England and Wales High Court (Chancery Division) Decisions

BUSINESS AND PROPERTY COURTS
OF ENGLAND & WALES
BUSINESS LIST

		Royal Courts of Justice
		23 February 2018

MR DAVID STONE (Sitting as a Judge of the Chancery Division):

1. This is an application for an injunction to require the defendant, Reynolds & Reynolds Limited ("R&R"), to provide access to its business software to the claimant, Blade Motor Group Limited ("Blade"), until the trial of this claim seeking rectification and specific performance of what is now a series of agreements between the parties.

Background

2. The background to the proceedings can be stated simply. Blade is a company which operates approximately 20 motor dealerships in the south west of England. R&R provides software and IT services to the automotive industry. In or around 1995, Blade acquired a dealer management software system from R&R called KDMS. Blade says that the KDMS system is central to its business. It was used to record, store, and manage information relating to Blade's business and customers, including financial information, customer data, and vehicle information. KDMS was installed on Blade's computer server located on Blade's premises.
3. Relevantly for present purposes, the written agreement between Blade and R&R was entered into on 26 June 2006. That agreement was before the court. Although there is no term expressly dealing with termination of any software licence provided under the agreement it is Blade's case that either (1) on the true construction of the agreement, Blade was entitled upon reasonable notice to R&R to reduce the number of software licences without terminating the entire agreement, or (2) that a term to that effect should be implied into the agreement.
4. In 2014, Blade decided to look for alternatives to the system that had been provided by R&R (Mr Flanagan's witness statement says 2015, but this is inconsistent with the Particulars of Claim and seems to be an error). Blade says it was open with R&R about its plans. There was a meeting in July 2014 to discuss Blade's intentions and its on-going requirements from R&R. Blade says that R&R's response was to seek to amend the agreement. An amendment was agreed. Blade now says that through the amendment signed on or about 5 August 2014, R&R tried to tie Blade to a five-year minimum term on the whole agreement.
5. At clause 3 of the 2014 amendment, it is stated:

"The parties agree that Clause 2.1 in Section E Software Support Services, of the Agreement is revised to the following:

[R&R] shall, subject to the terms of this Agreement, provide the Software Support Services until either party gives the other not less than ninety (90) days written notice of termination not to expire before the fifth anniversary of this Amendment."

6. In April 2016, Blade entered into an agreement with Pinewood Technologies Limited, a different software support provider, for a new system called Pinnacle and has been running that system since approximately that time. On 25 July 2016, Blade wrote to R&R explaining that it required the continued support of R&R during a period of transition from KDMS to Pinnacle. On 18 August 2016 following a meeting that day, R&R wrote to Blade alleging that the original agreement, as amended by the 2014 amendment, could not be terminated before 8 August 2019, that is, five years after the 2014 amendment was signed.
7. Correspondence ensued between the parties for nearly a year. On 16 June 2017, R&R wrote to Blade to say that it would be suspending performance of its obligations on 26 June 2017 unless payments of sums allegedly due were made. Those sums were not insubstantial, totalling over £40,000 alleged to have been owed by Blade to R&R at that time. Blade contests that.
8. On or about 1 August 2017, that is nearly a year after Blade's migration to the new Pinnacle system began, R&R applied a remote "lock" to the software it had supplied to Blade. This remote lock prevented (and continues to prevent) Blade from being able to log on to the system thereby preventing it from accessing data. Blade says that it has the data on its server but is unable to access it in a readable form without the R&R software.
9. These proceedings were filed on 12 February 2018. The claim seeks access to the KDMS software (that is, specific performance of the 2006 agreement as amended in 2014). This is sought on the basis of the irreparable harm being caused to Blade's business. Blade also seeks rectification of the 2014 amendment on the grounds of unilateral mistake, in that Blade did not understand the 2014 amendment to limit Blade's termination rights until 5 years after the amendment was signed.
10. Whilst R&R has not yet filed a defence (it is not yet required to), its case was set out in the skeleton argument of Mr Ali Tabari, who appeared for R&R. R&R's position is that the 2014 amendment is clear on its terms. And, R&R says, the five year minimum term is supported by the following exchange of emails between Blade and R&R:

a) R&R to Blade on 25 July 2014 at 2.50pm: "…Option 3: a Five year agreement including an RPI clause & the provision of 20 KDMS licenses at £167.40 each (a 75% reduction on the normal price…)";

b) Blade to R&R on 25 July 2014 at 3.25pm: "Mel. Could you get me: 5 Year Agreement? Year 1 and 2 fixed at current costs. Year 3, 4 & 5 RPI + 0.5%...";

c) R&R to Blade on 5 August 2014 at 2.14pm: "Stephen. Please find attached the paperwork for the long term agreement…";

d) Blade to R&R on 5 August 2014 at 2.58pm: "Mel. Attached are signed agreements…".

11. R&R will argue at trial that Blade knew it was entering into a new 5 year minimum term agreement: there was therefore no mistake.
12. In its mandatory interim injunction application Blade sought an order in the following terms:

"that [R&R] shall forthwith:

a) Provide [Blade] with the Software Licences set out in the Schedule attached to the Claimant's solicitors' letter dated 5 December 2016; and/or

b) Remove the remote block it has applied to the KDMS software on [Blade's] server; and/or

c) Reinstate [Blade's] access to the historical data contained on [Blade's] KDMS system."

All three alternatives were dealt with together: I was not asked to draw a distinction between them.

Evidence

13. The following witness statements were before the court: (1) a first witness statement of Michael Flanagan, a director and chairman of Blade, dated 12 February 2018; (2) a witness statement of Andrew Partridge, legal counsel for R&R; and (3) a second witness statement of Mr Flanagan, dated 22 February 2018. The legal interpretation of many of the facts set out in the three witness statements is disputed, although the facts themselves are not.
14. Mr Flanagan's witness statement sets out his version of the background to the dispute. He also gives Blade's evidence on the harm that he says will be suffered unless an injunction is granted. I return to that harm shortly.
15. Mr Partridge's evidence sets out his version of the background to the dispute and records his view that when licences similar to those in dispute in this case are terminated, R&R provides access to the software only for 90 days after termination of the agreement.

The Test for an Interim Injunction

16. The test to be applied when deciding whether to grant an interim injunction is, as is well known, laid down in American Cyanamid Co v Ethicom Ltd [1975] AC 396 and the parties were agreed that this was the approach I should take.
17. Mr Raj Arunugam, who appeared for Blade, submitted that there are three questions for the court to consider:

(1) Is there a serious issue to be tried? If the answer to this is 'yes', then two further questions arise.

(2) Would damages be an adequate remedy for the party injured by the court's grant of or refusal to grant an injunction?

(3) If not, then where does the balance of convenience lie?

18. I was also referred to the case of Fellowes v Fisher [1976] QB 122 where it is explained that where the question of adequacy of damages for either party is finely balanced, then it is a counsel of prudence for the court to take measures calculated to preserve the status quo. That case also stands for the proposition that the court is entitled to take into account the relative strength of each party's case.
19. Both parties agreed that the injunction requested before me is a mandatory injunction and so I was taken to a number of cases that deal with the test to be applied in relation to mandatory injunctions. In Films Rover International Limited and Ors v Cannon Film Sales Limited [1987] 1 WLR 670, Hoffman J (as he then was) said this:

"In the forefront of his argument counsel for Thorn-EMI submitted that the court should not grant an interlocutory mandatory injunction, amounting to specific performance of one of Thorn-EMI's alleged contractual obligations, unless there appeared a high probability that Films Rover would succeed in establishing its legal right at the trial. In this case the Court of Appeal has gone no further than to say that Films Rover has an arguable case and, as I have already said, I propose to treat that as meaning that Films Rover is at least as likely to fail as to succeed. Counsel said that fell well short of the standard of persuasion necessary for the grant of an interlocutory mandatory injunction.

…

The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the "wrong" decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been "wrong" in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.

…It is another way of saying that the features which justify describing an injunction as "mandatory" will usually also have the consequence of creating a greater risk of injustice if it is granted rather than withheld at the interlocutory stage unless the court feels a "high degree of assurance" that the plaintiff would be able to establish his right at a trial. I have taken the liberty of reformulating the proposition in this way in order to bring out two points. The first is to show that semantic arguments over whether the injunction as formulated can properly be classified as mandatory or prohibitory are barren. The question of substance is whether the granting of the injunction would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction. The second point is that in cases in which there can be no dispute about the use of the term "mandatory" to describe the injunction, the same question of substance will determine whether the case is "normal" and therefore within the guideline of "exceptional" and therefore requiring special treatment. If it appears to the court that, exceptionally, the case is one in which withholding a mandatory interlocutory injunction would in fact carry a greater risk of injustice than granting it even thought the court does not feel a "high degree of assurance" about the plaintiff's chances of establishing his right, there cannot be any rational basis for withholding the injunction."

20. The Court of Appeal has dealt with the issue of mandatory injunctions in Zockoll Group Ltd v Mercury Communications Ltd [1997] EWCA Civ 2317, [1998] 1 FSR 354, a decision of Phillips LJ with whom Simon Brown LJ agreed. Relevantly, for present purposes, that judgment cites an earlier judgment of Chadwick J in Nottingham Building Society v Eurodynamics Systems Plc and Ors [1993] FSR 468 and says this:

"A more concise summary, which I would commend as being all the citation that should in future be necessary, is the following passage in the judgment of Chadwick J in Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 at 474:

'In my view the principles to be applied are these. First, this being an interlocutory matter, the overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be "wrong" in the sense described by Hoffmann J [in Films Rover]

Secondly, in considering whether to grant a mandatory injunction, the court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage, may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo.

Thirdly, it is legitimate, where a mandatory injunction is sought, to consider whether the court does feel a high degree of assurance that the plaintiff will be able to establish this right at a trial. That is because the greater the degree of assurance the plaintiff will ultimately establish his right, the less will be the risk of injustice if the injunction is granted.

But, finally, even where the court is unable to feel any high degree of assurance that the plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if the injunction is refused sufficiently outweigh the risk of injustice if it is granted."

21. With that in mind, I turn now to each of the three limbs in the American Cyanamid test. First, in relation to a serious issue to be tried, this was conceded by R&R and I need not say anything more about it.
22. Second, would damages be an adequate remedy for the party injured by the court's grant of or refusal to grant an injunction? Blade submitted that damages clearly would not be an adequate remedy for it if no injunction is granted, contrasting that with an assertion that damages plainly would be an adequate remedy for R&R if an injunction is granted. As I mentioned earlier, the damage which Blade says it is suffering and will continue to suffer is set out in Mr Flanagan's witness statements and was put as follows:

1) Blade's auditors cannot perform their functions without access to the data stored on Blade's system through R&R's software. This, Mr Flanagan said, prevents the auditors from preparing properly audited accounts, which is considered a very serious matter for Blade and companies within the group. I am conscious that whilst the position in which Blade finds itself is not to be preferred, there was no evidence before me beyond Mr Flanagan's assertion that the results of failing to provide an audit would, at this stage, be unquantifiable for Blade;

2) Mr Flanagan gave evidence that Companies House had contacted Blade about a group company, Blade Motorcycles Limited, in relation to the late filing of accounts and threatening strike off proceedings against that company. The letter from Companies House was exhibited to Mr Flanagan's second witness statement and was dated 9 December 2017. Mr Tabari pointed out that no information has been given as to what happened next. That letter was dated 9 December 2017 and requested an answer within 28 days. It is therefore likely, he said, that Companies House has taken further action but we cannot know what it is because that is not before the court. There was no evidence before me that any fines levied by Companies House cannot be quantified;

3) Mr Flanagan gave evidence that Blade is unable to comply with requests for information that have been made by Her Majesty's Revenue & Customs but again, there was no evidence that that difficulty is insuperable or that any losses suffered are unquantifiable;

4) In the course of its business, Blade makes claims under car manufacturer warranties. Mr Flanagan gave evidence that Volkswagen has requested audit support from Blade. There was evidence that Blade has been unable to claim a warranty to the value of £1,782 as a result of lack of access to its data. I accept Mr Flanagan's evidence that there may well be more such refusals but, again, it does not seem to me that they are unquantifiable so long as records are kept;

5) Mr Flanagan gave evidence that Blade faces financial penalties from manufacturers in relation to data collection and potentially faces fines. Again, it seems to me that those difficulties are not insuperable and that the fines themselves can be quantified. There was no evidence that they would drive Blade out of business. Indeed, the evidence went the other way suggesting that Blade is in robust financial health; and

6) Mr Flanagan gave evidence that the lack of access to the data prevents Blade from meeting customer requests for information which will cause reputational loss to Blade. It does not seem to me that this particular head of damage can be put too highly: Mr Flanagan's evidence on this point was assertive only. It also became clear from my questioning of Mr Arumugam that Blade has access to current data: since mid-2016 Blade has been using Pinnacle. Therefore, any unfilled customer requests can only relate to dates from before that time.

23. Mr Tabari submitted that the unquantifiable loss occasioned to Blade by a qualified audit (the first of the 6 heads of unquantifiable loss put forward in Mr Flanagan's witness statements) was "vague and uncertain, and should be treated with deep scepticism". He said that there was no explanation as to how a qualified audit would affect Blade's business, which credit lines would be affected, how that would stymie future business or for how long it would have effect.
24. As to the other heads of loss, Mr Tabari submitted similarly that there is insufficient evidence, but that, in any event, they could all be compensated in damages. To the contrary, he submitted, and with some force, that the mandatory injunction would obviate the need for a trial – because if would give Blade the same result as if it won at trial, and a better result, he said, than any other customer of R&R terminating a contract on amicable terms, and in circumstances where Blade's substantive claim for rectification is weak.
25. I agree with Mr Tabari – I do not consider that Blade has provided sufficient evidence to substantiate its assertions that damages would be an inadequate remedy. In relation to the qualified audit, I agree with Mr Tabari that insufficient evidence has been provided. I have before me an assertion by Mr Flanagan that an unqualified audit would be damaging, but he has not provided evidence of how, nor the extent of that damage. I also keep in mind that the relevant data are now historic – and have been since mid-2016. Blade has access to its data since that date kept in the Pinnacle system. I also agree with Mr Tabari that the remaining heads of loss are quantifiable in damages, or, at least, that there was no evidence given by Mr Flanagan that demonstrates otherwise. There is nothing in Mr Flanagan's evidence that suggests that records cannot be kept of the financial penalties or other fines levied by Companies House, HMRC and/or Volkswagen. If there are customer complaints, they can be logged.
26. I therefore find on the basis of the facts before me that Blade has not proved that damages would not be an adequate remedy.
27. If I am wrong in that, I turn now to consider the balance of convenience and I do so on the basis of an assumption that, in this case, damages would not be an adequate remedy for Blade.
28. As I stated earlier, the parties are in agreement that a mandatory injunction is sought and therefore I should apply the dicta of Chadwick J as approved by the Court of Appeal in Zockoll. Working through the four propositions set out in those cases:

(1) The overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be 'wrong';

(2) Because of the mandatory nature of the injunction, it may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo. There was disagreement as to what the status quo currently is, with Mr Arumugam suggesting that the status quo is best maintained by unlocking the software. I disagree. It is abundantly clear to me that the status quo is the position as it currently is and indeed was on 12 February 2018 when this application was filed. The evidence is clear: Blade had no access to the relevant software on those dates. I do not accept the suggestion that the status quo is best maintained by mandatorily forcing R&R to provide access to the software. That is not the status quo. The status quo is the position as it is now, and the position as it is now is that Blade has no access to the software;

(3) I am entitled to take into account whether or not there is a high degree of assurance that Blade will be able to establish at trial the right it asserts. It is not clear to me that a term will be implied into the negotiated written contract in the terms alleged by Blade. The various agreements have been negotiated over time. They deal with a number of eventualities. The email correspondence I have quoted above appears clear to me: it is at least highly arguable that Blade asked for and was given a 5 year agreement. I therefore cannot say that I have a high degree of assurance that Blade will be able to establish at trial that there was a unilateral mistake requiring the agreement to be amended. Whilst I certainly make no determination at this point, I am entitled to take into account whether I have a high degree of assurance and, in doing so, I find that I do not; and

(4) Even if I am unable to feel a high degree of assurance that Blade will establish its rights, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. These circumstances will exist where there is the risk of injustice if the injunction is refused which sufficiently outweighs the risk of injustice if the injunction is granted. In this context, I consider the alleged delay in Blade's bringing of its claim. Blade says it has brought this application promptly. However, it is clear to me that this dispute began in mid-2016, escalated thereafter, and in August 2017 reached something of a climax in the denial by R&R of access by Blade to its data through R&R's software. Since then, Blade says it has repeatedly been requesting access to its data and I note that there have been without prejudice and other meetings to try and resolve the dispute. However, given that there was disagreement between the parties in mid-2016 and access was blocked in August 2017, it does not appear to me to be acceptable for Blade to wait until February 2018, some six months later, before approaching the court on an urgent basis for interlocutory mandatory relief. I was taken to and I am mindful of the decision of Laddie J in Handi-Craft Co and Anor v B Free World Ltd and Ors [2005] EWHC 1307 (Pat). In that case, Laddie J looked at delay and found on the facts of that case as follows:

"Yes, the claimants have proceeded to court perhaps less speedily than one would have expected, but on the other hand, I do not accept that the defendants have changed their position at all as a result of that delay. It seems to me that the delay is not such as to justify the refusal of an injunction which would otherwise be appropriate."

I am mindful of what Laddie J said in that case, but Laddie J was dealing with a six-week delay in Handi-Craft. That is a different order of delay from the six-month delay in this case. I consider that Blade's delay is something that weighs against it in the balance of convenience. If the data access were as vital to Blade as it has submitted, it would have approached the court well before now.

29. Further, I am asked by R&R to consider its open offer which was made yesterday to supply access to the system in return for payment of monies owing to it. Blade says that that offer was not really an offer but rather a complete win on behalf of R&R should it be accepted, but Mr Arumugam did accept that I could take the offer into account. Whilst I accept the submission that the offer, whilst genuine, was not one that Blade was bound to accept, it is part of the matrix of the case and something which I consider weighs in the balance of convenience, although not heavily. It remains open to Blade to pay the money R&R says it is owed, and obtain access to its data. Any overpayment can be reclaimed in due course.
30. I am also mindful of R&R's position. It says, in short, that Blade has reneged on the written contract as agreed in 2014. R&R has accepted that repudiatory breach, and the agreement, as amended, is now at an end. Granting the injunction now, R&R says, would be to ignore the termination of the contract, and instead reinstate a one-sided version of it for what is likely to be the remainder of its term, without imposing on Blade an obligation to pay for access. R&R says if the factors are evenly balanced, the court should preserve the status quo.
31. Taking all that into account, and exercising my discretion, it does seem to me that Blade has not proved that the risk of injustice if an injunction is refused sufficiently outweighs the risk of injustice if the injunction is granted. Therefore, I refuse Blade's application for mandatory interim injunctive relief.
32. At the end of the hearing, I raised with counsel for both parties the length of time it had taken to deal with the application for an injunction and summary assessment of costs, as well as a number of directions that the parties requested (including transferal of the matter to the Birmingham District Registry). The application had initially been listed before Barling J as the Interim Applications Judge. The Application Notice estimated that the hearing should last one hour. This was repeated in Mr Arumugam's skeleton argument, together with an estimated pre-reading time of 40 minutes. I had completed the suggested pre-reading before court. However, the hearing ran through most of the short adjournment, and lasted over three hours. Together with the forty minutes of pre-reading, four hours were occupied. The estimate of one hour of hearing time (which is supposed to include any judgment and dealing with costs) was clearly inadequate. Indeed, Mr Arumugam's first submissions lasted longer than the estimated hour. The Chancery Guide provides (at paragraph 16.14):

"An application should not be listed before the Interim Applications Judge unless the overall time required to deal with the application is two hours or less. The two hour maximum includes the judge's pre-reading time, the hearing of the application, delivery of judgement and time for dealing with costs."

33. I am very doubtful indeed that this matter should have been listed before the Interim Applications Judge – thereby overtaking other litigants with four hour hearings who more properly applied to list them in the usual way.
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