Frandsen & Ors v Bestnet Europe Ltd & Ors

This is an application by the Defendants to strike out the action on the grounds that it is vexatious and an abuse of the process. The action in question is for breach of confidence. It is brought against two ex-employees of the Claimant group of companies and four companies owned and controlled by those ex-employees. (I shall refer to the parties as “the Claimants” and “the Defendants” without distinguishing between the various Claimants or Defendants respectively unless it is important to identify them more precisely.) The individuals are resident in Denmark, the corporate Defendants are all organised and existing under the laws of England and Wales.

The papers on this application amount to some nine lever arch files plus substantial skeleton arguments from both sides. I was originally told that I would need half a day’s reading before the hearing. That was increased to five hours. The hearing lasted a day. The evidence is detailed and involves allegation and counter-allegation. Even with five hours reading I was able to get little more than a general impression of the case before the hearing and have had to do considerably more reading after the hearing.

The subject matter of the dispute is an insecticidal net product, called Netprotect, developed by the Defendants. This is a mosquito net made from polyethylene with an insecticide incorporated into the plastic matrix. There are other ingredients to stabilise the plastic and the insecticide amongst other things. Such products are intended for use in malaria infested areas. They require World Health Organisation approval and to gain this there are various tests, including washing cycle tests, that must be passed. The Claimants say that the Defendants developed this product using confidential information relating to the development of one of the Claimants’ products called Fence, which is also a polyethylene net with an insecticide incorporated into the plastic matrix, albeit that Fence is not a mosquito net as commonly understood in that it is intended to protect cattle rather than people. It is, as its name suggests, a fence.

As one would expect with an application of this nature there has been no cross-examination of witnesses and, accordingly, I am not in a position to resolve any conflicts of evidence. The Defendants have the onus of establishing that the claim is vexatious and an abuse of process.

To understand part of the Defendants’ complaint it is necessary to go into the history between the parties including correspondence between solicitors right up to shortly before the hearing before me. The Fifth Defendant was the Claimants’ head of production until his departure on 31^st August 2004, having given his notice on 18^th May 2004. The Sixth Defendant was an area sales manager of the Claimants until 17^th June 2004. A Mr Skovmand was originally pleaded as a Defendant to the action together with his corporate vehicle, Intelligent Insect Control SA. He was the head of product development for the Claimants on a consultancy basis and from 2002 onwards he provided those services through his corporate vehicle. Although Mr Skovmand and his company were removed from the action before it was served (he and his company are being sued in France where they are domiciled and he is also a party to proceedings in Denmark), he is said to have developed the Defendants’ product. Thus, there is evidence about what his involvement was.

The individual Defendants set up a company in Denmark under the name Intection A/S, which I shall call Danish Intection. It was incorporated on 3 August 2004. There is a dispute as to the involvement of Mr Skovmand in the setting up of this company. The Claimants say that there is evidence to suggest that Danish Intection was in a position to commence testing an insecticidal mosquito net by late 2004. This is denied by the Defendants but I am not in a position to determine the truth or otherwise of this allegation on this application.

The Claimants also allege that the Fifth Defendant made electronic copies of a large number (it is said about 56,000) of the Claimants’ documents and data files in the months before he gave his notice. Again there is a dispute as to the fact in that the Defendants say that these files were merely a back up for his laptop whereas the Claimants say that they were copied from the Claimants’ file server. In February 2005 the Claimants issued proceedings in Denmark for infringement of copyright in such documents and sought and obtained search and seizure orders. As a result of those orders material copied from the Claimants was recovered from both the Fifth Defendant and Danish Intection.

In June 2005 the Claimants applied for interim injunctive relief in Denmark to restrain Danish Intection from misusing the Claimants’ trade secrets. Before that application was heard, the business of Danish Intection was apparently transferred to Intection Limited, the Third Defendant in these proceedings. The injunction was granted by default. In November 2005 the Netprotect product was launched by the Third Defendant. In November 2005 the Third Defendant was joined to the Danish proceedings when final injunctive relief was sought. By spring 2006, the business of Intection Limited had been transferred to the First Defendant in these proceedings which is currently trading as Intection in the sale of the Netprotect product. The present proceedings were commenced in December 2006. There was also a claim in Denmark against the Fifth Defendant for breach of contract and judgment on that claim was given in February 2007. I am told that only one allegation in the claim succeeded. Criminal proceedings were also brought in Denmark against the Fifth and Sixth Defendants and Mr Skovmand. These were discontinued at the instigation of the police but the prosecutor has agreed to re-open the investigation against the Fifth Defendant only.

The Claimants have also brought proceedings in France where Mr Skovmand is based and in India, where Netprotect is manufactured. These proceedings were commenced with search orders and the manufacture in India has been shut down.

The Claim Form in the present proceedings was issued on 19^th December 2006, the Particulars of Claim were amended before service on 8^th January 2007 and an application, without notice, for early specific disclosure was made before Mr Justice Kitchin on 11^th January 2007. Mr Justice Kitchin granted an order for specific disclosure against the Defendants but refused an order that the Claimants be at liberty to disclose confidential information obtained as a result of the order to the Claimants’ independent expert. The proceedings, together with the order of Mr Justice Kitchin, were served on the Defendants at the beginning of February 2007. Although initially the Defendants’ solicitors said that they anticipated that they would challenge the UK Court’s jurisdiction, the Defendants decided to submit to jurisdiction in the hope that it would help to reach a speedy conclusion to the whole dispute.

On the application before Mr Justice Kitchin, the Claimants relied on a skeleton argument. There are several passages from this skeleton which the Defendants rely on in this application:

“(The Claimants’) aim in seeking early disclosure is not only to clarify the issues in the case but also, if the information provide(d) makes clear that (the Claimants’) concerns as to misuse of confidential information are well founded, to bring an application either for interim injunctive relief or for an expedited trial

...

“The information requested will allow the manufacturing process used in NetProtect to be compared with that disclosed in the Confidential Information.

...

“The disclosure and information sought will allow even greater particularisation of (the Claimants’) case allowing the confidential information relied upon to be precisely defined and the acts complained of (and the reasons why they are alleged to be objectionable) to be set out clearly and succinctly to the benefit of all parties and the Court. This will significantly reduce the length, complexity and cost of the present litigation.”

At the hearing on the 11^th January the Claimants had sought an order allowing them to disclose the documents, to be disclosed by the Defendants, to a named independent expert instructed on behalf of the Claimants. The Judge was not prepared to make that part of the order without the Defendants having an opportunity to be heard on the application. An application seeking further information from the Defendants (as opposed to just the disclosure of documents by the Defendants) was issued on 12^th January and was served with the order and proceedings.

The Claimants’ solicitors wrote to the Defendants saying:

“It is necessary for us to provide these documents to our expert in order to understand the disclosure you have provided to us fully and to express an opinion on whether this disclosure produces misuse of our clients’ confidential information.”

The Defendants provided the information and documents sought and agreed for it to be disclosed to the Claimants’ expert witness.

The Confidential Information had been identified in the Amended Particulars of Claim in the following terms:

“Masterbatch Recipes and Product Recipes together define the chemical components of the PE products, the proportions in which the components are required, the order in which the components must be added, and the temperature and speed at which they must be mixed and the temperature and speed at which the yarn is to be extruded. The particular Product Recipe and Masterbatch Recipes used for each of the Claimants’ Products give the said products their particular performance characteristics, including the strength and duration of the insecticidal properties. In the premises the particular Product Recipe and Masterbatch Recipes used for each of the Claimants’ Products give those products their commercially desirable features.

...

“The Masterbatch Recipes and the Product Recipes used for the creation of the Claimants’ Products constitute trade secrets confidential to the Claimants. Further, the Claimants have created databases of test results relating to the performance and properties of products created using different combinations of masterbatches according to different Product Recipes (“the Databases”), which also constitute trade secrets confidential to the Claimants. Such properties include the insecticidal properties of the Claimants’ Products and the variation of such properties over time and with washing. The confidential information relied upon by the Claimants herein is identified in the Confidential Schedule 1 hereto (“the Confidential Information”). ...”

On 27^th February the Confidential Schedule 1 had been served on the Defendants, after they had entered into confidentiality agreements with respect to it. On receipt of the Confidential Schedule the Defendants’ solicitors immediately sent a letter to the Claimants saying:

“With regard to Confidential Schedule 1 to the Amended Particulars of Claim, we understand the relevance of the Master Batch recipes and the Product recipes. However, we do not understand the relevance of the PE Net Database and the GOPI Database at the beginning and end of the that Schedule. Could you please explain what each of these Databases is and how it is alleged that the Defendants used the confidential information contained therein?”

The Claimants responded by referring the Defendants to the Amended Particulars of Claim. That did not satisfy the Defendants and their solicitors raised the matter again in a letter of 8^th March:

“... we can understand that you say that our clients have used the two particular recipes named in Confidential Schedule 1, including the details of quantities and the manner in which they are combined. Where that information appears in the documents relied upon (the other side of the coin) is of no concern when we are trying to understand what the confidential information is. If that were the only case your clients were running, we would have no problem with that.

“The allegation goes further: your clients rely upon two separate sets of papers (in tiny script). This is the other side of the coin: you are identifying where the confidential information relied upon is and it is anything but self evident. The result is that we do not know the case our clients are supposed to meet. Our clients believe that that is not unintentional. We would like to believe otherwise, but you are not helping us.

“The principle is the same whether you rely upon a two page document or a book with 2,000 pages: you must identify what the relevant confidential information is alleged to be. As we understand it, you would rather not do so until your expert has examined the catch from the fishing expedition resulting in the Order of Mr Justice Kitchin. That is unacceptable.

“Taking, as an example, the first set of “data” (because it is legible): the first page appears to list a whole lot of samples of threads and yarns, all but 2 being of one of the recipes on which you rely – we presume the other two are irrelevant. None of the information in the first 20 columns (some columns have no information) appears to be of any relevance and can hardly be information having the necessary quality of confidence, nor is it of any use to any competitor. The only information which we can see which may be of some consequence is the density and quantities of insecticide and one other additive. However, given they all relate to the same formulation, 65.F.0304.5, one would expect the values to be the same and those values have already been identified in the recipes you have provided. The sole piece of information we can see which can be derived from this page, would seem to be that the composition of the product varies considerably and to the extent indicated, in the final product. If not, then we do not understand what the confidential information is alleged to be.

...

“Less pressing, but still vital, are the particulars of fact on which you rely as showing that such information has been used by our clients. In doing so, you will, no doubt, consider the fact that your clients have relied upon analyses showing the constituents of the products in issue and their quantities, so that they cannot have the necessary quality of confidence.”

The Claimants responded on 12^th March :

“We intend to prepare a more detailed response during the course of this week and hope to let you have this before the end of the week.

“With regard to how the confidential information has been used by your clients, as you have now allowed us to consult with an expert in order to provide him with those documents your clients have disclosed we think that is sensible that we provide our response in respect of this after he has been briefed and provided us with his comments.”

Various correspondence passed between the parties’ solicitors during which the Defendants indicated that they were not challenging the jurisdiction of the court but were intending to apply to strike out the action. They continued to complain about the lack of particularisation of the Confidential Information. They also complained about the commencement of proceedings against Mr Skovmand in France. For their part the Claimants replied that the Confidential Information was dealt with in a fully particularised Amended Particulars of Claim and that no Request for Further Information had been served. They stated on the 20^th March that they would reply to the request for clarification of the Confidential Schedule shortly.

By letter of 21^st March the Claimants’ solicitors told the Defendants that they had just realised that the database provided as part of Confidential Schedule 1 was incomplete and served a complete version on them. On the 27^th March, the Defendants launched the present application to strike out the Action as vexatious and an abuse of process and sought various directions in the strike out application. Two of those directions were:

“that the Claimants do within 7 days give full particulars of the information relied upon (a) as being of a confidential nature (not merely by indicating where the said information is said to reside), and (b) as having been used by the Defendants and each of them

“that the Claimants do within 7 days give full particulars of the facts from which they ask the court to infer that the Defendants have used such item of information”

On the 28^th March the Claimants gave the reply to the request for clarification of the Confidential Schedule that had been foreshadowed in the letter of the 21^st March:

“1 The whole of the databases are confidential. All of the information in it should be taken as a whole when considered what is confidential and would be of value to a competitor. None of the information is in the public domain. It is the wrong approach to seek to “salami slice” the database and seek to explain why any particular column is or is not confidential. It is the totality of the information which is so valuable and we will explain below why.

“2 The databases contain many recipes – for example, each row in sheet 1 (“Hegn database”) of the PE net database is a recipe. You have said that you can understand why recipes are said to be confidential, the same applies here.

“3 Many of the columns relate to the testing of the products. Testing is an ongoing process, involving both quality assurance testing and development testing. The process is one of trial and error in order to optimise the ingredients. The development testing will include chemical testing in a laboratory and efficacy testing (for example bioassays) and field testing, when the net may be hung in the sun, washed, then hung outside again, then washed, then tested and so on.

“4 When developing any product this is valuable information. Mosquitoes may, for example, become immune to certain chemicals over a period of time, and products may need to be refined and therefore recipes varied or altered in some way. The databases contain valuable data for any product development in this field.

“5 To take an example – you have seen from the pleading that it is our clients’ case that its Fence product is very similar to its PE net product. The recipes are very similar. However, for a PE net product (such as Netprotect) which is for human use a lower level of insecticide is required than for a product which is for agricultural use such as Fence. The information in this database provides the relevant data for adjusting the quantities of other additives in the master batches if the level of the insecticide (in this case Deltamethrin) is adjusted.

“6 We enclose two lists of the columns on which we rely in the PE Net and Gopi databases, and an explanation of each such column.

...

“You then go on to ask us for particulars of fact showing that information has been used by your clients. With respect, this is fully pleaded. If you require any particular paragraphs to be clarified please serve an appropriate Request.”

On the 28^th March, having received the strike out application, the Claimants addressed the proposed directions in the application which I have set out above:

“Particulars of Information

With regard to sub paragraph (a) of your draft Order, we have already provided this. With regard to sub paragraph (b) of your draft Order, our case is sufficiently pleaded however we will provide further particulars once our expert has had the opportunity to thoroughly consider your clients’ evidence.

Inference that the Defendants have used the Claimant’s Confidential Information

Five reasons in support of the inference that the Defendants have used the Claimants’ confidential information are set out in the Amended Particulars of Claim and this is sufficiently pleaded. We also rely upon the email between Ole Skovmand and Rune Bosselmann in August 2004, a copy of which we attach within emails recovered from Mr Holm Larsen’s laptop computer during his employment with our clients, in which Mr Skovmand states “Based on our Fence tests we can make a qualified guess as to how a formulation should be”.”

On 30^th March Mr Justice Richards gave directions by consent on the Defendants’ strike out application. These included directing that the Defendants’ application for further information be heard as an application by order and “that the Claimants have leave to serve a report by their named expert and do serve the same together with any further evidence on which they wish to rely upon(sic) in response to the Defendants’ said Application by ...” In the context of the Order, that reference to Application is clearly the application to strike out.

Following the service of evidence in the application for further information, the Defendants decided not to pursue that application since the Claimants’ evidence made it clear that “the Claimants are not at this stage in a position to be of any more help in identifying either what parts of the databases are trade secrets, or the precise information improperly used by the Defendants, until the Claimants expert has reported on his investigation.” The Claimants responded “... we have explained to you that the Claimants hope to be able to further particularise this case once it has, in conjunction with its expert, determined the information in the databases which has been used by the Defendants as a starting point for the development of NetProtect. ... As for the current timetable during which we anticipate being able to refine our Confidential Information relied upon as being used by the Defendants, the current timetable in relation to your strike out application states that we have to serve any expert report by 10 May. ... If we need an extension we will ask you for it.”

There was a hearing before Mr Justice Blackburne on 20^th April at which he ordered, inter alia, “that by 4 p.m. on Friday 21^st May 2007 the Claimants do give full particulars of precisely what information they claim was confidential to them that was then used by the Defendants and each of them in the design of NETPROTECT nets.” Further particulars were served by the Claimants on the 21^st May – a Monday in fact.

The Claimants’ evidence in the strike out application was served on 30^th May. There was no Report from the Claimants’ independent expert, a matter commented on by the Defendants. The Claimants responded by saying that they had never indicated that there would be such a Report and that their expert had been helping prepare the further particulars required by the Order of Mr Justice Blackburne.

The Particulars provided by the Claimants on 21^st May do not refer to the GOPI Database that was in the original Confidential Schedule 1 but do identify specific columns and rows of the other database which are relied on and provide a table showing the alleged correspondence between the Defendants’ sample and recipe numbers and the Claimants’ sample numbers which are said to have provided the basis of information for the Defendants in developing their samples. During the hearing before me I was taken to some of the identified entries in the database and shown the allegedly corresponding Defendants’ data.

I have gone through this history of the claim and the application in some detail because of the nature of the Defendants’ Application to strike out. As it was put in the skeleton argument of Mr Hamer, who appeared for the Defendants, “They rely upon a good number of factors (e.g. the previous proceedings, the subsequent proceedings elsewhere, the harassment etc.) including the lack of merits. ... Intection claim that VF, a very wealthy organisation, have behaved oppressively in trying to crush Intection’s new business, inter alia, by bringing multiple proceedings (including the criminal proceedings now discontinued against (the Sixth Defendant and Mr Skovmand) in multiple jurisdictions over an extended period of time, bleeding them dry of financial resources, the absence of a genuine claim being disguised by wide and imprecise pleadings and misleading/untrue allegations.”

So far as the previous proceedings, subsequent proceedings elsewhere, multiple proceedings in multiple jurisdictions is concerned I do not regard this as being either vexatious or abusive. Where businesses are transferred from one corporate entity to another it is reasonable to sue the new corporate entity in its country of incorporation and to sue the individuals who own and control the corporate entities. To hold otherwise would be a charter for defendants to use a trail of companies to avoid judgment day. I should make it clear that I am not saying that that is what the Defendants to this action are doing.

Similarly, it is not abusive to take action against the foreign manufacturer of a product, which you believe to be made in infringement of your rights, in the country where the manufacture is being carried out.

That leaves what I understand to be the two major planks of the Defendants’ case, namely: (1) that the Claimants have no case, and: (2) that the Claimants have acted oppressively in failing to particularise properly their allegations.

The first of these was argued by Mr Hamer under two headings.

Firstly it was argued that the Claimants had failed to establish that they had any information which had the necessary quality of confidence and secondly that they had failed to identify precisely what information the Defendants had used and their evidence to support that allegation.

Much was made of the fact that the Claimants had failed to produce any Report from their independent expert. At times in the correspondence this was being put almost as a failure to comply with a direction of the court that they should file such a Report. The Defendants appeared to be saying that their Application to strike out was predicated on the fact that the Claimants would file such a Report and they, the Defendants, would then be able to answer it. Whilst I agree that it did seem from the correspondence, some of which is set out above, that the Claimants were intending to file such a Report, they certainly did not commit themselves to so doing and the court did not order them to do so. They had leave to put in such a Report if they wanted to. It was no more than that.

The Defendants put in a Report from their expert, Professor Gary Stevens. The body of the Report was some 45 pages long. Professor Stevens summarised his conclusions thus:

One immediate problem leaps out of these conclusions. In the third paragraph above Professor Stevens refers to the advantage that may have been gained from the experience and knowledge of the individual Defendants when working for the Claimants. I do not know how he has sought to separate knowledge gained from the database pleaded as the confidential information, if they consulted it during the development of Netprotect, from knowledge that they would be expected to take away in their heads.

I note also, in paragraph 76 of his Report Professor Stevens says “in most cases reliable formulations (are) arrived at by trial and error following initial guidance from polymer and additive manufacturers with experience in related applications (e.g. agricultural films)”. During the course of Mr Hamer’s submissions he took me to a data sheet produced by such a manufacturer. It did not give the information that was in the Claimants’ database in that it was less comprehensive and there was no suggestion in the evidence that this was where the Defendants started from. I have no doubt that there is a lot of information available from the manufacturers who are trying to sell their product and that they will help you to develop a suitable formulation. I do not know how long that would take and, again, there is no evidence that that is what the Defendants did.

As well as information supplied by manufacturers, Mr Hamer relied on two other factors to establish that the Claimants’ information is not confidential. The first is a patent that the Claimants applied for. Although this disclosed a formulation in general terms, it did not seem to have the same information as was present in the Claimants’ confidential information.

Secondly, Mr Hamer suggested that there was an inconsistency in the Claimants’ case in that they said that their confidential information could not be ‘reverse engineered’ by analysis but then relied on analysis of the Defendants’ product as an indication that the Defendants had used the Claimants’ confidential information. I do not read the pleadings as being inconsistent on this point. The Claimants say that an analysis of the product does not reveal the precise nature of the components of manufacturing process and Professor Stevens agrees with that. He goes on to say that great insight may be made into a product by analysis even if the precise formulation cannot be obtained. That is precisely what the Claimants are saying.

One of the factors relied upon by the Claimants as evidence of the fact that the Defendants used the confidential information is the speed with which the Defendants’ product was developed. On this Professor Stevens comments: “The development of Netprotect is described in Confidential Schedule 2. The time line starts in June 2004, and identifies, evaluates and selects “reliable” PE net manufacturers within 3 months. This, though credible, is quite a short time, if no previous knowledge of the market was available. However, recommendations from those working in the area could have allowed such a selection to occur in a short time.” This is not the sort of evidence that would allow me on a strike out application to say that this is a claim without merits.

Professor Stevens’ evidence on the difference between the final Netprotect product and the formulations contained in the Claimants’ confidential information is clear and if that was the sole issue then I might well find that the Claimants’ case has no merits. However, as Professor Steven’s appreciates in his Report, the question is whether the Defendants got an advantage through having and using the Claimants’ confidential information. Unfortunately, Professor Stevens deals with the database in the pleaded confidential information in general terms and does not go through the particular specific entries that were identified in the Further Information supplied by the Claimants on 21^st May. I was taken to some of this information by Mr Moody-Stuart during his submissions for the Claimants and it looked to me, as an admitted layman in such things, to be highly relevant.

Although the Claimants did not put in a Report from their expert, they did put in a letter he had written making certain criticisms of Professor Stevens’ Report. I do not think that it makes any difference that it was not in the form of a formal Report. I am not in a position, in an Application like this, to form a view one way or the other about the rights or wrongs of such criticisms and I do not intend to try.

I should make it clear that the comments I have made above about Professor Stevens’ Report are not intended to be criticisms of any kind. It may well be that, at trial, Professor Stevens’ Report will be held to be decisive. I am merely attempting to show examples as to why I cannot possibly decide at this stage of the proceedings and without a proper examination of the facts, that the Claimants’ case is without merits.

For the same reasons, I cannot decide that the Claimants have not made out a case that the Defendants have used the Claimants’ confidential information.

The final heading that was relied on by the Defendants was that the Claimants have acted oppressively by failing to particularise their case properly.

I think that the Claimants have now pleaded their case properly. I can understand the complaint that, for a long time they had not. The Claimants appear to have dropped one whole database that is in Confidential Schedule 1. The reason for this would appear to be that they could not show that the Defendants actually had a copy of this database. I do not think that it has been formally dropped even now although no particulars in respect of it were given in the Further Information served on 21^st May. Further, it was not until 21^st May that the particular identities in the database relied on were identified. I believe that this has hampered the Defendants in the preparation of their case.

Some of the delay in providing the particulars was due to the inability, at first, to show the necessary documents to the Claimants’ expert and then for him to discuss certain items of information with his clients.

I do not think that a failure to particularise properly at an earlier stage can justify striking out a claim if it is properly particularised before the striking out application is heard.

In all the circumstances I am not prepared to strike out this action for being vexatious and an abuse of process. I am not expressing any view as to the merits of the case. That would be wrong. I am only ruling that the Defendants have not overcome the burden of establishing that the action should be struck out.

I would add that, having read the evidence in this case I would agree with what both counsel and some of the witnesses themselves have said and that is that much of the evidence was unnecessary. In those circumstances I question as to why such evidence was in the bundles before the court.