Norbrook Laboratories (GB) Ltd v Adair & Anor [2008] EWHC 978 (QB)

[2008] EWHC 978 (QB)Case No TLQ/08/0015
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Date: 6 th May,2008
Before
ELIZABETH SLADE Q.C.
Between
Norbrook Laboratories (GB) LimitedClaimant(1) Rebecca AdairDefendants(2) Pfizer LimitedDefendant
Charles Béar Q.C. and Rupert Allen (instructed by Cartmell Shepherd) for ClaimantShirley Bothroyd (instructed by Nabarro, Sheffield) for First and Second DefendantsHearing Hearing dates: 13 th-15 th February 2008
JUDGMENT
[1]This is the trial of an action in which Norbrook Laboratories (GB) Limited (‘Norbrook’) seeks injunctive relief against their former employee, Rebecca Adair and Pfizer. Norbrook seeks an injunction restraining Ms Adair from using or disclosing confidential information as defined in the Confidentiality and Ownership of Inventions Agreement signed by Ms Adair on 27th November 2006 (the ‘Confidentiality Agreement’). Norbrook also seeks to enforce post termination restrictive covenants in her contract of employment dated 13th November 2006 (the ‘Contract of Employment’). Norbrook seeks injunctions against Pfizer Limited (‘Pfizer’) to restrain it from inducing Ms Adair to use or disclose any confidential information as defined in the Confidentiality Agreement or to break the post termination restrictive covenants in her contract of employment. Ms Adair’s employment with Norbrook terminated on 7th December 2007 and she wishes to commence employment with Pfizer whose offer she has accepted. On 4th January 2008 Mr Justice Irwin granted interim injunctions. Norbrook now seeks permanent relief.[2]Mr Béar Q.C. on behalf of Norbrook contends that in the course of her employment Ms Adair acquired confidential information concerning prices, customers and products and that she was in a position to build up personal connections with customers. Norbrook is entitled to protect those interests by the non-competition provision in Clause 6.1(a) of the Schedule to the Contract of Employment and by the non-solicitation/dealing provisions in Clause 6.1(b).[3]Miss Bothroyd on behalf of Ms Adair and Pfizer accepts that that during her employment Ms Adair acquired confidential information which Norbrook is entitled to protect and that her client is rightly bound not to use or disclose such information as defined in the Confidentiality Agreement. However she contends on behalf of both defendants that Clauses 6.1(a) and 6.1(b) are unenforceable as being in unreasonable restraint of trade.

The facts

[4]Two statements dated 20th December 2007 of Steve Jones, sales manager of Norbrook were before Mr Justice Irwin. At trial Norbrook relied on the statements of Kieran Hayes, acting financial controller, Paul Hirst, Northern Regional Sales Manager, Alistair Couper, Great Britain Veterinary Advisor employed by Norbrook, Louise Kirk, Head of Personnel and Paul Coulson, a solicitor employed by Norbrook, all dated 1st February 2008. The statements of Ms Adair and Mark Watson, Divisional Director of Pfizer Animal Health, Ireland both dated 3rd January 2007 lodged for the application for interim relief were considered at trial in addition to their statements of 1st February 2008. Mr Hirst, Mr Hayes, Ms Adair and Mr Watson gave oral evidence. The evidence of Mr Hayes, Mr Couper, Louise Kirk and Mr Coulson was agreed. The material documents were contained in three bundles which were referred to at trial.[5]I set out below relevant undisputed evidence and my findings of fact.[6]Norbrook is a pharmaceutical company. It manufactures and sells veterinary products to vets and animal health product distributors. Its annual sales in the UK market are about £8 million. Pfizer is a multinational pharmaceutical company. Its sales of veterinary pharmaceutical products in the United Kingdom are approximately £74 million giving it a share of about 20% of the UK animal health market. Ms Adair is a qualified veterinary nurse who was employed in this capacity and as a veterinary business adviser before she commenced employment with Norbrook on 27th November 2006 as a Territory Manager. For sales purposes, Norbrook divided the country into Northern and Southern Regions each of which was divided into territories with a Territory Manager. Ms Adair’s territory fell within the Northern Region. It was known as Area 7 and covered the North West of England, primarily the M62 corridor, including Leeds, Hull, Blackpool, Lancaster, Grimsby and York. In September 2007 Area 7 changed to Preston, Blackburn, Halifax, Leeds, Hull, Doncaster, Wakefield, Huddersfield, Sheffield, Manchester, Warrington and Wigan. Paul Hirst was the Northern Regional Sales Manager.[7]Louise Kirk stated that before the commencement of her employment, Rebecca Adair was sent, among other documents, a contract of employment and a Confidentiality Agreement. Clause 6 of the Schedule to the Contract of Employment, referred to in this judgment as Clause 6, contained the following post termination restraints:
‘Upon termination of the Employee's employment howsoever determined, and in order to protect the Company's legitimate business interests (including the goodwill, confidential information, trade secrets, business connections and human resources of the Company the Employee): 6.1 shall not directly or indirectly on his/her own account or as an agent partner director or employee of any other person (a) for the Restricted Period be employed or engaged or concerned in or carry on any Restricted Business. For these purposes: i. Restricted Business means any pharmaceutical business engaged in the manufacture of medical or veterinary products or the synthesis or fermentation of active ingredients for such products or the wholesale distribution of these products or research for the purpose of generating scientific data related to pharmaceutical products or developing methods of manufacture or processes for production of raw materials or active ingredients. ii. In the case of any managerial or technically-qualified employee (a) who reports directly to the Company's board of directors or to any board member; or (b) whose duties to the Company are liable to require him/her regularly to operate, develop, or study any actual or intended processes, methods, formulae, or clinical or pharmacological data and analyses which are not in the public domain, or supervise any such activity, or (c) who has before termination of his/her employment actually acquired knowledge of such processes, methods, formulae or products, the Restricted Period shall be two (2) years immediately following termination. iii. In the case of other employees, the Restricted Period shall be one (1) year immediately following termination and this clause shall only prohibit acts in the United Kingdom and Ireland and any territory outside the United Kingdom and Ireland in relation to which such Employee had responsibility, or obtained material Confidential Information, in the year before termination of his/her employment. iv. This clause 6.1 shall not apply in relation to a pharmaceutical business which is not engaged and does not intend to be engaged in the manufacture, distribution or development of products which are or are intended to be competitive with any products manufactured, distributed or developed by the Company or any of its subsidiaries and with which the Employee was concerned in the last 5 years of his/her employment. v. Nothing in this clause shall prevent the Employee from holding (together with any spouse, partner or dependent child) not more than 3% of the shares of any company listed on any recognised stock exchange. (b) for a period of one (1) year immediately following such termination solicit or transact business in competition with the business of the Company or any subsidiary at the date of termination from or with any of the persons, corporations or bodies who within the period of two years immediately preceding the date of such termination had been customers or prospective customers of the Company (and whether or not a contract between the customer and the Company or its subsidiaries was in force as at the date of termination of the Employee's employment), and where during the said two years either (i) the Employee had direct access to and/or dealings with such customer or prospective customer or (ii) the Employee had access to confidential information relating to the customer or prospective customer during the year before the termination of his/her employment.’
[8]Ms Adair gave evidence that she was first given her Contract of Employment when she started work on 27th November 2006 and that she did not pay much attention to Clause 6. Having regard to the date on the Contract of Employment, the evidence of Louise Kirk that Ms Adair returned the signed contract before she started work and the inherent improbability that she would not have been sent her contract before her first day of work, I find that Ms Adair is mistaken in her recollection.[9]Ms Adair signed the Confidentiality Agreement on 27th November 2006. By Clause 5 Ms Adair agreed that she would not:
‘ …without the written consent of NORBROOK, during the term of h[er] employment or thereafter use for h[er]self or others or disclose to others, any Confidential Information howsoever obtained by h[er] during the course of h[er] employment with NORBROOK.’
Confidential Information was defined as ‘ ….information which is in the possession custody care and/or control of NORBROOK and/or any of its subsidiaries, holding or associated companies relating to NORBROOK'S activities in the research, development, manufacture, distribution and sales of veterinary and/or medical pharmaceutical products and/or chemical synthesis and which is not in the public domain. Such Confidential Information includes Technical Information and Commercial Information as follows:-1.1 Technical Information (which does not purport to be an exclusive list or definition) shall include NORBROOK's laboratory and formulating methods for its products, product analytical methods, product formulae, product compounds, product compositions, product related organisms, research and development projects, product stability data, clinical and pharmacological data relating to products, licence applications, submissions and related correspondence to and with governmental regulatory authorities and agencies, drug master files, inventions,regulatory authorities and agencies, drug master files, inventions, designs, discoveries, patent applications, laboratory equipment (which has been specially designed, adapted or sourced),, design of production facilities, manufacturing equipment and design of ancillary plant, manufacturing methods, production control records ("PCRs"), processes and techniques and all other know-how, trade secrets and information relating thereto which are not in the public domain. 1.2 Commercial Information (which does not purport to be an exclusive list or definition) shall include NORBROOK's unpublished marketing and sales information in relation to its products, names and addresses of customers and suppliers, names and addresses of potential customers and suppliers, customer pricing arrangements, customer targeting strategies, production and marketing costs, sales data, profit margins, accounts history, marketing surveys, plans and reports, sales targets, discount structures, annual budgets, new product proposals, maturing new business opportunities, budgets for research and development projects, trademark applications, sensitive personnel data, and all other trade secrets and information relating thereto which have not been published or disclosed to the general public.’[10]Ms Adair’s salary was £25,000 per annum. In addition she could be paid a bonus.[11]When she joined Norbrook, Ms Adair attended an induction programme. Paul Hirst conducted the induction programme and stated that Ms Adair was told that information given to those who attended was confidential. She was given(1) record cards for Area 7 which contain information on each customer including customer details, the number of vets and the point of contact in each practice, price details and details of discounts given.(2) confidential verbal information on the way in which Norbrook’s discounting system works;(3) information on and key selling points of Norbrook’s products.[12]Paul Hirst categorised the information given to Ms Adair which Norbrook regards as confidential as Customer Information, Sales Strategy and Information and Product Information.

Customer information

[13]There were approximately 270 customers and targets in Ms Adair’s territory. Of these just under 100 were five star customers. Five star customers are those who are most valuable to Norbrook. Ms Adair was responsible for selling all 130 Norbrook products. She was responsible for approximately £1 million of Norbrook’s total annual sales of £8 million.[14]Ms Adair was given cards relating to all the customers in her territory. These contained the details referred to above which no doubt took time and research to complete. From these cards, Ms Adair knew who to contact within a vet practice or purchasing organisation, the history of their requirements and the volumes purchased with the discounts given.

Customer connection

[15]Ms Adair visited each five star customer in her territory on average once every three months. Thus she would have visited each five star customer about four times during the period of her employment with Norbrook. She would give these customers special attention and typically would spend about 20 to 30 minutes on each such visit. Her contact with other customers was limited to one or two brief meetings. It was a significant element of Ms Adair’s role as a salesperson to build up a good relationship with the customers in her territory.[16]Ms Adair dealt with a buying group which operated throughout the whole of Great Britain.

Sales Strategy and Information

[17]Norbrook fixes prices on an annual basis, generally from the end of July of each year, although they are sometimes renegotiated with a customer over the course of the year. Territory Managers obtain Letters of Intent from customers. These will detail the products to be purchased, the list price, the nett price agreed and the discount code. Although discount bandings, A, B and C, are included on price lists sent to customers, the discretion given to the sales manager indicated by those bandings is not revealed. In practice further discounts and other promotional offers may be given. Once the Letter of Intent is signed, an agreed price list is sent to the customer with a covering letter headed ‘PRIVATE AND CONFIDENTIAL’. The letter states:
‘I should be grateful if you would treat all product price information as confidential – this commercial confidentiality is essential in order to maintain the prices we have agreed.’
[18]Ms Adair has detailed knowledge of the operation of these discounts. Larger discounts are likely to be given to those customers who place large orders. At least one of Norbrook’s customers in Ms Adair’s area was a buying group made up of a large number of vet practices covering a number of different regions in Great Britain.[19]Territory managers are provided with sales reports, including what is known as a period 12 report. This is a report of sales for the year showing the value of sales to each customer within a Territory Manager’s area, the discounts given and the variance on sales to the customer compared with the previous year. From this information, the most important customers can be identified and also the upward or downward movements in purchasing by customers of particular products. Ms Adair was provided with this report in October 2007.[20]Ms Adair attended regional and national sales meetings at which information about sales in other territories was shared. In addition, Territory Managers would share tips on sales strategies. Ms Adair had information about sales volumes, customers and pricing in other territories. A power point presentation which she made to a Regional Sales Meeting in May 2007 gave sales and sales movement figures for customers in her territory. She also commented on competitor products including those of Pfizer. Ms Adair was given information, for example by Steve Jones by email 16th May 2007, on the lowest prices which could be offered known as nett nett prices. Five star accounts were discussed as were reasons for losses and gains of orders.[21]Ms Adair accepted that she received commercial information which could possibly be of value to competitors. She agreed that a competitor might be interested in the discounts given by Norbrook. She said that if a competitor focussed on price then it would be useful for them to have Norbrook’s precise prices. If not, then such knowledge would be of no use.[22]Ms Adair agreed that it would be wrong to mention non list prices to members of the public and that to reveal them to a competitor could harm Norbrook’s interests. It would be of assistance to a competitor to know whether sales volumes were up on the previous year. She agreed that it would be commercially relevant for a competitor to know the largest customer of Norbrook in an area in which the competitor operated selling products in competition with Norbrook. She also agreed that it would be an advantage to know the name of the key contact in a customer organisation. All such knowledge could help a competitor to target their sales effort.

Product information

[23]Ms Adair received information about Norbrook’s products, some of which was regarded as confidential. Paul Hirst also provided her with documentation dealing with the key selling points of certain Norbrook products compared with competitor products. Alistair Couper provided the sales team with detailed information of a confidential nature regarding a Norbrook product as compared with a Pfizer product. Mr Couper also gave seminars attended by the sales team including Ms Adair on other Norbrook products comparing them with competitor products. On 1st October 2007 Ms Adair asked to attend such a training seminar on Small Animals products which she attended on 22nd and 23rd November 2007 notwithstanding that by that time, unknown to Norbrook, she had accepted an appointment with Pfizer.[24]Mr Couper regarded it as self evident that information discussed regarding the potential benefits and disadvantages of Norbrook products over competitor products would be regarded as confidential, especially where future sales strategies maximise their potential benefits and minimise their potential difficulties. In particular the following were discussed:(1) weaknesses of certain products;(2) complaints by customers regarding certain products(3) steps being taken to combat the problems;(4) marketing Norbrook products with reference to particular difficulties with two products;(5) ways to improve existing products and the creation of new products.[25]Mr Couper stated that any person who attended seminars knows how Norbrook sales teams have been advised to sell Norbrook products against competitor products. Also they would know the future sales strategies of Norbrook. Such information would be very valuable to a competitor. For example Pfizer markets a product which is in direct competition with a Norbrook product. Clearly it would be of assistance to a competitor to know the weaknesses of a competing Norbrook product.

Pfizer

[26]Mark Watson, Divisional Director for Animal Health, Ireland, gave evidence that Rebecca Adair has been recruited by Pfizer to be a Territory Manager in the Companion Animal business unit. The Territory Manager’s role is to visit their customers and to persuade them to use Pfizer’s products or to supply them to their own clients. While the cost of a product will naturally be a factor for customers, Pfizer tries to secure business on the quality and technical nature of its products rather than how cheap they are. Mr Watson stressed the research based nature of Pfizer’s business and contrasted it with that of Norbrook which he said principally sold generic products. He stated that there is only one product which Rebecca Adair would be asked to sell which would compete with a Norbrook product. He stated that Pfizer ‘has no real interest in the particular discounts that Norbrook might have been applying to the list prices of its products.’ He did not believe that many of Norbrook’s main customers who fall within the geographical area within which it was proposed that Rebecca Adair would operate would be key customers for Pfizer.

Recruitment of Rebecca Adair by Pfizer

[27]Rebecca Adair approached Pfizer through a friend. She attended an assessment centre on 17th October 2007. The interview notes show that Rebecca Adair referred to the Letters of Intent used by Norbrook and to the A, B and C discounts. Under cross-examination she agreed that she possibly should not have mentioned these. When asked whether she had discussed Norbrook’s products she answered that she may have discussed the Small Animal range. She agreed that she did reveal sales figures to Pfizer. Within a couple of days, Mark Watson telephoned her to offer her the job of Territory Manager for part of the North West of England, the Isle of Man and Northern Ireland. She accepted and said that she would be able to start at the beginning of January 2008. On 22nd October 2007 Pfizer sent an offer letter and contract to Rebecca Adair. On 29th October 2007 Rebecca Adair asked for Norbrook customer details and was sent them. On 29th and 30th October she was sent by email the discount figures on the product which competed with a Pfizer product. On 1st November 2007 Rebecca Adair asked for sales figures for the new area which she was going to take on for Norbrook. On 3rd November 2007 Rebecca Adair asked for information on Norbrook special offers which was sent to her.[28]Rebecca Adair did not tell Norbrook until the end of November 2007 that she was leaving them for Pfizer. She said that she delayed because she wanted to receive a bonus which she felt was due to her. On Friday 30th November 2007, she telephoned Paul Hirst to tell him that she was leaving the company. Rebecca Adair stated in evidence that when she told him that she was going to Pfizer he said that her contract precluded her from going to another pharmaceutical company but as she had only been at Norbrook for twelve months she should not worry about it. She said that she could not find her contract of employment but knew there was something in it regarding a restraint. She did not think the matter would go further.[29]Rebecca Adair put her resignation in writing but it was not received until 7th December 2007. She was put on garden leave for one month.[30]Ms Adair’s signed contract was received by Pfizer on 11th December 2007. Later that week Mark Watson received a telephone call in which Ms Adair told him that she had received a letter informing her that she was not allowed to work for Pfizer for a year because of the terms of her contract with Norbrook. This was the first he knew of any restrictions in her Norbrook contract.[31]Certain unsatisfactory aspects of Ms Adair’s conduct were highlighted by cross-examination, such as her self serving reason for not telling Norbrook that she had accepted a job with a trade rival. She feared that this information may damage her chance of obtaining a bonus. Further she agreed that she revealed matters to Pfizer in her interview which she should not have disclosed. I find that she was less than frank in saying that she had not been sent her contract of employment containing the restrictive covenants before she started work with Norbrook.[32]Ms Adair has been restrained by the interim injunction from working for Pfizer. She says that whilst she could obtain another veterinary nurse role quite quickly it would be at about half the income she would earn with Pfizer. She would not like to take a drop in salary as she has a mortgage to pay. She would not want to take a sales role in another business sector as animals are her passion.

The position of the parties

[33]Mr Béar on behalf of Norbrook contends that Clauses 6.1(a) and (b) impose no greater restraint on Ms Adair than is reasonably necessary for the protection of Norbrook’s confidential information and customer connections.[34]Ms Adair consents to the grant of relief in terms of Clause 5 of the Confidentiality Agreement. She accepts that the restriction applies to all the confidential information referred to in the Confidentiality Agreement. However Miss Bothroyd on behalf of Ms Adair and Pfizer contends that the non competition covenant in clause 6.1(a) imposes a greater restraint than is reasonably necessary to protect Norbrook’s protectable interests. She contends that those interests would have been adequately protected by an appropriately drafted non solicitation/non dealing covenant of six months’ duration. She contends that employers should not be able to enlarge the scope of their protectable confidential information by disseminating information to an employee beyond that which is needed to perform her job. Thus the fact that sales information about territories in addition to her own was given to Ms Adair should not be used as a justification for imposing a restraint on her prohibiting acts in the United Kingdom and Ireland.[35]Miss Bothroyd also contends that the non solicitation/ non dealing restraint in Clause 6.1(b) is wider than is reasonably necessary.[36]In relation to both covenants Miss Bothroyd contended that the confidential information relating to customers and pricing has a limited shelf life and that a post termination restraint of twelve months is longer than is necessary. She submitted that a restriction six months in duration would have sufficed for the proper protection of Norbrook’s protectable interests.[37]Miss Bothroyd further contends that even if either or both covenants in Clause 6.1 are held to be a reasonable restraint of trade, I should exercise a discretion not to grant injunctive relief to enforce them. Discussion. The relevant legal principles[38]The foundation of the approach to the enforceability of post termination restrictive covenants in employment contracts is Lord Parker’s dictum in Herbert Morris v Saxelby [1916] 1 AC 688 at page 707:
‘ ….. what is meant is that for a restraint to be reasonable in the interests of the parties is that it must afford no more than adequate protection to the party in whose favour it is imposed.’
It is to be noted that the claimant bears the onus of establishing reasonableness (p700 Lord Atkinson) and that in that case the appellant desired to be protected against knowledge carried away which would improve rivals’ sales methods making them more formidable competitors (p704 Lord Atkinson).[39]The difficulty of proving a breach of a confidential information covenant was referred to in Littlewoods Organisation v Harris [1977] 1 WLR 1472. Where an employee can carry away confidential information in his head Lord Denning M.R. held at page 1479B that ‘The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period.'[40]The reasonableness or otherwise of a restraint is to be assessed as at the time when the covenant is entered into. In Watson v Prager [1991] 1 WLR 726, Scott J held at page 749E-F:
‘The reasonableness of a contract in restraint of trade must be tested not by a reference to what the parties have actually done or intend to do but by what the terms of the contract entitle or require them to do.’
See also TFS Derivatives v Morgan [2005] IRLR 246 paragraph 38.[41]In Office Angels v Rainer- Thomas and O’Connor [1991] IRLR 214 the Court of Appeal held that the deputy High Court judge had correctly identified the interest which the claimant employment agency was entitled to protect as being its connection with client firms and with the pool of workers available for temporary employment. The Court of Appeal was not required to consider the protection of Office Angels’ confidential information (para 23). Sir Christopher Slade held at page 220 paragraph 50:
‘ … in considering the reasonableness or otherwise of a covenant such as this, the Court is entitled to consider whether or not a covenant of a narrower nature would have sufficed for the covenantee’s protection.’
The burden is on the covenantee to establish that the restraint is no greater than is reasonably necessary for the proper protection of his protectable interests.[42]In Lansing Linde Ltd v Kerr [1991] 1 WLR 251 at page 260, Staughton LJ considered the confidential information which an employer is entitled to protect by way of restrictive covenant:
‘It appears to me that the problem is one of definition: what are trade secrets, and how do they differ (if at all) from confidential information? Mr Poulton suggested that a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication. That is my preferred view of the meaning of trade secret in this context. It can thus include not only secret formulae for the manufacture of products but also, in an appropriate case, the names of customers and the goods which they buy. But some may say that not all such information is a trade secret in ordinary parlance. If that view be adopted, the class of information which can justify a restriction is wider, and extends to some confidential information which would not ordinarily be called a trade secret.’
[43]It is instructive to note that Lord Justice Stephenson in Spafax v Harrison [1980] IRLR 442 at page 447 observed that notes on a customer’s card recording the names of the ‘boss’ ‘stores manager’ and ‘foreman’:
‘ … shows, very clearly in my judgment, the kind of personal knowledge and influence, the kind of close relationship, which naturally develops between a competent salesman … and his customers.’
In that case there was reference to a customer’s account being active if an order had been placed within the last three months. A two year restraint was upheld.[44]Mrs Justice Cox in TFS Derivatives v Morgan [2005] IRLR 246 outlined a three stage process in considering the reasonableness of a restrictive covenant ‘37. Firstly, the court must decide what the covenant means when properly construed. Secondly the court will consider whether the former employers have shown on the evidence that they have legitimate business interests requiring protection in relation to the employee’s employment. ……38. Thirdly, once the existence of legitimate protectable interests has been established, the covenant must be shown to be no wider than is reasonably necessary for the protection of those interests. Reasonable necessity is to be assessed from the perspective of reasonable persons in the position of the parties as at the date of the contract, having regard to the contractual provisions as a whole and to the factual matrix to which the contract would then realistically have been expected to apply.39. Even if the covenant is held to be reasonable, the court will then finally decide whether, as a matter of discretion, the injunctive relief sought should in all the circumstances be granted, having regard, amongst other things, to its reasonableness at the time of trial.’[45]The approach to considering the reasonableness of a restrictive covenant set out in TFS Derivatives was endorsed by Sir Donald Rattee in Dyson Technology Limited v Ben Strutt [2005] EWHC 2814 (Ch) 25th November 2005, paragraph 50.[46]Mrs Justice Cox in TFS Derivatives at paragraphs 65 and 66 outlined the correct approach to severance of unreasonably wide or uncertain words in a restrictive covenant. She referred to Sadler v Imperial Life Assurance Company of Canada Ltd [1988] IRLR 388 and Marshall v NM Financial Management Ltd [1996] IRLR 20 in setting out the four preconditions for severance. These are that:(1) The unenforceable provision is capable of being removed without the necessity of adding to or modifying the wording of what remains.(2) The remaining terms continue to be supported by adequate consideration.(3) The removal of the unenforceable provision does not so change the character of the contract that it becomes ‘not the sort of contract that the parties entered into at all’.(4) The severance must be consistent with the public policy underlying the avoidance of the offending part.[47]There is no dispute between the parties about the principles outlined above. However, Miss Bothroyd on behalf of Ms Adair and Pfizer advances three additional propositions. First she contends that the salary received by Ms Adair is relevant to the reasonableness of the restrictive covenants. Secondly she contends that the confidential information which may be protected by a restrictive covenant is limited to that which Ms Adair needed or was given for the performance of her duties of selling Norbrook’s products in her designated territory. Confidential information given to her regarding other areas was not necessary for the performance of her duties and could not justify imposing a geographical restraint covering the whole of the United Kingdom and Ireland. Thirdly she contends that if no damage would be caused by breach of the restrictive covenants and if their enforcement would cause undue hardship to Ms Adair the court should exercise a discretion not to grant injunctive relief.[48]As for the first point, as outlined above, reasonable necessity for the protection of the covenantee’s interests is to be judged having regard to the contractual provisions as a whole and to the factual matrix to which the contract would realistically have been expected to apply. Ms Adair’s salary is one of the provisions of the contract which contains the restrictive covenants. There is clearly consideration for the covenants and it has not been suggested otherwise. Nor is it suggested that any inequality of bargaining power affects the enforceability of the covenant. In my judgment the level of pay received by Ms Adair is to be considered along with the other terms of her contract. In my judgment there is no basis for according the level of her pay particular significance in determining the reasonableness of the restraints sought to be enforced.[49]As for the proposition that the claimant is not entitled to rely on confidential information disseminated to Ms Adair which is not directly related to the performance of her sales responsibilities in her allocated territory, in my view the general test as to whether confidential information may be protected by a restrictive covenant applies. If the disclosure of information which is used in trade or business would be liable to cause real or significant harm if disclosed to a competitor and if the owner limits its dissemination or at least does not encourage or permit its widespread publication, the employer has a legitimate interest in restraining its use or disclosure. In my judgment if the countrywide sales information given to Ms Adair is in this category, the reasonableness of the restraints sought to be enforced falls to be assessed having regard to such information in the same way as other confidential information directly related to her own sales territory.[50]As for the third proposition, on the basis of Mrs Justice Cox’s dictum in TFS Derivatives at paragraph 39, I accept that in certain circumstances there is a residual discretion whether to grant an injunction to enforce a valid restrictive covenant.

The enforceability of the restrictions

[51]Ms Adair consents to an injunction in terms of the Confidentiality Agreement that she will not ‘ … without the written consent of NORBROOK, during the term of h[er] employment or thereafter use for h[er]self or others or disclose to others, any Confidential Information howsoever obtained by h[er] during the course of h[er] employment with NORBROOK.’[52]The Confidentiality Agreement provides a non exclusive definition of technical and commercial information which the parties have agreed is confidential. The definition of commercial information, which is set out above, is information relating to Norbrook’s activities in the distribution and sales of veterinary pharmaceutical products including unpublished marketing and sales information in relation to its products, names and addresses of customers and potential customers, customer pricing arrangements, customer targeting strategies, sales data, discount structures and all other trade secrets and information relating thereto which have not been published or disclosed to the general public.

Clause 6.1(a)

(a) Construction

[53]Clause 6.1(a) imposes a restraint on an employee being employed, engaged concerned or carrying on any Restricted Business. It is to be noted that, subject to certain qualifying requirements, Clause 6.1(a) is drafted so as to apply to all employees. However, the length of the restraint is two years in respect of certain managerial or technically qualified employees and one year in respect of other employees. Since Ms Adair was not a managerial or technically qualified employee, the Restricted Period specified by Clause 6.1(a)(iii) is one year immediately following termination.[54]The prohibition imposed by Clause 6.1(a) is on being employed in a Restricted Business in the United Kingdom and Ireland. There is a territorial extension in certain circumstances which do not apply in this case.[55]Miss Bothroyd points out that Clause 6.1(a) prevents Ms Adair from being employed in any capacity by a competitor and not just in the capacity in which she was employed by Norbrook.[56]Initially, at least, Miss Bothroyd submitted that the definition of ‘Restricted Business’ which Ms Adair was precluded from being employed or engaged in was too wide since it would cover ‘any pharmaceutical business …’.[57]Mr Béar, for Norbrook correctly points out that the wide words of Clause 6.1(a)(i) in this regard are qualified and restricted by the terms of Clause 6.1(a)(iv). Restricted Business is that which is engaged in the manufacture, distribution or development of products which are or are intended to be competitive with any which are manufactured, distributed or developed by Norbrook or any of its subsidiaries and with which the employee was concerned in the last 5 years of his/her employment.[58]In my judgment, the expression ‘with which the employee was concerned’ in Clause 6.1(a)(iv) means concerned in the course of his employment with Norbrook in the capacity in which he was employed. There is no qualification as to the degree to which an employee is to be concerned with a product to trigger the prohibition. Protectable interests Confidential information[59]Mr Béar submits that Ms Adair was in possession of confidential information in the course of her employment. He contends that the following information falls into that category: customer lists including some names or job titles of individuals responsible for making purchases of veterinary products, the list of the most valuable customers, known as five star customers, the discounts given to customers, both the percentage discounts indicated by the A, B and C grading, the lowest price which could be quoted for each product and the actual discounts given. Sales figures were made available to Ms Adair which show whether sales to individual customers were increasing or declining.[60]Mr Béar also contends that general information on Norbrook’s marketing strategies which were shared at regional sales meetings was confidential. Such information included some technical information on the relative merits and drawbacks of Norbrook’s and competing products. Ms Adair was given sales information relating not only to the territory for which she was responsible but also sales figures for areas throughout Great Britain.[61]Miss Bothroyd does not contend that such information was not confidential but that the restraint sought to be imposed by clause 6.1(a) is wider than is reasonably necessary.[62]In considering whether the information asserted by Norbrook to be confidential is properly to be so regarded I apply the legal principles derived from the authorities set out above to the findings of fact. In so doing I take into account the Confidentiality Agreement entered into by the parties. Commercial and technical information as defined in that Agreement was agreed to be confidential. Ms Adair said in evidence that she appreciated the fact that Norbrook had confidential information which they would want to protect.[63]I hold that the identity of customers with relevant contacts, potential customers and five star customers would be of value to a competitor and, in the circumstances of this case as in Lansing Linde Ltd, is confidential. Such knowledge is not in the public domain and would assist a competitor to target their sales efforts. It would assist in making them in the words of Lord Atkinson at page 704 in Herbert Morris ‘more formidable competitors’. The information relating to discounts, nett nett prices, records of sales and their movements over time also fall into this category as do marketing strategies including information given about product comparisons.[64]Ms Adair was given confidential sales information relating to customers in geographical areas other than her own although I find that she had no reason to remember such information. Confidential sales strategies were not confined to specific geographical areas but were deployed across the regions.[65]Whilst Ms Adair was not a scientist or technician, I find that in the course of her work she was given some sales related technical information. She received information from Alistair Couper, Norbrook’s veterinary advisor, on small and large animal products. I also find that information she was given about the relative merits and faults of Norbrook and competitor products is confidential. It is further apparent from comments made by her in her interview with Pfizer that she knew about Norbrook’s work with another company on a particular product. I find that in the course of her employment with Norbrook she was given a limited amount of technical information which is properly to be regarded as confidential. However there was no evidence that Ms Adair was given any or any significant information about early research or development of products.[66]Miss Bothroyd contends that the information in the possession of Ms Adair relating to prices and discounts has a limited shelf life and as it is no longer current is no longer confidential.[67]Since 1st January 2008, Norbrook may well have used a different price list from that which Ms Adair used at the time of her departure. In any event, published list prices would not be confidential information. Whilst the application of discounts to a different base price would result in a different sale price, I find that the information about banded discounts denoted by A, B and C and information relating to the lowest sale price which could be offered for certain sales, is confidential. I find that its usefulness to a competitor is not limited to six months as is contended on behalf of Ms Adair and Pfizer.[68]Further, Miss Bothroyd contends that the sales and marketing information relating to regions other than her own cannot be relied upon to support a restrictive covenant. I find that this information was given to Ms Adair and to other Territory Managers to assist in the performance of their sales functions. The fact that this information was disseminated amongst all the sales team does not put it in the public domain. It was clearly intended to be confidential and I so find. Further, at least one of Ms Adair’s customers was a buying group which operated countrywide.[69]The notes of Ms Adair’s job interview with Pfizer were in the trial bundle. When cross examined about her job interview with Pfizer, Ms Adair said that she was firing off all sorts of examples of sales techniques. She came up with the Letter of Intent and the principle although not the detail of the A, B C discounts. She said that she possibly shouldn’t have mentioned ‘it altogether’. I find that this observation clearly indicated that she appreciates that such information is confidential. Ms Adair said that at her interview she may have discussed Norbrook’s small animal range of products. As borne out by the interview notes, she told Pfizer of Norbrook’s work with another company. She agreed that she had revealed a commercial alliance and that mentioning information about a Norbrook product was probably unwise. She revealed to Pfizer the specific percentage of total sales represented by a particular Norbrook product.[70]I find that the Ms Adair was given confidential information in the course of her employment which Norbrook is entitled to protect. Her conduct during the interview with Pfizer illustrates the way in which such information may be revealed to a competitor.

Customer connection

[71]As a sales person, Ms Adair had the opportunity to build up personal professional connections with customers in her territory. She gave evidence that she had approximately 270 customers and targets in her territory. There were under one hundred five star customers. Ms Adair visited customers on average once every three months. She would spend at most twenty to thirty minutes with each customer, possibly longer with a five star customer. I find that the connection with customers which Ms Adair had the opportunity to establish while employed by Norbrook is a protectable interest. I further find that the interest is particularly in need of protection at the time of renewal of purchasing arrangements when new annual Letters of Intent are to be entered into.[72]I find that Norbrook have established that it has a legitimate interest in protecting its confidential information and customer connection built up or maintained by Ms Adair on its behalf.

No wider than is reasonably necessary?

[73]The reasonableness of a covenant in restraint of trade is to be assessed at the date it is entered into. The parties are agreed that Ms Adair was given and had access to confidential information in the course of her employment. It is accepted on behalf of Ms Adair and I have so found that she had and could be expected to have connections with customers in her territory which Norbrook is entitled to protect. The confidential information to which Ms Adair as a salesperson had access was principally information relating to prices, discounts, sales, sales strategies and customer information including purchasing patterns. Such technical information which she was given was that related to sales which enabled her to effectively market Norbrook’s products and to deal with comparisons with competitor products.[74]It is contended on behalf of Norbrook that Clause 6.1(a) is appropriately limited in scope as to the business in which Ms Adair must not be engaged. Mr Béar submits and I have found that Restricted Business is limited to a pharmaceutical business which is engaged in the manufacture, distribution or development of products which are or are intended to be competitive with any products manufactured, distributed or developed by Norbrook at the date the covenant is to be applied.[75]Mr Béar contends that a non solicitation or non dealing covenant would give insufficient protection to the protectable interests of Norbrook. Such covenants would be difficult or impossible to police. This is illustrated on the facts of this case. Ms Adair revealed confidential sales information regarding discounts in the course of a job interview with a successor.[76]As for the geographical area within which Ms Adair is restrained from working, Mr Béar submits that in the course of her duties Ms Adair came into possession of confidential sales information which covered the whole of the United Kingdom. He challenged the contention advanced by Miss Bothroyd that the geographical scope of a restraint could not be justified by the employer giving the employee non essential confidential information relating to areas beyond that in which she worked.[77]It is submitted by Miss Bothroyd that there is no functional connection between the restraint in clause 6.1(a) and the protectable interests of Norbrook. As was held by the Court of Appeal in Office Angels, those interests could be properly safeguarded by a suitably drawn non solicitation and non dealing covenant. She contends that since Pfizer sell their products on quality rather than price, the confidential pricing information in possession of Ms Adair is not relevant to them. Further, if a non solicitation and non dealing covenant would not give sufficient protection, a covenant against working for a competitor in a particular area should only extend to the territory for which Ms Adair was responsible, the North West of England and Northern Ireland. It should not include the whole of the United Kingdom. Miss Bothroyd contended that the geographical scope of a restraint cannot be enlarged by the employer giving the employee non essential confidential information.[78]Miss Bothroyd submits that the restraint imposed on Ms Adair by Clause 6.1(a) on working for a competitor is wider than is necessary because it prevents her from working for a competitor in any capacity.[79]It is contended on behalf of Ms Adair and Pfizer that the one year period of restraint is longer than is necessary to protect the protectable interests of Norbrook.[80]Miss Bothroyd also submits that the reasonableness of a restrictive covenant depends on the length of service, salary and seniority of the employee to whom it is to apply.[81]Since the protectable interests which Norbrook is entitled to protect include, to a significant extent, confidential information, I find that in the circumstances it is reasonable that a non competition restraint is not confined to restraining Ms Adair from working for a competitor in a sales capacity. There is a real risk, as is illustrated by the facts relating to Ms Adair’s interview with Pfizer, that such information may be revealed irrespective of the capacity in which the employee is employed by a competitor.[82]The fact that Pfizer may not use the confidential sales information of Norbrook is in my judgment immaterial to the enforceability of the restraint in Clause 6.1(a). The reasonableness of a restrictive covenant is to be judged at the date the contract is entered into. At that stage, the parties would not know the sales strategy of any competitor which the employee may later join.[83]In my judgment the period of one year is not an unreasonably long restraint. The evidence established that customers entered into commitments, through Letters of Intent for a period of one year. Thus, Norbrook is vulnerable to competition at renewal time. Customer connection and confidential sales information may be used by a former employee for the benefit of a competitor unless restrained. I find that one year is no longer than is reasonably necessary to protect Norbrook’s confidential information and customer connection.[84]In my judgment it may be arguable that a restraint which would have the effect of denying a covenantee the possibility of earning a living may well be against the public interest. However that is not the effect of the covenants in this case. Further, it cannot be said that there was no consideration for the covenants entered into. In my judgment in this case the pay, £25,000 per annum, does not support a contention that there was no consideration for the restraints. Further, in my judgment, the age, seniority and length of service of Ms Adair do not detract from the fact that she was to have access to confidential information and to be in a position to establish customer connections.[85]The scope of the Restricted Business from which the employee is to be precluded by Clause 6.1(a) is defined by reference to competing products. The competing products which bring a business within scope of Restricted Business are those with which the employee was ‘concerned’ in the last 5 years of his/her employment.[86]If, as I have found, ‘concerned’ in relation to an employee means deals with in the course of his employment to any extent, the restriction would apply in relation to a competing product with which a salesperson had no dealings other than as one of 130 products which he offered for sale.[87]Further, a product causes a business to be a Restricted Business if the employee has been concerned with that competing product at any time in the five years immediately preceding the termination of his employment.[88]Even if ‘concerned’ in Clause 6.1(a)(iv) means ‘concerned to a material extent’, the Clause would trigger the Restricted Business provision in circumstances where a salesperson had been concerned in selling a competing product for Norbrook up to five years before termination of his employment but not at any time since then.[89]In considering the application of a restrictive covenant, fanciful or unlikely scenarios are to be excluded. However, in my judgment, defining Restricted Business by reference to businesses engaged with competitive products which could include those with which a sales person may have a tenuous connection or a connection some time in the past is inappropriate to protect Norbrook’s confidential information or customer connection.[90]The definition of Restricted Business in Clause 6.1(a) is not, in my judgment, related to or apt for the reasonable protection of customer connection. If an employee had been concerned with selling or offering for sale a product within the five year period referred to in Clause 6.1(a)(iv) he would be precluded from working for a competitor regardless of whether he would be dealing with existing or former customers of Norbrook.[91]As is recognised by the prospective one year restraint, I find that most of the confidential sales and sales related information has a limited shelf life. There was no evidence that confidential information relating to sales of products which an employee may have offered for sale within the last five years of his employment but not sold for many years or not at all is likely to have been remembered by an employee. A restriction defined by reference to a business engaged in the manufacture, distribution or development of competitive products which the salesperson may not themselves have sold but which engage the restriction merely by being one of the currently 130 products which he was expected to offer for sale or had sold within the last five years is in my judgment unreasonably wide.[92]The prohibition in clause 6.1(a) is defined generically for all employees, managerial, technical as well salespersons. In my judgment a prohibition on salespersons such as Ms Adair on being employed in a business which manufactures, distributes or develops a product competitive with a product with which she has been ‘concerned’ at any time in the last 5 years of her employment imposes a restriction on her which is wider than is reasonably necessary to protect Norbrook’s protectable interests. Whether such a restraint on a technical or managerial employee would be reasonable is not for determination in these proceedings. I hold that Clause 6.1(a) is not enforceable against Ms Adair as being void in unreasonable restraint of trade.

Clause 6.1(b)

(b) Construction

[93]Clause 6.1(b) restrains an employee from soliciting or transacting business in competition with the business of Norbrook at the date of termination of employment from those who within the period of two years immediately preceding the date of such termination had been customers or prospective customers of the company and where during that two years(i) the employee had direct access to and/or dealings with the customer or prospective customer or(ii) the employee had access to confidential information relating to the customer or prospective customer during the year before the termination of his employment.[94]Contrary to the submission of Mr Béar, I hold that the meaning of the phrase ‘had direct access to’ in Clause 6.1(b)(i) is too uncertain to be enforceable. The phrase ‘direct access’ was no doubt intended to mean something different from ‘dealings with’. It therefore does not or does not necessarily involve personal contact. In my judgement its meaning is wholly unclear. Additionally, the meaning of ‘direct access’ as contrasted with ‘access’ is unclear. There would be no certainty as to the proscribed pool of persons or organisations from whom Ms Adair would be precluded from soliciting or transacting business if that pool were to be defined by reference to customers or prospective customers to whom she had ‘direct access’. In the alternative, Mr Béar submitted that the phrase can be deleted by a blue pencil. I agree that the passage ‘direct access to and/or’ should be deleted from Clause 6.1(b)(i).[95]I have also considered whether the term ‘prospective customers’ is too uncertain to be enforceable but have concluded that with the deletion of ‘have direct access to’, as a matter of construction in context, it is sufficiently certain. I hold that a customer who purchases one product from Norbrook but the company wishes to sell him others on the product list is a customer and not a prospective customer.[96]I hold that the confidential information referred to in Clause 6.1(b)(ii) is that held to be such in this judgment when considering Clause 6.1(a). However I hold that it is information specific to a particular customer and would therefore not include general sales information.

Protectable interests

[97]The protectable interests of Norbrook are the confidential sales related information and customer connection which I have referred to in considering the enforceability of Clause 6.1(a).

Reasonableness

[98]The parties are agreed that a non solicitation and non dealing covenant are appropriate in the circumstances.[99]Mr Béar contended that Clause 6.1(b) imposes no greater a restraint than is reasonably necessary for the proper protection of Norbrook’s interests.[100]Miss Bothroyd disagrees. She submitted that the period of the restraint, one year is unreasonably long. Six months would have sufficed. The shelf life of the protectable confidential information is short.[101]Further, she contends that the precluded pool of customers or prospective customers should not be enlarged simply by the fact that Ms Adair was given general sales information relating to customers outside the geographical area for which she was responsible.[102]Miss Bothroyd contended that the extension of the prohibition to ‘prospective customers’ is greater than is reasonably necessary.[103]I have considered whether the pool of customers from whom the employee is precluded from soliciting business or dealing for a competitor is too large in that it extends to those with whom the employee had dealt in the period of two years immediately preceding the termination of employment. In my judgment a pool limited to such customers is not too wide even though they may not have been customers within the year immediately preceding termination. In my judgment Norbrook are entitled to restrain a salesperson from using his connection with a former customer and from using confidential sales information.[104]However, in my judgment a pool of precluded persons which includes prospective customers with whom Ms Adair dealt within the period of two years before termination of employment would be too wide. These are persons whose custom Norbrook had failed to obtain. In my judgment it would be unreasonable to restrain Ms Adair from dealing with such potential customers who may already be customers of a putative new employer. In my judgment the phrase ‘potential customer/s’ can be blue pencilled from Clause 6.1(b).[105]As for Clause 6.1(b)(ii), although Ms Adair was given confidential sales related information not only concerning the customers in her territory but also to those outside her territory she would have had no personal dealings and therefore no personal professional connection with such customers. There was no evidence to support a conclusion that she would recall the names of a significant number of let alone all such customers in respect of whom she had access to confidential sales information during the year before the termination of her employment. She would therefore not know which customers she was precluded from approaching. Further, there was no evidence that Ms Adair recalled or had reason to commit to memory confidential information specific to customers outside her territory.[106]In my judgment a restraint on soliciting or dealing with customers with whom she had no personal connection and whose specific sales records, discounts and other related information Ms Adair had no reason to recall would be imposing a restraint wider than is reasonably necessary to protect the protectable interests of Norbrook. Accordingly I hold that Clause 6.1(b)(ii) is unenforceable as being in unreasonable restraint of trade.[107]I have already held that by reason of lack of certainty of construction of the phrase, ‘direct access to and/or’ is to be deleted from Clause 6.1(b)(i).[108]I hold that with the deletion of ‘prospective customers’ and ‘direct access to and/or’, Clause 6.1(b)(i) is valid and enforceable.

Conclusion on enforceability of the covenants

[109]Accordingly I hold that Clause 6.1(a) is an unenforceable restraint of trade as it imposes a wider restraint than is reasonably necessary for the protection of Norbrook’s protectable interests.[110]With the deletion by ‘blue pencil’ or severing the words ‘or prospective customers’ and in (i) ‘direct access to and/or’ and ‘or prospective customer’ and the entirety of (ii), I hold Clause 6.1(b) to be enforceable to restrain Ms Adair.

Injunctive relief

[111]Miss Bothroyd contended that even if all conditions for the enforceability of a covenant in restraint of trade were satisfied, the limited discretion to decline injunctive relief to enforce a covenant should be exercised in this case.[112]Miss Bothroyd contended that the effect of enforcing the restraint would preclude Ms Adair from working in the sales area which was her chosen occupation and would lead to a considerable reduction in earnings. Whilst she could obtain employment as a veterinary nurse this would be at a considerably lower salary than that which she could enjoy with Pfizer.[113]In my judgment injunctive relief should be granted. The evidence in this case establishes a real risk of damage to Norbrook if the valid restrictive non solicitation and non dealing covenant were not enforced. Further the evidence does not establish that Ms Adair would suffer exceptional hardship if injunctive relief to enforce Clause 6.1(b) were granted.

Relief against Ms Adair

[114]Ms Adair is to be restrained by injunction for a period of one year from 7th December 2007 from soliciting or transacting business in competition with the business of Norbrook at the date of termination of her employment from any persons, corporations or bodies who within the period of two years immediately preceding the date of such termination had been customers of Norbrook (and whether or not a contract between the customer and Norbrook was in force as at the date of termination of the employment of Ms Adair) and where during the said two years Ms Adair had dealings with such customer. Solicitation or transacting of business would be in competition with that of Norbrook if it is solicitation or transaction of business in products which are in competition with products sold or offered for sale by Norbrook at the date of termination of Ms Adair’s employment.

Relief against Pfizer

[115]Norbrook is entitled to injunctive relief to restrain Pfizer from inducing Ms Adair to breach the provisions of Clause 6.1(b) of her contract of employment which I have held to be enforceable. If during the period of one year from 7th December 2007 Pfizer employs Ms Adair to market or sell products in competition with products which were sold or offered for sale by Norbrook at the date of termination of her employment to persons, corporations or bodies who had been customers of Norbrook within the two years immediately preceding 7th December 2007 and with whom she had dealings during that two year period, Pfizer would be inducing a breach of Clause 6.1(b) of her contract of employment. Further, if Pfizer employed Ms Adair on marketing or selling such competitive products to such customers of Norbrook it would be likely to be inducing her to breach the terms of the Confidentiality Agreement. Accordingly, Norbrook is entitled to injunctive relief to restrain Pfizer from inducing Ms Adair to breach the enforceable provisions of Clause 6.1(b) of her contract of employment with Norbrook and from inducing her to breach the Confidentiality Agreement.

Orders

[116]Injunctions are granted in accordance with the terms of this judgment.

Cited in 9 later judgments