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England and Wales High Court (Technology and Construction Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Weatherford Global Products Ltd v Hydropath Holdings Ltd & Ors [2014] EWHC 2725 (TCC) (01 August 2014) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2014/2725.html Cite as: [2014] EWHC 2725 (TCC) |
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| WEATHERFORD GLOBAL PRODUCTS LIMITED |
Claimant |
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| - and - |
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| HYDROPATH HOLDINGS LIMITED |
Defendant |
|
| - and - |
||
| CLEARWELL INTERNATIONAL LIMITED |
Third Party |
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| - and - |
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| MSL OILFIELD SERVICES LIMITED |
Fourth Party |
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| - and - |
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| MARTIN CLARK |
Fifth Party |
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| - and - |
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| PAOLO LAURETTI |
Sixth Party |
____________________
Michael Booth QC and Michael Smith (instructed by Nelsons Solicitors Ltd) for the Defendant and Third Party
Benet Brandreth (instructed by Trethowans LLP) for the Fourth to Sixth Parties
Hearing dates: 16-20 June, 23-25 June and 8-9 July 2014
____________________
Crown Copyright ©
Mr Justice Akenhead:
(a) As seems to be increasingly common, a very large number of contemporaneous documents have been placed before the Court of which a small fraction have proved to be relevant and have needed to be deployed. Out of the 15,000 such pages of documentation, at most about 1,000 are relevant. This is a waste of the parties' money and time and also involves a waste of judicial and other court staff time. There was no core bundle, other than that which I prepared from documents referred to by Counsel at the trial (about 350 pages).
(b) There were reams of witness statements from the Hydropath/ Clearwell parties, the majority of which were not relevant and not admissible. Examples are the 206 page (602 paragraph) first statement of Dr Stefanini, much of which comprises his thoughts on documents and events about which he knew nothing contemporaneously; all he needed to say was, in this regard, to the extent that it was relevant, that he did not know that X, Y or Z was doing or saying this that or the other. Dr Rodrigues' first statement (83 pages and 202 paragraphs) to a wholly unacceptable extent contained comment about matters on which he had no actual knowledge and quasi-expert opinion, all of which was not readily admissible. There is much to be said for the Commercial Court practice of limiting such statements to 30 pages, save with the Court's permission. I have no doubt that both Dr Stefanini's and Dr Rodrigues' first statements could have been kept to 30 pages of relevant and admissible evidence.
(c) Written "skeleton" opening and closing submissions were unnecessarily long. The Claimant's written openings ran to 108 pages (plus annexes), although their closing was helpfully shorter; the Defendant's opening was reasonable in length but its closing was repetitive and unnecessarily discursive (113 pages). The 4th to 6th Parties' openings (in two parts) were not short, running to 67 pages but the closing was nearly 100 pages which repeated largely verbatim the whole opening (including on matters which were no longer in issue) but added an additional 40 pages' worth of further comment. There needs to be an understanding that judges have to read this material and, if it is unnecessarily long, it is more difficult to focus on what each party actually believes are the truly material matters. Counsel must appreciate the need for conciseness in this exercise.
(d) There seemed to be a belief that the judge was a specialist electronics and electrical engineer who would understand, without any explanation, precisely how the technology worked, how the alleged deficiencies came about, how the various suggested fixes might work, how the experiments were to be understood and how the final device engineered by MSL worked. Lawyers and experts need to explain if necessary in words of one syllable all these various matters.
The Agreements
"(A) [Clearwell] and [Weatherford] have entered into a Licence Agreement of even date in which inter alia Clearwell has granted [Weatherford] certain exclusive rights over [Hydropath's] intellectual property rights relating to certain technology which includes the right to manufacture certain Products…
(B) Notwithstanding that [Weatherford] has the right to manufacture itself under the Licence Agreement, [Weatherford] wishes [Hydropath] to supply, and [Hydropath] agrees to supply, the Products to [Weatherford], all on the terms and conditions set out herein."
"Products" included the Clearwell Product and there were no other products of relevance supplied by Hydropath. "Specifications" were defined in Clause 1 as meaning "the specifications set out in Part 1 of the Schedule".
"2.1 During the continuance of this Agreement, [Hydropath] agrees to supply to [Weatherford]… and [Weatherford] agrees to purchase…from [Hydropath] such products as may be ordered by [Weatherford]…all on the terms and conditions of this Agreement.
2.2 For the avoidance of doubt, once [Weatherford] has purchased the Products…it shall be free to use, sell or lease them, repair or do otherwise… as it wishes with them…
2.4 …For the avoidance of doubt all improvements developed by Clearwell pursuant to the Technical Services Agreement shall be treated as improvements developed by [Hydropath] for the purposes of this Clause…
3.1 When [Weatherford]…wishes to purchase products from [Hydropath], [Weatherford]…shall place an order with [Hydropath] in writing…
5.1 Subject to Clause 5.4 and 5.5, the price for all products ordered hereunder…shall be as set out in Part 2 of the Schedule…
6.1 [Weatherford] shall pay …US$1,000,000 to [Hydropath] as a non refundable, advance payment towards the supply of Products hereunder…
7.1 [Hydropath] shall manufacture the Products…in accordance with the Specifications…
7.2 All products shall be manufactured to recognised hazardous area specification AEX M Class I Zone 1 to NEC 505, ATEX Zone 1 or such other specifications as the parties may agree.
9.1 [Hydropath] warrants and represents to [Weatherford]…that all Products supplied hereunder:-
9.1.1. will conform to the Specifications;
9.1.2. will be fit for their purpose;
9.1.3. will be free from any defect which materially impairs their ability to function and operate…
9.1.6. will comply with all rules, regulations and other laws applicable at the date of this Agreement in the US and Europe…
12.1 [Hydropath] shall indemnify and keep indemnified [Weatherford]…against any claims, liabilities, proceedings, costs, expenses, damages or losses (including legal and other professional fees and expenses suffered or incurred by them arising out of or relating to:-
12.2 any misrepresentation, breach of warranty or breach of this Agreement…
18.1 This Agreement shall commence on the Commencement Date and…shall continue in effect until the earlier of (i) the date of termination of the Licence Agreement or (ii) the date of termination in accordance with Clauses 18.2, 18.3 or 18.4…"
"(A) [Hydropath] is the owner of certain patents and related technical know-how relating to the Technology (as defined below).
(B) [Hydropath] has granted to [Clearwell] an exclusive licence over said patents and know-how in the Field of Use (as defined below) and the right to sub-licence to third parties.
(c) [Weatherford] wishes to receive, and [Clearwell] has agreed to grant to [Weatherford] a sub-licence to use such patents and technical know-how all on the terms and conditions set out in this Agreement…
1.1"'Improvements' means all improvements, modifications or adaptations to the Technology or the Licensed IPR which might be of commercial interest to the Licensee;"
"1.1 "the Field of Use" means the field of Relevant Processing of Upstream fluids using Relevant Facilities…
"Improvements" means all improvements, modifications or adaptations to the Technology or the licensed IPR which might be of interest to [Weatherford]…
"the Know-How" means data, drawings, designs, diagrams, specifications, software and all other technical information and documentation…in the possession or control of [Clearwell] or [Hydropath] relating to the Patents and/or the Technology…
"Relevant Processing" means the processes of exploration, appraisal, drilling, completion, production, injection, extraction, stabilisation, treatment, storage, transportation and/or disposal of Upstream Fluids…
"the Technology" means devices and systems that generate, induce and/or transmit an electrical field into or within wells, vessels, tubulars, piping systems and fluids contained therein, including but not limited to, prevention of scale and other deposits within wells, vessels, tubulars and piping systems…
"Upstream Fluids" shall mean fluids containing hydrocarbons and/or water including, without limitation oils, water, gases, condensates, emulsion, steam and tars…
2. Within 30 days of the Commencement Date, [Clearwell] will…supply to [Weatherford]…all of the Know-How, except for the manufacturing Know-How which shall be supplied pursuant to Clause 4.1…
3.1 [Clearwell] hereby grants to [Weatherford] a perpetual, royalty-bearing, worldwide licence, with the right to sub-licence, including to its Affiliates, under the Licensed IPR, to manufacture, repair and maintain, export, import, hold, use, market, sell, lease and otherwise dispose of the Technology in the Field of Use, or to have a third party do any of the foregoing, on its behalf or as its sub-licensee, all on the terms and conditions set out herein.
3.3…After the end of Year 1, notwithstanding the rights granted to [Weatherford] to manufacture or have manufactured, in the vent that [Weatherford] intends to manufacture Products themselves… [Weatherford] shall give [Clearwell] and [Hydropath] not less than 6 months notice of its intention…to manufacture Products and shall give [Clearwell] the right to offer to supply those Products provided that [Clearwell]…matches the terms offered by the Proposed Manufacturer on price, quality and delivery.
4. [This provided for licence payments by Weatherford to Clearwell of $600,000 within 5 days of the Commencement Date, $2.5m if the project proceeded after the first year and $250,000, $625,000 and $625,000 for Years 3, 4 and 5 respectively, a total of $4.6m.]
5. [This provided for royalties and commission payable to Clearwell for on each Product manufactured by or for Weatherford at specified dollar amounts and 3.5% of net invoiced prices charged by Weatherford for sale or rental of Products.]
6. [Clearwell or Hydropath] shall own all Improvements developed conceived or acquired solely by them during the continuance of this Agreement and [Clearwell] shall forthwith disclose to [Weatherford], in such detail as [Weatherford] may reasonably require, all such Improvements that it, or [Hydropath], may conceive, develop or acquire. Such disclosures will be made to [Weatherford] as soon as the Improvement is made but not later than the end of each calendar quarter, except for Improvements to the Manufacturing Know-How conceived in the Initial Period which [Clearwell] shall provide to [Weatherford] pursuant to clause 4.1. Such improvements and any Intellectual Property Rights in respect thereof shall be deemed to be part of the Licensed IPR licensed by [Clearwell] to [Weatherford] pursuant to this Agreement, for no additional consideration payable to [Clearwell]."
6.2 All Improvements developed, conceived or acquired solely by [Weatherford] or solely for [Weatherford] by a person other than [Clearwell or Hydropath] during the continuance of this Agreement, and all Intellectual Property Rights in respect thereof, shall be owned by the [Weatherford].
6.4. Where [Weatherford] owns any Improvements pursuant to Clause 6.2 on [Clearwell's] request, it shall grant [Clearwell] a licence to use such Improvements outside the Field of Use with use of the Licensed IPR during the continuance of this Agreement but not otherwise. Except as expressly provided herein, nothing contained in this Agreement shall imply or grant any rights in or a licence from [Weatherford] to [Clearwell] under any of [Weatherford's] Improvements or Intellectual Property Rights."
7.1 Each party agrees to maintain secret and confidential all technical information and information relating to each of the other's business, finances and affairs acquired from that other pursuant to this Agreement or prior to and in contemplation of it, to respect that other's proprietary rights therein, to use the same exclusively for the purposes of this Agreement and to disclose the same only to those of its employees and consultants, its Affiliates and their employees, professional advisers, sub-licensees, and permitted assignees pursuant to this Agreement (if any) to whom and to the extent that such disclosure is reasonably necessary for the purpose of this Agreement.
7.2. The foregoing obligations of Clause 7.1 shall not apply to information which:
…7.2.3. is or becomes generally available to the public through no act or default of the recipient party or its agents or employees; or
7.2.4. is after receipt from the disclosing party generated by the employees of the recipient party independently of and without knowledge of the information received from the disclosing party pursuant to this Agreement.
9.1 Each party shall retain all right, title and interest in and to its trade marks names and brands and neither party shall gain any rights to use the other's trade marks, names or brands, except as expressly provided hereunder. [Weatherford] shall be entitled to sell the Technology under whatever brands it wishes and all goodwill arising therefrom shall accrue to [Weatherford].
9.2. In the event that [Weatherford] manufactures or has manufactured the Products, [Weatherford] shall ensure that the Products show that they were manufactured under licence and detail the relevant patent numbers.
13.1 This Agreement shall commence on the Commencement Date and shall, subject to earlier termination…continue in force, until the later of:-
13.1.1. the last to expire of all Patents; or
13.1.2. the Know-How ceases to be secret…
and shall then expire.
23.1 This Agreement constitutes the entire agreement and understanding of the parties relating to the licensed IPR…
"Clearwell will support Weatherford's activities to expand the market and become an active partner in developing the long-term growth potential of the technology. The intent of the Post Initial Period services is to support the start-up marketing efforts and long term application and engineering developments as the product matures. Listed below are the services to be provided during the Post Initial Period…
- Engineering and application support on new product development opportunities
- Assistance with manufacturing efforts if pursued to include assembly, testing, technique and know-how…
- Provide engineering resources for product design modifications identified in section C & D and evolving from the field testing of the technology.
Section C…
Clearwell shall use its best endeavours to provide:-
…9. Technical Services support and know-how applying the Clearwell technology in offshore applications where the environment includes platform structures, conductor pipe, and complex wellbore completions…"
"[Clearwell] shall indemnify [Hydropath] against any loss, damages, costs or expenses which are awarded against or incurred by [Hydropath] as a result of any claim or threatened claim concerning the use by [Clearwell]…of the Patents or otherwise in connection with the manufacture, use or sale of or any other dealing in any of the Licensed Products by [Clearwell]…."
"Licensed Products" were by Clause 1 "any and all products that are manufactured by [Clearwell] and are within any of the claims of the Patents"; the "Patents" were those which related to the Clearwell Product.
The Facts
(a) John (Tony) Haslegrave: having a Ph D in Chemistry, he was employed by Weatherford in April 2007, having previously spent 27 years in or about the oil industry in relation to oil or oil related and other chemicals. Later he became the Director of Engineered Chemistry in November 2008 and took over from a Mr Rzeznik who had been involved with Clearwell and Hydropath before. Dr Haslegrave took over responsibility in relation to the purchase, sale, marketing and utilisation of the Clearwell Product as from about the Spring of 2009. He answered in an obviously truthful and thoughtful way and much of what he said was corroborated by contemporaneous documents. I found him to be a very impressive witness.
(b) Homayoun Hadi: from 2003 to 2010, he was the Hardware Engineering Manager within Weatherford. He had access to Hydropath's "Know How" book which he kept in his office. He was involved in some early research into whether Weatherford might itself manufacture the Clearwell Product and later in 2010 on the same subject. He gave his evidence by way of video link to the USA. He came over as a thoroughly decent individual whose evidence was not in any way undermined by any contemporaneous documentation.
(c) Winyu Vongstapanalert: with access to Hydropath's Know How book, he was an electrical engineering manager charged in 2009 going into 2010 with consideration about Weatherford's possible manufacture of the Clearwell Product. He gave his evidence also by video link to the USA. He came over as straightforward and honest but was occasionally confused by some unnecessarily complex questions.
(d) Wiley Parker: with a Ph D in Chemical Physics, he was an engineer involved with the Clearwell Product, charged with developing a cogent explanation about the product and liaising with customers about it; he was in effect a major part of the Weatherford technical support for the Clearwell Product. He was involved in the potential manufacturing by Weatherford of the product in 2008. He became involved in a consideration of the sparking incidents in 2009 and 2010 and the Clearwell in a Box possibilities. He gave his evidence in a thoughtful and intelligent way and was eminently believable.
(e) Edward Zisk: he was employed by Weatherford and adopted a commercial role in the relationship with Hydropath and Clearwell and was involved at various stages with sparking and the possible manufacture by Weatherford of the Clearwell Product. He came over as straight and honest.
It was not put by Mr Booth QC to any of these witnesses that they were lying or had acted dishonestly or improperly.
(a) Daniel Stefanini:
(i) Of Israeli and possibly Italian origin, he has spent a considerable part of his life in this country. Although he refers to himself as Dr Stefanini, he said that his Ph D came from the "University of Ashford" in Kent; he seemed to be nonplussed when I pointed out that at least I was not aware of any such university in Kent or at least one which is or was chartered to hand out degrees of any sort. He was asked by Counsel to produce the documentation supporting this qualification but did not do so. A major part of his life's work has been the design and patenting of the Clearwell Product, most if not all of which was done in the early part of the 1990s. Although much has been made by the other parties of alleged dishonesty and lying on his part, I am not satisfied that he was consciously dishonest with the Court. However, I found him to be a most unsatisfactory witness. He explained that, unfortunately, in 2009 he had had to undergo major heart surgery and that as a result his recollection of events at least at that time was poor. I very much have the impression that his recollection is poor as to the detail of what happened from 2009 through 2010 and, indeed, beyond. He was very quick to speculate, both in his witness statement and orally, about what may or may not have happened and much of what he said happened or was stated was not corroborated by any contemporaneous documentation and, indeed on occasions, was expressly undermined by such documents. An example was the repeated pleading that he had not received from Weatherford the notice of intention to manufacture in 2009, although it is absolutely clear from disclosed documentation that it was sent to him and that he must have seen it.
(ii) I formed the view that from about 2008 through to the current day he became immensely defensive about his invention and would not brook any criticism or suggestion that there might be something wrong with it. He was not just abrupt but downright offensive with both Weatherford personnel and Messrs Clark and Lauretti on a number of occasions so much so that they assumed that he regarded them all as just "fools". He was forced to accept on the witness stand that his substantial counterclaim for breach of good faith against Weatherford was not maintainable; although that was an honest concession, he had maintained this complaint for a long time, having convinced himself that their behaviour in relation to safety and commercial concerns was dictated by bad faith and this can only have been because he could not bring himself to believe that anyone could honestly doubt the efficacy and safety of his product. This defensiveness continued throughout the trial, for instance with him suggesting that Weatherford's expert Professor Stevens had deliberately altered a Hydropath unit for testing purposes and also he did not agree with his own expert on a key issue
(iii) Another facet of his behaviour which was worrying was the fact that he kept to himself in the 2010 period serious safety concerns raised with him by the testing house, Intertek, about the product, including Intertek recommending a product recall; he did not pass on these concerns to his primary client who had sold and marketed and were still renting out the product in potentially dangerous environments around the world. He was so convinced both that his product was safe and that (he suspected) others had it in for him and his companies that he withheld this information which went as far as suggesting a recall; if there had been a Piper Alpha type explosion and people had been killed or injured, criminal charges may well have had to be considered in one jurisdiction or another. He was at best disingenuous with Weatherford about whether he had received a report from Intertek in late June 2010; he had but he indicated that he had not. His evidence about this was not credible and undermined any confidence about his reliability.
(b) Dr Denzil Rodrigues: the Technical Manager of Hydropath since April 2010 and holding doctorates from the Universities of Bristol and Nottingham, he is obviously a bright person and is certainly articulate. He thought that it was appropriate to comment on events occurring before his involvement and to give expert views about matters in issue in the case; that might be attributable to his lawyers putting words into his statements but ultimately he spoke as to the truth of his statements and there were numerous parts thereof which he could not actually know were true or false. His evidence about his involvement with Intertek in the 2012 to 2013 period and the procurement of new certification for the Clearwell Product does not reflect well on him in that he clearly leant on Intertek, for instance by threatening them with legal action if they did not certify as required by Hydropath. It is suggested that he was malicious; I do not go that far. I formed the view that he was misguided and naïve in his evidence giving.
The Technical Requirements
(a) Clause 7.2 requires the Products to be "manufactured to recognised hazardous area specification AT EX M Class I Zone 1 to NEC 505, [and] ATEX Zone 1".
(b) Clause 9.1.1 warrants that the Products supplied will "conform to the Specifications" set out in Schedule Part 1 which identifies the "Hazardous Classification Zone" as "ATEX Class I Zone 1".
(c) Clause 9.1.6 warrants that the Hydropath Products "will comply with all rules, regulations and other laws applicable at the date of this Agreement in the US and Europe." It is common ground (and rightly so) that apart from the ATEX and NEC requirements, the IEC and British Standard rules also are applicable, albeit they are already 'harmonized standards' applicable under the ATEX umbrella.
All these standards correlate and are similar. "ATEX" refers to the ATEX Directive (Directive 94/9/EC on the approximation of the laws of the Member States concerning equipment and protective systems intended for use in potentially explosive atmospheres). This has been implemented in the UK by The Equipment and Protective Systems Intended for Use in Potentially Explosive Atmospheres Regulations 1996 (No. 192) ("the ATEX Regulations" or sometimes the "EPS Regulations"). The largely equivalent US Standards are NEC Articles 500 and 505.
(a) Zone 0 (Category 1), where that a hazard is continuously present, often in excess of 1000 hours per annum.
(b) Zone 1 (Category 2), where a hazard is present under normal plant operation, typically between 10 and 1000 hours per annum.
(b) Zone 2 (Category 3) where a hazard is unlikely to be present or will be present only for short periods or under a fault condition, typically 10 hours or less per annum.
"Electrical equipment of Group II is intended for use in places with an explosive gas atmosphere other than mines susceptible to firedamp.
Electrical equipment of Group II is subdivided according to the nature of the explosive gas atmosphere for which it is intended.
Group II subdivisions
• IIA, a typical gas is propane
• IIB, a typical gas is ethylene
• IIC, a typical gas is hydrogen"
There has been disagreement as to what sub-division the "Upstream" areas covered by the Supply and Licence Agreements related to. IIA is the least hazardous and IIC is the most and greater precautions are required as the hazard group gets worse.
"type of protection whereby parts that are capable of igniting an explosive atmosphere by either sparking or heating are enclosed in a compound in such a way that the explosive atmosphere cannot be ignited under operating or installation conditions."
IEC 60079-11 defines "intrinsic safety" as being the:
"type of protection based on the restriction of electrical energy within equipment and of interconnecting wiring exposed to the explosive atmosphere to a level below that which can cause ignition by either sparking or heating effects."
Essentially, encapsulation involves covering all parts of the equipment in question so that any sparking or other incendive activity cannot reach any explosive environment whilst intrinsic safety seeks to ensure that either there is nothing which can cause an explosion or that, if any spark occurs, it is not incendive. This "m" (encapsulation) and "i" (intrinsic safety) classification is important because NEC Article 505.6 does not require tests for MESG (maximum experimental safe gap) or MIC (minimum igniting current ratio) for encapsulated products which in simple terms does not require overall such stringent testing as for intrinsic safety classification.
"Equipment and protective systems may be designed for a particular explosive atmosphere. In this case, they must be marked accordingly."
Article 3 stated:
"Equipment…must meet the essential health and safety requirements set out in Annex II applied to, account being taken of their intended use."
"1.0.1. Equipment and protective systems intended for use in potentially explosive atmospheres must be designed from the point of view of integrated explosion safety.
In this connection, the manufacturer must take measures:
…to prevent the ignition of explosive atmospheres, taking into account the nature of every electrical and non-electrical source of ignition...
1.0.2. Equipment…must be designed and manufactured after due analysis of possible operating faults in order as far as possible to preclude dangerous situations.
Any misuse which can reasonably be anticipated must be taken into account…
1.0.4. Equipment and protective systems must be so designed and constructed as to be capable of coping with actual or foreseeable surrounding area conditions.
1.0.5. All equipment…must be marked allegedly and indelibly with the following minimum particulars:
…CE marking…
The specific marking of explosion protection … followed by the symbol of the equipment group and category…
1.0.6. (a) All equipment…must be accompanied by instructions, including at least the following particulars:
a re-capitulation of the information with which the equipment…is marked…
instructions for safe:
-putting into service
-use…
-installation…
1.3.1. Potential ignition sources such as sparks,…electric arcs,high surface temperatures…and other ignition sources must not occur…
1.3.3. Stray electric and leakage currents in conductive equipment parts which could result in, for example, the occurrence of… overheating on surfaces or sparks capable of provoking an ignition must be prevented…
1.4.1. Equipment…must be so designed and constructed as to be capable of performing their intended function in full safety, even in changing environmental conditions and in the presence of extraneous voltages, vibrations, contamination and other external effects, taking into account the limits of the operating conditions established by the manufacturer.
2.2.1.1. Equipment must be so designed and constructed as to prevent ignition sources arising, even in the event of frequently occurring disturbances or equipment operating faults, which normally have to be taken into account…"
The Issues
(a) Did the Clearwell Product comply with the Supply Contract? Essentially, was it fit for purpose, safe and/or did it to comply with the ATEX requirements and regulations? This is essentially the claim which Weatherford make against Hydropath.
(b) Is Weatherford in breach of the Licence Agreement for pursuing with Mr Clark and/or Mr Lauretti and/or MSL Oil the development of an improvement or of a new product which uses the Clearwell Product and the know how in order to develop it? Put another way, did Weatherford provide to the others confidential information and know-how which it should not have done?
(c) Is Weatherford in breach of the Licence Agreement for marketing the Clearwell Product under the Clearwell R name?
(d) Did Mr Clark and/or Mr Lauretti and/or MSL Oil unlawfully induce Weatherford to commit such breaches?
(e) Were Mr Clark and Mr Lauretti in breach of their duties under Sections 172 and 175 of the Companies Act 2006 whilst they were directors of Clearwell in competing with Clearwell and actively seeking to assist Weatherford to have safety certification of the Clearwell products removed?
Substantial areas of the Counterclaim have been abandoned, namely that Weatherford was in breach of an implied term of good faith in submitting orders and raising allegedly spurious concerns and safety issues to try and get authorisation for the product revoked and that commission payments up to about US$500,000 were due to Clearwell from Weatherford. Of the 14 heads of confidential information which it is said by Clearwell that Weatherford passed on to Mr Clark and/or Mr Lauretti and/or MSL Oil and/or that they actually used, only two are now pursued, as emerged during the trial.
The History
"1.01 Equipment…intended for use in potentially explosive atmospheres must be designed from the point of view of integrated explosion safety.
In this connection, the manufacturer must take measures:
…to prevent the ignition of explosive atmospheres, taking into account the nature of every electrical and non-electrical source of ignition…"
Filled in by Mr Appleby of Hydropath was a box entitled "Comments on how Compliance has been achieved":
"The HydroFLOW range of physical water conditioners are designed to eliminate limescale…in water systems, the technology is internationally patented and works by transmitting a truly weighted randomly varying signal into the water being treated. The signal is transmitted into the water by using a coil constructed of a cross wired 26way ribbon cable, through this coil there is a core made up of a number of custom ferrite bars…
Operational safety is achieved in several ways:
a) There are no exposed electrical or metal parts that could be considered hazardous. The unit is constructed as a single unit using a drawn anodized aluminium enclosure with the ends and the cage that supports the ferrites made of UL-VO rated plastic material. The unit is then fully encapsulated in a recognised UL-VO flame retardant epoxy resin. There is a single cable mains cable permanently terminated into and approved Peppers cable gland fitted to an ABTECH Ex box…
(b) As an additional safety feature, it is recommended that if there is metal pipe work at the location where the unit is to be fitted with a section of the metal pipe [it] is replaced with a plastic pipe having the appropriate safety specification. The user must allow at least 0.5 mtrs either side of the Hydroflow unit, this will eliminate the possibility of voltages being induced into the metal pipe and then maybe the remote possibility of a spark…"
Paragraph 1.0.2 stated that any "misuse which can reasonably be anticipated must be taken into account" and Mr Appleby added:
"The statement that the unit is fitted to a plastic pipe is the only area of misuse that can be identified."
It is clear that Hydropath knew that there was a risk of a spark, in effect generated either side of the ferrite ring which was to be located often several hundred millimetres from the unit. The recommendation was therefore that, where the Clearwell Product was being deployed on metal pipework, plastic pipe was to be used on both sides around the Product in effect to "eliminate" the risk of a short-circuit which is what would produce a spark.
"Henry Oil has experienced a serious safety issue. As you know a spark was observed last Friday evening when the banding [scraped] against the flow line. The banding was loose because a workover crew moved the device and incorrectly attached the device. Nevertheless, Henry Oil is quite concerned and so is Weatherford. Henry Oil is waiting for a response from Weatherford with corrective actions. I appreciate your help to this point but the issue is not closed. I have provided Henry Oil with the safety certification and told them we will with the highest priority evaluate the situation and the unit.
Mario connected device in the shop and was unable to recreate the spark as he saw it. Later after he retrieved the…unit a spark was reproduced with that unit…
Because of the issue at Henry Oil I am asking:
1. That a complete review be made of the device and attachment system to make the device safe even when mishandled. That is, we must make the installation fool proof and take corrective actions to remove any potential or perceived hazard.
2. We implement any corrective actions immediately.
3. That I will compile the findings and provide Henry Oil with the corrective actions we are taking. (At this time I am having every Henry installation checked and bands cut.)
We should also consider these ideas:
1. Replacing the metal banding as Danny suggested…
5. Ways to eliminate the sparking even if the ring is incorrectly looped by a band or other wire.
This is a critical issue…"
"The imminent testing of the equipment for STATOIL Offshore Platform has brought forward a concern that we feel we should address before these tests begin.
Since the Henry Oil incident we have tested many units in the field and the workshop, and in fault conditions, caused by external sources, sparking can and does take place.
We are therefore concerned with the safety (or perceived safety) of the Product in general, but specifically in environments where external sources can not be controlled such as the Offshore Platforms and Refineries where accidental intermittent loops/shorts can occur. We have discovered that the sparking can occur even when the unit has been installed in a loop or 2 units have been installed to overcome the loop.
We are not sure that the sparks produced have sufficient energy to cause an ignition, however in some tests we have measured 16 amps through a period of 3 micro seconds (graph attached) resulting in pitting and melting of the metal surface (picture attached). Regardless of this and even if it is proved that there is insufficient energy to cause ignition, the perceived problem, should this potential fault becoming known to ATEX it would probably result in the approvals being re-discussed with the foreseeable reaction from Weatherford.
Since [Weatherford] are starting a new Team it may well be the case that the Henry Oil incident is revisited…
We believe our original idea of a "T" piece is a workable solution to this problem.
Shall we discuss this over the phone today as [Mr Lauretti] is in the office. We need to work together on this is to prevent any negative impact on Weatherford in the future".
"2.1 To [analyse] the design and identify items requiring tooling and to arrange for quotation for the tooling.
2.2 Provide Component pricing based on various manufacturing quantities.
2.3 Provide assembly schedules and costing.
2.4 Review Hazardous Area certification and provide timescales and costs to obtain approvals.
2.5 Review packaging and shipping requirements.
2.6 Provide design Improvements to both Technical and Cost considerations."
The sum of £27,500 was mentioned but it was stated that this would be credited if Weatherford retained MSL to carry out manufacturing. In May 2009, Mr Clark had mentioned to Dr Haslegrave an idea which involved using a T junction particularly for offshore (oil platform) location to prevent loops forming. This idea had been rejected by Dr Stefanini but it was this idea which led to what became known as the Clearwell in a Box. At this time however it was at a very embryonic stage.
"In going through Larry Rzeznik's documents, I have read some e-mail exchanges between you and him concerning spark generation at Henry Oil installations. I don't know how this was finally left, but documents I have seen imply that under certain conditions (metallic contact from one side of the ferrite ring to the other) spark generation can happen. There was no obvious conclusion to this issue.
Obviously the possibility of sparking is a serious issue for oil field installations anywhere, especially if we are operating in hazardous areas. For offshore it could preclude business development.
Article 17 of the Atex certificate attached states that there are no "special conditions for safe use" - can you explain why this sparking potential should not be disclosed under this section of the certification?"
A draft of this was sent to Mr Clark, albeit not for his comment.
"2. Existing Product
The existing product is an encapsulated device that has little or no inbuilt safety systems and with the exception of the individual ferrites no other parts are replaceable. Failure therefore results in scrapping of the entire unit. The only replaceable part - the ferrites - are also the most fragile and if damage occurs this will also cause failure of the main unit, possible short-circuit and subsequent scrapping. We have looked at the manufacture cost of the existing unit and based on a C160 we could supply this design for $950 each.
Tooling would be charged extra of cost plus 10% and we estimate this would be no more than $10,000. However with the existing specifications we could not guarantee Hazardous Area approval for this design."
MSL also put forward what was to become known as the Shut Down System ("SDS") which would use a Clearwell Product but providing for a "system shutdown in the event of faults such as broken ferrites, installation fault or external short-circuit that compromises safety" and a "system monitoring and alarm function…"; another alternative put forward was the Clearwell in a Box solution. The document also provided price comparisons between what they were suggesting and what Hydropath was then charging.
"1. MSL can add a piece of circuitry to Clearwell units which negates the spark, but only if Hydropath supply units which are accessible. All units are currently "potted" so the circuit layout is inaccessible.
2. We are working with MSL on a unit which supplies the signal by a different method (TBox) which would eliminate the spark condition. This is on test at Total but the results are not yet conclusive.
3. Longer term we should redesign the unit with up to date circuitry and manufacture in-house with GSM module included for signal/power monitoring. "
Weatherford approved of his advice and recommendations. Steps were taken to contact customers and tell them of the sparking risk.
"…On 8 December 2009, Weatherford contacted Hydropath expressing concern over the potential for spark generation should the ferrite ring in the Products be "shorted" by an external metallic connection from one side of the ring to the other…We have further investigated this condition in our engineering facilities and have generated data on the spark energy release. Results from tests we performed indicate that by shorting across the ferrite ring, sparks with energy exceeding 400 µJoules can be generated. Summary information on two tests is provided below…
The Minimum Ignition Energy for different gas groups is set and governed by...IEC 60079-0/CENELEC 50014 in Europe and by NEC Article 500 in North America…
Equipment for use in oil and gas industries must comply with Groups C (IIB) and D (IIA); therefore, the maximum limit for the spark energy is 60 µJoules.
Our conclusion is that this energy release is outside of that permitted by the ATEX certification and should be communicated to the certifying body under a fault condition. If this has been reported by Hydropath we would appreciate copies of any correspondence and a copy of the laboratory report. The current certificate does not refer to any such conditions under Section 17. In an oil field environment such a metallic connection could easily be made if maintenance or other mechanical work is being carried out at the well site or platform.
In response to the above situation, Weatherford has ceased installation of Clearwell products and is notifying customers of the potential issues. As per the Supply Agreement, if it has been determine[d] that the units delivered to Weatherford do not meet the specified ATEX certification and are not fit for purpose we will look to Hydropath for an immediate remediation of this issue.
Please contact Tony Haslegrave to address any questions and coordinates Hydropath's response to this issue."
"I am surprised that you have acted so precipitously on this without consulting with me first…
We have been aware of this possibility of sparking and we have discussed this with Larry a long time ago (the possibility of static build-up on loose fixing strap was considered as well). We have tested the short condition and worked out the energy produced. After testing for ignition of gas it was clear that the energy was too low for ignition.
Because of the low energy of the spark and its inability to ignite gas we assumed that Weatherford decided not to do any action although there were various solutions to resolve this problem if this was required by Weatherford.
1. Paint on the side of the pipe from the unit to ground level.
2. Paint the pipe from the unit other equipment [sic].
3. Coat the pipe with insulating material and install the unit on the installation.
4. Use insulated stainless steel ties…
5. Use Nylon ties.
6. I also provided a new casing design with protected ferrites and different fixing method.
7. Weatherford did not react to any of this suggestions [sic] and it was assumed that the fact that the energy of the spark was so low [sic]. The observed sparks on Henry oil have been static and the solution we supply (see product investigation and report) was accepted as a resolution of the problem…"
The letter went on to explain that Weatherford's (Mr Hadi's) calculations were incorrect and Dr Stefanini provided the results of his own tests, which showed readings of 27 to 39 µJoules. These calculations were described by Mr Thompson (the Defendant's own expert) as containing errors "which an engineer would have to be ashamed of". Weatherford's Counsel suggest that I should infer that these calculations were "technically deceptive" in the sense that they were put forward by Dr Stefanini deliberately and consciously knowing that they were wrong and underestimated the real energy being generated. I am unable to go that far but it is clear that they were at best incompetent and that Dr Stefanini was desperately trying to defend his invention.
"…we arranged for independent testing to be carried out using industry standard test conditions. This testing was carried out at Intertek in Plano, Texas on 6th April 2010 and witnessed by Martin Clark.
The sparks generated by Products under these test conditions were of sufficient power to ignite one of the specified ATEX specified Zone1, Class 1, explosive atmospheres. We therefore must conclude that the ATEX certification for the Products as issue is compromised and the Products do not comply.
…The observations in the field and subsequent testing at Intertek have raised concerns with Weatherford that all Products supplied by Hydropath do not meet the hazardous areas specification.
To bring this issue to a conclusion, Weatherford would like to set up a meeting with the laboratory that certified the Products to present our findings and request the laboratory's decision on whether the hazardous area rating certificate is valid. The meeting should occur as soon as possible and include representatives from Weatherford and Hydropath.
If it is determined that the Products do not meet ATEX Zone, Class 1 certification requirements, the Products already delivered to Weatherford do not meet specification as warranted in Section 9.1 of the Supply Agreement and Weatherford would ask that all such Products be replaced per Section 9.2 of the Supply Agreement.
Weatherford looks forward to working with Hydropath to come to resolution on this matter quickly…"
"This is not the behaviour of someone that wants to continue with the technology.
If you can meet with [Mr Stanley] in Dubai maybe you can find out what he wants.
The power is well into the level that he himself says it is the requirement and the test has passed the required spec.
I do not see [why] we should be continuing saga"
He wrote to Mr Lauretti on the following day saying that the letter was "completely unreasonable".
"The meeting in Nottingham is to discuss your concerns not mine. This has to be with someone that can understand electronics. The current central problem is that your technical installers and maintenance engineers are not trained on the Clearwell unit and are creating sparks during maintenance or modifications while the Clearwell unit is switched on…The fact that such work will prevent the Clearwell from operating, as far as I can see has not been considered by anyone in your organisation.
As for the test failure. How many times[s] do I have to say to you that the failed test was not to your original requirements, so there is nothing to address. I had been told by Intertek that the Texas office has been told that Weatherford is Hydropath's parent company. I ask you to contact the office and clarified that this is incorrect…
[After saying that he was free on various dates towards the end of April] And please inform me who you will be coming with that understands electronics, otherwise it will be a waste of both of our time."
"…Apart from our concerns over the design of the existing Clearwell equipment (power supply etc.) we are in a dispute over the validity of the Atex certificate provided by Hydropath. Not sure how those discussions will end up, but longer term we have decided to get away from Hydropath as a supplier. We want to redesign it entirely making use of up-to-date electronics, fit for purpose power supply, potentially GSM module so that the unit would send a signal indicating loss of signal or power, circuitry to prevent the spark potential which we currently have. This will not only give us a much improved product but will also distance us from Hydropath when our agreement runs out in 4 years time so that we can continue the business without fear of interference by agents selling an inferior (i.e. the current) product.
I have been in discussions with Martin Clark at MSL who is knowledgeable in this area and has been working on a consultancy basis or modifications and installation in the field. I would like to use Martin to provide the design of the new unit, or at least be intimately involved in its development. We have talked in general terms about his role -sell us the design, consult on the design and manufacture, manufacture the whole kit, make an initial number of units then transfer in house." Hydro
Mr Vongstapanalert's response the following day was that Weatherford would effectively want to assist in the manufacturing and supply chain.
"Based on a Field Report received regarding [the Clearwell Product]…we have been investigating the alleged non-compliances brought forth in that Field Report… We have completed the investigation and want to provide you with our findings.
In accordance with Clause 6.4 of ANSI/ISA-60079-0-2005… it is required that "where necessary, precautions shall be taken to guard against any effect due to the presence of circulating currents caused by a stray magnetic fields, and the arcs or sparks that may occur as a result of interrupting such currents, or excessive temperatures caused by such currents."
As a result of the field reported non-conformance and subsequent investigations and testing it has been observed that there is a possibility that induced voltages in the piping materials associated with the product-in-question's use can cause incendive sparking. Although the field reported instances of sparking were the result of operation not in conformance with the instructions for your product, it has been judged that the RF Frequency and Power available in the application of this product, and the spark ignition energy resulting from said sparking, represents a risk given the circumstances and knowledge at present regarding this issue.
Conclusion: Certification of the product shall be suspended and a recall of any installed product shall be imposed.
Please prompt to respond to this request in writing. Your cooperation in resolving this issue will be appreciated…"
"I am sorry not to be able to provide information about the results of the investigation by Intertek. We expected this to be reported last month and as we had been told informally that the spark test was positive for IIB (i.e. the gas did not ignite) we were confident of the results of the report, and fully satisfied as to the safety of the product.
Unfortunately Intertek has since received a complaint, we assume from a competitor of yours…This complaint has initiated a new process that will obviously take additional time…we will do everything possible to resolve matter as rapidly as possible…"
Obviously Dr Stefanini had actually had a formal report (which had been produced "last month") from Intertek and had had advice that Intertek's testing had shown failure for Group IIB locations. When he gave his oral evidence, he was adamant that he had not received any report from Intertek; when faced with the Intertek letter report of 25 June 2010, he said that it had been addressed to Mr Appleby and that it was "an error". He had obviously seen it because he had actually written to Intertek about it. This evidence from him was simply not credible and it seriously undermined any real reliance that one could place on his evidence save where it was clearly and obviously supported by contemporaneous documents or was agreed with by other reliable witnesses.
"I have just become aware that, rather than seeking to source new orders and markets for Clearwell…(as you told me you had been doing), you had in fact been diverting orders to your company and been looking to develop and sell your technology in place of mine. And you're dealing with Weatherford against Clearwell interest [sic].
You have had access to my trade secrets and know how; in doing this, you have stolen my ideas, my technology and my intellectual property. You have breached the significant trust I placed in you and breached the duties you owe as Director of Clearwell.
I am not prepared to accept this nor to turn a blind eye to it. If necessary, I shall instruct my solicitors to vigourously pursue these claims and to seek to recover the payments made to you by Clearwell.
I am however prepared to allow you one opportunity to try to resolve this between ourselves. This will immediately involve you:
1. Making a full written admission of all that has happened.
2. Resigning as Director of Clearwell by signing the enclosed letter of resignation in front of a witness;
3. Surrendering your shares by you signing the enclosed Stock Transfer Form;
4. Sign a simple form of Undertaking that you will not infringe any of the intellectual property rights or confidential information belonging to or owned by any of Clearwell…Hydropath…or myself…
If you are not prepared to take these immediate steps, then I shall instruct my solicitors to pursue you vigourously through the courts. Please note that all my rights are fully reserved."
"This e-mail has come as a complete surprise to both myself and Paolo. I will state now that none of the severe allegations you have made in your e-mail are true, and I have never, and neither do I intend to, manufacture Clearwell/Hydropath Units for any market. All products we have sold have been manufactured by Hydropath and purchased by MSL, and we have not diverted any orders through MSL to the detriment of Clearwell or Hydropath business. We have been developing Markets for Clearwell and Hydropath Products and will continue to do so. All my recent trips to the Middle East (which had been many), Gabon and Total in France (all at MSL expense) has [sic] been to promote the Clearwell product. The accusations you have made are very severe and upsetting, and Paolo and I am not ready to accept them, we would be grateful if you could please explain them."
Mr Lauretti's response came a few hours later making similar points and adding:
"…I do not know who has misled you so badly and I resent that you have not taken the time to discuss it with me before writing such an insulting mail…
"I have evidence suggesting something different from what you each have said. I want though to give you every opportunity to resolve matters amicably before matters escalate.
I shall give you a final opportunity to come clean with me on what has been happening before I instruct solicitors and suggest you think long and hard before replying. Is there anything you want to tell me now?"
"Once again, since we have not committed an act of Infringement, I/we do not see, that any evidence you may think you have could be construed as rightful and true and patent infringing. We, either personally, as part of MSL, or as directors of Clearwell…have not done anything that could be construed as an act of patent infringement and moreover in conjunction with Weatherford…
It is quite apparent that you have been fed and misled by somebody that wants to destroy the strong relationship we have built during the last several years.
We have always kept you informed that we went out of our way, for the benefit of Clearwell… and Hydropath, to help Weatherford promote the Clearwell product with its clients in the Middle East and Total in Gabon and France, efforts that were even unpaid by Clearwell…the same as when it refused to pay for the important and time-consuming Technical support we were providing to Larry [Rzeznik]…
As you are aware, should any sale arise from this promotion work, [Weatherford] will pay MSL for the installation of the units and for any added equipment MSL can provide from his own expertise as when MSL supplied Solar Panel systems, EExd Junction boxes and switches, to be included in the installation.
This is what Martin, Paolo and MSL do! Obvious you are fully aware and it can hardly be interpreted as you say on your initial mail "And you're dealing with Weatherford against Clearwell Interests".
We have not yet taken legal advice as we believe that this is a big misunderstanding and matters could be resolved amicably by letting us know your source of this malevolent information and the withdraw[al] of the unfounded accusations, but we fully intend to do [so] if you continue to pursue and threaten us in this manner."
"I would like to confirm that the above referenced [ATEX] certificate has not been withdrawn and is still valid. The concerns raised at the meeting are being investigated and the solution developed. The outcome of this will be discussed with our US office in order that the resolution is acceptable to all parties.
Our initial assessment is that it is critical that the equipment be installed and operated as you intend and this should be communicated to the users in the strongest terms…"
"…It has been brought to our attention that the above equipment may pose a risk of sparking when in use. The Health and Safety Executive (HSE) have considered the information available and agreed with the complainants that this risk is particularly high when people are working close to pipes on which the equipment is installed and who may not be aware that the pipe is carrying an electrical circuit. There is the possibility in such cases that the pipe could be contacted by metal objects being used by workers in the vicinity, causing sparks. Further risks have been identified arising when the equipment has been maintained and the ferrite rings carrying the current are not replaced properly, thus leading to the possibility of sparking if the rings contact the pipe to which they are attached. It is our view that these circumstances could be foreseen and are covered by the [EHSRs] of the Directive - namely Annex II, paragraphs 1.0 .2 and 1.2.7 (a) and (c).
I understand that following concerns being raised by users of the equipment, Intertek undertook to review the instructions for installation and use and following revisions to the installation aspects, have judged the equipment is compliant. From the information available, it is our view that the changes made to the instructions only address the issue concerning maintenance or replacement of the ferrite rings. They do not address the issue of sparking caused by inadvertent contact with the pipe carrying an electrical current…"
"…2. The [HSE] have considered your response and are of the view that the sparking issue is not a moot point and that the unit could spark if a third party, who is not involved in maintenance or installation of the Hydropath Unit, inadvertently bridged the unit in some way (e.g. with a ladder or piece of metal) which would then result in sparking. It is felt that the unit does not have to be incorrectly installed to spark and that sparking is possible in each of the following states:
a) correctly installed and bridged by a third party/metallic object, or
b) incorrectly installed, or
c) incorrectly installed and bridged by a third party/metallic object.
3. As sparking is possible in each of these circumstances it is HSE's opinion at present that the unit has not been designed to prevent the ignition of explosive atmospheres, neither has it been designed and manufactured after due analysis of possible operating faults in order as far as possible preclude dangerous situation. 1.3.1 of the EHSR clearly states that potential ignition sources such as sparks must not occur.
4. Although the user instructions clearly state that the product must be installed and used in very specific ways, and the faults required to cause sparking are identified in the instructions, the directive requires that all equipment must be so designed and constructed as to be capable of coping with actual or foreseeable surrounding area conditions. In addition to this, category 2 equipment must be so designed and constructed as to prevent ignition sources arising, even in the event of frequently occurring disturbances or equipment operating faults, which are normally must be taken into account…
7. If it is found to be the case that the unit can spark in the circumstances described above it demonstrates in HSE's view that the essential health and safety requirements of the directive had not been met. For these reasons the UK authorities do not feel that the unit meets the requirements to be certified to use in Class 1, Zone 1 Hazardous (Classified) Locations Group IIC…"
"We have now had feed back from HSE and they confirmed they accept the test results as valid and now expect the review process to continue to resolve this. Intertek will have to reissue the certificate with a IIB gas grouping. Hydropath will have to change the label marking detail and manual, and have plans in place to arrange the units in the field to be marked with the revised details."
"I am extremely concerned by your e-mail.
Hydropath had been fully co-operative with Intertek in this mattered and we were assured that we would be able to review the test setup, and view the test results before any information was passed to HSE. We were also assured that we would be involved in any discussion with HSE about the way to move forward.
At this present time we have not had any viewing of the test equipment or setup, and therefore have no way of judging the validity of these tests. Intertek can surely not expect us to accept results of the test without sufficient information on its method…
Intertek have always had full access to the products, and all relevant information. Intertek had been aware of the potential for short circuit and loops since the initial application of certification so this is not something that should have been missed.
Furthermore, this issue was highlighted recently and re-examined by Intertek in both the US and the UK. Intertek UK subsequently confirmed the validity of the certificate, having seen test results from what appears to be a test identical to the one just performed. For Intertek to change its opinion at this late stage brings up serious questions about Intertek's certification process - how can a certificate be repeatedly re-examined and found to be valid, and then suddenly found not to be?
Hydropath have sold these units on the basis of the certification provided by Intertek and may now incur significant losses, for which Intertek will be fully liable.
This matter needs to be discussed urgently".
Although nobody from Intertek was called as a witness, it is difficult to see how it could have read this e-mail as anything other than a threat that it would be sued unless it confirmed the certification.
"2. The unit operates by creating a potential difference between the sections of pipe on either side of the unit. If these two sections of pipe connected with conductive material (such as metal) then a short circuit will be formed. This will prevent the correct operation of the product and can impair safety.
The following steps should be taken on installation:
3. The unit should be installed on a section of non-conductive (e.g. plastic pipe material). This will completely eliminate the possibility of any short circuit.
Alternatively:
4. The on which the unit is installed should be covered with a continuous insulating sleeve that completely covers the like.
5. The sleeve should extend these 500 mm in both directions…
Alternatively:
7. Failing that, the pipe on which the unit is installed should be coated with a continuous layer of insulating paint that completely covers the entire pipe.
8. The paint should extend at least 500 mm in both directions from the unit…
12. Failure to comply with the above measures will mean that the certification will revert to gas group IIB…
14. Users should take care not to create a short circuit from the pipe on one side of the unit to the other.
15. The unit should be switched off during installation/removal and whenever work is conducted in the surrounding area.
16. Users should take care in using metal equipment such as ladders in the area surrounding an energised unit. Such equipment should not be allowed to make simultaneous contact with the sections of pipe on either side of the unit. 17. Blues metal strapping or banding must be eliminated…"
Attached and forming part of the certification were Installation and User Instructions which broadly reflected these conditions with several of the pages headed with the word "Warning!"
These Proceedings
(a) A Declaration that the Clearwell Products are properly ATEX certified and ETL listed.
(b) There is a claim for allegedly outstanding commission payments (Paragraph 105) but this was expressly abandoned during the trial.
(c) There was a claim (Paragraph 106) that Weatherford was in breach of an implied term of the Licence Agreement for failing to pursue orders. That was abandoned because Dr Stefanini had to accept in evidence that Weatherford had not acted in bad faith.
(d) Paragraph 107 pleads that by reason of matters pleaded earlier, Weatherford was in breach of the Licence Agreement as follows:
"107.1. It has pursued with Mr Clark and/or Mr Lauretti and/or MSL…development of an improvement or a new product which plainly uses the Product and the Know-How in order to develop. Nonetheless the details have not been provided. This is in breach of clause 6.1 of the Licence Agreement. Moreover it involves use of the Know-How in breach of clause 7.1…
107.2. Use of the Clearwell name is used for the new product in breach of clause 9.1. The Clearwell name belongs to Clearwell of the licence Agreement makes clear."
(e) Paragraph 108 asserts that "Mr Clark and/or Mr Lauretti and/or MSL Oil (through Mr Clark) are aware of the contents of the Licence Agreement. They nonetheless knowingly assisted Weatherford to breach the Licence Agreement as referred to in paragraph 107 hereof and so are liable for inducing or assisting breach of contract".
(f) Finally, so far as and liability and this trial are concerned, complaint is made in Paragraph 109 as follows:
"Moreover the said acts plainly involved Mr Clark and Mr Lauretti, before they ceased to be directors of Clearwell on 17th of January 2011, in competing with Clearwell, and actively seeking to assist Weatherford to have safety certification for Clearwell products are removed. This conflicted with a duty to promote the success of the company pursuant to section 172 Companies Act 2006, and also constituted a conflict of interest pursuant to section 175 of the said Act which was never authorised by Clearwell".
"6 (a) If any party wishes to establish any fact by experimental proof, including an experiment conducted for the purposes of litigation, that party shall, on or before 1 April 2013, serve on the other parties a notice stating the facts which it desires to establish and giving full particulars of the experiments proposed to establish them;
"(b) Any party upon whom a notice is served under the preceding sub-paragraph shall, within 21 days, serve on the party serving the notice a notice stating in respect of each fact whether or not that party admits it, and whether it considers that further or other experiments should be undertaken with a view to establishing or disproving any fact in question, agree with the experiments proposed;
"(c) Where any fact which a party wishes to establish by experimental proof is not admitted or where a party disagrees with the experiments that it may be appropriate to carry out pursuant to (a) and (b) above, that party shall apply to the court for further directions in respect of such experiments."
This was important because it was envisaged by all concerned that, particularly in relation to the sparking potential and the need to establish whether any sparking was or was not incendive, experiments might need to be called for.
"If the defendant wishes to establish any fact in reply by the experimental proof, it shall by noon on 17 April 2014 serve on all parties a notice stating the facts which it seeks to establish and giving full particulars of the experiments proposed to establish them. The defendant shall provide facilities for the claimant's expert and/or solicitors to attend any experiment upon which it intends to rely in this notice, and shall provide reasonable notice to the claimant's expert and/or solicitors of when and where such experiments are to take place."
This was clearly intended by all concerned to relate to new experiments yet to be carried out and that was why provision was made for attendance by the other parties' experts. Although Weatherford's expert Dr Stevens was invited to and did attend to observe an experiment to be conducted by the Defendants' corresponding expert Mr Senior, the relevant equipment did not function properly. Mr Senior then seems to have done the experiment in the absence of Weatherford's expert, which was then recorded in the Defendants' "1st Notice of Experiments" served on 17 April 2014. Judged by the Claimants' response, it was not particularly controversial.
"25. It seems to me that this has been put in exceptionally late. The claimant's reaction is to say they would want the opportunity, in accordance with the original procedure, of having the experiments repeated, possibly with variants to be doubtless discussed between the experts. However, there are now less than four working weeks before the trial. One of those weeks is the Whitsun vacation. Although these days not everyone takes the vacation, it is a half-term period for those who have children. So solicitors, clients and experts do have that time, sometimes at least, to plan some time off.
26. There are only three working weeks in that context before the trial. I am certainly not satisfied that there is anything like enough time, before a properly ordered and programmed trial, for any repeat test to take place.
27. Mr Vanhegan QC has explained the concerns his clients have and their understandable desire to seek further or repeat tests after consultations. I can understand the desire to do that, particularly since reliance is being sought to be placed on elements (not indeed all) in some of these tests, particularly tests 7 to 12, in which there was one failure, as opposed to tests 1 to 6 in which there were two failures. It may be for good reasons, I know not. But be that as it may, I can understand why repeat tests might be called for.
28. It is too late, it is too prejudicial, and the court should be slow to allow a procedure which has been established now for well over a year to be amended and altered in the last few weeks leading up to trial. I am therefore not prepared to allow this application, as such, to permit the defendant to rely on the Intertek report.
29. That said, it does seem to me that the court must, given that it is in the pleading, be able to consider that document. But it does seem to me that the purpose of the experiment regime is to enable, first of all, agreement to be achieved as to the results of certain types of tests. Of course, that is not now possible or practicable within the time available. If they are agreed, then they go in as agreed evidence for what they are worth, albeit that the experts in the case may interpret them differently.
30. However, here it is clear that the defendant has known for many, many months of these reports. It was the client. It knew the results. Indeed, it pleaded reliance on them. But for reasons which have not been satisfactorily explained to the court, it was not to be part of the experimental regime ordered by the court until just before Easter 2014.
31. It does seem to me that the documents do need to go into the bundle. For what it is worth, it does seem to me that experts can comment on them. However, it may well be that the weight to be attached to them must necessarily be limited because it is going to be a test which was never capable, as it has turned out, of being challenged or repeated following sensible (one hopes) expert liaison as to any further repeat tests that might be done.
32. I can see that there might be an extremely limited admissibility, but in that context it is part of what used to be called in criminal evidence issues part of the res gestae, as part of the story. The report says what it does, but the reliability of it cannot in itself be established."
Counterclaim- Confidential Information
"My learned friend effectively criticised us for not having a section [in final submissions] saying this person is dishonest, that person is dishonest, this person's a liar, that person's a liar…
…it doesn't follow…that, just because a witness' evidence is wrong, they are dishonestly lying. It may do in the circumstances of the case, but, my Lord, unless the only inference is that the witness is dishonestly lying, then that is not an assertion which we think is either necessary or desirable to make. Witnesses have a number of reasons, sometimes persuading themselves of things that didn't happen, sometimes of taking a completely wrongheaded view, sometimes refusing to acknowledge the truth even to themselves, and even a witness who doesn't tell the truth in particular instances does not necessarily have to be branded with some sort of full-scale indication of dishonesty."
"A claim based even in part on wide and unsupportable claims of confidentiality can be used as an instrument of oppression or harassment against a defendant. It can be used to destroy an ex-employee's ability to obtain employment or a competitor's ability to compete. The wider the claims, the longer and more expensive the litigation. The defendant is likely to feel that he has no alternative but to challenge the confidentiality of everything, even though he believes that much or most of the technology pleaded cannot reasonably be thought of as secret. Furthermore a defendant faced with a narrow claim may decide that the commercial realities point towards a tactical withdrawal. He may be able to relinquish use of the contested information yet stay in business. The possibility of doing this reduces as the width of the plaintiff's claims increases. The defendant is left no alternative but to fight on in heavy litigation, spending money on lawyers which he would much prefer to spend on building up what may be a new business. The attractions of this to a plaintiff bent on harming a competitor's business are obvious. Furthermore, the more technology put before the court, the easier it may be to obscure the issues."
This becomes germane because the Confidential Statement of Case is not a clearly pleaded document and was clearly put together at a time when Dr Stefanini appears to have believed that the Clearwell R Product and indeed the Clearwell in a Box and SDS must all have involved wholesale use of his or his companies' confidential information. It was, so far as I can ascertain, largely based on inference and was put together without any real regard to whether the information on which these later products or units were put together or designed was or must have been in the public domain. The facts that all but two of the allegations have been abandoned and, indeed all but about four were not supported by the Claimants' own expert in his report (albeit that even he reduced his support to only two items by the time he gave evidence) demonstrate that the Confidential Statement of Case was an ill thought out series of complaints, albeit I can not go quite so far as to say it was wholly irresponsible.
"First, the information itself…must 'have the necessary quality of confidence about it'. Secondly, that information must have been communicated in circumstances importing an obligation of confidence. Thirdly, there must have been an unauthorised use of the information to the detriment of the party communicating it."
"The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker on materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process."
"For infringement there must be copying. Whether there was or not is a question of fact. To prove copying the plaintiff can normally do no more than point to bits of his work and the defendant's work which are the same and prove an opportunity of access to his work. If the resemblance is sufficiently great then the court will draw an inference of copying. It may then be possible for the defendant to rebut the inference-to explain the similarities in some other way. For instance he may be able to show both parties derived the similar bits from some third party or material in the public domain. Or he may be able to show that the similarity arises out of a functional necessity - that anyone doing this particular job would be likely to come up with similar bits…"
"It is far from easy to say in general terms what is confidential information or a trade secret…
If one turns from the authorities and looks at a matter as a question of principle, I think (and I say this very tentatively, because the principle has not been argued out) that four elements may be discerned which may be of some assistance in identifying confidential information or trade secrets which the court will protect. I speak of such information or secrets only in an industrial or trade setting. First, I think that the information must be information the release of which the owner believes would be injurious to him or of advantage to his rivals or others. Second, I think the owner must believe that the information is confidential or secret, i.e., that it is not already in the public domain. It may be that some of his rivals already had the information: as long as the owner believes it to be confidential I think he is entitled to try and protect it. Third, I think that the owner's belief under the two previous heads must be reasonable. Fourth, I think that the information must be judged in the light of the usage and practices of the particular industry or trade concerned. It may be that information which does not satisfy all these requirements may be entitled to protection as confidential information or trade secrets: but I think that any information that doesn't satisfy them must be of a type which is entitled to protection."
"Overall approach to production the final signal: Random pulse train (3) amplified (4) using power from powers stage (1,2) then applied to output circuit (5), with final signal monitored
Interaction between some circuits 1-6 to achieve this (denoted by arrows in above box diagram).
Any relevant parameters relating to the above are given in the more detail sections below"
Much of the pleaded "use made of said confidential information" relates to the Clearwell in a Box and SDS, which I have already addressed above.
"Part of the MSL circuit where a switching transistor is employed are similar to the Hydropath circuit, but this circuit design is most common and standard and therefore not confidential. All other aspects of the MSL circuit is designed to operate in the digital domain which utilises much different electronic circuits and this consequently, is reflected in the circuit diagrams and as such bear no relationship to the Hydropath circuit diagrams whatsoever."
Dr Ford's comment is somewhat odd for an expert to make, given that his role is not to argue but to opine:
"It is argued that MSL…have used Hydropath…and Clearwell… know how and circuit drawings without the permission of Hydropath and Clearwell."
"Opinion
5.4 In my opinion, MSL…Drawing No ST 0232-06/STH "ST 0232-06 RF Power PCB Schematic Diagram" dated 10.03.11 and MSL… Drawing No ST 0232-06/STH "ST 0244-04 SCH RF Command Module PCB Schematic Diagram (03 and 04)" dated 10.03.11 do match the circuit diagrams on pages 11, 46 and 47 of the Companies' Schedule of Confidential Information.
Conclusion
5.5 It remains a matter of evidence, but in my opinion, the circuit diagrams on pages 11, 46 and 47 of the Companies Schedule of Confidential Information indicate that MSL…used confidential know-how and information and had access to either, or both, and original Clearwell product and/or circuit drawings relating to an original Clearwell product when designing their product."
I say that this is unhelpful because there is simply no analysis or explanation and, without more, the Court is not and would not be assisted by such bland assertions particularly from an expert one of whose main jobs is to assist the Court. It was further unhelpful because it appeared to be the case that Dr Ford was seeking to compare two MSL circuit diagrams in the (wrongful) belief that one was a Hydropath/Clearwell diagram.
"The method of amplification of square wave pulses from the random pulse generator to a level sufficient to drive the output stage.
The pulse is fed from the random signal generator, boosted by a transistor pair, and then fed through transformer to isolate the input from the output, and then feeds it, via some protection, into the gate of the power switching transistor (note that this general description applies to many similar circuits; it is only the specific circuit claimed as know-how)."
It goes on to explain:
"This process of amplifying a logic circuit's output is not unusual; therefore in contrast with the other items listed, the Defendant and Third Party rely on the precise method of achieving this (i.e. essentially the circuit diagram), rather than the underlying principle."
On analysis, this claim also revolves around the circuits used in both Products.
"It is the case that amplifiers are the building blocks of virtually all electronic appliances/devices and being so the configuration of the large variety of amplifiers is deemed standard. The make up of an amplifier cannot be claimed as confidential nor can it be protected as intellectual property, since the array of amplifier types is finite, full and freely available in the public domain."
"Opinion
7.7 In my opinion, MSL…have used the exact/modified amplification circuit design found in the original Clearwell product.
Conclusion
7.8 It remains a matter of evidence, but in my opinion, MSL…have used the exact modified amplification circuit design found in the original Clearwell product."
As before, and most unhelpfully, there is no explanation to support this opinion and conclusion. There are simply bland references to there being similarities and matching without any explanation. What one really needed but did not get from Dr Ford was some analysis as to why these similarities or matching features themselves points clearly or unequivocally to the design of the Clearwell R Product having to have used information which in practice could only have come from Hydropath or Clearwell..
Counterclaim- Clearwell R Name
"9.1 Each party shall retain all right, title and interest in and to its trade marks names and brands and neither party shall gain any rights to use the other's trade marks, names or brands, except as expressly provided hereunder. [Weatherford] shall be entitled to sell the Technology under whatever brands it wishes and all goodwill arising therefrom shall accrue to [Weatherford]."
The complaint is not about trade marks or brands but about the Clearwell name. Mr Booth QC and Mr Smith in their final extensive written submissions keep their remarks relatively brief about this claim:
"309. This is a simple breach of contract point. The whole of the clause needs to be considered. No part should be regarded as surplusage. A distinction is drawn in the clause between trademarks and names and brands. Self-evidently if one acquires a trademark, one acquires a property right. Therefore nothing more need be said about it. The agreement distinguishes between names and brands and is quite clear that all rights to name remain with the owner of the name, but that rights to brands can be acquired with use. That must distinguish between names and brands, otherwise one word or other would be omitted or both would be used in referring to what Weatherford acquired in goodwill terms. Clearwell International is the Clearwell name. The only sensible way to give effect to this is that Clearwell retains the right to the name Clearwell (whether in conjunction with international or not).
310. The contract expressly provides that if the licensee sells under brands goodwill goes to it. No right however to use names arises save as "expressly provided hereunder". No such right arises. Therefore any goodwill arising from use of the Clearwell name accrues to Clearwell, and Weatherford obtained no right to use it.
311. Any other interpretation as prayed in aid by Weatherford effectively means crossing out parts of the clause. The only way to give effect to the whole clause is by interpreting it as asserted herein. There is plainly breach of that clause."
"Q. As you quite rightly say, because they bear the name Clearwell you know that the only people who can use the Clearwell name on products is Weatherford, correct?
A. Correct." (Day 4 Page 67)
"the Technology" means devices and systems that generate, induce and/or transmit an electrical field into or within wells, vessels, tubulars, piping systems and fluids contained therein, including but not limited to, prevention of scale and other deposits within wells, vessels, tubulars and piping systems…"
This was not limited, as it very well could have been by agreement, simply to the technology specifically relating to the Clearwell Product; it was defined generically. It would therefore be an odd and indeed unacceptable consequence, if Clearwell was right in its counterclaim, if Weatherford was in breach of contract for using the name "Clearwell" but not in breach for selling the Technology, which for both the Clearwell and Clearwell R Products are "devices and systems that generate induce and/or transmit an electrical field" in the upstream field, where it is entitled to sell it in effect as the Clearwell brand.
Counterclaim for Inducing Breach of Contract
(a) It must be shown that the defendant's acts of encouragement, threat, persuasion and so forth (and the inducing words or conduct) have a sufficient causal connection with the breach by the contracting party to attract liability (see Lord Hoffman in OBG Para 36)
(b) He who wilfully induces another to do an unlawful act which, but for his persuasion, would or might never have been committed, is rightly held responsible for the wrong which he procured. (see Lord Nicholls ibid at Paragraph 171)
(c) Mere assistance, even knowing assistance, does not suffice to make the 'secondary' or inducing party liable as a joint tortfeasor with the primary party. What he does must go further. (See Arnold J in L'Oreal SA v eBay International AG [2009] ETMR 53 at Paragraph 350)
(d) It is obvious that a breach of contract must actually be induced. There is no tort of inducing an attempted breach of contract. Something which does not pass the factual and legal threshold such as to put the induced party into breach of the relevant contract does not give rise to a tort. I leave aside the possibility of procuring a quia timet injunction before the actual breach is committed either to prevent the breach or to prevent the inducing activities.
Counterclaim - Breach of Directors' Duties
"172 (1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
175 (1) the and A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
(2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).
(3) This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company.
(4) This duty is not infringed—
(a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or
(b) if the matter has been authorised by the directors.
(5) Authorisation may be given by the directors—
(a) where the company is a private company and nothing in the company's constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or
(b) where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution.
(6) The authorisation is effective only if—
(a) any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and
(b) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.
(7) Any reference in this section to a conflict of interest includes a conflict of interest and duty and a conflict of duties.
"53 In relation to acting in the best interests of a company, the directors' fiduciary duty is to exercise the powers conferred on them "bona fide in what they consider – not what a court may consider – is in the interests of the company", thus the test, both under the general law and under CA 2006, is a subjective one. The question is whether the director honestly believed that his act or omission was in the interests of the company. The court does not consider that the duty is broken simply because, in the court's opinion, the particular exercise of the power was not to promote the success of the company, although it is accepted that a breach will have occurred if it is established that the relevant exercise of the power is one which could not be considered by any reasonable director to be in the interests of the company…This subjective approach does not however, entitle a director to breach the "no-profit" rule and the "no-conflict" rule simply because he thinks it is in the interests of the company to do so. Nor in my judgement, is it necessarily the case that there can, in cases of conflict, be no unfair prejudice simply because the director believes his conduct to be justified."
"62 Blackburne J. had previously drawn attention (at p.627) to Lord Upjohn's speech in Boardman v Phipps [1967] 2 AC 46 at p.123, observing that although Lord Upjohn had there dissented his statement of the principles at play had not been doubted. He emphasised a concluding passage of the citation, where Lord Upjohn had said:
"The phrase 'possibly may conflict' requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict."
63 Blackburne J. went on to say that that passage echoed another in Upjohn L.J.'s earlier judgment in the Court of Appeal in Boulting v Association of Cinematograph Television and Allied Technicians [1963] 2 Q.B. 606 at pp.637–638 where he said:
"However, a broad rule like this must be applied with common sense and with an appreciation of the sort of circumstances in which, over the last two hundred years and more it has been applied and thrived. It must be applied realistically to a state of affairs which discloses a real conflict of duty and interest, and not to some theoretical or rhetorical conflict."
64 Blackburne J. also cited, with reference to the scope of a director's fiduciary duty, what Hoffmann J. had said in Bishopsgate Investment Management Ltd (in liq.) v Maxwell [1993] B.C.C. 120 at p.139C to the effect that what precisely a director's duty is within a company must depend "upon how the particular company's business is organised and the part which the director could reasonably have been expected to play."
65 In other words, although general principle is not in doubt, the extent of a director's duty in particular situations may depend on the circumstances."
(a) The pursuit of the Clearwell in a Box and SDS options and the development of the Clearwell R Product.
(b) The active seeking to have the certification for the Clearwell Product removed.
(c) Competing with Clearwell.
(d) The participation in the naming of the Clearwell R Product or using or promoting the use of the Clearwell name.
(a) There can be no breach in respect of the Clearwell R Product. This was only initiated after in effect Dr Stefanini had secured the removal of Messrs Clark and Lauretti as directors of Clearwell. There were no (and no pleaded) restrictive covenants on them to prevent them acting in competition after they ceased to be directors. For reasons indicated above, they and through them MSL did not use confidential information belonging to Clearwell in any event in and about the design and production of the Clearwell R Product.
(b) There can be no breach in respect of the name of the Clearwell R Product. The use of the name itself was in any event Weatherford's idea and the use of the name was not promoted by Messrs Clark and Lauretti or through them MSL either before or after they ceased to be directors.
(c) It was legitimate for them to involve themselves with Weatherford in the process of the development of both the Clearwell in a Box and SDS options. These were, if anything, incipient "Improvements" and developments of the Clearwell Product which Weatherford were contractually entitled to consider and implement and in respect of which Clearwell, through the efforts of Messrs Clark and Lauretti as officers of Clearwell, was contractually obliged to assist.
(d) These developments were in the interests of Clearwell because Weatherford was undoubtedly and in good faith concerned as to the safety of the Clearwell Product as from the autumn of 2009 onwards and was effectively withholding making further orders for the Product pending a resolution of the sparking problem. Unless and until those concerns were allayed, Clearwell would not be receiving in particular the royalty for every unit manufactured.
(e) It was not a breach of the duties for Messrs Clark and Lauretti to interest and involve themselves in Weatherford's extended efforts in 2009 and 2010 themselves to manufacture the Clearwell Product. Not only was Weatherford contractually entitled to do this, but also Clearwell, through the efforts of Messrs Clark and Lauretti as officers of Clearwell, was contractually obliged to assist Weatherford in their efforts to do so.
(f) It was suggested that Mr Clark in November 2009 in some way primed Dr Haslegrave with the information about the Henry Oil sparking incident in effect as part of some deep-seated plan or even conspiracy to bring about a breakdown in relations between Hydropath/Dr Stefanini/Clearwell and Weatherford with a view to bringing about a situation in which MSL and Messrs Clark and Lauretti could design their own product to replace the Clearwell Product. There is simply no and certainly no reliable evidence to support this scenario. Weatherford corporately knew about the Henry Oil incident in any event and, although Mr Clark did mention it to Dr Haslegrave in November 2009, it was not a secret as between Clearwell and Weatherford and I do not accept, if it is being so suggested, that Mr Clark's motivation was malicious and anti-Clearwell in so doing. It is also unlikely, not only because there is no clear hint about this in the reams of disclosure but also because they and Weatherford were wasting a massive amount of resource in investigating, designing, testing and setting up trials for the Clearwell in a Box and SDS options. I also accept their evidence on the point that their prime concern in 2009 and 2010 was to resolve or overcome the sparking problem and that the Clearwell R Product did not see the light of day until after they had been sacked as directors.
(g) I have already indicated that the concerns expressed by Weatherford in late 2009, throughout 2010 and indeed ever since, as to safety in the context of sparking were not spurious and indeed in these proceedings have been proved to be justified. It follows that it was not a breach of the Companies Act duties for Messrs Clark and Lauretti to co-operate with Weatherford in addressing those concerns.
(h) In respect of the complaint that Messrs Clark and Lauretti actively pursued the withdrawal of the certification of the Clearwell Product in the April to July 2010 period, this was a process which was primarily pursued by Weatherford. It does seem from some of the correspondence that at least part of Weatherford's motivation was to seek to establish that the original certification was at least exaggerated and at worst unjustified. There is however no remaining allegation that Weatherford was acting in bad faith in so doing. The context however was that, by early March 2010, Weatherford, as indicated in its letter to Dr Stefanini of 3 March 2010, believed that the Clearwell Product in terms of sparking incendive energy was outside that permitted by the ATEX certification. By late March 2010, a further sparking incident had been reported. Dr Stefanini was and must have been aware that Mr Clark attended on behalf of Clearwell the sparking tests carried out at Intertek in early April 2010; he was told of the results on 12 April 2010 by Weatherford and he was expressly made aware that Weatherford wish to set up a meeting with Intertek to, "request [a] decision on whether the hazardous area rating certificate is valid" (see Dr Haslegrave's letter to Dr Stefanini of 12 April 2010). It was no secret that Mr Clark had attended and been involved and indeed had been sent along as representative of Clearwell. Much of the involvement of Messrs Clark and Lauretti in this period is not inconsistent with their positions within MSL and Clearwell which would also each have an interest in the marketing of the Clearwell Product to get to the bottom of the problem and to see whether it affected the certification which appeared on each and every Clearwell Product and on which customers in the field relied. However, I do not accept on the evidence or otherwise that their involvement (and I should say that it was Mr Clark rather than Mr Lauretti) in the approaches by Weatherford to Intertek was anything other than tangential as Weatherford was in the driving seat on this and going to do what it had decided to do which was to challenge the certification. I do not consider that either of them put Weatherford up to challenge the certification or encouraged Weatherford to do so. The most that can be said is that Mr Clark did not inform Dr Stefanini within hours of knowing it himself that Weatherford was seeking to do this but Weatherford itself so informed him within a few days of the Intertek testing at Plano, Texas. Such line beyond which they might have been a breach of the Companies Act duties was not passed. It would be impermissible if not commercially dishonest for Weatherford to sell to customers a product which was certificated as Group IIC or even IIB when Weatherford knew or believed that it was incorrectly so certificated. Again, Messrs Clark and Lauretti were acting within the scope of their positions as directors of Clearwell to respect the obligations which Clearwell through them had to support Weatherford.
(i) Complaint is made that Messrs Clark and Lauretti through MSL entered into the JDA with another company in the Weatherford group in August 2010. This is not as such pleaded as a complaint. However, Weatherford was absolutely entitled to enter into such an agreement and MSL was in effect a sub-contractor doing something which Weatherford was contractually entitled to do pursuant to its agreements with Clearwell as it involved developments or improvements of the Clearwell Product. Weatherford could in theory just as well have gone to another organisation for exactly the same services. The object of the JDA was to produce solutions so that more Clearwell Products could be and would be sold, thus generating revenue for Clearwell. It is suggested that this in some way took work away from Clearwell which could otherwise have been done by it. However, there is no reliable evidence that Weatherford would have been interested in placing in effect an order with Clearwell and there is positive evidence that Clearwell had no capacity, ability or corporate wish to get involved in a design let alone a production process at any time.
(j) There are other complaints that by offering to provide services for reward (to MSL) Messrs Clark and Lauretti were competing with Clearwell. There were several offers on the part of MSL referred to earlier in this judgment to provide various services in connection with either manufacturing of the Clearwell Product by Weatherford or other methods. Apart from the JDA, these were unsuccessful. For instance, the evidence was that Weatherford was always going to manufacture the Product itself and only general information was being provided by MSL. Other offers were in connection with the Clearwell in a Box or the SDS but they seem to have been fruitless at least until the JDA. In any event there was no competition with Clearwell which had no capacity or corporate wish to become involved in those sorts of activity.
(k) I am satisfied that Messrs Clark and Lauretti acted in good faith, that they honestly believed that they were acting in the interests of Clearwell and that they did not, honestly, believe that they were acting in any way which gave rise to a conflict of interests. It has certainly not been proved to the contrary by Clearwell. What Clearwell's case comes down to is (apart from the matters raised above) such matters as some e-mail "chatter" which might (but not necessarily) be construed as (principally Mr Clark) being a bit too "chummy" with Weatherford personnel and an allegation that secrecy was maintained as between Messrs Clark and Lauretti and Weatherford about their discussions. A fair amount of the contact between them and Weatherford was in any event known about by Dr Stefanini (such as the attendance by Mr Clark at Plano, Texas and at a later conference call in late April 2010). He obviously knew about Mr Clark's misgivings about the safety of the Clearwell Product both in 2009 and 2010. He knew that there were contacts being made. I do not consider that it is helpful to try to analyse from what are often informal e-mails whether one can infer "secret" machinations or corporately improper conversations on the part of Messrs Clark and Lauretti. Essentially, what Clearwell through Counsel asked the Court to infer was that they were lying to the Court, in spite of the fact that there was little if any cross-examination of them specifically to that effect. As indicated earlier in this judgement, I found them to be credible witnesses and I certainly did not have the impression that they were being dishonest with the Court.
Abuse of Process
"In trying this question, I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same late on a Saturday's is a likely is it is that's what she says is its just a parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
"The second question depends on the application of a doctrine of estoppel, namely res judicata. Their Lordships agree with the view expressed by McMullin J that the true doctrine in its narrower sense cannot be discerned in the present series of actions, since there has not been, in the decision in no 969, any formal repudiation of the pleas raised by the appellant in no 534. Nor was Choi Kee, a party to no 534, a party to no 969. But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings."
"GW contends that Mr Johnson has abused the process of the court by bringing an action against it in his own name and for his own benefit when such an action could and should have been brought, if at all, as part of or at the same time as the action brought against the firm by WWH. The allegations of negligence and breach of duty made against the firm by WWH in that action were, it is argued, essentially those upon which Mr Johnson now relies. The oral and documentary evidence relating to each action is substantially the same. To litigate these matters in separate actions on different occasions is, GW contends, to duplicate the cost and use of court time involved, to prolong the time before the matter is finally resolved, to subject GW to avoidable harassment and to mount a collateral attack on the outcome of the earlier action, settled by GW on the basis that liability was not admitted."
"Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."
I highlight the underlined words.
The Claim
(a) Dr Stevens: he was the science expert engaged by Weatherford to review the electronic characteristics of the Clearwell Product and to consider the energy created by sparks generated by or from it. He was by far the more qualified compared with Mr Senior with weighty academic backgrounds both as a physicist and an electrical engineer. His report and evidence were clear and intellectually rigourous and he gave his evidence in a very measured way; he was not prone to exaggeration. Of all the experts in the case, he was the most impressive in all respects. He was eminently credible.
(b) Mr Roberts: retained by Weatherford, he is a chartered Electrical Engineer and a member of the Institute of Engineering and Technology. He has specific experience over many years in the oil and gas industry and he has been involved in the design and specification of equipment and systems for use in that and other industries. Although he has not been directly involved in securing certification of products or previously in investigations in respect of certification, he has had over 20 years of practical experience in dealing with products which had to be and were certified. Again, he was an impressive witness; he was quietly spoken but straightforward and down to earth. I was particularly assisted by his evidence about compliance with the ATEX requirements.
(c) Mr Senior: he was called by the Defendant as an equivalent to Dr Stevens to consider the testing carried out, the modelling and measurement the spark energy and various other issues. He is a Chartered Physicist linked to Loughborough University and is an associate Engineer of RHMA, a firm made up of a number of Loughborough University engineers and other specialists. I have to say that I found his report and his evidence superficial and tentative. Although straightforward, he came over as nervous and inexperienced as an expert in litigation. For instance, he did not identify in his report (as he should have done) all the documents and information with which he had been provided and he accepted that he had "erred" and repeatedly apologised; it was absolutely clear as his evidence unfolded that he had had regard to a much wider number of documents than the two Claimant's Notices of Experiment and Mr Hadi's witness statement listed in his report; his nervousness (not generated by the polite cross-examination) was demonstrated by his inability to remember what the "Directive" referred to in his report was (it was the European Directive with which this case is concerned). He said that he received instructions on 20 January 2014 and equipment to do experiments on 7 April 2014 and " it has been a bit of a blur since then", going on to say that in effect other work that he had been doing had got in the way of his preparation for the case. He had a tendency to identify matters which might reduce the effect of the incendive energy of the sparking without being able to give any quantification, even in broad terms. His evidence spanned two days and on the second day he told the court that he had had a change of opinion "in the shower before I got into my taxi this morning" such that he wished to resile from an opinion which he had jointly agreed with Dr Stevens in the joint statement. Apart from the fact that I accept the joint opinion, this change of mind contrary to what he had consciously and presumably with forethought agreed with Dr Stevens and the fact that the reason for the change was not obviously clear seriously undermined his reliability.
(d) Mr Thomson: he was called by the Defendant to address the duties and responsibilities of a designer, manufacturer and supplier of equipment for use in potentially explosive atmospheres and the adequacy of the certification. His background is as an electrical engineer who for many years was involved in mining (coal) but from 1991 has worked for the HSE in connection with electrical and mechanical engineering and process equipment safety for offshore oil and gas installations. He was fairly straightforward but again inexperienced as an expert in much the same way as Mr Senior. He was clearly inadequately briefed in that for instance he had not been shown the instructions for use of the Clearwell Product, only having been shown the 2013 revised instructions; for instance he had not been shown the Specifier's Guide attached to the Supply Agreement. He did make some appropriate concessions under cross-examination. I was however overall unimpressed with him compared with Mr Roberts.
(a) "8. Spark testing is conducted to demonstrate compliance of product to meet intrinsically safe standard as set out in BS EN 60079 Part 11. It is not generally applied to confirm compliance with other protection concepts". (Mr Roberts and Mr Thomson)
(b) "10. The purpose of the Spark testing is to determine whether the relevant product is/or is not capable of ignition under the provisions specified in BS EN 60079 Part 11 for the appropriate level of protection". (ibid)
(c) "11. Safety factors are applied in all instances of spark testing carried out by notified bodies so that the testing is carried out on a circuit that is more likely to cause an ignition that the actual circuit so, should the relevant product pass with the safety factor applied, there is a high degree of confidence that the circuit is safe under normal operating conditions." (ibid)
(d) "2. The pipe is in effect a secondary coil with a single 'turn'". (Dr Stevens and Mr Senior)
(e) "5. On the assumption that a steel pipe is a perfect conductor, when a short-circuit is created by electrically connecting the surface of a steel pipe 6 inches either side of the ferrite core, the following characteristics of the pipe are a negligible relevance to the energy present in any resulting spark:
a. The total length.
b. The diameter.
c. The cross section." (ibid)
(f) "6. The installation of the Hydropath Product in the configuration pictured in the Specifier's Guide and described as being "installed in the loop" would not be liable to create sparks unless that loop were made and broken during use." (ibid
(g) "7. Such installation might compromise the efficacy of the Hydropath Product but it would not be inherently dangerous." (ibid)
(h) "8. Addressing the spark issue by insulating part of the pipe would only be partly effective. Short-circuits sparks could still result from the electrical connections between uninsulated parts of the pipe." (ibid)
(i) "9. Such connections could give rise to Sparks even when they were between parts of the pipe in excess of 3m either side of the ferrite ring." (ibid)
(j) "10. Addressing the spark issue by painting part of the pipe would only be partly effective. Short-circuits and sparks could still result from the electrical connections between unpainted parts of the pipe." (ibid)
(k) "If a short circuit contact is repeatedly made and broken the Hydropath Product still maintains the supply of energy and the product will therefore continue to create sparks." (Page 10 - ibid)
(a) Did the design and manufacture of the Clearwell Product have to take into account the possibility or risk of sparking on or close to the (mostly steel) pipes either side of the ferrite ring?
(b) Was there a sufficiently significant risk that such sparking would or could be incendive?
There are of course other areas of complaints such as marking and instructions, to which I will return later.
Decision
