Wright v Pyke & Anor

The Court of Appeal dismissed the appellant's challenge to the judge's refusal to grant an interim injunction in a derivative action. The court accepted that there was a serious issue to be tried that the first defendant, a director, may have breached fiduciary duties and misused confidential information by secretly forming and trading through a rival company. However, on the interlocutory application the judge had properly exercised his discretion: the balance of convenience favoured accepting the director's undertaking to keep full and accurate records rather than to grant an injunction which was likely to cause disproportionate and irretrievable harm to the rival company and might produce no practical benefit to the claimant or the company on whose behalf the derivative claim was brought.

The court emphasised the limited role of an appellate court on interlocutory relief, found no error of law or principle in the judge's approach to the balance of convenience, and noted that the appellant could not convert the interlocutory application into a final determination on appeal.

Background and parties:

• The claimant, Mr Philip Wright, brought proceedings as a derivative claimant on behalf of Acorn Dental Laboratory (Liverpool) Limited ('Acorn'), alleging that the first defendant, Mr Joseph Pyke (formerly a co-director and shareholder), had breached fiduciary duties and misused Acorn's confidential information by secretly incorporating and operating A1 Aesthetics Limited ('A1') to carry on the same business and divert customers.
• Mr Wright and Mr Pyke had previously been equal shareholders in Acorn; Mr Wright had resigned as a director in 2010. Mr Wright had also incorporated a separate Acorn Manchester company in 2011 in which both were 50/50 shareholders. A1 was incorporated in January 2012; a letter sent to customers in February 2012 indicated that A1 was operating from the same premises and requested payments to A1.

Procedural posture and relief sought:

• The application before the judge and on appeal was for interim injunctive relief restraining Mr Pyke from using or disclosing Acorn's confidential information, soliciting Acorn's clients, inducing employees to leave, and engaging in competing business, together with disclosure requirements. The claim is derivative and the proposed amended claim (not before the judge) sought to join A1 as a defendant.

Issues framed:

• Whether there was a serious issue to be tried of breach of fiduciary duty and misuse of confidential information by Mr Pyke;
• On an interlocutory application, whether the balance of convenience required the grant of a prohibitory injunction or whether undertakings and record-keeping would provide adequate protection pending trial; and
• Whether the appellate court should overturn the judge's exercise of discretion in refusing the injunction.

Court’s reasoning:

• The judge below had found a serious issue to be tried under sections 171 to 177 of the Companies Act 2006 but refused the wide-ranging injunction. He instead accepted an undertaking from Mr Pyke to maintain full, accurate business records and to account, and reserved costs.
• The Court of Appeal reiterated the limited function of an appellate court in interlocutory matters (citing Hadmor Productions v Hamilton) and concluded there was no error of law or principle in the judge's exercise of discretion.
• The court accepted that an injunction might inflict substantial harm on A1, its employees and Mr Pyke, while giving no practical benefit to Acorn or Mr Wright because the employees and customers were unlikely to revert. There was also a risk that granting the injunction would leave Acorn without benefit and A1 destroyed.
• The appellant’s attempt to convert the interlocutory application into a request for final relief or summary determination on appeal was inappropriate and procedurally unacceptable.
• The court suggested the parties should seek commercial resolution rather than prolonged litigation.

Appeal dismissed. The Court of Appeal held that the judge had correctly identified a serious issue to be tried (breach of fiduciary duty and misuse of confidential information under sections 171–177 Companies Act 2006) but had properly exercised his discretion on interim relief: the balance of convenience favoured accepting the defendant's undertaking to keep full records rather than imposing the wide-ranging injunction sought, because the injunction risked greater and pointless harm and would probably confer no practical benefit to the claimant or company.

Appeal to the Court of Appeal from the High Court of Justice, Chancery Division (His Honour Judge Hodge QC). No lower court neutral citation is stated in the judgment.