Pipeline Cleaning Solutions LTD against Coretrax Technology LTD (Court of Session)

Factual and Procedural Background

The Plaintiff, Company A, is a Scottish company owning an EU patent (priority 20 December 2008) for a fluid cleaning product named "Uptake". In October 2016 Company A entered a Confidentiality Agreement with Company B and thereafter a Purchasing Agreement granting Company B exclusive rights to purchase, market and re-sell Uptake in specified territories from 1 January 2017 for an initial three-year term. Company A supplied Uptake and technical information; it alleges that in 2018 Company B developed and supplied a competing product, "SwarfSweep", using confidential information and in a way that infringed Company A's patent. Company B purported to terminate the Purchasing Agreement on 5 December 2018.

Company A sued for £10 million in damages for breach of contract and patent infringement. Company B raised preliminary pleas: (i) prescription (time bar) of contractual claims; (ii) that a contractual "hold harmless"/indemnity clause barred Company A's claim for lost profits; and (iii) that Company A's pleadings on causation and quantum lacked relevance or specification. The court (Judge Sandison) heard submissions on these preliminary pleas and on amendment of pleadings; leave to amend was granted and the matter proceeded to interlocutory decision on the pleas.

Legal Issues Presented

1. Whether the Plaintiff's contractual and patent claims are time-barred by the quinquennial prescription under the Prescription and Limitation (Scotland) Act 1973.
2. Whether clause 11.3 of the Purchasing Agreement (a mutual "save, indemnify, defend and hold harmless" clause) bars the Plaintiff's claim for consequential loss (loss of anticipated profits), and if so, to what extent (i.e., whether it covers breaches of the Purchasing Agreement, the Confidentiality Agreement, and/or patent infringement).
3. Whether the Plaintiff's averments on causation and quantum (loss of profits) are legally relevant and specified sufficiently to permit proof.

Arguments of the Parties

Plaintiff's Arguments

• The summons served 17 November 2023 gave adequate notice of breach of the Purchasing Agreement and Confidentiality Agreement and patent infringement; the action was served within the quinquennium beginning on 23 November 2018.
• Subsequent adjustments and amendments merely specified and refined the case rather than changing its basis; the court should allow development of the pleaded case rather than adopt a technical approach to prescription.
• Clause 11.3 should be construed contextually and purposively; it does not bar claims for patent infringement or breaches of the separate Confidentiality Agreement and should not be read to permit a wrongdoing party to avoid liability for its own breaches.
• The pleadings, supported by a contemporaneous business plan and other documents, furnish a relevant case on causation and quantum that should be admitted to probation; quantification and expert analysis are matters for proof and case management, not dismissal at this stage.

Defendant's Arguments

• Claims for breach of contract and patent infringement are subject to five-year prescription; any claims or grounds added after 23 November 2023 (five years from the date of awareness averred) are time-barred unless the original summons interrupted prescription in respect of those specific obligations.
• The summons contained only a general allegation of breach and failed to identify the contractual obligations allegedly breached; accordingly it did not interrupt prescription for particular contract-based reparation claims advanced later.
• Clause 11.3's mutual "save, indemnify, defend and hold harmless" wording (read with clause 6 and the contractual context) unambiguously excludes claims for loss of profits: a reasonable commercial person would have expected neither party to have liability to the other for such consequential losses arising from performance or non-performance of the Purchasing Agreement.
• The Plaintiff's causation and quantum averments are insufficient: no clear causal link is pleaded showing customers bought the Defendant's product instead of Uptake; profit projections lack specification and expert material necessary for a loss-of-profit proof.

Table of Precedents Cited

Court's Reasoning and Analysis

Judge Sandison first addressed prescription. The court summarised authorities distinguishing reformulation of a same claim (permissible) from a change of basis (potentially time-barred). The original summons (served 17 November 2023) alleged breaches of both the Purchasing Agreement and the Confidentiality Agreement by Company B formulating and supplying SwarfSweep, alleged patent infringement, and pleaded loss (quantified then at £6 million) arising from breaches. The court held that the original pleadings gave sufficiently fair notice of contractual and patent claims and had not undergone a fundamental change such as to be time-barred; accordingly the defender's prescription plea was refused at this stage but reserved to allow proof if the defender later establishes the quinquennium had already expired by the date of service.

Turning to clause 11.3 (the mutual "save, indemnify, defend and hold harmless" clause), the court analysed the clause purposively and contextually, applying contractual interpretation authorities (Ashtead, Glenfiddich, Farstad, Fiona Trust). It accepted that the clause is a wide-ranging indemnity/exclusion provision and that "Consequential Loss" includes loss of anticipated profit. The court examined whether "own" in the clause meant losses suffered by the indemnified party (the natural reading) or losses caused by the indemnifying party (the Plaintiff's preferred reading). After considering contract context (including clauses 6.1–6.5, 6.2–6.3 mutual provisions, clause 11.7 entire agreement, and the commercial setting), the court concluded:

• The indemnity covers consequential loss including loss of profits arising from breaches of the Purchasing Agreement itself; accordingly, averments based on breach of the Purchasing Agreement are irrelevant so far as they seek damages for consequential loss (loss of anticipated profits) and must be refused probation.
• Clause 11.3 does not extend to nullify claims for losses said to result from breach of the separate Confidentiality Agreement or from patent infringement; the clause's reach is confined to losses "arising from, relating to or in connection with the performance or non performance of" the Purchasing Agreement, and it was not persuaded that parties intended it to defeat distinct claims grounded in the Confidentiality Agreement or in patent law.

On causation and specification, the court noted initial deficiencies in Plaintiff's pleading but accepted Plaintiff's clarified case: it does not rest on an obligation requiring the Defendant to sell Uptake, but on the proposition that misuse of confidential information and patent infringement enabled production and sale of a substitute, thereby preventing Uptake establishing in the market. The court held that, except for the Purchasing Agreement-based damages claim excised by clause 11.3, the Plaintiff's averments on causation and quantum were not bound to fail at law and were sufficiently specified for present purposes; issues of evidential proof and expert analysis remain for case management and proof.

Holding and Implications

Core Ruling: The court sustained the Defendant's plea in relation to the Purchasing Agreement to the extent of refusing probation to the Plaintiff's averments of damages for consequential loss (loss of anticipated profits) founded on breach of the Purchasing Agreement. Quoad ultra, the Defendant's prescription plea was refused at this stage (reserved for the possibility the Defendant establishes earlier commencement of the quinquennium), and the action will proceed to proof before answer in respect of the remaining averments (breach of the Confidentiality Agreement and patent infringement).

Implications: Direct effect is that the Plaintiff cannot recover consequential loss (loss of anticipated profits) on the basis of breach of the Purchasing Agreement due to clause 11.3; however, claims based on breach of the Confidentiality Agreement and on patent infringement remain live and will proceed to proof. The decision construes clause 11.3 as excluding consequential loss arising from the Purchasing Agreement but not as extinguishing separate confidentiality or patent-based claims. No novel legal principle was laid down; the decision applies existing prescription and contractual construction authorities to the facts of this case.