Cureton v Mark Insulations Ltd.

MR JUSTICE BEAN: The defendants, Mark Insulation Limited, have been for many years engaged in the supply and installation of home insulation, especially in new built homes. Their directors have been members of the Cottingham family, the late John Cottingham, his brother Michael, another family member Lee Cottingham and more recently John’s son Mark Cottingham. The claimant, Mr Cureton, is now the sole proprietor of James Philip Associates. That was originally a partnership formed by Terence James Spence and Martin Philip Dunphy in 1984 following a meeting with the Cottinghams. It provided services to MIL, namely the selling of insulation to MIL’s customers. The salesmen, who to begin with were just Mr Spence and Mr Dunphy, would use MIL’s name and its business cards but they were not employed by MIL. As Mr Dunphy said in giving evidence, the idea that they might be died on the altar of tax and national insurance. In any event, Mr Spence and Mr Dunphy had other business interests. In 1985 they started JP Naylor, a business trading in pre-designed concrete lintels, which was incorporated in 1988 as JP Naylor & Co Limited. It used the same customer list and, when computers arrived, database as MIL and JPA. There was also JPN Cast Stone Limited in the same line of business. At some stage it appears that there was a firm called JP Joinery and I was told that Mr Spence for a short period, it was not clear when, ran a humidifiers business.

Mr Dunphy told me that the Cottinghams “had a moan” as he put it from time to time about the other activities carried on by him and by Mr Spence. Mark Cottingham told me that his father and other family members were annoyed in particular that JP Naylor/JP Naylor & Co Limited was built up from small beginnings into a substantial business.

Although JPA operated from its own office, there was a dedicated phone line for MIL business and those answering that phone would give the name Mark Insulations Limited, not JPA. MIL paid for the rental of that telephone line and for marketing overheads. However, JPA always employed its own staff as salesmen and estimators for insulation. The salesmen generated leads in the form of inquiries from house builders. Those inquiries would be processed through MIL’s offices and quotations then prepared by JPA’s estimators. Documents and correspondence were sent to and from MIL’s offices. Estimates and quotations were sent out from those offices.

Mr Cureton was not in at the start. He began working for JPA on 1 March 1995. In the first six months of his employment he sold insulation on behalf of MIL. After that period he was, as he put it, expected to start selling pre-stressed concrete lintels and cast stone to the same house building industry as that to which he sold insulation. But he spent the majority of his time promoting insulation. The 1995 Building Regulations required an increased level of insulation and that was good for business.

Over a period of years Mr Spence and Mr Dunphy sold out to Mr Cureton, who by January 2003 was the sole proprietor of JPA. At about this time he also established Cureton Limited, a company selling windows. This was unknown to MIL. Cureton Limited does not seem to have been enormously active, but in October 2003 at least one letter, page 132 of the bundle, was written to an established customer of MIL on Cureton Limited notepaper quoting for windows. It was signed by Mike Oxford, Chief Estimator. Mr Oxford was also Chief Estimator of JPA, working almost entirely from their offices.

Mr Paul Terry, who gave evidence for the defendants, is now a sales representative employed by MIL. During the period prior to termination of the agency in April 2004 he would go out together with his colleague, Philip Brown. He told me, and I accept, that they would sign in together when they visited builders’ premises as Mr Terry and Mr Brown of MIL. Mr Terry would produce his MIL business card and sell insulation. At the very end of the conversation, whether it had been successful or not, Mr Brown would produce a Cureton Limited card, say that it was not part of the MIL group, make it clear that it was quite separate, and see whether the customer was interested in windows.

When the Cottinghams discovered this, they were mightily displeased. A letter was written by Mr Mike Cottingham to Mr Cureton on 6 April 2004, the relevant part of which was as follows:

“It has recently come to our attention that your employees are soliciting business for the supply and fit of windows to Newbuild at customers of Mark Insulations Limited.”

He then enclosed a copy of the letter to which I have referred:

“You will see from this letter [sent by Mr Oxford] that reference is also made to a conversation with Phil Brown. Both Mr Oxford and Mr Brown are employed by James Philip Associates to carry out work for and on behalf of Mark Insulations Limited under the agency agreement between our two businesses.

It is a fundamental term of the Agency Agreement that employees of James Philip Associates will give their full time and attention to the sale of Mark Insulations’ products. You will no doubt be aware that agreement on this basis was reached between the Directors of Mark Insulations Limited and Terry Spence/Martin Dunphy of James Philip Associates at the outset of our relationship. This was confirmed at the time JP Naylor & Co Limited was formed. At no time has Mark Insulations Limited given any indication to you that your employees assigned to our contract can undertake other duties. The reason for this is that we are anxious to ensure your workforce give 100% commitment to our product. Obviously, they cannot do so if they are also selling other products. We are also concerned at possible misuse of our customer database for this purpose.”

The letter then quotes regulation 3 of the Commercial Agents (Council Directive) Regulations 1993 and continues:

“In the circumstances, we consider that you are in breach of Regulation 3(1) and 3(2)(c). These breaches go to the foundation of our relationship and entitle Mark Insulations to terminate the Agency Agreement with immediate effect. This letter is formal notice of the termination of the Agreement.

You are required to return all property belonging to Mark Insulations by 4.00 pm. Thursday 8^th April 2004. This will include all customer details stored in hard copy format or electronically and price lists. To the extent that this information is stored electronically, we require your undertaking to delete the same from the hard drive of your computer.”

Mr Cureton replied on 8 April on James Philip Associates notepaper as follows:

“We are disappointed that you have terminated our verbal agreement.

We have no knowledge of the terms of the Agency Agreement that you refer to and invite you to put it in writing with suitable evidence.

We do not accept that we are in breach of the Council Directive and if you believe that these regulations apply to us, no doubt you will have regard to Regulation 15 as to the notice period to terminate the agreement.

In the circumstances any property of Mark Insulations Ltd will be returned to you at the expiration of the proper notice period.

It is right to say that MIL separately wrote to Mr Cureton or his solicitors, offering a new agency agreement on very different terms, an 18-page document drafted by lawyers and containing a number of restrictions, including post termination restraints, which were understandably unacceptable to Mr Cureton. So that did not come off.

A further letter from MIL’s solicitors sent on 14 April demanded again the return of the database of MIL customers and threatened an injunction. However no injunction proceedings took place. Instead undertakings were signed on each side. Mr Cureton on 22 April signed an undertaking that he would not use or disclose to any third party “the claimant’s” confidential information. (“Claimant” was obviously a reference to MIL, although no proceedings had been issued). He further undertook to deliver up to MIL “all of MIL’s documents whether written or electronic”. Each of these is particularised at some length. An undertaking was signed on behalf of MIL in much more limited terms at page 146 of the bundle, which I need not read out.

The question of whether the database is a document belonging to MIL, or putting it another way MIL’s confidential information within the meaning of Mr Cureton’s undertaking, is a question of law to which I shall return later in the judgment.

Mr Cureton issued proceedings in the Leicester District Registry of the High Court on 22 June 2004, seeking payment of commission, a claim later quantified at £191,545.85 and various other remedies. The defendants, MIL, in due course counterclaimed.

The issues which I have to decide are as follows. On the claim: (1) whether MIL was entitled to terminate the agency agreement summarily as opposed to doing so on giving three months’ notice pursuant to regulation 15 of the Commercial Agents (Council Directive) Regulations. Secondly (2), in any event, what sum is due to the claimant by way of commission. There are various other pleaded allegations in the claim of inducing breach of contract which have not been pursued. Then on the counterclaim, (3), whether the database of information about MIL customers belongs to MIL or to the claimant, who relies on the Copyright and Rights in Databases Regulations 1997 and finally (4), an issue, which for the moment I will call the 5 per cent issue, raised by re-amendment of the defence and counterclaim in January 2005. This concerns a business practice of JPA discovered by MIL after termination and alleged by them to constitute a fraud, alternatively a breach of express instructions given by MIL to Mr Cureton.

The agency relationship between JPA and MIL was never reduced to writing. In 1984, therefore, it was governed by the English common law of agency. I am quite confident the parties did not know this, but as from 1 January 1994 the Commercial Agents (Council Directive) Regulations 1993 applied to the relationship. So far as relevant to this first issue, they read as follows:

“3(1) In performing his activities a commercial agent must look after the interests of his principal and act dutifully and in good faith.

3(2) In particular, a commercial agent must (a) make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of; (b) communicate to his principal all the necessary information available to him; (c) comply with reasonable instructions given by his principal.

4(1) In his relations with his commercial agent a principal must act dutifully and in good faith.

5(1) The parties may not derogate from regulations 3 and 4 above.

5(2) The law applicable to the contract shall govern the consequence of breach of the rights and obligations under regulations 3 and 4 above.

15(1) Where an agency contract is concluded for an indefinite period either party may terminate it by notice.

15(2) The period of notice shall be ... c) 3 months for the third year commenced and for the subsequent years; and the parties may not agree on any shorter periods of notice.

15(4) Unless otherwise agreed by the parties, the end of the period of notice must coincide with the end of a calendar month.

16 These Regulations shall not affect the application of any enactment or rule of law which provides for the immediate termination of the agency contract (a) because of the failure of one party to carry out all or part of his obligations under that contract; or (b) where exceptional circumstances arise.”

Mr Oliver Segal for the defendants does not rely on the exceptional circumstances clause but on regulation 16(a). It is common ground that that paragraph restates the common law. Mr Segal put his case under two headings. He argued that the use of JPA staff to do Cureton Limited windows business alongside MIL business was in breach of an express term of the oral agency agreement. Alternatively it was in breach of the obligations of JPA under regulation 3 and/or the general English law of agency.

It is obviously difficult, indeed almost impossible, to reconstruct the exact terms of an oral discussion which took place 22 years ago. It appears that five people were present: Mr Dunphy, Mr Spence and three Cottinghams, John, who died before this dispute arose, his brother Michael and Terry. John Cottingham could of course not give evidence although his son Mark gave evidence of what he said his father had told him on a number of occasions over the years about this event. Mr Dunphy, who attended pursuant to a witness order, had given a very short witness statement and gave much more detail in oral evidence. Mr Segal sensibly did not object to this, but in return applied without objection from Mr Stuart Benzie for the claimant to call Mr Michael Cottingham to give evidence about the discussion. Mr Terry Cottingham did not give evidence, nor did Mr Spence.

Mr Dunphy said that the purpose of the meeting was to discuss MIL’s plans to expand their insulation business. He said that the meeting centred around how much they (MIL) were going to pay Spence and Dunphy. He said, “After the meeting Terry and I shook hands and went into partnership”. He said that Mr Spence wrote to the Cottinghams about the level of remuneration. That letter does not appear to have survived. He said that their partnership was a 50/50 partnership without documents. He understood that it was a partnership under the Partnership Act. (He was right about that). He said that:

“We presented ourselves to clients as MIL. There were no restrictions on other activities by the partners. We didn’t have employees at that stage.”

He mentioned that Mr Spence had a humidifiers business which he thought was called TGS services and that the Cottinghams knew about it. He also told me about the start of the JP Naylor business in 1985 and its incorporation in 1988.

It was put to him that the partnership came into being for the sole purpose of promoting the sale of MIL insulation. He said, no, it was a vehicle for his and Mr Spence’s business activities. They were forming a partnership to do business. He asked how could it be exclusive when Mr Spence already had another business. He said it may have been MIL’s perception that the sole purpose of the partnership was to work for them, “but it wasn’t ours”.

Mr Mark Cottingham, who provided a witness statement in the course of the trial and gave evidence towards the end of the trial, said this:

“I am advised that in the course of his evidence at the Trial, Mr Dunphy gave oral evidence about a meeting in December 1984. I recall the meeting at MIL’s premises. I was present, along with my late brother John, and Messrs Spence and Dunphy. It was at that meeting that it was agreed JPA would be formed by Mr Dunphy and Terry Spence as a partnership specifically to perform a sales function for MIL. It was confirmed by Spence and Dunphy at that meeting that the sole purpose of JPA would be to sell MIL product. Indeed, we even discussed the possibility of JPA operating from MIL’s premises but this idea was later rejected.

At no time was I informed or made aware that the JPA partnership would have any other purpose.

I am advised that Mr Dunphy also gave evidence during the course of the Trial in relation to my attitude to himself and Mr Spence trading as JP Naylor/JP Naylor Ltd. Some time after the set up of JPA my brother John and I were approached by Spence and Dunphy to ask permission to trade under the name JP Naylor in concrete lintels (I cannot now recall whether they told us at that point that they would be incorporating a new company for this purpose, although I know they did so in the mid/late 1980s). They informed that their accountant had advised them that if they did not have any other interest other than MIL the tax authorities could judge their sale activities for MIL as employees and not as an individual partnership. My brother John and I made it clear to Spence and Dunphy at that meeting that we had no objections to their involvement in JP Naylor, providing this involvement did not interfere with the Agreement between JPA and MIL. They confirmed that both businesses were to maintain separate and distinct workforces.”

Mr Mark Cottingham spent some ten years in the United States of America and returned to the family business in 1999. What he says about events prior to 1999 is derived from what other family members, in particular his father, had told him. He put it this way:

“In or around 1988, the partners of JPA set up a new business, JP Naylor & Co Limited. The partners and employees of JPA started working on orders for that business as well as MIL’s business. We objected to this immediately and following discussions between the Directors of MIL and Messrs Spence and Dunphy, this practice ceased. MIL made it clear that it was and remained a fundamental term of the Agency Agreement that employees of JPA would give their full time and attention to the sale of MIL’s products and would not act as agents for any other company. To the best of my information and belief, JP Naylor & Co Limited continues to trade but has a separate sales team.”

In cross-examination he said that in 1999 his father, John, asked him to take over the new build section of the business:

“Father explained how the agency worked. He mentioned certain things he was unhappy about. Firstly staff would be trained up by JPA on the insulation business, then just as they were showing talent they would disappear and he would discover they were working for JP Naylor. Secondly, Mr Dunphy stopped coming to meetings and seemed to be dealing all the time with cast stone, leaving Mr Spence and Mr Cureton to the insulation.”

He was told that his father had given permission for JP Naylor stone work to be the second customer of JPA for tax reasons. He (the father) was concerned that JPA was taking a bit of a back seat in its MIL activities and was not happy that Spence and Mr Dunphy’s other business was taking away from their activities with JPA on behalf of MIL. It was put to him that Dunphy had described this as a niggle. He said, “It was more than that for my father”.

I am quite satisfied that there was no agreement in 1984 that Mr Spence and Mr Dunphy, whether as individuals or under the style of James Philip Associates, would do no other work. Within a matter of months, to the knowledge of the Cottinghams, they had become active in the sale of concrete lintels, cast stone or both. This continued for many years. When they acquired employees some would be trained up on insulation work and then go over to JP Naylor work. There is no clarity as to whether such people were paid by JPA or by JP Naylor Limited or partly by one, partly by the other, and no evidence that the defendants cared. The defendants had plenty of opportunities to terminate the agency if they found this unsatisfactory but they did not do so. This was no doubt because, as is agreed on all hands, the business prospered for 20 years and everyone was happy with the way it went.

I would add that in any event a term that JPA employees should do no other work at any time would be a very odd one. This is not an employment case where the employee is paid a wage or salary by his employer and has a “full time attention” clause in his contract of employment. JPA staff were paid their wages by JPA or perhaps sometimes in part by JP Naylor. Their employer received commission payments and at least in some periods a modest monthly management fee. The commission payments were based on the amounts sold. Subject to any conflict of interest caused by approaches to MIL customers on behalf of other companies, it was, as it seems to me, none of MIL’s business what JPA staff did in their spare time.

But that issue, conflict of interest, leads on to Mr Segal’s second argument which is to my mind far more formidable. Bowstead on Agency provides in paragraph 6-055, article 46, as follows:

“An agent may not put himself in a position or enter into a transaction in which his personal interest, or his duty to another principal, may conflict with his duty to his principal, unless his principal, with full knowledge of all the material circumstances

At 6-057, under the heading Disclosure, the authors say:

“The duty does not completely prohibit the adoption of a position or the entering into of transactions in which such a conflict might occur; it rather prohibits doing so without disclosure of all material facts to the principal so as to obtain his consent ... Consent of the principal is not uncommon. But it must be positively shown. The burden of proving full disclosure lies on the agent and it is not sufficient for him merely to disclose that he has an interest or to make such statements as would put the principal on inquiry.”

I referred to the evidence of Mr Terry about him and Mr Brown going to customers in 2003 as a team of two, one to sell insulation and one to sell windows. I accept that Mr Terry would deal with insulation first. But I also accept, indeed I do not think it was disputed, that Mr Terry was told by Mr Cureton not to let on to MIL that this was going on. Mr Mark Cottingham told me, and I accept, that he was furious because of the potential reputational risk. His company had no control over the quality of Mr Cureton’s windows. In any event, the potential for embarrassment is not confined to reputational risk. The claimant called a Mr Roger Marston who had worked for MIL for 22 years until he retired in December 1999. A few months later he was offered work by JPA. He asked MIL whether they had any objection and they did not. He sold cast stone for JP Naylor and insulation on behalf of MIL. His MIL work was at one stage about three days a week. He told me that on one occasion he went to a site about a cast stone problem. The site agent was not there. Next on his list of visits for the day was another site where there was an issue about some MIL insulation. He arrived to find that the site agent was the same one. Since he was wearing an MIL tie and coat he did not want to talk to the agent about JP Naylor cast stone and so he did not.

Mr Benzie argues that a more versatile salesman might actually make the insulation more attractive to customers by offering other construction services as well, such as windows, a step in the direction of a one-stop shop. The Cottinghams could quite rationally have accepted that argument if they had been asked, or they might have given conditional consent such as requiring a slice of the profits or commission on the windows business if the two were to be run in tandem. But we shall never know. It was Mr Cureton’s duty to disclose his intentions to them and seek their agreement. I consider that his failure to do so did put his firm in breach of its duty to MIL under the agency agreement and under regulations 3(1) and 3(2)(b) of the Regulations. I also consider that it was a sufficiently serious breach to justify summary termination of the agreement, whether at common law or under regulation 16(a) of the Regulations. Accordingly the claim for three months’ loss of profit based on the summary termination of the agreement must fail.

The next issue is the claim for commission. The claim, as I have said, is for £191,545.85 as pleaded. The defendant admits that £41,626.03 is due subject to set off of the counterclaim. The question I have to decide is whether the claimant is entitled to anything further. The Commercial Agents Regulations also cover the topic of remuneration. Regulation 7(1) provides:

“A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract (a) where the transaction has been concluded as a result of his action ...”

Regulation 8 provides that subject to regulation 9, which is not material for present purposes:

“A commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated if (a) the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated ...”

The claim is based on three invoices sent by Mr Cureton to MIL. The first, dated 31 March 2004, page 102 of the bundle, was for £32,498.14. The second and third were both sent on 4 May 2004. Number 2, page 106, covers the April 2004 order book and was for £50,005.52. The third, described as current “up to 6 April 2004”, page 111 of the bundle, was for £80,514.10. Each of these three sums was without VAT, which was then added at 17.5 per cent. The last two were sent a covering letter, page 100C, which read as follows:

“We are enclosing two invoices for your payment.

Invoice No. 200404 covers quotations that James Philip Associates undertook on behalf of Mark Insulations Ltd and which we were expecting to receive official orders on from 6^th April 2004 onwards. A list detailing these quotations is included with the invoice.

Invoice number 200405 covers 50% of the value of the quotations that James Philip Associates undertook on behalf Mark Insulations Ltd for the 12 months preceding 6 April 2004 and which had not yet been won or lost. In this period our track record on orders that were won or lost was 50% won and 50% lost and therefore it is the percentage that we require payment on. A list detailing these quotations is included with the invoice.

Obviously it will need to be adjusted as specific orders come through, but in the interim it is reasonable to expect you to pay these invoices.

As your payment was always made on receipt on invoice I expect your payment by return.”

All three invoices and their accompanying order book entries were subject to careful scrutiny by Mr Cuan Forrest, who has been the defendant’s new build administration manager for four years. The detailed examination of invoices and order books was a routine part of his job. He said in his witness statement:

“Mr Cureton was entitled to 5% commission on orders received by MIL as a result of quotations he submitted, less any deductions for previous overpayments made to him. Mr Cureton was always paid in advance on the basis of monthly invoices he submitted to MIL together with the relevant order book information. These invoices would be paid within 30 days less sums calculated as a result of ongoing reconciliation.

There would be a deduction in the invoiced amount for one or more of the following reasons:

(i)

Where no order had in fact been placed following a quotation (omissions).

(ii)

Where an order was received for less than the original quotation (deductions)

(iii)

Where commission on contracts had already been paid to Mr Cureton (duplicates).

I have carried out a detailed reconciliation of the three invoices submitted by Mr Cureton against the documentation in our possession and I have produced a contract summary report for each and every contract referred to in the order book attachments to Mr Cureton’s invoices. I can deal with these individually.”

He then does so, giving the figures and concludes:

“The above calculations show that the commission payable to Mr Cureton without taking into account MIL’s Counterclaim is as follows.”

Then the first invoice, £22,300.16, the second £21,258.24 and the third, a negative balance, that is a balance due to MIL of £1,932.37.

Mr Mark Cottingham said that the third invoice was fraudulent and wildly optimistic. Mr Segal quite rightly did not pursue his suggestion that it was fraudulent, either in cross examination or in his closing submissions. In the light of the letter at page 100C which I have read out, which accompanied the second and third invoices, such a contention would have been quite unsustainable. I accept that the invoice was wildly optimistic and it was illogical to expect a 50 per cent strike rate for outstanding quotations on an invoice relating to 12 months during which many successful quotations had been the subject of commission payments already. But that is in any event irrelevant.

Mr Forrest’s witness statement was backed up with voluminous supporting documentation in the bundle and apparently a great deal more which was not in the bundle and not examined prior to trial. Save on two issues, any attempt to challenge his evidence faced Mr Benzie with the task of making bricks without straw and he wisely abandoned it. But the two issues do remain. The first relates to a customer called McCann Homes where Mr Forrest was instructed to, and did, make a reduction for insulation to the value of £167,901.93. (I exclude from that a deduction already made in relation to that customer of £2,252.95, which is not disputed). As to the £167,901.93 deduction, an anonymous document produced on Mark Insulations Limited’s headed notepaper, pages 100A-B, states as follows:

“Over claim on the above order. No commission on this development was to be paid as previously agreed. Please see documentation stating non-payment by McCann Homes for prior works, due to incorrect specification quoted.”

The suggestion in this document that there had been an agreement between agent and principal that no commission on the development was to be paid was not supported by any evidence and was not pursued. The grounds put forward in evidence to justify the deduction and thus to that extent resist the claim for commission was that the customer’s specification had changed. The work, as Mr Mark Cottingham conceded, had originally been won by JPA but substantial changes were made. Mr Cottingham was not able to say how great the changes were. He said it was technically a new job and new drawings were involved but that is as much as I know. It does not appear that the premises quoted for changed nor the size of their lots and so forth. That is the exiguous material on which I have to decide this issue. Under regulation 8(a) the question is whether the transaction was mainly attributable to the agent’s efforts. I find that it was. Accordingly the claimant is entitled to 5 per cent of the value of that insulation which I calculate to be £8,395.09.

The other disputed deduction concerns Morris Homes. This was a building company which used to get JPA, or as they thought MIL, to quote for insulation for the whole of the development, say of 10 or 12 houses, but would then place orders on a plot-by-plot basis. The effect was that neither side was committed beyond what had been ordered by a particular moment. Mr Mark Cottingham told me that not long after the termination of JPA’s agency MIL’s main supplier of insulation increased prices by 20 per cent. MIL then told Morris Homes that it (MIL) could not honour the original quoted prices for plots where they had not yet placed an order. The prices had to be renegotiated. There is no evidence by how much. Mr Mark Cottingham was not sure whether MIL won orders for all the plots but this is a matter wholly within the defendant’s knowledge and I shall proceed on the basis that if MIL had not won orders for all the plots I would have been told about it.

The same question arises under regulation 8(a), whether the transaction was mainly attributable to the agent’s efforts. Again I find that it was. If it were otherwise an agent who had achieved the first of a series of orders could be deprived of his commission on the remainder by the principal renegotiating the price even by a small amount. Accordingly the claimant is entitled to 5 per cent of the value of the insulation from Morris Homes on this order, which was £165,901.24, that is to say £8,295.06.

I therefore conclude that the claimant is entitled to judgment for commission in the undisputed amount of £41,626.03; on the McCann Homes issue £8,395.09, and on the Morris Homes issue £8,295.06, a total of £58,316.18. I have not been addressed on whether VAT has to be added to any of this, nor on what interest is recoverable but subject to those points that is the amount due to the claimant on the claim.

I turn to the counterclaim. Firstly the database issue, the third of the issues which I have to decide. An example of the database is contained at pages 171 onwards of the bundle. The pages concern a single customer, Mr Jenkins, Quantity Surveyor for David Wilson Homes (South East). The entries are made by several JPA personnel, including Mr Terry, Mr Brown and Mr Oxford. The entries are not only for orders won or lost, but telephone calls and the like. The heading describes the database as James Philip. It is not disputed that the hardware and the software were the property of JPA and paid for by them and that JPA employees did the work or for some customers the overwhelming majority of entries concerned work done for MIL. A few, although I have not been pointed to them, of the entries concern Cureton Limited.

If Mr Terry and Mr Brown and their colleagues had been employees of MIL the database would plainly belong to them, as it would if it had been expressly agreed between JPA and MIL that in the event of termination the database would become the property of MIL. That was one of the terms which it was sought to place in the draft written agency agreement in April 2004. But the individuals were not employed by MIL and there had been no such express agreement. The Copyright and Rights in Databases Regulations (1997 SI3032) apply. Regulation 13(1) provides that a property right, database right, subsists in accordance with the regulations in a database if there has been a substantial investment in obtaining, verifying or presenting the contents of the database. Investment may by virtue of regulation 12 be financial, human or technical. Regulation 13(2) provides that for the purposes of paragraph 1 it is immaterial whether or not the database or any of its contents is a copyright work within the meaning of part 1 of the Copyright, Designs and Patents Act 1988. Regulation 14(1) provides that, subject to paragraphs (2) to (4) of that regulation, the person who takes the initiative in obtaining, verifying or presenting the contents of a database and assumes the risk of investing in that obtaining verification or presentation shall be regarded as the maker of and as having made the database. By regulation 14(2), where a database is made by an employee in the course of his employment, his employer shall be regarded as the maker of the database subject to any agreement to the contrary. (Paragraphs (3) and (4) of regulation 4 provide for Crown servants and officers and staff of the two Houses of Parliament). Regulation 15 provides that the maker of a database is the first owner of database right in it.

There is no provision for a database made by an agent concerning work done for a principal to belong to the principal. Mr Segal, in his closing written submissions, wrote:

“If a person (X) engages another (Y) to perform a job which requires Y to compile records of contacts with X’s customers, the notion that those records belong to X if Y is his employee but to Y if he is engaged as a self-employed consultant, is absurd.”

That is a submission which it seems to me must be addressed to Parliament or to the maker of the regulations. The effect of the regulations is quite clear. The database was made by JPA and its staff and belongs to Mr Cureton, just as JPA’s salesmen’s notebooks would have done in a pre-computer age. The terms of Mr Cureton’s undertaking, to give up “all of MIL’s documents, whether written or electronic” do not assist MIL; nor does the general law of agency. This aspect of the counterclaim must therefore be dismissed.

I add for the sake of completeness that had I found in MIL’s favour on this issue, the quantification of damage would have been difficult. Mr Cottingham, in his first witness statement, paragraph 26, said this:

“MIL has suffered additional loss and damage as a result of Mr Cureton’s failure to comply with the terms of his undertaking: (i) Overtime payments made to MIL staff to follow up information on lost contracts. The cost to MIL here is £2,035.17

(ii)

The cost involved in rebuilding the database. The sister company of MIL, Mark ITS, has rebuilt our database at a cost to MIL of £25,000.”

When I pointed out that the second subparagraph giving the figure of £25,000 did not give me much to go on an email was found and added to the bundle addressed to Mark Cottingham from an MIL employee called Jenny Peaty dated 12 July 2004. This read as follows:

“Mark, As per your request: The estimate for the setting up of the New Build Sales and Quoting Department is £25,000 which is made up of the following:

(1)

Extensive upfront Systems Analysis and data gathering to develop the Sales and Quoting modules.

(2)

Investigating Act and drilling down of the Act Data.

(3)

Developing the (a) New Build Sales Module (b) New Build Quoting Module including all the implications of remote access.

(4)

Extensive initial support and setup of Excel programs.

(5)

Setting up, configuration, desktop support and ongoing support of users.

(6)

Installation of the programs and user training.”

There is no breakdown of the £25,000 as between items, nor an explanation of how it is made up, how many hours, how many people involved at what hourly rate, whether any of it is for equipment and so forth. Mr Mark Cottingham did tell me that item 4, extensive initial support and set up of Excel programs, was the largest. As Mr Benzie submitted, since the defendant’s claim is for the database, not for the software, it is very difficult to see why even if this claim were valid in principle Mr Cureton should pay for the initial support and set up of Excel programs. The same can be said in different ways for many of the other items. In any event this aspect of the counterclaim fails.

I turn finally to the fourth issue I have to decide, the 5 per cent issue. Paragraphs 18 to 22 of the re-amended defence and counterclaim, which I should say was a document settled by MIL’s solicitors and not signed by counsel, were as follows:

“(18)

It was a term of the agency contract between the parties, implied by the common law and/or by Regulation 3 of the Regulations, that the Claimant would act in good faith and in the interests of the Defendant.

(19)

In breach of the said terms, the Claimant at all material times, alternatively regularly, instructed his estimators, when giving quotes to customers for contracts between themselves and the Defendant, falsely to reduce the areas of insulation required for such contracts by an amount such as 5% (and, thus, pro tanto, the quoted price), in order to improve the prospects of the Defendant securing such contracts and thus the Claimant securing the resulting commission.

(20)

This said breach caused the Defendant loss and damage, because the actual amount of insulation which the Defendant supplied in respect of all such contracts was, of course, the amount needed to cover the actual area of the customer’s premises requiring insulation; however, the Defendant was only paid for the reduced amount of insulation quoted for.

(21)

For the avoidance of doubt, the Defendant contends that the Claimant well knew that the said discrepancies were very unlikely to be picked up by the Defendant; indeed the Defendant did not realise that such practice was being implemented by the Claimant until it was recently informed of the same by an ex-employee of the Claimant.

(22)

It is not possible prior to disclosure, etc. precisely to quantify the loss and damage so caused, but 5% of the gross contract prices in the period January 2003 to February 2004 equates to some £315,000 (in respect of all such contracts which would have been honestly secured in any event, this represents lost additional profit to the Defendant, since the materials and work were used/paid for in all events).”

JPA did not have a general discretion in the price per square metre which they quoted to clients. The documents include an internal price list, page 150, headed New Build Prices, which begins as follows:

“As from the 1^st of June 1998 the following will be nett minimum prices to be tendered under any circumstances.

They are to be on a fixed price basis until the 31^st of December 1998.

If a client insists on a price beyond that date it is to be resisted. If they persist, you must refer the problem to Mike Cottingham for a price beyond that point.”

Then, under the heading Loft Insulation Minimum Prices, there are three columns: Insulation Thickness, for example 160mm; Specification, for example 100mm x 160mm x 1; and Minimum Rate, for example for 160mm £2.37. The minimum rate is agreed to be per square metre. The insulation thicknesses vary from 100mm to 200mm.

Certain customers could be given special reduced prices, but that required the authority of one of the Cottinghams. In such cases, in recent years, JPA’s commission would be reduced from 5 per cent to 3 per cent, though Mr Dunphy told me that that was not so in his day.

Mr Cureton’s evidence in his witness statement was in these terms:

“(28)

There was a set calculation used for all quotations which included a reduction of 5%. This 5% reduction represented the area of loft space which would be taken up by timbers. No insulation would be laid on the part of the loft taken up with timbers and as such, the calculations represented the exact amount of insulation which would be required to inspect the loft.

(29)

This reduction also accurately represented the actual area to be filled within cavity walls.

(30)

The 5% reduction figure which was used was considered to be a conservative figure and in many cases the reduction could have been more than 5% to accurately represent the amount of insulation required.

(31)

We understood that this was standard practice in the industry at the time and Mark Insulations Limited was fully aware that this was standard practice for our calculations. In fact, if there was ever a site that Mark Insulations attended and they had to use more loft insulation than had been quoted for, they would raise that issue with us at that time of the job. This issue was raised very few times while we were working together.

(32)

The 5% reduction was necessary in order to keep orders coming in. If the 5% was added to each order, then the majority of orders would not have come in and this would have made Mark Insulations’ position in the market untenable.”

It is obvious even to a layman that there is more than one way of quoting for insulation for a loft. Suppose the gross area is 10 metres by 10 metres. One method of quoting is simply to quote for the gross area, 100 square metres, and charge the customer for the whole lot. A second is to measure what will not be needed; the evidence in the documents says that a common way to insulate a loft is to have a first layer with smaller pieces between the timbers and a second layer stretching over the timbers. But in any event some areas of timbers will not need to be covered, at least in the first layer. Nor will the loft hatch. There is a dispute among those who gave evidence about the proper practice in relation to tanks; there may be protrusions inwards from the roof and so forth. So the second way is to measure exactly what will be needed and make an accurate reduction from the 100 square metres. A third way is to make a broad brush reduction, such as 5 per cent.

Mr Dunphy told me that Mr Mike Cottingham was very concerned about the amount of insulation used on jobs. If JPA had regularly been underquoting, MIL would be bound to notice. He said that MIL did always quote gross in his time but in his view there was nothing dishonest in reducing the area charged for from the gross amount. It depended on how it was done. If, for example, the price had already been discounted to reflect the fact that a proportion of the gross area would be unused, it should not be discounted a second time.

Mr Mark Cottingham told me that he was unaware of the practice of making a 5 per cent reduction until it was revealed to him by Mr Oxford, by then an employee of MIL, in the company washroom shortly after Mr Oxford joined MIL. Mr Oxford, who was the principal witness for the defendants on this issue, said this:

“In 1999 there was concern that we were losing business to competitors on price. There was a meeting which I wasn’t at but Mr Cureton and Mr Spence reported on it. The 5 per cent reduction in measurement was a plan to beat the competition. If we went on without it we might have lost work or we might not, it depends on how you calculate the square metres. If you’ve already made a reduction for bits not used in the first square metre price you shouldn’t reduce again. I agree with Mr Dunphy who said that you can do it either way. No one told me that the square metre rate made a reduction for gross measurement. In the end the customer is interested in the plot rate. He said again that if the price per square metre had not already been reduced to take account of unused areas there would be nothing wrong with it. He said he did not know how the price was calculated. As to what was done physically, he said that insulators took up complete rolls and did the area without cutting first.”

Thus far what Mr Oxford said was not contentious, but he went on:

“I assumed it was a fraud from the outset. Mr Cureton said the competitors were doing it so we should follow suit. It was a dubious practice but I didn’t want to lose my job. I was told to keep it secret.”

Later, when pressed by Mr Benzie as to whether he really was saying that it was fraud, he said:

“I think it probably does amount to fraud, but it wasn’t thought of like that at the time. At the outset I was dubious about it but I managed to reconcile myself to it. It was being done for commercial reasons. I was fairly new to the industry and anxious not to rock the boat.”

Mr Cureton, in his evidence, said that he mentioned the 5 per cent reduction at a meeting with one of the Cottinghams, I think Mr Michael Cottingham, who agreed to it. Mr Cottingham denied any such agreement on behalf of MIL. I think it is highly unlikely that any such express agreement was given.

Mr Mark Cottingham, for his part, told me that MIL’s insulators are paid not fixed wage or salary but piecework rates based on worksheets which in turn set out the area of insulation quoted for, in those days, by JPA. An insulator was paid a rate per square metre. Each man would typically do 2,000 square metres per week. Mr Mark Cottingham said that if a reduction was only 5 per cent the men would not notice. Mr Oxford said the same.

I find there was no express agreement by MIL to a practice of quoting 95 per cent of the gross area. I think it was also more likely than not that Mr Cureton first introduced the practice without clearing it with the Cottinghams and that his motive for introducing it was to improve MIL’s competitive edge and to increase its sales.

But I also find that it was neither fraudulent nor in breach of any express instruction to the contrary. In particular I find that it became known to and was tolerated by MIL. Even before I learned how MIL’s insulators were paid, the allegation of fraud struck me as improbable. It would have involved millions of pounds worth of insulation business over several years being won for MIL with invoices and detailed order books to document it, yet no one in MIL, including the thorough and careful Mr Forrest when he became new build administration manager, noticing that 5 per cent had regularly been taken off the gross area of each loft or whatever the job was.

That was unlikely enough, but when I was told in oral evidence by Mr Mark Cottingham that MIL’s insulators were paid per square metre laid, the allegation of fraud went from improbable to hopeless. The fraud must on the defendant’s case have involved every MIL insulator working in new buildings, over a period of some four to five years, being underpaid by 5 per cent, not noticing it and thus not complaining. I have not been told what these men earned, but I am confident it was not so much that they would fail to notice that they were being cheated of 5 per cent of their pay on every job. I do not believe Mr Oxford when he said that he always thought the practice was fraudulent. He was thoroughly uncomfortable when giving oral evidence and I am not surprised.

In the light of the improbability of the allegation of fraud Mr Segal sought in his closing submissions to hedge the defendant’s bets by saying that even if the 5 per cent reduction was not fraudulent it was nevertheless in breach of contract, that is to say in breach of MIL’s clear instructions always to quote on a gross area basis. That submission runs up against the same problem, namely the extraordinary implausibility of the workforce knowing of an allegedly rigid pricing rule imposed by MIL always to quote for the gross area, yet overlooking a 5 per cent reduction in every pay packet. In the result I reject the counterclaim in respect of the 5 per cent issue, whether put on the basis of fraud or on the basis of breach of an express instruction.

I should add that if I had found for MIL on liability on this issue there would, as with the database issue but even more so, be difficulties on causation and quantum. MIL counterclaimed in their pleading:

“… 5% of the gross contract prices in the period January 2003 to February 2004 equates to some £315,000 (in respect of all such contracts which would have been honestly secured in any event, this represents lost additional profit to the Defendant …”

In Mr Mark Cottingham’s evidence he took a longer period, from 2000 to 2004, and claimed £995,245.57. Either of these calculations is obviously illogical. They simply assume, without any evidence whatever to support the assumption, that every job could have been priced 5 per cent higher without any loss of business. But on the findings I have made this issue does not arise.

I should say on the 5 per cent issue that it would have been open to MIL, if they were serious about this issue, to have called any number of indignant and on their case defrauded workmen who had been labouring under the false impression which it was alleged they suffered from, but no such witness was called and I regarded that silence as nothing less than deafening.

I heard interesting submissions from counsel on the applicability of the doctrine of Boston Deep Sea Fishing Company Limited v Ansell to this case, the question being whether fraud of a commercial agent discovered subsequent to summary termination of an agency agreement on other grounds defeats any claim for damages for wrongful termination of the agreement: see the judgments of Mr Justice Elias in the Bell Electric Limited case at [2002] EWHC 872 QB and of Lord Justice Tuckey in Cooper, Watkins and Bartle v Pure Fishing (UK) Limited [2004] EWCA Civ 375 at paragraph 14. Mr Benzie was disposed to concede that it does, and I agree, but the point is doubly academic since I have found for MIL on the summary termination issue and for Mr Cureton on the issue of the alleged fraud. The point will therefore have to await the decision of another judge in another case.

Accordingly, subject to any issues of VAT, interest, or miscalculation on my part, there will be judgment on the claim for £58,316.18 and the counterclaim will be dismissed. It was agreed that since Mr Segal is required in another court today any ancillary issues will be dealt with, if they have to be, at a future date. That must be no later than the end of March. I would ask Mr Benzie and Mr Segal to let my clerk know by 10.30am next Tuesday, 14 March whether or not an order can be agreed and if so enclosing it and if not informing me of what issues remain in dispute. A date will then be arranged for them to be resolved. I am very grateful to counsel for their assistance during this case.