C Wzrd Ltd v Toray Kortan
| Jurisdiction | England & Wales |
| Judge | Simon Barker QC |
| Judgment Date | 29 May 2020 |
| Neutral Citation | [2020] EWHC 1360 (Ch) |
| Court | Chancery Division |
| Docket Number | CLAIM NO: BL-2020-BHM-000023 |
| Date | 29 May 2020 |
[2020] EWHC 1360 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
BUSINESS LIST (ChD)
HIS HONOUR JUDGE Simon Barker QC
CLAIM NO: BL-2020-BHM-000023
Representation
Mr Avtar Khangure QC instructed by Sydney Mitchell LLP for the Claimants
Mr James Palmer instructed by Howman Solicitors for the Defendants
Hearing: 28 April 2020
Judgment: 29 May 2020
I direct that pursuant to CPR 39APD6 paragraph 6.1 no tape recording shall be made of this judgment and that copies of this version shall stand as authentic and be treated as the official transcript.
Introduction
This judgment concerns an interim application by the Claimants (respectively ‘C1’ and ‘C2’, collectively ‘Cs’) for an injunction against the First and Second Defendants (respectively ‘D1’ and ‘D2’, collectively ‘Ds’).
C1 was incorporated on 29.5.19 and C2 on 28.8.19. C1 is a wholly owned subsidiary of C2. C2's shares are held 45% by D1, 45% by Dilan Sharma (‘DS’), and 10% by Oscar Hernandez (‘OH’). DS arranged for the incorporation or acquisition of Cs, and DS, D1 and OH became directors of both companies. C1 was formed to provide an online platform for market analysis of, online courses about, and an online discussion forum focussed on, cryptocurrencies. D1 had previous experience of providing market analysis and courses and online discussion in this field but had fallen out with his previous business partners. D1 came to Cs with an online following. DS was to provide the financial backing. Originally the venture was to be 50:50 between DS and D1, however neither had the necessary technology skills. DS recruited OH to provide those skills and the respective interests were adjusted to 45:45:10. OH's task was to create or oversee the creation of a new online platform to enter the market. DS's evidence is that circa £250k was invested in Cs. The business model included selling lifetime ‘membership’ for some £500–£600.
There were delays in setting up the online platform, not caused or contributed to by D1. C1 eventually commenced trading on 1.12.19. During the development period D1 introduced his followers to Cs and transferred his registered trademarks (comprising or including a wizard's hat design) to Cs. In the first month or so of trading more than 1,200 members signed up with C1 and the revenue appears to have been in the order of £720k to £750k.
By Christmas 2019 D1 had become disillusioned and by early 2020 relations between DS and D1 had broken down. On 14.1. 20 D1 downloaded a copy of Cs' database of members and contacts. On 27.1. 20 D1 formed D2 intending to trade in competition with Cs. It is clear from the evidence that D1 downloaded Cs' database for his own purposes. From about 11.2. 20 D1 has sought to promote himself independently of and in competition with Cs. D1 has also made online postings encouraging Cs' members to seek subscription refunds and otherwise disparaging Cs and DS. There is an enormous volume of screenshot and similar material of disparaging communications by or to each of D1 and DS in the hearing bundle and as added to immediately before and after 1 the hearing. The vast majority of the screenshot and similar material is unnecessary and disproportionate for present purposes and, probably, also for a trial. DS's conduct has not all been open and straightforward, for example in relation to the opening of and mandate for Cs' bank account with Lloyds Bank plc, but D1's conduct in relation to the database had no justification.
From January 2020 onwards Cs' solicitors were corresponding with D1 about his breaches of duty. In response to a request from D1 to resign as a director, Cs' solicitors made clear that Cs' position was that D1 could resign, but on terms they specified. On 12.3.20 Cs' solicitor wrote a letter before action to Ds. The letter before action was lengthy and set out both Cs' detailed complaints and an explanation of the legal basis for the complaints. It attached appendices including a 3 page, 12 paragraph, detailed undertaking required of D1. The detailed undertaking included that D1 (1) would not solicit and/or otherwise deal with any individual, company or business on the database for 18 months, (2) would not challenge Cs' rights to the trademarks or use “WZRD” or “WIZRD” in connection with any business or brand, (3) would forego any monies that might otherwise be due to him from Cs as compensation for his wrongdoing (thereby all admitted), and (4) would pay £30k to Cs' solicitors within 7 days as a contribution towards Cs' costs. D1 did not accept the terms specified as conditions of resignation or provide the undertakings sought. D1 may then have been unaware that he could simply resign as a director of Cs.
Cs issued proceedings on 25.3.20 for breach of statutory and fiduciary duty as a director, infringement of trade mark, and passing off. By the Claim Form, Cs seek various forms of monetary relief and quantify their claimed loss and damage or accountable profit at £1million. At the same time Cs issued an application for interim injunctive relief.
On 25.3.20 I made an order giving directions for a remote hearing of the interim application on 31.3.20. At that hearing, following discussions between the parties' counsel before and during the hearing, Ds gave undertakings, as a holding measure, in or substantially in the form of the injunctive relief sought pending Ds' consideration of the application, the preparation of evidence in answer and reply, and an effective hearing of the application. A return date was agreed for 17.4.20. This proved over-ambitious and the effective hearing was relisted for 28.4.20 for 1 day.
There is no formal agreement between D1 and Cs whether as a director, employee or shareholder. Thus, D1 is under no contractual restraints as to future business activity. No doubt advised by his solicitors and counsel, D1 resigned as a director of Cs on 15.4.20.
Cs' application sought injunctive relief under four heads: (1) an interim injunction until trial or further order to restrain Ds future activities, including from competing with Cs; (2) an injunction until trial or further order to restrain Ds from using a wide range of information defined as confidential information with orders for delivery up of the database; (3) an injunction until trial or further order to restrain D2 from passing itself off as associated with Cs; and, (4) an injunction until trial or further order to restrain Ds from infringing Cs' registered trademarks. In the event, continuing undertakings were agreed on or before 28.4.20 in respect of (2) the confidential information and database, (3) passing off, and (4) trademarks. What was not agreed was (1) the injunction restraining Ds' future activities.
The form of the injunction sought is expressed as follows:
1. The First Defendant must not by himself, his agent, servant or otherwise, howsoever carry on with being employed or otherwise engaged by all 2 concerned or interested in any capacity (whether for reward or otherwise) or provide any commercial or any technical advice to, or in any way assist, the Second Defendant in the supply, organisation or development of the business of the Second Defendant.
2. The First Defendant must not:
a) Whether alone or jointly with or as manager, agent, consultant or employee of any person, firm or company, directly or indirectly, carry on or be engaged in any activity or business within the United Kingdom or Europe which shall be in competition with the business of the Claimants;
b) Solicit or endeavour to entice away from the Claimants' business or custom or a Restricted Customer with a view to providing goods or services in competition with any Restricted Business;
c) Solicit or endeavour to entice away from the Claimants' business or custom of a Prospective Customer, with a view to providing goods or services in competition with any Restricted Business;
d) Offer to employ or engage or otherwise endeavour to entice away from the Claimants any Restricted Employee in the course of any business concerned which is in competition with the Restricted Business;
e) Interfere endeavour to interfere with the supply of goods and/or services by any Restricted Supplier to the Claimants.
6. … [T]he Defendants must not either by their own account or through others, whether directly or indirectly, and whether by themselves or through their servants, officers or agents, in any way cause, induce, encourage or permit any third party to do anything that would be in breach of paragraphs 1 [and 2] of this Order.
Restricted Business means the supply, organisation and development of online education services in the sector of cryptocurrency and/or market analysis in the cryptocurrency sector.
Restricted Customer means any person, firm, company or other organisation who, at any time was a customer or in the habit of dealing with the Claimants.
Prospective Customer means any person, firm, company or other organisation with whom the Claimants may deal
Restricted Employee means any person who was employed as an employee of the Claimants who could materially damage interests of the Claimants if he/she became employee in any competing business.
Restricted Supplier means any person, firm, company or other organisation who, supplied goods and/or services to the Claimants including, but not limited to any individual who provided services to the Claimants by way of a Consultancy Agreement.
In the case summary filed for the application, Cs describe the purpose of the injunctive relief as being to prevent Ds from continuing to trade at Cs' expense and to Cs' detriment. As is apparent the injunction sought is cast in extremely wide terms. As I understand it, D1 has no intention of...
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