Sectrack NV v Satamatics Ltd & Anor [2007] EWHC 3003 (Comm)

[2007] EWHC 3003 (Comm)Case No 2007 FOLIO 1083
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 19/12/2007
Before
THE HONOURABLE MR JUSTICE FLAUX
Between
SECTRACK NVClaimant/Applicant(1) SATAMATICS LIMITEDDefendants/Respondents(2) JAN LEEMANSRespondent
Mr Paul Lowenstein and Mr Rajesh Pillai (instructed by Masseys LLP) for ClaimantMr Mark Platts-Mills QC and Ms Lindsay Lane (instructed by Allen & Overy LLP) for 1 st DefendantMr Edward Cohen (instructed by Ross & Craig) for 2 nd DefendantHearing Hearing dates: 5 th and 6 th December 2007
Judgment

Introduction and background

[1]The issues which I have had to resolve at the hearing on 5 and 6 December 2007 concern whether or not an injunction granted in favour of the Claimant by Aikens J (as subsequently amended by consent) should be continued until trial or further Order and, if so, on what terms.[2]The Claimant, SecTrack, is a Belgian company engaged in business as a global wholesaler of electronic satellite location, navigation and tracking products. It was an independent company until February 2007, when it was purchased by a Canadian company BSM Technologies Inc. (“BSM”), of which Mr Nick Cirella is President and Chief Executive Officer. The First Defendant, Satamatics, is an English company based in Tewkesbury in Gloucestershire, of which Mr Peter Chisholm is the Chief Executive Officer. It carries on business as a manufacturer and supplier of satellite communication equipment and solutions (“the Products”) and a provider of Airtime services for the Products. Since 2001, the Claimant has been one of the distributors of the First Defendant’s Products pursuant to a series of written contracts culminating in the relevant Distribution Agreement dated November 2005.[3]Until his resignation on 24 May 2007 and the termination of his employment on 30 May 2007, the Second Defendant, Jan Leemans, a Belgian national, was employed by the Claimant as a senior Business Development Manager, and was one of the two individuals there who had responsibility for sales of Terminals and Airtime to the Claimant’s Customers (the other being Mr Martens). In June 2007, the Claimant discovered that Mr Leemans had gone to work as a sales agent for the First Defendant and that he had incorporated a Belgian service company named Marlee BVBA as the vehicle by which the First Defendant was to employ him. He is thus being employed (albeit via an agency company) to perform the same function for the First Defendant as he used to perform for the Claimant. It is fair to say that since the Claimant accepts that the anti-competition clause in the Second Defendant’s contract of employment (which is governed by Belgian law) is unenforceable, there is nothing wrongful in his doing this per se.[4]Also in June 2007, shortly before the application for an injunction made without notice to Aikens J, the Claimant discovered that the First Defendant through its agent the Second Defendant had been approaching some of the Claimant’s customers with a view to selling the First Defendant’s products and services to them direct, effectively cutting out the Claimant. Three particular matters caused the Claimant concern. As a consequence of access it obtained to e-mails sent and received by the Second Defendant during June 2007, the Claimant discovered that the Second Defendant had embarked on a visit to Australia and New Zealand on behalf of the First Defendant and either had visited or was proposing to visit a number of customers of the Claimant. This mirrored a visit Mr Martens of the Claimant had made in November 2006. The Claimant was concerned that the Second Defendant was using on behalf of the First Defendant confidential information about the Claimant’s customers to obtain a competitive advantage.[5]The second matter of concern was that (again through the e-mails it accessed) the Claimant discovered that the First Defendant was in the process of entering a contract direct with M2M, one of the Claimant’s major customers in Russia. This was being negotiated by the Second Defendant with M2M using confidential information gained when he was employed by the Claimant. It subsequently transpired that the First Defendant did indeed sign a contract with M2M on about 26 June 2007. Mr Chisholm says this was only done after M2M told the First Defendant that on 8 June 2007 it had informed the Claimant orally that it was terminating their relationship. Mr Arcari on behalf of the Claimant denies that any such conversation took place with representatives of M2M.[6]The third matter concerned destruction of data from computers by the Second Defendant and by Mr Tom Boschman. At the time of the application to Aikens J, Mr Boschman was another employee of the Claimant who was in negotiation with the First Defendant concerning future employment by it. In the event, although Mr Boschman left the Claimant’s employment after the injunction was granted, he went to work elsewhere. However, what the Claimant discovered was that the Second Defendant had deleted data from his office laptop computer. At the same time the Claimant discovered that Mr Boschman had installed aggressive deletion software on his office computer.[7]The Second Defendant had also had a Blackberry when employed by the Claimant. There is some dispute as to whether this was a present from Mr Martens which he should have been entitled to keep. After an initial reluctance to hand back the Blackberry, he did so on 15 June 2007, telling Mr Martens that the Blackberry was frozen or locked. The Claimant arranged for software to be reinstalled in order to unlock it and on 21 June 2007, Mr Van Hoeylandt, an employee of the Claimant who is an IT specialist managed to unlock the Blackberry. At that point it automatically downloaded 96 e-mails received by the Second Defendant’s “mac” e-mail account since 13 June 2007. These included a number of e-mails which the Claimant contends implicate the Second Defendant in the misuse of its confidential information. All data prior to 13 June 2007 had been deleted, the Claimant believed deliberately. The fact that the Blackberry was able to retrieve e-mails sent to the “mac” account also demonstrated that at some stage and without the Claimant’s knowledge or permission, the Second Defendant had reconfigured his Blackberry so that it received e-mails from that account.[8]It was feared by the Claimant that if the Defendants were on notice of the application, there would be further destruction of evidence. This led the Claimant to make the application on a “without notice” basis.[9]Some of the Second Defendant’s e-mails from June 2007 which the Claimant used to mount its application came from a private e-mail account to which it appears an anonymous “hacker” gained access. Although there is some complaint about this, it is somewhat muted and it is not suggested that the Claimant should not have been entitled to rely upon that material. In any event the fact that they had been obtained by hacking was properly disclosed to Aikens J.[10]Following a hearing lasting about an hour and a half on 2 July 2007 at which the Claimant was represented by Mr Paul Lowenstein of Counsel (who also represented it before me), Aikens J granted the relief sought. In summary, this consisted of(a) injunctions restraining the Defendants from communicating in any way for any purpose with the Claimant’s customers as set out in Schedule D to the Order and from using the Claimant’s Confidential Information;(b) orders for the preservation of all records (including computer data);(c) orders for disclosure within 48 hours of all documents and records containing or referring to the Confidential Information and all communications since 1 January 2007 between either of the Defendants and the Customers set out on the Schedule and between the Defendants themselves;(d) orders for delivery up of such documents and records within 5 working days.

The present applications

[11]The Order made by Aikens J included a Return Date for the inter partes hearing of 10 July 2007, 8 days after he granted the injunction and related Order. On that Return Date, by consent, David Steel J adjourned the return date to 26 September 2007 and made directions for service of evidence. Thereafter the parties agreed a two month moratorium with a view to settling their dispute. This was reflected in a Consent Order of 8 October 2007 which adjourned the Return Date to the first available date after 23 November 2007, with a time estimate of 1½ to 2 days. In the event, the parties were unable to resolve their differences and the Return Date was fixed for 5 and 6 December 2007.[12]The form of the Order made by Aikens J had been such as to preclude all communications between the First Defendant and the customers in Schedule D to the Order, who originally numbered 109. This would mean that technically the automatic communications on a day to day basis between the customers’ D+ terminals and the First Defendant’s Message Handling System (all of which was part of the service the Claimant had sold to its customers) would be caught by the injunction. This had never been the intention of the Claimant, so a variation was agreed to permit this, which was embodied in a Consent order made by Cooke J on 1 August 2007.[13]A variation was agreed at the same time which permitted the First Defendant to communicate with customers who raised technical enquiries with the First Defendant, but only on the basis that the enquiries were referred back to the Claimant to deal with. It had also been pointed out by the First Defendant that of the 109 customers on Schedule D, a number were not the Claimant’s customers at all but the First Defendant’s customers. The Claimant agreed to remove 6 on this basis. There were a further 7 about whom the Claimant disputed that they were the First Defendant’s customers, but took the pragmatic approach that it would take them off the list rather than argue about it. It follows that in the Consent Order made by Cooke J, Schedule D was amended to encompass 96 customers and it is in relation to those 96 that the Claimant seeks the continuation of the injunction before me.[14]In the days before the hearing on 5 and 6 December 2007, there was a flurry of late applications by the Defendants: i) An application by the First Defendant by Application Notice dated 29 November 2007 to set aside the Order made by Aikens J in its entirety on grounds that(a) there had been a failure to make full and frank disclosure to the Court on the ex parte application;(b) the Claimant had misrepresented certain facts it relied upon to justify seeking without notice relief; and(c) the balance of convenience was against the granting of the Order and the relief sought was disproportionate to the harm allegedly faced by the Claimant. ii) An application by the First Defendant by Application Notice dated 30 November 2007 for an Order that the Claimant should fortify its cross-undertaking in damages by immediate payment into Court of £750,000. This Application Notice also includes an application for security for costs, but it was sensibly agreed by the First Defendant’s solicitors that that application should be adjourned to be heard on a convenient date when the Claimant has had time to respond to the application. iii) An application by the Second Defendant by Application Notice dated 30 November 2007 to set aside the Order made by Aikens J in its entirety on essentially the same grounds as advanced by the First Defendant.[15]It seems to me important to note three points in considering these applications. First, that although (no doubt for perfectly sensible tactical reasons) the Defendants both now launch a full frontal assault on the injunction granted, submitting that it should never have been granted in the first place and certainly not on an ex parte basis and that its continuation will cause them irreparable harm not capable of being remedied by damages, the applications by the Defendants were not issued until 5 months after the Order was made by Aikens J, just before the much postponed Return Date. It is legitimate to ask the question why, if the injunction is so potentially damaging to the Defendants’ business, it has taken 5 months for this application to be made? Of course the moratorium explains some of that delay, but by no means all of it. I consider that in the light of that delay, the applications now advanced late in the day have to be approached with a degree of scepticism.[16]The second point is related to the first. Although part of the Defendants’ resistance to the continuation of the injunction is to contend that there is no serious issue to be tried, there is no application by either Defendant to strike out any part of the Particulars of Claim or for summary judgment. On the contrary, both Defendants have served detailed Defences to the claim as recently as 16 November 2007. Furthermore, it is fair to say that the evidence before the Court on all sides is voluminous, running in total (including exhibits) to 5 lever arch files of documentation. There are acute conflicts of evidence between the Claimant and the two Defendants on pretty much every issue in the case which it is neither possible nor appropriate for the Court to resolve at this interlocutory hearing. Therefore I propose to limit what I say about these disputes to what is strictly necessary for determining the question whether, applying well-established American Cyanamid principles, the injunction should be continued and, specifically, whether the Claimant has shown serious issues to be tried.[17]The third point is this. One of the curiosities of this case is that notwithstanding the heat generated between the parties and their witnesses in the witness statements and submissions, the Claimant and the First Defendant are still in a contractual relationship. The Distribution Agreement still has some three years to run so that the Claimant is still distributing the First Defendant’s terminals and airtime to customers. Neither party has sought to terminate the contract. This fact informs several aspects of the application of the American Cyanamid principles, as will become clear later in this judgment. It is also one of the reasons why, as I indicated at the outset of the hearing, this case seems to me to be one where I should order an expedited trial, a proposition with which none of the parties demurred. As I understand it, the Court could accommodate a trial on or soon after 1 April 2008. Accordingly, what I am really considering here is whether it is appropriate to continue this injunctive relief for a further 4 months until the issues can be finally resolved between the parties at trial.

Disclosure

[18]Before considering the merits of the various applications in more detail, I should say a few words about disclosure. The Order of Aikens J contemplated that, by the Return Date both Defendants would have given disclosure of whatever confidential information they had and of communications between themselves, and shortly before the original Return Date, the Second Defendant also agreed to an image being taken of his computer. Aikens J may well have had in mind that the judge hearing the matter at the Return Date would have a clearer picture of what was going on because of that disclosure.[19]The exercise which the First Defendant carried out pursuant to the Order apparently threw up some 60,000 pages of disclosure, a substantial proportion of which are said to relate to technical issues and discussions with the customers. Mr Martens expressed considerable surprise at this, saying he was unaware that such direct contact was taking place. Without seeing the material in question, I cannot judge, although a partial explanation may be that this documentation apparently covers the entire relationship between the parties since 2001.[20]As between the Claimant and the First Defendant, it was thus agreed that rather than the First Defendant having to give the disclosure of the 60,000 pages, the matter would be stood over to the Return Date. The First Defendant agreed only to give disclosure in the course of the action. The Claimant has since invited the First Defendant to give early disclosure, but this has not been agreed. Since the Claimant effectively agreed that the First Defendant should not have to disclose the 60,000 pages immediately, no criticism can be made of the First Defendant for failure to disclose the documentation as ordered by Aikens J, although as I indicated during the course of argument, it is unfortunate from the Court’s perspective that the disclosure is not already available. This is particularly so where both Defendants have put detailed statements before the Court in support of their applications and resisting the continuation of the injunction, with necessarily selective documentation in support. This is another reason why it would be neither possible nor appropriate to form any concluded view at this stage on the merits of the claims and the defences to them.[21]The position of the Second Defendant is somewhat different. There has been no agreement between his solicitors and the Claimant’s solicitors to defer his obligation to provide disclosure pursuant to the Order of Aikens J beyond the extension to 26 July 2007. All that happened is that the Second Defendant and his solicitors, having learnt of the agreement between Masseys for the Claimant and Allen & Overy for the First Defendant, jumped on the bandwagon and wrote to Masseys on 26 July 2007, saying that they assumed that the same “courtesy” would be extended to the Second Defendant.[22]However this was never agreed by the Claimant or its solicitors (as was made clear in Masseys’ reply of 1 August 2007 which said that the issue of the Second Defendant’s disclosure obligations remained live). No application was ever made to the Court by the Second Defendant for a variation of the Order or a further extension of time to comply with it. I doubt whether in the case of the Second Defendant, compliance with the Order for disclosure will be a particularly onerous task. In the circumstances, as I pointed out at the end of the hearing, the Second Defendant is in continuing breach of the Order of Aikens J and must comply with it forthwith.[23]In terms of how that impacts upon the Second Defendant’s application to discharge the injunction and his counsel’s submissions that there is no serious issue to be tried, it seems to me that I should be very cautious before accepting arguments based upon the absence of evidence of misuse of confidential information in circumstances where the Second Defendant has (in effect deliberately) failed to comply with the Order for disclosure. Provided of course that I am satisfied that the material put before Aikens J reached the requisite threshold of arguability for the grant of an injunction against the Second Defendant (and for reasons developed hereafter I am so satisfied) in view of the Second Defendant’s failure to comply with the Order for disclosure, I can see no reason why I should accede to arguments on his behalf that there is no serious issue to be tried.

Summary of the issues

[24]So far as the question whether the Claimant has shown a serious issue to be tried is concerned, the Claimant’s case against the First Defendant is essentially put in two ways said to justify an injunction in the terms of paragraphs 1 and 2 of the draft Order (i.e. the injunction granted by Aikens J as subsequently varied):(i) actual or threatened breach by the First Defendant of its obligations under clauses 2.3 and 2.8 of the Distribution Agreement;(ii) that the Second Defendant has confidential information which belongs to the Claimant which he has used or will unless restrained use for the benefit of the First Defendant to gain an unfair competitive advantage by way of springboard. The Claimant’s case against the First Defendant is not that it has actually received any such confidential information, but that through the Second Defendant having access to and misusing such confidential information, the First Defendant has gained such an unfair competitive advantage.[25]Against the Second Defendant it is alleged that he has acted in breach of a duty of confidence owed to the Claimant independently of his contract of employment by misusing its confidential information. It is also alleged that the Second Defendant has acted in breach of fiduciary duties owed to the Claimant independently of his contract of employment and that the First Defendant has dishonestly assisted him in the breach of those duties. Further claims are made against the Second Defendant for various economic torts. It does not seem to me necessary to consider these in the context of the injunctive relief granted and sought to be continued. I propose to say no more about them.

Serious issue to be tried: breach of Distribution Agreement

[26]So far as the claim in contract against the First Defendant is concerned, two clauses of the Distribution Agreement are of particular relevance: i) Clause 2.3 which provides:
“Satamatics and SecTrack will respect each other’s customers and will not attempt to circumvent each other going forward, SecTrack will be a specially valued customer[s] [sic] for Satamatics and Satamatics will have the preferred supplier status for SecTrack.” ii) Clause 2.8 which provides that: “Satamatics will not sell directly to an existing Customer of SecTrack provided that SecTrack keeps Satamatics appraised at all times as to the Customers he has contracts with.”
[27]Before me much of the argument advanced on behalf of the First Defendant by Mr Mark Platts-Mills QC focused on the meaning of clause 2.8. However, it is important to have in mind that the contract also contains clause 2.3. Mr Lowenstein for the Claimant argues that clause 2.3 with its agreement not to “attempt to circumvent” is clearly an undertaking not to poach or attempt to poach each other’s business. It does not seem to me that the First Defendant really has a sensible and coherent response to that, but at all events, the Claimant’s case that clause 2.3 is an “anti-poaching” clause is fully arguable.[28]So far as clause 2.8 is concerned, the Claimant contends that, in accordance with now well-established modern principles of contractual construction, it is to be construed against the relevant commercial background, including the trading relationship between the parties. “Existing” customers are those with whom the Claimant has done business in the last twelve months, whether for the sale of terminals or Airtime. This is to encompass two particular aspects of the business:(i) that some customers buy a finite number of terminals but buy Airtime on a continuing basis;(ii) that there are customers whose demand for Airtime is sporadic, perhaps only once or a few times a year. The example was given in argument of the customer who requires Airtime once a year for a particular sporting event.[29]The Claimant contends that the concept of “appraisal” is a flexible one concerning notification of who the customers are. It does not require appraisal to be in writing, so the notification can be oral or by other informal means such as attendance at the annual Global Solutions Partnership conference. The Claimant also disputes any requirement to keep the First Defendant notified of when a customer ceases to be a customer by, for example, giving notice terminating its relationship. In the last resort, the Claimant submits that if appraisal has to be in writing, notification to the First Defendant of the Schedule D list of customers was such an appraisal.[30]In contrast, the First Defendant contends that strict compliance with the words “provided that SecTrack keeps Satamatics appraised at all times as to the Customers he has contracts with” is a condition precedent to any obligation of the First Defendant not to sell to the Claimant’s customers. Existing customers are only those with whom the Claimant has a current contract and appraisal must be in writing. It must also entail “appraising” the First Defendant in writing whenever a customer ceases to be a customer.[31]The Claimant says that the formal approach to clause 2.8 which the First Defendant now adopts bears no relation to the informal way in which the parties conducted their business and is, in essence, a lawyer’s construct. I consider that the First Defendant’s construction is indeed artificial and uncommercial. There is no requirement in the express terms for appraisal to be in writing and it does not seem to me necessary to imply such a term. Taken to its logical extreme the First Defendant’s construction would mean that any failure to appraise the First Defendant about a customer in writing, including a failure to appraise it in writing that a customer had ceased to be such, would entitle the First Defendant to sell to any customer, a construction which seems to me to be commercially absurd. Furthermore, the First Defendant’s case as to what it is free to do on its construction of clause 2.8 seems to me to ignore completely its obligations under clause 2.3.[32]The First Defendant’s contention is that any other construction of the Agreement than the one for which it contends would mean that it could not approach dissatisfied customers who may otherwise go off to Skywave, the First Defendant’s rivals. I agree with Mr Lowenstein that this all smacks of the First Defendant in effect wanting to rewrite the contract, in circumstances where it is not happy about the purchase of the Claimant by BSM. However, since I do not need to reach a concluded view as to the correct construction of the contract but only to determine whether the Claimant shows a serious issue to be tried, it is not necessary to elaborate further. In my judgment, the Claimant’s case on the construction of the contract and the First Defendant’s obligations under clauses 2.3 and 2.8 is fully arguable.[33]It is also fully arguable that by virtue of the First Defendant’s negotiations and contract with M2M and its activities, through the Second Defendant, in contacting customers of the Claimant in Australia and New Zealand, the First Defendant was in actual and threatened breach of the Distribution Agreement such as to justify an injunction against it in the terms of paragraph 1 of the Order of Aikens J. During the course of argument, I asked Mr Platts-Mills whether, on the basis that the Claimant’s construction of the Distribution Agreement was arguable, his client would be prepared to give an undertaking not to contact any of the customers on Schedule D with a view to negotiating or effecting any sale to them until after a forthcoming expedited trial. He said that the First Defendant would stand by its construction of the Agreement, that because the Claimant had failed to comply with the condition precedent, it was free to deal with the customers. It seems to me that this very candid approach would mean that the continuation of an injunction against the First Defendant in the terms of paragraph 1 of the Order until the trial is justified on that ground alone, subject of course to the other matters raised by the First Defendant in opposition to the injunction.

Serious issue to be tried: breach of confidence

[34]Turning to the question whether the Claimant shows a serious issue to be tried in relation to breach of confidence by the Defendants, this has three aspects (see Coco v Clark [1969] RPC 41 at 47-8): a) Is the information which the Claimant seeks to protect “confidential information” belonging to the Claimant? b) Was the information transmitted in circumstances importing an obligation of confidentiality? c) Was there a breach of confidence such as gives rise to a cause of action against both Defendants? I will consider these in turn, bearing in mind that the Claimant needs only to show a serious issue to be tried. The first two questions can be considered together.[35]The confidential information for which the Claimant contends is set out in Schedule C to the draft Order. In summary it consists of(i) the Claimant’s “customer list” (names and contact details) essentially as saved on the company’s internal Customers Folder in Outlook, in the company’s server and on the company’s intranet;(ii) volume of business information as to the number of terminals sold to each customer (again saved in the same electronic formats);(iii) Airtime service information as to the volume of airtime sold to each customer, accessible through the company’s intranet;(iv) pricing information, other than as set out in standard “published” price lists, as to the price at which goods and services have been sold to customers (including discounts);(v) computer scripts i.e bespoke computer programs for particular customers;(vi) contracts with customers;(vii) unpublished financial accounts and data; and(viii) customer forecasts. Despite attempts by the Second Defendant to contend that he did not have access to all this information when he was employed by the Claimant, having considered all the evidence before the Court and in particular the evidence of Mr Van Hoeylandt, it seems to me arguable that the Second Defendant did have access to all such confidential information during his employment.[36]The Claimant’s submissions on this part of the case recognise that there is a need to distinguish between the confidential information of the Claimant which can legitimately be protected and the general skill and knowledge of the Second Defendant, which he is entitled to use in his new job. Much of the Defendants’ submissions focused on the so-called “customer list” which of course in the modern context is not the order book of which the employee has made a copy as in the classic case of Robb v Green [1895] 2 QB 1 or a card index, but is information contained within the Claimant’s computer and e-mail system in various formats to which the Second Defendant had access whilst employed by the Claimant. Nonetheless this is information which the Claimant has collated over the period of more than five years it has been in business concerning the customers, contact details and e-mail addresses of contacts.[37]Mr Edward Cohen on behalf of the Second Defendant submitted that this customer information stored electronically was incapable of being “confidential information” such as should attract the protection of the Court, for two principal reasons. First, he places heavy reliance on the decision of the Court of Appeal in Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 in support of the proposition that after an employee has left his former employment, his obligation not to disclose his former employer’s confidential information may include secret processes or designs or special methods of construction or any other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret (see the judgment at page 136), but does not include sales information about customers, pricing, orders and so forth that the employee recollects from working for the former employer.[38]Second, Mr Cohen submitted that the issue of whether information was confidential as between the Claimant and the Second Defendant was to be determined by Belgian law. Quite legitimately, he relied on the Belgian law evidence filed by the Claimant in which the Belgian lawyers say that the Belgian Labour Tribunal would regard detailed lists of customers with personal phone numbers, mobile numbers, e-mail addresses etc, as confidential with the following important caveat:
“However, this information will not be considered “confidential” as far as the information is publicly accessible; e.g. general phone numbers and addresses that can be found by anyone, by doing a search on the internet or any other means”
. Mr Cohen contends that the contact details in respect of customers here could have been obtained over the internet or by a quick phone call in a matter of minutes.[39]In answer to the points made by Mr Cohen, the Claimant relies on the later decision of the Court of Appeal in Lansing Linde v Kerr [1991] 1 WLR 251. In that case, in considering the Faccenda Chicken case, Staughton LJ said at page 260B-C:
“Mr Poulton suggested that a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication. That is my preferred view of the meaning of trade secret in this context. It can thus include not only secret formulae for the manufacture of products but also, in an appropriate case, the names of customers and the goods which they buy.”
[40]That formulation of the relevant test was approved by the Court of Appeal in FSS Travel and Leisure Systems v Johnson[1998] IRLR 382 where Mummery LJ stated:
“As Staughton LJ recognised in Lansing Linde Ltd (Supra) at p.425h the problem in making a distinction between general skill and knowledge, which every employee can take with him when he leaves, and secret or confidential information, which he may be restrained from using, is one of definition. It must be possible to identify information used in the relevant business, the use and dissemination of which is likely to harm the employer, and establish that the employer has limited dissemination and not, for example, encouraged or permitted its widespread publication. In each case it is a question of examining closely the detailed evidence relating to the employer's claim for secrecy of information and deciding, as a matter of fact, on which side of the boundary line it falls. Lack of precision in pleading and absence of solid evidence in proof of trade secrets are frequently fatal to enforcement of a restrictive covenant. Later decisions have not improved upon, or doubted the correctness of, the approach adopted by Cross J in Printers & Finishers Ltd -v- Holloway [1965] 1 WLR 1 at 5 A-C: "If the information in question can fairly be regarded as a separate part of the employee's stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer and not his own to do as he likes with, then the court, if it thinks that there is a danger in the information being used or disclosed by the ex-employee to the detriment of the old employer, will do what it can to prevent that result by granting an injunction."”
[41]As this last citation demonstrates, whether or not particular information is confidential may need to be considered carefully and critically at any trial. At this interlocutory stage, all I am concerned with is whether there is a sufficiently arguable case that the information is confidential such as will justify an injunction until trial in a few months time. I consider that there is such a case in relation to all the information which the Claimant seeks to keep confidential. As I have said, the Defendants have focused on the “customer list” but, if that is arguably confidential, then it seems to me that the position of the other information which the Claimant seeks to protect is an a fortiori one, for reasons set out below.[42]In my judgment, there are three principal matters which support the Claimant’s case that the information referred to in Schedule C is confidential information. First, the Claimant’s case, backed by its evidence, is that this information as to customer details and contacts, customer demands, pricing and so forth is information which it guards jealously and which it has not put into the public domain. The Second Defendant may very well be right that (at least between a Belgian company and its Belgian ex-employee) the question of what is confidential is to be judged according to Belgian law. That will be a matter for the trial judge. Having read the Belgian lawyers’ letter of advice, I am far from convinced that there is any significant substantive difference between Belgian law and English law in this context, which is perhaps scarcely surprising.[43]As for the particular passage in the letter of advice relied upon by the Second Defendant, there is no evidence that the confidential information upon which the Claimant relies is all publicly available at the press of a button over the internet. Even assuming that the knowledge as to who are the Claimant’s customers were publicly available (which I somewhat doubt) I simply do not know whether the Defendants could find out who to contact in each customer from limited internet research or a quick phone call, as Mr Cohen suggested. I rather doubt whether, in any event, this could ever be true of the other confidential information such as volume of business and pricing.[44]Second, as Mr Lowenstein points out, this is not a case in which the ex-employee is saying that he is doing no more than relying on what he can remember from the knowledge he gained as the Claimant’s employee. On the contrary, the Second Defendant’s stated position is that he had access to the information about customers because it remained on his computer system or e-mail address book from the time that he was an employee. On the basis that this information was intended by the Claimant to be confidential, the fact that the Second Defendant has it on his personal computer system and is using it (whether it was on the system from when he was an employee or he transferred the information before leaving) gives rise to an arguable case that he is misusing confidential information in exactly the same way as the employee who made off with a copy of the order book in Robb v Green.[45]Third, and related to the second point, it is simply not possible to judge on the material before the Court how much of the Claimant’s confidential information the Second Defendant has stored on his personal computer. It is evident from the evidence he has chosen to give that he can call up customer contact details from his e-mail address book. However, since he is in breach of the Order of Aikens J as regards disclosure, it is not possible to assess how much more information he has retained or still has access to electronically (for example customer volume and pricing information). In the face of that non-compliance with the Order, it seems to me that I should not make any assumptions in the Second Defendant’s favour. For the present, all I need say is that I am satisfied that the Claimant has shown a serious issue to be tried that the Second Defendant has continued access via his computer to information which is confidential information belonging to the Claimant which only came into his possession via a computer network available exclusively to employees of the Claimant and which information was and was intended to be clothed with confidentiality.[46]I turn to the question of whether the Claimant has shown a sufficiently arguable case that there has been a breach of confidence by the Second Defendant of which the First Defendant was aware and from which the First Defendant has derived a commercial advantage. The Claimant relies upon the following matters.[47]First, the secrecy in which the Second Defendant was “employed” by the First Defendant. Prior to the injunction neither was prepared to admit this. Both Defendants make the valid point that this sort of secrecy is perfectly normal where someone is leaving an employer to work for a rival, which, as in the present case, the employee is entitled to do, but which will not please the former employer. The Claimant does not dispute this general proposition. However, it relies on three matters in particular which it says demonstrate that the secrecy in this case had a more sinister motive: a) That the purpose for which the Second Defendant was employed by the First Defendant was to cut out the Claimant from between the First Defendant and the ultimate customers, in effect to destroy the Claimant’s business. In support of its case that this was the purpose of employment of the Second Defendant, the Claimant relies upon an e-mail which the Second Defendant sent to a friend on 30 May 2007 which read in translation:
“It is with the supplier (Satamatics) from the previous company I used to work for (SecTrack). SecTrack is more a “boxmover”
. Satamatics develops hardware and has the technology of the Land Earth Stations, globally, to do the satellite communications. The objective is to kick SecTrack out from in between, if we do [not do] it, someone else will do it, and it is just a matter of time.” b) That in negotiation of the terms upon which he was to be employed, on 20 April 2007, the Second Defendant sent an e-mail to Mr Chisholm in which he asked for a “one time bonus” of 5,000 Euros for each “switched customer”. c) That it was intended to employ both the Second Defendant and Mr Boschman as evidenced by the e-mail from Mr Chisholm of the First Defendant of 29 March 2007 which stated “BTW Tom [Boschman] called last night and I reassured him that we will look to bring you both on board.” This is the same Mr Boschman who used the aggressive deletion software to remove data from his office computer.[48]The First Defendant seeks to explain away the e-mail to the friend as sent at a time when the Second Defendant was frustrated at the way in which he had been treated by the Claimant. However, since this was sent at a time when he had left the Claimant’s employment and had agreed to enter the agency agreement with the First Defendant, this explanation is not very plausible. The First Defendant then relies upon the fact that the e-mail was not one to which it was a party. This is strictly correct, but it seems to me highly arguable that what the Second Defendant was describing to his friend in an unguarded moment was the combined purpose that he and the First Defendant had in his going to work for the First Defendant albeit though an agency agreement. The Second Defendant (perhaps inadvertently) goes a long way to admitting that in his witness statement when he says that he was telling his friend in summary what he planned. Furthermore his e-mail receives a curious and in my judgment rather telling echo in the evidence of Mr Chisholm who at one point describes the Claimant as no more than a “box shifter”. In my judgment, it is at the very least arguable that this demonstrates an intention to put the Claimant out of business, by whatever means necessary.[49]Neither Defendant has put forward any explanation for what was meant by the Second Defendant by “each switched customer.” It seems to me clear that it was a reference to assisting the First Defendant to poach the Claimant’s customers and being paid a bonus for it. A copy of an Agency Agreement signed by Mr Chisholm for the First Defendant, but not by the Second Defendant or his company Marlee BVBA has been produced. That provides for an annual bonus related to the percentage of “Revenue Target” achieved. For the present, all that needs to be said is that it is arguable that, had the injunction not been granted, a bonus for switching customers may well have been paid to the Second Defendant and his company.[50]It is said on behalf of the First Defendant that merely because the Second Defendant may have been seeking to obtain a bonus for switching customers, it does not follow that he was going to misuse the Claimant’s confidential information in doing so. However, that seems to me to beg the question: how was the Second Defendant going to effect this “switch” unless it was by using the Claimant’s confidential information? This is particularly relevant in relation to customers for whom he was not the “account manager” when employed by the Claimant. It seems to me that the e-mail of 20 April 2007 is for present purposes arguably evidence of an intention to misuse confidential information and, also arguably evidence that the First Defendant through Mr Chisholm was aware of this.[51]As to the employment of Mr Boschman, great play is made by the First Defendant of the fact that, in the event, he did not go to work for the First Defendant. I agree with the Claimant that in all probability this was because he was discouraged by the injunction granted by Aikens J and that, but for that, he would probably have gone to work for the First Defendant. I consider that the First Defendant’s contention that the Claimant placed undue emphasis on the proposed employment of Mr Boschman in the ex parte application is misplaced. At the time of that application, it does seem that the First Defendant was proposing to employ Mr Boschman (as to which see the e-mail quoted above). It is curious to say the least that when defending his company’s own engineering skills, Mr Chisholm describes how many skilled engineers the First Defendant has as compared with Mr Boschman’s moderate skill level. This begs the question as to why the First Defendant would have wanted to try to employ Mr Boschman. One possible explanation (although ultimately this is a matter for trial) is that he had useful confidential information to impart, which outweighed his apparent lack of technical skills.[52]The second matter relied upon by the Claimant is the fact that both the Second Defendant and Mr Boschman destroyed or deleted computer data. So far as Mr Boschman is concerned, he used aggressive deletion software on his work computer at a time when his employment by the First Defendant was being discussed. The obvious question is why that was done unless it was to cover his tracks in relation to dealings with the First Defendant and disclosure of information which was confidential to the Claimant. The matter is at the very least arguable.[53]So far as the Second Defendant is concerned, despite the proffering of innocent explanations for data being removed from his office computer and his Blackberry, it is at least arguable that the data in question was removed deliberately to hide the fact that the Second Defendant was sharing confidential information with the First Defendant or, at the very least, using the Claimant’s confidential information to benefit the Second Defendant. Whether the data was removed deliberately for that reason will be a matter for decision by the trial judge.[54]Third, the Claimant relies upon the negotiations which the First Defendant had with M2M prior to the obtaining of the injunction. The First Defendant’s case is that M2M was dissatisfied with the Claimant, hence its negotiations with the First Defendant, which are alleged not to have involved any misuse of the Claimant’s confidential information. Furthermore, it is said that the First Defendant only made a contract with M2M on 26 June 2007 after it had been assured by M2M that the latter had severed its relationship with the Claimant.[55]As I have already indicated, those matters are in serious dispute in the sense that the Claimant’s witnesses, Mr Martens and Mr Arcari say that no dissatisfaction has been expressed to them by any customer, including M2M, and that there is no question of M2M having told the Claimant at the meeting on 8 June 2007 that it was terminating the relationship. It is not possible to resolve that dispute now. All that it is necessary or appropriate to say is that the Claimant’s case that what was going on, until the Defendants were restrained by the injunction, was that the Second Defendant was engaged in “switching” M2M to the First Defendant is an arguable case.[56]The Claimant relies on four matters in particular in relation to M2M which it says demonstrate misuse of its confidential information by the Defendants: i) The e-mail from M2M to the Second Defendant of 4 June 2007 to arrange a meeting with Mr Gurko on 8 June 2007 (the same day as Mr Gurko met Mr Arcari), which M2M mistakenly sent to his e-mail address at the Claimant. ii) The fact that at the meeting which Mr Arcari had with Mr Gurko of M2M on 8 June 2007, they were seeking to renegotiate the price at which they purchase terminals from the Claimant downwards to precisely the price (US$380) at which the Claimant purchases from the First Defendant. As Mr Lowenstein submits, this is unlikely to be a coincidence. He also submits that the price at which the Claimant purchases from the First Defendant is itself confidential. iii) The form of contract sent by M2M to the First Defendant for negotiation purposes which is in fact the contract between M2M and the Claimant. iv) The e-mail of 14 June 2007 from the Second Defendant to Ms Fedyukova of M2M. In response to her request as to whether the First Defendant would agree short-term credit of three months for payment, he responded:
“Satamatics has no such deal with any of their customers. I suggest to keep everything we have all been used to (prepayment)”
As Mr Lowenstein says, this is clearly a reference to the existing payment terms between M2M and the Claimant. This shows the Second Defendant using information about the Claimant’s pricing and payment terms which is arguably confidential, in order to negotiate a deal between the First Defendant and M2M to the First Defendant’s commercial advantage and the Claimant’s detriment.[57]It seems to me clear that this material demonstrates a concerted effort by the First Defendant through the Second Defendant to poach one of the Claimant’s established and existing customers, which was arguably a breach of clauses 2.3 and 2.8 of the Distribution Agreement. It is also clear that, had it not been for the granting of the injunction, this effort would have been successful. However I am more sceptical as to the extent to which this demonstrates misuse by the Second Defendant of the Claimant’s confidential information. I agree with the Defendants that the form of contract M2M had with the Claimant is not confidential and in any event, it is clear that the First Defendant obtained this not from the Second Defendant but from M2M itself, so no breach of confidence was involved. Equally, I cannot see how the price at which the Claimant bought from the First Defendant was confidential so that the First Defendant could not disclose it to potential new customers.[58]However, it does seem to me that the e-mail which the Second Defendant sent to M2M on 14 June 2007 did contain information about pricing and payment terms with the Claimant which was confidential information and which at least arguably the Second Defendant had no right to use in his new role as an agent for the First Defendant. Furthermore, I note that the e-mail in question was copied to Mr Chisholm so that he was well aware of any breach of confidence.[59]The fourth matter relied upon by the Claimant as constituting misuse of its confidential information by the Second Defendant, to the knowledge of the First Defendant, is the visit of the Second Defendant to Australia and New Zealand in the period 18-29 June 2007 of which the Claimant only became aware through access to the various e-mails in the circumstances previously described. The Claimant relies upon the following matters: i) The itinerary for the trip was scrutinised and arranged by the First Defendant, as demonstrated by the e-mail exchange between the Second Defendant and Mr Chisholm. ii) The itinerary bore a startling resemblance to that of a similar trip by Mr Martens some six months previously the results of which Mr Martens had discussed with the Second Defendant when he returned. There clearly is some dispute as to whether all the people visited were existing customers of the Claimant and the First Defendant can legitimately say that Daestra is no longer an existing customer of the Claimant as its deletion from Schedule D to the Order now sought demonstrates. Nonetheless, as the Claimant says, it might be thought peculiar that Daestra should have terminated when it did and, in any event, it is arguable that the Second Defendant visited six existing customers of the Claimant during the trip. iii) Although the Second Defendant contends in his Defence that the purpose of his visit was to get a feel for the market and not to obtain business for the First Defendant from the existing customers of the Claimant, it is particularly striking that on 18 June 2007 whilst he was there (and indeed almost immediately after he arrived) the Second Defendant was asking the First Defendant to send him copies of its VAR (Value Added Resellers) and Distributor Business Agreements, which suggests that he was engaged in negotiations with customers.[60]As Mr Lowenstein points out, neither the Second Defendant nor Mr Chisholm of the First Defendant really deal with the trip to Australia and New Zealand in any detail in their evidence and Mr Cohen’s skeleton argument strikingly does not mention the trip at all. In oral submissions on behalf of the First Defendant, Mr Platts-Mills said that no customers were in fact lured away. That may well be right but proves nothing, since the reason for that is that the injunction was granted by Aikens J on 2 July 2007, only days after the Second Defendant’s return from his trip. The injunction was of course granted on a quia timet basis.[61]In my judgment, it is arguable that in setting up and carrying out the trip, the Second Defendant was misusing confidential information of the Claimant to seek to obtain a commercial advantage on behalf of the First Defendant. In particular, of the six existing customers visited by the Second Defendant, three were not customers for whom he had been the “account manager” at the Claimant, which begs the question as to how he knew who to contact at each of those customers unless he had access after he left the Claimant’s employment to information which was arguably confidential to the Claimant.[62]The Second Defendant’s ostensible explanation for the trip that it was to get a feel for the market, not to obtain business for the First Defendant from the Claimant’s customers, does not seem to me to be frightfully convincing, given that he does not seem to have visited customers of providers of terminals or Airtime other than the Claimant’s and he must have already had a pretty good feel for the market so far as the Claimant’s customers are concerned from his discussions with Mr Martens only months before the trip. In my judgment, it is arguable that the real reason for the trip was to start the process of “switching” the Claimant’s customers to the First Defendant, as is essentially borne out by the request almost immediately after he arrived for copies of the First Defendant’s forms of contract.[63]This is compounded by the reticence of both Defendants in their evidence and submissions to give any detailed explanation of the reasons for the trip and what the Second Defendant discussed or achieved and by the failure of the Second Defendant in breach of the Order of Aikens J to give the disclosure ordered. It does not seem to me to be any sort of answer to that point for the Defendants to contend as they did (particularly through Mr Cohen in his oral submissions) that the Claimant could have obtained evidence from the various customers in Australia and New Zealand to the effect that the Second Defendant had misused the Claimant’s confidential information in his approaches to them. There are two answers to that point. First, at this interlocutory stage all that the Claimant has to do is to show a serious issue to be tried in relation to the alleged misuse of confidential information. In my judgment, the Claimant does so against both Defendants. Second, particularly in relation to the Second Defendant, that submission lies ill in his mouth where he is in breach of the Order for disclosure so that the Court has been deprived of the full picture as to the Second Defendant’s dealings with the Claimant’s customers, which Aikens J evidently contemplated the Court would have at the Return Date.[64]It is appropriate to deal at this stage with a point raised by the Defendants but particularly by Mr Cohen on behalf of the Second Defendant concerning the Claimant’s pleaded case in paragraph 48 of the Particulars of Claim. He submits that the only plea of breach of the duty of confidence is in paragraph48.1 which refers to the receipt and proposed use of the contract with M2M, which as he points out (and I agree) is not a breach of confidence at all. He contends that when paragraph48.2 then pleads “In the premises, by acting in breach of the common law duties of confidence..” the only “premises” being referred to are the use of the contract with M2M. I disagree and this seems to me to be a somewhat rigid approach to the pleading. At paragraphs 31 to 41 of the pleading reference is clearly made to the other matters relied upon as constituting a breach of confidence as set out in my analysis above. I do not read the “premises” as limited in the way Mr Cohen suggests, but even if they were, the submissions and evidence before the Court demonstrate an arguable case of breach of confidence of greater width, in relation to which I would if necessary give permission to amend.[65]It follows from what I have said already that in my judgment, the Claimant has shown an arguable case of misuse of confidential information by the Second Defendant. However, the First Defendant submits that this is not sufficient to justify the claim or the injunction against the First Defendant. On the basis of the decision of the Court of Appeal in Thomas v Pearce [2000] FSR 718, it is said that such a claim will only run against the First Defendant if it acted dishonestly in the sense that it allowed the Second Defendant to deploy the Claimant’s confidential information on its behalf having actual or at the least Nelsonian or “blind-eye” knowledge that a breach of confidence was involved. Accepting that test for present purposes (although I am conscious that the Claimant would wish to argue at trial for a broader basis of liability on the part of the First Defendant) I do consider that the various matters I have analysed above upon which the Claimant relies as showing a serious issue to be tried of breach of confidence also demonstrate a serious issue to be tried that the First Defendant had the requisite knowledge for it to be liable for breach of confidence.[66]It will be apparent from this section of my judgment that I consider that the Claimant was fully entitled to the injunction it sought and obtained from Aikens J, by way of “springboard” relief. The criteria for the grant of such relief set out in the leading case of Roger Bullivant Ltd v Ellis [1987] ICR 464 were satisfied.However, there now remains the question whether the Claimant is entitled to continued “springboard” relief until trial. In one sense, this question might be thought to go to the issues of damages as an adequate remedy and balance of convenience (to which I turn below) but it seems to me appropriate to deal with it now.[67]Mr Cohen (who made the running on this point on behalf of the Defendants) submits that the Court will only continue a “springboard” injunction for whatever period of time it concludes that the unfair competitive advantage gained through misuse of confidential information still exists: see Roger Bullivant per Nourse LJ at 477G. He relies upon the decision of Jonathan Parker J in Sun Valley Foods v Vincent [2000] FSR 825, as being a case of much more egregious conduct by the defendants than in the present case and yet the Court found that the unfair competitive advantage only lasted for a month. In the present case, Mr Cohen asks rhetorically how the Court could conclude that the unfair competitive advantage gained through not having had to look up contact details over the internet could be said to have lasted more than a very short time, which had expired before the injunction was granted.[68]I agree with Mr Lowenstein that logically, the seriousness of the breach and the egregiousness of the Defendants’ conduct cannot have any bearing on the period for which the injunction should be granted - what matters is the effect of the breach of confidence upon the Claimant in the sense of the extent to which the First Defendant has gained an illegitimate competitive advantage. In my judgment, Mr Cohen’s submissions seriously underestimate the unfair competitive advantage gained by the Defendants from access to the Claimant’s “customer list” and ignore, in any event, the impact (if the injunction were lifted) of actual or potential misuse of other confidential information such as volume of business or pricing information. It is important in that context to have in mind that the Claimant maintains in its evidence that all the information said to be confidential remains confidential.[69]Those considerations alone would have persuaded me that, on the basis that I will be ordering an expedited trial to take place in some four months time, it is appropriate (subject always to the other aspects of the exercise of discretion to which I turn below) to continue the injunction until the trial or further Order. That conclusion is reinforced by the fact that the Second Defendant has failed to provide disclosure, in breach of the Order of Aikens J. By reason of that breach, in a very real sense it is not possible to assess accurately the extent of the unfair competitive advantage gained by the First Defendant due to activities of the Second Defendant which were arguably in breach of confidence. In those circumstances, it would seem to me that provided that the other criteria for continuation of the injunction (to which I now turn) are satisfied, it is appropriate to continue the injunction until trial.

Adequacy of damages as a remedy for the Claimant

[70]The Defendants contend that any loss which the Claimant might suffer as a consequence of the First Defendant poaching its customers would be easily quantifiable. Indeed they point out that Mr Cirella has estimated the Claimant’s damages at in excess of 1,000,000 Euros. They contend that the loss would be easily measurable by reference to the margin of profit that the Claimant makes between the price at which it buys in from the First Defendant and the price at which it sells on to its customers and that the First Defendant would have to keep a record of all sales that would otherwise have been made by the Claimant. In contrast, the First Defendant contends that if the injunction is continued, it will suffer irreparable harm, for which damages would not be an adequate remedy, a contention which I will consider in more detail below.[71]The Claimant challenges the adequacy of damages as a remedy on two grounds. First it points out that unless restrained by the injunction, the Defendants may poach its customers leading to the loss of its business, in circumstances where, because the Distribution Agreement still has some years to run, the Claimant is locked in, in a way in which the First Defendant is not, and cannot purchase product or Airtime from anyone else. In those circumstances, there is a serious risk the Claimant may simply be put out of business.[72]Second, the Claimant submits that it is doubtful whether either Defendant could honour any award of damages. The Second Defendant is only a salesman who has no particular assets and the Claimant contends that the First Defendant is in a relatively parlous state financially. Its last published accounts are for the period to 31 March 2006, as due to a change in accounting period, subsequent accounts have not yet been filed and management accounts are consolidated for the Satamatics group and would not show the First Defendant’s position in isolation. Mr Lowenstein points out that in the accounts to 31 March 2006 the First Defendant’s operating loss is £1,147,647 and a loss after taxation is £1,193,283. Mr Chisholm says in his evidence that the First Defendant is close to breaking even, which as Mr Lowenstein says is another way of saying it is still making a loss, and Mr Chisholm also points out that the revenue is essentially US dollar based and has suffered from the adverse exchange rate.[73]In a recent witness statement, Mr Koutrouki, the finance director of the First Defendant, said that the company’s net assets at September 2007 were £1,272,000. Over the weekend before the hearing this had to be corrected by the First Defendant’s solicitors because it had not taken account of inter-company loans of some £6 million. Immediately prior to the hearing deeds were drawn up and signed by the various group companies subordinating those loans to the rights of other creditors. I agree with Mr Lowenstein that this somewhat unorthodox process gives limited comfort to the Claimant as to the financial viability of the First Defendant. The Claimant also relies upon a recent Dun and Bradstreet Report on the First Defendant dated 4 December 2007 which says that the risk of business failure is high and that the company has negative financial strength. Anyone extending credit to it is advised to take guarantees. The summary of the profit and loss accounts going back to the period ending 31 March 2002 shows that the company has made substantial losses in each year of operation.[74]I do not consider that damages are an adequate remedy for the Claimant in this case. The fact that the First Defendant was not prepared to give an undertaking not to negotiate with or sell to the Claimant’s customers pending a speedy trial does suggest that unless restrained by injunction, the Defendants will seek to poach the Claimant’s customers, something they had clearly started doing before the injunction was granted on 2 July 2007. This could spell complete disaster for the Claimant in the sense that it could be put out of business, leading to substantial loss which I accept would be hard to quantify. Furthermore, even if the damages were no more than the 1,000,000 Euros which Mr Cirella estimates, I am far from satisfied that the First Defendant has the financial wherewithal to pay such damages. I agree that it is in a somewhat perilous financial state and without appropriate security, the Claimant might not be able to enforce any judgment.

Adequacy of damages as a remedy for the Defendants

[75]Obviously the fact that damages will not be an adequate remedy for the Claimant is an important factor in favour of continuing the injunction. Against that I have to weigh the First Defendant’s contention that if the injunction is continued, it will suffer irreparable harm and that damages will not be an adequate remedy for it either. The basis for this contention is that the First Defendant could suffer substantial damages if the injunction continues and that neither the Claimant nor its new parent BSM is of sufficient financial strength to be able to honour any damages, at least without fortification of any cross-undertaking, a matter to which I return below.[76]Mr Platts-Mills submitted that if Mr Cirella was right that the Claimant’s potential losses were as much as 1,000,000 Euros then so were the First Defendant’s because the loss would be the same lost margin of profit for each lost sale. This point has some superficial attraction to it, but on analysis it seems to me wrong for two reasons. First, whereas the Claimant is locked into the Distribution Agreement and can only buy from the First Defendant, the First Defendant has other distributors through whom it can sell and the business with the Claimant is only about 20% of its business overall. Second, since I have already indicated my intention to order an expedited trial, what I have to consider is what damages the First Defendant might suffer if the injunction continues for another four months (so for about 9 months in total) and is found at trial to have been wrongly granted.[77]The First Defendant can certainly point to the sales it would have made to M2M under the contract dated 26 June 2007, although its losses are to be measured by reference to the margin of profit of US$20 per terminal, not the sale price of US$400 per terminal, since the First Defendant would always have made US$380 per terminal selling to M2M via the Claimant. The only other contract said to have been under threat from the injunction was one where the threat was averted by the customer in question being removed from Schedule D to the Order. As regards other potential customers whom the First Defendant might have persuaded to contract direct with it rather than via the Claimant, there must be a real doubt as to how much successful “poaching” the First Defendant would have achieved in the period from July 2007 until an expedited trial in April 2008. In any event, if the First Defendant’s arguments are vindicated, it will be free to resume negotiations with such customers once the trial has concluded.[78]Much is sought to be made by the First Defendant in its evidence and submissions of a concern that if the injunction continues and the First Defendant cannot contract with the Claimant’s customers direct, those customers will go to the First Defendant’s rivals, Skywave. This is said to be because the customers with whom the Defendants had contact after BSM purchased the Claimant in February 2007 expressed dissatisfaction about the fact that the Claimant was now owned by BSM which is a competitor of many of those customers of the Claimant who are value added resellers. Mr Cirella, Mr Martens and Mr Arcari dispute strenuously that there is any such dissatisfaction amongst the customers, saying that nothing of the kind has been expressed to them. It seems to me striking that the First Defendant has produced no evidence from any customer of such dissatisfaction or an intention to go to Skywave. If there really were such a threat, I would expect it to have manifested itself independently.[79]I am left with the overwhelming impression that the alleged threat of customers going to Skywave is no more than speculation and is not such as could possibly lead to a substantial loss being suffered by the First Defendant if, at the trial in four months time, it is concluded that the injunction has been wrongly granted. Doing the best I can to estimate that loss, I do not see how it could possibly exceed the £50,000 to £100,000 range and is more likely to be at the lower end of the range.[80]Turning to the question of the financial viability of the Claimant and its parent company to honour any award of damages in that range, I accept Mr Lowenstein’s submission that the Claimant is a profitable company. The last audited accounts show that it made a net profit for the year ended 31 December 2006 of 439,645.31 Euros. From the latest management accounts for the 9 months to 30 September 2007, net income for that period of 277,019 Euros is shown. The total assets of the company are said by Mr Cirella to be 641,152 Euros as at 30 September 2007.[81]The position of BSM is somewhat different. Despite every attempt by Mr Cirella and Mr Mann to portray it as financially sound, with an ability to raise loans from the market in Canada and elsewhere, so that it would be able to honour any judgment for damages, I am far from satisfied about its financial security. Note 2 to both the audited Consolidated Financial Statements to 30 September 2006 and the unaudited Interim Consolidated Financial Statements for three and six month periods to 31 March 2007 (both of which were exhibited to Mr Cirella’s first witness statement) are in the same terms:
“2. While the financial statements have been prepared on the basis of accounting principles applicable to a going concern, several adverse conditions and events cast substantial doubt on the validity of this assumption. The Company has incurred significant operating losses in each of the last several years. The Company’s continued existence is dependant upon its ability to achieve profitable operations and to obtain alternative financing. There can be no assurance that the Company will be able to achieve profitable operations, nor that financing efforts will be successful. Management believes that the growth of the Company’s wireless AVL business and the recent launch of their Sentinel product line will improve the Company’s profitability. If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, the reported net losses, and the balance sheet classifications used.”
[82]Note 2 to the unaudited Interim Consolidated Financial Statements for the three and nine months ended 30 June 2007 is to same effect. For some unexplained reason Mr Cirella only exhibited page 1 of that document to his second witness statement in his endeavour to demonstrate the financial viability of BSM. However the totality of the document paints a somewhat different picture. The net loss for the nine month period to 30 June 2007 was Can $1,807,604, of which Can $809,994 was incurred in the three months to 30 June 2007, indicative of a deteriorating position.[83]Particularly stark and telling is a statement made in the document dated 29 August 2007 described as Management Discussion and Analysis forming part of those Interim Consolidated Financial Statements and evidently prepared by the company’s management:
“The Company believes that its current cash equivalents will be insufficient to meet its anticipated cash needs for ongoing operational expenses, working capital and capital expenditures. If cash generated from operations is insufficient to satisfy its liquidity requirements, the company may seek to sell additional equity or debt securities, holders of these securities could have certain rights, preferences and privileges senior to holders of its common stock and the terms of this debt could restrict the Company’s operations. The sale of additional equity or convertible debt securities could result in additional dilution to the Company’s existing stockholders. The company cannot be certain that additional financing will be available in amounts or on terms acceptable to it, if at all. If the company is unable to obtain additional financing, it may be required to reduce the scope of its operations, which could harm its business, financial condition and operating results.”
[84]Mr Platts-Mills relies, in addition to those matters, upon the fact that the share price of BSM has fallen from 40 cents to 11 cents since the spring of this year, having come down from 17 to 11 in the last month. He points out, quite rightly, that this may well affect the company’s ability to raise further financing, with the potentially serious consequences to which the last sentence of the passage I have quoted alludes.[85]With the greatest respect to Mr Cirella, all these materials are wholly inconsistent with the picture of financial viability and stability which he seeks to portray. However, whilst I will need to consider this issue of the financial standing of BSM further in the context of material non-disclosure and fortification of the cross-undertaking, I do not consider that it tilts the balance of convenience in favour of discharging the injunction. As I have said, I do not consider the likely damages the First Defendant will suffer if it transpires that the injunction was wrongly granted will be more than £50,000 to £100,000 and I reject any suggestion that the continuation of the injunction until an expedited trial will cause the First Defendant irreparable harm or that damages would not be an adequate remedy for the First Defendant.[86]A similar contention that damages would not be an adequate remedy is advanced on behalf of the Second Defendant. I am not convinced by that argument. Since the Second Defendant is essentially a salesman and the business with the Claimant only comprises 20% of the First Defendant’s business overall, it is difficult to see that he will suffer any loss at all by reason of the injunction. It is apparent from Mr Cohen’s skeleton argument that this part of his client’s case is very much parasitic upon the First Defendant’s case, in the sense that it is contended that if damages would not be an adequate remedy for the First Defendant, then they would equally not be an adequate remedy for the Second Defendant, since his agency company’s remuneration is partly sales related. I am not sure this follows given that the Claimant’s business is only 20% of the whole, but in any event since I have concluded that damages would be an adequate remedy for the First Defendant, they would equally be an adequate remedy for the Second Defendant, if he had suffered any loss and damage. In fact, I regard the suggestion that the Second Defendant will have suffered any loss and damage as a consequence of the injunction being granted as entirely speculative.

Conclusion on balance of convenience

[87]By contrast, it does seem to me for the reasons I have already given that the Claimant may suffer irreparable harm if the injunction is discharged now. The fact that the First Defendant has declined to give any undertaking not to negotiate with the Claimant’s customers suggests that unless restrained, it will take active steps through the Second Defendant to poach the Claimant’s customers. In those circumstances, the balance of convenience is very firmly in favour of maintaining the status quo and continuing the injunction until trial, particularly given an Order for expedition. It follows that, subject to the issues of material non-disclosure and fortification to which I now turn, the injunction will continue.

Full and frank disclosure

[88]By its Application Notice the First Defendant seeks the discharge of the entire Order made by Aikens J on the grounds that in its ex parte application the Claimant failed to disclose a number of material facts to the judge, namely: i) The true financial position of the Claimant and its parent company (upon which the Claimant has relied to fortify its cross-undertaking in damages); ii) The likely damage the First Defendant would suffer as a result of the Order preventing it from contacting customers; iii) The list of customers contained in Schedule D to the Order was inaccurate; iv) The fact that the First Defendant is legitimately entitled to and contractually obliged to maintain regular contact with certain of the companies listed in Schedule D to the Order; and v) The impact the order would have on the day-to day running of the First Defendant’s business; The Second Defendant makes an application in essentially the same terms. Mr Platts-Mills made the detailed submissions on this area of the case which were adopted by Mr Cohen.[89]Before considering the various heads of alleged non-disclosure, I should set out the relevant legal principles. These are usefully summarised in paragraph 161 of Mr Lowenstein’s skeleton argument as follows: a) The question of whether to continue or set aside the Injunction is a matter for the court’s discretion. b) The real question for the Court at the inter partes hearing on a Return Date is not what has happened in the past, but what should happen in the future. The court will often find it difficult to make a conclusion on non-disclosure at an interlocutory hearing in circumstances where it is unable to make a concluded finding of fact as to the materiality of the alleged non-disclosure (per Browne-Wilkinson V-C in Dormeuil Frères v Nicolian Ltd [1988] 1 WLR 1362 at 1368H). c) If a material non-disclosure is established, then the court will be ‘astute’ to ensure that a claimant who has obtained an ex parte injunction without full disclosure is deprived of any advantage he may have derived (Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1357 per Ralph Gibson LJ). d) However, even if there has been material non-disclosure, the Court has a discretion whether or not to discharge an order obtained ex parte and a discretion whether or not to grant fresh injunctive relief. Discharge of the order is not automatic on any non-disclosure being established of any fact known to the applicant which is found by the Court to have been material (per Morritt LJ in Marc Rich & Co Holding GmbH v Krasner & Ors(unreported 15 January 1999) at p7). e) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application.[90]I did not understand Mr Platts-Mills to dissent from those propositions. He emphasised quite rightly the importance of complying with what Mummery LJ describes in Memory Corporation v Sidhu [2000] 1 WLR 1443 at 1460 as “a high duty to make full, fair and accurate disclosure of material information to the court and to draw the court’s attention to significant factual, legal and procedural aspects of the case”. He also referred to Siporex Trade SA v Comdel Commodities [1986] 2 Lloyd’s Rep 428 where the Court emphasised that the applicant for ex parte relief must identify the crucial points for and against the application and not rely on general statement and the mere exhibiting of numerous documents.[91]I propose to consider the various alleged non-disclosures in a slightly different order to that set out in the Application Notice. First, I will consider (d) and (e) which in a real sense go together. As I have said earlier in this judgment, the problems deriving from the width of the original Order catching legitimate everyday communications between the First Defendant and the customers was resolved by consent and an amendment to the Order agreed once it was drawn to the Claimant’s attention. It does not seem to me that any question of failure to make full and frank disclosure can be said to arise. If any criticism is to be levelled at the Claimant in that regard, which I rather doubt, it can only be for failing to appreciate all the ramifications of the Order. Once the problems were pointed out, the Claimant reacted constructively and responsibly. It is also right to point out that the entitlement of the First Defendant to maintain regular contact with the customers in relation to technical enquiries is very much disputed by the Claimant so that even if there had been a non-disclosure (which there has not) I do not see how the Court could reach a concluded view about its alleged materiality at this interlocutory stage.[92]So far as inaccuracies in the list of customers in Schedule D are concerned, again once the First Defendant raised these with the Claimant, the Claimant promptly agreed to remove six customers from the list accepting that they were the First Defendant’s customers included in error and, although the Claimant disputed whether a further seven were its customers or the First Defendant’s, it agreed to remove those from the list as well. Mr Martens has apologised to the Court for any inaccuracy in the original list. It seems to me that if there was any non-disclosure, it was not deliberate and certainly not sufficiently serious to be visited with any sanction.[93]So far as the likely damage the First Defendant would suffer from the injunction is concerned, I have already found that any loss is likely to be relatively limited and rejected any suggestion made by the First Defendant that it will suffer irreparable harm from the injunction being in place. In those circumstances and given that a cross undertaking in damages was being required anyway, it does not seem to me that there was anything else about the First Defendant’s likely loss that the Claimant could or should have disclosed to the Court. I reject the Defendants’ submissions that there was a non-disclosure.[94]I am satisfied that there was no non-disclosure in relation to the financial standing of the Claimant itself, for reasons I have already given. Although it is not a large company, it is profitable. However, I do consider that there was a non-disclosure of the true financial position of the Claimant’s parent company, BSM. The matter arose in this way. At the ex parte hearing on 2 July 2007, Mr Lowenstein told the judge that the cross-undertaking in damages would be fortified by the parent company (i.e. BSM) “which has the wherewithal to stand.” Although, as I have said, the audited Consolidated Financial Statements to 30 September 2006 and the unaudited Interim Consolidated Financial Statements for three and six month periods to 31 March 2007 were exhibited to Mr Cirella’s first witness statement, Mr Lowenstein did not take the judge to those documents during his submissions. It is also clear that the judge had not read them for himself.[95]I make no criticism of Mr Lowenstein who seems otherwise to have presented the matter to Aikens J fairly and carefully, but it is unfortunate that he said what he did about the financial wherewithal of BSM without taking the judge to the various Financial Statements and particularly to Note 2 quoted at paragraph 81 above. The Interim Statements at 30 June 2007 from which I have quoted in paragraphs 82 and 83 above would not of course have been available at the hearing, although there is an obvious question as to the extent to which the financial position, which those Statements disclosed, was already known to management, specifically to Mr Cirella, as at 2 July 2007.[96]At all events, what happened was exactly the sort of failure to draw the attention of the judge to material information buried in pages of exhibits to which Siporex refers. In my judgment, given what Mr Lowenstein said to the judge about BSM’s “wherewithal to stand”, the non-disclosure was a serious one. It is clear from the decision of Hoffman J in Lock v Beswick [1989] 1 WLR 1268, that, in an appropriate case, the Court will discharge an Order made ex parte where there has been a material non-disclosure about the financial position of the claimant relevant to the cross-undertaking in damages. In that case the judge recognised that, notwithstanding that material non-disclosure, he had a discretion to maintain the order. He did not do so and discharged it because, without having to resolve any conflicting evidence, he was able to determine that the Anton Piller order should never have been made (see p 1279D-E and 1285A-C).[97]I have considered carefully whether in view of what I have concluded was a serious non-disclosure I should discharge the Order of Aikens J. I have concluded that I should not do so and that the injunction should continue for the following reasons: a) Unlike in Lock v Beswick,this is a case where the Claimant has satisfied the American Cyanamid criteria of serious issues to be tried, that damages would not be an adequate remedy for the Claimant and that the balance of convenience favours the continuation of the injunction. It would seem to me disproportionate and unjust to discharge the injunction. b) That is emphasised by the fact that the Claimant has not gained any particular advantage through the non-disclosure. I disagree with Mr Platts-Mills when he submits that if the true financial position had been disclosed to Aikens J he would not have granted the injunction. On the contrary it seems to me that he would still have granted the injunction. At most he might have required the Claimant to fortify the cross-undertaking in damages by a bank guarantee or other security, which the Claimant is of course now offering to do. c) I have considered whether I should express my disapproval of the fact that there was this non-disclosure by discharging the Order of Aikens J with the adverse costs consequences for the Claimant that would entail, whilst then granting an injunction in the terms now sought. In view of my conclusion that this is not a case where, had the full picture been available, Aikens J would have refused to grant the injunction, it seems to me that that would also be a disproportionate response and I decline to take that approach.[98]Before leaving this area of the case, I should deal briefly with another point taken in the Defendants’ Application Notices, that the Claimants should not have applied for ex parte relief and unfairly misrepresented to Aikens J the necessity for such relief. In view of my conclusion (set out at some length above) that the Claimant shows serious issues to be tried or a sufficiently arguable case against both Defendants of misuse of confidential information, and particularly in view of the apparent destruction of data and the information concerning the trip to Australia and New Zealand which emerged from the e-mails retrieved from the Second Defendant’s Blackberry, it seems to me that the Claimant was entitled to take the view that any injunction should be sought without notice, thereby ensuring that the Defendants were not alerted until the injunction was in place. This was a proper case for an ex parte application and there is no question of the Claimant having misrepresented the position to the Court.

Fortification of the cross-undertaking in damages

[99]The relevant principles to be addressed in considering whether the Defendants have made out a case for fortification of the cross-undertaking in damages were usefully summarised by Mr Michael Briggs QC (sitting as a Deputy

Judge of the High Court) in Harley Street Capital Ltd v Tchigirinski [2005] EWHC 2471 (Ch):

“17. Have the defendants made out a case for fortification? Counsel reminded me of three relevant principles which must be addressed when considering that question. The first is that where fortification is sought, then although the loss itself, and certainly the quantification of the loss will lie in the future, the court is nonetheless required to make an intelligent estimate of the likely amount of the loss. That much was laid down in Re DPR Futures Limited [1989] 1 WLR 778 at 786 by Millett J (as he then was). 18. Secondly, it is for the applicant for fortification to show a sufficient level of risk of loss to require fortification. That much was laid down by Mann J in the following passage from Sinclair Investment Holdings v Cushnie [2004] EWHC 218 (Ch) at paragraphs 24 and 25: “I have already identified the evidence in this case which indicates that the cross-undertaking is of very uncertain value, but that does not automatically mean that fortification is required. In the light of the authorities just cited, it is both appropriate and necessary for me to consider the extent to which a risk of loss has been shown. In many cases the fact that there is a risk of loss will be obvious merely from the general situation, and while it may not be possible to put anything like a precise figure on the loss, the court, will if necessary, do what it can on the evidence before it to reach an appropriate figure. The courts are well accustomed to assessing the appropriate value to be given to things whose valuation is difficult. In some cases it will be possible to make a more precise or confident assessment than in others. The mere absence of particularised evidence does not mean that there is no evidence of a risk of loss. [Counsel] submitted that what he had to show was a risk of loss; any more refined questions of causation and likelihood would be appropriate for the enquiry (if any) should the cross-undertaking be called upon. I agree with that as a general approach. By and large it will be unnecessary and inappropriate for a court to go into a detailed and prolonged assessment of difficult questions on causation on applications for interim relief, not least because it might become entirely academic. 25. However, that leaves open the question of a threshold which has to be crossed by a Respondent in establishing that there is a sufficient risk of loss. If it is not sufficiently apparently that there is a sufficient risk of loss, then while that is no reason for not extracting a cross undertaking, it would be a reason for not requiring fortification. It seems to me impossible to specify any formula for or definition of that level of risk. All that can be said is that the court must be satisfied that there is a sufficient level of risk to require fortification in all the circumstances. That will be a question of judgment in every case where it arises (though there will be large numbers in which it will not have to be the subject of any particularly anxious enquiry.)” 19. The third principle is that loss will not qualify for compensation under the cross-undertaking unless it has been caused by the grant of the injunction. Though normally that is an issue decided on an enquiry as to damages at the end of the day, the causation issue must also be examined in forming an intelligent estimate of likely loss at the fortification stage.” “I have already identified the evidence in this case which indicates that the cross-undertaking is of very uncertain value, but that does not automatically mean that fortification is required. In the light of the authorities just cited, it is both appropriate and necessary for me to consider the extent to which a risk of loss has been shown. In many cases the fact that there is a risk of loss will be obvious merely from the general situation, and while it may not be possible to put anything like a precise figure on the loss, the court, will if necessary, do what it can on the evidence before it to reach an appropriate figure. The courts are well accustomed to assessing the appropriate value to be given to things whose valuation is difficult. In some cases it will be possible to make a more precise or confident assessment than in others. The mere absence of particularised evidence does not mean that there is no evidence of a risk of loss. [Counsel] submitted that what he had to show was a risk of loss; any more refined questions of causation and likelihood would be appropriate for the enquiry (if any) should the cross-undertaking be called upon. I agree with that as a general approach. By and large it will be unnecessary and inappropriate for a court to go into a detailed and prolonged assessment of difficult questions on causation on applications for interim relief, not least because it might become entirely academic. 25. However, that leaves open the question of a threshold which has to be crossed by a Respondent in establishing that there is a sufficient risk of loss. If it is not sufficiently apparently that there is a sufficient risk of loss, then while that is no reason for not extracting a cross undertaking, it would be a reason for not requiring fortification. It seems to me impossible to specify any formula for or definition of that level of risk. All that can be said is that the court must be satisfied that there is a sufficient level of risk to require fortification in all the circumstances. That will be a question of judgment in every case where it arises (though there will be large numbers in which it will not have to be the subject of any particularly anxious enquiry.)”
[100]Applying those principles to the present case, I have already formed an intelligent estimate of the likely amount of the loss which the First Defendant would suffer as a consequence of the injunction having been wrongly granted earlier in this judgment. My conclusion was that the damages would be no more than in the range £50,000 to £100,000. The position is that the Claimant offered fortification of the cross-undertaking in damages in the form of a bank guarantee for Can $100,000, both by its solicitor’s letter of 4 December 2007 before the hearing began and during the hearing through submissions made by Mr Lowenstein. Of course, that equates to about £50,000, the lower end of my range of the likely amount of the loss. The question remains whether I should require the Claimant to provide further fortification in the form of a bank guarantee for the full £100,000.[101]I have reached the conclusion that it would not be appropriate to require further fortification beyond that being offered for two reasons. First, as I indicated when discussing the question of possible loss earlier in the judgment, I am far from convinced about the loss that the First Defendant would really have suffered as a consequence of the grant of the injunction. Applying the second principle identified in Harley Street Holdings there does not seem to me to be a sufficient level of risk of loss above £50,000 to justify requiring fortification beyond that figure. Second, even if the First Defendant did establish a loss beyond that figure, I do not consider it would exceed the further £50,000 I have identified. In my judgment, the Claimant is itself sufficiently viable financially to be able to honour any such sum above £50,000 which might be awarded as damages.[102]Accordingly, the Claimant having agreed to provide fortification for the cross-undertaking in the amount of Can $100,000, the application for further fortification is refused.

Form of Order

[103]The Defendants argued that in any event, paragraph 1 of the Order in particular was in too wide terms and should be limited. In my judgment, the Order should in principle be in the terms sought, in view of the First Defendant having declined to provide an undertaking not to seek to negotiate with or sell to the customers in Schedule D. Having said that, it does seem to me that with appropriate safeguards, the Defendants’ legal advisers should be able to approach the customers solely for the purpose of obtaining evidence in these proceedings. I will hear Counsel as to the form of Order which will best achieve that and as to any consequential matters arising out of this judgment, including as to costs.

Conclusion

[104]The outcome of the various applications is: i) I consider that the Claimant satisfies the American Cyanamid criteria for the continuation of the Order sought until trial or further Order. I will order an expedited trial, to be heard not before 1 April 2008. ii) The Defendants’ applications to set aside the Order of Aikens J for non-disclosure and on other grounds are dismissed. iii) The Claimant having offered to fortify its cross-undertaking in damages by the provision of a bank guarantee in the sum of Can $100,000, the First Defendant’s application for further fortification of the cross-undertaking is refused.

Cited in 7 later judgments