Whitmar Publications Ltd v Gamage & Ors

On the 7^th January 2013, the First, Second and Third Defendants (to whom I shall refer respectively as Mr. Gamage, Ms. Wright and Mr. Crawley or collectively as “the Defendants”) resigned from their employment with the Claimant, to whom I shall refer as “Whitmar”. It was subsequently agreed that Mr. Gamage could each go on “garden leave”, and that the employment of all of them would terminate at the end of January. Mr. Gamage told Mr. Rob Mulligan (“Mr. Mulligan”), Whitmar’s Managing Director, that he, Ms Wright and Mr Crawley were going to set up a new company. The Fourth Defendant, to whom I shall refer as “Earth Island”, is that new company.

No sooner had the Defendants left Whitmar’s employment, than it was discovered that they had set up a company, which Whitmar contends was, and had been prior to the termination of their employment, in competition with Whitmar.

On the 14^th May 2013 Whitmar commenced proceedings against the Defendants. In summary, Whitmar claimed damages for breach of contract; an account of profits; damages for breach of fiduciary duty and/or for infringement of its Database Rights under the Copyright and Rights in Database Regulations 1997; and for a permanent injunction restraining the Defendants from using and disclosing its confidential information obtained during their employment by Whitmar.

Whitmar also applied for interim relief, and on the 21^st May 2013, Newey J. made an Order by Consent restraining the Defendants from using or exploiting or divulging to any third party, save with the express written consent of Whitmar, or save where required by law to do so, any information from three named and identified sources. Newey J. also ordered that Whitmar’s application was to be heard over a day within the listing window of the 10^th to 13^th June 2013.

On the 12^th June 2013, I heard the application. I was informed that it was a matter of “life and death” for the Defendants that I made a decision that day, and, with the parties’ agreement, I gave my decision at the end of the hearing, granting Whitmar the relief which it sought. That relief is embodied in an Order, which was subsequently agreed between the parties.

At the conclusion of the hearing, I said that I would give my reasons at a later date. These are the reasons for my decision.

Whitmar was established in 1988. It is a publications company specialising in magazines for the printing industry. It publishes a range of different magazines in printed formats and electronically, and also produces a range of information handbooks. In addition, Whitmar also holds three industry award ceremonies each year. Its income is derived predominantly from advertisers.

Mr. Gamage was employed by Whitmar from the 16th January 1995. At the date of his resignation he was employed as Whitmar's Sales Manager. The titles for which Mr. Gamage was responsible represented a large proportion of Whitmar’s turnover, and Mr. Gamage had direct contact with customers in relation to the titles.

Ms. Wright was employed by Whitmar from the 29^th June 1998, and was the Managing Editor of all of Whitmar’s titles, and its most senior employee.

Mr. Crawley was employed by Whitmar from the 26th April 2004 as a Production Editor.

Each of the first three Defendants was employed by Whitmar on the terms set out in a letter of engagement. Mr. Gamage’s letter of engagement is dated the 20^th December 1994. It contained details of his role and salary, holiday entitlement, and was expressed to be “subject to ... the Company’s Terms of Employment”. I was informed that no Terms of Employment were ever agreed.

Ms. Wright’s and Mr. Crawley’s letters of engagement were in similar terms, although in Mr. Crawley’s case, there was no reference to Whitmar’s Terms of Employment. Thus, the terms of the Defendants’ contracts of employment are to be found in the letters to which I have referred.

Earth Island, the company formed by the First to Third Defendants, was registered on the 31^st August 2012, that is just over four months before Mr. Gamage, Ms. Wright and Mr. Crawley resigned from Whitmar.

In this Application, Whitmar seeks:

Before identifying Whitmar’s complaints against the Defendants and the Defendants’ answers to those complaints, it is necessary to say a few words about the Court’s approach to the application and the evidence. The application is for injunctive relief, and the Court will apply the principles established in American Cyanamid v. Ethicon Limited [1975] AC 396, HL. In Lawrence David Limited v. Ashton [1989] IRLR 22, the Court of Appeal held that the American Cyanamid principles apply in cases of interlocutory injunctions in restraint of trade just as they do in other cases.

Thus, the Court’s approach is first to decide whether or not there is a serious issue to be tried, and, if there is, whether damages would be an adequate remedy, or whether the balance of convenience is in favour of granting the injunction sought.

As I have stated earlier, I was informed that the outcome of the application was a matter of “life or death” for the Defendants. Accordingly, as it seemed likely that the injunctive relief sought would, if granted, be likely to dispose of the action, I was urged to adopt the approach of the Court of Appeal in Lansing Linde Limited v. Kerr [1991] 1 WLR 251. In his judgment in that case, Staughton L.J. said, at page 268(a) to (d):

One other preliminary matter that should be mentioned is that, on this application (as on almost all interlocutory applications) the prospects of success have to be assessed on the basis of the written statements filed by the parties, and the documents. Clearly, where there has been no testing of the evidence, I can do no more than make a preliminary assessment of the weight of the evidence, but can come to no concluded view on it.

It is convenient to deal first with Whitmar’s submission that there is a good arguable case that Mr. Gamage, Ms. Wright and Mr. Crawley acted in breach of their contracts of employment and of their obligations as employees. Ms. Bone submitted that each of those Defendants was under an implied duty of good faith and fidelity, which continued until the end of his or her employment, notwithstanding that each was placed on garden leave immediately upon giving notice of their resignation.

In particular, Ms. Bone submitted that Mr. Gamage and Ms. Wright, as senior employees, each owed fiduciary duties to Whitmar notwithstanding the absence of any specific term in their letter of engagement.

In Ranson v. Customer Systems plc [2012] IRLR 769, Lewison L.J., in giving a judgment with which Lloyd L.J. and Pill L.J. agreed, considered the contractual duty of fidelity. He said:

“It is not disputed that an employee has an obligation of fidelity towards his employer. If the obligation is not expressed, it will invariably be implied. In Wessex Dairies Limited v. Smith [1935] 2 KB 80, Greer L.J. formulated the implied term thus:

"... during the continuance of his employment he will act in his employer's interests and not use the time for which he is paid by the employers in furthering his own interests.

Later in his judgment, Lewison L.J. quoted a passage from the judgment of Neill L.J. in Faccenda Chicken Limited v. Fowler [1986] IRLR 69, and summarised the position in the following way:

Lewison L.J. then went on to consider the difference between the contractual duty fidelity and the duties of a fiduciary:

“As Elias J. pointed out in Fishel the hallmark of a fiduciary is a single-minded duty of loyalty. The duty of loyalty in that context has a precise meaning: “namely the duty to act in the interests of another As mentioned, this is not a feature of an employment relationship. In the employment context, the duty of loyalty, although given the same label “is one where each party must have regard to the interests of the other, but not that either must subjugate his interests to those of the other. ” Again it is, perhaps unfortunate, that conceptually different things have been given the same label. "

In Ranson, as in the present case, one of the allegations made was that Mr. Gamage and Ms. Wright at least should have informed Whitmar when they were doing work for Earth Island during the course of their employment by Whitmar. Again quoting from the judgment of Elias J. in Fishel, Lewison L.J. rejected the submission that as a general principle an employee is bound to inform his employer if and when he is doing outside work in breach of his contract.

It seems to me that the critical distinction between the duty of good faith and fidelity owed by an employee and the fiduciary duties is that an employee is not in the position of a fiduciary, such as a director. It is trite law that a director owes fiduciary duties to the company of which he or she is a director, and is under a duty to act in good faith in what he or she considers to be the best interests of the company. An employee does not have such a wide- reaching obligation.

I, therefore, reject Ms. Bones' submission that Mr. Gamage and Ms. Wright should be treated as fiduciaries. In my judgment, the submission that they were does not raise a serious issue. As employees they owed and continued to owe until the end of their employment duties of fidelity and good faith to Whitmar, but did not owe the duty owed by a fiduciary.

In her Skeleton Argument both for the hearing before Newey J. and for the hearing before me, Ms. Bone helpfully identified the allegations of wrongdoing by the Defendants. It will be convenient for me to set out the manner in which Ms. Bone presented Whitmar’s case. The evidence of wrongdoing that she relied upon was:

It is also contended on behalf of Whitmar that since Mr. Gamage, Ms. Wright

Mr. Gamage denies that he had plans to leave Whitmar as early as Mr. Mulligan suggests. He says:

Ms. Wright says that she had a similar reaction to events in December 2012:

Although, as I have said, I cannot come to any concluded view on the basis of witness statements upon which there has not been any cross-examination, it has to be said that the evidence points strongly against the accounts written by Mr. Gamage and Ms. Wright to which I have referred.

Earth Island was, as I have said, incorporated in August 2012, and Mr. Gamage and Ms. Wright were directors of that company. In addition, a domain name had been registered for Earth Island some months before. There is really no explanation from either Mr. Gamage or Ms. Wright as to the reason for the incorporation of Earth Island or the registering of a domain name unless it was intended that Earth Island would compete with Whitmar.

In addition, I had before me a witness statement of a Mr. David Gregory. That statement had only been made on the 11^th June 2013, the day before the hearing before me. I asked Mr. Menzies whether he wished to have an adjournment in order to respond to Mr. Gregory’s witness statement. After taking instructions Mr. Menzies said that he did not wish to have an adjournment, and that he was prepared to proceed on the basis that Mr. Gregory's statement was before me and was unanswered.

In his statement, Mr. Gregory records that in November 2011, he had a meeting with Mr. Gamage and Ms. Wright during which they told him that they intended to set up new titles on their own, including a general print title, an environmental print title and, possibly, a cruising magazine. He says that it was clear to him from the very outset that the publications would be competing directly against Whitmar, and that “the fact of and the contents of our discussions and communications were to remain secret from the Claimant, because of David Gamage's concerns for his job

Mr. Gregory also stated that the discussions that he had with Mr. Gamage and Ms. Wright left him in no doubt that from November 2011 they had formed the intention to set up competing print titles. He said:

He added that the discussions involved a large number of activities which were designed solely for the purpose of competing with Whitmar’s business. They included:

In respect of identifying a name for the new print titles, Mr. Gregory made a suggestion about how to go about choosing a name on the 14^th December 2011 to which he got the response from Mr. Gamage:

“So how do we do that without blowing our cover? D”

In early 2012, that is over a year before the First to Third Defendants tendered their resignations from Whitmar, Mr. Gregory asked Mr. Gamage and Ms. Wright:

In reply, Mr. Gamage said:

“As well as me and Susan, I am looking at Steve for design and production and Jan for admin and accounts. Maybe Andy too as another editor/travelling reporter.”

Jan was Jan Hindley and Andy was Andy Knaggs, both then employed by Whitmar.

In addition, Mr. Gamage showed to Mr. Gregory internal management accounts that he had taken from Whitmar.

Mr. Gregory’s involvement with the new venture ceased in February 2012, but it is plain from his evidence that there is a serious issue to be tried as to whether even at that stage Mr. Gamage and Ms. Wright were involved in competing with Whitmar’s publications.

Ms. Wright was responsible for dealing with the Linked-In groups as part of her employment duties at Whitmar. Those groups operated for Whitmar’s benefit and promoted its business, and Ms. Wright used Whitmar’s computers to carry out her work on the Linked-In groups.

Mr. Gamage and Ms. Wright left Whitmar’s employment on the 1^st February 2013 after completing their garden leave. On the 4^th February 2013 Whitmar’s Linked-In groups appear to have been used as the source of e-mail addresses for Earth Island’s press release in which a large number of individuals were invited to attend “an informal event” at a bar in Leicester Square.

In addition, Whitmar contends that Mr. Gamage and Ms. Wright took away with them Whitmar’s confidential information in the form of Whitmar’s Circulation Database and Customer Database. I have no doubt that (to put the matter at its very lowest) there is a serious issue to be tried as to whether those Databases contained Whitmar’s confidential information.

The Business Cards which Mr. Gamage had accumulated over many years, were taken by him, but subsequently returned to Whitmar, albeit some time after they had been promised. Although there is a dispute about the circumstances in which Mr. Gamage took the Business Cards, for the purposes of this judgment, I do not have to express a view as to which account I find more credible. Plainly, and again to put it at its lowest, there is a serious issue to be tried as to whether they were useful to Mr Gamage and Ms Wright in setting up a competing business.

Whitmar’s contention is that Mr. Gamage purchased a piece of equipment named "Card Munch” to copy those business cards. Mr. Gamage denies that, and I can make no finding on that on the state of the evidence at the present time.

Mr. Menzies, on behalf of the Defendants, denies that the Defendants have been acting in competition with Whitmar’s publications, and points out that Mr. Gamage has offered his iPhone for inspection in relation to the alleged misuse of the Business Cards. The burden of Mr. Menzies’ submissions was that the evidence submitted by Whitmar came nowhere near satisfying the Lansing Linde standard.

Mr. Menzies submitted that the allegations that were made of a sustained and serious misconduct and specifically included dishonesty and theft so that the evidence necessary to support the allegation would need to be particularly cogent: see Brutt Trade Marks [2007] RPC 462 and Re. H (minors) [1996] AC 563.

Mr. Menzies further submitted that whatever the Defendants have done there was no competitive activity during the course of their employment. He relied upon a passage in the judgment of Popplewell J. in Fahim Imam-Sadeque v.Bluebay Asset Management (Services) Limited in which at paragraph 126, Popplewell J. said:

“In general terms, it can be said that the duty of fidelity requires an employee not to engage in competitive activity. Nevertheless, it is legitimate for him to undertake competitive activity as soon as he ceases the employment (in the absence of effective post-termination covenants), and not all preparation for such future competitive activity will be a breach of his duty of loyalty. Where the boundary is to be drawn, in any particular case, between legitimate preparatory activity and illegitimate competitive activity, is often a difficult question.”

Popplewell J. also quoted from a judgment of Moses L.J. in Helmet IntegratedSystems Limited v. Tunnard & Others [2007] IRLR 126 in which Moses L.J. said:

“27.

This freedom to compete, once an employee has left, unrestrained by any enforceable covenant, carries with it a freedom to prepare for future activities, which the employee plans to undertake, once he has left. In Robb v. Green (q.v. supra) Hawkins J. concluded that a manager who had copied a list of customers was liable in damages for breach of an implied term not to use such information to the detriment of his employer. But he observed, in words echoed frequently thereafter, that each case would depend upon its own circumstances and there will be cases where an employee may legitimately canvas, issue circulars, have a place of business ready and hire employees (see page 15). The Court of Appeal made no observation suggesting disagreement when it affirmed Hawkins J.’s conclusion.

The legitimacy of preparatory activity

28.

The battle between employer and former employee, who has entered into competition with his former employer, is often concerned with where the line is to be drawn between legitimate preparation for future competition and competitive activity undertaken before the employee has left. This case has proved no exception. But in deciding on which side of the line Mr. Tunnard’s activities fall, it is important not to be beguiled into thinking that the mere fact that activities are preparatory to future competition will conclude the issues in a former employee’s favour. The authorities establish that no such clear line can be drawn between that which is legitimate and that which breaches an employee’s obligations.”

Mr. Menzies points out that there is nothing in the Defendants’ contracts of employment to restrict them from competing after their employment finished and that they were not executive directors.

Mr. Menzies further submitted that there was no evidence of any competition prior to the termination of their employment, and referred to the judgment of Falconer J. in Balston Limited v. Headline Filters Limited [1990] FSR 395.

So far as Whitmar’s application for “springboard relief’ is concerned, Mr. Menzies drew my attention to the judgment of Jonathan Parker J. in SunValiev Foods Limited v. John Philip Vincent [2000] FSR 825 at page 834 and which Jonathan Parker J. said:

“For reasons which I have already explained, there is no room for doubt that the defendants have made unlawful use of material in which Sun Valley/Fields has a proprietary interest. But, as Nourse L.J. explained in Bullivant, that in itself is not enough to found a claim for “springboard” relief. Sun Valley also has to establish (a) that the defendants thereby gained unfair competitive advantage over Sun Valley “to use the words of Roxburgh J.” (an“unfair start”) and (b) as of today that advantage still exists and will continue to have effect unless the relief sought is granted.

It is, therefore, necessary to consider on the evidence as it stands (and, of necessity, without the benefit of cross-examination) the extent to which the unlawful copying of Fields’ material assisted the defendants in starting up Fusion's business and in thereby shortening the start-up period.

In undertaking this task, I must bear in mind that there was nothing unlawful in the individual defendants making use of their own expertise and experience in setting up in competition with Sun Valley/Fields immediately following their resignations. In those respects, a “seamless transaction” from Fields to Fusion was a legitimate aim which cannot found an application for “springboard” relief.”

Mr. Menzies submits that although Whitmar says that the Defendants had over a year to prepare their strategy and position themselves, there is no evidence that time was taken out from Whitmar’s business was necessary to prepare that strategy. In other words, Mr. Menzies submitted, there was no more than an intention to set up another company.

There is common ground between Ms. Bone and Mr. Menzies as to the principles which I should apply when deciding whether or not to grant springboard relief. The relief sought by Whitmar is narrow in that it relates only to those customers whose names appear on the Business Cards which Mr. Gamage took, but later returned.

At the conclusion of the hearing before me, I was left in no doubt that, looking at the evidence as a whole, there was a strong case that the Defendants were taking steps to compete against Whitmar for over a year. The steps that they were taking were not just preparatory steps. They were steps taken with more than just the intention to set up another company. They were active steps to compete.

It seemed to me that the emails exhibited to Mr Gregory’s Witness Statement provided very clear evidence in support of Whitmar’s case that the Defendants were competing with Whitmar whilst they were still employed by Whitmar. One of the badges of competition in cases such as this is the secrecy with which those who are competing go about their business. The emails between Mr Gregory, Mr Gamage and Ms Wright are clear examples of the desire for secrecy. Perhaps the paradigm of that desire is to be found in the email that was sent to Ms Wright by Mr Gamage on the 27^th January 2012: it was addressed to Ms Wright at her Whitmar email address although she had been using another email address for her communication with Mr Gregory and Mr Gamage. When Mr Gamage realised his error he wrote to Mr Gregory asking him not to reply, and added: “All traces destroyed here."

Equally, I concluded that there was a strong case that the Circulation Database and the Customer Database were Whitmar’s confidential information.

Furthermore, it did seem to me that, on the basis of the evidence as it is at present, there was a strong case that those Business Cards did provide the Defendants with a competitive advantage, and that “springboard” relief should therefore be granted.

I, therefore, took the view that Whitmar had a very good chance of succeeding at trial. For these reasons, I granted the relief sought by Whitmar. That relief is now embodied in the Order that I have approved.