Allfiled UK Ltd v Eltis & Ors [2015] EWHC 1300 (Ch)

[2015] EWHC 1300 (Ch)Case No HC-2015-001212
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 19 May 2015
Before
THE HONOURABLE MR JUSTICE HILDYARD
Between
DAN ELTISRespondentsJULIAN SAUNDERSRespondentSTEPHEN BENNETTRespondentBEN BARKERRespondentBEN PEARSONRespondentDAVID GIBBSRespondentEDWARD BRINDLEYRespondentWILLIAM PEARSON-DENIALRespondentMICHAEL PEACHEYRespondentCONOR RESTALLRespondentISRAR HUSSAINRespondentMATTHEW SIBSONRespondentDANIEL WOMERSLEYRespondentMATTHEW HERSEERespondentPORT TECHNOLOGIES LIMITEDRespondentPORT TECHNOLOGY HOLDINGS LIMTEDRespondentLITTLE GREY AND GRAY LIMITEDRespondent
Tiran Nersessian (on 30 March & 2 April 2015) and Alastair Tomson (on 13 April 2015)(instructed by R R Sanghvi & Co) for ClaimantWilliam Willson (instructed by Birketts) for RespondentsClive Freedman (instructed by Clarion) for Magpie Investment Holdings LimitedHearing Hearing dates: 30 March, 2 April, 13 April and 7 May 2015
JudgmentMr Justice Hildyard :IntroductionParties
[1]The Applicant, Allfiled UK Ltd (“Allfiled UK”), is a software development company. Its primary business is described in its skeleton argument as being the creation of a “Personal Data Store” system (“the Allfiled PDS system”) by which individual consumers are able confidentially to store important personal data such as copies of insurance contracts, renewal dates, banking details and so on. Allfiled UK’s business model is that providers of financial and other services would then be allowed to contact these consumers, with their consent, to offer further or alternative services, and Allfiled UK would receive an income stream from these providers for facilitating such access to these consumers.[2]The first three Respondents are former directors of Allfiled UK. The Fourth to Fourteenth Respondents are former employees of Allfiled UK, and are together known as the “Development Team”. The first three Respondents owed duties to Allfiled UK as its directors. All the individual Respondents owed obligations of fidelity to Allfiled UK. Further (with the possible exception of the Second Respondent, who did not sign any contract of service), both they and the other individual Respondents had all entered into non-solicit and non-compete covenants with Allfiled UK[3]The Fifteenth Respondent, Port Technologies Limited (“Port Tech”), was incorporated on 21 January 2015 by the Second Respondent, and its directors are the first three Respondents. Its only shareholder is the Sixteenth Respondent, which was incorporated by the Second Respondent on 5 January 2015 and has the same directors as Port Tech.

Summary of claim

[4]Put very shortly, the substance of Allfiled UK’s claim is that the first three Respondents conspired to set up their own business and encouraged and enticed all the other individual Respondents, who had been working for Allfiled UK in developing technology compositely called the “Allfiled PDS system”, to walk out on Allfiled UK and join them at Port Tech, in developing and selling a similar or derivative system to Allfiled’s previous customers, and especially a body incorporated in the British Virgin Islands called Magpie Investment Holdings Limited (“Magpie”). Allfiled UK alleges that the Respondents have unlawfully “purloined” Allfiled UK’s customers and staff, and are misusing Allfiled UK’s intellectual property.[5]Allfiled UK seeks interlocutory injunctive relief against all the Respondents pending trial or further order to prevent them from using, disclosing or disseminating Allfiled UK’s confidential information and intellectual property. Allfiled UK also seeks injunctions to prevent the First to Third Respondents carrying on any trade or business in breach of fiduciary duties they owed to Allfiled UK as directors or former directors of Allfiled UK and to prevent the First and Third to Fourteenth Respondents carrying on any trade in breach of non-compete and non-solicitation clauses in their contracts of employment with Allfiled UK, whether through the Fifteenth Respondent or otherwise.[6]By its Claim Form (issued on 31 March 2015) Allfiled UK further or alternatively seeks damages for breach of duty and contractual covenant, damages for interference with contractual relations and damages for conspiracy by unlawful means in relation to the individual Respondents’ dealings with Magpie and another company called MoneySavingExpert.com Limited (“MSE”).

Magpie and its contract with Port Tech

[7]Of particular concern to Allfiled UK is that Port Tech has now purportedly entered a Software Development Agreement with Magpie (“the PT/Magpie Software Agreement”) on substantially the same terms as an earlier contract between Allfiled UK and Magpie (“the Allfiled Software Agreement”) which both Allfiled UK and Magpie accept had earlier been terminated, each accusing the other of fundamental or repudiatory breach.[8]Magpie was incorporated on 1 September 2014. It is (as I understand it) a technology and service business which provides consumers with life management services. Magpie’s business model is based on a technology platform which enables businesses and consumers to connect through technology for the purchase and provision of goods and services.[9]Magpie has not been joined as a party in these proceedings, but (without objection from any of the parties) it has intervened to urge the court not to grant any relief that would prevent or impede fulfilment of its contract with Port Tech and thereby severely prejudice it.[10]The PT/Magpie Software Agreement provides for the supply to Magpie by Port Tech of software and related source codes and the like as defined in Schedule 1 of such agreement, and for the assignment to and vesting in Magpie of the intellectual property rights in such software.[11]A comparison between the Allfiled Software Agreement and the PT/Magpie Software Agreement demonstrates very substantial similarities between the two: indeed, they are substantively almost identical. The definition of the software to be provided differs only in that(a) under the Allfiled Software Agreement, Allfiled UK was to provide to and vest in Magpie the “Allfiled Rules Engine” and(b) under the PT/Magpie Software Agreement Port Tech is to provide to and vest in Magpie the “Port Rules Engine”, and with almost identical further definition of the services to be made available.[12]It seems plain for present purposes that at least the basic business idea which Allfiled UK comprised in the Allfiled PDS system was developing is the same as the “Port Tech PDS system”, even if there are differences (now) in the technology behind them.

Position of the Respondents

[13]Nevertheless, the Respondents deny that they have used or are using the Allfiled PDS system or any confidential information or intellectual property of Allfiled UK, and contend that the contractual covenants relied on by Allfiled UK are too broad to be enforceable. The First to Third Respondents deny any breach of fiduciary duty; all the individual Respondents seem to deny any breach of their obligations of fidelity.[14]The Respondents contend that they should be left free to work on the development and sale of software and technology which they maintain is not derived from their work for Allfiled UK, and in particular that they should not be impeded in carrying out Port Tech’s contract with Magpie. They maintain that, in any event, the balance of convenience is weighted against the injunctive relief sought. Magpie seeks to support them, as previously indicated.

Facts giving rise to interlocutory proceedings

[15]The facts giving rise to and the history of the interlocutory proceedings thus far can be summarised as follows.

IP initially acquired by Allfiled UK

[16]Allfiled UK acquired the basic Intellectual Property (“Allfiled Limited’s IP”) on which the Allfiled PDS system is based from a predecessor company called Allfiled Limited, which was then in liquidation. Allfiled Limited had been established by the Third Respondent, Mr Stephen Bennett (“Mr Bennett”). The purchase price for the acquisition of Allfiled Limited’s IP was some £6,000. The agreement, apparently dated 7 November 2008, was not in evidence.[17]It was Mr Bennett who introduced the opportunity to acquire Allfiled Limited’s IP to Mr Piyush Mepa Kanji Shah (“Mr Shah”), the sole remaining director of Allfiled UK. In his first affidavit (dated 13 March 2015) Mr Shah described Allfiled Limited’s IP acquired by Allfiled UK from Allfiled Limited in its liquidation by reference to the business of Allfiled Limited in the following way:
“The company had developed a software programme for the storage online of personal data and documents of individuals who could access those documents anywhere in the world. It had developed a facility for that data to be used for obtaining automated quotations for services, such as motor insurance, for those individuals…”

Original directors and shareholders of Allfiled UK

[18]Mr Shah was Allfiled UK’s first director and his wife was its company secretary. Mr Bennett became a director once he had obtained the court approval required for him to be able to take up such office after Allfiled Limited’s insolvent liquidation.[19]Both Mr Shah and Mr Bennett became Allfiled UK’s initial shareholders, though it is not clear whether the shares allotted to them were paid up. Urgently needed capital was provided by a body incorporated in the British Virgin Islands called Abbeymanor Limited (“Abbeymanor”) which I understand to be owned and controlled by Mr Shah’s brother, who is resident in Kenya. Mr Shah has what he describes as “wide latitude to make such investments as I thought fit” on its behalf. Abbeymanor invested some £150,000 in Allfiled UK in return for a mix of Preference and Ordinary Shares. Abbeymanor has at all times been a majority shareholder in Allfiled UK.[20]The First Respondent, Mr Dan Eltis (“Mr Eltis”), had joined Allfiled Limited in 2007 and later transferred to Allfiled UK. He was appointed Chief Technical Officer (CTO) and a director of Allfiled UK in early 2013.[21]The Second Respondent, Mr Julian Saunders (“Mr Saunders”), joined Allfiled UK in late 2012, later becoming a director in January 2014.

Disagreements develop

[22]From early 2013 until late 2014, there were a number of serious disagreements between Mr Shah and Abbeymanor on the one hand, and the first three Respondents on the other hand. These disagreements appear to have arisen out of continuing delays in arranging for a fair share of equity participation, and what the first three Respondents characterise as “highly dysfunctional” decision making processes. They maintain that Mr Shah and his brother prevaricated and delayed any attempts to dilute their own interests.

The resignations of the first three Respondents, followed by the rest

[23]These disagreements led over the course of time to the resignation as directors first of Mr Bennett (who resigned as a director on 8 October 2014, though he in fact remained an employee until 13 January 2015), and then in short order thereafter, in January 2015, of Mr Eltis and then Mr Saunders. Each cited the failure to share out equity and dysfunctional management on the part of Mr Shah.[24]All the other individual Respondents then resigned in the period 12 to 19 January 2015, and joined the first three Respondents in working for Port Tech.

The MSE and Magpie Contracts

[25]In the meantime, at the end of 2014 and prior to this series of resignations, which ultimately left Allfiled UK without any of its software development team, Allfiled had secured two important contracts, namely:(1) In November 2014 it contracted with MSE for software development, licensing and maintenance services (the “MSE Contract”); and(2) The Allfiled Software Agreement previously mentioned between Allfiled UK and Magpie, which was made on 4 December 2014, and provided for the supply to Magpie of software known as the Allfiled Rules Engine which was designed to work alongside the Allfiled PDS system.[26]Until January 2015 Allfiled UK and Magpie were also in discussions about a further contractual agreement, the Business Development Agreement (“the Allfiled BDA”) which set out the terms under which Allfiled UK was to appoint Magpie as a non-exclusive introducer for the promotion and sale of Allfiled UK’s personal information management services comprising the Allfiled PDS system. Unlike the provision in the Allied Software Agreement for the transfer to Magpie of rights in the software, the Allfiled BDA recognised that the intellectual property rights in the Allfiled PDS system were vested in and would remain the property of Allfiled UK.[27]These discussions came to an abrupt end upon the departure of the Respondents. In the event, the Allfiled BDA was never signed. Although (as previously noted) Magpie has not been joined as a party, and initial suggestions made in evidence on Allfiled UK’s behalf that Magpie had been party to the conspiracy alleged have not (so far, at least) been pursued in a claim, the fact is that Magpie immediately contacted Allfiled UK to express its concerns as to the ability of Allfiled UK to fulfil the Allfiled/Magpie contract. It is clear (and was confirmed) that Mr Stephen Kennedy, the Chief Executive Officer of Magpie (“Mr Kennedy”), had been contacted by Mr Saunders, and that this was a catalyst for Magpie’s concerns and their expression to Mr Shah.[28]In the wake of the departure of Allfiled UK’s key staff, Mr Shah assured Mr Kennedy that Allfiled UK still intended (and anticipated being able to) fulfil the Magpie Contract. Further communications followed between Magpie and Allfiled UK in which Allfiled UK continued to assert that it would fulfil its contractual obligations. Mr Shah made efforts to continue the work of Allfiled UK by deploying staff from another software development company in which he is involved, called Deltion Limited.[29]However, on 21 January 2015 Magpie emailed Allfiled UK alleging that the Magpie Contract had been terminated by virtue of breaches of contract on the part of Allfiled UK. Allfiled UK denied that it was in anticipatory breach or otherwise unable to fulfil the Magpie Contract, and then treated Magpie’s purported termination of the agreement as a repudiatory breach of contract, which Allfiled UK accepted.[30]Thus, by the end of January 2015 it was clear to Allfiled UK and Mr Shah that Allfiled UK had lost not only its staff but one of its two established contracts (its other major established contract being with MSE) to a competitor owned by its departing directors.

Litigation threatened but delay in seeking relief

[31]By 20 January 2015, Allfiled UK’s then solicitors, Taveners Law Limited, were in a position to and did send what were in effect letters before action to the first three Respondents, and (I think) to the other Respondents, threatening proceedings for an injunction, delivery up or destruction of goods or services produced using confidential information and all materials containing confidential information, and damages, and referring to Port Tech as a competitor.[32]Yet it was not until 16 March 2015 that Allfiled UK first made application to the court, and then only on the basis of anticipated proceedings and without having issued any claim form. Inevitably in such circumstances the question arises why Allfiled UK did not more quickly seek the sort of relief it has only sought since early March 2015.[33]The explanation advanced is that in the rather exceptional circumstances Mr Shah was simply too preoccupied through much of January and February with dealing with the resignations, re-staffing Allfiled UK and communicating with Magpie and MSE to be able to focus on establishing the details of what had transpired, building a case against the Respondents as distinct from desperate remedial work to shore up Allfiled UK.[34]What Mr Shah says he did not know at the time, however, and did not discover until late February/early March, was direct evidence of the concerted and planned nature of the steps taken (he says “orchestrated”) by the first three Respondents.[35]As to this, Allfiled UK’s position has been that it was not until shortly before first making application to the court (in early March, as later described) that Mr Shah had an opportunity to review the company electronic mailboxes of the departed staff. When he did so, Mr Shah found that the First to Fourth Respondents had been planning to leave Allfiled UK from December 2014, intending (and making arrangements) to persuade the majority of Allfiled UK’s staff to follow in early course.

Documentary evidence of conspiracy?

[36]Mr Shah has relied especially on the following as being the key documents discovered by Allfiled and as demonstrating “beyond doubt” a conspiracy hatched between the First to Third Respondents (at least):(1) A schedule in tabular form with questions posed by the Third Respondent, Mr Bennett, in one column and answers by Mr Saunders in another column, created on or around 12 December 2014, (“the Breakaway Document”). Allfiled maintains that this document clearly demonstrates the intentions of the First to Third Respondents at that point, which they then carried through in January 2015. Of significant concern is the suggestion that a “shadow structure” would be set up to “mitigate any legal claim or funding problems”. The Breakaway Document also demonstrates their willingness to take Allfiled Limited’s IP with them even though this was recognised as “stealing”.(2) A plan of “Capital Requirements for a 90 day plan”, created by Mr Bennett on 24 December 2014. This document shows that Mr Bennett and Messrs Saunders and Eltis, with whom the document was shared, planned not only to have taken all of Allfiled UK’s software development team by March 2015, but also that their projected revenue was to come from Magpie and MSE starting in January and February respectively, with £2 million of venture capital investment introduced in August 2015.(3) An email of 6 January 2015 (the day before Mr Eltis resigned) which was headed “Solution for the demise of Allfiled” and referred to the need “to set up and fund a separate organisation that in the event of Allfiled failure had sufficient funds and technology in place (a copy of the latest Allfiled PDS code)...”, again demonstrating (at the very least) the willingness of Messrs Bennett and Saunders to appropriate Allfiled UK’s intellectual property in the Allfiled PDS system for another organisation.[37]Mr Shah claims that it was only then that it became clear that Mr Bennett had, on the day of his resignation, started forwarding emails relating to Magpie to his personal email address, and that on 16 January 2015 – after he had left – his computer access to Magpie-project data was restored by the Fifth Respondent, Mr Ben Pearson (“Mr Pearson”) who, shortly thereafter, also resigned.[38]In addition Mr Shah contends that it also became clear that the Fourth Respondent, Mr Ben Barker (“Mr Barker”), on the day of his resignation (12 January 2015) created a folder for Allfiled documents which he intended to take away with him, labelled “takeaway”. It is said on behalf of Allfiled UK that Mr Barker can have had no proper reason to take Allfiled UK company documents with him when he left.[39]At all events, it took some eight weeks after the departure of its key directors and all its staff, with equipment and intellectual property, before Allfiled UK commenced proceedings.

Applications for injunctive relief: procedural history

[40]The Applicant’s first application was made to Newey J ex parte but on notice; and the hearing was attended by Counsel for the Respondents as well as Counsel for the Applicant. The application was made notwithstanding that on 13 March 2015 undertakings had been offered on behalf of the First to Fourth and Fifteenth and Sixteenth Respondents, but were considered insufficient by the Applicant.[41]By its application Allfiled UK sought (as it continues to seek) relief designed to:(1) prevent the Respondents (or any of them) from using Allfiled UK’s intellectual property;(2) prevent the Respondents (or any of them) from competing with Allfiled UK; and(3) require the natural person Respondents – the former officers / employees of Allfiled UK – to deliver up to Allfiled UK its intellectual property and other property / information.[42]Newey J granted modified relief, designed to prevent the dissipation of any confidential information of Allfiled UK’s whilst not stopping the Respondents working on developing what they had by then contracted to provide to Magpie under a contract between Port Tech and Magpie in terms very similar to the Allfiled Magpie Agreement. Newey J’s order also required the return of Allfiled UK’s property, including source codes and the like.[43]Newey J further directed exchange of evidence on a timetable calibrated by reference to a return date of 30 March or 1 April with a time estimate of one day. That accelerated timetable was designed to determine if possible whether and if so what relief pending trial should be granted as soon as possible to determine whether and when the Port/Magpie Software Development Agreement could be fulfilled and before meetings scheduled (so I was informed) for 2 April took place at which Magpie had apparently arranged to make presentations to potential customers and investors.[44]After an exchange of evidence that generated some five full lever-arch files, the matter came before me on 30 March 2015, when one day proved insufficient (not least in the context of the volume of evidence, copious citation of authority (in two full lever arch files) and a wholly inadequate one and a half hours suggested reading time). Pre-existing court commitments prevented me continuing the hearing on 31 March and in the circumstances I continued the order made by Newey J (whilst also requiring the cross-undertaking in damages to be given also on behalf of Abbeymanor) and adjourned the matter to 2 April (the first day of the Easter vacation).[45]In the event it again proved impossible to conclude the matter on that day, since I had only two hours before another urgent hearing. Accordingly, having indicated that I considered that some form of injunctions along the lines of those ordered by Newey J, but with some further definitions and clarification in the light of the further elaboration of the issues, was appropriate, I once more adjourned the matter over until 13 April (the last day of the Easter vacation). Since the hearing concluded after 5pm, I invited the parties to consider overnight whether they could fashion an order to deal with the definitional issues raised, and in the interim I continued the relief previously granted.[46]The process of agreeing the terms of an order took some time, which was extended by problems with emails caused by a serious fire at Kingsway which brought down internet connections. After considerable work by Counsel and their teams over Good Friday and Easter Saturday, for which I am grateful to all concerned, a revised Order to reflect my directions was agreed and made, to continue until the conclusion of the further hearing and judgment on 13 April.[47]The gist of that revised Order (“the 2 April Order”) remained as previously: to prevent the use, disclosure and dissemination of the Applicant’s claimed Intellectual Property Rights (now more elaborately defined as I had directed) and Confidential Information (also as more elaborately defined), and ensure the return to the Applicant of its property, but not to prevent the Respondents continuing to work on information and systems not derived from that Intellectual Property or Confidential Information with a view to fulfilment of the Port Tech/Magpie Software Agreement.[48]The 2 April Order also made provision for the exchange of evidence and written argument in light of Magpie’s concerns that the extent of the permitted exceptions to the injunctions for software and other materials developed by Port Tech after 19 January 2015 was insufficiently clear from its point of view. Magpie’s particular concern was and is that the exceptions as drafted did not provide sufficient clarity to Magpie as to whether software which may be delivered or made available pursuant to the exceptions is software which Port Tech may legitimately deliver or make available to Magpie or others, and whether Magpie themselves may face risks if they demonstrate the software to potential business partners for the purpose of obtaining sales and potential investment. That, of course, begs the question as to whether and if so what relief is appropriate pending trial; and again I shall return to Magpie’s position in this regard later.

Nature of duties and obligations sought to be enforced

[49]Before turning to the legal principles that must govern my approach to the grant of any interlocutory injunctive relief, I need to explain more fully the duties and obligations, the alleged breaches of them on which Allfiled UK relies, and the nature of the confidential information and intellectual property which Allfiled UK claims to be entitled to protect .[50]It is common ground that as its directors the first three Respondents owed fiduciary and statutory duties to Allfiled UK, as adumbrated in sections 170 to 177 of the Companies Act 2006. These are to be interpreted and applied in the same way as, and having regard to, the common law rules and equitable principles from which they were fashioned.[51]It is also common ground that these duties included a duty to avoid conflicts of interest (section 175) as regards the exploitation of any property, information or opportunity of which such director has become aware when he was a director, and a duty not to accept benefits from third parties as regards things done or omitted to be done before he ceased to be a director, and that a former director continues to be subject to such duties after retirement “subject to any necessary adaptations”. Section 175(7) makes expressly clear that a conflict of interest includes a conflict of interest and duty and a conflict of duties.[52]The extent of these duties, especially after the director has ceased to be such, has been the subject of considerable discussion, both before and after the Companies Act 2006. Most particularly, there has long been an issue in relation to the scope of the duties owed by a director who works for a competing company post-resignation.[53]It seems plain that such competition is not precluded as such; and even “acts done by the directors…which are preparatory to competition after [they cease to be in office] are not necessarily in themselves a breach” of duty (see the analysis in Hunter Kane Ltd v Watkins [2003] EWHC 186 (Ch), approved by the Court of Appeal in Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200, [2007] BCC 804).[54]However, that analysis in Hunter Kane Ltd as quoted and substantively approved in Foster Bryant Surveying Ltd v Bryant continues as follows:
“7. A director is however precluded from acting in breach of the requirement at 2 above, even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself any maturing business opportunities sought by the company and where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired. 8. In considering whether an act of a director breaches the preceding principle the factors to take into account will include the factor of position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director’s relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or indeed even private, the factor of time in the continuation of the fiduciary duty where the alleged breach occurs after termination of the relationship with the company and the circumstances under which the breach was terminated, that is whether by retirement or resignation or discharge. 9. The underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity ‘of the company’ is that the opportunity is to be treated as if it were the property of the company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating to himself that property. He is just as accountable as a trustee who retires without properly accounting for trust property. 10. It follows that a director will not be in breach of the principle set out as point 7 above where either the company’s hope of obtaining the contract was not a ‘maturing business opportunity’ and it was not pursuing further business orders nor where the director’s resignation was not itself prompted or influenced by a wish to acquire the business for himself. 11. As regards breach of confidence, although while the contract of employment subsists a director or other employee may not use confidential information to the detriment of his employer, after it ceases the director/ employee may compete and may use know-how acquired in the course of his employment (as distinct from trade secrets – although the distinction is sometimes difficult to apply in practice).”
[55]As is apparent, and as was also expressly emphasised in Foster Bryant Surveying Ltd v Bryant, the dividing line between permissible and impermissible conduct is fact sensitive; and the courts “have adopted pragmatic solutions based on common-sense and merits based approach … which reflects the equitable principles at the root of these issues” per Rix LJ ibid.[56]Turning to the contractual position, which will also of course inform the approach in relation to the duties of the first three Respondents above discussed, Allfiled UK’s standard contract of employment which applied to each of the individual Respondents (save possibly Mr Saunders) contained the following confidentiality, non-solicit and non-compete provisions:
“6. INTELLECTUAL PROPERTY 6.1 Subject to the Patents Act 1977, if at any time during his employment the Employee (whether alone or with any other person or persons) makes, discovers, or participates in the discovery of any invention or improvement, or addition to, an invention relating directly to the business for the time being of the Company (“the invention”), full details of the invention shall immediately be disclosed by him to the Company and shall be the absolute property of the Company. 6.2 All intellectual property developed by the Employee while in the employment of the Company shall be the absolute property of the Company.” … “7. CONFIDENTIALITY 7.1 The Employee is aware that during his employment he will have access to and be entrusted with information in respect of the business of the Company and dealings, transactions, and affairs all of which information is or may be confidential (“Company Information”). 7.2 The Employee shall not either during his employment or at any times during the period of 18 months thereafter except in the proper course of his duties or with the prior consent of the Board of the Company:- 7.2.1 disclose Company Information to any third party (except to another employee of the Company authorised to receive the same); 7.2.2 use Company Information for his own purposes or for any purposes other than those of the Company; 7.2.3 through any failure to exercise all due care and diligence cause any unauthorised disclosure of any trade secret or other Company Information or any information in respect of which the Company is bound by an obligation of confidence to a third party. Provided that this clause shall not apply to any information which enters the public domain. 7.2.4 All notes and memoranda of any Confidential Information acquired, received or made by the Employee during his employment shall be and remain the property of the Company, and shall be delivered by the Employee to the Company immediately upon request.” … “11. RESTRICTIONS AFTER TERMINATION 11.1 In order to protect the goodwill and trade connections of the Company and without prejudice to any other duty imposed by law, the Employee covenants that he will not directly or indirectly for a period of 12 months after the termination of his employment with the Company: 11.1.1 carry on, or be engaged, concerned or interested in, whether as a director, shareholder, loan creditor, principal, agent, partner, consultant, employee, or self-employed person or in any other capacity, any business which competes with any business carried on by the Company; or 11.1.2 either on his own account or for any other person, firm or company, solicit or entice or endeavour to solicit or entice away from the Company or knowingly employ or assist in or procure the employment by any person, firm or company of any employee of the Company.” “7. CONFIDENTIALITY 7.1 The Employee is aware that during his employment he will have access to and be entrusted with information in respect of the business of the Company and dealings, transactions, and affairs all of which information is or may be confidential (“Company Information”). 7.2 The Employee shall not either during his employment or at any times during the period of 18 months thereafter except in the proper course of his duties or with the prior consent of the Board of the Company:- 7.2.1 disclose Company Information to any third party (except to another employee of the Company authorised to receive the same); 7.2.2 use Company Information for his own purposes or for any purposes other than those of the Company; 7.2.3 through any failure to exercise all due care and diligence cause any unauthorised disclosure of any trade secret or other Company Information or any information in respect of which the Company is bound by an obligation of confidence to a third party. Provided that this clause shall not apply to any information which enters the public domain. 7.2.4 All notes and memoranda of any Confidential Information acquired, received or made by the Employee during his employment shall be and remain the property of the Company, and shall be delivered by the Employee to the Company immediately upon request.” “11. RESTRICTIONS AFTER TERMINATION 11.1 In order to protect the goodwill and trade connections of the Company and without prejudice to any other duty imposed by law, the Employee covenants that he will not directly or indirectly for a period of 12 months after the termination of his employment with the Company: 11.1.1 carry on, or be engaged, concerned or interested in, whether as a director, shareholder, loan creditor, principal, agent, partner, consultant, employee, or self-employed person or in any other capacity, any business which competes with any business carried on by the Company; or 11.1.2 either on his own account or for any other person, firm or company, solicit or entice or endeavour to solicit or entice away from the Company or knowingly employ or assist in or procure the employment by any person, firm or company of any employee of the Company.”
[57]The non-compete and non-solicit covenants are broad. The Respondents submit that they are plainly and obviously far too broad to be enforceable.[58]They maintain that parts of the products developed by Allfiled UK and Port Tech are similar to products developed by large companies such as Twitter, Facebook and Instagram as well as many lesser-known IT companies, and that it would be hard to identify any business carrying out computer programming which does not, on some level, compete with business carried on by Allfiled UK. They submit that the employees’ contracts therefore purport to ban them from working at all in their chosen profession anywhere in the world for an entire year. They would also be prohibited from investing their savings by, for example, purchasing shares in Google. I return to that when examining the competing contentions in relation to the appropriate test to be applied in gauging the strength (or not) of the Applicant’s case at this interlocutory stage.[59]The provisions relating to intellectual property and confidential information plainly reinforce obligations that might otherwise be implied; but they do not define with any particularity what Allfiled UK’s intellectual property consists of, or what information is properly characterised as confidential.[60]Those are almost always difficult questions, especially where that which is asserted to be a trade secret is not protected by trade mark registration or the like. They are questions which are not in any ordinary circumstances capable of being resolved at an interlocutory stage. The boundaries between(a) something sufficiently unique and confidential to constitute a true “trade secret”,(b) information with a quality of confidentiality that “can be traced to a particular source” (see Terrapin Ltd v Builders Supply Co (Hayes) Ltd [1967] RPC 375, 391), and(c) information which “has become so completely merged in the mind of the person informed that it is impossible to say from what precise quarter he derived the information which led to the knowledge which he is found to possess” (ibid.), are notoriously fact sensitive and difficult to distinguish.[61]Sir Robert Megarry V.-C. offered the following guidance in Thomas Marshall Ltd v Guinle [1979] 1 Ch 227 at 248:
“It is far from easy to state in general terms what is confidential information or a trade secret. Certain authorities were cited, but they did not carry matters very far. Plainly “something which is public property and public knowledge” is not confidential: see Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd. (1948) 65 R.P.C. 203, per Lord Greene M.R. On the other hand, “something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of the skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon the quality of its constituent parts”: Coco v. A. N. Clark (Engineers) Ltd. [1969] R.P.C. 41, 47, a case that was not cited, but in part draws on the Saltman case, which was. Costs and prices which are not generally known may well constitute trade secrets or confidential information: see Herbert Morris Ltd. v. Saxelby [1916] 1 A.C. 688, 705, referring to prices. If one turns from the authorities and looks at the 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 or all of his rivals already have the information: but 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 which does satisfy them must be of a type which is entitled to protection.”
[62]Allfiled UK’s case is that the Allfiled PDS system as a whole, and its constituent elements as more particularly defined in the 2 April Order, are its intellectual property constituting trade secrets, and that all information (however recorded or preserved) relating to Allfiled UK and/or its business disclosed or made available, directly or indirectly, to the Respondents or any of them, including those matters adumbrated more particularly in that Order, should reasonably be regarded as possessing a quality of confidence.[63]The Respondents reject this as unarguable. They contend that far from being something sufficiently developed and unique to constitute a trade secret, the Allfiled PDS system had barely got off the ground by the time they left, and Port Tech has started on its own PDS from scratch.[64]I shall come back to these competing submissions in the context of seeking to apply the tests required in an interlocutory context, to which I now turn.

The American Cyanamid approach and its applicability

[65]As is well known, in exercising its jurisdiction to grant interim injunctions (see section 37(1) of the Senior Courts Act 1981 and CPR r.25.1(1)(a)) the court must ordinarily follow the approach laid down by Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] AC 396.[66]The overall objective of the court, and the purpose of the prescribed approach, is to seek to protect rights and expectations which appear at least arguably enforceable and the breach of which cannot properly be compensated by damages, whilst at the same time endeavouring to avoid the potential injustice of intervening before the evidence can properly be tested and before the facts and legal issues are clear.[67]The first question in the Cyanamid approach, and the gateway to any interlocutory relief, is whether the applicant has raised a serious question to be tried. As to that, the general rule is that unless material available to the court at the interlocutory hearing fails to disclose that the applicant has any real prospect of succeeding in his claim for a permanent injunction at trial, the first question will be answered affirmatively.[68]The next question that then arises is whether damages would be an adequate remedy for a party injured by the court's grant of, or its failure to grant, an injunction. There is no sufficient warrant for interlocutory intervention by way of injunction if one party could be fully compensated in damages which the other party would be able to pay.[69]Where there is doubt as to the adequacy of the respective remedies in damages available to either party (or to both), the third stage of the inquiry is to assess where the balance of convenience lies. This is sometimes more fully explained as “the balance of the risk of doing an injustice” (see per May LJ in Cayne v Global Natural Resources plc [1984] 1 All ER 225 at 237h). This will depend upon an assessment of competing considerations which will vary from case to case, though almost inevitably “the decision to grant or to refuse an interlocutory injunction will cause to whichever party is unsuccessful on the application some disadvantages which his ultimate success at the trial may show he ought to have been spared and the disadvantages may be such that the recovery of damages to which he would then be entitled either in the action or under the plaintiff’s [cross-] undertaking would not be sufficient to compensate him fully for all of them” (per Lord Diplock in Cyanamid at 408-409).[70]The factors to be considered will or may include(a) what should be taken as the status quo, it being, if other factors appear to be evenly balanced, a counsel of prudence to take such measures as are calculated to preserve it;(b) the extent to which such disadvantages would be capable of being compensated, and the balance of uncompensatable disadvantage to the parties;(c) where the balance is still uncertain, whether upon the facts disclosed by undisputed evidence the strength of one party’s case is disproportionate to that of the other party; and(d) any other special factors that the court considers impact on the risk of doing uncompensatable damage, including to innocent third parties.

Exceptions to the Cyanamid approach

[71]The only possible exception to this approach is where the relief sought, if granted, would as a practical matter foreclose any further assessment of the true merits of the legal claim and put an end to the action because such relief effectively decides the contest.[72]Thus, for example, in Cayne v Global Natural Resources plc [1984] 1 All ER 225, the Court of Appeal declined to grant an injunction which would once and for all have enabled the applicants to remove the existing board of a company and put themselves in their place, and thereby effectively foreclose the need for any further pursuit of the proceedings brought by the applicants to wrest away control of the company. In such a context the court concluded that the risk of doing injustice was such that the gateway to relief should be whether the applicants had established an overwhelming case.[73]I will return to that too in the course of addressing each required stage of inquiry, to which I now turn. Is this an exception to the usual rule that it suffices to show a serious issue to be tried?[74]The first question to be addressed is, therefore, whether the gateway in this case should be taken to be that of establishing a serious question to be tried, or an “overwhelming” case.[75]The Respondents urged that this was an analogous case to Cayne v Global Natural Resources plc,in which the hurdle or gateway should be set at that much greater height.[76]They submit that if injunctions are granted, Port Tech will be unable to conduct any business, will be in fundamental breach of the Port Tech/Magpie Software Development Agreement and will have to be liquidated. They contend that if interim relief is granted, that will effectively be the end of the matter. Port Tech will be put into liquidation immediately and all the staff will lose their jobs. They urge on me that it is therefore not enough simply to consider whether there is a serious issue to be tried. The Respondents submit that the court should also examine whether Allfiled UK is likely to succeed at trial: Lansing Linde Ltd v Kerr [1991] 1 WLR 251.[77]It is to be noted that in the Lansing Linde case, as indeed in NWL v Woods, the applicant’s prospects of success were not addressed at what I have called the “gateway” stage. They were (quite properly, the Court of Appeal confirmed) taken into account in determining the balance of convenience, and only then having regard to the fact that it was not possible in that case to hold a trial before the period for which the plaintiff claimed to be entitled to an injunction had expired (and a trial would be moot).[78]In my view, although there may be unusual cases, such as Cayne v Global Natural Resources plc, where the court regards the fact that the grant of an injunction will foreclose the issue and make further proceedings useless or redundant, the hurdle of an overwhelming case should not ordinarily be placed in the way of the applicant at the first stage. I consider that the Cyanamid test of a serious question to be tried is only to be departed from in extreme circumstances where a trial is rendered plainly and obviously otiose.[79]In this case, in any event, I do not consider that what I propose by way of injunctive relief would have the effect of in all practical likelihood foreclosing a trial. The risk is further reduced if, as I will direct, an expedited trial can be secured: and see also Astor Chemicals Ltd v Synthetic Technology Ltd [1990] BCLC 1 at 17h-i. Accordingly, I propose to adopt the ordinary, almost invariable, Cyanamid tests.

Has Allfiled UK demonstrated a serious question to be tried?

[80]Taking the first Cyanamid test, therefore, to be whether there is a serious issue to be tried, I need to consider briefly each aspect of Allfiled UK’s claim. The Respondents have not accepted that any aspect raises a serious issue to be tried. For that purpose, I think it is clearest to deal first with the position of the first three Respondents (primarily based on their use of Allfiled UK’s property and confidential information, but also on interference with contract and conspiracy) and then the claims against the other individual Respondents (which are primarily contractual).

Claims against the first three Respondents

[81]As it seems to me, the question whether the first three Respondents were and remain in continuing breach of their fiduciary duties owed to Allfiled UK as directors notwithstanding their resignation depends primarily on the nature of the property, information or opportunity that it is alleged they obtained from Allfiled UK and are now deploying in a rival business (see especially section 175(1) and (2) of the Companies Act 2006).[82]I think it best, therefore, first to assess the competing contentions as to what the state of development of the Allfiled PDS system was prior to the individual Respondents’ migration to Port Tech, and why it is said that the Port Tech PDS owes nothing to and is completely different from the Allfiled PDS system.

Violation of IP and confidential information

[83]As to this, the Respondents contend (as foreshadowed previously) that(a) Allfiled UK’s PDS system had barely got off the ground and had certainly not fructified as discernible and definable intellectual property by the time that they left;(b) Port Tech started on its own PDS from scratch using, in the words of Mr Eltis in his witness statement dated 24 March 2015, “different basic technologies to that used by Allfiled”, and the Port Tech PDS “will incorporate a trust algorithm that is proprietary and unique”; so that(c) the work being done by Port Tech is entirely different to the work done by Allfiled UK and nothing the Respondents are doing involves using any intellectual property belonging to Allfiled UK at all.[84]On behalf of the Respondents it is submitted that if there were any truth in the Applicant’s contention that the Allfiled PDS system had been worked on for several years and by January 2015 was in an advanced state of development, so that there was (to quote the Respondents’ skeleton argument) “some product to steal”, it would have been quite easy for Mr Shah to retrieve and provide evidence of that. It is submitted on the Respondents’ behalf that “Mr Shah has not adduced those records because they would contradict his outlandish allegations”.[85]Thus, the essence of the Respondents’ case is that Allfiled UK never had anything constituting intellectual property or confidential information warranting protection, and that nothing being done by them or developed by Port Tech is based or derived from work they did for Allfiled UK.[86]To this they add another “more fundamental reason” why Allfiled UK cannot complain of any IP in the PDS being violated. They rely on clause 8.1 of the Allfiled Software Agreement (which I have already explained is substantially replicated in the PT/Magpie Software Agreement) which provides that “Intellectual Property Rights in the Software [defined as the software listed in Schedule 1, including the Allfiled PDS] shall, at the Commencement Date [defined in Schedule 2 as 8 September 2008] or (if later) on creation of the rights, vest in the Customer [Magpie]”.[87]They emphasise that in those contracts Intellectual Property Rights are defined extremely widely to include not only patents, copyright, trademarks and related rights, but also “goodwill and the right to sue for passing off or unfair competition, rights in designs, database rights, rights to use, and protect the confidentiality of, confidential information (including know-how and trade secrets) and all other intellectual property rights, in each case whether registered or unregistered”.[88]On this they build the argument that from 8 September 2008, on one interpretation, no intellectual property in the Allfiled PDS system belonged to Allfiled UK. It belonged to Magpie, and so Allfiled UK cannot bring an action in respect of it.[89]Those contentions and submissions are roundly rejected by the Applicant. Mr Shah’s evidence in reply relies principally on five points. The first is to the effect that the Respondents have adopted the wrong approach and comparator in assessing whether their work is entirely new: Mr Shah contends that Mr Eltis wrongly refers to the “PDS database” (which he dismisses as just a big database, as understood by all computer programmers) in isolation from other components of the Allfiled PDS system, namely, the application programme interfaces (“APIs”) and security codes. The proper approach and comparator, according to Mr Shah, is the “composite package which would give service providers the ability to link their systems to the PDS and allow them to contact consumers without compromising the confidentiality of customer data”.[90]Secondly, according to Mr Shah’s second affidavit (sworn on 27 March 2015), “[t]he trust algorithm to which Mr Eltis refers was already being developed at Allfiled UK”. Mr Shah refers in this context to an email dated 10 December 2014 from Mr Bennett (the Third Respondent) to Mr Stephen Kennedy as Chief Executive Officer of Magpie (“Mr Kennedy”) referring to a “Trust Score” which Mr Shah states “would not be capable of being calculated without a trust algorithm” (though the Respondents submitted that was simply not correct).[91]Thirdly, Mr Shah exhibited and drew upona report prepared by Allfiled UK’s tax consultants, called MMP Tax Limited (“MMP”), headed “Research and Development Tax Relief Report Financial year ended 30 September 2013” and made in support of a claim to tax relief made by Allfiled UK to HMRC. That report (“the Tax Report”) was based on “extensive information” provided by Mr Eltis.[92]The Tax Report plainly depicts a novel development, in a fairly advanced state of development after five years work, providing “a new and innovative way of storing and exchanging data” and including (cf paragraph [73] above) “a set of highly advanced algorithms that automatically detect entry fields, product and service lines” with continuing development work worthy of tax relief to enable Allfiled UK to design and provide “large scale encrypted systems which are reliable but remain quickly accessible” with a robust and high level of security “to achieve this revolution in personal data ownership and storage”.[93]Fourthly, Mr Shah relies on the basic fact that the Respondents’ case relies on the central but challenging proposition that Port Tech has been able “to achieve in a space of weeks what Allfiled has taken years to achieve, and thereby, allowed Port Tech to contract with Magpie in essentially the same terms as Allfiled”.[94]Fifthly, Mr Shah relies in this context also on the “Breakaway Document” (see paragraph [36] above). He suggests that there are clear signs in that document, not only of a concerted plan to move to another company taking all Allfiled UK’s staff with them and to persuade Magpie to contract with that other company instead of with Allfiled UK, but also that it was indeed part of the plan to take Allfiled UK’s app and systems designs and architecture documents and thoughts and strategy, on the basis that (the document notes) “They are pretty much unprotectable as far as Allfiled is concerned”.Another note in the same document, in response to a question stating “Code- Dan [Eltis] has created the Allfiled security structure but has not submitted anything to Allfiled servers as yet. Should we take this code or leave it?”, reads “Ideally we need it although this is bound to be one of the most contentious points. By taking it we will save considerable time to launch, but we will be stealing it!”[95]A further notable question and its answer as recorded in the Breakaway Document may betray at the least an unorthodox view as to both the ownership of IP and confidential information developed whilst a director and of the duties of a director. To Mr Bennett’s question “When Dan built it he was a contractor without a contract – who does the IP belong to?”, the answer given by Mr Saunders (presumably without the benefit of legal advice) was “It is his until he assigns it – as I understand things”. It may be remembered that Mr Eltis was Allfiled UK’s Chief Technical Officer, and he had joined the company in 2007; his evidence that his work on the development of two aspects of “any eventual PDS (scaling and security)” was done in his own time is not, to my mind, a strong basis for rebutting Allfiled UK’s claim to ownership of the material.[96]As to the Respondents’ alternative and “more fundamental” case based on the Allfiled/Magpie contract, that (as it seems to me) relied on what appears to be a false premise or unlikely interpretation that the Magpie contracts had the effect of providing for the transfer to Magpie of all IP and confidential information, as distinct from defined software.[97]I sensed that this alternative case was no longer pursued with any great vigour; and it would (as I later explain) render inexplicable the later efforts of Magpie to distinguish so clearly between the software and the other property and information retained by their counterparty (be it Allfiled UK or Port Tech). Further, it seems to me contradicted by Mr Kennedy’s evidence: he states clearly that “Magpie was to have no IP rights in relation to the PDS”.In any event, I do not think it is such as to undermine for present purposes my conclusion that Allfiled UK retained rights it was entitled to enforce.[98]In short, although the matter can only properly be adjudicated at trial, and nothing I say should be taken as constituting any final adjudication as to the substantive rights asserted, I am quite satisfied that the evidence discloses at the least an arguable case raising a serious issue to be tried, that the work done in relation to the Allfiled PDS system and the system itself constitute intellectual property of Allfiled UK, which is confidential to Allfiled UK. I take into account the fact that Mr Shah has not been able, so far, to provide records of the development of the Allfiled PDS system; but for the present I do not think it right to reject as implausible his response that Allfiled UK’s records may have been destroyed or altered, not least because the Breakaway Document does seem to suggest a certain ruthlessness of approach.[99]It follows that any use of it by any of the Respondents otherwise than for the benefit of Allfiled UK arguably constitutes a serious breach of Allfiled UK’s legal rights. Furthermore, such rights are of a nature which the courts of equity are disposed to protect by way of injunction.

Breach of fiduciary duty

[100]Similarly, any such use by the directors or ex-directors of Allfiled UK, otherwise than for the benefit of Allfiled UK, would give rise to a serious and fundamental actual or potential conflict of interest on the part of such director or ex-director and thereby a serious breach of such director or ex-director’s fiduciary duty owed to Allfiled UK (and see sections 170(2), 175 and 176 of the Companies Act 2006).[101]The first three Respondents have sought to excuse any breaches of duty on the ground that their departure was in effect forced upon them by “a lengthy and irresolvable disagreement with Mr Shah about the corporate structure of the business”. It is said that “All three were committed to Allfiled, but felt their positions were untenable in the light of Mr Shah’s conduct”. Their Counsel drew attention to section 170(2) of the Companies Act 2006, which recognises that the relevant duties apply to former directors “subject to any necessary adaptations”. Counsel for the Respondents (Mr William Willson) submitted that the “necessary adaptations” reflect the fact that company directors might resign for innocent reasons, but then want to ply their trade working for a competing business. It is further said that there is nothing wrong with that, and there is certainly no blanket prohibition on former directors setting up a company which competes with their former company.[102]I accept that the rigour of fiduciary accountability may occasionally be abated where resignation has been forced upon the director and he or she has not actively sought to seduce the company’s customers or to exploit any opportunity belonging to it: Foster Bryant Surveying Ltd v Bryant [supra] may provide an example.[103]However, although this too will be a matter for final determination at trial, my conclusions that it is clearly arguable that(a) Allfiled UK had proprietary and confidential information(b) which the first three Respondents have arranged to and have made use of otherwise than for Allfiled UK’s benefit and which(c) they have sought to profit from by enticing Magpie to break off its contract with Allfiled UK and contract instead with Port Tech (as for the avoidance of doubt I think it well arguable they did), having(d) encouraged and arranged for the migration of all Allfiled UK’s staff to Port Tech (a company which they set up, at least arguably for all these purposes), makes this a very different case than Foster Bryant.

Unlawful interference with contract and conspiracy

[104]Such apparent behaviour is also of relevance in the context of the further causes of action asserted by the Applicant apart from invoking the contractual provisions by which the individual Respondents (except possibly Mr Saunders) are prima facie bound: its claims for wrongful interference with contract and/or conspiracy.[105]I can be relatively brief on this aspect, given my conclusion that the claim is sufficiently well founded to satisfy the Cyanamid test even without recourse to these further or alternative pleas. Suffice it to say that in my judgment the evidence presently available, which I have emphasised has not yet been properly tested and cannot be so until trial, does at the least support an arguable case raising serious issues to be tried that:(1) the first three Respondents did indeed intend to and did induce breaches of the Magpie Contract and Allfiled UK’s employees’ employment contracts (including the implied duty of fidelity), without lawful justification;(2) the first three Respondents may be liable in conspiracy, having (it is reasonably arguable) combined together in breach of their equitable duties to (a) remove or erode Allfiled UK’s ability to exploit its own property and/or (b) use proprietary and/or confidential information of Allfiled UK to achieve their objective of securing for their newly formed company Port Tech, and thus themselves, the benefit of the Magpie Contract and other potential contracts with other customers of Allfiled UK such as MSE.[106]As to both(1) and(2) in the preceding paragraph, I have been especially influenced by (a) the Breakaway Document, and (b) the further document entitled “Capital Requirements for a 90 day plan” (see paragraph [36] above) which appears, prima facie at least, to evidence an intention on the part of the First to Third Respondents that the new “shadow” entity (in the event Port Tech) would be dependent on revenue streams from Magpie and MSE, and on employing Allfiled UK’s existing development team.

Contractual claims

[107]As set out in paragraph [56] above, clause 7 of Allfiled UK’s standard terms of employment expressly rehearse the fact that the employee concerned is aware that information entrusted to him in the course of his employment is or may be confidential, and he is required to keep it so and not during his employment or at any time for a period of 18 months thereafter to disclose or use it otherwise than for the benefit or with the consent of the Board of Allfiled UK.[108]My conclusion that the Applicant has a good arguable case that the Allfiled UK system was Allfiled UK’s intellectual property and/or confidential to it, and that the Respondents have used that information otherwise than for the purposes or benefit of Allfiled UK, is sufficient for present purposes to establish a serious question to be tried as to whether the Respondents bound by such a clause are (in each case) in breach of it (subject to the next paragraph). Although the Respondents contend that other aspects of the contractual restraint in their contracts of employment may be unenforceable, I did not understand them to contend that this element was so. In any event, I do not think such an argument would affect my conclusion as to the sufficiency of the Applicant’s case for present purposes.[109]I should mention briefly one caveat, although for present purposes it may be immaterial: it appears that Mr Saunders (the Second Respondent) had no written contract of employment with Allfiled UK. It seems that he provided his services through his company, apparently called Applianz (I was provided with no further details). The reason I say that this may be immaterial for present purposes is three-fold:(a) I have already held there to be an arguable case against him based on his duty as a director;(b) given that Mr Saunders was Allfiled UK’s Chief Executive Officer, and is likely to have been fully aware of the terms expected of all employees, I think it also arguable that, as Allfiled UK contends, he should be treated as bound by the same contractual duties; and(c) even in the absence of express contractual provision, the duty of fidelity owed by every employee is likely to impose parallel duties to the like effect. It is plainly arguable that he was and continues to be in breach of these.[110]I consider further that Allfiled UK has a good arguable case against all the individual Respondents that their implied duties of good faith and fidelity as employees included a duty not to make preparations during their employment to compete with Allfiled UK after their employment ended, and that each was in breach of this duty and of the associated duty not to recruit or solicit another employee to act in competition.[111]Counsel for the Applicant cited in this regard, and more generally on the issue of implied duties of good faith and fidelity, the decision of HHJ Stephen Davies sitting as a Judge of the High Court in Re-Use Collections Limited v Mr Keith Sendall and another [2014] EWHC 3852 (QB), which in turn cited the following helpful distillation of the contractual duty of fidelity in the judgment of Haddon-Cave J in QBE Management Services v Dymoke [2012] EWHC 80 (QB) at [169]:
“The general principles relating to employees’ duties of good faith and fidelity are settled and can be summarised in the following propositions: (1) It is indisputable that an employee owes his employer a contractual duty of 'fidelity', but how far it extends will depend on the facts of each case (per Lord Green MR in Hivac v Park Royal [1946] Ch 169 at 174). (2) The more senior the staff the greater the degree of loyalty, fidelity and diligence required (per Openshaw J. in UBS Wealth Management (UK) Ltd v Vestra Wealth LLP [2008] IRLR 965at paragraph [10]). (3) The first task of the court is to identify the nature of the employee's obligations of fidelity and then to decide whether the employee's activities are in breach (per Moses L.J. in Helmet Integrated Systems v Tunnard [2007] IRLR 126 at paragraph [32]). (4) The mere fact that activities are described by an employee as 'preparatory' to competition does not mean that they are legitimate (per Moses L.J. in Helmet Integrated Systems v. Tunnard [2007] IRLR 126 at paragraph [28]). (5) It is a breach of the duty of fidelity for an employee to recruit or solicit another employee to act in competition (see British Midland Tool v Midland International Tooling Ltd [2003] 2 BCLC 523). (6) Attempts by senior employees to solicit more junior staff constitutes particularly serious misconduct (Sybron Corp v. Rochem Ltd [1984] Ch 112). (7) It is a breach of the duty of fidelity for an employee to misuse confidential information belonging to his employer (see Faccenda Chicken Ltd v Fowler [1987] Ch 117). (8) The court should ask whether the activities in which the employee is engaged affect his ability to serve his employer faithfully and honestly and to the best of his abilities (see Shepherds Investments Ltd v. Walters [2007] IRLR 110 at paragraph [131]).”
[112]I am in no real doubt that the evidence (and especially those examples of the documentary evidence to which I have referred previously) discloses at least a good arguable case of breach of one or more of these facets of their implied duties in the case of each of the individual Respondents.

Breach of restrictive covenants

[113]As also foreshadowed previously, Allfiled UK further relies on breaches by each of the individual Respondents of clause 11 of the standard terms of Allfiled UK’s standard terms, comprising non-solicitation and no-competition covenants (as set out in paragraph [56] above).[114]Again I can be relatively brief on this aspect, since the first part of the Cyanamid test seems to be satisfied without recourse to these provisions. Put very shortly, Allfiled UK’s case is that in becoming directors, shareholders, consultants and/or employees of Port Tech, each of the individual Respondents (with the same caveat as previously in relation to Mr Saunders) is competing and/or has an intention to compete with Allfiled UK in breach of covenant. Against this, it has been asserted on behalf of the First to Fourth and Fifteenth and Sixteenth Respondents that the restrictive covenants are unenforceable.[115]It is unnecessary and inappropriate to resolve this issue now. I accept that the restrictions are considerable; and may arguably be excessive. But I accept also Counsel for Allfiled UK’s response that in the context of interlocutory proceedings the court must ask itself (per Chadwick LJ in Arbuthnot Fund Managers Ltd v Rawlings [2003] EWCA Civ 518 at [30]):
“whether it is plain and obvious that the restraint will fail after examination at a trial. If it is not plain and obvious - because the determination as to what is in the interests of the parties and in the interests of the public must await a trial - then the clauses must at this stage be regarded as having a reasonable prospect of being upheld.”
[116]Having been satisfied on multiple grounds and as regards each of the Respondents that Allfiled UK’s case is sufficient to satisfy the first part of the Cyanamid test, I turn to the next part of that test and the adequacy (or not) of damages.

Adequacy (or not) of damages: second stage of the Cyanamid test

[117]The Respondents objected to the grant of interlocutory injunctive relief on the grounds that there is no loss which Allfiled UK could suffer between now and trial that could not be adequately compensated in damages, whereas Port Tech would suffer immediate loss, such as to force it into liquidation, if it cannot proceed with the Port Tech/Magpie contract.[118]As indicated to the parties in announcing my decision on 13 April 2015 (for which this judgment is intended to provide detailed reasoning), this is a matter that caused me considerable pause for thought, and has been a major driver in my conclusion that the trial of this matter should be expedited. My main concerns have been:(1) Allfiled UK’s loss of its entire workforce, their determination never to return as enunciated in their evidence, its perilous financial position, and thus the uncertainty whether it could itself develop and obtain any financial benefit from the Allfiled PDS system: if it could not, then the only purpose of an injunction is to frustrate Port Tech without any advantage otherwise to Allfiled UK;(2) the real possibility that even without restraint, the only contract that Port Tech is likely to engage in is its Software contract with Magpie, thus making it less likely that there would be any real leakage of property or information other than to Magpie and more possible both to contain and quantify any loss to Allfiled UK;(3) the concomitant (to both (1) and (2) above) that an injunction could rebound to the disadvantage of Allfiled UK itself, since if Port Tech is permitted to continue to work on the PDS system and the software to be supplied to Magpie in fulfilment of its contract, there is a greater chance of Port Tech being able to pay any damages than if, as a result of injunctive relief, Port Tech is forced out of business (and see per Scarman LJ, as he then was, in Potters-Ballotini Ltd v Weston-Baker and Others [1977] RPC 202 at 208 [lines 35-45]); and(4) the concerns expressed by Magpie as a person likely to be seriously affected by the interlocutory relief sought.[119]Nevertheless, in the end, I have concluded that the following factors are sufficient to outweigh those concerns, subject to one important proviso:(1) the real possibility that unless Port Tech is restrained, Allfiled UK will lose any real control over what prima facie appears to be its property and confidential information in a manner which will be difficult to reduce to a money calculation;(2) the real possibility that, unless restrained, Port Tech may develop a product, in fact derived from Allfiled PDS system, and which it disseminates in such a way as in effect to sterilise the value of Allfiled UK’s property and information in an unquantifiable way. As Mr Shah put it in his second Affidavit sworn on 27 March 2015:
“Allfiled will lose the opportunity to market and sell its PDS system as a unique product to third parties other than Magpie and MSE… ”; (3) the fact that Port Tech is a start-up company, with running and development costs and no demonstrated or even likely ability to pay damages, or any real prospect of being able to account for and pay back profits; (4) the unattractive notion that, if it is established that Port Tech did “purloin”
Allfiled UK’s property, as seems to me on the present state of the evidence to be well arguable, its exposure should be confined to whatever it has left after its misadventure, if anything at all (which “would indeed establish a rogue’s charter”, per Sir Robert Megarry V.-C in Thomas Marshall Ltd v Guinle [1979] 1 Ch 227 at 245A-B); (5) the fact that in this case there are express negative stipulations to which the individual Respondents each agreed or are to be taken to have accepted, which are prima facie to be treated as valid, and which would justify (assuming their validity) injunctive relief at trial as a matter of course (Doherty v Allman (1878) 3 App. Cas. 709); (6) further, the evidence as it presently stands supports Allfiled UK’s claim to an interest of a proprietary or quasi-proprietary nature of which it is entitled to protection, where and to the extent that protection is reasonably necessary (see Dawnay, Day & Co Ltd v D’Alphen [1998] ICR 1068 at 1108B-D in the Court of Appeal); and (7) in circumstances where Port Tech has only one business and the only business it has yet conducted is (according to my understanding of the Respondents’ evidence) in the context of its contract with Magpie, the availability of what is in effect a via media: that of restraining by injunction use of any material developed before 19 January 2015, but not restraining use of material developed wholly separately thereafter (subject of course to any claim for damages and profits if any sufficient link between the “new” and “old” material is afterwards demonstrated).[120]That brings me to and in effect reveals the important proviso as to the limit of what I consider to be appropriate injunctive relief in the particular context, and as matters have developed. In line with Newey J’s original order at the first (ex parte) hearing, I consider that I should not grant relief in a form such as to prevent Port Tech developing the PDS and fulfilling its contract with Magpie insofar as it may do so without use of any property or confidential information belonging to Allfiled UK and which has not (to use the words of Roxburgh J in Terrapin Ltd v Builders Supply Co (Hayes) Ltd [supra at paragraph [57]) “so completely merged in the mind of the person that it is impossible to say from what precise quarter he derived the information which led to the knowledge which he is found to possess.” See also the analysis, based on Faccenda Chicken Ltd v Fowler [1984] ICR 589, in Lansing Linde Ltd v Kerr [1991] 1 WLR 251 at 259 of the boundaries between information which is sufficiently identifiable and confidential to warrant its protection and information “which once learned necessarily remains in the servant’s head and becomes part of his skill and knowledge.”[121]The via media I propose, and which the parties have (without prejudice, of course, to their claims) assisted to devise, also accords with my assessment of the balance of convenience, to which I now turn.

Balance of convenience

[122]Plainly, the court must, in determining whether and if so what interim injunctive relief to grant, seek to(a) impose no wider restraint that is necessary for the protection of the Applicant’s property and confidential information (see Commercial Plastics Ltd v Vincent [1965] 1 QB 623 at 643 (C/A)), and(b) balance the objective of protecting what appear to be enforceable legal rights or interests against the risk that such rights may ultimately not be established in the same form (or at all) and therefore the risk of doing an injustice.[123]The Respondents have submitted that in this case the balance of convenience tilts firmly against granting injunctive relief. First, they contend that the impact of the Respondents on relief being wrongly granted would be catastrophic, leading immediately to the liquidation of Port Tech and the dismissal of all its staff and directors. Secondly, they rely on the fact that Magpie, a third party, would also suffer serious loss. Thirdly, they rely on the new status quo which they say Allfiled UK has allowed to be established in consequence of its two-month delay in seeking relief. I address these points in turn.[124]As to the first, I have considered carefully the point most especially emphasised on behalf of the Respondents to the effect that any restraint may result in the liquidation of Port Tech, and in that context the dismissal of the individual Respondents and thus the loss of their jobs and livelihood. However, although it is a risk that must be weighed (see Potters-Ballotini Ltd v Weston-Baker and Others [supra] at page 209), it is by no means conclusive. As May LJ put it in Roger Bullivant Ltd and Others v Ellis and Others [1987] ICR 464 at 482:
“That an injunction restraining a company from making unlawful use of confidential information may or will drive it into liquidation is of itself nihil ad rem, provided that the American Cyanamid tests can be satisfied…””
[125]Furthermore, in this case, the combined effect of(a) provisos to the injunctive relief such as I will outline and invite the parties to seek to agree in point of detail (guided by provisos agreed in previous orders) and(b) according expedition to the trial should substantially attenuate and possibly remove the threatened spectre of insolvency. There may often be force in the notion that in weakness lies strength: but, in my judgment, Port Tech’s frailty is not a basis in this case for refusing Allfiled UK suitably conditioned relief to protect its rights.

Position of Magpie

[126]Secondly, I accept that the position of Magpie, which is not at present a party but (without objection) intervened as a person which considered it would be adversely affected by the grant of an injunction, is a relevant consideration to be weighed in the balance. There is no doubt that there is a risk of injustice, which may be uncompensatable, if its contract with Port Tech (the PT/Magpie Software Agreement) is unobjectionable but yet cannot be fulfilled.[127]Mr Clive Freedman, Counsel for Magpie, submitted, by reference to the evidence of Magpie’s Chief Executive Officer Mr Kennedy, that(1) if the effect of any injunction is to prevent timely completion of what he described as “the Magpie platform” (which I take to mean the software enabling Magpie and its customers to access the Port Tech PDS which Port Tech has committed to provide to Magpie under its “Software Development Agreement” with Magpie), Magpie would incur very considerable losses;(2) there would be what Mr Freedman described as “a severe risk that Magpie’s funding of £5.5 million could be wholly expended before a successful launch of the product could take place. Magpie could go out of business with the loss of the entirety of that investment”;(3) such losses would be difficult to quantify, and probably beyond Allfiled UK’s capacity to meet;(4) in any event, damages would be an adequate remedy for Allfiled UK if Port Tech is allowed to continue its work for Magpie: indeed, damages would be Allfiled UK’s “best remedy…since the result of a successful product launch will be that Port will receive ongoing payments from Magpie (the usage fees payable under Schedule 3 of the Software Development Agreement)”; and(5) any injunctive relief should be subject to a more reliable cross-undertaking in damages on the part of Allfiled UK.[128]I will consider later the (understandable) concern of Magpie in relation to the cross-undertaking. As to the first of Mr Freedman’s other points, although Magpie pressed the court very hard with its point (as elaborated by Mr Kennedy in his first witness statement) that “completion of the PDS and the Magpie platform on the planned date is of critical importance to Magpie’s future”, I formed the strong impression that a fair measure of scepticism about this is not unwarranted, and some slippage in the time table is already inevitable, not because of the relief granted but because of delays in final development of the Port Tech PDS and related software.[129]I note that both the Respondents and Magpie tended to adjust their presentations as to the state of readiness of the Port Tech PDS and associated software according to whether the focus was on(a) how the Respondents could (on their case) have done in weeks at Port Tech what they had failed to do over the course of years at Allfiled UK or(b) the immediate urgency to present a “Minimum Viable Product (MVP)” to potential customers.[130]Thus, as to (b), Mr Kennedy pressed upon me that it was essential that a “working” (a word in his witness statement belatedly substituted in place of “completed”) platform should be ready in April; but as to (a), Mr Eltis’s evidence in his witness statement of 24 March 2015 was that “the product launched in April 2015 will not even be a fully functioning PDS…There will be no ability for organisations to interact directly with Port Tech for the next 3 months. … The product to be delivered in April is therefore the first completed stage in a long process that will go on for some time until there is a product that is completely ready for the public and end-customers to enjoy. We have not managed to turn around a perfect, finished product in only two months. It may be this misunderstanding which has led Mr Shah to think that we must have stolen some IP from him that he mistakenly thinks ‘belongs’ to Allfiled.”[131]It appears from the evidence as presently put before me that there never was any realistic prospect of Port Tech being in a position to deliver to Magpie the “Software Ready for Service” (as defined) on the date initially estimated for completion of the PT/Magpie Software Development Agreement; and that even in the absence of restraint Port Tech needs considerable further time to be in such a position. (In that context I note that the definition of “Ready for Service” refers to the software being “in material compliance with the Requirements Document”, which is not in evidence, but which seems likely to prescribe a product completely ready for the public and end-customers to enjoy.)[132]I note also, for example, that what was initially presented to me as a crucial meeting on 13 April with a prospective customer, which (it was suggested) could not take place if injunctions were in place, was subsequently planned to take place nevertheless, albeit with a more limited agenda.[133]In short, delay has always been possible, and indeed highly likely; and Magpie’s submissions as to the harm that will befall it in consequence must be read, in my judgment, with some scepticism.[134]Furthermore, and as previously mentioned, I hope and expect that with the assistance of the parties and Magpie suitable provisos to the injunctions I intend to grant can be fashioned to attenuate the risks, always assuming that the Respondents’ confidence that the Port Tech PDS is not derived from the Allfiled UK PDS is sustainable and shared by Magpie (as to which see further below). As also indicated above, an expedited trial should also assist.[135]Mr Freedman’s second point, as to the risk of severe damage, the loss of £5.5 million investment and the imminent collapse of Magpie, was also pressed hard. Again, however, I cannot avoid feeling that some scepticism is warranted. All the points I have made previously in relation to Mr Freedman’s first point seem to me to justify some degree of scepticism on this aspect also. Furthermore, after the hearings had concluded, I invited some further evidence (previously rather notably lacking) as to Magpie’s business and financial position. This elicited a trial balance sheet for the single month of February 2015 and an analysis of Magpie’s inflow and outflow of funds. The long and the short of it is that, provided at least that an expedited trial can be arranged, Magpie should be resilient enough: and I bear in mind that some measure of delay is not unusual, and in this case at least to some extent anticipated to be likely.[136]My approach to Mr Freedman’s third point is coloured accordingly. The prospect of severe and crippling losses seems to me to be stated but not substantiated.[137]Mr Freedman’s fourth point was somewhat undermined both by(a) the fact that even without an injunction the prospect of payments of usage fees was accepted to be quite far off and(b) the Respondents themselves, in the context of declining to provide any fund to secure any claim for damages (a suggestion which I had floated at one of the early hearings and which Allfiled UK took up), relied on there being no realistic prospect of such payments for some considerable time.[138]More generally, I do not entirely accept the impression sought to be created in Mr Kennedy’s witness statement of “innocence” on the part of Magpie and its invidious position in being caught in the cross-fire between the real protagonists. I agree with Mr Nersessian of Counsel’s submission on behalf of Allfiled UK that this is not quite the whole story.[139]I shall confine my observations in this regard, not least since Mr Tomson (who returned to represent Allfiled UK in place of Mr Nersessian on 13 April, having been abroad working on another case when this case came before me on 30 March) confirmed to me that the question as to whether to join Magpie as a party was under review and further proceedings in relation to the Allfiled/Magpie contract were certainly to be brought.[140]I shall say simply this: it would at first blush seem surprising that the Respondents resolved to leave Allfiled UK without any indication from Magpie that it might be open to contracting with them or their company (in the event, Port Tech); and there are plainly questions raised as to(a) how and exactly when it was that Magpie first heard of the Respondents’ plans,(b) the basis on which it came to contract with Port Tech for the delivery to it by Port Tech of software relating to a PDS system so quickly, and(c) how it came to be satisfied that it was safe to deal with the Respondents in respect of a product which at its most general level at least appeared to be a similar substitute for the Allfiled UK PDS.[141]I stress that I make no findings nor do I even express or intend to imply any preliminary views in this regard: but the circumstances do, to my mind, support Mr Nersessian’s submission and my view that the position of Magpie is not such as should materially alter what would be the balance of convenience between the parties, although they may indicate that some extension to the usual cross-undertaking in damages may be appropriate (as to which see below).[142]Lastly, in relation to Magpie’s position, I must determine a particular issue pursued on its behalf at the end of the hearing on 2 April and again (and with more specificity) at the adjourned hearing on 13 April 2015. This is its request that “for clarity and as a precaution” (I quote Mr Freedman’s further skeleton argument) “the Order be modified in manner which makes it clear that Magpie may pursue its business plans without risk of liability or alleged liability for contempt of court, as set out in the attached draft amendment to the Order. This is being proposed only to give Magpie comfort as to its own position in this regard and not in any way to suggest that the exceptions related to Port's post-19 January knowhow do not need to be included in the Order.”[143]In support of this request, Magpie put forward expert evidence (which I understood Allfiled UK not to contradict or disagree with) on a point that had caused me concern, which was whether Magpie's planned access to the PDS would involve a risk of leakage of the source code and underlying technology. This evidence provides reassurance that Magpie's planned access to the Port Tech PDS will not involve a risk of leakage of the source code and underlying technology.[144]The gist of what Mr Freedman described as the “Magpie Carve Out” is to(a) define all that which is being developed by Port Tech for Magpie as the “Port PDS Materials” and(b) then stipulate that neither the delivery by Port Tech to Magpie of any software and materials pursuant to the Software Development Agreement between them, nor the making available by Port Tech of the Port PDS Materials for use by means of a web browser interface, APIs or mobile or web apps, is to fall within the ambit of the injunctions.[145]Mr Freedman has also suggested that the Order to be made should be expressly stated not to prevent Port Tech providing such information as may reasonably be required in order to provide responses to technical questions raised by Magpie's business partners and potential business partners and by third party suppliers.[146]Put shortly, the purpose and effect of what Magpie has now proposed is to insulate Magpie from any allegation of breach of injunction by reason of the supply to it of what Port Tech has contracted to provide to it, and the demonstration of its software to potential customers.[147]My understanding of Allfiled UK’s position in this regard is as follows:(1) The carve-out suggested is not simply clarificatory: it is designed to protect Magpie in circumstances where it later transpires that actually Port Tech and the Respondents have been using property or confidential information belonging to Allfiled UK in breach of the injunction (so that Magpie as well as the Respondents would be exposed to the consequences, including of contempt of court).(2) Nevertheless, Allfiled UK would be prepared to agree what it regards as a watering down of the injunctions if it could be provided with some comfort and security that Magpie would join in arrangements to provide compensation to Allfiled UK if it does transpire that Magpie has been provided with, and benefited from, Allfiled UK’s property or confidential information.(3) To that end, Allfiled UK’s counter-proposal is that 15% of all revenues earned by Magpie in offering the PDS and access to it should be deposited into an escrow account to be dealt with either by agreement or further order of the court, and that Magpie should in addition be required to disclose to Allfiled UK the identities of its customers to whom its services utilising the PDS are offered pending trial.[148]At the hearing on 13 April Magpie rejected any such quid pro quo. It emphasised that it was not joined as a party and should not have to pay for its reasonable protection. Mr Freedman made clear to me then that his client’s “paramount consideration is that there should be no requirement to provide security and if the upshot is that the Magpie carve-out were to fall by the wayside, that is something we would have to live with.”[149]I can quite understand, and sympathise with, Magpie’s objectives, and its difficulties inherent in the fact that it has no means of testing the Respondents’ oft-repeated assurance that the Port Tech PDS system is wholly new and not based on or derived from the Allfiled PDS system. It may be that its concerns have been exacerbated by my observations during the course of the hearing that I must take it that the Respondents have had detailed advice that, despite ostensible similarities, the Allfiled PDS and the Port Tech PDS do at first blush share basic conceptual similarities.[150]However, the fact remains that if Allfiled UK does demonstrate at trial that the Port Tech PDS was based on or derived from the Allfiled PDS system, Allfiled UK will have been done a serious wrong, whilst the Respondents and Magpie will have had an unwarranted benefit despite being aware of facts which, even in the case of Magpie, are such as to raise an obvious serious red flag.[151]In the result, I am presently not prepared, without some form of comfort, to include the Magpie carve-out. I shall give a final opportunity for some resolution between the parties in this regard, and will wish to consider the position in the immediate aftermath of this judgment having been circulated in draft.

The status quo and the Applicant’s delay

[152]My assessment that the balance of convenience is best addressed by making injunctions subject to provisos may make it strictly unnecessary to consider the arguments as between the parties as to what should be taken to be the status quo for the purpose of the “counsel of prudence” expressed in Cyanamid that, where other factors appear evenly balanced, measures should be taken to preserve whatever it is. However, since the Respondents, in particular, placed some considerable reliance on them, and since I regard the injunctions I propose to be consistent with preserving what I consider to be the relevant status quo, I turn to address them briefly for comprehensiveness. In that context I shall also address the inter-related issue as to Allfiled UK’s delay.[153]In the ordinary course, and especially in the context of applications to restrain breaches of covenant and invasion of proprietary rights and interests, the relevant status quo is that obtaining immediately prior to the commencement of the breaches alleged, rather than the date of the hearing: see Unigate Dairies Ltd v Bruce ‘The Times’ 2 March 1988. This is usually “the state of affairs before the last change” (per Lord Diplock in Garden Cottage Foods Ltd v Milk Marketing Board [1984] 1 AC 130 at 140D).[154]However, if the applicant delays, a new status quo may be held to have developed during the period of delay. The longer the “last change” has been permitted to go unchallenged, the more likely that the change it brought will be established as the new status quo.[155]Every case turns on its own facts; and delay is not of itself a bar. In the words of Rimer J in Law Society v Society of Lawyers [1996] FSR 739, interim injunctions are not “awarded as a prize for the vigilant and automatically withheld from the less vigilant.”[156]In this case, as it seems to me, Allfiled UK did take a risk in waiting for two months to develop its case after first issuing its challenge in January 2015. If the injunctions I propose would, on the Respondents’ case, substantially prevent them working on the Port Tech PDS and on fulfilling its Software Development Agreement with Magpie, the balance of convenience would be more difficult to strike, and injunctive relief might unsettle the status quo that has been allowed to develop.[157]That is another reason for the provisos in the Orders made thus far. But with that proviso, it seems to me that the balance of convenience is reasonably plain; the “counsel of prudence” is not required (again see Garden Cottage Foods Ltd v Milk Marketing Board); and even if it is adopted, the answer is substantially the same. (To my mind, that also provides a useful and comforting cross-check of the balance struck.)

Strength of respective cases

[158]Lord Diplock made quite clear in Cyanamid that (except in the Cayne v Global type case) an evaluation of the relative strength of either party’s case should only be done to tip the balance where otherwise the scales remain even, and “only where it is apparent upon the facts disclosed by evidence as to which there is no credible dispute that the strength of one party’s case is disproportionate to that of the other party”. Even in the context of the Breakaway Document, which I have already indicated seems to me to raise a strong prima facie case, there is still room for genuine dispute. I do not think it necessary or appropriate to delve further into the comparative merits.

Final form of order

[159]A copy of the Order eventually settled on the Saturday before Easter to hold the ring until 13 April 2015 is attached for ease of reference. In substance that is the form of order that I propose should continue until trial, but with some additions in light of further exchanges of correspondence and submissions before and at the 13 April hearing.[160]Amendments and additions were discussed at the hearing on 13 April 2015 of which a transcript has now been provided. Put summarily (and without formally drafting the restraints, which will require further argument and the assistance of Counsel) my and their intent is:(1) to require Port Tech to provide to Allfiled UK a regular report of its income and outgoings, identifying (for example) the source of such income and (unless routine or otherwise agreed) the nature of any outgoings (including remuneration or bonuses or commissions paid), with liberty to apply if Allfiled UK considers at any stage that the amounts are unjustified or disproportionate or provide grounds for reasonable suspicion of any breach of this Order ;(2) to require Port Tech not to undertake any business otherwise than in the ordinary course, and confirming that presently its only business is with Magpie and that it will not enter into any other commitment with Magpie without prior written notice to Allfiled UK;(3) to require Port Tech to preserve safe and hold available (subject to escrow or similar arrangement to preserve confidentiality) records of all software code and related documentation comprising or in connection with the Port Tech PDS system (as further set out in paragraph 1 of a letter dated 9 April 2015 from Allfiled UK’s solicitors to the Respondents’ solicitors);(4) further to require Port Tech to preserve and keep available (subject to like escrow or similar arrangements) documentation relating to all existing and future software codes and other documentation created by Port Tech in furtherance of its business with Magpie, as more particularly set out in paragraph 2 of that same letter of 9 April 2015; and(5) to require the Respondents not, pending trial, to (a) engage in any business with MSE or initiate or enter into any contact, contract or arrangement for the supply of PDS technology to any other established or prospective client of Allfiled UK as to be identified by it in good faith by list, unless Allfiled UK agrees or the Court otherwise orders, or (b) disseminate or permit dissemination of any of Allfiled UK’s confidential information, as identified in paragraphs 3 and 4 of that letter.[161]I would invite Counsel to agree suitable wording accordingly. I would also invite consideration as to whether and if so what undertakings or assurances may be offered (possibly also by Magpie, since though no relief has been sought against it, there is a risk that it may be provided by Port Tech with intellectual property or confidential information in fact belonging to Allfiled UK), to prevent the further dissemination of such intellectual property or confidential information.

Cross-undertakings

[162]As ever, the court is concerned to ensure that the risk of injustice is at least attenuated by requiring in all ordinary cases a cross-undertaking in damages to protect those injuncted, in the event that it afterwards is shown that the injunctions were incorrectly granted. This case, however, gives rise to the not unfamiliar conundrum that the greater the injury complained of, the less may be the worth of the undertaking offered. Here, Allfiled UK, on its own case, has been deprived of all its employees, robbed of its property and exposed to the risk that the business proposition on which it was founded will no longer be capable of being exploited to its advantage; and its financial position as disclosed in its accounts is far from robust. It plainly has a net asset deficiency.[163]At the hearing on 30 March 2015 I required Abbeymanor to join Allfiled UK in giving such a cross-undertaking; and it did so without objection, it being accepted indeed that this had been the intention earlier before Newey J.[164]However, Abbeymanor’s financial position was also soon revealed (when its accounts were exhibited) to be uncertain (in addition to it being out of the jurisdiction, in the BVI). Its stated assets are largely comprised of unsecured loans from related companies, including the company called in by Mr Shah to run Allfiled UK after the migration of all its staff, namely Deltion Ltd (in the sum of £678,050) and Allfiled UK itself (in the sum of £690,00).[165]To seek to address this, both Mr Shah and his wife offered personally to join in the cross-undertakings, supported by the fact (as they have stated it to be) that their home in England has a value of somewhere between £2,500,000 and £2,750,000, but is subject to a mortgage, presently in the sum of £431,000.[166]I have required, and continue to require, an undertaking by each of them to the effect that neither will increase the level of indebtedness secured on the said property to a sum exceeding £450,000. To this I think should be added an undertaking not to sell or dispose or charge the property, or take any steps to do so, without prior notice in writing.

Expedited trial and directions

[167]Finally, I confirm that I consider that it is appropriate to direct an expedited hearing and directions accordingly. These have already been discussed at the hearing on 13 April, but will require further particularisation when the likely hearing date is ascertained. Obviously, it is in the interests of all parties, and Magpie, that as early a date is obtained as proper preparation and the court lists will allow.[168]Again I would ask Counsel to seek to agree practicable directions, failing which I shall give directions.

Postscript

[169]I should note by way of postscript that following circulation of an earlier version of this judgment in draft in accordance with the usual practice, it was clarified to me that certain matters that I had recorded as agreed between the parties (and Magpie) could not (or no longer) be treated as agreed. Further, it was urged on me by Port Tech that my supposition that the provisos I had in mind would not in fact attenuate the risk (it contended, inevitability) of it being driven out of business and into liquidation.[170]As to the clarification provided, I have amended the circulated draft to reflect in this final version what I now understand to be less extensive agreement between the parties.[171]As to the contention that Port Tech would be driven out of business by the injunctions proposed, notwithstanding the provisos indicated, I permitted Port Tech (albeit with reluctance) to file further evidence to explain the factual basis of its contention. I did so, unusually, for three principal reasons: first, this case is an unusually difficult one in which to establish a fair balance; secondly, because the demise of Port Tech would effectively eradicate any claim for damages or profits on the part of Allfiled UK in respect of the development and deployment of the Port Tech PDS; and thirdly, because Allfiled UK had throughout contended that it was not its intention nor in its interests that the relief granted should, in effect, drive Port Tech into liquidation.[172]The point emphasised in that evidence (in a second witness statement by Mr Saunders) was that to the effect that the commercial realities are that Port Tech could not survive on its contract with Magpie alone, and it would be impossible for it to attract necessary investment if it was prohibited from providing “general software services to the technology market”.[173]In response Allfiled UK has reiterated that it does not wish to see Port Tech rendered insolvent, and its desire for a via media, if achievable consistently with its material interests. It has suggested that the scope of the non-compete part of the injunctions proposed should be clarified so that it applies only to Port Tech competing with Allfiled UK in what it describes as the “PDS technology space”. It suggests that this should leave Port Tech free to generate revenues from general software development activities, but not any activities in relation to PDS technology (save for the “carve out” as regards Magpie).[174]However, it also wishes to extract a quid pro quo: this is to the effect that Port Tech should be required to place part of its profits into escrow, as what it contends part of “a reasonable way forward which both protects Allfiled’s interests by placing in escrow revenues which at trial Allfiled maintains it will be entitled to either by way of constructive trust, or damages, and also ensures Port’s business is not jeopardised.”[175]Rather than seeking in this judgment to express a definitive view in this regard without further submissions and an elaboration of the nature of Allfiled UK’s so far unpleaded claim (including clarification as to whether it asserts a proprietary claim of any kind), I invited further submissions at the hearing on 7 May 2015 at which it was envisaged this judgment would be handed down. I also invited submissions in relation to the position of Magpie (see especially paragraphs 151 and 161 above), and any other consequential matters, at that time.[176]In the event, the process of discussion at that hearing and outside court in the light of the views expressed in this judgment resulted in some greater degree of agreement between the parties as to an appropriate form of order, sufficient to warrant an expectation that with some additional discussion the parties might be able to settle a form of order (without prejudice, of course, to their claims and contentions at trial).[177]In the circumstances, therefore, I shall hand down this judgment formally, without requiring attendance, and invite the parties (and Magpie) to submit an agreed draft order for my approval. If they cannot agree, the matter will once more have to be restored for my adjudication.

Cited in 2 later judgments