Allfiled UK Ltd v Eltis & Ors

The court considered an urgent application for interlocutory injunctions to restrain former directors and employees from using or disclosing Allfiled UK’s alleged intellectual property and confidential information and to enforce contractual non-solicit and non-compete covenants. The judge applied the American Cyanamid principles, asking whether there was a serious issue to be tried, whether damages would be adequate, and where the balance of convenience lay. The court concluded there was an arguable case that Allfiled UK owned proprietary and confidential rights in the Allfiled PDS system and that the first three respondents may have breached fiduciary duties (drawing on sections 170–177 of the Companies Act 2006) and induced breaches of contract. Because of the particular risks of irreparable or hard-to-quantify harm from dissemination of the claimed material and Port Tech’s limited capacity to meet damages, the judge continued and refined interim relief already made, but subject to carefully drawn provisos (including permitting development of post-19 January 2015 work not derived from Allfiled UK) and directed an expedited trial.

Background and parties:

• Allfiled UK Ltd was a software developer of a "Personal Data Store" (the Allfiled PDS system). The first three respondents were former directors; respondents 4–14 were former employees (the Development Team). Port Technologies Limited (Port Tech) and its holding company were formed by the second respondent and controlled by the first three respondents.
• Allfiled alleged that the first three respondents conspired to set up Port Tech, enticed the Development Team to leave, and dealt with a third party (Magpie) to supply very similar software, thereby misusing Allfiled UK’s confidential information and intellectual property.

Nature of the application: Allfiled UK sought interlocutory injunctive relief to prevent use, disclosure or dissemination of its confidential information and intellectual property, to enforce contractual non-solicit and non-compete covenants, and to require delivery up of property. It alternatively sought damages for breach of duty, interference with contractual relations and conspiracy.

Issues framed by the court:

• Whether Allfiled UK raised a serious question to be tried on its claims of proprietary IP/confidential information, breach of fiduciary duties (Companies Act 2006, ss.170–177), breach of contract and conspiracy;
• whether damages would be an adequate remedy;
• where the balance of convenience lay, including the risk of driving Port Tech or third parties (notably Magpie) into insolvency; and
• whether this case was an exception to the usual Cyanamid gateway (i.e. required an "overwhelming" case).

Reasoning in brief:

• The judge applied the American Cyanamid framework and declined to raise the gateway to an "overwhelming" standard except in truly exceptional cases. The ordinary Cyanamid test of a serious issue to be tried applied.
• On the available evidence (including documents found after resignations such as the "Breakaway Document", a capital plan and contemporaneous emails, together with a research and development tax report), the judge concluded there was a good arguable case that Allfiled UK had proprietary/confidential rights in the Allfiled PDS system and that the respondents had acted in a manner capable of constituting breaches of fiduciary duty, misuse of confidential information, inducement of breaches and conspiracy.
• The judge found a real risk that, if unrestrained, Port Tech could deploy or disseminate material in a way that would be difficult to compensate by damages and that Port Tech’s limited resources made a cross-undertaking in damages an unreliable protection. That risk, combined with contractual restraints and the nature of the alleged proprietary interest, supported injunctive protection, subject to narrow exceptions permitting Port Tech to continue to develop material demonstrably created after 19 January 2015 and not derived from Allfiled UK.
• The court declined to adopt an unfettered "Magpie carve-out" absent adequate protection for Allfiled UK, invited parties to negotiate detailed provisos and escrow/monitoring arrangements, required undertakings (including by Abbeymanor and by Mr Shah and his wife in respect of their property), and directed an expedited trial.

Application allowed in part. The court continued and refined interim injunctions previously granted, holding that Allfiled UK had raised serious issues to be tried (including arguable proprietary/confidential rights and breaches of fiduciary and contractual duties). The judge concluded damages might be inadequate given the risk of sterilisation or dissipation of proprietary value and Port Tech’s limited ability to satisfy damages, but limited the injunctions so as not to restrain bona fide development of material demonstrably created after 19 January 2015 and not derived from Allfiled UK. The court required undertakings, made further procedural directions and ordered an expedited trial; a Magpie-specific carve-out was refused without adequate security or undertakings.