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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Lloyds TSB Insurance Services Ltd & Anor v Shanley [2014] EWCA Civ 407 (10 April 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/407.html Cite as: [2014] EWCA Civ 407

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION INTELLECTUAL PROPERTY
His Honour Judge Pelling QC
[2013] EWHC 411 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		10/04/2014

Lord Justice Kitchin:

Introduction

1. This is an appeal against that part of the judgment of HHJ Pelling QC sitting as a judge of the High Court dated 25 February 2013 and his consequential order whereby he held that the first defendant ("Lloyds") had infringed the copyright of the claimant ("Mr Shanley") and had misused Mr Shanley's confidential information by using in the course of its business a particular piece of software called a scoping tool, and whereby he found that the second defendant ("Halifax") had also infringed Mr Shanley's copyright and acted in breach of its duty of confidence to him by supplying the scoping tool to Lloyds.
2. The judge also held that Halifax had itself used the scoping tool but he rejected Mr Shanley's claim that this too constituted an infringement of his copyright or a breach of confidence. Mr Shanley has not sought to appeal against this finding.
3. So far as the claim in respect of the use of the scoping tool by Lloyds was concerned, the crucial issue was whether, at a meeting in September 2006, Mr Shanley gave Halifax permission not only to use the scoping tool itself but also to allow its use by Lloyds. It is accepted that absent such permission the use of the tool by Lloyds did amount to an infringement of Mr Shanley's rights. The judge held that Mr Shanley granted no such permission. On this appeal, Lloyds and Halifax say that he fell into error both as a matter of law and in making findings that were not open to him on the evidence.

Background

4. The judge set out the background in his full and comprehensive judgment. The following is a summary of those matters relevant to the issues which arise on this appeal. I have drawn them in large part and with gratitude from the judgment.
5. Mr Shanley is an experienced building contractor and businessman and in 2002 he formed a company called Completecare Scotland Ltd ("CSL") to carry on a business of repairing properties on the instructions of building insurers. Mr Shanley appreciated that the profitability and efficiency of this business would be increased by the use of a scoping and claims management system. He therefore entered into a collaboration with Mr Muirhead, a software designer, and by 2006 they had created for use by CSL a computerised claims management system which incorporated and used a scoping tool called "Estimate Builder". As the judge explained, this was, in effect, a spreadsheet which consisted of a series of different pages, one for each of the various rooms within a property where repairs were to be undertaken, and which had the capacity automatically to transfer data assembled on each page to a summary build-up page and then to the claims management system.
6. In 2006 Mr Shanley wanted CSL to join Halifax's network of contractors. He knew that Halifax had a scoping tool but thought it less sophisticated than Estimate Builder. As will shortly become clear, Mr Shanley advanced a series of different cases as to what happened thereafter, but the case he finally advanced at trial was that on 8 September 2006 a meeting took place between him and Mr Monteith of Halifax at which the possibility of CSL joining Halifax's network was discussed and at which it was agreed that CSL would re-write the Halifax scoping tool so as to incorporate within it the functionality of Estimate Builder, and that CSL would then supply the re-written scoping tool, without charge, to Halifax for testing and evaluation purposes. This, I should say, was disputed by Mr Monteith. Nevertheless, it was not disputed and, in any event, the judge found, that Mr Muirhead, acting on behalf of CSL, then proceeded to develop a pilot scoping tool on the basis of the Halifax scoping tool but incorporating much of the functionality of Estimate Builder.
7. It was also Mr Shanley's case that in or about February 2007 Mr Monteith informed him that Halifax had decided not to pursue the project any further. Halifax had plainly decided no such thing because, in March 2007, the pilot scoping tool was supplied to all the contractors in its network. It was regarded as a great success and Mr Monteith received a good deal of praise for its introduction. Over the following few months Mr Muirhead made various modifications and improvements to it and he was paid for this work by CSL. This yet further improved scoping tool was then rolled out in May 2008.
8. In June 2008 Mr Shanley sold his interest in CSL to his management team. All of the copyrights in the software which CSL owned were, however, assigned to Mr Shanley and, as was common ground at the trial, Mr Shanley thereupon became the owner of the copyright in the various iterations of the Halifax pilot scoping tool. He and his family then emigrated to Australia.
9. Less than a year later Mr Shanley and his family returned and shortly afterwards a company called Shanley Investments Ltd began to trade. This company was owned beneficially as to one third by the Shanley family trust, one third by Mr Shanley's son James and the remaining third by Mr McGettrick. It traded under the name Arngrove and carried on business in much the same area as CSL. CSL ceased trading in 2010. Arngrove continued in business until 2011 and was then placed in creditor's voluntary liquidation.
10. In the meantime, the HBoS group of companies, of which Halifax formed part, was taken over by the Lloyds Banking Group. At some point following that takeover but no later than July 2010, Lloyds began to use the pilot scoping tool.
11. In June 2011 Lloyds carried out an audit of work which had been undertaken for it by Arngrove. In James' absence, Mr Shanley responded to various queries raised by Lloyds and it was his case that, while carrying out investigations for that purpose, he discovered for the first time that Lloyds was using the pilot scoping tool. On 24 October 2011 he had what he described as a "heated meeting" with Mr Monteith in the course of which he complained about the use being made of the pilot scoping tool without his permission. That meeting was recorded and a transcript of it was considered by the judge at the trial.
12. On 28 November 2011 Mr Shanley's solicitors wrote a letter before action to Halifax and Lloyds asserting that Mr Shanley had supplied the pilot scoping tool to Halifax in 2004 under the terms of an oral licence, that this licence came to an end in November 2006 and that thereafter Halifax and Lloyds had infringed his copyright by continuing to make use of it. This was the first of the cases that Mr Shanley advanced.
13. By letter dated 15 December 2011 solicitors instructed by Halifax and Lloyds replied on the basis of instructions provided to them by Mr Monteith. This letter asserted that Mr Shanley had indeed demonstrated a scoping tool to Halifax in or about 2007 but that it had not been adopted in any way by Halifax or Lloyds. It also asserted that Halifax itself owned the copyright in the scoping tool which it did in fact use.
14. These proceedings were issued on 2 March 2012. In his particulars of claim, Mr Shanley advanced a new and different case based on an alleged written agreement dated 8 September 2006, purportedly signed by Mr Monteith on behalf of Halifax, and under the terms of which he agreed to license the pilot scoping tool to Halifax on a royalty basis.
15. In their defence served on 16 April 2012 Lloyds and Halifax denied there was ever any such written agreement and asserted that Mr Monteith's alleged signature upon it was a forgery. Despite this plain joinder of issue, Mr Shanley maintained his position and in two witness statements, each containing a statement of truth, asserted that the agreement was drawn up in the presence of Mr Monteith at a meeting at CSL's premises, and at the end of the meeting Mr Monteith had signed it.
16. It was not until 25 January 2013 that Mr Shanley accepted that his case based upon this written agreement was a complete fabrication and that Mr Monteith's purported signature upon the document was indeed a forgery. He now advanced, in yet another witness statement served on that day, his third and final case that on 8 September 2006 he had entered into an oral agreement with Halifax under the terms of which Halifax could use the pilot scoping tool for the purposes of testing and evaluation and thereafter, if it wished to use it for the purposes of its business, the parties would negotiate terms for such use in good faith.
17. In their amended defence to this case, Halifax and Lloyds denied that there was ever any oral agreement in these terms and also maintained that Mr Monteith did not in any event have any actual or ostensible authority to enter into an agreement of this kind on behalf of Halifax.
18. There were, therefore, two principal issues for the judge to resolve. The first was whether or not Mr Shanley and Halifax did enter into an oral agreement on 8 September 2006 in the terms asserted by Mr Shanley. As the judge correctly observed, this was likely to prove determinative of the claims against Halifax. The second was whether and, if so, on what terms and by what means, the use of the scoping tool by Lloyds was ever licensed. On this issue, Lloyds advanced two arguments in its closing submissions: first, that Mr Shanley conferred a licence upon Mr Monteith, and permitted Mr Monteith to grant a sub-licence to his employer; second, that Mr Shanley consented to the use of the pilot scoping tool by any company in common corporate governance with Halifax, provided that Mr Shanley's companies continued to be used as contractors.
19. As I have indicated, the judge rejected Mr Shanley's case that he and Halifax reached an oral agreement on 8 September 2006 on the terms he claimed. His reasoning also led him to accept Halifax's case that Mr Shanley did, by his actions through 2006, confer upon it a licence. However, he rejected the case advanced on behalf of Lloyds that it was licensed, either because Mr Monteith was entitled to grant sub-licences or because the licence conferred upon Halifax extended to any company in common corporate governance with it.

The reasoning of the judge

20. I must say a little about the reasoning of the judge because this forms the foundation for the appeal. The judge began by addressing what he called the Halifax licence issue and said this at paragraph [31]:

"The claimant's case depends upon me concluding that there was an oral agreement reached, as alleged, in paragraph 16 of the amended Particulars of Claim. If that case fails, the evidential burden rests upon the defendants to establish the grant of a voluntary licence, not merely to Halifax, but to Lloyd's as well."

21. Mr Shanley's new case faced a formidable difficulty, namely that he had abandoned his original case that he had granted Halifax an oral licence to use his scoping tool in 2004; and he had abandoned his case on the written agreement, which case was supported by his first two witness statements. Indeed he had admitted fabricating that written agreement and forging Mr Monteith's signature. In these circumstances, the judge was simply not prepared to accept Mr Shanley's evidence, save where it was admitted or corroborated, or was against his interests.
22. Mr Monteith's position was nothing like as bleak. Nevertheless, the judge came to the conclusion that he should be cautious before accepting his uncorroborated evidence for a number of reasons, including the fact that he was less than frank in his evidence under cross-examination and because he had provided the false information set out in the response to the letter before action.
23. In all these circumstances the judge considered that he had to resolve the issues before him by reference to the contemporary documents, the overall probabilities, the objective facts established independently of the evidence of Mr Shanley and Mr Monteith, and subsequent events, so far as relevant. Having regard to all these matters, the judge rejected Mr Shanley's new case. He summarised the position in this way at paragraphs [45] – [46]:

"45. The only point that, in the end, could be deployed on behalf of the claimant was a commercial probability point. CSL was a business. It was in business. And so the question was asked rhetorically by the claimant's counsel: why would CSL deploy its resources to develop some software that could only benefit Halifax and then permit it to be deployed commercially for no reward?

46. The difficulty about this point is that it has to be balanced with the other points already considered. These demonstrate in my judgment unequivocally that (a) there was no oral agreement to the effect alleged but (b) the software was supplied to Halifax and further developed thereafter at the expense of CSL. In my judgment, the reality (and the answer to the commercial probability point) is that the claimant wanted to win business for CSL from Halifax in 2006, and was willing to spend money developing what was then CSL's software for use by Halifax because it enabled him to establish a favourable relationship with Halifax and thus advance his objective of winning business from Halifax."

24. The judge then turned to consider the position of Lloyds and began by explaining its case at paragraph [47]:

"I have so far considered the position in relation to Halifax. I now turn to Lloyds. The defendants argue that:

(a) there was an implied licence granted to Lloyds because either

(1) Mr Monteith was entitled to grant sub-licences or

(2) the voluntary licence granted to Halifax was one that extended to any company in common corporate governance with Halifax; but

(b) irrespective of whether Lloyds' use had been licensed, the claimant was precluded from denying that such was the case by acquiescence and/or estoppel founded on alleged knowledge of use by Lloyds and the absence of any objection after that knowledge was acquired."

25. It has not been suggested upon this appeal that the judge fell into error in rejecting the case of acquiescence or estoppel and accordingly I need say no more about it.
26. As for the case of implied licence, it can be seen this had two parts. First it was said that Mr Monteith was entitled to grant sub-licences. The judge rejected this in short order at paragraph [48]:

"I turn first to the implied licence theory. Contrary to the assertions made on behalf of the defendants, the voluntary licence granted in September 2006 was not granted to Mr Monteith personally. It arose exclusively as a result of the desire of the claimant on behalf of CSL to establish a commercial relationship with Halifax. Mr Monteith was entirely immaterial, other than that he was the Halifax representative with whom the claimant was perforce bound to interact. Indeed, Mr Monteith was at pains to distance himself from any suggestion of personal involvement – see transcript Day 3, page 8, lines 24-25. Thus, in my judgment, the notion that the voluntary licence that is to be inferred from what happened in September 2006 and thereafter was a licence of Mr Monteith is, with respect, both fanciful and unsupported by the evidence."

27. This naturally led the judge into a consideration of the second limb of the implied licence argument, and he rejected this too, holding that it was not necessary to construe the licence in this way to give effect to what the parties intended in September 2006. The heart of the judge's reasoning is contained in paragraph [49]:

"There is no evidence at all that it was ever contemplated by the parties that Halifax might sub-licence or assign the scoping-tool technology to a trade competitor of Halifax's. Indeed, the whole point of the exercise was to improve the efficiency and profitability of Halifax when compared to others within its industry. It was the result of collaboration between CSL, acting by the claimant, and Halifax for the benefit of each of them. In the case of CSL it was one means by which it secured and maintained its relationship as one of Halifax's network of contractors. In the case of Halifax, [it] was the more efficient operation of its network of contractors, and/or the management of building projects in respect of which it was the funder for its own business purposes. There is nothing in the circumstances to suggest it was intended that Halifax should be entitled to sub-licence anyone other than a contractor within its contractor network to use the scoping tool for Halifax's business purposes. In my judgment, precisely similar difficulties face the alternative formulation. In fact, there is no evidence at all which explains how or why Lloyds came to be permitted access to the software and by whom. The main point however is that the voluntary licence granted to Halifax was personal to it."

28. It followed that Lloyds had no licence to use the pilot scoping tool and the claim for infringement in respect of that use therefore succeeded.

The appeal

29. Upon this appeal Lloyds and Halifax have been represented by Mr John Baldwin QC and Mr Robert Onslow. Mr Baldwin contended that in arriving at his conclusion in respect of the use of the pilot scoping tool by Lloyds the judge fell into error in a number of respects. I will address them in turn.
30. The first of the errors was, said Mr Baldwin, an error of law and is to be found in paragraph [31] of the judgment. Here, Mr Baldwin argued, the judge wrongly directed himself that once Mr Shanley had failed to prove the licence he contended for, the burden of proof shifted onto Lloyds and Halifax. The judge ought instead to have directed himself that the burden of proof lay on Mr Shanley throughout and it was for him to show that the acts of which he complained were not licensed. Mr Shanley's case in relation to the limited licence having failed, the judge ought then to have found that Mr Shanley had failed to discharge the burden of proving that Lloyds was not licensed and so the claim against it should have failed, just as it failed against Halifax.
31. Attractively and powerfully though this argument was advanced, I am satisfied it is wrong and must be rejected. I accept that the burden of proof lay upon Mr Shanley to establish his claim and that this necessarily involved establishing that Lloyd used his copyright materials, and that such use took place without his consent. However, Mr Baldwin's submissions involve stripping paragraph [31] of the judgment from its context. It must be recalled that the judge was faced not only with the case advanced by Mr Shanley but also the rival case advanced by Lloyds and Halifax that Mr Shanley consented to the use of the pilot scoping tool by Mr Monteith and also to Mr Monteith sub-licensing his employer, or, alternatively, that Mr Shanley consented to the use of the scoping tool by any company in common corporate governance with Halifax.
32. Seen in this light, paragraph [31] of the judgment is entirely understandable. Here the judge was simply anticipating that the case against Halifax would, in substance, depend upon whether or not Mr Shanley could establish the limited licence upon which he relied in paragraph 16 of his amended particulars of claim. If he failed to make out his case in relation to that limited licence then his claim against Halifax would likely fail. But it would not necessarily follow that the claim against Lloyds would fail as well. In that regard the judge appreciated that he would have to deal with the case that Lloyds was impliedly licensed, either because Mr Monteith was entitled to grant sub-licences or because the licence granted to Halifax was one that extended to any company in common corporate governance with it.
33. Moreover, the judge was considering where, as a matter of reality, the evidential burden would lie. As I have explained, he formed the view he could not rely upon the oral evidence given by Mr Shanley. But so too he had considerable reservations about the evidence given by Mr Monteith. He was therefore driven to consider the contemporary documents, the objective facts established independently of the evidence of both Mr Shanley and Mr Monteith and the overall probabilities. He concluded, as in my judgment he was plainly entitled to, that Mr Shanley wanted to win business for CSL from Halifax in 2006, and was willing to spend money developing software for use by Halifax because it would promote the development of a favourable relationship with Halifax and so assist him to meet his objective. But there was no suggestion that Mr Shanley or CSL had any interest in any other company with which Halifax might be connected, and certainly not with Lloyds.
34. This was a point to which the judge returned in paragraph [49] of his judgment. Here he explained in greater detail the purpose of supplying the scoping tool to Halifax and how it benefited Mr Shanley and CSL on the one hand and Halifax on the other. The judge had nothing before him to explain how Lloyds came to have access to the scoping tool. It was, however, plain that it had not been supplied by Mr Shanley. In those circumstances it was entirely natural for Lloyds and Halifax to conclude that they needed to advance the positive case to which I have referred and for the judge to explain, as he did at paragraph [31], the evidential burden would lie upon them to establish it.
35. Mr Baldwin next submitted that the judge fell into error in the way he approached Mr Shanley's persistent falsehoods. It is, he said, a strong thing to forge a document and to put it before the court and certify that it is true. It is an even stronger thing, once such a course of conduct has been found out, to lie about it again. The only proper inference to be drawn from all these circumstances is that Mr Shanley appreciated that he had to conceal the truth for otherwise his action would fail and this is the inference that the judge should have drawn.
36. Once again, I find myself unable to accept these submissions. The judge was fully conscious that Mr Shanley had lied, and had done so persistently. This rendered his oral evidence wholly unreliable and the judge quite properly placed no weight upon it. So he turned to those facts and matters about which there was or could be no dispute. He also had regard to the overall probabilities. This led him to reject the case that Mr Shanley advanced that he had never granted a licence to Halifax in respect of its acts of which he complained. The true position was that which I have explained, namely that Mr Shanley provided the pilot scoping tool to Halifax to promote his relationship with that company and help CSL to win business. But it did not follow that Mr Shanley consented to the use of the scoping tool by other companies with which neither he nor Halifax had any connection at the time. On this further issue, the judge thought the licence was personal to Halifax and there was no reason to suppose that Mr Shanley had granted any wider consent; and nothing in the circumstances suggested he had any reason to do so. That, it seems to me, was an approach that the judge was perfectly entitled to take and he came to a conclusion which was open to him. I therefore reject the submission that the judge was bound to infer from Mr Shanley's falsehoods that either Mr Monteith was entitled to grant sub-licences or that the licence granted to Halifax was one which extended to any company in common corporate governance with it.
37. Finally, Mr Baldwin submitted that the judge fell into error in finding that Mr Shanley did not know about the use of the pilot scoping tool by Lloyds until after the audit meeting and that he ought to have found that Mr Shanley read and considered the contents of e-mails dated 5 and 7 July 2010 and that these e-mails, and in particular that of 7 July 2010, made it clear that the scoping tool was indeed being used by Lloyds.
38. Mr Shanley's evidence was that he could not remember reading these e-mails. Conscious as he was of Mr Shanley's dishonesty, the judge explained that this evidence had to be balanced and tested against subsequent events. In that regard, the judge found the evidence of Mr Shanley's reaction to his discovery of the use of the scoping tool after the audit meeting very persuasive. That reaction was one of hostility. Mr Shanley asked his son James to set up a telephone call with Mr Monteith for the purpose of getting an acknowledgement that it was indeed his scoping tool, and then the meeting was arranged for 24 October 2011. James attended the meeting and was cross-examined about it. The judge accepted his evidence. This evidence, supported by the transcript, showed Mr Shanley was really angry and also records him making the point that he had never granted Lloyds a licence. Further, there is no suggestion in the recording that Mr Shanley's reaction was challenged by Mr Monteith. In these circumstances I am satisfied that the judge had a proper evidential basis for concluding that Mr Shanley did not know about the use of the scoping tool by Lloyds until after the audit meeting.
39. This is a most unusual case. Mr Shanley has prevailed in his claims in respect of the use of the scoping tool by Lloyds despite his manifest and repeated dishonesty. But, as the judge himself observed, the fact that a claimant tells lies does not necessarily lead to the conclusion that the whole of his case is without substance. That was the position here. Mr Shanley's lies were fatal to his claim in respect of the activities of Halifax but not in respect of the activities of Lloyds. The judge did not misdirect himself in law and arrived at conclusions which were open to him on the evidence before him. I would therefore dismiss this appeal.

Lord Justice Floyd:

40. I agree.

Sir Bernard Rix:

41. I also agree.