Seele Middle East FZE v Drake & Scull International SA Co

On 11 December 2013 I granted an Injunction to the Claimant (“Seele”) on a without notice application under s.44 of the Arbitration Act 1996. I fixed the return date for 14 January 2014. By agreement between the parties that date was vacated and the return date fixed for 23 January 2014.

On the return date the parties were able to come to an agreement in relation to many of the issues but I was required to give a ruling on the continuation of the injunction restraining the Defendant (“Drake & Scull”) in relation to certain documents in the Seele’s site office. In this judgment I deal with my reasons for making that order.

From the witness statements provided to the court the following background is apparent. In reciting what is contained in the witness statements I make no findings, on this application for interim relief, as to the correctness of those matters, to the extent they are disputed.

By an agreement dated 1 February 2011 Drake & Scull entered into a contract with Saudi Arabian Oil Company (“Saudi Aramco”) for the engineering, procurement and construction of the King Abdullah Petroleum Studies and Research Centre being built in Riyadh in the Kingdon of Saudi Arabia. The project is described as a flagship project to produce an iconic landmark in Riyadh and has been designed by the well-known architect, Zaha Hadid.

By an agreement effective as of 7 February 2011 (“the Sub-contract”) Seele agreed with Drake & Scull to produce, supply, deliver and install the façades to several of the buildings which make up the project. The works include the installation of glass fibre reinforced concrete panels. There was initially a purchase order agreement dated 18 June 2010 but this was novated to Drake & Scull pursuant to a deed of novation dated 7 February 2011.

The relationship between Seele and Drake & Scull appears to have deteriorated in 2013, with Drake & Scull contending that Seele was falling behind in carrying out the works and not committing to a revised façade completion programme and Seele contending, amongst other things, that they had not been properly paid under the terms of the Sub-contract.

In November 2013 following high level meetings between the management of Seele and the management of Drake & Scull, Drake & Scull issued a number of letters to Seele including one dated 27 November 2013 in which Drake & Scull noted that Seele had reduced its labour force so that installation of the panels had stopped, had failed to provide schedules under Clause 9 of the Sub-contract and had failed to meet milestones set out in the Sub-contract. Drake & Scull said that Seele were in material breach of the Sub-contract conditions and gave notice under Clause 32.3 that it required Seele to provide a fully detailed schedule as required under Clause 9 within 14 days showing how Seele would remedy the “substantial and material breach of contract.”

Seele says that following the issue of this letter matters seriously deteriorated on site and that on or about 4 December 2013 Seele’s staff were forcibly prevented by Saudi Aramco’s security personnel from leaving the site. Mr Perkins, the business unit director for Seele with responsibility for the project, who has produced three witness statements on behalf of Seele, says that he was concerned about the safety and security of Seele’s staff and sent a letter on that date complaining about the treatment of those staff.

On 5 December 2013 Seele wrote to Drake & Scull saying it was their intention to finish the project and fulfil their obligations but it could not ask its “people to return to the project unless we are able to provide the written guarantee that we have requested.” The guarantee related to its staff.

Drake & Scull responded to that letter saying that Saudi Aramco had the right to inspect passes and carry out searches of vehicles and this did not give rise to any claim that Seele’s workers had been held hostage. They concluded by saying:

“Your ‘excuses’ for not leaving and subsequently refusing to return to work have no foundation whatsoever and should you fail to return and recommence works in earnest forthwith it will be taken that you have abandoned the contract. DSI secured your offices and storage facilities after abandonment of site as protective measures until further notice.”

On 8 December 2013 Drake & Scull wrote to Seele in the following terms:

“Further to our letter ref ‘1297’ dated 27^th November 2013 giving Notice pursuant to clause 32.3 of the subcontract conditions requiring you to provide a fully detailed schedule within 14 days of that letter clearly showing how you will remedy the substantial and material breach of contract and following your abandonment of the site herewith suspend all your performance under your subcontract until such time as you have complied with the foregoing request, all in strict accordance with the aforementioned clause.

Be advised you will not be allowed to return to the worksite until you have properly fulfilled your obligations as required above.”

On 11 December 2013 Seele issued the Arbitration Claim Form in these proceedings seeking an interim injunction under s.44 of the Arbitration Act 1996 in terms that Drake & Scull should deliver up to Seele documents, referred to as “Claimant’s Materials”, in six categories (i) to (vi).

For the reasons set out in my judgment given on 11 December 2013 I ordered that Drake & Scull should permit certain persons from Seele to enter the site of the project so that they could search for and take possession of the documents in categories (i) to (vi) and permit Seele’s representatives to remove those documents from site, together with various other orders.

Following the hearing on 11 December 2013 the representatives of Seele went to the site on 15 December 2013 but the process in relation to obtaining the documents does not appear to have proceeded smoothly and Seele have raised various complaints as to the involvement of Drake & Scull on that date. The parties have now been able to agree how matters should proceed which will include the involvement of a third party solicitor in Saudi Arabia.

On 16 December 2013 Drake & Scull sent Seele a letter in which they sought to terminate the contract under Clause 32 of the Sub-contract.

By letter dated 19 December 2013 Seele disputed that Drake & Scull were entitled to terminate the Sub-contract and stated that they accepted Drake & Scull’s repudiatory conduct as bringing the Sub-contract to an end.

On 23 December 2013 Vinson and Elkins RLLP, instructed on behalf of Seele, filed a Request for Arbitration with the ICC International Court of Arbitration, Asia Office, in Hong Kong and sent a copy to Lawrence Graham LLP, instructed on behalf of Drake & Scull. I understand that there are certain jurisdictional issues which are raised in relation to the commencement of that Arbitration.

On the return date Counsel and Solicitors for the parties were sensibly able to come to terms acceptable to both parties but there remained an issue as to whether Drake & Scull should be restrained from making use of any of the documents in Seele’s site office, from making any copies of those documents or removing any of those documents or from disposing of or parting with any of those documents. Drake & Scull did not contend that the order should not be made in relation to the documents in paragraphs (i), (ii), (iii), (v) or (vi) of the order of 11 December 2013 but were concerned with the material referred to a paragraphs (iv) of the Order namely “the Claimants internal proprietary installation plan (including its bespoke installation 3D model and derivatives thereof)”.

There was further evidence about these documents and the 3D model in Mr Perkins’ third witness statement. He said that the documents within category (iv) were the on-site production plans, including the 3D model prepared using the Rhinoceros software package and the derivatives from such model and included various production drawings that were prepared for on-site and off-site production purposes. He explained that the 3D model was originally prepared by the architect and then provided to Seele to progress its own design. The Claimant then took over the design process relevant to the scope of the work under the Sub-contract and developed the model so that it included all elements from the top of the primary steel structure to the outside surface of the glass-fibre reinforced concrete panels. Once that level of design had been completed it was issued to Drake & Scull for approval.

Mr Perkins said that Drake & Scull had generally paid Seele sums which reflected that level of design and accepted that ownership of that 3D model had passed to Saudi Aramco. He said that Seele was not seeking to be provided with that document which had already been provided to Drake & Scull. However Mr Perkins said that following the approval of the 3D model the on-site production plan which incorporated the 3D model was further developed by Seele for the purposes of fabricating the various elements of the works, as well as showing how those elements are to be constructed. This involved producing production drawings which showed how the various elements were to be fabricated and installed. He said that those drawings were based on techniques and methodologies which had been developed by Seele and were commercially sensitive. He said that, for example, part of the internal development and checking process involved reviewing that information and such checks, including the question of how to make checks in an effective fashion, were a part of the specialist knowledge that Seele had gained during the implementation of its design process over time and which specialist internal knowledge had been used for the development of the project.

Mr Perkins referred to the pricing schedule incorporated within the contract which provided at preliminary Item D on page 3 of the Pricing Schedule as follows:

“Production Drawings subsequent to achieving suitable status approval, including but not limited to: cutting, machining and assembly drawings, schedules for glass and bought-in materials, laydown drawings for site materials.”

He said that it was these documents which were described in paragraph (iv) of the order of 11 December 2013, including the developed 3D model which was required to prepare the production drawings and fell within item D of the pricing schedule. He exhibited payment documents showing that no payment had been made in relation to preliminary Item D on page 3 of the Pricing Schedule.

Mr Richard Harding QC who appeared on behalf of Drake & Scull, submitted that documents within the description in paragraph (iv) of the order arguably fell within the documents which Drake & Scull required to complete the installation of the façade of the project. He referred to Clause 29 of the Sub-contract which provided that Saudi Aramco had the right to use the designs created for the project if they were paid for. It provided as follows :

“SAUDI ARAMCO shall own any new and unique designs initially and specifically created or invented by VENDOR or its Subcontractors or Suppliers for the FAÇADE and paid for under this Order. As Owner, SAUDI ARAMCO shall have exclusive and unrestricted right to possess, use and dispose of such drawings.”

Mr Harding QC submitted that the relevant documents came within Clause 29 of the subcontract as Drake & Scull had paid 94% of the contract price for design work and only the “production drawings” had not been paid in full as they had not been provided by Seele.

However he referred to Clause 32.3 which applied in the event of the termination which Drake & Scull contended had been properly affected. The clause, he submitted, permitted Drake & Scull to “recover any costs incurred by Buyer in excess of the total Order Price for the completion of the Order.”

Accordingly he submitted that Seele would be entitled to a credit for the full amount of the Sub-contract price including the sums relating to the production drawings and that, when read with Clause 29 of the Sub-contract this meant that Saudi Aramco was entitled to use all of the design information on termination and not simply on completion when it would be of no further use.

Therefore he submitted that Saudi Aramco, and hence Drake & Scull, was entitled to use all of the materials referred to in paragraph (iv) of the order of 11 December 2013. He submitted that the court should not come to any concluded view on this matter but that there was a serious issue to be tried. He submitted that, in accordance with the principles in American Cyanamid v Ethicon [1975] AC 396, if Seele succeeded at trial they would be adequately compensated by damages for any loss caused by the refusal to grant the interlocutory injunction because Seele would be fully compensated by the sums payable under the Sub-contract for such documents.

He submitted that, in any event, damages would not be an adequate remedy for Drake & Scull as it would not be adequately compensated under the Seele’s undertaking as to damages as the resulting delay and cost would be substantial and Drake & Scull had serious concerns as the ability of Seele, a Dubai Free Zone company, to satisfy any undertaking in damages. Further he submitted that if there were any doubt as to the adequacy of the respective remedies in damages, the balance of convenience lay in favour of Drake & Scull as significant delay to the project would result while Drake & Scull procured new designs whereas Seele had no further use for any documents relating to the project and its intellectual property concerns were untenable. He submitted that even if matters were finely balanced this was a case where the status quo should be preserved by allowing Drake & Scull to continue using the drawings for the purpose of the project.

Mr. Steven Walker QC, who appeared on behalf of Seele both on the original application and on the return date, submitted that the relevant documentation as described by Mr. Perkins did not fall within Clause 29 because it was apparent that no payment had been made in relation to the production drawings which, in any event, were not design documents. He submitted that these fell within the preliminary section and did not form part of the design and engineering of the façade which was dealt with elsewhere in the Sub-contract. He submitted that in the absence of payment there was no question of ownership passing under Clause 29. He referred to the fact that, as Mr. Perkins explained, the production information used Seele’s techniques and methodologies which were commercially sensitive and identified the risk of reputational harm to Seele were others to use Seele’s plans to complete the works.

As matters have developed, the issue between the parties is whether there should be a negative interim injunction restraining and prohibiting Drake & Scull from making use of or otherwise dealing with the documents in Seele’s site office and in particular documents falling within the following description which has been proposed as the amended wording for the documents in category (iv) of the order of 11 December 2013:

“The Claimant’s internal proprietary installation plan, the Claimants bespoke installation 3D model, cutting, machining and assembly drawings and layout drawings or site materials.”

The principles on which the court will grant an interim negative injunction are well known, but in this case they apply under the provisions of section 44(2)(e) of the Arbitration Act 1996. The provisions of the Act limit the intervention by the court in arbitration, and by section 44(3) and section 44(4) they divide the matters into ones which would apply in the case of urgency, and ones which apply in a case which is not urgent. I consider that the application is urgent as it involves documents which Seele contends are its property and contain confidential information whereas Drake & Scull evidently would wish to use the documents which would be passed to a replacement façade sub-contractor.

In those circumstances, it seems to me that this case can be treated as one of urgency, and in such a case under section 44(3) the court may make such orders as it thinks necessary for the purpose of preserving evidence or assets, which would include, in my judgment, the documents in this case.

In these cases, the court under section 44(5) shall only act if and to the extent that the arbitral tribunal and any arbitral or other institution or person vested by the parties with power in that regard has no power or is unable for the time being to act effectively. Although this is a matter where there is an arbitration under the ICC Rules, it is not subject to the recent change in those rules in the form of the introduction of an emergency arbitrator to deal with applications. An ICC arbitration has been commenced but it is not said that the arbitral tribunal is yet in a position to act. Therefore, there is no power for the time being for an ICC arbitral tribunal to act effectively.

In those circumstances, the jurisdictional grounds for making an injunction under the Arbitration Act 1996 are made out, subject to the court in its discretion making an interim injunction.

In my judgment Seele has a strongly arguable case that the relevant documents do not fall within the provisions of Clause 29. Seele’s production and installation plans are matters which are dealt with under the preliminary item D on page 3 of the Pricing Schedule and are not design and engineering information. They are drawings for the internal use of Seele in producing and installing the façade for the project. I do not consider it to be arguable that payment at a future date under the provisions of Clause 32 would mean that payment had now been effected for the preliminary item but in any event it is strongly arguable that these drawings do not come within the description of documents in Clause 29.

The installation of facades together with the detailed production and installation plans are, on the evidence before me, matters which are likely to contain commercially sensitive information in an industry which is highly competitive. In those circumstances if it is found that Drake & Scull were not entitled to those documents but had used them and provided them to replacement façade sub-contractors, who were competitors of Seele, I do not consider that damages would be an adequate remedy.

So far as the question of the strength of the undertaking for damages is concerned, no point had been raised, prior to the submissions served shortly in advance of the return date, that Drake & Scull had concerns about the financial position of Seele. On this basis Seele had not had an opportunity to deal with this aspect. I accept that if it were held that Drake & Scull were entitled to these documents then they could suffer damage both in the cost of having the documents produced by a replacement subcontractor and also in the delay to the project while that was being done. However, in the circumstances, I consider that the appropriate way to deal with this matter is to give Seele a short time to file and serve a statement containing information as to their financial position so that if, on the basis of that information it is found that there are concerns, the matter can come back before the court. I do not consider that it is appropriate not to make or continue the relevant injunction until the date when that information is available. Any damages in that short period would be very unlikely to be irrecoverable under the undertaking.

Given the matters set out above, insofar as it was necessary to consider the balance of convenience then I consider that the preservation of the intellectual property rights of Seele to be of greater weight in balancing the convenience compared to the potential need for a replacement subcontractor to carry out its own design.

In relation to the status quo then, currently, Drake & Scull do not have access to these documents to use them as they have been in the possession of Seele and the status quo would be preserved by the terms of the injunction.

In those circumstances in relation to the disputed category of documents I consider that it is appropriate to make an Order in the following terms:

“The Defendant whether by itself its servants or agents otherwise be restrained from making any use of the documents in the Claimants site office, from removing and documents from the Claimant’s site office and from disposing of or parting with in any way documents in the Claimant’s site office.”

As set out in paragraph 8b of the agreed part of the new order, there is no dispute as to the other documents and I consider that the order is equally appropriate in relation to the documents of the type now defined to amend category (iv).

Accordingly, subject to matters arising from the financial information or from the process which the parties have agreed, I consider that this disposes of matters required to be considered on the return date.