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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> United Pan-Europe Communications N.V v Deutsche Bank AG [2000] EWCA Civ 166 (19 May 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/166.html
Cite as: [2000] EWCA Civ 166

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Case No: 2000/0420/A3

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION MR. JUSTICE JACOB
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday 19th May 2000

B e f o r e :
LORD JUSTICE MORRITT
LORD JUSTICE WARD
and
MR JUSTICE CHARLES


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UNITED PAN-EUROPE COMMUNICATIONS N.V.

Claimant/
Appellant


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DEUTSCHE BANK AG

Defendant/
Respondent


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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Mr John Brisby QC, Mr Stephen Smith QC and Mr Robert Miles (instructed by Rowe & Maw London, EC4V 6HD for the Appellant)
The Lord Grabiner QC and Mr Richard Handyside (instructed by Freshfields London, EC4Y 1HS for the Respondent)
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Judgment
As Approved by the Court
Crown Copyright ©


LORD JUSTICE MORRITT:
Introduction


1. United Pan-Europe Holdings NV ("UPC") was incorporated in the Netherlands and is the second largest private supplier of cable communications in Europe. Deutsche Bank AG ("DB") was incorporated in Germany and is a well-known bank with an international business as such. TeleColumbus GmbH ("TC") was also incorporated in Germany and carried on business there providing what is called level 4 cable services, that is local loop provision to individual premises of the services ultimately provided by the level 1 operators such as TV broadcasters.
2. On 26th May 1999 the offer of DB for the issued share capital of TC was accepted by the owners thereof in preference to the joint bid of UPC and PrimaCom AG ("PrimaCom"). The sale was duly completed on 30th July 1999 on terms which precluded DB from reselling the shares in TC before 27th March 2000. On 6th August 1999 these proceedings were instituted by UPC claiming, amongst other relief, a declaration that subject to reimbursement of the price paid and other expenses involved in the purchase thereof DB holds the shares in TC on a constructive trust for UPC. The foundation for this claim is the allegation that the conduct of DB in bidding for, and acquiring the shares in, TC constituted a breach of the fiduciary duty of loyalty owed by DB to UPC arising from earlier commercial dealings between them and the misuse of confidential information provided by UPC to DB in the course of those dealings. The proceedings, including amended points of claim, were duly served on DB in November 1999. DB served points of defence in January 2000.
3. In March 2000 it came to the attention of UPC that DB was proposing to dispose of the shares in TC. On 17th March 2000 UPC sought and obtained an interim injunction on an application made to Park J on 18th March without notice to DB. That injunction was continued by Neuberger J on 27th March 2000. On 19th April 2000 Jacob J gave directions for a speedy trial which, it is hoped, will come on this autumn, but discharged the injunction. His reasons for discharging the injunction were that there was no serious issue to be tried in relation to (1) breach of confidence, or (2) breach of the alleged fiduciary duty of loyalty such as to give rise to (3) a proprietary remedy. Though those conclusions were sufficient to dispose of the application to him he dealt with the factors indicated by American Cyanamid as those to be considered in deciding whether or not to grant an interim injunction in cases in which a serious issue to be tried has been shown. In that connection he concluded that (4) damages would not be an adequate remedy to either party, (5) the preservation of the status quo would indicate the need for an interim injunction, (6) the case for DB was relatively stronger than that for UPC and that (7) UPC had not been guilty of any such delay as would preclude the grant of the interim relief sought.
4. By this appeal UPC challenges the judge's conclusions on issues (1) to (3), and, consequently, (6). DB cross-appeals against the judge's conclusions on issues (4), (5) and (7). I will, in due course, deal with the issues in the order in which I have described them. But before doing so it is necessary to set out the facts in more detail.
The facts


5. Cable communication involves the transmission of, say, a TV programme from the central broadcaster to the individual receiver in his home. Conventionally it is divided into four levels. Level 1 consists of the broadcaster and the supraregional section, level 2 the regional section, level 3 the local distribution network and level four the private distribution network including the ultimate subscriber connection. In Germany, unlike, for example, the United Kingdom, levels 3 and 4 tended to be owned and operated by different entities. Thus Deutsche Telekom owned and controlled most of the level 3 distribution network but there was a large number of professional and non-professional distributors at level 4. When it became apparent, in the mid-1990s, that Deutsche Telekom was to dispose of its cable assets in implementation of the policy of deregulation of the industry generally (operative from January 1998) there was obvious scope for restructuring the German cable communication industry by the combination of, at least, levels 3 and 4 to form an area network.
6. It is also necessary to have some understanding of what is known as "broadband". Broadband involves the integration of cable, internet and telephony through the same cable, whether fibre-optic or coaxial. At present the principal technological development in cable services is the introduction of digital broadband services. The introduction of such services, though well advanced in the US and the UK, is thought by both DB and UPC to be lagging behind in Germany.
7. Thus the acquisition of the cable assets of Deutsche Telekom would enable not only the formation of area networks by the combination of levels 3 and 4 but also the introduction of broadband, particularly digital broadband services. TC was the second largest level 4 operator in Germany and well placed to benefit from the disposal of Deutsche Telekom's level 3 operations. The development and exploitation of broadband services is the core business of UPC. Thus the introduction of digital broadband in Germany would be of particular interest to UPC.
8. The commercial relationship between UPC and DB started in September 1997. On 8th October 1997 a Senior Reducing Revolving Credit Facility was granted to UPC by a consortium of banks. The facility amounted to NLG 1.100m. of which the commitment of DB was NLG 60m. Such facility remained in force until refinanced in July 1999. The terms of the facility, which was granted amongst other reasons to finance further acquisitions, required UPC and its subsidiaries to provide to the lenders substantial financial and other information on a regular, that is to say quarterly or monthly, basis and precluded them, without the consent of the lenders from creating incumbrances, issuing shares or acquiring any other business, in each case, without the consent of two-thirds of the lenders by value. DB amounted to 8% of such value. A breach of any of those stipulations constituted an event of default. In connection with that facility UPC provided to DB a document dated September 1997 and entitled "Confidential Information Memorandum" in exchange for an undertaking to keep it confidential. The undertaking bound DB to keep confidential all the information disclosed save such parts of it as it might be able to show was already known to DB, was generally available to the public or was received by DB from some other source entitled to communicate it. Subsequently, DB received from UPC, against a confidentiality undertaking in the same terms as before, a "Waiver and Amendment Request" dated December 1998.
9. In June 1998 DB produced to UPC a document entitled "Expertise in Telecommunications - Structured Finance" in which it proclaimed its expertise in the European Telecommunications sector. Contemporaneously with production of the document Mr Frank Pont, a director of DB's investment banking division and the head of its telecoms department, and others both over the telephone and at "roadshows" emphasised that DB would be able to help UPC gain a substantial foothold in the telecommunications market in Germany. The document was produced and the representations made in connection with DB's attempt, which was successful, to secure inclusion in the group underwriting UPC's Initial Public Offer which was made in February 1999. In connection with those "roadshows" UPC provided DB, in exchange for a confidentiality undertaking in the same terms as before, with a document dated 18th June 1998 entitled "Blueprint for Success" relating to its long term business plans and strategy. In addition UPC provided further information to DB in response to a questionnaire sent by Mr Pont to UPC on 9th June 1998.
10. DB participated in two further syndicated loans to UPC. The first, arranged by DB, was effected on 7th October 1998 and was a loan to UPC of DM 65.6m, of which DB and a subsidiary provided DM 32.8m to be applied in the acquisition of Telekabel Hungary NV. The second was made in March 1999 and was a loan of Euro 340m to NV Telekabel, a subsidiary of UPC, for the purpose of refinancing the acquisition of a larger stake in its subsidiaries. In connection with the first such loan UPC provided to DB, against a confidentiality undertaking in the same terms as before, an "Information Package" dated October 1998. In connection with the second UPC, on the same terms as to confidentiality as before, provided DB with a substantial Information Memorandum dated March 1999. Both documents contained detailed financial and other information.
11. As I have indicated the attempt of DB to be included in the group of underwriters of the Initial Public Offer was successful, though DB did not succeed in being appointed a global co-ordinator. Nevertheless it was provided with a revised version, dated 2nd December 1998, of "Blueprint for Success" on the same terms as to confidentiality as before.
12. UPC claims that at about this time, namely December 1998/January 1999, Mr Schneider, the chairman and CEO of UPC, informed Mr Flaherty, director of DB's Structured Finance, Telecoms and Media Division, of the interest of UPC in acquiring TC. Contemporaneously therewith DB, without the knowledge of UPC, began or continued to negotiate with the owners of the shares in TC to buy them for itself. Mr Pont was involved in advising the relevant vehicle of DB, namely DB Investor, with regard to its proposed investments in the cable communications industry in Germany. Originally DB Investor was a division of DB. With effect from 1st January 1999 it was demerged and became a separate company. At one stage UPC applied to join DB Investor as the second defendant but that application was rendered unnecessary when it became clear that DB itself had acquired TC.
13. UPC's Initial Public Offer was successfully completed on 12th February 1999. The prospectus issued in connection with it indicated that the capital thereby raised would be used to fund future acquisitions and that such acquisitions might be made in Germany. Between then and 26th May there were a number of meetings and other communications between the parties to which some reference should be made but not, I think, in as much detail as will be necessary at the trial.
14. At a meeting held on 16th February 1999 Mr Pont and Mr Castritius, a director of DB Investor, told Mr Oakes and Mr Riordan, the executive vice-president, representing UPC that DB was interested in acquiring the cable assets of Deutsche Telekom and wanted UPC to join them as a partner in the venture as the majority owner and strategic operator for cable and internet services. This was confirmed by a letter from Mr Castritius to Mr Riordan dated 26th February in which he described UPC as
"an excellent partner due to your achievements in other European markets, your proven skills in introducing new services to cable customers and your long term view on developing a pan-European cable operation."
In a letter dated 1st March Mr Riordan expressed his delight that DB had decided to become the facilitator and moderator of the restructuring process of the cable industry in Germany. He also confirmed the willingness of UPC to enter into negotiations with DB to define the co-operation and strategy for the acquisition of the cable business of Deutsche Telekom.
15. There was a further meeting on 10th March of, amongst others, Mr Riordan, Mr Pont, Mr Castritius and Mr Pfeil, the head of the investment division of DB Investor. At this meeting Mr Pfeil indicated that DB wished to enter the German cable market not merely as an investor but as a strategic operator and wished to acquire both the cable assets of Deutsche Telekom and the shares in TC. Pfeil indicated that DB considered itself to be free to choose whatever partner in the enterprise it thought fit and that it was not considering UPC except in relation to the cable and internet segments of the business.
16. UPC was unhappy at this change of attitude in DB. Its representatives discussed the matter with Mr Schneider and with Mr Castritius on the telephone. When it was suggested to Mr Castritius that it was not open to DB, as the banker of UPC, to bid for the shares in TC in competition with its customer Mr Castritius indicated that DB could bid for what it wanted and implied that UPC would be shut out of the German market unless it accepted DB's terms for its participation. Following the conversation on 25th March Mr Castritius and Mr Pfeil wrote to Mr Schneider what has been described as a confrontational letter. They claimed that instead of entering into constructive discussions with DB UPC had threatened them
"that UPC might reconsider its relationship with [DB] if we don't give UPC operational control in a consortium. In addition we were asked not to pursue negotiations regarding a potential acquisition of [TC] or other German level 4 operators. We have to admit that your colleagues' approach to an entry into the German market and especially towards [DB] is quite irritating and will eventually prove not to be very successful. We shall therefore pursue our discussions with [the owner of the shares in TC] and other strategic partners."
A copy of the letter from Messrs Castritius and Pfeil was sent to Mr Flaherty. He wrote to Mr Schneider on 1st April. He pointed out that he and his investment banking colleagues had not been consulted before the letter had been sent and that he thought it to be "inappropriate and unconstructive" and that it should not have been sent. He emphasised the UPC was "a valued and important client of this bank" that its representatives had all been "professional, proactive, cordial and friendly". He expressed his belief that both DB Investor and UPC could each benefit from working together in the German venture and proposed a meeting to clear the air.
17. UPC alleges that at about the same time as the letter from Mr Flaherty was sent there was a telephone conversation between him and Mr Schneider in which Mr Flaherty assured Mr Schneider that DB would not compete against UPC in the acquisition of TC. UPC also alleges that at about the same time Mr Flaherty spoke to two other representatives of UPC and apologised for the actions of Messrs Castritius and Pfeil.
18. On 15th April UPC was informed by Lehman Brothers, then acting for the owners of the share capital in TC, that its preliminary bid submitted on 13th April had been accepted as entitling it to participate in the second round of bidding. UPC was told that there were five or fewer bidders so admitted but not who they were.
19. In late April and early May there were discussions between Mr Bracken, the Managing Director of UPC in respect of Strategy, Acquisitions and Corporate Development, and Mr Castritius with regard to the possibility of a joint bid for the shares in TC. Mr Castritius continued to take the line that DB would be the majority shareholder and would admit UPC to participation only on its own terms.
20. On 17th and 18th May both DB and UPC discussed with PrimaCom, a German company already active in the German telecommunications market known to be interested in bidding for TC, the possibility of a tripartite bid. On the latter day Mr Bracken reiterated to Mr Castritius his view that DB could not properly compete against UPC. Mr Castritius responded by reasserting that DB could do as it pleased.
21. On 20th May Mr Schneider wrote to Mr Flaherty complaining in trenchant terms about the conduct of his colleagues. He complained at the threat of DB to bid against UPC, asked him to set up a meeting with senior management of DB and to inform him by Monday 24th May what the intentions of DB were. UPC alleges but DB denies that in a telephone conversation held on 20th May Mr Flaherty told Mr Schneider that he agreed that DB could not properly bid against UPC.
22. On Friday 21st May Messrs Schneider, Bracken and Riordan for UPC met Messrs Flaherty and Clempson (the new head of investment banking at DB). UPC alleges but DB denies that Mr Clempson agreed with Mr Schneider that DB could not properly bid for TC against UPC. But on 24th May Mr Clempson telephoned Mr Schneider to tell him that Mr Pfeil would not change his approach. DB alleges that Mr Schneider then threatened to apply for an injunction.
23. The deadline for the second round of bidding for TC was the afternoon of 26th May. UPC asserts that shortly before the deadline it entered into a joint bidding agreement with PrimaCom for the latter company to bid for itself and UPC jointly on terms that if the bid was successful then the business of TC would be carved up between them on an agreed basis. DB suggests that UPC's claim to be a party to such an agreement is false. I am not prepared to proceed on that basis. Whilst no confirmatory document has been produced both Mr Thomason, the chief finance officer of PrimaCom, and Mr Curran, the managing director of Donaldson, Lufkin and Jenrette then financial advisers to UPC have spoken in their respective witness statements as to the existence of a joint bidding agreement. In the case of the latter he has explained in some detail how he sought to clarify in advance with Lehman Brothers that such a joint bid would be acceptable, though, it is fair to add, the bid submitted by PrimaCom made no reference to it being made on behalf of both UPC and PrimaCom.


24. On the evening of 26th May it was announced that the bid for TC submitted by DB had been accepted by the owners of the shares in TC. The response of UPC was immediate. Its US attorneys wrote the same day to Mr Pfeil complaining that the conduct of DB necessarily involved the misuse by DB of confidential information it had obtained from UPC in connection with the Senior Reducing Revolving Credit Facility and the Initial Public Offer. Mr Scheider wrote to Dr Breuer of DB complaining that DB's intention to enter the German cable market as a direct competitor of UPC was, in view of the relationship between DB and UPC, unacceptable and a violation of the Bank's contractual obligations as well as the applicable securities and trade secrets law.
25. UPC also sought to persuade the owners of the shares in TC to accept its bid for TC at a price of at least DM 100m more than DB had offered. That offer, made in a letter from Mr Schneider dated 28th May, was rejected on 7th June. The response of DB to the letter from the US Attorneys for UPC was contained in a letter dated 15th June from Dr Schroeder of the DB Legal Department. He maintained that "no confidential information could have been known to the bidding division's employees, as [DB] maintains effective "Chinese Walls" erected for just that purpose". UPC places some reliance on the fact that the assertion was not pursued by DB in its defence. Indeed, DB admits it to be incorrect.
26. The sale of TC to DB was completed on 30th July 1999. DB accepts, though it was not known to UPC at the time, that one of the terms of the sale precluded DB from any resale before 27th March 2000. These proceedings were commenced by the issue of a claim form by UPC on 6th August 1999 which, together with the Points of Claim duly verified by Mr Bracken as the managing director of Stategy, Acquisitions and Corporate Development of UPC, were sent to DB on an informal basis for consideration in the without prejudice discussions which then ensued. The discussions were not successful and the claim form and amended Points of Claim were served on 11th November 1999. An appearance was duly entered by DB. It is common ground that this court has jurisdiction pursuant to Art.18 Brussels Convention and it has not been suggested that English law is not the law to be applied to this case. Further without prejudice discussions occurred between January and March 2000, but again without success. The evidence of UPC, to which no objection was taken, includes reference to the parties' contemplation of a transfer of TC to UPC on terms.
27. On 1st March 2000 DB invited UPC to participate in an auction for TC. UPC refused to do so. On 6th March Mr Castritius told UPC that the bidding papers had been sent out. One set was received by UPC and returned to DB. Further negotiations for resolving the impasse took place but did not succeed and the application for an injunction was made to Park J on 17th March.
28. The position of DB at that time, according to Mr Castritius, was as set out in a letter to an interested party dated 8th March 2000. TC would be sold to a new joint venture company in which DB would hold 49% and the other joint venturer 51%. The other joint venturer would have operational control of TC. The joint venture was required to provide a means for DB to be paid out in cash so as to sever its connection in the period between 1st January 2001 and 31st December 2003. It is not suggested that there has been any change in the position of DB since then.

Confidential Information


29. UPC's claim based on confidential information is set out in paragraphs 22 - 32 of its amended points of claim. Particulars of the written confidential information relied on are set out in the schedule to the Amended Points of Claim and comprise the Confidential Information Memorandum dated September 1997, the Information Package dated October 1998, the Information Memorandum dated March 1999, the Blueprint for Success dated 18th September 1998 and as revised in December 1998 and the Waiver and Amendment Request dated December 1998 to which I have referred in paragraphs 8 - 11 above. Reliance is also placed on the obligation of UPC to provide further information on a regular basis pursuant to the terms of the various facilities to which DB was a party. The six paragraphs in the Schedule to the Amended Points of Claim also describe the nature of the information in the specified documents. I would refer by way of example to paragraph 1 which, in relation to the Confidential Information Memorandum, describes the confidential information as including

"..detailed financial projections....regarding cash flows, capital expenditure, revenues and returns on capital from that time to approximately 10 years in the future, both consolidated and divided into business sectors and geographic market sectors... its general stategy for growth, its pricing structure, its mergers and acquisitions strategy, its technical strategy, marketing strategy and financing strategy."
Similar descriptions are given in relation to each of the other documents relied on.
30. The claim advanced in paragraph 32 of the Amended Points of Claim is that such information would give the reader
"the benefit of knowing the assumptions under which UPC was operating, as well as UPC's assessment of the correct emphasis to place on the video, voice and internet components in order to achieve the maximum synergy in those three areas of operation. In addition the reader would have the benefit of knowing UPC's strategy for growth."
It is claimed that such information
"would be of great value to a competitor of UPC who intended to venture into the integrated telecommunications business in Europe and who intended to anticipate strategic steps being planned by UPC."
31. Jacob J considered that this claim, described as counsel's second string, was not seriously arguable. He said, in paragraph 10,
"I do not propose to say much about the second string. On the materials before me it snaps for a variety of reasons. Firstly although the Particulars of Claim in an annex identify by cross-reference material said to contain confidential information of a financial nature (some parts of which are now in the public domain), I actually have little idea what that information is. The reason proffered for not putting the material in evidence - that it might be made public in the litigation - is woeful: the courts have long been able to prevent confidential information placed before it from escaping. Secondly there is no evidence that DB misused that information. Mr Brisby invited me to infer that they must have done. But I do not see how they can have done. After all the complaint is about DB bidding for TeleColumbus. The best one could surmise is that on the basis of slightly stale financial information DB could work out what UPC's bid might be and overtop it. Even that piece of pure speculation breaks down given the fact that UPC did not themselves make a bid. Instead a bid was made by another company, Primacom. UPC had a back-to-back arrangement with this company: should it be successful then assets of TeleColumbus (unspecified but over 50%) would be assigned to UPC. The addition of Primacom to the equation means that whatever DB knew about UPC's finances hardly helps in knowing what might be bid by Primacom."

Counsel for DB sought to uphold this conclusion by reference to the dictum of Laddie J in Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289 at p.360 as to the importance of giving proper particulars of information alleged to be confidential lest the ability of the defendant to defend himself is compromised.
32. Counsel for UPC criticised the judge's conclusion and his reasons for reaching it. The issue is an important one for, as will be seen, it coloured the judge's approach to the other string to UPC's claim, namely breach of a fiduciary duty of loyalty. For my part I do not agree with the judge or with any of his three reasons.
33. The Amended Points of Claim properly specify the documentary sources of the confidential information relied on. In paragraph 29 above I have set out, by way of example, the way in which the information alleged to be confidential is identified. DB has each of the documents in its possession and can see for itself what UPC is referring to and could, if it had wished to do so, itself have put the documents in evidence on a confidential basis. I agree with the judge's criticism of the reason given by UPC for not adducing the documents in evidence but I do not accept that that is any reason to reject the allegation that the documents contain confidential information of the description alleged. It is to be noted that DB gave confidentiality undertakings in respect of each document which cover all the contents except those which DB can establish to fall within the three excepted categories. In its defence (paras 32 and 33) DB denies that the information contained in the documents related to the cable market in Germany or were relevant to the acquisition of TC by DB Investor but not the confidential nature of the information as such, save insofar as it was subsequently made public. In paragraph 34 DB indicates that it will seek further information as to the confidential information referred to and at that stage no doubt there will be argument based on the dictum of Laddie J to which I have referred. But at this stage I do not think that the court would be entitled to reject the claim of UPC on the grounds that the information had not been alleged with sufficient clarity or was not, at least arguably, confidential. Accordingly I would reject the judge's first reason.
34. The judge declined to infer that DB must have misused that information on the basis that the most which could be inferred was that DB might have been able to work out what UPC's bid might be and overtop it. But this is to ignore the allegations contained in the Amended Points of Claim I have quoted in paragraphs 29 and 30 above. For my part I can well understand how knowledge of the details relating to a substantial broadband cable operator carrying on business in many European countries of the type described could well be advantageous to one seeking to enter the market for the first time. The fact that the information did not relate to TC or the German market appears to me to take too narrow a view of the potential use of information of the type relied on. Further, to suggest that the information was slightly stale appears to overlook the fact that much of it was updated to December 1998 at just the time DB was entering into or continuing negotiations with the owners of TC. Given a fiduciary duty the onus was on DB to prove that it has not used confidential information in this case. Erlanger v New Sombrero Phosphate Co. (1878) LR 3 AC 1218, 1230.
35. The third reason relied on by the judge was that the bid was made by PrimaCom not UPC so that any information DB had concerning the finances of UPC would have been irrelevant. Again I think that the judge took far too narrow a view of the uses to which information of the type relied on by UPC may be put. The fact is that there is at least an arguable case that UPC was a joint bidder and that the value of the information was not restricted to what UPC's bid might be but extended to the wider considerations referred to in the Amended Points of Claim and paragraph 30 above.
36. For all these reasons I consider that UPC has a seriously arguable case that DB did obtain confidential information from UPC relevant to its decision to enter the cable market in Germany as both an investor and strategic operator in general and to its decision to bid for and subsequently acquire the entire share capital in TC. It is on this basis that I turn to the other claim, namely breach of a fiduciary duty of loyalty.

Fiduciary duty of loyalty


37. The fiduciary duty is alleged to have arisen from the key banking relationship formerly existing between UPC and DB, the mutual trust and confidence without which it could not properly operate and the requirement duly performed that UPC pass to DB confidential information of the type referred to on a regular basis. The Amended Points of Claim also allege a contractual duty and a duty to the like effect to be implied from established banking practice in both England and Germany. Before us no reliance was placed on the contractual duty as it would not give rise to the proprietary remedy sought. We have not seen any evidence of banking practice. Accordingly the existence of the duty alleged must arise, if at all, from the three factors to which I have already referred.
38. Both parties agreed that the relevant law was to be found in the judgment of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch.1 at p.18 (approved by the Privy Council in Arklow Investments v Maclean [2000] 1 WLR 594):

"A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p.2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary".
39. In this respect Jacob J considered (paragraph 17) that:
"In Arklow, because the defendants had not undertaken the job, it was held that they had never become fiduciaries. [Counsel for UPC] submitted that the facts of this case were otherwise because DB had undertaken tasks for UPC Thus the law did make them fiduciaries. As I have said I am not convinced that the present evidence would justify such a conclusion in relation to anything to do with TeleColumbus. No doubt DB would be fiduciaries in relation to the matters undertaken. What is really at stake here is the width of those fiduciary obligations and, in particular, whether they extend well beyond those tasks. As I say that will involve a fuller investigation of those tasks and of banking practice."
40. In this passage the judge recognises, and I agree, that DB was under some fiduciary duty to UPC the scope of which could only be determined at the trial. A similar problem arose in N.Z.Netherlands Society v Kuys [1973] 1 WLR 1126. The question was whether the conduct complained of came within the scope of the defendant's fiduciary duty as an officer of the Society. At p. 1130 Lord Wilberforce noted that a person in the position of Kuys might be in a fiduciary position quoad a part of his activities and not quoad other parts "each transaction or group of transactions must be looked at". He approved as a principle of general application the statement of Dixon J in Birtchnell v Equity Trustees, Executors and Agency Co. Ltd (1929) 42 CLR 384 at p.408 that:
"The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties...but also from the course of dealing actually pursued by the firm."
41. As I understood him counsel for DB did not disagree. He accepted that, for example, having lent money to UPC for the acquisition by UPC of Telekabel NV DB was precluded from then bidding for Telekabel NV in competition with UPC. Thus the issue is not the existence of the fiduciary duty but of its scope. That issue is one that is largely dependent on the facts and cannot be resolved at this stage. Accordingly in my view the court must approach this application on the footing that there is a seriously arguable case for breach of fiduciary duty as well as misuse of confidential information.

Proprietary Remedy


42. In relation to misuse of confidential information the judge accepted, relying on Lac Minerals v International Corona (1989) 61 DLR 14, that in a proper case a constructive trust might be imposed by the court on the recipient of property derived from the misuse of it as a remedy for that misuse. But he went on to observe (paragraph 11) that:
"..even then, as it seems to me, it would have to be shown not merely that there was a breach of confidence but that that breach was central to the acquisition made. Otherwise the remedy would be wholly disproportionate to the offence."
43. I do not agree that the breach of confidence must be central to the acquisition made. In my view relevance should be enough leaving it to the court to determine in the exercise of its discretion the nature of the remedy to impose. However it seems to me that the real reason for this observation is the judge's view that by its nature the information alleged to be confidential could only be relevant to the size of the bid UPC was likely to make for TC. If, as I believe, the scope of the confidentiality and relevance of the information is much wider then it would be seriously arguable at the trial that the remedy of a constructive trust should be imposed on DB in respect of all the shares in TC.
44. The judge dealt with the question of remedy also in connection with the alleged breach of fiduciary duty of loyalty. He accepted that a fiduciary will be required to disgorge any profit made in breach of his duty. This is plainly established by the cases to which he referred, namely Keech v Sandford (1726) Sel. Cas. Ch 61; Regal (Hastings) v Gulliver [1942] 1 AER 378; Phipps v Boardman [1967] AC 46 and A-G for Hong Kong v Reid [1994] 1 AC 324. But he added the qualification that such profit must have come to the fiduciary "by virtue of his position". In this connection he drew attention to the passage in the advice of the Privy Council in Arklow Investments v Maclean [2000] 1 WLR 594, 598 where it was observed that
[The duty of loyalty] "encaptures a situation where one person is in a relationship with another which gives rise to legitimate expectation, which equity will recognise, that the fiduciary will not utilise his or her position [emphasis added by Jacob J] in such a way which is adverse to the interests of the principal."
45. Jacob J considered that the acquisition of TC by DB owed nothing to its position vis-à-vis UPC for there is nothing to suggest that if DB had never acted for UPC it would not have bid for TC in just the way it did. He concluded (paragraph 20)
"I do not think the law goes as far as [Counsel for UPC] contends. If there was a duty not to compete, then I do not think a mere breach of the duty creates a constructive trust of anything and everything acquired in breach of the duty In this regard the position is the same as if there had been an express contractual obligation not to compete. Breach of that would sound in damages but no more. I do not see why equity should impose a property right by way of a constructive trust. It is one thing to impose a property right over property itself built on or acquired by virtue of trust property or trust information. It is quite another to create such a right with no foundation. Equity might require the fiduciary to account personally for any profit he has made by acting contrary to the interests of his principal but that is not relevant to what I have to decide: only a full proprietary claim will justify an injunction here I therefore hold that there is no arguable case for a constructive trust."
46. For UPC it is contended that the judge adopted an erroneous approach. First, it is not a requirement for the imposition of a proprietary remedy that the profit should have been obtained by the fiduciary "by virtue of his position". Second, the purpose of imposing a proprietary remedy is not to compensate the beneficiary but to ensure that the fiduciary does not profit from his breach of duty.
47. For my part I think that there is substance in both submissions. If there is a fiduciary duty of loyalty and if the conduct complained of falls within the scope of that fiduciary duty as indicated by Lord Wilberforce in N.Z.Netherlands Society v Kuys [1973] 1 WLR 1126 then I see no justification for any further requirement that the profit shall have been obtained by the fiduciary "by virtue of his position". Such a condition suggests an element of causation which neither principle nor the authorities require. Likewise it is not in doubt that the object of the equitable remedies of an account or the imposition of a constructive trust is to ensure that the defaulting fiduciary does not retain the profit; it is not to compensate the beneficiary for any loss. Accordingly comparison with the remedy in damages is unhelpful.
48. Initially counsel for DB sought to maintain that a proprietary remedy will only be granted where the applicant can trace into the property over which it is sought. Counsel did not persist in that submission and accepted that it would depend on all the circumstances of the case whether the remedy to be granted is proprietary or pecuniary only. In my view that concession is right. But the consequence is that in the light of my conclusions on misuse of confidential information and the extent of the fiduciary duty of loyalty there is a seriously arguable case on both grounds that UPC will be found at trial to be entitled to a proprietary remedy in respect of all the shares in TC. The circumstances of the case to be considered will include the nature, extent and terms of the agreement between UPC and PrimaCom on which the bid for the shares in TC was tendered by PrimaCom jointly on behalf of itself and UPC for the mere fact that it was a joint bid does not, in my view, of itself preclude proprietary relief.
Accordingly it is necessary to consider the proper application of the principles of American Cyanamid [1975] AC 396. to determine whether an interim injunction should be granted.
The adequacy of the remedy in damages


49. Strictly speaking UPC's remedy is for equitable compensation for the misuse of confidential information and breach of fiduciary duty. It contends that such compensation could never be assessed for much of the benefit to UPC which would be derived from the acquisition of TC would arise from the synergy arising out of integrating the business of UPC and one or more of the other level 3 or 4 operators it has or hopes to acquire. I have no hesitation in accepting this submission for it is substantially the same as that made by Mr Castritius on behalf of DB. Moreover I do not consider that the force of the point is lessened even if, as Jacob J thought, UPC's attitude is coloured by the apparent rise in value of TC from DM 1.5bn paid by DB to DM 5.5bn apparently available to DB on its sale. In my view it is plain that equitable compensation would not be an adequate remedy to UPC.
50. If an injunction is granted now but not continued at the trial, then DB will have its remedy under the cross-undertaking in damages for compensation for the loss caused by the grant of the interim injunction. Given that there will be a speedy trial of the action this autumn the effect of the interim injunction would be to delay by about 9 months the implementation of DB's plans for setting up the joint venture. The problem will be how to assess the loss (if any) sustained by DB in consequence of that delay. In view of the fact that DB was on the point of disposing of TC to the new joint venture company when enjoined on 17th March 2000 the computation of the value immediately available to DB but for the injunction may be difficult but not impossible. Indeed it has been quantified by Jacob J at DM 5.5bn. This is the sum which would be recoverable from UPC if TC subsequently became worthless. Plainly the value obtainable nine months later cannot, in the light of the volatility of the market, be assessed now. But I do not see why it should be impossible after the event to determine the value available to DB from TC at the time the interim injunction was discharged. The amount by which it falls short of DM 5.5bn, if that is the correct figure, would be the measure of DB's loss.
51. The main reason for seeking to estimate the quantum of loss now is to ascertain whether UPC would be able to pay it if it lost. The judge accepted that on the figures before him UPC could pay damages of as much as £1bn. The subsequent evidence suggests that it may now be a bit less and the extent of the liquidity of UPC is uncertain. But it is not apparent that UPC would be unable to pay proper compensation to DB if UPC lost. I do not go so far as to suggest that damages is a wholly adequate remedy to DB but I consider that the extent of the inadequacy is a great deal less in the case of DB than in the case of UPC.
Relative Strength of the Parties' cases


52. The judge considered that the relative strength of the parties' cases lay with DB. But this view was necessarily coloured by his decision that UPC did not have a seriously arguable claim at all. For my part I do not share that view because I consider that UPC does have a seriously arguable case on both grounds it seeks to establish. Success or failure on either of them will depend on the facts established at the trial. Given the nature of the claims and the complicated issues of fact which will arise I do not feel able to attribute any greater chance of success to one party when compared with those of the other.
Preservation of the status quo


53. The judge did not think that the question of whether or not to grant an interim injunction depended on what, on analysis, constituted the "status quo". I agree. Subject to the question of delay I would grant the interim injunction sought on the basis that UPC has a seriously arguable case for a proprietary remedy, its remedy in damages is inadequate (more so than in the case of DB) and that the shares in TC should be left where they now are to await the decision of the court to be given in about six months from now.
Delay


54. The defence of delay advanced by DB is directed to (a) the period between the time in February 1999 when UPC first became aware that DB was considering bidding for TC in competition with UPC and the acceptance of DB's bid on 26th May 1999, (b) the failure of UPC thereafter to seek an injunction restraining it from completing the sale on 30th July 1999 and (c) the period from completion on 30th July 1999 to the application to Park J on 17th March 2000. Counsel for DB relies on Re Jarvis (1958) 2 AER 336 as demonstrating that the right to a proprietary remedy may be lost through delay, particularly if the claim is to a hazardous business. He submitted that the delay was prejudicial to DB in that it had to lay out the money in the completion of the purchase of the shares and has been running the business at its risk at all times since.
55. The judge rejected these contentions. He held (paragraph 21)
"In none of the cases was the delay as short as it is here. Also it is right to bear in mind, as Mr Brisby contended, that UPC's case required to be put forward with care and detail. Nor is there any evidence that UPC were waiting to see which way the market went. Nor was there any prejudice to DB. They succeeded in their bid on or about the same day as they made their position clear to UPC and then proceeded to complete it shortly before the claim form was issued. I can find nothing which suggests that UPC should, if they otherwise have a proprietary claim, find that debarred here There is nothing in the delay point."
56. DB contends that the judge was wrong. Counsel for DB subjected the dealings between the parties which I have summarised in paragraphs 14 to 27 above to a minute analysis. He suggested that there were several occasions between 16th February and 26th May when UPC might have applied for injunctive relief to protect the confidentiality of the information it had given to DB and to enforce the fiduciary duty on which it now relies. Likewise he submitted that UPC could and should have sought to restrain completion of the sale to DB before it took place on 30th July 1999.
57. Like Jacob J I am unimpressed by these submissions. The initial discussions between DB and UPC were on the basis that the former was to be an investor whilst the latter would be the strategic operator on the basis, according to UPC, that DB would not compete with UPC. Negotiations continued on that footing until at least 10th March. It was only on receipt of the letter from Messrs Pfeil and Castritius dated 25th March that it was clear that, at least so far as the authors of the letter were concerned, the whole basis of the negotiations had changed in that DB was to be the strategic operator with UPC cast in a much more minor role. But thereafter UPC received the letters and, as they claim, oral assurances from Mr Flaherty and Mr Clempson. No doubt it must have been clear to UPC on or shortly after 15th April that DB had submitted a rival bid. But negotiations for a commercial solution continued until at least 20th May. Six days later the bid of DB was accepted by the owners of TC. I do not think that there is anything in the first period for which UPC can be justly criticised for delay.
58. With regard to the second period UPC was given to understand by one of the owners of TC that completion had taken place before the letter rejecting UPC's offer dated 11th June 1999. Moreover given the nature of the claim time was needed properly to formulate the claim. Given that throughout this period DB was contractually bound to complete the purchase I can see no prejudice to DB arising from the fact that UPC did not commence proceedings before 30th July 1999.
59. Much of the third period was taken up by without prejudice negotiations. UPC was given little notice of the impending sale. In any event there was no prejudice to DB. It was contractually precluded from reselling TC before 27th March 2000 and took no steps to obtain the speedy resolution of the dispute before that date. I agree with the judge that there was no delay such as to give rise to a defence to a proprietary remedy at trial or to an injunction at this stage.
Conclusion


60. For all these reasons I would allow this appeal, set aside paragraphs 1 and 2 of the order of Jacob J made on 19th April 2000 and, subject to further argument as to its form, grant an injunction in the form sought by the notice of appeal.
LORD JUSTICE WARD. I agree.
MR JUSTICE CHARLES. I also agree.
Order:

(1)
Claimant gets costs at first instance and of appeal. No immediate assessment

(2)
Leave to Appeal to House of Lords refused
(Order does not form part of the approved judgment)



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