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Cite as: [2014] EWHC 2145 (Ch)

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Neutral Citation Number: [2014] EWHC 2145 (Ch)
Case No: HC11C01768

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY

Royal Courts of Justice
Strand, London, WC2A 2LL
2 July 2014

B e f o r e :

RICHARD SPEARMAN Q.C.
(sitting as a Deputy Judge of the Chancery Division)

____________________

Between:
BRISTOL GROUNDSCHOOL LIMITED
Claimant
- and -

(1) INTELLIGENT DATA CAPTURE LIMITED
(2) ALLAN GRAHAM HUGH COWNIE
(3) PROPILOT LIMITED
(4) SLATE-ED LIMITED
(5) JILL VALERIE COWNIE




Defendants/ Part 20 Claimants
- and -

ALEXANDER JOHN WHITTINGHAM
Defendant to Part 20 Claim

____________________

Michael Hicks (instructed by Meade King LLP) for the Claimant and Part 20 Defendant
Robert Onslow (instructed by Willans LLP) for the Defendants

Hearing dates: 25, 26, 27, 28 February and 3, 4 March 2014

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    RICHARD SPEARMAN Q.C.:

    Introduction

  1. 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.
  2. 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.
  3. 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.
  4. 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).
  5. 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.
  6. 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.
  7. The parties

  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. The witnesses

  13. 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.
  14. 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.
  15. 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.
  16. 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.
  17. General background

  18. 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.
  19. Accordingly, I gratefully adopt the following paragraphs of that judgment, and I shall use the same abbreviations in this judgment:
  20. "[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."
  21. 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.
  22. 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:
  23. "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]."

  24. The material provisions of the 2001 Agreement are as follows:
  25. "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 …"

  26. 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:
  27. (1) Technical Subjects Revision Aid Version 1.0 December 1999

    (2) JAA Multimedia Revision Aid Version 1.0 January 2001

    (3) JAA Multimedia Revision Aid Version 2.0 December 2001

    (4) JALS Version 2.5 July 2002

    (5) JALS Version 3.0 March 2004

    (6) ATPL Digital Version 5.0 March/April 2007

    (7) ATPL Digital Version 5.1 January 2009

    (8) ATPL Digital Version 5.2 March 2009

    (9) ATPL Digital Version 5.3 June/released November 2009

    Procedural issues

  28. 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.
  29. Paragraph 25 of the Re-Re-Amended Particulars of Claim ("the Particulars of Claim") pleads as follows:
  30. "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]".

  31. 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".
  32. Following the amendment to paragraph 23 of the Defence that I gave the Defendants permission to make, that paragraph reads as follows:
  33. "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)".
  34. 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:
  35. (i) In response to paragraph 55 of IDC's Counterclaim, Paragraph 22 of [BGS's] Defence to Counterclaim pleads:

    "(1) It is admitted that [BGS] has created and distributed a software product called ATP Digital 6.0 and that the product contains a large number of post-18th January 2001 static artworks (including some static artworks created using 3D models) the copyright in which is owned by [BGS] pursuant to the express terms of [the 2001 Agreement] as is averred in the Particulars of Claim and the above Reply".

    (ii) IDC's request numbered 90 asked BGS to state "which express term in any agreement between [IDC] and [BGS] assigns the copyright in 3D models to [BGS]".

    (iii) The amended response that I gave BGS permission to make pleads as follows:

    "Clause 7.1. Whether derived from 2D vector artwork or a 3D model (which is also vector artwork within the meaning of the 2001 Agreement), the final electronic form of the printed materials contained the artwork in a bitmap form. On its proper interpretation, clause 7.1 when read in conjunction with clause 3.1 assigns to [BGS] the copyright in the artwork used as the basis for the final electronic form of the printed materials, which includes the 2D artwork and 3D models".

  36. 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.
  37. Issue 2.1

  38. 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.
  39. 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.
  40. 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.
  41. 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".
  42. 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.
  43. The law relevant to Issue 2.1

  44. As to the relevant legal principles, Mr Hicks submitted in opening that:
  45. (i) The 2001 Agreement should be construed in accordance with the principles of contractual interpretation stated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913.

    (ii) As Lord Hoffmann summarised it in the later cases of Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 AC 251 at [37] and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1011 at [14], the correct approach is to ask what a reasonable person having all the background knowledge which would have been available to the parties at the time would have understood them to be using the language of the contract to mean.

    (iii) The following summary of Briggs J in Jackson v Dear [2012] EWHC 2060 at [39] is correct, having been approved by the Court of Appeal in the same case (see [2013] EWHC Civ 89 at [15] to [18]):

    "Objective Process
    (i) Construction (or as I would prefer to call it interpretation) is, in relation to any point at issue, the ascertainment of the meaning which the document would convey to a reasonable person having 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.
    (ii) For that purpose, even though the point in issue may be a narrow one, the interpretation of the relevant provision depends upon an understanding of its context within the agreement as a whole.
    (iii) The court's function is to ascertain the meaning of the agreement rather than to seek to improve upon it, or put right any inadequacies of meaning. Nonetheless the court recognises that draftsmen may make mistakes, may use occasionally inappropriate language and may fail expressly to address eventualities which may later occur.
    Implied terms
    (iv) The implication of terms is no less a part of the process of ascertaining the meaning of an agreement than interpretation of express terms. Implication addresses events for which the express language of the agreement makes no provision.
    (v) In such a case the usual starting point is that the absence of an express term means that nothing has been agreed to happen in relation to that event. But 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.
    (vi) Although necessity continues (save perhaps in relation to terms implied by law) to be a condition for the implication of terms, necessity to give business efficacy is not the only relevant type of necessity. The express terms of an agreement may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. In such a case an implied term is necessary to spell out what the contact actually means.
    Commercial common sense
    (vii) The dictates of common sense may enable the court to choose between the alternative interpretations (with or without implied terms), not merely where one would "flout" it, but where one makes more common sense than the other. But this does not elevate commercial common sense into an overriding criterion, still less does it subject the parties to the individual judge's own notions of what might have been the most sensible solution to the parties' conundrum."
  46. 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]:
  47. "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."
  48. 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]:
  49. "[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."

  50. 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.
  51. BGS's submissions on Issue 2.1

  52. 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 8th 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.
  53. Mr Hicks further relied on Mr Whittingham's evidence relating to the 1999 Agreement, contained in paragraphs 34 and 50 of his 8th witness statement dated 3 February 2014:
  54. "[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 …"

  55. I see no reason to doubt the veracity of that evidence. Nor did Mr Onslow challenge it.
  56. Mr Hicks further submitted that these matters were reflected in the structure of the 2001 Agreement. He argued that:
  57. (i) Clause 3 deals with the production of the three types of materials envisaged: static artwork is to be produced by IDC at the cost of BGS; animations are to be produced by IDC at its cost; and the text is to be provided by BGS at its cost.

    (ii) Clause 7 then divides ownership on the basis of who produced or paid for the work in question: on the one hand, pursuant to Clause 7.1, copyright not only in text but also in static artworks is to belong to BGS (subject only to one specified exception in the case of Rolls Royce plc); on the other hand, pursuant to Clauses 7.2 and 7.3, IDC is to retain copyright in animated artworks and soundtracks.

    (iii) The combined effect of Clauses 3.1 and 7.1 is that "produced for BGS" by IDC must mean "made available to BGS" by IDC, on the basis that the static artworks in question were intended for inclusion in the teaching materials once published.

    (iv) The contrary contention of IDC was incorrect for at least the following reasons:

    (a) There is a specific exclusion for certain works in Clause 7.1, and there is no reason to interpret the Clause in such a way as to provide for further, unspecified, exclusions.
    (b) BGS was to pay for the production of the static artworks (and this is unaffected by the fact that, from about August 2002, IDC did not charge for artworks produced in house, as this was a commercial decision by IDC).
    (c) On IDC's approach, ownership of copyright depends upon events and circumstances unknown to BGS, such that BGS could never be sure as to the works in which it would and those in which it would not own copyright.

    IDC's submissions on Issue 2.1

  58. 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:
  59. (i) static artworks produced by IDC for third party projects, but delivered to BGS for inclusion in the syllabus document;

    (ii) static artworks derived from third party sources, but delivered by IDC to BGS for inclusion in the syllabus document;

    (iii) static artworks derived from an animation produced by IDC, the static artworks being delivered by IDC to BGS for inclusion in the syllabus document;

    (iv) static artworks derived from a 3D model produced by IDC, the static artworks being delivered by IDC to BGS for inclusion in the syllabus document.

  60. 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.
  61. 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:
  62. (i) It involves a specialist interpretation of "produces" (analogous, perhaps, to the situation where a party to litigation "produces" a document to another party).

    (ii) In commercial terms, a work is "produced" when it is created.

    (iii) To read Clause 7.1 in any other way would have the effect that IDC would be promising BGS the copyright of a work in which a third party might have an interest.

    (iv) Such a result would be surprising, and if it was to be achieved it would require to be expressed in clearer terms than by using the word "produce".

  63. In his closing submissions, Mr Onslow made the following additional submissions:
  64. (i) What was contemplated by the 2001 Agreement at the time it was made was:

    (a) The computer program would simply reproduce BGS's printed notes (apart from the addition of some animations).
    (b) IDC would produce electronic vector versions of BGS's artwork in BGS's printed notes, and such other electronic vector artwork as would be necessary for the JAAL course, to be added to the printed notes (Clause 3.1), and copyright in those artworks would be owned by BGS.

    (c) IDC would carry out minor update work during the first year, and would be involved purely in a sales capacity thereafter (Clause 11).

    (ii) If IDC did no more than provide a work created by a third party, it would be impossible for IDC to assign copyright in that work to BGS, and this is recognised by the example of Rolls Royce plc that is mentioned in Clause 7.1.

    (iii) If IDC provided BGS with a work created by IDC for a third party, an assignment of copyright by IDC to BGS would not be impossible. However, an assignment would be likely to give rise to a breach of obligation between IDC and the third party. Accordingly, the better view is that such a work is treated in the same way as a work created by a third party work for purposes of the 2001 Agreement.

    (iv) As to BGS's point that, on this interpretation, BGS would not know whether it is getting copyright in a work supplied by IDC, that was true in any event of works supplied by IDC that were third party works or works in the public domain.

    (v) In any event, the 2001 Agreement did not place on IDC an obligation only to supply works in which BGS would own the copyright.

    (vi) Moreover, BGS did not need to own copyright to use artworks supplied by IDC: (a) all BGS needed was a licence; (b) the minimum licence that BGS needed was to print further copies of its printed notes including the artworks; and (c) BGS did not need a licence to incorporate the artworks into new printed notes, printed notes for third parties, or into a new computer program. Mr Onslow referred to Robin Ray v Classic FM [1998] FSR 622. In that case, the plaintiff was retained as a consultant by the defendant, and pursuant to their agreement he compiled a database. It was common ground that the defendant was entitled to exploit the database for the purpose of broadcasting in the United Kingdom, but it was in dispute as to whether the defendant could exploit it more widely, whether because the defendant had acquired the copyright or a more extensive licence. The case therefore concerned the principles which are applicable when it is necessary to imply the grant of a right to fill a lacuna in a contract. Lightman J said at 627 "This litigation springs from the failure of the parties … at the time [they] entered into the consultancy agreement to consider, or provide for, the intellectual property rights that would arise in the course of the engagement of the plaintiff". Ultimately, he concluded that, on a proper construction of the agreement in light of the factual matrix within which it was made, all that was in contemplation at the material time was that the plaintiff's copyright work would be used by the defendant for the purpose of exploitation in the United Kingdom, such that all that was necessary to give purpose and effect to the agreement was to grant the defendant an indefinite licence to use the work for that purpose alone.

    (vii) Once the 2001 Agreement was extended to a product which included multimedia modules, the link between the application and the printed notes was broken.

    (viii) In those circumstances, under the terms of the 2001 Agreement, static artworks created by IDC for inclusion in the multimedia modules but not the printed notes were no longer "produced for inclusion in the syllabus document".

    Discussion and ruling on Issue 2.1

  65. In my judgment:
  66. (i) Clause 3.1 and Clause 7.1 should be read together.

    (ii) The correct interpretation of these Clauses is that, in exchange for paying IDC to produce static artworks which are required for inclusion in the syllabus document, BGS obtains not only those artworks but also copyright in the same.

    (iii) However, that is subject to a single specified exception in relation to artworks owned by Rolls Royce plc which are currently licensed to IDC. In the case of those artworks, the parties agree that BGS will not become copyright owner.

    (iv) If the parties contemplated that other artworks would or might be subject to the same considerations as the artworks owned by Rolls Royce plc, they could and would have provided for this, instead of stating a single exception in Clause 7.1.

    (v) In other words, save only in the case of that specified exception, it was the intention of the parties that production of artworks by IDC (at the cost of BGS) and the vesting of ownership of copyright in those artworks in BGS should be synonymous. Put another way, save only in the case of that specified exception, the parties did not intend that whether and to what extent BGS obtained ownership of copyright should depend on IDC's choice as to which of a number of different means of "producing" the artworks IDC decided to adopt.

    (vi) The fact that the parties made provision for that specified exception is inconsistent with them intending that "produced for" means "created by": the wording shows that they regarded artworks owned by Rolls Royce plc which were licensed to IDC as falling within the class of works which were "produced for" BGS, although those artworks plainly had not been "created by" IDC.

    (vii) However, the more important point is that the words the parties used show that they were not concerned as to how IDC would or might set about "producing" the artworks but were instead concerned with achieving the result that (subject to that exception) the copyright in the static artworks in question should vest in BGS.

    (viii) This interpretation does not produce the surprising result that IDC is promising BGS copyright in works which IDC may be unable to confer. On the contrary, all it means is that it was the intention of the parties that IDC should ensure that BGS obtained ownership of copyright in static artworks which IDC made available to BGS and in respect of which BGS had an obligation to make payment to IDC.

    (ix) In contrast, it would be a surprising result that whether and to what extent BGS obtained ownership of copyright in static artworks for which it had paid IDC (or, for that matter, in light of IDC's decision not to charge, had not paid IDC) should depend upon events and circumstances that were outside the knowledge of BGS.

    (x) That point is not met by the argument that BGS did not need to own copyright in order to be able to exploit the artworks, because Clause 7.1 is dealing with ownership of copyright. In contrast to the facts of Robin Ray v Classic FM [1998] FSR 622, the parties in the present case did consider and make express provision for intellectual property rights, and had they intended that BGS should only receive a licence in respect of any artworks, they could and would have said so.

    (xi) The "printed notes" in Clause 3.1 and the "syllabus document" in Clause 7.1 are one and the same. As at present advised, I do not consider that it is open to IDC on the existing pleadings to rely upon an argument to the effect that if and to the extent that static artworks were produced by IDC for inclusion solely in multimedia modules and not for inclusion in printed notes, then those artworks are not caught by the provisions of those Clauses. As I read paragraph 23 of the Defence, the distinction that it asserts is between on the one hand artworks that were and on the other hand artworks that were not produced by IDC "for the Application or accompanying manuals", and not between artworks that were produced by IDC for inclusion in printed materials on the one hand and for inclusion in some other media on the other hand. However, I will hear further submissions on this issue if that is an argument that IDC seeks to pursue.

    (xii) The above interpretation accords with (i) the natural and ordinary meaning of the words used in Clause 7.1 of the 2001 Agreement, (ii) the overall purpose of the 2001 Agreement, (iii) Clause 3.1 of the 2001 Agreement, (iv) the facts known or assumed by the parties at the time that the 2001 Agreement was executed, and (v) common sense. In particular, it better accords with business common sense than the contrary interpretation that was advocated by Mr Onslow on behalf of IDC.

  67. For these reasons, I decide Issue 2.1 in favour of BGS.
  68. Issue 2.5

  69. 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.
  70. BGS contends that such works are covered by Clause 7.1. IDC contends the contrary.
  71. I determine this issue in favour of BGS for the reasons given under Issue 2.1 above.
  72. Issue 2.6

  73. 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:
  74. "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."
  75. 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.
  76. Issue 2.7

  77. 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):
  78. (i) BGS (a) accepts that copyright in the animations belongs to IDC pursuant to the 2001 Agreement but (b) contends that the copyright in static artworks taken from the animations (if any) belongs to BGS.

    (ii) IDC agrees with BGS's point (b) if and in so far as the static artworks were taken (by IDC) from animations, for inclusion in the printed notes, but no further.

  79. 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.
  80. Issue 2.8

  81. 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):
  82. (i) BGS contends that (a) BGS owns the copyright in 3D artworks where a "view" was taken for inclusion in BGS's ATPL materials and (b) even if this is wrong, that such copyright as may subsist in the "view" belongs to BGS.

    (ii) IDC contends that IDC owns the above copyrights, except that, save and in so far as the view in question was generated by IDC for inclusion in BGS's printed notes, IDC agrees with BGS's point (b) above.

    (iii) Questions of originality will be left to the inquiry.

    (iv) Sub-issues to be determined are

    (a) What is meant by the copyright in the "view" if different from the copyright in the 3D model?

    (b) Whether a 3D model computer file is itself a vector artwork.

    (c) Whether, if IDC had been asked to do this, a view from the 3D model computer file could have been created in vector form (as an alternative to the bitmap form which was the form that was in fact delivered to BGS).

    BGS's submissions on Issue 2.8

  83. Mr Hicks submitted as follows:
  84. (i) IDC accepts that where it has provided a 2D "view" to BGS then (subject to the various points discussed above) the copyright in the "view" belongs to BGS.

    (ii) The problem arises in relation to the 3D models from which the "view" was taken. This raises a number of sub-issues as follows:

    (a) Technically, what is a 3D model, and what is a 2D "view" from the 3D model?
    (b) Is there a difference between the copyright in a "view" and the copyright in a 3D model which incorporates the image shown in the "view"?
    (c) How do the provisions of Clause 7.1 apply to 3D models and 2D "views"?
    (d) Is a 2D view "original" (in a copyright sense) in comparison to the 3D model on which it is based?

    (iii) As to (a) the evidence is scant. BGS's position is that technically the artwork in question is a mixture of vectors (which create polygons) and polygons which go to make up the surface of the 3D structure. However the precise technical details do not matter for present purposes for the reasons explained above.

    (iv) Clause 7.1 provides for the copyright in the static artwork to belong to BGS, and the question is whether and if so in what way that can be separated from the copyright in the 3D model.

    (v) BGS contends that it is entitled to all the copyright which may subsist in the 2D view that IDC provided it with. To the extent that this copyright includes the copyright in the 3D model, such copyright belongs to BGS.

    (vi) This avoids the question raised by sub-issue (d) above. The question is not whether the 2D view is "original" in comparison with the 3D model. Insofar as the 3D model includes copyright material which is incorporated in the 2D view, that copyright material belongs to BGS.

    IDC's submissions on Issue 2.8

  85. In contrast, Mr Onslow submitted as follows:
  86. (i) The question is whether the 2001 Agreement vests copyright in a computer file of a 3D model in a case where a "bitmap" static artwork was created by IDC for inclusion in BGS's printed notes by rendering a view of a 3D model.

    (ii) This requires at the very least that BGS should prove that the 3D model is itself a vector artwork: see the language used in BGS's amended response to the request numbered 90 in the Defendants' request under CPR Part 18 dated 11 May 2012. However, there is no evidence that a 3D model is itself a vector artwork.

    (iii) Moreover Mr Whittingham was unable to contradict the point that a 3D model is polygon based rather than vector based (although he attempted to say that polygons are defined by vectors which, even if true, is beside the point). Mr Onslow referred to the following question and answer on Day 2 of the trial:

    "Q: I am told that in the 3D Studio Max File Format this comprises polygons and not vectors. What do you say to that?
    A: I would say it is unlikely. I would need to research to be able to answer that properly. My understanding is that the polygons are defined by vector descriptions where they lie from an origin in the same way that lines are circles are defined in 2D vector".

    (iv) Mr Onslow's submissions were based on the premise that, for these purposes, it is common ground that in vector based representations, the basic building block is a line, defined by a direction and magnitude; whereas in polygon based representations, the basic building block is a "face" defined by a polygon of at least three vertices and a direction of a normal.

    (v) Insofar as that was not common ground, Mr Onslow submitted that BGS should have adduced evidence to say something different.

    (vi) Further, Mr Whittingham was unable to confirm or deny whether it is possible to render a view of a 3D model in 2D vector file format, rather than the bitmap format which was supplied. Had BGS asked for a vector version of a supplied bitmap, perhaps this could have been supplied, so that BGS could have an editable product but without the whole 3D model having to be supplied, in which case supply of the 3D model was not necessary to give effect to the agreement.

    (vii) In addition, the issue of the ownership of copyright under Clause 7.1 cannot depend on the point that a bitmap rather than a vector was supplied. If a bitmap view is supplied, that is sufficient to determine that BGS owns the copyright (if any) in the view. The Defendants may be in breach of the agreement by failing to supply the artwork in vector form, but that it is another matter.

    (viii) Ownership of copyright in the 3D model would effectively confer ownership of copyright in an infinity of views, (including views on the reverse side of the object not hinted at by the artwork supplied), which were never created for or supplied to BGS, whether for inclusion in printed notes or at all.

    Discussion and ruling on Issue 2.8

  87. 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.
  88. 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.
  89. 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:
  90. (i) The first is based on the contentions that: (1) Clause 7.1 obliges IDC to bring about the result that BGS becomes the owner of the copyright in such 2D views, and (2) if and to the extent that, in order for IDC to comply with that obligation, it is necessary that BGS should become the owner of the copyright in any 3D models, then the effect of Clause 7.1 is to produce or require that result.

    (ii) The second is based on the propositions that: (1) Clause 7.1, especially when read together with Clause 3.1, sets out what IDC is obliged to do in consideration for BGS's payment obligations contained in Clause 3.1, and (2) in the present context, if IDC breaches Clause 7.1, that breach sounds in damages, not least because the outcome that BGS becomes the owner of copyright in all (or any) material 3D models produces extravagant results, in that far greater copyrights are transferred to BGS than IDC produced for BGS or for which BGS has a need.

  91. 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.
  92. 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:
  93. (i) BGS owns the copyright in 2D views of 3D models that were taken by IDC and supplied by IDC to BGS pursuant to the 2001 Agreement.

    (ii) If and to the extent that there was no separate copyright in any such 2D view, BGS did not become the owner of the copyright in the 3D model from which that view was taken, but IDC became liable to BGS for damages for breach of contract for having failed to convey ownership of copyright in the view to BGS.

    Issue 2.2

  94. This issue concerns materials known as "Air Law – CBT Module". "CBT" stands for "computer based training". It is formulated as follows:
  95. (i) BGS submits that Air Law is subject to the 2001 Agreement: (a) because it was included in the Tracker system first licensed to CTC Aviation Limited ("CTC"); and (b) as a result of it being included in ATPL Digital 5.0 onwards.

    (ii) IDC contends that: (a) Air Law was created for the CTC web based system pursuant to a separate agreement, and was subsequently delivered to BGS in multimedia form for inclusion in ATPL 5.3; and (b) the graphic works which were supplied in connection with Air Law therefore comprise works created by IDC for a third party, such that they were not "produced for inclusion" within the meaning of Clause 7.1 of the 2001 Agreement.

  96. In order to make sense of this issue it is necessary to explain more of the background:
  97. (i) First, as set out above, BGS was not IDC's only customer. IDC's other customers included CTC.

    (ii) Second, IDC carried out development and enhancements of the JAA ATPL over a number of years. A system for recording students' responses to quiz questions was added at an early stage. The computer program which gathered these student results for the pilot training schools was called the MRS Global Database ("MRS"). Later, the application was rewritten to run on the Microsoft.NET framework.

    (iii) An explanation of how MRS operated in practice and its functions, specifically in conjunction with ATPL Digital 5.3, is contained in Mr Brown's witness statement dated 3 February 2014, and includes:

    (a) Each disc supplied to a student was subject to a third-party copy protection system, which meant that within 5 days of installing it onto their PC the student had to contact IDC registering their use of the Application and requesting activation. IDC then sent an activation code to the student.
    (b) Once the Application had been correctly installed, MRS enabled software content updates to be sent to the Application as supplied to the students.

    (c) The software additionally communicated with IDC's server. As part of this process, the Application expected responses from server endpoints to be formulated in a specific manner, known as a "Message Contract".

    (d) A Message Contract, was defined by Mr Brown, was unique to this project, and in order to work had to be matched at both ends by the software held by the students and the MRS Global Database and also client software running on systems at partner schools.

    (e) MRS also received students' test results data via the Internet, stored that data on a web server, and then allowed schools to download that data to a client-facing application which allowed schools to examine the progress and performance of their students.

    (f) MRS also archived test results for purposes of backup and retrieval once those results had been downloaded by a school.

    (iv) Third, the material business model involved use of two further computer programs, namely:

    (a) Tracker, a third party web-based learning management system licensed by IDC which provides, on behalf of IDC's clients, computer based pilot training over the internet.
    (b) ATPOnline, a website with practice quiz questions which is wholly owned and operated by ATP Online Limited.
  98. The formulations in Issue 2.2 were expanded in the parties' submissions as follows.
  99. BGS's submissions on Issue 2.2

  100. BGS's case is that the following Air Law static artwork belongs to it:
  101. (i) the static artwork that was first included in CTC Tracker system;

    (ii) artwork which was moved to ATPL Digital 5.0/5.1/5.2 and any additional artwork created for those versions;

    (iii) any additional Air Law artwork included in ATPL Digital 5.3.

  102. 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:
  103. (i) Since Tracker included most of the ATPL Digital materials, it makes sense for the parties to have agreed that the 2001 Agreement should apply. Tracker was simply another delivery system for the BGS course.

    (ii) The former County Court proceedings (Claim Nos. 1QT44648, 1QT48894, and 1QT53964) refer to the Tracker invoices as supplied under the 2001 Agreement.

    (iii) The fact that the Air Law Tracker material was included in ATPL Digital 5.0 which continued to be subject to the 2001 Agreement indicates that the parties treated the materials as being subject to the 2001 Agreement.

    (iv) Invoices for Air Law photographs which were licensed from photographic libraries were invoiced by IDC to BGS (see the invoice and accompanying breakdown dated 24 April 2007). This indicates that the costs of static artworks were considered to be the responsibility of BGS, which is consistent with the terms of the 2001 Agreement applying to Air Law static artworks.

    (v) An internal email exchange dated 13 November 2007 between Mr and Mrs Cownie suggests that Tracker and the DVDs (i.e. the normal ATPL Digital courses) were treated internally by Mr and Mrs Cownie in the same way.

  104. 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.
  105. IDC's submissions on Issue 2.2

  106. In opening, Mr Onslow submitted as follows:
  107. (i) Air Law was a new learning module, created by IDC, when formatting and loading BGS's existing content into Tracker for the benefit of CTC. Air Law was subsequently incorporated into ATPL 5.3, but never into BGS's syllabus document accompanying ATPL 5.3. Therefore, it was not "produced ... for inclusion in the syllabus document" (within the meaning of Clause 7.1).

    (ii) Multimedia CBT was a separate project commenced by IDC in about 2008 with videos and animations, with no agreement that it should be treated as falling under the 2001 Agreement. It was demonstrated to BGS in 2009. It only reached the stage of comprising two modules before the parties separated, namely Air Law and Mass and Balance. Both modules were incorporated in ATPL 5.3, but the graphic works therein were never included in BGS's syllabus document.

  108. Mr Onslow expanded those submissions in closing as follows:
  109. (i) There were three versions of Air Law: (a) the ICAO syllabus, (b) Air Law for CTC, and (c) Air Law for APTL 5.3 (a multimedia version). The static artworks and animations in Air Law for CTC also appear in Air Law for ATPL 5.3, but the latter adds further static artworks, animations and videos.

    (ii) Not only were the static artworks in Air Law created for a third party, namely CTC, but also in cross-examination Mr Whittingham retreated from any suggestion that the CTC project was itself governed by the 2001 Agreement.

    (iii) Neither in the case of Air Law for CTC nor in the case of Air Law for ATPL 5.3 were the static images provided for inclusion in printed notes: BGS's printed notes remained the ICAO syllabus.

    (iv) Any apparent acceptance by Mr Cownie in his oral evidence that he thought at the time that BGS owned the copyright in Air Law is misleading. The correct situation is apparent from Mr Cownie's second reply email to Mr Whittingham dated 9 July 2009, which records Mr Cownie's position as being "You have no ownership of content created and financed by IDC. This includes multimedia Air Law of which nothing significant remains of the original".

    Partial ruling on Issue 2.2

  110. 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.
  111. Further submissions of BGS

  112. However, Mr Hicks submitted that the following facts did not appear to be in dispute:
  113. (i) There were 3 versions of Air Law:

    (a) the first was used up to 2006;
    (b) the second was used from 2006 until 2009; and

    (c) the third was used from November 2009, was included in ATPL Digital 5.3, and included additional videos and extra images.

    (ii) These versions involved deployment of the following materials:

    (a) The first version was included in ATPL Digital up until 2007 (up to and including version 3.0).
    (b) The second version was included in the Tracker system, from about 2006.

    (c) The Air Law material which was included in the Tracker system was then included in ATPL Digital 5.0 (published in March/April 2007).

    (d) ATPL Digital 5.3 included Air Law material with enriched multimedia content (i.e. more videos and animations). The version which did not include video was included in the ATPL Digital 5.3 reference book.

    (e) BGS worked on updating its printed notes to bring them into line with the electronic material.

    (iii) In about 2005 CTC required the ATPL Digital material presented in a different way. In response to this, it was agreed to use the Tracker CTB system to deliver the APTL Digital content to CTC. However, the Air Law content for CTC required new material.

    (iv) The ATPL Digital material (and the Air Law material) presented using the Tracker system was sold solely by BGS, and this included sales to customers other than CTC.

    (v) IDC rendered invoices to BGS for Tracker (which included Air Law) at £200 per unit, for example on 2 August 2006 and on 14 May 2009.

  114. Mr Hicks made further submissions on the history of the multimedia upgrade. They included the following:
  115. (i) In this context, "multimedia" is used to denote the presentation of information in a variety of "media" which will change as technology evolves. Early versions of the electronic materials were known as the "JAA Multimedia Revision Aid", and Clause 7 contemplates animations and sound as well as text and graphics.

    (ii) In summary, the idea was to include many more animations and videos. This was (a) attractive because competitors were producing material which had more multimedia content than BGS's product and (b) of benefit to both IDC and BGS.

    (iii) The dispute before Master Marsh concerned the question of whether Mr Whittingham (a) had made a promise to merge BGS and IDC (which was Mr Cownie's case) or (b) had agreed that if the companies were sold, the proceeds of sale would be divided (which was Mr Whittingham's case). At [45] of his judgment Master Marsh held: "I prefer the evidence of Mr Whittingham on the subject of merger … BGS was, and remained, the major partner with IDC playing a supporting role, albeit an important one".

    (iv) In line with that evidence, Mr Whittingham's evidence in [68] of his 8th witness statement (for the trial before me) was that he agreed that the Cownies should have an increased share in the event of a sale, on the basis set out in Mr Cownie's email dated 11 September 2009: "I had always felt morally bound to create the ATPL(A) multimedia material in return for the original ask of 35% because that was how I originally justified to you the increase in our share from 25%".

    (v) By email to Mr Whittingham dated 15 June 2009, Mr Cownie stated "ATPL Digital 5.3, containing Air Law is almost ready for release … I think Jill [Cownie] and Graham [Cartmell] plan to release it at the end of the week or early next week".

    (vi) The fact that this release included the new multimedia Air Law section appears from a document entitled ATPL Digital Development Path which refers to "Addition of multimedia Air Law" against the entry "Mid June 2009".

    (vii) On 17 June 2009, Mrs Cownie, together with Mr Cartmell, visited Mr Whittingham at BGS's premises and sought to negotiate an increase in the licence fee from £200 to £300 "to compensate for what she anticipated would be falling sales and to allow IDC to fund the enhancement of the multimedia aspects of the course" (see Mr Whittingham's 8th witness statement at [112]).

    (viii) By email to Mr Whittingham dated 20 June 2009, Mr Cownie stated "I've stopped work on multimedia content and switched to other projects until we resolve the issues surrounding it".

    (ix) Following this the relationship between the parties broke down. Negotiations continued over the summer of 2009 but did not result in a concluded agreement despite the involvement of Mr Rod Wren and Ms Gill Clarke. Heads of Terms were drawn up, but by email to Mr Wren dated 5 November 2009 Mr Cownie wrote "My lawyer has advised me not to sign anything until he's looked it over". In the result, terms were not agreed and negotiations continued.

    (x) By email to Mr Whittingham dated 11 November 2009, Mrs Cownie referred to the continuing negotiations concerning the Heads of Terms and continued "In the meantime, we have an entirely separate problem to address – the damage being done to the business by not releasing 5.3. My suggestion now is to release 5.3 ASAP accepting that this action will not prejudice any discussion we are currently having on the format of the [Heads of Terms]". By email in reply, Mr Whittingham wrote "I would agree". Following this, ATPL Digital 5.3 including the new "Air Law" and "Mass and Balance" materials was promptly released.

    (xi) By invoices dated 16-26 November 2009, IDC invoiced for supplies of ATPL Digital 5.3. By email to BGS dated 23 November 2009, sent from the email address support@bristol.gs, Mr Cownie provided support in relation to ATPL Digital 5.3, advising caution when introducing it to students but adding "Of course the big advantage is that students will see Air Law in the new format and that will benefit them".

    (xii) On 26 November 2009, IDC's solicitors ("Rickerbys") wrote to Mr Whittingham stating that the Heads of Terms were "disproportionately drafted in your favour". The letter also referred to another matter that was by this time in issue between the parties. Mr Whittingham had supplied a copy of the ATPL Digital 5.3 DVD to a third party, on his evidence for the purpose of considering it in the context of redesigning BGS's website and rebranding BGS's products (see Mr Whittingham's 8th witness statement at [138]). Rickerbys complained about this, referring to the DVD in question as "the DVD our client has produced for you in accordance with the agreement reached in 2001".

    (xiii) By email to Mr Whittingham dated 27 November 2009, however, Mrs Cownie wrote with regard to "the new multimedia system incorporated, for the moment, in ATPL Digital 5.3" that "I must make clear that this new product is to be considered a sample only, and is provided outside of our written agreement dated January 2001. Under no circumstances should the provision of this material be construed as establishing any form of contract between us or any course of trading".

    (xiv) On 4 December 2009, Rickerbys wrote to BGS's solicitors ("Meade King") complaining (in respect of Mr Whittingham's provision of the DVD to a third party) of a breach of Clause 8.2 of the 2001 Agreement, and of a potential breach of Clause 6.2 of the 2001 Agreement. Moreover, on 18 December 2009, Rickerbys again wrote to Meade King, complaining of a breach of Clause 3.3 on the basis that BGS had failed to supply text. In cross-examination, Mr Cownie confirmed that this related to text for the NPA25 update.

  116. 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:
  117. (i) By 2008 it had become apparent that a new syllabus for the ATPL exams was to be introduced, probably by 2011 by the UK CAA in parallel with the existing syllabus. The "old syllabus" exams were to be withdrawn in April 2012. Ideally, new syllabus materials would be available by April 2010.

    (ii) In addition, it had previously been possible to train for helicopters using mainly fixed wing materials. However, it was essential that the new course was provided with helicopter specific materials.

    Discussion and ruling on Issue 2.2

  118. 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.
  119. 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.
  120. 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.
  121. 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.
  122. 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.
  123. For these reasons, I decide Issue 2.2 in favour of BGS.
  124. Issue 2.3

  125. 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".
  126. The issue concerning "Helicopters Principles of Flight", which I will refer to as Issue 2.3.1, is formulated as follows:
  127. (i) BGS's case is that "Helicopter Principles of Flight" is subject to the 2001 Agreement as modified by the special arrangement mentioned in [124] of BGS's response to IDC's request under CPR Part 18. That arrangement is, in sum, that in accordance with an agreement made orally between Mr Whittingham for BGS and Mr Cownie for IDC in or about 2007 (a) Mr Cownie for IDC would produce a final version of a volume which had been under production since about 2004, and which the parties had agreed would be covered by the 2001 Agreement; (b) copyright in this volume would be shared between BGS and IDC; (c) BGS would have the right to distribute the volume in electronic form and as part of the ATPL course for no additional fee; (d) IDC would produce and distribute the volume as a retail book; and (e) the revenue would be split equally between BGS and IDC.

    (ii) IDC's case is that this book is covered by a separate agreement to divide profits 50/50. IDC contends that the graphic works in the book were never provided to BGS for inclusion in printed notes accompanying ATPL 5.3.

  128. The issue concerning "Helicopter Mass and Balance" and "Helicopter Performance", which I will refer to as Issue 2.3.2, is formulated as follows:
  129. (i) BGS's case is that these works are covered by the 2001 Agreement.

    (ii) IDC's case is that (a) no agreement was reached as to whether these works would be so covered (b) ATPL(H) materials were never delivered at all to BGS, only pdf proofs thereof (c) all helicopter materials were only included in BGS's printed notes unilaterally by BGS after the split between the parties.

  130. The background to all three items is the introduction of the new ATPL(H) syllabus mentioned in paragraph 72 above.
  131. Discussion of Issue 2.3.1

  132. 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.
  133. 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.
  134. 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.
  135. 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.
  136. 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.
  137. 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)".
  138. 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.
  139. 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.
  140. Furthermore, in my judgment, many of the documents to which I was referred by Mr Hicks are equally consistent with both versions of events.
  141. However, I consider that the following documents do lend support to BGS's case:
  142. (i) By invoice dated 29 October 2009, IDC passed on to BGS the costs of photographs for use in helicopter materials, which had been billed to IDC by third party invoices numbered 2919, 2921 and 2944 dated 11, 16 and 30 September 2009. IDC's invoice addressed to BGS bears the wording "Supplied under licence and/or in accordance with our agreement of 19 Jan 2001".

    (ii) In an email to Mrs Cownie dated 22 December 2009 sent at 11.19, copied to Mr Cownie, Mr Whittingham gave the following explanation as to why BGS had not paid the amount of these invoices: "Invoices 2919, 2921 & 2944 appear to be for images of helicopters. You will recall that you have prevented me from accessing the Helicopters Principles of Flight subject and all associated artwork in breach of our 2001 Agreement". A few minutes earlier on 22 December 2009, at 11.13, Mr Whittingham sent an email to Mr and Mrs Cownie stating: "I have an order for an amount of ATPL material that requires the text of Helicopter Mass & Balance, Performance and Principles of Flight to be supplied with the ATPL(H) interim DVD and a further enquiry from a different customer for the same product. You will recall that you are withholding from me, in breach of our 2001 agreement the text and images relating to Principles of Flight for Helicopters. Whether by accident or design you have also restricted my access to the images for Helicopter Mass & Balance and Performance". I consider that it is unlikely that Mr Whittingham would have written in these terms unless he genuinely believed that "Helicopters Principles of Flight" was subject to the 2001 Agreement. Moreover, as Mr Whittingham is an intelligent man, and was vigilant to protect BGS's interests at all times, I consider that it is unlikely that he would have formed any such belief without good reason. On my reading of this email, however, Mr Whittingham's complaint about the other helicopter materials is different: it is that access to them is being denied, but not in breach of the 2001 Agreement.

    (iii) Moreover, there was no direct rebuttal of that assertion from either Mr or Mrs Cownie, as might have been expected if the assertion lacked foundation. The email in reply to Mr Whittingham's email sent at 11.19, sent by Mrs Cownie at 13.52 on the same day, stated: "2919, 2921 do relate to helicopter images found in the helicopter principles of flight material Graham has written. As you should be aware our lawyers are in the process of arranging mediation to resolve the future use of this material". The email in reply to Mr Whittingham's email sent at 11.13, sent by Mrs Cownie at 14.20 on the same day, stated that PDF proofs of "Helicopter Mass and Balance" (dated 27 October 2009) and "Helicopter Performance" (dated 11 November 2009) had been sent on those days to BGS, but did not rebut his assertions about "Helicopter Principles of Flight".

    (iv) The background to Mr Whittingham's emails of 22 December 2009 is that prior to 7 December 2009 Helicopter Principles of Flight files had been visible to BGS on IDC's computers. By email to Mr Cownie dated 7 December 2009, however, Mr Whittingham wrote: "Since you redefined the access permissions on your network I can no longer see the Helicopter P of F files you referred to below. Could you make them available again, please?" By email dated 8 December 2009, Mr Cownie replied "Sorry, but I can't do that just yet. Jill and I need to see the outcome of the mediation before we take any decision on future co-operation with Bristol Groundschool". Again, although I consider that this point is very marginal, both the fact that BGS had previously had access to these files and the language of Mr Cownie's response seem to me to be more consistent with BGS's case than with IDC's case that the only agreement between the parties relating to "Helicopter Principles of Flight" was a separate agreement to share revenue or profits 50/50 in respect of a stand-alone book: the language contains no hint that this was a discrete project (but it may be said there was no need for it to do so).

  143. In an email sent to Mr Cownie on or about 11 September 2009, Mr Whittingham stated:
  144. "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".

  145. Mr Cownie's email in reply dated 11 September 2009 stated:
  146. "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".

  147. Both sides relied on the contents of this exchange.
  148. 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.
  149. 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.
  150. Mr Onslow made the following further points:
  151. (i) All that Mr Whittingham pointed to in support of the proposition that the parties agreed that "Helicopter Principles of Flight" was to be treated as made pursuant to the 2001 Agreement was (a) that it was a standard ATPL subject and was treated in just the same way as all the other ATPL subjects up to 2008 and (b) Mr Cownie's references in his emails to a BGS version and an electronic version.

    (ii) "Helicopter Principles of Flight" was never incorporated into ATPL5.3, let alone BGS's printed notes accompanying ATPL5.3.

    (iii) The only contractual discussions settled on a 50/50 split, which is not a charging scheme consistent with the 2001 Agreement.

    Ruling on Issue 2.3.1

  152. 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.
  153. 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.
  154. If necessary, I would put into the scales the points mentioned in paragraph 89 above.
  155. 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.
  156. 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.
  157. For these reasons, I decide Issue 2.3.1, concerning the "Helicopters Principles of Flight" static artworks, in favour of BGS.
  158. Issue 2.3.2

  159. I therefore turn to the issue concerning "Helicopter Mass and Balance" and "Helicopter Performance", which I have numbered Issue 2.3.2.
  160. BGS's submissions on Issue 2.3.2

  161. Mr Hicks's submissions on this topic may be summarised as follows:
  162. (i) As Mr Cownie accepted in cross-examination, these works were created in the usual way between IDC and BGS with IDC providing images and BGS providing text.

    (ii) The proofs were made available to BGS, but were then withdrawn.

    (iii) IDC's refusal to progress further can be seen from the following documents: (a) the emails of 22 December 2009, which are referred to above; (b) Mr Cownie's email to Mr Whittingham of 18 January 2010 on the subject of "Withdrawal of Services", in which Mr Cownie lamented the lack of progress in reaching a negotiated settlement and continued "Accordingly, I have instructed all our staff not to provide you with any new service over and above those we are required to provide in accordance with the written agreement. This includes the production or modification of artwork"; and (c) Mr Cownie's email to Mr Whittingham of 25 January 2010 in which he wrote "If you wish to use any artwork created or enhanced after March 2004 you will first have to agree terms with us".

    (iv) The provisions of Clause 7.1 of the 2001 Agreement apply, because: (a) IDC produced and provided the relevant static artwork to BGS, knowing that BGS wished to include it in its teaching materials; and (b) the mere fact that IDC subsequently refused to progress the project, and sought to withdraw permission to use the static artworks does not provide an answer to IDC.

    IDC's submissions on Issue 2.3.2

  163. 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.
  164. Discussion and ruling on Issue 2.3.2

  165. 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.
  166. 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:
  167. "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".
  168. 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.
  169. 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:
  170. "[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".

  171. For these reasons, I decide Issue 2.3.2, concerning "Helicopter Mass and Balance" and "Helicopter Performance", in favour of IDC.
  172. Issue 2.4

  173. This issue concerns static artworks relating to fixed wing "Mass and Balance", and is formulated as follows:
  174. (i) It is IDC's case that "Mass and Balance" (a) was provided for demonstration purposes only and (b) (like Air Law) is multimedia content (i.e. including videos and animations), and was not content for inclusion in printed notes, was not capable of being included in printed notes, and was not in fact included in printed notes, and hence is not covered by the 2001 Agreement.

    (ii) It is BGS's case that these "Mass and Balance" materials (a) were not provided for demonstration purposes only and (b) are covered by the 2001 Agreement.

  175. 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.
  176. BSG's submissions on Issue 2.4

  177. As to the remainder of what is in contention under Issue 2.4, Mr Hicks submitted as follows:
  178. (i) The relevant "Mass and Balance" materials were included in ATPL Digital 5.3 which was published in November 2009.

    (ii) Within a few weeks, substantial sales of ATPL Digital 5.3 materials were made.

    (iii) On 26 November 2009, Rickerbys wrote to Mr Whittingham saying that the DVDs supplied in November were supplied under the 2001 Agreement.

    (iv) On 27 November 2009, Mrs Cownie on behalf of IDC sent the email that is referred to in paragraph 71(xiii) above.

    (v) Thereafter, IDC invoiced for ATPL Digital 5.3 by invoices which are the subject of the former County Court proceedings, which state "Supplied under licence and/or in accordance with our agreement of 19 Jan 2001".

    (vi) Moreover, the claim forms in each of those former County Court proceedings state "All invoices relate to goods provided to Bristol Groundschool under terms of our written agreement dated 19 Jan 2001".

    (vii) In these circumstances, the provisions of Clause 7.1 of the 2001 Agreement apply.

    (viii) IDC cannot retrospectively seek to avoid the provisions of Clause 7.1.

    IDC's submissions on Issue 2.4

  179. Mr Onslow submitted that:
  180. (i) There were two versions of "Mass and Balance": (a) the "flat" version in JAAL and (b) the "multimedia" version in ATPL5.3.

    (ii) The multimedia version included new static works created for the multimedia module, not for inclusion in the printed notes.

    (iii) That version was provided for demonstration purposes only, as set out in Mrs Cownie's email dated 27 November 2009.

    (iv) Although IDC supplied "Mass and Balance" to BGS, this was only because, as Mr Cownie explained in cross-examination, after Mr Whittingham had been "touting [ATPL 5.3] around, without our knowledge" then "it was clear to us that to not then publish it would be extremely damaging to the businesses" and "once the genie was out of the bottle there was really no option but to release it" because "there was no time to take [the Air Law and Mass and Balance subjects] out again. It would not make any sense because, as I understand it, Mr Whittingham was showing [customers] the multimedia system".

    Discussion and ruling on Issue 2.4

  181. 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.
  182. 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.
  183. Issue 4

  184. 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.
  185. The law concerning Issue 4

  186. 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:
  187. "[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."".

    Discussion and ruling on Issue 4

  188. 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".
  189. My reasons for reaching this conclusion are as follows.
  190. 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".
  191. 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.
  192. 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:
  193. "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 …"
  194. 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.
  195. 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.
  196. In reaching this conclusion, I have had full regard to Mr Onslow's submissions to the following effect:
  197. (i) The primary acts of infringement complained of were carried out by PadPilot and Slate-Ed. The infringing works were supplied to PadPilot and Slate-Ed by IDC, knowing they were to be used in the PadPilot product. It is for that reason that the Defendants have conceded that IDC is liable as a joint tortfeasor at common law.

    (ii) Mr and Mrs Cownie were directors of IDC and were co-directors, with Ms Suren, of PadPilot and Slate-Ed. All three were fully involved in the business, and the cross-examination of Ms Suren showed that she was far from being a mere puppet of the Cownies' personal ambitions. Ms Suren chose diagrams and asked Mr Cownie if she could use them. Apart from that, her evidence was that decisions were taken by majority vote.

    (iii) It was relevant that all these directors were before the Court: see Geolabs Limited v Geo Laboratories Testing [2012] EWPCC 45.

    (iv) It was also relevant that all the Defendants' side believed that they were instructing the companies to do the right thing so far as concerns infringements, even if they turned out to be wrong, and hence their consciences are not bound by wrongdoing: see B Sky B v Digital Satellite [2012] EWHC 2642 per Sir William Blackburne at [42].

    (v) Since the case is advanced against two out of three directors, there is already an element of collective, rather than personal, decision making. It would be wrong to describe Mr and Mrs Cownie as having a joint concerted intention to infringe merely because they are husband and wife, have discussed the matter and decided to proceed with the scheme. They are co-directors who have discussed the matter and decided to proceed with the scheme.

    (vi) BGS's case was really be no more than that Mr Cownie was the genesis of the PadPilot, and no further or better case was put to Mr Cownie.

  198. 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.
  199. Issues 5.1-5.4

  200. 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.
  201. Issue 5.2

  202. Issue 5.2 is as follows:
  203. (i) BGS's case is that in breach of Clause 10 of the 2001 Agreement, from about mid-April 2011 IDC failed to provide technical support to students to whom BGS had supplied ATPL Digital: see paragraphs 35(17) and 44 of the Particulars of Claim and Mr Whittingham's 8th witness statement at paragraphs 199-222.

    (ii) IDC admits that activation codes were refused where BGS had not paid IDC pursuant to the relevant invoice, but contends that (a) otherwise activation codes were given and (b) technical support was also given after mid-April 2011.

    BGS's submissions on Issue 5.2

  204. With regard to Issue 5.2, Mr Hicks made submissions to the following effect:
  205. (i) Clause 10.1 of the 2001 Agreement requires IDC to provide technical support by e-mail to students.

    (ii) Clause 10.2 makes it clear that technical support includes activation of "associated security software".

    (iii) By letter dated 20 April 2011 Mrs Cownie on behalf of IDC wrote to BGS complaining about non-payment of invoices and stating "please be aware that no product activations will be given for unpaid courses and no further DVDs will be provided until this matter is resolved. Furthermore, unless I receive immediate assurances from you that the matter is to be resolved within the deadline, all unpaid for Tracker accounts will be deactivated and the relevant schools and students informed of the reason".

    (iv) According to Mr Whittingham, on 21 April 2011 Mrs Cownie left an answerphone message saying "no payment – no technical support".

    (v) By email to Nikolaos Sogias sent on 21 April 2011, IDC notified him that it would not be activating the software used by him on the grounds that "[BGS] have not settled the overdue invoice for your DVD".

    (vi) In fact, the relevant invoice from BGS to IDC was dated 30 March 2011, and it was not overdue on 21 April 2011.

    (vii) Although on 27 April 2011 an activation code was provided to Mr Sogias by BGS for module 1, on 28 April 2011, in response to his request for assistance to enable to access module 2, IDC sent an email to Mr Sogias stating "unfortunately we are only able to activate Module 1 for you due to contractual issues with the supplier of discs to your school".

    (viii) The failure to activate and provide email technical support in this regard is a clear breach. The incident of Mr Sogias is one illustration of breach. The extent and nature of similar breaches is a matter for the inquiry.

    IDC's submissions on Issue 5.2

  206. Mr Onslow submitted that:
  207. (i) Clause 10.1 of the 2001 Agreement gives rise to an implied obligation on the part of IDC to issue an authorisation key (to enable a student to utilise materials) once BGS had paid IDC for that copy.

    (ii) However, that obligation ceased to apply as soon as BGS had its own copy protection available.

    (iii) In relation to distribution to other schools, BGS bought copies on a sale or return basis (Clause 5.3) and paid monthly in arrears (Clause 8.2).

    (iv) In the case of a copy supplied to BGS, in the period after supply but before payment is due, IDC was under an obligation to issue an authorisation key and then, if IDC was not paid after the end of the month, to sue for the money.

    (v) A copy supplied to BGS in the period after payment is due is in effect a "return". If BGS distributes it to a student, IDC does not have to issue an authorisation key.

    (vi) Whatever IDC's obligations to authorise a copy after the month end, no such obligation survived where, as happened, BGS simply refused to pay any further invoices.

    (vii) In the case of Mr Sogias (a) IDC initially refused to authorise Mr Sogias during the period before the end of the month, (b) as soon as the error was discovered, the authorisation key was issued for module 1, and (c) the failure to issue an authorisation key for subsequent modules was not a breach of any term.

    Discussion and ruling on Issue 5.2

  208. 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.
  209. I agree with Mr Hicks that the existence and extent of similar breaches (if any) is a matter for the inquiry.
  210. 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.
  211. Issue 5.3

  212. Issue 5.3 is whether there were implied terms as set out in paragraph 35(18) of the Particulars of Claim:
  213. (i) as to incorporation of material reasonably required by BGS;

    (ii) that IDC would not do any act which would damage, obstruct, hinder and so forth the business of BGS in providing distance learning courses; and

    (iii) that the commercial relationship between BGS and IDC was only terminable on reasonable notice which was, in the circumstances, 12 months (during which time Clause 6.3 of the 2001 Agreement continued to apply).

  214. 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.
  215. BGS's submissions concerning the first two terms alleged in Issue 5.3

  216. 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]:
  217. "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.""

  218. In support of the implication of the first two terms, Mr Hicks submitted:
  219. (i) In order to make sense of Clause 3.1 and the provision as to marketing in Clause 6, it is necessary to imply a term that if BGS so requested, IDC would incorporate material BGS reasonably required into the digital materials.

    (ii) The evidence showed that the course syllabus developed, and competitive threats developed. If the electronic course material was to remain useful, it would need to be the subject of continuous development and enhancement.

    (iii) Clause 6.3 requires both parties to promote the product. It must be implicit from this and the agreement as a whole that IDC would not do anything to damage, obstruct, frustrate, hamper, hinder, interfere with or undermine BGC's business of providing distance learning courses.

    IDC's submissions concerning the first two terms alleged in Issue 5.3

  220. Mr Onslow submitted that:
  221. (i) No obligation to incorporate material reasonably required by BGS could or should be implied into the 2001 Agreement, because IDC's obligations in respect of continuing development and enhancement of the application were dealt with by Clause 11.1. Mr Onslow did not refer to any authority in support of his submissions under this heading, but he may have had in mind "certain additional principles of interpretation, not addressed in the recent spate of authorities" which were rehearsed by Briggs J in Jackson v Dear [2012] EWHC 2060 at [43]:

    "The first was that an implied term will not be identified if it conflicts with an express term. No authority is needed for that. The second is that a contract will not have terms implied in relation to an area covered by express terms: see Aspdin v Austin (1844) 114 ER 1402 per Lord Denman at 1407 and Broome & anr v Pardess Co-operative Society of Orange Growers (Est 1900) Ltd [1940] 1 All ER 603 per Mackinnon LJ at 612 C–D. Again, there is nothing controversial about that."

    (ii) In any event, the 2001 Agreement did not contemplate the MRS system, so no implication could arise with regard to that.

    (iii) The term which comes closest to what BGS is alleging is probably Clause 6.3, which says that both parties will market the Application to the best of their abilities.

    (iv) As matters transpired: (a) minor updates to existing artworks were supplied by IDC, possibly pursuant to Clause 11.1, which was extended for this purpose and (b) IDC also supplied major updates as well as two modules of multimedia, but these were simply outside any express obligation, not least because the parties would not recognise themselves as committed to such major contributions to the application without some adjustment to the pricing structure.

    (v) When the 2001 Agreement was extended to a version using MRS: (a) this was not a service that IDC was obliged to provide, (b) nevertheless, IDC was distributing copies of ATPL5.3 which were capable of talking to the Global MRS, such that interference in the form of doing something to the ATPL5.3 itself to interfere in its communications with the Global MRS would be either a breach of an implied term or give rise to a breach of Clause 6.3, but (c) in any event, any implied obligations on the part of IDC to maintain the MRS terminated as soon as BGS had the ability to switch customers over to BGS's own MRS.

    Discussion and ruling on the first two terms alleged in Issue 5.3

  222. 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.
  223. 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.
  224. 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.
  225. 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.
  226. 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.
  227. BGS's submissions on the appropriate period of notice

  228. So far as concerns the law, Mr Hicks relied upon:
  229. (i) Chitty on Contracts (31st edn), Vol 1, paragraph 13-029. This is headed "Implied term as to duration of contract" and includes the statement that "the question is … one of construction … in the wider sense of all the admissible evidence and in the light of what the parties have said or omitted to say in the agreement, what the common intention of the parties was in the relevant respect when they entered into the agreement". The passage then gives examples of cases in which contracts were held to be determinable on reasonable notice. In my judgment, however, those cases are not germane in the present case, where the issue is not whether the 2001 Agreement was terminable upon reasonable notice, but what period of notice was reasonable.

    (ii) Martin-Baker Aircraft Co. Ltd v Canadian Flight Equipment Ltd [1955] 2 Q.B. 556, McNair J at 581:

    "I should observe that, although it was challenged at one time, I have formed the view that the question of length of notice has to be determined having regard to the facts as existing at the time when the notice is given, and is not to be determined at the time when the contract is made.  Applying the best judgment I can on the rather scanty evidence before me, I would say that this contract is determinable on 12 months' notice given at any time."

    (iii) Concourse Initiatives Ltd v Maiden Outdoor Advertising Ltd [2005] EWHC 2995 (Comm), at [187] (which lists the considerations for the finding of Richard Siberry QC sitting as a deputy high court judge that 6 months was reasonable in that case).

  230. 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.
  231. 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:
  232. (i) The 2001 Agreement was for a minimum 5 year term (Clause 12). This is to be read as providing for the agreement to subsist for a minimum of 5 years, terminable on reasonable notice thereafter.

    (ii) The fact that it seems to have taken both IDC and BGS a little over 1 year to develop certain new materials (from about January/February 2010 until about April/May 2011).

    (iii) The time scales referred to in the document entitled "ATPL Digital Development Path" (which was produced by IDC in or about June 2009).

    (iv) The time that it appears to have taken to develop materials such as "Helicopters Principles of Flight".

    IDC's submissions on the appropriate period of notice

  233. Mr Onslow submitted as follows:
  234. (i) The initial term of 5 years was intended to guarantee recoupment for IDC.

    (ii) Other relevant features of the 2001 Agreement are that (a) it committed IDC to carrying out minor update work during the first year, but required only a pure sales role to be performed thereafter and (b) it required joint marketing of the product but did not restrain development of a competing product.

    (iii) The period of notice contemplated by the parties (a) must clearly have been long enough to give BGS time to satisfy existing orders for the product from flying schools but (b) was not the period required to develop a competing application, since this could done (and was done) in preparation for termination at the 5 year point and (c) was also not the period needed to enable BGS to build a substitute MRS to keep the product running, since MRS was not in contemplation at the time when the 2001 Agreement was made.

    (iv) Once the 2001 Agreement was extended to cover a product which relied on MRS: (a) while the product could be used with or without the MRS, it nevertheless promised that it could be used with MRS, (b) flying schools contracted separately for the provision of the MRS service, on behalf of their students (and there was no collateral agreement between BGS and IDC which guaranteed this service), (c) there was no implied term that IDC would provide such a service, or guarantee the provision of such service, and (d) there was a contract of sale of a software product between BGS and the flying school.

    (v) Once the 2001 Agreement was extended to cover a product which relied on MRS, the period of notice contemplated by the parties (a) was not a period sufficient for BGS to develop a substitute MRS, since MRS was outside the scope of the agreement, and therefore (b) resulted in no change from the previous position (i.e. all that was needed was a sufficient time to satisfy orders and (c) accordingly, was a period of 3-6 months, and not 12 months as argued by BGS.

  235. 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.
  236. Discussion and ruling on the appropriate period of notice

  237. 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.
  238. Longmore LJ, giving the lead judgment with which the other members of the court agreed, said:
  239. "[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."

  240. 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.
  241. In my judgment, the relevant considerations in the present case include the following:
  242. (i) What is material is not the state of affairs that prevailed at the time when the 2001 Agreement was made but that which prevailed at the time when notice was given. I accordingly reject Mr Onslow's submissions that the utilisation of MRS should be left out of account, and his submission based on what could have been done in preparation for termination at the end of the initial 5 year term. Once the agreement continued beyond that initial term, it had no fixed termination date. What is relevant for present purposes is the period appropriate to cater for the interests of both parties in light of the products they were continuing to work on and the fact that they had not agreed any fixed date of termination after 2006.

    (ii) From BGS's point of view, upon termination it needed to find an alternative supplier of the works and services provided by IDC, or to gear up to perform those functions itself. The greater the transfer of copyrights from IDC to BGS under the 2001 Agreement, the less time and effort this could be expected to take. However, the time would be considerable, as is shown by the time it took BGS to develop ATPL 6.0. It follows from what is said in (i) above that, in my view, the relevant "sourcing" or "gearing up" would include finding alternatives for (a) the contents of all the materials that were being supplied by BGS pursuant to the 2001 Agreement at the time when notice of termination was given and in respect of which BGS did not own the intellectual property rights and (b) all the means of delivery of those materials that were being used at the time notice was given. In the alternative, if and to the extent that BGS might not carry on with its operations in the event of termination, point (iii) below also applies to BGS.

    (iii) From IDC's point of view, it needed to have sufficient time to recoup its investment, which was not front-loaded to the beginning of the initial term, but, on the contrary, was taking place in waves or cycles of many months' duration. In addition, at least to some extent point (ii) above applies to IDC: once notice was given, IDC would need time to get ready to operate without BGS, as indeed is reflected in the contemporary documents when IDC was planning to do just that.

    (iv) Although there was no clause prohibiting competition, the tenor of the 2001 Agreement was, at least in part, akin to a joint venture agreement (as Mr Onslow submitted in another context), and the parties were obliged to market the Application to the best of their abilities. The scope for being engaged in marketing a competing product therefore seems to me to have been limited.

    (v) The 2001 Agreement constituted a major part of both parties' turnover.

    (vi) There was no particular difficulty about the parties continuing to work together after notice of termination was given, and in any event to the extent that this factor arises I consider that it has to be weighed against points (i)-(v) above. On the other hand, 12 months is a long time to tie people together once they have decided to go their separate ways, and the problem about reaping reward from expenditure was, in a sense, ongoing, because for each period of continuation there might well be further expenses to be incurred as well as further rewards to be gained, and work could not necessarily stop just because notice was given.

  243. 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.
  244. Issue 5.4

  245. 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:
  246. (i) By failing to include new material as requested: see paragraph 45(1) of the Particulars of Claim and Mr Whittingham's 8th witness statement at paragraph 143 onwards. Among other things, BGS relies on the email from IDC to BGS of 18 January 2010 that is referred to in paragraph 106(iii) above.

    IDC contends that (i) the email of 18 January 2010 was a refusal to supply further multimedia material for eventual inclusion in APTL 5.3 (on the grounds that such work was not covered by the 2001 agreement), but was not a refusal to supply static artworks for inclusion in the printed notes accompanying ATPL 5.3 (which was covered by the 2001 agreement) and (ii) the agreement was not terminated for repudiatory breach by BGS at that point, but continued.

    (ii) By switching off the Global MRS Server on 2 May 2011: see paragraph 45(3) of the Particulars of Claim and Mr Whittingham's 8th witness statement at paragraph 225 onwards.

    IDC says that by the time this was done, BGS had its alternative Global MRS online, so there was no breach.

    (iii) By sending BGS its draft Defence on 25 March 2011, purporting to revoke BGS's licence to distribute the software. See also Mr Whittingham's 8th witness statement at paragraph 188 onwards.

    IDC's case is that these were draft documents setting out what would happen if the contract was terminated and proceedings were brought.

    BGS's submissions on Issue 5.4

  247. Mr Hicks' submissions concerning these alleged breaches were as follows:
  248. (i) By the email dated 18 January 2010, IDC indicated that it would not provide new services over and above those required by the 2001 Agreement. While a few changes to drawings were made, it is not clear exactly what these consisted of, and it seems that these must have consisted of modifications to existing courses, rather than the production of any new materials.

    (ii) It is clear that IDC was refusing to include any significantly new materials in accordance with what had earlier been planned. Mr Hicks referred to a document entitled "ATPL Digital Development Path" which contained entries such as "Version 5.3 – Major changes to interface; Addition of multimedia Air Law – Mid June 2009; Version 5.3.1 – Addition of multimedia Mass and Balance – Late June 2009; Version 5.3.2 – Addition of multimedia Comms – Late Jul[y] or early August 2009". He also referred to an email from Mr Cownie to Mr Whittingham dated 15 June 2009 which dealt with progress and target release dates for "ATPL Digital 5.3", "Mass and Balance", and "Comms". Mr Hicks submitted that (a) these materials included "Comms" and "Helicopter" materials, which were required for the new syllabus and (b) the origins of IDC's stance stemmed from the falling out over share ownership from July 2009 onwards, as evidenced, for example, by the email of 20 July 2009 (referred to in paragraph 71(viii) above).

    (iii) So far as concerns obstruction, IDC switched off the Global MRS Server on 2 May 2011 when it had no justification for so doing. On 24 April 2011 IDC passed responsibility for issues regarding Perth University to BGS. Mrs Cownie jumped to a wrong conclusion when she viewed the BGS computer, namely that BGS was seeking to reverse engineer the MRS application. Mr Hicks relied on answers given by Mr Whittingham in cross-examination. That cross-examination continued as follows:

    "Q: When in response to what she believed was an attempt by you to reverse engineer the MRS code, she switched the global MRS database off, your substitute MRS database was immediately able to be deployed and switched on?
    A: It was not immediately. Within an hour or so. …
    Q: I am just asking you whether or not switching off the MRS global database interfered with the operations of the schools and the students?
    A: It is effective interference. The effect of that action was minimal because we had managed to prepare for it."

    (iv) On 20 February 2011, Meade King on behalf of BGS sent Rickerbys on behalf of IDC a letter before claim annexing a draft Particulars of Claim. On 25 March 2011, IDC replied enclosing a draft Defence and Counterclaim. On 15 April 2011, Meade King answered, asking for clarification of IDC's position, asserting a tension between the contents of the draft pleading and IDC's conduct. By email in response dated 20 April 2011, IDC did not clarify its position but instead stated that Mr Onslow would be able to make that position clear at a meeting to discuss all the issues that had by that stage been planned to take place on 28 April 2011.

    (v) IDC terminated the 2001 Agreement without giving any notice by (a) the draft defence sent on 25 March 2011 or (b) IDC's serious breaches during April 2011 in failing to provide technical support culminating in the switching off of the MRS system on 2 May 2010 or (c) IDC's letter to Meade King dated 3 May 2010, in which IDC detailed a series of alleged wrongful acts and omissions by BGS and stated that all agreements between IDC and BGS, all services previously provided by IDC, and all licences granted by IDC, were terminated.

  249. I add that paragraph 143 of Mr Whittingham's 8th 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:
  250. "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".

    IDC's submissions on Issue 5.4

  251. Mr Onslow submitted that:
  252. (i) In so far as the email of 18 January 2010 refused to supply any further multimedia modules, that was not a breach of any term.

    (ii) Insofar as the email refused to supply any updates to artworks, it was ignored by IDC's staff, because updates to artwork continued to be supplied.

    (iii) In any event, the contract was affirmed by BGS. By email to Mrs Cownie dated 28 June 2010, Mr Whittingham referred to "the contract we have, which is still extant" and also stated "I strongly suggest that the most effective course of action at this point would be to continue to maintain and produce the application in accordance with the terms of our contract …It is clear that, random breaches aside, the contract would require appropriate notice of termination".

    (iv) Insofar as requests for new artworks are concerned (a) there were none and (b) BGS never provided the new material to comply with the NPA25 update requirements on the material 12 modules. Email requests from IDC to BGS for textual updates were mentioned by Mr Cownie in evidence, and examples were attached to Mr Onslow's written closing submissions.

    (v) So far as concerns the MRS, Mrs Cownie discovered what Mr and Mrs Cownie thought was hacking. It does not matter whether it was hacking, because BGS had previously hacked anyway. The Cownies turned off the MRS Global database. BGS immediately switched over to its MRS Global database and instances of APTL5.3 continued to function. It follows that BGS had the ability to switch customers over to BGS's MRS, and any implied term which would be breached by IDC had ceased to operate.

    (vi) Further, the effect on BGS was minimal.

    (vii) There was no breach by service of the draft Defence, which merely showed what the Defendants would do if proceedings were started.

    Discussion and ruling on Issue 5.4

  253. 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.
  254. 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.
  255. 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 there were breaches of contract by IDC at all. As at present advised, I am sceptical about the measure of these damages in any event.
  256. 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.
  257. 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.
  258. 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.
  259. Issue 6

  260. Issue 6 is: "Does IDC have a defence based on BGS's alleged breaches?"
  261. 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.
  262. Issues 7-9

  263. These issues arise from IDC's counterclaim. They are formulated as follows:
  264. Issue 7: Was BGS in repudiatory breach by downloading materials from IDC's system in 2009?

    Issue 8: Was BGS in repudiatory breach by providing a version of ATPL Digital which did not require activation by IDC but could be activated by BGS. This occurred from about 22 April 2011 – ATP Digital 6.0 was released by BGS on 4 May 2011: see Mr Whittingham's 8th witness statement at paragraph 211.

    IDC connect these breaches together as part of a single scheme by BGS to acquire independence from IDC, and, having done so, to precipitate termination of the agreement by withholding sums due to IDC.

    Issue 9: Do either of the above give rise to a defence to the claim by BGS for breach of contract?

    IDC's submissions on the law concerning Issues 7 and 8

  265. Mr Onslow submitted in opening that:
  266. (i) There must be some element of trust implied in a commercial contract, even if the degree of trust is not expected to be as high as that in the relationship of employer and employee or in a fiduciary relationship such as agency.

    (ii) Alternatively, it may be that BGS's conduct complained of in this case is better analysed as (a) conduct amounting to "renunciation" of the underlying basis of the contract or (b) a breach of a condition precedent to all clauses to be performed by IDC, because undermining trust to the extent that conduct involved undermines the whole contract or (c) conduct that rendered IDC's subsequent performance impossible, not from a physical point of view but from a business point of view, because no business person should be compelled by law to continue do business with someone who had acted as BGS did.

    (iii) On any view, the conduct, had it been discovered, would have destroyed the relationship underpinning the contract and therefore constituted a repudiatory breach of contract.

    (iv) Had the conduct come to the attention of IDC at the time, it would be unsurprising if IDC had responded by terminating the contract with immediate effect, and the Court would be wholly supportive of IDC in adopting that stance.

  267. Mr Onslow further submitted in opening that:
  268. (i) Although IDC did not know this at the time, BGS committed a repudiatory breach by secretly accessing IDC's computer system in 2009 and unlawfully downloading materials which BGS then used in connection with (a) taking steps to ensure that, by the time BGS came to complain and terminate the 2001 Agreement in 2011, BGS was ready to substitute its own product, ATPL 6.0, for ATPL 5.3, and also to deploy a substitute MRS system and (b) providing a version of ATPL 5.3 whose copy protection system had been circumvented so as to allow the software to be activated without paying any fee to IDC.

    (ii) The coincidence in the timing of BGS's withholding of licence fees (which were due and owing and which was what prompted IDC to do the acts subsequently used by BGS as grounds for termination), and the timing of the readiness of BGS's substitute products, is significant and rightly relied upon by IDC.

    (iii) The access was unlawful because it contravened sections 1(1) and 17(5) of the Computer Misuse Act 1990, which provide:

    "1(1) A person is guilty of an offence if (a) he causes a computer to perform any function with intent to secure any access to any program or data held in any computer .. (b) the access he intends to secure .. is unauthorised; (c) he knows at the time when he causes the computer to perform the function that that is the case.
    17(5) Access of any kind by any person to any program or data held in a computer is unauthorised if (a) he is not himself entitled to control access of the kind in question to the program or data; and (b) he does not have consent to access by him of the kind in question to the program or data from any person who is so entitled."

    (iv) Further, the access was a breach of confidence.

    (v) With regard to the publication, in April 2011, of a version of ATPL 5.3 in which the copy protection had been circumvented, the following sections of the Copyright Designs and Patents Act 1988 ("CDPA") were of relevance:

    "296 (1) This section applies where– (a) a technical device has been applied to a computer program; and (b) a person (A) knowing or having reason to believe that it will be used to make infringing copies– (i) manufactures for sale or hire, imports, distributes, sells or lets for hire, offers or exposes for sale or hire, advertises for sale or hire or has in his possession for commercial purposes any means the sole intended purpose of which is to facilitate the unauthorised removal or circumvention of the technical device; ...
    296(2) The following persons have the same rights against A as a copyright owner has in respect of an infringement of copyright– (a) a person– (i) issuing to the public copies of, or (ii) communicating to the public, the computer program to which the technical device has been applied; (b) the copyright owner or his exclusive licensee, if he is not the person specified in paragraph (a); (c) the owner or exclusive licensee of any intellectual property right in the technical device applied to the computer program."

    (vi) Also of relevance were the provisions of sections 296ZA and 296ZB of the CDPA (insofar as the copy protection protected IDC's animations in ATPL 5.3 rather than the computer program):

    "296ZA (1) This section applies where– (a) effective technological measures have been applied to a copyright work other than a computer program; and (b) a person (B) does anything which circumvents those measures knowing, or with reasonable grounds to know, that he is pursuing that objective.
    (3) The following persons have the same rights against B as a copyright owner has in respect of an infringement of copyright– (a) a person– (i) issuing to the public copies of, or (ii) communicating to the public, the work to which effective technological measures have been applied; and (b) the copyright owner or his exclusive licensee, if he is not the person specified in paragraph (a).
    296ZB (1) A person commits an offence if he– (a) manufactures for sale or hire, or (b) imports otherwise than for his private and domestic use, or (c) in the course of a business– (i) sells or lets for hire, or (ii) offers or exposes for sale or hire, or (iii) advertises for sale or hire, or (iv) possesses, or (v) distributes, or (d) distributes otherwise than in the course of a business to such an extent as to affect prejudicially the copyright owner, any device, product or component which is primarily designed, produced, or adapted for the purpose of enabling or facilitating the circumvention of effective technological measures."

    (vii) Whether or not these sections apply, the provision by BGS of these "cracked" versions of the software was fundamentally inconsistent with the 2001 Agreement and amounted to a repudiatory breach.

    (viii) The proper course for BGS was not surreptitiously to download materials from IDC's computer, but to write solicitors' letters requiring materials to be delivered up and seeking undertakings not prematurely to terminate the service, and thereafter (if necessary and if the contract permitted it) to seek an interim injunction.

  269. In his closing submissions, Mr Onslow added the following points:
  270. (i) Because the 2001 Agreement is a hybrid between a joint venture and product distribution agreement, that is sufficient to import an implied duty of good faith. Mr Onslow relied on Yam Seng Pte Ltd v International Trade Corpn [2013] EWHC 111 ("the YSP case") and the reference to that case at [105] in Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest) [2013] EWCA Civ 200 ("the Mid Essex case").

    (ii) It is difficult to find authority to the effect that parties to commercial contracts should not perform acts amounting to criminal conduct against each other (as IDC alleges to be true in the case of BGS) because the point is so obvious.

  271. 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".
  272. In the Mid Essex case, Jackson LJ said at [105] that:
  273. "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]."
  274. Leggatt J's analysis in the YSP case included the following:
  275. "[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 667Eastleigh 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."

    BGS's submissions on the law concerning Issues 7 and 8

  276. Mr Hicks submitted that:
  277. (i) No term as to trust or confidence should be implied into the 2001 Agreement.

    (ii) If BGS's actions were unlawful, then IDC has a remedy in tort.

    (iii) Mr Hicks relied upon: (a) the statement in Chitty on Contracts (31st edn), Vol 1, paragraph 13-028 that such terms are implied in contracts of employment, but do not extend to ordinary commercial relationships, and (b) Gledhill v Bentley Designs (UK) Ltd [2010] EWHC 1965 (QB), at [10]; Jani-King (GB) Ltd v Pula Enterprises Ltd [2007] EWHC 2433 (QB), at [48] to [51]; and Malik v BCCI SA [1998] AC 20, at page 35A (per Lord Nicholls) and 46G (per Lord Steyn).

    (iv) Even if there had been a breach of its provisions, the Computer Misuse Act 1990 did not give rise to a claim for civil liability.

    (v) So far as concerns section 296 of the CDPA: (a) the "patch" did not allow unlicensed use of the software in question, (b) on the contrary, it was issued to persons who had a licence, (c) accordingly, the patch did not allow the making of "infringing copies", and BGS did not know or have reason to believe it would.

    (vi) The conduct complained of was not repudiatory in any event.

  278. In the YSP case, Leggatt J said at [86]:
  279. "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 (31st edn), Vol 1, paras 24-018 and 24-041."
  280. 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 (31st edn) and the judgments in Hong Kong Fir Shipping Co Ltd v Kawasaki, Kisen Kaisha Ltd [1962] 2 QB 26, and stated:
  281. "[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 evidence concerning Issues 7 and 8

  282. Mr Whittingham's lengthy and detailed 8th witness statement includes the following.
  283. Under the heading "Backing up the software, text and art files" he said:
  284. "[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…"
  285. Under the heading "March 2010: Work rebuilding the MRS software starts" he said:
  286. "[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 …"
  287. Under the heading "June 2010: Helastel engaged to produce ATP Digital 6" he said:
  288. "[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 …"
  289. Under the heading "Paragraphs 57 and 60 of the Defence and Counterclaim" he said:
  290. "[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 1st 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 …"
  291. Under the heading "May 2011: 'Hacking' accusations" he said:
  292. "[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 2nd 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."
  293. 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.
  294. IDC's submissions on the facts concerning Issues 7 and 8

  295. Mr Onslow submitted that:
  296. (i) Mr Whittingham is a very intelligent man. He planned everything, and everything went to plan.

    (ii) Although Mr Whittingham's 8th witness statement gave the impression that all he did was to create a "back up", this was an innocent sounding phrase to refer to something more serious. In cross-examination it emerged that he collected material from IDC's computers twice: once in July 2009 to get the images, and once in October or November 2009 to collect the source codes.

    (iii) When it came to the source codes, his motivation was concern that the Cownies would later decide to withhold access to materials.

    (iv) He had no authority to do what he did. He said in cross-examination: "I did not have [authority], in the sense that I did not say "please may I download these files, and the Cownies did not say "Yes, you may download these files", that is correct".

    (v) His belief that he owned copyright in the files is paper thin, because (a) he downloaded animations in which he did not own copyright, and he also downloaded source code for the Flash lock over which he had no right and (b) he was not slow in using this material to send to a third party developer as early as January 2010.

    (vi) The alleged distinction sought to be drawn by Mr Whittingham between (a) downloading the material as a precautionary measure and (b) an immediate plan to use those materials when downloading, is artificial and irrelevant so far as concerns repudiatory breach. His oral evidence shows that Mr Whittingham did not really care about the rights and wrongs of the matter. Once "exit" was mentioned in July 2009, he recognised the risk that Mr Cownie controlled materials and he was determined to acquire the materials to gain independence.

    (vii) In doing so: (a) he did acts placing himself firmly within section 1 of the Computer Misuse Act 1990, (b) he breached confidence, and (c) he infringed copyright.

    (viii) It is unclear whether he planned from the beginning for the possibility that IDC might refuse to issue authorisation codes to students. Probably he thought that ATPL 6.0 would be ready so that the problem would not arise, and perhaps even he was taken by surprise when some schools insisted on taking ATPL 5.3, which then raised the issue of authorisation codes. The work which had been taking place in December 2010 to build ATPL5.3 (see Mr Whittingham's 8th witness statement at [180]) could be used to publish the patch.

    (ix) In publishing the patch, Mr Whittingham placed himself (a) firmly within section 296 CDPA and (b) insofar as the authorisation code protected IDC's copyright works (e.g. animations within ATPL5.3), within sections 296ZA and ZB as well.

    (x) Mr Whittingham did not deny that, once he had achieved independence, he stopped paying invoices. (His actual answer was to the effect "We stopped paying licence fees because we were getting a conflict".)

    (xi) The course of conduct, from 2009 to the final refusal to pay the licence fees in 2011, was obviously planned conduct which was wholly inconsistent with the obligation of good faith in relation to the joint marketing of the application.

    (xii) There was a suggestion in cross-examination that the Cownies (a) knew of this access and (b) would not have terminated. On the facts, the Cownies merely suspected something was up. They certainly did not know or suspect that Mr Whittingham had downloaded the source codes – because when they turned off the MRS, they waited for a telephone call from BGS which never came.

    BGS's submissions on the facts concerning Issues 7 and 8

  297. Mr Hicks submitted that:
  298. (i) As Mr Whittingham explains in [77] of his 8th witness statement, there was a VPN connection between the IDC and BGS offices which was needed for technical reasons. This is how Mr Whittingham had access to IDC's system.

    (ii) Mr Whittingham did not dispute that he downloaded materials in 2009 when he became concerned that IDC might seek to disrupt BGS's business.

    (iii) His actions (a) were entirely precautionary (b) caused IDC no (or little) damage and (c) did not deprive IDC of any of the benefits of the 2001 Agreement.

    (iv) So far as copyright subsists in the animations, 3D artworks and static artworks, then if not owned by BGS this conduct gave rise to a technical act of infringement of copyright if done without consent. However, these acts have not led to any damage which is not covered by IDC's claim against BGS for infringement of copyright by incorporating materials into ATPL Digital 6.0. This is because the only artwork of relevance in ATPL Digital 6.0 is the static artworks which were included in ATPL Digital 5.3 and earlier versions.

    (v) The software patch (a) was only issued in response to IDC's failure to provide technical support and (b) caused IDC no damage. The patch was required in order to provide support which IDC should have provided, but was (in breach of contract) refusing to provide, so IDC suffered no damage from its deployment.

    (vi) The extent of the misuse of confidential information claim is not clear. If it is intended to cover the backing up of the artworks then it seems to add nothing to the copyright claim (moreover since the artworks were published it is not clear how they can be the subject of a claim that they were confidential).

    Discussion and ruling on Issues 7 and 8

  299. 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]:
  300. "[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."

  301. 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.
  302. Under the heading "Alleged breaches of the criminal law"¸ Lord Neuberger MR said:
  303. "[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 …"
  304. Under the heading "Alleged criminality under the 1990 Act", Lord Neuberger MR said:
  305. "[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 …"
  306. Under the heading "Possible tortious liability"¸ Lord Neuberger MR said:
  307. "[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."
  308. Lord Neuberger MR also said:
  309. "[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."
  310. 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:
  311. "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."
  312. 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.
  313. In my judgment:
  314. (i) The 2001 Agreement was a "relational" contract of the kind referred to by Leggatt J in the YSP case at [142].

    (ii) The 2001 Agreement did contain an implied duty of good faith. Although the Court of Appeal in the Mid Essex case made only passing reference to the judgment of Leggatt J in the YSP case, and, moreover, did not focus on the implication of the duty of good faith in contracts outside the categories mentioned by Leggatt J at [131], I detect no element of disapproval of that judgment in the judgments of the Court of Appeal. Moreover, I respectfully agree with Leggatt J's analysis. I consider that the cases relied on by Mr Hicks are either not directly in point (because they do no more than recognise that such a duty is to be implied in, for example, contracts of employment) or are earlier decisions at first instance which, to the extent that they conflict with the judgment of Leggatt J in the YSP case, now need to be reviewed in the light of that judgment.

    (iii) This duty was recognised by Mr Whittingham. Although he denied that he had breached any duty or obligation by doing what he did, when asked how he would have reacted to the Cownies going on to a computer system and downloading confidential commercial documents of BGS, he replied: "I would be shocked. There was an element of trust here. But I did not do that to them either".

    (iv) It is clear from the judgment in the YSP case (at [135]-[140]) that good faith extends beyond, but at the very least includes, the requirement of honesty.

    (v) The relevant test is that of conduct that would be regarded as "commercially unacceptable" by reasonable and honest people in the particular context involved: that this is the test for dishonesty appears from Royal Brunei Airlines Sdn v Tan [1995] 2 AC 378, and Beatson LJ appears to have used the same test for good faith more generally in the Mid Essex case at [150].

    (vi) The decision of the Court of Appeal in Imerman v Tchenguiz (a) reflects the general antipathy of the law to unregulated self-help, for strong and obvious practical and policy reasons, (b) supports the view that although the commission of a crime may not give rise to any civil remedy, in the event that the self-help in question involves committing a crime, or even gives rise to a real possibility that a crime has been committed, this is not irrelevant when deciding whether that self-help should be condoned, and (c) supports Mr Onslow's submission that, if Mr Whittingham had concerns as to what IDC was doing or threatening to do, BGS's proper course was to seek relief from the court – this would have protected IDC's rights, and protected BGS against accusations of wrongdoing.

    (vii) While I am loathe to decide, even to the civil standard, and even following a full trial in which a decision was taken not to invoke a claim to privilege against self-incrimination, whether any crime has been committed, it seems to me that (a) on his own evidence, Mr Whittingham caused IDC's computer to perform functions with intent to secure access to at least some data (i.e. animations) that was, and that he knew to be, unauthorised, and (b) accordingly, all the elements of the offence under section 1 of the Computer Misuse Act 1990 are made out.

    (viii) There was no breach of section 296 of the CDPA for the reasons submitted by Mr Hicks.

    (ix) Further, I am not satisfied that the claim for breach of confidence is made out, or, if it is, that it adds anything to IDC's other grounds of complaint. Both on IDC's pleaded case and in argument, the breach of confidence is said to arise from the alleged "hacking". As a bare proposition, that formulation appears to me to lack the elements of a traditional claim for breach of confidence, although it is possible that what is sought to be advanced is a claim based on an analogy with trespass (a cause of action discussed briefly in Imerman v Tchenguiz).

    (x) However, there was a breach of section 296ZA of the CDPA. I reach this conclusion on the basis of what is said in Mr Whittingham's 8th witness statement alone, including at [218]. As I read section 296ZA, neither any of the reasons given by Mr Whittingham for acting as he did nor any of the beliefs that he says he had at the material time provide any answer to this aspect of IDC's case.

    (xi) As to whether there was the commission of a criminal offence under section 296ZB of the CDPA, it seems to me a nice question whether the points pleaded in BGS's Re-Amended Reply and Defence to Counterclaim at paragraph 27(6) are correct. Those points, in short, are that section 296ZB only applies to devices and so forth which are primarily designed, produced or adapted for the purpose of enabling or facilitating the circumvention of effective technological measures, whereas in the present case it is argued that the patch was primarily produced for a different purpose, namely "providing technical support to licensed users of ATPL Digital 5.3 and to ensure its proper functioning". It is also pleaded that "further and in any event the technological measures constituted by the licence key were designed to protect the ATPL Digital program", although I am unclear what this adds to BGS's defence to this part of IDC's case. The nicety is whether the test of "primary purpose" applies to the immediate or the ultimate objective. As I have had limited argument on this point, I would prefer not to decide it unless I need to do so. Further, I do not consider that I need to decide it, because (as was true in Imerman v Tchenguiz) whether or not the conduct complained of involved criminality is not central to the case for either side.

    (xii) The conduct complained of was commercially unacceptable. While the passage from Lord Nicholls' speech is not intended to set out a definitive list of relevant considerations, it contains helpful guidance. On grounds of expediency, Mr Whittingham acted in disregard both of what he knew in some instances to be IDC's rights and (given that his understanding of the extent of BGS's rights plainly fell short of conviction) what he knew in other instances to be IDC's possible rights. Even taking his concerns at their highest, he had no knowledge of any immediate threat of unlawful action by IDC. He states that he consulted solicitors, but gives no indication that he considered the practicability of proceeding otherwise than as he did. He may have believed that the seriousness of the adverse consequences to the rights and interests of IDC would be limited, and, in fact, that may have been so. However, he acted over a long period of time, and I do not consider that being guided by considerations such as "BGS had to do everything that it could to survive", with the disregard that was shown for IDC's rights, and the lack of exploration of alternatives to the self-help measures that he engaged in, accord with the normally accepted standards of honest conduct.

    (xiii) Nevertheless, I do not consider that the above breaches were repudiatory. In contrast to Leggatt J's findings on the facts in the YSP case (at [171]), these breaches did not "strike at the heart of the trust which is vital to any long-term commercial relationship". There were a number of extenuating circumstances, not least that Mr Whittingham's concerns about harm to what were (or what he believed to be) BGS's legitimate interests were genuine, and were not without substance; that the steps he took were essentially precautionary; that he used the fruits of the conduct complained for the limited purposes he identifies; and that the financial damage caused to IDC was minimal, if not non-existent. Moreover, it was not necessary for the performance of the 2001 Agreement for BGS to continue to have access to IDC's computer system. If BGS's conduct had come to light and IDC had felt that BGS could not be trusted because of it, I do not consider that it follows that BGS could not be trusted to perform the core creative, marketing and payment obligations in the contract. Those obligations did not depend upon good faith, but upon ordinary commercial considerations.

    (xiv) If one applies the tests and asks the questions adumbrated in the passages from the judgment of Lewison LJ in Telford Homes (Creekside) Limited v Ampurius Nu Homes Holdings Limited [2013] EWCA Civ 577 quoted in paragraph 178 above, it seems to me the answer comes down in favour of BGS.

    (xv) That is, perhaps, especially so if the position is looked at as at the date of termination of the 2001 Agreement. By that time the conduct in question was largely historic (although the availability to BGS of the fruits of that conduct was continuing) and its only, or main, practical effect was to provide a safety net until ATPL Digital 6.0 – which BGS contends to have been free-standing from anything it gained by the conduct complained of – was ready.

    (xvi) I also acquit BGS of the charge of embarking on a concerted scheme to set up a system that did not depend on IDC and then terminate the agreement and withhold licence fees. The position from 2009 onwards was an unhappy one. Each side was preparing to carry on business in future without the other, while trying to get as much out of the relationship to suit its own interests while the relationship lasted. I consider that this led to a mixture of justifiable and less justifiable behaviour by both sides, but I am not persuaded that, on BGS's side, any concrete scheme took shape or was implemented as Mr Onslow alleged.

  315. 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.
  316. Ruling on Issue 9

  317. 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.
  318. My reasons for reaching this conclusion are set out below.
  319. IDC's submissions on Issue 9

  320. Mr Onslow submitted in that:
  321. (i) While it might be true that prior repudiatory breaches by BGS are no defence to IDC's subsequent repudiatory breaches if IDC had been aware of BGS's prior repudiatory breaches and had not accepted the repudiation by terminating the contract (see State Trading Corp. of India v M. Golodetz Ltd [1989] 1 Lloyds Rep 277), the position is different where BGS has concealed its prior breaches.

    (ii) If IDC would have terminated if the breaches had not been concealed, then IDC's subsequent acts complained of by BGS would never have become breaches. IDC was denied the opportunity of electing to terminate by the concealment. It is wrong in principle that BGS should be better off because of the concealment.

    (iii) Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1888) 39 Ch D 339 is authority for the proposition that one party cannot make itself better off by concealment in circumstances where the other party accepts the first party's repudiation for other reasons. The outcome proposed by IDC is an application of the same principle.

    (iv) The tension between (a) benefitting a party who has concealed a breach and (b) providing certainty in contractual relations was in effect addressed in Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1888) 39 Ch D 339. At first instance, Kekewich J held that the receipt of the money by the employee was an isolated instance, not necessarily bearing on the general conduct of the business of the company, and did not afford grounds for termination. Crump QC argued that the act having happened some time ago, it must be supposed to have been condoned. This was really an argument in favour of contractual certainty. However, Cotton LJ rejected that argument because the wrong was unknown to the employer. This shows that concealment trumps issues of certainty. The only obstacle in the way of the application of Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1888) 39 Ch D 339 is the line of authority which says that unconcealed earlier breaches provide no defence to later repudiatory breaches.

    (v) In any event, the exception identified in Chitty on Contracts (31st edn) paragraph 24-015 applies namely: "So unless the obligation of A to perform is a condition precedent to B's obligation to perform, the fact that A is in breach of contract should not act as a barrier to A's ability to terminate on the ground of B's breach".

    (vi) This passage has been approved as "correct" by Flaux J in DRC Distribution v Ulva Ltd [2007] All ER 357 at [54]. Mr Onslow analysed that case as follows: (a) D sourced product from other distributors in fundamental breach, (b) C withdrew credit, (c) D gave notice of termination for C's breach, (e) C claimed damages, (f) D countered that damages would not be recoverable after D's notice of termination for C's breach, (g) C responded that D's notice of termination was invalid because there was a defence to C's breach, namely D's breach, and (h) Flaux J held that D's obligation was not a condition precedent to C's obligation, so that the case was not within the above exception, and D's breach was not a defence to C's breach.

    (vii) The implied term of good faith is a condition precedent to all subsequent transactions between the parties.

    (viii) Further, the exception is stated too narrowly. Where the term is not a condition precedent, but the manner of breach renders performance impossible, then the exception also applies. Here, the breach of good faith was so serious as to render performance impossible from a business point of view.

  322. Mr Onslow's submissions on the facts are summarised in paragraph 186 above.
  323. BGS's submissions on Issue 9

  324. Mr Hicks's core submissions were that, even if BGS's actions constituted repudiatory breaches:
  325. (i) IDC was aware of the breaches but did not terminate, and therefore lost its right to do so, since it elected to treat the 2001 Agreement as continuing to exist.

    (ii) Even if IDC was not aware of the breaches, the fact remains that it simply did not exercise its right to terminate.

    (iii) The contract remained in force until terminated.

    (iv) IDC is therefore liable for the breaches complained of.

  326. So far as concerns the law, Mr Hicks submitted that Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1888) 39 Ch D 339 needs 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]:
  327. "[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."
  328. 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:
  329. "[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."
  330. 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.
  331. So far as concerns the facts, Mr Hicks submitted that:
  332. (i) By at the latest January 2010, IDC was aware that BGS was responsible for the download of materials from the IDC computers.

    (ii) Nevertheless, no action was taken to terminate the 2001 Agreement at that time.

    (iii) Furthermore, even if there is a question as to how much IDC knew by January 2010, it is clear that IDC would not have terminated.

    (iv) Instead, IDC adopted a different approach. It decided to continue to take royalties under the agreement. Its plan, as recorded in the communication to Rickerbys of 18 March 2010, was that it would seek to withdraw with the minimum of notice. Rickerbys advised that a reasonable notice period would be "3 to 6 months", although it is not clear on what information this advice was based.

    (v) On 16 February 2009 IDC held a board meeting at which the decision was made to continue to trade with BGS for as long as possible.

    (vi) On 28 September 2010, Mr Cownie indicated to Rickerbys that the Defendants were "getting very close to publishing our own new material so now is the time to start picking a fight with Alex". Mr Cownie's explanation in oral evidence that this was not an attempt to goad BGS into litigation but to encourage settlement discussions is not convincing in the circumstances.

    (vii) On 28 March 2011, IDC served its draft Defence and Counterclaim.

    (viii) Meetings were proposed on 5 April 2011 and 28 April 2011, but both were cancelled by Mr Cownie.

    (ix) Despite the draft Defence and Counterclaim, IDC continued to provide discs until April 2011. The reason for this is that IDC depended upon the revenue.

    (x) On 15 April 2011 Meade King asked what the position regarding the 2001 Agreement was, given the apparent inconsistency between the draft Defence and Counterclaim and the continuation of supply.

    (xi) Mr Cownie said that this would be explained at the meeting on 28 April 2011, which did not in the event take place, so that no explanation was given.

    (xii) On the next day, 16 April 2011, IDC launched its product at the Flyer Exhibition at Heathrow.

    (xiii) On 20 April 2011, IDC threatened not to activate ATPL Digital, to deactivate certain Tracker accounts, and County Court proceedings.

    (xiv) On 21 April 2011, IDC refused to activate Mr Sogias' software.

    Discussion concerning Issue 9

  333. 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.
  334. 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.
  335. 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.
  336. 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.
  337. 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.
  338. 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.
  339. I do not consider that Mr Onslow's arguments based on Chitty on Contracts (31st 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.
  340. For these reasons, my ruling on Issue 9 is as set out in paragraph 198 above.
  341. Issue 10

  342. This issue also essentially arises from IDC's counterclaim. It is formulated as follows:
  343. (i) If BGS does not own the copyright in the static artworks provided to it, on what basis was or is it entitled to use the artworks, and does that basis prevent use in ATPL Digital 6.0 and beyond?

    (ii) IDC contends that (a) there is no basis for continued use; or (b) BGS is entitled to continue to use the graphic works in existing printed notes.

    (iii) BGS contends for an unlimited licence e.g. to use the graphics in ATPL 6.0.

    (iv) (Questions of subsistence and reproduction of substantial part will be dealt with separately).

  344. 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.
  345. I believe that this accords with the formulation of Mr Hicks's submissions on this issue, which were to the following effect:
  346. (i) The obvious purpose of the inclusion of Clause 7.1 was to give BGS safety in relation to static artworks: if BGS incorporated them it must be safe to use them.

    (ii) If Clause 7.1 operates to exclude matter in the way contended for by IDC, it must be the case that BGS has a perpetual licence to continue to exploit static artworks provided to it. Otherwise, BGS is at risk of infringing copyright in circumstances where, on IDC's interpretation, ownership depends on matters peculiarly within the knowledge of IDC, namely why the artwork in question was created.

  347. If that understanding is wrong, I will hear further submissions on this issue.
  348. Issue 11

  349. This issue is: "Was it an infringement of copyright or misuse of confidential information to download the materials from IDC's system in 2009?"
  350. I consider that I have answered this question in the course of my rulings above.
  351. In short, in accordance with those rulings:
  352. (i) BGS infringed copyright by downloading materials from IDC's system in 2009.

    (ii) Indeed, I do not believe that this is contested, either by Mr Whittingham's evidence or by Mr Hicks's submissions, which were to the effect that: (a) in so far as when Mr Whittingham downloaded materials from the IDC computers in 2009 that involved capturing (for reasons of expediency) material the copyright in which belonged to IDC, and in respect of which BGS had no licence, it is accepted that this amounted to an infringement of copyright, (b) such acts caused IDC no damage beyond the damage suffered by the inclusion of artworks in ATPL Digital 6.0 the copyright in which belongs to IDC rather than BGS in respect of which BGS had no licence, and (c) the extent to which that is the case is dependent upon the outcome of the issues relating to ownership of copyright.

    (iii) The financial relief to which IDC is entitled in light of this infringement is a matter for the inquiry as to damages (or, if IDC so elects, account of profits).

    (iv) The case that BGS misused confidential information by downloading materials from IDC's system in 2009 is not made out, and in any event it seems to me that it is likely that it would add nothing, or nothing of substance, to IDC's case for infringement of copyright. I refer to paragraph 196(ix) above.

  353. Again, if these last points are said to be wrong, I will hear further submissions on them.
  354. Issue 12

  355. 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?"
  356. Mr Onslow's submissions on this issue have already been summarised above.
  357. To Mr Hicks's submissions that are summarised above, he added the following:
  358. (i) The issuing of the patch does not give rise to a civil liability on the part of BGS. Allowing persons who had obtained a licence to use the software to exercise that right does not amount to an infringement of copyright. Clause 9 grants a licence to BGS to provide copies of the Application to students. Therefore the students have the benefit of a valid sub-licence.

    (ii) Furthermore, IDC was required by Clause 10 to activate the software but did not do so. Therefore, even if some tort was committed, IDC has suffered no damage.

    (iii) Importantly, also, the provisions of the 2001 Agreement do not make activation dependent upon payment. The two are independent provisions. The 2001 Agreement was not operated in this way. Moreover in the case of Nick Sogias, the relevant invoice was not overdue (see above).

  359. 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.
  360. Conclusion

  361. Counsel should agree a form of order which reflects the above rulings.
  362. 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.


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