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Court considers breach of confidentiality and unlawful conspiracy claims in ship design dispute

Insights / / London

Salt Ship Design AS v. Prysmian Powerlink SRL [2021] EWHC 2633 (Comm)

The Court has found the buyer of a Cable Laying Vessel (the “CLV”) liable for breach of confidence and unlawful conspiracy for making the designer’s confidential documents available to the shipyard’s own designer. It also indicated that exemplary damages may be available as a remedy.  

The background facts

After a competitive tender process in mid-2017, the Norwegian ship design company Salt Ship Design AS (“Salt”) was awarded a contract for the design of the CLV by Prysmian Powerlink SRL (“Prysmian”). The agreement included confidentiality provisions and recorded Salt’s exclusive design rights.

Prysmian invited several shipyards to tender for the building of the CLV to Salt’s design, and awarded the construction contract to Vard Group AS. However, in March 2018 Prysmian ended Salt’s involvement in the design process, informing Salt that Vard Group AS had offered its own design which was produced by Vard Design AS (“Vard”), another company in the same group. The CLV was subsequently built and delivered to Prysmian in 2021.

Salt contested Prysmian’s decision to dispense with its services and argued that it was not entitled to engage another designer. This gave rise to what Salt claimed was a “plain vanilla” claim for damages for breach of the agreement.

Salt further claimed that Prysmian was liable for breach of confidence for making their design documents available to Vard, unlawful means conspiracy and exemplary damages. Salt alleged that Vard must have used its confidential documents in order to be able to complete its revised work within only eight working days and noted the “striking similarities” in certain aspects of both designs.

Prysmian disputed those claims, contending that it was contractually entitled to proceed without Salt’s design and denied misuse of confidential documents.

The Commercial Court decision

The plain vanilla damages claim

The Court found that Salt’s engagement as an exclusive designer for Prysmian was not open-ended. As a matter of construction, the agreement required the project to materialise or a shipbuilding contact to be concluded by 31 January 2018, failing which Salt’s exclusivity would come to an end.

Since neither condition was satisfied, the Court concluded that Prysmian was entitled to engage an alternative designer to build a different ship after 31 January. Prysmian was, however, found to have breached the exclusivity provision by agreeing that Vard could produce an alternative design prior to that date. Nevertheless, such a breach had no consequences as it was not on the facts linked to the project’s failure to materialise by 31 January. Salt was, therefore, entitled only to nominal damages.

Breach of confidence

The Court concluded that Prysmian made confidential design documents that Salt had prepared available to Vard for the purpose of its alternative similar design. It also found Prysmian to have actively encouraged the use of these documents after 31 January 2018. As such, it ruled that Prysmian was liable for breach of contractual duty of confidence and agreed, albeit unnecessarily, that Salt’s documents would also be protected by an obligation of confidence in equity.

Unlawful means conspiracy

The Court ruled that all the elements of unlawful means conspiracy were satisfied, in particular:

  1. suffering a loss
  2. arising out of an unlawful act
  3. that is carried out pursuant to a combination or understanding between two or more people
  4. with an intention to injure another.

The Court agreed that transferring Salt’s confidential design work to Vard, and then misusing it with the intention to deprive Salt of its exclusive rights put Prysmian in a position to continue the CLV work with Vard. This, in turn, led Salt to lose the work that it would otherwise have performed under the agreement (valued at €2.43m).

Damages

The extent of any damages arising from Prysmian’s breaches has not yet been determined. The Court, however, noted that exemplary damages may be available for unlawful means conspiracy. This is an exception to the general compensatory damages rule. It is intended to deter and punish outrageous conduct where normal damages are deemed inadequate to achieve justice, for example where the defendant’s conduct is likely to make him a profit that “may well exceed” the compensation payable to the claimant.  

Whilst the legal controversy as to whether exemplary damages can arise out of a breach of confidence was not resolved, the Court indicated that such a breach can in any event give rise to remedies that go beyond an award of compensatory damages. For example, Prysmian may be required to pay the sums that it would have incurred had it not breached the agreement. The Court stated that if Salt is awarded the €5m which Prysmian shaved off its construction costs as a result of its decision to continue the CLV work with Vard, this would “have a very material bearing on the court’s willingness to make an award of exemplary damages”.

Comment

The Court’s ruling reaffirms that intellectual property rights concerning design can be protected in a number of different ways. It also highlights that higher levels of exemplary damages might be recovered above and beyond awards of compensatory damages.

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

Tarek Taha

Tarek Taha Associate

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