[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Indicii Salus Ltd v Chandrasekaran & Ors [2008] EWCA Civ 67 (23 January 2008) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2008/67.html Cite as: [2008] EWCA Civ 67

[New search] [Printable RTF version] [Help]

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE WARREN)

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd January 2008

Lord Justice Longmore:

1. On 10 August 2005 Etherton J was asked to make, and made, a search and seizure order on the application of the claimants, whom I will refer to as ISL, against two individuals named Chandrasekeran and a company which they had incorporated.
2. The basis of the order was that two individual claimants had infringed, or intended to infringe, the claimant's copyright or other intellectual property rights in the form of computer software known by the trade name of Xenophon in order to develop their own new product through the third defendant's company.
3. The defendants applied to discharge that injunction on numerous grounds, so many indeed that it was impossible to fix a time for the hearing of the application, and there had to be interlocutory directions confining the grounds on which the applications for discharge were made. By the time the eventual application came on before Warren J on 24 October 2006 orders had been made that the application was to be confined to five separate grounds. All of those failed before Warren J who held after hearing evidence: 1) that the individual defendants did intend to use ISL software for the development of their proposed new product; 2) that if those defendants had received notice of the claim in the ordinary way they would have disposed of and destroyed the evidence necessary for ISL to establish their claim; and that 3) it was likely that severe damage would be caused to the claimants by the defendants' activities. He also rejected grounds of non-disclosure and inadequacy of the cross-undertaking, to which I will come.
4. On 12 July 2007 application was made to this court for permission to appeal. Lloyd LJ refused permission to appeal the three findings that I have just set out. However he did give permission to appeal on two further points, namely, whether the undertaking in damages given by the claimants who were in receivership and also, separately, by the debenture holder to whom I shall refer as Anjar, was sufficient in circumstances in which only the software or its value was itself available for the purpose of any enforcement of that cross-undertaking. The second point was whether the claimants ought to have made certain specific disclosure to Etherton J, which they had not, in relation to the value of the software; and four specific areas were detailed by Lloyd LJ in respect of that ground of appeal and are now in amended grounds of appeal.
5. The skeleton argument before Etherton J asserted that the software was of "substantial albeit uncertain value". The evidence before Etherton J exhibited a draft agreement for a transaction in relation to the software, which ISL had hoped to make with the Japanese consortium, which we will call Ebox, for a consideration of about £9 million. That did not proceed, and one of the very recently appointed administrative receivers, Mr Appleton, appointed in replacement of earlier receivers, accepted in an affidavit that ISL was insolvent but said that he believed that the software itself, over which ISL's principal funder, Anjar, had a debenture which it was prepared to release, was of considerable value. Warren J concluded that the software and other material belonging to ISL had a value of some hundreds of thousands of pounds -- that is paragraph 140 of his judgment -- and of course much less than the projected consideration of £9 million under the Ebox deal.
6. It is said that much more should have been revealed to Etherton J in the way of previous dealings or attempted dealings with the software and Lloyd LJ was persuaded that there were arguable grounds to that effect, as I have just said; and he also said it was arguable that Etherton J should have required some more realisable security than the software itself for the purpose of fortifying the cross-undertaking in damages.
7. One of the many curiosities of this case is that, at the time when the interlocutory skirmishing which I have referred to in outline was taking place, the defendants accepted the force of ISL's claim and were prepared to give appropriate undertakings in the terms of the interlocutory injunctions which were contained in the order. That was all dealt with in or around October 2006 and by the time the matter came before Warren J all that was in issue was whether the order should have been made in the first place; and the practical effect of that is that all that is really in issue is, one suspects, primarily the question of costs but also the wish on the part of the defendants, once they have a decision, if they get it, to the effect that the order ought not to have been made to enforce the undertaking as to damages. And so one has this further curiosity: that unless they were restrained the defendants would have undoubtedly infringed ISL's rights in the software, yet they apparently say that they should not have been the subject of a search and seizure order in the first place; although it was that that revealed their nefarious activities and provided the grounds both for the future restraint and indeed the handing-back of ISL's software from the computers which had been taken by the defendants from ISL but which the defendants have nevertheless been permitted to retain.
8. Be all that as it may, Mr Crampin relies on the undoubted principle, to which the courts have very clear regard, that the obligation on an applicant for a search and seizure order -- certainly as much as, if not more, than an applicant for any other ex parte order -- must give full and frank disclosure of all relevant matters to the judge before whom he is appearing, as he is, for one side only with the other side absent; and that goes as much to the substance of the injunctive relief that is asked for as also to any cross-undertaking in damages.
9. Mr Crampin, in his submissions, dealt first with the question of the cross- undertaking, that being in two parts. There is in Schedule C to the order of Etherton J an undertaking, in the standard form, given by the applicant, the company in receivership, which provides as follows:

"If the court later finds that the order or carrying it out has caused loss to the respondent and decides that the respondent should be compensated for that loss the applicant will comply with any order the court may make."

One notes that it is not in the old standard form, to the effect "If a court subsequently finds that this order ought not to have been made…"

10. There is then in Schedule G a specific undertaking given by Anjar, the debenture holder. That reads:

"Anjar by leading counsel for the claimant, being as counsel for these purposes, undertakes that it will undertake unless and until released by the court from such undertaking to instruct the administrative receivers of the applicant from time to time to hold and apply the proceeds realised from the sale on a realisation of the software as herein applying and applying in satisfaction of the claimant's cross-undertaking as to damages."

11. Mr Crampin makes four points on the forms of those undertakings. He points out that they create no charge on the software; that they permit a sale on the software to be conducted outside the jurisdiction; they permit the conversion of the software into assets not easily realisable, eg, as actually did happen after the defendant gave the permanent undertakings to which I have referred, shares in a British Virgin Island company, which if that had happened before the undertaking was given Mr Crampin said thirdly would a) have been in breach of the undertaking and b) would be impossible to turn into assets for the purpose of enforcing the undertaking; and he fourthly pointed out that the value of the software would in any event be a wasted asset.
12. It seems to me that while those points can, of course, be made, if there was any force in them in the real world what would have happened would have been that an application would have been made by the defendants at the earliest possible moment for the undertaking to be fortified. Mr Crampin made the point that in one sense that would be a bit late after the order had actually been executed, which it would have been by the return dates set out in paragraph 3 of the order on 25 August 2005, but he realistically accepted that if such an application had been made and had been successful so that the cross-undertaking had been fortified, that would have had a retrospective effect, so that if it was found that the order ought not to have been made or that the cross-undertaking should be enforced in order to compensate the defendants that fortification would have been available.
13. The second point is that now that permanent undertakings have been given by the Defendants and all the more on the findings of Warren J, this cross-undertaking is never going to be enforced at all unless Mr Crampin's points on non-disclosure are correct. It is accepted that the order made was necessary for the return of ISL's assets and, subject to the points of non-disclosure, it is impossible to imagine that in those events that have now happened the cross-undertaking would lead to any enforcement at all. Nevertheless Mr Crampin submits that the difficulties of enforcement of the undertaking should have been explained to the judge, especially in the context of the highly doubtful value of the software and that the failure to do that was itself, or can be treated as, part of the non-disclosure application to which I will shortly come.
14. But that argument does not seem to me to deal adequately with the point that the defendant could always have applied to fortify the cross-undertaking and the point that in the events that have happened the injunction was itself fully justified, and unless there is some force in the points on non-disclosure no leave to pursue the cross-undertaking could conceivably be given and so it would never be activated.
15. I turn therefore to the specific points made in relation to non-disclosure, with respect to the four areas detailed by Lloyd LJ. The first is what has been called the "3i transaction": a company called 3i plc who had security prior to that of Anjar's over the assets of ISL and were owed £1.3 million, in or about September 2003 were prepared to, and did, release that security for £25,000, plus what is said by Mr Crampin to have been an illusory overage payment, taking effect in certain events which were most unlikely to happen, according to him. He also pointed out that the parties themselves had described that arrangement as a "no embarrassment agreement".
16. The difficulty about pursuing this as a non-disclosure before Etherton J is that it was never particularised as an item of non-disclosure in the exchange of documents that took place before the matter came on before Warren J. The defendants had been asked and did set out in a letter of 12 December 2005 the points of non-disclosure which they wished to take. This point was not one of them. Although Mr Koppel, on behalf of ISL, was cross-examined at some length before Warren J, there was no relevant cross-examination of him on this point and not surprisingly the judge, who had not been asked to, did not deal with this as an identified point of non-disclosure. If the defendant had thought that this was important it would have, in my judgment, figured much earlier in the history than being brought forward for the first time before Lloyd LJ when permission to appeal was given.
17. We have not thought it necessary to call on Mr Penny for the respondents, but he has said in his skeleton, and one sees the force of it, that if it had been a matter to be canvassed for the first time before Warren J he would have sought to adduce evidence about the way in which the relationship between 3i and the first defendant had been conducted, how acrimonious it had become and how 3i did want to get out of the deal that they had made even if it were to cause them a loss. Of course, that was not a matter that was gone into before Warren J and it is, in my judgment, far too late for it to be ventilated in this court for the first time.
18. The second string to Mr Crampin's bow is what he has called "the Kroll memo of 8 July 2004". That is an internal memorandum of the accountancy firm Kroll, who were obviously concerned about whether they would be able to recover their fees from the company in receivership. Once again this is a point which was not identified in the 12 December letter. It was, however, permitted by Warren J to be taken as a point in front of him and in his very long detailed judgment he considers the matter at paragraphs 138 to 139 where he refers to that memorandum as Mr Dolan's memorandum:

"Having read and reread Mr Dolan's memorandum I can see that it is indeed the case that he expressed concern about Kroll being paid, but the concern is based on a combination of two factors. First that he had always regarded Anjar as the only realistic purchaser of the business and secondly his fear that Mr Koppel/Anjar would seek to effect a set-off against what they rather than ISL would pay, that set off arising out of an unconnected transaction where Mr Koppel was asserting that Kroll owed him/Anjar money, His concern was therefore Anjar would not pay their fees rather than that it could not".

"But all this I am afraid is beside the point. By the time that the application for the search order was made in August 2005 nothing was owing to Kroll. That at least is what Mr Koppel stated quite clearly in his cross-examination and there was no material before me to suggest that that is wrong. If that is correct then the previous history is not material and there is no material non-disclosure".

19. Mr Crampin submits that that is a misapprehension of the position by the judge because whether or not the fees had actually been paid by the time the application was made to Etherton J, as in fact they had been, was not relevant to the question of value, the value of the software or the assets of ISL, and that is what was concerning Messrs Kroll.
20. But it does not seem to me that when one looks at that memorandum as a whole that it really says anything about value. Of course, if push comes to shove the accountants may have to look to the value of the assets of the company for return of their fees and so they will have some regard to it, but the idea that because accountants have internal reservations about the ability or willingness of the company to pay their fees, that is something that has to be revealed to the court on a search and seizure order, is something which, for my part, like Warren J, I would not countenance.
21. The third matter that Lloyd LJ gave leave on is a Kroll document which was disclosed shortly before the application to Warren J was made and concerns a document which Warren J himself read, of which he disclosed the contents to the parties without making any formal order for disclosure in respect of it. In the course of the hearing he recited the contents of this Kroll document which enquired how much Mr Koppel was paying for the software and an answer to that question had been put in the margin, that answer in manuscript being the word "nil". As to this particular identified and asserted non-disclosure, there was of course no initial complaint in the December 2005 letter because it had only come forward at a late time but it was not focussed on as a point of non-disclosure by counsel then appearing for the defendants. Mr Koppel was not cross-examined on it, no submissions were made to Warren J about it and again the judge does not deal with it in his judgment. In my judgment it cannot be right to make a new case here for the first time in relation to that document. As I have already said there were numerous grounds of discharge in respect of the order. They were deliberately confined in the course of interlocutory skirmishing and if an extension to the grounds was to be asked for it, application should have been made to Warren J. It cannot appear two years after Etherton J's order has been made as a subject matter of a complaint for the first time.
22. The fourth area of concern in respect of which Lloyd LJ gave permission is what has been called the Burridge history. That again is something that was not dealt with by the judge in his judgment. Even at this stage ISL and their advisers were unclear what was being said and had to ask in their skeleton argument in this court that particulars of the allegations be given. Those were given in a document that was served yesterday and now it has been amended today and so it is effectively another new point.
23. It says, and I read the document which was put before us this afternoon with the figures which are currently attached to it but without the deleted parts: 3) that the software is in effect a wasting asset (see Burridge evidence, paragraph 8 last sentence); 4) that Mr Burridge considered the software to be valueless without the first appellant and other members of his specialist team (see para 10 last sentence and para 11); 5) that during the period between the summer and the beginning of 2005 there had been several attempts to interest third parties (see Burridge paras 8 and 9). Of these only one, the approach to (inaudible), led to negotiations, of which Mr Koppel says he disapproved and which were unsuccessful; in addition there was the Japanese offer of £2 million which Mr Koppel rejected.
24. It is said, no doubt correctly, that counsel then appearing in front of Warren J for the defendants did refer to the Burridge evidence but not under the head of non-disclosure and no doubt it was for that reason that it was not dealt with as an item of non-disclosure by the judge.
25. It is the case that the Burridge evidence was not known to the receivers at the time that the application was made to Etherton J but Mr Crampin says that that was a matter which they should have found out about; and the company as a whole must be taken to know that; and it was material which should have been put before Ellerton J. That is not, however, a response to the difficulty that the Burridge history is, in fact, once again a new point.
26. If I can summarise Mr Crempins complaint about non-disclosure it is that the thinking on the claimant's side was that the Ebox deal was the only matter that needed to be revealed to Etherton J as an ineffective transaction of the software; that it "trumped" other ineffective transactions; and that was not good enough for the purpose of making full and frank disclosure to the judge at the time the order was made.
27. I can only say that I disagree with that. What was said to Etherton J was that the value of the software was substantial but uncertain. That does not seem to me in any way to be a false assertion, especially in the light of the finding of the judge that it was worth in fact some hundreds of thousands of pounds; the disclosure that was made in all the circumstances of this case seems to me to be adequate. The approach adopted by the defendants in this case carries the great danger of sustained satellite litigation. Here we are, two-and-a-half years after the order was made debating what should have been said and what need not have been said to Etherton J two-and-a-half years ago and even a year-and-a-half almost after the defendants have submitted to giving undertakings in the terms of the order. It is, I hope, apparent from what I have said that it is a wholly disproportionate exercise.
28. Lastly there is a Taylor and Lawrence application to reopen Lloyd LJ's refusal in relation to the contents of a particular document, which he considered was not before the judge at all and in relation to which he refused permission to appeal on that ground. Although the underlying document may not have been before the judge it has now appeared after the wealth of documentation has been examined with a fine-toothed comb, that it was referred to in a witness statement of Mr Dolan when he says that the previous receivers considered that an application, for a search and seizure order or to recover any software or computers belonging to ISL which the defendants had, was "not a commercially viable step".
29. It is said that Lloyd LJ would have given permission because that was equally an arguable matter for disclosure to Etherton J as the other matters on which he agreed, and that he only refused permission because he thought the document or the contents of the document had not been in the arena before Etherton J. But in my judgment that submission is inapt. It may well be that, had Lloyd LJ known that reference to the document had been made in paragraph 20 of some affidavit, he would have then gone on to ask the next question, the next question being, well was that a matter which was put before the judge and his decision asked for upon it? The answer of course is no, the judge does not refer to it in his judgment, it was not taken as a point before the judge and it cannot be correct to use Taylor and Lawrence to enable a point to be argued on which permission to appeal has been refused and on which the judge has himself not expressed a view because the point was not taken before him. And indeed one sees the vice of this application, or perhaps I should say rather the good sense of the restrictiveness of the judgment is Taylor and Lawrence because the vice of taking a new point of this kind is that it would be necessary to find out what really was meant by legal proceedings not being a commercially viable proposition. Was it that the cost of the proceedings would outweigh their value to the potential claimants or was it because the software was not worth fighting over? It is by no means impossible it is the first. Indeed one cannot help reflecting that it is curious that in one breath the defendants wished to say that evidence of the lack of value of the software should be put before Etherton J but in the second breath they say they want to enforce the undertaking against the software which of course would be useless unless it does have a value. There is very little reason to doubt the unappealed finding of the judge, as I say, that it was worth some hundreds of thousands of pounds.
30. That is sufficient to dispose of the appeal. One does ask, well, supposing that even if there had been material non-disclosure which in my judgment there was not what would be the consequence of that? It is unnecessary to go into that, but any court would have in mind the remarks of Walker LJ in Memory v Sidhu [2000] FLR 921, summarised in holding 3 of the head note and it is also pertinent to remark that Warren J himself, even if he had thought there had been non-disclosure and even if he had thought that the cross-undertaking was inadequate, and even if he had thought that for that reason the order ought to have been discharged, would not consider making an order for an inquiry as to damages pursuant to the cross-undertaking and in the light of the facts as he found them to be that is not at all surprising.
31. For my part I would dismiss this appeal.

Sir William Aldous:

I agree.

Sir Anthony Clarke, MR:

I also agree.

Order: Appeal dismissed