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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Indicii Salus Ltd v Chandrasekaran & Ors [2006] EWHC 680 (Ch) (27 March 2006) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2006/680.html Cite as: [2006] EWHC 680 (Ch) |
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CHANCERY DIVISION
INTELLECTUAL PROPERTY
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| INDICII SALUS LTD. (In Receivership) |
Claimant |
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| - and - |
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| (1) GARU PARAN CHANDRASEKARAN (2)VANESSA CHANDRASEKARAN (3)SSANEVA SECURITY TECHNOLOGIES LTD |
Defendant |
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Mr J MacDonald QC & Miss A Carboni (instructed by Messrs Millbank Tweed) for the Defendants
Hearing date: 20th March 2006
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Crown Copyright ©
Mr Justice Warren
Introduction
The test for allowing the abuse claim to proceed
"…..it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of the court as soon as possible. In other cases, it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based."
Standard of proof – flexible application
"Although there is a single civil standard of proof on the balance of probabilities, it is flexible in its application. In particular, the more serious the allegation or the more serious the consequences if the allegation is proved, the stronger must be the evidence before a court will find the allegation proved on the balance of probabilities. Thus the flexibility of the standard lies not in any adjustment to the degree of probability required for an allegation to be proved (such that a more serious allegation has to be proved to a higher degree of probability), but in the strength or quality of the evidence that will in practice be required for an allegation to be proved on the balance of probabilities."
The Points of Claim
a. Paragraph 2: the first Defendant ("D1") told MK in late 2004 that he wished to leave the Claimant and try to start again in the field of server-centric technology by setting up another company to create another product. MK responded with threats. [This conversation is denied by MK as are, of course, the threats.]
b. Paragraph 3: In its application for the Search Order, the Claimant asserted that the evidence on which the application was based only emerged on and after 28 July 2005 when TK approached and provided such evidence to MK, the representative of Anjar International Ltd ("Anjar") the Claimant's debenture holder. This is denied by the Defendants. [This denial is made, not on the basis of any direct evidence, but on the basis of an inference which the Defendants say is properly to be drawn from the facts which are either common ground or which are alleged by the Defendants. It should be noted, as Mr Penny points out, that this paragraph does not contend that the Claimant's evidence is any way inconsistent with any evidence (apart from that of D1 and D2 themselves) before the court, in particular the documentary evidence.]
c. Paragraph 4: This sets out in 6 lettered paragraphs ((a) to (f)) the key points in the evidence in support of the Search Order identified by the Claimant in its skeleton argument before Etherton J:
i. Paragraph (a): D1 had admitted to TK that he had the Software. [This was in a conversation on 2 August 2005.]
ii. Paragraph (b): TK had seen some of the Claimant's computer equipment at the home of D1 and D2. [This was on 5 August 2005.] This was contrary to D1's denial that he had any of the Claimant's property (other than a laptop) despite repeated requests for return. [The search revealed, of course, a considerable amount of other equipment as well as software and source code.]
iii. Paragraph (c): D1 had made reference to his intention of "Rebranding and selling Xenomail in parallel". [This relates to the contents of on an email from D1 sent on 16 January 2005 to Stephen Kenyon Slade, a potential investor in the new business. Mr Appleton commented on this document at paragraph 62 of his affidavit observing that it "is a clear and unequivocal statement that [D1] intended to use the [Claimant's] software for his own business".]
iv. Paragraph (d): The Defendants' business plan for their new product copied large segments of the Claimant's confidential business plan and described the new produce in virtually the same terms as Xenophon Software.
v. Paragraph (e): D1 had a conversation with TK in January/February 2005 when D1 asked whether he would be "caught out" if the Software was written in a different computer language. [I shall refer to this as the "caught out" conversation: TK's best recollection is that this conversation took place in the last week of January or the first week of February. D1 denies that he asked TK any such thing. Although not highlighted in the Claimant's skeleton argument, Mr Macdonald points out that TK's evidence also said that D1 told him during this conversation that he would first have to launch and sell encryption services using the Software under another name in order to generate sales.]
vi. Paragraph (f): TK recollected that in addition to having copies of the Software, D1 also had at one time (and may still have had at the time – August 2005) the Software in source code form.
[Paragraph 6 thus does no more than reproduce material parts of the Claimant's Leading Counsel's skeleton argument before Etherton J.]
d. Paragraph 5: MK and his son Charles ("CK") had in fact been aware of these key points of evidence for several months before 28 July 2005, as set out later in the Points of Claim. [28 July 2005 is the date on which TK says he told MK of his concerns. This paragraph does no more than assert the conclusion which is said to follow from what appears later in the Points of Claim.]
e. Paragraph 6: in relation to paragraph 4(a), the Defendants set out a number of factors in paragraph (a) to (g) of paragraph 6 as follows:
(a) It is said that TK had detected a Xenophon server running the Software at D1's home when he was decommissioning the Claimant's network in January 2005 and had reported this fact to both MK and CK. [In fact, TK says he had also seen 4 other computers running on the network.].
(b) It is said that that the Xenophon server had been created for D1 at his request by TK in the late stages of the receivership so that he would be able to read his encrypted data after closure of the business. [No reason is given as to why he would need to do this rather than simply decrypt his own data before handing over the server.] The creation of the server was done, according to D1, either by TK or his junior, Mark Goddard, with the knowledge of TK. Accordingly, TK knew of the presence of the Xenophon server at D1's house even before January 2005 and did not need to discover it.
(c) When MK and CK challenged D1 about this on the phone in early February 2005, neither they nor TK believed the explanation given by D1 to persuade them that he did not have the Xenophon server running at his home. [This explanation was to the effect what appeared to be the server running was really a security device installed on it which caused a "mirror image" of an ISL server to appear as though it were connected to the network. Mr Macdonald told me that D1 still asserts this explanation.]
(d) TK confirmed his findings in relation to the use by D1 of the server by emails to CK on 2 February and 14 March 2005, neither of which were produced to Etherton J on 10 August 2005. [This may be relevant to the suggestion that full and proper disclosure was not made. It is of the most marginal relevance in relation to an allegation of abuse of process.]
(e) On 17 March 2005, MK wrote to D1 stating that it had been made known to Anjar that D1 had servers running Xenophon software at his home. MK stated that he could only assume that "you intend to develop Xenophon and Xenomail applications despite the fact that I have told you on may occasions that this would be unlawful".
(f) The proper inference is that MK had been supplied by TK (or CK) with a copy of (or the information from) TK's email dated 14 March 2005 in order to put him in a position to write the letter dated 17 March 2005.
(g) D1 admits that he had the Xenophon server but contends that this was so that he could read his encrypted data. D1 has always denied having any intention to use the Xenophon Software in his new business, the earliest written denial being in his letter of MK dated 8 April 2005.
f. Paragraph 7: in relation to paragraph 4(b), the Defendants set out a number of factors in paragraph (a) to (g) of paragraph 7 as follows:
(a) TK reported to CK and MK by email dated 2 February 2005 that he had seen four computers operating from D1's house via the company network.
(b) The Defendants say that, given TK's intimate knowledge of the Claimant's systems and the fact that he was almost a year later able to identify the precise model of computer on which the Xenophon server was running at D1's home, the proper inference is that TK could detect the make and model of other computers that he had seen on the network in January 2005 and that he would have concluded at that time that these belonged to the Claimant.
(c) TK was the person responsible for installing the Claimant's computers at the Defendant's home and regularly attended in person to inspect and update. The computers were listed in the Claimant's asset register which was maintained by TK.
(d) TK was aware of D1's habit of retaining old computers with the archived material on them.
(e) Accordingly, the proper inference is that at the time of closure, TK was aware of the presences of all of the computers found on the execution of the Search Order and that he passed this information to MK in or about late January or early February 2005. [The Claimant's case, of course, is that such inference is not a proper inference and, in any case, that TK did not in fact pass on such information at that time.]
(f) This is a long paragraph asserting, in essence, that CK had bought physical assets from the receiver (which is true) and seeks to draw an inference that the assets included the computers which D1 had used at home. Reliance is placed on an email dated 17 February 2005 from TK to D1. It is said that the proper inference (for reasons set out in paragraph 13 of the Points of Claim) is that CK passed on to MK at the time all details of the computers that he knew to be a D1's house and that none of this was new to MK in August 2005.
(g) The Defendants now require the Claimant to produce its asset register that was current at 14 January 2005 and the asset list prepared by Kroll in June 2003. [In my judgment, it is far too late at this stage of the proceedings, after a number of rounds of evidence and several judicial hearings, to seek this further material.]
g. Paragraph 8: in relation to paragraph 4(c), the Defendants set out a number of factors in paragraph (a) to (d) of paragraph 8 as follows:
(a) TK, according to his own evidence, accessed and printed out the email dated 16 January 2005 which includes reference to "Rebranding and selling Xenomail in parallel" in late January or early February 2005.
(b) On the Defendants' evidence he may well have accessed and printed out this email even before that. [The Claimant accepts that this is possible but say it is unlikely, given its date of 16 January, to have been printed out well before the end of January.]
(c) The January 2005 email correspondence exhibited by D1 including the above email has been deliberately misconstrued in order to misrepresent the Defendants' plans. [The Claimant complains that this is an entirely unparticularised allegation. Apart from the email of 16 January, it is not said which documents have been misconstrued, by whom they have been misconstrued or why it is alleged that they have been deliberately misconstrued. The whole purpose of my directing Points of Claim was so that all the allegations made by the Defendants would be clearly identified. I have re-read this email correspondence for the purposes of this application; and I have also re-read the paragraphs of his first witness statement which D1 relies – paragraphs 101-107. I do not consider that the email correspondence is of material assistance to the Defendants.]
(d) For reasons set out in paragraphs 12 and 13 of the Points of Claim, the proper inference is that TK showed the email printout or reported its contents to one or other of MK and CK and that MK became aware of it shortly after TK printed it out. [The Claimant, of course, rejects that inference.]
h. Paragraph 9: in relation to paragraph 4(d), the Defendants set out a number of factors in paragraph (a) to (c) of paragraph 9 as follows:
(a) TH appears to have obtained a copy of a "NewCo" business plan written by the Defendants and based on the Claimant's business plan as early as late January or early February.
(b) Since D1 had made it clear even before the Claimant's business closed down that he intended to build a business around a new product based on server-centric cryptographic technology, it should not have been surprising to any of TK, MK and CK that the new product was described in similar terms to the Xenophon Software.
(c) For reasons set out in paragraphs 12 and 13 of the Points of Claim, the proper inference is that TK showed the "NewCo" business plan or reported its contents to one or other of MK and CK and that MK became aware of it shortly after TK printed it out.
i. Paragraph 10: in relation to paragraph 4(e), the Defendants set out a number of factors in paragraph (a) to (c) of paragraph 10 as follows:
(a) The "caught out" conversation allegedly took place in late January or early February 2005.
(b) D1 denies that he gave TK any indication that he intended to use Software in any new business or asked if he would be "caught out" if he re-wrote Xenophon or Xenomail in another computer language. D1 contends that this is a fabrication by TK.
(c) If (which is denied) the conversation took place, then, for reasons set out in paragraphs 12 and 13 of the Points of Claim, the proper inference is that TK reported it (including that D1 was going to start out again by making sales of the Claimant's Software) to one or other of MK and CK and that MK became aware of it shortly after it took place. [It is, however, accepted that some conversation took place. And it is also accepted that, at some stage, TK related to the "caught out" aspect to MK even if the conversation did not actually take place.]
j. Paragraph 11: in relation to paragraph 4(f), the Defendants set out a number of factors in paragraph (a) to (f) of paragraph 11 as follows:
(a) According to TK's initial evidence, he gave a disk bearing source code to Dr Waters in October 2003.
(b) No evidence was given to the court of what D1 did with the disk or whether he ever took it home. TK merely suggested it was likely that D1 had retained it and that he "may well have caused copies of updated versions of the source code to be produced after October 2003".
(c) In later evidence, TK he said that he gave an unspecified number of CD-ROMs to Dr Waters in October 2003.
(d) In even later evidence, it is said by the Defendants that the court is invited by TK to infer that the CD-ROMs bore TK's handwriting on their surface.
(e) Throughout the history of the Claimant, D1 took back-up disks and the like home. He had a spare set of Xenophon source code on CD-ROM, a fact known to TK and his immediate boss Dr Waters. The CD-ROMs at his home were either seized during the search or have subsequently been delivered up.
(f) For reasons set out in paragraphs 12 and 13 of the Points of Claim, the proper inference is that TK told one or other of MK and CK about the CD-ROMs and that MK became aware of this information in January or February 2005.
k. Paragraph 12: the inferences to the effect that TK passed documents and information to one or other of MK and CK in January or February 2005 are to be drawn from the following factors set out in paragraphs (a) to (f) in paragraph 13.
(a) TK was aware that on about 31 January 2005 all employees of and consultants to the Claimant (including D1, D2 and TK himself) were sent a letter from the receivers requiring the return of all the company's property, including any copy of the Software, and pointing out that it was unlawful for anyone to remove from the company premises or copy any aspect of the Software. TK therefore knew at that stage that any information to the effect that the Defendants had copies of and were intending to copy the Software would be of interest and concern to the receivers and MK.
(b) TK was employed by Anjar, through Mr Koppel, to decommission the Claimant's network in the second half of January 2005. He was thereafter employed by Healthcall Optical Services Limited which was the company to which CK had arranged for the sale of the Claimant's physical assets purchased from the receivers. The proper inference is that CK arranged this job for TK. TK has subsequently set up his own business in information technology support services and has assisted both MK and CK extensively in relation to this action by giving evidence on several occasions and by setting up the Claimant's servers and spending what must have been a considerable amount of time in going through their contents in December 2005 and January 2006. The proper inference is that TK continued thereafter to be employed by or as a consultant to one or more of Anjar, MK, CK or another of their companies, at the behest of Mr Koppel.
(c) The unexplained inconsistency of TK's behaviour in reporting his "discovery" of the Xenophon server to MK and CK but failing to report his concerns derived from his unauthorised access to D1's e-mails or his alleged "caught out" conversation with the D1 or his recollection about the CD-ROMs.
(d) The duplicitous nature of TK's behaviour in reporting his "discovery" of the Xenophon server to MK and CK and accessing the D1's e-mails, both in secret from D1 and D2, while at around the same time setting up new e-mail accounts for D1 and D2 and asking to be able to join them in their new business and even searching [according to D1 and D2] for office space for the business.
(e) The fact that TK has shown himself to be of a dishonest disposition by his readiness to access D1's company and web-based personal e-mails without any authority to do so.
(f) It is not credible that TK would have delayed until July before telling one or other of MK and CK about his concerns that the Defendants intended to use the Software in their new business. TK had nothing to lose and much to gain from making such a disclosure. He was also motivated [according to the Defendants] by money.
l. Paragraph 13: the inferences to the effect that MK became aware of any documents and information that were passed to CK by TK rather than directly to MK are to be drawn in particular from the following factors set out in paragraphs (a) to (f) in paragraph 13.
(a) From about October 2003 CK was closely involved in reviewing the Claimant's business, at the request of MK, taking an office in its premises in November 2003 and attending many meetings with or on behalf of MK. When he was not at the Claimant's premises, CK spent his time in MK's office at Credo.
(b) CK had numerous discussions with D1 in January 2005 about the removal of assets from the Claimant's premises, and acted as go-between for D1 and CK.
(c) CK had an interest in seeing the return of the computers that remained in the D1's possession, given that (according to his e-mail exchanges at the time, as referred to in paragraph 7(f) of the Points of Claim) he had purchased these from the receivers.
(d) MK and CK were told by TK about the Xenophon server at D1 and D2's house and they discussed it together at the time and were both on the telephone call to D1 in which they raised the issue.
(e) On the evidence of MK and CK, it is clear that CK assisted and stood in for MK in relation to MK's interest in the Claimant's business from at least October 2003 until its closure and that he continued to do the same in relation to the assets of the Claimant thereafter.
(f) Accordingly it is proper to infer that CK passed on to MK all documents and information that were given to him by TK or of which he was otherwise aware shortly after receiving them himself.
m. Paragraph 14: In the premises, MK knew of all the Claimant's key points of evidence by early February 2005 and if he was concerned he could and should at that point have brought an appropriate application for the delivery up of the Claimant's property and an interim injunction. The fact that he did not do so is all the more surprising given the Claimant's evidence to the effect that there was a potential deal on the table to purchase the Software for £9 million at the beginning of February 2005.
n. Paragraph 15: Further, MK was able to keep track of the progress of the Defendants' new business plans through TK's ongoing unauthorised access to e-mails and was thereby aware that in August 2005 the Defendants were on the verge of raising the necessary funds to launch the business and only weeks away from commencement of the software development phase. This information, combined with the knowledge that D1 and D2 had just had their first baby, made MK aware that applying for a Search Order at this point would cause maximum harm to the Defendants.
o. Paragraph 16: The Claimant named D2 as a respondent to the Search Order despite having no evidence of her personal involvement in retaining or copying Software or in the likelihood of her destroying evidence and despite the fact that none of the key facts related to her conduct. It is proper to infer that the only reason for including D2 as a respondent to the Search Order was to put additional pressure on D1.
p. MK's motivation to cause harm to the Defendants has been caused by inter alia:
(a) the fact that he lost a great deal of money through his involvement in the Claimant, for which he blames D1;
(b) the fact [according to D1] that MK's attempts to sell the Claimant to ActivCard at a beneficial price did not materialise and therefore did not achieve the desired result of enhancing the value of MK's interest in ActivCard;
(c) MK's belief, according to Mr Burridge, in D1's technical, fundraising and entrepreneurial skills in the field of server-centricity which MK regards as a burgeoning area of the information security market; and
(d) MK's desire to have at least a 50% stake in any new business D1 established because of this belief –
and has been evidenced by the aggression and physical and verbal threats that, according to the evidence of both D1 and D2, MK issued from time to time against D1 and D2 and the Defendants repeat paragraph 16 of the Defence.
[Paragraph 16 of the Defence alleges as follows:
"The Defendants reserve the right to claim that this case is an abuse of the process brought at the behest of [MK] as part of an illegitimate, misguided and unlawful programme of harassment designed to intimidate the Defendants into granting Mr Koppel a direct or indirect interest in any new server-centric software project the Defendants may pursue"
In the light of my directions for the service of Points of Claim, the repeated reservation of the Defendants' Defence adds nothing since it is the function of the Points of Claim to identify precisely what is relied on.]
q. Paragraph 18: Two months into these proceedings, on 12 October 2005, MK arranged for the receivers to issue and serve a statutory demand on D1 in the name of the Claimant, seeking to recover directors' borrowings in the sum of £128,967, despite the fact, according to D1, that MK had almost two years previously told D1 to ignore an earlier request by the former receivers for the repayment of the loan and said that he would "buy the loan". This act, and in particular its timing, is relied on as further evidence of MK's abuse of the Court process to pursue D1.
r. Paragraph 19: To the extent that the Defendants are successful in demonstrating that the undertaking in damages given to the Court by the Claimant and the supporting undertaking by Anjar were inadequate and/or that there was a material non-disclosure in relation to the said undertakings, the Defendants will rely on the findings of the Court in this regard in further support of its claim of abuse of process.
Previous findings by me
a. On the evidence before the Court on 10 August 2005, Etherton J was entitled to make a Search Order
b. It is impossible to say that the Claimant should not have brought the proceedings since the execution of the Search Order has shown that D1 and D2 had precisely that which they said they did not have
c. No complaint is made any longer as to the terms of the Search Order itself or anything which occurred during the execution of the Search Order on 12 August 2005 (this is despite the wealth of complaints in the Defendants' evidence and earlier skeleton arguments regarding the terms and execution of the Order).
Some preliminary observations
Submissions of the Claimant/Applicant
a. The theory expounded in the Points of Claim to the effect that MK was being supplied with the relevant information and documents by TK (directly or indirectly through CK) between January and July 2005 and that MK waited with the evidence in his possession until early August 2005 in order to cause maximum damage to the Defendants is contrary to the direct evidence contained in the affidavits of TK, MK and Mr Appleton (whose honesty is not impeached), it represents a speculative hypothesis which is not founded upon or supported by a single piece of direct evidence, it is based upon inferences which it is wrongly submitted are the "proper inferences" to draw and it is against the vast weight of the contemporaneous documentary evidence as well as the affidavit evidence submitted by the Claimant.
b. The allegations made by the Defendants are inherently fanciful, particularly since the accusation of MK holding back evidence entails the necessary finding that MK has committed a fraud in the face of the Court and perjured himself (and probably persuaded TK to do the same) in circumstances where the Defendants have not produced any evidence at all to support such an allegation and seek to rely on inferences which are no more than mere speculation. The notion that MK caused an otherwise meritorious application to be held back to the prejudice of both the Claimant and Anjar whilst in possession of all the necessary evidence, simply to make life more difficult for Defendants is fanciful and illogical.
c. The Court (that is to say me) has already found that Etherton J was entitled to grant a Search Order on the information available as at that time and that MK did not have all the relevant evidence until late July 2005 (see above), and the Defendants are not entitled to raise points which are inconsistent with these findings.
As I have already observed, Mr Penny did not push his submission that it was not even open to me to find that MK did have the evidence earlier that the end of July and I place no weight on it.
d. The Points of Claim conveniently ignore the fact that the Claimant found 15 computers and its software and source code on the execution of the Search Order, despite D1's repeated denials in correspondence. Given that no criticism is now made of the terms of the Search Order or the manner in which it was executed, the fact that the Claimant obtained even more computers, software and source code at the home of D1 and D2 than it told the Court it expected to find is strongly suggestive that the application was made in good faith and that the evidence in support of the application was presented to the Court in good faith.
e. Even if the Defendants can establish that the Claimant knew or suspected some of the features complained of in the Points of Claim earlier than is said in Mr Appleton's affidavit (which they cannot and have not laid a foundation for), such delay does not of itself amount to abuse. In any event, there is nothing to suggest that maximum harm would be caused to the Defendants by an application in August 2005, or that the Claimant (or MK) was aware that maximum harm would be caused to the Defendants by applying to the Court at this stage. The Defendants real complaint is that there was a Search Order made against them at all, not the timing of it, and on the Defendants' case the making of a Search Order at any time would have harmed them. Given D1's lies and duplicity, the Defendants have only D1 to blame for the fact and timing of the application for a Search Order. Neither the fact nor the timing of the Search Order indicates that the application was brought for an improper purpose.
f. The Defendants cannot be allowed to press ahead to a trial in the vain hope of seeking to establish fraud and perjury through cross-examination without laying some evidential basis so to do (the Defendants have in fact produced nothing). This is all the more concerning given the fact that these proceedings are being conducted by the Defendants in circumstances where the Claimant is at real risk of recovering no costs at all and where the substantive proceedings have been brought to an end by permanent injunctions being offered by consent by the Defendants. They cannot be allowed to conduct a hopeless evidential fishing expedition at the Claimant's cost. The Defendants have not pointed to a single document or item of evidence which would cause a Court to doubt the evidence relied upon by the Claimant.
g. The stance taken by the Defendants is extraordinary. D1 having conducted himself throughout January to July 2005 in a manner the chief feature of which was barefaced dishonesty (which has been maintained in numerous respects before the Court), D1 now complains that MK knew or ought to have known of his lies earlier and taken earlier action. The delay is said to be malicious and an abuse of process. Thus the Defendants are attempting to make a virtue out of D1's dishonesty and to portray the Defendants as victims of MK's deceit in holding back an otherwise meritorious application simply in order to make life more difficult for the Defendants.
a. On 31 January 2005, some 2 weeks after the closure of the business, the receivers wrote separately to D1 and D2 making a clear demand for return of any of the Claimant's property including software in their possession. They warned against the use of the Claimant's software. The letters were sent in duplicate with a request for the return of an endorsed copy stating that all property had been returned. Neither D1 nor D2 ever signed and returned the duplicate.
b. On 6 February 2005, while on holiday in the Maldives, and after D1 had given TK the "mirror image" explanation which I have mentioned, D1 sent an email to MK. Various accusations are made about MK's behaviour which MK denies. He makes it absolutely clear that, on his return home, he wants nothing whatsoever to do with MK in the future. The idea that, after that time at latest, D1 would have entered into any new business relationship with MK is absurd. I have no doubt that if any suggestion to the contrary were made by D1, it would be at best fanciful and at worst a deliberate lie.
c. On 18 February 2005, MK responded to what I think is the email from D1 which I have just mentioned. I do not propose to recite at length MK's rejection of nearly everything which D1 said. I mention two points however.
First, In relation to D1's suggestion that MK wanted to "break him", MK responded "Why would I want to destroy the fragile character of the key person connected with Anjar's investment". I have been offered no answer to that question on behalf of D1; and it is a most pertinent question given that MK has always recognised D1's technical skills (although not any business skills) and their importance to the business and thus to Anjar's investment.
Secondly, MK observes that he will make no particular effort to contact D1 "other than on matters which need to be addressed such as the repayment of your indebtedness and your obligations under the loan. You have no realistic prospect of avoiding your responsibilities by making a request to have no contact with me". That is a perfectly reasonable attitude. It cannot be said that MK, by seeking the enforcement by the Claimant of its rights against MK, is thereby conducting a campaign of harassment.
d. That produced a long email response from D1 dated 25 February 2005. It is clear that relations were well into total melt-down.
e. On 16 March 2005, Mr Dolan, of the receivers, sent an email to D1 following a conversation earlier in the day. It included the following: "In the meantime, you mentioned that you still have in your possession assets belonging to [the Claimant]…". This produced a furious response copied to a Mr Lee Manning in which D1 writes "I NEVER told him [ie Mr Dolan] that I had possessions belonging to the business.". If he had done, it would, of course, have been an honest response as the execution of the search order revealed.
f. On 17 March 2005, MK responded to D1's email of 25 February 2005. Again, I do not propose to rehearse the accusations and counter-accusations. However, he makes the following points which I should mention:
i. MK reminded D1 of the warnings of the receivers about the use of the Claimant's software stating that they were "not idly made" and referring to software which "you currently unlawfully have in your possession". He said that a failure to return it would mean that "you will unavoidably face a court action".
ii. It was likely that their paths would cross again in the near future in the context of both the recovery of the loans made to D1 and D2 and the receivers' action to recover the assets of the Claimant currently held by D1.
iii. MK said that "it has been made known to Anjar and the Receivers", presumably by TK, but that is not stated, that D1 had in his possession servers running Xenophon software at his house. He says "I can only assume, as mentioned by you on several occasions, that you intend to develop Xenophon and Xenomail applications despite the fact that I have told you on may occasions that this would be unlawful".
g. On 8 April 2005, D1 responded to that dismissively. For instance, there are these passages:
"Your correspondence, I regret, reveals a woeful lack of any knowledge in the software. [I note that the comments which MK had made had been made on the basis of TK's input, and TK had a wealth of knowledge.] For example, your naïve and unsubstantiable claim that I have retained both the server and software belonging to [the Claimant] in my possession. This has already been explained to both you and [CK]…."
and he repeats the "mirror image" explanation. And then he says
"As regards the company assets, I state, not for you but for the record that I do not have in my possession any company property whatsoever, other than a laptop….In particular, I do not have "servers running Xenophon software" and that there are no such servers at home.
h. As to those passages, we now know that the second was a complete lie. The execution of the search order revealed that D1 did, indeed have 15 computers and a great deal of software. He even had a Xenophon server. That fact also gives to the lie to the first statement. TK says that the tests he carried out are consistent only with actual use of the Xenophon server and that the "mirror image" explanation is ridiculous. It is not, in any event, necessary to decide whether the "mirror image" explanation is or is not correct since it is clear that the server was in fact in D1's possession at his home although I am bound to say that the explanation seems to me highly unlikely to be true.
i. Given that lie, it is hardly surprising that the Claimant does not believe D1 when he says, as he did in his response of 8 April 2005 "I can categorically assert that I have no wish to "develop the software further….I will be looking to do something…..providing that I do nothing to encroach on your IP (something that I have intention of doing)".
j. On 3 May 2005, the receivers chased both D1 and D2 for a response to the letter of 31 January 2005 (see a. above) repeating the warning about use of software. As before, no response was received.
k. On 9 May 2005, the receivers wrote again, requesting return of certain identified hardware which they had sold (in fact to CK or one of his companies) namely 4 computers. On the Defendants' case, it must follow that, at this time, the receivers actually knew of that D1 had far more equipment than this, and had software too: and yet they said nothing to him about it.
l. These letters produced an intemperate response accusing the receivers of being part of a campaign of harassment by MK and CK. I would not categorise as harassment a perfectly civil request for return of property which was, as we now know, actually in the possession of D1.
m. MK responded to D1's email of 8 April 2005 on 1 June 2005. The delay is accounted for by MK's serious illness and hospitalisation during that period. It is a long and detailed rebuttal. It produce another (albeit short) accusatory letter from D1, alleging intimidation, which, insofar as it once again, by rejecting MK's allegations, asserted that D1 had no property of the Claimant, was a lie.
a. Paragraph 6(c): Mr Penny says that it is highly unlikely that the "mirror image" explanation is true. I expressed that view in my earlier judgment and I remain of that view on the evidence currently before me. But, as I have said, I do not need to decide the point and, if were to need to do so, Mr Macdonald might well submit that I should only do so on the basis of cross-examination of TK.
b. Paragraph 6(g): Mr Penny says that this paragraph misses the point. The real point is that D1 lied to MK about having in his possession the Claimant's computers, software and source code; we now know it is clear beyond doubt that D1 did indeed lie consistently about this to MK and to the receiver, even lying "for the record". I agree with Mr Penny that this paragraph is not really to the point. The Points of Claim are not, or are not meant to be, concerned with why D1 had the server but with why the Claimant's application for a search order is said to be an abuse of process. D1 cannot possibly contend that MK knew that he had the server only for the purpose of reading his encrypted data: but even if he did, that is no reason for D1 to retain the server without the Claimant's consent, let alone to lie to him about its possession.
c. Paragraph 7:
i. Mr Penny says that paragraphs 7(b), (c) and (d) are mainly speculation.
ii. In relation to paragraphs 7(e) and (f), these contend that it is to be inferred that, as at the end of January/February 2005, MK was aware that the Defendants had in their home all the computers ultimately found on the execution of the Search Order. This, Mr Penny says, is again pure speculation and there is no basis for this inference. Importantly, after D1 denied (dishonestly) to MK on 8 April 2005 that he had any company property other than a laptop, the receivers were informed and wrote to the Defendants alleging that Ds had at home 2 Dell Precision workstations, 2 flat screen monitors, a Dell Poweredge server, Toshiba laptops and an Apple Powerbook, and the receivers wrote asking for the return of these assets within 7 days. This was responded to on 4 July 2005 in which letter D1 repeated the lies contained in his 8 April letter. Mr Penny asks why the receivers (and MK in his letter of 1 June 2005) would limit their letter to these specific items of equipment if MK was aware of a number of other pieces of equipment in D1s' possession. He says that it makes no sense. Further, the evidence suggests that the Claimant was expecting to find around 4-6 computers at D1 and D2's home on the execution of the Search Order. Mr Penny says that it is ridiculous to suggest that at all times after January 2005 MK was sitting with a full list of computers which he knew D1 and D2 had at their home.
iii. I will, of course, need to determine, in the light of the entirety of the matters relied on the Points of Claim and in the light of Mr Macdonald's submissions whether the sum of the speculations which arise on the Points of Claim lead to the inferences which he submits are proper inferences to be drawn.
iv. As to paragraph (g), Mr Penny submits that the Defendants have no entitlement to the document referred to at paragraph 7(g) and it would not take the matter any further. I perceive the document as being of the most marginal significance in the context of the current application. It should have been asked for long ago if the Defendants were to make use of it.
d. Mr Penny submits that the only other rationalization of what he describes as this nonsensical analysis is that MK did know that all the computers were at the home of D1 and D2 but chose to challenge MK with a lesser accusation presumably so as to keep the better evidence for later for a Search Order. But in fact, when the later allegedly abusive order was sought , the Claimant did not rely on the evidence allegedly held back on this issue (namely that Ds had all 15 computers which would have made the case in front of Etherton J even stronger). The Defendants' analysis and the inferences sought are, he submits contradictory and self-defeating; they have not analysed their own case which is illogical and fanciful. The inferences sought stand no real prospect of being established.
e. Paragraph 8: Mr Penny submits that there is nothing objectionable about the conclusions drawn by Mr Appleton (see paragraph 4(c) of the Points of Claim). Paragraph (d) is, he says, pure speculation again, and there is not a shred of evidence supporting the allegation as it stands.
f. Paragraph 9: This is yet another example, in Mr Penny's submission, of pure speculation. For my part, I am perfectly satisfied from all the evidence which I have seen that the NewCo business plan which TK showed to MK and TK related to Ssaneva and not to some enterprise in which D1 was intending that MK should have some interest, let alone a 50% interest.
g. Paragraph 10: In relation to the "caught out" conversation, D1 says that no such conversation took place (there may have been some conversation, but the "caught out" aspects are fabricated according to D1). In contrast, it is accepted that TK did relate such a (fabricated) conversation to MK: it is not suggested that there was a conspiracy, either in January/February or later, in July, between TK and MK to fabricate this story. The Defendants do, however, allege that the contents of the (fabricated) conversation were communicated to MK by TK in late January or early February. If, contrary to D1's denial, the conversation did take place, then it is asserted by the Defendants, once again, that its contents were communicated to MK at the earlier time. If the conversation did take place, then D1 himself is lying in asserting that it did not take place. In those circumstances, I am bound to say that the proposition that TK and MK are themselves lying about when it was in fact communicated to MK, far from being a proper inference, is absurd (albeit a logical possibility).
h. Paragraph 11: Whatever the true position in relation to the CD-ROMs, the fact is that D1 denied having any source code and that some CD-ROMs were found on execution of the Search Order which contained it. Even if it is fair to be critical of the differences (which are not, I note, inconsistencies) in the sequential witness statements given by TK (as to which question of fairness I say nothing), it does not follow that the inference which the Defendants ask me to make is a proper inference; and Mr Penny again submits that it is pure speculation.
i. Paragraphs 12 and 13: Mr Penny correctly identifies paragraph 12(f) as the most important allegation in paragraph 12, in which it is alleged that it is not credible that TK delayed until 28 July 2005 before telling MK and CK about his concerns regarding the Defendants. He submits that that suggestion is misconceived: TK has explained the position in his evidence, it is credible evidence which has not been contradicted by any credible independent or documentary evidence which the Defendants have had the opportunity to produce over the past 6 months or so, and the Court is entitled to take account of TK's explanation. It is important, he says, to note that until late July 2005, TK had not been asked by MK to do anything unlawful, but at the end of July 2005 D1 asked TK to come to his house to move some software from an old server to a new server, and it was this request which was the catalyst for TK contacting MK. Thus, TK's explanation of why he went to MK at the end of July 2005 and disclosed the material and information to MK for the first time at that stage, is entirely logical and credible.
j. Mr Penny says that paragraph 13 does not take the matter any further. It is important, he says, to note that MK was undergoing surgery for a tumour in the pancreas and CK looked after MK's business affairs while he was in hospital and convalescing.
k. The reality, Mr Penny submits, is that the Defendants cannot lay any foundation to impeach the word of MK and TK on oath; it cannot be done by inference as a matter of logic because such an inference would be in direct conflict with positive evidence to the contrary as to which no basis has been shown by which it can be discredited. Moreover the purpose of doing so is irrational and perverse for the reasons already given by him. Apart from the logical perversity of this it would also entail the commercial nonsense that MK would have taken the risk that the software could have left the country merely in order to be able to bring an application for a search order at a more inconvenient time for the Defendants (and indeed they have not even satisfactorily explained why 12 August was the worst date to bring it).
l. Paragraph 14: it is said that MK knew of all the key points in the Claimant's case by early February 2005. Mr Penny submits that, as well as the numerous flaws in the reasoning underlying the Points of Claim which he submits exist and which I have already mentioned, it is instructive to consider the content of MK's letters to D1 dated 17 March and 1 June 2005 as well as the letters from the receiver to D1. These are not consistent, he says, with the suggestion that at all material times after January 2005, MK was aware of the following information:
i. that D1 and D2 had 15 computers at their home;
ii. that MK could identify through TK the make and model of each and every computer at their home as belonging to the Claimant;
iii. that the Defendants kept old computers at their house as archives;
iv. that the Defendants had backup copies of CD-ROMs with source code on them;
v. that D1was writing to investors saying he intended to rebrand and sell XenoMail in parallel;
vi. that the Defendants had produced a business plan for NewCo and that he (MK) knew the contents of that plan; and
vii. that D1 had discussed with TK whether he would be "caught out" if he translated the software.
m. The central premise of the abuse case is that MK held this evidence back in order to enable the Claimant to launch some application later so as to cause the Defendants maximum harm. Such an assertion, Mr Penny submits, is simply irreconcilable with MK writing to D1 in the terms he did on 1 June 2005.
n. The receivers are not said to be part of the abuse and TK would have undermined his plan to launch a later application by asking the Defendants to make their confirmation to the receivers because once the Defendants had done that it would have been impossible to launch the "abusive" application later as the receivers would have understood that the Defendants had complied with the demands. If the Defendants are correct in their abuse case, MK would have undermined and destroyed the ability to launch a later application as, quite apart from the fact that the receivers would not have wished to make the application, the terms of MK's letter would have deliberately and dishonestly limited the evidence to 4 computers and made no allegation as to back-up CD-ROMs.
o. Had the Defendants complied with the request for delivery up in the letter, it would be inconceivable that MK and the receivers could then go to Court to make an application for a search order or some other form of interim relief in the context of MK having (on this hypothesis) been writing dishonest letters to the Defendants failing to mention that they actually held another 11 computers and some back-up CD-ROMs with source code on them. This, says Mr Penny, would have been a disastrous course to adopt had MK truly intended to make a later abusive application on evidence he was dishonestly holding back. MK, he points out, is a lawyer of over 50 years experience and not only would this have been a dishonest thing to do, it would have been downright stupid.
p. For the current abuse case to be sustainable, Mr Penny says firstly that the Defendants would have to allege (which they do not) that the receivers were part of the abuse, and secondly that the Court would have to find that MK was (a) fraudulent, (b) stupid and (c) devised a plan of abuse which contained the seeds of its own failure.
q. It follows according to Mr Penny that the allegation in paragraphs 3 to 15 of the Points of Claim are completely unsustainable and have no real prospect of success.
r. Paragraph 16: Mr Penny identifies and relies on a number of documents and on the contents of the draft business plan itself to show that D2 was reasonably to be viewed as implicated in the threat to use the software in the new business. He relies on:
i. In the Ssaneva Business Plan under the heading of Management at paragraph 8 there were only two named persons, D1 named as CEO and D2 described as a "co-founder of ISL" and the proposed Head of Marketing of Ssaneva.
ii. In the "NewCo" business plan there are editorial references to "Vanessa" and "VJC" and the issues to be covered by her in the drafting of that plan.
iii. The NewCo business plan was written, at least in so far as those matters are concerned, by about 7 February 2005, ie very early on in the history of the affair.
iv. In the Financial Forecasts attached to the Financial Plan Assumptions for Ssaneva D2 is expressed to be one of the two principal payroll creditors in relation to "back pay for the ……Head of Marketing who have been working on the Ssaneva project to get it to the present position".
v. The receivers had written to D2 demanding that she sign an acknowledgment that she held no property of the Claimant. There was no reply to that demand and all subsequent chaser letters appeared to be ignored.
vi. It was known that D2 had been regarded by D1 as indispensable to the Claimant and it was thus likely that she would occupy a central role as founder in any new project (as her later evidence confirmed).
vii. It was known that apart from the minimal shares given to founding shareholders the balance of the Ssaneva shares were held by Capriole Trust which is the Chandrasekaran family trust of which D2 was and is a beneficiary.
viii. It was known that D2 lived with D1 in a house they jointly owned and it was suspected (by reason of the evidence of TK) that that home housed the hardware that was running the Software and where most of the computers, software, CDs and source code were found.
ix. D1 was implicated in the printing of the XenoMail.RTF and XenoMail.data files.
x. On 16 January 2005 D1 and Dr Waters were copied in on an email from D1 to TK and Mr. Goddard in which it was said that there was an important need for an urgent adsl account to be set up at their house. The Claimant suspected this was part of the infrastructure for what was referred to in the 16 January 2005 emails concerning rebranding and selling XenoMail and D2 was suspected of being involved.
xi. D2 was also copied in on a number of 2005 emails by D1 concerning matters such as investment models and the like as well as emails concerning Ssaneva in June 2005.
xii. D2 in fact did receive at least one of the chaser letters from Kroll as stated by D1in his letter dated 17 May 2005 and both D1 and D2 emphasized that "neither of us have anything to add" to the denials of having hardware and software in D1's letter of 8 April 2005. D2 was thus aware of the demands for the Claimant's property to be returned and she was also party to the denial that any of the Claimant's property was on their premises.
s. From all of this it is patently clear, says Mr Penny, that there were good grounds to suspect that D2 was implicated in the retention of Software and that she was party to the risk of infringement. Indeed he points out that, on D2's own evidence she describes her elaborate role as co-founder of Ssaneva and the steps she took to write the business plan and start the new business. It is also apparent, he goes on to submit, that D2 has lied in order to protect her husband in that she told an untruth when she said in her witness statement that "with her permission Paran left her [the Supervising Solicitor] outside", while her husband phoned his lawyer. The report from the supervising solicitor makes it clear that she was refused entry.
t. Mr Penny concludes this aspect by saying that the matters in paragraph 16 are without foundation and the contention that D2 was joined for an improper purpose, namely, to put additional pressure on D1, stands no real prospects of success and is fanciful.
u. Paragraph 17: this paragraph seeks to justify the allegations concerning MK's motivations in persuading the receivers to make the application for the Search Order. These matters, Mr Penny says, are nonsensical and/or false. MK and/or companies connected or introduced by him were owed a great deal of money by D1 and D2. It does not make any sense that MK would seek to cause them harm. He also complains that the reference to "inter alia" in line 1 of paragraph 17 is unacceptable given the Court's direction that the Defendants must particularise all facts and matters relied upon.
v. As for the contention that MK wanted a 50% stake in any new business established by D1, Mr Penny submits that, whatever the position prior to closure of the business, such an allegation cannot possibly be sustained after the closure of the business. If it is suggested that the application for a Search Order was made pursuant to such a desire, that suggestion would be unsustainable. This submission by Mr Penny is, in my judgment, clearly correct.
w. Reliance is placed in paragraph 17 on allegations of aggression and physical and verbal threats made by MK towards D1. As to that, Mr Penny submits that the Court should not allow such allegations to remain as they would prejudice the fair disposal of the remaining parts of the Defendants' application. MK has responded in substantial detail to these allegations and evidence has also been given by a Mr Conrad and others that D1 is in the habit of making these allegations when they suit him. These issues are, in my view, entirely peripheral. It would be wholly disproportionate, in my judgment, for the Court on this application to attempt to resolve them, involving as it inevitably would lengthy cross-examination; indeed, in the light of the all the other material before me on which I base the conclusions which I reach, I do not consider that the resolution of these issues one way or the other would give me any significant help in resolving the questions which I do have to decide. Accordingly, I agree with Mr Penny that I should not allow the Defendants to take these issues to be taken forward.
x. Paragraph 18: Mr Penny submits, and I agree with him, that the existence of the statutory demand referred to at paragraph 18 takes the issue of abuse of process no further. Either the application for a search order was an abuse on its own or it was not. The existence of a request by MK to the receivers to issue a statutory demand does not make an otherwise legitimate application for a search order an abuse of process. If on the other hand the search order was an abuse on its own without the statutory demand then the existence of the statutory demand is completely irrelevant.
y. In any event, the existence of such a request is denied on a statement of truth and the Defendants have produced no evidence to go behind this. There is no evidence whatsoever that MK arranged for or procured the receivers to issue the statutory demand. Without a credible basis on which to make such an allegation the issue of the statutory demand is wholly irrelevant to the involvement of MK. I agree with those submissions too.
z. Mr Penny submits that the timing of the statutory demand does not support an abuse argument either. Had there been an intention to cause maximum harm, and had MK been behind this, and had he been aware of the key parts of evidence at an earlier time as is alleged by the Defendants in their case on abuse, then the demand would have been issued when D1 was negotiating with the Indian technologists so as to cause D1 difficulties in continuing to deal with the Indians and anybody else.
aa. Finally, Mr Penny says that the matters in paragraph 19 do not make an otherwise legitimate and proper application an abuse of process. Matters such as non-disclosure are issues for discharge but not evidence of an abuse of process unless and until it is shown that the non-disclosure was intended for that purpose as opposed to non-disclosure which although wrongful is not knowingly committed or culpable in some other way. There is no basis laid for the assertion that MK maliciously failed to disclose certain matters as part of a campaign to abuse the process of the Court. I agree.
a. The first area is the reason which TK gives for why Dr Waters creased to be involved in Ssaneva. It is suggested that TK has been inconsistent in his evidence about a conversation which he had with Patty di Levrano. In his first witness statement, he said that Ms di Levrano, in response to a suggestion from TK, "confirmed to me" that Dr Waters had stopped assisting D1 and D2 because he was unhappy with what they were doing with the software; in a later witness statement, he says that her response to his suggestion was that she agreed that that could have been the case. There is certainly a difference of emphasis, but I doubt that it is really an inconsistency. However, I do not see how the fact of this difference between his two descriptions of the conversation lends any support to a suggestion that there is an abuse of process by the Claimant (even assuming its position were to be equated with that of MK).
b. The second area relates to TK's reading of D1's emails. It could well be the case that TK was guilty of an offence in accessing TK's web mail account under the Regulation of Investigatory Powers Act 2000. Mr Macdonald says in effect that TK is shown to be a man who is prepared to act unlawfully (assuming for the moment that he knew what he was doing was unlawful). He suggests that TK was exploiting an opportunity to turn something to his own advantage; and, most seriously, says that TK is therefore lying to the Court. I have to say that that is a most surprising submission. There is no evidence to suggest that TK is lying on this aspect. The submission is pure speculation based on the proposition that a man who is prepared to access, illegally, another person's email account is a man who, it is to be inferred, is willing to be a perjurer. Mr Macdonald would no doubt say that it is the cross-examination which will show TK to be a liar; but to that I respond that there is nothing before the court which raises even a prima facie case that he is lying. The Defendants have not produced any evidence, in spite of a number of rounds of evidence and the expenditure of an enormous amount of time and effort which supports what they allege; in particular, they have not procured witness statements from either Dr Waters of Ms di Levrano. Quite apart from that, I make the point again that even if TK is lying, his dishonesty does not indicate abusive behaviour by MK let alone by the Claimant.
