The Court of Appeal has reversed a first instance finding in a case concerning misuse of confidential information and related matters. The case considered the appropriateness of undertakings offered by defendants pending trial in such cases and the circumstances in which a speedy trial should be ordered.
The claim was brought by Mimo Connect Limited (Mimo) which provides internet connectivity services to yachts and other vessels. The Defendants were former sales directors of Mimo and held this position in their new company.
The procedural history was complicated, and key agreements were not in writing. The gist of the claim was that the Defendants had access to Mimo’s confidential information and trade secrets and were using the this to divert business to their new company. This was alleged in respect to at least four of Mimo’s clients.
The first instance decision on confidentiality undertakings and speedy trials
When the dispute came to court, Mimo was initially granted interim relief prohibiting the Defendants from misusing confidential information, from competing with Mimo’s business and from contacting Mimo’s clients.
Subsequently, in the decision under appeal, Deputy High Court Judge Simon Tinkler accepted the limited undertakings made by the defendants, specifically that the first defendant would only work as an insurance broker for the next three months. The first instance judge declined to order a broader injunction. Applying the American Cyanamid test, he said:
“Stepping back, it seems to me that the undertakings offered by the defendants provide significant protection to the claimant. The claimant’s suggested injunction terms … could cause significant prejudice to the defendants in a situation where it is not clear that the claimant can compensate them. ... In my view the balance of convenience is in favour of granting an injunction in the terms offered by the defendants, and not in the terms sought by the claimants.”
He also declined to order a speedy trial, saying it was not appropriate for this case to “jump the queue”.
Court of Appeal judgment
Writing the judgment for the Court of Appeal, Lord Justice Bean said: “In common with many, if not most cases, to enforce covenants for a limited period by way of injunction, this case cried out for an order for speedy trial” and “It was not reasonably open to the deputy judge to conclude that the case was not suitable for a speedy trial.” The prospect of there not being a trial for up to a year was “potentially seriously unjust to the claimant”.
He added that the case was not a dispute about the ownership of Mimo or a de-merger but about breach of fiduciary and/or contractual duties by the directors/shareholders.
The limited undertakings offered by the defendants, and accepted by the judge, were inadequate to protect the claimant’s legitimate interest pending a trial:
“The balance of risk of doing an injustice should have been taken into account against the background of clear evidence … of misuse of confidential information and attempts to divert customers of the claimant towards the third defendant in breach of the first and second defendants’ fiduciary duties.”
Before the Court of Appeal, the defendants conceded to a broader injunction. The Court also said that the injunctions in respect of confidential information should remain against all four defendants, and the undertakings given at first instance should be replaced by injunctions. Springboard relief should also be granted.
What does this mean?
The speedy trial will now take place in autumn 2023. Hopefully the judgment will follow soon after the trial so we can update you before the end of the year.
The Court of Appeal judgment is notable for the significance it attached to the role of the two individual defendants. Although the question of whether the first defendant was an employee of Mimo is (as yet) unresolved, the Court noted that he remains a director of Mimo and that both defendants are parties to Mimo’s shareholders’ agreement.
As directors and shareholders, their activities “were clear breaches of fiduciary duty by the first defendant and of contract by the first and second defendants,” said the Court.
Finally, undertakings are commonly used in practice but seldom come under the judicial spotlight. The court's willingness to intervene and, the Court of Appeal's willingness to offer springboard relief shows a judicial practicality and awareness of commercial realities in relation to complex disputes.
To find out more about the issues raised in this blog contact Rosie Burbidge, Intellectual Property Partner at Gunnercooke LLP in London - rosie.burbidge@gunnercooke.com