Societa Esplosivi Industriali SPA v Ordnance Technologies Ltd. & Ors

A restraint of trade must first be construed before its reasonableness can be assessed. A restraint may be reasonable where it forms part of a negotiated commercial collaboration, protects a legitimate business interest, and does not sterilise the restrained party’s whole livelihood. Where contractual consent is required, a term may be implied that consent will not be withheld arbitrarily, capriciously or unreasonably. An agency relationship may give rise to fiduciary duties even though the agent lacks authority to bind the principal. Jointly owned intellectual property rights must be sufficiently disclosed to make the ownership and user rights effective.

The claimant, an Italian manufacturer of explosives, collaborated with the first defendant, a UK defence company, under teaming, agency and consultancy agreements concerning multiple warhead systems and related equipment. The claimant alleged that the first defendant had diverted contracts, misused confidential information, infringed intellectual property, breached restraints and fiduciary duties, and infringed trade mark and passing-off rights.

The court considered the construction and validity of the contractual restraints, ownership and disclosure of foreground intellectual property, fiduciary obligations, tort claims arising from the dynamic firing test and warhead trade study, the Paveway III contract, and personal liability of the individual defendants.

1. Construction and restraint of trade. Clause 3(c) prevented the first defendant from offering its multiple-warhead expertise to third parties. Clause 3(d), construed in its commercial context, applied where the claimant could not participate, including where it chose not to do so. The claimant could not withhold consent unreasonably. The restrictions were negotiated by commercially experienced parties and did not restrain the whole of the first defendant’s business. Their duration was reasonable in the context of long defence-industry development programmes. The clauses were therefore valid.
2. Intellectual property. The agreement’s definition of intellectual property rights, beginning with “all information”, included copyright material as well as design rights. Foreground intellectual property comprised material generated in activities covered by a third-party statement of work, including mathematical modelling variants. The claimant owned the relevant warhead-system rights, jointly owned the shaped-charge subsystem rights, and was entitled to free user rights. An implied term required delivery of materials embodying those rights.
3. Fiduciary and confidentiality duties. The agency agreement created fiduciary duties despite the agent’s inability to bind the principal contractually. The first defendant breached its duties by preferring its own interests and by unauthorised disclosure or use of confidential warhead information.
4. Torts and remedies. The claimant consented to assembly, export and re-import of the warhead, so the conversion and design-right claims failed. The passing-off claim also failed because of tacit consent, although the court held that actual damage need not be proved where liability is otherwise established. The first defendant breached contract and fiduciary duty in taking the dynamic firing, warhead trade-study and Paveway III contracts. Inquiries into damages were ordered.
5. Personal liability. The claims against Mr Moat and Mr Haigh failed. Mr Cardy, as decision-maker, was liable for inducing the first defendant’s contractual breaches. The dishonest-assistance claims failed because dishonesty had not been fairly put to the relevant witnesses.

First-instance decision. The judgment does not state any prior appellate decision.