Mr Justice Morgan:
Introduction
- This is a claim by a company against a former director. The claim concerns computer software. The Defendant accepts that the copyright in at least some of the software was owned by the company. He also accepts that, while a director, he provided the software to another company. The Claimant says that the Defendant thereby infringed its copyright in the software and also committed various breaches of his fiduciary duty as a director. The principal issue at the trial was whether the Defendant had the permission of the Claimant to act as he did. Most of the alleged acts of infringement took place more than six years before this claim was brought. The Defendant says that the claim is statute barred but the Claimant replies that the limitation period was extended pursuant to section 32 of the Limitation Act 1980, by reason of deliberate concealment by the Defendant.
The parties
- The Claimant is IT Human Resources plc ("ITHR") which was incorporated on 24 November 1998. The original directors were Mr Gallagher and Mr Land, the Defendant. At all times since November 1998, Mr Gallagher has been the Chief Executive Officer of ITHR. Mr Land was said to be a "part-time employee" of ITHR from April 2004. He was appointed a non-executive director of ITHR on 27 March 2008 for a period of 3 years from 1 April 2008. He resigned as a non-executive director of ITHR by notice dated 9 May 2011, taking effect on 9 June 2011.
- Initially, Mr Gallagher had 90% and Mr Land had 10% of the issued shares. In around February 1999, Mr Land's 10% shareholding was split so that he retained 5% of the shares and the other 5% was owned by Ms Lawrence. ITHR commenced trading in April 1999 and has since that time carried on the business of a recruitment agency specialising in personnel who provide information technology services.
- On 1 April 2010, the shares in ITHR were acquired by a holding company, ITHR Group plc, and Mr Gallagher, Mr Land and Ms Lawrence in turn acquired shares in ITHR Group plc. On 2 July 2013, Mr Land and Ms Lawrence petitioned the court under section 994 of the Companies Act 2006 for an order that Mr Gallagher and/or Mr Mee (another director of ITHR Group plc) and/or ITHR Group plc do purchase their shares in ITHR Group plc. That petition is due to be heard in December 2014.
- For many years before 1998, and since that time, Mr Land has been an IT consultant and computer programmer. In 1994, he and Ms Lawrence, his personal and business partner, incorporated Transeuro Business Services Ltd ("TBS") which carried on the business of software development and IT consultancy. Mr Land has been throughout the sole director of TBS in which he and Ms Lawrence are equal shareholders. Mr Land described TBS as the vehicle through which he and Ms Lawrence provided IT services to various clients.
- Nationwide Technology Recruitment Ltd ("Nationwide") was a recruitment agency of which the directors were, at the relevant time, Mr Locke and Mr Oakes. Nationwide, or its assets, were acquired by Apex JMT Ltd in April 2009 and was dissolved on 11 May 2011. Mr Locke gave evidence at the trial of this claim. Mr Oakes had died in 2010. Mr Land had worked for Nationwide as an IT consultant on a number of occasions over the years. His connection with Nationwide dated back to 1996. In 1997 and 1998, Mr Land wrote a new computer recruitment system for Nationwide which was called "Esprit".
The relevant software
- The software which is at the centre of this dispute was created by Mr Land and was called "Interact". ITHR called an expert witness, Mr Dickson, to give evidence on a number of matters which were thought to be in issue in this case. Mr Dickson prepared a helpful and detailed report describing the software in question and addressing a number of questions which had been put to him by ITHR, in accordance with directions given by Deputy Master Jefferis on 19 July 2013. Mr Land did not call an expert witness. However, as Mr Land is himself an experienced software programmer, various issues addressed by Mr Dickson were also dealt with by Mr Land. It turned out that much of the contents of Mr Dickson's report was not in dispute. Nonetheless, there were disputes as to whether Mr Land had provided versions of the Interact software to Nationwide after March or April 2003. Those disputes are relatively narrow ones and I will deal with the technical evidence in relation to them when I consider them in due course. At this point, I will summarise certain matters which are described in Mr Dickson's report.
- Interact is a multi-user software system designed to assist in the conduct of a recruitment business for IT technical staff. It comprises: (1) a single executable program ("Interact.exe"), a copy of which executes on each user's desktop computer; and (2) a database hosted by Microsoft's SQL Server database server program, which typically resides on a separate server computer, linked to the users' computers by a local area network. The executable program was written using Microsoft's Visual Basic 6 ("VB6") programming language. SQL Server provides a relational database management system which can manage multiple databases concurrently. The database system used by Interact is a database schema defined by the developer of Interact and it comprises: (1) a number of data tables which hold the data used by the Interact system; and (2) a number of stored procedures which comprise program logic written in program language T-SQL. For any particular version of the Interact database schema, there may exist more than one physical database instance, each containing different data stored within the same logical schema. Each physical database instance together with the executing instances of Interact.exe connected to it, will comprise a separate instance of the entire Interact system.
- Source code comprises the set of files created by the system developer from which the executable system is generated. Typically, source code files contain text written in a programming language. By contrast, object code and machine code are not designed for use by humans but are the language which the electronic logic circuits in a computer are designed to recognise and act upon. Software tools called compilers automate the process of translating source code into object or machine code. Tools called linkers automate the process of joining together separate pieces of object code to form complete program files executable on an operating system.
- In the case of the Interact system, there are potentially two categories of source code involved, namely: (1) source code from which Interact.exe is generated; and (2) source code used to define and/or amend the database schema, including the names and structure of the data tables and the logic of stored procedures held within it. In respect of the database schema, source code files may or may not be created depending on the process the developer uses to define the schema. Database schema can be created using SQL Server Management Studio and then stored either: (1) in separate files which comprise source code for the database schema; or (2) directly within an instance of a newly created database in which case the database itself becomes the "source" for the schema at any point in time. The database code files which were disclosed to Mr Dickson did not comprise a complete set of source code for building each version of the database schema following either of these approaches.
The dispute
- ITHR contends that it owned the copyright in the source code and (if these were not part of the source code) the database schema involved in the Interact software. Mr Land accepts that ITHR owned the copyright in the Interact source code but denies that it owned the copyright in the database schema. ITHR says that Mr Land infringed its copyright when he, on a number of separate occasions over the years, made that software available to Nationwide. Mr Land does not accept that he made the software available to Nationwide on as many separate occasions as are alleged by ITHR but he accepts that he did, on a number of occasions, make the software available to Nationwide. Mr Land further accepts that in the absence of permission from ITHR his actions would amount to infringements of ITHR's copyright. However, Mr Land contends that he had the permission, given orally by ITHR, to do what he did on all such occasions.
- ITHR also says that Mr Land as a director of ITHR owed the company certain fiduciary duties. That is not disputed by Mr Land. ITHR then says that Mr Land acted in breach of those duties. In response, Mr Land relies upon the oral permission he had from Mr Gallagher which he says permitted him to act as he did without breaking any fiduciary duty to ITHR. ITHR, in particular, alleges that Mr Land was obliged to disclose his wrongdoing to ITHR and that he did not do so. Mr Land says that he did not commit any wrongdoing but even if he had done, he was not aware of that matter and cannot be said to have failed to disclose the same.
- If Mr Land did not have ITHR's permission in relation to all or any of his actions, questions of limitation may arise, depending on the date of any relevant infringement. ITHR accepts that the first, and the principal, occasions on which its copyright material was provided to Nationwide were more than 6 years before the issue of the Claim Form in this case on 3 October 2011. However, ITHR says that its claim was not statute barred on the expiry of the period of 6 years after an infringing act because ITHR can rely on the effect of section 32 of the Limitation Act 1980 to extend the limitation period until 2009. In particular, ITHR says that Mr Land knew he was acting wrongly in providing the software to Nationwide and the case comes within section 32(2) of the 1980 Act.
- This dispute is not the only dispute involving Mr Gallagher and Mr Land. I have referred earlier to Mr Land's and Ms Lawrence's petition under section 994 of the Companies Act 2006. A great deal of the evidence in the present case was put forward in relation to what were suggested to be relevant background matters or as being relevant to credibility but it is clear that much of the evidence I heard is more relevant to the section 994 proceedings. I will deal with the more general evidence in so far as it is helpful to me when deciding the narrower disputes of fact which I must resolve in order to decide the outcome of the present claim. Conversely, if I find that the more general evidence is not particularly helpful to me when deciding those narrower disputes of fact, I consider that it is desirable that I do not make findings which are unnecessary in the present proceedings but which might be of great importance in the section 994 proceedings with which I am not at present concerned.
The copyright material
- ITHR says, and Mr Land agrees, that at all material times it owned the copyright in the Interact source code. ITHR also says, but Mr Land denies, that at all material times it owned the copyright in the Interact database schema. ITHR relies upon the written agreement made between ITHR and TBS, which agreement was dated 10 February 1999. There is an issue as to whether that agreement was actually signed on that date or whether it was signed later and backdated. That issue is not material to the interpretation of the agreement.
- Under the agreement, TBS agreed to provide to ITHR certain hardware, certain packaged software and certain bespoke software development and services. The description of bespoke software development and services cross-referred to Schedule D to the agreement. Schedule D referred to software to be provided to capture all ITHR's functional requirements and to develop a modular software application to be known as "Interact" suitable to carry out ITHR's core business functions. TBS, acting through Mr Land, did provide source code and (if this is different) database schema to ITHR. The database schema were necessary in order for Interact to work as ITHR and TBS intended.
- The ownership of copyright in Interact was described in more than one place in the agreement dated 10 February 1999. The first reference in the agreement to ownership of the software in the agreement provides that all software supplied by TBS to ITHR was to become the property of ITHR on the expiry of 3 years from 10 February 1999, i.e. on 10 February 2002. That provision would appear to cover everything which could be described as the bespoke software and taken together with the description in Schedule D, the provision would appear to cover both the source code and (if not included in source code) the database schema. On the other hand, there is a further provision as to ownership of the software in Schedule D itself. That stated that:
"[t]he Interact system is deemed to be the property of ITHR who will have exclusive rights (intellectual or otherwise) to the application source code and any subsequent improvements and enhancements until the eventual transfer of the Interact application source code at the end of this agreement or upon termination of this agreement."
- Schedule D provided that "the Interact system" was to be the property of ITHR. That would appear to cover the source code and (if not included in source code) the database schema. Then Schedule D refers to exclusive rights to the source code and the eventual transfer of the source code. If the database schema were not part of the source code, then this provision would seem to exclude the database schema. There is also room for argument as to whether the reference to "improvements and enhancements" is a reference to improvements etc to the system or to the source code; the former could include the database schema whereas the latter would not if the database schema are not part of the source code.
- The agreement dated 10 February 1999 is not easy to construe. The difficulty in applying the agreement dated 10 February 1999 is compounded by the lack of clarity in the technical evidence as to whether the database schema were part of the source code.
- I reach the following conclusions as to the ownership of the copyright in the database schema pursuant to this agreement. If the database schema were part of the source code of Interact, then there can be no dispute that the copyright in the database schema has at all material times been owned by ITHR. If the database schema were not part of the source code, then I consider that they were part of the Interact system and the agreement, on its true construction, provided for the copyright in the software in the system to be owned by ITHR. I consider that this conclusion makes better commercial sense than holding that copyright in the database schema remained with TBS or Mr Land. I acknowledge that Schedule D refers to the source code and does not mention the database schema. However, that may show some confusion of thought as to whether the database schema were part of the source code, a confusion which continues to this day. I do not regard the reference to source code alone as having the effect of excluding the copyright in other parts of the software which make up the Interact system.
- ITHR also argued that even if the legal title to the copyright in the database schema belonged to Mr Land as the author of the schema or to TBS as the company of which he was a director, title in equity belonged to ITHR as a company of which Mr Land was a director at the relevant time. ITHR relied upon the summary of the law in the judgment of Mr Arnold QC (as Arnold J then was) in Vitof Ltd v Altoft [2006] EWHC 1678 (Ch) at [144] – [146]. I do not consider that that argument would apply to the period covered by the agreement dated 10 February 1999 (and it may be that the argument was not intended to be advanced in relation to that period). During that period, Mr Land was the author of the source code as a director of TBS, which contracted with ITHR on the terms of the agreement of 10 February 1999 as to ownership of the software. If that agreement required TBS to supply software to ITHR in circumstances where TBS was to retain copyright in the software, then those provisions would govern as between ITHR, TBS and Mr Land.
- After 10 February 2002, Mr Land made modifications to Interact. As I will later explain, he provided updates of Interact to Nationwide up to April/May 2003, but not thereafter. When he provided these updates, as I understand it, he provided something which was a copy of a substantial part of the material in which ITHR had copyright prior to 10 February 2002. It may therefore not be necessary to decide whether ITHR also had copyright in the new material which was not in the copyright material as at 10 February 2002. The position after that date and before April 2004 when Mr Land was employed part time by ITHR was not really explored in the evidence or in submissions. One analysis would be to say that Mr Land was creating the modifications as a director of TBS and TBS was supplying the modified software to ITHR. Another analysis would be that Mr Land was creating the modifications as a director of ITHR. I consider the second analysis is more accurate. There was no need for TBS to be involved in this work. ITHR was not paying TBS for what Mr Land was doing. If the second analysis is right, then I consider, applying the principles in Vitof Ltd v Altoft, that Mr Land as a director of ITHR held the copyright in the modifications on behalf of ITHR, which was the owner of that copyright in equity.
- From April 2004, Mr Land was an employee of ITHR and it was said that section 11(2) of the Copyright, Designs and Patents Act 1988 ("the 1988 Act") could potentially apply to new software written by that after that date. However, having regard to my later findings as to what copyright material was provided to Nationwide the position as to new software created after April 2004 does not arise.
Infringing acts
- I will not at this stage address Mr Land's case that he had oral permission from ITHR to do what he did when making copyright material available to Nationwide. Instead, I will put the question of permission on one side and consider what ITHR has established as a matter of fact as to the occasions when Mr Land made copyright material available to Nationwide in circumstances which would amount to copyright infringement, in the absence of a relevant permission from ITHR.
- It is clear from the contemporaneous documents which I will refer to in detail later in this judgment, that Mr Land provided copyright material, the Interact software, to Nationwide on a number of occasions in the period 2000 to 2002. It was accepted that these acts would amount to copyright infringement in the absence of permission from ITHR. There are issues however as to whether Mr Land infringed copyright in the period from mid-2002 to April or May 2003.
- Mr Dickson's conclusion was that certain functionality was added to the Interact source code after July 2002 and that it could be established with reasonable certainty that it was incorporated into Nationwide's version of the system. The particular functionality he referred to was described as, first, MyGroups and, secondly, the WIP or WorkInProgress screen accessed from a menu icon next to Search at the left of the menu icon bar. I will explain the position in relation to MyGroups and WIP separately.
- The introduction of MyGroups functionality involved, amongst other things, the introduction of new database tables. These database tables were not present in the schema of the Interact database backed up on 12 April 2002 but were present in the schema of the Interact database backed up on 23 May 2003 and in the Impact database backed up on 12 December 2006. In the Interact database backed up on 23 May 2003, the first entries in these database tables were 15 April 2003 (apparently on a trial basis) and the first non-trial entries were on 1 May 2013. The first entries in the Impact database backed up on 12 December 2006 were dated 14 May 2013. The source code module associated with this functionality appears in the disclosed source code for the first time in the folder named 2003.04.26a. That folder appears to have created on 25 or 26 April 2003. These facts indicate that Mr Land created source code in relation to MyGroups in late April 2003 and deployed that source code to Nationwide prior to 14 May 2013. In the absence of permission from ITHR, his actions were an infringement of ITHR's copyright in the source code.
- As to the WIP functionality, Mr Dickson's evidence in relation to does not clearly establish when that functionality was made available to Nationwide but it was not later than the time when the MyGroups functionality was provided to Nationwide.
- If the claim for copyright infringement is subject to a limitation period of 6 years from the accrual of the cause of action, then all the infringements mentioned above were more than 6 years before the issue of the Claim Form in this case on 3 October 2005. ITHR contends that the limitation period was extended in this case pursuant to section 32 of the Limitation Act 1980. Further, ITHR contended that whatever the position in relation to limitation, it was able to point to instances of copyright infringement within the 6 year period prior to the issue of the Claim Form. In particular, ITHR submitted that Mr Land had committed copyright infringement by providing Interact software which included Candidate Source functionality and Boolean search functionality in the period between 28 November 2007 and April 2009. Further, ITHR submitted that Mr Land infringed its copyright by making a back up copy of the Nationwide Impact database on 12 December 2006. Yet further, ITHR submitted that Mr Land had infringed its copyright by making copies of copyright material during support and maintenance of Impact for Nationwide.
- Mr Dickson gave evidence as to two particular functionalities added by Mr Land to the Interact source code. These were described as Candidate Source and Boolean free text searching. Mr Dickson's conclusions were that these functionalities were added to Interact after July 2002 and that it could be established with reasonable certainty from the technical evidence that these functionalities were not incorporated into the Nationwide system before 27 November 2007. I will discuss the position in relation to Candidate Source and Boolean searching separately.
- As to the Candidate Source functionality, the evidence shows that this was available to be used by ITHR from around February 2006. Mr Dickson referred to the technical evidence before him, in particular the 12 December 2006 back up of the Nationwide database and the Candidate Overwrite Error Log emails generated by Impact up to 28 November 2007 and concluded that this functionality was not deployed to Nationwide prior to 27 November 2007 (it may be the intended date was 28 November 2007).
- Notwithstanding the technical evidence, ITHR submits that Mr Land did make available to Nationwide copyright material relating to this functionality. In the light of the technical evidence, ITHR is constrained to submit that this happened after 28 November 2007 and before April 2009 when Nationwide was taken over by Apex. This submission is based on certain evidence given by Mr Bans which I will now describe.
- Mr Bans worked as a recruitment consultant for Nationwide between August 2004 and April 2009, when he was made redundant. At Nationwide, he used the Impact system. He was out of work from April 2009 until he joined ITHR in October 2009 and he remained at ITHR until September 2011. On joining ITHR he was shown the Interact system and immediately recognised the similarities between it and Impact. He told Mr Lewis of ITHR that Nationwide had a similar system to Interact and Mr Bans then had a discussion with Mr Gallagher about the similarities between Interact and Impact. There was no note of what Mr Bans told Mr Lewis and Mr Gallagher in 2009. On 17 June 2011, Mr Bans signed a witness statement of the evidence he could give in proceedings against Mr Land. The present proceedings were brought later, on 3 October 2011. The witness statement of 17 June 2011 was not disclosed to Mr Land until mid-way through the trial. Mr Bans signed a longer version of this witness statement on 14 March 2013 and a further witness statement on 12 August 2013. The witness statements signed in 2013 represented his evidence in chief at the trial.
- In his witness statement of 17 June 2011, Mr Bans stated that Interact was identical to Impact in every respect. In his witness statement of 14 March 2013, he repeated this evidence. He explained that this comment was from the viewpoint of a user of the system and he could not comment on the code used by the two systems. In his witness statement of 14 March 2013, he also explained that he had been asked by ITHR's solicitors to comment on some 8 different functionalities with a view to stating whether those functionalities were present in Impact. In relation to some of these functionalities, Mr Bans stated that he could not remember the position. In relation to Candidate Source (and Boolean searching to which I refer below), Mr Bans stated that these functionalities were present in Impact.
- Mr Bans used Impact up to April 2009 but not thereafter. He used Interact from October 2009 to September 2011. He made his witness statement referring to Candidate Source on 14 March 2013 and he gave his oral evidence in October 2014. When he used Interact, the system undoubtedly had Candidate Source. The question is how reliable is Mr Bans' evidence that Candidate Source was present in Impact prior to April 2009.
- When cross-examined, Mr Bans appeared quite clear that he had used Candidate Source at Nationwide. He also stated that he did not use it throughout his time at Nationwide but only for the last year or so. That evidence could fit with the technical evidence that Candidate Source was not available to Nationwide before 28 November 2007 and could support a finding that Candidate Source was deployed at Nationwide for a year or so before Mr Bans left Nationwide in April 2009. As against that, Mr Bans somewhat surprisingly could not remember that the computer screen displayed the name "Impact" at Nationwide. Further, he very fairly accepted that in his evidence given some years after his time at Nationwide, he might have confused the position at Nationwide with his more recent experience at ITHR where he did use Candidate Source.
- Mr Bans also gave evidence that during his time with Nationwide, the Impact system was upgraded and that Mr Land did some of the work of upgrading the system and that the upgrading involved the adding of functionalities. When cross-examined, he stated that Impact was updated at least once and he could not remember whether this involved adding new functions. I consider that Mr Bans was doing his best to assist with his recollection of these matters but I am not persuaded that Mr Ban's evidence is reliable in all respects.
- Mr Locke was asked about the presence of Candidate Source in Impact. His evidence was vague and I do not think that I could make a finding either way based upon it.
- Mr Land maintained that he did not provide any further versions of the software to Nationwide after March or April 2003. He further stated that he did not do any work for Nationwide after 2006.
- The technical evidence shows that Mr Land did not provide new versions of Interact software with added functionality between around April/May 2003 and 28 November 2007. Mr Land said that the reason for that was that by April/May 2003 he had provided all the software to Nationwide that he was permitted by ITHR to provide so he then could not provide any more. I will deal with that later when I consider whether Mr Land had permission to provide Interact software to Nationwide. But, in any event, no new Interact software was provided to Nationwide in that period. The Candidate Source functionality was available in the software from around February 2006 but yet it had not been provided to Nationwide by 28 November 2007. It is far from obvious why Mr Land would have chosen to provide this functionality to Nationwide only later at some point after 28 November 2007.
- ITHR submits that there are reasons to suspect the completeness of Mr Land's disclosure and ITHR therefore speculates that if Mr Land was in possession of more documents which he ought to have disclosed then those documents might have added to the technical evidence available to Mr Dickson and Mr Dickson might have been able to reach a conclusion about the deployment of Candidate Source at Nationwide after 28 November 2007. I consider that this submission is speculation only. There was no application before me for an order that Mr Land provide further disclosure and I have to act upon the evidence which has been put before me. I am not able to make a finding based on the possibility that there might be documents which I have not seen but which might, or might not, throw light on this issue.
- On this state of the evidence, I find that Mr Land did not provide the software relating to the Candidate Source function to Nationwide at any time.
- As to the Boolean search functionality, Mr Dickson explained that the necessary program logic was contained in the source code module Search.frm. The early versions of the source code (i.e. those dating from 2002 and 2003 which could be read) contained a version of this function. However, the logic of this function did not contain any attempt to parse the search terms and construct the database query accordingly. The missing logic was provided in the version of the software with the name 2006.07.25a which appears to have been created in June or July 2006. Mr Dickson explained his conclusion that the missing logic in this version of the software had not been deployed in Impact prior to 28 November 2007.
- In these circumstances, ITHR is constrained to submit that the new logic needed to make the Boolean functionality work was provided to Nationwide after 28 November 2007 and before April 2009 when Nationwide was taken over by Apex. The only basis for this submission is the evidence of Mr Bans. In his witness statement of 14 March 2013, he stated that the Boolean search function was present in Impact at Nationwide. When cross-examined it was pointed out to Mr Bans that Mr Land said that the Boolean search function was present from around 2001 and Mr Bans confirmed that he could not say when this function was added. In view of Mr Dickson's explanation that the software had a defective Boolean search function which was corrected in June or July 2006, I do not think that I can interpret Mr Bans' evidence as referring only to the Boolean search function as it existed after that date.
- Mr Locke was asked about the Boolean search function in Impact. He said that it was an intended function of the system but it did not work. This evidence fits very well with the technical evidence given by Mr Dickson. Mr Land said that he did not provide the additional logic for the Boolean search function to Nationwide at any time.
- Apart from these specific pieces of evidence, I also take account of the general considerations summarised in paragraph 40 above (when I was considering the Candidate Source function). Those general considerations apply equally to the issue as to the Boolean search function. It is not easy to see why Mr Land did not provide the missing logic from June or July 2006 (when it was available) to 28 November 2007 but yet did provide it at some time after 28 November 2007.
- On this state of the evidence, I find that Mr Land did not provide the missing logic in relation to the Boolean search function to Nationwide at any time.
- ITHR also contend that Mr Land infringed its copyright by making a backup copy of the Nationwide Impact database on 12 December 2006. It is not in dispute that this back up copy was made on that date. It was in the possession of Mr Land and he gave disclosure of it in these proceedings. It is to be inferred that Mr Land himself made this back up copy (rather than simply receiving a copy made by someone else). This is to be inferred because the documents include an invoice dated 12 December 2006, the same date as the back up copy was made, which recorded that Mr Land had done 4 days work for the purpose of providing support for Impact.
- I have already held that ITHR owned the copyright in the database schema created in the period up to 10 February 2002. I also hold that those database schema with or without modifications were used in the Nationwide database. The Nationwide database was copied on 12 December 2006. It was not argued that that copy did not involve the copying of at least a substantial part of the schema in which ITHR had acquired copyright. Accordingly, the making of a back up copy of the Nationwide database on 12 December 2006 involved copying of a copyright work owned by ITHR and would be an infringement of that copyright unless permitted by ITHR. If Mr Land originally had the permission of ITHR to make the Interact database schema available to Nationwide then ITHR accepts that Nationwide (and Mr Land as Nationwide's consultant) would have had the implied permission of ITHR to make this back up copy. Conversely, if Mr Land never had the permission of ITHR to provide the database schema to Nationwide, then the making of this backup copy of the database would not have been permitted by ITHR.
- Finally, as regards alleged acts of infringement, ITHR asserts that Mr Land provided maintenance and support to Impact at Nationwide. It is submitted that every time that Mr Land provided such support and maintenance, it must have been the case that he made further copies of copyright material. Although this allegation was, I consider, pleaded in paragraph 32 of the Particulars of Claim it received no attention during the trial and only really surfaced when I asked counsel for ITHR to identify any infringing acts which were allegedly committed within the period of 6 years before the issue of the Claim Form. ITHR then referred to this pleaded allegation. However, the fact that it was not the subject of any evidence by any witness means that I am not able to make any worthwhile findings as to what occurred. I can see that there might have been copying but I do not consider it would be safe to make any findings that it did happen or when it happened or the extent of any copying on any such occasion. In any case, the infringement which is alleged is highly technical and I am very doubtful whether ITHR would be entitled to any worthwhile remedy in relation to it. As it is, I do not uphold this claim to a further infringement.
Without the licence of the copyright owner
- Did Mr Land have the permission of ITHR to do what he did? This was the principal dispute of fact at the trial. It is necessary to consider a number of matters on the way to my overall decision on the point. These are:
(1) the relevant legal principles;
(2) Mr Land's pleaded case;
(3) Mr Land's oral evidence;
(4) Mr Locke's oral evidence;
(5) Mr Gallagher's oral evidence;
(6) the evidence of other witnesses;
(7) the contemporaneous documents;
(8) my findings.
(1) The relevant legal principles
- Mr Land contends that the steps which he took to make Interact available to Nationwide were done with the permission of ITHR. Accordingly, he says that the allegedly infringing acts were not done "without the licence of the copyright owner" (see sections 16(2) and 23 of the 1988 Act) and so were not in law infringements of copyright.
- For the purposes of the statutory provisions, there is no requirement that a licence be in writing or comply with other formalities. A licence can therefore be expressly agreed orally or it may be implied into terms which are expressly agreed or it may be inferred from conduct. A licence need not be contractual; it may be gratuitous. The burden of proving the existence of a licence is on the person who asserts that a licence was granted, in this case that is Mr Land.
(2) Mr Land's pleaded case
- Mr Land's Amended Defence and Counterclaim sets out the case which he advances as to the existence of express permission from ITHR for him to provide Interact software to Nationwide. The case put forward in that pleading has the following principal ingredients:
(1) Mr Land wrote Esprit for Nationwide in 1997 to 1998;
(2) Esprit was jointly owned by TBS and Nationwide but TBS owned the source code of Esprit;
(3) Mr Land brokered an agreement (called "the Tripartite Agreement") between ITHR, Mr Land/TBS and Nationwide in late 1998, pursuant to which:
a) Mr Land would not carry out further developments of Esprit but would write Interact;
b) ITHR would be permitted to use Esprit at no cost while Interact was being developed;
c) When Interact was developed sufficiently so that it was of equivalent functionality to Esprit and was stable, Nationwide would receive a version of Interact at no cost;
d) Mr Land could continue to develop Interact for ITHR but no later ITHR copies of the Interact source code would be provided to Nationwide;
e) TBS would enter into an agreement with ITHR for the provision of hardware services and software in exchange for the use by TBS of ITHR's offices;
(4) The agreement which was dated 10 February 1999 (although it was actually signed after that date) was the agreement entered into pursuant to (3)(e) above;
(5) TBS and Nationwide made Esprit available to ITHR;
(6) In December 1999, ITHR stopped using Esprit and thereafter used Interact;
(7) Interact was installed at Nationwide in October 2000 for testing purposes;
(8) Between August 2002 and April 2003, Interact had reached the same functionality as Esprit and was stable and was made available to Nationwide;
(9) The source code for the version of Interact provided to Nationwide was frozen at that time;
(10) In January 2002, Nationwide informed Mr Land and Mr Gallagher that it would like to purchase future versions of Interact from ITHR;
(11) Mr Gallagher refused to permit Nationwide to purchase future versions of Interact from ITHR unless it paid ITHR at least £25,000;
(12) Nationwide was not prepared to pay the requested sum of at least £25,000 to ITHR and so it did not obtain any further versions of Interact after that time (although Mr Land also pleads that he continued to supply Interact to Nationwide in the period from August 2002 to April 2003);
(13) Nationwide did not pay Mr Land or TBS for the versions of Interact provided to it.
- Mr Land replied to two Requests for Further Information in relation to his pleaded case as to the agreement which he relied upon. One question related to TBS's ability to use Interact source code up to a certain date to prepare subsequent deployments of compiled code at Nationwide. Mr Land answered that question "Yes" in his reply but changed the answer to "No" during his cross-examination. In another reply, Mr Land stated that it was agreed that Nationwide would pay ITHR £8,000 for the version of Interact that was of equivalent functionality to Esprit and was stable. The same reply seemed to say that Nationwide had a right to future versions of Interact thereafter at a price of £8,000; this seemed to be a further £8,000. Mr Land's oral evidence was that Nationwide was entitled to the first version of Interact at no cost and that his reply in his pleading had been a mistake. In a second reply to a Request for Further Information, Mr Land stated that the agreement under which Nationwide was to be entitled to upgrades of Interact for £8,000 was separate from the original agreement under which Nationwide was to be entitled to a version of Interact of equivalent functionality and stability to Esprit. In his oral evidence, Mr Land said that there was only one agreement although it had two strands, the first relating to the first version of Interact to be provided to Nationwide and the second strand relating to upgrades.
(3) Mr Land's oral evidence
- Mr Land described the agreement he had made with ITHR and Nationwide in his witness statement. There are certain differences between that witness statement and the case pleaded in the Amended Defence and Counterclaim. First of all, it is said that Esprit was not jointly owned by TBS and Nationwide; the matter is put somewhat differently. Secondly, it is said that Mr Land did not need Nationwide's permission to provide Esprit to ITHR but he wished to ask Nationwide "out of respect"; it is also suggested that he needed to explain to Nationwide that he would not be working on future development of Esprit. Thirdly, it is said that ITHR would give Nationwide an option to purchase more advanced versions of Interact for a one off fee of £8,000 plus a licence fee of 15% (£1,200) per annum for support and upgrades. Fourthly, in his witness statement, Mr Land said that Interact had reached the same functionality as Esprit in September/October 2001 and that the decision was taken to freeze the code of Interact at that point and the go live date for Nationwide became May 2002. Mr Land confirmed the truth of this witness statement in his evidence in chief.
- Mr Land was cross-examined in detail about the alleged agreement. He said that the relevant agreement was reached in November or December 1998. He said that there was one agreement with two strands. The first strand related to the provision of Interact with equivalent functionality and stability to Esprit. The second strand related to upgrades to Interact.
- At this stage I will make the following comments on Mr Land's evidence. His evidence related to what he said were casual oral discussions in November or December 1998. That was a considerable time ago. There is no written record of these discussions to refresh Mr Land's memory. Parts of his account were not very convincing. That comment applies to the suggestion that Nationwide's consent was needed for Mr Land and ITHR to do what was proposed. It emerged that Nationwide's consent was not needed to TBS making Esprit available to ITHR. It was then suggested that Mr Land had committed himself to Nationwide to update Esprit and that he was letting Nationwide down. I was not convinced that Mr Land was under any commitment to Nationwide. Further, although Mr Land suggested that his new business venture with ITHR would mean that he would have to drop Nationwide as a client, he did not at any time drop it as a client; indeed, he updated Esprit so that it was called Esprit 2000 and later Esprit 2001. Mr Land was also not very convincing about what was meant by Interact having equivalent functionality and being stable or having equivalent stability (as it was also put). It seems to me that these terms are inherently vague. As to the alleged agreement binding ITHR to provide upgrades, there are again difficulties with what was alleged. Was ITHR obliged to develop Interact and create upgrades? It seems surprising that Nationwide should become entitled to all upgrades at all times in the future in return for a one-off payment. The annual payments were to do with maintenance and support and were not for the sale of the upgrades themselves. Mr Land was also unconvincing in his attempt to describe the steps he took to "freeze" the Interact source code for use by Nationwide. It emerged that he did not take any steps of that kind although I accept that he had available a whole series of versions of Interact at different dates. Further, the existence of an agreement to provide Interact to Nationwide does not fit very well with the terms of the agreement which was dated 10 February 1999.
- As against these comments, I recognise that the events in question were a long time ago and it may be that although Mr Land's pleadings and his evidence contained inconsistencies that does not wholly invalidate his basic evidence that ITHR through Mr Gallagher permitted him to provide to Nationwide something in relation to Interact. Accordingly, at this stage I would not reject Mr Land's evidence in its entirety but I would wish to consider the other evidence which is before me.
(4) Mr Locke's oral evidence
- Mr Locke of Nationwide gave evidence. Mr Locke plainly had great difficulty in remembering matters of detail. He could not recall the approximate dates of relevant events and he probably described events in the wrong sequence. It emerged that some of the expressions in his witness statement were influenced by Mr Land who assisted Mr Locke with his recollection. Mr Locke was unclear about what Nationwide was to be expected to pay for Interact, if it was provided to it. He stated in his oral evidence that Nationwide was to pay £8,000 for the first version of Interact with equivalent functionality to Esprit and then a further £8,000 for upgrades to Interact. I commented above on the features of Mr Land's evidence which were not convincing and the same comment applies to Mr Locke's evidence in so far as it had a similar content. At the time of the relevant events, Mr Locke relied on Mr Land alone; Mr Locke only met Mr Gallagher once and it was not suggested that any progress was made at that meeting. Mr Locke relied on Mr Land to produce a software package to replace Esprit. Mr Locke knew that Mr Land was writing a software package for ITHR and Mr Locke expected that Mr Land would make that package available to Nationwide as well. The tenor of Mr Locke's evidence was that he expected things would happen and be agreed and everything would be alright; in these respects, he relied on Mr Land to deliver what Nationwide needed.
(5) Mr Gallagher's oral evidence
- Mr Gallagher gave evidence to the effect that ITHR had not at any time given a licence to Mr Land to provide any part of the Interact software to Nationwide. He said that there was no agreement of any kind in November or December 1998 about using Esprit instead of Interact. He said that the question of using Esprit only came up in about April 1999 when Mr Land had let ITHR down by not providing Interact in a reliable form to enable ITHR to begin trading at that time. In those circumstances, Mr Land suggested to Mr Gallagher that ITHR should use Esprit until Mr Land had finished his work on Interact. Mr Land told Mr Gallagher that Mr Land had full intellectual property rights in Esprit. Mr Gallagher did not expect that ITHR would give Nationwide anything in return for ITHR's use of Esprit. Mr Gallagher said that he and Mr Land had loosely discussed the possible release of Interact to Nationwide on ITHR's terms and for monetary return in due course. He explained that was why an agenda in January 2000 referred to a possible release of Interact to Nationwide; that reference did not mean that there was already in existence an agreement binding ITHR to provide Interact to Nationwide. Similarly, a document from August 2000 which mentioned both Interact and Nationwide was explained by the possibility that there might be in the future an agreement to sell Interact to Nationwide. Mr Gallagher stated that he was introduced to Mr Locke and Mr Oakes of Nationwide in 2000 and there was some discussion about Nationwide buying a copy of Interact once there was a version ready to use but no agreement was reached. Mr Gallagher referred to certain discussions he had with Mr Land in early 2002 by reference to the contents of emails which passed between them at that time. Mr Gallagher said that he only found out in October 2009 that Nationwide had a system called Impact which was virtually identical to Interact. When he discovered this, he was shocked and angry. He telephoned the managing director of Apex which had bought Nationwide or its assets and he told him that Nationwide did not have the right to sell Impact and that he (Mr Gallagher) proposed to take legal advice. Mr Gallagher did not confront Mr Land at that time. Mr Gallagher was concerned that Mr Land might sabotage ITHR's systems and Mr Gallagher pressed on with the project to introduce Interact.net.
- Mr Gallagher was pressed in cross-examination with Mr Land's case as to an agreement in late 1998 to provide Interact to Nationwide but he consistently refused to accept that there was any such agreement. He did say, however, that from 1999 onwards, ITHR did have in mind the possibility of being able to sell a version of Interact to Nationwide at an appropriate time.
- Mr Gallagher was probably wrong in some of the evidence he gave. I think that he was wrong to insist that an agreement which is dated 10 February 1999 was actually signed on that date, rather than being backdated. I also have grave doubts about Mr Gallagher's evidence that he had a meeting with Nationwide in the Summer of 2000. It may be that this was a false memory on his part created by seeing a document in late July or August 2000 which contemplated a sale of Interact to Nationwide. It is also possible that Mr Gallagher made up this evidence to help him explain away the reference in that document although it would have been rather dangerous knowingly to invent a meeting. These comments on Mr Gallagher's evidence would not be enough to cause me to disbelieve his evidence.
(6) The evidence of other witnesses
- Mr Land called Mr Cook and Mr Newton to give evidence. They were, and are, friends of Mr Land and in the early days of ITHR's business, they went to ITHR's offices to assist Mr Land in various ways. They were not able to recall being party to any relevant conversations between Mr Gallagher and Mr Land and they were not able to point to anything specific to show that Mr Gallagher knew that Mr Land was providing Interact to Nationwide prior to any agreement by ITHR to sell it to Nationwide. Their evidence was that they knew that Mr Land was providing Interact to Nationwide, that Mr Land was open about it and Mr Gallagher must have known that was happening. Their evidence can only be of limited weight. The relevant events were a long time ago and these two witnesses were not directly involved in the relevant matters. Further, their evidence is effectively of impressions they believe they remember they formed at the time. I do not dismiss their evidence but I am inclined to give it little weight and continue to look for something more solid to enable me to choose between the conflicting evidence of Mr Gallagher and Mr Land. Ms Lawrence gave evidence but she was not able to add anything significant on the essential matters in dispute.
- ITHR called Mr Lewis, Mr Vearncombe, Mr Mee and Mr Bans to give evidence. Mr Lewis gave evidence of certain conversations he said he had with Mr Land but I am not persuaded that he can really remember the details of those conversations which are now said to be of importance. Mr Vearncombe was not able to help much on the matters now in dispute. Mr Mee gave evidence that Mr Gallagher appeared to be shocked when Mr Bans revealed in October 1999 that the Impact system at Nationwide was virtually identical to Interact. He also explained why ITHR did not dismiss Mr Land in or after October 2009. He gave evidence that Mr Gallagher had complained to Apex about the use of Impact. I have referred to certain evidence given by Mr Bans. He also told me that Mr Gallagher appeared to be shocked when he heard of Nationwide's use of Impact.
(7) The contemporaneous documents
- Having made some preliminary comments on the oral evidence given by Mr Land, Mr Locke and Mr Gallagher and other witnesses and having noted the deep conflict between the rival accounts, it is essential to look carefully at the contemporaneous documents to see what light they shed on the matters in dispute. Unfortunately, the light shed is not as helpful as one would have liked but nonetheless I consider that there are matters of real value which in the end help me to decide which account to accept. I will now describe these documents in chronological order.
- In October 1998, Nationwide were just beginning to use the Esprit software. On 20 January 1999, Nationwide expressed approval for some further improvements which had been made to Esprit. However, on 11 February 1999, Mr Locke emailed Mr Land referring to a possible "new system".
- On 3 March 1999, Mr Land prepared a "To Do" list which included the tasks of building a Nationwide database, an Interact database and setting up Interact client on all PCs.
- In January or February 1999, Mr Gallagher of ITHR had instructed solicitors to draft a reciprocal services agreement between ITHR and TBS. There seems to have been a "communications agreement" or a draft of such an agreement in existence but there is no evidence of what that was. By 3 March 1999, the solicitors had provided Mr Gallagher with a draft agreement to be entered into by ITHR and TBS. On 8 March 1999, Mr Gallagher wrote to the solicitors explaining why the draft agreement was not suitable. Mr Gallagher explained that what "we" were looking for was a document to protect both ITHR and TBS in the event of an irrevocable breakdown of their relationship, for example, if one or other entity went into "receivership"; Mr Gallagher wanted a document which would reflect the day to day dealings of the parties, the basic reciprocal service provision and "factual hardware provisions". Mr Gallagher added that the agreement should provide for TBS to occupy ITHR's premises as this was a key factor for TBS "in arranging their tax affairs". The tax affairs were not specified but Mr Gallagher referred to TBS's accountants querying a large capital outlay (presumably by TBS). Mr Gallagher also referred to the "Interact database system". He agreed with the solicitors that the system might have some resale value and that that was something which ITHR might wish to pursue but the subject could be dealt with by a short provision by which TBS assigned to ITHR all rights to the software, either in development or on delivery.
- ITHR acting through Mr Gallagher and TBS acting through Mr Land signed a document called "Contract Agreement". The document is dated 10 February 1999. Mr Gallagher gave evidence that this document was signed on that date. Mr Land gave evidence that it was signed later. I consider that in view of the terms of Mr Gallagher's letter dated 8 March 1999 to the solicitors, the document was drafted and signed after 8 March 1999 and then backdated to 10 February 1999, which seems to have been a significant date in terms of the issue of shares in ITHR. The agreement obliged TBS to provide bespoke software development and services in return for the provision of office services by ITHR to TBS for a period of 3 years from 10 February 1999. It was provided that upon expiry of this 3 year period, all software supplied would become the property of ITHR. The agreement also provided for the consequences of TBS going into liquidation (or other similar events) or ITHR ceasing to trade; in the latter event, the supplied software was to remain the property of TBS. Schedule D to the agreement described the software development which TBS was to undertake. The software was described as "Interact" in terms which cover the bespoke system known as Interact which Mr Land created. I referred earlier to the description of Interact in Schedule D to this agreement.
- On 9 March 1999, Mr Locke emailed Mr Land with a number of suggestions for the Interact software. He proposed certain "slight customisations for the standard build" to suit Nationwide.
- ITHR started trading on 6 April 1999 from offices at Panton House, 25 Haymarket, London SW1.
- On 23 April 1999, Mr Gallagher emailed Mr Land with a work list. It is clear from this list that ITHR had Esprit available to it at that date and that Mr Gallagher knew that it was "Nationwide Esprit" i.e. that the system had been used by Nationwide. As to Interact, Mr Gallagher proposed that he and Mr Land agree a project plan and functionality for Interact and also that Mr Land "issue final release of Interact".
- On 11 May 1999, Mr Gallagher emailed Mr Land in terms which showed that ITHR had access to a Nationwide database on Esprit.
- The documents include a draft assignment agreement dated 9 August 1999 dealing with an assignment of (amongst other things) copyright in Interact. The draft was not executed and I was not given any evidence as to the circumstances in which it was prepared.
- On 9 September 1999, an email from Mr Vearncombe of ITHR shows that ITHR was still using Esprit. By 6 October 1999, Mr Land had issued a version of Interact to ITHR whether for testing or for more general use. On 3 December 1999, Mr Gallagher referred to the possibility of Interact being activated soon thereafter.
- On 23 January 2000, Mr Gallagher prepared an agenda for an ITHR board meeting. Under the heading "Interact", Mr Gallagher referred to releases of Interact. It is clear that a version or versions of Interact had been provided to ITHR and that there had not yet been "full implementation". Mr Gallagher added to the agenda a line which referred to "Release to Nationwide". Mr Land said that this was a reference to the agreement that Interact would be released to Nationwide; he said that the question to be discussed at the meeting was as to the stage when Nationwide would be provided with Interact and it was agreed that it would not be provided to Nationwide at that stage. Mr Gallagher said that he had no specific memory about this item on the agenda. It was said that at that time, Interact was not sufficiently developed to be released to Nationwide for its use. There was no note of what was discussed at this board meeting.
- By 17 May 2000, Mr Land had made Interact available to Nationwide. Mr Locke emailed on that day to say he was impressed with the new system and was keen to go ahead as fast as possible. Mr Locke tested the new system in the days following this email.
- ITHR's accounts for the year to 31 March 2000 were signed on 21 June 2000. The accounts stated that ITHR had implemented its recruitment database management system in January 2000.
- On 1 August 2000, Mr Gallagher emailed Mr Land with a long list of comments on Interact. In relation to one point, Mr Gallagher suggested that this would be a " … big security issue for Nationwide and ITHR as we grow …". Mr Land said in evidence that this comment showed that Mr Gallagher knew of the existence of the agreement under which Nationwide was entitled to Interact. Although Mr Gallagher suggested he had a meeting with Nationwide in Summer of 2000, there are no documents to support this suggestion.
- On 7 August 2000, Mr Locke emailed Mr Land referring to problems with Esprit and expressing a wish to upgrade to Interact as soon as possible. On 1 November 2000, Mr Locke emailed Mr Land in relation to Interact. It is clear that Mr Locke had been provided with another version of Interact and that he wanted to adopt it for Nationwide. In the days following that email, Mr Locke continued to test Interact. On 23 January 2001, Mr Locke emailed Mr Land enquiring when Nationwide could make the transition to Interact.
- Emails between Mr Locke and Mr Land on 17 August 2001 suggest that Interact was being installed at Nationwide. Also in 2001, Mr Locke referred to Esprit 2001. He told me that Mr Land had provided updated versions of Esprit which were called Esprit 2000 and Esprit 2001. An email dated 12 September 2001 from Mr Locke to Mr Land showed that Mr Locke was accessing Interact via a log in on the ITHT Extranet. On 9 October 2001, Mr Land submitted three invoices to Nationwide. Each invoice was for £2,000. The first two certainly related to the provision of Interact to Nationwide; it may be that the third invoice was for general maintenance and support. On 23 October 2001, Mr Locke asked Mr Land if Nationwide could have Interact running by Christmas 2001.
- The documents show some significant exchanges in early 2002. On 22 January 2002, Mr Land emailed Mr Locke and told him that Mr Gallagher wanted to meet him in connection with Interact. Mr Land wrote the following: " … perhaps at our office because you haven't seen the system yet." By this time, Mr Locke had indeed seen various versions of the software so this statement cannot be interpreted as meaning that Mr Locke had not seen the Interact system. There are two other readings of this statement which were suggested to me. Mr Land said that although Mr Locke had seen the Interact system he had not seen certain extensions to the system which ran independently; these were Interact Web and the Interact information centre. Mr Land could not really remember this as the intended meaning but he thought it might have been what the email was trying to say. Mr Locke was not able to offer any explanation for this statement. The other way to react to the statement in the email is to hold that Mr Land was warning Mr Locke that when he met Mr Gallagher with a view to Nationwide buying Interact it would be on the basis that Nationwide had not previously seen the system. This reading of the statement in the email would fit with Mr Land's suggestion that he and Mr Locke would need to discuss the matter first before meeting Mr Gallagher.
- On 25 January 2002, Mr Locke emailed Mr Land about adopting Interact and stated that " … we are now panicking about this! so, we will need to agree the correct tack to take when we meet up".
- On 28 January 2002, Mr Gallagher emailed Mr Land asking whether he had spoken to Mr Locke about a meeting. Mr Land replied referring to there being no agreement that he was staying on at ITHR. This seems to have been a reference to the proximate expiry of the three year period from 10 February 1999 referred to in the agreement which bore that date. Mr Land referred to Mr Gallagher's plan to use "Nationwide income"; this seems to have been a reference to a payment being made by Nationwide for the use of Interact. Mr Land stated that was going to see Nationwide without Mr Gallagher. He suggested that he was inclined to rewrite Esprit.
- On 28 January 2002, Mr Locke emailed Mr Land referring to the transition to Interact and to the February deadline which suggests that Mr Locke knew something about the three year agreement that Mr Land or TBS had with ITHR.
- On 31 January 2002, Mr Land met Mr Locke and Mr Oakes of Nationwide. On 1 February 2002, Mr Locke emailed Mr Land expressing the hope that matters could soon be sorted out with Mr Gallagher.
- Although the evidence was far from clear about this, it seems that there was a meeting between Mr Gallagher, Mr Land and Messrs Locke and Oakes from Nationwide. The meeting was probably in February 2002. None of the witnesses were able to recall much about this meeting and it seems that no real progress was made in relation to any negotiations for Nationwide to be provided with any versions of Interact.
- On 13 February 2002, Mr Land emailed Mr Gallagher saying that he did not want to write another recruitment software system. He then referred to a possible sale of some or all of Interact to Nationwide inquiring what parts would be sold for £8,000 and what would not be sold. Mr Land referred to a copy of the source code being made available to Nationwide but for its use only and not for resale. Mr Gallagher replied on 14 February 2002 identifying the parts of the software which could be sold for £8,000 and which parts would not be included in that price. On 16 February 2002, Mr Land and Mr Gallagher had a discussion about a sale of Interact to Nationwide. I did not have any clear evidence as to what was said. On 17 February 2002, Mr Gallagher asked Mr Land for a note on "Nationwide's Interact functionality". I was not shown a copy of any such note. There were no documents showing any communications between Mr Land and Nationwide at this time.
- There does not appear to have been any further discussion between ITHR and Nationwide after this time about a possible sale of Interact to Nationwide. Effectively, the limited negotiations which took place got nowhere and were not pursued. The emails from this period do not suggest at any point that there had been a previous agreement between ITHR and Nationwide (brokered by Mr Land) for the provision of a version of Interact free of charge followed by a sale of all upgrades for £8,000 and that Mr Gallagher had reneged on that agreement. The absence of any such comment, particularly in emails passing between Mr Land and Mr Locke, is very surprising if there ever had been such an agreement.
- In April 2002, Mr Land and Mr Locke exchanged emails referring to the "new system roll out". On 8 May 2002, Mr Land referred to Nationwide's "Interact release". On 17 May 2002, Nationwide decided to change the name of the Interact software which it was using to Impact. On the same day, Mr Locke wrote to Mr Land stating that he hoped to change to the new system in a few days. On 5 August 2002, Mr Land invoiced Nationwide for £2,000 for data conversion of Esprit to Impact. On 12 November 2002, Mr Land invoiced Nationwide for £2,000 for the installation and data migration of a bespoke recruitment system. Taking these two invoices with two of the invoices dated 9 October 2001, Mr Land invoiced Nationwide for a total of £8,000 in relation to Interact/Impact. Mr Land told me that these invoices were for server maintenance and database work. That is now how matters are described in the invoices. I do not accept Mr Land's evidence on these invoices. I see no reason not to take the description in the invoices as accurate.
- By July 2005, ITHR were planning on a new recruitment system to be called Interact.net which used different technology from the earlier versions of Interact. On 21 July 2005, Mr Land emailed Mr Gallagher stating that the move to .net was more of a re-write than a migration. Not much seems to have happened in that respect and on 4 June 2006, Mr Gallagher wrote to Mr Land and referred to the need to convert to .net. In his witness statement, Mr Land said that he started work on Interact.net in 2009.
- The last invoice from Mr Land to Nationwide was 12 December 2006.
- I refer at this point to something which is not revealed by the documents. In October 2009, Mr Bans (who had previously been employed by Nationwide) joined ITHR and told Mr Lewis and then Mr Gallagher that Nationwide used Impact software which was virtually identical to Interact. Mr Gallagher was said to have been shocked by this information. It is common ground that Mr Gallagher did not say anything about this at the time or indeed until a letter before action was sent by ITHR's solicitors to Mr Land on 7 July 2011. There are no documents before me showing ITHR's reaction to Mr Bans' information whether in October 2009 or at any later time.
- With effect from 1 April 2010, ITHR Group plc acquired the shares in ITHR and Mr Land amongst others was issued with shares in ITHR Group plc. Although the effective date was taken as 1 April 2010, it seems that Mr Land was involved in the matter somewhat after that date.
- There are emails beginning in April 2010 which show that Mr Land was writing Interact.net for ITHR at that time. Those emails refer to a very large number of issues with .net.
- On 7 May 2010, Mr Gallagher emailed Mr Land asking for an update regarding Interact.net. Mr Gallagher stated that Mr Land had told him in December 2009 that the new software was ready but that not much had happened in the six months since then. On the same day, Mr Land replied stating that Interact.net had been released in January and February 2010 but was not fit for purpose. Mr Land appears to have done further work on .net in June and July 2010. On 22 July 2010 Mr Gallagher emailed Mr Land asking for a predicted release date. On 5 August 2010, Mr Lewis of ITHR stated that Interact.net was ready for use. There appear to have been some problems with .net after that date.
- On 9 May 2011, Mr Land gave one month's written notice to resign as a non-executive director of ITHR. On 12 May 2011, Mr Gallagher responded to this notice stating that he was "somewhat surprised and taken aback".
- On 7 July 2011, solicitors for ITHR wrote to Mr Land requiring him to give various undertakings, including an undertaking to pay monetary compensation to ITHR for Mr Land's infringement of ITHR's copyright by reason of the provision of Interact to Nationwide. The letter stated that Mr Gallagher recalled Mr Land trying to persuade him to sell Interact to Nationwide in 2002 but Mr Gallagher had refused to do so because Nationwide would not pay enough for it. The letter also stated that ITHR had become aware of the alleged copyright infringement in "mid 2009" when it hired a new employee (this must have been a reference to Mr Bans).
- On 12 August 2011, solicitors for Mr Land replied. They stated that Interact had been provided to Nationwide pursuant to a verbal agreement between ITHR, TBS and Nationwide pursuant to which Nationwide allowed ITHR to use its software, Esprit, whilst Interact was being developed and in return ITHR agreed that Interact could be installed at Nationwide. It was then said that in 2002, Nationwide and TBS approached ITHR in an effort to purchase future updates of Interact but no agreed was reached and Mr Land did not supply Nationwide with any updates following the 2001 code. It was further said that Mr Land provided Interact to Nationwide with Mr Gallagher's express authority.
(8) My findings
- With the assistance of the contemporaneous documents, I can now describe what I consider probably happened in this case. I will not make findings on all of the disputed matters of fact but I will make findings on, at least, the matters which are essential to my determination of the issues.
- I am not able to find whether in November and December 1998, Mr Land and Mr Gallagher expected that it would be necessary to use Esprit from April 1999. I am inclined to doubt that they did have that expectation and, in that case, it would follow that they only made their decision to use Esprit at some later time, before April 1999.
- I do not think that Nationwide contributed anything to Mr Land's proposal that ITHR should use Esprit until Interact was more fully developed. Nationwide did not have any intellectual property rights in Esprit. Further, I do not consider that Mr Land was letting Nationwide down by withdrawing his services, not least because he did not withdraw his services. I do not consider it at all likely that Mr Gallagher would have agreed to Nationwide having any version of Interact free of charge. It is clear to me that Mr Gallagher intended that if the time came when Interact was provided to Nationwide, it would have to pay for it. I am able to find that from some stage in 1999, Mr Land and Mr Gallagher contemplated that a time might come when Interact could be sold to Nationwide. I find that Mr Gallagher and Mr Land did not make the agreement which Mr Land alleges was made, whether as regards the alleged first strand or the alleged second strand.
- What seems to have happened is that Mr Land expected that a time would come when Nationwide might be able to buy a version of Interact from ITHR. Mr Land told Nationwide that this was the position. Mr Land anticipated the making of some such agreement to buy Interact by providing versions of it to Nationwide. Mr Land did not tell Mr Gallagher what he was doing. Towards the end of the three year period covered by the agreement dated 10 February 1999, Mr Land was considering leaving ITHR and realised that he would have to do something to help Nationwide acquire Interact. This led to Mr Land trying to broker a deal between ITHR and Nationwide in January and February 2002. Unfortunately, Mr Gallagher would not sell Interact at a price which Nationwide was prepared to pay. The negotiations were short lived and came to an end.
- Nationwide had relied on Mr Land to deliver a version of Interact which Nationwide could use. Mr Gallagher's stance in 2002 meant that Mr Land could not deliver. That left Nationwide with a problem in that it intended shortly thereafter to adopt Interact but it did not have any right to do so. Mr Land and Nationwide decided to go ahead regardless. The decision to change the name was probably influenced by the belief that a different name would help to conceal the fact that Nationwide was using a version of Interact. In and after February 2002, Mr Land provided further versions of Interact to Nationwide. He continued to do so until about April/May 2003. When he did so, Mr Land knew that ITHR did not agree to this happening. I do not consider that Mr Land believed that he had the licence of ITHR to do what he was doing.
- I will make some further findings as to some specific documents on which the parties relied. As to the agenda in January 2000, the reference to "Release to Nationwide" does not establish that Mr Gallagher had previously made an agreement with Mr Land and with Nationwide as contended by Mr Land. I consider that the reference reflects the fact that Mr Gallagher and Mr Land contemplated a possible future sale to Nationwide. The same explanation applies to the document in July/August 2000 which referred to a possible security risk for Nationwide and ITHR. Conversely, I consider the emails of January 2002 to be very revealing. In particular, I find that the reference to "you haven't seen the system yet" was a direction by Mr Land to Mr Locke that when Nationwide went to ITHR's offices to discuss a purchase of Interact, Nationwide should act as if they had not seen the system. I also find it significant that when the parties attempted to negotiate at this period, neither Mr Land nor Nationwide even suggested that ITHR was subject to some earlier agreement or licence which could affect the matter.
- I have carefully considered how to react to the fact that on ITHR's case, Mr Gallagher was unaware of the fact that Interact/Impact was being used by Nationwide until he discovered it in October 2009, when he was shocked and angry, but yet he did not raise it with Mr Land at any time before Mr Land resigned in May 2011. From October 2009 to May 2011, Mr Land continued to be a non-executive director of ITHR and continued to be paid. Both Mr Gallagher and Mr Mee explained that in that period ITHR needed Mr Land to develop Interact.net and, further, they was concerned that if they confronted Mr Land, Mr Land might sabotage Interact. Mr Gallagher said that he had been told by Mr Land of a disgruntled employee of Nationwide sabotaging Nationwide's original software system called Supercon. Mr Mee gave similar evidence about the reason for not confronting Mr Land. Mr Land would suggest that the reason that Mr Gallagher took no action between October 2009 and the ITHR's solicitors' letter before action on 7 July 2011 was that Mr Gallagher knew at all times that Nationwide was using Interact/Impact.
- On the question as to when Mr Gallagher became aware that Nationwide was using Interact/Impact, I accept his evidence that he did not become aware of this until October 2009. I accept his evidence and the evidence of Mr Mee and Mr Bans that Mr Gallagher appeared shocked when he found this out and I accept that Mr Gallagher was in fact shocked and was not merely pretending to be so. I accept Mr Gallagher's (and Mr Mee's) evidence that Mr Gallagher telephoned Apex (which had bought Impact from Nationwide) to contend that Nationwide was not entitled to sell Impact and that he threatened legal action.
- I consider that the reasons that Mr Gallagher did not confront Mr Land in or after October 2009 included a desire to have Mr Land complete the work on Interact.net and also a fear of sabotage. However, I suspect that there was another reason, namely, that Mr Gallagher did not think that it was worthwhile bringing a claim against Mr Land for what he had done in providing Interact to Nationwide. There was discussion at the trial as to the value of this present claim to damages or an account of profits. It is not appropriate for me to make findings on that matter as the present claim is for an order that there be an inquiry as to damages or an account of profits. However, there is reason to believe that the sums recoverable by ITHR for Mr Land's infringement of copyright will be modest. I suspect that Mr Gallagher thought the same in October 2009. What changed when Mr Land resigned was that Mr Gallagher could see that there might be a dispute about Mr Land's and Ms Lawrence's shareholdings in ITHR Group plc and Mr Gallagher saw an advantage in pressing this claim in that context.
- My overall finding is that Mr Land has failed to prove that he had the permission of ITHR to provide Interact software to Nationwide.
Conclusion as to infringement of copyright
- I find that Mr Land did not have the permission of ITHR to make the Interact software (both source code and database schema) available to Nationwide at any time and therefore the copies of that software which he provided to Nationwide up to April/May 2003 amounted to infringements by him of ITHR's copyright in that software. I also hold that Mr Land further infringed ITHR's copyright when he made a back up copy of the Nationwide database on 12 December 2006.
Further findings
- It is convenient at this point in the judgment to make further findings of fact as to Mr Land's state of mind at the time of the relevant events. These further findings will be relevant to a number of pleaded issues, as follows: (1) ITHR's allegation that Mr Land failed to report his own wrongdoing "of which he was aware"; (2) ITHR's reliance on section 97(2) of the 1988 Act; (3) ITHR's reliance on reg. 3 of the Intellectual Property (Enforcement etc) Regulations 2006; (4) Mr Land's averment that he acted reasonably and honestly within section 1157 of the 2006 Act; (5) ITHR's allegation that Mr Land deliberately concealed his wrongdoing within section 32(1)(b) of the Limitation Act 1980; and (6) ITHR's allegation that Mr Land deliberately committed a breach of duty within section 32(2) of the Limitation Act 1980.
- Before making these findings, I need to address the submissions made to me on behalf of Mr Land as to the standard of proof. Mr Land accepted that the matters alleged against him had to be proved to the civil standard, that is on the balance of probabilities and not beyond reasonable doubt. However it was said on his behalf, relying on Hornal v Neuberger Products Ltd [1957] 1 QB 247 and In re H [1996] AC 563 (in particular per Lord Nicholls at pages 586-587), that it was a rule of evidence that the more serious the allegation the more convincing must be the proof of the matters alleged because serious wrongdoing was less probable than no wrongdoing. I do not accept that that is an accurate statement of the law. The passage in Lord Nicholls' speech in Re H has been the subject of considerable comment in later decisions of the House of Lords and the Supreme Court: see Re B [2009] 1 AC 11, Re S-B [2010] 1 AC 678 and Re J [2013] 1 AC 680. The authorities were collected and considered by Eder J in Otkritie International Investment Management Ltd v Urumov [2014] EWHC 191 (Comm) at [84] – [91]. The findings which I am about to make in relation to Mr Land do involve wrongdoing amounting to dishonesty and I have therefore carefully considered whether the relevant matters have been proved on the balance of probabilities. I have carefully assessed the overall probabilities and I feel satisfied that the relevant standard of proof has been provided in relation to all of my findings.
- It is possible to consider Mr Land's state of mind in the period before January/February 2002 separately from his state of mind in the period after those dates. I consider it is relatively straightforward to make findings as to his state of mind in the later period. It is possible that his state of mind in the earlier period was different and I have anxiously considered whether my findings in the earlier period should be different. In the end I have concluded that my findings apply to both periods. I will say however that, in relation to degrees of culpability, I would regard Mr Land's culpability in the second period to be greater than in the first period.
- I have held that Mr Land infringed ITHR's copyright in the first period and in the second period. In both periods, he knew that he did not have the permission of ITHR to do what he did. I would distinguish between the two periods in this way; in the first period, Mr Land may have hoped that no real harm would flow from his actions because he hoped that a time would come when ITHR would agree to sell Interact to Nationwide; in the second period, following the failed negotiations in January/February 2002, Mr Land had no real basis for hoping that everything would be retrospectively made alright by a subsequent agreed sale. Even if Mr Land did have the hope I have described in the first period, he must have known that it was wrong to provide ITHR's copyright material to Nationwide without telling ITHR that he was doing so and obtaining its approval.
- I also find that Mr Land did not think that it was in the best interests of ITHR to provide Interact to Nationwide, either in the first period or the second period. In the first period, Mr Land was not motivated by the best interests of ITHR but he was motivated by what he considered to be in the interests of himself and of Nationwide. It was in his interests to provide Interact to Nationwide in the first period because it meant that he did not have the burden of writing two software systems. It was in his interests in the second period because he had led Nationwide to rely on being able to use Interact and he tried to get out of the difficulty he had created. He acted in the interests of Nationwide by providing it with Interact. Putting my finding another way, I find that Mr Land knew, in both the first period and the second period, that it was not in the best interests of ITHR to provide Interact to Nationwide in the absence of an agreement to sell it to Nationwide and/or if Mr Land had thought about the matter in good faith, he could not have concluded that he was acting in the best interests of ITHR.
Fiduciary duties
- ITHR has pleaded that while Mr Land was a director of ITHR he owed to ITHR the following fiduciary duties:
(1) not to put himself in a position where his interests clashed or might clash with ITHR's interests;
(2) to develop and/or not to divert or harm ITHR's business opportunities;
(3) to use ITHR's resources, including its software and confidential information only for the purposes of its business, and not for his own or any third party's business;
(4) to account to ITHR for sums that were properly owed to ITHR;
(5) to report to ITHR any wrongdoing he was or became aware of, including his own.
- Mr Land has accepted that, from 24 November 1998, as a director of ITHR, he owed to ITHR the usual fiduciary duties of a director and, specifically, on the coming into force of the Companies Act 2006 ("the 2006 Act") on 1 October 2007, he owed to ITHR the duties set out in sections 170 to 179 of the 2006 Act.
- ITHR has pleaded that Mr Land had committed the following particular breaches of his fiduciary duties:
(1) the supply of Interact/Impact to Nationwide and the supply of maintenance and/or update services to Nationwide involved the use of ITHR's assets for Mr Land's own purposes and this conflicted with ITHR's interests in particular because Nationwide was a competitor;
(2) Mr Land failed to disclose his own wrongdoing of which he was aware;
(3) Mr Land failed to account to ITHR for the profits made whether through TBS or in a personal or some other capacity from the supply of Interact/Impact and/or maintenance and/or updates to Nationwide as this involved the retention of monies properly due to ITHR.
- The matters pleaded by ITHR appear to me to engage the following fiduciary duties which were owed by Mr Land to ITHR:
(1) a duty to act in the way which Mr Land considered, in good faith, would be most likely to promote the success of ITHR (the duty now expressed in section 172 of the 2006 Act);
(2) a duty to avoid a situation in which Mr Land had, or could have, a direct or indirect interest that conflicted, or possibly might conflict, with the interests of ITHR, in particular in relation to the exploitation of any property, information or opportunity (the duty now expressed in section 175 of the 2006 Act).
- The duty referred to in paragraph 120(1) above can involve a duty on the director to disclose his own wrongdoing to the company: Fassihi v Item Software Ltd [2004] BCC 994 at [41]; Brandeaux Advisers (UK) Ltd v Chadwick [2010] EWHC 3241 (QB) at [47] and GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch) at [192] – [195]. A company complaining of a director's failure to disclose a matter must establish that the director subjectively concluded that disclosure was in the best interests of the company or, at least, that the director would have so concluded had he been acting in good faith: see GHLM at [194].
- Based on my earlier findings of fact, I reach the following conclusions.
- Mr Land provided copyright material owned by ITHR to Nationwide, otherwise than pursuant to an agreement between ITHR and Nationwide and for no consideration passing to ITHR. I consider that this was a plain breach of fiduciary duty whether or not Mr Land received any payment himself from Nationwide. I further hold that each and every time that Mr Land provided ITHR's copyright material to Nationwide, there was a breach of his fiduciary duty. Thus, on the facts of this case, each time that Mr Land committed an infringement of ITHR's copyright, he also committed a breach of fiduciary duty.
- I also find, following my earlier findings as to Mr Land's state of mind at the relevant time that he knew that disclosure by him of his wrongdoing would have been in the best interests of the company as the company could then have stopped the further provision of Interact to Nationwide unless and until Nationwide agreed a price with ITHR to buy Interact. In any case, if Mr Land had thought about the matter in good faith he would have realised that disclosure of his own wrongdoing was in the best interests of ITHR.
- It was said on behalf of Mr Land that I could not make findings that Mr Land had failed to disclose his own wrongdoing because that would involve a finding of dishonesty and dishonesty was not adequately pleaded against Mr Land. It may be that the submission was put more widely in relation to other findings as to Mr Land's state of mind but I consider that the point arises most acutely in relation to the issue as to Mr Land's failure to disclose his wrongdoing. The pleaded allegation was that Mr Land had failed to disclose his wrongdoing "of which he was aware". It may very well be the case, in view of the analysis in Fassihi v Item Software (UK) Ltd, that a pleading of a breach of this duty must allege that the director was not acting in good faith. An allegation of not acting in good faith is tantamount to an allegation of dishonesty and as such must be properly pleaded: see Armitage v Nurse [1998] Ch 241 at 251 and GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch) at [203]. Conversely, it has been necessary for the purposes of dealing with a number of issues which are pleaded to consider Mr Land's knowledge of his wrongdoing at the relevant time. Further, and I think significantly, Mr Land positively averred that he had been acting honestly in order to attempt to rely on section 1157 of the 2006 Act. In these circumstances, in order for me to deal with all of the pleaded issues, I have had to consider Mr Land's state of mind and his honesty. It was put to Mr Land in cross-examination that he had been dishonest. When cross-examined, he did not say that he had made a genuine mistake about having ITHR's permission or a genuine mistake about the ownership of the copyright. Accordingly, I have made my findings on the issues as to Mr Land's state of mind and his honesty. I also point out that in view of my later conclusion that ITHR has failed to establish any case of damage resulting from Mr Land's failure to disclose his wrongdoing, my findings as to his breach of fiduciary duty in that respect will not affect the outcome of the case.
- I have considered at what time or times Mr Land broke his duty to disclose his wrongdoing to ITHR. In other cases, that question might be relevant to the question of limitation. Is the duty to disclose a duty which requires disclosure within a reasonable time of the wrongdoing so that the breach occurs once and for all at the end of the reasonable time? Or is the duty a continuing duty so that there is a breach every day on which the director does not make disclosure? As this point was not argued and as it is not necessary for me to decide it in this case, I will not consider it further.
Relief under section 1157 of the Companies Act 2006
- Mr Land seeks to be relieved from his liability for breach of fiduciary duty pursuant to section 1157 of the 2006 Act. Section 1157(1) provides:
"(1) If in proceedings for negligence, default, breach of duty or breach of trust against–
(a) an officer of a company, or
(b) a person employed by a company as auditor (whether he is or is not an officer of the company),
it appears to the court hearing the case that the officer or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused, the court may relieve him, either wholly or in part, from his liability on such terms as it thinks fit."
- Mr Land contends that even if I find that he committed a breach of fiduciary duty, he nonetheless acted reasonably and he acted honestly and that, having regard to all the circumstances of the case, I ought to relieve him in whole or in part, from his liability for such breach.
- I have described the breaches of fiduciary duty and the circumstances in which they were committed. I am unable to accept Mr Land's contention that he acted reasonably in committing these breaches. On my findings of fact, he simply cannot have any argument to that effect. Further, he does not persuade me that he acted honestly; in fact, I have found that he knew he was guilty of wrongdoing to ITHR and he proceeded regardless. That is conventionally regarded as dishonesty and not honesty. These findings mean that Mr Land has no case for relief under section 1157.
Limitation
- An action for damages for copyright infringement is an action founded on tort and such an action may not be brought after the expiration of six years from the date on which the cause of action accrued: see Limitation Act 1980 ("the 1980 Act"), section 2. The cause of action for copyright infringement arises on the date of the act of infringement. The Claim Form in the present case was issued on 3 October 2011. Thus acts of infringement before 3 October 2005 are outside this six year limitation period. However, one of the acts of infringement (i.e. the back up copy of the database on 12 December 2006) was within the six year limitation period.
- As to the claims for breach of fiduciary duty, Snell's Equity 32nd ed. at para. 7-063 states that a six year limitation period applies to claims against fiduciaries for breach of fiduciary duty. This was not challenged by the Claimant in that I heard no submissions on the point at all. I will therefore proceed on that basis and it is unnecessary to discuss section 21 of the 1980 Act.
- As regards the causes of action which accrued before 3 October 2005, ITHR submits that the relevant period of limitation did not begin to run when the cause of action accrued because facts relevant to the right of action were concealed from ITHR so that the period of limitation was postponed until ITHR discovered the concealment or could with reasonable diligence have discovered it. ITHR relies on section 32 of the 1980 Act, the relevant parts of which provide:
"(1) Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either—
(a) the action is based upon the fraud of the defendant; or
(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or
(c) the action is for relief from the consequences of a mistake;
the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.
(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty."
- ITHR contends that the facts relevant to their claims against Mr Land were deliberately concealed from it by Mr Land. In addition to a general contention of deliberate concealment within section 32(1)(b), ITHR also relies on section 32(2) of the 1980 Act. As to section 32(2), ITHR says that Mr Land deliberately committed breaches of duty in circumstances in which the breaches were unlikely to be discovered for some time. Further, ITHR says that it did not discover the breaches of duty until October 2009 and it could not with reasonable diligence have discovered them earlier. ITHR issued its claim form within six years of October 2009.
- Section 32(1)(b) refers to facts being deliberately concealed from the claimant. Such concealment need not be contemporaneous with the wrongdoing: see Sheldon v RHM Outhwaite Ltd [1996] AC 102. For there to be deliberate concealment within section 32(1)(b), the defendant must have considered whether to inform the claimant of the relevant fact and decided not to do so; the fact which the defendant decides not to disclose must be one which it was his duty to disclose or must at least be one which he would ordinarily have disclosed in the normal course of his relationship with the claimant: see Williams v Fanshaw Porter & Hazelhurst [2004] 1 WLR 3185 at [14] per Park J. In the same case, Mance LJ said of section 32(1)(b) at [34] that it applied where a defendant deliberately concealed facts knowing that they were relevant to an actual or potential breach of duty and at [36] he added that where there was a duty to speak then the intentional suppression of information which it is known should be communicated pursuant to that duty can readily be regarded as "concealment" of the information.
- Section 32(2) refers to deliberate commission of a breach of duty amounting to deliberate concealment of the facts involved in "that breach" of duty. Where section 32(2) is relied upon the relevant circumstances are those surrounding the relevant breach of duty. Section 32(2) will not operate to cover an earlier breach of duty to which section 32(2) was not separately applicable. In order for there to be a "deliberate commission of a breach of duty" within section 32(2) there must be a deliberate breach of duty, that is, a breach of duty which is committed intentionally. The distinction for the purposes of section 32(2) is between intentional wrongdoing on the one hand and negligence or inadvertent wrongdoing on the other: Cave v Robinson Jarvis & Rolf [2003] 1 AC 384 at [17] and [25] per Lord Millett and at [58] and [60] per Lord Scott.
- I will first consider the position under section 32(1)(b) and then the position under section 32(2). As regards the copyright infringement and the corresponding breach of fiduciary duty before January/February 2002, Mr Land was under a duty to disclose his conduct to ITHR if he either thought it was in ITHR's best interests to know of it or he would have considered it was in its interests if he had thought about it in good faith. I have held that Mr Land was under a duty to disclose his wrongdoing in that period and he did not do so, in breach of his duty. Therefore, he deliberately concealed facts relevant to his liability for the purposes of section 32(1)(b). The position is even more clear in relation to the provision of copyright material after January/February 2002.
- As to the position under section 32(2), Mr Land's infringements of copyright were knowing and intentional wrongdoing and therefore deliberate commission of a breach of duty within section 32(2).
- Accordingly, the six year limitation period did not begin to run in this case until October 2009 and the present claims are not statute barred.
Remedies
- ITHR is entitled to an inquiry or an account of profits in relation to the provision of copyright material to Nationwide, which involved both copyright infringement and breach of fiduciary duty.
- There is one point I need to deal with in relation to the remedies in respect of Mr Land's breach of fiduciary duty. It emerged in the course of the trial that ITHR may wish to contend on the inquiry that Mr Land is liable to pay equitable compensation to reflect the remuneration he was paid by the company for some of the period up to the time he resigned as a director in May 2011 with effect from June 2011. This claim was not pleaded and was not the subject of any evidence on the part of ITHR. However, the possibility of such an argument was referred to in a letter written by ITHR's solicitors on 28 July 2014. ITHR would like to argue that Mr Land breached his fiduciary duty by failing to disclose his own wrongdoing and that if he had disclosed his own wrongdoing then ITHR would have dismissed him and not have been required to pay him remuneration. That claim would give rise to two issues. The first is whether ITHR can establish that it would have dismissed Mr Land if he had disclosed his wrongdoing when he should have done. The second issue is whether ITHR is entitled to claim from Mr Land the repayment of his remuneration when he continued to work for ITHR and, prima facie, earned that salary.
- As to the first issue, the evidence showed that ITHR was aware in October 2009 of Mr Land's wrongdoing but it did not at any time dismiss him. Mr Gallagher explained why ITHR did not dismiss Mr Land. He did not address in his evidence in chief the question whether he would have dismissed Mr Land if he had found out about his wrongdoing before October 2009. However, he was cross-examined on that subject. He gave the following evidence:
"Q Yes. We have discussed the fact that when you say you
discovered Nationwide's use of Interact, you didn't
terminate Mr Land's directorship or employment contract,
right?
A That's correct, yes.
Q Good. Now, on the assumption that you didn't know about
Nationwide's use of Interact before 2009 --
A Yes?
Q -- clear on that assumption --
A On the assumption that I didn't know.
Q -- which I don't accept but that is the assumption that
this question is based on, and you had discovered
Nationwide's use of Interact before October 2009,
right --
A Yes.
Q -- you would not have terminated Mr Land's employment
contract or removed him as a director, would you?
A If I think I understand the question right, what you are
asking me is if I had found out before 2009 would I have
done anything differently, and the answer would be no.
Q No, you would not have done anything differently?
A I would still looked to mitigate the risks.
Q If you had discovered earlier in 2009 you would not have
removed him as a director?
A I would have done exactly the same.
Q So to be very clear, you would not have removed him as
a director, no?
A Until I had mitigated the risk.
Q By having Interact.net or something else live?
A Almost certainly at that point it would never have been
.net because .net was not even ready in 2010 --
Q By having a replacement?
A I would have done exactly the same thing and looked for
an Influence, or another product.
Q You would have kept paying him under the Letter of
Appointment, yes?
A I probably would have done, yes.
Q You would have kept -- you wouldn't have terminated that
Letter of Appointment.
A No, we were too reliant as a business on Interact and
David Land. Interact, as we know, was somewhat stable,
but it still wasn't properly fit for purpose, .net was
supposed to sort that out. "
- This evidence suggests that ITHR's prospects of being able to show at an inquiry as to damages that it would have dismissed Mr Land at some time before October 2009, if it had discovered before October 2009 that he had provided Interact to Nationwide, are very poor or possibly non-existent. ITHR did not even attempt at the trial to show that ITHR would probably have dismissed Mr Land in such a case. ITHR submitted that it did not have to call any evidence on that subject at this stage as that matter would arise for the first time at the inquiry as to damages. I do not think that is the right approach. I consider that it had the burden at this trial of showing the court that there was a worthwhile prospect of establishing at an inquiry that it had suffered loss in this respect in order to persuade the court to make an order for an inquiry as to damages possibly arising in that way. The court has the last word as to whether an account or an inquiry is necessary or is likely to be fruitful: see Libertarian Investments Ltd v Hall [2014] 1 HKC 368 at [172] per Lord Millett. If the court felt that ITHR's prospects of recovering damages were remote, it could take the view that it was not appropriate to put Mr Land to the expense of such an inquiry. I recognise that ITHR could submit that Mr Gallagher referred in a wholly unspecified way to the possibility of mitigating the risk of dismissing Mr Land and that possibility might be further explored at an inquiry. If this were the only point in relation to an inquiry as to damages in relation to the remuneration paid to Mr Land over the years, then I think the decision would be a very borderline one.
- However, the obvious weakness of ITHR's case on the evidence is not the only relevant point. I referred above to a second issue as to ITHR's entitlement to claw back remuneration from Mr Land even if it were established that ITHR would have dismissed him at some point before October 2009. This second issue is the subject of authority. In Brandeaux Advisers (UK) Ltd v Chadwick [2010] EWHC 3241 (QB), Jack J had to consider a somewhat similar claim by a company to compensation for remuneration paid to a director who, the judge found, had broken her duty to disclose her wrongdoing and who would have been dismissed had she done so. Jack J held that the claim was a novel one and was contrary to principle and to certain authorities. He held that the director had earned her salary and the company had suffered no loss due to the fact that she had been remunerated during a period when she would otherwise have been dismissed. That finding would also seem to be appropriate in the present case. In particular, it was not said that Mr Land was overpaid for the work which he did for ITHR so that the payment he received for his services was more than his services were worth.
- In these circumstances, I am satisfied that ITHR has not shown that it has a sufficient case for the recovery of remuneration from Mr Land so as to merit an inquiry as to causation and any other relevant matters.
- There remain further points arising as to damages. The first arises under section 97(2) of the 1988 Act. Section 97(2) provides:
"(2) The court may in an action for infringement of copyright having regard to all the circumstances, and in particular to—
(a) the flagrancy of the infringement, and
(b) any benefit accruing to the defendant by reason of the infringement,
award such additional damages as the justice of the case may require."
- It is agreed that I should (if I can) make findings of fact relevant to section 97(2) but that the effect of those findings on whether the court will award additional damages and, if so, how much should await the inquiry as to damages: see Conde Nast Publication Ltd v MGN Ltd [1998] FSR 427.
- I was referred to Harrison v Harrison [2010] ECDR 243 as a sufficient statement of the legal principles which apply to section 97(2). In that case, Judge Fysh QC said at [39]:
"39 Counsel addressed me on some relevant law. In Ravenscroft v Herbert [1980] R.P.C. 193 Ch D , the Spear of Longinus case, Brightman J. held that flagrancy implies the existence of some degree of scandalous or deceitful conduct and included deliberate and calculated infringement. "Benefit" implied that the defendant had reaped a pecuniary advantage in excess of the damages he would otherwise have to pay. In the field of the infringement of a literary copyright at least, this is, I think, still the leading authority on additional damages. However,
(a) "benefit to the defendant" in this context, is to be interpreted widely and not just in financial terms: Redrow Homes v Bett Bros [1999] 1 A.C. 197 HL at 209, and
(b) a deliberate act on a defendant's part was not essential for a finding under the section. Carelessness sufficiently serious to amount to an attitude of "couldn't care less" was sufficient to aggravate infringement: Nottinghamshire NHS v News Group Newspapers Ltd [2002] R.P.C. 49 Ch D at [52].
In addition, there is no need for knowledge on the part of a defendant that what is alleged to amount to infringement is indeed an infringement of copyright for an award of additional damages to be made; the defendant's state of mind is irrelevant: Cala Homes v McAlpine Homes [1995] FSR 818 Ch D at 838."
- I have already set out in detail my findings as to Mr Land's state of mind in relation to the copyright infringement in this case. Those findings seem to me to be sufficient for the parties to know where they stand in relation to section 97(2). That sub-section also refers to the benefit accruing to Mr Land by reason of the infringement. I do not make any specific findings on the question of benefit. That will be a matter for the inquiry as to damages or the account of profits.
- ITHR also wishes to rely on reg. 3 of the Intellectual Property (Enforcement etc) Regulations 2006 which provides:
"3.— Assessment of damages
(1) Where in an action for infringement of an intellectual property right the defendant knew, or had reasonable grounds to know, that he engaged in infringing activity, the damages awarded to the claimant shall be appropriate to the actual prejudice he suffered as a result of the infringement.
(2) When awarding such damages—
(a) all appropriate aspects shall be taken into account, including in particular—
(i) the negative economic consequences, including any lost profits, which the claimant has suffered, and any unfair profits made by the defendant; and
(ii) elements other than economic factors, including the moral prejudice caused to the claimant by the infringement; or
(b) where appropriate, they may be awarded on the basis of the royalties or fees which would have been due had the defendant obtained a licence.
(3) This regulation does not affect the operation of any enactment or rule of law relating to remedies for the infringement of intellectual property rights except to the extent that it is inconsistent with the provisions of this regulation.
(4) … "
- I am asked to make findings as to whether Mr Land knew that he was engaging in infringing behaviour. I have already made my findings on that question and I need not repeat them here.
The Counterclaim
- As a non-executive director of ITHR, Mr Land was entitled to be paid fees. Mr Land resigned on 9 May 2011 with effect from 9 June 2011. ITHR did not pay him his fees for June 2011. Mr Land counterclaims for payment of these fees. He has calculated the sum due as £1,750.
- ITHR did not put forward any defence to this counterclaim. It pleaded that Mr Land was not entitled to be paid because he provided no services in June 2011. However, ITHR did not try to say that Mr Land was in breach of contract in that respect. Indeed, ITHR made no submissions to me on the Counterclaim.
- Accordingly, I will allow the Counterclaim. It was not argued whether ITHR is entitled to set off the sums it claims against the amount of the Counterclaim. If that is not agreed, it can be dealt with at a hearing following judgment.
