Transparently Ltd v Growth Capital Ventures Ltd

[2022] EWHC 144 (TCC)

TL applied for a mandatory interim injunction requiring GCV to deliver up to TL software, source code and other documents required for completion of an IT platform developed by GCV. 

Delays occurred and a dispute arose. TL said that the software product delivered by GCV was incomplete, late, and defective. GCV disagreed. By notice dated 25 October 2021, TL terminated the SDA, alleging material breach of the contract, repeated breaches, or repudiation at common law. 

In its letter before action, TL estimated the costs of rectifying and completing the software at £340k. On the same day, but before receiving this letter, GCV disputed the allegations of breach made by TL and alleging breach of contract on the part of TL in failing to issue shares to GCV.  The letter noted that GCV were ready on completion to deliver the product, including all software, source code(s) and work in progress as well as assigning all IP rights and licences to TL.

With interim injunctions, the well-known test set in American Cyanamid v Ethicon Ltd [1975] AC 396, is applied. Is there a serious question to be tried? Would damages be an adequate remedy and, if not, where does the balance of convenience lie? 

In addition, as this was an application for a mandatory injunction, there was a further test as set out in Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 where the overriding consideration is which course is likely to involve the least risk of injustice if the claim turns out to be wrong. The court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage may well carry a greater risk of injustice if it turns out to have been wrongly made, than an order which merely prohibits action, thereby preserving the status quo. Therefore, a court can consider whether it has a high degree of assurance that the claimant will be able to establish this right at trial. That said, there may still be circumstances where the risk of injustice if an injunction is refused will outweigh the risk of injustice if it is granted.

The Judge felt that it was clear from the evidence before the court that there was a dispute about the value of the product delivered, responsibility for delays and defects in the software as well as the quantum of both claims. However, the court was not in a position to resolve any aspect of that dispute.

Whilst the claim for interim relief was for delivery up of the software, there was no pleaded case before the court setting out TL’s case that it had a contractual right to the software, prior to allotment and issue of certain shares to GCV. This was a problem for TL as the terms of the contractual arrangements contained a complete code in the event of termination, including any termination for breach on the part of GCV. Termination for any reason triggered a requirement for TL to allot and issue certain shares, at the agreed share price within ten days of termination. TL’s entitlement to delivery up of the software was subject to completion of this.  TL had not satisfied its own obligations on completion and was therefore, not entitled to delivery up of the software requested.

TL said that it was always contemplated that TL would end up with the intellectual property rights in the software. However, the contract made clear that for the intellectual property rights in the software to vest in TL, that vesting shall occur “immediately following the later of” acceptance or payment of the price agreed, including the equity consideration. Neither acceptance, nor payment of the equity consideration forming part of the sums due, had occurred. Therefore, the obligation to transfer intellectual property rights had not arisen.

TL had not identified an arguable case that it was entitled to delivery up of the software, Accordingly, the court did not have a high degree of assurance that TL would establish its right at trial.

Further, TL had not produced sufficient evidence to demonstrate that it was likely that damages would not be an adequate remedy if the injunction were refused, and TL succeeded at trial. 

TL asserted that it would not survive if the software, including source code, was not delivered to it now. There were cash flow forecasts showing limited cash reserves but no management accounts or other information showing that TL was insolvent. In fact, the estimates provided by TL in evidence showed that it could quantify its loss to support a claim for damages by way of compensation. 

Conversely, GCV would not be adequately compensated by an award of damages if an injunction were to be granted but then shown to be wrong. Although TL had offered the usual undertaking in damages, on its own evidence, it did not have funds to satisfy any such award. 

Finally, the balance of convenience lay in maintaining the status quo. TL had a simple solution if the court did not order delivery up as sought. It could allot and issue the shares to GCV in return for which it would obtain the software, code and documents that would allow it to raise further funds and complete what it anticipated would be a very profitable project.

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