Capgemini India Private Ltd & Anor v Krishnan [2014] EWHC 1092 (QB)

[2014] EWHC 1092 (QB)Case No HQ/14/0099
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
Date Thursday, 27 February 2014
Strand
London
WC2A 2LL
Before
HIS HONOUR JUDGE ROBERT OWEN QC(Sitting as a Deputy Judge of the High Court)
Between
(1) CAPGEMINI INDIA PRIVATE LIMITEDClaimants(2) CAPGEMINI FINANCIAL SERVICES UKClaimantKRISHNANDefendants
Digital Transcript of Wordwave International, a Merrill Corporation Company165 Fleet Street, 8th Floor, London, EC4A 2DYTel No: 020 7421 4046 Fax No: 020 7422 6134Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com(Official Shorthand Writers to the Court)
MR COHEN (instructed by Fox Williams) appeared for ClaimantMR RICHARD LEIPER (instructed by Girlings Solicitors) appeared for Defendant
JudgmentHIS HONOUR JUDGE OWEN QC:
[1]This is an application for an interim injunction brought by the claimants, Capgemini India Private Limited, a company incorporated under the law of the Republic of India and Capgemini Financial Services UK Limited in the following terms, namely that the defendants shall not accept custom or business of or in any other way deal with any existing customer with (a), who he had business dealings on behalf of Capgemini or a member of the group within the last six months of his employment with them; and/or (b), in relation to which he had access to confidential information or commercially sensitive information within the last six months of his employment and that such injunction should last until the trial of these proceedings or the 7 May 2014 in respect of the first and third defendants and 14 May 2014 in respect of the second defendant.[2]The circumstances of this matter are highly unusual. The principal issues which arise before me are first, whether the defendants, former employees of Capgemini, who gave formal undertakings in writing with the benefit of independent legal advice, after the termination of employment, in accordance with the restriction of trade covenant within their contracts of employment, may now simply withdraw from that undertaking and argue that the clause in question is and was unenforceable as being an unreasonable and unlawful restraint in trade, or whether, as Capgemini contend, the fact of the undertaking, given voluntarily so as to avoid legal proceedings for an order in the same terms as the undertaking, precludes the defendants now from arguing that the clause is and was unenforceable. Secondly, whether in any event an interim injunction ought (or ought not) to be granted in accordance with established principles in light of the circumstances, and, as I have indicated, it seems to me, highly unusual facts.[3]The brief facts relating to the defendants’ employment with the claimants and the history of these proceedings may be summarised as follows: The work undertaken by the employers for and on behalf of the claimants concerned a project called Vision Plus Service provided by the claimant to its clients, First Data. In mid-August 2013 the claimants lost that contract, which was to be taken over and has been by separate company, Infosys Limited, who provided services to First Data since January 2012. The claimants’ contract in relation to that was due to end on 31 March 2014. Thus, the defendants who gave notice of resignation on 8 August, 15 August and 8 August respectively, on 31 December 2013, after ceasing their employment with the claimants, on 15 November 2013 the defendants commenced employment on the Vision Plus Service in relation to First Data for Infosys.[4]On 17 January 2014 the claimants’ solicitor wrote letters in relation to the restriction of trade covenant to which I have referred, namely, Clause 3.11 of the contract of employment.[5]On 29 January 2014 the defendants gave the undertakings in writing as requested, specifically referring to Infosys Limited and then on 17 February 2014 the defendants, via their solicitors, gave notice of withdrawal of that undertaking.[6]Accordingly, this application was issued on 20 February 2014. A claim form has been issued but not, the defendants complain, a Particulars of Claim. The defendants further point out that the covenant in question was due to expire in early May 2014 in any event and a speedy trial was impracticable or unlikey. The defendants argued that, in any event, it would be necessary to consider the prospects of success generally when considering whether an injunction ought to be granted in such circumstances.[7]Each defendant entered into a contract of employment with the first claimant as an associate consultant. Each offered and accepted a temporary assignment from the first claimants to undertake the work in question in the UK (with the second claimant) for the specific purpose of working on the First Data Vision Plus account.[8]It is common ground that the contracts of employment were subject to Clause 3.11.2, which provides as follows: 3.11, Restrictive Practices:
“In order to protect the confidential information, trade secrets and business connections of Capgemini and each group company, you shall not, without Capgemini’s prior written consent for a period of six months after the termination of your employment with the company, directly or indirectly and whether on your own behalf or on behalf of any other person, business person, partnership, firm, company or other body.” (2) Restriction against dealing with existing customers: “Accept the custom or business of or in any other way deal with and existing customer with: (a) whom you had business dealings on behalf of Capgemini or a member of the group within the last six months of your employment with Capgemini or member of the group within the last six months of your employment with Capgemini; and/or (b) in relation to which you had access to confidential information or commercially sensitive information within the last six months of your employment.” (a) whom you had business dealings on behalf of Capgemini or a member of the group within the last six months of your employment with Capgemini or member of the group within the last six months of your employment with Capgemini; and/or (b) in relation to which you had access to confidential information or commercially sensitive information within the last six months of your employment.”
[9]By his witness statement dated 24 February 2014, the first defendant shows that, like the second and third defendants, he was employed on the account with First Data on the ‘Vision Plus’ account (including the subsystems of VP in which they specialised). The VP system is used to underpin and operate the entirety of the credit card transaction process from issuing and validation of cards to the authorisation and processing of individual transactions, the calculation of interest, late payment charges and production of account statements.[10]An insight into the complexity of the systems and subsystems is given in the witness statement of the second defendant. It is unnecessary for me to go into that detail for the purposes of this judgment, suffice to say that each defendant has, through their employment, gained a number of years’ experience on this project. The second defendant focused on the CMS or Credit Management and Calculation of Interest System. The third defendant focused on the management of individual credit card transactions. The first defendant worked on financial authorisation systems.[11]The second claimants operated a graded system to identify the relative experience of their employees on a scale, nought to five, as explained in the witness statement of Mr Vaidyanathan, which supported the application before me. The first defendant was graded one, the second defendant graded two and the third defendant graded one.[12]The second defendant accepted, as he must, that he had received some training from the claimants in order to undertake these duties, but in his estimation it was merely one per cent compared to 99 per cent experience in dealing with the job.[13]All three defendants state that their work did not involve access to confidential information. The bare assertion by Mr Vaidyanathan at paragraph 37 of his first witness statement was disputed. In his second witness statement Mr Vaidyanathan did not respond to the challenge made or objections made by the defendants.[14]As the first defendant states at paragraph 8 of his witness statement, to which I have referred: “My interactions with First Data while at Capgemini were with the staff within the First Data client’s services teams. The employees within teams were not seen and I do not believe that I was in a position to influence the client’s relationship between Capgemini and First Data, nor did I have any access to Capgemini confidential information and none is identified in Shrikanth’s [that is Mr Vaidyanathan’s] evidence”.[15]The first defendant’s statement set out the circumstances which led him to leave the claimants’ employment and take employment with Infosys Limited. He said he wished to earn more money and further his career. He had heard that there were job opportunities at Infosys. He was offered a job on 31 July 2013, which he accepted on 6 August 2013. Thus, he resigned from the claimants’ employment on 8 August 2013. He learnt that the claimant had recently lost the First Data VP contract to Infosys. The first defendant worked his three month’s notice and left, as I have said, on 8 November 2013. On 11 November 2013 he formally started on Infosys and undertook similar work on the VP system.[16]Each defendant has stated that he decided to offer and provide the undertaking sought by the claimants’ solicitor’s letter to which I have referred, so as to avoid the financial risks of their threatened proceedings, that is the costs of the claim, which would include the claimants’ costs. He decided to withdraw the undertaking on 17 February 2014 when he learnt that his current employers, Infosys, would in fact meet his costs and lend him financial support. It appears that the defendants are able to meet any award of damages which may be made at trial should the matter proceed that far.[17]By a letter dated 17 January 2014, the claimants’ solicitor’s wrote, in part, being the letter before the claim, under misconduct and breach of covenant:
“You resigned from Capgemini FS UK and Capgemini India on 8 August and your employment terminated on 8 November 2013. You were sent letters on 5 September 2013 and 7 September 2013 by Capgemini FS UK and Capgemini India, respectively, to remind you of the covenants set out in the policy. Our client has recently discovered that you joined Infosys Limited, an Indian company registered as an overseas company in England and Wales on 30 December 2013, working on the First Data Vision Plus account performing materially the same services that you performed for First Data whilst employed by Capgemini. Accordingly, you are on breach of Clause 3.11.2 of the policy… “These restrictions will last up to and including 7 May 2014. You plainly had business dealings with First Data during your last six months of your employment with Capgemini. As the very purpose of transferring you Capgemini FS UK was to work on the First Data Vision Plus account, which you indeed did do from the start of assignment in January 2010 to the termination of your employment in November 2013. We are further instructed that you had knowledge of Capgemini’s pricing structure for First Data, which is plainly both highly confidential and commercially sensitive.” 18. Undertakings: “As you are in breach of the covenants referred to above, we are instructed to issue High Court proceedings unless you give a clear written undertaking in the following terms by no later than 9.30 a.m. Wednesday, 22 January 2014, the deadline.”
That is, the proposed form of undertaking sought was then set out:
“And finally, if we do not hear from you by the deadline, our client reserves the right to commence legal proceedings against you, without further notice to you, for an injunction requiring you to comply with your restrictive covenant. Our client will seek its legal costs from you if it is forced to take such action. This is a very serious matter and requires your urgent attention. We strongly recommend that you obtain independent legal advice immediately and we await your response and by 9.30 a.m. on Wednesday 22 January 2014.”
[18]By letter dated 24 January 2014, the defendants’ solicitors asked for time to respond, which was granted and then by a letter dated 29 January 2014, to which I have referred, the defendants through their solicitors wrote as follows:
“We write further to our letter 24 January 2014 and our telephone conversation of yesterday. While no admissions are made and all rights are reserved in relation to the incorporation, applicability, validity and enforceability of the restrictions on which your clients seek to rely, we confirm that the employees are willing to give the undertaking referred to in your letters to them dated 17 January 2014. Therefore, we confirm that the employees undertake to your client that they will comply with the Clause 3.11 of the policy. In particular, they will not provide any IT consulting services to First Data whether through or for Infosys Limited or otherwise, nor will they use or provide any of Capgemini’s confidential information relating to First Data to any third party. In the cases of Mr Patel and Mr Lavarte the undertaking is given until 7 May 2014. In the case of Mr Jakeley, the expiry date is 14 May 2014. Our clients accept the obligations of confidentiality are ongoing.”
[19]By letter dated 17 February 2014, the defendants’ solicitors wrote:
“We write further to our letter of 29 January 2014. The employees are no longer willing to give the undertaking as to Clause 3.11 of the policy set out in our letter dated 29 January 2014 and therefore it is withdrawn with immediate effect. We trust that you shall give us notice of any proceedings.”
[20]By claim form issued on 19 February 2014, the claimant claimed against the defendants injunctive relief, damages and further or other relief in respect of breach of undertakings given to comply with post-termination restrictions and/or post-termination restrictions in a contract of employment.[21]On 20 February 2014, the claimants’ application notice was issued seeking an interim injunction, in essence, in the terms of Clause 3.11.2, the subject matter of the undertakings.[22]The application notice was supported by a witness statement of 19 February 2014 by Mr Shrikanth Vaidyanathan, the engagement manager with the second claimants. Having explained the VP system and its account with First Data, Mr Vaidyanathan stated as follows at paragraph 19:
“Capgemini recruits a skilled and educated workforce for its Vision Plus business and has incurred substantial sums of money in training those people. Neither First Data itself not Invosis have the capabilities that we do to service the Vision Plus account. Capgemini made a very expensive investment in Vision Plus, which the employees contractual covenant seek to protect…” “21. On 12 or 13 August 2013, it was announced that Invosis had been awarded the Vision Plus contract by First Data following a procurement review and process although Capgemini is still working for First Data on the Vision Plus project.” “22. In the UK Infosys is working for First Data on the Vision Plus account at the same offices in Basildon where the Capgemini First Data Vision Plus team is based.” 24. And then at paragraph 37: “Some of the employees, Mr Jakeley, in particular, have highly commercial, sensitive and confidential information regarding the rates at which people are hired at because they were involved in the long complicated verification process.”
[23]The application was also supported by a witness statement from Molly Sutano Ahmed, solicitor for the claimants. The claimants first saw the defendants on site with Infosys on 30 December 2013 and following that the letter of claim was sent on 17 January 201 as explained by Miss Ahmed.[24]The defendants have filed a witness statement from Pauline Holland, a solicitor employed by Infosys Limited. She confirmed that a key business tool used by First Data to support its clients is a proprietary software application, VP, which drives the functionality of all aspects of the credit card transaction process. Infosys have been a client of First Data since January 2012 and successfully tendered against the second claimant for the VP account in July 2013 and secured a five year multi-million dollar contract.[25]This has had a global impact, Miss Ahmed explains, on the claimants whose work with First Data will run off by 31 March 2014. She confirms that the defendants did not work on the VP process during the currency of those undertakings.[26]Miss Holland provided a brief resume of the United States litigation between the claimants and Infosys in Illinois and against seven named defendants, including, it appears, the defendants complained of in these proceedings, complaining of misuse of trade secrets, intellectual property and confidential information and poaching of staff, but, she explained, no defendants had brought any proprietary or other information of the claimants to Infosys.[27]She explained that on 30 January 2014 the Illinois Court had dismissed the applications brought by the claimants in that court. Concurrently with the claimants’ letter before action to the defendants, Infosys also received a letter before action threatened proceedings against them.[28]It is unnecessary for me to recite, which I have read as part of the hearing bundle and exhibits produced, the judgment of the learned judge in the Illinois Court, save to note that the claimant there had not filed any evidence to support the assertions that former employees were using the claimants’ trade secrets, nor had the claimant identified any specific proprietary information, but merely argued that by reason of his expertise, processes and methodology, that itself would constitute protective information to justify the relief sought in that court.[29]It was noted that the employees were not to be restrained from utilising general knowledge with skills acquired through experience in pursuing their chosen occupation. Thus, the employee, it was noted, unremarkably, could not be forced, as it were, to erase from his mind all the knowledge and skills which he had acquired during the course of his employment and that there had been no information communicated during the training process shown to be of a confidential or protectable nature. Thus, for reasons which do not concern this court, that litigation was unsuccessful and according to Miss Ahmed has been terminated. It has had no influence on the parties’ submissions before me or indeed the outcome of this application.[30]Mr Cohen, counsel for the claimant, submitted that whilst Clause 3.11.2 is enforceable on merit, namely it is reasonable and necessary to protect a legitimate commercial interest of the claimants, nonetheless, that having regard to the nature of the agreement which was entered into by reason of the undertakings, that in itself is a bar, in effect, to the defendants objecting to the reach and effect of the clause now under consideration. In short, Mr Cohen submitted that there is no proper basis on which the defendant or indeed the court could now go behind the fact of the undertaking, which was given so as to compromise threatened legal proceedings, and that that undertaking, in effect, should be upheld by the granting of the interim injunction in similar terms.[31]Mr Cohen had indicated, in his written submissions, that unless exceptional circumstances could be shown by the defendants the court may not reopen the question of enforceability of that covenant. In his oral submissions, to establish the primacy of the fact of the agreement or undertakings, Mr Cohen referred to two decisions of the Court of Appeal, in particular, namely: Worldwide Fund for Nature and Ors v. World Wrestling Federation Inc [2002] EWCA Civ. 196 and Thurstan Hoskin & Partners v. Jewill Hill & Bennett and Ors [2002] EWCA Civ. 249.[32]Both counsel helpfully drew my attention to various passages in both of these decisions. First, In Worldwide Fund for Nature (“WWF”) the court was concerned with an intellectual property dispute over the use of initials ‘WWF’. The fund took steps of oppose the Federation’s application to register WWF as their trademark. The parties concluded a settlement whereby the Federation agreed severely to limit its use of the initials, but then later relaxed that restraint. The Fund issued proceedings. Federation did not deny the breach, but argued that the restriction on its use of the mark was a restriction on trade and thus void unless justified, by the Fund.[33]The judge held that a restriction on trade imposed by a settlement in an intellectual property dispute only required the justification if the restrained party could show that the restriction in fact imposed a fetter on its trade and that the restriction went beyond any reasonably arguable scope of protection. Thus, an injunction was granted. The defendant appealed, unsuccessfully.[34]The Court of Appeal held that where a claimant had been a party to a settlement of a genuine dispute designed to define boundaries of his trading rights as against the defendant, he was entitled to expect that settlement to be enforced. It was not for him to prove that it was reasonable. The presumption was that the restraint, having been agreed between the two parties most involved, represented a reasonable division of their interests. It was for the defendant seeking to avoid the agreement to show that there was something which justified such a course, for example, because the dispute was contrived or because there was no reasonable basis for the rights claimed or because it was otherwise contrary to the public interest.[35]Accordingly, it was held, the judge in that case had been correct to set a threshold requirement before any question arose of the claimants having to justify the restraint imposed by the agreement. However, it was not necessary or appropriate to further define the circumstances in which the threshold might be crossed in different factual contexts. On the facts of that case the defendant had failed to show any reason for releasing him from the agreement. Accordingly, the judge’s order would be upheld and the appeal dismissed.[36]Under the heading, “Public Policy,” Carnwath LJ (as he then was) who gave the principal judgment said as follows at paragraph 40:
“Before the judge the argument seems to have developed into a clash between two conflicting principles of public policy. The Federation relied on the principle of restraint of trade: any restriction on its use of the mark WWF was a restriction in restraint of its trade and therefore void, unless the Fund could justify it. The Fund started from the opposite position: this was a compromise agreement, by way of settlement of genuine disputes between the parties, and public policy demanded that such agreements should be respected.” 39. Carnwath LJ considered that that apparent conflict was indeed apparent, not real, and he continued at paragraph 42: “The protection of the intellectual property rights of one business inevitably implies some restriction on the rights of others with potentially conflicting interests. The laws governing those rights are designed to set reasonable limits to the restrictions, but the limits are not always clear-cut. Where there are disputes, it is in the interests of everyone, including the public, for those disputes to be settled by agreement, rather than litigation, and for such agreements to be respected.”
At paragraph 43:
“This proposition does not mean that the doctrine of restraint of trade is altogether excluded. It merely acknowledges that the public interest represented by the doctrine has to be applied in the factual context of the agreement; that the parties, with proper legal advice, are the best judges of what is reasonable in their respective trading interests; and that agreement between them is normally the fairest and most efficient way of drawing the boundaries”
. That observation was made good in paragraph 44 (by citing the observations of Taylor LJ in the Apple Corp case, which I need not recite for present purposes).[37]Both counsel referred me to paragraphs 48 and 49 of Carnwath LJ’s judgment as follows. In particular, at paragraph 48:
“To summarise, where the claimant has been party to a settlement of a genuine dispute, designed to define the boundaries of his trading rights as against the defendant, he is entitled to expect that to be enforced. It is not for him to prove that it is reasonable. The presumption is that the restraints, having been agreed between the two parties most involved, represent a reasonable division of their interests. It is for the Defendant, seeking to avoid the agreement, to show that there is something which justifies such a course, because the dispute was “contrived” (as in the BATS case); or because there was no reasonable basis for the rights claimed (as, apparently, in Apple); or because it is otherwise contrary to the public interest, for example, going beyond the legitimate purpose of seeking to “avoid confusion or conflict” between the parties.”
That example was taken from the observations of the Court of Justice referred to at paragraph 47, which I need not recite for the present purposes.[38]Secondly, in Thurstan Hoskin & Partners, there was a dispute between firms of solicitors in Cornwall. The partners in the claimant firm in 1994 entered into a deed of partnership which included Clause 28:
‘Restraint of Trade’
. Clause 28.1 provided that in the event of termination, the salaried partners would not act in competition with the senior partner, in effect, Mr Hoskin, within a three mile distance of his offices for six months after termination. Clause 28.2 provided:
“In the event of the termination of the Partnership as aforesaid the Salaried Partner shall not within such period aforesaid canvass solicit or endeavour to take away from Mr Hoskin the business of any Clients of the Partnership who shall have been clients of the partnership within one year of the termination of the partnership nor shall he hold himself up as having had any connection with the Partnership.”
[39]In 1997 the partners fell out. Mr Burton brought proceedings complaining of wrongful dismissal and applied for an interim injunction. Those proceedings were compromised by way of a consent order, which incorporated Heads of Agreement stated to be in full and final settlement of all claims between the parties. It was agreed as part of that agreement that Mr Burton would be released from Clause 28.1, but not Clause 28.2, which was effectively reincorporated in the agreement.[40]Following Mr Burton’s breach of Clause 28.2 in soliciting clients, further proceedings were commenced, this time by, in effect, the firm. Mr Burton then contended that Clause 28.2 was unenforceable as being an unreasonable restraint of trade. The trial judge rejected that submission.[41]Permission to appeal was granted by the Court of Appeal and counsel for the claimant argued that the fact of reaffirmation of Clause 28.2 in the Heads of Agreement should alter significantly the court’s approach to the question of enforceability generally of a restriction in trade. At that time Mr Burton was not an employee in dispute with an employer, but was a litigant compromising a claim, as pointed out by counsel for the defendant. It was argued that Mr Burton was in the position of a party to a business sale agreement rather than, in effect, in an employee/employer dispute, thereby rendering largely irrelevant the case law and judicial guidance in approaching restrictive covenants of this kind.[42]In the alternative, it was argued that the clause extended no further than was reasonably necessary to protect the firm’s legitimate interests, in any event. (that is, the clause was in accordance with judicial guidance, as found to have been the case as a matter of fact by the learned judge). Thus, on appeal the background facts and circumstances leading to the agreement was dealt with on merit.[43]Both counsel drew attention to the observations of May LJ, who gave the principal judgment, at paragraphs 19 and 20 and also the observations of Jonathan Parker LJ, at paragraphs 22 to 24 and, finally, both counsel noted that Schiemann LJ had agreed with both judgments.

Lord Justice May said at paragraphs 19 and 20:

“19. In my judgment, the fact that Clause 28.2 was explicitly included in modified form in the Heads of Agreement of 2nd May 1997 is significant. The agreement was clearly expressed to be in settlement of all claims which either party may have against the other in connection with or arising from the 1994 Deed of Partnership. There is an argument, advanced by Mr Marsden, that this agreement compromised all potential disputes and precluded the submissions which are now made on behalf of Mr Burton. Jonathan Parker LJ has also mentioned a case which he decided in which he held that a litigant could not go behind an agreement including a restraining covenant which was itself made in settlement of a dispute about a restraining covenant. But I proceed without deciding on the basis that the 2nd May Agreement in this case does not go this far. The making of the Agreement may not have changed the broad nature of the original clause, but it did, in my judgment, alter radically the circumstances in which it was made. It brought to an end the Deed in which clause 28.2 appeared and reasserted part of clause 28 in substantially modified form and in quite different circumstances. It was made in compromise of a dispute in court and it effected the consensual termination of the Deed of Partnership between Mr Hoskin and Mr Burton. Mr Burton was legally represented and was himself a solicitor. The agreement may not have been made an order of the court, but it was attached to an order of the court and was an overt part of an agreement compromising litigation. It is, I think, more than a jury point that Mr Burton is seeking to avoid part of this compromise for which he received valuable consideration. He is not, for instance, offering to pay back to Mr Hoskin any of the compensation which Mr Hoskin no doubt agreed to pay in part because he was retaining the benefit to himself of such protection of his client base as clause 28.2 as modified gave him. It is also, I think, relevant that clause 28.2 was in this agreement modified in Mr Burton's favour by exempting four clients from its operation. Mr Burton's evidence that he did not regard himself as bound by it clause 28.2 strikes me as disingenuous. His evidence that there was more than enough work in Penzance and that he would not need to go off and solicit other people's clients seems to me to have some significance.”
Nevertheless, although these matters seem to me to be relevant – and Mr Bloch accepts that they are relevant - the question, I think, remains whether in all the circumstances, including those surrounding the agreement of 2nd May 1997, the judge was wrong in his determination that the covenant extended no further than was reasonably necessary to protect Mr Hoskin's legitimate interests. I am not persuaded that he was wrong. He did not it seems to me, apply wrong principles. He did not spell them out with Mr Bloch's dialectic, but I consider that, underlying his reasoning, there is no error of principle. The facts of each case necessarily vary. I do not think that this was a routine employer/employee agreement. It was an agreement between a principal and a salaried partner bringing to an end their business relationship for which Mr Burton received and accepted valuable consideration. Clause 4 also modified in Mr Burton's favour the ambit of clause 28.2 by excluding four clients, who were no doubt those with which Mr Burton was intimately concerned. The judge's finding was, or is akin to, a finding of fact. It was, I think, entirely legitimate on the special facts of this case for him to conclude that, in the context of a small firm of solicitors in essentially rural Cornwall, the protection which this covenant in the circumstances afforded, going as it did beyond clients with whom Mr Burton had personally dealt, was legitimate; that it went to a protectable interest; and that its enforcement went no further than was reasonably necessary to protect Mr Hoskin’s legitimate interests...” 47. Jonathon Parker LJ gave a short judgment: at paragraphs 22 – 24 he said:
“22. I agree that this appeal should be dismissed for the reasons May LJ has given. Had it been necessary to do so, I would have held that the appeal should fail in any event by reason of the terms of the compromise of earlier proceedings entered into by Mr Hoskins and Mr Burton and incorporated in the court's order dated 2 May 1997 which brought those proceedings to an end. That compromise was expressed to be (and I quote from the Heads of Agreement which were annexed to the order): ‘... in full and final settlement of all claims which either party may have against the other in connection with or arising from the Deed of Partnership made in November 1994 and/or Mr Burton’s employment by Mr Hoskin...’”
Paragraph 4 of the Heads of Agreement, to which my Lord has referred, provides in terms that Mr Burton should be released from the covenant contained in Clause 28.1 of the Deed of Partnership, but not those contained in Clause 28.2 made in relation to four named clients.” In my judgment Mr Burton, having agreed by way of compromise on earlier proceedings that he would not be released from the obligations contained in Clause 28.2 save in relation to the four named clients, cannot now be heard to assert that the very obligation which he thereby accepted is unenforceable as an unreasonable restraint of trade. In my judgment that would clearly be contrary to public policy. However, as I have said, it is unnecessary to develop this point any further; since on the conclusions reached by May LJ (with which I entirely agree) the point does not arise for decision.” ‘... in full and final settlement of all claims which either party may have against the other in connection with or arising from the Deed of Partnership made in November 1994 and/or Mr Burton’s employment by Mr Hoskin...’”[44]Mr Cohen submitted that the ratio in this decision is to be found in the judgments of Jonathan Parker LJ and Schiemann LJ, namely, that where a party had entered into a compromise agreement, disposing of a dispute in proceedings which expressly recognised as incorporating the restriction in question, that party could not later be heard to say that the clause itself was unreasonable and that in the circumstances the court should give effect to the compromise by way of public policy arguments.[45]Mr Leiper submitted, correctly in my judgment, that that was not the ratio of this decision. The comments or observations relied on by the claimants through Mr Cohen were clearly, in my judgment, obiter.[46]In the present case there was no order declaring that there be full and final settlement of the claim. Moreover, the parties were, Mr Leiper submitted, in an employer/employee relationship and that in those circumstances the court would have to, or should, consider the matter more widely. In short, Mr Leiper submitted that Clause 3.11.2 was plainly an unreasonable restraint of trade and that in these circumstances the court should and declare that to be the case and set aside the agreement and that the defendants are not prevented from making their submissions and criticisms on merit in relation to the clause in question simply by reason of the fact of the compromise evidenced by the undertaking.[47]Mr Leiper submitted on behalf of the defendants that the undertakings were given expressly without admission as to incorporation, applicability, validity or enforceability. He emphasised the fact that this was not in fact a case concerned with defining the boundaries of a party’s trading rights, as in WWF, or indeed as between solicitors as in the case of Thurstan Hoskin, but that rather, in reality, the court was concerned, notwithstanding the termination of the contract of employment, effectively with an employer/employee dispute, which raised questions of equal or unequal bargaining power. In that context Mr Leiper referred the court to the observations of Burton J, in Cavendish Square Holdings v. Makdessi [2013] 1 AER (Comm) 787 at paragraph 15 and in particular, sub-paragraphs (1), (6) and (8), which I need not reiterate for the purposes of this judgment. The summary of principles there set out was not contentious.[48]These principles, in the absence of the compromise agreement or the undertaking, as in the present case, show, it was submitted, that the onus is upon the claimant to establish the reasonableness of the restraint of trade in question and that that onus remains in place notwithstanding the fact of the undertaking.[49]Mr Cohen disagreed and submitted that there was no proper basis on which the court could or should, in effect, set aside the agreement. The agreement being the offering of the undertaking accepted by the claimants, without the need in fact for formal proceedings to have been issued. There was a good consideration for that agreement for the claimants did not, in fact, issue proceedings and accepted the undertaking. Furthermore, further time was granted to the defendants at their request.[50]Mr Leiper submitted that as for the two decisions, to which I have referred, they do not, in fact, make good the claimant’s submission and support the defendants’ contention that it is open to the defendants to invite the court to set aside the compromise or the undertaking and to consider on merits the clause in question. In that respect, my attention was drawn specifically to the paragraphs in WWF and in Thurstan Hoskin, to which I have referred.[51]Mr Cohen for his part had emphasised paragraph 24 of Thurstan Hoskin and the observation of Jonathan Parker LJ, which I have recited. Mr Cohen, submitted, that in all the circumstances this is a case where, in effect, the fact of the agreement trumps any argument which the defendants might wish to raise, but which they could not, as a matter of public policy.[52]Mr Leiper submitted in any event that having regard to well established principles concerning the enforceability of restrictive covenants, here the claimants had not established a good arguable case on merit to suggest, as it had been suggested by way of bald assertion by Mr Cohen, that there was a legitimate commercial basis to justify the relief original sought in any event. In short, he relied on the public policy argument to the effect that such unreasonable restraint clauses should be set aside.[53]It was submitted that the undertaking itself did not provide any support for the existence of any such legitimate interest. Having regard to the fact that, for example, there were no trade secrets involved in this case, there is no confidential information involved in this case, the high water mark was Mr Vaidyanathan’s witness statement at paragraph 37 to which I have referred and which was not referred to thereafter and that, Mr Leiper’s submitted, in truth, there was no customer connection at risk.[54]In this context my attention was drawn to the observations of Lord Parker of Waddington in Herbert Morris Limited v. Saxelby [1916] AC 688 at 709:
“It is quite different in the case of an employer taking such a covenant from his employee or apprentice. The goodwill of his business is, under the conditions in which we live, necessarily subject to the competition of all persons (including the servant or apprentice) who choose to engage in a similar trade. The employer in such a case is not endeavouring to protect what he has, but to gain a special advantage which he could not otherwise secure. I cannot find any case in which a covenant against competition by a servant or apprentice has, as such, ever been upheld by the Court. Wherever such covenants have been upheld it has been on the ground, not that the servant or apprentice would, by reason of his employment or training, obtain the skill and knowledge necessary to equip him as a possible competitor in the trade, but that he might obtain such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer's trade secrets as would enable him, if competition were allowed, to take advantage of his employer's trade connection or utilize information confidentially obtained.”
Mr Leiper submitted that having regard to Mr Vaidyanathan’s second witness statement, (with the high water mark at paragraphs 8 and 9, which I need not recite) there was no basis to support or justify, on merit, that clause in any event.[55]In answer to the question:
“How do the defendants, in those circumstances with the benefit of independent legal advice, explain the fact that they gave the undertakings as freely as they did and in the terms in which they did?”
Mr Leiper’s submission was that the court is bound to consider all the circumstances and, in particular, the merits of the clause under consideration. He submitted that the claimant was wholly devoid of any arguable or sustainable basis to justify enforcement. The merits of the defendants case in respect of the clause, bearing in mind the judicial guidance recognised to which I have referred (including the observations of Lord parker in Herbert Morris Limited v. Saxelby, or the general principles identified by Burton J) all of which, Mr Leiper submitted lend support to the proposition that, notwithstanding the existence of the undertaking and the judicial guidance provided in relation to the significance of a compromise agreement, the court should not, on the facts of this case, find that the defendants are prevented from asserting that the clause is indeed unreasonable and that there is no commercial interest which might legitimately and reasonably be protected by the claimants by reason of that clause. That is, the merits of the defendants’ case, absent the undertaking, strongly supported the refusal of an interim injunction in circumstances where the clause in question was not reasonable, there was no prospect of the claimants recovering the First Data account and the clause would expire shortly in any event.[56]Mr Leiper emphasised as part of the particular circumstances of this case that there was no confidential information at risk and no trade secrets had been identified. This was merely a case, he submitted, of three former employees, albeit skilled employees, having received minimal general training which would be provided to any employee who might be expected to operate or work on this particular project in any event and that their skills may lawfully be used for a new employer as indicated by Lord Parker’s observations on the limits of any reasonable protection to which the former employer might be entitled.[57]Furthermore, the unusual facts of this case were impressed upon the court, not least the wholly lawful manner in which Infosys Limited took over this contract, which was a five year contract and that, viewed objectively there is no good reason why these defendants should continue to be subject to such a restriction merely because of the fact of the undertaking.[58]Finally, in considering the balance of convenience, Mr Leiper took issue with the submission made by Mr Cohen as set out in paragraph 18 of his written submissions; that is, Mr Cohen had submitted that this was a classic case of a legal right requiring enforcement by way of an injunction, for damages would not, it was submitted, be an adequate remedy.[59]The factors relied on by Mr Cohen were that the claimants have lost the opportunity to service First Data and potentially to win them back if they could not be serviced by Infosys and that that loss was hugely difficult, if not impossible, to quantify in monetary terms and, moreover, there would clear causation arguments in any event. Thus, it was submitted that this was a reason why the court should, not only uphold the agreement, but grant the interim injunction as damages would not be an adequate remedy.[60]Mr Cohen submitted, May LJ in Thurstan Hoskin had not grappled with the issue raised in the present case, which had, in fact, been addressed by Jonathan Parker LJ. He submitted, as I have said, that the ratio in Thurstan Hoskin shows that a legitimate compromise does, in fact, prevent the defendant from arguing against the merits of the clause itself. That is, the defendants in this case seek now to contest the very obligation which they had willingly accepted with the benefit of independent legal advice by their undertakings.[61]Furthermore, as I understood the submission, the court had to look at the reality of present day employer/employee relationships and commercial interests, which have moved on substantially since nearly the 100 years ago when Herbert Morris Limited v. Saxelby was decided and when those observations relied upon by the defendants were made. In short, the nature of the information now within the knowledge of the employees could constitute confidential information, which would be highly sensitive and thus could constitute a trade secret.[62]Furthermore, this was a case where the employees had effectively been embedded with a particular customer when the contract of employment was entered into and that in these circumstances the court should, from that date, consider the value of this clause to the employer. That is, viewed from the claimants’ perspective, the general principles governing the enforcement of a restrictive clause of the kind in question sits comfortably within the guidelines to which I have referred, as enumerated by Burton J.[63]Mr Cohen further made the point that this was not, in fact, an employer/employee relationship at the time when the undertakings were given. Rather, it was a ‘litigant relationship’ with each side having the benefit of independent legal advice. There was no evidence to explain why the undertaking was offered or indeed withdrawn.[64]It was submitted that the employees are not fairly to be categorised as mere pawns, as Mr Leiper had suggested, but rather that the focus should concern that which the claimant has now lost, namely, its valuable business with First Data, which is directly related to these employees.[65]It was submitted that unless the order sought was made, the outcome would have a substantial and adverse effect in injunction proceedings generally and would effectively force a potential litigant to commence proceedings and proceed come what may to obtain an order of the court rather than to explore or indeed accept an undertaking or some form of compromise agreement.[66]That argument was made in support of the general proposition that agreements made between two such parties as this should, as a matter of public policy, be upheld for otherwise the public policy of supporting settlements would be undermined. To accept the defendant’s contentions, it was argued would lead parties to a rush to litigation which might otherwise be capable of being avoided by sensible compromise. Furthermore, it was submitted that the cross-undertakings as to damages should not extend to cover Infosys on the basis of that would be wholly speculative and reasonable.[67]So far as his response to the balance of convenience arguments were concerned, that is the second principal issue to which I referred at the outset of this judgment, Mr Leiper drew my attention to his written submissions, which I need not reiterate for the purposes of this judgment (at paragraphs 48 to 51 of his submissions). In short, whatever may the court’s ruling may be as to the significance of the fact of the agreement or undertaking the court was still bound to consider in accordance with established principles on the facts of this case (the agreement being one of those facts) as to whether or not it would be appropriate to grant the interim relief sought.[68]Mr Leiper submitted that there really was no explanation as to loss or damage, which the claimants claimed to suffer, or fear from suffering by reason of the defendants not keeping to the undertaking.[69]It was pointed out that Capgemini had already lost the contract with First Data, through no action of the defendants, on a long term basis. The defendants have lawfully resigned and taken up fresh employment in proper circumstances and that there really is no evidence and, indeed, query whether there is any suggestion, of any wrongdoing on the part of the defendants intentionally or otherwise. Furthermore, the assertion that without the defendants Infosys could not provide the services to First Data pursuant to their contract is wholly unsupported and is contradicted by Miss Holland’s statement. That is, there has been but bald assertions only made on behalf of the claimants that there is a legitimate commercial interest reasonably to be protected by the clause by way of interim injunction and that in any event that damages would not be an adequate remedy.[70]In my judgment, this application does engage the two conflicting principles of public policy identified in the WWF case and also in Jonathan Parker’s LJ observations. The resolution of this conflict, necessarily involves a balancing of the competing arguments in support of those public policies.[71]The starting point inevitably is the fact that the defendants’ former employees, no longer in an employer/employee relationship, subject to any form of unequal bargaining power and with the benefit of independent legal advice, elected to offer undertakings in the terms now complained of. Their reason for doing so is material and has been explained on the basis that they were concerned as to their potential financial liability in costs, if not also damages, in the event that the threatened proceedings were followed.[72]It would not be unreasonable to assume that the defendants had been advised, at least in broad terms, as to the general principles which would be applicable in determining whether or not the restrictive covenant in question was capable of attack and the broad principles, which would be involved in the event that the threatened proceedings, which appeared likely, were to follow. It is reasonable to assume that in broad terms at least they would have understood the general principles in play as to the grant or refusal of an interim injunction, and in light of whatever order was made, what risk on costs there might be. Beyond those not unreasonable assumptions it is unnecessary to speculate. Whatever the position may have been, nonetheless the defendants did, in fact, provide the undertaking given. Without more, they appeared to accept by their undertakings a division of their interests which, in taking up their new employment, appeared to have placed them in breach and at risk of a damages award, or indeed injunction. In this respect the fact of the undertakings have greater weight at this stage than the general points made by Mr Leiper to undermine the essential validity of the clause in question.[73]I do not accept Mr Cohen’s primary submission that the mere fact that the undertakings were given – to avoid threatened proceedings - created an unassailable bar preventing the defendants from making any submissions at all as to the validity or width of the clause under consideration or, indeed, as to the ultimate question of whether it would be appropriate to grant an interim injunction in any event.[74]In my judgment, the court is bound to consider all of the circumstances, including, in particular, the fact of the agreement or undertaking reached between two parties with the benefit of independent legal advice. The guidance provided, for example, by Carnwath LJ at paragraph 48, which is consistent with the approach of May LJ is in point and helpful. That is, that whereas the court is not bound, without more, to reject any arguments as to the reasonableness of the clause the existence of the agreement is a material circumstance and would ordinarily be the starting point when considering whether or not to grant an interim injunction. That said, the judicial guidance to which I have referred clearly shows that there are circumstances in which such an agreement may be set aside or not given effect to before trial, principally, on the grounds of public policy.[75]In my judgment, it seems to me that notwithstanding all of the matters submitted by Mr Leiper as to why the clause itself could be attacked, the fact of the matter is that with the benefit of independent legal advice and no longer being in an employer/employee relationship each of the defendants willingly entered into the undertaking in question. That election engaged a powerful public policy, namely, that such agreements to compromise either actual or threatened litigation is to be encouraged by the court and thus, unless for good reason, supported also.[76]The evidence in the present case is, arguably, just sufficient to show that the defendants might, in the course of their employment, in the light of a combination of their training and experience on this single account, have acquired, unavoidably, perhaps, that which is described generally in the clause as ‘commercially sensitive information’. Having said that, it is fair to say, that it is not at all clear, given the equivocal terms of Mr Vaidyanathan’s two statements and the contents of the defendants’ statements, which were not, in reality, rebutted, that any such relevant information was acquired or wrongly used by these defendants. The strength of the claimants’ case lies in the fact of the undertakings freely given. However, the circumstances in which the undertakings were given, the defendants fear of a costs liability in uncertain injunction proceedings and the overall merits of their case in respect of the clause upon which the injunction now sought lead me to conclude that it is not necessary in the interests of justice and for public policy arguments to treat the fact of the undertakings as decisive when considering where the balance of convenience lies in determining whether, ultimately, an interim injunction should be granted. In short, whilst the public policy argument based on the fact of the fact of the compromise or undertakings upon which Mr Cohen relies is powerful and certainly establishes a serious issue to be tried, notwithstanding Mr Leiper’s criticisms of the clause itself, it is not the final word given the facts of this case in deciding whether an injunction should be granted.[77]It is my judgment that the real issue in this case is whether or not, having regard to those facts including the fact of the compromise or undertakings, there is, nonetheless, established by the claimant in accordance with established principles, a basis to find that it is necessary and just to protect the alleged legal right of the claimants which arises under the clause by way of an interim injunction.[78]I referred at the outset of this judgment to the highly unusual circumstances of this case which shows that the claimant has, in fact, lost its contract with First Data through no fault of the defendants or indeed its competitor, Infosys. There is no question on the evidence of the claimant having any realistic prospect, in the short term or otherwise, of regaining that contract if the defendants were kept to their undertaking. Indeed, save for the undertaking there is little evidence that the defendants have wrongly disclosed confidential information or acted unlawfully other than made legitimate use of their limited training, experience and natural skills.[79]The issues at trial will no doubt give rise to contested issues as to the nature and extent of the employees’ duties but I am not determining those factual issues at this stage.[80]The object of the proceedings would be to protect the claimant against injury by violation of his right under the restrictive clause for which, it is submitted, damages would not be an adequate remedy. The defendants have a corresponding right to be protected from injury resulting from being prevented from exercising their legal right to engage in employment utilising their own skills.[81]There is, as I have said, established by the totality of the evidence before me a serious issue to be tried. The real issue concerns the question whether, notwithstanding the fact of the compromise agreement or undertakings which appear to confirm the reasonableness of the terms of the clause, damages would be an adequate remedy given the circumstances of this case.[82]I am not satisfied that it is either necessary nor that it would be just to grant an interim injunction in the terms sought in the circumstances of this case. The claimants have no realistic prospect of recovering the lost business in question and an injunction would serve no real or useful purpose and would be a disproportionate response to the apparent though limited alleged breach of the clause. There is no clear basis to assume, or indeed allege, that the defendants have, beyond taking up their new employment acted in breach of any other obligation under the clause. The asserted loss which the claimants might suffer without the injunction is vague and tenuous. The nature and degree of any harm, which it is said could not be compensated for by an award of damages, is not identified save for a general assertion, which, as submitted by Mr Leiper, appears wholly unconvincing. The clause expires shortly in any event and whilst, for the reasons argued by Mr Cohen the claim would sound in damages also I do not consider that in these circumstances it would be necessary or just to grant an interim injunction.[83]In my judgment, having regard to those circumstances, damages would be an adequate remedy for the claimants. It appears that the defendants would be in a financial position to pay any such damages.[84]Accordingly, in the circumstances, for these reasons the application for an interim injunction is dismissed.

Cited in 3 later judgments