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"Mr Canavan is not entitled to assert that he relied on the representations [that Holly had the authority to instruct on behalf of Magical Markings] where the representations were made in abnormal circumstances which should have put him on enquiry as to whether the transaction would bind Magical," said the ruling. "The suddenly-summoned meeting at the Ferrybridge service station. The presence of two large security guards. The dramatic takeover of the offices. The restrictions put on staff about making contact with the outside world. The intimidation necessary to persuade members of staff to disclose their passwords. The arrival of the police. The arrival of two persons [other Magical Markings directors] asserting that they were Directors of the company and evidently trying to find out what was going on and objecting to it."

"All of these indicators must (if Mr Canavan was genuinely relying on a representation by Mr Holly that he had the authority of Magical to commission the work) have raised in the mind of any reasonable IT consultant questions as to whether he was truly working for the company or was simply aiding Mr Holly in the prosecution of his personal claims against Magical," said the judge. "If you have a doubt about representations that have been made to you and that doubt is not objectively and reasonably quelled by the circumstances, you do not ask the representor or his agents to quell the doubt. If you do, you are not making a genuine enquiry to discover the truth: you are simply seeking reassurance from the original source of the representation. In my judgment that amounts to turning a blind eye to the difficulty. I find and hold that is what Mr Canavan did. He cannot therefore rely on any representations made by Mr Holly."

When at the offices of Magical Markings Canavan made a copy of all the electronic business records he could and gave them to Holly. He then changed the passwords on the system, effectively locking staff out of the company systems. Staff did not know what Canavan had done and could not find out until days later when the passwords were handed over.

The Court found that Canavan had "consistently lied as to what had actually occurred and as to his part in it".

He had claimed that he changed the passwords to protect the information, but Mr Justice Norris rejected that explanation.

"Before he left that evening Mr Canavan installed his own passwords on the work stations and on the server. His justification for doing so was that he found the system entirely insecure and as a competent IT professional who was hoping to engage Magical as a client he rendered their system secure," he said. "When he left the premises Mr Canavan had locked out all of the directors and staff of Magical (save Mr Holly) and rendered its business systems completely inoperable. His explanation was that he was hoping to be invited back the following day (and indeed had offered to attend) and to secure Magical as another client for NextGen. I find that explanation wholly incredible."

The Court found that by copying the material Canavan had infringed Magical Markings' copyright and database rights and that he had knowingly copied its confidential information. Canavan and his company were ordered to refrain from distributing that material and to hand it back to Magical Markings.

Mr Justice Norris said, though, that if Magical Markings pursues Canavan for damages, he should be indemnified by Holly because of the instructions he was given.

"I am in no real doubt that Mr Holly is the villain of the piece; Mr Canavan was his accomplice, but his wrongdoing was of a significantly different order," he said. "If Magical elects for damages or equitable compensation I consider it just and equitable (having regard to the extent of Mr Holly's responsibility for the damage in question) that Mr Holly should afford Mr Canavan and NextGen a complete indemnity."

Copyright © 2008, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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