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The Court of Appeal dismissed an appeal against an interim springboard injunction, adopting the test set out in Lansing Linde v Kerr [1991] 1 WLR 251 and emphasising the importance of assessing the strength of the parties’ respective cases.

Secarma Limited and Secarma Group Limited (together “Secarma”) carry on a cyber-security company specialising in “penetration testing” and “red teaming”, which involves testing the security of IT systems by trying to hack them, using an in-house team of “pen testers” [4], [7]. Mr John Denneny and Mr Mark Rowe, Secarma’s founders, sold the business on 30 June 2016. UKFast.net Ltd (“UKFast.net”) acquired part of its share capital. Mr Denneny and Mr Rowe continued to be employed by and directors of Secarma [9].

Xcina Limited and Xcina Consulting Limited (together “Xcina”), the fourth and fifth appellants, also offer pen testing. Until the matters giving rise to the claim, Xcina did not do so in-house, but outsourced the work, principally to Secarma. Xcina is owned and indirectly controlled by Shearwater Group PLC, the third appellant. Mr Mark Childs, the second appellant, is the founder and managing director of Xcina Consulting Ltd [4-6].

By mid-November 2018, 28 employees had resigned from Secarma. The first appellant, Mr Forse, manager of a team of pen testers, left on 28 March 2018 and later joined Xcina. Mr Denneny resigned on 2 May 2018; Mr Harris, managing director, resigned on 13 June 2018; and Mr Rowe resigned on 23 July 2018 [14-15]. A Secarma pen tester, Mr Harcourt, disclosed that these individuals had exchanged WhatsApp messages within a group chat named the “Order of the Phoenix” [17], [42], planning a move of 21 Secarma employees to Xcina.

On 14 November 2018 Secarma and UKFast.net issued a claim form alleging conspiracy to injure by unlawful means [18]. Their case was that Mr Denneny, Mr Rowe and Mr Harris, while directors of Secarma and bound by restrictive covenants, unlawfully conspired with Mr Child and Mr Forse to poach Secarma’s employees, aiming to build up an in-house pen testing business in Xcina; and that Mr Denneny, Mr Rowe and Mr Harris used their knowledge of the employment terms of Secarma pen testers to assist Xcina to offer the same or more advantageous terms [16]. Secarma also applied for an interim springboard injunction, granted by Murray J on 30 November 2018 [1]. The Court summarised the order as prohibiting [26]:

“(1) the enticing away from Secarma of any person who was an employee…immediately prior to the application, (2) the provision by the individual defendants, other than Mr Child, of any pen testing or red teaming services to Xcina, (3) the provision of pen testing or red teaming services to Xcina by any person who is, or was at any time since 1 March 2018, a Secarma employee and who was a participant in the Order of the Phoenix group chat, or was scheduled to be targeted by Mr Harris and Mr Forse or had been encouraged or enticed by them or Mr Denneny or Mr Rowe to leave Secarma, (4) the defendants from soliciting or dealing with any present client of Secarma or anyone who had been a client in the 12 months preceding 13 November 2018, (5) Mr Denneny, Mr Rowe, Mr Harris and Mr Forse from carrying out pen testing or red teaming for a business competing with Secarma, (6) the corporate appellants and Mr Child from carrying on any pen testing or red teaming business competing with Secarma.”

The Court of Appeal’s analysis                                                                                                     

The Court set out the well-known American Cyanamid requirements for the grant of an interlocutory injunction at [28] ((i) Is there a serious issue to be tried? (ii) If so, would damages be an adequate remedy for a party injured by the court’s grant of, or its failure to grant, an injunction? (iii) If not, where does the balance of convenience lie?) The Court then noted that a springboard injunction “effectively delivers to the claimant, in advance of the trial, all or part of the substantive relief which the claimant seeks”; “operates in restraint of the defendant’s freedom to trade”; and “may also have consequences for the defendant as regards third parties” [34]. It concluded that, in the context of springboard injunctions, “save only where the time gap between the applications for interim relief and the trial is insignificant, the court should adopt the approach in Lansing Linde...The judge should assess and take into account the strength of each side’s case both as regards liability and also the length of time during which any unfair advantage from the springboard will continue” [34]. 

The Court - relying heavily on the WhatsApp conversations [42-45] - agreed with Murray J that there was a serious question to be tried, noting that the evidence “strongly supported the claim of unlawful means conspiracy” [47-49]. It also agreed that damages in Secarma’s favour would not be adequate, stating “It would be extremely difficult to calculate with any accuracy the loss sustained by Secarma by the business carried on by Xcina attributable to its unlawful springboard advantage. Damages for lost business...would presumably be assessed on the basis of loss of a chance, which is itself a very imprecise legal tool for determining recoverable loss” [51].

As to the balance of convenience, the appellants argued that: (1) the interim injunction was illegitimate because the move to Xcina could not be undone and so the injunction could never preserve or restore the status quo prior to the alleged unlawful act - rather, it should be limited to avoiding future loss; and (2) a springboard injunction should never be of a scope or length that punishes the defendant rather than preventing loss to the claimant [54]. The Court described the first as “quite plainly wrong”, noting that “the object of an interim springboard injunction is to preserve the status quo, in the sense of freezing until trial, the relevant business activity of the defendant” [55]. As to the second, the Court agreed, finding that the scope of the injunction was too wide in that it prevented (a) the corporate appellants from carrying on pen testing and red teaming by outsourcing (their existing business); (b) Mr Forse or Mr Child from carrying on any particular activity, as Mr Forse was not subject to covenants restricting his post-employment activities and there was no evidence that he had breached his employment obligations, and Mr Child was in his personal capacity never under director’s duties or contractual obligations to Secarma; (c) ex-Secarma employees from involvement in anything other than in-house pen testing and red teaming [68-69].

The judgment serves as a helpful reminder of the applicable principles and underlines the relevance of the strength of the parties’ cases to interim springboard injunctions.

The full judgment can be read here.

Clerks

Staff