From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Monday, 6 June 2016

A "nudge and a wink" leads Mrs Justice Slade to grant an interim delivery and destruction order in breach of confidence dispute

Breach of confidence cases can often be a game of
Kat and mouse....
Once upon a time, an employee left his company to work for a rival company.  What comes next?  Ask any lawyer who is experienced in confidential information and trade secrets disputes, and they can regale you with a tale as old as time.   A group of mercurial employees depart, usually clutching a settlement agreement or in otherwise notable circumstances.  The former company becomes suspicious that the ex-employees have banded together to misuse its confidential information.  Disclosure is obtained.  Litigation ensues.  A similar story was recently told before Mrs Justice Slade in the Queens Bench Division in Arthur J Gallagher Services and others v Skriptchenko and Others [2016] EWHC 603.  The decision was handed down way back in February, but has still yet to make it onto Bailii.  A copy can be found on Westlaw.

The issue

Can the claimants obtain a mandatory interim order permitting them to image and inspect the defendants' computers and electronic devices and to then delete any information confidential to the claimants found on those devices?

The answer

Yes, but in a varied form with safeguards in place.  

The parties

The claimants are all members of the Arthur J Gallagher group of companies who provide insurance brokerage services through a number of different business units.  The first defendant, Mr Skriptchenko, was employed by the second claimant and later emplouyed by the second defendant, Portsoken Ltd.  The third to fifth and seventh defendants were consultants of, employed by or directors of the claimants' business units.  At various points in time they were all directors of Portsoken.  The sixth defendant was an employee of one of the claimants' business units and an employee of Portsoken.     


Although there are seven defendants now, there weren't always.  The case was first commenced against Mr Skriptchenko and Portsoken who submitted to an injunction and admitted to taking the claimants' client list (which is said by the claimants to be confidential), loading that client list onto an electronic platform and approaching over 300 of those clients.  Following an order of His Honour Judge Walden-Smith (made by consent) which required the defendants to deliver up to the claimants' solicitors all documents belonging to the claimants, the defendants disclosed about 4,000 documents which revealed that there was not only more defendants at play, but also additional confidential information that related to other parts of the claimants' business.  The claimants applied to add defendants and amend their Particulars of Claim.  The defendants produced a draft Defence in which they admitted to taking and misusing the claimants' confidential information.   

During the course of the hearing, there was some movement by the claimants on the draft order and mechanism of the regime, the most important being that two copies of the imaging of the devices be kept so that any material deleted from the devices is preserved should there be a dispute about the status of the information (i.e. if it turned out the information deleted was not the claimants' confidential information it could be restored).  It was also agreed that the delivery, search and imaging of the devices would be carried out by the defendants' experts, not by the claimants.  

The arguments

Although neither counsel found any authority supporting the grant of such relief, they did refer to Mrs Justice Simler's decision in Warm Zones v Thurley [2014] IRLR 791 where an order for imaging and inspection of the defendants' computers was made.  However, destruction of the material was not ordered.  

Goulding's Employee Competition,
but no mention of Gurry or
Counsel for the claimants cited an extract from Employee Competition (edited by Paul Goulding QC) dealing with interim orders which provided that a respondent should not merely stop using the confidential information, but should destroy all electronic copies of the confidential information remaining on his computer.  Safeguards were in place in the revised order, argued counsel, by way of the return of imaging copies should the information deleted later turn out to have been wrongly deleted and a means to ensure that the defendants' own confidential information would not end up in the hands of the claimants.  

Counsel for the defendants argued that the search for and retention of the claimants' confidential material from the defendants' devices could be ordered at the end of trial, but there was no basis for it be ordered by way of an interim application.  The defendants had already voluntarily delivered their devices for forensic analysis and disclosed over 4,000 documents.  There was no evidence that the defendants had not complied with the orders of the court or were in possession of or misusing any of the claimants' confidential information since that order.  The expense associated with the order would be prohibitive for the defendants and would have a damaging impact on their business.  Such an order would be invasive, unprecedented and unnecessary.  

The law

As a form of mandatory interim relief, the principles summarized by Mr Justice Chadwick (as he then was) in Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 (and as later approved by the Court of Appeal in Mercury Communications [1995] UKHL 12) apply:
  1. Identify which course is likely to involve the least risk of injustice if it turns out to be wrong.
  2. Recognize that a mandatory injunction - requiring a party to carry out steps rather than merely to stop something - may well carry a greater risk of injustice if it turns out to be wrong.
  3. Consider whether the court is assured, to a high degree, that the claimant will be able to establish this right at trial.  
  4. Determine whether there are any other factors that make it appropriate to grant a mandatory injunction at an interim stage (even if the court does not feel highly assured that the claimant will establish its right).  
The American Cyanamid principles also apply (i.e. serious question to be tried, adequacy of damages, balance of convenience and whether the status quo should be maintained).

The decision

The judge found that the balance of convenience favored granting the interim relief.  The terms of the order ultimately granted by the Court provided for the following regime:  
  • delivery up of the defendants' devices and computers to an external computer expert appointed by the defendants; 
  • imaging of the devices, to the extent not already carried out, such images being kept and preserved by the external expert;
  • a search for confidential information and material  using such information conducted in accordance with agreed search terms;
  • material found from the search determined by the expert to fall within the scope of the order to be listed and shown to the defendants;
  • if the defendants agree that the listed information uses the claimants' confidential information, they will agree to the destruction of the material on the devices that are to be returned to the defendants (provided that all material is preserved on a copy); and
  • Next time, Merpel would remember to specify the form in which
    the confidential information should be delivered up....
  • if the defendants do not agree that the information uses the claimants' confidential information, the material will still be removed from their devices if the computer expert considers it should be removed, and kept (but not made available to the defendants) pending trial.   
In reaching her decision, Mrs Justice Slade considered that on the material before her, the Court had a high degree of assurance that the claimants would establish that the defendants had taken and misused their confidential information. In particular, the Court had regard to three factors when reaching its decision:
  • Admissions:  The defendants' draft Defence admitted to the taking and misusing of the claimants' confidential information.  Although the extent and scope of the taking and misuse would be left to be determined at trial, the admission was enough to establish a case for misuse of confidential information.  
  • Smoking gun disclosure:  The disclosure provided thus far demonstrated the defendants' misuse and that the defendants knew that their conduct was wrong.  In particular the Court referred to an email from the third defendant to the fifth defendant thanking him for sending some some information statistics (related to pricings) which stated:  
"As mentioned to Andrew I don't think you can formally put these in any presentation as we would obviously be breaching confidentiality but would suggest that we keep in our back pocket to show on a nudge nudge wink wink basis to interested parties."
  • The defendants' conduct:  The fact that there has been no complaint of non-compliance of the original order did not, in the Court's view, diminish the need for an interim order enabling the search of the defendants' devices. The Court declared:  
"Whilst the defendants have disclosed a large number of documents and complied with the orders, their behaviour as admitted and shown in the e-mails, to which attention has been drawn in the course of this hearing shows a high degree of subterfuge in the use of the claimants' confidential material."
The Court held that the defendants could not be trusted to search and delete the claimants' confidential material themselves.  Balancing the scope and effect of the mandatory orders sought, against the real risk of use of the information by the defendants,  Mrs Justice Slade held that the order was required to protect the claimants' confidential information on an interim basis.

Practice Points

There are three practice points to note:

First, this case is unusual.  Most claimants can only dream of defendants who, like Mr Skriptchenko and Portsoken Ltd, submit to an injunction and disclose, by consent, a treasure trove of documents.  Without this disclosure, the "smoking gun" style e-mails and documents would have been unlikely to be found or found so easily.  This evidence, together with the resulting admissions, paved the wave for the Court to order mandatory interim relief.  This case again underlines the the game-changing nature of early disclosure in helping to support a claimants' breach of confidence case and to provide a firm basis for interim relief.  It also highlights why many consider that the EU Trade Secrets Directive missed a trick in not ensuring that all Member States' national courts have the power to grant such disclosure (of course, the AmeriKat is not suggesting that the material here would necessarily fall within the definition of a "trade secret").
The AmeriKat pondering Mrs Justice Slade's
interim order

Second, the AmeriKat was also struck by an aspect of the relief which provided that the defendants confirm whether they agreed with their appointed expert that the information he or she identifies as being subject to the order is confidential and should be destroyed.  It seems curious that the parties did not agree to jointly appoint an independent expert.  Of course experts have a duty to the court as set down in CPR 35 and accompanying Practice Direction.  That being said, it still seems strange that the defendants, who were acknowledged by the court to be untrustworthy, were permitted to appoint their own expert who would decide, in consultation with them, whether the information is confidential to the claimants and should to be deleted.

The in-built safeguards seem to cater for this risk where there is a dispute between the expert and the defendants, but what about the information that does not even reach the eyes of the defendant?  This is the third observation - what about information that the defendants' expert determines falls outside the scope of the order? If the defendants' expert decides that material is not the claimants' confidential information (falling outside the order), it will not be listed and shown to the defendants for agreement/dispute.  It will remain on the devices that are eventually returned to the defendants.  As the first port of call in deciding what material falls within or outside the scope of the order, it could be argued that the defendants' expert has a lot of control in what material remains on the devices that are eventually returned to the defendants.  How does the claimant go about safeguarding that initial analysis conducted by the defendants' expert?   A suggestion could be a jointly agreed instruction or primer to the expert, together with the nomination of the claimants' own independent expert who could help to ensure that no potentially confidential information gets through the net on the first pass (subject to a confidentiality regime).

Of course all of these concerns may well have been dealt with by the final Order.  In the meantime, the AmeriKat are sure there are claimants out there who will be dreaming of such a fairytale set of facts....

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