Brainbox Digital Ltd v Backboard Media GmbH & Anor [2017] EWHC 2465 (QB)

[2017] EWHC 2465 (QB)Case No HQ17X02604
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 6 October 2017
Before
MR JOHN HOWELL QC(Sitting as a Deputy High Court Judge)
Between
BRAINBOX DIGITAL LIMITEDClaimant(1) BACKBOARD MEDIA GMBHDefendants(2) CHRISTIAN HANSENDefendant
Mr Max Mallin QC (instructed by Kemp Little LLP) for ClaimantMr David Reade QC and Mr Alexander Robson (instructed by Clintons) for DefendantsHearing Hearing date: 26 September 2017
Judgment ApprovedMr John Howell QC :
[1]This judgment deals with(i) the question whether a proprietary and freezing injunction obtained by the Claimant should be continued and, if so, on what conditions, and(ii) the Defendants’ application for security for their costs of this claim.

BACKGROUND

[2]These matters arise in a claim brought by Brainbox Digital Ltd (“Brainbox”) against Backbord Media GMBH (“Backbord”) and Christian Hansen.[3]Brainbox is a company that acts as an intermediary between online advertisers and digital publishers.[4]Backbord is a publisher based in Germany with a number of websites, principally price-comparison websites, on which advertisers place advertisements. It also claims that it “retargets” internet users. Mr Hansen is the Head of IT at Backbord.[5]On April 29th 2015 Brainbox entered into an agreement with eBay Partner Network Inc (“eBay”) under which eBay agreed to pay Brainbox a specified sum for each referral of an internet user whose search had been initiated on another website. The claims concern agreements that Brainbox contends that it had with each of the two defendants, the first with Backbord on April 30th 2015 and the second with Mr Christian Hansen on February 23rd 2016. The Claimant contends that, under these agreements, when an internet user searched a website belonging to the Defendants, they would present the internet user with an advertisement drawn from eBay (via the Claimant’s and eBay’s application programming interfaces). Brainbox agreed to pay the Defendants 70% of the revenue which it derived from eBay as a result of such referrals. In the event Brainbox says that, by the end of March 2017, it had received some $8.4m from eBay and that it had paid €5.5m to Backbord and €434,00 to Mr Hanson.[6]In April 2017, however, eBay terminated its agreement with Brainbox by email. In May 2017 it demanded repayment of the amount which it had paid Brainbox as, so it claimed, its payments had been obtained by fraud. Brainbox says that the fraudulent activity involved the Defendants purchasing banner advertising on eBay’s website and embedding software in those adverts which had the effect of making it appear to eBay that internet users, who were already browsing on eBay’s website, had in fact been directed there from the Defendants’ websites. Brainbox says that the software involved had features designed to conceal its existence and to make investigation and discovery harder.[7]On July 21st 2017 Brainbox entered into an agreement with eBay to settle its claims. This apparently included provision for payment of $1.5m by Brainbox to eBay and obligations on Brainbox to seek to recover the payments which it had made to the Defendants and to share what it recovered with eBay.[8]In its claims against the Defendants Brainbox seeks damages and/or restitution of the sums it has paid them.[9]Its claim was issued on July 21st 2017. On the same day Kerr J made a proprietary and freezing injunction against both Defendants (“the injunction”) at a hearing without notice to them. The undertakings given to the Court included the following:
“1. If the court later finds that this order has caused loss to the [Defendants], and decides that the [Defendants] should be compensated for that loss, [Brainbox] will comply with any order the court may make. 2. Within 7 days of the date of this order [Brainbox] will pay the sum of £100,000 into the client account of [its] solicitors Kemp Little LLP [to] be held by Kemp Little LLP pending further order of the Court.”
[10]The order granting the injunction provided for a hearing inter partes on July 31st 2017. On July 31st Kerr J adjourned the return date and ordered that the injunction should continue, with certain variations, until the conclusion of the hearing on the adjourned return date. One variation was to increase the amount to be deposited with Kemp Little LLP by a further £25,000, making a total sum of £125,000 to be held pending further order by the Court.[11]Particulars of Claim were filed on August 11th 2017. The Defendants’ defences are due to be filed, by agreement, on October 11th 2017.

CONTINUATION OF THE INJUNCTION

[12]There is some agreement between the parties in relation to the injunction. i) Brainbox is content that it should cease to apply to Mr Hansen. ii) The parties are also agreed, if the injunction is to continue in force, that, upon certain undertakings, Backbord may use its existing cash reserves (found in its Hamburger Sparkasse and Deutsche Bank accounts) and any other monies subsequently received, in the proper performance of its business. The undertakings are that, until trial or further Order, Backbord will(a) continue to provide bank statements on a monthly basis to Brainbox (as envisaged by paragraph 11 of the injunction);(b) continue to inform Brainbox, before spending money, where the money is to come from (as envisaged by paragraph 14(3) of the injunction); and(c) (subject to one possible exception) will not make any payments of dividends to shareholders, or otherwise dispose of monies, save in the ordinary and proper course of business. This agreement and these undertakings I will refer to as “the agreed adjustment for normal business”. The one possible exception from this third undertaking is that Backbord wishes to pay Mr Borkenhagen, its Managing Director, a salary each month of €10,000. This is opposed by Brainbox and it would appear that the parties wish the court to resolve that dispute. iii) Backbord are content in principle that the injunction should continue but only, as Brainbox is no longer a viable business and is being wound down, if there is provided an unlimited undertaking in damages from a third party who does have the means to support one. Brainbox opposes any such condition. It does not suggest that its own undertaking has any substantial value. But it contends that Backbord have not made a sufficient case for further fortification of its cross-undertaking. (i).

(a) the Defendants’ case

[13]On behalf of the Defendants, Mr David Reade QC contended that there is the real risk that Backbord will suffer uncompensated loss if it turns out that the injunction was wrongly granted. Mr Reade relied on the evidence given by Mr Karim Bouzidi, a solicitor who is a partner at Clintons and who has conduct of the matter for the Defendants.[14]In his first witness statement dated September 18th 2017, Mr Bouzidi stated that Backbord was a fast growing entrepreneurial business, whose activities were substantially disrupted on receipt of the injunction. He stated that it is impossible to know what business opportunities were lost as a result in the immediate aftermath but, at the very least, Backbord was unable to fulfill an agreement to increase traffic to Yieldkit and Awin and as a result suffered an immediate financial loss and a loss of faith in it as a reliable counterparty. Mr Bouzidi also stated that the manner in which the injunction was enforced in Germany effectively froze the Defendants’ bank accounts depriving them of the ability to incur expenditure on ordinary business expenses (as had been provided for in the injunction) with the result that the Defendants had to authorise each transaction manually and to ask Brainbox to authorise any payment. Moreover, so Mr Bouzidi said, the uncertain effects of the injunction restraining any use of the proceeds of the payments made to the Defendants by Brainbox and any assets acquired with them meant that Backbord was unwilling to spend its reserves on online advertising campaigns that are the lifeblood of its business. (Although he recognised in his second witness statement that Brainbox had stated that Backbord could spend inter alia €50,000 on campaigns, he stated that it did not have the certainty to which it was entitled pursuant to the injunction.) In the absence of such campaigns Backbord’s standing with its trading partners has, so Mr Bouzidi said, been “severely damaged”. He said that Backbord had estimated that, as a result of the injunction, by September 18th 2017, the “loss of revenue” that it had suffered was at least €160,000. He stated that the directors of Backbord were concerned about its ongoing viability unless changes were made. Given that it cannot trade properly it was then thought likely that employees would shortly look for employment elsewhere.[15]In relation to Mr Hansen, Mr Bouzidi stated that the principal impact of the injunction had been emotional and that his doctor declared that he was unfit to attend work for a period of 6 working days by reason of the resulting stress.[16]Mr Bouzidi stated that the amount held by Brainbox’s solicitors was calculated by reference to the costs likely to be incurred only through to the Return Date and that there is no meaningful undertaking to cover the loss that Backbord has suffered and stands to suffer by reason of the injunctions. Mr Reade submitted that it was not sufficient to say that Backbord cannot particularise its anticipated loss with precision. It is sufficient if (as here) it is realistic to suppose that the existence of the freezing order could cause significant damage to Backbord: see Bloomsbury International Limited and Others v Holyoake and Others [2010] EWHC 1150 (Ch) per Floyd J at [25]. Mr Reade submitted that the court should take the course least likely to lead to injustice and that that would be to require an unlimited undertaking in damages by someone with the means to support it. He pointed out that Brainbox has been represented by leading counsel instructed by a City firm throughout and has issued proceedings in Germany against the Defendants as well as other individuals. He suggested that this must have involved “a huge investment of funds” and that there was no reason why that same investor could not or should not provide an unlimited undertaking.

(b) Brainbox’s response

[17]On behalf of Brainbox, Mr Max Mallin QC contended that there is no basis for making the injunction conditional upon the provision of a further unlimited undertaking. The relevant question is whether the cross-undertaking that Brainbox has already given should be further fortified. He submitted that the existing level of fortification, represented by the amount held by Brainbox’s solicitors, is sufficient.[18]In that respect Mr Mallin relied on principles stated by Michael Briggs QC when sitting as a deputy judge in the Chancery Division in Harley St Capital Ltd v Tchigirinski and others [2005] EWHC 2471 (“Harley Street”). He submitted that fortification may be required(i) when the court has made an intelligent estimate of the likely amount of any loss which might be suffered by the applicant for fortification by reason of making the interim order;(ii) the applicant has shown a sufficient level of risk of loss to require fortification; and(iii) the making of the interim order is, or was, a cause without which the relevant loss would not be, or would not have been, suffered.[19]Mr Mallin contended that Mr Bouzidi’s witness statement was lacking in any detail which was necessary to substantiate his assertions and that he had failed to identify what the source and basis for those assertions were. Mr Mallin pointed out that the figure of €160,000, which represented the effects of the matters to which Mr Bouzidi had referred, was merely a loss of revenue, not Blackboard’s loss of profit. He suggested that, at most, that could not have given rise to a loss of profits of more than €80,000. Moreover, so he contended, there is no supporting evidence that the fall in revenues in August (on which this alleged loss was based) is attributable to the injunction as opposed to other factors. No documentation has been provided in relation to the alleged inability to perform the contracts referred to. Moreover, so he contended, the failure to run campaigns was a decision that Backbord itself made. Mr Mallin submitted that a person affected by an injunction cannot simply do nothing if its strict terms need variation: the court will readily agree variations to accommodate bona fide transactions even if the applicant does not consent. But here Brainbox did consent to reasonable requests when approached. Backboard’s losses were self-inflicted.[20]Mr Mallin further submitted that only loss caused by the preventative or coercive effect of the injunction will be recoverable: see Harley Street supra at [22]. That meant, so he submitted, that legal costs will not be recoverable under the undertaking but that in any event there is no evidence as to the amount of costs attributable solely to the injunction (as opposed to the claim generally). Mr Mallin further contended that misconceived reactions by third parties are unrelated to such effects of the injunction and that any purely reputational damage divorced from the consequences of the restraint it imposes will be irrecoverable: see Harley at [33].[21]Mr Mallin also contended that there is no evidence of any likely future loss and no basis for suggesting any risk of future loss. There is no evidence of past loss and the restrictions that Mr Bouzidi said had led to any loss will not occur given the agreed adjustment for normal business. The current level of fortification is, therefore, more than sufficient and no further fortification should be required.

(c) consideration

[22]The principles to be applied when determining whether fortification of a cross-undertaking in damages is required were considered by the Court of Appeal in Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295, [2015] 1 WLR 2309. As Tomlinson LJ stated (in a judgment with which the other members of the Court agreed), what an applicant for fortification must show is a good arguable case that such fortification is required. That does not involve, however, proof on the balance of probabilities: see at [52] and [53].[23]Tomlinson LJ endorsed (at [53]) the summary of the principles given by Briggs J in Jirehouse Capital v Beller [2008] EWHC 725 (Ch). As Briggs J there put it:
“Broadly speaking, they require an intelligent estimate to be made of the likely amount of any loss which may be suffered by the applicant for fortification by reason of the making of an interim order. They require the court to ascertain whether there is a sufficient level of risk of loss to require fortification. They require that the loss has been or is likely to be caused by the granting of the injunction.”
Tomlinson LJ observed that: “53.......The three requirements are of course inextricably linked...In this interlocutory context, showing a sufficient level of risk of loss to require fortification is synonymous with showing a good arguable case to that effect. In some cases the assessment of loss may at the interlocutory stage be difficult. It is in such cases that an intelligent estimate is required. An intelligent estimate will be informed and realistic although it may not be entirely scientific. 54. As to causation, it is sufficient for the court to be satisfied that the making of the order or injunction was a cause without which the relevant loss would not have been suffered...It is of course open to the defendant to demonstrate that it has not been surmounted, as by demonstrating that there is no causal link between the granting of the injunction or order and the loss in question. If however, disproving the asserted causal link as to which a good arguable cause is shown requires the deployment of extensive contentious evidence and argument, that is not an exercise to be attempted at the interlocutory stage”.[24]These principles require the party seeking fortification, therefore, to show a good arguable case for fortification. That requires it to show a good arguable case that there is a sufficient risk that some estimated loss has been, or will be caused, by the effects of the injunction which the claimant’s cross-undertaking (and any existing fortification) may not cover.[25]Mr Mallin submitted that, in the light of these principles, there was no basis for making continuation of the injunction conditional upon a further, unlimited undertaking in damages. What the Defendants were seeking was something other than fortification of the Claimant’s cross-undertaking: fortification is something limited in amount. Mr Reade, by contrast, submitted that there was no such limitation and that the question was simply whether requiring such an unlimited undertaking was least likely to lead to an injustice.[26]In my judgment the court may require, as a condition for granting or continuing an injunction, that the cross-undertaking given by the applicant is fortified by the provision by someone other than the applicant of an unlimited, or a limited, undertaking, or by the making of some other form of limited provision, to meet any loss that the injunction may cause: see Stephen Gee QC Commercial Injunctions 6th ed p347. Any fortification required is not necessarily limited in amount. The court has a wide discretion as to the conditions on which it may grant or continue an injunction. Discretions of that kind should not be fettered by rigid judge-made rules. Thus, for example, the default position is that an applicant for an interim injunction is required to give an unlimited cross-undertaking in damages, but there are circumstances in which no such undertaking may be required (for example in the case of a law enforcement agency enforcing the law in the public interest) and circumstances in which the extent of the cross-undertaking may be limited (for example in the case of a liquidator of an insolvent company). The question of the extent of the cross-undertaking remains a matter of discretion for the judge who grants the injunction: see eg JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139, [2016] 1 WLR 160, (“Pugachev”) per Lewison LJ at [68]-[69], [73]. So equally in my judgment does any requirement for fortification of the applicant’s cross-undertaking and the extent of any such fortification that the court may require.[27]The principles that apply to applications for fortification nonetheless require an informed and realistic estimate to be made of the likely amount of the loss that the applicant for fortification may suffer given the unlimited cross-undertaking it already has. There would be no point in requiring such an estimate of the likely loss to be made if the extent of any fortification required was not normally to be related to it. The court could have adopted a different approach. The court could simply have required an applicant for fortification to show a good arguable case that there was a significant risk that it might suffer some, otherwise uncompensated, loss (without requiring any informed and realistic estimate of such loss to be made) and to have then required a further unlimited undertaking to be provided by a person other than the applicant for the injunction. Such an approach might well give the applicant for fortification some greater security that it will receive compensation for any loss which it suffers if it transpires that the injunction was wrongly granted. But it would do so only by requiring the provision of what may well be an unnecessary guarantee and one which the applicant for the injunction may find it harder to arrange (thus putting such remedy as it may finally obtain at greater risk of proving ineffective and denying it justice in practice). Such an approach would normally, therefore, be disproportionate. Identifying what level of fortification there is a good arguable case for enables no more, and no less, than what appears to be the necessary amount of security to be provided.[28]The principles that apply to fortification are thus different from those that apply to the cross-undertaking normally required of an applicant for an injunction. The failure to establish a sufficient risk of loss is no reason for not extracting a cross-undertaking from it. This is not merely because the cross-undertaking may be required and given on a without notice hearing before the defendant has had the opportunity to give evidence about loss (or indeed anything else). As Lewison LJ stated in Pugachev supra at [77], “it is…fairness rather than the likelihood of loss that leads to the requirement of a cross-undertaking....In addition...the cross-undertaking is regarded as the price that must be paid for the interim interference with the defendant’s freedom”.[29]Before considering what justice ultimately requires in this case as Mr Reade invites me to do, it is necessary first to consider what follows in this case from the application the principles I have described.[30]There is a significant difference in principle between difficulty in the quantification of a loss that can be seen to be likely to occur and the absence of evidence of the likelihood of a significant loss on the other hand. There must be an evidential foundation for the case for fortification: see Bhimji v Chatwani (No 2) [1992] BCLC 387 per Knox J at p403, Pugachev supra per Lewison at [98]. Mr Mallin sought to suggest that in this case, such were the deficiencies in Mr Bouzidi’s witness statements, there was no such evidential foundation with respect to any loss already suffered, or likely to be suffered, by the Defendants.[31]It is no doubt the case that what Mr Bouzidi states to be the facts are matters of which he does not have personal knowledge and that, generally, he does not identify what individual may be the source of his instructions, and that he does not produce the documents from which he has derived his beliefs, on particular matters. Mr Mallin submitted that Mr Bouzidi’s statement so far as relevant failed to comply with paragraph 18.2 of the Practice Direction under CPR Part 32. The rules as to witness statements, however, are not rigid statutes and in particular circumstances they may be properly relaxed in order to achieve the overriding objective. In this case Mr Bouzidi’s statements are not being used at trial or in support of an application for summary judgment. Nor are they being used as part of any enquiry as to damages that the Defendants have suffered as a result of the injunction. That is not to say that Mr Bouzidi’s statements should not have complied with the requirements of the practice direction. They should have done so. But in my judgment it would not promote the overriding objective wholly to disregard their contents in the context of this application.[32]For example Mr Bouzidi states that disclosure given to Brainbox shows that Backbord had an income from other customers after the last payment by Brainbox, between April and August 2017 alone, of approximately €600,000 and that Backbord estimates its loss of revenue as a result of the injunction, to be €160,000 by reference to the average revenue during the course of the four months before August 2017 compared to the “negligible amount of business in August”. It is clear, from the third witness statement made by Mr Mark Alexander Lewis, a solicitor who is a partner in Kemp Little LLP who has conduct of the matter on behalf of Brainbox, that the Claimant does in fact have access to the Defendants’ bank statements, since he makes the point that in some months the revenue was significantly lower than €160,000. Thus, although Mr Bouzidi does not produce the relevant documents or state which individual provided him with the information he provides, in my judgment wholly disregarding his statements would not enable the court to deal justly with the question whether further fortification of the cross-undertaking should be required. That does not mean, however, that their deficiencies are irrelevant or need not be taken into account when considering the weight to be placed on the assertions they contain.[33]The Defendants claim to have suffered by September 18th 2017 at least €160,000 “loss of revenue”. In my judgment it is indeed likely that Backbord has suffered a loss of revenue which it would not have done had the injunction not been granted.[34]It is plain that measures taken in Germany to give effect to the injunction must have disrupted Backbord’s trading activities. Mr Lewis accepted in his third witness statement that “the German method of enforcing a Freezing Order does not provide for regular payments to be made”. It appears that initially, when the need to do so was drawn to its attention, Brainbox authorised some German banks to release certain amounts in the Defendants’ accounts to enable specific payments to be made. But having to make such applications to Brainbox would inevitably have disrupted Backbord’s business activities. Backbord approached the Claimant on August 14th 2017 for its cooperation to ensure that it could withdraw €91,700 per month from its bank accounts for expenses incurred in the ordinary and proper course of its business (including €50,000 for advertising campaigns). Brainbox said that it would do so provided that it was satisfied by Backbord that none of the payments would be derived from payments that Brainbox had made to it. That offer was refused, so it appears, as, in Backbord’s view, it went beyond the terms of the injunction (which did not envisage permission having to be sought and obtained from Brainbox to make every payment in the normal course of its business). It appears from Mr Lewis‘s third witness statement that Brainbox then sought to ensure that the sums Backbord had sought could be released from the German banks (while reserving its right to complain of a breach of the injunction if the amounts paid were derived from the payments it had made to Backbord). There were difficulties making those arrangements with the banks which, Mr Lewis stated, were resolved by August 24th 2017. On September 11th 2017 Backbord proposed what is now the agreed adjustment for normal business, which Brainbox agreed on September 13th 2017.[35]Mr Mallin sought to contend that any disruption to Backbord’s business was effectively of its own making as Brainbox was willing to agree reasonable measures to accommodate any problems it had. That is not accepted by Backbord. Even after arrangements may have been put in place later in late August to enable Backbord to use its own accounts to make payments up to €91,700 per month on normal business activities, Mr Bouzidi stated that Backbord was inhibited in engaging in campaigns because of the risk that it might be alleged to be in breach of the restraint on use of payments derived from Brainbox and also because, absent a court order, Brainbox could have changed its position and Backbord was unable to expose itself and its clients to the risk of being unable to pay.[36]This is not an enquiry into any damages suffered by reason of the grant of the injunction. Applications for variation of an injunction are not simple, take time to prepare and are not without cost. Approaches to claimants to agree variations, or to provide suitable written indications to banks and other third parties that particular payments are not caught by the order, are often not straightforward. They may give rise to disputes about the terms which claimants are prepared to act or the consequences given the terms available. Whether Brainbox can show that Backbord unreasonably failed to mitigate any loss that the injunction caused is a matter that would require more detailed consideration than is possible in proceedings of this character and on the basis of the information now available.[37]For present purposes in my judgment Backbord has a good arguable case that its business was disrupted as a result of steps taken to enforce the injunction in Germany and that this will have resulted in it losing revenue.[38]In my judgment it is also possible that the disruption to its business may have caused damage to Backbord’s reputation in the market and may have caused it to lose business opportunities. But at this stage it is impossible on the evidence available to make any realistic estimate of what any such loss or damage suffered as a result of the effect of the injunction (as opposed to the claim itself) may amount to (if any) and to what extent (if any) any such loss is not reflected in the loss of revenue that Backbord is said to have suffered.[39]In considering the loss Backbord is likely to have suffered, it may well be, as Mr Lewis stated, that Backbord’s revenues from other clients fluctuated from month to month between April and August. But Mr Lewis does not suggest that in any previous month Backbord’s revenues had been negligible, as Mr Bouzidi said they were in August. The figures he provides support the scale of the reduction in revenues said to have occurred after the grant of the injunction. It may also be the case, as Mr Mallin submitted, that there are other factors involved in the decline of Backbord’s revenues after the injunction was granted apart from the disruption it caused. But Brainbox has not shown that there was no causal link between the grant of the injunction and the loss of revenue claimed.[40]For present purposes, therefore, the best estimate to be made is, that, as a result of the injunction, Backbord suffered a loss in revenues of €160,00 up until September 18th 2017.[41]As Mr Mallin pointed out, however, that amount is not claimed to be a loss of profit. Mr Reade did not take issue with Mr Mallin’s contention that such a loss in revenue would not involve a loss of profit of more than €80,000. That does not mean that, up to that date, Blackboard and Mr Hansen have suffered no other loss or damage that may be recoverable if the injunction was wrongly granted. Both may have claims for items recoverable as general damages under the undertaking if the injunction was wrongly granted. But in my judgment they have not provided an evidential basis for a conclusion that the recoverable loss suffered was greater than €80,000.[42]It may be that the Defendants have suffered further loss or damage to date of the hearing, although there is no evidence that would support any realistic estimate of its amount. Looking to the future, Mr Hansen is to be released from the injunction. Mr Bouzidi stated that the agreed adjustment for normal business is one “whereby [Backbord’s] business requirements can be met and its ongoing business salvaged”. If so, there is no significant threat to its future viability. But Mr Mallin’s assertion that there should be no recoverable loss going forward does not necessarily follow. It may take some time for Backbord to recover from any disruption. But there is again no evidential basis on which to make an intelligent estimate of what any such future recoverable loss could be.[43]Mr Reade also submitted that the Defendants’ costs to the first case management conference will themselves exceed the amount held by Brainbox’s solicitors and that that amount was calculated by reference to costs likely to be incurred through to the return date. It would appear from Brainbox’s skeleton argument for the hearing on July 20th 2017, the transcript of that hearing and the form of order that the money held by Brainbox’s solicitors is held to support the cross-undertaking. The Defendants’ costs of the injunction proceedings can and should be dealt with under the court’s costs jurisdiction. The Defendants have a separate application for security for costs that I shall consider shortly. That is not to say that there may not be legal costs that are recoverable under the undertaking in damages. But again there is no material on the basis of which any amount that is recoverable only as damages is realistically identifiable.[44]Overall in my judgment, therefore, the Defendants have not shown that there is a good arguable case that there is a sufficient risk that the loss which they have suffered, and are likely to suffer, as a result of the injunction if wrongly granted will exceed £125,000.[45]Against that background, I return to what justice requires. Although they vigorously deny liability, the Defendants do not suggest that there is not a serious issue to be tried or that Brainbox would not be likely to be prejudiced by their acts if the injunction is discharged and the claim succeeds. Brainbox has recognised that its cross-undertaking required fortification if the injunction was to be granted and maintained. An unlimited undertaking by way of further fortification would provide some greater security for the Defendants that any loss or damage they may suffer will be compensated if the injunction was wrongly granted and maintained. But in my judgment the Defendants have not shown a good arguable case that the existing amount of fortification is inadequate to cover the amount of the loss or damage which there is a sufficient risk that they have suffered and will suffer if the injunction is wrongly granted and maintained. It follows that, in accordance with the principles to be applied, no further fortification would normally be required.[46]In my judgment to require Brainbox to provide more fortification would be disproportionate in the circumstances. It is true that Brainbox has not adduced any evidence that no one would provide the unlimited undertaking which the Defendants now seek if it were to be required, which it should have done if it was to be said that such an undertaking would be unobtainable: see Pugachev supra at [81]-[85]. But, avoiding injustice requires (so far as possible) that a person restrained by an injunction should be protected against any loss which there is a good arguable case that there is a sufficient risk it may suffer if the injunction is wrongly granted. It does not require more.[47]The Defendants’ request, that maintaining the injunction in force should be made conditional on a further unlimited undertaking to meet any loss or damage the Defendants may suffer if the injunction is wrongly granted from a person with sufficient means to support such an undertaking, is accordingly refused. (ii). Mr Borkenhagen’s salary[48]As I have mentioned, Backbord wishes to pay Mr Borkenhagen, its Managing Director, a salary each month of €10,000. Mr Bouzidi does not suggest that Mr Borkenhagen has any contractual entitlement to this sum. Mr Lewis stated that, apart from a single large payment in June 2016, there have been nine “transactions” from July 2nd 2015 to March 2017 involving payments by Backbord to him amounting to €3,160 or €132 per month. It appears that, hitherto, any salary that Mr Borkenhagen has received for acting as Backbord’s Managing Director has been paid by others. Mr Bouzidi stated, however, that “in the absence of this payment from Backbord, Mr Borkenhagen will be in receipt of no other salary from September onwards” and that its proposed amount “has been calculated by reference to the amount he requires by way of income to continue his day to day life”.[49]Brainbox accepts that Mr Borkenhagen may be entitled to some income for acting as Backbord’s Managing Director. But it is concerned that such regular and significant payments, the arrangements for which were proposed only after the grant of the inunction, may provide a channel to dissipate assets which may be required to meet its claim if successful.[50]While there is no evidence that Mr Borkenhagen has no other means of supporting “his day to day life”, that without payment he will cease working for Backbord or why any other salary will cease at the end of Seprember 2017, in my judgment it is not unreasonable for Mr Borkenhagen to seek remuneration for his work as the Managing Director of Backbord from that company if he is not otherwise being paid for it. Mr Bouzidi expresses the view that the amount proposed “is a modest sum for someone with [Mr Borkenhagen’s] responsibility and skills”. Although Mr Lewis considered the amount “far from modest” and it represents a not insignificant amount having regard to what Mr Bouzidi stated was Backbord’s revenues in the four months before the injunction was granted, Brainbox has not suggested any other amount or supplied any evidence that would indicate that the amount proposed would be an excessive salary for a person acting as managing director of a company such as Backbord with the experience that Mr Borkenhagen has. In those circumstances, as he will apparently receive no other remuneration for acting as Managing Director after the end of September 2017, in my judgment it would appear that making such payments after the end of September would be reasonable and should be permitted.

SECURITY FOR COSTS

[51]The Defendants seek an order requiring Brainbox to give security for their costs of the claim until the conclusion of the case management conference in the sum of £200,000.[52]The first condition that has to be satisfied for there to be an order for security for costs is that there is reason to believe that Brainbox will be unable to pay the Defendants’ costs if ordered to do so: see CPR 25.13(1)(b)(i) and (2)(c). It is common ground that that condition is met. The issue is whether it is just to make such an order in all the circumstances of this case: see CPR 25.13(1)(a).[53]In Burnden Holdings (UK) Ltd v GJ [2014] EWHC 1908 (Ch), the Vice Chancellor, Sir Alastair Norris, stated (at [15]) that: “A number of principles are clear:(1) The rule addresses the risk that in the event that the defendant obtains the benefit of an adverse costs order then the claimant will be unable to satisfy it.(2) The court decides how that risk should be addressed by balancing potential injustice to the claimant arising out of the consequences of an order for security for costs against the potential injustice to the defendants of refusing to make such an order.(3) That balancing exercise is conducted by reference to a number of factors, different in nature and not all of the same weight, with the object of deciding whether it is “just”, in all the circumstances, to order security — for that is the conclusion to which the applicant defendants must persuade the court.(4) Amongst the factors to be weighed are: (a) Whether the claim is brought bona fide (b) Whether the claim has a reasonable prospect of success, (in that connection, the assessment of the prospect of success is to be made at the time of the interlocutory decision relating to security for costs and on the basis of the material that is then before the court. If, on that examination, it is clear that there is a high degree of probability about the outcome of the action one way or the other then that may be determinative of the security for costs application. But unless there is such a high degree of probability then the court should not undertake a detailed examination of the merits of the case, but should content itself with deciding whether the case has a reasonable prospect of success) (c) A further factor is what impact an order for security would have. (The burden lies upon the claimant who asserts that the effect of an order for security would be to stifle the claim to establish that impact on the progress of the case. Normally, this will require a filing of evidence to that effect, but the authorities are clear that there may be occasions when the impact of an order can be demonstrated by inference from other facts. But even if it is shown that the claim would be stifled by an order for security, that is not determinative and, in the right case, it might still be appropriate in doing justice to the defendants to make such an order (d) Another factor is that in assessing the impact of an order for security one can look at the nature of the company's impecuniosity. (If the company's impecuniosity has been caused or contributed to by the defendants then it may be unjust to require the impecunious company to protect the defendants against the risk which they have brought about. In assessing the company's impecuniosity it is right to look not only at the resources that are available to the company itself, but also to the possibility of resources being available from third parties.) (e) Next, the court must look at whether the application has been brought oppressively with the apparent object of stifling the claim. (f) Last amongst the factors; the court must look at the precise request for security which is made.

(i) submissions

[54]Mr Reade submitted that, although the prospects of success are relevant, the merits of the case should not normally be examined in any detail. He contends that no estimate of the costs of the claim through to trial can be provided at this stage but that security should be given to cover the Defendants’ costs through to the case management conference. Mr Bouzidi stated that the costs until then are estimated at £200,000. Mr Reade submitted that, in considering whether or not a claim is likely to be stifled by any order, the court will consider the Claimant’s ability to raise money from others. The onus, he submitted, was on Brainbox to show that is not possible to provide the security required. That it had not tried to do.[55]Mr Mallin contended that the application for security for costs is premature as no defence has yet been served and that Backbord has provided no evidence of its costs of the claim until the case management conference, incurred or prospective, to justify the amount sought. He submitted that, until the defence is served, the issues cannot be identified and that the court will be in a much better position to exercise an informed discretion in relation to a properly targeted application for security for costs at the case management conference if it remains relevant. He further submitted that, before the defence is served, no meaningful advice on the case can be provided to justify an application for ATE insurance and that, to order security to be provided before any such application could be considered, would be self-evidently oppressive. (ii). consideration[56]Although no defence has been filed, the Defendants have indicated in summary, through their solicitor, Mr Bouzidi, what their position at this stage in response to the claim is. On the basis of the information available and given the time available to examine the claim and that position, it would appear that Brainbox has a reasonable prospect of success. But it is not possible to conclude that there is a high probability about the outcome of the claim, one way or another.[57]The Defendants’ solicitor has estimated what their legal costs will be up to the case management conference. Mr Mallin is correct that no details have been provided as to how they have been estimated. But that they are likely to be substantial is not surprising given the nature and technical complexity of some of the allegations and the amount at stake.[58]I do not accept that an application for security at this stage is oppressive. Applications for security for costs should normally be made promptly as soon as the facts justifying the order are known. There is no requirement that a defendant must first serve a defence before making such an application. Were there to be such a requirement, a defendant may find that an impecunious claimant discontinues having received the defence without any provision having been made for payment of its costs.[59]It was for Brainbox to produce some evidence of any difficulty it would have in providing the security sought by the Defendants: cf Pugachev supra at [81]-[85]. That it has not done.[60]In the circumstances I am satisfied that it is just to make an order requiring Brainbox to provide security for the Defendants’ costs of the claim by paying into the Court Funds Office the sum of £125,000 within 14 days of the date of the order on the application for security. This will give Brainbox time to comply. The Defendants will have liberty to apply in the event of default.[61]It will be open to the Defendants to apply for the provision of further security at the case management conference if so advised and in the light of an estimate that is better supported.

CONCLUSION

[62]For the reasons given, i) the injunction shall cease to apply to Mr Hanson; ii) the injunction against Backbord will continue subject to a variation to accommodate the agreed adjustment for normal business (which should permit payment of a monthly salary of €10,000 for acting as Backbord’s Managing Director to Mr Borkenhagen); iii) the Defendants’ request, that maintaining the injunction in force should be made conditional on a further unlimited undertaking (to meet any loss or damage which the Defendants may suffer if the injunction is wrongly granted) from a person with sufficient means to meet such an undertaking, is refused; and iv) Brainbox shall give security for the Defendants’ costs of the claim by paying into the Court Funds Office the sum of £125,000 within 14 days of the date of the order on the application for security and the Defendants will have liberty to apply in the event of default.

Cited in 2 later judgments