Jersey Unreported Judgments

Trust - application for costs.

[2011]JRC212

Royal Court

(Samedi)

2 November 2011

Before     :

J. A. Clyde-Smith, Esq., Commissioner, sitting alone.

 

Advocate M. P. Renouf for the Plaintiff.

Advocate A. D. Hoy for the First and Second Defendants.

judgment

the commissioner:

1.        On 13^th October, 2011, I reserved judgment on the defendants' application for costs arising out of these proceedings which have been withdrawn. 

Background

2.        In April 2010 the plaintiff's parent company, STM Group Plc ("STM Group") acquired Zenith Trust Company Limited ("Zenith") from the second defendant, Mr Michael Russell ("Mr Russell"), the majority shareholder, and another, pursuant to the terms of a share purchase agreement dated 19^th February, 2010. 

3.        At the same time, the plaintiff (to which I will refer to as "STM Fiduciaire") entered into a consultancy agreement with the first defendant Bay Isles Limited ("Bay Isles"), a company beneficially owned by Mr Russell and his wife.  Mr Russell was not a party to the consultancy agreement but the preamble makes it clear that the purpose of the agreement was to enable Mr Russell to provide consultancy services to STM Fiduciaire through the medium of Bay Isles.  The consultancy agreement terminated in December 2010. 

4.        The Order of Justice alleged that the defendants were in breach of restraint of trade and other covenants contained in the consultancy agreement, and which provided in particular that for a period of two years, Bay Isles and its officers (defined to include Mr Russell) would not:-

"7.3.1  carry on, or be engaged in, concerned with, or interested in, carrying on any trust and company administration business in Jersey other than as a consultant of [STM Fiduciaire]  or any successor in the Business: or

7.3.2   in competition with the activities of the [STM Fiduciaire] or the SF Group as at the date of this Agreement and/or as at the Cessation Date solicit or endeavour to entice away from the SF Group, or to deal with, any person who to his knowledge is a client of the SF Group as at the date of this Agreement and/or the Cessation Date; or

7.3.3   do or say anything which is harmful to the reputation of the SF Group or which may lead any person to cease to deal with the SF Group on substantially equivalent terms to those previously offered or at all; or

7.3.4   engage, employ, or contact with a view to the engagement or employment by any person, any employee, officer, manager of consultant of the SF Group as at the Cessation Date."

5.        The SF Group was defined in the consultancy agreement as meaning STM Fiduciaire and any holding company. 

6.        Under the terms of the share purchase agreement, Mr Russell gave undertakings to STM Group in similar terms.  We were informed by Mr Renouf that in view of the urgency in bringing the proceedings and because of delays in completing KYC checks in respect of STM Group, it was not named as a plaintiff but in paragraph 7 of the Order of Justice, STM Fiduciaire reserved the right to join it in. 

7.        I will come to the alleged breaches in a moment, but in terms of the procedural history, interim injunctions were obtained ex parte on 24^th August, 2011, restraining the defendants from acting in breach of their contractual obligations under the consultancy agreement.  The application for the injunctions was supported by an affidavit by Mr Michael Sampson ("Mr Sampson") the Managing Director of STM Fiduciaire, sworn on 19^th August, 2011. 

8.        By letter dated 26^th August, 2011, Voisin, on behalf of the defendants, responded promptly to the imposition of the injunctions, asking for the immediate discharge of the injunctions against Mr Russell, on the grounds that Mr Russell was not a party to the consultancy agreement and as the claim was brought in breach of contract, it was fundamentally flawed as against him. 

9.        By letter dated 31^st August, 2011, Voisin enclosed a draft summons seeking the lifting of the injunctions against both defendants in their entirety or their variation to the extent the Court deemed just and for the defendants to be permitted to contact a number of clients referred to in the Order of Justice, in order to obtain their evidence.  In the letter, Voisin stated that the affidavit of Mr Sampson was hearsay and tendentious and could not support the injunctions obtained.  That summons was issued on 1^st September, 2011, and the 13^th October, 2011, fixed as the date for the hearing. 

10.      STM Fiduciaire issued a summons dated 5^th October, 2011, returnable on the same hearing date seeking leave to amend the Order of Justice by joining STM Group Plc in as a second plaintiff, and also alleging "breach of tortious duties" owed by Mr Russell under the consultancy agreement (namely, the tort of wrongful interference with contract). 

11.      On 10^th October, 2011, Mr Russell swore and filed a detailed affidavit in response to that of Mr Sampson.  In short, he reiterated that the allegations made by Mr Sampson were hearsay and tendentious and could not support the imposition of the injunctions.  He denied that either he or Bay Isles were in breach of their obligations under the consultancy agreement. 

12.      On 12^th October, 2011, Hanson Renouf, acting for the plaintiff, wrote saying that the affidavit sworn by Mr Russell had given his client some comfort.  Having sworn an affidavit that he had not acted in breach of his obligations, if later it was found that this was untrue, consequences would flow that would not be dissimilar to breaching injunctions.  There were certain matters that had not been covered in Mr Russell's affidavit and it was proposed that if Mr Russell would swear a further affidavit covering these matters (which did not go beyond his contractual obligations) then the proceedings could be withdrawn. 

13.      At the hearing on 13^th October, 2011, before the Inferior Number, Mr Hoy indicated that his client was prepared to cover these additional matters by way of a statement on oath in order to bring the proceedings to a close, but on the basis that the issue of costs would be left over for me to deal with as a single judge.  Accordingly, that statement was made by Mr Russell on oath and the proceedings were withdrawn.  I then sat alone to deal with the issue of costs.  The defendants sought their costs from the plaintiff on the indemnity basis. 

Interlocutory injunctions-the applicable principles

14.      In order to give consideration to the defendants' application for costs it is necessary to be reminded of the legal principles to be applied on the granting of interlocutory injunctions, which principles were summarised in Play Limited-v-Legato Assets Limited [2006] JLR 94 where Birt, Deputy Bailiff, said this:-

"25.    In deciding whether to grant an interim injunction the court seeks to minimise the risk of injustice.  The dilemma was clearly set out by Hoffmann, J. in Films Rover International Limited-v-Cannon Film Sales Limited (4) [1986] 3 All ER 772 at 780:-

'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.'

26.      In seeking to achieve this objective this court applies the principles laid down in the leading case of American Cyanamid-v-Ethicon Limited [1975] AC 396.  Those principles were helpfully summarised by Bailhache, Bailiff in Milner-v-Milner Laboratories Limited [2000] JLR 266 at 273:-

'1.       Has the plaintiff shown on the evidence before the court that there is a serious question to be tried?  If not, then no injunction is granted.

2.        If there is a serious question to be tried, then the court considers whether the damages awarded at the trial would be an adequate remedy for the plaintiff.  If so, then no injunction is granted.

3.        If damages would not be an adequate remedy for the plaintiff the court then goes on to consider if damages would be an adequate remedy for the defendant; if so, then normally an injunction would be granted.

4.        If damages would not be an adequate remedy for the defendant, the court goes on to consider the factors affecting the balance of convenience, i.e. which party will suffer more uncompensatable damage from the grant or refusal of the injunction.

5.        If the balance of convenience is fairly even, then it is prudent for the court to seek to preserve the status quo.

6.        Finally, where there is approximately equal uncompensatable damage to both parties, it is proper to look at the relative strength of the parties' substantive cases.  Where one is disproportionately stronger than the other, this may swing the balance."

15.      In considering these principles, the Court would bear in mind when deciding whether to grant interlocutory relief that the House of Lords in American Cyanamid was not laying down inflexible rules of law.  Indeed, the appeal to the House of Lords was concerned with an inflexible rule previously applied by the Court of Appeal that in order to obtain interlocutory relief, the plaintiff had to demonstrate a strong prima facie case; a rule that led to the Court engaging in mini trials at an interlocutory stage. 

16.      In Series 5 Software-v Clarke-& Others (1995) Ch D 853 (cited with approval by this Court in T A Picot (CI) Limited and Vekaplast Windows (CI) Ltd-v-Creative Window and Conservatory Company Limited, Le Couillard and Bowen (Royal Court) 23^rd June 1997) Laddie J analysed a potential conflict between American Cyanamid and another House of Lords decision shortly before, namely F Hoffmann-La Roche & Co AG-v-Secretary of State for Trade and Industry [1974] 2 All ER 1128, as to the extent to which it is appropriate to take into account the apparent strength of the plaintiff's case.  At page 163c he said this:-

"When Lord Diplock said that there was no such rule, he was referring to the so-called rule of law which the Court of Appeal had followed.  In dismissing this approach, the House of Lords approved of the decision in Hubbard-v-Vosper and in particular that part of the decision in which the Court of Appeal deprecated any attempt to fetter the discretion of the court by laying down any rules which would have the effect of limiting the flexibility of the remedy (see[174] 1 All ER 504 at 510, [1975] AC 396 at 408)".

And at page 865c:-

"In my view Lord Diplock did not intend by the last-quoted passage to exclude consideration of the strength of the cases in most applications for interlocutory relief.  It appears to me that what is intended is that the court should not attempt to resolve difficult issues of fact or law on an application for interlocutory relief.  If, on the other hand, the court is able to come to a view as to the strength of the parties' cases on the credible evidence, then it can do so.  In fact, as any lawyer who has experience of interlocutory proceedings will know, it is frequently the case that it is easy to determine who is most likely to win the trial on the basis of the affidavit evidence and any exhibited contemporaneous documents.  If it is apparent from that material that one party's case is much stronger than the other's then that is a matter the court should not ignore.  To suggest otherwise would be to exclude from consideration an important factor and such exclusion would fly in the face of the flexibility advocated earlier in American Cyanamid.  As Lord Diplock pointed out in Hoffmann-La Roche, one of the purposes of the cross-undertaking in damages is to safeguard the defendant if this preliminary view of the strength of the plaintiff's case proves to be wrong."

17.      In R A Rossborough (Insurance Brokers) Limited-v-Boon and Others 2001/157 the Court noted that restraint of trade cases were not a separate category of case where American Cyanamid principles do not apply.  Quoting from the judgment of Birt, Deputy Bailiff, paragraph 33:-

"However, restraint of trade cases do raise difficulties which are not always present in other cases.  One example is the limited duration of the covenants.  This led Balcombe LJ to go on to say at 395:-

'It is only if the action cannot be tried before the period of the restraint has expired, or has run a large part of its course, that the grant of the interlocutory injunction will effectively dispose of the action, thus bringing the case within the exception to the rule in American Cyanamid, such as was considered by the House of Lords in NWL Limited-v-Woods (1979) 3 All ER 614 esp at 625 per Lord Diplock and also by this court in Cayne-v-Global Natural Resources Plc. (1984) 1 All ER 225.  It is then that the judge may properly go on to consider the prospects of the plaintiff succeeding in the action".  

18.      This is relevant in the present case in that the restraint of trade provisions extend until the end of 2012 and thus, by the time pleadings have been exchanged, discovery undertaken and other interlocutory matters disposed of, a trial will be unlikely to take place until well into next year, by which time the period of restraint would have largely run its course.  The Judgment in Rossborough goes on at paragraph 34:-

"Lack of an early trial date is not the only occasion when it is right to have regard to the strength of the parties' respective cases on the substantive issue.  In some cases, it is clear that the outcome of the interlocutory hearing will in practice be decisive of the case.  In these circumstances it surely cannot be right to decide the interlocutory hearing merely on the balance of convenience and without regard to the relative strengths of each party's case.  To do so would mean that the case was effectively dealt with without either party having the opportunity to argue the strength of its case.  Authority for this approach can be found in a number of cases. In NWL Limited-v-Woods (1979) 3 All ER 614, Lord Diplock said at 625 that the American Cyanamid decision:-

'... was not dealing with a case in which the grant or refusal of an injunction at that stage would, in effect, dispose of the action finally in favour of whichever party was successful in the application, because there would be nothing left on which it was in the unsuccessful party's interest to proceed to trial.'

In Cayne-v-Global Natural Resources Plc 91984) 1 All ER 225, an interlocutory injunction was refused.  In the view of Kerr LJ at 236, the action was never likely to be taken to trial if the plaintiffs obtained an injunction.  Hence:-

'The overriding consideration for present purposes is that, if an injunction is granted, the effective contest between the parties is likely to have been finally decided summarily in favour of the plaintiffs.'

Finally in Lansing Linde Limited-v-Kerr (1991) 1 All ER 418, Staughton LJ said at 424:-

'Nor do I see why, as part of the practical realities, the judge should not consider how likely it is that a trial will ever take place.  On the contrary, this seems to have been considered at least to some extent in the NWL Limited case and in Cayne's case.'

Having considered the likelihood of the defendant wishing to bring the matter to trial if an injunction were granted, he went on to say:-

'So if an injunction had been granted by the judge, or is now granted, the likely effect would be to decide the dispute against Mr Kerr for good and all.  In those circumstances justice requires, in my opinion, some assessment of the merits and more than merely a serious issue to be tried."

19.      Mr Renouf submitted that the issue for me in deciding costs was whether the injunctions had been properly granted ex parte on 24^th August, 2011.  I agree with Mr Hoy, however, that this is not the issue.  The injunctions had been granted ex parte on the basis of evidence put forward by the plaintiff alone.  At the hearing on 13^th October, 2011, the Court had before it the evidence put forward by the defendants and the issue is whether having considered both cases the Court would have maintained those injunctions pending trial.  For this purpose I should be guided by the principles established by the American Cyanamid case, bearing in mind, that as per Lord Denning MR in Hubbard-v-Vosper (1972) 1 All ER 1023 at 1029:-

"The remedy by interlocutory injunction is so useful that it should be kept flexible and discretionary.  It must not be made the subject of strict rules".

Furthermore in the context of this case, it would have been appropriate for the Court to form a view as to the strength of the plaintiff's case on the credible evidence. 

Breaches

20.      The central allegation made by Mr Sampson in his affidavit is that Mr Russell was intending to use his knowledge and confidential information about the clients of STM Fiduciaire in order to compete.  To that end it was alleged that he was actively soliciting clients, with whom he had previously had a relationship, and employees of STM Fiduciaire.  It was also alleged that he was intent upon harming STM Fiduciaire's reputation.  A number of examples were particularised:-

(i)      At a meeting between Mr Sampson and a client ("MW") on 28^th July, 2011, MW alleged that Mr Russell had behaved unprofessionally at a meeting in August 2010 over fees owed to Zenith by threatening to use the deeds of the client's house if they were not paid.  The client said he had been left "incandescent with rage".  Mr Russell accepted that there had been a meeting with MW (when Mr Russell was acting as a consultant to STM Fiduciaire) attended by other employees of STM Fiduciaire at which an agreement over fees had been reached and which fees were subsequently paid.  He denied any difficulties or threats and points out that this meeting took place over a year ago without any apparent complaint by MW.  It was asserted by the plaintiff that this alleged conduct was in breach of Mr Russell's undertaking given in the share purchase agreement to use reasonable endeavours to assist STM Group in maintaining all client and business relationships.  The STM Fiduciaire employees present do not appear to have voiced any concerns as to Mr Russell's conduct at this meeting but even if Mr Russell had conducted himself in the manner alleged, it seems hardly supportive of the central allegation that he was attempting to solicit MW to a competing business.  

(ii)     Mr Sampson said that he had been shown a copy of an email exchange between Mr Russell and another client ("PD") in which Mr Russell had allegedly warned her about new staff at STM and the possibility of overcharging.  Mr Sampson had not been given a copy of the email.  Mr Russell responded by attaching the emails concerned.  He made the point that through his long association with Zenith this client, and indeed other clients, had become close friends of his (and of his wife) and that there was no prohibition in the share purchase agreement or the consultancy agreement seeking to prevent those friendships continuing.  The covenants had been specifically drafted with this in mind.  The exchange of emails was initiated by PD and in my view her email is the sort of email that, for example, a retired partner from a legal firm might expect to receive from a client who had become a good friend.  Whilst the response does contain a recommendation that she review costs to ensure that she was not charged for learning time for new people employed at STM Fiduciaire, there is nothing in it to support the allegation that he was attempting to solicit her as a client or to harm STM Fiduciaire's reputation.  On the contrary, Mr Russell confirmed to her that her affairs were "well organised and settled". 

(iii)    At the same meeting between Mr Sampson and MW, MW had repeated to him what he had in turn been told by PD, namely that Mr Russell was "very very interested in an STM employee", whose identity was indicated.  PD had apparently gained the impression that Mr Russell was looking for staff for a business he was starting in Jersey.  That member of staff had either been approached or would be approached shortly.  Mr Russell responds that this is second-hand hearsay with no explanation of how PD was given this impression.  The fact of the matter is that he was not looking for staff for any business for reasons he explained and which I will come to.  He questioned why the member of staff concerned had not simply been asked whether she had been approached.  

(iv)    On 3^rd August, 2011, Mr Sampson attended a meeting with a client "JI".  Difficulties had allegedly arisen over certain matters during the time that Mr Russell was engaged by STM Fiduciaire as a consultant.  JI said he had phoned Mr Russell to express dissatisfaction with the way he had managed this particular matter.  Mr Russell is alleged to have responded by stating that the STM Group has breached its contract with him on the sale of Zenith.  It had not paid all the funds that he had anticipated and he was therefore considering issuing proceedings against STM Group.  He also allegedly said words to the effect of "the STM Jersey business was nothing like it was and all the best staff were leaving".  Mr Russell responds that the client had become a close friend and confidant and he was not aware of any difficulties in relation to his affairs whilst he was acting as consultant.  He had spoken to JI when driving from Poole.  It was JI who phoned him and it was a social call to see how he was.  He did mention that he was having difficulty in recovering payments due to him which he says was true, but nothing more than that.  He denies making the statement about the business of STM which he is sure that JI will deny.  Furthermore, enquiries of JI would show that he was concerned about the ongoing management and administration of the entities with which he was involved and that Mr Russell had encouraged him to stay with STM Fiduciaire.  

In this context it is clear from the affidavits of both Mr Sampson and Mr Russell that Mr Russell had not received the second instalment potentially due to him under the share purchase agreement in March 2011 (described by Mr Sampson as a technical breach) which he deals with under the heading "Breakdown of relationship with Michael Russell".  The final payment was apparently made in June 2011 although Mr Russell claims to have suffered a loss of £140,163 as a consequence of the actions of STM Group.  

(v)      On 20^th August, 2011, Mr Sampson attended a meeting with "CH", an adviser, who is assisting STM Fiduciaire in relation to certain clients.  He informed Mr Sampson that Mr Russell was still in contact with the clients.  Mr Russell responded that the clients had been close friends of both him and his wife for 20 years.  They had expressed a wish to move from STM Fiduciaire, but he had encouraged them to remain as a client.  

Mr Russell criticised Mr Sampson for failing to mention an approach made to Mr Russell in June 2011 by clients of STM Fiduciaire for him to assist him in their personal UK tax affairs, and which he referred to STM Fiduciaire.  An email was appended from STM Fiduciaire thanking him for his courtesy in this respect. 

(vi)     Before the meeting between MW and Mr Sampson, a "different" employee, who had worked closely with Mr Russell, had left STM Fiduciaire in order to go travelling and indeed had done so.  Towards the end of her employment, Mr Sampson had become aware of rumours that she wished to purchase shares in an (unidentified) trust company in Jersey, which indeed she had confirmed when asked, but without being specific.  She had approached another member of staff as to whether he would be interested in buying shares in a trust company.  Taking this and the other matters particularised above into account, Mr Sampson said he had come to what he believed to be a reasonable man's conclusion that this "different" employee and Mr Russell had been intending to establish a Jersey based trust company in direct competition with STM Fiduciaire, creating in effect almost the same team as existed at Zenith, which would pose a serious threat to STM Fiduciaire if they were to approach the clients they had previously served at Zenith.  After receiving Mr Sampson's affidavit, Mr Russell stated that he had approached the "different" employee concerned who had confirmed that she had indicated in response to an enquiry from Mr Sampson that one of her options after travelling was to become involved as a shareholder in a potential management buy-out of a trust company.  She was no longer considering that option but would confirm that Mr Russell had never approached her in the manner suggested by Mr Sampson or at all concerning the establishment of a competing business or recruited either her or the other members of staff referred to.  He did not have a shareholding in any trust company or any intention to seek to establish a trust company anywhere and there was not a shred of evidence to support such an intention or intentions.  

21.      Mr Sampson summarises his position by saying that Mr Russell has a wealth of knowledge and confidential information about STM and its clients and "if he were to continue to use this for the purpose of competing with STM, significant harm would be done to STM's business.  STM Group paid substantial sums to Michael Russell for a majority shareholding in Zenith, but if he continues the actions that have been reported to me, it could significantly diminish the value of STM Group Plc's purchase."

22.      It is clear that significant background information was omitted from Mr Sampson's affidavit, which Mr Renouf informed me was an oversight and for which he apologised on behalf of his client.  As a result of a medical condition suffered by his wife, Mr Russell had determined to maximise the amount of time they could spend in Florida where they had a property in order to aid her health.  His preference was to retain his majority interest in Zenith and continue in a part-time/remote capacity.  However, he and Mr Sampson took legal advice on behalf of Zenith and himself from a US tax adviser and it became apparent that being both a principal of a Jersey trust company and tax resident in the US would cause significant US tax reporting requirements by him of Zenith's clients and Zenith itself.  Although it would have been unlikely to result in any tax liabilities in the US for any Zenith clients, it was certainly not an appropriate course of action for a Jersey trust company to consider.  This advice forced his hand in the sense that Mr Russell had to dispose of his interest in Zenith in order to implement the necessary life transition and it was a consequence of that that the sale to STM Group took place. 

23.      Mr Renouf did not seek to deny, on instructions, that Mr Sampson (who had joined Zenith in 2004 and although not a shareholder in Zenith received a material share of the sale consideration) was aware of this background, although he pointed out that Mr Russell had continued connections with Jersey and Mr Sampson did not know precisely what steps had or had not been taken to implement the transition to Florida.  Although no application to have the injunctions set aside for non disclosure had been intimated before the proceedings were withdrawn, it is in my view an important piece of evidence because it goes to negate the suggestion that Mr Russell harboured an intention to establish a competing trust business.  

24.      Mr Hoy made the point that the plaintiff had direct access to the clients and staff to whom Mr Sampson makes reference in his affidavit and yet no steps had been taken to corroborate his evidence.  Mr Renouf submitted that it was not that easy to involve clients (or staff) in a matter such as this and potentially damaging to the client relationships the plaintiff was striving to preserve.  That may be so but it leaves the plaintiff with a case based essentially on rumour and suspicion. 

Decision

25.      Whilst accepting that neither deponent was tested on oath on his evidence, in the light of that background and the very tenuous nature of the evidence put forward by Mr Sampson to support the plaintiff's allegations, I have little doubt that on 13^th October, if the case had not been withdrawn, the Court, faced with both affidavits and applying the legal principles as set out above, would have lifted the interim injunctions.  The plaintiff would have struggled to demonstrate that on the evidence there was a serious issue to try and even if it could pass that threshold, the Court would have been entitled in the circumstances of this case to look at the merits and in my view would have concluded that there was little prospect of the plaintiff succeeding. 

26.      Mr Renouf pointed out that it would be very unlikely for there to be direct evidence of an intention to compete and that the plaintiff was entitled to draw the conclusions it had from the circumstantial evidence put forward by Mr Sampson.  However, having an intention to compete or solicit (and Mr Russell denies any such intention) does not offend the covenants.  It is actually competing and soliciting that it is prohibited.  Mr Sampson clearly had strong suspicions as to Mr Russell's intentions, but there was no reliable evidence to support the allegation that Mr Russell had put any such intention (if it existed) into effect by actually competing or soliciting clients and staff.  Mr Renouf confirmed that no clients had left STM Fiduciaire as a consequence of anything Mr Russell is alleged to have done. 

27.      Mr Renouf questioned what the prejudice would have been to Mr Russell in having the interim injunctions maintained in that he had only been injuncted against doing that which he was contractually obliged not to do.  As Mr Hoy pointed out lack of prejudice is not part of the test, but in any event, Mr Renouf conceded that there was indeed some prejudice to any person being subjected to an injunction of the Court without justification.  

28.      I have a further concern in relation to these interim injunctions being obtained without a letter before action and without an inter partes hearing.  Mr Renouf submitted that failure to issue a letter before action was relevant only to costs in that a plaintiff would potentially lose protection for the costs incurred up to the point proceedings were issued.  However, in my view a letter before action has an important function in that it may obviate the need for proceedings to be issued at all.  If STM Fiduciaire's concerns had been put to Mr Russell in writing, it is very possible that his response would have dispelled those concerns.  I accept that there can be circumstances where giving notice may allow a potential defendant to take action that will cause a potential plaintiff injustice.  Mr Renouf submitted that there was great urgency in the issuing of these proceedings; indeed such was the urgency that as I have said there was no time to complete the KYC checks in respect of STM Group, but there is nothing in Mr Sampson's affidavit to explain what Mr Russell would have done in the short period between being given notice of the proceedings and an inter partes hearing that would have caused the plaintiff injustice.  If Mr Russell did harbour an intention to start a competing business in breach of his obligations then it seems unlikely that he would have taken any active steps towards that end in the face of imminent proceedings of this kind. 

29.      The principles were considered by the Court in Milner-v-Milner Labs Limited [2000] JLR 266 at page 270 where Bailhache, Bailiff said this:-

"Mr Le Cocq's first submission was that the representation should not have been made nor determined ex parte.  It was a fundamental principle of natural justice that an order should not generally be made without giving the other party the opportunity to be heard.  He referred the court to a decision of Hoffman, J. in In re First Express Ltd (3).  That was a case where a company had gone into voluntary liquidation on January 15^th, 1991.  On January 29^th, 1991, receivers were appointed by one of the secured creditors.  On February 25^th, 1991, the receivers applied ex parte to the registrar and obtained an order under the Insolvency Act 1986 requiring the liquidator to transfer the books and records of the company and all moneys held by him on behalf of the company.  The affidavit in support of the receivers' application was misleading and incomplete.  The report in The Times Law Reports states ([1991] TL at 439):-

'MR JUSTICE HOFFMANN said that he was firmly of the view that it was wrong for the application to have been made ex parte.  It was a basic principle of justice that an order should not be made against a party without giving him an opportunity to be heard.  The only exception was when two conditions were satisfied:-

First, that giving such an opportunity appeared likely to cause the applicant injustice, by reason either of delay or action which it appeared likely the respondent or others would take before the order could be made and

Second, when damage to the respondent was compensatable under a cross-undertaking or when the risk of uncompensatable loss was clearly outweighed by the risk of injustice to the applicant if the order were not made.

Applicants tended to think that a calculation of the balance of advantage and disadvantage in accordance with the second condition was sufficient to justify an ex parte order.

That attitude should be discouraged.  One did not reach any balancing of advantage and disadvantage unless the first condition had been satisfied.

The principle audi alteram partem did not yield to a mere utilitarian calculation and could be displaced only by invoking the overriding principle of justice which enabled the court to act at once when it appeared likely that otherwise injustice would be caused.

Here there was nothing to preclude an inter partes hearing."

30.      Applying those principles, I see nothing in the affidavit of Mr Sampson precluding an inter partes hearing. 

31.      The overriding objective in considering costs is to do justice between the parties and in my view justice between the parties is achieved by awarding the defendants their costs.  The circumstances in which an award of indemnity costs may, as a matter of discretion, be ordered are less restricted than they used to be.  Quoting from the judgment of Page, Commissioner in Pell Frischmann--Bow Valley [2007] JLR 479 at paragraph 25 (as approved by the Court of Appeal in C-v-P-S [2010] JLR 645):-

"The test, in a word, is unreasonableness; the purpose of such an award is to achieve a fair result for the party in whose favour it is made than would be the case if he were only able to recover costs on the standard basis; in the end, it is a question of what would be fair and reasonable in all the circumstances."

32.      In this case, I have defendants who, without any prior notice and without being given the opportunity of an inter partes hearing, have had interim injunctions imposed upon them.  Having through Mr Russell provided statements on oath that contrary to the plaintiff's suspicions they are not soliciting or competing, those statements have been accepted by the plaintiff and the proceedings have been withdrawn.  In my view, the plaintiff's case was inherently weak being based essentially on rumour and suspicion and interim injunctions would not have been imposed at an inter partes hearing and  would have been lifted on 13^th October, 2011, if the proceedings had not been withdrawn. 

33.      I conclude that the only fair and reasonable outcome is for the defendants to have their costs on the indemnity basis and I so order.  

Authorities

Play Limited-v-Legato Assets Limited [2006] JLR 94.

American Cyanamid-v-Ethicon Limited [1975] AC 396.

Series 5 Software-v Clarke-& Others (1995) Ch D 853.

T A Picot (CI) Limited and Vekaplast Windows (CI) Ltd-v-Creative Window and Conservatory Company Limited, Le Couillard and Bowen (Royal Court) 23rd June 1997.

F Hoffmann-La Roche & Co AG-v-Secretary of State for Trade and Industry [1974] 2 All ER 1128.

R A Rossborough (Insurance Brokers) Limited-v-Boon and Others 2001/157.

Hubbard-v-Vosper (1972) 1 All ER 1023.

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