entries in his analysis for the purposes of Head 2.

Mr Good then included in his calculation those customers who, judging by the Memopad entries, were in his view attributable to the mail shot, looking for any mention of the mail shot and similar clues. I am further satisfied that, adding to his persuasiveness, Mr Good’s method was conservative, in that he also included customers about whom there was some doubt, according to the Memopad entries, as to whether they did switch to Calor owing to the mail shot.

Mr Good considered a range of detailed information about what actually happened as opposed to Mr Plaha’s averages. For example, he excluded 88 switching customers who were not even in the Flogas Database taken by Mr Hughes. He excluded customers who had made a move to switch supplier prior to the mail shots. He excluded specific customers whom he deemed could not have switched as a result of the mail shots such as one customer who had been quoted a price of 70.64p per litre.

In Mr Good’s assessment of customers who switched to other competitors he followed a similar approach. He used Flogas data about those customers who switched between 19 October 2010 and 31 January 2011 and analysed the Memopad entries.

Again he noted that the Flogas data included a number of customers who were not even on the Flogas Database taken by Mr Hughes. Only a handful of switchers mentioned Calor at all, and all but one of these switchers seemed to have moved to other suppliers for reasons unconnected with the mail shots. Flogas’s witnesses only specifically identified one customer who switched to another supplier shortly after the mail shots and Mr Ablett did not identify any such customer. Mr Geere’s review indicated that none of the switchers to suppliers other than Calor mentioned the Calor mail shots.

Mr Good analysed the length of time that it would take a customer to switch away from Flogas. Based on the sample, he considered that the customer switching time varied between 10 - 60 days. However, most customers (some 78%) would make a switch within 30 days. Only 4% took over 60 days. Taking the telephone call data into account, Mr Good concluded that the effect of the mail shots was spent by December 2010.

However Mr Good extended his analysis of the impact of the mail shot to three, rather than two, months using a cut-off date of 31 January 2011. I find this analysis helpful and a good indicator as to the length of the impact of the mail shot in relation to customer switches. It seems to be the next best thing after looking into the mind of every switching customer. Mr Good produced a number of graphs after having reviewed the information as to call volumes and he maintained his position in cross-examination. Although he accepted that there were still some leavers after 30 January 2011 it was not put to him that this was owing to the mail shot.

Again, I prefer Mr Good’s methodology in identifying the loss per customer. Mr Plaha used bulk averages (annual tonnage, margin per tonne, average overhead per tonne etc) while Mr Good used data for actual customers identified as moving rather than averages across all customers.

There was a certain amount of debate about whether or not, when there is a change of ownership of property, the new owner is influenced by the mail shots, opening mail addressed to the previous owner. Mr Plaha’s figures take this influence into account. Mr Ablett said it was “probably incorrect” that the idea of influence on change of ownership had originated with him and then said that perhaps owners spoke to each other within one or two months of a change in ownership. He did however accept that he had instructed Mr Plaha to include change of owners in his figures. It is not clear where the idea came from, how it could be justified or even how much it accounts for in Mr Plaha’s calculation.

The length of the period during which loss was suffered by the claimant is another issue which attracted a considerable amount of argument. Mr Good accepted the instructions given to him by Calor that he should calculate the loss as continuing for four years from the date of the mail shot. Mr Plaha arrived after calculations at a period of 8.8 years, the average across the Flogas Database, but the problem with this is that it assumes that those switching are typical of the whole customer database. However, Mr Lundie invited the Court to infer that customers who moved to Calor would remain there for a different amount of time altogether, namely for 24.4 years, based on the churn rates of the market as a whole thus apparently saying that Flogas was being generous in abandoning 17.6 years according to Mr Plaha’s report.

Flogas’s submissions rely on its “sticky” (or “super-sticky”) customers suddenly losing their loyalty as a result of the mail shots but then sticking to their new supplier in such a manner that Flogas cannot get them back for many years or at all. Mr Lundie submitted that the reality is that these customers are now the customers of other suppliers who will have the relatively low churn rates which still pervade the industry. Thus, he said, the new suppliers will enjoy a competitive advantage, being in a relatively strong position to retain these customers if approached by Flogas who would in any event have to offer discounted prices to win them back.

I prefer Mr Good’s approach for two reasons: partly because I have found his methodology to be more convincing overall, but mostly because his reasoning justified the time limit he selected. His figure of four years represents two contract terms with two wakeup letters. He points out that churn rates are skewed by customers who never switch, so that average rates are misleading, Flogas has two chances to try to win lost customers back and customers who switch because of price would probably do so in any event. Indeed, Mr Plaha’s evidence was that 80% of the impact of price reductions following the mail shots could be regarded as normal for customers suffering a price increase on 1 October 2010.

I take Mr Lundie’s point that the fact that a Flogas customer has responded to a direct marketing approach is not conclusive of a propensity to switch as sticky customers might need just such a push to change their purchasing habits. Customers with a propensity to switch are more likely to have left Flogas after implementation of the Competition Commission ruling. Mr Ablett gave anecdotal evidence that leavers tended to have low account numbers. Mr Good did not examine the customer life of those who did in fact switch.

The problem I face is that the number of years for which the loss continues is a hypothetical question. However, because 8.8 years involves the assumption (which cannot be right) that the switches are typical of the whole customer base, I accept Mr Good’s assumption of a four year cut-off point for the length of the loss. I am also at a loss as to how Mr Lundie can justify his 24.4 year assessment in the light of Mr Plaha’s report.

Accordingly in relation to that part of Head 1 which relates to loss of customers to Calor, I quantify this at Mr Good’s figure of £142,052, subject to adjustment for discounting at a different rate and for a different period, as to which see below.

I turn to that part of Head 1 which relates to loss to other customers. In view of my observations in paragraph 58 above (and paragraphs 3.2.6 and 3.2.7 of Mr Good’s Supplemental Report of 26 April 2013) I award no sum under this head.

The claim is for past and future losses that could otherwise reasonably expected to have been earned had the price reductions not occurred. The loss is claimed for the expected remaining life of domestic customers.

Mr Good undertook an analysis that is not dissimilar to the one he used under the first head. Taking the list of customers who were offered a price reduction, he reviewed the Memopad entries in order to assess whether the reduction could in any way be attributed to the mail shot, and included and excluded customers from the claim according to his (and his assistants’) judgment of the Memopad entries. Again, even though these entries may be flawed, I am not persuaded that they are irrelevant to the assessment of the loss that Flogas has suffered. Mr Good sets out in his report examples of how he included or excluded customers on the basis of the Memopad entries, and I found his conclusions to be reasonable and also conservative, in that doubtful cases were resolved in favour of Flogas. For example, he included customers who complained about other aspects of Flogas’s service where it appeared to him that the mail shot was the tipping point. Overall, Mr Good’s approach seemed a sensible one in the circumstances to identify which price reductions could be attributed to the mail shot.

Another important point made in Mr Good’s report is that Flogas seems to have offered numerous price reductions in the general course of its business. Mr Good shows that price reductions in October 2010 were no lower or more numerous than in other years. There is thus no evidence that the amount of price reductions achieved proportions that were outside the norm. This supports the proposition that the effect of the mail shot was limited.

Mr Plaha calculated the loss by first identifying the customers who achieved a price reduction, and then calculating the price reduction per customer. In order to make an allowance for customers who would have achieved a price reduction in any case, he again used a normalisation calculation. He also made a further adjustment to allow for Flogas “catching up” in the time since the price reduction, that is to say, he considers that Flogas may have raised prices again after the reduction. It seems to me that this method is not superior to that of Mr Good since it again leaves open the question whether the price reductions that have been found can be attributed to the mail shots. There is not enough evidence in Mr Plaha’s report that could assist the court to arrive at a conclusion, even tentatively, whether or not it was the mail shots that led to the price reductions. Mr Plaha only uses statistical methods in order to show a link to the mail shots. I found this to be the less convincing and more needlessly complicated methodology of the two.

Mr Good again uses 31 January 2011 as the cut-off date. While I found this date convincing for Head 1, Head 2 does not deal with customers who are switching away from Flogas, but with price reductions given to those who stayed. 31 January 2011 was a sensible conclusion for Head 1 since there was evidence that few customers would switch after a two or three month period. However, the same justification does not apply to price reductions for customers who stayed. Mr Plaha uses as his date 31 August 2012, but this is also not satisfactorily explained. Mr Ablett said in cross-examination that it could be crossed out of his evidence and Mr Plyte also could not say where the date had come from. It is far-fetched to suggest that even in August 2012 a price reduction would be offered or maintained attributable to the mail shot.

In conclusion, even though there are some queries regarding the use of a cut-off date with regard to both experts, it seems to me that Mr Good’s method was overall more convincing in analysing the loss that Flogas suffered. I would therefore decide this head of claim following Mr Good’s methodology in favour of the defendant.

Mr Good quoted a range of figures in his second supplemental report. The average of these figures is £69,159. His reason for the range was that he believed it was not clear whether the Flogas “eff[ective] date” represented the date from which the price change was effective. Mr Campbell submits that it would be unfair to allow Flogas to benefit from this uncertainty. However Mr Geere explains the figures in his witness statement of 25^th April 2013, saying that the documents relied on by Mr Good in this regard were not intended to supply the information which Mr Good sought to take from them. Accordingly I accept the average figure of £69,159, subject again to adjustment to take account of the revised discount rate.

This head is more speculative than Heads 1 and 2 since it required the experts to consider what would have happened had the mail shot not been sent at all.

Once more it seemed to me that Mr Good’s approach prevailed over that proposed by Mr Plaha.

Mr Good did not consider this head of loss in detail. He conducted a short analysis by taking the number of customer wins per month from June 2009 to December 2009, and then compared these with the number of wins from June 2010 to December 2010. This resulted in a graph which shows that the customer wins were lower than the 2009 figures in every month from June 2010 to December 2010, with the exception of October 2010. In other words, 2010 was generally a year in which customer wins were lower than in the comparator year 2009. This indicates that there exists little or no evidence to suggest that it was the mail shots which caused Flogas not to win new customers.

Mr Plaha provided an explanation of his approach in his report. However, Mr Plaha submitted additional evidence to the court based on tonnage. I admitted this additional evidence but noted that the weight that would be attached to it would depend on a number of matters. In his additional evidence Mr Plaha used the information on the lost tonnage introduced by Mr Ablett. Mr Plaha admitted that he was not able to verify the evidence given, but that he was undertaking a mathematical exercise to assist the Court. Mr Plaha compared the lost tonnage as per Mr Ablett’s statement with the average annual tonnage, which gave him the average win for the type of activity. He then multiplied wins with the average historical annual tonnage, and set out the shortfall in wins multiplied by the annual tonnage.

This evidence did little to displace the impression that was given by the evidence put forward by Mr Good, which has convinced me that it seems unlikely that much loss was caused under this head. Furthermore, the change in direction in Mr Plaha’s analysis came late in the day, and less weight should therefore be attached to it. Importantly, I note also that Mr Lundie did not rely heavily on this evidence in his closing and Mr Good was only asked a question about the normalisation calculation in cross-examination. Again, therefore, I accept Mr Good’s position.

Under this head I was referred to Aerospace Publishing v Thames Water [2007] EWCA Civ 3 concerned with disruption to a business and the question of diversion of staff time. The pertinent passage is at [86]:

“I consider that the authorities establish the following propositions:

(a)

The fact and, if so, the extent of the diversion of staff time have to be properly established and, if in that regard evidence which it would have been reasonable for the claimant to adduce is not adduced, he is at risk of a finding that they have not been established.

(b)

The claimant also has to establish that the diversion caused significant disruption to its business.

(c)

Even though it may well be that strictly the claim should be cast in terms of a loss of revenue attributable to the diversion of staff time, nevertheless in the ordinary case, and unless the defendant can establish the contrary, it is reasonable for the court to infer from the disruption that, had their time not been thus diverted, staff would have applied it to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the costs of employing them during that time.”

Central to the issue is paragraph (b), which requires me to look at whether the diversion has caused significant disruption to the business.

Calor admits that it would be reasonable to assume a few days’ worth of staff time but argues that there was simply no significant disruption to Flogas’s business. Calor further argues that Flogas’s presentation of the evidence as to exactly how many hours of staff time were lost was unsatisfactory because Mr Plyte accepted that the hourly rates that were initially presented were wrong and needed to be revised, and also that it was unsatisfactory that no documents relating to the meetings that took place at Flogas in relation to the disruption were available.

In my judgment Flogas has suffered a significant disruption. I say this because even in the absence of conclusive contemporaneous notes of meetings and time records, it is clear (fulfilling paragraph (a) of the quoted passage) that Flogas had to spend time and effort to devise strategies as to how to deal with the discovery that the Flogas Database had been misused. Mr Campbell submitted that the hours claimed by Mr Plyte, Flogas’s Finance Director, were less than 10% of the working hours available and that therefore there was no significant disruption. This head of loss is one where a step needs to be taken back to look at the situation in the round, and it seems to me that it is clear that Flogas had to deal with a certain amount of disruption, which was caused by the misuse by Calor and which could not have been insignificant. It is therefore a fair assumption, following paragraph (c) of the quotation from Aerospace Publishing, that “had their time not been thus diverted, staff would have applied it to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the costs of employing them during that time.” Consequently, I allow this part of the claim.

This head deals with costs that are claimed in relation to the instruction of Inta Forensics, a company providing computer expert services, which assisted Flogas in recovering the information from the Flogas Database from Calor’s computer system.

Mr Campbell submits that it is difficult to be confident that quantification was effected properly since Mr Plyte’s three reviews all produced different figures and parts of the claim were abandoned in cross-examination.

This claim was finally quantified by Mr Lundie in closing as amounting to £45,599.63, revising downwards the figure that had been put forward in the joint statement of the experts dated 26 April 2013, and also revising the figure put forward by Mr Plyte in his second witness statement. The claim has been reduced from its original formulation and now only includes costs regarding Inta Forensics and not solicitors’ costs.

The claim for professional costs is in my view intricately linked to the misuse of the Flogas Database; it was not possible for Flogas to avoid these costs since they were necessitated by Calor.

This is a head of loss that is free-standing and in my view independent from the issues that have been considered in expert evidence. Calor’s admission of liability for the breach of confidence claim is relevant here, and it is the breach of confidence that made it necessary for Flogas to recover the data in the first place. In view of these factors, it would be in my view just to award these costs to Flogas to compensate for the cost of Inta Forensics’ services. I will therefore allow this part of the claim also.

The issue of interest has been agreed by the experts who state that it should be LIBOR plus 2% compounded annually. I follow this assessment and decide therefore that this rate of interest will apply to the parts of the claim that I have allowed.

There is one further matter. An award of damages will compensate Flogas for its loss including future loss but it may need to be discounted to take account of accelerated receipt.

Calor says that the discount rate should be the Weighted Average Cost of Capital (“WACC”). It maintains that, taking Calor’s WACC, the discount rate should be 10%. Flogas accepts that WACC is a useful tool for assessing the present value of cash flow but denies that WACC is appropriate as a discount rate in present circumstances. Flogas says that WACC will result in double discounting since the calculation of loss takes into account business risks through the use of averages. Instead, Mr Plyte’s evidence was that Flogas would put the money in the bank and that this reflects the likely level of return on damages on the basis that Flogas were to invest them in a reasonable and prudent manner. This would result in a discount rate of only 2.5%. However, if WACC were to be used the appropriate rate would be 8%, being DCC Sercom’s rate (Flogas’s parent company) rather than Calor’s rate.

However I note that in cross-examination Mr Plaha appeared to drop the claim to a 2.5% discount rate. He maintained that WACC was appropriate but it was inappropriate to use Calor’s WACC rather than that of Flogas’s parent company. Bearing in mind the fact that I have accepted Mr Good’s figure of four years rather than Mr Plaha’s figure of 8.8 years (let alone the 24.4 years proffered by Mr Lundie) the effect of an accelerated period assumes less importance. However, it seems to me that as I am unable to choose between the two rates of WACC I should split the difference and discount by 9%.

Out of the two reports I found Mr Good’s to be the more coherent and convincing one, and he came to a plausible solution. I do not feel that there are enough doubts or other reasons for me to apply any evidential presumption in favour of Flogas in light of the detailed evidence.

Secondly, I have already reviewed the principles on quantum and concluded that monetary relief is appropriate, and that the measure of damages for breach of confidence should be based on the loss to Flogas.

Thirdly, I reviewed general principles regarding causation and remoteness. The principle in Douglas v Hello that determination of remoteness issues must be strongly dependent on the facts, is relevant here. The expert evidence has dealt with the facts in detail and I have found Mr Good’s conclusions to be the more plausible. In other words, Mr Good’s evidence shows, as far as possible, what can and what cannot be attributed to the mail shot as far as a loss to Flogas is concerned. The review of the Memopad entries is the best indicator that can be used under the circumstances. By following Mr Good’s conclusions, I think the court is doing “the best it can”, as prescribed by Biggin v Permanite [1951] 1 KB 422 at 438. In my view, there is no need to consider further legal causation principles in light of Mr Good’s evidence, because plausible reasons have been put forward showing the general extent of Flogas’s loss.

Fourth, there is some evidence that Calor did take some steps to mitigate the effect of the breach of confidence, which counts in its favour. However, in the light of my findings regarding Mr Good’s expert evidence, the impact of this evidence is somewhat limited.

The claim for infringement of Flogas’s database right is still in issue since Calor has not admitted liability in this respect. This claim introduces the possibility of awarding additional damages. Mr Campbell submitted that if the Court concludes that additional damages are not appropriate in this case, then the issue of the infringement of a database right need not be considered. However, it is logically necessary to look at liability for the claim first, before any conclusion can be drawn as to the award of additional damages.

The essence of the claim is that the mail shots breached Flogas’s right in the Flogas Database, a right that it has under regulation 13 of the Copyright and Rights in Databases Regulations 1997:

“13 Database right

(1)

A property right (“database right”) subsists, in accordance with this Part, in a database if there has been a substantial investment in obtaining, verifying or presenting the contents of the database.”

Flogas makes its case based on Article 7 of the Database Directive. There is no claim that the domestic law is at odds with the Directive, but, for completeness, I also set out Article 7 (1) of Directive 96/9/EC (the “Database Directive”):

“1.

Member States shall provide for a right for the maker of a database which shows that there has been qualitatively and/or quantitatively a substantial investment in either the obtaining, verification or presentation of the contents to prevent extraction and/or re-utilization of the whole or of a substantial part, evaluated qualitatively and/or quantitatively, of the contents of that database.”

The meaning of database is set out in s. 3A(1) of the Copyright, Designs and Patents Act 1988:

“3A Databases

(1)

In this Part “database” means a collection of independent works, data or other materials which—

(a)

are arranged in a systematic or methodical way, and

(b)

are individually accessible by electronic or other means. (…)”

Calor does not dispute that the Flogas Database falls within this definition: it is a collection of customer data that is arranged in a specific way so as to be electronically available for the commercial purposes of Flogas.

The next step is therefore to establish whether there existed a database right within Regulation 13 of the Copyright and Rights in Databases Regulations 1997; in other words has there been a substantial investment in obtaining, verifying or presenting the contents of the database on the part of the claimant?

Flogas argues that it is clear from the evidence that it did make such a substantial investment in that it put time and effort into the creation of the Flogas Database, which included customer details as well as other information such as the client history as to orders and deliveries.

In British Sky Broadcasting Group Plc v Digital Satellite Warranty Cover Limited (in liquidation) [2011] EWHC 2662 at [19]-[21] Arnold J rejected the argument that the investment relied upon was of the wrong sort in that it was not obtaining, or verifying the information, but creating it in the first place.

The Flogas Database is a similar case of a collection of information which includes information that has previously existed, such as the names and addresses of the customers, as well as comments that may have been made by Flogas employees in the Memopad function of the system. Following British Sky Broadcasting, at the very least that information that previously always existed must not be regarded as information that has been created, and is therefore protected by the database right. I conclude therefore that there did exist a database right that was capable of being infringed.

As for the other type of information that may have been actively created by Flogas when it compiled the Flogas Database, Calor admits that the presence of that information cannot deprive the Flogas Database of protection, following Football Dataco v Stan James, Sportradar [2013] EWCA Civ 27. I would add that Dataco seems to suggest that such ‘created’ information is also specifically protected. In any case, my conclusion above remains that the previously existing information is protected by the database right.

The next point to consider is the extraction of information since this is part of the infringement, if it did take place. “Extraction” is defined in art 7(2) of the Database Directive:

“(a)

'extraction’ shall mean the permanent or temporary transfer of all or a substantial part of the contents of a database to another medium by any means or in any form”.

Calor refers to six “extractions” that it regards as unsuitable as qualifying as such. They are:

The “extraction” of commercial names and provision to Calor salesmen.

As to (1), I agree with Mr Campbell’s submission that Mr Finch’s actions are unrelated to Calor and consequently cannot be viewed as an extraction for the purpose of establishing liability.

Further (3) can be disregarded because it relates to the commercial claim which has been dropped by the claimant.

Points (2) and (6) are a permanent or temporary transfer of all or a substantial part of the contents of a database to another medium by any means or in any form, within the definition in the Database Directive. Even though (2) is related to the commercial claim, it is the fact that (as pleaded in the Particulars of Claim) Mr Hughes sent a copy of the Flogas Database to his Calor email address which is in my view sufficient to amount to extraction, which does not depend as such on the commercial claim. Point (4) must be regarded as incidental to point (2), since they both relate to the copying of data by Mr Hughes. Whether the copying occurred at Ms Haythornthwaite’s request does not matter.

Since I have already found that an extraction took place, it is not strictly necessary for me to decide as a matter of fact whether point (5) did occur. However, it is very likely that Ms Haythornthwaite did copy the data onto a laptop, particularly in the light of (6) where she supplied Cogent Elliott with such data.

Mr Campbell proposed arguments in relation to the meaning of ‘substantial’ when it comes to the extraction from the Flogas Database.

The relevant part of the Database Directive Article 7(1), (in addition to Article 7(2) which defines extraction and which I have set out above), provides as follows:

“Object of protection

1.

Member States shall provide for a right for the maker of a database which shows that there has been qualitatively and/or quantitatively a substantial investment in either the obtaining, verification or presentation of the contents to prevent extraction and/or re-utilization of the whole or of a substantial part, evaluated qualitatively and/or quantitatively, of the contents of that database.”

Mr Campbell submits, in summary:

He bases these three submissions on the ruling of the European Court of Justice in BHB v William Hill Case C-203/02, the relevant passage of which reads as follows:

“69.

In that connection, it must be borne in mind that protection by the sui generis right covers databases whose creation required a substantial investment. Against that background, Article 7(1) of the directive prohibits extraction and/or re-utilisation not only of the whole of a database protected by the sui generis right but also of a substantial part, evaluated qualitatively or quantitatively, of its contents. According to the 42nd recital of the preamble to the directive, that provision is intended to prevent a situation in which a user 'through his acts, causes significant detriment, evaluated qualitatively or quantitatively, to the investment'. It appears from that recital that the assessment, in qualitative terms, of whether the part at issue is substantial, must, like the assessment in quantitative terms, refer to the investment in the creation of the database and the prejudice caused to that investment by the act of extracting or re-utilising that part.

70.

The expression 'substantial part, evaluated quantitatively', of the contents of a database within the meaning of Article 7(1) of the directive refers to the volume of data extracted from the database and/or re-utilised, and must be assessed in relation to the volume of the contents of the whole of that database. If a user extracts and/or re-utilises a quantitatively significant part of the contents of a database whose creation required the deployment of substantial resources, the investment in the extracted or re-utilised part is, proportionately, equally substantial.

71.

The expression 'substantial part, evaluated qualitatively', of the contents of a database refers to the scale of the investment in the obtaining, verification or presentation of the contents of the subject of the act of extraction and/or re-utilisation, regardless of whether that subject represents a quantitatively substantial part of the general contents of the protected database. A quantitatively negligible part of the contents of a database may in fact represent, in terms of obtaining, verification or presentation, significant human, technical or financial investment.”

Mr Campbell’s fourth submission is that, following Football Dataco Ltd v Stan James Plc [2013] EWCA Civ 27 at [84], the relevant question when it comes to extraction is: what investment has gone into the data taken?

In essence, the Court needs to decide whether the extraction of a substantial part has taken place in the light of the guidance given in BHB and Dataco. In my judgment the meaning of ‘substantial part’ for the purpose of an extraction from the database has been fulfilled. The investment that Flogas has made in the Flogas Database is undoubtedly one that has been great; it was an integral part of Flogas’s business intelligence, containing detailed customer information. The information was collected over time and required significant effort in creating and maintaining it. Considering this significant investment, the extractions that I have found to have taken place do amount to a “substantial part” in the qualitative sense. It would be impossible to say that the scale of the investment into the database was in any way insignificant.

Considering my conclusion above, it is unnecessary in order to establish that extraction of a “substantial part” has taken place to deal with the issue of the meaning of that term in the quantitative sense.

In summary, I therefore find that extraction from the database did take place, and that there has therefore been an infringement of the database right of the claimant.

Calor disputes that it should be liable for infringement of a database right on the basis that no vicarious liability can be established. Mr Campbell relies on Weddall v Barchester Healthcare Ltd [2012] EWCA Civ 25 on vicarious liability in tort from which the following principles are extracted:

In my judgment the extractions, which are in essence the handling and/or copying of data from the Flogas Database, do have a close connection to the employment of Mr Hughes and Ms Haythornthwaite, in that they related to business intelligence that was closely linked to the conduct of the business. That connection is so close that it would not be unjust to impose vicarious liability on the defendant for it. This would satisfy the vicarious liability principles (2) and (3) as set out above. As regards principle (6) the wrongful conduct may fairly and properly be regarded as effected by Mr Hughes and Ms Haythornthwaite while acting in the ordinary course of the firm’s business or the employee’s employment, because the copying and handling of this data is in principle something that would come within the realm of the ordinary course of their employment.

I accept that there is room for argument to the contrary. It may be said that in view of principle (4) the extractions cannot be regarded as ways of carrying out the work which the employer, Calor, had authorised. Further, it may be said that, in view of principle (5), it cannot be the case that there was a risk (of incurring liability) which experience shows is inherent in the nature of Calor’s business. Of course, it would be wrong to say that there is an inherent risk in the nature of Calor’s business which leads to extractions that infringe a database right, and I do not suggest that Calor conducts its affairs in such a manner.

I observe that the breach of confidence claim and admission of liability in that regard arise on the very same facts as the claim for infringement of a database right. It is therefore difficult to say that breach of confidence is admitted, and by implication a vicarious liability for Mr Hughes’s and Ms Haythornthwaite’s acts, but that such vicarious liability cannot exist for the claim for infringement of the database right. In both cases the connection between the defendant and its employees was identical.

I conclude that the defendant is vicariously liable for the infringement of Flogas’s database right.

I therefore go on to consider damages. The question of ordinary damages can be settled relatively simply: the infringement of Flogas’s database right arose on exactly the same facts as the liability for breach of confidence. Flogas is already being compensated for the loss it has suffered. Flogas cannot recover twice.

However, Flogas raised the argument that additional damages should be awarded for infringement of its database right. This claim for additional damages is based on regulation 23 of the Copyright and Rights in Database Regulations 1997 and s. 97(2) of the Copyright, Designs and Patents Act 1988.

The latter provides as follows:

“(2)

The court may in an action for infringement of copyright having regard to all the circumstances, and in particular to—

(a)

the flagrancy of the infringement, and

(b)

any benefit accruing to the defendant by reason of the infringement,

award such additional damages as the justice of the case may require.”

Mr Lundie refers me to Harrison v Harrison [2010] EWPCC at [39] for a convenient summary of the law:

“In Ravenscroft v Herbert [1980] RPC 193, the Spear of Longinus case, Brightman J held that flagrancy implies the existence of some degree of scandalous or deceitful conduct and included deliberate and calculated infringement. “Benefit” implied that the defendant had reaped a pecuniary advantage in excess of the damages he would otherwise have to pay. In the field of the infringement of a literary copyright at least, this is, I think, still the leading authority on additional damages. However:

(a)

“benefit to the defendant” in this context, is to be interpreted widely and not just in financial terms: Redrow Homes Ltd v Bett Brothers Plc [1999] 1 A.C. 197 at 209; and

(b)

a deliberate act on a defendant’s part was not essential for a finding under the section. Carelessness sufficiently serious to amount to an attitude of “couldn’t care less” was sufficient to aggravate infringement: Nottinghamshire Healthcare NHS Trust v News Group Newspapers Ltd [2002] R.P.C. 49 at [52].

In addition, there is no need for knowledge on the part of a defendant that what is alleged to amount to infringement is indeed an infringement of copyright for an award of additional damages to be made; the defendant’s state of mind is irrelevant: Cala Homes (South) Ltd v Alfred McAlpine Homes East Ltd [1995] F.S.R. 818 at 838.”

Mr Lundie also pointed out that flagrancy is not a necessary ingredient of additional damages, but merely a factor to take into account if it is present (see Copinger and Skone Jones on Copyright, 16th edition, at 21-203).

He submitted, in summary, that the conduct of Calor was flagrant, that additional damages are not purely punitive in nature, and the reference to benefit to the defendant permits the court to consider an additional restitutionary element to the award. He contended that it is necessary to take a broad approach to the assessment of additional damages in order to cover the flagrancy and the benefit to Calor.

Mr Campbell by contrast relies on Notts Healthcare NHS Trust v Newsgroup Newspapers [2002] RPC 9, a case which dealt with a copyright infringement. The facts concerned a photograph of a mental hospital patient (the Yorkshire Ripper) which had been taken as part of confidential medical records. The Sun newspaper had acquired and used this photograph to publish a story about a “wild-eyed killer”. Pumfrey J set out at [60] which factors he would take into account. Although they are specific to the case in front of him. I find them to be a useful guide:

“Under section 97(2), the award has regard to flagrancy, and must be such as to do justice in the particular case. Considerable emphasis was place [sic] on an agreement entered into between Broadmoor Special Hospital and The Sun to compromise litigation in respect of two illegitimate photographs (face on and profile) of Peter Sutcliffe, the notorious murderer who occupied the public's attention for a long time. The Sun paid £10,000. The full face photograph was large and formed the page one lead in the paper. The story was written round the photograph, described as a world picture exclusive. I would be inclined to suspect that £10,000 represented a comparatively modest uplift over normal picture rates for such a subject in such circumstances. On the whole case, I have regard to the flagrancy of the infringement; to the fact that the photograph was obviously stolen and that Mr Sharpe must have realised it came from Rampton; to the conduct of The Sun in not ensuring that the whole of the story concerning the photograph was made clear at an early stage and some of the evidence destroyed, to the fact that there has never been an apology for its use but most importantly to the fact that its use has caused a degree of upset at the hospital from which the hospital is entitled to be free. I consider that the appropriate uplift is to bring the award of damages overall up to £10,000. If this exceeds the sum appropriate under section 97(2) having regard to the benefit to the defendant, then no further infringements of this kind will take place. If further infringements consisting of the publishing of stolen photographs from medical records do take place, it will show that the advantage to the newspaper still exceeds the award of damages. I will hear counsel on any other provisions of the order which cannot be agreed.”

I observe that additional damages awarded in other cases, such as Cavalcade Records v HHO Multimedia, 27 March 2013 (unreported), have amounted to only very low sums, the “record” being £10,000 in Notts Healthcare NHS Trust v Newsgroup Newspapers. Mr Campbell pointed out that Flogas has not quantified its claim for additional damages.

Under s. 97(2) of the 1988 Act the Court must have regard to all the circumstances of the case when assessing the need for additional damages. I am not satisfied that the Harrison v Harrison considerations with regard to flagrancy as set out above are fulfilled. The evidence has not demonstrated scandalous and deceitful conduct on the part of Calor in line with those that Pumfrey J considered in the Notts Healthcare NHS Trust case.

I am also not satisfied that additional damages are required to uphold the justice of the case. While the extractions that took place have, as I have found, been enough to establish the infringement of the database right, there is an additional element of reprehensible conduct necessary to justify the imposition of additional damages, and I decline to exercise the court’s discretion to do so. Mr Hughes’s and Ms Haythornthwaite’s handling of the data was of course wrongful, but it does not bear the type of characteristics sufficient for the award of additional damages.

Mr Lundie tried to persuade me that the conversation that took place in mid-September 2010 between Ms Haythornthwaite and Mrs Marshall-Rowan, in-house legal counsel to Calor, was such a factor. However, he was in my judgment unsuccessful in doing so.

I also find, for reasons given earlier in this judgment that the instruction given by Mr Rennie of Calor to Cogent Elliott to destroy the remaining physical mail shots does not come within the category of scandalous or deceitful conduct sufficient for the award of additional damages.

While I accept Mr Lundie’s submission that flagrancy is not a necessary finding in order to award additional damages, I struggle to find other grounds that could justify such additional damages, and I take into account that the award of such damages has been few and far between, and that the sums have been small.

The benefit that Calor has obtained through the infringement of the database right, even when interpreted widely (not just in financial terms) does not in my view exceed the damages for loss that I have determined above. The damages awarded are, as I have said, for both infringement of the database right and breach of confidence, because they arise on the same facts, and there is no particular reason to go beyond this measure of damages.

In consideration of all the above, I find therefore that no additional damages should be awarded for the infringement of Flogas’s database right.

In summary therefore, I find for Calor under Heads 1-3 and for Flogas under Heads 4 and 5. I make no award of additional damages for breach of database right. Other matters are agreed between the parties.