Bristol Groundschool Ltd v Intelligent Data Capture Ltd & Ors

In these proceedings, the Claimant (“BGS”) seeks remedies against all the Defendants for infringement of copyright and against the First Defendant (“IDC”) for breach of contract. By a counterclaim, all the Defendants except the Fifth Defendant (“Mrs Cownie”) seek remedies against BGS and the managing director of BGS (“Mr Whittingham”) for infringement of copyright, breach of confidence, circumventing copy protection, malicious falsehood, and conspiracy to injure by unlawful means.

At the heart of the proceedings are two agreements in writing made between IDC and BGS. The first in time (“the 1999 Agreement”) related to materials for the UK Civil Aviation Authority training course for pilots, while the second in time (“the 2001 Agreement”) related to materials for the EU Joint Aviation Authority training course.

The shape and content of the proceedings have changed as they have progressed. Some issues have been determined by the court or have fallen away as a result of being given up or compromised by the parties, but further issues have been added to the dispute. I shall not say much about the way in which these developments have occurred, even those which took place recently, as the issues which remain live are plentiful enough.

In accordance with the Order of Master Marsh dated 13 January 2014, the trial before me was intended to determine the issues and sub-issues set out in sub-paragraphs 10.1.1-10.1.3 and 10.2.1-10.2.3 of that Order, while the further issues set out in sub-paragraphs 11.1 and 11.2 of that Order were to be dealt with at some later date. By the end of the trial before me, the position had changed. The substantive issues which I was asked to determine had increased to over 20 in total (numbered 2.1-2.8, 4, 5.1-5.4, and 6-12; with numbers 1, 3 and 13 relating to issues which were no longer contentious).

When people fall out, feelings often run high. Where this gives rise to disputes that they are unable to resolve without resorting to litigation, the court must grapple with the issues raised. This is often regrettable, and, in my judgment, is particularly unfortunate in the present case. I consider that, with a reasonable amount of commercial common sense and pragmatic give and take, the parties could and should have been able to reduce the issues in these proceedings, even if not to resolve them completely. I am not able to form concluded views, not least because matters of quantum are not before me, and instead will be left over to be determined at another hearing. But I strongly suspect that, at least in some instances, the costs, stress and delay involved in litigating points in this case to the bitter end are disproportionate to the importance of what is at stake.

BGS and Mr Whittingham were represented by Michael Hicks, and the Defendants by Robert Onslow. I am grateful to both of them for their clear and helpful submissions.

Although framed as, in large part, a contest between companies, the main protagonists are two individuals. Mr Whittingham is the moving light behind BGS, and the Second Defendant (“Mr Cownie”) is the moving light behind IDC.

The Third Defendant (“Propilot”) is a wholly owned subsidiary of the Fourth Defendant (“Slate-Ed”). Those companies were incorporated on 7 April 2010 and 6 January 2010, respectively, at the instigation of Mr Cownie. Following the rift between IDC and BGS, Slate-Ed has published electronic books for the iPad, called PadPilot, directed to civil aviation pilot training, and Propilot has provided training to student civil aviation pilots using those electronic books. Mrs Cownie is the wife of Mr Cownie. Both of them are directors of IDC, and, together with Jacqueline Suren, of Slate-Ed and Propolit.

It is BGS’s case that all the Defendants were parties to a common design to publish materials which infringed BGS’s copyrights, and so are jointly liable for infringement. It is also BGS’s case that IDC acted in breach of contract. IDC has recently conceded some points concerning ownership and infringement of copyright, as recorded in the non-contentious Issues 1 and 3 before me. That aside, all these allegations are denied.

It is the Defendants’ case that Mr Whittingham and BGS are jointly liable for various torts, all of which are denied. If, contrary to that denial, those torts are held to have been perpetrated, Mr Whittingham does not dispute that he is jointly liable for the same. That concession is recorded in the non-contentious Issue 13 that is before me.

Mr Whittingham, alone, gave evidence on behalf of BGS and on his own behalf. Mr Cownie was the principal witness called on behalf of the Defendants. I do not consider that their evidence was in any way dishonest. However, I consider that each of them was susceptible to persuading himself of matters which suited his case in this litigation. Accordingly, I do not regard either of them as being an entirely reliable witness.

Based on his demeanour and some of what emerged in evidence, Mr Whittingham was prepared to go to considerable lengths to further his interests and those of BGS. He also gave me the impression of having thought through his position to the point of taking notable care to give away as little as possible in his answers to cross-examination. So far as concerns Mr Cownie, I consider that there is substance in Mr Hicks’s submissions to the effect that (1) Mr Cownie’s strong feelings about this dispute have at the very least clouded his recollection of events, and (2) it was a less than satisfactory feature of his evidence that in a number of instances it only emerged in cross-examination.

Fortunately, I believe that not much turns on many of the differences between them. Where it is necessary to resolve conflicts between them, it is often possible to take into account the contents of contemporary documents when deciding who to prefer.

The other witnesses who were called to give evidence on behalf of the Defendants were Jacqueline Suren, Kevin Brown and Mrs Cownie. Ms Suren’s evidence went largely to her shareholding in Slate-Ed, and her role as managing director of Propilot and as a director of Slate-Ed. Mr Brown’s evidence concerned his role in developing software in conjunction with IDC, explaining aspects of how that software worked, and his investigation of a software patch developed and supplied by BGS to enable circumvention of copy protection installed by IDC (which forms part of IDC’s counterclaim). Ms Suren and Mr Brown were transparently honest and helpful witnesses, and Mr Hicks did not suggest the contrary. Mr Hicks submitted that Mrs Cownie was clearly and naturally keen to defend IDC’s position where possible. In my judgment, Mrs Cownie was plainly loyal to her husband (and to IDC). Further, Mrs Cownie shared her husband’s feelings that they had not been treated well by Mr Whittingham. However, I do not consider these factors made her evidence unreliable.

In his opening written submissions, Mr Hicks referred to part of the judgment of Master Marsh, delivered when determining a number of issues prior to making his Order referred to above, as providing a convenient summary of the general factual background to this dispute. I did not understand Mr Onslow to quarrel with that description.

Accordingly, I gratefully adopt the following paragraphs of that judgment, and I shall use the same abbreviations in this judgment:

“[3] … Both Mr Whittingham and Mr Cownie were formerly officers in the RAF. Mr Whittingham ended his flying career at an early age due to a medical condition and then re-trained as a Ground Instructor. Mr Cownie was a Pilot and later a Flight Instructor. Mr Whittingham left the RAF in 1990 and Mr Cownie left in 1998.

[4] BGS was set up [under the name Performance Training (UK) Limited] in 1992 and over a period of time it became a highly regarded company specialising in the training of commercial pilots for the Airline Transport Pilots Licence (“ATPL”) then under the auspices of the UK Civil Aviation Authority (“CAA”) .

[5] IDC was set up by Mr Cownie and his wife in 1996 at a time when he was still an RAF Officer. He was hoping to negotiate a contract with the RAF to convert its training documents to electronic format. But his bid to the RAF was unsuccessful. In 1997 Mr Whittingham and Mr Cownie met for the first time when Mr Cownie attended a classroom based course at BGS’s premises in Bristol. There are some minor differences of recollection between them about the circumstances of their meeting but they are not matters of any significance for the purposes of the preliminary issues. Mr Cownie suggested to Mr Whittingham that BGS’s existing training manuals could be converted into an electronic format with animated diagrams. The two companies worked together and later entered into an agreement dated 1 September 1999 (“the 1999 Agreement”). The agreement formalised the existing arrangement between BGS and IDC. IDC was to create static artwork paid for by BGS and copyright vested in BGS. The technical manual produced as a result of the collaboration was sold to students by BGS. IDC received £50 for each copy of the manual sold.

[6] In 2000 there were significant changes to the training of commercial airline pilots and responsibility for training was moved from a domestic to a European level, with responsibility given to the JAA [i.e. Joint Aviation Authorities – representing the civil aviation authorities of a number of EU states]. During 2000, BGS produced material for the new JAA ATPL course and IDC began work on [a] new computer programme which would display the JAA material as well as providing a questionnaire for the users. On 19 January 2001 BGS and IDC entered into a new agreement (“the 2001 Agreement”). The application, called the JAA Multimedia Revision Aid (“JALS”) began to be sold by BGS in 2001 and IDC was paid £200 per copy sold.

[7] From 2001 to 2009 IDC continued to supply static artwork to BGS. It is common ground that from August 2002, IDC did not make any further charge to BGS for the supply of static artwork. Between 2001 and August 2002 a charge had been made where the artwork had been prepared for IDC by an external contractor, but no charge had been made where the artwork was prepared in-house by IDC. Where such work was invoiced by IDC, it was charged at cost.

[8] In 2009 Mr Whittingham and Mr Cownie fell out. Considerable efforts were made to try to patch up their differences with both companies employing the services of external consultants to assist in that process. Regrettably it did not prove possible to reach an accommodation and ultimately these proceedings were commenced in 2011.”

With regard to [7] of that judgment, and the fact that IDC ceased charging BGS for static artworks from about August 2002, it was stated in Mr Hicks’s opening written submissions that Master Marsh found that there was no contractual agreement not to charge as part of his decision on the preliminary issues. Mr Onslow did not dispute that.

According to the preamble, the 1999 Agreement “outlines the obligations, rights and responsibilities for both [BGS and IDC] in relation to the development, production, publication and marketing of an electronic version of [BGS’s] ATPL technical syllabus”. The 1999 Agreement further provides (among other things) as follows:

“Development

1.

[IDC] agrees to produce for [BGS] vector artwork for any and all diagrams necessary for the ATPL technical syllabus notes. The costs of these artworks will be borne by [BGS].

2.

[IDC] agrees to produce animated versions of artworks for inclusion in the electronic document. The cost of these animations will be borne by [IDC].

3.

[BGS] agrees to supply all the necessary textual content for the electronic document. The cost of producing the textual content will be borne by [BGS].

Production

4.

[IDC] agrees to produce a Windows compatible application of marketable quality, capable of displaying the ATPL technical syllabus within a suitable Windows style environment. Design and functionality will remain the sole responsibility and prerogative of [IDC].

Publication

5.

The electronic document will be jointly published by [BGS] and [IDC]. The costs of production will be equally shared between the two parties.

Marketing

6.

The electronic document will be jointly marketed by the two parties …

9.

The marketing strategy will be jointly determined by both parties and will be based on the underlying principle of sharing profits equally between both parties.

Copyright

10.

[BGS] owns and retains the copyright to its textual material and to the static artworks produced by [IDC] for inclusion in the syllabus document, with the exception of the artworks owned by Rolls Royce plc and licensed to [IDC] for its use.

11.

[IDC] owns and retains the copyright on animated diagrams and graphics.

12.

[IDC] owns and retains the Intellectual Property rights and/or any relevant copyrights on the design of the application and any underlying source code written by [IDC].

Licensing

13.

Both parties retain, in perpetuity, a license to use, copy and distribute the application as a means of distributing the electronic version of the ATPL technical syllabus only to students of [BGS].”

The material provisions of the 2001 Agreement are as follows:

“Definitions

1.1

“Licensor” means [IDC].

1.2

“Licensee” means [BGS].

1.3

“Application” means the software application produced as a multimedia revision aid to accompany [BGS’s] JAA ATPL printed course study material.

1.4

“Student” means a client of [BGS] registered as a student with [BGS] for the purposes of satisfying the theoretical training requirements for the JAA ATPL as laid out in JAR FCL 1.

Purpose of this letter

2.1

This letter of agreement outlines the obligations, rights and responsibilities for both [BGS and IDC] in relation to the development, production, publication and marketing of the Application.

Pre-Development Work

3.1

[IDC] agrees to produce for BGS vector artwork for any and all diagrams required to be included in the JAA ATPL printed notes. The cost price of these artworks will be borne by BGS.

3.2

[IDC] agrees to produce animated versions of artworks where these are deemed by [IDC] to be practicable and appropriate. The animations will be incorporated in the Application. The cost of producing the animations will be borne by [IDC].

3.3

[BGS] agrees to provide all necessary textual content for inclusion in the Application. The cost of producing textual contents will be borne by [BGS].

Development of the Application

4.1

For a nominal fee of £5,000 [IDC] agrees to produce a Microsoft Windows compatible Application of marketable quality, which will display text, graphics and self-assessed question material in a suitable Microsoft Windows environment …

Publication

5.1

The Application will be jointly published by [IDC and BGS]. [IDC] agrees to bear the publication costs for the Materials detailed in paragraph 5.1.1 [below]. All other publication costs will be borne by [BGS] …

5.3

CD-ROMs/CD-R will be provided by [IDC] on a sale or return basis.

Marketing

6.1

The Application will be jointly marketed by [IDC and BGS].

6.2

[IDC and BGS] may not independently market the Application to any third party without the prior permission of the other party.

6.3

[IDC and BGS] will market the Application to the best of their abilities.

Copyright

7.1

[BGS] owns and retains the copyright to its textual material and to the static artworks produced by [IDC] for inclusion in the syllabus document, with the exception of those artworks owned by Rolls Royce plc which are currently licensed to [IDC].

7.2

[IDC] owns and retains the copyright on animated artworks.

7.3

[IDC] owns and retains the copyright on any soundtracks produced to accompany animated artworks or other teaching material.

7.4

[IDC] owns and retains the copyrights and intellectual property rights on the design of the application and any underlying source code written by [IDC].

7.5

The copyright for other software incorporated in the Application and used under licence by [IDC] will remain with the holders of the intellectual property rights …

Cost of the Licence and other Accounting Measures

8.1

[IDC] agrees to License the Application to [BGS] for a fee of £200 per CD-ROM or CD-R sold to each Student.

8.2

[BGS] will settle outstanding accounts with [IDC] monthly in arrears.

The Licence

9.1

The Licence permits:

9.1.1

[BGS] to distribute one copy of the Application to each Student …

Technical Support

10.1

[IDC] agrees to provide technical support by e-mail to staff and Students for the duration of this agreement.

10.2

Technical support will be limited to addressing issues directly concerning the installation of the software and operation of the Application and its associated security authorisation software …

Continuing Development and Rectification

11.1

[IDC] agrees to undertake further minor development and enhancement of the [A]pplication, including additional animated artworks for a period of 12 months from the date of first delivery of the Application …

Duration of the Agreement

12.1

This agreement will remain in force for a period of not less than five years commencing from the date of signature of this document …”

The following versions of teaching materials were supplied by BGS subject to the terms of the 1999 Agreement and the 2001 Agreement at or about the following times:

Technical Subjects Revision Aid Version 1.0 December 1999

JAA Multimedia Revision Aid Version 1.0 January 2001

JAA Multimedia Revision Aid Version 2.0 December 2001

JALS Version 2.5 July 2002

JALS Version 3.0 March 2004

ATPL Digital Version 5.0 March/April 2007

ATPL Digital Version 5.1 January 2009

ATPL Digital Version 5.2 March 2009

ATPL Digital Version 5.3 June/released November 2009

By application notice dated 12 February 2014 the Defendants sought permission to amend their pleadings in accordance with a draft Re-Re-Re-Amended Defence and Counterclaim (“the Defence”). I granted that application on terms that (1) the costs were reserved and (2) of the issues raised by paragraph 23 of the Defence those identified below would be resolved at this trial, with the remaining issues being left over to a subsequent hearing.

Paragraph 25 of the Re-Re-Amended Particulars of Claim (“the Particulars of Claim”) pleads as follows:

“Having regard to the conversation in July 2002 and the email of 5 September 2003 referred to [above] and the conduct of [IDC] referred to [above], from July 2002 onwards [BGS] and [IDC] dealt with each other on the basis that [the 2001 Agreement] applied to all static artwork produced in house by [IDC] and (before the employment of Mr Collingwood) all contracted out artwork so that the copyright subsisting in such static artwork belonged to [BGS]”.

The reference to the email of 5 September 2003 is to an email from Mr Cownie to Mr Whittingham in which Mr Cownie stated “I had completely and absolutely forgotten that we had produced a new agreement after we raised the price of the CD-Rom … The agreement is clear that you own the copyright on all static artwork we produce”.

Following the amendment to paragraph 23 of the Defence that I gave the Defendants permission to make, that paragraph reads as follows:

“Paragraph 25 [of the Particulars of Claim] is admitted save that the static works relied upon by [BGS] contain the following categories, which were not works “produced” (i.e. created) for inclusion in [BGS’s] syllabus document:

(i)

artworks, created as static artworks, but created by [IDC] other than for the Application or accompanying manuals e.g. artworks created for [IDC’s] Air Law CBT Module and other standalone products, artworks created for the Helicopter books, and artworks created for third parties including but not limited to British Airways, CityJet, CTC McAlpine, CTC Aviation, Bristol Flying Centre and Multiflight but which were subsequently supplied to [BGS] for incorporation into the Application;

(ii)

artworks which were created by or copied from third parties (including Crown Copyright);

and the following further categories which, whether produced for [BGS’s] technical syllabus or not, were not original:

(iii)

artworks derived by extracting one frame from an animation;

(iv)

artworks derived by extracting a “view” from a 3D model (such as Mass and Balance)”.

In light of this new pleading, BGS applied to amend paragraph 90 of BGS’s response to the Defendants’ request under CPR Part 18 dated 11 May 2012. I granted that application, on terms that the costs were reserved. In this regard:

I also adjourned until after the present judgment has been handed down the resolution of IDC’s application that three claims begun by IDC against BGS in Northampton County Court on 3, 11 and 25 May 2011, and subsequently transferred to this court, should be dealt with at the same time as the trial of the other issues which are currently before me.

By the time of the hearing before me, it was common ground between the parties that pursuant to Clause 7.1 of the 2001 Agreement BGS owns the copyright in static artworks created by IDC for inclusion in the printed notes accompanying JALS (and subsequent versions up to and including ATP Digital version 5.3) whether or not paid for by BGS.

Nevertheless, the first major issue between the parties that is before me concerns a dispute about the interpretation of Clause 7.1, and in particular the meaning of the term “static artworks produced by [IDC] for inclusion in the syllabus document”. This will determine the ownership of copyright in a large number of static artworks (possibly around 3,000), which is a matter of considerable importance to the parties. Since they have fallen out, the parties have been in competition with one another, publishing rival electronic and printed training materials. Each complains that, by carrying out these activities, the other is infringing copyright in the static artworks which are in issue in these proceedings.

It should be noted, however, that questions of subsistence of copyright and whether there has been reproduction by any party of a sufficient part to amount to infringement are not before me. It has been agreed that those issues should be left to the inquiry as to damages (if any), because their resolution may involve a detailed consideration of many drawings.

In essence, on the one hand BGS submits that, in Clause 7.1 of the 2001 Agreement, “produced by [IDC] for” means “made available to BGS by IDC” for inclusion in the relevant teaching materials. On the other hand, IDC submits that, in the context of Clause 7.1, “produced for” does not mean “made available to”, but instead means “created for”.

Various categories of works which would fall within the ambit of Clause 7.1 on BGS’s interpretation would fall outside it on IDC’s interpretation. This would apply, in particular, to static artworks which were made available to BGS by IDC for inclusion in the syllabus document but which were either (1) static artworks created by IDC not for BGS but for third parties or (2) third party static artworks delivered to BGS by IDC.

As to the relevant legal principles, Mr Hicks submitted in opening that:

In his closing submissions, Mr Hicks referred to Rainy Sky SA v Kookmin Bank [2011] UKSC 50,[2011] 1 WLR 2900, and in particular the speech of Lord Clarke at [21]:

“The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

I consider that it is also helpful to refer to the following summary provided by Lord Neuberger PSC in Marley v Rawlings [2014] UKSC 2, [2014] 2 WLR 213 at [18]-[19]:

“[18] During the past 40 years, the House of Lords and Supreme Court have laid down the correct approach to the interpretation, or construction, of commercial contracts in a number of cases starting with Prenn v Simmonds [1971] 1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900.

[19] When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party's intentions. In this connection, see Prenn, at pp 1384–1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H E Hansen-Tangen) [1976] 1 WLR 989 , per Lord Wilberforce, Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, para 8, per Lord Bingham of Cornhill, and the survey of more recent authorities in Rainy Sky, per Lord Clarke of Stone-cum-Ebony JSC, at paras 21–30.”

I did not understand any of Mr Hicks’s submissions summarised above to be disputed by Mr Onslow. Nor, in any event, could either side quarrel with Lord Neuberger’s summary.

Turning to the facts, Mr Hicks submitted that, in the present case, the factual background is largely undisputed, and is set out in some detail in Mr Whittingham’s 8^th witness statement dated 3 February 2014. Among other things: (a) BGS had an existing business, (b) a significant syllabus change was anticipated, (c) it was envisaged that training material, including multi-choice progress tests and examinations could be delivered electronically, and (d) it was also envisaged that artwork which had been created, and had been paid for by BGS, could be used by BGS for inclusion in BGS’s training manuals.

Mr Hicks further relied on Mr Whittingham’s evidence relating to the 1999 Agreement, contained in paragraphs 34 and 50 of his 8^th witness statement dated 3 February 2014:

“[34] The only terms on which I insisted were that BGS should always retain the copyright of the text and the static images produced by IDC and used in its manuals with the exception of one or two complex diagrams licensed from Rolls Royce which we had considered easier to licence than to redraw. The reason for this agreed retention of copyright by BGS was that, should the relations between the parties ever break down, I considered that it was imperative that BGS still owned the copyright to our core product, the training material in the manuals. As I explain earlier … the static art referred to in the Agreement was editable vector art wherever possible. This too was important because the agreed retention of copyright in these files meant that, should relations between the parties break down, BGS could edit and change the art when required and not be stuck with a bitmap that could not be edited …

[50] Clause 7.1 [of the 2001 Agreement] provided that BGS was to own and retain the copyright in the static artworks produced by [IDC]. This clause was a verbatim repeat from the Agreement of 1999 and the only clause I insisted on. As before, with the equivalent clause in the 1999 Agreement, I wanted to ensure that should relations between the parties ever deteriorate BGS would still retain its core product, the training manuals and the intellectual property rights in their content, allowing BGS to continue to develop both …”

I see no reason to doubt the veracity of that evidence. Nor did Mr Onslow challenge it.

Mr Hicks further submitted that these matters were reflected in the structure of the 2001 Agreement. He argued that:

In line with the Defendants’ new pleaded case in paragraph 23 of the Defence, Mr Onslow identified the following categories of work to which Clause 7.1 arguably applies:

Mr Onslow pointed out (correctly) that the greater the extent to which the effect of Clause 7.1, on its true construction, is to confer copyright in each of these categories upon BGS, the more that IDC will be liable to BGS for infringement of copyright over and above the liability involved in the concession which is referred to in paragraph 27 above, whereas, conversely, the greater the extent to which that is not the effect of Clause 7.1, the more that BGS will be liable to IDC for infringement of copyright under the counterclaim.

Mr Onslow initially submitted that BGS’s argument (to the effect that when IDC delivered the works to BGS, it “produced” them) was wrong for the following reasons:

In his closing submissions, Mr Onslow made the following additional submissions:

In my judgment:

For these reasons, I decide Issue 2.1 in favour of BGS.

BGS was not IDC’s only customer. IDC’s customers have included at various times British Airways, CityJet Ltd, CTC McAlpine Ltd, CTC Aviation Ltd, Bristol Flying Centre and Multiflight Ltd. A number of static artworks are said by IDC to have been first produced for these customers. The issue that I am asked to determine in this regard is expressed as follows: “If static artwork was first produced by IDC for inclusion in other materials it has provided, and is subsequently provided for inclusion in ATPL Digital (or its predecessors), is such static artwork excluded from the provisions of clause 7.1 regarding ownership of copyright in static artworks?” I am not asked to determine the factual question of whether any particular item of static artwork was so produced. The parties have agreed that will, if necessary, be determined at the inquiry as to damages.

BGS contends that such works are covered by Clause 7.1. IDC contends the contrary.

I determine this issue in favour of BGS for the reasons given under Issue 2.1 above.

This issue relates to works copied from others and arises from paragraph 23(ii) of the Defence. It is expressed in the following terms, which must be read as referring to works copied by IDC from others:

“2.6.1

It is not disputed that so far as originality was added by IDC for the purpose of inclusion in the printed notes, the copyright belongs to BGS not IDC.

2.6.2

Insofar as the added work in question was added by IDC for third party purposes the issue is as for [Issue] 2.5 above.

2.6.3

Originality issues will be left to the inquiry.”

In so far as what I am being asked to do under this heading is to endorse the proposition expressed at 2.6.2 above, I readily do so. In so far as what I am asked being asked to do is to determine whether the artworks “produced by IDC” for BGS included those which had been created by or copied from third parties, I rule in favour of BGS for the reasons given under Issue 2.1 above. In my judgment, however, that ruling cannot extend to having the effect that copyright in those artworks was assigned to BGS pursuant to Clause 7.1 of 2001 Agreement, save only to the extent that IDC acquired the copyright in those artworks from the third parties and so was able to assign copyright to BGS. In all other instances, so far as concerns this category of artworks, it seems to me that IDC is in breach of its contractual obligations to BGS, and that BGS’s remedy is for damages.

This issue concerns animations, and arises from paragraph 23(iii) of the Defence. It is expressed as follows (as slightly re-phrased for purposes of syntax and clarity):

Mr Hicks submitted that, subject to questions of originality, which are not before me and are for another day, this issue stands or falls with the resolution of the issue as to the correct interpretation of Clause 7.1 of the 2001 Agreement. Mr Onslow did not contest that. Accordingly, my ruling on this issue is in favour of BGS, as in the case of Issue 2.1.

This issue concerns 3D artworks, and arises from paragraph 23(iv) of the Defence. It is expressed as follows (as slightly re-phrased for purposes of syntax and clarity):

Mr Hicks submitted as follows:

In contrast, Mr Onslow submitted as follows:

In my judgment, where IDC took a 2D view of a 3D model and supplied that view to BGS pursuant to the 2001 Agreement, any copyright in that view was assigned to BGS, and this is so whether or not the view in question was generated by IDC for inclusion in BGS’s printed notes. I consider that this follows from my ruling on Issue 2.1 above.

The extent to which copyright subsisted in any such 2D view depends on whether that view was an original work, and this is an issue which is not before me. If and to the extent that copyright subsisted in any such 2D view, however, then, in light of my ruling in the previous paragraph, the remaining points which are raised under Issue 2.8 would seem to fall away: BGS would obtain the copyright in each such 2D view, no more and no less.

I consider that where there was no separate copyright in any 2D view which was taken by IDC and supplied to BGS pursuant to the 2001 Agreement, there are two possibilities:

These two alternatives represent, respectively, the high water mark of BGS’s case argued by Mr Hicks, and one element of the case put forward by Mr Onslow on behalf of IDC.

In my judgment, the second alternative is correct. In sum, and to the extent that I have endeavoured to capture by my formulation of that alternative, I prefer Mr Onslow’s submissions to those of Mr Hicks. I do not consider that I need to attempt to resolve the various factual sub-issues that are identified above, the evidence concerning which is less than pellucid in any event. Accordingly, my ruling on Issue 2.8 is as follows:

This issue concerns materials known as “Air Law – CBT Module”. “CBT” stands for “computer based training”. It is formulated as follows:

In order to make sense of this issue it is necessary to explain more of the background:

The formulations in Issue 2.2 were expanded in the parties’ submissions as follows.

BGS’s case is that the following Air Law static artwork belongs to it:

The first reason why BGS contends that Clause 7.1 of the 2001 Agreement applies to these materials, is that it is Mr Whittingham’s evidence that it was agreed that the Tracker system would be treated in the same way as the existing ATPL Digital system. Although Mr Cownie contends that no such agreement was reached, Mr Hicks submitted that this dispute of fact should be resolved in favour of BGS for the following reasons:

The second reason why BGS contends that Clause 7.1 of the 2001 Agreement applies to the Air Law static artwork materials is that they were included in ATPL Digital 5.0 to 5.3. These versions were supplied under the 2001 Agreement, and BGS therefore contends that it must follow that these materials are governed by Clause 7.1.

In opening, Mr Onslow submitted as follows:

Mr Onslow expanded those submissions in closing as follows:

In my judgment, to the extent that IDC’s case on Issue 2.2 rests on contentions to the effect that (a) Air Law was created by IDC not for BGS but instead for a third party, and (b) although Air Law was incorporated into ATPL 5.3, Air Law was never put into BGS’s syllabus document accompanying ATPL 5.3, that case is covered by my ruling on Issue 2.1 above. Moreover, the extent of IDC’s residual case on Issue 2.2 is not entirely clear.

However, Mr Hicks submitted that the following facts did not appear to be in dispute:

Mr Hicks made further submissions on the history of the multimedia upgrade. They included the following:

With regard to the NPA25 update (a reference to the aviation authorities’ Notice of Proposed Amendment, in this case in respect of a syllabus change), Mr Hicks submitted:

As I have stated above, it is not entirely clear to what extent IDC’s case on Issue 2.2 goes beyond matters which, in my judgment, are covered by my ruling on Issue 2.1.

However, if BGS needs to go further in order to succeed on Issue 2.2, I prefer the submissions of Mr Hicks. In particular, in my judgment: (a) because Air Law static artwork materials were included in ATPL Digital 5.0 to 5.3, and because those versions were supplied under and subject to the 2001 Agreement, these materials were governed by Clause 7.1; (b) it makes sense for the parties to have agreed that the 2001 Agreement should apply to the Air Law static artwork included in Tracker; (c) so far as material to Issue 2.2, Tracker was, or was treated by the parties as, another delivery system for the BGS course; and (d) on balance, the contemporary documents support BGS’s case that the parties treated the Air Law Tracker material as being subject to the 2001 Agreement.

I consider that (a) Mrs Cownie’s email dated 27 November 2009 was an attempt to lock the stable door after the horse had bolted, and (b) its contents are inconsistent with the case put forward by Rickerbys. I consider that Rickerbys must be taken to have been writing on the instructions of IDC. Mr Cownie suggested in cross-examination that some of what they wrote was wrong. However, it seems never to have been corrected by IDC.

In my judgment, it is an important part of the context that, until negotiations over the Heads of Terms finally broke down, the Cownies were hoping to reach an agreement with Mr Whittingham which would provide them with the reward which they considered they deserved for all that IDC had done to contribute to the success of BGS’s operations. In the meantime, it was in the interests of IDC as well as those of BGS for the business model envisaged by the 2001 Agreement to be a success. Moreover, no other agreement was ever concluded between IDC and BGS. For example, no license fee was ever agreed or charged other than the fee of £200 referred to in Clause 8.1 of the 2001 Agreement.

I do not doubt that the Cownies harbour a sense of injustice. They consider that Mr Whittingham had made a promise to merge BGS and IDC, which he did not keep. However, Master Marsh decided that issue against them. For present purposes, I consider that the significance of this backdrop is that it supports the probability that they were not astute to limit the operation of the 2001 Agreement or to exclude new product from its ambit, but instead, and in spite of increasing and periodic friction with Mr Whittingham, were content to supply, or were led into supplying, extensive new materials under it.

For these reasons, I decide Issue 2.2 in favour of BGS.

This issue – or more accurately series of issues - concerns various materials relating to helicopters, that is to say the static artworks included in the works entitled “Helicopter Principles of Flight”, “Helicopter Performance” and “Helicopter Mass and Balance”.

The issue concerning “Helicopters Principles of Flight”, which I will refer to as Issue 2.3.1, is formulated as follows:

The issue concerning “Helicopter Mass and Balance” and “Helicopter Performance”, which I will refer to as Issue 2.3.2, is formulated as follows:

The background to all three items is the introduction of the new ATPL(H) syllabus mentioned in paragraph 72 above.

The heart of the difference between BGS and IDC concerning “Helicopters Principles of Flight” is whether, as BGS contends, the parties are joint owners of the copyright in the artworks in question, with each having a licence from the other to publish the volume in accordance with [124] of BGS’s response to IDC’s request under CPR Part 18, or whether, as IDC contends, the copyright in those artworks remains with IDC.

In 2004, BGS acquired the copyright in a work entitled “Helicopter Principles of Flight” from the author, Mr A.W. Mathieson. Thereafter, in about 2004, IDC and BGS agreed to produce a new volume to replace that work, with BGS being responsible for updating the text and IDC being responsible for producing static artwork. None of that is in dispute. What is in issue is whether that was a free-standing agreement, or whether it was agreed that this volume would be dealt with in the same way as other materials produced pursuant to the 2001 Agreement, save for differences concerning money and retail sales.

Thereafter, it is BGS’s case that in light of BGS’s failure to revise the text, in about 2007 or 2008 the parties agreed that (a) the text would be revised by IDC and (b) as remuneration, IDC would be entitled to publish the new book in stand-alone form, with the revenue (which was subsequently changed to the profits) being divided equally.

It appears to me from [124] of BGS’s response to IDC’s request under CPR Part 18 that BGS accepts that this agreement was later varied by the exchange of emails referred to below that took place on 11 September 2009. In that exchange, Mr Whittingham offered Mr Cownie all the profits from retail sales, and that offer was accepted by Mr Cownie.

According to the evidence that Mr Cownie gave in cross-examination: (a) there was an agreement to share revenue (or profits) in relation to a stand-alone book, (b) however, this stemmed from an agreement made in 2004 rather than in 2007 or 2008, (c) there was no agreement or intention to include the contents in the ATPL Digital materials, and (d) he did not merely revise the text, but substantially re-wrote it.

In fact, it is common ground that there were two lots of static artworks: (a) those created by IDC for a book entitled “Helicopter Principles of Flight” and (b) further static artworks created by IDC at a later stage for a future multimedia application, namely “ATPL(H)”.

In inviting me to prefer the evidence of Mr Whittingham to that of Mr Cownie, Mr Hicks relied on (a) the fact that Mr Cownie did not give evidence in chief on various matters and (b) the fact that the cross-examination of Mr Whittingham did not include some of the allegations made by Mr Cownie in cross-examination. Mr Hicks submitted, for example, that it was not put to Mr Whittingham (a) that the agreement to share profits was made in 2004 rather than 2007 or 2008 or (b) that there was not an intention at the outset to use the “Helicopter Principles of Flight” materials as part of the BGS ATPL training materials.

I consider that there is substance in those points, and that it is not unfair to weigh them in the scales on this issue. However, it is unclear whether they are Mr Cownie’s fault. Therefore, I am reluctant to place much reliance on them when assessing his credibility.

Furthermore, in my judgment, many of the documents to which I was referred by Mr Hicks are equally consistent with both versions of events.

However, I consider that the following documents do lend support to BGS’s case:

In an email sent to Mr Cownie on or about 11 September 2009, Mr Whittingham stated:

“I’m happy for you to produce and retail the helicopter P of F book entirely yourself and take all the profits as long as there is no assignment of IPR out of IDC/BGS”.

Mr Cownie’s email in reply dated 11 September 2009 stated:

“Thank you for the kind offer on retail profits. I doubt it’s going to be a great earner but anything will be better than nothing. There will, of course, be no assignment of any IPR out of BTS – including the heli book. One small detail – we may need to think about the interim arrangements for the period between publishing the retail version and you coming on stream with the Bristol version. Clearly we need to capture the ATPL(H) course for the DVD and I think we can probably wrap this up with the general move to import all the NPA 25 material. … However, I’m not comfortable with the idea that the ATPL(H) work should be tied into the share earning arrangement. To my mind this sits as a new, albeit important project which can be dealt with under the terms of the existing written agreement”.

Both sides relied on the contents of this exchange.

Mr Hicks drew attention to the fact that Mr Cownie’s email refers to a “retail” version and a “Bristol” version of the book. Mr Hicks made a similar point with regard to references in an email from Mr Cownie to Mr Whittingham dated 21 July 2009, in which Mr Cownie refers to a “commercial” edition and a “a second Bristol version”. Mr Hicks suggested that these references showed that the parties had agreed that the “Helicopter Principles of Flight” materials were not merely the subject of a retail sales arrangement but would also be provided to BGS, and subject to the 2001 Agreement. Mr Hicks also suggested that Mr Cownie’s email signified his acceptance that ATPL(H) fell to be dealt with under the 2001 Agreement.

Mr Onslow submitted that Mr Cownie’s email was not consistent with the parties already having agreed that ATPL(H) would be produced in accordance with the 2001 Agreement. On the contrary, it contained no more than a suggestion that ATPL(H) could be dealt with under that Agreement. Moreover, that is a far as the parties’ negotiations on this matter ever got. They never in fact treated ATPL(H) as being subject to the 2001 Agreement.

Mr Onslow made the following further points:

At the end of the day, the points which weigh most with me are (a) those summarised in paragraph 92 above, (b) the references to there being no assignment of intellectual property rights out of IDC/BGS in the exchange of emails on 11 September 2009, and (c) the references in the documents to a Bristol version as well as a retail or commercial version. None of these points are unambiguous. For example, Mr Whittingham’s assertions may have been tactical; Mrs Cownie’s failure to rebut them could be explicable because her focus was elsewhere; and those references could relate to prospective matters alone. However, on balance, I consider that they do suggest that BGS’s case is correct.

In addition, I do not consider that the answers given by Mr Whittingham in cross-examination are as feeble or unpersuasive as Mr Onslow suggested that they were.

If necessary, I would put into the scales the points mentioned in paragraph 89 above.

The other points made by the parties seem to me to be too finely balanced to come down one way or another on this issue. On the premise that BGS bears the burden of proof, which I believe must be correct both because BGS is the claimant and because the starting point is that IDC is the first owner of the copyrights in question, I therefore consider that BGS has failed to discharge that burden so far as those points are concerned.

I am conscious that preferring BGS’s case to that of IDC may well leave the Cownies with a feeling that Mr Whittingham has unfairly got the better of them again. However, preferring IDC’s case to that of BGS would leave Mr Whittingham without the ability to use artworks which I consider he must always have wanted BGS to be entitled to use and with a result that seems contrary to the broad commercial common sense of his dealings with IDC concerning “Helicopters Principles of Flight”. I also consider that, while that is less immediately advantageous to IDC, preferring BGS’s case seems likely to lead to less time and money being spent on this litigation going forward, which is in the interests of both sides. I have done my best to put these matters out of mind when deciding this issue.

For these reasons, I decide Issue 2.3.1, concerning the “Helicopters Principles of Flight” static artworks, in favour of BGS.

I therefore turn to the issue concerning “Helicopter Mass and Balance” and “Helicopter Performance”, which I have numbered Issue 2.3.2.

Mr Hicks’s submissions on this topic may be summarised as follows:

Mr Onslow submitted (a) as set out in paragraph 97 above and (b) that the further ATPL(H) artworks were in any event only made available to BGS in draft pdf form.

Once again, it seems to me that many of the points made by both sides cut both ways. For example, the fact that artworks were delivered to BGS is equally consistent with these materials being subject to the 2001 Agreement or being subject to an agreement that was under negotiation; and the fact that they were only delivered in draft pdf form is equally consistent with partial performance of Clause 7.1 or with no agreement being in place.

However, following the passage on which Mr Hicks has placed reliance, Mr Cownie went on to deny that at the time when these materials were being created it was envisaged that they would find their way into the next appropriate version of ATPL digital material. His evidence continued:

“We treated it as a different project. We had not negotiated terms with it. Much more commercially difficult for us than an ATPL(A) because it is exactly the same amount of work for us as ATPL(A) but with very, very much fewer sales. So a new project, and when it became clear to us that Mr Whittingham was not going to honour any of his promises and was going to destroy our business, we clearly did not want to participate in a new project with him”.

I accept that evidence. It is one thing for the parties to have reached a special arrangement concerning “Helicopters Principles of Flight” and quite another for BGS to have acquired a right to these additional materials on the grounds suggested by Mr Hicks. I also consider that this evidence is consistent with the language used by Mr Cownie in his email dated 11 September 2009. The two points are mutually supportive of each other.

So far as that language is concerned, I prefer Mr Onslow’s submissions to those of Mr Hicks and to the interpretation suggested by Mr Whittingham in cross-examination:

“[This] confirms, to my mind, that [ATPL(H)] was already being produced under the written agreement and there was an intention to continue to produce it under the existing agreement”.

For these reasons, I decide Issue 2.3.2, concerning “Helicopter Mass and Balance” and “Helicopter Performance”, in favour of IDC.

This issue concerns static artworks relating to fixed wing “Mass and Balance”, and is formulated as follows:

The second part of IDC’s case summarised above raises the same points as arise under part of IDC’s case concerning Air Law that is the subject of Issue 2.2 above. In my judgment, that part of IDC’s case on Issue 2.4 is covered by my ruling on Issue 2.1 above.

As to the remainder of what is in contention under Issue 2.4, Mr Hicks submitted as follows:

Mr Onslow submitted that:

In my judgment, IDC may well have been driven into supplying “Mass and Balance” to BGS in the manner explained. However, whether or not that is so, IDC did supply it, and, moreover, IDC stated that the supply was being made under the 2001 Agreement. That is so both before and after Mrs Cownie’s email of 27 November 2009 was sent.

For these reasons, I prefer Mr Hicks’s submissions on this topic to those of Mr Onslow, and I decide Issue 2.4 in favour of BGS.

This issue concerns joint tortfeasorship. In his opening submissions, Mr Onslow accepted that IDC, Propilot and Slate-Ed are liable for infringements of copyright “for the use within the PadPilot product, of static artworks which were produced by IDC for inclusion in the syllabus document accompanying all versions of the software up to and including ATPL 5.3 (subject to findings of subsistence at the inquiry as to damages)”. In the formulation of Issue 4 placed before me at the close of the trial, this concession is expressed as amounting to an acceptance by the Defendants that IDC, Propilot and Slate-Ed are jointly liable for copyright infringement (if any). The live point raised by Issue 4 is whether or not Mr and Mrs Cownie are also personally liable as joint tortfeasors.

The law on joint tortfeasorhip has very recently been reviewed by Barling J in Twentieth Century Film Corpn v Harris [2014] EWHC 1568 (Ch) at [135]-[137]. Barling J indicated that the principles to be applied in determining who may be sued either as a joint tortfeasor or as a company director in a context like that which arises in the present case are correctly set out in Laddie, Prescott and Vitoria, The Modern Law of Copyright and Designs (4th edn) at paragraphs 62.20 and 62.21 respectively. Barling J continued:

“[135] … With regard to a joint tortfeasor, the authors state that "the underlying concept is that the joint tortfeasor has made the infringing act his own". With regard to company directors, they state:

"Directors are not liable as such for infringements committed by their company without their sanction or involvement; but they are liable if they procure the infringement by the company or the company acts pursuant to a common design to which they are a party; in essence, liability arises if it would arise regardless of the fact that the relationship is one of director and company."

[136] A number of cases are cited as authority for these propositions. In one of these, MCA Records Inc v Charly Records Ltd[2002] FSR 26, Chadwick LJ (with whom Tuckey LJ and Simon Brown LJ agreed) identified the following propositions at [48] to [53]:

"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. …

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. …

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".

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. …"

[137] A further helpful analysis of the relevant case law and principles is set out by Kitchin J at paragraphs 103 -111 of his judgment in [Twentieth Century Fox Corpn v Newzbin Ltd [2011] EWHC 608 (Ch)]. At paragraph 108 he said:

"I derive from those passages that mere (even knowing) assistance or facilitation of the primary infringement is not enough. The joint tortfeasor must have so involved himself in the tort as to make it his own. This will be the case if he has induced, incited or persuaded the primary infringer to engage in the infringing act or if there is a common design or concerted action or agreement on a common action to secure the doing of the infringing act."”.

Applying these principles to the facts of the present case, I have little hesitation in holding that Mr and Mrs Cownie were joint tortfeasors with the corporate Defendants in respect of any copyright infringing operations of the latter. In a nutshell, at all material times and in all material respects they masterminded and directed the actions of the corporate Defendants, and accordingly they did indeed “intend, procure and share a common design” that those operations should take place and “make those acts their own”.

My reasons for reaching this conclusion are as follows.

First, as indeed is apparent from or reflected in the correspondence and evidence which is referred to above, Mr and Mrs Cownie controlled the day-to-day operation of all three corporate Defendants. Indeed, this was accepted in solicitors’ correspondence. By letter dated 16 November 2012 seeking disclosure of documents, BGS’s solicitors asserted that Mr and Mrs Cownie were “personally liable as the guiding minds of the First, Third and Fourth Defendants (in that you direct and control the operations of those Defendants)”. The reply dated 18 November 2011 states: “The fact that Mr and Mrs Cownie are guiding minds in the three corporate defendants is hardly surprising given that they are directors or shareholders of all three companies. This is not an issue in dispute”.

Second, it was accepted in oral evidence, and is also supported by the contemporary documents, that Mr and Mrs Cownie jointly made the decision as to which static artworks could be used by the corporate Defendants without infringing BGS’s claims to copyright.

So far as concerns contemporary documents, Mr Cownie’s email to Rickerbys dated 18 March 2010, which was copied to Mrs Cownie, illustrates their roles. It states:

“The intention is to set up a new school using mostly freshly written texts but illustrated with images from IDC’s catalogue. Because many of these images are wrongly believed by Alex to belong to him, we need to be extremely careful … We’ve come up with the plan below (with thoughts on possible defences) and need your careful and considered advice on its legal merits! … We intend to transfer to the holding company the rights to each and every image which we claim to own … We intend to use [various images] … We intend to exclude from our claim to ownership and therefore not to use [other images] … We intend not to use or claim ownership of copyright of [still further images] … We intend to use the three sections of text written by me (but with no written agreement on copyright) which currently form part of Alex’s printed and digital content … We assume that the above will provoke a fierce legal challenge from Alex. Can we protect the holding company and ground school from becoming involved if we leave IDC outside the formal group structure until the dust has settled? Or will the other two companies be subject to injunctions regardless …”

Third, although one of the Defendants’ purposes in leading evidence from Ms Suren was to make good the argument that the corporate Defendants were not run by Mr and Mrs Cownie alone, but by Ms Suren as well, Ms Suren stated that Mr Cownie made the decision as to which particular artworks from IDC’s repository should be made available for the other corporate Defendants to use.

Based on these points, Mr Hicks submitted, and I agree, that (a) Mr and Mrs Cownie specifically considered and approved of the general approach to the provision of drawings from IDC’s repository to the other corporate Defendants (b) Mr and Mrs Cownie authorised the publication of the materials in question by the other corporate Defendants and (c) Mr Cownie at least was personally involved in the detailed decisions as to which items of artwork should be provided by IDC for use by the other corporate Defendants.

In reaching this conclusion, I have had full regard to Mr Onslow’s submissions to the following effect:

In my judgment, those submissions neither meet the points made by Mr Hicks nor warrant coming to any different conclusion in light of the principles identified above.

This series of issues relates to alleged breaches of contract by IDC. Issue 5.1 no longer arises, and I say no more about it.

Issue 5.2 is as follows:

With regard to Issue 5.2, Mr Hicks made submissions to the following effect:

Mr Onslow submitted that:

I find that, in respect of Mr Sogias, IDC was in breach of Clause 10. Indeed, when properly analysed, I do not understand Mr Onslow’s submissions to dispute that so far as concerns module 1. Further, in light of the chronology, I see no reasoned basis for Mr Onslow’s assertion that there was no breach in respect of subsequent modules. IDC failed or refused to issue an authorisation key for them before payment became due from BGS.

I agree with Mr Hicks that the existence and extent of similar breaches (if any) is a matter for the inquiry.

As at present advised, however, and in light of Mr Hicks’s reference to “similar breaches” and the fact that he did not meet Mr Onslow’s other points head on, it seems to me that the inquiry should be limited to circumstances in which IDC refused to activate software at a time when payment in respect of the relevant materials was not overdue. I am sceptical as to the damages that inquiry will yield, but that is a matter for another day.

Issue 5.3 is whether there were implied terms as set out in paragraph 35(18) of the Particulars of Claim:

The first two of these implied terms are denied by IDC. The third implied term, as to termination on reasonable notice, is admitted, but IDC contends that the appropriate period of notice is shorter than 12 months.

So far as concerns the law, Mr Hicks relied on the passage from the judgment of Briggs J in Jackson v Dear [2012] EWHC 2060 cited in paragraph 32 above. Mr Hicks also relied on what Briggs J said in that case at [44]:

“Finally, [Counsel] relied upon Southern Foundries v Shirlaw [1940] AC 701 for the proposition that it is a breach of contract for a party to it to do anything of his own motion to put an end to a state of circumstances under which, alone, the contract can be operative. At page 717, citing Cockburn CJ in Stirling v Maitland (1864) 5 B & S 840, at 852, Lord Atkin said that the existence of such an implied obligation was well established law. Lord Atkin preferred to describe it not as an implied term, but as a positive rule of the law of contract that:

"Conduct of either promisor or promisee which can be said to amount to himself "of his own motion" bringing about the impossibility of performance is itself a breach."”

In support of the implication of the first two terms, Mr Hicks submitted:

Mr Onslow submitted that:

Applying the criteria that “implication addresses events for which the express language of the agreement makes no provision” and that “implied terms may be necessary to spell out what the agreement means, where the only meaning consistent with the other provisions of the document, read against the relevant background, is that something is to happen”, I consider that both of the terms contended for by BGS should be implied into the 2001 Agreement, essentially for the reasons given by Mr Hicks. As to the first term, although I accept that issues of implication typically fall to be tested at the time the contract is made, I am not convinced that the material time in the present case is 2001, in circumstances where the parties decided to continue their relationship at and after the end of the initial 5 year term. It seems to me unreal, for example, to ignore the availability and utilisation of MRS when determining the parties’ implied obligations on the grounds that MRS was not in mind when the 2001 Agreement was made when, as it seems to me, it must have been well in mind when the parties decided to continue their relationship in later years. However, as neither side made any submissions to me on this topic, and as these views, if right, only serve to strengthen BGS’s case, I say no more about it.

I do not consider that Clause 11.1 fully defines the extent of IDC’s obligations. That could have the effect that in the case of an agreement of 5 years’ duration, which was in fact extended beyond that period, the Application would atrophy after 12 months. That would make no sense, would undermine Clause 6, and would run counter to Clause 3.1. It is important to keep in mind that BGS’s case on the first term is limited to what was “reasonably required”. This does not impose open ended obligations on IDC, and allows the efforts and rewards that would be involved for IDC to be taken into account.

It is also relevant to note that (a) Clause 3.1 contains a payment obligation, which protects IDC against uncommercial consequences of implying the first term alleged by BGS, (b) although Clause 3.2 limits IDC’s obligation to produce animations to those which IDC deems “practicable and appropriate”, there is no equivalent limitation as regards static artwork, and (c) Clause 3 is not all one way in imposing obligations on IDC, because Clause 3.3 places obligations on BGS. Clause 6 is mutual in any event.

It may well be correct that, as time progressed: (a) IDC did more than it was obliged to do, either expressly or by implication, at least without also being paid additional remuneration by BGS and (b) the Application was exploited in ways that the parties did not envisage when the 2001 Agreement was made. These considerations may mean that there is also an implied term (which has not been argued before me) to the effect that IDC could not reasonably be expected to take certain steps with receiving additional reward.

In my judgment, however, neither of those points provides any answer to BGS’s case for implication of the two terms in question. Nor do I consider that there is any basis for concluding that these implied terms ceased to apply if and when (for example) BGS developed its own MRS: in my judgment, that might affect the extent of what IDC was required to do to comply with these implied terms, but not their continuing existence.

So far as concerns the law, Mr Hicks relied upon:

So far as concerns the facts, Mr Hicks submitted that, while there is not a great deal of evidence on the subject, it is obvious that each party to the 2001 Agreement required a fairly long period of notice. Clauses 3 and 7 provided for a split ownership of copyright. If the agreement was to be terminated, each would wish to have time to develop its own materials. Furthermore when each submitted materials for inclusion, each would require time to recoup its investment. This was not disputed by Mr Cownie in cross-examination.

Mr Hicks further submitted that the following considerations support the conclusion that the reasonable period of notice in this case is one of 12 months:

Mr Onslow submitted as follows:

Finally, Mr Onslow made a robust submission that the difference between the parties as to what constitutes a reasonable period of notice “does not matter a row of beans”. The basis for this submission is that (a) IDC does not allege that it gave reasonable notice and (b) BGS does not allege lost sales of ATPL 5.3 over the notice period, because ATPL6.0 was in fact almost ready (BGS merely alleges damages for the disruption in the earlier than expected switch over to ATPL 6.0, which did not extend beyond the 3 months anyway). If that is right, it seems unfortunate that both sides have spent time and effort contesting this issue, when they have no shortage of other disputes.

In Alpha Lettings Ltd v Neptune Research & Development Inc [2003] EWCA Civ 704, the trial judge decided that 12 months was the appropriate notice period for termination of an exclusive agency agreement concerning specialist valves used in medical and scientific equipment and instruments. The Court of Appeal held that this was outside the range of periods reasonably open to the judge, and substituted a period of 4 months.

Longmore LJ, giving the lead judgment with which the other members of the court agreed, said:

“[30] There is little authoritative guidance on the appropriate notice for termination of exclusive agencies or (as lawyers sometimes prefer to call them) distributorships. One possible view is that the reasonable notice period should equate to the time needed to find an alternative supplier and get a new product approved. Another view is that it need only reflect the time required for an orderly winding down of the distributorship. The only common ground between the parties was that, in the absence of any express term, the question, of what notice of termination is to be taken as reasonable, must be determined as at the time of termination …

[31] … One result of not having any formal written contract [in this case] was that [the agents] were entirely free to sell products of other suppliers to their customers even if those suppliers were competitors of [the manufacturer]. No doubt not all products so supplied could be described as competitive products but the fact is that [the manufacturer’s] business only accounted for 20% of [the agent’s] overall turnover. This is an indication that a lengthy notice of period should not be implied.

[32] … a distributor may have to spend or invest considerable capital at an early stage of the relationship to build up the business which may thereafter run with moderate annual expenditure. This would militate in favour of a lengthier notice period in the earlier years of the relationship and perhaps a lesser period once the business is up and running. No doubt it is right to lay some stress on the length of the relationship but I would not myself regard that as, in any way, critical, since businessmen expect to run risks in the ordinary course of business … It follows from this that while initial capital investment and business expenses out of the ordinary run of things may well be relevant to the amount of notice, ordinary and recurring expenditure is unlikely to have much relevance.

[33] … The concept of a party to a contract being obliged to use his best endeavours to promote the products of the other party after notice of termination has been given (by whomsoever it may be given and in whatever circumstances) is a difficult one and must also militate in favour of a shorter rather than a longer period of notice.

[34] …The reasonable notice period will have to apply to both amicable and vitriolic partings of the way …

[36] We were not referred to any English authority apart from Martin-Baker Ltd v Canadian Flight and Murison [1955] 2QB 556 and Decro-Wall v Practitioners in Marketing Ltd [1971] 1 WLR 361. The first case concerned the distributorship in Canada of ejector seats from aircraft which had been manufactured and patented by Mr Martin Baker. The main issue was whether the agreement, which was in writing and provided that the distributor could not sell products of other suppliers which might compete with those of the supplier, was terminable by any notice at all or was intended to be permanent. It is not surprising to modern eyes that McNair J decided that it was terminable on reasonable notice; he held that such reasonable notice was a period of 12 months. Decro-Wall was much relied on by the judge in the present case and was a case of a distributorship of French tiles in which the Court of Appeal held that a twelve month notice was appropriate. But there are three major distinctions between that case and the present. First, as in Martin-Baker, there was an express provision that the distributor was not to sell any goods competing with those of the supplier; secondly, the French tile business constituted 83% of the distributor's turnover, unlike the 20% of turnover in the present case; thirdly, although (as in the present case) there was substantial initial investment ("expensive spadework") in launching and promoting a new product in the United Kingdom, the agreement was terminated only three years after it began before any real reward for the initial expenditure could be reaped. In this case, there had been ample opportunity for the reward of initial investment to be earned. One way of regarding cases such as Decro-Wall might be to treat them as belonging to a category of case in which there is an implication that the agreement must exist for a reasonable time before any notice can be given. That would, however, not be open to us in this case.”

The facts of each case are different, and the present case does not concern an exclusive agency agreement. Nevertheless, I consider that these passages contain helpful guidance as to the kind of considerations which may be relevant in the present context, and I have endeavoured to have appropriate regard to all those considerations.

In my judgment, the relevant considerations in the present case include the following:

For these reasons, I consider that a reasonable period of notice was one of 9 months. The 2001 Agreement did not include any provision for continuation after the initial 5 year term. If it had done, however, I consider it likely that the parties would have agreed that it should continue from year to year, unless determined by notice to be given some time in advance of the next anniversary. On the basis of all the evidence that I have read and heard, and in light of the kind of consideration that I have summarised above, I can envisage a negotiation in which one side argued for a shorter period of notice (such as 6 months) and the other argued for a longer period (such as 12 months) and they reached a sensible compromise somewhere in the middle. This is another way of saying that, in all the circumstances, 9 months is a reasonable period.

Issue 5.4 is, if there were implied terms as alleged by BGS, whether IDC acted in breach as set out in paragraph 45 of the Particulars of Claim as follows:

Mr Hicks’ submissions concerning these alleged breaches were as follows:

I add that paragraph 143 of Mr Whittingham’s 8^th witness statement deals with the email of 18 January 2010. Thereafter, he addresses a number of other matters (a) at paragraphs 144-148 under the heading “January 2010: Withdrawal of hosting services, hijacking the www.bristol.gs address” and (b) at paragraph 149, under the heading “January 2010: Graham once more attempts to enforce new contract terms”. In fact, the only email that is expressly relied on in BGS’s pleaded case in paragraph 45(1) of the Particulars of Claim is one from Mr Cownie to Mr Whittingham dated 25 January 2010, which is quoted in part in paragraph 106(iii) above and by Mr Whittingham in paragraph 149 of his witness statement. Under the heading “Provision of Artwork”, that email states:

“Given that you do not intend to honour your promises to us, it is now inevitable that all products and services which have been provided to you free of charge in reliance of (sic) your promises may henceforth be withdrawn. You may continue to receive them but they must now be subject to newly negotiated written contracts. This includes (but is not limited to) all the artwork provided to you since the publication of JALS 3.0 – the point at which the “development phase” referred to in the 2001 Agreement ended. We are not being unreasonable and for the moment we will continue to support our current products subject to negotiating new terms. However there is no obligation on us to release this artwork for your new publications. If you wish to use any artwork created or enhanced after March 2004 you will first have to agree terms with us”.

Mr Onslow submitted that:

In my judgment, IDC acted in breach of contract, if for no other reason than by adopting the stance set out in the emails dated 18 January 2010 and 25 January 2010. In light of (a) my earlier rulings and (b) the earlier manifestations of IDC’s case which IDC was no longer pursuing by the time of the hearing before me, I consider that IDC’s stance as to what was required in accordance with the 2001 Agreement was incorrect. Accordingly, even if those emails are to be construed as meaning that IDC was not refusing to do what it was required to do in accordance with the 2001 Agreement, I doubt this would save IDC from a finding of breach, because, in reality, they meant IDC would do less than it was required to do. In my judgment, however, the emails went beyond that, and effectively said that future performance of what, in my view, IDC was obliged to do under the contract would be withheld unless new terms were agreed by BGS.

That finding does not resolve (a) the nature and extent of those breaches and (b) the extent to which, as matters transpired, they were no more than anticipatory breaches, because performance of IDC’s obligations was never, in fact, withheld. These issues are complicated by lack of certainty as to the extent of IDC’s obligations in fact. For example, I am not persuaded that IDC was obliged, and certainly not without being offered an additional reward, to carry out all the work envisaged in the “ATPL Digital Development Path” document and in Mr Cownie’s email dated 15 June 2009. The proposals contained in those documents were made at a time when the Cownies thought that they were working towards an outcome that would provide them with an additional reward. The need to address syllabus changes was real, but I consider that it can only take matters so far: IDC was not a large venture, and its implied obligations as to time and effort could not be unlimited. However, I consider that these are matters for the inquiry.

To the extent that updates to artwork continued to be supplied, that there were no requests for new artworks, and that BGS did not provide new textual material to comply with syllabus updates, I consider that those matters go to the measure of damages which flow from the breaches and not to whether therewere breaches of contract by IDC at all. As at present advised, I am sceptical about the measure of these damages in any event.

I agree with Mr Onslow that BGS affirmed the contract on 28 June 2010. In my judgment, that means that BGS cannot rely upon antecedent breaches as grounds for termination, but it does not affect BGS’s entitlement to recover damages for breach.

I also find that IDC acted in breach of contract in turning off the MRS Global database. Again, I consider that Mr Onslow’s argument that BGS had the ability to switch customers over to BGS’s MRS goes to the measure of damages and not to whether there was a breach of contract by IDC at all. To the extent that BGS seeks to recover the cost of creating a substitute system which enabled BGS to function without IDC, and although these are matters for the inquiry, I doubt that this is the measure of recoverable loss, because it seems that such costs would have had to be incurred by BGS in any event, although the additional costs, if any, of doing what was done in haste may be recoverable. That apart, I agree with Mr Onslow that the effect on BGS appears to have been slight.

I do not consider that the service of the draft Defence and Counterclaim was a breach of contract, still less a termination of the contract. It was served in response to a draft Particulars of Claim, and was simply a draft showing how IDC would respond if sued.

Issue 6 is: “Does IDC have a defence based on BGS’s alleged breaches?”

This seems to me to be the same as, or to overlap with, Issue 9 below, and I consider that my ruling on Issue 9 should be sufficient to resolve this issue as well.

These issues arise from IDC’s counterclaim. They are formulated as follows:

Mr Onslow submitted in opening that:

Mr Onslow further submitted in opening that:

In his closing submissions, Mr Onslow added the following points:

In the YSP case at [120]-[153] Leggatt J gave extensive consideration to the question of implying a duty of good faith in a contract, beginning with a recognition that “[T]he general view among commentators appears to be that in English contract law there is no legal principle of good faith of general application” and ending with the conclusion that “the traditional English hostility towards a doctrine of good faith in the performance of contracts, to the extent that it still persists, is misplaced”.

In the Mid Essex case, Jackson LJ said at [105] that:

“there is no general doctrine of "good faith" in English contract law, although a duty of good faith is implied by law as an incident of certain categories of contract: see … [the YSP case] at paragraphs 120-131. If the parties wish to impose such a duty they must do so expressly.”

Beatson LJ said at [150] that Leggatt J’s discussion in the YSP case:

“emphasised that "what good faith requires is sensitive to context", that the test of good faith is objective in the sense that it depends on whether, in the particular context, the conduct would be regarded as commercially unacceptable by reasonable and honest people, and that its content "is established through a process of construction of the contract": see paragraphs [141], [144] and [147].”

Leggatt J’s analysis in the YSP case included the following:

“[131] Under English law a duty of good faith is implied by law as an incident of certain categories of contract, for example contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one. … there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.

[132] Traditionally, the two principal criteria used to identify terms implied in fact are that the term is so obvious that it goes without saying and that the term is necessary to give business efficacy to the contract. More recently, in Attorney General for Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at 1993-5, the process of implication has been analysed as an exercise in the construction of the contract as a whole. In giving the judgment of the Privy Council in that case, Lord Hoffmann characterised the traditional criteria, not as a series of independent tests, but rather as different ways of approaching what is ultimately always a question of construction: what would the contract, read as a whole against the relevant background, reasonably be understood to mean?

[133] The modern case law on the construction of contracts has emphasised that contracts, like all human communications, are made against a background of unstated shared understandings which inform their meaning. The breadth of the relevant background and the fact that it has no conceptual limits have also been stressed, particularly in the famous speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp.912-3, as further explained in BCCI v Ali [2002] 1 AC 251 at p.269 …

[135] A paradigm example of a general norm which underlies almost all contractual relationships is an expectation of honesty. That expectation is essential to commerce, which depends critically on trust. Yet it is seldom, if ever, made the subject of an express contractual obligation ...

[136] The fact that commerce takes place against a background expectation of honesty has been recognised by the House of Lords in HIH Casualty v Chase Manhattan Bank [2003] 2 Lloyd's Rep 61. In that case a contract of insurance contained a clause which stated that the insured should have "no liability of any nature to the insurers for any information provided". A question arose as to whether these words meant that the insured had no liability even for deceit where the insured's agent had dishonestly provided information known to be false. The House of Lords affirmed the decision of the courts below that, even though the clause read literally would cover liability for deceit, it was not reasonably to be understood as having that meaning. As Lord Bingham put it at [15]:

"Parties entering into a commercial contract ... will assume the honesty and good faith of the other; absent such an assumption they would not deal."

To similar effect Lord Hoffmann observed at [68] that parties "contract with one another in the expectation of honest dealing", and that:

"... in the absence of words which expressly refer to dishonesty, it goes without saying that underlying the contractual arrangements of the parties there will be a common assumption that the persons involved will behave honestly."

[137] As a matter of construction, it is hard to envisage any contract which would not reasonably be understood as requiring honesty in its performance. The same conclusion is reached if the traditional tests for the implication of a term are used. In particular the requirement that parties will behave honestly is so obvious that it goes without saying. Such a requirement is also necessary to give business efficacy to commercial transactions.

[138] In addition to honesty, there are other standards of commercial dealing which are so generally accepted that the contracting parties would reasonably be understood to take them as read without explicitly stating them in their contractual document. A key aspect of good faith, as I see it, is the observance of such standards. Put the other way round, not all bad faith conduct would necessarily be described as dishonest. Other epithets which might be used to describe such conduct include "improper", "commercially unacceptable" or "unconscionable".

[139] Another aspect of good faith which overlaps with the first is what may be described as fidelity to the parties' bargain …

[140] The two aspects of good faith which I have identified are consistent with the way in which express contractual duties of good faith have been interpreted in several recent cases: see Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330 (Ch) at [95]-[97]; CPC Group Ltd v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch) at [246].

[141] What good faith requires is sensitive to context …

[142] … many contracts … involve a longer term relationship between the parties which they make a substantial commitment. Such "relational" contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements …

[144] Although its requirements are sensitive to context, the test of good faith is objective in the sense that it depends not on either party's perception of whether particular conduct is improper but on whether in the particular context the conduct would be regarded as commercially unacceptable by reasonable and honest people. The standard is thus similar to that described by Lord Nicholls in a different context in his seminal speech in Royal Brunei Airlines v Tan [1995] 2 AC 378 at pp.389-390. This follows from the fact that the content of the duty of good faith is established by a process of construction which in English law is based on an objective principle. The court is concerned not with the subjective intentions of the parties but with their presumed intention, which is ascertained by attributing to them the purposes and values which reasonable people in their situation would have had.

[145] Understood in the way I have described, there is in my view nothing novel or foreign to English law in recognising an implied duty of good faith in the performance of contracts. It is consonant with the theme identified by Lord Steyn as running through our law of contract that reasonable expectations must be protected: see First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd's Rep 194, 196; and (1997) 113 LQR 433. Moreover such a concept is, I believe, already reflected in several lines of authority that are well established. One example is the body of cases already mentioned in which duties of cooperation in the performance of the contract have been implied. Another consists of the authorities which show that a power conferred by a contract on one party to make decisions which affect them both must be exercised honestly and in good faith for the purpose for which it was conferred, and must not be exercised arbitrarily, capriciously or unreasonably (in the sense of irrationally): see e.g. Abu Dhabi National Tanker Co v. Product Star Shipping Ltd (The "Product Star") [1993] 1 Lloyd's Rep 397, 404; Socimer International Bank Ltd v Standard Bank London Ltd [2008] 1 Lloyd's Rep 558, 575-7. A further example concerns the situation where the consent of one party is needed to an action of the other and a term is implied that such consent is not to be withheld unreasonably (in a similar sense): see e.g. Gan v Tai Ping (Nos 2 & 3) [2001] Lloyd's Rep IR 667; Eastleigh BC v Town Quay Developments Ltd [2010] 2 P&CR 2. Yet another example, I would suggest, is the line of authorities … which hold that an onerous or unusual contract term on which a party seeks to rely must be fairly brought to the notice of the other party if it is to be enforced.”

Mr Hicks submitted that:

In the YSP case, Leggatt J said at [86]:

“A number of expressions have been used to describe what amounts to a repudiatory breach. Two tests commonly applied are whether the breach is such as to "go to the root of the contract" or to deprive the innocent party of "substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain" from the obligations then remaining unperformed": see Chitty on Contracts (31^st edn), Vol 1, paras 24-018 and 24-041.”

The law concerning repudiation of contract has recently been considered by the Court of Appeal in Telford Homes (Creekside) Limited v Ampurius Nu Homes Holdings Limited [2013] EWCA Civ 577, per Lewison LJ at [32] to [72]. Among other things, Lewison LJ considered the exposition in Chitty on Contracts (31^st edn) and the judgments in Hong Kong Fir Shipping Co Ltdv Kawasaki, Kisen Kaisha Ltd [1962] 2 QB 26, and stated:

“[39] The first question that Diplock LJ posed in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd was how to decide whether the occurrence of an event discharged the parties to a contract from further performance of their obligations, where the contract itself was silent. The answer he gave at the outset of his judgment was:

“The test whether an event has this effect or not has been stated in a number of metaphors all of which I think amount to the same thing: does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?

This test is applicable whether or not the event occurs as a result of the default of one of the parties to the contract, but the consequences of the event are different in the two cases. Where the event occurs as a result of the default of one party, the party in default cannot rely upon it as relieving himself of the performance of any further undertakings on his part, and the innocent party, although entitled to, need not treat the event as relieving him of the further performance of his own undertakings.”…

[44] There are three points which emerge from this. First, the task of the court is to look at the position as at the date of purported termination of the contract even in a case of actual rather than anticipatory breach. Second, in looking at the position at that date, the court must take into account any steps taken by the guilty party to remedy accrued breaches of contract. Third, the court must also take account of likely future events, judged by reference to objective facts as at the date of purported termination.

[51] Whatever test one adopts, it seems to me that the starting point must be to consider what benefit the injured party was intended to obtain from performance of the contract. …

[52] The next thing to consider is the effect of the breach on the injured party. What financial loss has it caused? How much of the intended benefit under the contract has the injured party already received? Can the injured party be adequately compensated by an award of damages? Is the breach likely to be repeated? Will the guilty party resume compliance with his obligations? Has the breach fundamentally changed the value of future performance of the guilty party's outstanding obligations? …

[72] As Lord Wilberforce said in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, 283 “Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations”. In my judgment the mere fact of a communication between Telford and a third party but not acted upon (even though disclosed to Ampurius) is too slender a foundation for a conclusion that Telford renounced the contract.”

Mr Whittingham’s lengthy and detailed 8^th witness statement includes the following.

Under the heading “Backing up the software, text and art files” he said:

“[120] I was sufficiently alarmed by the correspondence of July 2009 to return to the UK to consult solicitors. I also started a back-up of all the master InDesign files, the source code for ATPL Digital and the MRS and all the master art files from IDC’s servers onto my own servers at BGS.

[121] In doing this I did not enter into any areas of IDC’s network where Graham had not given me access. The artwork and InDesign files were in their designated folders and the MRS and ATPL Digital 5.3 source code were, I think, on the main server directory. I do not believe that Graham was aware that I had done this and, as I was hoping for a peaceful solution, I certainly did not tell him that I had done so. I firmly believed at that time, and I do now, that because of Graham’s clear statements BGS was at least part owner of both items of software and I was therefore entitled to hold copies of the source code and because of the Agreement of 2001 and our subsequent conversation in 2003 I was in no doubt that BGS also owned the static artwork and the text files…”

Under the heading “March 2010: Work rebuilding the MRS software starts” he said:

“[173] My major concern at this time was that Graham had control of the MRS software which in turn controlled all communication between the students and BGS, and between our client schools and their students. Graham had in the past been very quick to suggest ‘switching off the MRS’ for schools whom he thought might breach our copyright or not pay bills and I was acutely aware that if he chose to cut off the service, as in fact he later did,the ensuing chaos of several thousand customers’ computer programs all failing simultaneously, and without a fix, would bring BGS commercially to its knees. That he was also aware of this is I believe apparent from his disclosed communication with his lawyers dated 18 March 2010 in which he stated, inter alia:

“When it suits us (just before launch of the new school) we intend to withdraw all products and services provided outside of the 2001 agreement with the minimum possible period of notice. This includes:

5.3

Permission to use the management and reporting system which is jointly owned by IDC and ATPOnline Ltd. (A complete show stopper for Alex)”

[174] In order to mitigate the damage caused when this occurred (and I was sure it would) it seemed to me essential that we should have an operating version of the MRS ready to take over when Graham turned his MRS off. I remembered that I had a backup of the source code of the MRS from the previous year so around March 2010 I engaged Mark Hall of i612 Limited (who is my then wife’s cousin and on her recommendation) to carry out a feasibility study into building a working copy of the MRS software.

[175] On 20 May 2010 Mark reported to me that this was complete and that he had the ability to create a working version of the software. This meant that BGS could, when Graham acted against us, theoretically take back control of the www.bristol.gs address which Graham was holding and install our own version of the MRS software on the site to restore the service. At this stage, though, there were still two outstanding problems. The first was that there would be an inevitable gap (possibly of several days) between Graham’s hostile action and BGS restoring the service, and secondly any historic student data would be in Graham’s database at the time of switchover, and would not be recoverable by BGS (although part of this was later recovered by order of Judge Birss dated 27 July 2011).

[176] In early September 2010 Iouri Prokhorov, the CEO of Helastel Limited, a software house based in Bristol, who was just starting to work on the replacement software for ATPL Digital 5.3 which was eventually to become ATP Digital 6 explained an idea that had. He knew that when software searches for a website it really looks at what is called a DNS name, which is not the same as a domain name like www.bristol.gs, and that the domain owner has the ability to direct a DNS name request to a different server. Accordingly he suggested that we use the DNS system to first direct MRS traffic to our servers, where the data was then copied in two directions, one to our MRS which we called the ‘interceptor MRS’, the second to Graham’s MRS. This meant that we could first of all obtain a copy of all MRS data from the point the system started running and secondly that we could switch over to our operating MRS with a delay of only minutes if my suspicions of Graham’s and Jill’s hostile intent were proved correct. Because Graham’s MRS data would continue to flow uninterrupted this had the additional benefit of not alerting Graham to our capabilities and therefore not precipitating any additional hostile action.

[177] I introduced Iouri to Mark Hall, and they worked together on the system together with other sub-contractors. Testing continued with various degrees of success until around the end of March 2011 when the interceptor MRS went live. I refer to an email from Iouri dated 25 March 2011 stating his intention and to one of 7 April 2011 saying that the system was live. The interceptor system did not operate faultlessly from this point on, and was to cause problems later …”

Under the heading “June 2010: Helastel engaged to produce ATP Digital 6” he said:

“[178] About three months earlier, in around early June 2010 I had first met with Iouri Prokhorov to discuss software development. This progressed into at least one other meeting at which I gave him the Elearnity consultancy report, a copy of ATPL Digital 5.3 and the backed up source code of that and the MRS and asked him to comment on the existing software and come up with proposals for developing a replacement system. By mid July 2010 Iouri had developed a project overview transmitted to me on the 21 July 2010 and by 8 September 2010 had developed a project roadmap. A draft supply contract dated 1 October 2010 was provided by Helastel, but I do not believe that it was ever signed. Helastel were however verbally engaged from around September 2010 to produce the new ATP Digital 6.0 software.

[179] Helastel eventually produced the new ATP Digital 6.0 software and it was first distributed after 4 May 2011. I shall describe the circumstances later. ATP Digital 6.0 contains no components or design features from either ATPL Digital 5.3 or from the old MRS.

[180] As a result of the investigative work that we had done, and of the project to create the interceptor MRS, our contractors had by the end of 2010 also created at least partially working copies of both the existing MRS and the ATPL Digital 5.3 software. This was not done not (sic) for commercial use, and there was no intent to distribute the software without Graham’s and Jill’s consent. It was done only so that the contractors could understand the current system and so that we could either forestall or mitigate the hostile action which I believed was on the horizon. In the event, this was fortuitous …”

Under the heading “Paragraphs 57 and 60 of the Defence and Counterclaim” he said:

“[208] Privately, by 22 April 2011 I was convinced that Jill and Graham had permanently withdrawn technical support for the ATPL Digital 5.3 program and certain that they would not supply any more copies of the ATPL Digital 5.3 software. Her email to Nick Sogias the day before had specifically said:

Until the matter is resolved to our satisfaction no further products will be activated or issued to Bristol Groundschool

and she was still refusing to supply the ten DVDs we had ordered a few days before.

[209] I was acutely aware that our income stream would be sharply cut off if we had no software to sell, and for that reason it was crucial to get ATP Digital 6 on the market as soon as possible. Equally I was aware that Helastel would find it extremely difficult to provide technical support for the thousands of existing copies of ATPL Digital in use, being comparatively unfamiliar with the software. Provision of technical support for the existing versions of ATPL Digital would certainly require an activation mechanism, as activation or re-activation was required not only on purchase but also half way through the course on starting the second module of work and when installing the software on a new computer, and also when the customer changed their hardware configuration. In fact the requirement for activation is specifically referred to in clause 10.2 of the Agreement of 2001:

“Technical support will be limited to addressing issues directly concerning the installation and operation of the Application and its associated security authorisation software.”

[210] I was also very aware of the timing of Jill’s actions, her precipitous action on the day before, the previous breaches of contract and evidence of hostile intent and of the fact that she and Graham had an alternative product that they were promoting. I thought it was very likely that their actions were intended to force BGS out of business, or at least damage its reputation and business critically so that ProPilot could take over our market. In my view BGS had to do everything that it could to survive the next few weeks and limit the PR damage as much as possible.

[211] Also on 22 April 2011 I telephoned Iouri Prokhorov, the CEO of Helastel, and told him what had happened, and asked what we could do. He said that ATP Digital 6.0 was nearly ready to go, but obviously had not been tested, but if his programmers worked over the weekend he thought it likely that, by some time in the following week, we would be able to offer copies of ATP Digital 6 to customers that had been provided with ATPL Digital 5.3 that IDC had refused to activate, and to new customers. He also said that as a short term fix Helastel had the capability to build a copy of the part of ATPL Digital 5.3 that required activation and, using that, activate the students’ software for them. I instructed him to go ahead with both plans simultaneously. In the event ATP Digital 6.0 was not released until just after 4 May 2011 but we were able to take orders from individuals from around Monday 25 April 2011 by advising them that there would be a short delay getting the product to them …

[215] In the course of providing technical support for ATPL Digital 5.3 Helastel produced several versions of the executable or .exe file that responded to their activation rather than IDC’s. Its purpose was to provide technical support, not to market ‘pirate’ versions of ATPL Digital 5.3. We did not need to do that, we had our own ATP Digital 6.0 software with content that matched the new syllabus, whereas ATPL Digital 5.3 content was still addressing the ‘old syllabus’ for which the exams were to be withdrawn in less than a year. An example of the use of such a ‘patch’ is in correspondence between Iouri and Fabien Leroux on 25 May 2011. Fabien had an old version of ATPL Digital, version 5.2, rather than trying to fix his old software the easiest thing to do was to upgrade him to version 5.3 using the patch.

[216] At this stage the Cownies had been asked for, and refused to provide, copies of technical support records held in the MRS database. This made it particularly difficult for Helastel to be sure that students asking for support that were customers of our client companies, rather than our own students, were actually legitimate customers. One measure of protection was to ask for the ‘disc number’, a unique number marked on each DVD case.

[217] As to the acts complained of by the Defendants in this part of the matter which are specified in paragraph 60 of the Defence and Counterclaim. The Defendants complain first in paragraph 60 that:

“Further or alternatively, from a date presently unknown to the Defendants, but prior to about July 2011, the Claimant published a patch for ATPL Digital 5.3 which allows the software to run without the First Defendant’s licence key, which would normally be required and which is provided to licensed users by the First Defendant. The said patch has been made available by the Claimant by email, and by publication at www.atpforum.eu, together with instructions for applying the patch. Such acts constitute a flagrant infringement of the right in s.296 Copyright, Designs and Patents Act 1988 (circumvention of a technical device), and also amount to a criminal offence under s. 296ZB Copyright, Designs and Patents Act 1988.”

[218] We certainly published a patch for ATPL Digital 5.3 and published it in the manner specified but Graham had told me in his email of July 2009 that

we now share (in proportions yet to be calculated) the IPR in ATPL Digital - the shell application

and I relied on that statement. Because of it I believed that BGS was just as entitled as IDC was to publish a ‘patch’ for the program for the purposes of technical support, the First Defendant having previously withdrawn technical support without notice and in breach of clause 10.1 of the Agreement of 2001.

[219] The Defendants continue paragraph 60 with an alternative pleading:

“Further or alternatively, the Claimant has published on the said forum a “cracked” version of ATPL Digital 5.3 which amounts to a further infringement of copyright in the source codes for ATPL Digital 5.3, and in the Flash code therein, further circumvention of technical devices and technological measures, and further criminal offences”

The Flash component is also referred to at paragraph 57 of the Defence.

This is admitted to the extent that BGS published a link on the forum on 1 July 2011, well after the Agreement of 2001 was terminated, to download from another site an updated version of ATPL Digital 5.3 with the patch applied and which contained ‘Flash’ code. It was not ‘published on the forum’, however, it was published on a download site. The software was not available for common use because activation was required by Helastel. This is exactly analogous to the method of distributing upgrade versions of ATPL Digital 5.3 on DVD previously used by the First Defendant where the program could be copied from the DVD without restriction but activation was required by the First Defendant. Because IDC had withdrawn technical support at that point (and without the notice recommended by their lawyer) in an attempt, I believe, to do BGS the maximum damage possible and because Helastel’s provision of technical support was a direct result of my attempts to mitigate that damage I do not believe that the Defendants have any cause for complaint, in particular I do not see how they can claim this as a repudiatory breach when the link was posted months after the Agreement of 2001 was terminated.

[220] The Defendants now make no claim to own the source code in ATPL Digital 5.3, save for the ‘Flash’ code which was not distributed with the patches. By paragraph 7 of a letter to my solicitor dated 30 November 2012 Graham stated:

“by 11 September 2007 all the code contained within the MRS Server, MRS Client and the ATPL Digital applications had been written by Mr Kevin Brown”

and Kevin Brown was a contractor to ATPL Online Limited, not to the Defendants.

[221] The Claimant’s actions with respect to ATPL Digital 5.3 caused the 1^st Defendant no damage and no pecuniary advantage was obtained by the Claimant. Their purpose was merely to mitigate the damage being caused to us by Graham and Jill’s actions …”

Under the heading “May 2011: ‘Hacking’ accusations” he said:

“[223] While this had been going on, and following our launch of the ‘interceptor MRS’ around the end of March 2011 some of our client schools using proxy servers had been having difficulty sending student data through the MRS system. In particular Perth University had been in communication with Jill. On 24 April 2011 Jill passed the problem over to me saying:

“The ongoing problems at AST for you to resolve”

[224] I passed the issue on to Helastel who investigated the communication between the various elements of the MRS, in particular using elements of the MRS software installed and operating on a BGS computer at our premises in Cheddar and using software and remote access to capture the communication going to the MRS Global Database to compare the traffic between Perth’s computers and the MRS Global Database which was not apparently functioning and ours, which was known to work. On 1 May 2011 Jill appears to have also remotely accessed the BGS computer, interrupting Helastel’s access. Graham was later on 19 May 2011 and 20 May 2011 to complain to the police that the activity Jill observed was illegal. Nevertheless BGS took these actions through its contractors at the specific request of the 2^nd Defendant and therefore I believe the Defendants have no grounds for complaint. All we were doing was interrogating our own software on our own computers.”

Mr Whittingham was cross-examined about these matters. A number of allegations were put to him for which, in my view, there was little if any foundation, and which were not maintained by Mr Onslow in his closing submissions. For example, it was suggested to him that he had navigated to parts of IDC’s computer system to which he did not have access in accordance with the way in which the parties had chosen to perform the 2001 Agreement, and had accessed confidential information relating to IDC’s finances and emails. Mr Whittingham accepted that he knew that he was copying across some material to which he did not believe that BGS had any right, such as animations. He explained that this was on the basis of “Expediency”. He also said that he had not mentioned in his witness statement that there was a second occasion on which he had accessed materials on IDC’s system, in October or November 2009, because that only occurred to him later when he reread that statement. Overall, I consider that his evidence was not shaken in any significant way by cross-examination.

Mr Onslow submitted that:

Mr Hicks submitted that:

One context in which the courts have had occasion to consider the issue of self-help is that of matrimonial disputes. In L v L [2007] EWHC 140 (QB); [2007] 2 FLR 171, Tugendhat J said at [1]-[2]:

“[1] It is frequent in matrimonial disputes for one party (in this case the wife) to suspect that the other party is about to destroy documents, or conceal information which is, or may be, relevant to the proceedings, and to do so with a view to preventing her from obtaining from the court the financial provision to which she claims to be entitled. While the law provides for court orders to be made for the preservation and obtaining of evidence for the purpose of future legal proceedings, claimants, or potential claimants, sometimes resort to measures of self-help, by copying, seizing, or attempting to access digital copies of documents. The other party in such a case, in this case the husband, has rights, including privacy, confidentiality and legal professional privilege, in relation to relevant documents. The rights of privacy and confidentiality (but not any right of privilege) may be overridden by the competing public interest that any trial should be conducted on full evidence where the documents are relevant. But unless a document or information is relevant to the actual or intended proceedings in question, the rights of privacy and confidentiality will not be overridden at the instance of the potential or actual claimant, here the wife. These measures of self-help therefore give rise to legal difficulties.

[2] The difficulties that measures of self-help give rise to in this context include the danger that the husband's rights will be overridden, when they would not be overridden if the matter had been the subject of an application for a preservation or search order made to the court. Rights of confidentiality, and legal professional privilege, have long been protected by the common law. Measures of self-help could in the past involve the commission of civil wrongs, such as trespass, breach of confidence and breach of copyright. In the last 20 years or so the legal protection of information has been greatly increased. This has in large measure been in response to the development of computers and their use for word processing and sending of electronic messages. The amount of information that can be stored on a laptop is vast, and techniques for copying are quick and simple for experts. So the potential fruits of self-help are of a different order from those of former days. These developments have given rise to the question of the extent to which measures of self-help are also in breach of the criminal provisions of the law designed to protect the databases contained in digital form in computers.”

The same problem was considered by the Court of Appeal in Imerman v Tchenguiz [2010] EWCA Civ 908, [2011] Fam 116, in which the judgment of the court was delivered by Lord Neuberger MR. In that case, after Mrs Imerman had begun divorce proceedings, her brothers accessed her husband’s computer (which they were able to do because one of the brothers owned the office and server which the husband used) and downloaded materials concerning the husband’s financial affairs, because they were concerned that the husband might conceal his assets in the ancillary relief proceedings.

Under the heading “Alleged breaches of the criminal law”¸ Lord Neuberger MR said:

“[90] … where, as in this case, information is surreptitiously downloaded from a computer, there may also be criminal offences under the Computer Misuse Act 1990 …

[91] On behalf of Mr Imerman, it is contended that, in addition to infringing his rights of confidence, the defendants, or some of them, in accessing his computer records without his consent, … committed crimes under the provisions of the 1990 Act …”

Under the heading “Alleged criminality under the 1990 Act”, Lord Neuberger MR said:

“[92] Section 1(1) of the 1990 Act provides that it is an offence for a person to "cause ... a computer to perform any function with intent to secure access to any program or data held in any computer", where "the access ... is unauthorised" and "he knows at the time .... that that is the case". By virtue of section 17(2), securing access includes taking copies of any data, or moving any data "to any storage medium", or using such data. Section 17(8) provides that an act is "unauthorised, if the person doing [it] ... is not [and does not have the authority of] a person who has responsibility for the computer and is entitled to determine whether the act may be done".

[93] On the basis of the arguments that have been, relatively briefly, presented to us on the issue, there does seem to be a real possibility that those defendants responsible for accessing Mr Imerman's computer records stored on the server in early 2009 were guilty of an offence under section 1 of the 1990 Act. There may conceivably be a defence based on the proposition that they believed that they had (or that they actually had) authority to access Mr Imerman's documents stored on server, within the meaning of the Act, because they had, to his knowledge, physically unrestricted access to the server.

[94] It is, in principle, undesirable and, in practice, difficult to make an unambiguous finding, at an interlocutory stage in civil proceedings, as to whether or not a crime was committed. In addition, even if it was established that a crime has been committed, it by no means necessarily gives rise to a civil cause of action. Accordingly, at this stage, while we properly can, and do, conclude that there is a real possibility that an offence under the 1990 Act was committed when Robert Tchenguiz obtained copies of Mr Imerman's documents downloaded from the server in early 2009, it is not possible and not necessary to reach a final conclusion on that issue …”

Under the heading “Possible tortious liability”¸ Lord Neuberger MR said:

“[105] So far as concerns a claim in tort, and leaving aside all questions of copyright, it would seem that where confidential papers are surreptitiously copied, even in situ, without the knowledge of the owner, the inevitable if minimal asportavit may give rise to an action in trespass to goods … It is also clear that in some cases the conduct may amount to the tort of conversion … There is, however, no need for us to explore these questions any further ... We have been invited to proceed, and agree that we can proceed, on a much narrower front, by reference to the equitable principles exemplified by such cases as Lord Ashburton v Pape [1913] 2 Ch 469.”

Lord Neuberger MR also said:

“[107] Are the courts to condone the illegality of self-help consisting of breach of confidence (or tort), because it is feared that the other side will itself behave unlawfully and conceal that which should be disclosed? The answer, in our judgment, can only be: No.

[117] … The tort of trespass to chattels has been known to our law since the Middle Ages and the law of confidence for at least 200 years, yet no hint of any defences of the kind now being suggested is to be found anywhere in the books. Self-help has a narrow and jealously policed role to play, for example, in the form of the right in certain circumstances to abate a nuisance, but it is far too late to suggest that self-help should be extended into the territory we are here concerned with. After all, legislative prohibition of self-help, enforced with criminal penalties, dates back to the Statute of Marlborough of 1267. Section 1, which is still on the statute book, after providing that "all persons, as well of high as of low estate, shall receive justice in the King's court", prohibits anyone taking "revenge or distress of his own authority, without award of the King's court" and provides for the punishment of offenders by fine. We do not suggest that this provision is directly applicable in a case such as this; rather we point to it as illustrative of the law's long-standing aversion to unregulated self-help.

[128] … An important and relevant remedy for a wife, even though it seems to have fallen into desuetude in this area, is the court's power to grant search and seize, freezing, preservation, and other similar orders, to ensure that assets are not wrongly concealed or dissipated, and that evidence is not wrongly destroyed or concealed. Such orders are not infrequently sought, normally without notice, in the Queen's Bench Division and Chancery Division, where a claimant alleges, or has reason to believe, that, for instance, a defendant is seeking to make himself judgment-proof, has misappropriated money or other assets and is intending to conceal or dissipate the proceeds, has obtained confidential information from the claimant which he is intending to use, has articles which infringe the claimant's intellectual property rights, or (particularly germane here) has documents which are relevant to a dispute with the claimant which documents he intends to conceal or destroy ...

[135] Of course, such orders, particularly search and seize orders, can be expensive to obtain and execute, and we accept that, particularly in cases where the amount at stake is not substantial, the cost-effectiveness, or proportionality, of seeking such an order may be questionable. But in many cases where a wife has reason to be concerned that her husband may be in the process of concealing assets or documents, or the like, seeking ex parte peremptory relief would be both appropriate and effective. It is the course almost routinely taken when a claimant, in a case involving commercial breach of confidence, passing off or breach of intellectual property rights, believes that the defendant is concealing or destroying infringing items, incriminating material or relevant documents …

[136] Had that course been taken in this case, there would have been no question of any breach of confidence, tort, or statutory crime having been committed through accessing and copying Mr Imerman's electronic documents. So, too, there would have been no question of his rights of confidence being invaded … [Matters] would have been determined, supervised, regulated and approved by the court, and any such exercise, having been approved by the court, would be lawful, both in domestic law, and in the eyes of the Strasbourg Court: Chappell v United Kingdom (1989) 12 EHRR 1. As pointed out by Tugendhat J in L v L[2007] EWHC 140 (QB), [2007] 2 FLR 171, para [93], this would be far more satisfactory than an unauthorised, inequitable, tortious, and quite possibly criminal, accessing, copying, dissemination and proposed use, of the documents, as happened in this case from 6 January 2009.”

Although the test of dishonesty for purposes of the criminal law is different, in Royal Brunei Airlines Sdn v Tan [1995] 2 AC 378 at 390-391, Lord Nicholls said that “honesty is an objective standard”, and continued as follows:

“The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J captured the flavour of this, in a case with a commercial setting, when he referred to a person who is "guilty of commercially unacceptable conduct in the particular context involved": see Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700, 761. Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of … proceeding otherwise and the seriousness of the adverse consequences to [the rights or interests of others]. The circumstances will dictate which one or more of the possible courses should be taken by an honest person … Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.

Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did.”

I consider that this approach accords with the clarification of the decision of the House of Lords in Twinsectra Ltd v Yardley [2002] 2 AC 164 which was provided by the Privy Council in Barlow Clowes International v Eurotrust International [2006] 1 WLR 1476, and which has been confirmed in subsequent cases such as Abou-Rahmah v Abacha [2007] WTLR 1 at (Arden LJ at [69]) and Mullarkey v Broad [2007] All ER (D) 33 (Lewison J at [36]), affirmed by the Court of Appeal [2009] All ER (D) 143.

In my judgment:

Accordingly, my ruling on Issues 7 and 8 is that BGS did not commit repudiatory breaches of the 2001 Agreement in either of the ways described in those issues.

Even if that is wrong, and one or more of these breaches is repudiatory, I do not consider that this provides IDC with a defence to BGS’s claim for breach of contract.

My reasons for reaching this conclusion are set out below.

Mr Onslow submitted in that:

Mr Onslow’s submissions on the facts are summarised in paragraph 186 above.

Mr Hicks’s core submissions were that, even if BGS’s actions constituted repudiatory breaches:

So far as concerns the law, Mr Hicks submitted that Boston Deep Sea Fishing& Ice Co Ltd v Ansell (1888) 39 Ch D 339needs to be treated with some caution in its application to cases which are not cases between employer and employee. As noted by Mummery LJ in Cavenagh v William Evans Ltd [2012] EWCA Civ 697; [2013] 1 WLR 238 at [5]:

“[5] Boston Deep Sea Fishing is a leading authority for some of the basic principles governing dismissal of an employee for gross misconduct: (a) where an employee is guilty of gross misconduct, he may be dismissed summarily, even before the end of a fixed period of employment; (b) dismissal may be justified by reliance on facts not known to the employer at the time of the dismissal, but only discovered subsequently, even after the proceedings began; and (c) the dismissed employee is not entitled to any wages or salary for the broken period of employment immediately preceding his dismissal, because his entitlement had not accrued by then.”

However, at [39] Mummery LJ concluded (emphasis added):

“[39] The general law did not release the company from its contractual liability on the only ground relied on by the company in this action, namely that it acquired knowledge after it had terminated the contract under clause 11.5, which would have entitled it to terminate it outside that clause and summarily without liability for pay in lieu. Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339 did not go as far as to say that after-discovered misconduct provided an employer with a defence to an action for payment of an accrued debt. The principle for which that case stands is that an employer can defend a claim for damages for wrongful dismissal by using at trial, in its defence of justification, evidence of misconduct by the employee that was not known to the employer at the time of dismissal. In this case the company was not seeking in the proceedings to justify its dismissal of Mr Cavenagh.”

So far as concerns acceptance of repudiation, Mr Hicks relied upon the summary of the law provided by Moore-Bick J in Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27:

“[44] It must be borne in mind that all that is required for acceptance of a repudiation at common law is for the injured party to communicate clearly and unequivocally his intention to treat the contract as discharged: see Vitol SA v Norelf Ltd [1996] AC 800 , 810G–811B, per Lord Steyn. If the contract and the general law provide the injured party with alternative rights which have different consequences, as was held to be the case in Dalkia Utilities Services plc v Celtech International Ltd [2006] 1 Lloyd's Rep 599 , he will necessarily have to elect between them and the precise terms in which he informs the other party of his decision will be significant, but where the contract provides a right to terminate which corresponds to a right under the general law (because the breach goes to the root of the contract or the parties have agreed that it should be treated as doing so) no election is necessary. In such cases it is sufficient for the injured party simply to make it clear that he is treating the contract as discharged … If he gives a bad reason for doing so, his action is none the less effective if the circumstances support it. That, as I understand it, is what Rix LJ was saying in Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd's Rep 436, para 32, with which I respectfully agree.”

Mr Hicks also submitted that the right to elect to terminate may be lost by passage of time. He relied on Kosmar Villa Holidays Inc v Trustees of Syndicate 1243 [2008] EWCA Civ 147 at [73] and [74] where, as he submitted, Rix LJ discusses this question and the related question of whether it is necessary for an election to be exercised and to be exercised with sufficient knowledge.

So far as concerns the facts, Mr Hicks submitted that:

I find that, although the Cownies clearly had their suspicions, IDC did not know of BGS’s allegedly repudiatory conduct. Mr Whittingham did not want to alert them to what he was doing, and I consider that he succeeded in achieving that objective.

I find it difficult to say what IDC would have done if it had known of the conduct in question. This involves ruling on a hypothesis, and cogent arguments can be made both ways. Even the parties are likely to find it difficult to give accurate evidence on this issue, as they will be approaching matters with the wisdom of hindsight, and, moreover, in the context of what would be advantageous them in the current litigation. In so far as the burden is on IDC to show that it would have terminated the 2001 Agreement if it had learned of Mr Whittingham’s conduct, I consider that IDC has not discharged that burden.

Among other things, matters were complicated in 2009 by the prospect that some solution that would be acceptable to the Cownies could be negotiated with Mr Whittingham. I consider that it is very difficult to say whether the Cownies would have broken off negotiations if they had learned what he had done, or deployed their knowledge in the negotiations, or simply carried on performing the 2001 Agreement while they waited to see how the negotiations turned out. They might have taken steps to prevent any further unauthorised activity. I suspect they would have taken legal advice, and much would have depended on that advice. I am not in a position to make any finding as to what that advice would have been. Accordingly, this all involves much speculation.

I have dealt with these factual matters quite briefly because, in my view, they do not affect the resolution of the issue that I have been asked to decide. In my judgment, whether or not the acts in question amounted to repudiatory breaches, and whether or not they were concealed from IDC, the fact remains that the 2001 Agreement was not terminated but instead carried on until, according to my findings, IDC breached it.

I consider that Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1888) 39 Ch D 339 is not directly in point. Leaving aside altogether the fact that it concerned an employment relationship, in that case (a) the contract had been terminated in reliance on certain facts, and (b) that termination was justified, albeit by reliance on other facts which were not known to the innocent party at the date of termination. It was held that the latter facts could be relied upon to justify the termination. That is very far from saying that, where (a) there has been no termination by any party, but (b) there are facts which would justify the innocent party in terminating the contract, and which are not known to the innocent party due to concealment by the party in breach, then (c) subsequent breaches by the innocent party are not actionable, whether on the basis that the contract ought to be treated as if it had been terminated on some earlier date when the innocent party would have learned of those facts if they had not been concealed from the innocent party or on some other basis. That would produce a completely unworkable and unacceptable degree of uncertainty.

In any event, even in a case where there has been termination by party A, and where after-discovered misconduct by party B might provide party A with a defence to a claim that party A had wrongfully terminated the contract, I do not consider that such misconduct would provide party A with a defence to an action for breach of contractual obligations committed by party A before the date of termination: see Cavenagh v William Evans Ltd [2012] EWCA Civ 697; [2013] 1 WLR 238.

I do not consider that Mr Onslow’s arguments based on Chitty on Contracts (31^st edn) paragraph 24-015 and DRC Distribution v Ulva Ltd [2007] All ER 357, including his arguments for extrapolation, are well founded or take matters any further. The same applies to Mr Hicks’s reliance on Kosmar Villa Holidays Inc v Trustees of Syndicate 1243 [2008] EWCA Civ 147. That case did not concern a situation in which the alleged repudiatory breaches had been concealed. I agree, however, that, where there has been a breach which entitles the innocent party to elect to accept it and treat the contract as at an end, what is needed to bring the contract to an end is for that party to communicate clearly and unequivocally his intention to treat the contract as discharged: see Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27. No such communication occurred in the present case (by either side) until after IDC’s breaches had been committed.

For these reasons, my ruling on Issue 9 is as set out in paragraph 198 above.

This issue also essentially arises from IDC’s counterclaim. It is formulated as follows:

In light of my earlier rulings, I consider that this issue does not arise. On my analysis, by the terms of the 2001 Agreement the parties expressly addressed the issue of ownership of copyright in static artworks, with the result that (a) ownership was transferred to BGS to the extent that I have indicated (but no further) and (b) to the extent that ownership ought to have been transferred but was not transferred (e.g. because IDC had no title to pass) IDC is liable in damages for breach of contract. Questions of implied licence accordingly do not arise.

I believe that this accords with the formulation of Mr Hicks’s submissions on this issue, which were to the following effect:

If that understanding is wrong, I will hear further submissions on this issue.

This issue is: “Was it an infringement of copyright or misuse of confidential information to download the materials from IDC’s system in 2009?”

I consider that I have answered this question in the course of my rulings above.

In short, in accordance with those rulings:

Again, if these last points are said to be wrong, I will hear further submissions on them.

This issue is: “Does the “patch” in relation to ATPL Digital 5.3 amount to a breach of section 296 of the Copyright, Designs and Patents Act 1988?”

Mr Onslow’s submissions on this issue have already been summarised above.

To Mr Hicks’s submissions that are summarised above, he added the following:

I have already answered this question in favour of BGS in paragraph 196(viii) above. Mr Hicks’s further submissions simply serve to reinforce the conclusion there expressed.

Counsel should agree a form of order which reflects the above rulings.

I will hear submissions on any points which they are unable to agree, and (if desired) on any other issues on which I have said that I am prepared to hear further submissions.