Indicii Salus Ltd v Chandrasekaran
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE WARREN,THE HONOURABLE MR JUSTICE WARREN,Mr Justice Warren |
| Judgment Date | 02 March 2007 |
| Neutral Citation | [2006] EWHC 680 (Ch),[2006] EWHC 521 (Ch),[2007] EWHC 406 (Ch) |
| Docket Number | Case No: ICH511/05,Case No: HC05C02163 |
| Court | Chancery Division |
| Date | 02 March 2007 |
[2006] EWHC 521 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Warren
Case No: ICH511/05
MR JOHN MACDONALD QC AND MS ANNA CARBONI (Instructed by Messrs Milbank, Tweed, Hadley & McCloy LLP) appeared on behalf of the APPLICANTS AND DEFENDANT
MR TIM PENNY (Instructed by Messrs Kerman & Co LLP) appeared on behalf of the RESPONDENT AND CLAIMANT
(As Approved)
Transcribed by John Larking European Verbatim Reporters Suite 91, Temple Chambers, 3–7 Temple Avenue LONDON EC4Y 0HP Tel: 020 7404 746414,491 words 201 folios
,491 words
folios
This matter came before me last week on an application to discharge a search order made by Mr Justice Etherton on 11 August 2005. For reasons which will become apparent in due course, Mr MacDonald QC, who appears for the defendants, did not proceed with his application and now seeks further directions designed both to limit the scope of the application and the evidence on it, but at the same time to allow cross-examination of certain deponents. Mr Penny, who appears for the claimant, submits that I should strike out the application altogether.
In deciding whether to allow to proceed or to strike out I need to examine the cases on both sides, and it will be necessary to make certain comments in making that decision, and if the case is liable to go forward, in order to limit the issues which can be raised.
The background
I take a very brief outline of the background from certain passages in the defendants' skeleton argument. ISL (as I shall call the claimant) was originally set up by the first defendant in 1994 as an information security consultancy operated from home during his student days. With the assistance of funds from outside investors ISL changed its focus later in the 1990s to development and promotion of cryptographic security software, known as Xenophon, with related applications, including XenoMail for encrypting emails and XenoFile for encrypting documents based on server-centric technology.
The first defendant was the chief executive officer of ISL and the second defendant, his wife, met him when they were both students in London and she assisted him in the business from a very early stage.
On 29 June 2001 a BVI company, Anjar International Limited ("Anjar") entered into a debenture with ISL under which it was to draw down £1.5 million of a £3 million loan. For reasons that are disputed, but I do not need to determine, ISL made no significant sales of its security products and the business failed. Anjar put the company into receivership on 30 June 2003, appointing two partners of Kroll International as joint administrative receivers. Extensive efforts to revitalise and sell ISL were unsuccessful and the business finally closed down on 14 January 2005.
On 10 August 2005, immediately preceding the search order, Anjar made an application to Etherton J to remove the Kroll receivers so that they could appoint Paul Appleton and Asher Miller of David Rubin and Partners to take their place. And that order was made.
For reasons which I cannot determine at the present time the relationship between the first defendant and the leading light of Anjar in the UK, Mr Koppel, has deteriorated over a period of time, although at the heart of the breakdown of relations are the differing attitudes of the first defendant and Mr Koppel as to what should be done with ISL and its business in the light of its financial difficulties.
The first defendant is passionate about what he sees as a unique and innovative product which has been his and the second defendant's "baby" for some years. They have devoted their lives to it. He considered that the receivership was unnecessary and was damaging to what could easily have been turned into a successful business generating huge wealth for him and other investors.
Mr Koppel, whilst recognising the first defendant's technical talents, regarded him as a disaster area in business terms and wanted to bring in a new management team, leaving the first and second defendants to spearhead the technical side. Each side now accuses the other of being a serial liar. Each adduces evidence to show what a reasonable person he is, and how disgracefully the other has behaved.
Inevitably, others involved in each side of this dispute have become embroiled in this slanging match, although I think it is fair to say that serious of allegations of dishonesty are not made against any of them.
By the end of 2004 the relationship was already very bad indeed. Things were so bad by January 2005 that the first and second defendants considered that there was no way in which, with what they regarded as Mr Koppel's intransigence, ISL could be made to succeed. They decided to go their own way and to seek new investors. The real dispute, or at least what is left of it, turns on whether it was any part of the defendants' plans to use ISL's software in breach of copyright in the new business (and I will use "software" in the defined sense in which it appears in the search order itself which I will come to).
The claimant says it is absolutely clear that the defendants were going to use the software in their business and so clear that any defence to be based on the contrary of that be struck out. The defendants say that there was never any intention to use the software, but a new product was to be developed from scratch and it would have been commercially foolish even to have thought about using the software in breach of copyright. In any event, the software was out of date and could not sensibly be utilised, even if it had been available, according to the defendants.
I should just say a brief bit about the technology, and I again take this from the defendants' skeleton, paragraph 17. Both the software developed by ISL and the software to be developed by the third defendant uses or will use cryptographic techniques to keep data secure. In conventional cryptography sequences of binary digits called keys are used to encrypt and decrypt electronic data, either by using the same key (symmetric encryption) or a public/private pair of keys (asymmetric encryption).
There is a distinction between the more traditional client-centric cryptographic security where keys are stored on the users own computer, and the server-centric cryptographic security where the keys are never stored anywhere but are securely generated by an appropriately secured server computer and then distributed by it. This sort of system has a more complex architecture than client-centric encryption, but at least in the defendant's view it is to be preferred from the perception of security and risk.
There is no dispute that the concept of server-centricity and security software is in the public domain. ISL created its Xenophon server software and XenoMail and XenoFile applications based on this concept. The particular way in which it expressed the concept, including the source code underlying the software, is protected by copyright in the code. The defendants admit they have always been aware of that, but provided that the defendants avoid copying such copyright material they and others are free to develop a new and different server-centric cryptographic security product.
New business
I will need to turn to the events from the end of 2004 in slightly more detail in due course, but for the moment it is only necessary to note that up until some time in early January one of the options that the first defendant was considering remained continuing with ISL, although he was looking at ways in which Mr Koppel's influence and financial involvement would be reduced. However, that option was one which required Mr Koppel's consent and could not be either imposed on him or Anjar or implemented by circumventing him. By the end of January, but possibly before then (and I will need to say more about that later too) the defendants decided to go off on their own to form a "NewCo", which became Ssaneva, the third defendant, and to develop a server-centric product directed at the same market as that which the Xenophon was directed. The dispute is whether that new product involved the use of ISL's copyright material.
Although Mr Koppel says that he was suspicious that the defendants were using the software after cessation of business on 14 January 2005, it is his case that neither he nor the receivers had enough material to commence proceedings against the defendants, or to seek any form of injunctive relief.
However, they say that further facts (which I will come to in a moment) which came to their knowledge in late July and early August 2005 led them to believe that the defendants had at their home certain equipment in the form of desktop and laptop computers and other hardware which belonged to ISL. The defendants had expressly denied, after formal requests by the receivers, to return any equipment, having any property belonging to ISL in their possession. More importantly the same information led Mr Koppel and his side to believe, first, that the defendants had in their possession copies of the software, and secondly that they could use that software. They apprehended that the defendants would use the software in the development of their own product. Indeed there may even have been a fear that, in an early attempt to gain customers, the defendants might use the software with no alteration at all.
Now, it will be remembered that ISL had ceased to conduct business on 14 January 2005. After that time no further work was done on the source code or other development of the software. A question...
To continue reading
Request your trial
-
Arcelormittal USA LLC (a company incorporated under the laws of the State of Delaware) v Essar Steel Ltd (a company incorporated under the laws of Mauritius)
...be satisfied. These are set out in the White Book, vol 2, at paragraph 15–91, quoting Warren J. in Indicii Salus Ltd v Chandrakeharan [2006] EWHC 521 (Ch). That passage was in turn recently approved by the Chancellor in MX1 Ltd v Farazhad [2018] 3 WLUK 744 at 98 Mr. Stanley QC, who present......
-
Vneshprombank LLC (a company registered and (in Liquidation) in the Russian Federation) v Georgy Ivanovich Bedzhamov
...object. The harm caused by the execution of a search order must not be out of proportion to its legitimate object (see Indicii Salus Ltd v Chandrasekaran [2007] EWHC 406 (Ch) at [11d], per Warren J). It must not be allowed to become an instrument of oppression, whether intended or otherwis......
-
CCS Corp. v. Secure Energy Services Inc. et al.,
...[1980] 2 All E.R. 273 (C.A.), affd. [1982] A.C. 380 (H.L.), refd to. [para. 28]. Indicii Salus Ltd. v. Chandrasekaran and others, [2007] EWHC 406 (Ch.), affd. [2008] EWCA Civ. 67, refd to. [para. Nintendo of America Inc. v. Coinex Video Games Inc. et al., [1983] 2 F.C. 189; 46 N.R. 311 (F.C......
-
BP Singapore
...Metal Manufacturing Pte Ltd v Expanded Metal Co Ltd [1995] 1 SLR (R) 57; [1995] 1 SLR 673 (refd) Indicii Salus Ltd v Chandrasekaran [2007] EWHC 406 (Ch) (refd) Lock International plc v Beswick [1989] 1 WLR 1268 (refd) Yousif v Salama [1980] 1 WLR 1540 (refd) Indranee Rajah SC, Daniel Tan, R......