Wild Brain Family International Ltd v Robson & Anor

the Injunction had been substantially executed;

the Defendants had come to the conclusion that, at least in one respect (as I explain below), they had “over-complied” with the Injunction;

the Defendants had indicated that they intended to apply to discharge the Injunction.

gave directions for the disposal of the Defendants’ intended discharge

made an evidence preservation order and an injunction to restrain the Defendants’ dealing with the Claimant’s documents and the Claimant’s confidential information; (Footnote: ² )

ordered that “pending the hearing of the [intended] discharge application, the Claimant shall not inspect any of the documents delivered up as at the date of this order by the Defendants pursuant to paragraph 20” (Footnote: ³ ) of the Injunction. (Footnote: ⁴ )

As I have already indicated, the Claimant made the Injunction application, at least in part because of the alleged misuse, by the Defendants, of its confidential information. As I have also already indicated, the Injunction application came on for a without notice hearing on 4 September 2018 when, having heard from Mr Anderson for over 3½ hours, (Footnote: ⁹ ) Nugee J made the without notice order which, as I have said, he varied on 12 September 2018.

By the Injunction (broadly, and amongst other matters), the Defendants:

were to allow, to the best of their ability, an independent computer specialist to copy the data stored on their computer equipment used since 1 January 2017 (save to the extent that their computer equipment had never been used for business purposes) and the copied data was to be retained by a supervising solicitor pending further order;

were to allow, to the best of their ability, the independent computer specialist to copy the data on their online communication and data storage sites used since 1 January 2017 and the copied data was to be retained by a supervising solicitor pending further order;

by paragraphs 19 and 21, immediately on service of the order (or, in certain cases, within 4 working days of service) and to the best of their ability, were to deliver up to the Claimant’s solicitors, or procure the delivery up of, all copies, in their control, of the Claimant’s confidential information and documents (“the Delivery Up order”); (Footnote: ¹⁰ ) iv)once these steps had been completed, were to delete all soft copies of the

until the Material Disgorge orders were fully executed and they had deleted all soft copies of the Claimant’s confidential information and documents on the computer equipment and online communication and data storage sites, were not, other than in complying with the Injunction, to alter or dispose of the

until the return date, were not to use or otherwise deal with the Claimant’s confidential information and documents (other than in compliance with the

The location of the Claimant’s confidential information and documents within their control;

The particulars of those to whom and the circumstances in which they had revealed the Claimant’s confidential information or the contents of any of the Claimant’s documents otherwise than in the ordinary course of their employment at the Claimant;

A summary of their use of the Claimant’s confidential information or documents otherwise than in the ordinary course of that employment;

As I have said, the Defendants then made the Discharge Application on 21 September 2018.

As I have also said, the Defendants have concluded they have over-complied with the Injunction; in particular, with the Delivery Up order. As I understand their position, in the course of delivering up the soft copy documents they were required to deliver up under the Delivery Up order, they have provided soft copy documents to the Claimant’s solicitors which contain privileged material or material which is confidential to them or third parties. I also understand that some of the soft copy documents contain a mixture of material which is confidential to the Claimant and material which is confidential to others. (Footnote: ¹¹ ) (Footnote: ¹² ) Because of this, Marcus Smith J made the order to which I have already referred, on the return date.

By the end of the hearing before me, (broadly) the order which the Claimant was seeking on the Inspection application:

contained the following undertakings:

an undertaking from the Claimant not, without the court’s permission, to use the contents of the documents delivered up by the Defendants “except for the purpose of these proceedings…or commencing civil proceedings in relation to the same or related subject matter to these proceedings provided that this undertaking shall not restrict the use by the Claimant…of its own confidential information or…property” (“the Limited Use undertaking”);

an undertaking to regulate the participation of the Claimant’s lay

contained the following orders:

(by paragraph 1) an order that the Defendants be required, within 14 days, to deliver up documents required to be delivered up by the Delivery Up order save that (i) the Defendants are not required to deliver up documents to the extent they contain privileged material and (ii) the documents delivered up may be redacted for confidence (that is, of material which is confidential to the Defendants or third parties);

(by paragraph 2) an order for members of a confidentiality club to be permitted to inspect the material redacted for confidence (but not that withheld or redacted for privilege). The members of the confidentiality club are five individuals at Mishcon de Reya LLP (the Claimant’s solicitors), counsel who appeared before me for the Claimant, and two lay representatives of the Claimant (including one who, I understand, is not resident in this jurisdiction);

(by paragraph 4) an order that the Claimant can object to a redaction, in which case, subject to paragraph 5, the documents must be delivered up by the Defendants without the redaction;

(by paragraph 5) an order which provides a mechanism for resolving disputes about redactions;

It may have been that the Claimant was seeking this form of order on the Inspection application because, during the course of the hearing, I had indicated to Mr Anderson a number of concerns I had about the original form of order which accompanied the Inspection application and because I had suggested that a practical solution to deal with the Defendants’ over-compliance (“the Scott Schedule approach”) was:

for the Defendants to redact (wholly or partially) documents delivered up under the Delivery Up order on the ground of privilege or confidence and to explain the basis for the redaction in a Scott Schedule;

for the Claimant then only to inspect the documents so delivered up and to respond to the Scott Schedule accepting or objecting to the redaction, explaining why; iii)for the parties to try to resolve their differences in relation to the redactions;

The Discharge application is made on 3 grounds:

Although the Defendants’ application is made on three grounds, it seems to me that the second ground (that a without notice application was not justified) is merely part and parcel of the Defendants’ complaint that the Claimant failed to comply with its fair presentation obligation. I will consider the second ground on that basis.

If the Defendants’ contention is that, at the 4 September hearing, Nugee J was wrong to permit the Injunction application to be made without notice, that would be a matter for an appeal court to consider. A respondent may apply to have an order made without notice discharged, otherwise than for a failure to comply with a fair presentation obligation, under CPR r.23.10 or under a liberty to apply provision. CPR r.23.10 and a liberty to apply provision provide a mechanism for a court to consider, on a respondent’s request, at an on notice hearing, all those matters which the respondent wishes to raise in opposition to the order previously obtained on its merits. CPR r.23.10 (on its wording) and a liberty to apply provision (on the standard form of wording) are not intended, in my view, to permit one first instance court to reconsider the merits of a subsidiary decision made by a different first instance court; namely, whether to permit an application to be made without notice. An alternative approach, by which the same result is reached, would be to recognise that, because, under CPR r.23.10 or a liberty to apply provision, a court reconsiders an application substantively on its merits, any merits-based grounds for complaining that the application was initially considered without notice inevitably fall away.

As I have said, the Defendants contend that, by the Injunction (in particular, by the Material Disgorge orders), Nugee J (effectively) made a search order.

Formally, CPR r.25.1(1) contemplates that orders for evidence preservation and inspection are different to search orders. Sub-rule (1) specifies that the court can make an order:

In fact, section 7 of the Civil Procedure Act 1997 deals with both evidence preservation and inspection orders, on the one hand, and search orders, on the other hand. It provides:

the preservation of evidence which is or may be relevant, or

the preservation of property which is or may be the subject-matter of the proceedings or as to which any question arises or may arise in the proceedings.

A person who is, or appears to the court likely to be, a party to proceedings in the court may make an application for such an order.

Such an order may direct any person to permit any person described in the order, or secure that any person so described is permitted –

to enter premises in England and Wales, and

while on the premises, to take in accordance with the terms of the order any of the following steps.

Those steps are –

to carry out a search for or inspection of anything described in the order, and

to make or obtain a copy, photograph, sample or other record of anything so described.

The order may also direct the person concerned –

to provide any person described in the order, or secure that any person so described is provided, with any information or article described in the order, and

to allow any person described in the order, or secure that any person so described is allowed, to retain for safe keeping anything described in the order, and

An order under this section is to have effect subject to such conditions as are specified in the order.

This section does not affect any right of a person to refuse to do anything on the ground that to do so might tend to expose him or his spouse or civil partner to proceedings for an offence or for the recovery of a penalty.

In this section –

I think that the Defendants go too far when they suggest, in their skeleton argument, that it is “neither here nor there” that the Injunction did not permit the Claimant to enter the Defendants’ homes or other properties. The extraordinary feature of a search order is that it compels a respondent to permit the searcher to enter the respondent’s premises (which may include his home). Indeed, this point was particularly well made by Hoffman J in Lock International plc v. Beswick[1989] 1 WLR 1268, 1281 (a case relied on by the Defendants), where the Judge said:

However, as Mr Reade contended, powerfully, in his oral submissions, today, a compelled search of an individual’s virtual life (by taking copies of his data, for example) is capable of being (almost, at least) as intrusive as a compelled search of that individual’s home; although I add this qualification – the extent and the invasiveness of an intrusion into an individual’s virtual life will vary from case to case.

Civil Procedure 2018 (“the 2018 White Book”) sets out, in note 25.1.18, the test which the court applies when considering the making of an inspection order, as follows:

The necessity and proportionality requirements referred to are sufficiently flexible to permit the court to require, as it ought in my view, that an applicant meets an increasingly heavy burden, before an inspection order is made, the more intrusive the inspection order sought is and, in an appropriate case, the test which the court is required to apply when considering making a search order may be adopted even though only inspection and no search of premises is being sought. There is support for this conclusion in note 25.1.24 of the 2018 White Book, which explains:

In any event, as it happens, the Claimant proceeded, at the 4 September hearing and before me, on the basis that, effectively at least, to obtain and maintain the Material Disgorge orders, it was and is required to satisfy the requirements for the making of a search order.

I will therefore consider this basis for the Discharge application with those requirements in mind.

The Defendants explain, in paragraph 30 of their skeleton argument, that, before the court may make a search order, an applicant must:

More recently, in BMW AG v. Premier Alloy Wheels (UK) Ltd.[2018] EWHC 1713 (Ch), Henry Carr J explained, at [14], that, before the court may make a search order, it must be satisfied (amongst other matters) that there is a “real possibility” of document destruction.

There is no dispute that the court can infer that there is a sufficient danger of document destruction from other facts. In Indicii Salus Ltd. v. Chandrasekaran[2007] EWHC 406 (Ch), (Footnote: ¹⁴ ) Warren J said:

The principal dispute between the parties, on the merits of the Injunction application, is whether there was sufficient evidence at the 4 September hearing for Nugee J to infer that there was a sufficient risk of document destruction by the Defendants for the Injunction to be made.

Mr Reade emphasised the passage from Lock which Warren J quoted in Indicii Salus and he made the point that, as Hoffman J explained, it does not “necessarily” follow that someone who has misused confidential information will destroy that confidential information when faced with an evidence preservation order. I agree with Mr Reade’s point as far as it goes. Each case needs to be considered on its facts. There will be some cases where, on the evidence, it is not appropriate for the court to infer that there is a sufficient risk of document destruction. There will be other cases where, on the evidence, it is appropriate for the court to make such an inference. So, at one extreme, may be the case where the respondent may have misused a small amount of the applicant’s confidential information without seeking to gain an advantage over the applicant. In such a case, a search order may not be appropriate. At the other extreme may be the case where the evidence shows that there has been substantial misuse, by the respondent, of the applicant’s confidential information, in a way which prevents the applicant getting any further access to it, for the purpose of damaging the applicant’s business. In such a case, a search order may be appropriate. (Footnote: ¹⁵ )

The Defendants contend that the Injunction ought to be discharged, on its merits, because there was insufficient evidence, at the 4 September hearing, to support a conclusion that there was a sufficient risk of document destruction, because:

they (the Defendants) are respectable;

they openly said that they were entering into competition with the Claimant and that they were being financed by highly respectable institutions;

as their conduct following the making of the Injunction (including the without notice order) shows, by their compliance with it, they are not the sort of people who would destroy evidence;

there was insufficient evidence, in any event, before Nugee J, at the 4 September hearing, for Nugee J to infer a sufficient risk of document destruction (as he was required to do because there was no direct evidence of such a risk).

If there were otherwise sufficient grounds for making the Material Disgorge orders, that the Defendants are or might otherwise be respectable is an insufficient ground for discharging the Injunction. There would, in these circumstances, still be a sufficient risk of document destruction.

There is a dispute of fact (which the parties accept I cannot determine) about what was said at the meetings relied on by the Defendants; in particular, whether they (actually, the First Defendant) openly said that they were entering into competition with the Claimant and were being financed by highly respectable institutions. In such circumstances, if there were otherwise sufficient grounds for making the Injunction, the disputed evidence about the meetings would not be a sufficient ground for discharging the Injunction on its merits, in my view.

The fact that the Defendants have apparently complied, substantially at least, with the Material Disgorge orders is not a good indication of how they would have conducted themselves had the Material Disgorge orders not been made and, I have concluded, is insufficient for the Injunction to be discharged. The Defendants’ conduct only shows, sufficiently clearly, in my view, how the Defendants actually react when subject to the Material Disgorge orders and the risk of committal for non-compliance with them.

The Claimant identifies the following matters (amongst others) which it says the evidence establishes and which it says were sufficient for Nugee J to properly infer that there was a sufficient risk of document destruction:

The Second Defendant produced a list of current acquisition targets which did not include LBB, even though he had spoken with LBB’s owner three times the previous day;

There were secret meetings between the Defendants and others involved in Moonbug;

The Second Defendant distributed to the First Defendant and another former employee of the Claimant the valuation of LBB’s intellectual property which he had obtained under a non-disclosure agreement entered into by the Claimant;

At a meeting on 23 August 2018, the First Defendant said in the Second Defendant’s presence, untruthfully, that they had only been in discussion with Raine recently.

Before me, the Defendants did not dispute these matters, (Footnote: ¹⁶ ) from which it appears that:

the Defendants’ focus was on LBB;

the Second Defendant sought to divert the Claimant’s attention away from LBB;

even after their post-termination restrictive covenants had come to an end, the Defendants misled the Claimant about their involvement in the acquisition, by Moonbug, of LBB. It is reasonable to infer, in my view, that the Defendants did so in order to hide from the Claimant their apparently deep involvement in that acquisition.

Because of the Defendants’ focus on LBB, which was a possible business acquisition for the Claimant, and because the Defendants continued to hide from the Claimant the extent of their involvement in Moonbug’s acquisition of LBB, I have concluded that there was sufficient evidence of a risk of document destruction at the 4 September hearing.

Mr Anderson pointed out that, in deciding whether to discharge the Injunction on its merits, I can take into account the product of its execution. In support of this contention, he relied on Gee on Commercial Injunctions (6th ed); paragraph 24-024:

As to that additional evidence, there is one matter, in particular, which is troubling.

On 7 September 2018, in a meeting which was transcribed, the Second Defendant told one of the Claimant’s solicitors that, when he was employed by the Claimant, he had lost a computer, which he used for business purposes, in New York and that he had reported its loss to Graham DeNure (the Claimant’s head of technology) (as Mr DeNure has since confirmed). In an affidavit, sworn on 17 September 2018, the Second Defendant said:

On this additional evidence, the conclusion that, without the Material Disgorge orders, there is a sufficient risk that the Second Defendant would destroy documents becomes stronger.

Bearing in mind that, as I have already said, the Defendants’ apparently substantial compliance with the Material Disgorge orders is not a sufficient basis for the discharge of the Injunction on its merits, even taking into account the evidence as it now is, there is no basis, in my view, for the Injunction to be discharged on its merits.

I have already explained that, in my view, the Defendants can only challenge Nugee J’s decision to hear the Injunction application without notice as part and parcel of its complaint that the Claimant failed to comply with its fair presentation obligation. However, there is a little more I can say about this second basis for the Discharge application.

CPR r.23.4(2) provides:

a rule;

a practice direction; or (c) a court order.

where there is exceptional urgency,

where the overriding objective is best furthered by doing so,…

The grounds for the Defendants’ contention that the Injunction should be discharged because the 4 September hearing should have been on notice are set out in paragraphs 35 and 36-39 of their skeleton argument.

They say, in paragraph 35 of their skeleton argument:

By this paragraph, the Defendants complain that, because, on their case, the Material Disgorge orders were not merited, the hearing of the Injunction application without notice was not merited. Even if the second point was a corollary of the first, I have concluded that the Material Disgorge orders were merited, so there can be no proper objection, on the merits, to Nugee J’s decision to hear the Injunction application without notice. The Defendants also complain that the matter was not urgent. There is nothing to suggest that Nugee J’s decision to hear the Injunction application without notice was based on any urgency.

In paragraphs 36-39 of their skeleton argument, the Defendants explain that the Claimant has dealt with others, who may have been involved in the matters about which the Claimant complains, by way of correspondence and, effectively, on notice. However, as I understand matters, those dealings only took place after the Injunction had been made, when the Claimant had obtained orders which preserve material, in circumstances where it appears that the Defendants were intimately involved in Moonbug’s acquisition of LBB. It is right that there may not be a precise coincidence between material in the control of the Defendants, on the one hand, and others, on the other hand. However, I have so far decided that there is no ground for discharging the Injunction, so, in my view, how the Claimant dealt with others after the Injunction does not alter the merits of the decision to hold the 4 September hearing without notice.

I turn, then, to consider the Defendants’ application to discharge the Injunction on the ground that the Claimant breached its obligation to give full and frank disclosure (“the fair presentation obligation”).

The parties agree that the nature of an applicant’s obligation and the court’s approach in this context was set out by Ralph Gibson LJ in Brink’s Mat Ltd. v. Elcombe [1988] 1 WLR 1350, 1356-7, as follows:

The duty of the applicant is to make “a full and fair disclosure of all the material facts:” see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 KB 486, 514, per Scrutton LJ.

The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord CozensHardy MR, at p.504, citing Dalglish v. Jarvie (1850) 2 Mac & G 231, 238, and Browne-Wilkinson J in Thermax Ltd. v. Schott Industrial Glass Ltd.[1981] FSR 289, 295.

The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] FSR 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson[1987] Ch 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade LJ in Bank Mellat v. Nikpour [1985] FSR 87, 92-93.

If material non-disclosure is established the court will be “astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure…is deprived of any advantage he may have derived by that breach of duty:” see per Donaldson LJ in Bank Mellat v. Nikpour, at p.91, citing Warrington LJ in the Kensington Income Tax Commissioners’ case [1917] 1 KB 486, 509.

Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the nondisclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.

Finally, it “is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded:” per Lord Denning MR in Bank Mellat v. Nikpour [1985] FSR 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms:

The fair presentation obligation is particularly important on a without notice application for a search order (or for similar relief) because of the invasive nature of such an order (per Donaldson LJ in Bank Mellat, at page 92).

Without seeking to diminish the importance of the fair presentation obligation in any way whatever, it seems to me that there must be some limit to that obligation. To take an example, just because a respondent might have taken the court to a number of cases to reinforce a legal proposition, so long as the applicant has fairly drawn to the court’s attention the principle derived from those cases, I do not think that the applicant is required to take the court to those cases in the way the respondent would have done. To repeat what Popplewell J noted in the Fundo case, “the ultimate touchstone is whether the presentation of the application is fair in all material respects” (per Robert Walker LJ in Sidhu).

There is support for the conclusion that there is some limit on the fair presentation obligation in Gee; paragraph 9-001, where it is said:

In their skeleton argument, the Defendants identify 11 grounds on which they contend the Claimant failed in its fair presentation obligation at the 4 September hearing and Mr Reade apparently identified a further ground during the course of his submissions. The Defendants’ skeleton argument sets out the grounds in some detail. I give a sufficiently accurate summary of each of them below and set out my conclusions on each of them in turn.

Ground 1: Lock, in particular the passage quoted by Warren J in Indicii Salus, should have been dealt with more fully. The passage was set out in paragraph 36 of the Claimant’s skeleton argument for the 4 September hearing (“the Skeleton Argument”) which Nugee J read. Indeed, somewhat more of what Hoffmann J said in that case, which favoured the Defendants, was set out in the Skeleton Argument. Nugee J described what Hoffmann J said in Lock as “very interesting”. It is clear to me that Nugee J had well in mind what Hoffmann J said in Lock about the limits of justifiable inferences on search order applications and about the requirement that any order be proportionate. This is not a ground to discharge the Injunction.

Ground 2: Nugee J should have been taken to authorities about when it is legitimate for the court to draw an inference. In particular, he should have been taken to Thane Investments Ltd. v. Tomlinson[2003] EWCA Civ 1272, at [28]. In Thane, Peter Gibson LJ “emphasised…that a mere unfocused finding of dishonesty is not, in itself, sufficient to ground an application for a freezing injunction” (per Patten J in Jarvis Field Press v. Chelton[2003] EWHC 2674 (Ch), at [10]). The Claimant made clear, in the Skeleton Argument, that its case on the risk of document destruction was based on inference and that it had no direct evidence that the Defendants had destroyed documents. Further, its case was not based on “a mere unfocused [allegation] of dishonesty”. Rather, its case was based on allegations of wrongful conduct directly relevant to Moonbug’s acquisition of LBB. I do not believe, therefore, that the Claimant failed in its fair presentation obligation in this respect.

Ground 3: The Claimant did not fairly present the Defendants’ case that:

they are respectable;

they openly said that they were entering into competition and were being financed by highly respectable institutions;

as their conduct following the making of the Injunction (including the without notice order) shows, by their compliance with it, they are not the sort of people who would destroy evidence;

there was insufficient evidence, in any event, for Nugee J to infer a sufficient risk of destruction;

the Claimant has dealt with others since the 4 September hearing by correspondence.

As I have explained, there is a dispute about what the Defendants revealed about their intentions and I was taken to no evidence which indicated that the Claimant knew the Defendants’ case on this point or ought to have known their case (save from what might be derived from the February letter).

Nor could the Claimant know, at the 4 September hearing, how the Defendants would respond to the Injunction.

Nor is there any evidence that the Claimant’s decision to deal with others in the way it has done was in the Claimant’s mind at the 4 September hearing.

On a without notice application, the court is well aware that a respondent, had he had notice of the application, may well have submitted that the application should be dismissed. The very purpose of the fair presentation obligation is to allow the court to consider, so far as it is able, the without notice application from the respondent’s perspective. I do not think that an applicant is required, as part of its fair presentation obligation, to say to the court that the respondent would say that the application should be dismissed (so long as the fair presentation obligation is otherwise complied with).

Further, I do not see how the fact that the Defendants take the view that they are respectable people is material to the Injunction application.

In the circumstances, this ground is not made out.

Ground 4: In paragraph 63 of the Skeleton Argument (in the section on full and frank disclosure), the Claimant mentioned that Goulding: Employee Competition (3^rd ed) made the point that “orders for the early provision of information or early disclosure of documents are exceptional and should not be granted where they amount to a fishing expedition, or are “tantamount to standard disclosure in an unpleaded case”.”

Ground 5: The Claimant did not fairly represent to Nugee J that the Delivery Up order, in particular, was not required to be made without notice. I understand the Defendants’ complaint to be that the Claimant should have pointed out to Nugee J that, had the Defendants been at the 4 September hearing, the Defendants might have argued that it was not necessary to make the Delivery Up order (in particular) at that hearing.

In paragraph 63 of the Skeleton Argument, the Claimant made the point that “the [Defendants] would be likely to argue that this part of the order is not so urgent as to justify being made without notice”.

Further, the without notice order contained a wider Delivery Up order, because it covered “Specified Documents”. At the on notice hearing on 12 September 2018, Nugee J varied the Delivery Up order to exclude Specified Documents. (Footnote: ¹⁸ ) During the course of the 4 September hearing, Nugee J asked, on more than one occasion, whether, whether or not Specified Documents ought to be delivered up, should be determined on the return date. Nugee J’s intervention supports the conclusion that he had well in mind whether it was appropriate to make the Delivery Up order at the 4 September hearing.

In these circumstances, I am satisfied that, in this respect, the Claimant complied with its fair representation obligation.

Ground 6: The Claimant should have drawn to Nugee J’s attention properly that complying with the Injunction would be an onerous task; particularly, I understand the Defendants to contend, for them. It is clear, from the transcript of the 4 September hearing, that Nugee J was taken through the draft Injunction carefully and that he had

Ground 7: The Claimant did not properly draw to Nugee J’s attention that, to comply with the Delivery Up order, the Defendants might have to deliver up material confidential to third parties. I understand that the Defendants make a particular criticism about the order for the delivery up of Specified Documents in the without notice order. As to that, as I have said, in my view, any criticism of the Claimant was properly addressed at the hearing on 12 September 2018.

The reason why the Defendants have delivered up material which is confidential to third parties, in over-compliance with the Delivery Up order, is because they have mixed material confidential to the Claimant with material confidential to others. It must be remembered that, by the Delivery Up order, the Defendants were required to deliver up all copies in their control of the Claimant’s confidential information and documents. I was not taken to any evidence which showed that the Claimant knew or ought to have known that the Defendants had mixed confidential information. The order did not compel the Defendants to deliver up to the Claimant material confidential to third parties. This ground might have been a good ground of complaint if the Claimant knew or ought to have known, by the 4 September hearing, that the Defendants had mixed confidential information but, as I have said, the Claimant did not know this nor ought it to have known this, on the evidence before me. I have concluded, therefore, that this ground for the discharge of the Injunction is not made out.

Ground 8: The Claimant failed to fairly make the point to Nugee J that the Injunction was almost as intrusive as a search order. I am clear that this ground ought to be rejected. The Claimant did make the Injunction application at the 4 September hearing on the basis, effectively, that it was seeking an order almost as intrusive as a search order. Pages 3 to 19 of the Skeleton Argument considered the requirements for a search order in detail. The following exchange took place at the 4 September hearing:

Ground 9: The Claimant should have told Nugee J that, had the Defendants been at the 4 September hearing, they are likely to have contended that the Claimant was sufficiently protected, at that stage, by orders which preserved documents. The Defendants contend, in effect, on this ground, that the Claimant should have drawn to Nugee J’s attention that the Delivery Up order and the Information Provision orders were not necessary at that stage. On reflection, I do not think that this ground takes matters any further than grounds 4 and 5 above.

Ground 10: The Claimant did not properly address, in evidence, the likelihood that it might not have been able to acquire LBB. The Defendants make the point that LBB’s vendors had given a mid-range valuation of its intellectual property of £72 million. They also contended that:

even though that that was not necessarily the value of the business (that is, of LBB), the Claimant only had access to a US$30 million revolving credit

various individuals represented to them that the Claimant was not financially able to acquire LBB.

Nugee J was taken to the intellectual property valuation at the 4 September hearing (although it is right to note that that was not done in the course of submissions about whether the Claimant could have acquired LBB).

Whether the Claimant was financially able to acquire LBB (or a controlling interest in it) is disputed. Whether or not the individuals identified by the Defendants as having made representations to them about the Claimant’s finances made those representations is also disputed (at least by those individuals who have made witness statements).

In support of the Injunction application, Mr Donovan, the Chief Executive Officer of DHX Media Ltd. (of which the Claimant is an indirectly wholly owned subsidiary), made an affidavit in which he said:

At the 4 September hearing, Mr Anderson said:

The Claimant accepts that it did not try to acquire LBB in due course but the circumstances in which it did not try to do so are disputed. The Claimant contended, before me, that it did not try to do so, because those who were given the job of considering the acquisition were the very people who left its employment and are now employed (in the case of the Defendants) or may be employed by Moonbug.

Bearing in mind the continuing issues in dispute which I cannot resolve on the Discharge application (and was not asked to do so), I have concluded that the Claimant did not fail in its fair presentation obligation on this ground. The most difficult aspect of this ground to resolve has been whether or not the Claimant said enough to Nugee J, at the 4 September hearing, about the Claimant’s financial ability to acquire LBB. However, on reflection, having considered everything that Mr Anderson said at the point in the 4 September hearing from which the above quote has been taken, as I have said, I have come to the conclusion that the Claimant did not fail in its fair presentation obligation on this ground.

Ground 11: The Claimant should have made clear to Nugee J that it is arguable that the Defendants were not fiduciaries. Mr Reade accepted that the Defendants owed the Claimant a duty of fidelity and I understood him not to dispute that it would a breach of that duty if they misused the Claimant’s confidential information. At first sight, it does not seem to matter whether or not the Defendants were fiduciaries (a matter which is apparently disputed in any event). Mr Reade suggested, however, that the remedy for breach of a duty of fidelity is normally limited to damages. He did not take me to anything to support that submission. In my view, if the grounds for making a search-type order are otherwise made out (which, in this context, importantly include a strong prima facie case of a civil cause of action (per Henry Carr J in BMW at [14])), I do not believe that it is material whether or not the Defendants were fiduciaries or only owed a duty of fidelity. I therefore do not believe that this ground for the discharge of the Injunction is made out.

Ground 12: The Claimant did not fairly present meetings which the First Defendant held with Mr Donovan, Ms Loi and Mr Scherba. In his oral submissions, Mr Reade relied on two meetings; one, on 22 December 2017, with Mr Donovan (“the December meeting”) and the other, on 22 November 2017, with Ms Loi and Mr Scherba (“the breakfast meeting”).

The First Defendant contends that, at the December meeting, he told Mr Donovan that he “was going to try to raise capital to set up [his] own kid’s video content company”. Mr Donovan disputed that. In his affidavit in support of the Injunction application he said that the First Defendant “did not mention to…at [their] lunch meeting that the reason for his departure was that he was planning to set up the New Venture or that he was looking for third party funding”. The parties agree that I cannot resolve this dispute on the Discharge application.

However, Mr Reade pointed out that the February letter (written by the Claimant’s solicitors) said, with reference to the December meeting:

It is not disputed that the February letter was sufficiently material that it had to be fairly drawn to Nugee J’s attention as part of the Claimant’s fair presentation obligation. In his affidavit, in a footnote, Mr Donovan points out that the February letter is consistent with what the First Defendant says but then adds that the letter is incorrect. Nugee J clearly had the February letter in mind (because of what he had read before the 4 September hearing) and the following exchange took place at the 4 September hearing:

The breakfast meeting was not referred to at the 4 September hearing. The First Defendant says that, at that meeting, he “shared with [Ms Loi and Mr Scherba] and outlined [his] plan to leave [the Claimant]. [He] told them details of [his] proposal from Raine and that [he] would be setting up a competing business with Rene Rechtman.” Ms Loi and Mr Scherba dispute this version of events. Ms Loi said:

At the hearing before me, Mr Anderson pointed out that, in paragraph 17.4.1 of the Defence, the Defendants contend:

Mr Reade did not explain why the breakfast meeting is material. Bearing in mind what the Defendants say in their Defence about the state of affairs in November 2017, I am not satisfied that what was said at the breakfast meeting, to the extent accepted by the Claimant, was material. Bearing in mind too that what actually took place at the breakfast meeting is disputed, I have concluded that, that the Claimant did not mention it in its evidence in support of the Injunction application or at the 4 September hearing, was not a breach of its fair presentation obligation.

In the light of all I have said, after careful consideration, I have concluded that the Defendants have not established that the Claimant failed in its fair presentation obligation and that the Discharge application fails on this basis too.

There is no dispute that the court has the jurisdiction to regulate how to deal with the Defendants’ over-compliance with the Delivery Up order. Mr Anderson suggested that that jurisdiction involves the exercise of a discretion and Mr Reade suggested that that jurisdiction requires the court to devise a mechanism which is fair. I do though need to consider the basis of the undisputed jurisdiction in order to see if there is any guide to how the broad discretion which all parties apparently contended for might be applied.

The Claimant relied, in support of the Inspection application, principally on section 37 of the Senior Courts Act, which provides:

On this basis, what I am effectively being asked to do is to fix the terms and conditions (by varying the Injunction in light of matters which have become apparent since it was made) on which the Claimant is to enjoy the fruits of the Delivery Up order. On this basis, it seems to me that, in imposing “just” terms and conditions ancillary to the Delivery Up order, a court ought to have in mind that, when considering the grant of an interim injunction, it has to take into account the balance of convenience (or, more accurately perhaps, “the balance of the risk of doing an injustice” (per Lord Diplock in NWL Ltd. v. Woods[1979] 1 WLR 1294, 1306)).

The Claimant makes the Inspection application, alternatively, under CPR r.25.1(1)(c)(ii) to which I have already referred, in respect of which the court should consider what inspection facility for an applicant is reasonably necessary and proportionate, as note 25.1.8 of the 2018 White Book explains. In my view, the requirement to consider necessity and proportionality is, just as is the need to consider “the risk of doing an injustice”, a limiting feature on the broad discretion suggested by the parties.

A point well made by Mr Reade (and by Latham & Watkins (London) LLP) is that, not only did the Claimant, on the Injunction application, not seek an order to inspect material in the Defendants’ control which is confidential to the Defendants or third parties, but the court would have been very unlikely, at least, to have permitted such inspection had it been sought. This is a weighty factor militating against any order on the Inspection application which allows the Claimant to review material which is said to be confidential to the Defendants or to third parties. This factor favours the Scott Schedule approach.

On the other hand, it is not possible to ignore what has happened in the execution of the Delivery Up order. It has now become clear, apparently, that the Defendants have mixed the Claimant’s confidential information with confidential information belonging to others. The reality is that, had the Defendants, in compliance with the Delivery Up order, delivered up partially redacted documents:

there is every possibility that the court would have had to resolve any disputes about the redactions;

the Claimant is likely to have taken a more expansive (rather than more focused) approach to its objections because it would have had no opportunity to consider the disputed material but would have seen documents partially redacted;

the parties would have had difficulties in making focused submissions on any application to court because the Claimant would not have seen the disputed material and the Defendants would not wish to reveal the disputed material.

In the unusual circumstances of this case, where the Defendants have mixed material confidential to different parties, if a mechanism can be devised which protects confidences of the Defendants or third parties, in practice, but allows the parties to address disputes as to redactions in a focused way, I take the view that an order giving effect to that mechanism would be the just result and would be reasonably necessary and proportionate.

I am not satisfied that the draft Inspection order, in its current form, is such a mechanism. However, I have concluded that, if the draft order is amended as I now set out, an order (in that amended form) will be such a mechanism and so, subject to those amendments being incorporated in the order, I will make an order in the form contended for by the Claimant. (Footnote: ¹⁹ )

The draft Inspection order must be amended as follows:

I do not see, at present, why the Limited Use undertaking should permit the Claimant to use documents, save (broadly) to the extent that they are its documents or contain its confidential information, for any purpose at all (except at any hearing where any disputed redaction for confidence is to be determined). By the Delivery Up order, the Defendants’ obligation was (broadly) to deliver up or procure the delivery up of copies of the Claimant’s confidential information and documents. I do not see why the Claimant should be entitled to make any use, for example, of material, not confidential to it, in documents which belong to unconnected third parties which have been delivered up, where that material has not been redacted. The Limited Use undertaking will need to be amended accordingly; (Footnote: ²⁰ )

In my view, the time for the Defendants to comply with paragraph 1 of the draft Inspection order is too short. As it has turned out, with hindsight, compliance with the Delivery Up order in a short time frame appears to have been very burdensome and the haste with which the Defendants were required to comply with the Delivery Up order is why, ultimately, the Inspection application has had to be made. Having considered what has been said about the original attempt to comply with the Delivery Up order and about the mixing of confidential information, I take the view that the Defendants should have 28 days, in the first instance, to comply with paragraph 1; (Footnote: ²¹ )

The proposed number of Mishcon de Reya LLP representatives who are to be members of the confidentiality club seems to me to be high. In practice, in my view, the greater the number of members of a confidentiality club, the greater the risk of an inadvertent dissemination of confidential material otherwise than as permitted. It is necessary to have in mind the limited role played by members of the confidentiality club in this case. That role is to assess whether a redaction, by the Defendants, on the ground of confidence is accepted. I do not think that, in the first instance, it is necessary for five Mishcon de Reya

I have come to the clear conclusion that, in the first instance, no lay representative of the Claimant should be a member of the confidentiality club. As I have said, the role of the confidentiality club members will be to consider whether the Defendants’ redactions on the ground of confidence are accepted. It is likely, in my view, that, unless the members of the confidentiality club come to the clear conclusion that the redacted material is confidential to the Defendants or third parties (or is sufficiently irrelevant to the proceedings that there is no practical benefit in not accepting the redaction), they will challenge the redaction. I think that it is unreal to suppose that the lay representatives are more likely to accept a redaction than the other members of the confidentiality club. It is difficult to see, therefore, how the lay representatives’ membership of the confidentiality club will assist the court in managing the dispute that has arisen as a result of the Defendants’ over-compliance with the Injunction. On the other hand, I do think that there is a real risk of a perception of injustice in a lay representative of the Claimant reading material which turns out to be confidential to the Defendants or third parties; particularly where the court’s ability to police the undertakings given by members of the confidentiality club would be more difficult in the case of the lay representative who is out of the jurisdiction;

Bearing in mind that, under the draft Inspection order, the confidentiality club can only inspect material redacted for confidence, and in the light of paragraph 4 of the draft Inspection order, I do not understand what purpose paragraph 3 of the draft Inspection order continues to serve (because the only documents which the Defendants can withhold rather than redact, under the draft Inspection order, are those containing privileged material, which is, I understand, the material to which paragraph 3 is directed);

Paragraph 4 of the draft Inspection order is, I believe, in the form originally proposed by the Claimant and so it has not kept up with the changes, from the original form, to paragraphs 1 and 2 of the draft Inspection order and it does not take into account the other changes to the draft order required by this judgment. Paragraph 4 will need to:

specify a time, after the 14 day inspection exercise contemplated by paragraph 2 of the draft Inspection order, for the Claimant’s solicitors to notify the Defendants’ solicitors that objection is taken to particular redactions. 7 days for this seems appropriate in my view;

give the Defendants more than 2 days to deliver up the documents in issue, because the exercise may be burdensome. In my view, 7 days to do so, in the first instance, is appropriate; (Footnote: ²² )

Paragraph 5 of the draft Inspection order will need to be amended, in the light of the comments I have made about paragraphs 3 and 4 of the draft Inspection order. I also take the view that the time limit for the Defendants to comply with paragraph 5(i) should be mirror the time given for the Defendants’ delivery up obligation in paragraph 4 of the draft Inspection order; (Footnote: ²³ )

The order will need to deal with how the Claimant’s solicitors are to destroy the soft copies of the unredacted documents which they have in their control and which, under the order, they are taken to accept the Claimant should not inspect unredacted. If necessary, I will hear further from counsel about how this might be sensibly achieved (although this is a matter which ought to be capable of agreement). One practical way of achieving this would be for one of the Claimant’s solicitors in the confidentiality club to be given the responsibility, by the order, for destroying all the soft copies of those unredacted documents in their control within a fixed period after the Claimant’s solicitors are to be taken to accept the Defendants’ objection to inspection and for that solicitor to confirm, within a specified time thereafter, by letter to the Defendants’ solicitors, that that exercise has been completed.

the Discharge application is dismissed;

the Inspection application succeeds, subject to the modifications to the draft Inspection order I have set out in this judgment.