7 Rolls Buildings
London EC4A 1NL
B e f o r e :
| PINTOREX LIMITED
|- and -
|1) NASSER KEYVANFAR (a.k.a. HAMID KAY)
2) PARAX OFFICE LIMITED
3) DJAHANSHAH AKHAVANE-ZANDJANI (a.k.a. JOHN ZANJANI)
THE FIRST DEFENDANT IN PERSON
MALCOLM CHAPPLE of Counsel instructed by Manches LLP for the Second and Third Defendants
Hearing date: 1, 2 and 3 July 2013
Crown Copyright ©
Mr. Recorder Alastair Wilson QC:
The Issues at the Trial
a. Breach of confidence (by all the Defendants)
b. Breach of database right (by all the Defendants)
c. Conspiracy to cause economic harm by breach of confidence or database right (by all the Defendants)
d. A claim (against the Third Defendant) that he was liable on the basis that the corporate veil of the Second Defendant should be pierced
e. A conventional claim of joint liability on various bases and
f. A claim against the Second and Third Defendants that they "wrongfully procured or induced the First Defendant to terminate his contract of employment with the Claimant".
a. Plasfab Products Ltd. ("Plasfab") an established customer of the Claimant in Ireland, and
b. The school attended by the First Defendant's children, Grange Park School in Enfield, which had never done business with the Claimant.
The Alleged Misuse of Confidential Information
The Sage database
a. I did not consider the First Defendant to have been an honest witness when dealing with issues of breach of confidence,
b. He undoubtedly did copy other potentially useful email strings on other occasions,
c. His explanation for the making of two copies of the database on 27 September 2010 (namely that he might have started with a defective memory stick) did not have the ring of truth, particularly when added to his evidence that he had thrown away a defective memory stick which he had at home,
d. Making two copies would have given him the ability to claim (had it not been established that he made two copies) that he had just made one copy, in accordance with normal procedures, and had left it behind.
Assuming the First Defendant was not telling the truth about the making of the copies on 27 September 2010, I cannot see any reason to suppose that the source of material from the Sage database on the Defendants' laptop was anything other than the copy made on that date.
Grange Park School
a. It was clear from what the First Defendant said in the course of cross-examination that he regarded a customer as fair game if the Claimant had been unable to put forward a price which was acceptable to the customer. From his perspective, therefore, there was no reason not to contact the customer in question.
b. Such conduct was consistent with other incidents in which the First Defendant's unscrupulous behaviour towards the Claimant during the final weeks of his employment, and in particular his misuse of confidential information relating to Office Depot, as described below.
The Office Depot Incident
The Liability of the Second Defendant
31. In Hamlyn v John Houston & Co  1 KB 81, 85, one aspect of the business of the defendant firm of grain merchants was to obtain, by lawful means, information about its competitors' activities. Houston, a partner in the firm, obtained confidential information on the plaintiff Hamlyn's business by bribing one of Hamlyn's employees. The Court of Appeal held the firm was liable for the loss suffered by Hamlyn. Collins MR said that if it was within the scope of Houston's authority to obtain the information by legitimate means, then for the purpose of vicarious liability it was within the scope of his authority to obtain it by illegitimate means and the firm was liable accordingly. Collins MR rested his decision on the broad 'risk' principle: the principal having selected the agent, and being the person who will have the benefit of his efforts if successful, it is not unjust he should bear the risk of the agent 'exceeding his authority in matters incidental to the doing of the acts the performance of which has been delegated to him'.
32. The limits of this broad principle should be noted. A distinction is to be drawn between cases such as Hamlyn v John Houston & Co  1 KB 81, where the employee was engaged, however misguidedly, in furthering his employer's business, and cases where the employee is engaged solely in pursuing his own interests: on a 'frolic of his own', in the language of the time-honoured catch phrase. In the former type of case the employee, while seeking to promote his employer's interests, does an act of a kind he is authorised to do. Then it may well be appropriate to attribute responsibility for his act to the employer, even though the manner of performance was not authorised or, indeed, was prohibited. The matter stands differently when the employee is engaged only in furthering his own interests, as distinct from those of his employer. Then he acts 'so as to be in effect a stranger in relation to his employer with respect to the act he has committed': see Isaacs J in Bugge v Brown (1919) 26 CLR 110, 118. Then the mere fact that the act was of a kind the employee was authorised to do will not, of itself, fasten liability on the employer. In the absence of 'holding out' and reliance, there is no reason in principle why it should. Nor would this accord with authority. To attribute vicarious liability to the employer in such a case of dishonesty would be contrary to the familiar line of 'driver' cases, where an employer has been held not liable for the negligent driving of an employee who was employed as a driver but at the time of the accident was engaged in driving his employer's vehicle on a frolic of his own.
The Liability of the Third Defendant
The second ground: common design
32. I turn, then, to the second, and most strongly advanced, ground upon which Vestergaard's case rests, namely that Mrs Sig was liable for breach of confidence on the basis of common design. This argument proceeds on the basis that Dr Skovmand, Mr Larsen and Mrs Sig all worked together to design, manufacture and market Netprotect products, and as these products were designed by Dr Skovmand in a way which involved his wrongfully misusing Vestergaard's trade secrets so as to render him liable for breach of confidence, Mrs Sig and Mr Larsen are liable together with him.
33. I accept that common design can, in principle, be invoked against a defendant in a claim based on misuse of confidential information; I am also prepared to assume that, in the light of the findings made by the Judge, Mr Larsen was liable on that ground (as he knew that Dr Skovmand was misusing, and had used, Vestergaard's trade secrets when designing Netprotect). However, I cannot see how Mrs Sig could be so liable, in the light of her state of mind as summarised in para 22 above.
34. As Lord Sumption pointed out in argument, in order for a defendant to be party to a common design, she must share with the other party, or parties, to the design, each of the features of the design which make it wrongful. If, and only if, all those features are shared, the fact that some parties to the common design did only some of the relevant acts, while others did only some other relevant acts, will not stop them all from being jointly liable. In this case, Mrs Sig neither had the trade secrets nor knew that they were being misused, and therefore she did not share one of the features of the design which rendered it wrongful, namely the necessary state of knowledge or state of mind. Accordingly, although she was party to the activities which may have rendered other parties liable for misuse of confidential information, she cannot be liable under common design.
35. A driver of the motor car who transports a person to and from a bank to enable him to rob it, would be liable in tort for the robbery under common design or some similar principle, but only if she knew that her passenger intended to rob, or had robbed, the bank. So, in this case, given the ingredients of the wrong of misuse of confidential information, and given that she never had any relevant confidential information, Mrs Sig cannot be held liable in common design for exploiting with others, on behalf of Intection and then Bestnet, a product which, unknown to her, was being and had been developed through the wrongful use of Vestergaard's trade secrets.
36. We were taken to two decisions, which, it was suggested, are inconsistent with that conclusion. The first is Unilever Plc v Gillette (UK) Ltd  RPC 583, 609, where Mustill LJ said that, in order to show that a defendant was secondarily liable for infringement of a patent, "there [was no] need for a common design to infringe", as it was "enough if the parties combine to secure the doing of acts which in the event prove to be infringements". I do not doubt the correctness of that statement, but it has no application here.
37. Patent infringement is a wrong of strict liability: it requires no knowledge or intention on the part of the alleged infringer, whose state of mind is wholly irrelevant to the issue of whether she infringes the patent. Thus, the fact that the alleged infringer did not know of the existence, contents or effect of the patent is completely irrelevant to the question of infringement, even if she had thought the invention up for herself. Accordingly, it is entirely logical that a person who, while wholly innocent of the existence, contents or effect of the patent, is nonetheless secondarily liable if she assists the primary infringer in her patent-infringing acts. It cannot possibly follow that the same approach is appropriate in a case for a person who assists the primary misuser of trade secrets, given that it is necessary to establish the latter's knowledge and/or state of mind (as explained in paras 22-25 above) before she can be liable for the misuse.
38. The second case relied on by Vestergaard is Lancashire Fires Ltd v S A Lyons & Co Ltd  FSR 629. In that case, an injunction to restrain the misuse of the plaintiff's confidential information was granted against a Ms Magnall on the ground she had had "a common design with [another] to manufacture [certain products] and the process used was found to be confidential to the plaintiff" – p 677. It appears that, while she had been aware of the nature of the process, Ms Magnall had not been aware of the fact that the manufacture of those products involved a process which had been wrongly developed with the benefit of the plaintiff's trade secrets. Sir Thomas Bingham MR said at p 677, that it was "just that Susan Magnall should be precluded from disclosing the information to others" and therefore granted an injunction against her.
39. As already explained in para 25 above, I have no difficulty with the idea that a person who receives and uses confidential information, but does not appreciate that it is confidential, can be liable for using that information once she appreciates that it is indeed confidential. Accordingly, in this case, the grant of an injunction against Mrs Sig, if she was threatening to use or pass on Vestergaard's trade secrets, might well be justified, once it could be shown that she appreciated, or, perhaps, ought to have appreciated, that they were confidential to Vestergaard. However, I do not see how that can entitle Vestergaard to damages from Mrs Sig in respect of losses suffered from misuse of their trade secrets at a time when Mrs Sig was honestly unaware of the fact that there had been any misuse of their trade secrets. I note that in Lancashire, immediately after the short passage I have just quoted, Sir Thomas Bingham MR added that "[i]f the plaintiff seeks financial relief against Susan Magnall, we shall need to hear further argument before deciding the point." (I should add that it appears that Lancashire may not have been as fully argued as it might have been in one respect, in that, at least at first instance, it was apparently conceded that the principle in Unilever, as discussed above, applied to confidential information cases, whereas, for the reason I have given in para 37 above, this is wrong.)
The third ground: Mrs Sig's unusual position
40. In so far as I understand the third way of putting Vestergaard's case, (i) it involves saying that Mrs Sig had "blind-eye knowledge" of the fact that Dr Skovmand was using Vestergaard's trade secrets, or (ii) it amounts to contending that Mrs Sig should be liable for misuse of confidential information, as she must have appreciated that she was, to use a well worn metaphor, playing with fire, when she started up the new business with Mr Larsen, employing Dr Skovmand, in 2004.
41. These two alternative ways of presenting Vestergaard's third ground are quite close in their import, and in a sense they can both be said to involve an attempt to conflate the first and second grounds, albeit in a somewhat incoherent way. In the end they each must fail, essentially because of findings of fact made (or, in many respects, understandably not made) by the Judge.
42. So far as argument (i) is concerned, it cannot succeed without a finding against Mrs Sig of dishonesty of the sort characterised by Lord Nicholls in Royal Brunei, as discussed in para 26 above. There is no such finding, and it seems to me clear from the conclusions which the Judge did reach, as summarised in para 15 above, that there was no basis for his making any finding of relevant dishonesty on the part of Mrs Sig.
43. As to argument (ii), it is not enough to render a defendant secondarily liable for misuse of trade secrets by another to establish that she took a risk in acting as she did. The fact that she took a risk might often render it easier to hold that she was dishonest, but, by definition, it is not enough on its own. To revert to the metaphor, if one plays with fire, one is more likely to be burnt, but it does not of itself mean that one is burnt.
26. Further, while a recipient of confidential information may be said to be primarily liable in a case of its misuse, a person who assists her in the misuse can be liable, in a secondary sense. However, as I see it, consistently with the approach of equity in this area, she would normally have to know that the recipient was abusing confidential information. Knowledge in this context would of course not be limited to her actual knowledge, and it would include what is sometimes called "blind-eye knowledge". The best analysis of what that involves is to be found in Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378, especially at pp 390F-391D, where Lord Nicholls approved the notion of "commercially unacceptable conduct in the particular context involved", and suggested that "[a]cting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty".
The Estoppel Defence
Note 1 Rather strangely, the amount purchased by the Second Defendant in order to supply Plasfab did not exactly match what was invoiced to Plasfab. The reason for these disparities was not explored in the cross-examination of the First Defendant. [Back] Note 2 It is not possible to determine the exact date of this email (like a lot of the documents recovered from the Defendants’ laptop) because the process of recovery had the effect of changing the sent date. It can nevertheless be dated to some time in early August, because it refers to a holiday being taken in the next week by the First Defendant, which in fact started on 16 August, 3 days before the Second Defendant was incorporated. At the time the email was sent, the First Defendant evidently did not know what name the Second Defendant would be given, and asked Noel not to name a supplier on his order. [Back]
Note 1 Rather strangely, the amount purchased by the Second Defendant in order to supply Plasfab did not exactly match what was invoiced to Plasfab. The reason for these disparities was not explored in the cross-examination of the First Defendant. [Back]
Note 2 It is not possible to determine the exact date of this email (like a lot of the documents recovered from the Defendants’ laptop) because the process of recovery had the effect of changing the sent date. It can nevertheless be dated to some time in early August, because it refers to a holiday being taken in the next week by the First Defendant, which in fact started on 16 August, 3 days before the Second Defendant was incorporated. At the time the email was sent, the First Defendant evidently did not know what name the Second Defendant would be given, and asked Noel not to name a supplier on his order. [Back]