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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 10
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CA93/06
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OPINION OF LORD GLENNIE
in the cause
PINE ENERGY
CONSULTANTS LIMITED
Pursuers;
against
TALISMAN ENERGY (UK)
LIMITED
Defenders:
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Pursuers: Peoples, Q.C.; Brechin Tindal Oatts
Defenders: Clark, Q.C.;
Shepherd & Wedderburn, W.S.
18 January 2008
Introduction
[1] In this action, in which I heard a debate at the instance of
the defenders, the pursuers conclude for the following relief:
"1. For declarator that the pursuers and defenders were in
partnership with the objective of (i) developing and operating an industrial
scale over the horizon deep water offshore wind farm in the Moray Firth estuary
(ii) creating value through the extension of the life of the Beatrice oil field
platforms and deferment of the defenders'
associated abandonment costs (iii) generating and supplying electricity
from wind power, all with a view to profit ('The Beatrice Wind Farm Project').
2. For count and reckoning by the defenders with the pursuers
for the whole profits of the Beatrice Wind Farm Project made by the defenders
from 21 December 2001 to the date of citation from the use of the pursuers'
intellectual assets set out in the Confidentiality Agreement between the
parties dated 2 May 2001 and for payment by the defenders to the pursuers of
the balance found to be due.
3. Failing an accounting, for payment by the defenders to the
pursuers of an overriding royalty of 2% of all gross revenues from the Beatrice
Wind Farm Project, reserving to the pursuers the right to bring claims relative
to the Beatrice Wind Farm Project arising subsequent to this action and
subsisting for the lifetime of the Beatrice Wind Farm Project.
4. Alternatively (a) to find and declare that the defenders
have been unjustly enriched and (b) for payment by the defenders to the pursuer
(sic)of the sum of TWENTY FIVE
MILLION POUNDS (г25,000,000) STERLING with interest thereon at the rate of
eight per cent per year from the date of citation to follow hereon until
payment."
There is also a Conclusion for expenses.
The pursuers' averments in the Summons
[2] The pursuers' averments cover some fourteen closely typed
pages. In order to deal with the attack
made upon the pleaded case, it is necessary to summarise them in some
detail. In Article 2 of Condescendence the
pursuers explain that in about 1997 they began to investigate whether an
economic case could be made out for the generation of electricity by means of
large scale wind farms situated over the horizon (more than 12 miles from land)
in water depths of up to 50 metres. They
go on to narrate (in Article 3) that that during 1999 and 2000 they undertook a
feasibility study which demonstrated that such wind farms could be economic if
deployed using cost-effective methods and designs; that they pursued
engineering solutions; that, having assessed the prevailing conditions in the
Moray Firth, they identified that as their initial preferred location for such
a development; and that they considered the possibility and financial benefits
of developing such a wind farm utilising the defenders' existing oil and gas
offshore installations in the Beatrice Field in the Moray Firth. This had potential attractions, they say, since
oil production platforms owned and operated by the defenders in the Beatrice
Field were nearing the end of their useful life and the defenders were facing
the prospect of very substantial decommissioning costs. Having concluded that such a large scale wind
farm in that location was a viable proposition, they decided to approach the
defenders. They explain that the
defenders were known to be a company with the financial resources to convert
the idea into a reality. The pursuers
aver that before approaching the defenders, they had devoted a considerable
amount of time, effort and money in carrying out their investigations.
[3] In
Article 4 of Condescendence the pursuers aver that, in August 2000, they
approached the defenders with a written proposal which was the culmination of
the work carried out by them between 1997 and 2000. The proposal, together with the matters upon
which the pursuers rely in seeking to ascribe to it the characteristic of
confidentiality justifying legal protection, is described in the following
passage:
"The proposal was for a
joint venture between the pursuers and the defenders to develop a large scale
offshore wind farm beyond the horizon (from onshore) in water depths of between
40 and 50 metres in proximity to the Beatrice Oil Field in the Moray Firth capable
of generating around 700 megawatts of electricity utilizing wind turbines each
capable of generating 5 megawatts of electricity. As at August 2000, siting wind turbines in
such depths in hostile environments was unheard of and existing commercial wind
turbines were generating only around 1 to 2 megawatts of electricity. The pursuers' proposal involved the
conversion of existing oil and gas offshore installations in the Beatrice
Field, which were then nearing the end of their useful life, into part of the
infrastructure of the wind farm with consequent substantial savings, running
into many millions of pounds, in relation to the decommissioning of such
installations. Prior to approaching the
defenders, the pursuers had thoroughly assessed the proposed development and
had concluded that it was both economically and technically viable. The pursuers as part of that assessment had
identified the Beatrice Field as an appropriate location for a development of
the kind proposed. The information upon
which all of these conclusions were based was disclosed in confidence to the
defenders. The pursuers, as part of the
disclosure of information about the proposal, supplied the defenders with
economic and financial models as well as illustrative design sketches and
drawings. ... The proposal, including the
information relating to it, was not in the public domain. Information about the proposal, including
financial models and sketches and drawings relating to it, and the proposal
itself were confidential information."
This proposal, submitted in August 2000 was variously
referred to in argument as "the proposal" or "the concept".
[4] Although
the defenders, in a root and branch attack on the pursuers' pleadings, made
submissions as to the relevancy and specification of the concept thus
described, the full force of their criticism was directed towards the passages
that followed this description of the proposal which extend over several
pages. In summary, what the pursuers say
in the remainder of Article 4 is that over the following period, up until at
least May 2001 (and possibly for much longer), the pursuers disclosed further
confidential information to the defenders.
The following extracts give the flavour of what is averred. After the presentation in August 2000, the
pursuers "also carried out presentations over a number of months in the course
of which information about the proposed development was disclosed in confidence
to the defenders." They go on to say:
"In their discussions with
the defenders, the pursuers explained why they considered wind turbines
producing around 5 megawatts were an achievable proposition. By reason of the work they had done prior to
approaching the defenders, the pursuers had concluded that an output of about 5
megawatts for each wind turbine was required to make a large scale wind farm
located in deep water an economic proposition.
As part of their confidential discussions with the defenders, the
pursuers also discussed the use of non-traditional manufacturing materials,
such as carbon fibre, for the manufacture of the turbines. The pursuers disclosed that they had looked
at the possibility of making use of materials used in the aircraft industry to
construct wings and fuselages. The
discussions, presentations, and disclosure of information extended over a
period of many months with a view to convincing the defenders that the
pursuer's (sic) proposed development
project was technically feasible and economically viable."
Later in Article 4 they say this:
"As a result of the discussions,
presentations and information imparted by the pursuers to the defenders in
confidence, the defenders were convinced that the proposed development was
viable and represented an opportunity not only for them to avoid
decommissioning costs estimated at around г70 million but also to create a
highly profitable large scale wind farm in the Moray Firth."
Further on in the same Article they say:
"By obtaining the benefit of
the work done by the pursuers in relation to the development of a large scale
wind farm in that location, the defenders avoided starting completely from
scratch and were able to gain a valuable advantage over such others. The pursuers' work, including their
presentations and the information imparted in confidence to the defenders, was
sufficient to demonstrate to the defenders that the project had merit and
should be taken forward as in fact has happened."
The pursuers aver that the defenders brought in
consultants. After a detailed
consideration of "the work done by the pursuers and the information imparted in
confidence by the pursuers to the defenders", and aided by the services of Mr
Alan Mathewson (whose services were provided by the pursuers to the defenders
for this purpose under a Master Consultancy Agreement), those consultants confirmed
the viability of the proposal. The
consultants had been given "material provided in confidence by the pursuers
including presentational material, financial models and data compiled and
studies carried out by or on behalf of the pursuers in order to demonstrate the
commercial viability of the proposed project."
The averments continue in a similar vein. As I shall indicate, it is averred that the
defenders used this confidential information for their own purposes in pursuing
a similar project to that suggested by the pursuers.
[5] It is
averred in Article 4, and the point is developed in Articles 7-10, that, in
relation to all "such information and the uses to which it might be put", the
parties entered into a Confidentiality Agreement on about 2 May 2001. Various terms of the Confidentiality
Agreement are recited. It was to last
for five years from 2 May 2001. The pursuers' position is then summarised (in
Article 7) in this way:
"The Agreement accordingly
prevented the defenders from disclosing to any third party (i) the concept that
the pursuers had formulated in early/mid 2000 relating to their forward looking
vision that 5MW+ wind turbines would be designed and tested and that these were
of the appropriate minimum size required to make offshore "over the horizon"
wind farms economically viable; (ii) all work and research undertaken by the
pursuers up to the date of signature of the said agreement to develop the said
concept including without prejudice to the foregoing the contents of the said August
2000 presentation and the said presentation made in February 2001 to Paul
Blakely the defenders' managing director; (iii)
the Plan that the pursuers had worked on covering both the offshore
environment and the on-shore situation which plan envisaged a three stage
process, namely, Stage 1 - the construction and installation of a single
demonstrator turbine, Stage 2 - the construction and installation of one or
more turbines up to 100 MW to use the existing cable capacity between Beatrice
and the on-shore electrical grid, and Stage 3 - to construct an additional
400MW-600MW capacity turbine and cable connect via the Peterhead power station
to use their stranded gas generation facilities in trading sympathy with the
wind power; (iv) the contents of all presentations by the pursuers to the
defenders made between August 2000 and March 2001 in which the pursuers further
detailed the plan; (v) the pursuers' invention of an offshore structure and is
installation method to support large offshore wind turbine generators. All of the foregoing information was
disclosed [i.e. by the pursuers to the defenders]. As recently as 2005, the defenders [or this
should possibly be "pursuers"] were disclosing information concerning the
anchoring of turbines, covered by the terms of the said confidentiality
agreement."
It is to be noted that the information described as
confidential extends far beyond the concept put to the defenders in August
2000. It includes, for example, material
"to be made available" to the defenders after the Confidentiality Agreement.
[6] The
pursuers then continue in Article 4 to make averments to the effect that the
defenders have used the confidential information and disclosed it to others for
the purpose of pursuing a project which the pursuers contend is similar to that
set out in the pursuers' proposal. They
aver that when the defenders subsequently approached third parties (in the
context of the issue of a Partnership Prospectus), all of whom were required to
enter into confidentiality agreements relating to the matters contained in the
prospectus and information disclosed at presentations to discuss the
prospectus, they made use of the confidential information acquired by them from
the pursuers. They did so to interest
major energy companies to participate with the defenders and the pursuers in
the development proposal which had been provided to them by the pursuers. They conclude by saying that when the
defenders brought in consultants to progress the project, those consultants
were given access to the work done by the pursuers and supplied to the
defenders. In arriving at a preferred
final design for the demonstrator turbines, the defenders and those engaged by
them as consultants for the project drew upon the pursuers' work and
information including design drawings and economic and financial models. By so doing, the defenders derived a benefit
from the pursuers' services, in the form of discussions and presentations in
connection with the proposed development, and from the information imparted by
the pursuers in confidence in contemplation of a joint venture between them and
the defenders to develop and operate the wind farm. There are a number of other detailed
averments to like effect but I do not need to refer to them here.
[7] Articles
5 and 6 of Condescendence advance a case on partnership in support of the first
Conclusion to the Summons. This is
developed further in Articles 12 to 27.
Summarising their case as briefly as possible, the pursuers say that
they made clear from the outset that they were only interested in forming a
partnership with the defenders under which the pursuers would be entitled to a
share of the profits generated by the wind farm development over its working
life; and the defenders did not press for any other basis upon which the
parties would work together to bring the development to fruition. From the outset, they say, there was a common
understanding that the pursuers and the defenders would work together as
partners if the proposed development went ahead, as in fact it subsequently
did. They say that the defenders engaged
in discussions with them regarding the net equity share which the pursuers
would receive from the development. They
refer to a meeting on 6 August 2001 at which the defenders
indicated, in percentage terms, the equity share which the pursuers could
expect from their participation in the development. They aver in Article 12 that during August
2001, they met with the defenders to discuss their participation in the project
and discussed the preparation of a prospectus to be issued to other potential
partners. In Article 13 they aver that,
in November 2001, the defenders' board approved the proposal. On 21
December 2001, the defenders produced a "Partnership Prospectus" inviting
others to participate in the project, in which they referred to the pursuers as
their "partner". The relevant passage
reads:
"Whilst Talisman Energy and
its partner, Pine Energy, a small renewable energy company, has the necessary
offshore experience to construct and operate a project of this nature, the
company is seeking one or more joint venture partners. The value of creating a partnership would be
to bring in UK energy market participants
who can add specific industry experience and offer a direct route to market for
the plant's output."
The reference to the pursuers as the defenders'
"partner" was, it is said in Article 15, inserted into the draft on the
express instruction of the defenders' then Vice President (Europe) and Managing Director
(UK). The pursuers go on to make the
following averment:
"This deliberate alteration
to the prospectus ..., prior to its circulation to selected third parties in
confidence, was an acknowledgement and recognition of the fact that the
pursuers and the defenders had, by not later than 21 December 2001 when
the prospectus in its final form was issued, formed a joint venture partnership
in relation to the development project at the Beatrice Field and were, the
feasibility of the development having been confirmed, seeking to attract major
energy companies to join them in their joint venture."
Such recognition and acknowledgement "was consistent
with the nature of the discussions which took place about equity sharing at the
said meeting on 6 August 2001 and with the sole basis upon which the pursuers
had been prepared from August 2000 onwards to disclose their confidential
information to the defenders and to permit the defenders to make use of their
presentational material." In Article 16
they aver that in January 2002, delegates at a presentation were told by the
defenders that the pursuers, in addition to being the defenders' partner, were
part of "the offshore wind farm study team" together with the defenders and
others, including the defenders' solicitors and consultants. They then aver that the object of the
partnership was the promotion and construction of a deep water wind farm in the
Beatrice Field with a view to sharing the profits thereof. It is explained, still in Article 16, that during
the discussions which preceded the issue of the prospectus, they and the
defenders
"had agreed that further
partners would be attracted and that, in due course, a standard Oil & Gas
Industry Joint Venture Agreement would be formalised once all the partners had
been selected. It was agreed between [them]
that, for the defenders to continue with the project, a large electricity
partner and joint venture was required in order to demonstrate the credibility
and wisdom of the project. The pursuers
during such discussions reached agreement and understanding with the most
senior officer of the defenders to the objective of formalising a Joint Venture
Agreement amongst the partners with the partnership's members being expanded
from the two initial partners, the pursuers and defenders, to include at least
one large electricity company whereupon the partners would execute a Joint
Venture Agreement. Pursuant to the
aforesaid agreement, the Partnership Prospectus was issued on behalf of the
partnership to attract such a company.
Scottish and Southern Energy, a major energy supply company, has since
agreed to participate in the project."
There are then, in Article 17, averments of
discussions in August 2001 about the profit share which the pursuers could
expect from the development. It is not
averred that agreement was reached - indeed it is accepted that it was
not. It is accepted also that no
agreement was reached as to what, if any, investment of capital would be
required from the pursuers as their contribution to the business of the
partnership. But it is said that the
defenders "were content to proceed in partnership with the pursuers from at
least 21 December 2001 onwards without that matter
being finalised." They were "willing to
contribute capital to the project as the defenders well understood." There are further averments about this in
Article 19. At a meeting on 16 November 2001 the defenders said that they required the pursuers to
contribute funds if they wished to participate as an equity holder. Again, there is no averment of any agreement
having been reached. Nonetheless, in
Article 20 it is said: "On about 21 December 2001, in the said Partnership
Prospectus, it was confirmed by the defenders that they and the pursuers were
partners in a joint venture to develop the wind farm project." There are averments in Article 21 about
further disagreements thereafter concerning the percentage which the pursuers
might be offered.
[8] The
crunch came on 14 March 2003 when the defenders wrote to
the pursuers in the following terms:
"Following detailed
consideration of all matters pertaining to the project, including technical and
financial means, Talisman has decided to advance the project using technology
devised by other persons. You will also
recall from the meeting we had in Talisman House on 6
August 2001 and your subsequent letter of 28
March 2002 that we fundamentally failed to agree the basis upon which Pine Energy
become involved in the project. Against
the above background, I regret to advise you that Talisman will not require the
services of Pine Energy when advancing the project".
There followed exchanges between the parties, ending
with the defenders refusing to correspond further. The pursuers aver that the defenders have
proceeded to develop the Beatrice Offshore Wind Farm Project together with
Scottish and Southern Energy PLC and other partners. They say that in or about July 2006 the first
deep water offshore wind turbine was floated out.
[9] Articles
29 to 31 then set out the relief which the pursuers claim. Article 29 puts forward a claim for count and
reckoning as claimed in the second Conclusion to the Summons. The claim proceeds on the basis that the
defenders have since 2 May 2001 "used the information
protected by the Confidentiality Agreement without the consent of the pursuers
for a purpose other than the Purpose stated in that agreement." They did so after 14
March 2003 "when they disclosed the said protected information to Scottish and
Southern Energy PLC, the Department of Trade and Industry, the Scottish
Ministers, the European Commission Directorate-General for Energy &
Transport and to members of the DOWNVinD consortium ("Distant Offshore
Windfarms with No Visual Impact in Deepwater")." The pursuers go on, as I understand it, to
present a case that they are entitled to a share of the profits of the whole
project as in fact carried forward by the defenders and others. They justify this on the basis that by use
and disclosure to others of the pursuers' work and confidential information
relating to the Beatrice Wind Farm Project, the defenders have been able to
promote the pursuers' concept of an offshore wind farm in deep water over the
horizon in a hostile environment, to attract financial and political support therefor
and to proceed with the concept; and are now developing the Beatrice Offshore
Wind Farm together with Scottish and Southern Energy. They say that the "concept and related
intellectual assets" protected by the Confidentiality Agreement were disclosed
and made available to the defenders in contemplation of a joint venture between
the pursuers and the defenders and were to be used by the defenders only for
that purpose. The Confidentiality
Agreement was entered into to protect the pursuers' confidential information
including presentation slides and the content of the pursuers' slides where
copied into the defenders' slides. They
conclude: "In all of the foregoing circumstances, the pursuers seek and are
entitled to count and reckoning by the defenders in respect of the defenders'
use of the pursuers' intellectual assets as
set out in the Confidentiality Agreement in connection with the Beatrice
Wind Farm project."
[10] Failing
an accounting, Article 30 seeks an overriding royalty of 2% of all gross
revenues from the Beatrice Wind Farm Project during its lifetime. The pursuers aver that such a royalty and the
level thereof "is representative of the benefit of the expected profits from
the pursuers' participation in the Beatrice Wind Farm Project" in the manner which
was contemplated when the defenders were given access to the pursuers' work and
confidential information. It is also "a
reasonable estimate of the value of the pursuers' several contributions to the
partnership". They explain and aver that
that royalty is "a reasonable estimate of the commercial value of the material
that was protected by the Confidentiality Agreement" and was made available to
the defenders in contemplation and for the purposes of a joint venture between
the pursuers and the defenders to carry out the project. They say that the development of the Beatrice
Wind Farm project is ongoing and has a life expectancy of 20-25 years. Accordingly, they submit, any order
pronounced by the court should reserve to the pursuers the right to bring
future claims. They say that there exists
within the Oil & Gas industry a practice for payment of comparable
royalties. They made available their
work and confidential information in contemplation of an ongoing involvement in
and share of revenue from the Beatrice wind farm. They say that they are entitled to damages flowing
from the breach of the Confidentiality Agreement. Their loss is their future share in an income
stream over the lifetime of the Beatrice wind farm.
[11] Finally,
they claim in the alternative in Article 31 on the basis of unjustified
enrichment as put forward in the fourth Conclusion to the Summons. They aver that the purpose for which the
benefit of the pursuers' services (such as presentations and attendance at
meetings) and the use of the pursuers' work and confidential information was
conferred on the defenders and received by them was a proposed joint venture
between the pursuers and the defenders to develop and operate the windfarm. In the event that there was in fact no joint
venture (or partnership) or that the defenders by their actings have brought
the venture to a premature end, that purpose has failed to materialise. Unless redress is given, therefore, the
defenders will have been enriched unjustly by having enjoyed the benefit of the
pursuers' work and services and the use of their confidential information
relating to the project. It would be
equitable to compel the defenders to redress such enrichment. The defenders are currently proceeding to
carry out the same or a substantially similar development with another partner
or partners, a development which is likely to be highly profitable; and in
doing so, have made extensive use of the pursuers' work, services and
confidential information. They go on to
say that the pursuers have made a valuable contribution to getting the
defenders to the stage which they are now at with that project. They spent significant time, effort and money
in developing the Beatrice wind farm proposal.
The work done by them and the services and confidential information given
to the defenders have saved the defenders a considerable amount of time, effort
and money when compared with the defenders starting from scratch and seeking to
formulate a similar proposal to that which the pursuers brought to the table in
August 2000. Their contribution has
enabled the defenders to become a recognised leader in the development of large
scale wind farms in hostile offshore environments. Had the pursuers not approached the defenders
when they did and had they not provided their said services and their said
confidential information to the defenders, the defenders would not now be in
that situation. But for the pursuers'
persistence in making the business case for proceeding with the project, there
would have been no such project. The
defenders have in various ways made use of the work done by, and the
confidential information belonging to, the pursuers in relation to the Beatrice
Wind Farm Project including using that work and information to persuade their
own board to provide funding for the project and to attract large electricity
supply companies such as Scottish and Southern Energy to participate in it. The pursuers made their intellectual assets
and presentational skills available to the defenders upon the basis that the
pursuers would be or remain a partner in the Beatrice Wind Farm throughout its
lifetime. The pursuers are entitled to
have the said enrichment redressed. The
most equitable manner of redressing the enrichment is to place the pursuers, so
far as money can do, in the position they would have been in had they been or
remained a partner in the Beatrice Wind Farm throughout its lifetime. Had they been or remained a partner, the
pursuers would have shared in the net profits during that period. The life of the Beatrice Wind Farm is
approximately 20-25 years. The pursuers
say that they reasonably estimate that, during that time, the wind farm will
earn pre-tax revenues of circa г4 billion representing a post-tax net present
value of circa г0.5 billion. The sum
sued for (г25 million) represents 5% of that present value.
The defenders' submissions
[12] For the
defenders, Mr Clark QC invited me to uphold his general plea to the relevancy
and specification of the pursuers' averments and dismiss the action; failing
which to exclude certain of the pursuers' averments from probation. If I was against his submissions, I should
allow a proof before answer.
[13] He drew
my attention first to the Conclusions to the Summons. The first Conclusion was couched in the past
tense. It was not contended by the
pursuers that the parties were still in partnership. The second Conclusion was for count and
reckoning of the whole profits of the Beatrice Wind Farm Project from the use
of the "pursuers' intellectual assets as set out in the Confidentiality
Agreement". It was to be noted that
count and reckoning was sought only for the 5 year period from 21 December 2001 to the date of citation (20 December 2006). It was
unclear whether this Conclusion stemmed from the averments concerning
partnership. It seemed more likely,
having regard to the pursuers' second plea-in-law, that it was linked to the
claim for breach of the Confidentiality Agreement. He next drew my attention to the structure of
the Summons, identifying Articles 5-6 and 12-27 as being to do with partnership
and Articles 7-10 as being to do with the claim for breach of confidence. He then took me through a number of the
documents lodged in process, particularly the Proposal of August 2000. He submitted that the "proposal" as defined
by the pursuers in Article 4 (identified in the first quoted passage in
para.[3] of this Opinion) was not to be found in the written documents. Nor was it at all apparent from this and
other documents what, if anything, was either original or sufficiently developed
as an idea to be capable of being regarded as confidential. Against this background, he then made
submissions specifically in connection with the different ways in which the
pursuers' claim was formulated.
[14] He
submitted that for a claim for breach of confidence to succeed it was necessary
for the pursuers to identify with sufficient specification the items of
allegedly confidential information which were alleged to have been disclosed,
why they were said to have the necessary quality of confidentiality and when
and by whom there was unauthorised use.
He referred to the following authorities in support of this submission: Ocular Sciences Ltd. v Aspect Vision Care Ltd [1997] RPC 289,
359ff.; Ixora Trading Inc. v Jones [1990] FSR 251, 260; Triomed Properties Ltd v Beecham Group plc [2001] FSR 583, 622; CMI-Centers for Medical Invention GmbH v Phytopharm plc [1999] FSR 235, 243,
252; Coco v A. N. Clark (Engineers) Ltd [1969] RPC 41, 49; and Seager v Copydex Ltd [1967] 1 WLR 923.
Such specification was also necessary to give fair notice to the
defenders of the case they had to meet.
Further, in order for an idea to be capable in law of being regarded as
confidential and therefore capable of being protected, there had to be a
significant element of originality, it must be clearly identifiable as an idea
of the pursuers and it had to be sufficiently well-developed to be capable of
actual realisation. For this proposition
he referred to Seager v Copydex, Sales v Stromberg [2006]
FSR 7 and De Maudsley v Palumbo [1996] FSR 447, the two latter
cases in turn citing extensively from Fraser
v Thames Television Ltd [1984] QB
44 and Talbot v General Television Corporation Pty Ltd [1981] RPC 1. No obligation of confidence arose in respect
of information already placed in the public domain. He submitted that the pursuers' averments as
to breach of confidence were irrelevant and/or lacking in specification. They failed to give any of the necessary
specification about the specific items of information said to be confidential
or about the alleged disclosure and use.
The concept which the pursuers sought to protect, i.e. the proposal put
to the defenders in August 2000 as described in Article 4 (and in the Proposal
document), was no more than a general idea that wind turbines of a certain size
could be designed and used in conjunction with the existing off-shore
installation so as to make an off-shore windfarm commercially viable. It was incapable of being regarded as
confidential. Article 4 went on beyond
the proposal put to the defenders in August 2000. It appeared to say in the most general terms
that all the information given during meetings and presentations was
confidential. It was wholly unspecific
about what was given and what was or was not confidential. The defenders had no fair notice of what case
they had to meet. The definition of
"Confidential Information" in the Confidentiality Agreement was too wide and
insufficiently specific to be enforceable or to provide any basis for a breach
of confidence claim. The summary at the
end of Article 7 of what was protected by the Confidentiality Agreement (see
para.[5] above) illustrated how wide this was.
There were no averments showing what this information was or that all it
could all be confidential; nor were there any averments upon which the court
could decide whether any of it was confidential. The agreement of the parties in the
Confidentiality Agreement could not make something confidential if it was not
so: c.f. Tugendhat & Christie, The Law of Privacy and the Media at
para.6.109. The exception in the
Confidentiality Agreement of material which was already public knowledge had
the effect of excluding from the ambit of the agreement anything which was not
capable of being regarded as confidential at common law. Further, there was a question about the
impact of the Consultancy Agreement in terms of which the pursuers provided the
services of a consultant to the defenders in return for a fee. What was the status of information provided
by him or to him under that agreement?
The Consultancy Agreement cut right across the claim that all
information given to the defenders during the relevant period was confidential.
[15] As to
the claim that a partnership had existed, he submitted that it was necessary
for a pursuer to specify circumstances which he says give rise to the inference
that a partnership has been created under reference to the statutory and common
law tests. The fact that parties
describe a business as a partnership is inconclusive, as are their subjective
views: IRC v Williamson (1928) Tax Cas 335, per Lord Clyde at 340; and see also
Khan v Miah [1998] 1 WLR 477 and Dollar Land (Cumbernauld) Ltd v CIN Properties
1996 SLT 186. An agreement to set up a
partnership does not establish its existence.
The relationship of partners must involve the carrying on of business in
common for profit: Partnership Act 1890 s.1.
A holding out to a third party that someone is a party does not make him
so. The averments in the Summons anent
partnership failed to provide any basis upon which it could be said that a
partnership came into effect between the parties. When was it said that the partnership was
formed? The mere statement in the
Partnership Prospectus addressed to others that the pursuers were the defenders'
partners could not create the partnership; nor, in the context of a prospectus
inviting others to join the pursuers and defenders in forming a partnership for
progressing the project, was it sufficient to give rise to any inference that a
partnership between the pursuers and the defenders already existed. It was clear that at no time did the parties
carry on business together in common for profit. They were not in agreement about the
essentials of the partnership. It was
not just a case of not having reached agreement about what percentage share of
the profits the pursuers should have; they were actually in disagreement about
this. Nor had they agreed anything about
the pursuers' capital contribution. The
relationship of partnership was not lightly to be inferred. It had significant legal consequences such as
agency and joint and several liability.
It was not averred that any of this had been discussed. There had been no trading. There was no firm name, no partnership bank
account and no office premises. No
relevant basis was shown for saying that a partnership had arisen by
implication. In fact the relationship
between the parties was regulated by the Confidentiality Agreement. The insistence on that agreement was
inconsistent with the claim of partnership.
Any confidentiality afforded by that would be superseded by the creation
of a partnership. Further, the Master
Consultancy Agreement, signed in January 2002 but dated November 2001, was
inconsistent with there being a partnership at that stage. If there were already a partnership in
existence, the services of the consultant would not be provided by the pursuers
to the defenders - they would be provided to the partnership.
[16] Turning
to the claim for unjustified enrichment, Mr Clark pointed out that the pursuers
averred on several occasions in Article 31 that they had provided work,
services and confidential information to the defenders. This phraseology contrasted with previous
passages in the Summons where the expression "confidential information" had
been used to include work and services provided to the defenders. There was, therefore, considerable
uncertainty about what was covered by Article 31. For the correct approach to a claim for
unjustified enrichment, Mr Clark referred me to Chapter 25 of the latest (12th)
edition of Gloag & Henderson, An
Introduction to the Law of Scotland, and to the well-known case of Shilliday v Smith 1998 SC 725. He
accepted that it was permissible to seek a remedy in unjustified enrichment as
an alternative remedy for the use of confidential information. However, he argued that for such a claim to
succeed in a case such as the present, the pursuers had to establish that they
had provided the work and services, and given the information, in contemplation
of being involved in the project and getting a reward from it. Such contemplation had to be reasonable or
objectively justifiable. There were no
averments in the present case which could instruct such a case. Specifically, if one was concerned with the
initial presentation of the proposal in August 2000, the information was given
with no expectation that the defenders would be interested but in the hope of
persuading them to become so. The
situation was, therefore, similar to that in Site Preparations Ltd v
Secretary of State for Scotland 1975 SLT (Notes) 41. Further, the quantification of the claim was
wholly insufficient. There were no
averments of a causative link between the gain which it is said would have been
made and the misuse of the confidential information. This tied in with the criticisms of the
pleaded case about confidential information.
[17] Mr
Clark submitted that the claim for count and reckoning (Conclusion 2) must
fail. There were no relevant averments
instructing a case that there had been any intromissions with confidential
information so as to have brought about a profit during the years in
question. It was well-known that no
profit could have been made in these early years. If the pursuers had information to suggest
that a profit had been made, they should plead such a case. Further the claim for a 2% royalty
(Conclusion 3) and that for г25 million (Conclusion 4) both appeared to proceed
on the hypothesis that the pursuers were entitled to something over a period of
25 years or longer (25 years being the minimum anticipated life of the
project) when the claim was for breach of a Confidentiality Agreement of only
of 5 years duration. No causative
explanation was given. Further, both
those claims appeared to assume that the pursuers would have earned such
amounts without making any further contribution. Any proper assessment of loss or entitlement
had to take account of what the pursuers would have had to expend.
[18] Finally,
on the question of quantum, the pursuers' averments of loss were lacking in
specification. The royalty claim was for
2% during the lifetime of the project.
But it was based on an alleged breach of the Confidentiality Agreement
which was only of 5 years duration.
There was no link shown between the breach and an entitlement to a
royalty over a longer period. Nor was
there any adequate basis set out for the claim to г25 million (Conclusion
4). It is simply put as a "reasonable
estimate of the pursuers' several contributions to the ... partnership". There were no averments supporting this. This point was also tied up with the
criticisms made earlier about the relevancy and specification of the averments
of what was or could properly be regarded as confidential and what had been
improperly used or disclosed.
The pursuers' submissions
[19] In
beginning his submissions for the pursuers, Mr Peoples QC reminded me of the
familiar test set out in the opinion of Lord Normand in Jamieson v Jamieson 1952
SC (HL) 44, 50. The court should not
refuse probation to the pursuers' case unless it could be said that they were
bound to fail even if they proved everything that they offered to prove. There was a danger in having a mini trial on
documents. The court should take the
pursuers' averments pro veritate. The question was: are there issues which
should be investigated. Here the
pursuers' averments were sufficiently relevant and specific to go to
enquiry. Their case was not bound to
fail. There were averments of meetings,
discussions and the like. There was
reference to drawings and technical documents.
Much would depend on how the evidence came out. He submitted that I should allow a proof
before answer on all issues.
[20] Mr
Peoples explained that the pursuers' grievance was that the defenders had
exploited the concept which the pursuers had brought to the table, and done so
to the exclusion of the pursuers. It was
a very simple case. There was a danger
of focusing attention at the wrong level.
It was necessary to look at all the evidence to see whether the concept
which the pursuers put forward in August 2000 had the characteristics or
originality and of being sufficiently developed to be capable of
realisation. One would have to ask: why
would the defenders go ahead with the concept if it were not an original idea
and sufficiently worked out? what was there to discuss if it were not that? why
would they sign the Confidentiality Agreement? and why would they regard the
pursuers as partners to the extent of telling others that they were? The authorities to which the court had been
referred allowed that case to be advanced.
There were issues about the novelty of the concept: was the oil and gas
industry looking at this type of development?
There were issues as to whether the defenders were exploiting their own
idea or that of the pursuers, and whether the defenders had gained by
exploiting the pursuers' concept. The
claim was sufficiently clear to go to proof.
[21] Developing
the submission that what the pursuers sought to protect was the idea which they
had brought to the table, Mr Peoples said that the pursuers offered to prove
that it was their idea, it was sufficiently worked out and the defenders had
stolen it. The idea was not in the
public domain. They had approached the
defenders with the concept and a plan for implementing it and financial and
technical information which demonstrated that it was technically feasible and
economically viable. They had identified
a suitable location, proposing to make use of the existing oilfield
installation which was nearing the end of its economic life. The defenders engaged consultants, who
confirmed that it was feasible and viable.
The project being carried out now is essentially the same project, being
progressed in the same manner as envisaged in the proposal. Under reference to De Maudsley v Palumbo, Fraser v Thames Television Ltd and Talbot
v General Television Corporation Pty
Ltd, he submitted that the law would protect such an idea if it was
sufficiently developed. Simplicity did
not prevent an idea being confidential.
On the averments in the Summons it was open to the court to conclude
that the idea was sufficiently developed.
He emphasised, however, that the pursuers were not claiming on the basis
that specific confidential information was given to the defenders after the
initial presentation. He relied upon the
defenders having stolen the pursuers' concept presented to them in August
2000. That is the concept set out at the
beginning of Article 4, quoted in para.3 above.
Since this appeared to depart from the pleadings, at least in so far as
reliance was not now placed on the information allegedly given in subsequent
presentations and meetings, I sought confirmation of this. Mr Peoples confirmed, having taken
instructions over the lunch adjournment, that if his simple case, i.e. the
protection of the concept presented in August 2000, failed, he was not seeking
to contend that the information etc. passed across at meetings, presentations
and the like was separately protected by an obligation of confidence.
[22] As to
the partnership claim, Mr Peoples said that there was a basis for asserting
that there was a partnership. It could
not be fatal, he argued, that question of the profit share was left over for
further negotiation. The same applied to
the question of the pursuers' capital contribution. He did not accept that the Consultancy
Agreement was necessarily inconsistent with the existence of a partnership, but
in any event the work thereunder was finished by mid-December 2001. It was not until 21 December
2001
that it was stated on the Partnership Prospectus that the pursuers were
partners. The partnership case did not
add much to the case based on breach of confidence, but it helped to confirm
and enhance the picture of what was happening and provided a link between the
breach of a 5 year Confidentiality Agreement and the claim for a royalty or
other recovery over the entire life of the project.
[23] Mr
Peoples submitted that there was no good reason for not allowing the unjust
enrichment claim to proceed. It was not
dependent on showing that the information was confidential information, but the
value of the claim might be strengthened if the information was confidential. The claim was straightforward: the pursuers
put all this work in on the understanding that they would benefit by being part
of the joint venture. Dealing with the
criticism that there was confusion as to what it was said that the pursuers had
contributed - the repeated references in this part of the Summons to work,
services and confidential information - Mr Peoples confirmed, having taken
specific instructions on the point, that, just as the breach of confidence
claim was focused on the concept as presented in August 2000 rather than
information provided in the later discussions and presentations, so also the
unjust enrichment claim was related to the defenders' use of that original
concept presented in August 2000 and was not based on the further work done and
information provided after that. The
pursuers were not looking for remuneration for consultancy type services. In other words, therefore, the unjust
enrichment claim provided an alternative route to redress for the use of the
pursuers' concept as initially presented.
[24] As to
the remedies sought in the Conclusions to the Summons, Mr Peoples submitted
that the conclusion for count and reckoning (Conclusion 2) was apt for a case
of an alleged partnership and of intromission with intellectual property
rights. It was not objectionable in
principle. It was not necessary to aver
the likelihood of a profit having been made.
At the end of the proof, if the remedy was appropriate the court would
order it; if not, it would not. Nor was
there anything objectionable in principle in seeking to claim a royalty
(Conclusion 3). The pursuers aver that
it is the practice within the industry that a person whose idea is exploited
can expect to be rewarded in the form of a royalty. The pursuers offer to prove that a royalty of
2% would be reasonable. It would be a
matter for evidence if the defenders disagreed.
The claim for a royalty was certainly competent; though in Fred Mellor v William Beardmore & Co. Ltd 1927 SC 597 the court preferred to
fix a once and for all sum, the competency of such a claim was not the subject
of adverse comment: c.f. per Lord Hunter at 611. That royalty could also be justified on the
basis of the claim for unjust enrichment.
Shilliday v Smith showed that the court should
choose the particular remedy that best achieved justice. All the remedies claimed were available for
all the ways in which the claim was formulated.
He quoted para.25.01 of Gloag & Henderson for the proposition that
Scots law
"has moved to a position
where, in principle, an enrichment at another's expense is unjustified and
should be reversed if its retention is supported by no legal ground. The underlying principles are the same in the
various spheres, with repetition, restitution and recompense being only the
remedies with which an enrichment, once found to be unjustified, may be
reversed. The remedies may be combined
to achieve this end."
He referred to Dollar
Land (Cumbernauld) Ltd v CIN
Properties Ltd 1999 SC (HL) 90 and the recent decision of the House of
Lords, which he described as seminal, in Sempra
Metals Ltd v Commissioners of Inland
Revenue [2007] 3 WLR 354, in particular per Lord Hope at paras.23 and
27. The focus should be on the gain made
by the recipient of the services.
Discussion
[25] I
accept the submission that the pursuers' case should be allowed to go to proof
unless it is clear that the pursuers must fail even if they prove all the facts
which they aver in the Summons: Jamieson v Jamieson. In considering the averments in the Summons
and the evidence which might be led, the court should take a generous view of
the pursuers' pleaded case and recognise that the evidence for which there is a
record may add colour and meaning to the bare averments. In other words, the court must consider the
best case on the facts which the pursuer might be able to establish on the
basis of his pleadings.
[26] For
this reason I accept Mr Peoples' argument that the pursuers have shown a
potentially relevant case to the effect that they presented a proposal, or a
concept, to the defenders in August 2000, which was both original and sufficiently
worked out to be capable of realisation and that the defenders made use of this
concept for their own purposes, to the exclusion of the pursuers and without
their agreement. I am persuaded that I
should not indulge in a mini trial on the documents lodged in process to assess
the originality of the concept and whether it had been sufficiently developed. It would be wrong to form a view as to the
likely prospects of success based on a perusal of the documents without hearing
the evidence which might bear on the issue.
In principle, therefore, I would be prepared to allow the pursuers a
proof before answer on this aspect of the case.
[27] The
difficulty, however, is in disentangling this from the remainder of the pleaded
case. Mr Peoples expressly disclaimed
any reliance on the defenders' use or misuse of information provided to them at
the meetings and presentations after August 2000. I would in any event have accepted Mr Clark's
argument that the passages which bear to put forward a case based on these
subsequent discussions are wholly lacking in specification and should not be
admitted to probation. These passages
occupy several pages of Article 4 of Condescendence - in fact all of it apart
from the opening 20 to 30 lines - and a large part of Article 7 dealing with
the Confidentiality Agreement. The
averment in Article 7, which I have quoted in para.[5] above, includes as
confidential information deserving of protection not just the initial concept
presented in August 2000 but all information given to the defenders
thereafter. The quantification of the
claim in Articles 29-31 assumes that the confidential information that the defenders
have used to their own ends includes not only the concept as presented but all
the individual items of information etc. passed to the defenders over the
months and years following; see, for example, the constant reference in Article
31 to the work, services and confidential information given to the
defenders. Mr Clark is right to say, in
reliance on Ocular Sciences Ltd v Aspect Vision Care Ltd and Ixora Trading Inc. v Jones that a case based upon misuse of confidential information
requires to be pled with great particularity, not only because of the
seriousness of the charge but for reasons of fair notice. It does not seem to me that the pursuers'
pleading does this in relation to the information allegedly passed to the
defenders after August 2000. Since,
however, reliance on these passages in disclaimed, it is not necessary to say
more on this question, save to say that if these matters are not relied on they
should not be pled as part of the cause of action laid against the
defenders. They serve to confuse what is
now put as a fairly simple and straightforward claim. It seems to me that the claim for breach of
confidence as pled, including as it does these averments which go well beyond
the case on which the pursuers intend to proceed, is so confusing, so unclear
and so lacking in specification as to be irrelevant.
[28] The
partnership claim is also irrelevant in my view, though in this case not
because it pleads too much but because it pleads too little. Not that there is necessarily anything
further which could be pled. It is clear
that the parties were at one stage discussing partnership. It may be that they agreed that they would go
into partnership, though it is disputed that they reached the stage of a
binding agreement to this effect. It may
be, as they aver, that there was a common understanding that they would proceed
as partners with the defenders. But none
of this amounts to a partnership. What
the pursuers aver is that there was an actual partnership, not just the
promise or expectation of one. They ask
the court to draw the inference that there was a partnership. They do not aver that any partnership
agreement was made either orally or in writing.
All that is relied upon is the statement in the prospectus, inserted by
the defenders, describing the defenders as "its partner". It is said that
"This deliberate alteration
to the prospectus ..., prior to its circulation to selected third parties in
confidence, was an acknowledgement and recognition of the fact that the
pursuers and the defenders had, by not later than 21 December 2001
when the prospectus in its final form was issued, formed a joint venture
partnership ..." (emphasis added)
I cannot agree, nor do I consider that this document
can possibly bear the weight placed upon it.
This is a prospectus inviting others to come into the project and form a
partnership with the defenders and the pursuers. In this context it is impossible, in my view,
to regard that statement as more than an indication of the entities issuing the
prospectus with whom the others are being invited to enter into partnership. It does not, to my mind, carry any connotation
that the pursuers were already in partnership with the defenders. It might, as Mr Peoples argued, be
interesting to ask the defenders' then Vice President (Europe) and Managing Director (UK)
why he inserted this description of the pursuers into the prospectus. But I do not think that his answer, whatever
it was, could advance the enquiry.
Partnership is a legal status with legal implications. There are certain features which are usually
to be found in a partnership. None are
present here. There was no firm name, no
partnership premises, no partnership employees and no partnership bank
account. Nor is there any averment that
steps were being taken to establish any of these. There were no partnership accounts or tax
returns. None of these is fatal to the
contention that there was a partnership, but the lack of any of such things
points strongly against the likelihood of there being one. In the quoted passage I have underlined the
words "by not later than 21 December 2001". As is apparent from this, there is no
averment as to when the partnership was formed.
I have referred to the Consultancy Agreement under which the pursuers
agreed with the defenders that they would provide the defenders with the
services of a consultant. As Mr Peoples
accepted in argument, this agreement is inconsistent with there having been a
partnership in existence at the time.
Although it was signed in January 2002, it is dated November 2001 and
for present purposes I am prepared to accept, since it is the construction most
favourable to the pursuers' argument, that the services provided under this
agreement were finished by early to mid-December 2001. Accordingly, the partnership, if it existed,
must have come into being then at the earliest.
This is inconsistent with the averment in Article 16 that the agreement
to issue the prospectus was to "expand" the members of the partnership. If that is correct, one looks in vain for any
averment of a meeting or discussion after early December 2001 at which the
partnership was agreed to be implemented.
So there is no averment of any facts from which the court could possibly
infer that the pursuers and the defenders were partners.
[29] The
difficulties, however, lie deeper than this.
On the pursuers' own averments there was no agreement on two elements
which were, and were clearly regarded by the parties as, critical. These were: (a) what, if any, capital
contribution the pursuers would be required to make; and (b) what percentage
profit share the pursuers would be entitled to.
As to the former, there were clearly on-going discussions as at 21 December 2001, and those discussions continued without being
resolved. As to the latter, the parties
were clearly in disagreement. The
pursuers aver that they were content to proceed with the question of capital
contribution unresolved, on the understanding that they were, to the defenders'
knowledge, willing to make a contribution.
It is implicit in the pursuers' case that they were willing to proceed
notwithstanding that there was an outstanding disagreement about profit
share. The default position in s.24(1)
of the Partnership Act 1890 is that, in the absence of any agreement express or
implied between the parties, "all the partners are entitled to share equally in
the capital and profits of the partnership and must contribute equally towards
the losses whether of capital or otherwise sustained by the firm." Clearly an equal share of the profits, and a
liability to contribute equally to the losses, was contemplated by neither
party. Why then should one infer that
this is precisely what the parties have brought about? That would be the effect of inferring the
existence of a partnership from the matters averred by the pursuers. To my mind it would make no sense in the
context of the discussions which had taken place between the parties.
[30] I turn
next to the claim for unjust enrichment.
In my opinion this claim is also irrelevant. I have already noted that, as pled, the claim
was founded upon the defenders having used the pursuers' work, services and
confidential information. However, Mr
Peoples now relies only upon the use by the defenders of the proposal put to
them in August 2000. It is clear that that
was put to the defenders in the hope of interesting them in the proposal. That is implicit, if not explicit, in the
pursuers' averments in Article 4. The
pursuers can at that time have had no contemplation or expectation that the
defenders would go ahead with the project, still less a contemplation or
expectation encouraged by the defenders.
Such a case falls into the principles exemplified in Site Preparations Ltd v Secretary of State for Scotland. On the facts now relied upon, there can be no
possible claim in unjustified enrichment.
[31] Finally
I should say something about the various attempts at quantification. I have already indicated that the resort to
the principles of unjustified enrichment cannot succeed on the limited
averments of fact now relied on. Nor in
my opinion is there any relevant case pled to support the Conclusion for count
and reckoning. There is no averment
(even to the extent of "believed and averred") that the project has made a
profit during the relevant period (the five years to December 2006), and the
possibility of their having been any profit during this period is negated by
the pursuers' own averments that the development of the Beatrice Wind
Farm Project is on-going and (in Article 28) that it was only in or about July
2006 that the first deep water offshore wind turbine was floated out. I would exclude both those cases. However, I see no reason in principle why the
assessment of damages for breach of confidence should not be expressed in the
form of a royalty, or a share of the gross profits or in any other way. It will be a matter for evidence. The difficulty is that the claims as
presently put forward attempt to value the pursuers' entitlement by reference
to the defenders' use not only of the original concept but also of all the
information supplied, allegedly in confidence, thereafter. I have already noted that Mr Peoples
disclaims any reliance on that part of the pursuers' case, and I would in any
event have excluded it from probation for the reasons I have given. Accordingly, if a claim is to be re-presented
limited to the defenders' use of the pursuers' concept as presented in August
2000, it will be necessary to re-cast the various ways in which recovery is
quantified.
Disposal
[32] I have
held that the pursuers do in principle have a relevant case, but only in
respect of the defenders' alleged misuse of their concept presented at the
meeting in August 2000. Even that case
cannot be admitted to probation on the pleadings as they stand. It is not for the court to re-draft the
Summons. The alternatives are dismissal,
leaving the pursuers to start again if so minded, or to allow the pursuers the
opportunity to try to improve their case by amendment. I propose to take the latter course. I shall therefore put the case out By Order
to see what the pursuers wish to do and to deal with other matters that may
arise, including the question of expenses.
