C Wzrd Ltd & Anor v Kortan & Anor

The court applied the American Cyanamid principles and the established law on "springboard" injunctions to an interim application by the companies for wide-ranging restraints against a former director who had downloaded the companies' database and promoted himself in competition. The judge found there was a serious question to be tried on breaches of statutory and fiduciary duties (including under sections 170, 172 and 175 of the Companies Act 2006) and acknowledged that springboard relief can be appropriate to neutralise an illegitimate advantage obtained by misuse of confidential information or other misconduct. The court held that most of the defendants' undertakings addressed misuse of the database, passing off and trade mark issues and that those matters could be resolved by continuing undertakings and verification.

However, the court concluded the injunctions sought were drafted in excessively wide "boilerplate" terms (for example restraints covering all competitive activity across the UK and Europe, ill-defined categories of "restricted" customers, suppliers and prospective customers, and restraints directed at non-existent employees) and would go beyond fair, just and proportionate restorative protection. The judge therefore limited relief: he granted a targeted injunction restraining the first defendant from assisting the second defendant in competing with the companies until 30 June 2020 and granted interim orders until trial or further order to hold the former director to his continuing statutory duties and to restrain him from encouraging members to seek subscription refunds or from maintaining online commentary about refunds.

This is a first-instance interim hearing concerning applications by C Wzrd Limited and Wzrd Group Limited for injunctions against a former director, Toray Kortan, and a company he formed. The companies alleged that while a director Kortan downloaded their customer database, formed a rival company and promoted himself to the companies' members, encouraging refund claims and disparaging the business. The claimants sought a broad springboard injunction preventing the former director from engaging in competitive activity, using confidential information, soliciting customers, employees or suppliers, and from infringing registered trade marks or passing off.

Procedural posture and relief sought:

• The claimants issued a claim and an interim application for injunctive relief. Early undertakings were given by the defendants in respect of non-use of the database, passing off and trade mark matters; the remaining contested relief related principally to broad restraints on future competitive activity (the so-called springboard relief) and the proposed duration of such relief (claimants sought six months).

Issues framed:

• Whether there was a serious issue to be tried on breaches of statutory and fiduciary duties and misuse of confidential information.
• Whether damages would be an adequate remedy and, if not, whether interim injunctive (springboard) relief was appropriate and, if so, its proper scope and duration.
• The appropriate form of protective relief that is fair, just and proportionate to restore the parties to the competitive position they would have occupied absent wrongdoing.

Court's reasoning and findings:

• The court applied American Cyanamid principles and authorities on springboard relief, noting the purpose of such an injunction is restorative not punitive and that the claimant must specify the nature and period of the defendant's unfair advantage.
• The judge accepted that the companies had serious questions to be tried and that Kortan had acknowledged downloading the database and encouraging refund claims, conduct inconsistent with directors' duties. He also accepted that springboard relief can apply to directors.
• Nonetheless, the court found the proposed injunction terms to be disproportionate and imprecisely drafted: they sought continent-wide territorial restraints, restraints on undefined categories of customers, suppliers and prospective customers, and prohibitions concerning employees when the companies had none. The six-month period claimed was not adequately evidenced; the court considered the companies had already benefited from undertakings for nearly two months and had had opportunity to recruit a replacement.
• The court therefore limited relief to (a) an injunction until 30 June 2020 restraining Kortan from assisting D2 in any business in competition with the companies as carried on while he was a director, and (b) injunctions until trial or further order to hold Kortan to his continuing statutory duties as a former director and to restrain him from encouraging members to seek subscription refunds or from maintaining online commentary about refunds. Undertakings offered could be given in place of these orders.

Wider context: The judgment emphasises that springboard relief must be tailored to restore competitive parity and not to punish, and that applicants bear the burden of demonstrating the precise nature and period of the unfair advantage they seek to neutralise. The court warned against boilerplate wide-ranging restraints and required evidence to justify the duration of any springboard injunction.

First-instance interim application allowed in part. The court found a serious question to be tried on breaches of statutory and fiduciary duties and wrongful conduct concerning the companies' database and encouragement of refund claims. It concluded that the claimed injunctions were too wide and disproportionate, and therefore granted narrower relief: a targeted injunction until 30 June 2020 restraining the first defendant from assisting the second defendant in competing with the companies as carried on while he was a director, and injunctions until trial or further order to hold the first defendant to his continuing statutory duties and to restrain him from encouraging members to seek subscription refunds or from maintaining online commentary on that topic. Continuing undertakings already given in relation to the database, passing off and trade marks were to remain in force and could be formalised as undertakings in lieu of injunctions.