Awbury Technical Solutions LLC v Karson Management (Bermuda) Ltd

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Between:

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The Claimant (to which I will refer as "Awbury") applies for interim injunctive relief to compel the Defendant (to which I will refer as "Karson") to return what it says is confidential information belonging to Awbury and to prohibit the use of such information.

Awbury is an insurance solutions structuring and execution boutique based in Connecticut in the United States. Its business focuses on complex financial and economic risks. In the evidence which has been put in for this application it is said that it creates funded opportunities which involve the use of specialised insured financing, the proceeds of which are used to meet, among other things, capital commitments to one or more investment funds. Awbury states that the funded opportunities transactions which it concludes are complex arrangements. It has, it says, executed dozens of funded opportunities

Karson describes itself as an independent financial market structuring and platform development company that designs and executes risk, reserve, capital and collateral financing solutions for regulated financial institutions.

It appears that a core part of both companies' business is putting together insured financing deals.

In insured financing, the investor/financing company limits its risk of loss through an insurance and/or reinsurance policy.

The present dispute arises in the context of the use of insured financing for the acquisition of investments in collateralised loan obligations or CLOs.

Awbury has been doing CLO insured financing business for several years. It is a new asset class for Karson.

On 13th December 2017 a reinsurer with whom Awbury does business (to

On the same day, Awbury and Karson executed a non-disclosure agreement, to which I will refer as the "NDA". It is this NDA which is at the heart of the present dispute and application.

The NDA contains, amongst other things, the following provisions:

In those provisions "Recipient" means the party to the NDA receiving confidential information thereunder. The "Discloser" means the party disclosing or on whose behalf disclosure is made of Confidential Information.

Clause 7 of the NDA provides as follows:

By clause 10 of the NDA it is provided that English law is to apply and that the parties agree to English jurisdiction.

On 18th December 2017, a meeting was held in which Awbury's David Goldman explained to Mr. Davies and Mr. Hendrix of Karson certain features of the then proposed transaction.

On 20th December 2017, Mr. Meynell of Awbury emailed Mr. Hendrix and Mr. Davies of Karson a document entitled "Awbury Funded Opportunities Insurance Business [ ] CLO Risk Retention Vehicle". This document has been referred to as the Concept Summary and I will call it that. The Concept Summary contained a diagram or transaction schematic of the structure which Awbury had conceived and contemplated for the proposed transaction. It also explained the way in which the main components of the transaction were intended to work, including descriptions of the proposed financing and insurance arrangements. Indicative terms of these financing facilities and of the nonpayment insurance policy were given.

The Concept Summary stated:

The covering e-mail under which the Concept Summary was sent by Awbury

In the event Karson did not participate in the proposed transaction and did not become a commercial partner of Awbury, the discussions having ended in early 2018.

Awbury has since come to fear that Karson has used or will use confidential material from the Concept Summary for its own purposes. The basis, or at least the initial basis, for this fear is as described in the first witness statement of Mr. Feingold. The most important paragraphs for present purposes are paragraphs 39-41 which read as follows:

Awbury contends that when these concerns were first raised on its behalf with Karson on 3rd December 2018 Karson was initially evasive. It then says that its concerns have been increased by evidence which Karson has served in response to this application and in particular by the fact revealed in Mr. Hendrix's first witness statement that Karson anticipates concluding a deal involving a CLO equity transaction in the next four to six weeks.

Karson's position in relation to the facts in outline is as follows. First, it denies that it or Mr. Hendrix has breached the NDA or will so do. Secondly, it says that it itself had by December 2017, and before receiving the Concept Summary from Awbury, developed a structure for insured financing which could be

This is an application for an interim injunction. On this hearing it is impossible for the court to decide the merits of contested issues of fact. The way in which the court should approach such applications usually follows that laid down by the House of Lords in American Cyanamid v Ethicon [1975] AC 396.

In the present case, however, there has been an issue about whether that approach is, or is wholly, appropriate. There are two different points here. The first of those is that Karson contends that the present case is one where it is not correct to apply the test of whether there is a serious issue to be tried. Its contention is that the present case is governed by section 12 of the Human Rights Act 1998 (which I will refer to as the "HRA").

In relevant part, section 12 of the HRA provides:

What is submitted on behalf of Karson is that section 12 of the HRA applies here because what Awbury is seeking is to prevent publication by Karson of confidential information. Publication, submitted Mr. Gledhill QC for Karson, must mean the same as the meaning which is accorded it in the context of defamation cases, namely communication to some person other than the claimant himself.

As he did not shrink from saying, any case involving an anticipated communication of any confidential material by the defendant to anyone other than the claimant would raise the question of section 12 and section 12(3) would apply.

He referred to Cream Holdings v Banerjee [2004] UK HL 44. There it was held that when section 12(3) is applicable:

For its part Awbury submitted that this was not a case to which section 12 of the HRA had any relevance. The merits test which should be applied was the serious issue to be tried test as enunciated in American Cyanamid.

I confess that the suggestion that section 12(3) of the HRA applies in the present case was a surprising one to me and the development of the argument did not lessen my doubts. The origin of section 12 of the HRA was explained by Lord Nicholls of Birkenhead in Cream Holdings at paragraph 15 as follows:

I do not doubt that section 12, including section 12(3), is capable of applying in what may be called a commercial context. The fact that the dispute may be a commercial one does not of itself mean that section 12(3) is inapplicable. So much indeed was stated by Longmore LJ at paragraph 55 of Boehringer Ingelheim v Vetplus Ltd [2007] BusLR 1456.

However, the court must consider whether the remedy sought is really one which may affect the right of freedom of expression. I do not consider that what is involved here concerns Karson's freedom of expression.

What Awbury is concerned to do is to prevent Karson from using the

No authority, whether from this jurisdiction or elsewhere, including from European Court of Human Rights, was cited to me which supported the suggestion that that type of communication involved the Convention right to freedom of expression.

It is well established of course that some forms of commercial speech do involve that right. The press is a clear case. Some other forms of commercial speech do too, in particular some forms of advertising and communications to consumers.

However, where the communication is one that is made only for the purposes of furthering the financial interests of the communicator, the communication is made only to a very limited range of other individuals whose interest in it is simply to further their financial interests, and where there is no question of the information which is imparted being of a journalistic, literary or artistic nature I consider that it will not, some extraordinary feature apart, involve the right to freedom of expression.

On that basis I do not consider that section 12 of the HRA is applicable because section 12(1) is not engaged.

Furthermore, I doubt that any publication which would be involved in this case is of the type which is envisaged by section 12(3). Here any communications which Karson may make would (i) be to a very limited number of potential commercial counterparties and (ii) would be made in confidence.

As to the latter point, the terms of the NDA are Karson's own standard terms and it can be anticipated that any communications which Karson may make of the relevant material would be on strict terms as to confidence. This is borne out by paragraph 6 of Mr. Hendrix's second witness statement and by paragraph 80 of the skeleton argument submitted on behalf of Karson for this hearing.

Karson relied on a number of cases to suggest the applicability of section 12(3) to the present case. With one possible exception, they much more clearly engaged, in the sense that an injunction might have affected, the right to freedom of expression than the present and they involved threatened communications which were much more clearly publications.

Boehringer Ingelheim v Vetplus concerned comparative advertising. Interflora v Marks & Spencer Plc [2014] EWHC 4168 (Ch) concerned internet advertising by the use of adverts. As Birss J put it at paragraph 22:

Dar Al Arkan v Al Refai [2012] EWHC 3539 (Comm) concerned injunctions to restrain a campaign of the "wholesale publication of damaging and untrue allegations", in particular via a website: see paragraph [5]. In that context, what Andrew Smith J said in the second sentence of paragraph [136], as well as being obiter, was unsurprising.

The case of S v A [2018] EWHC 2144 (Ch) is rather less clear. There is no analysis in paragraph [15] as to why the Cream Holdings test was applicable, but even that case involved a proposed disclosure of matters to a court in Massachusetts for the purposes of establishing its jurisdiction.

None of those cases appears to me to be similar to the present. Accordingly, I am not persuaded that section 12(3) of the HRA is applicable to the present case.

The other issue which arises is the approach which the court should adopt as to the significance or otherwise of clause 7 of the NDA, which I have already quoted. This is of potential relevance as I consider that it is apparent from its terms that it is intended, at least in part, to deal with interlocutory injunctions. A case of a threatened breach may well involve an attempt to obtain an interlocutory injunction, and the reference to the Discloser being entitled to an injunction without the necessity of posting any bond or surety would appear most apposite to an interlocutory, rather than a final, injunction.

Accordingly, I asked the parties what assistance there was in authority as to the court's approach to such clauses. I was helpfully provided with an analysis of the approach of the courts in a number of jurisdictions to similar provisions. The only English case cited considering an analogous clause was Warner Brothers Pictures Inc. v Nelson [1937] 1 KB 209, a decision of Branson J. At pages 220 to 221, he said:

That was a case which was concerned with the grant of an injunction after trial, not an interim injunction. It is also right that it was decided long before American Cyanamid v Ethicon.

I was also referred by Karson to Quadrant Visual Communications Ltd and others v Hutchison Telephone (UK) Ltd and another [1993] BCLC 442. That was a specific performance case that is of some relevance in that it was argued that a clause of the contract excluded the ability of the defendant to rely on the clean hands doctrine to oppose the grant of a specific performance. In the Court of Appeal Stocker LJ, with whom Butler-Sloss LJ and Sir George Waller agreed, said at 451 B to D:

I was referred to authorities from a number of other jurisdictions. Care obviously has to be taken in relation to their use as the requirements for the grant of injunctions may vary from jurisdiction to jurisdiction. Nevertheless, the consideration of these authorities was of assistance.

In the laws of all or most States of the United States a finding of irreparable harm is, as I understand it, a necessary condition for the grant of an injunction. It also appears that the use of clauses stating that a breach will cause irreparable harm is widespread, and there are a number of cases dealing with the weight to

The Canadian authorities are divided. An approach similar to that in Gramercy Warehouse Funding was adopted by the Ontario Supreme Court in Jet Print Inc v Cohen [1999] OJ No. 2864. That case involved a clause which stated that breach would cause irreparable harm and money damages would not be an adequate remedy. Nordheimer J said, at paragraph [27]:

In the Saskatchewan case of The Height of Excellence Financial Planning Group Inc. V Bergen [1999] SJ No. 699, the court was faced with a clause which both stated that a breach might cause injury which could not be compensated in law, and also that "the contractor hereby expressly agrees that the company shall be entitled to the remedies of injunction … to prevent a breach or recurrence of a breach". Scheibel J said at [12]:

Scheibel J then referred to Waddams: The Law of Contracts which referred to both an Alabama case and to Warner Bros. Pictures Inc. v Nelson as authorities for the propositions that the existence of a clause providing that the promisor will submit to certain remedies is "important in its influence upon an exercise of the discretionary power of the court to grant a temporary injunction" and "relevant and persuasive, though not determinative".

Both parties also referred me to the decision of the Federal Court of Malaysia in AV Asia Sdn Bhd v Measat Broadcast Network Systems Sdn Bhd [2014] 3 MLJ 61. In that case the relevant clause provided that the receiving party agreed the damages would not be adequate to compensate the unauthorised use of confidential information and that injunctive relief would be appropriate. The

Finally, there appears to have been little consideration in the decided cases in relation to such clauses in Australia. However, in Maggbury Pty Ltd & Anor v Hafele Australia Pty Ltd & Anor[2001] HCA 70, which concerned the grant of an injunction after trial, Kirby J, in the minority as to whether an injunction should be granted, referred to a clause which said that the innocent party shall be entitled to an injunction in the event of breach, and asked (at [75]):

Having had the benefit of the citation of these and other authorities I turn to express my own conclusions as to the relevance of clause 7 to the present issue.

First, I do not consider that it has any significant relevance to the issue of what has to be established as to the likelihood of a breach occurring for the purposes of the grant of an interim injunction. Specifically it does not bear meaningfully on the question of whether what must be established is a serious issue to be tried as to whether there may be a breach or whether it has to be established that a breach is more likely than not to occur. Either might be described as a “threatened breach”. Further, even if the clause did indicate that a test of a serious issue should be applied, it would not override section 12(3) of the HRA were that section applicable.

Secondly, in relation to the question of whether damages would be an adequate remedy, the fact that the parties have agreed that they will not be is not determinative. The Court has to consider this question for itself. The fact that the parties have agreed that damages are not an adequate remedy may be some evidence that they are not, in that the parties, who can be taken to know the business(es) they are involved in, have agreed that they will not be. The provision at least means that the Court will subject any suggestion that damages are an adequate remedy to particular scrutiny but it does not of itself answer the question of whether the damages are an adequate remedy, or relieve the Court from having to consider that question.

Thirdly, in relation to the provision that the Discloser "shall be entitled to an injunction" again does not bind the Court to grant an injunction. The Court has to be satisfied that the case is an appropriate one for the grant of an injunction. Nevertheless, the existence of such a clause is a factor which can be taken into account when the Court is exercising its discretion. The weight to be accorded the existence of such a clause will depend on the circumstances, including how far it may be said that the circumstances in which the injunction is sought are those which the parties anticipated when agreeing the clause.

Fourthly, in relation to the specific provision that the party may obtain an injunction without the necessity of posting any bond or surety, once again the

I now turn to consider the application for an injunction in the light of my conclusions on those two preliminary issues as to the appropriate approach. I consider that the right approach is that set out in American Cyanamid v Ethicon as subsequently applied and explained, including in Fellowes & Son v Fisher [1976] 1 QB 122, 137-140, and that clause 7 of the NDA is of potential relevance in that exercise in the ways that I have described.

The first question is whether there is a serious issue to be tried. Mr. Head QC submitted that there was. He said that the nature of the information contained in the Concept Summary, the explicit reference in the Concept Summary to its containing confidential information, and the circumstances in which it was shared all demonstrated that confidential information had been imparted. As to possible breach, he pointed to the evidence of Mr. Feingold at paragraphs 39 to

It was Mr. Gledhill's submission that, even if he was wrong as to the test being that in section 12(3) of the HRA, there was no serious issue to be tried as to whether his clients had breached or might breach the NDA. He accepted in his submissions before me that the Concept Summary contained at least some information which was probably confidential, but he made detailed criticisms of the evidence which Awbury had adduced suggesting that there had been or might be a breach of the obligation to keep such information confidential. Thus he criticised the evidence in paragraphs 39 to 41 of Feingold 1 on the basis that it was triple hearsay, that the people at the reinsurer and at Karson who are alleged to have been involved are not named, and that it lacked specificity as to the way in which the structure of the projected Karson arrangement is the same as the Awbury arrangements. He submitted that there was clear evidence from Mr. Hendrix that Karson had not used Awbury's confidential information in creating its own proposed CLO insured financing arrangement and had no need to do so because it was already well advanced in devising such an arrangement before receipt of the Concept Summary. He submitted also that the structure of Karson’s proposed arrangements is not the same as that of Awbury's.

These are cogent submissions, but I have concluded that there is nevertheless a serious issue to be a tried. The test, as I understand it, is the same as whether the claimant's actions are frivolous or vexatious: see Smith v Inner London Education Authority [1978] 1 ALL ER 411, 419. I do not consider that it can be said that Awbury's case is so weak as to fall into that category. Applying the terms of the test itself I consider that there is a serious issue which Awbury can ask the Court to try.

As to the issue of whether damages would be an adequate remedy to Awbury were an injunction to be refused, what Awbury submits is that it has an established CLO funded opportunities business. If, as Awbury contends is the case, Karson is able enter the market as a result of use of Awbury's confidential information that will undermine its business because of competition from a competitor using a very similar structure. It is common ground, Awbury says, that the number of players in the relevant market is not huge and so any loss of counterparties to a competitor might be significant. It also relies on the terms of clause 7 the NDA in this context.

I accept that if, as I assume would be the case for this purpose, Karson is able to compete with Awbury as a result of Karson's unchecked use of Awbury's confidential information then Awbury would or might well suffer a diminution of business as a result of that competition and that any such losses would be difficult to quantify, and that for that reason damages could not be regarded as an adequate remedy. I reach that conclusion without reference to clause 7 of the NDA. However, it seems to be that that clause does provide some additional support for this conclusion because of its recognition that the misuse of confidential information in this area is likely to lead to harm which is hard adequately to compensate in damages.

As to whether, should an injunction be granted and turn out to have been wrongly granted, damages would be an adequate remedy to Karson, I am rather doubtful whether a properly drafted and confined injunction will cause damage to Karson. However, Karson says that it is concerned that an order will interfere with the deal or deals it currently contemplates, will prevent Karson from doing other business of the same kind, and will cause Karson reputational damage and deter third parties from doing business with it. I will proceed on the basis that there is substance in those concerns and that the damage which Karson would suffer from the wrongful grant of an injunction would be very difficult do quantity.

There remains an assessment of the balance of convenience. Subject to the question of the terms of the injunction to which I will return, in my judgment this lies in favour of the grant of an injunction. In this regard I consider that it is of significance that Awbury has an established business in relation to funded CLO opportunities at the present time. The evidence is that it has spent large sums in legal, accounting and advisory fees in developing this funded opportunities business over a number of years and that such transactions in 2018 generated substantial current and future net income. By contrast Karson does not at present have a business in the field of this asset class. It does not have a track record in it and its own estimates of the potential income which it may generate from this business are relatively modest compared with those of Awbury.

I consider that this tends to indicate that the balance of convenience or, as it may be called, the balance of justice or injustice, lies in favour of the grant of an injunction. I consider further that the grant of an injunction is also indicated by reason of the terms of clause 7 of the NDA in the way in which I have already explained. Clause 7 is not by any means determinative but is a matter which can be taken into account in the exercise of the Court's discretion. It seems to me that it is a relevant matter in the circumstances of the present case, given that the circumstances in which the injunction is currently sought must be very much the type of circumstances which the parties had, or are to be taken to have had, in contemplation when agreeing clause 7.

Finally, and while recognising that it is no more than an imprecise rule of thumb when other considerations are balanced, I consider that the preservation of the status quo, is in favour of the grant of an injunction.

In the circumstances, and given that the matter has not been resolved by Karson giving undertakings, I consider that in principle there should be an injunction. I was, however, much pressed with significant arguments as to the difficulty in formulating any injunction which would not give rise to injustice because of the difficulty of identifying what is actually confidential information in the Concept Summary, and as to the danger that Karson may, as a result, find itself unwittingly in breach of the injunction. I consider that these concerns ought to be capable of being met by a properly drafted order.

In that regard, I should say the following: first, I can see no particular difficulties in an order that Karson should, insofar as it has not already been done, return the Concept Summary or put it beyond its use. That would involve Karson returning hard copies and deleting electronic copies from its day-to-day operating systems. I do not consider, however, that it is necessary to have an

Secondly, I consider that an order can be framed as prevent Karson from making use of confidential information derived from the Concept Summary. I consider that this is analogous to the order which was granted in UK Power Reserve Ltd v Read [2014] EWHC 66 (Ch). However, I should clarify what I consider that that means. It would mean information which was known to Karson only from the Concept Summary or because it had received the information in the Concept Summary. I do not consider that that is too uncertain. Mr. Hendrix states unequivocally in his statement "We have not breached the NDA or otherwise used any of Awbury's confidential information as defined in the NDA". That he can give such an unqualified statement is some indication that there is sufficient certainty about what information is involved.

For the avoidance of doubt, however, on the material which I have seen, I do not consider that a structure involving a Lender and a Borrower being Cayman Islands companies owned through a Cayman Purpose Trust with a beneficial owner to be confidential information, nor that such Cayman Islands companies might be administered by Estera Trust (Cayman) Limited. In mentioning those particular matters, that is not to say that the other matters which Mr. Feingold has identified which he says are confidential in the Concept Summary are necessarily correctly so identified, or that in Karson's hands can necessarily be said to have been derived from the Concept Summary.

Thirdly, concerns have been raised as to the position of third parties and as to whether they might be in breach of any order if they know if its terms and if what is found to be confidential information is in fact used in any actual or proposed deal which they may do with Karson. I consider that this can be dealt with by making clear in the order that third parties will not be concerned to know or inquire what is the extent of confidential information which Karson may be prohibited from using.

I am willing to consider any further submissions which either side may wish to make to ensure that the order granted is sufficiently certain and limited to protecting Awbury's rights, bearing in mind my overall decision that it is appropriate for an order to be made.

I have decided that the costs of this hearing should be reserved in their entirety.

A specific point has been made in relation to the costs of the Human Rights Act point, but it seems to me that that was a point which was taken as one of a number in resisting the grant of an interlocutory injunction. I do not consider it would be appropriate to hive off the costs relating to that one point, as, though in my judgment it was a point which was plainly wrong, nevertheless it was not in any sense inappropriately taken.

Therefore, I am going to reserve all the costs of this interlocutory injunction to the trial judge.

I am not going to give permission to appeal. I do not consider there is a real or realistic prospect of success in relation to this appeal.

In relation to the issue under section 12, I regard this at the moment as being a relatively clear case in which section 12 is not engaged. As to clause 7, I do not consider that there is a real prospect of the Court of Appeal taking a different view as to the way in which it is capable of being used and has been used by me.

In relation to the application for permission to appeal more generally, that largely relates to questions of discretion.

I am not going to give permission to appeal. Mr. Gledhill will have to ask the