Original URL: http://www.theregister.co.uk/2008/10/28/canavan_magical_marking_ruling/

IT contractor broke law in data raid on playground firm

Copyright and database laws violated

By OUT-LAW.COM

Posted in Law, 28th October 2008 11:58 GMT

An IT contractor who was part of a raid on a company, copied all of its electronic business records and locked staff out of computer systems, infringed copyright and database rights, the High Court has ruled.

But the man, who operated his own IT consultancy, should be indemnified for any damages by the ex-director of the company who had instructed him, the Court said.

Wayne Canavan was the owner and sole employee of NextGen Technical Services. In 2003 he was instructed by Sean Holly to accompany him to the premises of Magical Marking, of which Holly was a director.

Holly had fallen out with the founder of the company, Jean Phillis. Holly had started work as a consultant to Magical Marking some years earlier and had taken a 25 per cent share in the company in lieu of fees. The company painted patterns in children's playgrounds as play aids.

In the weeks leading up to the raid on the company's offices he had told Phillis that he wanted to be bought out of the firm.

Holly visited the company on 13th February 2003 with his solicitor, two security men and two IT experts. The visit was timed to occur when Phillis was on holiday in New Zealand and the other directors were conducting a board meeting whose purpose was to remove Holly as a director of the firm.

The High Court heard that the conduct of Holly's party was aggressive and intimidating, and that staff had been pressured into giving the group passwords for the company's IT systems. One witness who had served in the Territorial Army for 32 years said that he advised a colleague to give the group passwords because of threats of violence.

Canavan argued that he should not be held liable for the infringements of copyright, database and confidentiality laws because he was acting on Holly's instructions. Canavan said that he cannot be liable because he believed that Holly had the authority to issue such instructions.

Mr Justice Norris said that Holly did not have that authority and that Canavan could not have thought that the circumstances surrounding the copying of the information were normal. Canavan should have realised that Holly was acting in his own interests and not those of Magical Markings, he said.

Canavan had been suddenly summoned to a car park to carry out the actions, as had many others. This, at least, should have alerted him to the unusual nature of the assignment, the Court's ruling said.

"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."

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