Farnsworth v Lacy And Ors [2013] EWHC 3487 (Ch)

[2013] EWHC 3487 (Ch)Case No HC12C02438
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue The Rolls Building, 7 Rolls Buildings, Fetter LaneDate Monday, 10 th June 2013
London
EC4A 1NL
Before
MRS JUSTICE PROUDMAN
Between
F W FARNSWORTHClaimantLACY AND ORSDefendants
Digital Transcript of Wordwave International, a Merrill Corporation Company165 Fleet Street, 8th Floor, London, EC4A 2DYTel No: 020 7421 4046 Fax No: 020 7422 6134Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com(Official Shorthand Writers to the Court)
MR STUART BENZIE appeared for ClaimantMR JAMES LADDIE QC appeared for Defendants
Judgment Approved
[1]This is the claimant’s application for the court to commit the first and fourth defendants and to impose a fine on (and the application says: “...and/or sequestration of assets of”) the third defendant, for contempt of court constituted by specified breaches of an order made by Henderson J on or about 22nd June 2012 (“the Consent Order”).[2]The power of the court to commit for contempt is the court’s ultimate weapon in securing compliance with its orders. However, as it is a powerful one which can deprive the subject of his liberty, it must be exercised only where the court is sure that the alleged contemnor is in breach of an unambiguous order.[3]The burden of proof is on the claimants to establish the contempt and the standard of proof is the criminal standard. In other words the claimants have to satisfy me so that I am sure that the alleged contempts have been established. In the time honoured phrase, the matter must be beyond reasonable doubt. So if I conclude that the respondents’ explanations might be true I must accept them. In this case the relevant defendants, who are represented by solicitors and counsel, admit breaches of the Consent Order.[4]The first claimant is generally known as Hollands Foods. Its particular speciality for present purposes is pies. The second claimant is its holding company. The first and second defendants were employed by the claimants and the fourth defendant had been so employed, but at the material time was the managing director (and co-owner of the shares) of the third defendant, which is alleged to be a competitor of the claimants. The first and second defendants resigned from the claimants having been in contact with the fourth defendant. The first defendant is now no longer with the third defendant and does not now work in pies at all.[5]The matter has perhaps an unhappy history. In the action the claimant alleges that the first and second defendants while in the employ of the claimants, covertly and as part of a conspiracy with the third and fourth defendants and others copied and passed on sensitive documentation, including recipes used by the first claimant in its business, pricing information for the group and technical information relating to processes used by the first claimant.[6]I should say and make it absolutely plain that I make no findings whatsoever in relation to the matters in issue in the action. I am not in a position to do so and that is not part of my function today. Today I am looking solely at the breach or breaches of the consent order.[7]The claimants made a without notice application to Henderson J on 18th June 2012 and obtained an order on that day restraining the defendants from dealing with the claimants’ confidential information pending a return date of 26th June. The order also contained orders about the provision of information which are not strictly relevant to today’s application.[8]Prior to the return date, 20th June 2012, the claimants made a further application, this time on notice, seeking, among other things, to enforce a restrictive covenant in the first defendant’s contract of employment. There was at that time a question whether that covenant in the contract was binding on the first defendant. Subsequently, on 16th October 2012, Hildyard J decided as a preliminary issue that it was so binding, including that the restrictive covenant was a part of the contract that was binding on the first defendant.[9]On 22nd June 2012 the parties agreed an order continuing the original order and annexing a schedule of agreed terms pending a return date to which I will return hereafter. The schedule refers to the Consent Order itself as being made on 22nd June, but it seems to my mind clearly to be dated 27th June (and not sealed until 9th July) and the defendants’ counsel in his skeleton argument said, apparently by mistake, 25th June. At all events, by the Consent Order the first defendant agreed as a new term contained in paragraph 5 of the schedule that “until the Return Date”:
“5.1 The first defendant will not work either directly or indirectly for any business which is engaged in any activity or business which is in competition with the claimants and in particular (but without limitation) will not work directly or indirectly for the third defendant. 5.2 The first defendant agrees to be bound by the terms of clause 15.4.1 of his employment contract dated 21st September 2009 [that is to say the restrictive covenant].”
I should say that the restrictive covenant expired sometime in December last and I am told that it is common ground that 5.1 of the consent order has also now expired.[10]The parties did not comply with the best practice suggested in paragraph 5.30 of the Chancery Guide for continuing an injunction, that is to say, setting out the whole of the order sought in a new document complete with penal notice, but instead, they adopted the second of the three possibilities, scheduling the original order to the new one. They agreed to continue the injunction subject to certain variations plus the new terms and the new order did not contain a penal notice. Penal Notice[11]It seems to me plain and beyond argument that the new terms were not subject to any penal notice. However if they constituted undertakings within CPR 81.9(2) they did not require one. CPR 81.9(1) provides that a judgment or order to do or not to do an act may not be enforced under Rule 81.4 (that is to say by committal) unless a warning (that is to say a penal notice) is prominently displayed on the front of the order. However, CPR 81.9(2) provides that an undertaking to do or not to do an act which is contained in a judgment or order may be enforced under Rule 81.4 notwithstanding the absence of a penal notice.[12]The context seems to suggest that an undertaking here means an undertaking to the court in lieu of an injunction: see the note at 81.9.1 and see volume 2 of the White Book at 3C-23 and Practice Direction 81 paragraph 2. I note that the Practice Direction (at paragraph 2.2) says that the court may decline to:(1) accept an undertaking and;(2) deal with disobedience in respect of an undertaking in contempt of court proceedings unless the party giving the undertaking has made a signed statement to the effect that the party understands the terms of the undertaking and the consequences of failure to comply with it. That must mean at the time the undertaking is given, because 2.3 goes on to say that: the statement may be endorsed on the order containing the undertaking or may be filed in a separate document such as a letter.[13]This part of the Practice Direction gives effect to the decision of the Court of Appeal in Hussain v. Hussain [1986] Fam 134 in which Neill LJ said:
“I have had the advantage of reading in draft the judgment of Sir John Donaldson MR. I agree with it. I only add a few words in order to make plain that in my view, where an undertaking has been given in lieu of an injunction the general practice to be adopted should be as follows: (1) The undertaking should be included as a recital or preamble in an order of the court. This should be done even where the substantive part of the order is merely “No Order”. (2) The order incorporating the undertaking should be issued and served on the person who has given the undertaking. (3) The order should be endorsed with a suitably worded notice explaining the consequences of the breach of the undertaking.”
[14](1) and (3) were not observed in this case even if, as I apprehend, the terms of paragraph 5 of the schedule are to be construed as an undertaking given to the court. The first and fourth defendants both used the expression “undertaking” in their affidavits, but I have felt some doubt whether there is an undertaking between the parties rather than undertaking to the court. The former would be a contract in the true sense and not an undertaking to the court at all. As the order is expressed to be by consent and contains an agreed schedule, it seems to me that there is no undertaking to the court, although, of course, 81.9(2) does not specifically require an undertaking to the court.[15]In any event I am, I understand, able to waive the requirements of CPR 81.9 (whether the requirements relating to an injunction or the requirements of the Practice Direction relating to undertakings) if I am satisfied that no injustice has been caused to the respondent. It is for the applicant to establish that.[16]In this context I take into account that, as in Serious Organised Crime Agency v. Hymans [2001] EWHC 3599 (QB) and I was also referred to the case of Prosser v. Prosser, the respondents admit under oath and through their counsel, Mr Laddie, that they well knew that they could be committed for contempt for disobedience. The order is the second in a series of related orders in which the former did contain a penal notice. The respondents received legal advice on Henderson J’s original order and also on the Consent Order. The lack of a penal notice is not relied on because the respondents accept that they knew the consequences of breach. Was the Consent Order an unambiguous one?[17]The second question is whether there was a clear breach of the Consent Order. Again, this is a point taken by the court not by the respondents, who admit and apologise for the contempt. They accept that they understood precisely what it was they had promised not to do. I have, however, to be satisfied that the Consent Order was unambiguous.[18]The relevant promise is given “Until the Return Date,” with a capital R and capital D, as though this is a defined term. The beginning of the schedule says that the schedule adopts the defined terms used in the Consent Order, but there is no definition of Return Date in the Consent Order or indeed in the schedule. There is one reference to a return date in the Consent Date, all in lower case, but that is in paragraph 5. It is not defined and cannot be what was meant. The original return date was 26th June, but again that is evidently not what was meant. I can infer that the promise is: until the hearing of the Claimants’ applications, to be adjourned until the first open date after 10th July 2012 with a time estimate of three hours, as mentioned in paragraph 1 of the Consent Order, although this refers to continuation of the injunction made by Henderson J which does not address the new terms at all. The respondents did so infer and this makes sense as the whole object of the Consent Order was to substitute the hearing of the applications as applications by order for the original return date.[19]Again, however, as I have said, the respondents admit breach of the Consent Order. Mr Laddie says that they knew that the Return Date meant the new return date when the claimants’ applications would be substantively heard as applications by order. I do not therefore find any relevant ambiguity. Breach[20]A person is guilty of contempt by breach of an order only if all the following factors are proved to the relevant standard:(a) having received notice of the order the contemnor did an act prohibited by the order or failed to do an act required by the order within the time set by the order;(b) he intended to do the act or failed to do the act as the case may be;(c) he had knowledge of all the facts which would make the carrying out of the prohibited act or the omission to do the required act a breach of the order. The act constituting the breach must be deliberate rather than merely inadvertent, but an intention to commit a breach is not necessary, although intention or lack of intention to flout the court’s order is relevant to penalty.[21]As Lawrence Collins J said in Crystalmews Limited v. Metterick and Ors [2006] EWHC 3087 (Ch at [8] and [9]:
“In contempt cases the object of the penalty is both to punish conduct in defiance of the court's order as well as serving a coercive function by holding out the threat of future punishment as a means of securing the protection which the injunction is primarily there to do... ...A committal order is appropriate where there is serious contumacious flouting of orders of the court...”
[22]In this case the breach of the Consent Order is constituted by the first defendant at the behest of the fourth defendant going to work for the third defendant.[23]The fourth defendant and the first defendant both admit in their evidence that they knew that if the first defendant went to work for the third defendant that would be a breach of the Consent Order, whatever the position turned out to be as to the application of the first defendant’s contract.[24]Neither seeks to excuse their behaviour, although both explain it. The sequence of events was, they say, as follows: the first defendant, who had started to work for the third defendant, was put on garden leave as a result of the Consent Order. However, at the end of June 2012 the third defendant failed an audit by the British Retail Consortium that had the effect of causing it to lose 95 per cent of its business. Closure of the business with attendant redundancies would inevitably occur if a re-audit on 23rd August was similarly unsuccessful. The fourth defendant found the sixth defendant in tears, or at any rate in a very shaky state, and he asked the first defendant, who was familiar with the process through his work for Hollands, to assist her to prepare for the re-audit in which they needed to obtain an A grade in order to make sure that the management system was ready for a Tesco approval audit, which is apparently a yet more stringent audit. The first defendant agreed to do so, although he says that as he had the Consent Order in mind, and had discussed it with the fourth defendant, this was with reluctance. He says he was concerned about his position with the third defendant if he refused.[25]The fourth defendant says that there was no one else available while the claimants say that he did not try and his allegation that it was necessary to bring in the first defendant to save the third defendant is a weak excuse. It is said that there was also a Tesco standard to be achieved, Tescos being a client of the claimants and that was admittedly not urgent. The fourth defendant apparently said to the sixth defendant that they were all being paid, they were all adults and they all needed to work. It is notable that none of the respondents explained their difficulties to the claimants, but deliberately determined to breach the Consent Order for pecuniary reasons. Again, they did not go back to court for a variation of the Consent Order. I appreciate that this would have been difficult, perhaps impossible, in relation to a consent order, but the lack of definition of “Return Date” could have been a peg on which to hang such an application. In any event it would have concentrated the minds of the claimants as to, for example, its possible liability under a cross-undertaking should the third defendant’s business go under.[26]The first defendant admits that he set up an email account using the name “Ant Smith,” which he operated from his parents’ computer. He says that this was because his own computer contained information confidential to the claimants and he was worried about further breaches of the Consent Order if he used it, but it is not clear why he needed an assumed name in order to avoid this. However I agree with Mr Laddie that concealment of the first defendant’s activities was not an independent breach of the Consent Order. It is rather one aspect, an aggravating aspect, of the breach constituted by the first defendant going to work for the third defendant in direct contravention of the Consent Order.[27]The first defendant says that at first he worked off-site for an average of five to six hours per week (no more than 190 in all) and that after a meeting on about 7th August he was on-site for 11 working days up to and including the date of the re- audit in August 2012. He says he felt pressured to do so as he understood that the site could close with the loss of 50 jobs. Thereafter he was again on garden leave but admits doing a very small amount of work, “to help close out the BRC corrective actions” and to answer “some questions on the HACCP system.” He refers to feeling uncomfortable about breaching the Consent Order and he says that the breach was discussed at meetings with the fourth defendant, which the fourth defendant also accepts. There is no doubt that the breaches were deliberate. Mitigation[28]The decision in Crystalmews Limited v. Metterick contains a check-list of matters the court should consider relating to sentence. This comprises:• whether the claimant is prejudiced by virtue of the contempt and whether the contempt is capable of remedy,• the extent to which the contemnor has acted under pressure,• whether the breach of the order was deliberate or unintentional,• the degree of culpability,• whether the contemnor was placed in breach by reason of the contempt,• whether the contemnor appreciated the seriousness of the breach,• whether the contemnor has cooperated. I would add to these factors the following:• whether the contemnor has admitted his contempt and has entered a guilty plea. By analogy with sentencing in criminal cases the earlier the admission the more credit the contemnor is entitled to be given,• whether the contemnor has made a sincere apology for his contempt,• the contemnor’s previous good character and antecedents, and• any other personal mitigation advanced on his behalf.[29]In the present context the following are relevant matters. The contempt is freely admitted and this is equivalent to a guilty plea. There is no equivalent of the various stages of a criminal trial, interview, PCMH etc. Mr Laddie says the breach has never been denied. Mr Benzie for the claimant says that there was no admission until last week and it was believed that Miss Kennedy would have to be cross-examined on her witness statement for the claimants, particularly as proceedings have now been discontinued against her.[30]All I can say is that the contempt is admitted and it has not been necessary to put Miss Kennedy through the cross-examination process. I note that both the first and fourth defendants now admit to false statements in their earlier witness statements, paragraphs 35 and 36 of the first defendant’s affidavit and paragraph 28 of the fourth defendant’s affidavit. One of the planks of the application that the first defendant be discharged from the restrictive covenant, and of the certification of the case as fit for vacation business, was that he was unable to work owing to the Consent Order. However, I also observe that I am not sentencing the respondents for any contempt other than that mentioned in the application notice.[31]There has been an apology and (as the claimants have declined to cross-examine on the issue) I accept the respondent’s contrition as being genuine. Both defendants appeared to appreciate the seriousness of the breaches and have cooperated in the committal proceedings by filling out the gaps in the evidence against them. They do not seek to take advantage of technical questions about penal notices or the definition of the return date and they have, as Mr Laddie put it, come clean about previous lies they have told. The penny has now dropped, to use the formula adopted in another case.[32]Mr Laddie submitted there has been no prejudice to the claimants from the breach. However, it seems to me that there is potential prejudice since it was the first defendant’s expertise, gained through working with the claimants, that he was admittedly using when working for the third defendant. The injunction was not against use of confidential information, but against working for the third defendant in any capacity. The first defendant was helping a competitor to trade, the very thing which the Consent Order was designed to prevent.[33]Mr Laddie says this is not prejudice since it has not been determined whether the restrictive covenant was breached. In other words, if no confidential information was used, no prejudice can have been suffered. I do not think this can be correct. Prejudice turns on the terms of the term breached, not on the issues in the action. However I accept that the latter may be relevant to the seriousness of the breach and to the question of prejudice. Again, there was no cross-examination on the respondent’s assertions that they did not use any confidential information and I therefore accept them. Deliberate Breach[34]It is admitted that the breaches were deliberate. They were also made very shortly after the Consent Order was entered into. Steps were also taken to conceal them. These are both aggravating factors. I should say that I accept, as I have already said, that there was no separate breach constituted by the use of an email address by the first defendant. Although a committal application which is wholly disproportionate to the breach should be dismissed with costs, these breaches were deliberate and contumelious. I do not accept Mr Laddie’s submission that they were at the lower end of the scale of seriousness on the basis that extremely unfortunate circumstances arose in the third defendant at the same time as the Court Order was entered into. It is true that the business, which had been founded as long ago as 1847, may have been facing its end, but it does not seem to me that this prevents the breach from being a contumelious one. Pressure[35]The first and fourth defendants both say they felt pressure to breach the consent order, because their family livelihood and 50 or so jobs were at stake. The first defendant sets out the following factors as those which motivated him:• the fact that he was being paid by the third defendant,• the fact that he had a long-term secure job with them, which was his only source of income,• he was facing a lengthy legal battle, which he could not afford to pay for and relied upon the backing of the third defendant,• he understood the difficult position of the third defendant regarding failing the audit,• part of the order containing the restriction was to be challenged,• there was no direction competition with the claimants in the work he was being asked to do as a discrete project,• he was going to be using publicly available documents not confidential information, and• the problems facing the third defendant were exceptional and he was the only person who could assist.[36]Mr Benzie says that pressure from the fourth defendant is an aggravating factor as far as he is concerned, but a mitigating factor for the first defendant. Nevertheless it seems to me that all the respondents are equally culpable in this respect.[37]The first and fourth defendants are men of good character, they are family men with personal and professional responsibilities and therefore, their good character is a matter which affects their credibility and the credibility of the statements they make in their witness statements. I also bear in mind that this is a first offence for them.[38]I have taken all these matters into account, bearing in mind at all times that the burden of proving relevant facts lies on the claimants and also bearing in mind the criminal standard of proof.[39]Mr Benzie says I should not suspend any custodial sentence that I am minded to impose on the basis that suspension is a matter which tends to arise in cases of freezing injunctions in order to enforce the court’s order so that the defendant does not again breach the order through disposing of his assets or failing to reveal his assets by giving information under the terms of the order. However, I note that in this case the terms of the Consent Order in relation to not working have come to an end through lapse of time and it seems to me this is also a relevant matter in the present circumstances.[40]So I now propose to pass sentence, so Mr Lacy and Mr Court-Johnston would you please stand, thank you. May I please ask which of you is which? MR LACY: Mr Lacy. MRS JUSTICE PROUDMAN: And you are Mr Court-Johnson. MR COURT-JOHNSTON: Mr Court-Johnston. 41. SENTENCE It appears to me that these breaches or this breach, constituted by Mr Lacy working for the third defendant, was so serious that only a custodial sentence is appropriate. The claimants are not vindictive and their primary goal is to ensure future good behaviour of the defendants. Mr Laddie has mitigated expertly. As far as the individual sentences are concerned, I pass a sentence of six months on each of the first and fourth defendants, that is six months imprisonment, but suspended for 18 months conditional upon compliance in the future with all court orders. What that means is that Mr Lacy and Mr Court-Johnston will not actually go to prison at the moment, although they will be brought back before the court in the event that there is non-compliance in the future, and the court may activate the existing sentence. As His Honour Judge Mackie QC said in the Adena case, the suspended sentence of imprisonment is not letting the respondents off. Sentences of suspended imprisonment are likely to be activated if there are any repeat offences. Thus, if either of you commit any further breaches of any orders of the court you face these consequences. First, you will be required to serve the sentence of imprisonment that has been suspended and secondly, you will be required to face whatever further penalties, if any, may be imposed for those further breaches of court orders. Do you understand? Thank you.[41]As to the third defendant, Mr Laddie has persuaded me that sequestration of assets are inappropriate in the present circumstances and I hope I am not misrepresenting Mr Benzie if I say that I think he accepted this. Mr Laddie referred me to IRC v. Hoogstraten (the [1985] 1QB proceedings against Mr Hoogstraten) and I have also been referred to Companaia Sud Americana de Vapores SA v. Hin-Pro Logistics International Limited [2013] EWHC 98 (Comm). Instead, I propose to impose a fine upon the third defendant. I bear in mind that to some extent the fourth defendant and the third defendant have common cause in these proceedings and propose to impose a fine of £15,000 on the third defendant. (END OF SENTENCING REMARKS)

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