New ISG Ltd v Vernon & Ors

Introduction

This is an application by New ISG Limited (“New ISG”) to continue an interim injunction made by Kitchin J on a without notice application on 11^th October 2007. Kitchin J’s order was varied by Warren J on 16^th October 2007 and further varied by Blackburne J on 24^th October 2007. On that day there was not enough time to deal with the matter so that this hearing is the first occasion when the matter has been fully argued.

All of the Respondents are ex-employees of New Infrastructure Services Group Limited (“ISG”) which went into administration on 13^th July 2007. On 27^th July 2007 the Joint Administrators sold some of the assets (including the goodwill) of ISG to New ISG – a wholly owned subsidiary of UK Rail Services Limited. (“UKRS”)

The application for without notice interim relief was protracted. There were hearings before Mann J on 28^th September 2007, Lightman J on 2^nd October 2007 and Kitchin J on 3^rd October 2007 before the hearing on 10^th October 2007. The hearings on 2^nd and 3^rd October had related to the adequacy of New ISG’s undertaking in damages. On 10^th October Kitchin J accepted an undertaking from New ISG’s parent UKRS.

Kitchin J’s order was in 2 parts. One part related to misuse of confidential information. Under it the Respondents were restrained from divulging or making use of New ISG’s confidential information, were ordered to deliver up documents containing confidential information or belonging to New ISG, and to give information relating to the whereabouts of that confidential information.

A number of documents have been delivered up pursuant to that part of the order. Affidavits have been filed giving the information sought. It is accepted by New ISG that the Respondents have complied with their obligations. It is accepted by the Respondents that the restraining order relating to confidential information must continue to trial.

The second part of the order related to the restrictive covenants in the Respondents’ contracts of employment with ISG. New ISG contend that they are entitled to enforce those covenants. Kitchin J made an order enforcing the covenants which had the effect of preventing the Respondents from soliciting canvassing or dealing with any client, applicant and/or temporary worker of New ISG. He also required the Respondents to supply information in relation to persons they had canvassed. This information has been supplied.

Four of the Respondents have appeared to resist the continuation of the injunctions relating to the covenants pending trial. Ms Austin did not appear or make any representations though it is not suggested that her position is significantly different from that of Mr Vernon, Mr McMullin, or Mrs Harvey.

The principal point taken by the Respondents relates to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE 2006”).They contend that they have objected within the meaning of regulation 4(7) with the result that they never became employees of New ISG. Accordingly they contend that New ISG cannot enforce the restrictive covenants in the contract. They contend that the point is clear so that it can and should be determined on an interim application. There are a number of other points taken by the parties including the question of whether the covenants were incorporated into Mr Harvey’s contract at all and I shall deal with them later in the judgment.

New ISG do not accept that there was a valid objection within the meaning of TUPE 2006. They contend that, as a matter of construction, any objection must take place before the transfer. They also suggest that there are serious issues to be tried as to whether the Respondents did in fact object in time. They contend that the application should be dealt with on ordinary Cyanamid principles and that, in effect, the balance of convenience favours the continuation of the injunction. They contend that it is inappropriate for the court to determine the TUPE 2006 point in this application.

Representation

New ISG was represented by Iain Pester instructed by Coffin Mew LLP of Southampton, Hampshire. Mr Vernon and Mr McMullin were represented by Simon Devonshire instructed by Berwin Leighton Paisner LLP of London EC4. Mr and Mrs Harvey were represented by Shaen Catherwood instructed by Just Employment of Guildford, Surrey.

All three Counsel produced very full clear and helpful skeleton arguments and argued the application with considerable skill. As the detailed provisions of TUPE 2006 are not the bread and butter of the Chancery Division – at least not in the north-east of England, I am most grateful to them for their very considerable assistance.

The Facts

ISG was a business involved with the provision of recruiting agency services providing both white and blue collar workers to the rail industry. According to both Mr Vernon and Mr McMullin the rail industry is unlike other industries. There are fewer clients and a shortage of skilled professionals and engineers. Thus, those involved in the industry know and deal with almost all of the clients and candidates.

All of the Respondents were employees and part of the sales team of ISG until the end of July 2007. Mr Vernon was the Divisional Manager and describes himself as “one of the most senior of the recruitment consultants …dealing with white collar staff”. Mr McMullin describes himself as a recruitment consultant who had worked for ISG for 2½ years before 1^st August 2007. He had worked exclusively in the rail industry building up a data base of contractors, candidates and employees. Mr Harvey was employed by ISG. He describes his role as that of Delivery Manager building up new business through studying the market. He focussed on blue collar workers. Mrs Harvey’s role was that of Delivery/Account Manager working alongside her husband. She too focussed on blue collar workers. Ms Austin joined ISG as a trainee on 2^nd July 2007. She says she was acting under the supervision of Mr Vernon. He supervised her work during the initial period of her employment.

All of the Respondents except for Mr Harvey accept that they signed written contracts of employment and that their contracts contained restrictive covenants which prevented solicitation canvassing or dealing with clients or Temporary workers of New ISG for a period of 12 months from the termination of their contracts.

Mr Harvey’s position is different. Mr Harvey originally worked for ISG pursuant to a contract dated 25 June 2003. It is accepted that this contract contained restrictive covenants in similar terms to those now sought to be enforced. He subsequently left the company’s employment and later, on 12 January 2005 entered into a contract for services with very limited restrictive covenants.

He re-commenced employment with ISG in June 2006 but never signed the contract proffered by ISG in early 2007. According to Mr Harvey he refused to sign because he objected to the terms which included the covenants.

Mr Harvey’s evidence is considered in reply by Mr Williams, a Director of New ISG. Mr Williams has no personal knowledge but has spoken to Ms Mahy, the HR Officer at ISG who dealt with his contract. Ms Mahy says that she periodically chased Mr Harvey for his contract but he told her that he was speaking to Mr Edge (the Chief Executive of ISG) about certain aspects of the contract.

Although Mr Harvey did not sign the contract it is clear that there were some documents that he was willing to sign. Thus on 2^nd June 2006 he signed a document setting out the commission structure under which he would be remunerated. On 1^st December 2006 he was sent and countersigned a letter setting out a revised package of a basic salary of £26,000 p.a with a car allowance of £4,500.

On these facts there seems to me to be considerable force in Mr Catherwood’s submission that the restrictive covenants were not incorporated into Mr Harvey’s contract. There was no written contract when Mr Harvey started work in June 2006. ISG attempted to vary the contractual terms by submitting a written contract in early 2007. Both Mr Harvey and Ms Mahy agree that he refused to sign the written agreement. In those circumstances it is difficult to see how the written terms were incorporated.

ISG became insolvent and Joint Administrators were appointed on 13^th July 2007. On 19^th July 2007 the Joint Administrators offered some of the assets including the goodwill of ISG for sale. ESS Recruitment Limited (“ESS”) and UKRS were amongst those interested. On 27^th July 2007 UKRS (as surety) and its subsidiary New ISG agreed to purchase the assets for a total of £550,000 on deferred terms.

A number of terms were referred to in the course of the argument. It is not necessary for me to refer to them all in this judgment . It is, however to be noted:

Under clause 2.2 £30,000 was payable on completion, £270,000 was payable within 7 days of completion, the balance was payable in 10 monthly instalments of £25,000 each. The payments dates have not been honoured. They have been rescheduled and the re-scheduled payments have not been punctually paid. As at the date of the hearing there was at least £45,000 outstanding. Under clause 1.5 the payment time of each instalment was “of the essence”. Under clause 1.4 the balance of the Purchase Price became due and payable if the Purchaser failed to make payment of any instalment.

Although the sale of the assets included a sale of the goodwill under clause 1.2 the assets remained the Vendor’s property until the full purchase price was paid. Thus the goodwill is still vested in the Vendor.

Under clause 14.3 of the Agreement New ISG acknowledged that there had been no consultation with the employees in connection with the termination of the employment or otherwise and that it might have a liability to the employees under TUPE 2006.

There are some minor conflicts of evidence on this aspect of the case. Mr Devonshire, however, makes the point that it is not suggested that the employees were ever advised of the identity of the purchaser before completion of the transfer and it is not suggested that they were ever advised that under TUPE 2006 they had the right to object to being employed by New ISG.

Mr Vernon and Mr McMullin say that they received very little information from the Joint Administrators before 27^th July 2007 as to the progress of the sale that they hoped to bring about. Mr Vernon and Mr McMullin became aware that ESS was one of the potential buyers. They took the view that ESS would be good people to work with.

On the morning of Friday 27^th July 2007 a number of people came into the office and went into a meeting room. They asked Mr Peat (one of the Joint Administrators) who they were. Mr Peat informed them that they were the buyers but did not want to be identified until they announced it themselves. At that stage they told Mr Peat that they hoped the buyer was not UKRS and that they would not work for UKRS if they bought the business. In his witness statement Mr McMullin gives a number of reasons for this. He regards them as a small player with very limited financial backing. It is not necessary for me to determine whether these were good or bad reasons.

At about 3 p.m on 27^th July 2007 all the staff were called into a meeting. At the meeting they were informed that UKRS had bought ISG and that they were all UKRS employees.

Mr and Mrs Harvey’s evidence is to much the same effect. They confirm that the Administrators did not discuss what would happen to the employees if ISG was sold. Mr Harvey states that he told Mr Peat that he would not work for UKRS in any circumstances. They confirm that they discovered that UKRS had bought ISG at the meeting on 27^th July 2007 and that there had been no prior consultation. They viewed the purchase by UKRS with grave concern.

Mr Williams presents a slightly different picture in his third affidavit. This is something of a change to the picture presented in his earlier evidence. He now says:

Mr Stoneham (the other Joint Administrator) addressed the staff on 16^th July 2007. He told them that the Joint Administrators were actively seeking a purchaser and that if a purchaser was found all their contracts of employment would transfer to the new employer and their contracts of employment would continue with all accrued benefits.

On 19^th July 2007 a memorandum was sent to all staff. That memo repeated that the Joint Administrators were trying to sell the business as a going concern. It made the point that if the sale was achieved all continuing employees would transfer to the purchaser.

Staff were advised by the Joint Administrators during the week of 23^rd July 2007 that a purchaser had been found

The sale of the assets to New ISG was completed at 1.30 a.m on 27^th July 2007.

Mr Williams met with staff in the afternoon of 27^th July to explain who UKRS were and that their jobs were safe. There was no immediate objection from either Mr Vernon or Mr Harvey.

It will be recalled that 27^th July 2007 was a Friday. There were thus 2 working days before 1^st August 2007 - the 30^th and 31^st July 2007. According to Mr Williams he spoke to Mrs Harvey on either 30^th or 31^st July 2007. He says that the meeting went well. He assured her that their jobs were safe and she did not express any concerns. He says that Mr Schruyer has told him that she stated in his presence that “she was prepared to give it a go”.

Mrs Harvey paints a rather different picture. In paragraphs 6 and 7 of her third affidavit she says that if she had been aware that UKRS were the purchasers she would have made it clear that she would not be willing to continue employment with UKRS and would have resigned. This evidence is, in fact supported by Ms Symons, the Operations Director of New ISG who was employed by ISG as a “resourcer” working for members of the sales team. In paragraph 14 of her affidavit she confirms that following the announcement on 27^th July Mr Vernon and the rest of the sales team were very unhappy. She says that both Mr Vernon and Mr Harvey made it clear that they did not intend to stay and that UKRS was, in their view a company they would not work for.

It is by no means clear on the evidence what work was being carried out by the sales team on 30^th and 31^st July 2007. It is to be noted that in paragraph 16 of Ms Symons’ affidavit she asserts that Ms Austin appeared to be the only member of the sales team still working on 30^th July 2007. She also asserts that Ms Austin printed off some 200 to 300 pages off the database. In her witness statement Ms Austin does not accept this, she says she was asked by Mr Vernon to resource a specific position and that she printed off some 20 – 30 pages of the data base for this purpose.

In the Particulars of Claim New ISG allege that between 27^th July 2007 and 1^st August 2007 each of the Respondents took steps to copy confidential information belonging to New ISG and thereafter wilfully and maliciously removed and deleted confidential information in electronic form from New ISG’s data base, computers and mobile phones. Full details of the allegations are contained in the Particulars of Claim.

As the issue of confidential information is no longer live before me it is not necessary to set out the allegations in detail. However Mr Pester argued that the allegations and admissions might be relevant to the question of discretion. It is therefore necessary to deal with the allegations briefly. In paragraph 12 of his skeleton argument Mr Pester summarises the position in this way:

As already noted the Respondents accept that there has been some removal of information. It is, however right that I should record their positions.

Mrs Harvey has delivered up 2 documents pursuant to the order of Kitchin J. programmes of works relating to Osbornes, a client of New ISG. She contends that these were in her possession innocently. She denies deletion of e-mails or other confidential information belonging to New ISG. Mr Harvey denies removing any documents belonging to New ISG containing confidential information. He further denies deleting, removing or downloading any data from New ISG’s data base.

Ms Austin does not accept that she took 200 to 300 sheets of contact details. She does however accept that she took the 20 – 30 sheets which she was working on at the time she handed in her resignation.

Mr Vernon accepts that he had retained some documents with confidential information, either on his business mobile phone, his personal mobile phone, or in the boot of his car.

Mr McMullin accepts that he had in his possession confidential documents including a print out from the RDB database at his home address or on his mobile phone. He has also disclosed a number of confidential documents which were kept at ESS. In paragraph 12 of his affidavit Mr McMullin admits that he collated data on the clients, businesses and contacts that were most important to him so that he could earn a living if ISG went to the wall. He accepts that he now realises that he was not allowed to do this and that his actions were commercially naïve. He is, however only 23 years old.

The Respondents all resigned on 1^st August 2007. The letters of resignation are in similar but not identical terms. In all of the letters the writer purports to resign with immediate effect.

Following the resignation all of the Respondents started to work for ESS. Whilst employed at ESS all of the Respondents canvassed, solicited or dealt with a variety of clients or temporary workers of New ISG and have disclosed details of these pursuant to the order of Kitchin J.

Mr and Mrs Harvey left ESS at the end of September 2007 before these proceedings were served. It is not suggested that New ISG’s actions were in any way involved in the decision to leave. Ms Austin left ESS on 10^th October 2007. Mr Vernon and Mr McMullin remain employed by ESS in competition with New ISG.

As already noted the application for interim relief was first launched on 28^th September 2007. It was suggested that there was an unreasonable delay between the beginning of August and the end of September. New ISG’s explanation for the delay is that there was a need to instruct a computer consultant to retrieve the deleted material on the computer and that this was time consuming. For my part I am not satisfied that New ISG have disentitled themselves to any relief by reason of delay.

The without notice application involved 4 hearings. At the first hearing on 28^th September 2007 Mann J adjourned the matter to give New ISG an opportunity of considering whether to join ESS as a party. New ISG decided not to join ESS. The second hearing came before Lightman J on 2^nd October 2007. Lightman J had expressed concern at the adequacy of New ISG’s undertaking in damages. The matter was further adjourned on 3^rd October 2007. On that date New ISG were in arrears with the payments under the Sale contract. The matter was eventually dealt with by Kitchin J on 10^th October 2007.

Since then the matter has been before Warren J on 16^th October 2007 and Blackburne J on 24^th October 2007. Some relaxations were made to the injunctions relating to the servicing of clients who have already been canvassed by the Respondents.

The position of the parties

New ISG wish to protect what they contend is their goodwill pending trial. They contend that there are serious issues to be tried both in relation to TUPE 2006 and in relation to their other arguments. They contend that the balance of convenience favours the continuation of the injunction.

They contend that UKRS is good for any undertaking in damages. They rely on the fact that management accounts show a profit of £245,000. At the hearing there was some discussion as to whether the £45,000 owed to the vendors under the Sale Agreement had been paid. I was told that it was being paid during the course of the day. Since the hearing I have been informed that £45,000 was not paid to the vendors but to the Inland Revenue. Thus £45,000 remains outstanding to the vendors. Indeed it is arguable that the whole of the outstanding purchase money is now due.

They contend that this is a suitable case for a speedy trial. Since the argument has concluded I have myself made enquiries of the listing officer. He has confirmed that if I order a speedy trial to take place in December 2007 he could accommodate that date.

At the time they swore their affidavits both Mr and Mrs Harvey were unemployed. Mrs Harvey says that being unable to canvass or deal with clients and temporary employees of New ISG will hamper her attempts to get another job. She relies on the small size of the industry.

Since the hearing I have been informed that Mr Harvey has obtained a job starting on 6^th November 2007. He will be working within the recruitment sector but he will not be undertaking work that breaches the terms of the injunction. His salary is £25,000 plus a £3,000 car allowance and commission. This compares with the £26,000 and £4,500 he was earning at ISG.

Mr and Mrs Harvey have placed their house on the market and incurred borrowings from the bank. They are funding this litigation themselves. Their costs to-date are about £8,000. This compares with New ISG’s costs which are said to be in excess of £114,000 and Mr Vernon and Mr McMullin’s costs said to be in excess of £24,000. This is not the place to comment on the levels of costs incurred by the other parties. Mr and Mrs Harvey however make the point that they will have great difficulty in funding a full trial of this matter especially if increased fees for an expedited hearing are involved.

They contend that there are no serious issues to be tried; that there are serious questions as to the worth of any undertaking in damages and that the balance of convenience favours the refusal to continue the injunction.

Mr Vernon and Mr McMullin are both still employed by ESS. It was suggested in the course of argument that ESS are assisting in the finance of their defence. They assert that the injunction has a significant effect on their ability to carry out their job and they think there is a real possibility that ESS will dismiss them if the injunction is continued. They would not be able to get another job within the rail industry.

They also contend that there are no serious issues to be tried; they too cast doubt on the validity of any undertaking in damages and contend that the injunctions should not be continued.

TUPE 2006

Although the issue to be determined is a relatively narrow issue on the effect of regulation 4(7) of TUPE 2006 a number of regulations were referred to in argument and it is convenient to set them out.

It is common ground between the parties that the effect of regulations 4(1), 4(2) and 4(7) of TUPE 2006 is that the contracts of employment of each of the Respondents were transferred to New ISG unless the relevant Respondent informed New ISG or ISG that he (or she) objected to being employed by New ISG. This gives rise to two questions:

Whether as a matter of construction of regulation 4(7), the relevant Respondent must inform ISG or New ISG that he objects to being employed by New ISG before the completion of the share sale agreement? If so, it is plain that there was no relevant objection in this case and the contracts of employment were duly transferred to New ISG.

If not, whether it is plain, as the Respondents contend, that they informed New ISG or ISG of their objection within the relevant time or whether, as New ISG contends, there are serious questions to be tried on this issue?

Before considering the arguments addressed to me on regulation 4(7) it is worth making a number of comments:

It is, to my mind, plain that there were a number of breaches by ISG (acting by the Joint Administrators) of regulation 13.

There was no attempt by the Joint Administrators to inform, let alone consult with “appropriate representatives” at all before the completion of the sale. As Mr Devonshire pointed out this is important because employee representatives are likely to have more industrial muscle than individual employees.

The information provided by the Joint Administrators to the employees was extremely limited and inaccurate in important respects:

In argument Mr Pester suggested that it was arguable that there were special circumstances within regulation 13(9) which made it not reasonably practicable for the Joint Administrators to comply with regulation 13(2). He cited the insolvency of ISG and the need for the Joint Administrators to act quickly so as to preserve the goodwill for the benefit of creditors. To my mind there are a number of answers to this submission:

It is plain from clause 14.3 of the Sale Agreement that both New ISG and the Joint Administrators were fully aware that there were breaches of the Joint Administrators’ obligations under regulation 13.

All of the Respondents have presented complaints to the employment tribunal alleging breaches of regulation 13. If successful they may be entitled to up to 13 weeks’ pay by way of compensation. Mr Pester told me that there were going to be serious challenges to the complaints. He did not, however, explain in detail the nature of the challenges. On the face of the plain breaches it would appear to me to be difficult to see the basis of the challenges.

For convenience I set out again regulation 4(7):

Mr Pester submitted that the wording of regulation 4(7) was plain. On any ordinary construction of the wording the notification by the employee must take place before the date of the transfer. He draws to my attention the use of the words “becoming employed by the transferee” as opposed to “having become employed by the transferee”. He submits that this can only refer to the future. As the construction of the wording is clear it is not necessary for the Court to look further. He submitted that his construction was supported by authority. (Footnote: ²) He made the point that the right to be informed and consulted was a statutory right under regulation 13 and not a contractual term. Furthermore it was a right for which Parliament had provided a remedy under regulation 15. There was no need for any other remedy.

Counsel drew my attention first to the decision of the ECJ in Katsikas -v- Konstandinidis [1993] IRLR 179, to the effect that the Acquired Rights Directive (which TUPE 2006 implements) was not to be construed as obligating the employee to continue his employment with the transferee if he did not wish to do so. They referred me to paragraphs 31 to 33 of the ECJ’s judgment

“… the Directive … cannot be interpreted as obliging the employee to continue his employment relationship with the transferee Such an obligation would undermine the fundamental rights of the employee who must be free to choose his employer and cannot be obliged to work for an employer that he has not freely chosen. …. the provisions of Article 3(1) of the Directive do not prevent an employee from objecting to the transfer of his contract of employment or of employment relationship ….”

They submitted that Mr Pester’s literal construction of regulation 4(7) drove a coach and horses through the object of the regulations in a case, such as this, where the employee was not informed of the identity of the transferee until after the transfer had taken place. They point out that if Mr Pester’s submissions are right the employee’s fundamental right to choose his employer is undermined.

They accept that there are some observations in the cases cited by Mr Pester to the effect that the objection must be communicated before the transfer. They make the point that those observations were not part of the decision and were in any event not binding on me. They invite me not to follow them.

They submit that the court should adopt a purposive construction to regulation 4(7). They submit it should be construed as applying to an objection made after a transfer. They accept that the objection would have to be made before it could be said that the employee had, by conduct in working for the transferee, made clear that there was no objection.

In support of this submission they have referred to a leading Practitioner Text Book on this area of the Law where the authors submit that a purposive construction should be given to regulation 4(7) so as to give effect to the principles in Katsikas. (Footnote: ³)

They submit that the Courts in the UK are under a duty to follow the practice of the ECJ by giving a purposive construction to the Acquired Rights Directive and TUPE 2006. Amongst other authorities they refer me to part of the judgment of Roch LJ in Humphreys v University of Oxford (Footnote: ⁴)

In the alternative they contend, basing themselves on some observations of Morison J in Secretary of State v Cook, that New ISG are estopped from relying on the fact that the objection was after the date of the transfer.

In answer to these submissions Mr Pester makes a number of points. First he submits that I should follow the observations in the authorities unless I am convinced they are wrong. Second he does not accept that there can be any estoppel here. It is not a classic form of estoppel in that there is no representation or reliance. Furthermore, he submits that estoppel is an equitable doctrine and requires the Respondents to come to Court with clean hands. Their conduct disentitles them from relying on it. He further submits that it is inappropriate for the Court to determine the issue in an interim application.

The true construction of regulation 4(7) is a point of law. Applying the principles discussed by Chadwick LJ in Arbuthnot Fund Managers –v- Rawlings (Footnote: ⁵) there seems no reason why I should not determine the timing issue at this stage of the proceedings. It has been fully and skilfully argued and does not depend on any disputed facts.

Apart from the authorities cited by Mr Pester, I have little hesitation in preferring the submissions of Mr Devonshire and Mr Catherwood on this issue. Without repeating their submissions I agree that in a case such as this where the employee does not know the identity of the transferee before the date of the transfer Mr Pester’s construction undermines the fundamental freedom of the employee to choose his employer. In those circumstances I would adopt the purposive construction of regulation 4(7) suggested in Transfer of Undertakings by Jeremy Lewis. Mr Pester objects that this renders it uncertain when the right to transfer is lost. However, I agree with the authors of the book that this is likely to be no more difficult than determining if an employee has affirmed the contract in a constructive dismissal case.

I turn to the authorities relied on by Mr Pester. In Hay v Hanson the question before the EAT related to the form that the objection under the predecessor of regulation 4(7) must take. Mr Hay was held by the industrial tribunal to have objected to a transfer and thus to have disentitled himself to a finding that he had been dismissed. The decision was upheld by the EAT. In paragraph 10 of the judgment Lord Johnston said:

It is plain that Lord Johnston did not have in mind a case such as this where the employee was not informed of the identity of the transferee until after the date of the transfer.

The question was also addressed (obiter) in another decision of the EAT Secretary of State v Cook where it was held that employees otherwise qualified will transfer even though they are unaware of the identity of their new employer. In the course of the judgment Morison J said

The authors of Transfer of Undertakings describe this reasoning as unconvincing on a number of grounds. As this case shows it does not follow that the employee has lost nothing of value, if by objecting to the transfer he can free himself from restrictive covenants.

Notwithstanding this authority I adhere to the view that regulation 4(7) should be given a purposive construction so as to accord with the fundamental right of the employee and the Acquired Rights Directive. However if I am wrong about this I would follow the view of Morison J and hold that on the facts of this case New ISG are estopped from denying that the Respondents had exercised their rights timeously. I accept that this may not be a classic form of estoppel; however New ISG are seeking to take advantage of a wrong for which they are jointly liable and of which they had full knowledge at the time of the transfer. I do not see why the Court should not prevent this from happening. Whether this is described jurisprudentially as estoppel or abuse of process does not seem to me to matter. I do not accept Mr Pester’s submission that this is an equitable remedy or that the subsequent misconduct (if any) of the Respondents has any bearing on it.

Mr Pester suggests that there is a serious issue to be tried as to whether the resignation on 1^st August 2007 was in fact in time. He relies on the fact that there were 2 working days before the resignations and contends that it is arguable that the Respondents had by their conduct in working for New ISG made it clear that there was no objection under regulation 4(7).

It is plain from the decision in Hay v Hanson that there is no prescribed method of notifying the objection to New ISG. In those circumstances I accept the submission of Mr Devonshire and Mr Catherwood that the letters of resignation are to be construed as objections within the meaning of regulation 4(7). There may be more scope for argument in relation to the conversation with Mr Peat as this may depend on the precise words used and there may be a conflict of evidence. Thus it would not be right to base the judgment on those conversations at this stage.

With the exception of Ms Austin there is no evidence of what work was done by any of the Respondents on the 30^th and 31^st August. 2006. Indeed the evidence of both Ms Austin and Ms Symons suggests that the Respondents may not have been present on those days.

In any event 2 working days is a very short period of time from the date of the announcement at 3 p.m on 27^th July 2007. In my view it cannot seriously be argued that any of the Respondents had made it clear by their conduct that there would be no objection under regulation 4(7) to the transfer of their employments to New ISG.

Other arguments raised by New ISG on the merits.

In paragraph 24(9) of his skeleton argument Mr Pester puts forward an alternative basis for maintaining the injunctions:

In the course of his submissions Mr Pester acknowledged that this was not his strongest argument and was very much a fall back position. In my view he was right. This is a case where the purchase price has not been paid in full and the property in the goodwill remains vested in ISG. Thus, even if it is right to treat the right to enforce the restrictive covenants as part of the goodwill the right has not been assigned to New ISG and remains vested in ISG.

It follows that it is not seriously arguable that the restrictive covenants can be enforced by this route.

Other arguments on the merits raised by the Respondents

For reasons set out earlier in this judgment it does not seem to me to be seriously arguable that Mr Harvey was bound by the terms of the restrictive covenants. Whilst the 2003 contract may have contained similar restrictions, the 2005 contract contained much more limited restrictions.

Mr Harvey had worked for 6 months for ISG before he was presented with a written contract to sign in January 2007. It seems to me not seriously arguable that he was bound by the restrictions for that 6 month period. Thus the burden is on ISG to prove that the contract was varied. The evidence of both Mr Harvey and Ms Mahy is that Mr Harvey refused to agree to the variations. In those circumstances it is difficult to see how it can seriously be argued that he was so bound.

In paragraph 20 of his skeleton argument Mr Devonshire presents an interesting and by no means straightforward argument to the effect that ISG repudiated the employment contract either by transferring the goodwill to New ISG or by the failure to inform the Respondents of their right to choose whether to be employed by New ISG or not. He contends that the Respondents accepted the repudiatory breach by resigning and that they are thus no longer bound by the restrictive covenants.

In the light of my other findings I prefer to express no concluded views on this submission. In particular, as at present advised it seems to me that there may well be a number of seriously arguable points as to whether the duties in regulation 13 became terms of the contract, and as to whether there was any repudiatory breach by ISG.

Conclusion

In my view it is not seriously arguable that the Respondents did not object to the transfer within the meaning of regulation 4(7) of TUPE 2006. It is also not seriously arguable that the restrictions were incorporated into Mr Harvey’s contract of employment. It follows that the injunctions should not be continued.

Balance of convenience.

In case I am wrong and there are serious issues to be tried and as the matter has been fully argued I shall consider whether I would in that event have granted the interim injunctions sought.

The principles are taken from Lord Diplock’s well-known speech in American Cyanamid v Ethicon

If the interim application is likely to be determinative of the matter then more account can be taken of the perceived merits. However in this case there could be a trial in December 2007 so that it cannot be said that grant or refusal of an interim injunction is determinative of the matter. The 12 month restriction does not end till the end of July 2008.

In my view New ISG would not be adequately compensated by an award of damages. Apart from the fact that damages would be difficult to assess there must be real doubts as to the Respondents’ ability to meet any such award. They are all on modest incomes or unemployed and there is no evidence that they have substantial assets.

On the other hand I am equally not satisfied that the Respondents will be adequately compensated under New ISG or UKRS’ undertaking in damages. Despite the assertions in Mr Williams’ third affidavit there must be real doubts about the solvency of both New ISG and UKRS. The amounts due under the sale agreement were not paid on either the due or the re-scheduled dates. The £45,000 I was told was being paid on the day of the hearing was not in fact paid. Under the terms of the Sale Agreement the whole outstanding sum is now technically due. There is to my mind a real risk that New ISG and UKRS will not be in a position to honour their undertaking in damages.

It is thus necessary to turn to the balance of convenience. A number of factors seem to me to be relevant. First, this is a case where New ISG purchased the assets of ISG with full knowledge that there were breaches of the duties under regulation 13. The complaints that are being made by the Respondents cannot have taken them by surprise. Second, there is a real risk that the granting of an injunction will affect the ability of Mr Vernon, Mr McMullin and Mrs Harvey to earn a living. I think there is force in Mrs Harvey’s complaint that it makes it harder for her to find a job; I also think that if Mr Vernon or Mr McMullin cannot use their old contacts there is a real risk that they will lose their jobs. None of the Respondents are earning substantial sums of money and it seems to me that in those circumstances it is particularly important to be careful before a court interferes with their right to earn a living. Third, these proceedings were not brought until 28^th September 2007 and not served on the Respondents until 12^th October 2007. By that time the Respondents had been making use of their contacts for 2 months. In those circumstances whilst the delay may not be a bar to the proceedings I think it may be said that the status quo has shifted. This is especially the case if there can be a trial as early as December. Fourth, if the injunction is not granted, New ISG may suffer some irrecoverable loss till the matter can be tried. Fifth, Mr McMullin in particular and, to a lesser extent, Mr Vernon have committed serious breaches of the duties to New ISG. However they have complied with Kitchin J’s order, made appropriate disclosure and accepted that it is inevitable that the confidential information injunction will continue to trial.

In all the circumstances I think that the factors in favour of refusing the interim injunction outweigh those in favour of the grant. Thus, even if I had thought there were triable issues I would still have refused to continue the injunctions.