Emailgen Systems Corp v Exclaimer Ltd & Anor

This is an application by the Respondents, Exclaimer Limited and Mr. Millington (collectively, Exclaimer), for an order releasing them from an undertaking given by them to provide security contained in a Consent Order made on the occasion of the return date for the hearing of an application by Emailgen Systems Corporation (Emailgen), for a freezing order.

The Respondents say that they should be released from their undertaking because there is no good arguable case against them, there is no risk of dissipation, there was no urgency to the ex parte application and there was a failure to give full and frank disclosure.

Emailgen says that the application is misconceived because the undertaking was given without any reservation of a right to apply for an order that the freezing order granted ex parte ought to be set aside. In such circumstances the burden lies on the Respondents to show good reason for the release of the undertaking, which reason usually requires proof of a significant change in circumstances from those which prevailed when the undertaking was given. Emailgen says that there is no such good reason.

When I received the papers on the day before the hearing they contained a reading list which it was estimated would require a day’s reading. However, the listing office had no listing sheet which contained such an estimate. I was in court on the day before the hearing and was therefore unable to read that which the parties requested me to read. In the circumstances I decided that the best use of the court’s time was to determine whether the Respondents’ application could be advanced given that the undertakings were contained in a consent order. As it happened counsel for Emailgen had invited the court to deal with that point as a preliminary issue.

The parties are in dispute over a Joint Venture Agreement entered into between Emailgen, a Canadian company, and Exclaimer, an English company pursuant to which each party granted the Joint Venture company a licence to use and exploit their software in Canada and the US. The parties have fallen out and are in dispute in the courts of Canada. Each has commenced proceedings against the other.

On 18 May 2012 Emailgen applied to this Court ex parte for a freezing order in support of its proceedings in Canada pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982. Such an order was granted that day by Popplewell J. The maximum value of assets caught by the freezing order was £520,000. The return date was fixed for 1 June 2012.

On 21 May 2012 Exclaimer’s solicitors, Wragge & Co., informed Emailgen’s solicitors, Stewarts Law, that the freezing order should be set aside on several grounds. However, they were in receipt of £520,000 from Exclaimer and said this:

“Strictly on the basis that your client will agree to an immediate release of paragraph 5 of the injunction order, our client will instruct us to hold the £520,000 on the undertaking set out below and will await the 1 June return date at which they will then challenge (and in our view discharge) the injunction application (and will then of course also seek their costs and an order on the cross undertaking).

Our undertaking is that we shall hold the sum of £520,000 on deposit and not return it to our clients or either of them or otherwise pay out that sum before 6pm on Friday 1 June except in accordance with either any terms agreed between you and us, or any Court Order made before then, dealing with payment of those funds. After 6.00pm on Friday 1 June, barring further Court Order otherwise, we shall release those funds in their entirety to and/or at the instruction of our clients or either of them.”

On 24 May 2012, after agreement as to the form of Emailgen’s security in the sum of £150,000 as fortification of its cross-undertaking in damages, Exclaimer gave the aforesaid undertaking.

On 29 May 2013 at 0926 Exclaimer confirmed that it would be opposing the application to continue the freezing order and anticipated serving its evidence either that day or the next. However, later that day at 1814 Exclaimer made the following offer:

“Subject to the agreement of an appropriate form of Consent Order …; in order to avoid costs on a contested application in England at this stage, and to allow the dispute between the parties to be pushed on expeditiously to a resolution in Canada …the cross-undertakings as to damages and the undertaking to deposit/hold funds that both parties and their solicitors have given to each other be extended pending further/final agreement between the parties or further order of the Court; with the injunction order then to be discharged.”

A draft order was attached.

On 30 May at 1530 Emailgen said that they were considering the terms of Exclaimer’s offer and raised a point as to Exclaimer’s affidavit of assets. On 31 May 2012 at 1127 Emailgen said that they were willing to accept the suggested draft order subject to three points. The first was a request for an undertaking that Exclaimer give notice if the provision of security is causing any loss so that consideration could be given to a variation of the security with a view to preventing such on-going loss. The second related to a request for a further affidavit of assets. The third was a request that the application for the freezing order be stayed (rather than dismissed as had been provided for in Exclaimer’s draft order) so that the court retained jurisdiction to deal with issues such as costs, variations to the undertakings, any changes necessitated as the Canadian proceedings developed and the liberty to apply provision.

Between 1323 and 1326 on 31 May 2012 counsel for the parties exchanged Skeleton Arguments. (Counsel for Exclaimer had been ready to exchange his since 10a.m. that day.) Exclaimer’s counsel said that the Respondents could have sought to set aside the freezing order thereby incurring substantial costs which would ultimately be borne by Emailgen. He then said:

“However, the Respondents [Exclaimer] have sought to adopt a pragmatic view of leaving in place the security of £520,000 which they have provided in return for Emailgen leaving the security of £150,000 in respect of the cross-undertaking in place until after the determination of the Canadian proceedings. The Respondents are confident of success in the Canadian proceedings and therefore ultimately establishing before this Court that the Freezing Order should not have been granted, leaving them to pursue their remedies under the cross-undertaking as to loss.”

Counsel went on to say that the Respondents had not put in any evidence because of their wish to adopt a pragmatic view and avoid racking up costs for the benefit of lawyers. He went on to indicate, on instructions, the nature of the Respondents’ case as to why the freezing order ought not to have been granted.

By 1648 on 31 May 2012 the terms of the Consent Order had been agreed and were subsequently approved by the Court. The recitals included reference to the freezing order, the provision of security and the application to continue the injunction listed for 1 June. Exclaimer’s undertaking was then noted in the following terms:

“…to hold the sum of £520,000 in the client account of their solicitors, Wragge & Co. LLP, as security against any damages or any other award made in favour of [Emailgen] in its Canadian proceedings...until agreement between the parties or further order of the Court.”

The Consent Order provided as follows:

“1.

The Application be stayed with each party to have liberty to apply to restore upon 14 days’ notice in writing served on the other party’s solicitors as set out below.

2.

Costs reserved.”

On 23 October 2012 Exclaimer gave notice that they intended to apply for an order releasing them from their undertaking. The application was served on 7 November 2012. Correspondence was then exchanged with regard to the time table of directions for the hearing. The first indication that Emailgen intended to take a preliminary point as to Exclaimer’s entitlement to make the application was contained in Mr. Robertson’s second affidavit dated 24 January 2013 at paragraph 11.

Counsel for Emailgen relied upon what Neuberger J. described in Re Kingsley Healthcare Limited (25 September 2001 unreported) as the “well-established” principle in Chanel v Woolworth [1981] 1 WLR 485 to the effect that where a defendant gives an undertaking until trial or further order he can only be released upon his undertaking before trial if he shows good cause such as a significant change of circumstances. Counsel submitted that in such a case the defendant has compromised his right to seek to set aside the injunction and so, whilst he may have had grounds for seeking to set aside the injunction, he has given up his right to do so. He submitted that in the present case Exclaimer had given up its right to say that the freezing order ought not to have been granted because Exclaimer had compromised its right to make such an application by giving the undertaking in the Consent Order.

Counsel for Exclaimer submitted that the Chanel principle had no application because Exclaimer had not given its undertaking “until trial or further order”. Rather, the applicable principle was that illustrated by Butt v Butt [1987] 1 WLR 1351 in which case the application to continue a freezing order granted ex parte was adjourned upon the giving of an undertaking and it was held that the defendant was entitled to seek an order that he be released from his undertaking on the grounds of material non-disclosure when the application was made ex parte.

In Chanel v Woolworth the claimant, Chanel, sought an injunction restraining the defendants from infringing Chanel’s trade mark. Upon the hearing of the application for an interlocutory injunction the defendants gave an undertaking until trial or further order not to infringe Chanel’s trade mark. Thereafter, following a decision of the Court of Appeal in a different case, one of the defendants applied to be discharged from its undertaking upon the grounds that in view of the decision of the Court of Appeal Chanel had no prospect of obtaining the final relief it sought at trial. The Court of Appeal held that the defendant could have resisted the granting of an interlocutory injunction on the reasoning subsequently held to be correct by the Court of Appeal. However, it did not do so and “a party cannot fight over again a battle which has already been fought”. The defendant could only apply to the court to be released from its undertaking by showing “some significant change of circumstances” or that it “has become aware of facts which [it] could not reasonably have known or found out” at the time of the interlocutory hearing. That could not be shown.

In my judgment it was the terms of the undertaking given by the defendants and the context in which it was given which precluded them from applying to be released from their undertaking upon the grounds that there was no basis for an interlocutory injunction. Rather than fight that issue the defendants had chosen to give an undertaking “until trial or further order”. Such an order precluded any entitlement prior to trial to argue that there was no basis for the injunction. That right, which would otherwise have existed, had been compromised by the terms of the undertaking.

The decision in Chanel v Woolworth is to be contrasted with the decision in Butt v Butt. In the latter case the claimant had obtained ex parte an injunction restraining the defendant from disposing of the net proceeds of sale of his former matrimonial home. On the return date the motion seeking the continuation of the injunction was adjourned generally on the defendant’s undertaking until trial or further order not to sell his home save at a fair market price. He later applied to be released from his undertaking on the grounds that there had been a material non-disclosure at the ex parte hearing. The Court of Appeal held that he was entitled to do so. Nourse LJ held that this was apparent from the “terms of the order” which, it is to be noted, adjourned the motion generally. Mustill LJ agreed and added that it had been made plain and understood by all concerned in the hearing that the defendant might wish to apply to discharge the undertaking when his evidence was in order. Chanel v Woolworth was distinguished.

In both Chanel v Woolworth and Butt v Butt the undertaking was given until “trial or further order”. But the essential difference between the two cases is that in Butt v Butt the order expressly stated that the motion for the injunction had been adjourned whereas in Chanel v Woolworth there was no such adjournment and instead the application for an injunction had been disposed of by the giving of an undertaking. Thus, in my judgment, where an undertaking has been given and the defendant subsequently applies for an order that he be released from that undertaking on the grounds that the ex parte order ought never to have been granted it is essential to construe the terms of the undertaking given by the defendant in the context of the order as a whole in order to decide whether the application for an injunction was disposed of at the inter partes hearing by the giving of the undertaking.

My approach to Chanel v Woolworth and Butt v Butt is consistent with and illustrated by two further cases to which I was referred.

In Pet Plan Limited v Protect-a-Pet Limited 1988 FSR 34 (which was in fact decided by the Court of Appeal in February 1987 before Butt v Butt was decided by the Court of Appeal in June 1987) the claimant sought an injunction ex parte on notice restraining the defendant from making use of a confidential list of the claimant’s customers. At the hearing a consent order was made which contained undertakings by the defendant not to make use of the list “until trial or further order or agreement.” The order provided for liberty to apply to discharge or vary the order on 48 hours’ notice. Shortly thereafter the defendant sought to be discharged from its undertakings and the judge at first instance made such an order on the basis that the balance of convenience did not justify the grant of an injunction. On appeal the point was taken, based upon the decision in Chanel v Woolworth, that it had not been open to the defendant to argue that there was no case for an injunction. The Court of Appeal agreed and allowed the appeal. Nicholls LJ said (at p.40) that he could envisage a case in which, although an undertaking is expressed to be given until trial or further order, the terms of the undertaking and the circumstances in which it is given are such as to make it evident that the undertaking was only intended to be a temporary holding operation until the defendant has an opportunity to prepare his defence with a view to the matter then being restored for full argument. Nicholls LJ held that the case before him was not one in which only a very short term temporary holding operation was intended until an inter partes hearing. He could see no reason why the express words “until trial or further order” did not mean exactly what they say, namely, that it was contemplated that the undertaking would endure until the trial, subject always to the parties’ right to come back to the court and ask the court to discharge the undertaking for good cause.

In Esal (Commodities) v Mahendra Pujara [1989] 2 Lloyd’s Law Reports 479 there was a dispute as to the ownership of certain shares. The claimant obtained an injunction ex parte restraining the defendant from disposing of the shares. On the inter partes hearing the defendant consented to an order in those terms which was expressed to be “until after judgment in this action or until further order in the meantime”. At a later date the defendant issued a notice of motion challenging jurisdiction. One of the points taken against the defendant was that the defendant had capitulated on the inter partes hearing and could not thereafter seek to improve his position. Reliance was placed on Chanel v Woolworth. The Court of Appeal accepted this submission. Slade LJ said at p.483 that the defendant had not asked for an adjournment of the application for an injunction or for the matter to be heard as a motion pending the hearing of an application to challenge the jurisdiction. Instead he had clearly agreed that there should be a trial in England.

The effect of these authorities is, in my judgment, correctly summarised by Bean J. in his book Injunctions 11^th.ed at paragraph 6-25.

“Care must be taken if a defendant consents to give undertakings but wishes to preserve his right to apply to be released from them at a later date. Where a defendant chooses not to seek an adjournment of an application for an interim injunction, but instead accepts that it should be dealt with there and then by his offering undertakings until trial or further order, there must be good grounds before he can apply to modify or change them.”

I can now return to the facts of this case. Counsel for Exclaimer emphasised that the undertaking given by Exclaimer was not “until trial or further order” but was until “agreement or further order.” That is true but the question remains whether, on the true construction of the Consent Order, the application to continue the injunction was disposed of on 1 June 2012 by the giving of an undertaking or whether the application to continue the injunction was to be determined at a later date with the undertaking lasting only until such date.

In construing the Consent Order it is appropriate, as when construing any contract, to have regard to the background available to both parties. That background includes the following. First, there would never be a judgment on the merits of the substantive dispute between the parties in England. Such a judgment would only be given in the courts of Canada. Second, as at 1 June 2012 Exclaimer considered that there were grounds which would justify the setting aside of the freezing order. Third, no application had been made for an adjournment of the inter partes hearing to enable those grounds to be supported by evidence and considered by the court.

In my judgment, having regard to that background, the true construction of the Consent Order, that is, the meaning it would be reasonably understood to bear, is that the application for the freezing order was disposed of by the giving of Exclaimer’s undertaking. I have reached that conclusion for these reasons:

If there were any doubt as to the true construction of the Consent Order its meaning is put beyond doubt when regard is had to what Exclaimer informed Emailgen prior to the parties agreeing the Consent Order. This is a permissible approach; see the approach of Nourse LJ in Butt v Butt at p. 1354 E-G. It is permissible because what the parties said to each other is evidence of the nature and object of the Consent Order. Thus, Exclaimer informed Emailgen that the purpose of its offer on 29 May 2012 was “to avoid the costs of a contested application at this stage and to allow the dispute between the parties to be pushed on expeditiously in Canada.” Such purpose is inconsistent with any intention to incur such costs and delay the proceedings in Canada by taking proceedings in England to challenge the making of the freezing order. The reference to “at this stage” was not, in my judgment, intended to reserve the right to contest the grant of the injunction at a later stage. It was a reference to not incurring the costs of a contested application at this stage, that is, before resolution of the substantive dispute in Canada. The statements by counsel for Exclaimer in his skeleton argument were to the same effect. Similarly, when Emailgen proposed on 31 May 2012 that the application be stayed that was to enable the court to be able to deal with ancillary matters such as costs or variations to the undertaking (in the event that it was causing loss to Exclaimer or in the event that developments in the Canadian proceedings required, for example, a reduction in the amount of the undertaking). The stated purpose was not to enable Exclaimer to argue that the injunction ought never to have been granted. That would have required an adjournment. A stay would not have been appropriate for that.

For these reasons I have reached the conclusion that it is not open to Exclaimer to seek to be released from its undertaking on the grounds that the freezing order ought never to have been granted. It can only seek to be released from its undertaking by showing good cause, typically a change in circumstances.

The phrase “good cause” was used in Pet Plan Limited by Nicholls LJ at p.41. Nicholls LJ said that what are “good grounds” will depend upon all the circumstances of the case; see p.40. Although Buckley LJ in Chanel v Woolworth had not put the matter as broadly as this, instead saying (at p.492-3) that there had to be a significant change of circumstances or the discovery of some new facts which could not reasonably have been known about when the undertaking was given, I accept, following Pet Plan Limited, that what is “good cause” will depend upon all the circumstances of the case, though typically a change of circumstances or the discovery of some new fact will be required. In Secretary of State for Trade and Industry v Bell Davies Trading [2005] 1 AER 324 at paragraph 104 the Court of Appeal put the matter this way:

“The normal procedure would be for the party, who had given the undertaking, to apply to the court, to which he had given the undertaking, on a specific ground, usually changed circumstances making the continuation of the undertaking unnecessary, oppressive or unjust.”

It is however clear from the authorities to which I have referred that where the application for the injunction has been disposed of the person who gave the undertaking cannot rely upon an argument to the effect that the freezing order should never have been granted to say that the continuation of the undertaking is unnecessary, oppressive or unjust.

Counsel for Exclaimer in his skeleton argument for this hearing relied upon “(limited) admissions that Robertson [of Emailgen] failed to give full and frank disclosure and/or misled the court” as amounting to a “change of circumstances.”

These admissions were made by Mr. Robertson in his second affidavit dated 24 January 2013 in response to Exclaimer’s application and evidence.

The first admission: Mr. Millington in his first witness statement dated 7 November 2012 said that Mr. Robertson, when applying on behalf of Emailgen for ex parte relief, had not informed the court that Exclaimer had already been notified of the pending claim in Canada; see paragraph 55. This was relevant to the risk of dissipation and urgency. Mr. Robertson in his second affidavit at paragraphs 16 and 17 in response accepted that he had not informed the court that Exclaimer had been informed of the pending claim by service of an affidavit in Canada on 15 May 2012. I do not consider that this admission amounts to “good cause”. The admission referred to a matter of which Exclaimer was aware on 1 June 2012 as is apparent from paragraph 17 of counsel’s skeleton argument dated 31 May 2012. It was not a new point.

The second admission: Mr. Robertson said in his first affidavit dated 16 May 2012 that he lost access to his emails in April 2011 and so would not have seen an email dated 3 August 2011 advising him that AATEL had sent a cheque to an address in New York. In his second affidavit dated 24 January 2013 at paragraph 58 Mr. Robertson confirmed that he had lost access in April 2011 but did have some limited access thereafter. He says he was not seeking to conceal those emails to which he had access because he had exhibited them to his affidavit. I do not consider that this “admission” amounts to “good cause.” First, it does seem to be, as counsel for Exclaimer accepted, a “limited” admission. Mr. Robertson’s complaint concerning the AATEL cheque remains. Second, although counsel said that on 1 June 2012 Exclaimer had not appreciated that Mr. Robertson had had some access to emails after April 2011, he accepted that Exclaimer could have interrogated their server by 1 June 2012 and discovered that fact as they did after 1 June 2012, setting out the results in Mr. Millington’s second affidavit dated 21 September 2012 in the Ontario proceedings. If Exclaimer had wished to adjourn the inter partes hearing fixed for 1 June 2012 on the basis that it required further time for that exercise in order to make good its case then it should have requested an adjournment for that purpose.

Those limited admissions were the extent of the circumstances which counsel relied upon in his skeleton argument as amounting to “good cause” in the form of a change of circumstances. However, in his oral submissions counsel also relied upon the fact that sometime after 1 June 2012 Exclaimer received a report from Deloitte which concluded that some US$244,992 was due to Exclaimer from the Joint Venture company. Whilst this report was received after 1 June 2012 Deloitte’s letter of engagement had been dated 1 June 2012. I do not regard this as “good cause”. It had always been the case of Exclaimer that the Joint Venture company was indebted to it. I was told by counsel that Exclaimer had commenced bankruptcy proceedings against the Joint Venture company on that basis. So the suggested debt was not a new point. If Exclaimer had wished to adjourn the inter partes hearing fixed for 1 June 2012 on the basis that it required the report of Deloitte to make good its case then it should have requested an adjournment for that purpose.

Counsel also mentioned a number of other matters in his oral submissions. I was not persuaded that they amounted to “good cause” to release Exclaimer from its undertaking and counsel was not entirely clear as to why they could be said to amount to “good cause”. The first point was said to reflect the complaint set out in paragraph 39 of counsel’s skeleton argument. However, this was based upon a draft letter dated 16 September 2011 from Emailgen’s lawyers which was attached to an email also dated 16 September 2011. So it is not a new point arising after 1 June 2012. The second point reflected the complaint set out in paragraph 45 of counsel’s skeleton argument, namely, that the court was misled as to the AATEL cheque. This appears to me to reflect one of the main disputes between the parties, namely, whether cheques were being diverted by Exclaimer. It was a point mentioned in the skeleton argument of counsel for Exclaimer dated 31 May 2012; see paragraph 19 where it is said “there was nothing sinister in this at all.” So it also does not appear to be a new point arising after 1 June 2012. The third point reflected the complaint made in paragraphs 50-51 of counsel’s skeleton argument. The complaint is that whereas the court was told on the ex parte hearing that a New York office had been set up for the purpose of diverting cheques it is now accepted (see paragraph 8.11.4 of Mr. Robertson’s second affidavit) that there always was a New York office. I am not persuaded that there has been a change in Mr. Robertson’s evidence (see paragraphs 76-77 of his second affidavit) but in any event this is part and parcel of the dispute as to whether Exclaimer diverted cheques or not, which dispute existed as at 1 June 2012.

In so far as some or all of these points were not developed in the section of counsel’s skeleton argument dated 31 May 2012 setting out Exclaimer’s case (on instructions) as to why the freezing order was vulnerable to being set aside this was no doubt because Exclaimer had taken the “pragmatic” decision not to collect and marshal their evidence but to offer an undertaking with a view to saving costs and to concentrate on resolving the merits of the dispute in Canada. To the extent that some of those arguments may have been assisted by the limited admissions now made by Mr. Robertson in his second affidavit those admissions do not appear to me to be sufficient to amount to good cause for releasing Exclaimer from the undertaking it chose to give on 1 June 2012 rather than incur the costs of challenging the making of the freezing order. If they are a change of circumstances I do not regard them as a sufficiently significant change of circumstances for that purpose.

For these reasons I am not persuaded that Exclaimer has established “good cause” for being released from its undertaking.

The application for an injunction was disposed of on 1 June 2012 by the giving of Exclaimer’s undertaking. It was therefore not open to Exclaimer to argue thereafter that the injunction ought never to have been granted ex parte. Exclaimer could only apply to be released from its undertaking by showing “good cause”, typically a significant change of circumstances.

Exclaimer has not shown such good cause.

The application for release must therefore be dismissed.