In Allfiled UK Ltd v Eltis and others, the High Court granted a bespoke interim injunction to protect confidential information and intellectual property. In doing so, it considered the application of the American Cyanamid test where it was argued that the grant of an interim injunction would effectively dispose of the action.
The applicant was a software development company which had developed a “personal data store” system that allowed consumers to confidentially store important personal data. In January 2015, 11 of the applicant’s employees and three of its directors left the applicant and set up a rival business, Port Tech. Port Tech contracted with a former client of the applicant, Magpie, for the provision of a data storage system, which the applicant alleged was based on its own system, by way of a software agreement “substantively almost identical” to the applicant’s original agreement with Magpie.
Eight weeks after the departure of its directors and employees, the applicant applied for an injunction against, inter alia, its former directors, former employees and Port Tech to prevent them from using its confidential information and intellectual property and to prevent them from competing with it in breach of various fiduciary, contractual and/or statutory duties.
Points to note
A few interesting points for practitioners arise from the judgment:
- There is an exception to the American Cyanamid approach to deciding whether an injunction should be granted “where the relief sought, if granted, would as a practical matter foreclose any further assessment of the true merits of the legal claim and put an end to the action because such relief effectively decides the contest“. In those circumstances, the threshold for deciding whether injunctive relief should be granted is raised from whether there is a serious question to be tried to whether the applicant can establish an “overwhelming case” (Cayne v Natural Resources plc  1 All ER 225). In this case, the respondents argued that this higher threshold should be applied on the basis that if the injunctions were granted, Port Tech would effectively be forced into liquidation. Mr Justice Hildyard rejected this argument. He did not consider that the proposed injunctive relief would have the effect of foreclosing a trial, and he considered any risk could further be reduced by securing a speedy trial. In making the decision to adopt the ordinary American Cyanamid test, he remarked that it should “only be departed from in extreme circumstances where [injunctive relief would render a trial] plainly and obviously otiose“.
- Where there is doubt as to the adequacy of the respective remedies in damages available to either party (or both), the third stage of the American Cyanamid test is to assess where the balance of convenience lies. One of the factors which Mr Justice Hildyard identified as potentially relevant to this exercise is “what should be taken as the status quo, it being, if other factors appear to be evenly balances, a counsel of prudence to take such measures as are calculated to preserve it“. The respondents relied on there being a “new status quo” as a result of the applicant’s eight week delay in seeking relief. The judge held that in the ordinary course of applications such as this, the relevant status quo would be that immediately prior to the commencement of the breaches alleged, rather than the date of the hearing, but that delay could mean that “a new status quo may be held to have developed during the period of delay“. The delay in this case was one of the reasons for the judge including provisos in the orders granting injunctive relief (see below).
- In relation to the balance of convenience, the respondents also relied on the fact that an injunction would cause serious damage to their client (and former client of the applicant) Magpie. Magpie was not a party to the claim but intervened to urge the court not to grant any relief that would prevent or impede fulfilment of its contract with Port Tech and thereby severely prejudice it. Although the court considered that some of Magpie’s submissions should be read “with some scepticism“, it did take into account the risk of injustice to Magpie and the injunctive relief granted was designed to minimise this risk.
- Mr Justice Hildyard granted the injunctive relief sought subject to an “important proviso“. This was that the respondents were not prevented from continuing to work on information and systems not derived from the applicant’s intellectual property or confidential information with a view to fulfilment of their agreement with Magpie. The judge noted that this proviso addressed new status quo which had been allowed to develop by the applicant’s delay and reflected his assessment of the balance of convenience. It would also act as a safeguard for any future damages granted to the applicant, as there was a greater chance of Port Tech being able to pay damages if it continued its contract with Magpie than if it was forced out of business as a result of an injunction which brought it to a standstill.
Allfiled UK Limited v Eltis and others 2015 EWHC 1300 (Ch)