Thomson Ecology Ltd & Anor v APEM Ltd & Ors

This is the claimants' application for summary judgment on part of their claim, and for interim relief. The claim against the first defendant (“APEM”) is based on passing off; that against the third defendant (“Mr Hall”) is based on breaches of duties arising out of his position as a senior employee.

The second claimant ("Unicomarine") is a wholly owned subsidiary of the first claimant (“TEL”), which is itself an independent commercial ecology specialist. TEL acquired all the shares in Unicomarine on 15 October 2010. The price it paid was £600,000. Unicomarine is a marine biology laboratory that analyses samples from the bottom of the ocean, mainly for government departments and agencies. It owns the domain name www.unicomarine.com.

The third defendant ("Mr Hall") is a biologist. Until the winter of 2012 he was employed by Unicomarine as its operations manager. He was the most senior employee at Unicomarine's premises at Unit 7, The Diamond Centre, Letchworth, and was responsible for Unicomarine's operations there. He was not a director of Unicomarine.

APEM is a specialist environmental aquatic consultancy. It is a competitor of Unicomarine. On 27 November 2012 Mr Hall gave notice of termination of his employment by Unicomarine: there is an issue between the parties as to whether his employment terminated on about that date, or a month later when the notice period prescribed by his contract of employment expired. Some three weeks previously, on 6 November 2012, Mr Hall had signed a contract of employment with APEM which provided for his employment to commence in February 2013. In the event he started work for APEM on 2 January 2013. Another 17 biologists left Unicomarine and all or some of them started working for APEM shortly thereafter.

The claimants' case is that Mr Hall and APEM acted together to effect a wholesale transplantation of Unicomarine's business to APEM. The plan, so the claimants say, included taking over Unicomarine's premises at Letchworth (which Unicomarine vacated on 12 November 2012); the incorporation of the second defendant; the registration of the domain names www.unicomarine.co.uk and www.unicomarineltd.co.uk; and the transfer to APEM of a substantial section of Unicomarine's workforce. The registration of the domain names and incorporation of the second defendant form the basis of the claim against APEM in passing off; and Mr Hall's participation in the enterprise at a time when he was still employed by Unicomarine forms the basis of the claims against him (and further claims against APEM, although they are not the subject of the summary judgment application).

The summary judgment application is based upon admissions made in the joint defence of APEM and Mr Hall. The claimants assert that the admissions show that APEM has no real prospect of successfully defending the passing off claim, and Mr Hall has no real prospect of successfully defending the claim against him based upon breaches of his contract of employment. The claimants accept that success on the summary judgment application will not avoid the need for a trial; but they say that CPR rule 24.2 entitles them to seek summary judgment on particular issues, and that there is no compelling reason why those issues should be disposed of at trial.

I deal first with the case against Mr Hall. So far as relevant to this application, it is pleaded as follows in the amended particulars of claim.

As paragraphs 8 and 9 of the pleading make clear, the claim against Mr Hall is put on the basis that he owed a contractual duty of good faith and fidelity, and a non- contractual fiduciary duty of loyalty. In paragraph 12 of his defence, Mr Hall denied that he owed any fiduciary duties; and in the witness statement supporting this application the claimants' solicitor made clear that they were content for that issue to await trial. That means that if the claimants are to obtain summary judgment against Mr Hall on this aspect of the case, they must show that he has broken his contractual duty of fidelity. Moreover, if they succeed in obtaining summary judgment on that basis, the claimants will apparently seek to persuade the trial judge that the same facts give rise to a breach of fiduciary duty.

As I have said, the summary judgment claim against Mr Hall is based on admissions. The application notice sets out these admissions by reference to the relevant paragraphs of the defence. In quoting the relevant parts of the application notice, I omit those references. Paragraph 2 of the application notice asks for an order that there be judgment for the claimants in respect of the claim that Mr Hall acted in breach of his duties as an employee by –

I do not set out the relevant paragraphs of the defence, but I am satisfied that they do amount to the admissions asserted by the claimants.

The nature and extent of the duties owed to his employer by an employee who is not also a director have recently been considered by the Court of Appeal in Ranson v Computer Systems plc [2012] IRLR 769. That case concerned the steps taken by way of preparation for the establishment of a competing business by an employee before and during his notice period. The employee (who was not also a director) was employed as a divisional manager, a post that was essentially a sales function but had wider responsibilities. At the relevant time, he had responsibility directly or indirectly for 59% of the group's total revenue. The issue was whether the employee had broken fiduciary duties and his contractual duty of loyalty when he did not inform his employer that he had obtained external opportunities and work while still employed and when he canvassed one of the employer's clients to provide him with work when he left his employment. The Court of Appeal held that he was not in breach in either respect. The leading judgment was given by Lewison LJ, with whom Lloyd and Pill LJJ agreed. The whole of the judgment between paragraphs [20] and [58] is relevant; but the gist sufficiently appears from the following quotations.

I turn, therefore, to Mr Hall's contract of employment. At the beginning of 2003, Unicomarine provided him with a statement of terms and conditions of employment as a senior biologist (although he had in fact been employed since December 1993). The statement of terms and conditions provided by clause 9 that "the period of notice required from employees to terminate the appointment… is one month"; and clause 12 provided that "employees are required to safeguard the real and intellectual property of the Company and not to disclose any matter relating to the Company to any third party without the consent of a director". There were no other terms of relevance; and in particular there were no restrictions on Mr Hall's activities after the end of his employment by Unicomarine. The terms of employment did not change as Mr Hall became more senior, but the extent of his responsibilities as operations manager appear from a written job description dated 23 January 2011. For present purposes, it is sufficient to refer to the requirement to manage the company in line with company values (appearing under the heading Key Objectives); to the requirement to encourage senior staff to develop good client relationships so that clients are loyal (under the heading Overall job purpose); and the requirements, under the heading Additional corporate responsibilities, to report fortnightly to the Operations Team, to represent the company and its policies and services in a positive light to all staff, clients and others, to work in line with the company values, and to maintain a happy and supportive workplace.

The following matters appear to me to be evident from Mr Hall's terms of employment and his job description. He was in overall charge of Unicomarine’s operations and business at the Letchworth premises, with an obligation to manage them. He had an obligation to report to the Operations Team on a fortnightly basis; although the nature of the reports is not specified, their content can only have been matters concerning the operations and business that it was appropriate for his superiors to know. He was obliged to oversee senior staff in the maintenance of client relationships; and he was obliged to represent the company in a positive light to the staff. He was entitled to leave at any time on giving one month’s notice. In my view, these matters and anything necessarily to be inferred from them define the scope of Mr Hall’s duty of fidelity.

The matters in respect of which summary judgment is sought fall into two categories: those in which the essential complaint is that Mr Hall did not tell the claimants of a threat from a competitor to the business and staff, and those where the complaint is that he actively assisted APEM to identify and recruit Unicomarine’s staff. I take them in turn.

The critical question in relation to the first category is whether or not Mr Hall was under an obligation to report to his superiors the existence of a threat to the business or staff. In my view, he was. He was the operations manager, with overall responsibility for the conduct of the business. His job description contained an express obligation that he report on a fortnightly basis; and, as I have said, what he must have been expected to report were matters relating to the business that it was relevant for his superiors to know. Such matters would have included how the business and staff were performing; and it does not seem to me that he could have properly discharged his reporting obligations without alerting his superiors to the developing threat to the business. I agree with what was said by Openshaw J in UBS Wealth Management (UK) Ltd v Vestra Wealth Management [2008] IRLR 965 at [24]:

The second category of complaint in my view plainly involves breaches of Mr Hall’s duty of fidelity. It cannot be consistent with any such duty to assist an actual or potential competitor to entice away the employer’s staff. It is irrelevant that the staff were entitled to leave at a month’s notice, and irrelevant that there would have been nothing to stop Mr Hall approaching the staff once his own employment had come to an end. I consider the law to be accurately stated by Haddon-Cave J in QBE Management Services (UK) v Dymoke [2012] IRLR 458 at [169]:

In the light of what I have said, it seems to me that the matters set out in paragraphs 2.1, 2.3, 2.8, 2.11 and 2.15 of the application notice involve breaches of Mr Hall's obligation to report relevant matters to his superiors; and that the matters set out in paragraphs 2.4, 2.7, 2.9, 2.10, 2.12 and 2.14 of the application notice involve breaches of Mr Hall's obligation not to assist the first defendant to entice away Unicomarine's staff. Paragraphs 2.2, 2.5 and 2.6 of the application notice have as their common characteristic a complaint that Mr Hall told other members of staff of his decision to join APEM before he had told the claimants. I do not regard that as necessarily involving a breach of the duty of fidelity. The claimants had stipulated for one month's notice of Mr Hall's employment, and were not entitled to greater notice merely because he had decided to go to a competitor. Nor is it necessarily a breach of duty for an employee to tell other employees that he is planning to go to work for a competitor. The context in which the information was imparted to the other employees is likely to be determinative of the question whether or not a breach of duty was involved; and the context cannot be determined on a summary judgment application. As to paragraph 2.13 of the application notice, I think it too imprecise for me to form a view as to whether or not it involved a breach of duty; and I do not regard the scope of Mr Hall's duty of confidence, said to have been broken by the e-mail referred to in paragraph 2.12 of the application notice, to have been sufficiently clearly established for summary judgment purposes.

I have so far approached the summary judgment application on the basis that Mr Hall's employment continued until 27 December 2012, and that the relevant obligations imposed by his duty of fidelity continued until that date. The defendants' case was that the employment came to an end on 28 November 2012, with the consequence that thereafter Mr Hall was entitled to approach the claimants' employees as he chose; or that, if he remained employed after that date, his duty of fidelity was substantially attenuated, with the same consequence.

As to the date on which the employment terminated, the relevant facts are these. On 27 November 2012 Mr Hall sent an email to Nancy Thomson, the CEO of TEL, saying “Please find attached my letter of resignation; a hard copy is in the post today. True to form I have decided not to communicate my feelings or actions to my colleagues …”. I interpolate that, in the light of the admissions in the Defence, the second sentence was untrue. The attached letter was largely devoted to setting out complaints that Mr Hall had about the first claimant’s conduct, but the first paragraph (the only relevant one for present purposes) was in the following terms.

As I have indicated, the defendants argued that the effect of this exchange was that Mr Hall's employment came to an end on 28 November 2012 (the day on which Mr Hall received Ms Thomson's letter saying that “it would be preferable if I arrange to pay you in lieu of notice"). I do not agree. Mr Hall's contract of employment required one month’s notice, and did not contain any provision about payment in lieu that could be said to have had the effect of altering the notice requirement. That requirement may accordingly only be altered by agreement between the parties. I do not consider that Ms Thomson's letter of 27 November is capable of being read as an offer, as opposed to a statement of something she was considering; but if it did amount to an offer, nothing in the correspondence suggests that Mr Hall accepted it. He plainly had not done so by the time that Ms Wiles wrote on 28 November stating that his last date of service would be 27 December 2012; and his letter of 2 December did not demur from that statement. Even his email of 13 December carries the clear implication that he knew that, because he had not received payment in lieu of notice, his employment was continuing. In my judgment, therefore, he remained in the employment of the claimants until 27 December 2012.

I therefore consider the extent to which his obligation of fidelity was affected by the fact that he was not required to work during the period of his notice. It is obvious that Mr Hall would not have been expected to carry out the majority, if indeed any, of the tasks described in the job description. The requirements that he report fortnightly and supervise staff, for example, would no longer have applied. Nevertheless, he remained employed by the claimants, and they were entitled to his continued loyalty. Whether or not Mr Hall would have been under an obligation to report the potential competition from APEM if he had first learned of it during the period of his notice, he plainly was in my view obliged to report that he was assisting APEM to recruit; and that assistance was itself a breach of his duty. On this aspect of the case, I consider that the position is accurately expressed by Popplewell J in Imam-Sadeque v Bluebay Asset Management (Services) Ltd [2013] IRLR 344 at [144-5] as follows:

For the reasons I have given, I consider that Mr Hall has no reasonable prospect of successfully defending the claim that he broke his duty of fidelity in the respects set out in paragraphs 2.1, 2.3, 2.4, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12, 2.14 and 2.15 of the application notice. I have considered the defendants' argument that to grant summary judgment now would not substantially reduce the amount of preparation necessary for the trial, or the time taken at the trial itself, since much of the same ground would need to be covered if the claimants sought to establish that Mr Hall was under any fiduciary duty or that he had broken his duty of fidelity in any other respects. There is much force in this point; but I have nevertheless come to the conclusion that summary judgment should be granted. That is for this reason. The effect of Mr Hall's admitted actions has been to deprive the claimants of an opportunity to prepare for competition by APEM and to attempt to retain the loyalty of their staff. The claimants assert, and their assertion is supported by Mr Hall's admissions, that they have been deprived of those opportunities unlawfully; and they perceive that a judgment to that effect may enable them to influence the marketplace in their favour and so recover some of the ground that they have lost because of Mr Hall’s activities. If they have to wait until after a trial for that judgment, it will be too late to have any commercial effect. In circumstances where they have established that there is no reasonable prospect of Mr Hall defending at least some of their claims, it seems to me that they are entitled to a prompt judgment to that effect so that they may see what use they can make of it. Accordingly, I will declare that Mr Hall has broken his duty of fidelity in the respects I have mentioned.

The claim against APEM in passing off is based upon the registration of the domain names www.unicomarine.co.uk and www.unicomarineltd.co.uk and the incorporation of the second defendant (which has itself now been dissolved) with the name Unicomarine Limited.

In Erven Warnink Besloten Vennootschap v. J. Townend & Sons (Hull) Ltd. [1979] A.C. 731 Lord Diplock identified (at p742) “five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so."

APEM does not seriously contend that the first four of these characteristics are not present. It is indeed clear on the authorities that “the mere registration and maintenance in force of a domain name which leads, or may lead, people to believe that the holder of the domain is linked with a person is enough to make the domain a potential “instrument of fraud”, and it is passing off”: Global Projects Management Ltd v Citigroup Inc [2006] F.S.R. 39 per Park J at [40]; and see British Telecommunications plc v One in a Million Ltd [1999] 1 WLR 903. I can see no reason why the same should not apply to the registration of a company with a name which may lead people to believe that it is linked with another’s business.

What APEM says, however, is that the fifth characteristic is not present. It had agreed to transfer the domain names to the claimants, and to dissolve the second defendant, before the proceedings commenced. In those circumstances, there is no scope for a quia timet injunction; and not only have the claimants not suffered any damage, there is no prospect of their ever doing so. Passing off is a tort, and damage is necessary to constitute the action.

In answer to this, the claimants contend that, if the first four characteristics are present, at least some damage is presumed; and that that is enough to constitute the cause of action. In support of that proposition, they cited the following passage from the judgment of Aldous LJ in the One in a Million case (at 913):

On this basis, I am satisfied that the registration of the domain names and the incorporation of the second defendant did constitute actionable passing off. For reasons similar to those expressed in paragraph 22 above, I am prepared to grant the claimants a declaration to that effect even though there is no possibility of passing off occurring in the future and no possibility that actual damage has been or will be suffered. I do not, however, order the enquiry as to damages which they sought, since in the circumstances to do so would be pointless.

The application notice seeks an injunction in the following terms:

The claimants say that, given what is now known of the wholesale disregard of Unicomarine’s rights by Mr Hall, they are entitled to protect what is described in their skeleton argument as their “confidential information”; and the proposed methodology safeguards the defendants’ interests.

In my view, this approach is too broad brush. The devices or e-mail accounts which the defendants would, if this injunction were granted, be required to open up for inspection are defined as those to which Mr Hall has sent or copied the claimants’ information. There is no attempt to confine it to confidential information, or to information sent or copied by Mr Hall at any defined time. That is important, because there is uncontradicted evidence from Mr Hall to the effect that it was common practice for staff members to e-mail documents to their home computers so that they could work on them at home, Unicomarine having no remote access facility. Mr Hall himself followed this practice, and also from time to time for the same reason took home hardcopy documents. To the extent that he retains documents, whether in electronic or hardcopy form, he will be obliged to make disclosure of them when that stage of the proceedings is reached. In order to justify the interventionist approach they propose, the claimants would need to show material to suggest that the disclosure process will not be properly complied with or that there is an immediate risk to information of theirs which is truly confidential.

The claimants seek to do this by pointing to what happened in relation to an external disk drive which Mr Hall bought on 20 June 2012. Mr Hall accepts that he copied documents onto this drive, saying that he did so in order that he could work on them at home. Following the letters before action, Mr Hall reformatted the drive, as well as deleting certain documents on his home computer and from his home e-mail account. He stopped when it was pointed out to him by his solicitors that this was inappropriate. The claimants say that the proper inference to be drawn from this conduct is that Mr Hall was seeking to destroy incriminating evidence.

Notwithstanding the fact that Mr Hall has broken his contract of employment in the respects I have mentioned, I am not prepared to draw that inference at this stage. Nor am I prepared to make the order sought by the claimants. That is principally because the claimants have already been able to take steps to ascertain what documents Mr Hall sent to his home e-mail, and to identify what documents were on the external disk drive. In the former case, they have been able to interrogate their own server; and the only complaints made in the amended particulars of claim relate to two e-mails sent by Mr Hall to his home e-mail account. The particulars of claim do not make any allegation that the information in those or any other e-mails was misused. As to the external disk drive, the claimants have been able to image and search it; but no allegation is made in the amended particulars of claim that material was improperly stored on the drive. In those circumstances, it seems to me that the claimants have sufficient information to be able to police the standard disclosure process. I also consider that, given the state of the pleadings and the information which the claimants have already been able to obtain, to allow them to conduct the investigation they propose would be to allow them to conduct a speculative exercise designed to see whether there were further allegations that could be pleaded; and that is plainly impermissible. Finally, although this objection might not have been fatal on its own, it is in my view unsatisfactory that the scope of the injunction should be defined merely by reference to the claimants' information without any attempt to define the nature of that information, let alone to specify only confidential information. Accordingly, it seems to me that the claimant must wait until the outcome of the standard disclosure exercise; and nothing I have said is designed to prevent them renewing an application for an injunction if, after that exercise has taken place, they consider that they have grounds for doing so.

For these reasons, I give summary judgment to the extent I have indicated, but make no order on the application for interim relief.