Landmark Brickwork Ltd v Sutcliffe & Ors [2011] EWHC 1239 (QB)

[2011] EWHC 1239 (QB)Case No HQ11X00781
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 17/05/2011
Before
THE HONOURABLE MRS JUSTICE SLADE DBE
Between
Landmark Brickwork LimitedClaimant/AppellantWilliam SutcliffeDefendants/RespondentsPaul ParkhouseRespondentLandmark Groundworks LimitedRespondent
Anthony Korn (instructed by Kyriakides) for ClaimantPaul Nicholls (instructed by CP Law) for First and Third DefendantsHearing Hearing dates: 22 nd March 2011
Judgment
[1]The Claimant, Landmark Brickwork Limited, applies for interlocutory orders against their former Managing Director, William Sutcliffe (the First Defendant), Paul Parkhouse (the Second Defendant) and Landmark Groundworks Limited (the Third Defendant). The Chairman and majority shareholder of the Claimant is George Richardson. The application came on for hearing on 9th March 2011. The First and Third Defendants wished to have a proper opportunity to file evidence in answer to the application. It was adjourned for hearing on 22nd March 2011 with undertakings given by the First and Third Defendants. The Second Defendant did not appear nor was he represented at either hearing.[2]The Claimant company was incorporated in 2002. It is a specialist brickwork and stonework contractor providing services to the commercial and house-building sector. Currently in addition to management and administrative staff, it engages about 36 foremen, 150 bricklayers and about 50 hod carriers.[3]The First Defendant was employed as Managing Director of the Claimant from 28th January 2002 until his summary dismissal on 7th February 2011. He was a business associate of the Second Defendant and now works with the Third Defendant company.[4]The Claimant alleges that in November 2010 the Second Defendant with the First Defendant offered to buy Mr Richardson’s shares. The purchase was to be financed by the Second Defendant. When the offer was rejected, the Claimant alleges that the First and Second Defendants set about establishing a business which was to compete with the Claimant. In order to prepare for engaging in such a business the Claimant alleges that the First Defendant downloaded a list of their clients and their telephone numbers with the names of contacts in those clients. It is said he then deleted that list from the Claimant’s records. The Claimant alleges that he approached staff to induce them to join the new enterprise and took other steps, including, together with the Second Defendant, preparing a business plan for a bank and looking for premises. The vehicle for the new business was originally to be a new company, Harlequin Brickworks Limited. It is alleged that later the First Defendant acting without the Second Defendant decided to use the Third Defendant as a vehicle to channel such competing work to a new company. It is alleged that the First Defendant took and is taking advantage for a competing business of the wrongfully downloaded customer list and of maturing business opportunities of the Claimant learned through his employment and directorship with them.[5]The Third Defendant specialises in groundworks. It is not a direct competitor of the Claimant as it has no involvement in brickwork. However the Claimant alleges that the Third Defendant is being used as a vehicle for the brickwork business of Landmark Shell & Core Limited, a new company incorporated on 18th February 2011 by the First Defendant either jointly with the Second Defendant and/or with the Third Defendant. Brickwork business would be obtained in competition with the Claimant.[6]Helpfully Anthony Korn for the Claimant and Paul Nicholls for the First and Third Defendants have drawn up an agreed record of undertakings given by the First and Third Defendants on 22nd March 2011. Those Defendants agree that these undertakings remain in place. Mr Korn has listed the orders now sought. Many of the orders originally sought are agreed to be covered by undertakings given to the Court.[7]The orders sought against the First Defendant which are not covered by the undertakings given to the Court on 22nd March 2011 fall into two categories. The Claimant seeks to enforce post termination restraints in the contract of service between the Claimant and the First Defendant. The Claimant also seeks to restrain the First Defendant from using or disclosing confidential information of the Claimant, from taking advantage of steps alleged to have been made by him during his employment and while he was a director to work in a business competing with the Claimant. Further an injunction is sought to restrain him from taking advantage of maturing business opportunities of the Claimant. The orders sought against the Second and Third Defendants are related to the relief sought against the First Defendant. The following definitions apply:
“For the purposes of paragraph 1 – ‘relevant services’ shall be defined as ‘masonry services carried out by the Claimant/Applicant (including but not limited to brickwork, stonework and stone cleaning)’. ‘Specified area’ shall defined as ‘(separately and severally) Cambridgeshire, Bedfordshire and those parts of the United Kingdom to the south thereof and any other place in which the Claimant/Applicant operates its business for the purposes for which the First Defendant/Respondent was employed at the date of termination of his employment on 7 February 2011’. ‘Customer’ shall mean ‘any person firm or corporation who or which was at the date of termination of the First Defendant/Respondent’s employment on 7 February 2011 or within the period of twelve months prior to that date had been a customer of the Claimant/Applicant who or which had purchased from the Claimant/Applicant or been supplied by the Claimant/Applicant with any of the ‘relevant services’’.”

The orders sought

[8]On the basis that the First and Third Defendants continue to agree to be bound by the undertakings given to the Court on 22nd March 2011, the Claimant now seeks the following Orders against each of the Defendants. The First Defendant “1. The First Defendant/Respondent shall not from 7th February 2011 for a period of six months, or until trial or further order (whether in a personal capacity or on behalf of a third party (including without limitation, Harlequin Birckwork Limited, Landmark Groundworks Limited or Landmark Shell & Core Limited)):- (a) be employed or engage in any capacity in any business consisting of or involving the distribution or sales of any of the ‘relevant services’ within the ‘specified area’ (as defined below); … (c) seek or solicit or canvass or make any attempt to obtain orders for any of the ‘relevant services’ from any of the Claimant’s/Appellant’s customers (as defined below) identified on the list attached hereto (marked ‘A’); (d) accept orders for any of the ‘relevant services’ from or supply of the ‘relevant services’ to any of the Claimant/Applicant’s customers identified on the list attached hereto (marked ‘A’) (as defined below); (e) do any business with any of the Claimant’s/Applicant’s customers identified on the list attached hereto (marked ‘A’) (as defined below) in relation to any of the ‘relevant services’; … (g) seek to persuade or induce any of the suppliers to the Claimant/Applicant in connection with any of the ‘relevant services’ carried on by the Claimant/Applicant to cease to be a supplier to the Claimant/Applicant including without limitation to the foreman on the list attached (marked ‘D’). 2. Further, or in the alternative, the First Defendant/First Respondent for period of six months from 7th February 2011 or until further order shall be retrained from: (i) using on behalf of himself or disclosing to the Second or Third Defendant or Landmark Shell & Core Ltd or any other corporate or other business entity, the list of client names and contact details which the First Defendant wrongfully downloaded prior to the termination of his employment and that the First Defendant/First Respondent be ordered forthwith to identify each and every contact name and number on that list; (ii) soliciting custom from any of the customers identified on the list attached hereto (marked ‘A’) (order sought if no order made under 1(c)); … (v) seeking to persuade or induce any of the suppliers of the Claimant/Applicant in connection with the ‘relevant services’ as defined above to cease to be a supplier to the Claimant/Applicant including without limitation to the foreman on the list attached hereto (marked ‘D’) (order sought if no order made under 1(g)). … 8. The First Defendant/Respondent identify to the Claimant’s/Applicant’s solicitors every tender submitted by him either jointly or severally prior to the termination of his employment with the Claimant/Applicant on 7 February 2011 and thereafter until 22.3.11 and disclose the relevant tender documentation in respect to any tender submitted jointly or severally based on any information obtained by the First Defendant/Respondent in the course of his employment on or before close of business on the date of judgment herein.” The Second Defendant[9]The following orders are sought against the Second Defendant with my addition of the date for compliance:
“2. The Second Respondent deliver up to the Applicant’s solicitors, being Kyriakides & Braier, all documents (howsoever held) or copies thereof or any other property of the Applicant’s which the First Respondent has wrongfully retained after the termination of his employment on or before close of business 14 days after judgement herein and/or if you are not in possession of any such property, swear an affidavit to that effect on or before close of business 14 days after judgment herein. 3. The Second Defendant/Respondent disclose to the Claimant’s solicitors, all documentation relating to Harlequin Brickwork Limited including any business plan prepared by the First Defendant/Respondent either alone or jointly with the Second Defendant whether or not the said plan was submitted to Barclays Bank on or before close of business 14 days after judgment herein.”
The Third Defendant[10]The following orders are sought against the Third Defendant:
“The Third Defendant/Respondent shall not from the date of hearing for a period of six months, or until trial or further order employ or engage the First Defendant/Respondent in any capacity in any business consisting of or involving the distribution or sale of any of the ‘relevant services’ within the ‘specified area’ (as defined below) and/or deal with any of the Claimant’s/Applicant’s customers or suppliers which have been introduced to the Third Defendant/Respondent either directly to indirectly by the First Defendant/Respondent. 2. Further or in the alternative, the Third Defendant/Respondent shall not induce the First Defendant to act in any manner to breach the undertakings given or orders made against the First Defendant/Respondent. 3. The Third Defendant/Respondent identify to the Applicant’s solicitors, being Kyriakides & Braier, every tender submitted by the Third Defendant/Respondent based on the confidential information disclosed by the First Defendant in relation to maturing business opportunities either jointly with the First Defendant/Respondent or Landmark Shell & Core Limited since the First Respondent started working for the Third Defendant/Respondent in any capacity whatsoever by close of business 14 days after judgment herein.”

The contentions of the parties

[11]In summary Mr Korn contends that the Claimant has established all the prerequisites of obtaining interlocutory injunctions. The American Cyanamid Co v Ethicon [1975] AC 396 test is satisfied: there is a serious issue to be tried both as to the existence and enforceability of the express post termination restrictive covenants in the First Defendant’s contract with the Claimant. There is also a serious issue to be tried as to restraining the First Defendant, from using the Claimant’s confidential information as a ‘springboard’ to engage in a competing business and taking advantage of the Claimant’s maturing business opportunities. It is said that on the basis of their alleged role in setting up and engaging with the First Defendant in a business in competition with the Claimant, the Second and Third Defendants induced and knowingly took the benefit of such breaches of contract and duties of fidelity of the First Defendant. Further it is said that the Second Defendant has been engaged in a conspiracy to injure the Claimant by unlawful means by diverting business opportunities from the Claimant either to Harlequin Brickworks Limited or to the Third Defendant.[12]Mr Korn on behalf of the Claimant further contends that damages would be an inadequate remedy for these breaches as they would be difficult to establish and to quantify. It would be difficult to find out what confidential information of theirs had been used by the Defendants or maturing business opportunities lost as a result of their activities. Generally it would be difficult to establish the value of the business lost as a result of the First Defendant’s breaches of contract and fiduciary duties and the other Defendants’ inducement of such breaches.[13]Further it is submitted that the balance of convenience favours the granting of the relief sought. The First Defendant’s actions are putting the livelihood of the Claimant’s employees at risk.[14]It is said that whilst the Claimant is able to give a cross undertaking in damages, as with many in the building trade, in a time of recession the Claimant is particularly vulnerable to the kind of action taken by the Defendants.[15]Mr Korn contends that there can be no objection to the additional orders sought against the Defendants for delivery up of documents and disclosure of information relating to the First Defendant’s relationship with Landmark Shell. Further it is said that there can be no objection to disclosing information relating to tenders for business which has been submitted for the new business.[16]For the First and Third Defendants Paul Nicholls contended that interim injunctive relief should be refused because there were real doubts about the Claimant’s ability to meet their cross undertaking in damages. As was held by the House of Lords in F Hoffman La Roche v Secretary of State [1975] AC 295 if a cross undertaking in damages is inadequate, injunctive relief should be refused. Mr Nicholls drew attention to the fact that the draft accounts of the Claimant to December 2010 reveal a significant loss. No guarantee is offered by another of Mr Richardson’s companies, Richardson Roofing Company, nor by Mr Richardson personally. It was said that to grant the injunctive relief sought would prevent the First Defendant from competing with the Claimant for up to six months which is unacceptable if they cannot provide adequate assurance that the cross undertaking in damages would be met.[17]It was submitted by Mr Nicholls on behalf of the First and Third Defendants that there is no serious issue to be tried in respect of the orders now sought.[18]The post termination restraints alleged to be in the contract of employment of the First Defendant in respect of which no undertaking has been offered are said on behalf of the First and Third Defendants to be unenforceable as imposing a greater restriction than is necessary to protect the protectable interests of the Claimant.[19]As for the ‘springboard’ orders sought, Mr Nicholls contends that the evidence on behalf of the Claimant does not deal with the period of the head start for the new business wrongfully obtained which is the justification for a Bullivant v Ellis [1987] IRLR 491 injunction. He submitted that in any event such a period has already elapsed. Further, objection is taken to orders restraining the accepting of orders from or doing business with specified customers. It is said that such orders would ignore previous contacts which the First Defendant had with the Claimant’s customers.[20]The First and Third Defendants oppose the order sought requiring them to identify to the Claimant’s solicitors every tender submitted by them jointly or severally based on confidential information of the Claimant disclosed by the First Defendant since he started work for the Third Defendant. Mr Nicholls submitted that disclosure in the proceedings should take its normal course.[21]Mr Korn on behalf of the Claimant has helpfully indicated that no interlocutory injunctions are now sought against the Second Defendant. However the claims against him are not abandoned. Orders are sought for the delivery up of all documents in the Second Defendant’s possession which were wrongfully retained by the First Defendant after the termination of his employment or if there are none such, that he swear an affidavit to that effect. An order is also sought that the Second Defendant preserve all documentation relating to Harlequin Brickwork Limited, alleged to be the corporate vehicle originally proposed for the competing business of the First and Second Defendants. Such documentation is said to include a business plan for such business prepared by the First Defendant either alone or jointly with the Second Defendant.

Discussion

[22]It is not the role of the Court at the interlocutory stage to try the case on the statements. Whilst the application was adjourned to enable the Defendants to lodge evidence in reply to that of the Claimants the value of such evidence at this stage is to enable an assessment to be made of whether there are serious issues to be tried as to the adequacy of damages and as to the balance of convenience. Accordingly no findings of fact will be made.[23]In this judgment only the entitlement to the interlocutory orders in respect of which undertakings acceptable to the Claimant have not been given will be considered.

The Evidence

[24]For the purpose of this interlocutory application the following witness statements were placed before the Court: For the Claimant:• Witness statements of George Richardson dated 2.3.11 and Exhibit dated 21.3.11• Witness statements of Geoffrey Seaforth dated 1.3.11 and Exhibit dated 18.3.11• Witness statement of Chloe Fisher and Exhibit dated 2.3.11• Witness statement of Martin Duffield dated 1.3.11• Witness statement of John Stamper dated 2.3.11• Witness statements of Daniel Hogan dated 1.3.11 and 17.3.11• Witness statement of Glyn Frost dated 1.3.11• Witness statement of Jason Bates dated 2.3.11• Witness statements of Andrew Robins dated 7.3.11 and Exhibit dated 18.3.11 For the First and Third Defendants:• Witness statements of William Sutcliffe (First Defendant) dated 11.3.11 and Exhibit dated 15.3.11• Witness statements of Michael Johnson (for the Third Defendant) dated 13.3.11 and Exhibit dated 13.3.11 The Second Defendant did not serve a statement but two letters from him, one undated but acknowledging receipt of correspondence from the Claimant’s solicitors dated 3rd March 2011 and one dated 7th March 2011 were before the Court.

Express post termination covenants in the contract of the First Defendant with the Claimant

[25]The Claimant contends that the First Defendant agreed to a new contract on or after 25th September 2005 which contained the post termination restraints in what has been called Service Agreement Number 3.[26]The First Defendant was engaged on 28th January 2002 as Executive Director of the Claimant on terms set out in an agreement in a letter of that date. The 2002 Agreement included Non-Solicitation provisions in Clause 11.[27]Minutes of a Director’s meeting of the Claimant held on 28th September 2005 recorded:
“New Contracts New contracts of employment were issued, these being based upon the old contracts with slight amendment, any amendments to be notified by end of next week or contracts to be returned signed.”
[28]There is a significant difference in the accounts given in the statements of Mr Richardson and the First Defendant as to which contractual terms were agreed. Minutes of a Board Meeting of 10th February 2006 record amendments to the First Defendant’s contract, however he contests the accuracy of the minutes. Mr Richardson states that the amended version of the contract 3575987.05 (Service Agreement 3) was signed by him and the First Defendant immediately after the meeting but the date of the final Agreement was not amended. Service Agreement 3 includes the post termination covenants which the Claimant seeks to enforce. The First Defendant does not accept that he is bound by Service Agreement 3 as he states that he had not seen it until it was sent with his suspension and termination letters.[29]The First Defendant states that he amended and signed the version of the Service Agreement numbered 3575987.06 (Service Agreement 2). Post termination restrictions were deleted in the version of Service Agreement 2 which the First Defendant states that he agreed to and worked under.[30]The significant and material difference in the accounts given by Mr Richardson on behalf of the Claimant and the First Defendant as to which Service Agreement was entered into by the parties cannot be resolved without hearing oral evidence. There is clearly a serious issue to be tried as to whether or not the First Defendant entered into a contract of service with the Claimant which contained the post termination restrictions relied upon by them.

The enforceability of the post termination restrictions in Service Agreement 3

[31]Since there is a serious issue to be tried as to whether the First Defendant entered into a Service Agreement containing the post termination restrictions relied upon I will consider whether there is a serious issue to be tried as to the enforceability of those restrictions.[32]The principles to be applied in determining whether a post termination restriction is enforceable against a former employee are well known. Such restrictions must impose no greater restraint than is necessary to protect the protectable interests of the Claimant. Those protectable interests are confidential information and customer connection. If this matter proceeds to trial the authorities in this area will no doubt be considered in detail. However at this stage it is convenient to take the relevant principles applicable to the restraints in respect of which no undertakings have been offered from the judgment of the Court of Appeal in Office Angels Ltd v Rainer Thomas and O’Connor [1991] IRLR 214.

Area Covenant

[33]The Claimant seeks an order that the First Defendant/Respondent shall not from 7th February 2011 (the date of termination of his employment) for a period of six months or until trial or further order (whether in a personal capacity or on behalf of a third party (including without limitation, Harlequin Brickwork Limited, Landmark Groundworks Limited or Landmark Shell & Core Limited)):- “(a) be employed or engage in any capacity in any business consisting of or involving the distribution or sales of any of the ‘relevant services’ within the ‘specified area’ (as defined below); … For the purposes of paragraph 1:- ‘relevant services’ shall be defined as ‘masonry services carried out by the Claimant/Applicant (including but not limited to brickwork, stonework and stone-cleaning)’. ‘Specified area’ shall be defined as ‘(separately and severally) Cambridgeshire, Bedfordshire and those parts of the United Kingdom to the south thereof and any other place in which the Claimant/Applicant operates its business for the purposes for which the First Defendant/Respondent was employed at the date of termination of his employment on 7 February 2011’.”

For the purposes of paragraph 1:-

[34]The definitions of ‘relevant services’ and ‘specified area’ repeat the definitions of those terms in Appendix 3 of Service Agreement 3. The restraint sought by paragraph 1(a) of the Draft Order does not exactly repeat paragraph 3(f) of Appendix 3 to Service Agreement 3 in that the order sought refers to a prohibition on the First Defendant being employed or engage in specified business and the contractual provision ‘carry on or be engaged or interested in such business’. Rightly no point is taken by Mr Nicholls on these differences. ‘Be interested’ could have been ‘blue pencilled’ from the clause as it would be likely to be unenforceable as including having a shareholding in a competing business, however small.[35]A covenant imposing post termination restraints on an employee of whatever seniority must be certain in its scope to be enforceable. Courts consider the need for area covenants with care to ascertain whether this type of covenant and its scope imposes greater restraint than is reasonably necessary to protect the claimant’s protectable interests. Mr Nicholls rightly derived two relevant propositions from Office Angels. First in considering the reasonableness of this type of covenant, an area covenant, the Court is entitled to consider whether or not a covenant of a narrower nature would have sufficed for the covenantee’s protection (paragraph 50). Secondly to show that an area covenant is no wider than is necessary for the protection of trade connection a Court must be satisfied that there is a real functional correspondence between the prescribed area and the area in which the Claimant operates (paragraph 59). The Court in Office Angels also considered the number of other competitors operating in the prescribed area as relevant to the reasonableness of the area restraint.[36]A frequently advanced rationale for an area covenant is that breaches of non solicitation or non dealing covenants are difficult to detect. The proscribed area in this case includes those parts of the United Kingdom to the South of Cambridgeshire and Bedfordshire. Mr Nicholls produced a map at the hearing on 22nd March 2011 to demonstrate the area covered. Applying the description of the area given by Mr Korn, its outer limits followed the north and west borders of Buckinghamshire, crossed Berkshire near Reading, skirted the eastern border of Hampshire and descended vertically to the south coast at Selsey. The eastern border of the area followed the eastern border of Cambridgeshire and descended southwards.[37]There was no evidence that such a map or description of the area said to be covered by the restraint in Service Agreement 3 Appendix 3 paragraph 3(f) was attached to any of the versions of the First Defendant’s Service Agreement.[38]It is uncertain whether ‘any other place in which the Company operates its business for the purposes for which the Executive was employed’ means any building site to which the Claimant provides services or any place where the office of the purchaser of the services is located or the place or places where the Claimant has offices or depots. Whilst a term in a restrictive covenant will be construed in context, there is no material from which it is said that the words ‘any other place’ derive a specific and certain meaning. Is ‘a place’ a town, a building or an office?[39]Mr Korn did not seek to ‘blue pencil’ the definition of specified area deleting everything but Cambridgeshire and Bedfordshire whether using the ‘or severally’ wording in the clause or otherwise. In my judgment the geographical reach of the area restraint is far too uncertain to be enforceable. No map showing its reach was appended to any of the versions of the First Defendant’s Service Agreement. Although Mr Korn made a valiant attempt to show where ‘those parts of the United Kingdom to the South’ of Cambridgeshire and Bedfordshire lay, the geographical reach of an area to the south of the named counties is inherently uncertain. Further, for the reasons set out above, the concept of a place where the Claimant operates its business is also uncertain. In addition, no evidence was adduced to establish any or any sufficient functional correspondence between the prohibited areas and those in which the Claimant operates. Nor was evidence adduced to support the reasonableness of seeking to exclude the First Defendant from working in a competing business in the prescribed area.[40]In my judgment on the material before me there is no serious issue to be tried as to the enforceability of the area covenant in Service Agreement 3 Appendix 3(f).[41]The Claimant seeks orders that the First Defendant be restrained for six months from 7th February 2011 or until trial or further order from soliciting, canvassing or attempting to obtain orders for ‘relevant services’ or accepting orders or doing any business with the Claimant’s customers on a list marked ‘A’.[42]‘Customer’ for the purpose of the order sought is defined as any:
“…person firm or corporation who or which was at the date of termination of the First Defendant’s/Respondent’s employment on 7 February 2011 or within the period of twelve months prior to that date had been a customer of the Claimant/Applicant who or which had purchased from the Claimant/Applicant or been supplied by the Claimant/Applicant with any of the relevant services.”
[43]By the restraints sought in paragraphs 1(c), 1(d) and 1(e) of the Draft Amended Order the Claimant seeks to enforce paragraphs 3(a), (b) and (d) of Appendix 3 of Service Agreement 3. The definition of ‘the Company’s customers’ in the contractual provision includes a sub-clause which is absent from the definition in the order sought. The following additional provision is:
“(ii) a person firm or corporation with whom or which the Executive had in the course of his employment had any dealings or negotiations for the purposes of or with a view to that person firm or corporation purchasing from the Company or being supplied by the Company with any of the Relevant Services.”
[44]Paragraph 2 Appendix 3 of Service Agreement 3 sets out the interests of the Claimant to be protected by the post termination restraints. By paragraph 2(a) the First Defendant acknowledged that he had obtained and was likely to obtain in the course of his employment with the Claimant connections with the Claimant’s customers and ‘knowledge or confidential information concerning [their] commercial requirements…’. He also acknowledged in paragraph 2(b) that the Claimant had ‘a legitimate commercial interest in safeguarding the goodwill of the Company and its customer connections.’[45]The principal point taken by Mr Nicholls in resisting the non-solicitation, non-accepting and non-dealing orders is that the customers in relation to whom the First Defendant would be restrained from so acting are not limited to those with whom he had personal dealings in the course of his employment with the Claimant.[46]It is to be noted that the contractual provision on which the order sought is based includes a sub clause defining customers by reference to those with whom the First Defendant had dealings in the course of his employment. It is not clear whether a proper construction of the contractual definition of ‘the Company’s customers’ would treat that requirement of personal dealings in (ii) as cumulative and not as alternative to (i). The order sought treats the two as independent from each other.[47]In the course of his employment the First Defendant had access to confidential information relating to the Claimant’s business and dealings with their customers. As Managing Director he could be expected to have information including that about pricing and customers’ requirements. He would also have had the opportunity of building up relationships with customers of the Claimant. These interests are appropriately protected by non-solicitation covenants. Because of the difficulty in determining whether a customer has approached a covenantor or been solicited by him, a non-dealing covenant may also be acceptable. In my judgment it is likely that the phrase in paragraph 3(d) of Appendix 3 to Service Agreement 3 ‘doing any business with’ the Claimants’ customers would be likely to be held materially indistinguishable from ‘dealing with’. Paragraph 3(d) is to be construed in the context of all the provisions in Paragraph 3. Having regard to the fact that there a separate restraint on ‘accepting orders’ in Paragraph 3(b), in my view at this interlocutory stage, in order to give content to both provisions, Paragraph 3(d) does not include what would otherwise be otiose: a prohibition on accepting unsolicited business. However in my judgement in being the passive recipient of an order, the First Defendant would not be making use of customer connection or confidential information. There is no serious issue to be tried as to the enforceability of Appendix 3 paragraph 3(b).[48]The period of restraint, six months, is not said to be unarguably too long and the restriction is confined to ‘Relevant Services’.[49]Had the First Defendant not been a senior executive, the point made by Mr Nicholls that the restraints sought are objectionable because he is to be restrained from doing business with customers with whom he may have had no personal dealings may have had considerable force. I note that the contractual provision which is the basis for the order sought does not arguably include the limitation that the customers whom or which the First Defendant is to be restrained from dealing are those with whom he had personal dealings in the course of his employment. However, having regard to the position of the First Defendant as Managing Director, in my judgment there is a serious issue to be tried as to whether these otherwise enforceable covenants are unenforceable by reason of the absence of a limiting requirement in the order sought that he should have had personal dealings with those customers to whom or which the restriction is to be applied. By reason of his position as Managing Director it could be said that he would be likely to be in possession of confidential information in relation to and influence over customers whether or not he had personal dealings with them. Further, the significance of the contention that some customers were those with whom the First Defendant had personal dealings before he joined the Claimant can be determined at trial. In my judgment there is a serious issue to be tried as to the enforceability of paragraphs 3(a) and (d) of Appendix 3 of Service Agreement 3.

Interference with supplies

[50]The Claimant seeks an order that the First Defendant be restrained for six months from 7th February 2011 or until trial or further order from seeking to persuade or induce any of the suppliers to the Claimant in connection with any ‘Relevant Services’ to cease to be such. These include the foremen on the list marked ‘D’ attached to the Amended Draft Order.[51]At the hearing of this application on 9th March 2011 the First Defendant gave an undertaking “not to seek to persuade or induce any of the suppliers to the Claimant in connection with any of the ‘relevant services’ carried on by the Claimant to cease to be a supplier to the Claimant. ‘Relevant Services’ being defined as ‘Masonry Services carried on by the Claimant (including but not limited to brickwork, stonework and stone cleaning).” The undertaking did not include the additional provision:
“including without limitation the foremen on the list attached (marked ‘D’).”
[52]The undertaking given on 9th March 2011 reflects the provision in paragraph 3(e) of Appendix 3 of Service Agreement 3. The period of such restriction is six months from 7th February 2011. In my judgment there is a serious issue to be tried as to whether the provision is enforceable to protect confidential information and connections and as to whether foremen are to be regarded as ‘suppliers’ within the meaning of the contractual provision.

Springboard orders

[53]The Claimant relies upon Roger Bullivant Ltd v Ellis [1987] IRLR 491 for the proposition that subject to American Cyanamid interim injunctions can be granted to prevent former employees from obtaining an unjust headstart or a springboard for activities detrimental to the employer by using confidential information wrongfully obtained in the course of their former employment. In Bullivant an employee took a card index belonging to his former employers which contained the names and addresses of potential customers and of particular individuals to be contacted. The Court of Appeal held that Falconer J had not erred in granting an injunction restraining the defendants from contracting with persons whose names appeared on the card index. However an appeal by the former employee succeeded because the Court of Appeal held that the period of injunction should have been limited to the period of unfair advantage thus obtained.[54]By paragraph 2(i) of the Draft Amended Order, the Claimant seeks an injunction to restrain the First Defendant from using or disclosing a list of client names and contact details which he wrongfully downloaded prior to the termination of his employment. Further, an order is sought requiring the First Defendant to identify every contact name and number on the list.[55]The form of relief sought by the Claimant in this case is not a ‘springboard’ order in the sense that term was used in Bullivant. It does not seek to restrain the First Defendant from contracting with those customers on the list alleged to have been wrongfully downloaded. Rather it seeks to prevent use after termination of employment or disclosure of such confidential information which is in the second category described in Faccenda Chicken Ltd v Fowler [1986] ICR 297.[56]The Court of Appeal in Faccenda considered whether the obligation not to use or disclose an employer’s information continues after the termination of employment in the absence of an express restriction to that effect. Neill LJ giving judgment of the Court held at page 309 that the obligation not to use or disclose information may cover secret processes and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret, but “the obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only ‘confidential’ in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith.”[57]The downloading of customer lists for his own purposes would be a breach of the First Defendant’s duty of fidelity. In Robb v Green [1895] 2 QB 315 an injunction was granted to restrain the use and disclosure after termination of employment of a list of customers and their addresses which had been obtained in breach of the duty of fidelity notwithstanding that none of the information on the list was in itself confidential. In Bullivant Nourse LJ held at page 495 paragraph 24:
“In my judgment it is of the highest importance that the principle of Robb v Green which, let it be said, is one of no more that fair and honourable dealing, should be steadfastly maintained.”
[58]The period of the order sought against the First Defendant is the same as the express covenants: six months from 7th February 2011. No point was taken that this period was too long in respect of the express covenants. It could therefore be said to be a reasonable estimate of the unfair advantage obtained by the use of the customer information wrongfully downloaded by the First Defendant.[59]There is a serious issue to be tried as to whether the Claimant is entitled to the substantive interlocutory relief claimed in paragraph 2(i) of the Draft Amended Order.[60]Since I have held that there are serious issues to be tried in relation to the orders sought in paragraphs 1(c), 1(e) and 1(g) it is not necessary to consider those sought in draft orders 2(ii) and (v).

Identification and disclosure orders

[61]An order is sought that the First Defendant identify each and every contact name and number on the list alleged to have been wrongfully downloaded by him. Mr Korn explained that such information was no longer available to the Claimant as those details were alleged to have been wrongfully deleted by the First Defendant. Mr Korn contends that the order sought is distinguishable from that which was the subject of Hays Specialist Recruitment (Holdings) Ltd v Ions and another [2008] IRLR 904. He contends that the order sought was not to enable the claimants to plead their case but in order to give effect to the substantive interlocutory injunction sought, which is that the First Defendant be restrained from using or disclosing client names and contact details wrongfully downloaded by him.[62]Mr Nicholls contends that an order that the First Defendant provide such information would in the words of Mackay J in Aon Ltd v JLJ Reinsurance Brokers [2010] IRLR 600 at paragraph 26 be to “…subvert the normal accusational basis of our litigation, where the horse precedes the cart, into an inquisitorial one starting from an assumption that guilt has been proved…”[63]If the First Defendant had downloaded the Claimant’s client list for his own purposes he would have done so in breach of his duty of fidelity. As was made clear by Nourse LJ in Bullivant the principle in Robb v Green is to be maintained, that an employee who has obtained such a list in breach of his duty of fidelity can be restrained from using or disclosing it. In my judgment, as was decided by Jack J in an interim injunction hearing in Tullett Prebon Plc v BGC Brokers [2009] EW ITC 819 (QB) at paragraph 18 cited in Aon at paragraph 22:
“…In broad terms, they are entitled to information which is required either to assist in giving effect to the injunctory relief, or to assist them in undoing the harm which has been unlawfully done.”
[64]By paragraph 8 of the Amended Draft Order the Claimant also seeks an order that the First Defendant identify to the Claimant’s solicitors every tender submitted by him either jointly or severally prior to the termination of his employment with them on 7th February 2011 and thereafter until the date of judgment in this interlocutory application and disclose the relevant documentation in respect of any tender based on any information obtained by the First Defendant in the course of his employment.[65]An order requiring the First Defendant to disclose tenders falls the wrong side of the line when applying the principles considered in Aon. In my judgment an order for identification and disclosure of tenders submitted by the First Defendant is not required to assist in giving interlocutory relief or to assist in undoing any harm to the Claimant’s business which has been unlawfully done. Rather it may assist the Claimant in establishing their claim. An order requiring such information to be given would be putting the cart before the horse and is refused.

The Second Defendant

[66]The Claimant seeks an order that the Second Defendant deliver up to their solicitors all documents (however held) or copies thereof or any other property of the Claimant which the First Defendant has wrongfully retained after termination of his contract or if the Second Defendant is not in possession of any such property, swear an affidavit to that effect. Both acts are to be done on or before close of business on a date to be specified.[67]An order is also sought that the Second Defendant preserve all documentation relating to Harlequin Brickwork Limited including any business plan prepared by the First Defendant either alone or jointly with the Second Defendant whether or not the said plan was submitted to Barclays Bank Plc.[68]The Second Defendant did not appear and was not represented at the hearings of the interlocutory applications. In response to a letter of 3rd March 2011 he wrote:
“Further to receipt of your correspondence dated 7th March 2011, Mr Seaforth and Mr Bates where [sic] invited to a meeting regarding a possible new venture which they both attended of their own free will, they were aware of the contents of the meeting prior to them attending. For the record there is no venture established between Mr Sutcliffe and myself. I have set up Harlequin Brickwork Ltd for my own use in the future.”
[69]The relevance of Harlequin Brickwork Ltd to the Claimant’s claim is that they allege that the First Defendant originally planned to use that company as a vehicle for setting up a business in competition with the Claimant. They allege that a business plan for such an enterprise was prepared for submission to Barclays Bank Plc.[70]The Second Defendant writes that he is not in possession of any of the Claimant’s documentation and that no business plan was produced for Harlequin Brickwork Ltd.[71]The second witness statements of Mr Robins and of Mr Richardson regarding the information recovered from the Claimant’s computer which had been in the possession of the First Defendant may cast some doubt on the Second Defendant’s denials of the existence of a business plan for Harlequin Brickwork Ltd. Further they suggest he may have been privy to confidential information of the Claimant regarding expected new contracts for 2011 (see second witness statement of Mr Richardson of 21st March 2011 paragraph 6). However in my judgment an order against the Second Defendant in terms of paragraph 4 would infringe the principles considered in Aon. It would not assist in giving effect to the interlocutory injunctive relief sought or assist in undoing the harm continuation of which that relief is designed to prevent.[72]In my judgment the order sought that the Second Defendant preserve all documentation relating to Harlequin Brickwork Ltd is far too wide ranging. It is not confined to documentation or activities of Harlequin Brickwork Ltd with which the First Defendant was involved and is unlimited in time. However the Second Defendant is ordered to preserve all documents relating to any business plan for Harlequin Brickwork Limited prepared by him whether alone or jointly with the First or Third Defendant.[73]Save as provided in paragraph 72 above, the orders sought against the Second Defendant are refused.

The Third Defendant

[74]An order that the Third Defendant be restrained from employing or engaging the First Defendant in business consisting of or involving the distribution or sale of any of the ‘relevant services’ within the specified area is refused. The area covenant in the First Defendant’s contract of service in unenforceable for the reasons set out earlier in this judgment.[75]As for the order sought in paragraph 2 there is a serious issue to be tried as to whether the Third Defendant was a participant with the First Defendant enabling or inducing him to breach his obligations to the Claimant.[76]The order sought against the Third Defendant in paragraph 3 of the Amended Draft Order was amended during the course of the hearing on 22nd March 2011 so that it would apply to tenders based on confidential information disclosed by the First Defendant in relation to maturing business opportunities. The order to identify every tender submitted by the Third Defendant which was based on confidential information disclosed by the First Defendant in relation to maturing business opportunities is related to the order sought in paragraph 4 of the Amended Draft Order. By that paragraph the Claimant seeks an order that the Third Defendant immediately withdraw any tender which has been submitted based on or which included confidential information provided to it by the First Defendant either directly or indirectly.[77]The mandatory injunction sought requiring the Third Defendant to withdraw any tender submitted based on or which included confidential information provided by the First Defendant would effectively be a final not an interlocutory order. In these circumstances the citation by Phillips LJ (as he then was) in Zockoll Group Ltd v Mercury Communications Ltd [1998] FSR 354 of Chadwick J (as he then was) in Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 at page 474 is apposite. “First, this being an interlocutory matter, the overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be 'wrong' in the sense described by Hoffmann J. Secondly, in considering whether to grant a mandatory injunction, the court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage, may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action. thereby preserving the status quo. Thirdly, it is legitimate, where a mandatory injunction is sought, to consider whether the court does feel a high degree of assurance that the plaintiff will be able to establish this right at a trial. That is because the greater the degree of assurance the plaintiff will ultimately establish his right, the less will be the risk of injustice if the injunction is granted. But, finally, even where the court is unable to feel any high degree of assurance that the plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if this injunction is refused sufficiently outweigh the risk of injustice if it is granted.”[78]Mr Nicholls relied upon Universal Thermosensors Ltd v Hibben [1992] 1 WLR 840 at page 854 C-D to contend that if there had been past disclosure of confidential information the remedy is damages not an injunction to prevent the fulfilling of an order obtained using such information.[79]The claim against the Third Defendant is one of participating in or inducing a breach of his fiduciary duty by the First Defendant exploiting after the termination of his employment a maturing business opportunity of the Claimant of which he was a director.[80]Unlike Bullivant the order sought is not inhibitory but mandatory. Although the information recovered from the Claimant’s computer which was used by the First Defendant may be relied upon to suggest that he had obtained information about maturing business opportunities which he may have intended to use for his own purposes, on the material available at this interlocutory stage the Court does not feel the ‘high degree of assurance’ that the Third Defendant has participated in or induced misuse or appropriation of maturing business opportunities of the Claimant. Without that high degree of confidence that the Claimant would establish their claim in this regard at trial I decline to make the order sought in paragraph 4.[81]The basis for making an order in the terms of that sought at paragraph 3 would be that it is in support of the order in paragraph 4. Since no such order is made, it is declined.

Breaches and threatened breaches

[82]Although the allegations of breaches of contract and of tortious acts are challenged it has not been suggested that there is no evidence before the Court of breaches of contract and tortious acts.

Adequacy of damages and of the cross-undertaking

[83]It is not suggested that damages would be an adequate remedy for the Claimant. As is usual in cases such as this breaches of covenant and fiduciary duty are difficult to detect and consequential damage difficult to prove.[84]Mr Nicholls has questioned the adequacy of the cross-undertaking in damages to be given by the Claimant. He referred to the observation of Lord Diplock in American Cyanamid that if no cross-undertaking is given or if the cross-undertaking offered is inadequate interim injunctive relief should be refused ([1975] A 295, 351 A-C, 353 G – 356 B, 360 F, 370 H – 371 A). Mr Nicholls refers to the Claimant’s Draft Audited Accounts of Richardson Roofing Holdings Ltd, the group of which the Claimant is a member, for the year ended 31st August 2010. These show a profit before tax of only £168,161.[85]Whilst the balance sheet of the Group of which the Claimant is a member showed a small profit for the year to August 2010 that evidence is insufficient to demonstrate that the Claimant’s undertaking in damages is inadequate. The Claimant is an established company which has been trading for a number of years and engages over two hundred workers. In his first statement Mr Richardson gave the turnover for the year ended 31st January 2010 as £8,188,940 with pre-corporation tax profit for the period of £203,335.

Balance of convenience

[86]Mr Korn contends that the balance of convenience lies firmly with the Claimant. The evidence shows that the First Defendant has acted and would, if unrestrained, continue to act to damage the Claimant’s business. Although Mr Richardson does not accept that the Claimant’s business is in a particularly precarious state it is vulnerable to the kind of action taken by the Defendants and would suffer irreparable harm if these were allowed to continue.[87]No factors other than denying wrongdoing and questioning the ability of the Claimant to meet their cross-undertaking in damages are relied upon to suggest that the balance of convenience is against granting the interlocutory relief sought.[88]In my judgment the balance of convenience favours the granting of the interlocutory injunctions in respect of which I have found that there is a serious issue to be tried. On the evidence of the Claimant’s accounts and the First Defendant’s own statements in which he questions the Claimant’s robustness it is likely that the Claimant is and would be vulnerable to unlawful actions of the First Defendant. It has not been suggested that the First Defendant would not be able to trade if interlocutory injunctions were granted. Even if there were not to be a speedy trial the restraints would be of short duration.[89]Accordingly interim injunctions are granted as follows: Against the First Defendant in terms of the following paragraphs of the Draft Amended[90]Applications for other orders are dismissed.

Order

1(c), 1(e), 1(g) and 2(i) save for the requirement to identify names and numbers on the list referred to. Against the Third Defendant in terms of paragraph 2 of the Draft Amended Order.

Cited in 3 later judgments