QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| SECTRACK NV
|- and -
|(1) SATAMATICS LIMITED
(2) JAN LEEMANS
Mr Mark Platts-Mills QC and Ms Lindsay Lane (instructed by Allen & Overy LLP) for the 1st Defendant
Mr Edward Cohen (instructed by Ross & Craig) for the 2nd Defendant
Hearing dates: 5th and 6th December 2007
Crown Copyright ©
Mr Justice Flaux:
Introduction and background
The present applications
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.
Summary of the issues
Serious issue to be tried: breach of Distribution Agreement
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."
Serious issue to be tried: breach of confidence
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.
"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.
"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."
"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  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.""
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.
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.
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.
Adequacy of damages as a remedy for the Claimant
Adequacy of damages as a remedy for the Defendants
"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."
"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."
Conclusion on balance of convenience
Full and frank disclosure
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.
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  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  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.
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.
Fortification of the cross-undertaking in damages
"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  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  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."
Form of Order
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.