Employees and/or consultants leaving a job or engagement and taking company confidential information with them, perhaps either as a head-start in a new business venture, or to make them more employable when job hunting, is a fairly regular occurrence.
In these instances, legal remedies to ensure the safe return of the information can range from a strongly worded letter to more significant court action. Generally, the more sensitive or confidential the information is, then the more likely it is that court action may be required.
If the information misappropriated is highly confidential, and perhaps contains financial information, customer lists or company trade secrets, this could require a fairly significant legal effort to recover it. In Scotland, the most effective remedy in these circumstances, is often to seek an order under section 1 of the Administration of Justice (Scotland) Act 1972. Such orders (the Scottish equivalent of English “search and seizure” orders) allow a party to enter into a home, office or other space to recover and preserve evidence. Such evidence might include documents and information saved on electronic devices such as phones, laptops, tablets and those stored electronically in the “cloud”. The rationale behind seeking such an order is that the information is so highly sensitive that there is a chance it may be destroyed or otherwise hidden in advance of a full court action being raised. Therefore, there is a requirement for the evidence to be preserved in advance of those full proceedings being commenced.
Generally, owing to the lack of widescale disclosure obligations in Scotland which are present in other jurisdictions (for example England and the US), such orders are more regularly granted in Scotland than they might be in other countries.
A recent case heard in the Court of Session has raised some interesting points as to when such orders might be granted, the form of any kind of “dawn raid” search and what ought to happen to the information once it has been recovered.
Facts of the case
Briefly, former employees (“ Matheson ” and “ McIntosh ”) of a financial planning and investment company (“ TIHL ”) were alleged to have misappropriated TIHL’s confidential information. As a result, TIHL successfully obtained section 1 orders for the retrieval of the materials taken by both former employees. It was alleged that Matheson and McIntosh had, or were in the process of, establishing their own business which was intended to compete with TIHL.
On 24 June 2022, section 1 searches took place at the homes of the respondents Matheson and McIntosh, to seize materials relevant to the section 1 order. As is standard practice, the Commissioner for each search (normally a KC or at least relatively senior advocate) provided a report on the findings of the search to the court.
On 30 June 2022, the Commissioner for the McIntosh search provided a revised version of the report to both the court and TIHL’s solicitors, noting the results of an initial professional examination of McIntosh’s personal device which suggested the presence of information relevant to the court order.
Thereafter on 11 September 2022, the IT expert reported on findings from investigations on electronic devices seized in both searches to the Commissioners. On 12 September 2022, the Commissioner for the McIntosh search provided a revised report containing the IT experts’ findings to both the court and TIHL’s solicitors.
Having consulted with counsel, TIHL’s solicitors proceeded to disclose the information contained in the reports to TIHL, without having obtained the court’s authorisation allowing them to do so, and proceeded to raise an action as contemplated in the section 1 petition.
The improperly disclosed findings were subsequently used: to carry out internal investigation by TIHL into Matheson’s and McIntosh’s conduct as employees, whereby both were dismissed; (ii) in Matheson’s appeal for dismissal to the Employment Tribunal; and (iii) in the disciplinary action by the Financial Conduction Authority for both Matheson and McIntosh.
Main findings of the case
Attendance of solicitors during “Dawn Raid”
In this case, the Court clarified that the sole purpose of permitting the attendance of the petitioner’s representative (solicitor) at a section 1 search is to provide the Commissioner with more specialised knowledge of whether a particular item being examined by the Commissioner falls within the scope of the court order and should be seized. The court further explained that the petitioner’s solicitor should not routinely be shown items that the Commissioner is considering seizing and that they should not under any circumstances be shown items that the Commissioner has already decided to seize. Notably, the Court discussed that in the past, it may have “been too ready to authorise the attendance of petitioner’s representatives [at section 1 searches] and should in the future require a clear demonstration that specialised knowledge may be required, and can be provided by such a representative, before such authorisation is given.”
Having been involved in a number of these types of procedures, I found these comments very interesting. It goes without saying that these cases can be challenging, not least because one may be entering people’s homes where children and other family members may be present. Often, emotions are running high and, in my experience, the most effective section 1 order searches are those carried out as quickly and calmly as possible.
Whilst I do think it is important that solicitors acting for the petitioner are present and on hand to assist in case urgent instructions are required, I have generally taken the view that very little good comes from being physically present in the premises whilst searches are carried out. Being a short distance away and being contactable by phone is often more than sufficient. In my view, it would still be necessary and important to include the relevant solicitor(s) on the order, so that they can enter the premises if absolutely necessary.
Role of IT forensic experts
Similarly, the Court discussed the rationale for authorising the attendance of IT specialists at section 1 searches. In this case, the Court clarified that the IT specialist may be present for the purpose of assisting the Commissioner in examining or carrying out “on the spot” forensic imaging of, electronic devices or data storage facilities for materials relevant to the court order. Notably, the Court considered that if no on the spot examination is required, and devices are simply seized and taken away for later analysis, then it would be difficult to see how the attendance of IT specialists during the section 1 search was justified. The Court’s consideration of the topic extended to how the cost of a section 1 search “particularly if swollen by the attendance of unnecessary personnel, can easily become an instrument of oppression in the underlying dispute.” In considering the attendance of IT specialists moving forward, the Court stated that this “is something in relation to which the court may need to develop a more robust attitude than has to date been apparent.”
These days, almost all cases of these type will involve the taking possession of, and/or carrying out a forensic mirror image of, electronic devices. Often the search will also require accessing individual’s cloud-based storage accounts to change passwords.
In these circumstances, it is very important, in my opinion, that the court continues to allow forensic experts, or at least someone proficient with IT issues, to be present and assist when carrying out the search. In my view, it is neither fair nor reasonable to expect a Commissioner (who although may well be a very experienced KC) to have all the necessary IT skills and competencies to ensure the search and recovery of confidential information is carried out across complex IT systems.
Again, an important objective of these kinds of operations should be to get out of the premises as quickly as possible (whilst of course making sure the search is completed properly and thoroughly). Having IT experts on hand can only assist with that. In the cases I have been involved in, the IT experts were often of paramount importance in ensuring the smooth running of the search. It is also very important to note that often you cannot be sure what IT assistance will be required until the search is actually carried out. If the IT forensic personnel are not listed in the order, they will not be authorised to be present during the search. So again, best practice would be to have those personnel listed so that they can be on hand to assist, if necessary.
Use of Information post “Dawn Raid”
In summarising the stream of errors in this case, the Court acknowledged that as “so many of those involved in the process apparently did not understand its basic principles suggests the existence of a systemic misunderstanding of the court’s procedures which is deeply concerning.” In this case, the IT report should not have been provided by the Commissioner to TIHL’s solicitor; it should have been provided only to the Court. Once provided to the Court, the solicitor should have then enrolled a motion for disclosure of the expert’s IT report, whereby Matheson and McIntosh would have had the opportunity to object. The Court stressed that this was a serious procedural error on the part of the Commissioners, and one which TIHL’s legal representatives should have recognised.
This can often be an area where solicitors come undone. An absolutely fundamental tenet of these types of cases is that once the search has been carried out and devices and have been mirrored and returned to Court, nothing can be done without the Court’s authority.
Ultimately, it is the role of the Commissioner to ensure that the authority of the court order is not exceeded and therefore one would normally expect the Commissioner to take control of ensuring the reports and devices/recoveries are lodged in court and any confidentiality concerns are respected. Again, in any of these actions where I have been involved, the Commissioner has taken a fairly robust approach and in any dispute between the parties on information being shared or returned to either party, made clear that a further court order would be required before he or she could assist.
This case is a useful reminder on how searches under Section 1 of the Administration of Justice (Scotland) Act should be carried out. They can be logistically very challenging as well as being high-pressured environments to work and provide advice in.
Understanding what can and cannot be done and what requires the Court’s authority is absolutely crucial. Whilst it is right that the Court seeks to keep those attending such section 1 searches under review, in my view it is also important that the Court does not take too restrictive an approach so as to make the successful commission of a section 1 search more difficult that it needs to be.
The Scottish IP Disputes team at CMS are very experienced in dealing with these kinds of cases. Please get in touch if you would like to know more.
Article co-authored by Alanna Fockler, Trainee Solicitor at CMS Glasgow.