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England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Weatherford Global Products Ltd v Hydropath Holdings Ltd & Ors [2014] EWHC 2725 (TCC) (01 August 2014)
URL: http://www.bailii.org/ew/cases/EWHC/TCC/2014/2725.html
Cite as: [2014] EWHC 2725 (TCC)
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| WEATHERFORD GLOBAL PRODUCTS LIMITED |
Claimant |
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| - and - |
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| HYDROPATH HOLDINGS LIMITED |
Defendant |
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| - and - |
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| CLEARWELL INTERNATIONAL LIMITED |
Third Party |
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| - and - |
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| MSL OILFIELD SERVICES LIMITED |
Fourth Party |
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| - and - |
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| MARTIN CLARK |
Fifth Party |
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| - and - |
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| PAOLO LAURETTI |
Sixth Party |
____________________
Michael Booth QC and Michael Smith (instructed by Nelsons Solicitors Ltd) for the Defendant and Third Party
Benet Brandreth (instructed by Trethowans LLP) for the Fourth to Sixth Parties
Hearing dates: 16-20 June, 23-25 June and 8-9 July 2014
____________________
Crown Copyright ©
- This case arises out of the manufacture and supply of a patented product, known as (or which I will call) the "Clearwell Product", by Hydropath Holdings Ltd ("Hydropath"), the Defendant, to Weatherford Global Products Ltd ("Weatherford"), the Claimant, pursuant to a number of agreements. The Clearwell Product was essentially an electronic box which was to be clamped or strapped on to oil pipes to prevent scale building up on the inside of the pipes; it was seen as a useful alternative to the use of chemicals flushed through the oil pipes. Essentially, it operates by using electronic waves which induce and apply an electronic field to the liquids within the pipe so that the ions within the liquids form crystals which are carried away rather than the ions attaching as scale to the inside of the pipe.
- The Clearwell Product was the brainchild of Dr Daniel Stefanini who invented it and patented it in the 1990 to 1994 period. He formed Hydropath and is the majority shareholder. Clearwell International Ltd ("Clearwell"), the Third Party, was incorporated in 2004 to licence the technology. In 2004-5, Martin Clark and Paolo Lauretti, the Fifth and Sixth Parties, helped to introduce Hydropath to Weatherford, part of a multi-billion dollar turnover American group which offered extensive services to the oil industry and to negotiate the three agreements which led to the supply and licensing of and technical support for the Clearwell product. Mr Clark and Mr Lauretti were to be made directors and minority shareholders of Clearwell. They also formed their own company, MSL Oilfield Services Ltd ("MSL"), the Fourth Party, in 2006 and initially Dr Stefanini was a director. Prior to this, the Clearwell Product had not been successfully marketed in the oil industry, at least in anything other than a minor way.
- The three agreements, the "Supply Agreement", the "Licence Agreement" and the "Technical Services Agreement", were entered into between Hydropath and Weatherford, Clearwell, Hydropath and Weatherford and Clearwell and Weatherford respectively, initially on 10 August 2005 and later by way of revision on 21 December 2006. Over the years, some 500-600 Clearwell Product units were manufactured by Hydropath and supplied to Weatherford and many were installed around the world, albeit mostly in North America. Some $5m has been paid by Weatherford to Hydropath, largely by way of capital payments for the exclusive licence for the Clearwell Product.
- The parties began to fall out mostly in 2010 and 2011 over the safety and suitability of the Clearwell Product, in particular in relation to its possible propensity to cause sparking on the adjacent pipework. No further products have been bought by Weatherford since late 2009 or early 2010 and indeed many of those installed have been replaced. In early 2011, Mr Clark and Mr Lauretti were dismissed as directors of Clearwell on the grounds that they had not acted appropriately or properly as directors of Clearwell; it is clear that Dr Stefanini believed that they acted against Clearwell's interests and were too close to Weatherford. Since then, a new product, the Clearwell R product, which works in at least a broadly similar way to de-scale pipelines, has been developed by MSL and patents applied for; this is now being manufactured by MSL and deployed by Weatherford.
- Weatherford started these proceedings on 31 May 2012 in effect for breach of warranty in relation to the capacity of the Clearwell Product to cause sparking in adjacent pipework. This was met by Hydropath challenging all complaints and, with Clearwell as Third Party, counterclaiming against Weatherford for declarations that the Clearwell Product is properly certificated, for some $496,000 for unpaid commissions, for breach of an implied duty of good faith in allegedly raising spurious concerns about safety and for breaching the Licence by using confidential information to develop the Clearwell R Product and for using the Clearwell name. Clearwell claims against Mr Clark and Mr Lauretti for inducing Weatherford to breach the Licence Agreement in connection with the development of the Clearwell R Product and in breach of Companies Act directors' duties assisting Weatherford in competing with Clearwell having safety certification for the Clearwell Product removed.
- During the trial, Hydropath and Clearwell abandoned the counterclaims for unpaid commissions and for breach of any good faith obligations and also very substantially reduced its complaints in relation to the use of confidential information and other breaches. The case has been bedevilled by a number of problems, not least of which have been:
- The parties entered into agreements, initially on 10 August 2005, which were similar in form to the agreements which ultimately dictate the issues in this case. They concentrated on the "Initial Period" which was the first year. They were effectively varied in December 2006 after a further series of discussions. I will now refer to the December 2006 versions of the agreements.
- The Supply Agreement described Hydropath as the "Supplier" and Weatherford as the "Customer" and contained a preamble entitled "Background":
- Relevant terms included:
- Part 5 of the Schedule to the Supply Agreement contained what was called the "Specifiers Guide" which set out amongst other things explanations of the technology and the operation as well as Installation and Operational Guidelines and Location Criteria; I will return to these later in this judgment.
- The preamble to the Licence Agreement said:
- Other relevant terms of the Licence Agreement were:
- The Technical Services Agreement between Weatherford and Clearwell required Clearwell by Clause 3 to provide "Services" through its employees (who were only Dr Stefanini, Mr Clark and Mr Lauretti). Weatherford was required by Clause 3.3 to pay for reasonable travel and lodging costs in connection therewith; there was to be a daily fee for "Additional Services" (Clause 4). The services were set out in the Schedule, Part 2 of which related to those to be provided after the initial (1 year) period:
- Engineering and application support on new product development opportunities
- Assistance with manufacturing efforts if pursued to include assembly, testing, technique and know-how…
- Provide engineering resources for product design modifications identified in section C & D and evolving from the field testing of the technology.
- There had been a "Licence Agreement" entered into between Hydropath and Clearwell on 10 August 2005 by which Hydropath granted Clearwell "an exclusive licence under the Licensed IPR to…develop, manufacture, have manufactured…sell, lease, or otherwise dispose of, the Technology [and] [Hydropath] shall provide such information as is required to enable [Clearwell] to carry out the manufacture of the Licensed Products." Hydropath gave various warranties to Clearwell about the patents for the products in question. By Clause 6.1 this agreement was to last as long as the others. Clause 5.3 contained what can be seen as a limited indemnity:
- The reality was that there was never any intention on the part of Dr Stefanini, whose was the controlling mind of both companies, that Clearwell would manufacture anything; it was always going to be Hydropath which would manufacture, as it proved to be. Clearwell was never set up or run on the basis that it would do much more than it would receive the considerable licence fees, royalties and commissions and provide technical services to Weatherford. Clearwell had no employees as such; it had three directors: Dr Stefanini, Mr Clark and Mr Lauretti, who between them were expected to provide those services.
- Although I am conscious of judicial comment such as Lord Justice Atkin's comment in one case that, "an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour", it may well be of assistance to set out my views of the witnesses of fact, albeit that I will comment further in relation to them in addressing the facts. I am also aware that for some witnesses English was not their first language (Messrs Hadi, Vongstpanalert and Lauretti and Stefanini) and one should be cautious about forming views based on their oral delivery of answers.
- Weatherford is a very substantial business, generating some US$15bn's worth of business a year much in the oil business. Weatherford's witnesses were without exception straightforward and sought to answer directly all questions put, albeit that some of the cross-examination questions were sometimes complex, if not confusing:
- Hydropath and Clearwell called two witnesses, although two others (Mr Cohen and Mrs Faulkner) provided witness statements but were not required for cross-examination. My views about Dr Stefanini and Dr Rodrigues are as follows:
- As for the 4th to 6th Parties, I formed the view that Mr Lauretti was highly intelligent and patently honest and he answered all questions in a straightforward way; he clearly did not dislike Dr Stefanini. Mr Clark however from a number of answers feels some real resentment towards Dr Stefanini, which is perhaps not surprising in the light of some bruising encounters with him over the years, his being sacked from Clearwell and the serious charges laid against him by Dr Stefanini in this litigation; that said, it was clear that he was an honest witness and much of what he said was corroborated by contemporaneous documents. Mr Morrison who was responsible for electronics design within MSL was not only an experienced and practical designer but also gave his evidence in a particularly straightforward way and was eminently believable. None of these witnesses was directly cross-examined as to their honesty, which was surprising given that the gravamen of the counterclaim was that they consciously used and copied Clearwell's or Hydropath's confidential information and that Mr Clark and Mr Lauretti had deliberately breached their Companies Act duties as directors of Clearwell.
- It is common ground that the Clearwell product was for use in oil and gas installations and that therefore it could be used in potentially explosive atmospheres and strict safety standards are applicable. The Supply Contract itself spells out much of this:
- The need for precaution required by the Standards is regulated by the level of danger found in the surrounding environment. One first needs to identify in this context the "Zone" (also called "Category" in different standards). This defines the frequency of the threat of applicable danger:
- The NEC documentation also refers to "Classes", thus Class 1 Zone 1 in Clause 7.2 of the Supply Contract. These locations are by Article 505(b) of NEC, those in which flammable gases or vapours may be present in quantities sufficient to produce explosive or ignitable mixtures.
- The problem or hazard in oil and gas installations is gas and the IEC standard 60079-0 at Paragraph 4 identifies three categories of electrical equipment for use in explosive atmospheres, Group II being relevant here:
- Provision is made for protection mechanisms for equipment in explosive environments and they are listed in IEC 60079 and in NEC Article 505.8 and each has a detailed chapter in IEC 60079; the relevant ones are IEC 60079-11: "Gas – Intrinsic safety" "i"" and IEC 60079-18: "Gas and Dust – Encapsulation "m"". IEC 60079-18 describes encapsulation as being the:
- The relevant European Directive (94/9/EC of 23 March 1994, also known as the ATEX Directive) purported to set out "essential requirements only" and was intended to provide "harmonised pan-European standards" particularly "relating to the design, manufacturing and testing of equipment" (page L 100/2) in relation to "the equipment and protective systems intended to use in potentially explosive atmospheres" (Chapter 1, Article 1). Article 3 of Chapter 1 identified "equipment" as meaning: "machines, apparatus, fixed or mobile devices, control components and instrumentation thereof and detection or prevention systems which, separately or jointly, are intended for the generation, transfer, storage, measurement, control and conversion of energy the processing of material and which are capable of causing an explosion through their own potential sources of ignition" and components as meaning "any item essential to the safe functioning of equipment and protective systems but with no autonomous function". The Directive also identified equipment groups including "Equipment group II" as being "equipment intended to be used in other places liable to be endangered by explosive atmospheres"; this covers the "Upstream" areas to which the Supply and Licence Agreements related. It went on to say:
- Annex 1 refers to the Groups (and Categories) referred to above. Annex II lists "essential health and safety requirements" ("EHSRs"), relevant ones being:
- The ATEX Directive was incorporated into the law of Great Britain by the "Equipment and Protective Systems intended for Use in Potentially Explosive Atmospheres Regulations" 1996. This largely duplicates the Directive, for instance Schedule 3 incorporates apparently verbatim the EHSRs in the Directive and it is unnecessary to repeat them here.
- The parties' legal teams have not agreed let alone formulated the issues to be addressed. I do not intend to analyse the pleadings in minute detail (which are unnecessarily discursive), although I have obviously considered them in detail. Essentially, the remaining generic issues between the parties are:
- I will seek to keep this as short as is material and address further facts as necessary in dealing with individual issues.
- Hydropath was incorporated in August 1992 whilst Dr Stefanini was in the process of securing all the relevant patents for what was to become the Clearwell Product. On the 30 April 2003, Hydropath applied to Intertek UK for product certification under the ATEX Directive; Intertek UK was an authorised institution for the granting of such certification. The application form made it clear that its purpose was "to gather essential information from a manufacturer…of equipment…intended for use in potentially explosive atmospheres". The form, filled in by Mr Appleby of Hydropath, contained the rubric set out in the ATEX Directive that:
- Dr Stefanini sought to explain this by saying that it was only intended at this stage to be used in chemical works and that the certification was related only to such uses and that in effect it was not intended to relate to oilfield applications. I do not accept that explanation, albeit that a supply contract for a chemical works may have been the reason why certification was then sought. The application was not limited to specific uses and there is no hint in the application form that it was so limited.
- Intertek UK certified the product in May 2003 and it was not limited to any particular usage, albeit that it related to Zone 2, which is the lowest hazard area in the ATEX Directive. By this stage, Dr Stefanini had created what he called his "Bible" which contained what he believed were confidential technical documents which he updated over the years; it was very much his file.
- In May 2004, Mr Clark met Dr Stefanini with a view to reaching agreement that a company owned by Mr Clark would have the distribution rights for the Clearwell Product in both the upstream and downstream oil markets; it was agreed in principle that the intellectual property Rights ("IPRs") would be held in a separate company (later Clearwell). Clearwell was incorporated in August 2004. At this time Mr Clark met Mr Lauretti who advised that consideration should be given to supplying the Clearwell Product to major oilfield supply companies such as Weatherford. Indeed over the next few weeks Mr Lauretti used his contacts in that industry to make sales pitches to such companies including Weatherford.
- Weatherford reviewed the Clearwell Product in early 2005 and indeed carried out trials on the Product in mid-2005. Mr Clark and Mr Lauretti recommended Weatherford to be the distributor for the upstream market. During discussions prior to the initial agreements being entered into in August 2005, it was made clear by Weatherford that a Zone 1 certification would be required. In this context, Hydropath applied again to Intertek for a Zone 1 certification for the Product on the same form as before but, although the reference on the form to plastic pipe being used to eliminate sparking remained, it was stated that there were "no areas of misuse that can be identified".
- Following negotiations attended by Dr Stefanini, his wife, Messrs Clark and Lauretti and Weatherford representatives, the initial Supply, Licence and Technical Services Agreements were entered into. It is, rightly on the facts, common ground that these agreements served to provide a period of a year in which Weatherford had the right exclusively to distribute the Product whilst its viability and further certification was considered and secured respectively. In return, in part at least, it paid to Clearwell a US$600,000 licence fee for one year's exclusivity.
- By early 2006, Mr Clark and Mr Lauretti had each become 13% shareholders in Clearwell whilst Dr Stefanini retained almost 74% of the shareholding. MSL was incorporated and, initially, they and Dr Stefanini each had 29% shareholdings. The object and intention was that MSL would have the distributorship for the downstream applications in relation to the oil and gas industry.
- I am satisfied that there were exchanges between Weatherford on the one hand and Clearwell and Hydropath on the other in the period leading up to the finalised agreements in December 2006 that the Product as it was to be supplied and licensed was to be not only Class 1 Zone 1 but also specifically properly classifiable as useable in Group IIC environments. This is clear not only from the witness evidence of Mr Clark but also from Hydropath's e-mail of 25 May 2006, which, although it was discussing what the marking of the Product would be (to comply with the ATEX Directive), expressly said that the Clearwell "equipment certification covers it for use where Group IIC gases may be present". By this stage (from March 2006), Weatherford had actually ordered a number of units which had that, amongst other, markings on labels on the products supplied which showed that it was suitable for use in Group IIC areas. Every unit supplied thereafter contained the same markings showing that it was so suitable.
- On 22 June 2006 Intertek re-issued its certification for the Clearwell Product, albeit that this was on an "encapsulation basis" with no tests done for intrinsic safety. There is nothing on the face of that certificate which indicates or hints that plastic pipe must be used in the area of metal pipe around where the Product is to be placed or that there was any risk of sparking. There was no hint that there was any restriction on its use and Intertek certified that it complied with the EHSRs in the ATEX Directive. It was certified for use in Zone 1. The certificate was sent on by Mr Appleby to Weatherford and Mr Clark in mid-September 2006.
- By the end of 2006, Weatherford had given notice to Clearwell and Hydropath of their intention to exploit the Product commercially and had paid the second round of licence fees. On 21 December 2006, the parties signed varied Licence, Supply and Technical Services Agreement, terms of which are set out above.
- I accept the evidence of, amongst others, Mr Clark, that Zone 1 in upstream areas contains, particularly within or close to the well heads, areas where Group IIC gases were present. I did not understand this evidence to have been obviously challenged or indeed challengeable.
- From 2006 to about the end of 2009, Weatherford purchased from Hydropath 625 of the Clearwell Products and installed some 287. Some of these products were sold outright to customers and others were rented out to them. I accept the unchallenged evidence of Mr Lauretti and Mr Clark that over this period they made numerous visits to assist Weatherford in promoting and installing the Clearwell Product around the world.
- There was some evidence about a sparking incident on an installation of a Clearwell Product in Edmonton in Canada in March 2007. From the limited evidence available, this does not seem to have caused anybody any great concern and it is more likely than not that such a sparking as there was occurred at a switch point some distance away from the product. There is a chain of e-mails in March 2007 which refers to this and Mr Clark's evidence was to this effect.
- By early 2007, Dr Stefanini and Messrs Clark and Lauretti were in detailed discussions about agreements between Clearwell and MSL for exclusive distribution of the Clearwell Products in the downstream oil market. This culminated in a written agreement between Clearwell and MSL in June 2007. Later, in October 2007, Dr Stefanini gave up his directorship of MSL and, it seems, his shareholding (albeit that may have been later). The involvement of Messrs Clark and Lauretti with MSL and the downstream distribution agreement was necessarily known by Dr Stefanini and provided Messrs Clark and Lauretti with a particular interest in the efficacy of the Clearwell Product at all times. For instance, on 7 June 2007, Mr Clark wrote to Dr Stefanini that MSL was intending to negotiate a three-year contract with Weatherford whereby Weatherford would fund the joint development of the downstream oil and gas market activities of MSL.
- In 2007, Weatherford was considering manufacturing the Clearwell Product itself, as it was entitled to do under the Agreements. To that end, Mr Hadi visited Hydropath's premises in Nottingham to seek assistance in relation to such in-house manufacturing but the meetings were not particularly successful. I infer that Dr Stefanini was not impressed with Mr Hadi; he told Mr Clark after a meeting which he had with Mr Hadi in Texas that Weatherford were "fools" and could never make the Product in house. He was later to tell amongst others Dr Parker that Mr Hadi did not appreciate the nuances of the design and there were a number of other occasions when Dr Stefanini told him and Mr Hadi that they did not understand the product and that Weatherford could not assemble the product correctly; this was set out in unchallenged evidence from Dr Parker.
- The first sparking incident was reported in early March 2008. It occurred on an installation of one of Weatherford's customers, Henry Oil. Mr Rzeznik of Weatherford wrote to Dr Stefanini and Messrs Clark and Lauretti by e-mail on 3 March 2008 in these terms:
- Dr Stefanini did a simple experiment on 3 March 2008 and was able to recreate a spark; he said by e-mail to Weatherford that the "spark is very weak and it is not able to light gas from the cigarette lighter pointed on to the area of the spark", and suggested that to "prevent this problem from re-occurring an insulating sleeve can be fitted in the area of the unit this will eliminate any possibility of sparking". This was the first time that either Messrs Clark and Lauretti or Weatherford knew or were made aware that there could be sparking of any sort. Dr Stefanini came out over the next few days with suggestions about the new strapping arrangement for the Product. On 10 March 2008 he wrote to Weatherford and Messrs Clark and Lauretti explaining how the short-circuiting leading to the spark could occur by reference to a simple sketch, which showed a wire with an Alternating Current being connected either side of the ferrite ring; by doing this he said "you will get a spark!" In effect and practice, Dr Stefanini was able to and did allay all concerns by his new recommendations about strapping as well as saying that the sparking was too weak to cause any problem. For instance, he told Mr Clark that if there was a spark it could not cause an explosion.
- Although Messrs Clark and Lauretti were reassured by what Dr Stefanini had said, they had MSL staff including Mr Morrison carry out some of their own tests in their premises in Hampshire and in a disused railway tunnel at Ventnor which did produce sparking. However, because Dr Stefanini was so confident that the safety of the Clearwell product did not warrant further investigation, Mr Clark did not feel that he should jeopardise the relationship between Weatherford and Hydropath and Clearwell.
- As 2008 went into early 2009, Messrs Clark and Lauretti, with Dr Stefanini and Mr Rzeznik of Weatherford had numerous meetings with Statoil and Conoco Phillips to discuss trials on offshore platforms in the Norwegian sector of the North Sea; the promotion of the Clearwell Product for offshore platforms was something which had expressly been envisaged by the Technical Services Agreement. These two clients wanted to have a trial for the Product on one well but Dr Stefanini insisted that two units should be installed one on the trial well and one on an adjacent well because, he told the others, he was concerned with intermittent electrical looping, which effectively meant short-circuiting on either side of the ferrite rings. This had to do with the configurations of large diameter pipe casings which were protected against excessive movement from wave action by metal support guides which would, he thought, form a permanent loop which would lead to short-circuiting. In late February or early March 2009 Mr Clark suggested to Dr Stefanini that looping might not be a problem but Dr Stefanini said that a single unit would spark because of intermittent looping caused by the well support structure arrangements but adding a second unit would stop the sparking. Mr Clark was concerned because Dr Stefanini had never mentioned that the Clearwell Product could spark in normal operation and because he could not see that the use of two units would resolve the potential problem. Mr Clark himself did a simple test in the MSL workshop with two units and when an intermittent short-circuit was introduced sparking still occurred. He became concerned and accordingly sent to Dr Stefanini some notes by e-mail on 4 March 2009:
- This provoked a furious and aggressive reaction from Dr Stefanini who, on a conference call that day, called Messrs Clark and Lauretti "f***ing idiots", saying that they were not fit to call themselves engineers and that they were not allowed to test his equipment without permission. He screamed at them. He said to them that they should not concern themselves with safety because they did not know what they were doing. In cross-examination, he said that although he was not rude to them, "their idea was so preposterous that it got me really cross". The "T" piece had been a suggestion made some months earlier as a possible solution to the sparking. They believed that he was in such a highly volatile state that they quickly finished the conversation. Later that evening Dr Stefanini rang Mr Lauretti to ask him to destroy the 4 March 2009 e-mail. However, Messrs Clark and Lauretti felt that there was little more that they could do, having raised their concerns with Dr Stefanini, he having dismissed them and he being the person who had secured the certification and knew the product. Mr Clark says, and I accept, that he had no reason to doubt the certification.
- Because Dr Haslegrave was becoming involved and because there were continuing discussions between MSL and Weatherford about the exploitation, possibly jointly, of the downstream market, there were a number of meetings in early 2009 between Weatherford representatives and Mr Clark. At one of these which Mr Stanley of Weatherford attended, Dr Stefanini also attended and there were discussions, not involving him, about the downstream market as well as the upstream market. It is clear from this and other evidence which I accept that Dr Stefanini was fully aware and did not object to the contact between MSL and Weatherford about the downstream market.
- Mr Clark met with Dr Haslegrave at MSL's offices in Hampshire on 6 March 2009. A substantial amount of the conversation was to do with cooperation on downstream matters; for instance there was a discussion about promoting the Clearwell Product for heat exchangers in oil refineries. Indeed, much of the conversation was to do with such downstream matters and there was discussion about a distribution agreement in relation thereto. However, there was discussion between them about Weatherford manufacturing the Clearwell Product in-house because the rental market could benefit in the United States from a lower cost price. Mr Clark emphasised that he wished to "maximise revenue through "Clearwell" rather than maximise manufacturing revenue for "Hydropath" [and that he believed] that [Weatherford] could easily have units made for around $500 each rather than the $3000…we are paying Hydropath", as noted in an e-mail from Dr Haslegrave to a Weatherford colleague on the same day. Mr Clark did not believe that this gave rise to any conflict because it would or could produce additional revenue for Clearwell, of which he was a director; he was not a director of Hydropath.
- Between about April and June 2009 Dr Stefanini was having surgery, convalescing and generally having time off work.
- Because Weatherford was interested in manufacturing the Clearwell Product in-house, Mr Clark on behalf of MSL sent to Weatherford a "Quotation" for a "Manufacturing and Design Review" on 11 May 2009. The Scope of Work was:
- Meanwhile, within Weatherford the manufacturing project was being furthered. Mr Vongstapanlert conducted the initial investigations into the feasibility of Weatherford manufacturing and various others such as Dr Parker and Mr Hadi were involved in general. Dr Haslegrave never seriously considered engaging MSL to manufacture the Clearwell Product as from May 2009 Weatherford's focus was on maximising the use of its own in-house manufacturing facilities to keep its facilities busy during a period of recession in the oil industry as well as to save costs (as Dr Haslegrave said in evidence).
- On 8 July 2009, Mr Branney (who was the Vice President-Manufacturing at Weatherford) had a telephone conversation with Dr Stefanini informing him that Weatherford was giving active consideration to manufacturing the Clearwell Product and by letter of the same day to Dr Stefanini gave formal notice on behalf of Weatherford pursuant to Section 3.1 of the Licence Agreement of Weatherford's intention to manufacture. I am wholly satisfied that this letter was sent to and received by Dr Stefanini, although it seems clear that until relatively recently he had forgotten about this. Notice was again given by way of fax transmission to Clearwell and Hydropath from Weatherford on 23 July 2009. Mr Clark also passed it on Dr Stefanini. Dr Stefanini was from the outset of this stage of the history extremely sceptical about Weatherford's ability to manufacture.
- Dr Haslegrave met Dr Stefanini on 16 July 2009 in England and a wide range of subjects was discussed including possible design changes. There was discussion about Weatherford's manufacturing the Clearwell Product but Dr Stefanini believed that Weatherford was not entitled to manufacture until all the licence stage payments had been made. It seems to have been a cooperative and positive meeting and Dr Stefanini made it clear that he wanted to work openly and closely with Weatherford. By about this time Mr Vongstapanlert had identified aspects of design and technical information that were missing from the know-how information already legitimately within his possession in relation to the Clearwell Product and these were listed in an e-mail sent internally within Weatherford on 20 July 2009.
- A party from Weatherford (Dr Parker, Mr Branney, Mr Adams and Vongstapanlert) met Dr Stefanini at Hydropath's premises in Nottingham, a few weeks later, to review the possible manufacturing to be done by Weatherford. Although no more documentation was handed over, certain costing information was provided. Dr Stefanini commented that there had been no new orders for some time and there was "zero demand" for the Clearwell Product. It was made clear by the Weatherford team that its intention was to manufacture five units of C-160 size in Texas by October 2009 and Hydropath provided five kits to enable Weatherford to build them.
- By early September 2009, Weatherford had produced prototype versions of the Clearwell in a Box (or T Box) which were installed for trial purposes at a Total site in France. In this period, Weatherford and Hydropath co-operated in relation to the proposed manufacture of the Clearwell Product, for instance Mr Vongstapanlert provided circuit boards for the in-house manufactured products to be tested at Hydropath; they were tested and found to work. By early November Weatherford believed that it had successfully manufactured Clearwell Products in-house and indeed had produced some costings for it. This confidence did not last long because by early December 2009 Mr Vongstapanlert was reporting that transformer power supply problems had emerged.
- By early November 2009, there clearly was some friction between Weatherford (and Dr Haslegrave in particular) and Dr Stefanini, the latter describing Weatherford's team as "fools" and complaining that not enough units were being sold.
- In late November 2009, Dr Haslegrave had been provided with and had begun to review earlier historic e-mails relating to the Clearwell Product and had picked up the e-mails to do with the Henry Oil sparking incident in 2008. He had asked for this information because of a meeting with Mr Clark on 20 November 2009 at which, during detailed discussions about the trials and manufacture of the Clearwell Products by Weatherford, Mr Clark mentioned the sparking incident at Henry Oil; Mr Clark suggested that Dr Haselgrave contact Dr Stefanini about it. Indeed in early December 2009 Mr Clark demonstrated how sparking might occur. On 8 December 2009, Dr Haslegrave wrote to Dr Stefanini:
- Dr Stefanini responded the following day simply by attaching relevant e-mails. He never responded to the question in the last paragraph. Dr Haslegrave was not satisfied with the response and decided that it would be appropriate to have an internal analysis of the Clearwell Product carried out to determine if there were any remaining risks relating to the sparking and if further certification of the product was required.
- On 15 December 2009, MSL sent to Weatherford a "budget quotation" at US$1,665 per unit for modifying existing Clearwell Product installations with the MSL 'T' piece design, otherwise known as the Clearwell in a Box idea; the idea of this was to confine any sparking effectively in a box so that it would not have access to any gaseous atmosphere.
- Mr Clark asked Mr Morrison to obtain a quotation for the supply of ferrites as part of the cost of valuation within Weatherford for manufacturing the product; this had followed a request from Dr Haslegrave. Mr Morrison contacted of his own initiative a company called Magdev, who happened to be suppliers of ferrites to Hydropath. It seems overwhelmingly clear, however, and I find that, ferrites are common components for transformers and are readily available in catalogues from numerous suppliers.
- Following a request from Weatherford to provide some cost information in relation to manufacturing by way of comparison to its own costings, MSL (and Mr Clark and his son) prepared and sent to Weatherford a document entitled "Clearwell Manufacturing Discussion Document" which addressed manufacturing costs against the existing Clearwell Product, an upgraded model and a reengineered model. Amongst other things, the document stated:
- Dr Haslegrave continued to have concerns about the sparking and by the end of January 2010 was concerned that the ATEX certification could be compromised, as he set out in an e-mail to Mr Zisk on Thursday January 2010. In that context, he also asked Mr Hadi to carry out some investigative tests in the laboratory. Mr Hadi reported on 16 February 2010 that, by providing for a short circuit either side of the ferrite ring, sparks with excessive energy (exceeding 400 µJoules (micro-joules) which was dangerously high for either Group IIB or IIC gaseous atmospheres had been produced. Dr Haslegrave reported to his superiors on 17 February 2010 that these results exceeded, "the allowable energy release under these regulations, indicating that we do have a certification problem"; he recommended that installations of the conventional unit should be put on hold until the problem was resolved that that communication would be issued to regional managers informing them of the problem together with a communication drafted for circulation to customers. He said that Weatherford would work with "customers case-by-case to ensure they understand the issue and they can then decide what to do next - continue, remove units and service, reinforce operating procedures (in unit to be disconnected before any work done nearby, keep off signage, plastic sleeving of flow lines, etc.)". He said that options to eliminate the problems were:
- On 3 March 2010, Weatherford wrote to Dr Stefanini as follows:
- Dr Stefanini replied on 5 March 2010:
- Following Mr Hadi's confirmation that his calculations but not Dr Stefanini's were correct, Dr Haslegrave's thoughts turned to what he called in an e-mail on 10 March 2010 to Mr Hadi the "3rd party route", which was to involve an independent laboratory to provide a re-evaluation of the certification. He suggested that Intertek or equivalent might be most appropriate. On the same day Dr Stefanini contacted Dr Haslegrave by phone and by his own admission "was a bit vocal"; he was clearly very upset about the way that Weatherford were handling the situation as he confirmed by e-mail on the same day; he was particularly concerned that customers had been informed because, even if they were later told that there had been a calculation error, they would not trust anything that Weatherford said to them. He made it clear that there should be no further testing without "us present". He was highly critical of Mr Hadi, whom he spoke to at about this time also.
- There had been no further sparking incidents until March 2010 since the Henry Oil incident. On or shortly before 24 March 2010 however, there was another sparking incident reported by a customer, Penn West, in Canada. The incident was reported as relating to the need to attach stainless steel tubing to the casing of a well, this being done when the Clearwell Product which had been installed was left energised; when the tubing touched the casing sparking was seen and experienced, this being assumed to be where a loop was created.
- By the end of March 2010, and indeed before, the Clearwell in a Box trial at Total was not proving successful because it allowed scale to build up on the inside of the pipe (which the Clearwell Product was essentially designed to stop).
- Weatherford decided to appoint Intertek US based in Plano, Texas to test the Clearwell Product in relation to sparking. This was part of the Intertek group whose associated company in the UK had provided the ATEX certification for the Clearwell Product back in 2003 and 2006. In that context, Dr Stefanini could not attend but agreed that Mr Clark that should attend on behalf of Clearwell. There was a dispute on the facts as to whether Mr Clark attended on behalf of Clearwell or Hydropath; I am satisfied that he attended on behalf of Clearwell; it is not only corroborated by his and Dr Haslegrave's evidence but also by the contemporaneous expenses claim form which identifies Mr Clark attending on behalf of Clearwell (albeit that the form was faxed to Hydropath.
- The test was carried out by Intertek US on 6 April 2010 on two C160 Clearwell Products; it was attended by Dr Parker, Mr Hadi and Mr Clark. Clear sparking was seen and generated by a short created on either side of the ferrite ring. Mr Stanley of Weatherford wrote to Dr Stefanini on 12 April 2010:
- Dr Stefanini's immediate reaction, as expressed to both Mr Clark and Mr Lauretti, was one mostly of incomprehension. He said to Mr Clark by e-mail on 12 April:
- Dr Stefanini replied on 14 April 2010, saying that Weatherford's earlier calculations were wrong and that Mr Hadi had agreed with him. This latter point was simply wrong and it is absolutely clear that the opposite occurred; I can only assume that Dr Stefanini simply had convinced himself (wrongly) that Mr Hadi had agreed with him. He suggested in the letter that all that was required was compliance with the Group IIB and not Group IIC requirement and, as the Intertek US tests had only failed in relation to Group IIC but not Group IIB, there was compliance. He said that the ATEX certification was valid. Having read this letter, Mr Clark clearly lost confidence with Dr Stefanini, believing that his response to what to Mr Clark seemed a clear serious health and safety risk was unacceptable.
- Mr Clark e-mailed Dr Haselgrave on 14 April 2010 commenting on Dr Stefanini's letter, amongst other things saying that the test carried out by Intertek US "was for the Gas Group it had been approved for" and that this "therefore throws doubt on the original approval and certification".
- Dr Haselgrave had an e-mail conversation with Dr Stefanini on 15 and 16 April 2010 with each disagreeing with the other. For instance, Dr Haselgrave said that the Clearwell Product was currently certified for Group IIC and that the recent third-party testing showed that the unit failed its explosion test for this group. Dr Stefanini said that Group IIC testing was not required for certification for a Class 1 Zone 1 certificate, that there was, "nothing broken to fix and nothing to review with the UK certifying body", that sparking would not ignite gases to the oil industry requirements and that sparking only occurred while maintenance was carried out without switching off the Clearwell Product; simple labelling, he said, would resolve the problem. The two of them could not agree. Dr Haselgrave was of the view that Dr Stefanini was refusing to engage with the problem as Weatherford saw it. It is the case that he was not fully engaging and this is clear from his e-mail to 16 April 2010 (addressing a meeting propose to take place in Nottingham) was abrupt and dismissive:
- A conference call took place on 26 April 2010. Participants included Dr Haselgrave, Dr Parker and Mr Hadi (for Weatherford), Mr Clark (on behalf of Clearwell) and three people from Intertek (US, New York and UK) to discuss the test which had taken place. It was resolved that Intertek would launch a non-conformance investigation with Hydropath to determine the validity of the 2006 ATEX certification and of any changes required in the light of Weatherford's observations (this being confirmed in an e-mail from Dr Haselgrave to other Weatherford personnel and Mr Clark on 27 April 2010). On the same day Intertek issued its formal report on the testing which it had done earlier in April confirming that it failed the Group IIC explosion test.
- By the end of April 2010, a longer term strategy began to emerge within Weatherford as to the future of the Clearwell Product; in an internal e-mail out of 27 April 2010, Dr Haselgrave wrote:
- On 13 May 2010 Dr Haselgrave e-mailed Dr Stefanini saying that Weatherford had been in touch with Intertek about its concerns and that it was his understanding that it would hold an investigation with Hydropath, "to look at the validity of their original certification". He said that Weatherford would like to know as soon as possible what they concluded so that Weatherford could, "restart our business development efforts". On 14 May 2010, Mr Haselgrave e-mailed Intertek US (Mr Neagle) to explain the differences in calculation carried out by Weatherford and Hydropath and asking when Intertek's investigation might be concluded. Mr Neagle responded saying that he had initiated the investigation process, but the team was being assembled to review the situation and he believed there was usually, "a fairly quick timeline".
- Dr Stefanini had begun to communicate with Intertek by late May 2010, for instance writing to them on 26 May 2010 explaining why he thought that the Weatherford calculations in relation to spark energy were wrong. By 9 June 2010 Intertek New York had convened a team to review whether the Clearwell Product conformed to the appropriate safety standards and both Hydropath and Weatherford were so informed on that date. By that date, Dr Stefanini had agreed with Intertek that the ATEX certification should temporally be changed to limit it to Group IIB; by copying him in on this Dr Stefanini notified Dr Haselgrave in an e-mail to Intertek on 4 June 2010. A certain amount of e-mail sparring carried on between Dr Stefanini and Dr Haselgrave about whether more than Group IIB status was required for the Clearwell Product.
- In parallel with this there were discussions between Weatherford and Mr Clark as to the viability of the SDS variant on the Clearwell Product, with Weatherford to carry out the manufacturing. On 25 June 2010, Intertek of New York wrote to Hydropath in these terms:
- Extraordinarily, and without any commercial or professional justification (as was at least partly accepted by Dr Stefanini and Dr Rodrigues), Hydropath felt that it was unnecessary to pass on this unequivocal conclusion relating to a product recall to the exclusive customer of the Product, that is Weatherford. It is clear from a further letter from Intertek of 2 July 2010 to Hydropath that spark ignition tests had been done by it which did show that the spark energy was capable of igniting Group IIC and B environments and it explained that the Clearwell Product represented an "Unreasonably Dangerous" situation even in Group IIB locations. This was not passed on to Weatherford. Indeed Weatherford, coincidentally, e-mailed Intertek on 7 July 2010 asking if the final report had been issued to Hydropath to be told that Mr Neagle of Intertek was, "prohibited from discussing the status or findings of the investigation with other than" Hydropath. Over the following weeks, Dr Stefanini and Dr Rodrigues engaged in trying to persuade Intertek that it was wrong. On 22 July 2010, Mr Zisk of Weatherford wrote to Dr Stefanini asking whether he had received a report from Intertek as Weatherford needed to have the results to determine if the equipment met the ATEX requirements as was all required modifications. Dr Stefanini's response was at best disingenuous and at worst dishonest:
- Faced with silence from both Intertek and Hydropath, Weatherford retained an independent testing house, SIRA, which, having been provided with the Product, reported to Dr Haslegrave on 19 July 2010 that the Clearwell Product was non-compliant with the ATEX Directive.
- On 10 August 2010, MSL and Weatherford entered into what was called a Joint Development Agreement, the preamble of which said that Weatherford desired, "to cooperate with MSL to develop and commercialise a Program (as defined below) and Weatherford is willing to conduct research and development towards such end". The "Program" meant, "the research, development, and qualification by the Parties relating to design, testing, manufacturing and assembly process for Weatherford's Clearwell scale prevention device". In essence, it related to the Clearwell in a Box and the SDS options. In fact, Dr Haslegrave anticipated that the SDS module would be the area which was likely to be concentrated on. The issue as seen by Weatherford at that stage was the propensity to spark and systems were required either to enclose the spark (Clearwell in the Box) or the SDS system which would shut down the Clearwell Product when there might be a risk of sparking. Clause 2 identified the purpose which was, "to improve a device to minimise organic scale and paraffin deposition in oilfield equipment under the Program" with Phase I being the "design, performance testing and ATEX certification of 10 prototype units" and Phase II being the manufacturing process. $50,000 was payable to MSL for its work in Phase I and thereafter $1,000 for each of the first 400 data acquisition modules and $480 for each module thereafter.
- As from April to August 2010, the relationship between Dr Stefanini and Messrs Clark and Lauretti went sharply downhill. Dr Stefanini said in his first witness statement that this was initiated as a result of his discovery (in late July 2010) that Mr Morrison of MSL had contacted Magdev about the possible provision of ferrites to be used in effect by Weatherford in manufacturing the Clearwell Product. He said that he was shocked when he saw this letter because he could not immediately see any explanation other than that Messrs Clark and Lauretti could only want these ferrites to develop their own version of the Clearwell Product. It was clear however from Mr Morrison's e-mail to Magdev that all that he was seeking to do was to obtain costings in the context of Weatherford having acquired the right to manufacture the Clearwell Product; it was unsurprising therefore that ferrites would be needed because that was part of the Clearwell Product. Furthermore, Dr Stefanini knew and had known for over a year that Weatherford planned, as it was entitled to do, to manufacture the Clearwell Product.
- On 18 August 2010, Dr Stefanini wrote by e-mail (headed "Patent infringement") to both Mr Lauretti and Mr Clark in trenchant terms:
- Mr Clark's response followed shortly thereafter:
- Dr Stefanini's response on 19 August 2010 and noted their e-mails adding:
- Mr Lauretti's response shortly thereafter was materially as follows:
- On 3 September 2010, solicitors representing Hydropath, Clearwell and Dr Stefanini wrote to Mr Clark and Mr Lauretti. This letter sought to explain the duties which they owed as directors. The letter concentrated on the sourcing of the ferrites back in January 2010, albeit there was another complaint which was not pursued in these proceedings. I infer from this and from the correspondence in August that Dr Stefanini had jumped to a conclusion that there had been wrongful behaviour arising solely out of Mr Morrison's request in January 2010 to Magdev for a price in the ferrites. This was responded to in detail on 23 September 2010 by solicitors instructed by MSL, Mr Clark and Mr Lauretti, who said amongst other things that in relation to the ferrites all that had happened was that Weatherford had approached Mr Clark to assist them in obtaining prices for the ferrites as it was "evaluating the viability of commencing the manufacture themselves".
- Although there was a discussion between Weatherford and Dr Stefanini toward the end of August about a conference call with Intertek and Weatherford indicated to him that there would be specific and searching questions to be put by Weatherford to Intertek, the planned conference call for 2 September 2010 was cancelled because, Dr Stefanini said, Intertek wished to put matters in writing. Intertek's letter dated 3 September 2010 was cryptic in the light of its earlier product recall letter:
- In September 2010, Weatherford retained British engineering consultants, TAS, to carry out an ATEX Risk assessment. Following a draft report on 30 September 2010, TAS issued its final report on 13 October 2010. In summary it said that it could, "easily be demonstrated that the device can produce sparks which are likely to be incendive" and that therefore it was, "recommended that the device should not be used without further precautions being taken". The TAS engineering consultants had, "witnessed the ease with which sparking can occur" and recommended, "that each unit be isolated immediately unless in the short-term suitable safety precautions can be taken to ensure continued safe operation." It said that certification would probably not be received if the device was re-submitted.
- Meanwhile, work was going on within Weatherford in relation to the SDS option and Mr Clark provided some assistance to Weatherford in this regard, for instance producing in early October 2010 a Certification Project File for Weatherford.
- Without reference to Weatherford, Dr Stefanini and Dr Rodrigues were seeking to persuade Intertek to confirm that the certification remained valid. Thus, on 11 November 2010 and Dr Rodrigues e-mailed Intertek with suggested modifications for the installation guide which for instance suggested that installing the unit on a plastic pipe would completely eliminate any possibility of an electrical loop. Over the next four months, it is clear that at least three and possibly four revisions to the installation guide were required by and dispatched to Intertek who, I infer, were unwilling or felt unable to accept the earlier iterations.
- On 11 November 2010, Dr Stefanini began the process of having Messrs Clark and Lauretti removed as directors of Clearwell by serving a Companies Act notice and on 17 January 2011 of the requisite resolution being passed by Clearwell that they be removed from their office of Director of Clearwell.
- By the end of 2010, relationships between Hydropath, Clearwell and Dr Stefanini on the one hand and Weatherford, MSL and Mr Clark and Mr Lauretti were beyond redemption. Intertek had not made up its mind as to whether to endorse unconditionally or with qualifications its 2006 certification of the Clearwell Product. Weatherford was proceeding down the line of manufacturing not only the Clearwell Product itself but it was also pursuing the SDS and Clearwell in a Box options to overcome or accommodate the sparking problem. Indeed, on 10 December 2010, Dr Haslegrave asked Dr Parker to dispatch 10 Clearwell C160 units to MSL for use in the Clearwell in a Box option. Weatherford wrote to Dr Stefanini at Hydropath on 8 December 2010 saying that all units supplied by Hydropath to Weatherford had been determined to be in breach of warranty is listed at Clause 9.1 of the Supply Agreement by reference to the sparking that could be generated under routine operating conditions. It notified Hydropath of its contractual opportunity to cure the warranty problems within 14 days. However, on 28 December 2010 Weatherford paid to Clearwell the final tranche of the licence fee due under the Licence Agreement.
- In 2011, with assistance from Mr Clark in particular and MSL, Weatherford pursued the SDS and Clearwell in a Box options that included, for instance, the installation of Clearwell in a Box units in Pakistan for trials. In the result and in time, notwithstanding much effort, time and cost, both of these options did not work or did not work effectively and safely enough and they were eventually abandoned.
- A new development however was that as from late January or early February 2011 MSL began a process of designing and then seeking patents for what became known as the Clearwell R product, around which much of the Counterclaim revolves. Initially, prototypes were not successful in trials but matters improved and by early 2012 some 50 Clearwell R units had been manufactured by MSL and were dispatched to Weatherford. Indeed, from this time Weatherford has sold and marketed these as and under the name of Clearwell R.
- There was some e-mail correspondence in March 2011 between Messrs Clark and Lauretti and Intertek about the state of the certification for the Clearwell Product. On 28 February 2011, Mr Fiske of Intertek orally informed Mr Clark that the ATEX certificate would be terminated the following week. Intertek on 14 March 2011 however said that Hydropath had "revised its installation and use instructions to the satisfaction of Intertek" and that, although there were "circumstances under which incendive sparking could occur", Hydropath had "prepared a kit to prevent that from happening" which would be announced publicly" (as it understood). It confirmed that the Clearwell Product was "ETL Classified" or, put another way that the 2006 certificate remained valid. Dr Haselgrave wrote to Intertek New York on 21 March 2011 to summarise events and referring to the SIRA and TAS findings that the product was "un-certifiable". Dr Haselgrave said that Intertek had made, "a rather astonishing about-face" but that this did not, "change the fundamental problem regarding spark generation in field applications".
- Meanwhile, there continued to be extensive exchanges between Hydropath and Intertek about the instructions which would have to be given to customers of the Clearwell Product; for instance there are extensive e-mail exchanges and what appears to be almost a negotiation as to the basis upon which Intertek might be prepared to accept satisfaction. For instance there is an e-mail from Dr Stefanini to Intertek on 25 March 2011 suggesting what Intertek might say to Weatherford which was pressing for answers to questions. Hydropath
- Weatherford had not ordered any new Clearwell Products from Hydropath since 2009 and since 2010 MSL had not ordered any either. In mid-March 2011, MSL Group Holdings Limited issued High Court proceedings against Clearwell in respect of outstanding sums said to be due to it in relation to consultancy services provided by it during 2010 in respect of technical support provided to Weatherford, alternatively for a share of the licence fees payable by Weatherford to Clearwell (the "MSL Fee Claim"). These proceedings were to be fought and by way of a late amendment a few days before the trial in December 2011 Mr Clark and Mr Lauretti were added as claimants. Judgment was given by Sir Raymond Jack on 6 January 2012 in favour of the Claimants in the full amounts claimed, with the judge finding that Dr Stefanini, "was an unsatisfactory witness".
- On 1 April 2011, Mr Clark wrote to the Department of Business Innovation & Skills ("BIS") by e-mail about the Clearwell Product in effect complaining that Intertek had "been unduly influenced" by Hydropath and explaining the background to the sparking and contacts with Intertek. He explained his view that the changes to the installation instructions would not render the Clearwell Products safe. He complained that Intertek was even refusing to send on the revised installation instructions.
- BIS wrote to Intertek on 19 May 2011 in the following terms in relation to the Clearwell Product and its certification:
- On or about 26 July 2011 another sparking incident was reported at a site in Colombia at an upstream site run by a company called Petrominerales; sparking was seen. Photographs revealed that the Clearwell Product was located on a metal plate pipe just above a well head and a line which some workmen were moving made contact and sparking occurred.
- In September 2011 in Milan, Weatherford made a commercial presentation to potential customers in relation to the Clearwell R Product. At some stage, this product was presented by a Weatherford speaker as an "improvement" over the original Clearwell Product. Although Mr Clark and Mr Lauretti attended, there is no and certainly no reliable evidence that they either set up or actually participated in the presentation; indeed their evidence in this regard was not effectively challenged.
- What essentially followed over the next two years in relation to the Clearwell Product was extensive involvement by the HSE with Intertek as to its certification and reliability. An example of the exchanges is HSE's letter dated 24 July 2012 to Intertek:
- There were numerous meetings and contacts between Hydropath (in particular Dr Rodrigues) and representatives of Intertek in 2012 and 2013 as Hydropath sought to hold on to the certification of the Clearwell Product. Most of this was done without reference to Weatherford or MSL. In about October or November 2012, Intertek did spark testing on the Clearwell Product and reported by e-mail to Dr Rodrigues on 11 December that the "sparking produced was found to be incendive for Group IIC applications" and that with a safety factor of 1.5 it failed the test for Group IIB, albeit considered that a factor of safety of more than one would be "a step too far". The reaction from Dr Rodrigues was that the there should be a re-run of the tests and that Hydropath wished to be present.
- HSE's reaction was passed on by e-mail by Intertek to Dr Rodrigues on 12 February 2013:
- This provoked what can only be described as a threatening e-mail from Dr Rodrigues on 14 February 2013:
- Intertek then did some further testing and it is a proper inference that this was attended by representatives of Hydropath. Six further tests were done of which one failed badly in relation to Group IIC conditions whilst the other five passed for IIC. All of them were done only to a factor of safety of one. Intertek was prepared to say that these results were acceptable partly at least because the last four tests passed although the rig which was used for the test was recalibrated after each test. No explanation was ever given as to why there was one failure. Intertek produced four versions of its Test Report between March and July 2013, with amendments being sought by Hydropath. The testing was reported as having been done by reference to EN 60079-11 (intrinsic safety).
- On 28 October 2013, Intertek issued further certification that the Clearwell Product, "has been found to comply with the [ESHRs] relating to the design and construction of equipment intended for use in potentially explosive atmospheres given in Annex II to the Directive". Compliance with the ESHRs was "assured" by reference to the encapsulation requirements, "except in respect of those requirements referred to in Item 16 of the Schedule". Certification was provided in relation to Group IIC. Unlike the earlier certificate however express conditions were imposed which if not follow the certificate would "revert to" relating to Group IIB:
- Weatherford issued these proceedings against Hydropath on 31 May 2012 for breach of contract in relation to the supply of the Clearwell Products. The first 53 paragraphs of the Re-Amended Particulars of Claim highlight the key terms of the Supply Agreement and the impact of the various ATEX Directive and related requirements. Section G addresses the allegations of breach of contract against Hydropath which are related to the propensity of the Clearwell Product to create an ignition source by sparking. It goes into some of the history, for instance relating to the TAS and SIRA investigations. Complaint is made that the Products are liable to create an ignition source (Paragraph 70) in normal operation and installation conditions and as a result of reasonably anticipated misuse, foreseeable surrounding area conditions, stray electrical and leakage currents, hazards due to external effects, equipment operating faults and interruption of circulating currents caused by stray magnetic fields (Paragraph 72), and this is dangerous (Paragraph 71). It is asserted (Paragraph 73) that the Products were not suitable to use in Class 1 Zone 1 areas and that the products had been incorrectly marked as suitable to use in Groups IIA, B and C. It said that the products were not fit for purpose and that they were subject to a defect which materially impairs their ability to function and operate (Paragraph 75). Complaint is made in Paragraph 75A that the Products at least until 24 March 2011 were not accompanied by instructions for safe putting into service, maintenance or installation of the Products and that the Products were not marked accurately. Paragraphs 77 to 86 address steps which Weatherford has taken to remedy the defects including notifying customers and seeking to modify the design to remove the risk of sparking and, ultimately engaging MSL to manufacture the Clearwell R product as well as replacing all Products which remain in service. Although this trial is not concerned with remedies or quantum, an indemnity is claimed by way of declaration for losses suffered as a result of the Products' liability to produce ignition sources.
- The Re-Re-Amended Defence and Counterclaim runs to 79 pages exclusive of attachments. Broadly, albeit at length, issue is taken as to the effect, meaning and impact of the various terms of the Supply Agreement relied upon. It is asserted that only Group IIB requirements needed to be satisfied and that the Clearwell Products did not have to meet the Group IIC requirements. A major contention repeated in oral argument is that the warranties only related to the equipment itself and not to the pipe to which it was to be attached and, in effect, that, subject to that, the Clearwell Product complied with the contractual warranties. It is asserted that the sparking as and when it occurred or could occur was not or would not be incendive. It was asserted that Weatherford did not really have any genuine safety concerns but merely sought to exacerbate them; this was to form a partial basis for an assertion that there was a breach of an implied term of good faith (albeit that this part of the Defence and Counterclaim has now been abandoned by Hydropath). There is reliance on and reference to the further Intertek testing in late 2012 and 2013 and reliance is placed on the new certification in October 2013. Complaints are made in the Defence relating to Mr Clark and Mr Lauretti (Paragraphs 93 and 94) to the effect that the Clearwell in a Box, the SDS and Clearwell R should have been disclosed to Clearwell pursuant to clause 6.1 of the Licence Agreement. By the Counterclaim, Hydropath and Clearwell seek relief for various matters against variously Weatherford, MSL, Mr Clark and Mr Lauretti:
- The Counterclaim relating to the wrongful use of know-how and confidential information (Paragraphs 107-8) was pleaded out in detail in "Confidential" pleadings. The Confidential Statement of Case prepared by Hydropath and Clearwell identified 14 areas of complaint of which all but 2 were abandoned during the trial. As pleaded originally however, there was a wholescale onslaught about virtually the whole of the Clearwell R Product as well as some complaints relating to the Clearwell in a Box and SDS options pursued by Weatherford in the 2009 to 2011 period.
- Weatherford's Amended Reply addressed a number of factual and legal points. For instance, it challenged the efficacy of the latest certification issued by Intertek.
- The Amended Defence of Messrs Clark and Lauretti and MSL denies in detail that it sought to induce any breach of contract on the part of Weatherford, concentrating on the breaches of Clauses 6.1, 7.1 and 9.1 of the Licence Agreement and arguing that there were no such breaches in any event. They assert that Messrs Clark and Lauretti did not act in breach of their duties as directors of Clearwell and, in their seeking to investigate and consider safety issues, they acted in accordance with those duties. They also raise the point that, as a customer of Hydropath, MSL and they were entitled to consider the potential impact of safety issues such as the sparking. Messrs Clark and Lauretti deny that they were provided any confidential information by Weatherford and that they used any such information in the design of the Clearwell R Product. They positively assert that none of the information alleged to be confidential by Hydropath was confidential in any event. They positively assert that the pursuit of all of the claims against them is an abuse of process in that Clearwell and Dr Stefanini were aware of the facts and matters said to give rise to the claims made in the current action at the time of the Fee Claim, that they were relied upon as part of the factual matrix forming the defence to the Fee Claim and that they were not raised in the Fee Claim; therefore, they assert, by reference to authority, that in respect of Clearwell, Dr Stefanini and, through him, Hydropath, the counterclaim could and should have been addressed within the Fee Claim proceedings and should be struck out as an abuse of process.
- Hydropath and Clearwell challenge what MSL and Messrs Clark and Lauretti say in their Amended Defence in some detail and they point to the fact that neither Hydropath nor the MSL company involved in the current proceedings were parties to the Fee Claim proceedings. They assert that judgment in the Fee Claim proceedings was, "made without a full consideration of the Fourth to Sixth Parties' wrongdoing for the reasons pleaded herein".
- At the first Case Management Conference on 1 February 2013 directions were given leading to an 8 day trial on 2 December 2013. Because it was clear that the parties might wish to establish various facts by experiment and perhaps because Counsel were even more at home in the Patents Court than in the TCC, an agreed order was made in the following terms:
- There was some coming and going procedurally in the case but in November 2013 the court adjourned the trial, it being agreed by the parties that the case by that stage would not be ready for a trial in December 2013. Trial was re-fixed to start on 16 June 2014. The experiment provision was altered, so that paragraph 6(a) of the order was to be read as 24 January 2014, albeit that was altered whereby the date by which the defendant and third party were to serve the notice described under paragraph 6(b) of the order was to be extended to 4.00 pm on 7 March 2014. So the process, subject to court order, was to be concluded by 7 March 2014.
- In accordance with the revised timetable, Weatherford served two Notices of Experiments. On 2 April 2014, I ordered that:
- The Defendants however also sought by their "2nd Notice of Experiments" served on 17 April 2014 to rely on Intertek's experiments in October 2012 to March 2013 which led up to its latest re-certification of the Clearwell Product. Their entitlement to do this was challenged by Weatherford. In a judgment given on 16 May 2014, the Court refused the Defendants permission to rely upon the Intertek experiments. The operative part of the judgment is as follows:
- The Defendants' claim is very much based on inference in that they argue that Weatherford did have access to confidential know-how and that they must have passed it on to MSL, Messrs Clark and Lauretti to enable them to design and engineer the Clearwell R Product. They rely upon the evidence of their expert Dr Ford. It was accepted in closing submissions by Mr Booth QC that the Defendants could not suggest that MSL and Messrs Clark and Lauretti got it themselves directly from Hydropath. The unequivocal evidence from all the witnesses of fact called by both Weatherford and MSL and Messrs Clark and Lauretti was that Weatherford did not pass on and MSL and Messrs Clark and Lauretti did not receive any such Hydropath/Clearwell confidential information.
- I found all such Claimant and Fourth to Sixth Parties witnesses to be credible. There was no "smoking gun" type of document which suggested that they were lying or otherwise being dishonest with the Court. Indeed, even when pressed by Counsel for the other parties to say whether the Defendants were asserting that all or any of these witnesses were lying, Mr Booth QC in closing expressly eschewed any such positive assertion; for instance (Day 9, page 154-5) he said in his final submissions:
- Whilst that was a proper point to make in general if the Defendants felt that they could not establish that any or all of the other factual witnesses were lying, the reality is that, to establish that some eight witnesses of fact were merely wrong in their recollections about whether they received, used or passed on confidential information, an extraordinary and unlikely factual permutation would have to be in place. For instance, Mr Morrison, who largely designed the circuit for the Clearwell R Product and who said in effect that he did not copy or use the Clearwell Product circuit or circuit design in so doing, would have been virtually bound to have remembered whether he did so copy or use the earlier circuit. Mr Hadi, Mr Vonstapanalert and Dr Parker, all of whom had access at one stage or another to parts of the Clearwell Product know-how (quite legitimately), and who, if anyone, would have been those who would have passed on confidential information (if it happened at all), could hardly have just forgotten that they had passed it on or convinced themselves that they had not when they had. It was never really put to any of these witnesses that they were dishonest or that were effectively perjuring themselves in this or indeed in any regard.
- Put simply, on the factual evidence, the Defendants have simply not proved their case that Weatherford, MSL and Messrs Clark and Lauretti have passed on and/or used respectively any material confidential information or know-how.
- The observation of Mr Justice Laddie in the Patents Court in Ocular Sciences v Aspect Vision Care Ltd [1997] RPC 289 at 360 are germane:
- Megarry J set out what was required for an action for breach of confidence in Coco v A.N. Clark (Engineers) Ltd [1969] RPC 41 at 47:
- Lord Green MR said in Saltman Engineering v Campbell Engineering (1948) 65 R.P.C. 203 at 215:
- It was rightly common ground that to determine whether information is in the public domain is a question of fact but that, if it is freely available for instance on the Internet or in commercial literature or in registered patent information publicly available, it can legitimately often be said to be in the public domain. Jacob J (as he then was) said, in relation to breach of copyright (which raises sometimes similar factual issues) in IBCOS Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275 at Page 296-7:
- Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch 227 involved a claim by a company against its former managing director for the disclosure of confidential information. Megarry J at Page 248 said:
- Although much was made by the Defendants in pleading and indeed in part during the trial about the alleged probability that Weatherford, MSL and Messrs Clark and Lauretti must collectively have had access to confidential information to enable them to progress the designs of the Clearwell in a Box and the SDS options, that was not supported by any direct evidence and it was ultimately not supported by their own expert, Dr Ford, by way of analysis or indeed by reference. Indeed, on the facts and evidence it is clear that it was unnecessary for either option that those designing them needed to copy or actually even use any confidential information relating to the Clearwell Product. This is because the clear assumption was made that the Clearwell Product would do exactly what it was always represented to do, that is create an electromagnetic field to on or through metal pipe work to effect de-scaling within the pipe in question. What was new about the Clearwell in a Box was, essentially, the Box which was intended to enclose the Clearwell Product so that the sparking would in effect be contained within the Box. The SDS option was one which deployed the Clearwell Product but with an added system which would shut down the Clearwell Product if it was or was about to produce a spark. On the evidence, there is no available inference and there is no evidence otherwise that Weatherford or the others had to have had or did have or use any confidential information. There is no and no reliable evidence that one needed to understand, copy or even use technical information let alone any confidential information to design the Clearwell in a Box or SDS options. Indeed the convincing tenor of Dr Brown's evidence (for instance on Pages 229-232 of the Day 8 transcript) was that no inference otherwise arose. In any event, no direct claim is now pursued in respect of these products largely, I suspect, because they were unsuccessful and, following trials, were never pursued commercially or otherwise. There is no evidence that any money was made out of them and, indeed, if anything, a net loss was suffered.
- In any event, it is clear that under the Licence Agreement Weatherford was in any event entitled to seek to make "improvements", that is as defined under the Licence Agreement as, "all improvements, modifications or adaptations to the Technology or the licensed IPR which might be of interest to [Weatherford]…" Given the potential for sparking, Weatherford was obviously allowed contractually to seek to make and design improvements. It cannot logically be said that trying to contain sparking or to provide fail safe systems against sparking was anything other than a potential "improvement" which was permitted under the Licence Agreement, even if it did deploy the Clearwell Product technology.
- To the extent that it is necessary, I briefly review the evidence relating to the 2 (out of 14) pleaded matters which are directly pursued by the Defendants. They are Items 3 and 5 in the Schedule of Information. I do this in the context of considering whether there is any material upon which it would be proper or otherwise appropriate to base an inference that Weatherford must have passed on confidential information to MSL or Messrs Clark and Lauretti and that these latter three used any such confidential information.
- Item 3 was pleaded in the Defendants' Confidential Statement of Case Schedule under the general description: "Overall Modular design of circuit; interaction of sub-circuits" with the confidential information said to be:
- Essentially, what the difference between the parties came down to in Item 3 was the suggested similarity of the circuit boards between the Clearwell Product and the Clearwell R Product. The two experts, Dr Brown for the 4th to 6th Parties and Dr Ford for the Defendants, did agree in the Experts' Joint Statement that "the circuit diagrams are very similar" but Dr Brown recorded that:
- Dr Ford, somewhat unhelpfully in his Report, used different numbers from the pleaded Schedule of Confidential Information and he addressed the circuit diagrams (Item 3) as his Fourth Issue. His report (at pages 20 to 21) is short (24 lines) and not illuminating, his views being stated as:
- In contrast, Dr Brown in his report analysed the fundamentally different aspects of the Clearwell and Clearwell R products, highlighting firstly the use in the former of analogue and in the latter digital technology, the latter involving the use of a microprocessor to create a pseudo random signal as opposed to an actually random signal in the Clearwell Product and secondly, the deployment for the Clearwell Product of the pipe into a secondary coil of the transformer for inducing the magnetic field whilst the Clearwell R Product induces the electromagnetic field by deployment of an antenna field. None of this is challenged by Dr Ford. Dr Brown points to generally and publicly available information which is used in the Clearwell R Product.
- When it came to oral evidence, it was clear that Dr Ford had not really carried out any or any helpful analysis as against the circuit or circuit diagrams used for the Clearwell Product by way of comparison with the circuit diagrams used for the Clearwell R Product. Indeed, Mr Booth QC was constrained in his final written submissions himself to do the technical comparison between the respective circuit diagrams to seek to convince the Court that there must have been some copying. It is extremely difficult for the Court to accept that approach without some intelligible support for this from the expert and there was no such intelligible support.
- I have to say that I found Dr Ford to be unconvincing, although that may not have been entirely his fault. It is clear that he was not given a number of important documents such as the witness statement of Mr Lorek (submitted by the 4th to 6th Parties) which addressed his assistance and advice in the design process for the Clearwell R Product. His report is seriously lacking in detail, explanation or analysis and answers given by him in cross examination did not really assist to clarify what it was that he was really saying. The very fact that, although his report did accept that no breach of confidence could be established with regard to a number of matters, there has never been an explanation as to why yet more were not pursued by the time that he came to give evidence. I can only assume that relatively shortly before he gave evidence he appreciated that he could not support much of what he had said in his report, short, simple and un-particularised as it was.
- In contradistinction, I found Dr Brown, both in his report and in his oral evidence to be helpful and lucid and logical. In effect his conclusion was that there was nothing in the circuit diagrams which could or should give rise to an inference that they were copied from those upon which the Clearwell Product was based.
- It was accepted by Dr Ford that different values applied for each and every component between the Clearwell Product circuit and the Clearwell R Product and that there are a very large number of different components in the design between the Clearwell and Clearwell R Products. Those differences seem to make no impact on Dr Ford's views, for no good reason.
- Overall, Dr Brown's evidence was to the effect that the circuit diagrams on the Clearwell and Clearwell R products were just "run of the mill" circuit diagrams containing nothing extraordinary or confidential and the fact that they were similar did not mean that one was copied from the other, as he explained in cross-examination. I accept that evidence as it is obviously right, because Dr Brown was convincing and because Dr Ford was unconvincing.
- The second item pursued by Clearwell was "square pulse amplification" described in the Confidential Information Schedule (Item 5) as follows:
- Again, although the experts agreed that the circuit diagrams are "very similar", Dr Brown stated in the Joint Statement produced by him and Dr Ford:
- Mr Ford's report extends to 38 lines on this issue. He identifies at Paragraph 7.3 that an MSL drawing, "has a section that matches the second circuit diagram from the top of pages 19 and 49 of the Companies' Schedule of Confidential Information", at Paragraph 7.4 that the same drawing has "similarities to the amplification stage" shown on a Hydropath drawing, Paragraph 7.6 that an MSL hand produced drawings has similarities to the amplification stage shown on the Hydropath drawing and, at Paragraph 7.6, that the amplification stage shown in the same MSL drawing "does not have any similarities to the circuit drawings on pages C60 and C61" on various disclosed Confidential Documents. He concludes simply:
- Dr Brown however explains in his report his comparison of the two relevant circuit diagrams and said that, "they do not appear to me to be similar save in the trivial sense that would be expected of any circuit that is trying to achieve a similar effect, namely a transistor operating in a switching mode." He examines the differences in particular in the context of the Clearwell R Products deriving its operation in the digital domain as opposed to the Clearwell Product in the analogue domain; he considers whether there is any evidence to show that Mr Morrison's statement as to what was the design starting point for the Clearwell R Product was wrong; he seeks to demonstrate that there is no evidence to show that this statement was wrong. This type of analysis is helpful and was not challenged, nor indeed was Mr Morrison's statement about the primary sources of his design of the Clearwell R Product. Again Dr Brown points to numerous differences both in components and values from the different components relating to the two sets of circuit to demonstrate a substantially different method of operation as between the two products.
- I have no hesitation in saying that in relation to Item 5 not only have Hydropath and Clearwell simply failed to prove any breach of contract or misuse of any confidential information about also it has been positively proved that there has been no breach and no such misuse.
- Mr Booth QC and Mr Smith had done their level best in their closing submissions to seek to demonstrate that there must have been some breaches but they have had to make bricks without straw. For instance, great play was made about the deployment of a ferrite ring in the Clearwell R Product which it was sought to argue Dr Brown had conceded was unnecessary and therefore an indication that one product was being derived from another. The transcript does not support this argument but it does not help their clients in any event because there can be and is no suggestion that the ferrite ring technology was anything other than entrenched in the public domain. They attempted to argue that the SDS option and its history suggest that MSL and Messrs Clark and Lauretti must have had access to confidential information about the Clearwell Product; I have addressed this above and there is no and certainly no sufficient evidence to satisfy the Court that there is any proper factual basis from which to make this inference. It is suggested that Mr Vongstapanalert's evidence suggesting that the SDS was a "new product" in some way shone some light on the issue but it was simply his evidence and, of course, in one sense the SDS was a new product because, although it used and incorporated the Clearwell Product, it has not been demonstrated that the Shut Down System part of the development needed, so to speak, or had to know in detail and to respond to aspects of the design of the Clearwell Product which were confidential. Finally they point to drawings and other types of document that they suggest must have been missing from disclosure as giving rise to some inference that Weatherford and the others must be hiding information which is harmful to their case. This is a surprising point to make because for many months prior to the trial (almost a year) their clients had not made any application for specific disclosure. I have no reason to accept that the Fourth to Sixth Parties have deliberately or consciously withheld disclosure although it is likely that some earlier and abandoned iterations of drawings or sketches (the later ones being disclosed) have been discarded, lost or destroyed in the ordinary course of business.
- It follows from the above that the Counterclaim of Hydropath and Clearwell and the claim against the Fourth to Sixth Parties in relation to the misuse of confidential information has not been established and should be dismissed.
- Clearwell's Counterclaim relating to the use and continuing use of the Clearwell name in the promotion and sale of the Clearwell R Product stems from Clause 9.1 of the Licence Agreement, which I repeat:
- Weatherford and Messrs Clark and Lauretti argued through Counsel that the wording of Clause 9.1 is primarily permissive in that each party retains any rights to its name and that Clearwell had no right in and to the Clearwell name; they argue that there is no evidence or pleaded case that Clearwell owned any registered rights in the name or the sign "Clearwell". They point however to the second part of Clause 9.1 which permits Weatherford to sell the "Technology under whatever brand it wishes". They assert that the Clearwell Product was named "Hydroflow" before Weatherford was involved and continued to be called Hydroflow for products not supplied to Weatherford. Both sets of Counsel rely on answers given by Dr Stefanini under cross-examination:
- In my judgment, there has been no breach of Clause 9.1 by Weatherford. Clearwell had no proprietary interest in and did not, so to speak, own the "Clearwell" name, as at the date of the Licence Agreement or indeed thereafter. Clearwell was set up as a company primarily to licence the use of the Clearwell Product by Weatherford and to receive the licence fees; there was to be an exclusive arrangement whereby only Weatherford could distribute this product until late 2014 at the earliest and, it is clear, from a very early stage that what came to be known as the Clearwell Product was to be called Clearwell, so marked and so sold and distributed. Clause 9.1 simply seeks to preserve any existing rights to trade marks, names and brands. There can be no doubt that the brand (which is in effect and practice "Clearwell") is that of Weatherford which has branded and marketed it as Clearwell. The second sentence of Clause 9.1 relates to the Technology which is very broadly defined in the Licence Agreement as:
- This Counterclaim is accordingly dismissed.
- This claim is based in tort. It can not in any event succeed in a case such as this is where there is no material breach. For the reasons which I have addressed above, there have been no material breaches of Clauses 6, 7 or 9 of the Licence Agreement (as pleaded or at all).
- It is clear from the authorities, and in particular OBG v Allan [2008] 1 AC 1, what the material elements of the tort are:
- In any event, I accept the evidence of Mr Clark given under cross- examination (Day 2) that neither he, Mr Lauretti nor anyone else from MSL encouraged or suggested to Weatherford that they use the name Clearwell R for the new product. There would therefore in any event be no conduct which in that context could give rise to the tort of inducing breach of contract, whether or not there was a breach.
- This Counterclaim falls to be dismissed.
- The Sections of the Companies Act relied upon are:
- It is rightly common ground that the test for breach of these sections and/or the general fiduciary duty owed by the directors is a subjective one. The Fourth to Sixth Parties' Counsel has referred to several authorities, first Warren J in Re Southern Counties Fresh Foods [2008] EWHC 2810 (Ch) who said at Paragraph 53:
- The Court of Appeal in Foster-Bryant v Bryant [2007] EWCA Civ 200 considered the scope of conflicts of interest in the context of a case involving a director who was said competed with his former company following his resignation. Rix LJ referred to a decision of Blackburne J in Framlington Group Plc v Anderson [1995] BCC 611 and said:
- It is important to bear in mind that Messrs Clark and Lauretti were directors of Clearwell and not directors of Hydropath. It is also important to note that at all material times they were also directors of MSL which from June 2007 had a contract with Hydropath to acquire in effect the Clearwell Product for the purposes of the downstream market. Of course this latter fact could in theory and indeed in practice give rise to a conflict of interest, albeit that wearing their MSL hats they were absolutely entitled to raise concerns about the safety of the Clearwell Product which, after all, was exactly the same product as was being sold to them by Hydropath. Even as directors of Clearwell, they were bound to consider concerns expressed by others, and particularly Weatherford, in relation to the safety of the Clearwell Product; it cannot have been in the commercial let alone legal interests of Clearwell to be associated with a product which was not only not compliant with the appropriate standards (if that was the case) but which was also potentially dangerous. It follows from these factors that just because they raised or investigated safety concerns does not mean that they were or were necessarily acting in breach of their duties as directors of Clearwell.
- As will be seen from the remainder of this judgment, I am satisfied on a balance of probabilities that the Clearwell Product did not comply with the requisite statutory requirements or the contractual requirements laid down in the Supply Agreement. It therefore follows that any complaint that Clearwell makes about breaches of Companies Act or other duties on the part of Messrs Clark and Lauretti in relation to what are said to be spurious concerns on their part in relation to the safety and feasibility of the Clearwell Product is not and cannot be justified; the concerns were not spurious. The argument becomes even more difficult for Clearwell to run when it and Hydropath have abandoned any complaint against Weatherford that Weatherford acted in bad faith in raising safety concerns from 2009 onwards.
- As a number of different allegations have been raised in argument by Clearwell, it is important to go back to its pleading. Paragraph 109 of the Counterclaim talks about, "the said acts aforesaid…in competing with Clearwell, and actively seeking to assist Weatherford to have Clearwell products removed" as giving rise to breaches of Sections 172 and 175 duties to promote the success of Clearwell and as constituting a conflict of interest never authorised by Clearwell. The "said acts aforesaid" were those pleaded in Paragraph 107 as the pursuit with Weatherford of "developments of an improvement or a new product which plainly uses the Clearwell Product and the Know-How in order to develop it" and the use of the Clearwell name, in effect in relation to the Clearwell Product. Paragraph 109 therefore is limited to the following alleged acts on the part of MSL and Messrs Clark and Lauretti:
- Great play is made by Clearwell and its Counsel about the alleged failure on the part of Messrs Clark and Lauretti to call for board meetings at Clearwell and there to raise their concerns about the safety of the Clearwell Product. That is not as such a pleaded complaint, albeit that the fact that they did not call for board meetings might be some evidence of concealing or withholding relevant information and it might in some way go to the credit of their testimony. The reality however in this context is that none of the directors, including Dr Stefanini, called for any board meetings at least after 2007. I find it difficult to attach great importance to this unpleaded complaint in circumstances in which, for instance, Dr Stefanini did not think it is essential to call and raise at a Clearwell board meeting the product recall and danger warnings given by Intertek on 25 June 2010 (at a time when, on Dr Stefanini's evidence, he was not aware of any significant breach on the part of his Clearwell co-directors of their statutory duties). I do not necessarily criticise Dr Stefanini for failing to call a board meeting at that stage but it is indicative of an implicitly agreed state of affairs or implicit understanding that board meetings did not need to be called. Mr Clark and Mr Lauretti in evidence made it clear that there was little or no point calling meetings in 2009 and 2010 about the sparking problem and any safety concerns because Dr Stefanini had made it on a number of occasions crystal clear that he was right and everyone else was wrong and that he was not open to persuasion otherwise. I cannot read into the fact that no board meetings were called any sinister or indeed other conspiracy or plan on the part of Mr Clark or Mr Lauretti to act in bad faith.
- It is also important to consider the behaviour, acts or omissions of Mr Clark or Mr Lauretti or through them MSL in the context of the Technical Services Agreement. It is undoubtedly clear that between 2005 and 2010 Messrs Clark and Lauretti provided an enormous amount of technical and commercial assistance to Weatherford for and in connection with the promotion, sales, after sales service, installation and troubleshooting in relation to the Clearwell Product. This involved numerous trips around the world, albeit mostly in North America but also in the Middle East, including Pakistan, and in and for the North Sea. Unsurprisingly, no criticism is made by Clearwell of this mass of activity on their part. This led, doubtless, to them establishing good personal and working relationships with Weatherford staff members and it seems clear that there was such a good relationship between them and Dr Haslegrave. It is clear from the e-mails between them that they got on well and it is necessary to approach the tone of the e-mails in that context. For instance, it was common ground between them (and increasingly so in 2009 onwards) that they all knew that Dr Stefanini was immovable on the issue of safety or danger from the sparking problem and that he was sceptical about Weatherford's ability to manufacture the Clearwell Product; the e-mail traffic between Weatherford staff and Messrs Clark and Lauretti reflects that awareness.
- The Technical Services Agreement provides that Clearwell (for which Messrs Clark and Lauretti were expected to head up efforts in this context) would "support Weatherford's activities to expand the market" and "become an active partner in developing the long-term growth potential of the technology". "Engineering developments" and "Improvements" were allowed for and contractually encouraged and Clearwell was required to provide "engineering and application support on new product development opportunities", "assistance with manufacturing efforts if pursued" by Weatherford and "engineering resources for [certain] product design modifications". Hydropath had its own interests to protect in one sense because it was manufacturing the Clearwell Product and, if Weatherford was to manufacture it, Hydropath would lose out on the charges which it was entitled to make under the Supply Agreement. Messrs Clark and Laurettis' duties were to Clearwell.
- It must also be borne in mind that the Licence Agreement entitled Clearwell to royalties and royalties and commission payable to Clearwell on each Product manufactured by or for Weatherford at specified dollar amounts and 3.5% of net invoiced prices charged by Weatherford for sale or rental of Products. It therefore did not "matter" to Clearwell whether it was Hydropath or Weatherford or indeed a sub-contractor to Weatherford which manufactured the Clearwell Product because it would get a royalty on each such a manufactured product. The more Clearwell Products which were sold or rented, the better it was for Clearwell because it was entitled to receive a commission of 3.5% on the invoiced sums. If the sparking problem was resolved, that would produce more Products and more sales and rentals and therefore more income to Clearwell.
- When one comes to consider the behaviour, statements, acts and omissions of Messrs Clark and Lauretti in the context of all the above matters, it is difficult to see that they or through them MSL acted in breach of the Companies Act duties or otherwise in breach of any fiduciary duty.
- It was incumbent on Messrs Clark and Lauretti, who were charged primarily with providing and undertook the Clearwell services under the Technical Services Agreement towards and for Weatherford, to interest and involve themselves in the safety concerns raised by Weatherford from 2009 onwards in relation to the ramifications, both technical and commercial, of the sparking potential caused or created by the Clearwell Product. It would in effect have been a breach of the Technical Services Agreement simply to stand by and do nothing. It was within the services to be provided by Clearwell for Clearwell to provide engineering support to Weatherford to seek to investigate and to overcome or accommodate the sparking problem. The development of the Clearwell in a Box and the SDS options were alternatives that Weatherford wished to pursue, albeit that the former arose out of the 'T' Box idea which Mr Clark had come up with. It cannot have been a breach of the Companies Act duties for Messrs Clark and Lauretti to assist with the promotion and implementation of these ideas in circumstances in which such assistance was clearly called for by the Technical Services Agreement.
- I am satisfied that there were no breaches of Companies Act duties or of any fiduciary duty on the part of Messrs Clark and Lauretti or through them MSL and that Clearwell has simply not established any case against them in that regard. I will address in reasonably summary form my reasons:
- It follows from the above that this part of the Counterclaim is also dismissed.
- Although that disposes of the Counterclaim, the Fourth to Sixth Parties also sought in their pleading to argue that the whole of the Counterclaim against them and indeed MSL should be dismissed as an abuse of process because Clearwell and Dr Stefanini (and through him Hydropath) were aware of the facts and matters raised in the Counterclaim at the time of the Fee Claim, that they were relied upon as part of the factual matrix forming the defence to the Fee Claim and that they were not raised in the Fee Claim proceedings in spite of that knowledge. It is certainly the case that Dr Stefanini in the current case quite openly indicated that part of his motivation for pursuing the Counterclaim was his desire to overturn the result of the Fee Claim and that Sir Raymond Jack and the Court of Appeal were misled. I have absolutely no reason for thinking, based on my review of the evidence, that Messrs Clark and Lauretti misled the first instance judge; as appears elsewhere in this judgement, my views about the reliability of Dr Stefanini elide with those of Sir Raymond Jack.
- It is unnecessary to deal with this in any detail, given the findings which I have made in any event. The law was initially summarised by Wigram V-C in Henderson v Henderson 3 Hare 100 at 114- 115:
- The Privy Council in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 considered the case of the appellant who sought, unsuccessfully, to raise a defence in one set of proceedings that the transaction in question was a sham, and in a later claim that it was fraudulent. Lord Kilbrandon said at pages 589–590 said:
- The House of Lords in Johnson v Gore Wood [2002] 2 AC 1 considered a case where the issue was whether a claim by the plaintiff should have been made in an earlier action on the same subject matter brought by a company under his control. The argument was summarised in the judgment of Lord Bingham thus, at page 23:
- He went on to say at Page 31:
- I am not satisfied that it can be said that Clearwell should have raised all or even most of the matters that they and Hydropath have raised in the current proceedings. The MSL company was not the same in each set of proceedings. Messrs Clark and Lauretti were only brought in as parties with a few days left before the trial. It is therefore simply unrealistic to suggest that Clearwell could in practice or should have raised all the matters which it did in the current proceedings in the Fee Claim proceedings. Whilst I can not put myself in to the exact position in which Sir Raymond Jack was when the trial started, it is almost inevitable that, if Clearwell, following the joinder of Messrs Clark and Lauretti a few days before trial had then sought to raise by amendment all the matters raised in the Counterclaim and to bring in the MSL company which is the Fourth Party in these proceedings, such an amendment would have been refused as much too disruptive of the trial; alternatively, the judge would have had to adjourn the trial. I would not criticise Clearwell for not trying at that stage to amend. Until Messrs Clark and Lauretti were joined in the Fee Claim at the 11th hour, a primary and simple defence on the part of Clearwell was that there was no contract between it and the MSL company which had sued it; there was no need therefore on its part to have pleaded in the Fee Claim all or indeed most of what has been raised in the current proceedings.
- Whilst there was certainly an overlap between the issues raised in the Fee Claim, there are very substantial issues raised in the current proceedings which do not overlap, such as the design and marketing of the Clearwell R Product.
- I would have rejected the abuse of process defence and, I confess, I found it difficult to see the logic of the arguments advanced by Mr Brandreth for the Fourth to Sixth Parties (although I understood the "merit" or "appeal to the jury" tone of argument).
- The issue on Weatherford's claim is essentially whether the Clearwell Product as provided were compliant with the ATEX and contractual warranties in the context of the sparking potential and the level of incendive energy foreseeably generated from such sparking. It is worth emphasising that there is no complaint about the quality of the manufacture or that inadequate or non-merchantable components were used within the Clearwell Product.
- Before coming to consider the detail of this claim, it would be helpful if I reviewed the reliability of the four experts called by Weatherford and the Defendant:
- The various experts joint statements indicated agreements on the following propositions:
- It is absolutely clear that even in 2003 Dr Stefanini and Hydropath was aware of the sparking potential created by the use of what was to become the Clearwell Product. It is specifically referred to in Mr Appleby's application for certification on behalf of Hydropath at that time. It is equally clear that Dr Stefanini (or anyone else on his behalf) did not think it necessary or sensible to inform Weatherford about this until well after the agreements were signed for indeed until March 2008 when Weatherford in effect found out itself of the potential issue. I do not, by this, seek to imply that there was any dishonesty in the withholding of this information because Dr Stefanini undoubtedly believed that any such sparking was not important.
- It is common ground that the primary cause of sparking will be created by short-circuiting between either side of the ferrite ring. There is nothing in the 2006 Intertek certification for the Clearwell Product which hints or suggests that the sparking is a risk which has been envisaged or warned against. There is nothing in the Specifier's Guide attached to the Supply Agreement between the parties which suggests that such short-circuiting and sparking is a risk which needs to be guarded against. It is true that there is a reference in the Location Criteria in that Guide which says that the product should be fitted "to the circulating water return to the heat exchanger…to avoid an electrical loop" and that the product should not be installed "inside an electrical loop" but there is nothing to suggest that in operation, if the product has been installed in accordance with those directions, that there was a risk still of short-circuiting and sparking.
- What, in reality, the primary complaint by Weatherford breaks down into is two matters:
- One of the first issues is whether or not a Group IIC classification was the appropriate one. It is, rightly, common ground that the ATEX Class 1 Zone 1 was appropriate. Not only does this reflect the fact that the Field of Use was the "Upstream" areas, that is the oil well (or offshore oil platform) areas, but also the Supply Agreement specifically warrants that the Products will conform to the Specification set out in Part 1 of the Schedule which identifies this classification. There is nothing expressed as such either in the Licence and the Supply Agreements which spells out that the Clearwell Product must be capable safely of operating in a Group IIC environment. However, I accept the evidence of a number of witnesses, which was not substantially challenged, that there are areas within the Zone 1 Upstream wellhead areas where Group IIC gas environments can be present. These occur not on long lengths of oil bearing pipes in effect in open countryside but in areas particularly at the wellheads (or oil platforms) where there may be complex configurations of pipework within relatively confined areas. It is therefore necessary implicit that overall the Group IIC potentially explosive gas atmosphere should be allowed for in the manufacture of equipment for use within Zone 1 areas.
- Although it is unnecessary to do so, one couples that consideration with the undeniable fact (which I have found) that at least during the period leading up to the varied agreements of December 2006 there was a mutually expressed understanding that the Clearwell Product which was to be manufactured and supplied by Hydropath would be classified as fit to use in Group IIC atmospheres because that was agreed to be expressed on the markings to be put on the Clearwell Products; the corroboration of this of course is the fact that this is exactly what happened. This also reflects the acceptance by both parties of the foreseeability of Zone 1 areas covering Group IIC areas. This was part of the mutually intended purposes of the Clearwell Product.
- It therefore follows that the Clause 9 warranties given by Hydropath required Hydropath to provide Clearwell Products which were capable of safely operating within Group IIC atmospheres. This is not only because such products would conform to the Specification but because this was one of the purposes for which they were required to be fit.
- The next consideration involves the extent to which the ATEX regulations and design standards (with which Hydropath had to comply contractually) required the Clearwell Product in effect to take into account the propensity to spark or the circumstances in which such a spark might be produced. The very fact that the latest certification in November 2013 in effect imposes conditions on the ultimate customer to take steps to reduce or possibly eliminate possible ramifications or consequences of sparking suggests that without the specification of such steps there may well have been non-compliance earlier.
- This area of issue has to address Hydropath's argument that the regulations, standards and directives are directed only at the piece of equipment actually provided and, if the equipment in itself satisfies the relevant provisions, it is compliant. It is an illogical argument in the context of this case. I put to Mr Booth QC the hypothesis what would the position be if current from the Clearwell Product as installed electrified the pipe so that anyone touching it received an electrical shock; the equipment itself will of course be doing a fine job preventing the build-up of scale and performing its primary function but anyone who passed and put a hand on the adjacent pipe received a shock. His answers were unconvincing. Anyone thinking logically would say that the equipment was unfit for purpose because it caused electrical shocks to human beings in the vicinity, albeit in pipework not actually supplied by Hydropath.
- The position becomes even clearer when one considers the specific requirements of both of the Regulations and the ATEX Directive. Firstly, there is a requirement that equipment is manufactured in the context of "integrated explosion safety" (Annex 2 to the Directive) and that the manufacturer must "take measures …to prevent the ignition of explosive atmospheres, taking into account the nature of every electrical…source of ignition..." That surely means that the manufacturer of the Clearwell Product needs to provide for means either so to design or manufacture the product that it does not provide for or result in a source of ignition or that in some way it negates any potential impact of such ignition. Annex 2 also requires in a mandatory manner that the manufacturer takes into account "any misuse which can reasonably be anticipated" and that "equipment…must be so designed and constructed as to be capable of coping with actual or foreseeable surrounding area conditions". I am wholly satisfied that it was reasonably foreseeable that circumstances could and often would arise in practice in Zone 1 areas where short-circuiting and thus sparking could occur over substantial areas either side of the ferrite ring. The experts agreed that this could occur over and beyond 3 metres on either side. The types of activity include those which in fact occurred on the three sparking incidents which were actually encountered whereby in effect metal comes in contact at the same time on either side of the ferrite ring. The obvious example is a ladder placed on either side for maintenance or emergency safety work or measures but one can think of other incidents.
- It is not an answer to say that the manufacturer of equipment to be placed in explosive areas is entitled to assume that no "misuse" will occur and in effect to rely upon the operator of the oil field not to permit any misuse, because the manufacturer is required to have regard or to allow for misuse. This at least partly is attributable to the perceived desirability of manufacturers, contractors and operators achieving high standards and of their combined efforts reducing the risks of explosions which following disasters like Piper Alpha and the more recent BP tragedy in the Gulf of Mexico has become all the more important.
- It is also not an answer on the facts of this case to say that at some time after the first Henry Oil sparking incident instructions or recommendations were made in relation to painting or providing some form of insulation jacket 500mm either side of the ferrite ring. This is because both experts accepted (and I find) that short-circuits sparks could still result from the electrical connections between un-insulated and un-painted parts of the pipe. Although Mr Senior sought to extricate himself from his clear and initially at least informed agreement that the short-circuiting could extend to more than 3 metres either side of the ferrite ring, he was wholly unconvincing under cross-examination following his change of mind in the shower.
- I therefore conclude that, subject to whether sufficiently incendive sparking might be produced, it was contractually incumbent upon Hydropath so to design and manufacture the Clearwell Product that either it did not produce or result in short-circuiting and sparking either side of the ferrite ring when foreseeable events could give rise to such short-circuiting or the sparking was either contained or could be prevented.
- Turning therefore to the incendive level of the sparking which could be caused, I bear in mind that the burden of proof is on Weatherford. Dr Stevens concludes that the energy supplied in a single pulse into a short circuit can be larger than 1000 µjoules; that is way above the maximum recommended as safe (20 µjoules for Group IIC and 80 µjoules for Group IIB). He supports the calculations carried out by Mr Hadi and he did his own experiments and calculations which are supportive of this conclusion. He explains that the vaporised sparks caused by short-circuiting can carry a significant amount of energy compared to the ignition limits identified in the regulations and other recommendations. He refers to and justifies the experiments which he carried out which is the subject matter of the Claimant's second Notice of Experiments. Mr Senior sought to suggest that a number of factors such as the length, diameter and shape of the pipe, the number of ferrite bars used the creation of a connection to the inside of the pipe and using a pipe with open ends in the experiments would or might have an effect on the energy available to spark; thus he sought in effect to undermine the validity of those experiments. I am satisfied that these are either irrelevant or give rise to such minimal impacts as to affect the validity of the experiments which Dr Stevens had carried out. Indeed, Mr Senior and Dr Stevens had effectively agreed that the length, diameter and cross section were of "negligible relevance". Mr Senior raised capacitance and inductance as factors which could undermine or belittle the tests and calculations but even he seemed to accept that capacitance was either irrelevant or of negligible relevance. In relation to inductance, for instance the reduction in spark energy itself created by the short-circuiting, Dr Stevens' opinion, which I accept, was that there would be a wholly negligible decrease in spark energy and Mr Senior could not disagree with the calculations. However, even if there was some 2% or even 40% reduction, the energy created by the sparking was still substantially going to exceed the maximum recommended values.
- I am therefore satisfied that the calculations, properly carried out and understood demonstrate, that the sparking induced by a short-circuit on either side of the ferrite ring, can be very substantially and dangerously above the maximum recommended values.
- I next turn to the experimental results which were the subject matter of the first Claimant's Notice of Experiments which were carried out by a respectable testing laboratory, TUV Rheinland ("TUV") of North America. These showed for three tests carried out in January 2014 that for Group IIB at factors of safety of 1 and 1.5 the gas was quickly ignited shortly into the tests and therefore failed. These tests were set up to implement the requirements of IEC 60079-11 the testing for intrinsic safety. Essentially, Hydropath did no experiments or tests themselves. However it challenged the validity of the testing by TUV on a variety of grounds, all of which in my judgment were effectively rebutted by Dr Stevens. For instance, Dr Stevens' evidence about the suggestion that the length of pipe was not normal or realistic to the effect that the pipe length made no difference was unchallenged; similarly unchallenged was his evidence that the fact that the test pipe was open-ended and not fluid filled made a negligible difference. As to the suggestion that the TUV test rig was not earthed, it can be pointed out that the Intertek tests in late 2012 and early 2013 were not either. The objection that the tested pipe was heavily rusted was met with unchallenged evidence from Dr Stevens dismissing the point. I have no hesitation in finding that the TUV tests and results are realistic and reliable and that the grounds of objection are without merit or foundation.
- One then turns to the Intertek tests in late 2012 and early 2013. I refer to the judgement which I gave refusing Hydropath permission to rely on these tests as experiments. Obviously, for the reasons given and not least because they have been pleaded, it is necessary to consider these tests and results but one has to do that in the context of no evidence being called from Intertek to support or corroborate them. Although the onus of proof in respect of the Claim is not on Hydropath, it is difficult for me to place any weight upon their tests or findings. Intertek has since 2010 performed a series of U-turns and as recently as February 2013 was most reluctant to provide or re-issue certification. It is extremely difficult to place any weight either on the results of the tests or on their reliability in circumstances where Intertek have apparently performed these U-turns and ultimately, after being threatened by Dr Rodrigues with proceedings, then reversed their views.
- I have another real concern with the test results. There is no obvious or reasoned explanation why in carrying out the tests they used a safety factor of one for the last six tests and for the first four tests. It is clear from EN 60079-11 that a factor of safety of 1.5 should have been used. Intertek accept that the spark testing apparatus which they used was for the purpose of EN 60079-11 testing and that it was calibrated and operated in accordance with that requirement. Mr Senior accepted in cross-examination that it was necessary for the product to pass the EN 60079-11 spark test. Although Intertek gave a reason in their July 2013 report for selecting a safety factor of 1 ("as the arrangement of pipework and shorting wire is not in accordance with the instruction manual and so is considered as a fault condition"), it was not a reason which is obviously justifiable by reference to that standard and was (properly) not accepted by Mr Roberts.
- Another serious question mark over the Intertek results is the basis on which it felt that it could pass the Clearwell Product for certification purposes when 3 of the test results out of 12 failed. As Mr Thompson accepted, a fail is a fail. There was no rational explanation why, just because the last four tests (albeit with a substantially underestimated factor of safety built in) happened to "pass", this should mean that the earlier fail results can be ignored and the certification could be allowed to go ahead.
- There is yet another basis for disquiet with this certification. On repeated occasions leading up to the final certification in late October 2013, Intertek clearly called for revision after revision of the instructions to be attached to and in effect qualify the new certification. The disquiet arises in this way in that the certifying body is certifying the Clearwell Product essentially as safe and compliant with the EHSRs subject to conditions which, I infer, it did not understand or appreciate would not prevent the sparking about which it was undoubtedly concerned. The evidence in this case which I have accepted, based on both what Dr Stevens and Mr Senior had agreed, was that the use of an insulating sleeve or paint for 500 mm in each direction from the unit would not prevent or limit the risk of sparking. Yet, Intertek introduce these as conditions to say that, if they are complied with, the Clearwell Product can be used apparently safely in Group IIC conditions, in circumstances when on the fact and evidence in this case they are not.
- There is therefore a very substantial question mark over the Intertek testing leading up to the late 2013 certification and over the certification itself so much so that it is wholly unsafe to rely upon it as proving anything, other than that when tested on 12 occasions the Clearwell Product failed three intrinsic safety tests to which it was submitted and that for most of the other tests a totally incorrect and inappropriately low factor of safety was deployed. This latter factor lends credence and support for those tests which were otherwise done at the correct factors of safety.
- If one couples the Intertek test failures which did occur, the TUV tests which show failures even for the Group IIB environment (which effectively means that they would also certainly fail at the Group IIC environment), the positive fact that the objections to the reliability of the TUV tests are unfounded, the results of the Intertek test in Plano, Texas (which showed failure, even though a low safety factor was used), the TAS and SIRA reports and advice and the calculations carried out by Dr Stevens and indeed Mr Hadi which demonstrate simply that dangerously excessive energy can be created by the sparking caused by short-circuiting initiated by an electric current from the Clearwell Product, this leads to the clear conclusion and finding, which I make, which is that the Clearwell Product was unsafe for use in Zone 1 and Group IIB and IIC atmospheres. It was not fit for purpose, it did not comply with the Supply Agreement specification and it did not comply with the ATEX directive or the relevant Regulations and standards.
- Furthermore, the instructions for the Clearwell Product both which were originally provided by Hydropath and from time to time since (including most recently in mid-2013) do not resolve or remedy inherent deficiency. As indicated earlier, all relevant experts are agreed that the measures put forward do not remove the risk of sparking. Furthermore I accept the evidence of Weatherford witnesses that the use of insulation padding or paint is not particularly practicable, particularly where the spaces between pipes are confined and where the operating conditions are raw or severe. The suggestion that, whenever it is possible to anticipate that someone might be doing something which might cause the short-circuit around the Clearwell Product, one should turn it off does not take into account the fact that on occasion at least unplanned activity or events take place which would lead to short-circuiting anyway. It is also somewhat non-commercial to try to sell customers a product which can produce sparking and, if one wants to avoid the risk of sparking, the customer has to be told to switch the important de-scaling equipment off whenever that risk might arise so that the all important de-scaling stops. There is also the commercial difficulty of actually having to tell potential customers not to be worried about the foreseeable sparking and to take measures to limit the sparking risk.
- The marking of the Clearwell Products was also a breach of the ATEX Directive because it notified Weatherford and more importantly the end user customers that they were fit for use in Group IIC environments when it has been established on the evidence in this case that they were clearly not.
- For the avoidance of doubt, I accept Mr Roberts' conclusions in his report that the Clearwell Product was not fit for purpose by reason of the inherent sparking issue, that the protection concept of encapsulation was not adequate to address the inherent sparking issue, that there is no good reason why even originally it was certified as compliant with the requisite regulations, that the markings on the Clearwell Product were inaccurate and that the revised certification and operating instructions issued within the October 2013 certification effectively imposed so many limitations on the use of the product that its use in an oil and gas industry environment would be precluded.
- One needs to bear in mind that Weatherford's claim legitimately relates to the Clearwell Products which were supplied by Hydropath up until the time in late 2009 when Weatherford ceased order any more units. The breach of contract claim needs to be judged by reference to the Products, as marked and as then supported by any written instructions, as at that time. Even if the 2013 instructions in some way made safe the already supplied units, they would still be in a breach at the time that the units were supplied.
- There is some defence of contributory negligence which was not pressed by Mr Booth QC or indeed materially cross-examined about. Whilst this might well be a matter for the quantum, it is not obvious in the light of my findings above what this could be. Of course it will remain open to the Defendant to seek to show how such a plea could be sustained on the facts.
- It follows that I am satisfied that on a balance of probabilities Weatherford has established its case that the Clearwell Products as manufactured and supplied to them were seriously and substantially in breach of the Clause 9 warranties is in the Supply Agreement. The corollary of this and my findings in relation to the latest Intertek the certification is that Hydropath and Clearwell are not entitled to any declaration that in any material respect is the Clearwell Product properly ATEX certified or ETL listed.
- Weatherford's claim succeeds on liability. The Counterclaim is dismissed in its entirety.
Mr Justice Akenhead:
(a) As seems to be increasingly common, a very large number of contemporaneous documents have been placed before the Court of which a small fraction have proved to be relevant and have needed to be deployed. Out of the 15,000 such pages of documentation, at most about 1,000 are relevant. This is a waste of the parties' money and time and also involves a waste of judicial and other court staff time. There was no core bundle, other than that which I prepared from documents referred to by Counsel at the trial (about 350 pages).
(b) There were reams of witness statements from the Hydropath/ Clearwell parties, the majority of which were not relevant and not admissible. Examples are the 206 page (602 paragraph) first statement of Dr Stefanini, much of which comprises his thoughts on documents and events about which he knew nothing contemporaneously; all he needed to say was, in this regard, to the extent that it was relevant, that he did not know that X, Y or Z was doing or saying this that or the other. Dr Rodrigues' first statement (83 pages and 202 paragraphs) to a wholly unacceptable extent contained comment about matters on which he had no actual knowledge and quasi-expert opinion, all of which was not readily admissible. There is much to be said for the Commercial Court practice of limiting such statements to 30 pages, save with the Court's permission. I have no doubt that both Dr Stefanini's and Dr Rodrigues' first statements could have been kept to 30 pages of relevant and admissible evidence.
(c) Written "skeleton" opening and closing submissions were unnecessarily long. The Claimant's written openings ran to 108 pages (plus annexes), although their closing was helpfully shorter; the Defendant's opening was reasonable in length but its closing was repetitive and unnecessarily discursive (113 pages). The 4th to 6th Parties' openings (in two parts) were not short, running to 67 pages but the closing was nearly 100 pages which repeated largely verbatim the whole opening (including on matters which were no longer in issue) but added an additional 40 pages' worth of further comment. There needs to be an understanding that judges have to read this material and, if it is unnecessarily long, it is more difficult to focus on what each party actually believes are the truly material matters. Counsel must appreciate the need for conciseness in this exercise.
(d) There seemed to be a belief that the judge was a specialist electronics and electrical engineer who would understand, without any explanation, precisely how the technology worked, how the alleged deficiencies came about, how the various suggested fixes might work, how the experiments were to be understood and how the final device engineered by MSL worked. Lawyers and experts need to explain if necessary in words of one syllable all these various matters.
The Agreements
"(A) [Clearwell] and [Weatherford] have entered into a Licence Agreement of even date in which inter alia Clearwell has granted [Weatherford] certain exclusive rights over [Hydropath's] intellectual property rights relating to certain technology which includes the right to manufacture certain Products…
(B) Notwithstanding that [Weatherford] has the right to manufacture itself under the Licence Agreement, [Weatherford] wishes [Hydropath] to supply, and [Hydropath] agrees to supply, the Products to [Weatherford], all on the terms and conditions set out herein."
"Products" included the Clearwell Product and there were no other products of relevance supplied by Hydropath. "Specifications" were defined in Clause 1 as meaning "the specifications set out in Part 1 of the Schedule".
"2.1 During the continuance of this Agreement, [Hydropath] agrees to supply to [Weatherford]… and [Weatherford] agrees to purchase…from [Hydropath] such products as may be ordered by [Weatherford]…all on the terms and conditions of this Agreement.
2.2 For the avoidance of doubt, once [Weatherford] has purchased the Products…it shall be free to use, sell or lease them, repair or do otherwise… as it wishes with them…
2.4 …For the avoidance of doubt all improvements developed by Clearwell pursuant to the Technical Services Agreement shall be treated as improvements developed by [Hydropath] for the purposes of this Clause…
3.1 When [Weatherford]…wishes to purchase products from [Hydropath], [Weatherford]…shall place an order with [Hydropath] in writing…
5.1 Subject to Clause 5.4 and 5.5, the price for all products ordered hereunder…shall be as set out in Part 2 of the Schedule…
6.1 [Weatherford] shall pay …US$1,000,000 to [Hydropath] as a non refundable, advance payment towards the supply of Products hereunder…
7.1 [Hydropath] shall manufacture the Products…in accordance with the Specifications…
7.2 All products shall be manufactured to recognised hazardous area specification AEX M Class I Zone 1 to NEC 505, ATEX Zone 1 or such other specifications as the parties may agree.
9.1 [Hydropath] warrants and represents to [Weatherford]…that all Products supplied hereunder:-
9.1.1. will conform to the Specifications;
9.1.2. will be fit for their purpose;
9.1.3. will be free from any defect which materially impairs their ability to function and operate…
9.1.6. will comply with all rules, regulations and other laws applicable at the date of this Agreement in the US and Europe…
12.1 [Hydropath] shall indemnify and keep indemnified [Weatherford]…against any claims, liabilities, proceedings, costs, expenses, damages or losses (including legal and other professional fees and expenses suffered or incurred by them arising out of or relating to:-
12.2 any misrepresentation, breach of warranty or breach of this Agreement…
18.1 This Agreement shall commence on the Commencement Date and…shall continue in effect until the earlier of (i) the date of termination of the Licence Agreement or (ii) the date of termination in accordance with Clauses 18.2, 18.3 or 18.4…"
"(A) [Hydropath] is the owner of certain patents and related technical know-how relating to the Technology (as defined below).
(B) [Hydropath] has granted to [Clearwell] an exclusive licence over said patents and know-how in the Field of Use (as defined below) and the right to sub-licence to third parties.
(c) [Weatherford] wishes to receive, and [Clearwell] has agreed to grant to [Weatherford] a sub-licence to use such patents and technical know-how all on the terms and conditions set out in this Agreement…
1.1"'Improvements' means all improvements, modifications or adaptations to the Technology or the Licensed IPR which might be of commercial interest to the Licensee;"
"1.1 "the Field of Use" means the field of Relevant Processing of Upstream fluids using Relevant Facilities…
"Improvements" means all improvements, modifications or adaptations to the Technology or the licensed IPR which might be of interest to [Weatherford]…
"the Know-How" means data, drawings, designs, diagrams, specifications, software and all other technical information and documentation…in the possession or control of [Clearwell] or [Hydropath] relating to the Patents and/or the Technology…
"Relevant Processing" means the processes of exploration, appraisal, drilling, completion, production, injection, extraction, stabilisation, treatment, storage, transportation and/or disposal of Upstream Fluids…
"the Technology" means devices and systems that generate, induce and/or transmit an electrical field into or within wells, vessels, tubulars, piping systems and fluids contained therein, including but not limited to, prevention of scale and other deposits within wells, vessels, tubulars and piping systems…
"Upstream Fluids" shall mean fluids containing hydrocarbons and/or water including, without limitation oils, water, gases, condensates, emulsion, steam and tars…
2. Within 30 days of the Commencement Date, [Clearwell] will…supply to [Weatherford]…all of the Know-How, except for the manufacturing Know-How which shall be supplied pursuant to Clause 4.1…
3.1 [Clearwell] hereby grants to [Weatherford] a perpetual, royalty-bearing, worldwide licence, with the right to sub-licence, including to its Affiliates, under the Licensed IPR, to manufacture, repair and maintain, export, import, hold, use, market, sell, lease and otherwise dispose of the Technology in the Field of Use, or to have a third party do any of the foregoing, on its behalf or as its sub-licensee, all on the terms and conditions set out herein.
3.3…After the end of Year 1, notwithstanding the rights granted to [Weatherford] to manufacture or have manufactured, in the vent that [Weatherford] intends to manufacture Products themselves… [Weatherford] shall give [Clearwell] and [Hydropath] not less than 6 months notice of its intention…to manufacture Products and shall give [Clearwell] the right to offer to supply those Products provided that [Clearwell]…matches the terms offered by the Proposed Manufacturer on price, quality and delivery.
4. [This provided for licence payments by Weatherford to Clearwell of $600,000 within 5 days of the Commencement Date, $2.5m if the project proceeded after the first year and $250,000, $625,000 and $625,000 for Years 3, 4 and 5 respectively, a total of $4.6m.]
5. [This provided for royalties and commission payable to Clearwell for on each Product manufactured by or for Weatherford at specified dollar amounts and 3.5% of net invoiced prices charged by Weatherford for sale or rental of Products.]
6. [Clearwell or Hydropath] shall own all Improvements developed conceived or acquired solely by them during the continuance of this Agreement and [Clearwell] shall forthwith disclose to [Weatherford], in such detail as [Weatherford] may reasonably require, all such Improvements that it, or [Hydropath], may conceive, develop or acquire. Such disclosures will be made to [Weatherford] as soon as the Improvement is made but not later than the end of each calendar quarter, except for Improvements to the Manufacturing Know-How conceived in the Initial Period which [Clearwell] shall provide to [Weatherford] pursuant to clause 4.1. Such improvements and any Intellectual Property Rights in respect thereof shall be deemed to be part of the Licensed IPR licensed by [Clearwell] to [Weatherford] pursuant to this Agreement, for no additional consideration payable to [Clearwell]."
6.2 All Improvements developed, conceived or acquired solely by [Weatherford] or solely for [Weatherford] by a person other than [Clearwell or Hydropath] during the continuance of this Agreement, and all Intellectual Property Rights in respect thereof, shall be owned by the [Weatherford].
6.4. Where [Weatherford] owns any Improvements pursuant to Clause 6.2 on [Clearwell's] request, it shall grant [Clearwell] a licence to use such Improvements outside the Field of Use with use of the Licensed IPR during the continuance of this Agreement but not otherwise. Except as expressly provided herein, nothing contained in this Agreement shall imply or grant any rights in or a licence from [Weatherford] to [Clearwell] under any of [Weatherford's] Improvements or Intellectual Property Rights."
7.1 Each party agrees to maintain secret and confidential all technical information and information relating to each of the other's business, finances and affairs acquired from that other pursuant to this Agreement or prior to and in contemplation of it, to respect that other's proprietary rights therein, to use the same exclusively for the purposes of this Agreement and to disclose the same only to those of its employees and consultants, its Affiliates and their employees, professional advisers, sub-licensees, and permitted assignees pursuant to this Agreement (if any) to whom and to the extent that such disclosure is reasonably necessary for the purpose of this Agreement.
7.2. The foregoing obligations of Clause 7.1 shall not apply to information which:
…7.2.3. is or becomes generally available to the public through no act or default of the recipient party or its agents or employees; or
7.2.4. is after receipt from the disclosing party generated by the employees of the recipient party independently of and without knowledge of the information received from the disclosing party pursuant to this Agreement.
9.1 Each party shall retain all right, title and interest in and to its trade marks names and brands and neither party shall gain any rights to use the other's trade marks, names or brands, except as expressly provided hereunder. [Weatherford] shall be entitled to sell the Technology under whatever brands it wishes and all goodwill arising therefrom shall accrue to [Weatherford].
9.2. In the event that [Weatherford] manufactures or has manufactured the Products, [Weatherford] shall ensure that the Products show that they were manufactured under licence and detail the relevant patent numbers.
13.1 This Agreement shall commence on the Commencement Date and shall, subject to earlier termination…continue in force, until the later of:-
13.1.1. the last to expire of all Patents; or
13.1.2. the Know-How ceases to be secret…
and shall then expire.
23.1 This Agreement constitutes the entire agreement and understanding of the parties relating to the licensed IPR…
"Clearwell will support Weatherford's activities to expand the market and become an active partner in developing the long-term growth potential of the technology. The intent of the Post Initial Period services is to support the start-up marketing efforts and long term application and engineering developments as the product matures. Listed below are the services to be provided during the Post Initial Period…
Section C…
Clearwell shall use its best endeavours to provide:-
…9. Technical Services support and know-how applying the Clearwell technology in offshore applications where the environment includes platform structures, conductor pipe, and complex wellbore completions…"
"[Clearwell] shall indemnify [Hydropath] against any loss, damages, costs or expenses which are awarded against or incurred by [Hydropath] as a result of any claim or threatened claim concerning the use by [Clearwell]…of the Patents or otherwise in connection with the manufacture, use or sale of or any other dealing in any of the Licensed Products by [Clearwell]…."
"Licensed Products" were by Clause 1 "any and all products that are manufactured by [Clearwell] and are within any of the claims of the Patents"; the "Patents" were those which related to the Clearwell Product.
The Facts
(a) John (Tony) Haslegrave: having a Ph D in Chemistry, he was employed by Weatherford in April 2007, having previously spent 27 years in or about the oil industry in relation to oil or oil related and other chemicals. Later he became the Director of Engineered Chemistry in November 2008 and took over from a Mr Rzeznik who had been involved with Clearwell and Hydropath before. Dr Haslegrave took over responsibility in relation to the purchase, sale, marketing and utilisation of the Clearwell Product as from about the Spring of 2009. He answered in an obviously truthful and thoughtful way and much of what he said was corroborated by contemporaneous documents. I found him to be a very impressive witness.
(b) Homayoun Hadi: from 2003 to 2010, he was the Hardware Engineering Manager within Weatherford. He had access to Hydropath's "Know How" book which he kept in his office. He was involved in some early research into whether Weatherford might itself manufacture the Clearwell Product and later in 2010 on the same subject. He gave his evidence by way of video link to the USA. He came over as a thoroughly decent individual whose evidence was not in any way undermined by any contemporaneous documentation.
(c) Winyu Vongstapanalert: with access to Hydropath's Know How book, he was an electrical engineering manager charged in 2009 going into 2010 with consideration about Weatherford's possible manufacture of the Clearwell Product. He gave his evidence also by video link to the USA. He came over as straightforward and honest but was occasionally confused by some unnecessarily complex questions.
(d) Wiley Parker: with a Ph D in Chemical Physics, he was an engineer involved with the Clearwell Product, charged with developing a cogent explanation about the product and liaising with customers about it; he was in effect a major part of the Weatherford technical support for the Clearwell Product. He was involved in the potential manufacturing by Weatherford of the product in 2008. He became involved in a consideration of the sparking incidents in 2009 and 2010 and the Clearwell in a Box possibilities. He gave his evidence in a thoughtful and intelligent way and was eminently believable.
(e) Edward Zisk: he was employed by Weatherford and adopted a commercial role in the relationship with Hydropath and Clearwell and was involved at various stages with sparking and the possible manufacture by Weatherford of the Clearwell Product. He came over as straight and honest.
It was not put by Mr Booth QC to any of these witnesses that they were lying or had acted dishonestly or improperly.
(a) Daniel Stefanini:
(i) Of Israeli and possibly Italian origin, he has spent a considerable part of his life in this country. Although he refers to himself as Dr Stefanini, he said that his Ph D came from the "University of Ashford" in Kent; he seemed to be nonplussed when I pointed out that at least I was not aware of any such university in Kent or at least one which is or was chartered to hand out degrees of any sort. He was asked by Counsel to produce the documentation supporting this qualification but did not do so. A major part of his life's work has been the design and patenting of the Clearwell Product, most if not all of which was done in the early part of the 1990s. Although much has been made by the other parties of alleged dishonesty and lying on his part, I am not satisfied that he was consciously dishonest with the Court. However, I found him to be a most unsatisfactory witness. He explained that, unfortunately, in 2009 he had had to undergo major heart surgery and that as a result his recollection of events at least at that time was poor. I very much have the impression that his recollection is poor as to the detail of what happened from 2009 through 2010 and, indeed, beyond. He was very quick to speculate, both in his witness statement and orally, about what may or may not have happened and much of what he said happened or was stated was not corroborated by any contemporaneous documentation and, indeed on occasions, was expressly undermined by such documents. An example was the repeated pleading that he had not received from Weatherford the notice of intention to manufacture in 2009, although it is absolutely clear from disclosed documentation that it was sent to him and that he must have seen it.
(ii) I formed the view that from about 2008 through to the current day he became immensely defensive about his invention and would not brook any criticism or suggestion that there might be something wrong with it. He was not just abrupt but downright offensive with both Weatherford personnel and Messrs Clark and Lauretti on a number of occasions so much so that they assumed that he regarded them all as just "fools". He was forced to accept on the witness stand that his substantial counterclaim for breach of good faith against Weatherford was not maintainable; although that was an honest concession, he had maintained this complaint for a long time, having convinced himself that their behaviour in relation to safety and commercial concerns was dictated by bad faith and this can only have been because he could not bring himself to believe that anyone could honestly doubt the efficacy and safety of his product. This defensiveness continued throughout the trial, for instance with him suggesting that Weatherford's expert Professor Stevens had deliberately altered a Hydropath unit for testing purposes and also he did not agree with his own expert on a key issue
(iii) Another facet of his behaviour which was worrying was the fact that he kept to himself in the 2010 period serious safety concerns raised with him by the testing house, Intertek, about the product, including Intertek recommending a product recall; he did not pass on these concerns to his primary client who had sold and marketed and were still renting out the product in potentially dangerous environments around the world. He was so convinced both that his product was safe and that (he suspected) others had it in for him and his companies that he withheld this information which went as far as suggesting a recall; if there had been a Piper Alpha type explosion and people had been killed or injured, criminal charges may well have had to be considered in one jurisdiction or another. He was at best disingenuous with Weatherford about whether he had received a report from Intertek in late June 2010; he had but he indicated that he had not. His evidence about this was not credible and undermined any confidence about his reliability.
(b) Dr Denzil Rodrigues: the Technical Manager of Hydropath since April 2010 and holding doctorates from the Universities of Bristol and Nottingham, he is obviously a bright person and is certainly articulate. He thought that it was appropriate to comment on events occurring before his involvement and to give expert views about matters in issue in the case; that might be attributable to his lawyers putting words into his statements but ultimately he spoke as to the truth of his statements and there were numerous parts thereof which he could not actually know were true or false. His evidence about his involvement with Intertek in the 2012 to 2013 period and the procurement of new certification for the Clearwell Product does not reflect well on him in that he clearly leant on Intertek, for instance by threatening them with legal action if they did not certify as required by Hydropath. It is suggested that he was malicious; I do not go that far. I formed the view that he was misguided and naïve in his evidence giving.
The Technical Requirements
(a) Clause 7.2 requires the Products to be "manufactured to recognised hazardous area specification AT EX M Class I Zone 1 to NEC 505, [and] ATEX Zone 1".
(b) Clause 9.1.1 warrants that the Products supplied will "conform to the Specifications" set out in Schedule Part 1 which identifies the "Hazardous Classification Zone" as "ATEX Class I Zone 1".
(c) Clause 9.1.6 warrants that the Hydropath Products "will comply with all rules, regulations and other laws applicable at the date of this Agreement in the US and Europe." It is common ground (and rightly so) that apart from the ATEX and NEC requirements, the IEC and British Standard rules also are applicable, albeit they are already 'harmonized standards' applicable under the ATEX umbrella.
All these standards correlate and are similar. "ATEX" refers to the ATEX Directive (Directive 94/9/EC on the approximation of the laws of the Member States concerning equipment and protective systems intended for use in potentially explosive atmospheres). This has been implemented in the UK by The Equipment and Protective Systems Intended for Use in Potentially Explosive Atmospheres Regulations 1996 (No. 192) ("the ATEX Regulations" or sometimes the "EPS Regulations"). The largely equivalent US Standards are NEC Articles 500 and 505.
(a) Zone 0 (Category 1), where that a hazard is continuously present, often in excess of 1000 hours per annum.
(b) Zone 1 (Category 2), where a hazard is present under normal plant operation, typically between 10 and 1000 hours per annum.
(b) Zone 2 (Category 3) where a hazard is unlikely to be present or will be present only for short periods or under a fault condition, typically 10 hours or less per annum.
"Electrical equipment of Group II is intended for use in places with an explosive gas atmosphere other than mines susceptible to firedamp.
Electrical equipment of Group II is subdivided according to the nature of the explosive gas atmosphere for which it is intended.
Group II subdivisions
• IIA, a typical gas is propane
• IIB, a typical gas is ethylene
• IIC, a typical gas is hydrogen"
There has been disagreement as to what sub-division the "Upstream" areas covered by the Supply and Licence Agreements related to. IIA is the least hazardous and IIC is the most and greater precautions are required as the hazard group gets worse.
"type of protection whereby parts that are capable of igniting an explosive atmosphere by either sparking or heating are enclosed in a compound in such a way that the explosive atmosphere cannot be ignited under operating or installation conditions."
IEC 60079-11 defines "intrinsic safety" as being the:
"type of protection based on the restriction of electrical energy within equipment and of interconnecting wiring exposed to the explosive atmosphere to a level below that which can cause ignition by either sparking or heating effects."
Essentially, encapsulation involves covering all parts of the equipment in question so that any sparking or other incendive activity cannot reach any explosive environment whilst intrinsic safety seeks to ensure that either there is nothing which can cause an explosion or that, if any spark occurs, it is not incendive. This "m" (encapsulation) and "i" (intrinsic safety) classification is important because NEC Article 505.6 does not require tests for MESG (maximum experimental safe gap) or MIC (minimum igniting current ratio) for encapsulated products which in simple terms does not require overall such stringent testing as for intrinsic safety classification.
"Equipment and protective systems may be designed for a particular explosive atmosphere. In this case, they must be marked accordingly."
Article 3 stated:
"Equipment…must meet the essential health and safety requirements set out in Annex II applied to, account being taken of their intended use."
"1.0.1. Equipment and protective systems intended for use in potentially explosive atmospheres must be designed from the point of view of integrated explosion safety.
In this connection, the manufacturer must take measures:
…to prevent the ignition of explosive atmospheres, taking into account the nature of every electrical and non-electrical source of ignition...
1.0.2. Equipment…must be designed and manufactured after due analysis of possible operating faults in order as far as possible to preclude dangerous situations.
Any misuse which can reasonably be anticipated must be taken into account…
1.0.4. Equipment and protective systems must be so designed and constructed as to be capable of coping with actual or foreseeable surrounding area conditions.
1.0.5. All equipment…must be marked allegedly and indelibly with the following minimum particulars:
…CE marking…
The specific marking of explosion protection … followed by the symbol of the equipment group and category…
1.0.6. (a) All equipment…must be accompanied by instructions, including at least the following particulars:
a re-capitulation of the information with which the equipment…is marked…
instructions for safe:
-putting into service
-use…
-installation…
1.3.1. Potential ignition sources such as sparks,…electric arcs,high surface temperatures…and other ignition sources must not occur…
1.3.3. Stray electric and leakage currents in conductive equipment parts which could result in, for example, the occurrence of… overheating on surfaces or sparks capable of provoking an ignition must be prevented…
1.4.1. Equipment…must be so designed and constructed as to be capable of performing their intended function in full safety, even in changing environmental conditions and in the presence of extraneous voltages, vibrations, contamination and other external effects, taking into account the limits of the operating conditions established by the manufacturer.
2.2.1.1. Equipment must be so designed and constructed as to prevent ignition sources arising, even in the event of frequently occurring disturbances or equipment operating faults, which normally have to be taken into account…"
The Issues
(a) Did the Clearwell Product comply with the Supply Contract? Essentially, was it fit for purpose, safe and/or did it to comply with the ATEX requirements and regulations? This is essentially the claim which Weatherford make against Hydropath.
(b) Is Weatherford in breach of the Licence Agreement for pursuing with Mr Clark and/or Mr Lauretti and/or MSL Oil the development of an improvement or of a new product which uses the Clearwell Product and the know how in order to develop it? Put another way, did Weatherford provide to the others confidential information and know-how which it should not have done?
(c) Is Weatherford in breach of the Licence Agreement for marketing the Clearwell Product under the Clearwell R name?
(d) Did Mr Clark and/or Mr Lauretti and/or MSL Oil unlawfully induce Weatherford to commit such breaches?
(e) Were Mr Clark and Mr Lauretti in breach of their duties under Sections 172 and 175 of the Companies Act 2006 whilst they were directors of Clearwell in competing with Clearwell and actively seeking to assist Weatherford to have safety certification of the Clearwell products removed?
Substantial areas of the Counterclaim have been abandoned, namely that Weatherford was in breach of an implied term of good faith in submitting orders and raising allegedly spurious concerns and safety issues to try and get authorisation for the product revoked and that commission payments up to about US$500,000 were due to Clearwell from Weatherford. Of the 14 heads of confidential information which it is said by Clearwell that Weatherford passed on to Mr Clark and/or Mr Lauretti and/or MSL Oil and/or that they actually used, only two are now pursued, as emerged during the trial.
The History
"1.01 Equipment…intended for use in potentially explosive atmospheres must be designed from the point of view of integrated explosion safety.
In this connection, the manufacturer must take measures:
…to prevent the ignition of explosive atmospheres, taking into account the nature of every electrical and non-electrical source of ignition…"
Filled in by Mr Appleby of Hydropath was a box entitled "Comments on how Compliance has been achieved":
"The HydroFLOW range of physical water conditioners are designed to eliminate limescale…in water systems, the technology is internationally patented and works by transmitting a truly weighted randomly varying signal into the water being treated. The signal is transmitted into the water by using a coil constructed of a cross wired 26way ribbon cable, through this coil there is a core made up of a number of custom ferrite bars…
Operational safety is achieved in several ways:
a) There are no exposed electrical or metal parts that could be considered hazardous. The unit is constructed as a single unit using a drawn anodized aluminium enclosure with the ends and the cage that supports the ferrites made of UL-VO rated plastic material. The unit is then fully encapsulated in a recognised UL-VO flame retardant epoxy resin. There is a single cable mains cable permanently terminated into and approved Peppers cable gland fitted to an ABTECH Ex box…
(b) As an additional safety feature, it is recommended that if there is metal pipe work at the location where the unit is to be fitted with a section of the metal pipe [it] is replaced with a plastic pipe having the appropriate safety specification. The user must allow at least 0.5 mtrs either side of the Hydroflow unit, this will eliminate the possibility of voltages being induced into the metal pipe and then maybe the remote possibility of a spark…"
Paragraph 1.0.2 stated that any "misuse which can reasonably be anticipated must be taken into account" and Mr Appleby added:
"The statement that the unit is fitted to a plastic pipe is the only area of misuse that can be identified."
It is clear that Hydropath knew that there was a risk of a spark, in effect generated either side of the ferrite ring which was to be located often several hundred millimetres from the unit. The recommendation was therefore that, where the Clearwell Product was being deployed on metal pipework, plastic pipe was to be used on both sides around the Product in effect to "eliminate" the risk of a short-circuit which is what would produce a spark.
"Henry Oil has experienced a serious safety issue. As you know a spark was observed last Friday evening when the banding [scraped] against the flow line. The banding was loose because a workover crew moved the device and incorrectly attached the device. Nevertheless, Henry Oil is quite concerned and so is Weatherford. Henry Oil is waiting for a response from Weatherford with corrective actions. I appreciate your help to this point but the issue is not closed. I have provided Henry Oil with the safety certification and told them we will with the highest priority evaluate the situation and the unit.
Mario connected device in the shop and was unable to recreate the spark as he saw it. Later after he retrieved the…unit a spark was reproduced with that unit…
Because of the issue at Henry Oil I am asking:
1. That a complete review be made of the device and attachment system to make the device safe even when mishandled. That is, we must make the installation fool proof and take corrective actions to remove any potential or perceived hazard.
2. We implement any corrective actions immediately.
3. That I will compile the findings and provide Henry Oil with the corrective actions we are taking. (At this time I am having every Henry installation checked and bands cut.)
We should also consider these ideas:
1. Replacing the metal banding as Danny suggested…
5. Ways to eliminate the sparking even if the ring is incorrectly looped by a band or other wire.
This is a critical issue…"
"The imminent testing of the equipment for STATOIL Offshore Platform has brought forward a concern that we feel we should address before these tests begin.
Since the Henry Oil incident we have tested many units in the field and the workshop, and in fault conditions, caused by external sources, sparking can and does take place.
We are therefore concerned with the safety (or perceived safety) of the Product in general, but specifically in environments where external sources can not be controlled such as the Offshore Platforms and Refineries where accidental intermittent loops/shorts can occur. We have discovered that the sparking can occur even when the unit has been installed in a loop or 2 units have been installed to overcome the loop.
We are not sure that the sparks produced have sufficient energy to cause an ignition, however in some tests we have measured 16 amps through a period of 3 micro seconds (graph attached) resulting in pitting and melting of the metal surface (picture attached). Regardless of this and even if it is proved that there is insufficient energy to cause ignition, the perceived problem, should this potential fault becoming known to ATEX it would probably result in the approvals being re-discussed with the foreseeable reaction from Weatherford.
Since [Weatherford] are starting a new Team it may well be the case that the Henry Oil incident is revisited…
We believe our original idea of a "T" piece is a workable solution to this problem.
Shall we discuss this over the phone today as [Mr Lauretti] is in the office. We need to work together on this is to prevent any negative impact on Weatherford in the future".
"2.1 To [analyse] the design and identify items requiring tooling and to arrange for quotation for the tooling.
2.2 Provide Component pricing based on various manufacturing quantities.
2.3 Provide assembly schedules and costing.
2.4 Review Hazardous Area certification and provide timescales and costs to obtain approvals.
2.5 Review packaging and shipping requirements.
2.6 Provide design Improvements to both Technical and Cost considerations."
The sum of £27,500 was mentioned but it was stated that this would be credited if Weatherford retained MSL to carry out manufacturing. In May 2009, Mr Clark had mentioned to Dr Haslegrave an idea which involved using a T junction particularly for offshore (oil platform) location to prevent loops forming. This idea had been rejected by Dr Stefanini but it was this idea which led to what became known as the Clearwell in a Box. At this time however it was at a very embryonic stage.
"In going through Larry Rzeznik's documents, I have read some e-mail exchanges between you and him concerning spark generation at Henry Oil installations. I don't know how this was finally left, but documents I have seen imply that under certain conditions (metallic contact from one side of the ferrite ring to the other) spark generation can happen. There was no obvious conclusion to this issue.
Obviously the possibility of sparking is a serious issue for oil field installations anywhere, especially if we are operating in hazardous areas. For offshore it could preclude business development.
Article 17 of the Atex certificate attached states that there are no "special conditions for safe use" - can you explain why this sparking potential should not be disclosed under this section of the certification?"
A draft of this was sent to Mr Clark, albeit not for his comment.
"2. Existing Product
The existing product is an encapsulated device that has little or no inbuilt safety systems and with the exception of the individual ferrites no other parts are replaceable. Failure therefore results in scrapping of the entire unit. The only replaceable part - the ferrites - are also the most fragile and if damage occurs this will also cause failure of the main unit, possible short-circuit and subsequent scrapping. We have looked at the manufacture cost of the existing unit and based on a C160 we could supply this design for $950 each.
Tooling would be charged extra of cost plus 10% and we estimate this would be no more than $10,000. However with the existing specifications we could not guarantee Hazardous Area approval for this design."
MSL also put forward what was to become known as the Shut Down System ("SDS") which would use a Clearwell Product but providing for a "system shutdown in the event of faults such as broken ferrites, installation fault or external short-circuit that compromises safety" and a "system monitoring and alarm function…"; another alternative put forward was the Clearwell in a Box solution. The document also provided price comparisons between what they were suggesting and what Hydropath was then charging.
"1. MSL can add a piece of circuitry to Clearwell units which negates the spark, but only if Hydropath supply units which are accessible. All units are currently "potted" so the circuit layout is inaccessible.
2. We are working with MSL on a unit which supplies the signal by a different method (TBox) which would eliminate the spark condition. This is on test at Total but the results are not yet conclusive.
3. Longer term we should redesign the unit with up to date circuitry and manufacture in-house with GSM module included for signal/power monitoring. "
Weatherford approved of his advice and recommendations. Steps were taken to contact customers and tell them of the sparking risk.
"…On 8 December 2009, Weatherford contacted Hydropath expressing concern over the potential for spark generation should the ferrite ring in the Products be "shorted" by an external metallic connection from one side of the ring to the other…We have further investigated this condition in our engineering facilities and have generated data on the spark energy release. Results from tests we performed indicate that by shorting across the ferrite ring, sparks with energy exceeding 400 µJoules can be generated. Summary information on two tests is provided below…
The Minimum Ignition Energy for different gas groups is set and governed by...IEC 60079-0/CENELEC 50014 in Europe and by NEC Article 500 in North America…
Equipment for use in oil and gas industries must comply with Groups C (IIB) and D (IIA); therefore, the maximum limit for the spark energy is 60 µJoules.
Our conclusion is that this energy release is outside of that permitted by the ATEX certification and should be communicated to the certifying body under a fault condition. If this has been reported by Hydropath we would appreciate copies of any correspondence and a copy of the laboratory report. The current certificate does not refer to any such conditions under Section 17. In an oil field environment such a metallic connection could easily be made if maintenance or other mechanical work is being carried out at the well site or platform.
In response to the above situation, Weatherford has ceased installation of Clearwell products and is notifying customers of the potential issues. As per the Supply Agreement, if it has been determine[d] that the units delivered to Weatherford do not meet the specified ATEX certification and are not fit for purpose we will look to Hydropath for an immediate remediation of this issue.
Please contact Tony Haslegrave to address any questions and coordinates Hydropath's response to this issue."
"I am surprised that you have acted so precipitously on this without consulting with me first…
We have been aware of this possibility of sparking and we have discussed this with Larry a long time ago (the possibility of static build-up on loose fixing strap was considered as well). We have tested the short condition and worked out the energy produced. After testing for ignition of gas it was clear that the energy was too low for ignition.
Because of the low energy of the spark and its inability to ignite gas we assumed that Weatherford decided not to do any action although there were various solutions to resolve this problem if this was required by Weatherford.
1. Paint on the side of the pipe from the unit to ground level.
2. Paint the pipe from the unit other equipment [sic].
3. Coat the pipe with insulating material and install the unit on the installation.
4. Use insulated stainless steel ties…
5. Use Nylon ties.
6. I also provided a new casing design with protected ferrites and different fixing method.
7. Weatherford did not react to any of this suggestions [sic] and it was assumed that the fact that the energy of the spark was so low [sic]. The observed sparks on Henry oil have been static and the solution we supply (see product investigation and report) was accepted as a resolution of the problem…"
The letter went on to explain that Weatherford's (Mr Hadi's) calculations were incorrect and Dr Stefanini provided the results of his own tests, which showed readings of 27 to 39 µJoules. These calculations were described by Mr Thompson (the Defendant's own expert) as containing errors "which an engineer would have to be ashamed of". Weatherford's Counsel suggest that I should infer that these calculations were "technically deceptive" in the sense that they were put forward by Dr Stefanini deliberately and consciously knowing that they were wrong and underestimated the real energy being generated. I am unable to go that far but it is clear that they were at best incompetent and that Dr Stefanini was desperately trying to defend his invention.
"…we arranged for independent testing to be carried out using industry standard test conditions. This testing was carried out at Intertek in Plano, Texas on 6th April 2010 and witnessed by Martin Clark.
The sparks generated by Products under these test conditions were of sufficient power to ignite one of the specified ATEX specified Zone1, Class 1, explosive atmospheres. We therefore must conclude that the ATEX certification for the Products as issue is compromised and the Products do not comply.
…The observations in the field and subsequent testing at Intertek have raised concerns with Weatherford that all Products supplied by Hydropath do not meet the hazardous areas specification.
To bring this issue to a conclusion, Weatherford would like to set up a meeting with the laboratory that certified the Products to present our findings and request the laboratory's decision on whether the hazardous area rating certificate is valid. The meeting should occur as soon as possible and include representatives from Weatherford and Hydropath.
If it is determined that the Products do not meet ATEX Zone, Class 1 certification requirements, the Products already delivered to Weatherford do not meet specification as warranted in Section 9.1 of the Supply Agreement and Weatherford would ask that all such Products be replaced per Section 9.2 of the Supply Agreement.
Weatherford looks forward to working with Hydropath to come to resolution on this matter quickly…"
"This is not the behaviour of someone that wants to continue with the technology.
If you can meet with [Mr Stanley] in Dubai maybe you can find out what he wants.
The power is well into the level that he himself says it is the requirement and the test has passed the required spec.
I do not see [why] we should be continuing saga"
He wrote to Mr Lauretti on the following day saying that the letter was "completely unreasonable".
"The meeting in Nottingham is to discuss your concerns not mine. This has to be with someone that can understand electronics. The current central problem is that your technical installers and maintenance engineers are not trained on the Clearwell unit and are creating sparks during maintenance or modifications while the Clearwell unit is switched on…The fact that such work will prevent the Clearwell from operating, as far as I can see has not been considered by anyone in your organisation.
As for the test failure. How many times[s] do I have to say to you that the failed test was not to your original requirements, so there is nothing to address. I had been told by Intertek that the Texas office has been told that Weatherford is Hydropath's parent company. I ask you to contact the office and clarified that this is incorrect…
[After saying that he was free on various dates towards the end of April] And please inform me who you will be coming with that understands electronics, otherwise it will be a waste of both of our time."
"…Apart from our concerns over the design of the existing Clearwell equipment (power supply etc.) we are in a dispute over the validity of the Atex certificate provided by Hydropath. Not sure how those discussions will end up, but longer term we have decided to get away from Hydropath as a supplier. We want to redesign it entirely making use of up-to-date electronics, fit for purpose power supply, potentially GSM module so that the unit would send a signal indicating loss of signal or power, circuitry to prevent the spark potential which we currently have. This will not only give us a much improved product but will also distance us from Hydropath when our agreement runs out in 4 years time so that we can continue the business without fear of interference by agents selling an inferior (i.e. the current) product.
I have been in discussions with Martin Clark at MSL who is knowledgeable in this area and has been working on a consultancy basis or modifications and installation in the field. I would like to use Martin to provide the design of the new unit, or at least be intimately involved in its development. We have talked in general terms about his role -sell us the design, consult on the design and manufacture, manufacture the whole kit, make an initial number of units then transfer in house." Hydro
Mr Vongstapanalert's response the following day was that Weatherford would effectively want to assist in the manufacturing and supply chain.
"Based on a Field Report received regarding [the Clearwell Product]…we have been investigating the alleged non-compliances brought forth in that Field Report… We have completed the investigation and want to provide you with our findings.
In accordance with Clause 6.4 of ANSI/ISA-60079-0-2005… it is required that "where necessary, precautions shall be taken to guard against any effect due to the presence of circulating currents caused by a stray magnetic fields, and the arcs or sparks that may occur as a result of interrupting such currents, or excessive temperatures caused by such currents."
As a result of the field reported non-conformance and subsequent investigations and testing it has been observed that there is a possibility that induced voltages in the piping materials associated with the product-in-question's use can cause incendive sparking. Although the field reported instances of sparking were the result of operation not in conformance with the instructions for your product, it has been judged that the RF Frequency and Power available in the application of this product, and the spark ignition energy resulting from said sparking, represents a risk given the circumstances and knowledge at present regarding this issue.
Conclusion: Certification of the product shall be suspended and a recall of any installed product shall be imposed.
Please prompt to respond to this request in writing. Your cooperation in resolving this issue will be appreciated…"
"I am sorry not to be able to provide information about the results of the investigation by Intertek. We expected this to be reported last month and as we had been told informally that the spark test was positive for IIB (i.e. the gas did not ignite) we were confident of the results of the report, and fully satisfied as to the safety of the product.
Unfortunately Intertek has since received a complaint, we assume from a competitor of yours…This complaint has initiated a new process that will obviously take additional time…we will do everything possible to resolve matter as rapidly as possible…"
Obviously Dr Stefanini had actually had a formal report (which had been produced "last month") from Intertek and had had advice that Intertek's testing had shown failure for Group IIB locations. When he gave his oral evidence, he was adamant that he had not received any report from Intertek; when faced with the Intertek letter report of 25 June 2010, he said that it had been addressed to Mr Appleby and that it was "an error". He had obviously seen it because he had actually written to Intertek about it. This evidence from him was simply not credible and it seriously undermined any real reliance that one could place on his evidence save where it was clearly and obviously supported by contemporaneous documents or was agreed with by other reliable witnesses.
"I have just become aware that, rather than seeking to source new orders and markets for Clearwell…(as you told me you had been doing), you had in fact been diverting orders to your company and been looking to develop and sell your technology in place of mine. And you're dealing with Weatherford against Clearwell interest [sic].
You have had access to my trade secrets and know how; in doing this, you have stolen my ideas, my technology and my intellectual property. You have breached the significant trust I placed in you and breached the duties you owe as Director of Clearwell.
I am not prepared to accept this nor to turn a blind eye to it. If necessary, I shall instruct my solicitors to vigourously pursue these claims and to seek to recover the payments made to you by Clearwell.
I am however prepared to allow you one opportunity to try to resolve this between ourselves. This will immediately involve you:
1. Making a full written admission of all that has happened.
2. Resigning as Director of Clearwell by signing the enclosed letter of resignation in front of a witness;
3. Surrendering your shares by you signing the enclosed Stock Transfer Form;
4. Sign a simple form of Undertaking that you will not infringe any of the intellectual property rights or confidential information belonging to or owned by any of Clearwell…Hydropath…or myself…
If you are not prepared to take these immediate steps, then I shall instruct my solicitors to pursue you vigourously through the courts. Please note that all my rights are fully reserved."
"This e-mail has come as a complete surprise to both myself and Paolo. I will state now that none of the severe allegations you have made in your e-mail are true, and I have never, and neither do I intend to, manufacture Clearwell/Hydropath Units for any market. All products we have sold have been manufactured by Hydropath and purchased by MSL, and we have not diverted any orders through MSL to the detriment of Clearwell or Hydropath business. We have been developing Markets for Clearwell and Hydropath Products and will continue to do so. All my recent trips to the Middle East (which had been many), Gabon and Total in France (all at MSL expense) has [sic] been to promote the Clearwell product. The accusations you have made are very severe and upsetting, and Paolo and I am not ready to accept them, we would be grateful if you could please explain them."
Mr Lauretti's response came a few hours later making similar points and adding:
"…I do not know who has misled you so badly and I resent that you have not taken the time to discuss it with me before writing such an insulting mail…
"I have evidence suggesting something different from what you each have said. I want though to give you every opportunity to resolve matters amicably before matters escalate.
I shall give you a final opportunity to come clean with me on what has been happening before I instruct solicitors and suggest you think long and hard before replying. Is there anything you want to tell me now?"
"Once again, since we have not committed an act of Infringement, I/we do not see, that any evidence you may think you have could be construed as rightful and true and patent infringing. We, either personally, as part of MSL, or as directors of Clearwell…have not done anything that could be construed as an act of patent infringement and moreover in conjunction with Weatherford…
It is quite apparent that you have been fed and misled by somebody that wants to destroy the strong relationship we have built during the last several years.
We have always kept you informed that we went out of our way, for the benefit of Clearwell… and Hydropath, to help Weatherford promote the Clearwell product with its clients in the Middle East and Total in Gabon and France, efforts that were even unpaid by Clearwell…the same as when it refused to pay for the important and time-consuming Technical support we were providing to Larry [Rzeznik]…
As you are aware, should any sale arise from this promotion work, [Weatherford] will pay MSL for the installation of the units and for any added equipment MSL can provide from his own expertise as when MSL supplied Solar Panel systems, EExd Junction boxes and switches, to be included in the installation.
This is what Martin, Paolo and MSL do! Obvious you are fully aware and it can hardly be interpreted as you say on your initial mail "And you're dealing with Weatherford against Clearwell Interests".
We have not yet taken legal advice as we believe that this is a big misunderstanding and matters could be resolved amicably by letting us know your source of this malevolent information and the withdraw[al] of the unfounded accusations, but we fully intend to do [so] if you continue to pursue and threaten us in this manner."
"I would like to confirm that the above referenced [ATEX] certificate has not been withdrawn and is still valid. The concerns raised at the meeting are being investigated and the solution developed. The outcome of this will be discussed with our US office in order that the resolution is acceptable to all parties.
Our initial assessment is that it is critical that the equipment be installed and operated as you intend and this should be communicated to the users in the strongest terms…"
"…It has been brought to our attention that the above equipment may pose a risk of sparking when in use. The Health and Safety Executive (HSE) have considered the information available and agreed with the complainants that this risk is particularly high when people are working close to pipes on which the equipment is installed and who may not be aware that the pipe is carrying an electrical circuit. There is the possibility in such cases that the pipe could be contacted by metal objects being used by workers in the vicinity, causing sparks. Further risks have been identified arising when the equipment has been maintained and the ferrite rings carrying the current are not replaced properly, thus leading to the possibility of sparking if the rings contact the pipe to which they are attached. It is our view that these circumstances could be foreseen and are covered by the [EHSRs] of the Directive - namely Annex II, paragraphs 1.0 .2 and 1.2.7 (a) and (c).
I understand that following concerns being raised by users of the equipment, Intertek undertook to review the instructions for installation and use and following revisions to the installation aspects, have judged the equipment is compliant. From the information available, it is our view that the changes made to the instructions only address the issue concerning maintenance or replacement of the ferrite rings. They do not address the issue of sparking caused by inadvertent contact with the pipe carrying an electrical current…"
"…2. The [HSE] have considered your response and are of the view that the sparking issue is not a moot point and that the unit could spark if a third party, who is not involved in maintenance or installation of the Hydropath Unit, inadvertently bridged the unit in some way (e.g. with a ladder or piece of metal) which would then result in sparking. It is felt that the unit does not have to be incorrectly installed to spark and that sparking is possible in each of the following states:
a) correctly installed and bridged by a third party/metallic object, or
b) incorrectly installed, or
c) incorrectly installed and bridged by a third party/metallic object.
3. As sparking is possible in each of these circumstances it is HSE's opinion at present that the unit has not been designed to prevent the ignition of explosive atmospheres, neither has it been designed and manufactured after due analysis of possible operating faults in order as far as possible preclude dangerous situation. 1.3.1 of the EHSR clearly states that potential ignition sources such as sparks must not occur.
4. Although the user instructions clearly state that the product must be installed and used in very specific ways, and the faults required to cause sparking are identified in the instructions, the directive requires that all equipment must be so designed and constructed as to be capable of coping with actual or foreseeable surrounding area conditions. In addition to this, category 2 equipment must be so designed and constructed as to prevent ignition sources arising, even in the event of frequently occurring disturbances or equipment operating faults, which are normally must be taken into account…
7. If it is found to be the case that the unit can spark in the circumstances described above it demonstrates in HSE's view that the essential health and safety requirements of the directive had not been met. For these reasons the UK authorities do not feel that the unit meets the requirements to be certified to use in Class 1, Zone 1 Hazardous (Classified) Locations Group IIC…"
"We have now had feed back from HSE and they confirmed they accept the test results as valid and now expect the review process to continue to resolve this. Intertek will have to reissue the certificate with a IIB gas grouping. Hydropath will have to change the label marking detail and manual, and have plans in place to arrange the units in the field to be marked with the revised details."
"I am extremely concerned by your e-mail.
Hydropath had been fully co-operative with Intertek in this mattered and we were assured that we would be able to review the test setup, and view the test results before any information was passed to HSE. We were also assured that we would be involved in any discussion with HSE about the way to move forward.
At this present time we have not had any viewing of the test equipment or setup, and therefore have no way of judging the validity of these tests. Intertek can surely not expect us to accept results of the test without sufficient information on its method…
Intertek have always had full access to the products, and all relevant information. Intertek had been aware of the potential for short circuit and loops since the initial application of certification so this is not something that should have been missed.
Furthermore, this issue was highlighted recently and re-examined by Intertek in both the US and the UK. Intertek UK subsequently confirmed the validity of the certificate, having seen test results from what appears to be a test identical to the one just performed. For Intertek to change its opinion at this late stage brings up serious questions about Intertek's certification process - how can a certificate be repeatedly re-examined and found to be valid, and then suddenly found not to be?
Hydropath have sold these units on the basis of the certification provided by Intertek and may now incur significant losses, for which Intertek will be fully liable.
This matter needs to be discussed urgently".
Although nobody from Intertek was called as a witness, it is difficult to see how it could have read this e-mail as anything other than a threat that it would be sued unless it confirmed the certification.
"2. The unit operates by creating a potential difference between the sections of pipe on either side of the unit. If these two sections of pipe connected with conductive material (such as metal) then a short circuit will be formed. This will prevent the correct operation of the product and can impair safety.
The following steps should be taken on installation:
3. The unit should be installed on a section of non-conductive (e.g. plastic pipe material). This will completely eliminate the possibility of any short circuit.
Alternatively:
4. The on which the unit is installed should be covered with a continuous insulating sleeve that completely covers the like.
5. The sleeve should extend these 500 mm in both directions…
Alternatively:
7. Failing that, the pipe on which the unit is installed should be coated with a continuous layer of insulating paint that completely covers the entire pipe.
8. The paint should extend at least 500 mm in both directions from the unit…
12. Failure to comply with the above measures will mean that the certification will revert to gas group IIB…
14. Users should take care not to create a short circuit from the pipe on one side of the unit to the other.
15. The unit should be switched off during installation/removal and whenever work is conducted in the surrounding area.
16. Users should take care in using metal equipment such as ladders in the area surrounding an energised unit. Such equipment should not be allowed to make simultaneous contact with the sections of pipe on either side of the unit. 17. Blues metal strapping or banding must be eliminated…"
Attached and forming part of the certification were Installation and User Instructions which broadly reflected these conditions with several of the pages headed with the word "Warning!"
These Proceedings
(a) A Declaration that the Clearwell Products are properly ATEX certified and ETL listed.
(b) There is a claim for allegedly outstanding commission payments (Paragraph 105) but this was expressly abandoned during the trial.
(c) There was a claim (Paragraph 106) that Weatherford was in breach of an implied term of the Licence Agreement for failing to pursue orders. That was abandoned because Dr Stefanini had to accept in evidence that Weatherford had not acted in bad faith.
(d) Paragraph 107 pleads that by reason of matters pleaded earlier, Weatherford was in breach of the Licence Agreement as follows:
"107.1. It has pursued with Mr Clark and/or Mr Lauretti and/or MSL…development of an improvement or a new product which plainly uses the Product and the Know-How in order to develop. Nonetheless the details have not been provided. This is in breach of clause 6.1 of the Licence Agreement. Moreover it involves use of the Know-How in breach of clause 7.1…
107.2. Use of the Clearwell name is used for the new product in breach of clause 9.1. The Clearwell name belongs to Clearwell of the licence Agreement makes clear."
(e) Paragraph 108 asserts that "Mr Clark and/or Mr Lauretti and/or MSL Oil (through Mr Clark) are aware of the contents of the Licence Agreement. They nonetheless knowingly assisted Weatherford to breach the Licence Agreement as referred to in paragraph 107 hereof and so are liable for inducing or assisting breach of contract".
(f) Finally, so far as and liability and this trial are concerned, complaint is made in Paragraph 109 as follows:
"Moreover the said acts plainly involved Mr Clark and Mr Lauretti, before they ceased to be directors of Clearwell on 17th of January 2011, in competing with Clearwell, and actively seeking to assist Weatherford to have safety certification for Clearwell products are removed. This conflicted with a duty to promote the success of the company pursuant to section 172 Companies Act 2006, and also constituted a conflict of interest pursuant to section 175 of the said Act which was never authorised by Clearwell".
"6 (a) If any party wishes to establish any fact by experimental proof, including an experiment conducted for the purposes of litigation, that party shall, on or before 1 April 2013, serve on the other parties a notice stating the facts which it desires to establish and giving full particulars of the experiments proposed to establish them;
"(b) Any party upon whom a notice is served under the preceding sub-paragraph shall, within 21 days, serve on the party serving the notice a notice stating in respect of each fact whether or not that party admits it, and whether it considers that further or other experiments should be undertaken with a view to establishing or disproving any fact in question, agree with the experiments proposed;
"(c) Where any fact which a party wishes to establish by experimental proof is not admitted or where a party disagrees with the experiments that it may be appropriate to carry out pursuant to (a) and (b) above, that party shall apply to the court for further directions in respect of such experiments."
This was important because it was envisaged by all concerned that, particularly in relation to the sparking potential and the need to establish whether any sparking was or was not incendive, experiments might need to be called for.
"If the defendant wishes to establish any fact in reply by the experimental proof, it shall by noon on 17 April 2014 serve on all parties a notice stating the facts which it seeks to establish and giving full particulars of the experiments proposed to establish them. The defendant shall provide facilities for the claimant's expert and/or solicitors to attend any experiment upon which it intends to rely in this notice, and shall provide reasonable notice to the claimant's expert and/or solicitors of when and where such experiments are to take place."
This was clearly intended by all concerned to relate to new experiments yet to be carried out and that was why provision was made for attendance by the other parties' experts. Although Weatherford's expert Dr Stevens was invited to and did attend to observe an experiment to be conducted by the Defendants' corresponding expert Mr Senior, the relevant equipment did not function properly. Mr Senior then seems to have done the experiment in the absence of Weatherford's expert, which was then recorded in the Defendants' "1st Notice of Experiments" served on 17 April 2014. Judged by the Claimants' response, it was not particularly controversial.
"25. It seems to me that this has been put in exceptionally late. The claimant's reaction is to say they would want the opportunity, in accordance with the original procedure, of having the experiments repeated, possibly with variants to be doubtless discussed between the experts. However, there are now less than four working weeks before the trial. One of those weeks is the Whitsun vacation. Although these days not everyone takes the vacation, it is a half-term period for those who have children. So solicitors, clients and experts do have that time, sometimes at least, to plan some time off.
26. There are only three working weeks in that context before the trial. I am certainly not satisfied that there is anything like enough time, before a properly ordered and programmed trial, for any repeat test to take place.
27. Mr Vanhegan QC has explained the concerns his clients have and their understandable desire to seek further or repeat tests after consultations. I can understand the desire to do that, particularly since reliance is being sought to be placed on elements (not indeed all) in some of these tests, particularly tests 7 to 12, in which there was one failure, as opposed to tests 1 to 6 in which there were two failures. It may be for good reasons, I know not. But be that as it may, I can understand why repeat tests might be called for.
28. It is too late, it is too prejudicial, and the court should be slow to allow a procedure which has been established now for well over a year to be amended and altered in the last few weeks leading up to trial. I am therefore not prepared to allow this application, as such, to permit the defendant to rely on the Intertek report.
29. That said, it does seem to me that the court must, given that it is in the pleading, be able to consider that document. But it does seem to me that the purpose of the experiment regime is to enable, first of all, agreement to be achieved as to the results of certain types of tests. Of course, that is not now possible or practicable within the time available. If they are agreed, then they go in as agreed evidence for what they are worth, albeit that the experts in the case may interpret them differently.
30. However, here it is clear that the defendant has known for many, many months of these reports. It was the client. It knew the results. Indeed, it pleaded reliance on them. But for reasons which have not been satisfactorily explained to the court, it was not to be part of the experimental regime ordered by the court until just before Easter 2014.
31. It does seem to me that the documents do need to go into the bundle. For what it is worth, it does seem to me that experts can comment on them. However, it may well be that the weight to be attached to them must necessarily be limited because it is going to be a test which was never capable, as it has turned out, of being challenged or repeated following sensible (one hopes) expert liaison as to any further repeat tests that might be done.
32. I can see that there might be an extremely limited admissibility, but in that context it is part of what used to be called in criminal evidence issues part of the res gestae, as part of the story. The report says what it does, but the reliability of it cannot in itself be established."
Counterclaim- Confidential Information
"My learned friend effectively criticised us for not having a section [in final submissions] saying this person is dishonest, that person is dishonest, this person's a liar, that person's a liar…
…it doesn't follow…that, just because a witness' evidence is wrong, they are dishonestly lying. It may do in the circumstances of the case, but, my Lord, unless the only inference is that the witness is dishonestly lying, then that is not an assertion which we think is either necessary or desirable to make. Witnesses have a number of reasons, sometimes persuading themselves of things that didn't happen, sometimes of taking a completely wrongheaded view, sometimes refusing to acknowledge the truth even to themselves, and even a witness who doesn't tell the truth in particular instances does not necessarily have to be branded with some sort of full-scale indication of dishonesty."
"A claim based even in part on wide and unsupportable claims of confidentiality can be used as an instrument of oppression or harassment against a defendant. It can be used to destroy an ex-employee's ability to obtain employment or a competitor's ability to compete. The wider the claims, the longer and more expensive the litigation. The defendant is likely to feel that he has no alternative but to challenge the confidentiality of everything, even though he believes that much or most of the technology pleaded cannot reasonably be thought of as secret. Furthermore a defendant faced with a narrow claim may decide that the commercial realities point towards a tactical withdrawal. He may be able to relinquish use of the contested information yet stay in business. The possibility of doing this reduces as the width of the plaintiff's claims increases. The defendant is left no alternative but to fight on in heavy litigation, spending money on lawyers which he would much prefer to spend on building up what may be a new business. The attractions of this to a plaintiff bent on harming a competitor's business are obvious. Furthermore, the more technology put before the court, the easier it may be to obscure the issues."
This becomes germane because the Confidential Statement of Case is not a clearly pleaded document and was clearly put together at a time when Dr Stefanini appears to have believed that the Clearwell R Product and indeed the Clearwell in a Box and SDS must all have involved wholesale use of his or his companies' confidential information. It was, so far as I can ascertain, largely based on inference and was put together without any real regard to whether the information on which these later products or units were put together or designed was or must have been in the public domain. The facts that all but two of the allegations have been abandoned and, indeed all but about four were not supported by the Claimants' own expert in his report (albeit that even he reduced his support to only two items by the time he gave evidence) demonstrate that the Confidential Statement of Case was an ill thought out series of complaints, albeit I can not go quite so far as to say it was wholly irresponsible.
"First, the information itself…must 'have the necessary quality of confidence about it'. Secondly, that information must have been communicated in circumstances importing an obligation of confidence. Thirdly, there must have been an unauthorised use of the information to the detriment of the party communicating it."
"The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker on materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process."
"For infringement there must be copying. Whether there was or not is a question of fact. To prove copying the plaintiff can normally do no more than point to bits of his work and the defendant's work which are the same and prove an opportunity of access to his work. If the resemblance is sufficiently great then the court will draw an inference of copying. It may then be possible for the defendant to rebut the inference-to explain the similarities in some other way. For instance he may be able to show both parties derived the similar bits from some third party or material in the public domain. Or he may be able to show that the similarity arises out of a functional necessity - that anyone doing this particular job would be likely to come up with similar bits…"
"It is far from easy to say in general terms what is confidential information or a trade secret…
If one turns from the authorities and looks at a matter as a question of principle, I think (and I say this very tentatively, because the principle has not been argued out) that four elements may be discerned which may be of some assistance in identifying confidential information or trade secrets which the court will protect. I speak of such information or secrets only in an industrial or trade setting. First, I think that the information must be information the release of which the owner believes would be injurious to him or of advantage to his rivals or others. Second, I think the owner must believe that the information is confidential or secret, i.e., that it is not already in the public domain. It may be that some of his rivals already had the information: as long as the owner believes it to be confidential I think he is entitled to try and protect it. Third, I think that the owner's belief under the two previous heads must be reasonable. Fourth, I think that the information must be judged in the light of the usage and practices of the particular industry or trade concerned. It may be that information which does not satisfy all these requirements may be entitled to protection as confidential information or trade secrets: but I think that any information that doesn't satisfy them must be of a type which is entitled to protection."
"Overall approach to production the final signal: Random pulse train (3) amplified (4) using power from powers stage (1,2) then applied to output circuit (5), with final signal monitored
Interaction between some circuits 1-6 to achieve this (denoted by arrows in above box diagram).
Any relevant parameters relating to the above are given in the more detail sections below"
Much of the pleaded "use made of said confidential information" relates to the Clearwell in a Box and SDS, which I have already addressed above.
"Part of the MSL circuit where a switching transistor is employed are similar to the Hydropath circuit, but this circuit design is most common and standard and therefore not confidential. All other aspects of the MSL circuit is designed to operate in the digital domain which utilises much different electronic circuits and this consequently, is reflected in the circuit diagrams and as such bear no relationship to the Hydropath circuit diagrams whatsoever."
Dr Ford's comment is somewhat odd for an expert to make, given that his role is not to argue but to opine:
"It is argued that MSL…have used Hydropath…and Clearwell… know how and circuit drawings without the permission of Hydropath and Clearwell."
"Opinion
5.4 In my opinion, MSL…Drawing No ST 0232-06/STH "ST 0232-06 RF Power PCB Schematic Diagram" dated 10.03.11 and MSL… Drawing No ST 0232-06/STH "ST 0244-04 SCH RF Command Module PCB Schematic Diagram (03 and 04)" dated 10.03.11 do match the circuit diagrams on pages 11, 46 and 47 of the Companies' Schedule of Confidential Information.
Conclusion
5.5 It remains a matter of evidence, but in my opinion, the circuit diagrams on pages 11, 46 and 47 of the Companies Schedule of Confidential Information indicate that MSL…used confidential know-how and information and had access to either, or both, and original Clearwell product and/or circuit drawings relating to an original Clearwell product when designing their product."
I say that this is unhelpful because there is simply no analysis or explanation and, without more, the Court is not and would not be assisted by such bland assertions particularly from an expert one of whose main jobs is to assist the Court. It was further unhelpful because it appeared to be the case that Dr Ford was seeking to compare two MSL circuit diagrams in the (wrongful) belief that one was a Hydropath/Clearwell diagram.
"The method of amplification of square wave pulses from the random pulse generator to a level sufficient to drive the output stage.
The pulse is fed from the random signal generator, boosted by a transistor pair, and then fed through transformer to isolate the input from the output, and then feeds it, via some protection, into the gate of the power switching transistor (note that this general description applies to many similar circuits; it is only the specific circuit claimed as know-how)."
It goes on to explain:
"This process of amplifying a logic circuit's output is not unusual; therefore in contrast with the other items listed, the Defendant and Third Party rely on the precise method of achieving this (i.e. essentially the circuit diagram), rather than the underlying principle."
On analysis, this claim also revolves around the circuits used in both Products.
"It is the case that amplifiers are the building blocks of virtually all electronic appliances/devices and being so the configuration of the large variety of amplifiers is deemed standard. The make up of an amplifier cannot be claimed as confidential nor can it be protected as intellectual property, since the array of amplifier types is finite, full and freely available in the public domain."
"Opinion
7.7 In my opinion, MSL…have used the exact/modified amplification circuit design found in the original Clearwell product.
Conclusion
7.8 It remains a matter of evidence, but in my opinion, MSL…have used the exact modified amplification circuit design found in the original Clearwell product."
As before, and most unhelpfully, there is no explanation to support this opinion and conclusion. There are simply bland references to there being similarities and matching without any explanation. What one really needed but did not get from Dr Ford was some analysis as to why these similarities or matching features themselves points clearly or unequivocally to the design of the Clearwell R Product having to have used information which in practice could only have come from Hydropath or Clearwell..
Counterclaim- Clearwell R Name
"9.1 Each party shall retain all right, title and interest in and to its trade marks names and brands and neither party shall gain any rights to use the other's trade marks, names or brands, except as expressly provided hereunder. [Weatherford] shall be entitled to sell the Technology under whatever brands it wishes and all goodwill arising therefrom shall accrue to [Weatherford]."
The complaint is not about trade marks or brands but about the Clearwell name. Mr Booth QC and Mr Smith in their final extensive written submissions keep their remarks relatively brief about this claim:
"309. This is a simple breach of contract point. The whole of the clause needs to be considered. No part should be regarded as surplusage. A distinction is drawn in the clause between trademarks and names and brands. Self-evidently if one acquires a trademark, one acquires a property right. Therefore nothing more need be said about it. The agreement distinguishes between names and brands and is quite clear that all rights to name remain with the owner of the name, but that rights to brands can be acquired with use. That must distinguish between names and brands, otherwise one word or other would be omitted or both would be used in referring to what Weatherford acquired in goodwill terms. Clearwell International is the Clearwell name. The only sensible way to give effect to this is that Clearwell retains the right to the name Clearwell (whether in conjunction with international or not).
310. The contract expressly provides that if the licensee sells under brands goodwill goes to it. No right however to use names arises save as "expressly provided hereunder". No such right arises. Therefore any goodwill arising from use of the Clearwell name accrues to Clearwell, and Weatherford obtained no right to use it.
311. Any other interpretation as prayed in aid by Weatherford effectively means crossing out parts of the clause. The only way to give effect to the whole clause is by interpreting it as asserted herein. There is plainly breach of that clause."
"Q. As you quite rightly say, because they bear the name Clearwell you know that the only people who can use the Clearwell name on products is Weatherford, correct?
A. Correct." (Day 4 Page 67)
"the Technology" means devices and systems that generate, induce and/or transmit an electrical field into or within wells, vessels, tubulars, piping systems and fluids contained therein, including but not limited to, prevention of scale and other deposits within wells, vessels, tubulars and piping systems…"
This was not limited, as it very well could have been by agreement, simply to the technology specifically relating to the Clearwell Product; it was defined generically. It would therefore be an odd and indeed unacceptable consequence, if Clearwell was right in its counterclaim, if Weatherford was in breach of contract for using the name "Clearwell" but not in breach for selling the Technology, which for both the Clearwell and Clearwell R Products are "devices and systems that generate induce and/or transmit an electrical field" in the upstream field, where it is entitled to sell it in effect as the Clearwell brand.
Counterclaim for Inducing Breach of Contract
(a) It must be shown that the defendant's acts of encouragement, threat, persuasion and so forth (and the inducing words or conduct) have a sufficient causal connection with the breach by the contracting party to attract liability (see Lord Hoffman in OBG Para 36)
(b) He who wilfully induces another to do an unlawful act which, but for his persuasion, would or might never have been committed, is rightly held responsible for the wrong which he procured. (see Lord Nicholls ibid at Paragraph 171)
(c) Mere assistance, even knowing assistance, does not suffice to make the 'secondary' or inducing party liable as a joint tortfeasor with the primary party. What he does must go further. (See Arnold J in L'Oreal SA v eBay International AG [2009] ETMR 53 at Paragraph 350)
(d) It is obvious that a breach of contract must actually be induced. There is no tort of inducing an attempted breach of contract. Something which does not pass the factual and legal threshold such as to put the induced party into breach of the relevant contract does not give rise to a tort. I leave aside the possibility of procuring a quia timet injunction before the actual breach is committed either to prevent the breach or to prevent the inducing activities.
Counterclaim - Breach of Directors' Duties
"172 (1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
175 (1) the and A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
(2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).
(3) This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company.
(4) This duty is not infringed—
(a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or
(b) if the matter has been authorised by the directors.
(5) Authorisation may be given by the directors—
(a) where the company is a private company and nothing in the company's constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or
(b) where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution.
(6) The authorisation is effective only if—
(a) any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and
(b) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.
(7) Any reference in this section to a conflict of interest includes a conflict of interest and duty and a conflict of duties.
"53 In relation to acting in the best interests of a company, the directors' fiduciary duty is to exercise the powers conferred on them "bona fide in what they consider – not what a court may consider – is in the interests of the company", thus the test, both under the general law and under CA 2006, is a subjective one. The question is whether the director honestly believed that his act or omission was in the interests of the company. The court does not consider that the duty is broken simply because, in the court's opinion, the particular exercise of the power was not to promote the success of the company, although it is accepted that a breach will have occurred if it is established that the relevant exercise of the power is one which could not be considered by any reasonable director to be in the interests of the company…This subjective approach does not however, entitle a director to breach the "no-profit" rule and the "no-conflict" rule simply because he thinks it is in the interests of the company to do so. Nor in my judgement, is it necessarily the case that there can, in cases of conflict, be no unfair prejudice simply because the director believes his conduct to be justified."
"62 Blackburne J. had previously drawn attention (at p.627) to Lord Upjohn's speech in Boardman v Phipps [1967] 2 AC 46 at p.123, observing that although Lord Upjohn had there dissented his statement of the principles at play had not been doubted. He emphasised a concluding passage of the citation, where Lord Upjohn had said:
"The phrase 'possibly may conflict' requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict."
63 Blackburne J. went on to say that that passage echoed another in Upjohn L.J.'s earlier judgment in the Court of Appeal in Boulting v Association of Cinematograph Television and Allied Technicians [1963] 2 Q.B. 606 at pp.637–638 where he said:
"However, a broad rule like this must be applied with common sense and with an appreciation of the sort of circumstances in which, over the last two hundred years and more it has been applied and thrived. It must be applied realistically to a state of affairs which discloses a real conflict of duty and interest, and not to some theoretical or rhetorical conflict."
64 Blackburne J. also cited, with reference to the scope of a director's fiduciary duty, what Hoffmann J. had said in Bishopsgate Investment Management Ltd (in liq.) v Maxwell [1993] B.C.C. 120 at p.139C to the effect that what precisely a director's duty is within a company must depend "upon how the particular company's business is organised and the part which the director could reasonably have been expected to play."
65 In other words, although general principle is not in doubt, the extent of a director's duty in particular situations may depend on the circumstances."
(a) The pursuit of the Clearwell in a Box and SDS options and the development of the Clearwell R Product.
(b) The active seeking to have the certification for the Clearwell Product removed.
(c) Competing with Clearwell.
(d) The participation in the naming of the Clearwell R Product or using or promoting the use of the Clearwell name.
(a) There can be no breach in respect of the Clearwell R Product. This was only initiated after in effect Dr Stefanini had secured the removal of Messrs Clark and Lauretti as directors of Clearwell. There were no (and no pleaded) restrictive covenants on them to prevent them acting in competition after they ceased to be directors. For reasons indicated above, they and through them MSL did not use confidential information belonging to Clearwell in any event in and about the design and production of the Clearwell R Product.
(b) There can be no breach in respect of the name of the Clearwell R Product. The use of the name itself was in any event Weatherford's idea and the use of the name was not promoted by Messrs Clark and Lauretti or through them MSL either before or after they ceased to be directors.
(c) It was legitimate for them to involve themselves with Weatherford in the process of the development of both the Clearwell in a Box and SDS options. These were, if anything, incipient "Improvements" and developments of the Clearwell Product which Weatherford were contractually entitled to consider and implement and in respect of which Clearwell, through the efforts of Messrs Clark and Lauretti as officers of Clearwell, was contractually obliged to assist.
(d) These developments were in the interests of Clearwell because Weatherford was undoubtedly and in good faith concerned as to the safety of the Clearwell Product as from the autumn of 2009 onwards and was effectively withholding making further orders for the Product pending a resolution of the sparking problem. Unless and until those concerns were allayed, Clearwell would not be receiving in particular the royalty for every unit manufactured.
(e) It was not a breach of the duties for Messrs Clark and Lauretti to interest and involve themselves in Weatherford's extended efforts in 2009 and 2010 themselves to manufacture the Clearwell Product. Not only was Weatherford contractually entitled to do this, but also Clearwell, through the efforts of Messrs Clark and Lauretti as officers of Clearwell, was contractually obliged to assist Weatherford in their efforts to do so.
(f) It was suggested that Mr Clark in November 2009 in some way primed Dr Haslegrave with the information about the Henry Oil sparking incident in effect as part of some deep-seated plan or even conspiracy to bring about a breakdown in relations between Hydropath/Dr Stefanini/Clearwell and Weatherford with a view to bringing about a situation in which MSL and Messrs Clark and Lauretti could design their own product to replace the Clearwell Product. There is simply no and certainly no reliable evidence to support this scenario. Weatherford corporately knew about the Henry Oil incident in any event and, although Mr Clark did mention it to Dr Haslegrave in November 2009, it was not a secret as between Clearwell and Weatherford and I do not accept, if it is being so suggested, that Mr Clark's motivation was malicious and anti-Clearwell in so doing. It is also unlikely, not only because there is no clear hint about this in the reams of disclosure but also because they and Weatherford were wasting a massive amount of resource in investigating, designing, testing and setting up trials for the Clearwell in a Box and SDS options. I also accept their evidence on the point that their prime concern in 2009 and 2010 was to resolve or overcome the sparking problem and that the Clearwell R Product did not see the light of day until after they had been sacked as directors.
(g) I have already indicated that the concerns expressed by Weatherford in late 2009, throughout 2010 and indeed ever since, as to safety in the context of sparking were not spurious and indeed in these proceedings have been proved to be justified. It follows that it was not a breach of the Companies Act duties for Messrs Clark and Lauretti to co-operate with Weatherford in addressing those concerns.
(h) In respect of the complaint that Messrs Clark and Lauretti actively pursued the withdrawal of the certification of the Clearwell Product in the April to July 2010 period, this was a process which was primarily pursued by Weatherford. It does seem from some of the correspondence that at least part of Weatherford's motivation was to seek to establish that the original certification was at least exaggerated and at worst unjustified. There is however no remaining allegation that Weatherford was acting in bad faith in so doing. The context however was that, by early March 2010, Weatherford, as indicated in its letter to Dr Stefanini of 3 March 2010, believed that the Clearwell Product in terms of sparking incendive energy was outside that permitted by the ATEX certification. By late March 2010, a further sparking incident had been reported. Dr Stefanini was and must have been aware that Mr Clark attended on behalf of Clearwell the sparking tests carried out at Intertek in early April 2010; he was told of the results on 12 April 2010 by Weatherford and he was expressly made aware that Weatherford wish to set up a meeting with Intertek to, "request [a] decision on whether the hazardous area rating certificate is valid" (see Dr Haslegrave's letter to Dr Stefanini of 12 April 2010). It was no secret that Mr Clark had attended and been involved and indeed had been sent along as representative of Clearwell. Much of the involvement of Messrs Clark and Lauretti in this period is not inconsistent with their positions within MSL and Clearwell which would also each have an interest in the marketing of the Clearwell Product to get to the bottom of the problem and to see whether it affected the certification which appeared on each and every Clearwell Product and on which customers in the field relied. However, I do not accept on the evidence or otherwise that their involvement (and I should say that it was Mr Clark rather than Mr Lauretti) in the approaches by Weatherford to Intertek was anything other than tangential as Weatherford was in the driving seat on this and going to do what it had decided to do which was to challenge the certification. I do not consider that either of them put Weatherford up to challenge the certification or encouraged Weatherford to do so. The most that can be said is that Mr Clark did not inform Dr Stefanini within hours of knowing it himself that Weatherford was seeking to do this but Weatherford itself so informed him within a few days of the Intertek testing at Plano, Texas. Such line beyond which they might have been a breach of the Companies Act duties was not passed. It would be impermissible if not commercially dishonest for Weatherford to sell to customers a product which was certificated as Group IIC or even IIB when Weatherford knew or believed that it was incorrectly so certificated. Again, Messrs Clark and Lauretti were acting within the scope of their positions as directors of Clearwell to respect the obligations which Clearwell through them had to support Weatherford.
(i) Complaint is made that Messrs Clark and Lauretti through MSL entered into the JDA with another company in the Weatherford group in August 2010. This is not as such pleaded as a complaint. However, Weatherford was absolutely entitled to enter into such an agreement and MSL was in effect a sub-contractor doing something which Weatherford was contractually entitled to do pursuant to its agreements with Clearwell as it involved developments or improvements of the Clearwell Product. Weatherford could in theory just as well have gone to another organisation for exactly the same services. The object of the JDA was to produce solutions so that more Clearwell Products could be and would be sold, thus generating revenue for Clearwell. It is suggested that this in some way took work away from Clearwell which could otherwise have been done by it. However, there is no reliable evidence that Weatherford would have been interested in placing in effect an order with Clearwell and there is positive evidence that Clearwell had no capacity, ability or corporate wish to get involved in a design let alone a production process at any time.
(j) There are other complaints that by offering to provide services for reward (to MSL) Messrs Clark and Lauretti were competing with Clearwell. There were several offers on the part of MSL referred to earlier in this judgment to provide various services in connection with either manufacturing of the Clearwell Product by Weatherford or other methods. Apart from the JDA, these were unsuccessful. For instance, the evidence was that Weatherford was always going to manufacture the Product itself and only general information was being provided by MSL. Other offers were in connection with the Clearwell in a Box or the SDS but they seem to have been fruitless at least until the JDA. In any event there was no competition with Clearwell which had no capacity or corporate wish to become involved in those sorts of activity.
(k) I am satisfied that Messrs Clark and Lauretti acted in good faith, that they honestly believed that they were acting in the interests of Clearwell and that they did not, honestly, believe that they were acting in any way which gave rise to a conflict of interests. It has certainly not been proved to the contrary by Clearwell. What Clearwell's case comes down to is (apart from the matters raised above) such matters as some e-mail "chatter" which might (but not necessarily) be construed as (principally Mr Clark) being a bit too "chummy" with Weatherford personnel and an allegation that secrecy was maintained as between Messrs Clark and Lauretti and Weatherford about their discussions. A fair amount of the contact between them and Weatherford was in any event known about by Dr Stefanini (such as the attendance by Mr Clark at Plano, Texas and at a later conference call in late April 2010). He obviously knew about Mr Clark's misgivings about the safety of the Clearwell Product both in 2009 and 2010. He knew that there were contacts being made. I do not consider that it is helpful to try to analyse from what are often informal e-mails whether one can infer "secret" machinations or corporately improper conversations on the part of Messrs Clark and Lauretti. Essentially, what Clearwell through Counsel asked the Court to infer was that they were lying to the Court, in spite of the fact that there was little if any cross-examination of them specifically to that effect. As indicated earlier in this judgement, I found them to be credible witnesses and I certainly did not have the impression that they were being dishonest with the Court.
Abuse of Process
"In trying this question, I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same late on a Saturday's is a likely is it is that's what she says is its just a parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
"The second question depends on the application of a doctrine of estoppel, namely res judicata. Their Lordships agree with the view expressed by McMullin J that the true doctrine in its narrower sense cannot be discerned in the present series of actions, since there has not been, in the decision in no 969, any formal repudiation of the pleas raised by the appellant in no 534. Nor was Choi Kee, a party to no 534, a party to no 969. But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings."
"GW contends that Mr Johnson has abused the process of the court by bringing an action against it in his own name and for his own benefit when such an action could and should have been brought, if at all, as part of or at the same time as the action brought against the firm by WWH. The allegations of negligence and breach of duty made against the firm by WWH in that action were, it is argued, essentially those upon which Mr Johnson now relies. The oral and documentary evidence relating to each action is substantially the same. To litigate these matters in separate actions on different occasions is, GW contends, to duplicate the cost and use of court time involved, to prolong the time before the matter is finally resolved, to subject GW to avoidable harassment and to mount a collateral attack on the outcome of the earlier action, settled by GW on the basis that liability was not admitted."
"Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."
I highlight the underlined words.
The Claim
(a) Dr Stevens: he was the science expert engaged by Weatherford to review the electronic characteristics of the Clearwell Product and to consider the energy created by sparks generated by or from it. He was by far the more qualified compared with Mr Senior with weighty academic backgrounds both as a physicist and an electrical engineer. His report and evidence were clear and intellectually rigourous and he gave his evidence in a very measured way; he was not prone to exaggeration. Of all the experts in the case, he was the most impressive in all respects. He was eminently credible.
(b) Mr Roberts: retained by Weatherford, he is a chartered Electrical Engineer and a member of the Institute of Engineering and Technology. He has specific experience over many years in the oil and gas industry and he has been involved in the design and specification of equipment and systems for use in that and other industries. Although he has not been directly involved in securing certification of products or previously in investigations in respect of certification, he has had over 20 years of practical experience in dealing with products which had to be and were certified. Again, he was an impressive witness; he was quietly spoken but straightforward and down to earth. I was particularly assisted by his evidence about compliance with the ATEX requirements.
(c) Mr Senior: he was called by the Defendant as an equivalent to Dr Stevens to consider the testing carried out, the modelling and measurement the spark energy and various other issues. He is a Chartered Physicist linked to Loughborough University and is an associate Engineer of RHMA, a firm made up of a number of Loughborough University engineers and other specialists. I have to say that I found his report and his evidence superficial and tentative. Although straightforward, he came over as nervous and inexperienced as an expert in litigation. For instance, he did not identify in his report (as he should have done) all the documents and information with which he had been provided and he accepted that he had "erred" and repeatedly apologised; it was absolutely clear as his evidence unfolded that he had had regard to a much wider number of documents than the two Claimant's Notices of Experiment and Mr Hadi's witness statement listed in his report; his nervousness (not generated by the polite cross-examination) was demonstrated by his inability to remember what the "Directive" referred to in his report was (it was the European Directive with which this case is concerned). He said that he received instructions on 20 January 2014 and equipment to do experiments on 7 April 2014 and " it has been a bit of a blur since then", going on to say that in effect other work that he had been doing had got in the way of his preparation for the case. He had a tendency to identify matters which might reduce the effect of the incendive energy of the sparking without being able to give any quantification, even in broad terms. His evidence spanned two days and on the second day he told the court that he had had a change of opinion "in the shower before I got into my taxi this morning" such that he wished to resile from an opinion which he had jointly agreed with Dr Stevens in the joint statement. Apart from the fact that I accept the joint opinion, this change of mind contrary to what he had consciously and presumably with forethought agreed with Dr Stevens and the fact that the reason for the change was not obviously clear seriously undermined his reliability.
(d) Mr Thomson: he was called by the Defendant to address the duties and responsibilities of a designer, manufacturer and supplier of equipment for use in potentially explosive atmospheres and the adequacy of the certification. His background is as an electrical engineer who for many years was involved in mining (coal) but from 1991 has worked for the HSE in connection with electrical and mechanical engineering and process equipment safety for offshore oil and gas installations. He was fairly straightforward but again inexperienced as an expert in much the same way as Mr Senior. He was clearly inadequately briefed in that for instance he had not been shown the instructions for use of the Clearwell Product, only having been shown the 2013 revised instructions; for instance he had not been shown the Specifier's Guide attached to the Supply Agreement. He did make some appropriate concessions under cross-examination. I was however overall unimpressed with him compared with Mr Roberts.
(a) "8. Spark testing is conducted to demonstrate compliance of product to meet intrinsically safe standard as set out in BS EN 60079 Part 11. It is not generally applied to confirm compliance with other protection concepts". (Mr Roberts and Mr Thomson)
(b) "10. The purpose of the Spark testing is to determine whether the relevant product is/or is not capable of ignition under the provisions specified in BS EN 60079 Part 11 for the appropriate level of protection". (ibid)
(c) "11. Safety factors are applied in all instances of spark testing carried out by notified bodies so that the testing is carried out on a circuit that is more likely to cause an ignition that the actual circuit so, should the relevant product pass with the safety factor applied, there is a high degree of confidence that the circuit is safe under normal operating conditions." (ibid)
(d) "2. The pipe is in effect a secondary coil with a single 'turn'". (Dr Stevens and Mr Senior)
(e) "5. On the assumption that a steel pipe is a perfect conductor, when a short-circuit is created by electrically connecting the surface of a steel pipe 6 inches either side of the ferrite core, the following characteristics of the pipe are a negligible relevance to the energy present in any resulting spark:
a. The total length.
b. The diameter.
c. The cross section." (ibid)
(f) "6. The installation of the Hydropath Product in the configuration pictured in the Specifier's Guide and described as being "installed in the loop" would not be liable to create sparks unless that loop were made and broken during use." (ibid
(g) "7. Such installation might compromise the efficacy of the Hydropath Product but it would not be inherently dangerous." (ibid)
(h) "8. Addressing the spark issue by insulating part of the pipe would only be partly effective. Short-circuits sparks could still result from the electrical connections between uninsulated parts of the pipe." (ibid)
(i) "9. Such connections could give rise to Sparks even when they were between parts of the pipe in excess of 3m either side of the ferrite ring." (ibid)
(j) "10. Addressing the spark issue by painting part of the pipe would only be partly effective. Short-circuits and sparks could still result from the electrical connections between unpainted parts of the pipe." (ibid)
(k) "If a short circuit contact is repeatedly made and broken the Hydropath Product still maintains the supply of energy and the product will therefore continue to create sparks." (Page 10 - ibid)
(a) Did the design and manufacture of the Clearwell Product have to take into account the possibility or risk of sparking on or close to the (mostly steel) pipes either side of the ferrite ring?
(b) Was there a sufficiently significant risk that such sparking would or could be incendive?
There are of course other areas of complaints such as marking and instructions, to which I will return later.
Decision