LC Services Ltd & Ors v Brown & Ors [2003] EWHC 3024 (QB)

Case No HQ03X02614[2003] EWHC 3024 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 12/12/2003
Before
THE HONOURABLE MR JUSTICE STANLEY BURNTON
Between
L C SERVICES LIMITED (1)ClaimantsCOLIN BOOTMAN (2)ClaimantKEVIN WINGROVE (3)ClaimantANDREW BROWN (1)DefendantsKINESIS SOLUTIONS LIMITED (2)Defendant
Naomi Ellenbogen (instructed by Taylor Walton) for First ClaimantClaire Miskin (instructed by Neilson & Co) for DefendantsHearing Hearing dates: 18-21, 24, 25 November 2003
Judgment

Introduction

[1]This is my judgment on the issues of liability in the claims of the First Claimant (“LCS”) against the Defendants.

The parties

[2]The principal business of LCS is the servicing of laboratory high-pressure liquid chromatography, gas chromatography and mass spectrometry equipment. The equipment enables analysis of the precise composition of substances, including food, drink and drugs. LCS also acts as a distributor of equipment made by Knauer, one of the leading manufacturers. LCS’s customers include companies engaged in the pharmaceutical, food and beverage industries and institutions involved in environmental and educational activities.[3]The managing director and majority shareholder of LCS is Colin Bootman. Kevin Wingrove is the service director and a shareholder. Its sales manager is Nicholas Bayliss.[4]Until 27 June 2003, the First Defendant, Andrew Brown, was LCS’s sales director. He was also a shareholder. He had worked for LCS and Mr Bootman who, trading as LC Services, was its predecessor in business, since April 1996, if not before. Mr Brown’s departure from the company led to Mr Bayliss being promoted to the position of sales manager; he was until then simply a salesman.[5]Mr Brown entered into a service agreement with LCS dated 20 October 2000. On the same date he entered into a shareholders’ agreement with Mr Bootman and Mr Wingrove under which he and Mr Wingrove acquired a small percentage of the shares in the company from Mr Bootman, and it was agreed that Mr Brown and Mr Wingrove should be appointed directors of the company. They were so appointed. Mr Brown had consulted solicitors before he entered into these agreements.[6]Mr Brown is now an employee of Kinesis Solutions Ltd (“KSL”), the second defendant, as its sales manager. KSL was incorporated on 23 March 2003. It is a subsidiary or associated company of Kinesis Ltd. Kinesis Ltd carries on business as a supplier of parts for chromatography and spectrometry equipment such as that serviced by LCS, and has done so for some years. Until the events that are the subject of this litigation, the businesses of LCS and Kinesis Ltd were complementary, rather than competitive, and there was co-operation between them. KSL, however, is a direct competitor of LCS, carrying on the same kind of business.[7]The principal of Kinesis and of KSL is Jamie Gallifant. He is a director of both companies. Mr Kevin Donaldson is also a director of both companies; he is described as the managing director of Kinesis. It is Mr Gallifant who makes the significant decisions for both companies.[8]KSL has no premises separate from those of Kinesis. Its only employee is Mr Brown. It does not have its own database of customers. The engineers it instructs to carry out maintenance and repairs on customers’ equipment are employees of independent sub-contractors. Its only capital consists of a number of items of loan equipment that it provides to customers whose equipment has broken down until their own equipment has been repaired.

The claims in summary

[9]In summary, LCS claims that during the last period of his employment Mr Brown acted in breach of his service agreement and his fiduciary duties to it by seeking to procure business for KSL instead of for it, by passing over to Kinesis and KSL its confidential information held on its computer system concerning its customers, by removing from its offices documents containing its confidential information; and by using for the benefit of KSL its confidential information both before 27 June 2003 and afterwards; and by acting in breach of restrictive covenants in his service agreement following his departure on that date. LCS alleges that KSL was a knowing party to all of those wrongful acts of Mr Brown. LCS claims against Mr Brown damages for breach of his service agreement and of his equitable duties and damages for wrongful interference with its property; an account of profits, and injunctive relief to enforce the restrictive covenants in question and by way of springboard relief. Similar relief is sought against KSL, although, of course, in its case damages are sought for its inducement or procurement of breaches by Mr Brown of his service agreement.[10]The Defendants deny that they committed any wrong against LCS. In addition, they contend that the restrictive covenants on which LCS relies are unenforceable as being in unreasonable restraint of trade. There are also allegations that the Claimants are disbarred from relief by their inequitable conduct.

Evidence

[11]Evidence was given by Mr Bootman, Mr Bayliss, Mr Wingrove, Mr Brown, Mr Gallifant and Mr Donaldson. In addition, LCS adduced the expert evidence of Rick Yeomans on his findings from his examination of Mr Brown’s home computer and of the Kinesis Goldmine database.[12]I found all of the Claimants’ witnesses to be impressive and reliable. Their evidence was not shown to be significantly inconsistent with their witness statements or contemporaneous documents, and they made what could be seen as concessions to the Defendants’ case which I considered supportive of their (the witnesses’) credibility. So far as Mr Bayliss is concerned, I instance Dermal’s complaint concerning the flow cell (day 2 p 21) and his acceptance of Miss Miskin’s cross-examination concerning renewal quotations at day 2 p 23 ff..[13]Mr Brown was in some respects remarkably candid, as in his admitting that he had passed a copy of his service agreement to Mr Gallifant in the early part of this year, and his admission of his visit to Patheon. However, he was compelled to make admissions of deviousness and dishonesty, and of inconsistencies with his witness statement. To accept his evidence in its entirety would involve accepting incredible coincidences. Mr Gallifant similarly sought to explain such coincidences; and, as will be seen, he has had to admit to being a party to obvious breaches by Mr Brown of his duty of fidelity to LCS. Mr Gallifant is an intelligent businessman. I have no doubt that the actions of Mr Brown between March and the end of June 2003 to which I refer below were done with the agreement and encouragement of Mr Gallifant: I refer, by way of example, to Mr Brown’s visit to Britvic/Robinsons Soft Drinks on 11 March 2003 and to Mr Gallifant’s letters of 19 March to those companies.[14]Mr Donaldson is in my judgment a basically honest man who was however willing to do as instructed by Mr Gallifant (in effect, his employer) in relation to his evidence. By way of example, paragraph 10 of Mr Donaldson’s witness statement is almost entirely deliberately untrue exaggeration. Nothing has been disclosed to evidence the “enormous amount of preparatory work” for the launch of KSL to which he refers, apart from the ISO Accreditation certificate. Mr Donaldson had to accept that the period of “several years” to which he referred should have been 6 months to a year. Even so, I do not accept its truth. The penultimate sentence of paragraph 10 is similarly misleading: the Goldmine database did not include details of start dates of maintenance contracts. I do not believe that that paragraph would have appeared in Mr Donaldson’s witness statement without the knowledge and approval of Mr Gallifant.[15]Both LCS and the Defendants put in evidence written statements (in the form of letters) from third parties without calling their makers: i.e., hearsay. Sensibly, no objection was taken to the admission of those statements; the weight to be given to them is, of course, a matter for me.

Mr Brown’s Service Agreement

[16]By the service agreement, LCS appointed Mr Brown as director of the company. The agreement provided that his employment should continue until he attained the age of 60, unless previously terminated by notice in accordance with clause 3.1.1. Clause 3.1.2 was a “garden leave” clause, empowering the company to require Mr Brown not to attend at his place of work at any time during his notice period, with the proviso that he would nonetheless be entitled to receive full pay and other benefits during the period of garden leave. Under the agreement, Mr Brown expressly accepted that in the event of his being required to be on garden leave, he would not be permitted to work for any person, firm, client, corporation or on his own behalf without the company’s prior written consent.[17]The provisions of the agreement as to the duties of Mr Brown included express obligations on his part to:
“4.1.1 devote the whole of his time, attention and ability to the company, both during the normal business hours and during such additional hours (without further remuneration) as the company deems necessary for the proper fulfilment of his duties; 4.1.2 faithfully and diligently perform those duties and exercise such powers consistent with them which are from time to time assigned to or vested in him; 4.1.4 keep the Board promptly and fully informed (in writing if so requested) of his conduct of the business or affairs of the Company and its Group Companies and provide such explanations as the Board may require; 4.1.5 use his best endeavours to promote the interests of the Company and any Group Company.”
[18]Clause 6.1 of the agreement effectively required Mr Brown to work only for LCS; it is not relied upon by it in these proceedings.[19]The salary of Mr Brown under the agreement was £37,000 a year, subject to increase at the discretion of the company. In July 2002, Mr Brown’s salary was increased to £41,500 a year, together with pension contributions payable by LCS of 16% of his salary.[20]Clause 16.1, under the heading “Confidentiality and Statement”, was as follows:
“16.1 Without prejudice to the obligations of the Executive arising by law during the employment or at any time thereafter, the Executive shall not, except with the prior written authority of the Board or as required by law, use for his own purposes or disclose to any unauthorised third party and shall use his best endeavours to prevent the publication or disclosure of any information relating to the business, prospective business, technical products or processes, finances, designs, inventions, price lists or lists of customers and suppliers of the Company or any Group Company (both current and those who were customers or suppliers during the two years prior to commencement of Employment) which comes into his possession by virtue of the Employment, and which the company or any relevant Group Company regards, or could reasonably be expected to regard, as confidential.”
[21]The post-termination restrictions on Mr Brown were contained in clause 17. Clause 17.1 contained non-competition provisions, which the company does not seek to enforce, probably because they were expressed to apply within a “Prohibited Area” which was not defined. Clause 17.2, headed “Non-solicitation/Non-interference with Suppliers”, provided, so far as material:
“17.2. The Executive shall not for the period of twelve months after the termination either directly or indirectly and whether on his own behalf or on behalf of any other business, person, partnership, firm, company or other body which is wholly or partly in competition with any business carried on by the Company or any Group Company: 17.2.1 canvass, solicit or attempt to entice away or accept the custom or business of any customer or client (being any business, person, partnership, firm, company or other body for whom the Company or any relevant Group Company has provided goods or services) with whom the Executive has had business dealings on behalf of the Company or such company within the last twelve months of the employment; or 17.2.2 canvass, solicit or approach or caused to be canvassed, solicited or approached any person or persons who was or were negotiating with the Company or any relevant Group Company for the supply of services or goods by the Company or such company and with whom the Executive has had business dealings on behalf of the Company or such company within the last twelve months of the Employment; …”
[22]Clause 17.3 was as follows:
“The Parties agree that each of the covenants set out in Clauses 17.1 and 17.2 is separate and severable and (with particular regard to the Executive contacting many customers not more than once or twice in each calendar year) is considered by the Parties to be reasonable and necessary for the protection of the legitimate interests of the Company and any relevant Group Company in whose business the Executive shall from time to time be involved. However, if any such covenants shall be adjudged to be void or ineffective for whatever reason but would be adjudged to be valid and effective if it or another such covenant had been deleted in whole or in part then such covenant shall apply with such deletions as may be necessary to render it valid and effective.”
[23]Clause 19.4.2 required Mr Brown, on termination of his employment, immediately to deliver to the company all documents and computer material relating to its business.[24]The agreement contained a whole agreement clause (clause 26.1). Mr Brown’s service agreement did not refer to his shareholder’s agreement, signed on the same date. The shareholders agreement, however, did refer to his service agreement. Clause 13 of the shareholder’s agreement included provisions, purportedly aimed at protecting the good-will of LCS, prohibiting Mr Brown from being engaged in any competing business or soliciting the custom of customers of LCS while he was beneficially interested in any shares of the company or for a period of one year from the date on which he ceased to be so.

The business of LCS

[25]There are several thousand users of high-pressure liquid chromatography, gas chromatography and mass spectrometry equipment in this country. The estimates of the witnesses varied. Mr Brown initially put the figure at between 7,000 and 8,000, but then reduced it to a maximum of 2,000, I think on the basis that the higher figures relate to sites rather than separate companies. As will be seen, nothing turns on the precise figure.[26]In June 2003 LCS had approximately 110 maintenance contract customers, operating equipment at some 168 sites. The separate sites of the same company are often referred to as if they were separate customers, and were subject to separate maintenance contracts. Most of the equipment maintained by LCS was for liquid chromatography. The very great majority of maintenance contracts entered into by LCS with its customers are for a term of one year. Under the terms of its standard form of contract, the customer may terminate the contract at any time after the first service of his equipment, but they rarely do so (as to which see day 3 page 58).[27]It was Mr Brown’s responsibility to maintain contact with the company’s customers. He knew personally those responsible for the renewal of maintenance contracts and would visit them from time to time to maintain the relationship. As part of his job, he would ascertain whether customers were satisfied with the company’s services, and if not seek to deal with any complaints so as to retain the customer’s business if possible. The most important time to be in contact with a customer is the period before the renewal of his contract, for obvious reasons. His estimate was that during the last year of his employment he had direct dealings with 80 to 90 of the companies who were LCS’s customers.[28]The importance of the personal contact with customers was accepted by Mr Brown in evidence: see day 3 page 23: MR JUSTICE BURNTON: What about retention of existing business? A. Yes, my Lord, yes. That was done through the renewals. MISS ELLENBOGEN: And that was your role? A. It was, yes. MR JUSTICE BURNTON: Did that involve you speaking to people within the customer company? A. Yes, my Lord, yes. MISS ELLENBOGEN: On behalf of LCSL, for that purpose, you developed personal contacts within the client companies, the prospective client companies, did you not? A. I would say so, yes. I would put that as part of a good salesman job, to build up a good rapport with his customers. Q. You were particularly good at that? A. I would like to think so, yes. Q. You, for example, have forged and retained relationships with people such as Mr Sykes at Croda Colloids and Graham Logan at SSL? A. Yes, some I have had more contact with or I have had more meetings with than others. Q. And they knew you, and you were a name that meant something to them, and someone they trusted? A. I would hope so, yes. MISS ELLENBOGEN: And that was your role? salesman job, to build up a good rapport with his customers.

MISS ELLENBOGEN: And that was your role?

[29]See too day 3 pages 61 ff.. Croda Colloids and SSL were customers of LCS. See also day 3 pages 61 to 63 and day 3 p 108; and the reference to CNA, another customer, at day 3 page 80 of Mr Brown’s evidence: A. Yes, basically, CNA is a company that gives a lot of work to LCSL. LCSL actually do work on CNA's behalf, and I built up a rapport with Oliver at CNA. So I actually went out and had lunch with him over in Windsor.[30]Mr Bayliss was responsible for new business: approaching companies with a view to soliciting their business. Mr Brown was his line manager and supervised his work. During the last month of Mr Brown’s notice period, he and Mr Bayliss visited customers of LCS so that Mr Brown could introduce Mr Bayliss to them, in order to try to replace Mr Brown’s personal connection and to keep the business connection for the company.[31]The company’s information concerning its customers was held on its computer system. The company used the ACT! 2000 contact management computer program. Mr Bayliss was the administrator of the database. Details were recorded of the name of (and personal contact at) the customer, the specification of the equipment held by the customer, the servicing and maintenance requirements for its equipment, the level of any discount against the list prices of parts given by LCS, and the date upon which the existing maintenance contract would fall due for renewal.[32]There were also two red lever-arch files of Mr Brown kept in LCS’s offices in which documents relating to potential customers were kept, filed under the month preceding that in which their maintenance contracts (with other maintenance companies) fell due for renewal, with a view to their being approached at the appropriate time of the year in order to persuade them to enter into their next service contract with LCS.[33]The maintenance procedures of LCS for the various types of equipment it serviced had been written by Mr Wingrove, and developed over a number of years.

Kinesis

[34]Kinesis uses the Goldmine software program. It acquired it in about November 2002. Goldmine can access or be accessed by other programs on the database held on the computer system: in particular, it integrates with Quotewerks (sic) for the production of quotations. Kinesis had the names, addresses and telephone numbers of a large number of customers and potential customers on its database (Mr Donaldson gave as figures about 1,500 customers and, as I understand it, about 6,000 individual contacts), but at least at the end of June 2003 did not have the dates of expiry of their maintenance contracts or listings of their relevant equipment, or the names of the personal contact at the customer. Mr Brown has full access to the Goldmine database, as, obviously, did those officers or employees of Kinesis who might act on behalf of KSL.

Confidentiality of information

[35]Much of the information on LCS’s ACT! database could be obtained from other sources: from trade databases and from inquiry of the customer. Nonetheless, it cannot be seriously doubted that the contents of the database as a whole and of the red files were the company’s confidential information that it was entitled to protect; and that in any event it was Mr Brown’s duty, as a director of LCS, not to use the information on the database for the benefit of any competitor of the company or to communicate it to a competitor. Mr Brown said this (day 3 page 33): Q. The company had also collated information in relation to business which it had tried but so far failed to secure, but which it considered to be a business lead. So the idea would be that, if it had failed in year one to secure the business, it would make a note of the date when the renewal of the existing contract would fall due and target the same customer or prospective customer the following year with a view to taking the business? A. These were the leads in the red lever arch files, yes. Q. They were arranged in the lever arch files in accordance with the date upon which contact should be made with a view to gaining business? A. Generally, yes. As I said, from January to June, there was two, or January to June, June to July. So, sensibly, if a contract you knew was coming up with a manufacturer or whatever in March, you would contact them in February. So you would have a lead in February, my Lord. Q. For that purpose, you would revert to the lever arch files according to the month at which you were then looking at them and say, "I need to contact companies X, Y and Z with a view to gaining their business"? A. That is correct, yes. Q. All of this, the database, the maintenance procedures and the red lever arch files, were company property, were they not? A. They were indeed. Q. Your input in their collation or their revision at any time was on behalf of the company? A. It was, yes. Q. And you had no interest in accessing or using that material other than on behalf of the company? A. That is correct, my Lord, yes. Q. So, for example, whilst you were working as LCSL's sales director, if someone from, say, Jaytee Biosciences, a main competitor of LCSL, had approached you and said, "Could I have a copy of any of that documentation", you would not have given it to them, would you? A. No, I would not. Q. Why was that? A. Because that information was obviously built up for LCSL, although they may have that information because a lot of the customers were customers of many other companies within the industry, my Lord. Q. And because this was information which, if provided by you, would have been of great use to a competitor and enabled it to steal a march on LCSL's business? A. Possibly some of it, not all of it. I mean, the ACT! Database alone would give customer contact, but there was no pricing on the ACT! Database in any way, shape or form. Q. But there was an equipment list and there were renewal dates, were there not? A. There were, yes. MR JUSTICE BURNTON: And a contact? A. And a contact. MR JUSTICE BURNTON: So you would have known who to get in touch with and say, "You've got such and such equipment. We're doing a special deal on maintenance contracts"? A. Yes, my Lord, yes. MISS ELLENBOGEN: That, in turn, could enable that competitor to poach LCSL's business, could it not? A. I would say so, yes. Q. In short, revealing that sort of information to a competitor or prospective competitor on the market could wreak serious harm to LCSL's business, could it not? A. Um, it would have a detrimental effect, my Lord, yes. Q. That was something which you had, at all times during your employment, appreciated? A. Yes, my Lord. Q. Why was that? Q. But there was an equipment list and there were renewal dates, were there not?

Q. That was something which you had, at all times during your employment, appreciated?

[36]It is pertinent to compare Mr Gallifant’s attitude to Kinesis’s database of customers and potential customers: see day 4 page 121 line 14 ff.: he did “not want the disk containing the data to get into the wrong hands”.[37]The fact that some of the information on the LCS database was already known to Kinesis (as in about 10 instances where Kinesis had introduced the customer to LCS) does not detract from the fact that the database as a whole was and is confidential information of LCS. In any event, even if Kinesis knew the customer, it does not follow that they would have a listing of all his equipment or know the renewal date of his contract.

Relevant events

[38]According to Mr Brown, the first approach relating to his proposed employment with KSL occurred in about late October 2002. He, Mr Bootman and Mr Gallifant had dinner together. Mr Bootman left early and abruptly, apparently to go to a Guy Fawkes’ Night party. Mr Gallifant asked Mr Brown how he could bear to work for Mr Bootman. Mr Brown said that he was dissatisfied. That led to the proposal that Mr Brown should join Mr Gallifant. Mr Gallifant reluctantly accepted this account of the first approach. There is no reason to question it.[39]Mr Gallifant was well aware that Mr Brown was likely to have entered into a written service agreement with LCS which would contain undertakings which would restrict his ability to work for a competitor after the termination of his employment, and Mr Brown confirmed that that was the case. In about November, Mr Brown consulted solicitors who had been suggested by Kinesis about the terms of his service agreement with LCS, and in particular the post-competition restraints. At about the same time, Mr Brown gave Mr Gallifant a copy of his service agreement, and he too consulted solicitors. Mr Gallifant was from then on well aware of the restrictions contained in that agreement.[40]On 2 January 2003, details of some 112 companies who were customers of LCS companies were input into Kinesis’s Goldmine database by Jane Talbot, a computer consultant working for RD Associates (MK) Ltd, who provided services to Kinesis, and who was identified on the Kinesis computer as “Jane”. I refer to this below.[41]On 11 March 2003, Mr Brown and James Bull, a salesman employed by Kinesis, went to visit Colin Clarke of Robinson’s Soft Drinks Ltd and Jon Norton of Britvic Soft Drinks Ltd. Robinson’s and Britvic are associated companies with a common address. Both were important customers of LCS with current maintenance contracts. They had, however, expressed dissatisfaction with the services of LCS and indicated that on the expiry of their current contracts they intended to enter into new maintenance contracts elsewhere. Notwithstanding Britvic’s letter of 21 October 2003, I do not think that they had informed Mr Brown that they had already placed their maintenance contract elsewhere, since that is inconsistent with the events to which I shall refer and with Mr Brown’s evidence. According to Mr Brown, he arranged the visit with a view to seeking to retrieve the Britvic/Robinson’s contracts for LCS. I reject this: if this had been the purpose of the visit, there would have been no need to co-ordinate it with Mr Bull; nor would Mr Brown have represented himself as a representative of KSL, as Mr Gallifant’s letters of 19 March referred to below make clear that he must have done. Nor did the fact that it appeared that LCS had lost Britvic/Robinson as a customer justify Mr Brown’s conduct, which was an obvious breach of his contractual and equitable duties to LCS. Mr Brown did not inform anyone at LCS that he attended meetings with Britvic/Robinson in conjunction with a representative of Kinesis.[42]Following those visits, on 19 March 2003, Mr Gallifant sent letters to Mr Clarke and Mr Norton in identical terms enclosing proposals for maintenance support for their equipment. The letters read:
“Following your recent meeting with James Bull and our representative from Kinesis Solutions we would like to offer the enclosed maintenance support proposal for your consideration. As already discussed Kinesis Solutions (sic) aim is to deliver high quality support for your HPLC (ie, high pressure liquid chromatography) equipment encompassing customer choice and flexibility whilst working within budgetry constraints. We hope you find our quotation favourable and look forward to discussing our proposal in the near future.”
[43]As Mr Brown had to concede, the “representative from Kinesis Solutions” to whom the letters referred was Mr Brown. He had not yet submitted his notice to Mr Bootman.[44]It is quite obvious that the object of Mr Brown’s visit together with Mr Bull was to obtain the Britvic/Robinson’s contracts for KSL (which, incidentally, had not yet been incorporated). Both Mr Brown and Mr Gallifant were well aware that Mr Brown’s conduct was improper and in breach of his duty of loyalty to KSL. The fact that Mr Gallifant refrained from naming Mr Brown in his letters is indicative of the sensitivity with which he regarded the visit. Mr Gallifant sought to divert criticism of his letters by describing them as badly drafted, and suggesting that he intended Mr Bull to be described as the representative of KSL. I have no doubt that the letters stated what he intended them to state. Mr Gallifant’s letters referred to previous discussion of KSL’s “aim…to deliver high quality support…” That discussion must have been with Mr Brown. Mr Gallifant pretended that he had no intention of obtaining the Britvic/Robinson’s contracts, that he gave his quotations “Because they wanted some rough prices from us for sticking in their file”. I reject this as manifestly implausible.[45]When he wrote these letters, Mr Gallifant knew that Mr Brown had not yet given his notice to LCS. The quotation sent out by Mr Gallifant to Britvic followed the layout of LCS’s quotation of the previous year, which it undercut.[46]In evidence, Mr Brown stated that he was still in negotiations with Kinesis on 27 March, i.e. he had not yet agreed to go to them. The Britvic/Robinson’s visit is inconsistent with that evidence, and I reject it. Significantly, no document has been disclosed evidencing the terms of Mr Brown’s employment by KSL. The evidence does not establish from what date he began to be paid by KSL or Mr Gallifant.[47]On 27 March 2003, Mr Brown handed his resignation letter to Mr Bootman. His letter gave no reason for his resignation. It stated:
“With effect from today, Thursday 27th March 2003 I hearby resign my position within LC Services and give three months notice to leave as per my contract agreement, with my last working day to be Friday 27th June 2003. I would like to thank you for the last nine years and wish you and all LC Services staff every success in the future.”
[48]As can be seen, Mr Brown’s letter expressly envisaged that he would work out his notice. Mr Brown and Mr Bootman’s relationship went back some time. They were at the same school and went to the same engineering classes; Mr Bootman had been best man at Mr Brown’s wedding, and Mr Brown had been best man at Mr Bootman’s wedding. Mr Brown had not forewarned Mr Bootman that he might resign: as Mr Brown said, “I think it came as a shock to him”. Mr Brown said that Mr Bootman left him no choice but to work out his notice (day 3 p 109); but Mr Brown’s own letter, written when Mr Bootman did not know of his intentions, indicated he would do so.[49]Naturally, Mr Bootman inquired why Mr Brown was leaving. There is an issue on the evidence as to what Mr Brown said. On Mr Brown’s own evidence, he misled Mr Bootman:
“I basically said that I was considering all my options at that time.”
See day 3 page 66. That was misleading, and in my judgment deliberately so. Mr Brown had already committed himself to join Mr Gallifant. He was well aware that if Mr Bootman knew that he was going to join a competing business he would be put on garden leave. I find that he misled Mr Bootman in order to avoid being put on garden leave, so that he could, during the period of his notice, take steps for the benefit of KSL, himself and Mr Gallifant. Mr Brown was also concerned that Mr Bootman would want to enforce the post-competition restraints in his service agreement: that was another reason for him to dissemble about his intentions. Mr Brown said in evidence that he wanted to avoid a confrontation with Mr Bootman. I find that what he wanted to avoid was Mr Bootman’s enforcement of the rights of LCS.[50]In fact, I have no doubt that Mr Brown told Mr Bootman that he proposed going to Spain, where his in-laws had recently moved, and was to take some time off work. Mr Bootman’s account, contained in his first witness statement, is supported by Mr Dawson’s letter of 30 October 2003 and Mr Joslin’s fax of 30 October 2003. There is no reason for the authors of those documents to seek to mislead the court. In any event, I have no doubt that Mr Bootman would not have permitted Mr Brown to remain in service if he had known the truth. In my judgment, he was deliberately deceived.[51]Mr Gallifant was of course aware that Mr Brown gave his notice on 27 March and was to continue with LCS until 27 June.[52]On 27 May, Mr Brown together with Mr Gallifant visited a company called Patheon in order to advise it on the maintenance of its equipment. Patheon was not then a customer of LCS. Mr Brown said he did so as a consultant, giving objective advice. I do not accept this. He had already decided to join Kinesis, and his going in the company of Mr Gallifant speaks volumes. I find that he made this visit in order to obtain Patheon’s business for his new employer. Mr Gallifant admitted that he was aware that Mr Brown acted in breach of his duties to LCS in visiting Patheon with him: c.f. the denial in paragraph 2 of Mr Gallifant’s first witness statement.[53]The remains of an email to Richard Hartwick, of a company called Chemical Solutions, found by Mr Yeomans on Mr Brown’s computer, show, as Mr Brown accepted, that he had been in contact with that company on behalf of Kinesis or KSL on 17 June. Again, Mr Gallifant was well aware of this and its inconsistency with Mr Brown’s existing position with LCS.[54]An email dated 20 June 2003 recovered from Mr Brown’s computer shows he was doing work for Kinesis at that date.[55]It was the practice of LCS to send out invitations for the renewal of maintenance contracts enclosing quotations to customers during the first week of the month preceding the expiry of their contracts. Thus, renewal quotations should have been sent out by LCS during April, May and June 2003 for contracts expiring in June, July and August. It was Mr Brown’s responsibility to ensure that the renewal invitations and quotations were sent out.[56]Also on 20 June, Mr Bayliss, who had been promoted to sales manager with a view to his taking over Mr Brown’s responsibilities, asked Mr Brown what renewal quotations had been sent out for contracts due to be renewed at the beginning of August. Mr Brown told him which renewal quotations had been sent out and which not, by reference to a customer list. Mr Bayliss learnt that no quotations had been sent to 15 of the customers whose contracts expired at the beginning of July 2003. Those documents should have been sent out the first week of June. Mr Bayliss subsequently searched the ACT database, which confirmed that no renewal documents had been sent out to those customers. He also discovered that renewal documents had not been sent to Britvic or to Robinson’s. As a result of his contacting those companies, Mr Bayliss was informed by fax by Britvic that “LCS Services were advised in February that we had decided to use another supplier this year”. That information had been received by Mr Brown. No record of it was made.[57]Mr Brown did not go into the office between 25 and 27 June: as I understand it, he had holidays due.[58]On 27 June 2003, the last day of his employment with LCS, Mr Brown sent to Dermal Laboratories, a customer of LCS, a quotation from KSL. It referred to his “recent telephone conversation” with Mr Kane (spelt Caine) of Dermal. I infer that in that telephone conversation, which must have preceded the end of Mr Brown’s employment, Mr Brown sought to obtain the Dermal contract for KSL. Mr Brown contended that he drafted and signed his letter to Dermal after he had left LCS, i.e. after working hours on 27 June. Given that Mr Brown was at home that day, it is improbable that he waited until after office hours to go to Kinesis’s offices to produce the letter. The KSL quotation does not list Dermal’s equipment in the detail found in LCS’s quotation of the previous year. Mr Brown could have obtained details of the equipment from Mr Kane during the telephone call. However, Mr Kane stated in his fax of 27 August 2003 that to the best of his knowledge no equipment list was provided to Mr Brown before the quotation was received. Significantly, both the LCS ACT! database and Mr Brown’s letter mis-spell Mr Kane’s name “Caine”. Mr Brown was able to remember the equipment list in the witness box, but he could of course have learnt it for the purpose. I find that the information in the KSL quotation was derived from the ACT database: In any event, the submission of the quotation resulted from a telephone conversation that I find was a breach of Mr Brown’s duties to LCS.[59]On 30 June 2003, following his “recent” telephone conversation, Mr Brown sent a KSL quotation to Christine Pratt of AES, an LCS customer, whose contract was due for renewal on 1 August. According to her fax of 26 August 2003, when he telephoned her he asked her if AES’s equipment list had changed: i.e., he already had a list. Mr Brown accepted this. His evidence is that he had made a note of AES’s equipment before the telephone call, from memory. No such note has been disclosed. The equipment list is on the Kinesis database, shown as having been input on 2 January 2003. It is in a different order to the LCS database. Mr Brown was not clear as to the source of his list.[60]On 2 July, Mr Brown sent a quotation to Geoff Sykes of Croda Colloids, a customer of LCS whose contract was due for renewal on 1 July. His letter of that date referred to “our recent telephone conversation”; 2 July was the Wednesday following Friday 27 June. I infer that the telephone call was on Monday 30 June, i.e. immediately Mr Brown joined KSL. The quotation included a full listing of Croda’s equipment. According to Mr Sykes’ faxes, he did not provide an equipment list to Mr Brown, who during their telephone conversation said, “I do not need an equipment list, I already have it.” In evidence, Mr Brown accepted that the listings in the ACT! database and the KSL quotation were effectively the same. It is also the same listing as was found by Mr Yeomans in a segment on the hard disk of Mr Brown’s home computer, and which appears to be the residue of text after the deletion of the ACT! Data (or possibly a file with the LCS quotation for Croda). Mr Brown explained the similarities on the basis that they are in a logical order; he stated that he went through the equipment list with Mr Sykes on the telephone. I do not accept this evidence. I prefer Mr Sykes’ written statements. I find that Mr Brown had LCS’s equipment list available to him.[61]On 9 July 2003, Mr Brown visited Stephen Heald, of Zylepsis, another customer of LCS whose contract was due for renewal on 1 September. On the following day, he sent a KSL quotation to Mr Heald. It lists Zylepsis’ equipment, a total of 7 systems, each consisting of a detector, a pump and an injector or autosampler. Apart from the omission of the serial numbers of the components, it is in the same order and has, with immaterial differences (such as the description of an injector as a manual valve), the same content as LCS’s 2002 quotation. According to his letter of 11 August 2003, Mr Heald has no recollection of supplying an equipment list to Mr Brown. Kinesis’s Goldmine database, disclosed for the purposes of this litigation, does not include details of Zylepsis’ equipment. LCS’s ACT! database does, in the same order as appears on the quotations. It is evident that the KSL quotation has been taken from the LCS data: compare, for example, the listing of system 1 (detector, autosampler, pump) with the LCS listing of system 5 (autosampler, detector, pump) in both.[62]That is not to say that all of the quotations sent out by KSL to customers of LCS were simply taken from the latter’s database. For example, the quotation sent by KSL to Jane Clegg at SSL International plc included more systems than recorded on the LCS database, and I accept that Mr Brown must have obtained or supplemented the information he had as a result of his meeting with her. The extent of the use made of the LCS database by the Defendants is a matter that may be investigated at a later stage of these proceedings. In the case of York Bioanalytical Solutions, similarly, Mr Brown ascertained that they had acquired an additional CTC autosampler.[63]An informative schedule produced by Miss Ellenbogen shows that during the period immediately after 27 June, KSL was able to approach 18 of LCS’s customers whose contracts were approaching renewal. LCS contend that KSL was able to do so because it had access to its (LCS’s) confidential data. The Defendants suggest that Mr Brown was able to approach these companies because he remembered their renewal dates. In one or two cases that may be so; but having regard to my other findings, I accept the generality of LCS’s case on this issue. This does not mean that LCS lost any particular client as a result of the misuse of its confidential information: it might have lost the client in any event, and in some cases (such as Dermal and the University of Leeds Faculty of Biological Sciences) almost certainly would have done so. These are matters to be investigated if necessary at the trial of quantum.[64]In early August 2003, Mr Bayliss reviewed the red files referred to above. According to his evidence, he found that there were no documents in the files for the months of August to December 2002 or February to April 2003.[65]These proceedings were begun on 19 August 2003. On 2 September Mr Brown gave an undertaking in the terms of clause 17.2.1 of his service agreement.

The input of data into Kinesis’s Goldmine database on 2 January 2003

[66]LCS contends that Mr Brown had on his home computer its ACT! Database; and that its data was input into Kinesis’s Goldmine database on 2 January 2003. It points to the fact that information relating to 110 of its customers was input on that day, in a period of about 18 minutes. The shortness of this period means that the information must have been input automatically, i.e. from a floppy disk or other computerised source. The information could not have been input manually in that period. LCS points to the fact that 110 of the companies to whom the information related were its customers. Mr Brown and Mr Gallifant seek to explain this as coincidence. They suggest that the information came from their own source, namely information held by them on cards. I reject their explanation: the coincidence of 110 of LCS’s customers details being input is too great to be so explained, and there is a more credible explanation.[67]LCS contends that the information came from Mr Brown’s home computer. He said that he never successfully installed the database during his employment with LCS: that although he thought he had installed the ACT! 2000 programme, when he then uploaded the data from a floppy disk taken from an LCS office computer, he found that he had only “gibberish”.[68]When Mr Yeomans examined Mr Brown’s home computer, he found that the operating system had been changed or reinstalled on 1 October 2003, i.e., at a time when the Claimants were pursuing disclosure of documents by the Defendants. The change of the operating system would alter the contents of the hard drive and hinder attempts to investigate what data was on the computer at an earlier date.[69]There is an issue between Mr Bayliss and Mr Brown as to whether Mr Brown told Mr Bayliss that he never succeeded in installing the LCS data onto his home computer. According to Mr Bayliss:
“I can confirm, however, that Andrew Brown took a copy of the ACT database home with him during his employment to enable him to work from home. Approximately six months ago, Andrew Brown informed me that he was experiencing problems with the ACT database and, as I was the database administrator, he asked me if I could visit him at home to rectify this. He was, in fact, able to fix the problem himself and I was never, therefore, actually required to carry out the visit. Andrew Brown has not returned his copy of the ACT database to me, and to my knowledge, he has not returned it to anyone else at LCSL.”
Mr Bayliss enlarged on this in his second witness statement, at paragraphs 4 to 7. He explained that Mr Brown had used a floppy disk to input the LCS database into his home computer, and had confirmed that he had successfully done so. His evidence was supported by Mr Wingrove, who said in his witness statement:
“The “office method” was to use the back-up facility within ACT to copy the database to floppy disk and upload it onto any computer with the ACT program. In fact, this was the same method which Mr Brown used to create a floppy disk of the database from his office computer. I would ask him periodically for an update and he would then give me a floppy disk containing this. This ensured that we were both working from the most up to date version of the database.”
[70]Mr Yeomans’ evidence is consistent with the ACT! database program and database having been installed on Mr Brown’s computer: see paragraphs 7.12 to 7.16 and 7.21 of his first report and paragraph 3.2 of his addendum; see too his evidence at day 2 p 107 ff..[71]As by now will be evident, I prefer the evidence of Mr Bayliss and Mr Wingrove. Mr Brown’s and Mr Gallifant’s evidence on this issue is untrue. The “coincidence” of 2 January 2003 is explicable because Mr Brown delivered to Ms Talbot, who input the data, his ACT! floppy disk, containing a back-up of the data on the LCS office computers or that on his home computer. It may be significant that Ms Talbot was not called and gave no written evidence.[72]Mr Gallifant referred to differences between data on the Goldmine and ACT! Databases relating to the same company, for example the telephone dialling codes and salutations. These do not lead me to a different conclusion. However, it does not follow that none of the companies who were the subject of data input on 2 January 2003 was already on the Goldmine database: many were. But not all the data on the LCS database had previously been available to Kinesis.[73]Mr Brown’s actions were in breach of his service agreement and of his duty of fidelity as a director of LCS. Mr Gallifant was well aware of those actions and that they were wrongful.

The documents missing from the red files

[74]Again, I prefer Mr Bayliss’s evidence to that of Mr Brown. Having regard to my other findings, I have no doubt that these documents were removed by Mr Brown to be used in the business of KSL. Mr Brown’s conduct was again in breach of his service agreement and of his duty of fidelity, as I am sure he knew.[75]It is not in issue that LCS did not send out renewal quotations that should have been sent out during the customers whose contracts expired on 30 June or 1 July 2003. Mr Bayliss blamed Mr Brown for this; Mr Brown said that any fault was that of Mr Bayliss, whom he had instructed to do this work, on 3 separate occasions.[76]Why it should have been necessary for Mr Brown to instruct Mr Bayliss on 3 occasions was not clear. In any event, however, I accept Mr Bayliss’s evidence. I find that Mr Brown deliberately and in breach of his duties to LCS did not send out the documentation with a view to obtaining the renewals for KSL.

LCS’s maintenance procedures

[77]In my judgment, for the most part these do not constitute confidential information. With the exceptions referred to below, the steps set out could be composed by any qualified engineer. The fact that both KSL’s and LCS’s use the unusual expression “bed in” seals, relied upon by LCS, does not create confidentiality: it is merely an expression that would be used by anyone working within LCS: see Mr Bootman’s evidence at day 1 page 74 ff.. Not every engineer would appreciate the importance of bedding in the seals of a pump, but I would not hold that there was a breach of confidentiality by reason only of the use of that expression in the KSL procedures or the mention of that step. However, different considerations apply to the choice of 440 nanometres for the test of recording lamp energy in fluorescent detectors and of 238 nanometres for UV/IV detectors that appear in both companies’ procedures. These figures had been selected by Mr Wingrove for LCS. There was nothing inevitable in their selection. These must have been copied by KSL – i.e. Mr Brown – from LCS’s written procedures: the choice of lamp energies cannot be coincidence. That information was LCS’s confidential information, the energy levels in question having been selected by Mr Wingrove. Those energy levels do not appear on LCS’s internet site and are not publicly available..

The enforceability of clause 17.2 of Mr Brown’s service agreement

[78]LCS suggested that a 12-month post-termination restriction on salesmen is standard in its industry. There was no real evidence of this practice, and certainly insufficient to establish it. The Defendants similarly failed to establish any trade practice for a shorter period of restriction.[79]It was common ground that the market for maintenance contracts of the kinds of equipment with which this case is concerned is highly competitive: see, for example, Miss Miskin’s cross-examination of Mr Bootman on day 1 at page 106. There are about 6 to 8 independent companies in the market (i.e. companies that are not manufacturers or distributors, and who service several manufacturers’ equipment), and there is also competition from manufacturers and distributors of equipment themselves. Further, Mr Brown could work for a company like Kinesis that supplies consumables to users of equipment, or a supplier of equipment.[80]Mr Brown suggested that the effect of the restraints in his service agreement was to make it impossible for him to work within the industry, because he would be precluded, for a period of twelve months, from business contact with the eighty to ninety customers with whom he had been in contact in the year preceding 27 June 2003. He knew who they were. Given the size of the potential market, Mr Brown’s suggestion lacks credibility. If Mr Brown wanted to stay in the same industry, he could have done the equivalent of Mr Bayliss’s job, seeking new business, but avoiding breach of clause 17.2 of his service agreement; or he could have dealt with renewals for another company provided he limited himself to the very many customers who would not be covered by that clause.[81]I accept Miss Miskin’s submission that Mr Brown’s service agreement must be read as a whole. This does not mean, however, that any one unreasonable clause leads to the downfall of all, particularly in the face of a clause envisaging separate enforceability, such as clause 17.3. Doubtless too it is legitimate to look at the shareholders’ agreement as a contextual aid to construction.[82]There can be no doubt that LCS has a legitimate interest of a kind that may be protected by restraints such as clause 17.2, i.e., the personal contact and relationship with its customers built up by its director Mr Brown on its behalf. The effect, if not the object, of clause 17.2 is evident. It gives LCS a clear run at obtaining one renewal of an annual maintenance contract without competition from its parting executive director who would otherwise be able to use that contact and relationship for his or his new employer’s business.[83]Miss Miskin pointed out that in certain circumstances clause 17.2 might operate unreasonably; but such a provision can never be drafted to operate perfectly in all circumstances. She suggested that it was unreasonable for it to preclude contact with an employee who was previously unknown to Mr Brown of a customer operating at a site that he had never visited or had contact with. I do not agree. As Nicholas Strauss QC, sitting as a deputy High Court judge, said in his typically sound judgment in International Consulting Services (UK) Ltd v Hart [2000] IRLR 227, an employer is entitled to protection against a former employee using his contact with one department of a customer as a reference to obtain business from another department.[84]The fact that these provisions cover customers who have decided to sever their relationship with LCS does not render them unreasonable: the employer is entitled to protect the hope that he will succeed in salvaging that business: see G W Plowman & Son Ltd v Ash [1964] 1 WLR 568. Mr Brown’s professed object in visiting Britvic/Robinson’s, to salvage their business for LCS, indicates that such hopes are not to be dismissed as unreal.[85]I do not accept that there is any uncertainty in clause 17.2. Clause17.2.1 protects LCS from soliciting of its customers; clause17.2.2 protects it from soliciting of individuals with whom Mr Brown has had negotiations on behalf of LCS. The expression “negotiations” is sufficiently certain. In my judgment, both clauses 17.2.1 and 17.2.2 are reasonable and enforceable.[86]I reach this conclusion without regret. The rule that unreasonable restraints contained in contracts of employment are not to be enforced is an exception to the general principle that contracts are to be observed. In a case in which the employee (or rather executive director) took legal advice before entering into the contract, I see no reason for the court to strive to defeat the agreement of the parties as expressed in their contract.

Clean hands

[87]Mr Bayliss accepted that when he and Mr Brown visited Dermal Laboratories, there was a complaint that LCS had supplied a second-hand flow cell as new, and for the price appropriate to a new flow cell. Miss Miskin relied on this as evidence of a failure to come to the court with clean hands, justifying a refusal of equitable relief, at least in relation to Dermal.[88]If the evidence established that LCS had been guilty of deceit, i.e. of fraud in selling the flow cell, questions of clean hands would arise. But the evidence does not go so far; it establishes that an error was made by LCS when the flow cell was supplied. I accept Mr Wingrove’s evidence on this at day 2 p 105.[89]It was alleged that LCS used information disclosed in this litigation in Kinesis’s Goldmine database to approach customers of Kinesis. This allegation too was not proved. The only contact proved was Mr Bayliss’s telephone call to Mr Donaldson, whose number he had found on Mr Brown’s (LCS) mobile telephone bill.

Conclusions

[90]Mr Brown broke his fiduciary duties to LCS and the terms of his service agreement in the respects stated above; he misused LCS’s confidential information, namely documents in the red files and data from the ACT! database, and the figures of 440 nanometres for the test of recording lamp energy in fluorescent detectors and of 238 nanometres for UV/IV detectors for the purposes of KSL’s business; and he has acted in breach of clause 17.2 of that agreement. KSL was a willing and knowing party to these breaches.

Remedies

[91]The remedies to which LCS is entitled on the basis of my above findings are addressed in the following paragraphs of this judgment.[92]LCS is entitled to injunctions to restrain further breaches by Mr Brown of clause 17.2 in the terms of clause 17.2.1 and 17.2.2. It is entitled to damages for his breaches of those clauses.[93]LCS is entitled to damages against Mr Brown in respect of his breaches of clauses 4.1.1, 4.1.2, 4.1.4, 4.1.5 and 16.1 of his service agreement.[94]KSL is liable to LCS for its procurement of and knowing participation in the above breaches by Mr Brown, and on the basis that they were committed on behalf of KSL, which is vicariously liable to LCS.[95]Mr Brown and KSL are liable to LCS for damages in respect of his breaches of his duty of fidelity to LCS.[96]Mr Brown and KSL are liable to LCS for wrongful use of its confidential information contained in its ACT! database, in the red files and in its maintenance procedures (i.e., the use of the quantities developed by Mr Wingrove of 440 and 238 nanometres). Mr Brown and KSL are also liable in damages for their wrongful use of LCS’s physical property, i.e. the missing pages from the red files.[97]LCS is entitled at its election in lieu of damages for breach of Mr Brown’s equitable duties and wrongful use of its confidential information to an account of profits resulting to KSL or Mr Brown as a result of those wrongful acts.[98]The issues relating to other injunctive relief are more difficult. LCS seeks springboard relief, i.e. an injunction to remove from the Defendants the benefit of their wrongful conduct. Springboard relief is more appropriate to interim relief (as in Roger Bullivant Ltd v Ellis [1987] ICR 464), when it may be difficult to ascertain the relevant facts, than to relief after trial, when the facts or most of them have been found. LCS also seeks injunctions requiring delivery up of all documents containing its confidential information, and restraining its use and disclosure.[99]There is no difficulty in the grant of such injunctions in relation to KSL’ maintenance procedures in so far as they have copied and used the quantities of 440 and 238 nanometres; the information as to the appropriateness of that information was truly confidential.[100]However, such injunctions present difficulties in a case, such as the present, where the other individual items of information are not intrinsically confidential. An injunction to restrain the use of LCS’s confidential information in terms would be insufficiently certain: Thomas v Mould [1968] 2 QB 913. The confidential information the use of which is restrained must be sufficiently defined in the order of the court. Contract renewal dates and equipment lists may be obtained from customers. The names of potential customers are generally known or ascertainable, as a list obtained from a commercial organisation and produced in this case has shown. Many of LCS’s customers were already on the Kinesis database. If an injunction is granted requiring the Defendants to deliver up all documents containing equipment lists of LCS’s customers, for example, it will catch those customers who have provided the information to the Defendants. Any enquiry made by KSL (assuming it acquires another salesman besides Mr Brown) of a customer near a renewal date may give rise to an application to commit where it is difficult to establish whether the contact was fortuitous or resulted from LCS’s confidential information. An injunction relating to contract renewal dates will apply to customers who have given those dates to KSL, as well as those dates derived from the LCS ACT! database.[101]These considerations reinforce the good sense of LCS requiring restraints such as those in clause 17.2 of Mr Brown’s service agreement. They also militate in favour of financial rather than injunctive relief, if necessary by an award of damages that fairly reflects the value to Mr Brown and KSL of the information obtained from LCS. Notwithstanding my disapproval of the conduct of Mr Brown and KSL, my provisional view is that such injunctions are not appropriate in this case.[102]The above considerations were not addressed during counsel’s submissions, save in regard to springboard relief, which involves the further difficulty that by definition it would preclude the defendants from doing what they might otherwise lawfully do. I shall therefore be willing to hear short submissions on them when judgment is handed down. In the absence of further submissions, the orders I shall make will be as adumbrated above, with inquiries as to damages and, in relation to breach of equitable obligations, an account of profits if LCS so elect (and otherwise damages).