White Digital Media Ltd v Weaver & Anor

Restrictions

The Employee will not without the prior written consent of the Company directly or indirectly and whether alone or in conjunction with or on behalf of any other person and whether as a principal, shareholder, director, employee, agent, consultant partner or otherwise:…

Its common ground that, in the senior position which he occupied with the Claimant, the First Defendant had access to information which the Claimant claims was confidential to the Claimant. There is a confidentiality clause in his contract of employment. He undertook not during, or after the termination of, his employment to use or disclose confidential information of the Claimant, subject to immaterial exceptions.

There is no dispute that the First Defendant has, as he announced that he would, set up in competition with the Claimant in seeking to target the African business market. While the Claimant accepts that he is entitled to do that in principle, the Claimant complains that he is doing so in breach of the covenants in the Deed.

The Claimant also complains that the First Defendant acted in breach of the confidentiality clause in his employment contract. So far as the Claimant is aware at present, the First Defendant took two documents which the Claimant claims to contain confidential information. The first is a spreadsheet relating to a company called East African Bottling (“EAB”) which contains a list of that company’s suppliers and other information (“the EAB list”). The second document has been referred to as “the July 2012 list”. This is a document that he was given in July 2012 by Ms Allen at his request. The list contains the Company name and the details (contact name, telephone number and e-mail address) for senior level contacts at nearly 3,000 companies.

The First Defendant explains that he originally requested that spreadsheet for the purposes of the Claimant’s business. He accepts that he kept it with him but states that he no longer has it.

Unusually for a case of this kind, the First Defendant explains that he obtained similar lists and information from a source other than the Claimant, when he purchased the business of TNT Multimedia. It is his case that he did not need or use the Claimant’s list because the one he had bought was bigger and better. That may be a matter for determination at any trial. As already noted, insofar as he has not explained what he has done with the Claimant’s list the First Defendant is willing to explain in a further witness statement.

Another unusual feature in the facts of this case is not in dispute. When the Claimant has agreed with a company to publish a profile about it, the profile that it publishes is available on an unrestricted basis online. It contains much information about the company in question and, what is more significant in this case, about that company’s suppliers. The First Defendant has exhibited an example of one of the Claimant’s published profiles. The print out of that covers about 20 pages. It includes the name of the Managing Director of the company, telephone and other contact details for the company, and numerous advertisements from the company’s suppliers which also contain information about those suppliers, including contact details.

The Claimant accepts that once such information has been published online then the information so published ceases to have any confidentiality it might previously have had.

There is another way also in which information which might at one stage have been confidential to the Claimant might lose its quality of confidentiality. If a company approached by the Claimant agrees to disclose to the Claimant the information about itself and about its suppliers, there is nothing to stop the same company providing the same information to a rival publisher such as the Second Defendant. If it does, then the Claimant can no longer claim as against the Second Defendant that the information which the company has willingly provided to both of them is information confidential to the Claimant, which the Claimant can prevent the Defendants from using or disclosing.

There is no dispute that applications of for interim injunctions must be decided in accordance with the well known principles set out in American Cyanamid v Ethicon, save in those cases where the circumstances require the court to have regard to the likelihood of success in the action, as explained in Lawrence Ashton at p131C-132C. I do not need to consider the principles further in this case.

Mr Nicholls submits that there is no triable issue in relation to the claims based on the Deed for reasons of law. I shall consider these submissions first. He also submits that an interim injunction should be refused for other reasons, not all of which I need to consider. These submissions include that the delay in bringing the proceedings means that the status quo is that the Second Defendant is an established business.

Mr Nicholls’s first point is that the whole of cl 3 is unenforceable for a reason which applies to each of the sub-paragraphs, although he also has specific submissions challenging the enforceability of the sub-paragraphs in question.

It is common ground that (in the words of Mr Redmayne) the covenants in the Deed are unenforceable unless the Claimant can show: (1) that the restriction is for the protection of its legitimate business interests; and (2) that the restriction extends no further than is reasonably necessary for the protections of those interests. Even if the covenant is held to be reasonable the court will go on to decide whether, as a matter of discretion, the injunctive relief sought should in all the circumstances be granted, having regard, amongst other things to its reasonableness as at the time of trial. For a recent exposition of these long established principles he refers to TFS Derivatives v Morgan [2004] EWHC 3181 paras [36]-[39].

No issue is raised by Mr Nicholls in this case that any of the provisions of cl. 3 would be unenforceable by reason only of the one year period of time prescribed in that clause.

Mr Redmayne submits that cl.3 is aimed at protecting the Claimant’s customer connections and the stability of its workforce.

Mr Nicholls submits that a clause that restrains a person from being involved in a competing business as a shareholder or in any other capacity is unenforceable. He cites Scully (UK) Ltd v Lee [1998] IRLR 259 at paras [24]-[25]. In that case the judge at first instance had held that a covenant was too wide in so far as it provided that the employee should not:

“carry on, assist in the carrying on or be engaged or otherwise interested in, whether as a shareholder, director, consultant, employee or self-employed person or in any other capacity…”

As the judge observed, the words of the covenant restricted the employee from being a minority shareholder in a company which fell within the description given in that covenant. But the judge went on to hold that that provision was trivial and that the covenant in question was enforceable.

In allowing the appeal, Aldous LJ recorded that Counsel did not challenge the judge’s conclusion that the clause went wider than was reasonable in so far as it restricted the employee from being interested as a shareholder or in any other capacity. The court held at paras [33], [53] and [56] that this unreasonable part of the restriction could not be severed from the rest.

Mr Redmayne submitted that in Scully the mischief was that the restrictive covenant was not confined to carrying on a competing business: see para [26]. In the present case there are the words “so as to compete”, which address that potential objection. So no question of severance arises.

Mr Redmayne’s submission is correct to the extent that the absence of words confining the restriction to a competing business was an issue in the case. But it does not meet the point made by Mr Nicholls. In my judgment the whole of cl.3 is unenforceable for the reason he advances.

In case I am wrong about that I consider the submissions specific to the sub-paras relied on by the Claimant.

The order that the Claimant seeks includes, at paragraph 1 (in the amended form put before the court at the hearing):

“The First Defendant shall forthwith take all steps, available to him in his capacity as director and sole shareholder of the Second Defendant to cause the Second Defendant, for such period as it continues to employ and/or engage he services of Mr … Norris … and/or Mr … Mitchell … not, until 5 March 2014, to engage them (or either of them) in connection with any business in competition with the Claimant.”

There are paragraphs 2(1) and 6(1) (directed to the Second Defendant), which raise the same issues and which it is not necessary to set out.

These orders are sought on the basis of the Deed cl. 3.1.6. That clause is in two parts. The first part provides that the First Defendant shall not “solicit, induce or entice away”. The second part provides that he shall not “employ, engage, or appoint or in any way cause to be employed, engaged or appointed a Critical Person....” The injunction sought is based on the second part of that clause.

In addition to the general point on cl 3 discussed above, Mr Nicholls submits (1) that a covenant preventing one (former) employee from employing another is unreasonable; (2) that the definition of a Critical Person is too vague to be enforceable; and (3) the definition of a Critical Person includes not just a person who was an employee of the Company or any Relevant Group Company, but also extends to a person who was an “agent, director, consultant or independent contractor … appointed or engaged by the Company or any Relevant Group Company”.

As to his first point, Mr Nicholls refers to Dawnay, Day & Co Ltd v D'Alphen [1998] ICR 1068. The covenant there in question included that the employee would not:

“12.1.2

employ in any capacity or offer employment in any capacity to or enter into or offer to enter into partnership with any person [who had been at any time during the employee’s employment by the company a director or senior employee of the company]”.

Robert Walker J (as he then was) described such a covenant as “indefensible”. That part of his decision was not challenged in the subsequent hearing in the Court of Appeal. Robert Walker J explained (at p1096F-G):

“In this area the law is wary of any restriction on a worker’s capacity to earn their living as they choose, even if the restriction is imposed indirectly (that is, on a potential employer or recruiter); Kores Manufacturing Co Ltd, v Kolok Manufacturing Co Ltd [11959] Ch 109…”

Mr Nicholls submits that the restriction here in question would, for example, prohibit the First Defendant from employing a Critical Person even if that person had been wrongfully and unfairly dismissed by the Claimant in circumstances where there was no restriction binding directly upon the Critical Person from seeking to work for the First Defendant.

As to his second point, Mr Nicholls refers to the principle set out in Lawrence David v Ashton [1989] ICR 123, 132 and CEF Holdings Ltd v Munday [2012] IRLR 912 paras [43]-[44] (and many other cases) that:

“any injunction must be capable of being framed with sufficient precision so as to enable a person injuncted to know what it is he is to be prevented from doing”.

Mr Nicholls submits that the definition of a Critical Person requires the reader of the covenant to form a judgment whether a person, because of his skill, knowledge and experience, would be able to assist a competitor, and so is too imprecise to form the terms of an injunction. The First Defendant would not be able to identify who he could solicit or employee.

Mr Redmayne submits the restriction in cl. 3.1.6 are reasonable because they are limited in ambit in that they only restrict employment of a Critical Person and only relate to work in the profile industry.

He submits that in Dawnay the restriction was unqualified, whereas in clause 3.1.6 is qualified by the words: “in connection any business in or proposing to be in competition with the Company or any Relevant Group Company”. He submits that there is no public policy which precludes the Claimant enforcing this clause against the First Defendant to prevent such competition.

Further he submits that a similar restriction was to be found in the covenant in question in TFS and no adverse comment was made upon it by Cox J in that case. However, he accepts that Cox J did not have to make any decision upon that point (paras [30], [86]-[88]).

Mr Redmayne submits that the definition of a Critical Person is sufficiently precise. The judgment required is as to whether a person has sufficient seniority or expertise, or sufficient knowledge of trade secrets or confidential information or knowledge of or influence over the clients, customers or suppliers of the Claim such that it is likely to assist a competitor. Such a judgment is most unlikely to be made in respect of independent contractors such as accountants and solicitors, which were examples suggested by Mr Nicholls.

In my judgment Mr Nicholls’s submission based on Dawnay is sound and must succeed. There is the public policy to which Robert Walker J referred. The injunction sought in this case, even in the narrower form put before the Court at the hearing, significantly impinges upon the capacity of Mr Norris and Mr Mitchell to earn their living as they choose, and neither of them are parties to this action. The Claimant has not established in the proceedings against these Defendants an arguable case that each of Mr Norris and Mr Mitchell should be prevented indirectly from competing with the Claimant.

For this reason I find that there is no arguable case to support the orders sought in paras 1, 2(1) and 6(1) of the draft Order. I express no view on the other two points advanced by Mr Nicholls.

The order that the Claimant seeks includes, at paras 2 and 6 of the draft order, against the First and Second Defendants respectively, is that each of them:

“shall in the period until 5 March 2014 … be forbidden to do or carry out the following acts…. (2) to deal with and/or to approach any Relevant Customer of the Claimant for the purposes of: (i) carrying out a profile for any such customer in any business magazine, or (ii) placing an advertisement for any such customer in any business magazine”.

These paragraphs are based on cl. 3.1.4 and 3.1.5 of the Deed.

Mr Nicholls submits that these covenants are too wide because they are not confined to customers with whom the First Defendant had dealings. They are not therefore limited to customers of whom he had knowledge and over whom he could exert influence.

Mr Nicholls cites Office Angels Ltd v Rainer-Thomas [1991] IRLR 214. In that case the covenant in question covered about 6000 to 7000 clients of the plaintiff and 34 branches in England, of whom no more than about 100 were known to or came into contact with the defendants. The plaintiff was an employment agency. The action particularly concerned the branch in Bow Lane, London. The first defendant had in May 1986 become manager of a branch which had been at Cheapside and then moved to Bow Lane. Her overall duty was to administer the branch, but this included canvassing for clients. Sir Christopher Slade (with whom the other members of the Court agreed) stated that if the clause in question:

“had been suitably drafted in narrower terms, so that it covered only Bow Street [sic] branch clients of the plaintiff with whom the employee had had dealings during her period [of] employment, I have little doubt that its validity would have properly [been] upheld … however, [it is] in terms irredeemably too wide…”

Mr White states, as is not in dispute, that, in the period July to December 2012, the First Defendant achieved about one third of the Claimant’s revenue while acting as a sales person, in addition to performing his management or administration functions. As Mr Nicholls submits, it follows that the remaining two thirds of revenue must have come from customers whom the First Defendant did not canvass or deal with. He further notes that the covenant applies to Relevant Group Companies, regardless of whether he had had contact with any customers of those companies.

Mr Redmayne submits that these restrictions are reasonable because they only relate to customers of the Claimant in the preceding year. Further, in response to Mr Nicholls’ submissions, Mr Redmayne argued that the definition of “Relevant Products and Services” limits the scope of the covenant, not just to products and services in respect of which the First Defendant had been directly concerned, but also to customers with whom he had been directly concerned in the Relevant Period.

Further Mr Redmayne submits that, while the First Defendant had been responsible for only one third revenue, he was in charge of the whole Norwich office, through which conducted the Claimant conducted the Group’s business in England.

Mr Nicholls submitted that the definition of “Relevant Products and Services” limits the scope of the covenant only to products and services in respect of which the First Defendant had been directly concerned, and it does not also limit it to customers with whom he had been directly concerned.

I understand the responsibilities of the First Defendant to be broadly similar to those of the defendant in Office Angels, partly canvassing and partly administration or management.

In my judgment clauses 3.1.5 and 3.1.6 are too wide, and so unenforceable, for the reasons given by Mr Nicholls.

The terms of the draft order in paragraphs 3 and 4 and 7 and 8 contain similar orders based on the claim to confidential information as against the First and the Second Defendant respectively. The order in para 3 sought against the First Defendant is that he make and serve an affidavit explaining in detail what documents belonging to the Claimant he copied or transferred to himself or other, the use he made of the documents and the present whereabouts of the documents.

Paragraph 4 of the draft reads:

“The First Defendant … shall in the period until 5 March 2014 … be forbidden to do or carry our the following acts: transferring, deleting, dealing with or using in any way those documents and information belonging to the Claimant which he has copied and/or transferred to himself or others”.

Mr Nicholls does not oppose the making of an order in the terms of paras 3 and 7 of the draft. The First Defendant has in his witness statement given some information of the kind which would be covered by paragraph 3, but not, Mr Nicholls accepts, all of it. Nor do the Defendants object in principle to the making of a delivery up order as sought in paragraphs 5 and 9, although they say that there is now nothing for them to deliver up.

The First Defendant admits that he had the spreadsheet that had been prepared for him by Ms Allen in July 2012 on a USB stick which he had not given back to the Claimant. It contained a list of companies that had appeared on supplier lists provided by featured companies. The Claimant had not previously targeted companies known to it as suppliers (and so potential advertisers) as potential prospects to be profiled themselves. The spreadsheet had been prepared at his request to enable the Claimant to do this. He also admitted that he had a smaller spreadsheet that contained the list of suppliers of a company called East African Bottling Company (“EAB”), and that too was on a USB stick. Ms Allen had provided this to him at his request on 24 January 2013. The Claimant adduced evidence from that company that the First Defendant had used that spreadsheet in soliciting the business of EAB.

The First Defendant goes on in his witness statement to say that he had acquired a database of roughly 14,000 contacts when he bought the assets of TNT Multimedia Ltd, and that he has expanded this to 20,000 by research in public sources. He states that this is five times the length of the Claimants July 2012 list and made the Claimant’s list irrelevant to him, and that there was significant duplication between the two lists. He states that he deleted the July 2012 list (although he does not say when) and that he no longer has access to any the information on it. He states that he has a new and updated supplier list supplied to him by EAB. He does not dispute in his witness statement that, before obtaining an updated list from that company, he had provided to it the list he had acquired from the Claimant. He does not address that allegation at all.

The Claimant has adduced evidence of four other companies which the First Defendant dealt with when he was employed by the Claimant (albeit the dealings were in some cases more than a year before he left the Claimant), and which he or the Second Defendant has approached since leaving the Claimant.

However, Mr Nicholls submits that, for reasons referred to above, much information contained in the July 2012 list has ceased to be confidential to the Claimant (in so far as it ever was) where either (1) it has become available on the Claimant’s website containing the profiles produced of companies on the list, or (2) companies have voluntarily provided to the Defendants the same information which they had previously supplied to the Claimant.

Further, Mr Nicholls submits that the Claimant has delayed so long in bringing these proceedings that it is too late for them to be granted the relief in the form of paragraphs 4 and 8 of the draft Order. The July 2012 list was prepared almost a year ago. The First Defendant’s employment with the Claimant ceased on 5 March 2013. There was a period ending 22 March of which the Defendants make no complaint, because during that period the parties were engaged in an unsuccessful mediation.

But, on the Claimant’s case, on or about 29 March 2013, it saw in the Second Defendant’s publication “Africa Outlook” and learnt that that publication featured both EAB and one of EAB’s suppliers. And it knew as of 17 April (when it contacted EAB) about part of the information giving rise to the claim for breach of confidence, namely that the First Defendant had sent the EAB list to EAB.

The second issue of the Second Defendant’s publication was available to the Claimant on or about 9 May 2013. It featured two companies with which the Claimant had dealt while the First Defendant was with it, in each case less than a year prior to the termination of the First Defendant’s employment.

Towards the end of the hearing I raised with both counsel the question whether, if I were minded to grant an injunction to restrain disclosure of confidential information, it would be proper to grant it in the form of paragraphs 4 and 8 of the draft order. It seemed to me that these paragraphs lacked the precision required (see Lawrence David above and Thomas v Mould [1968] 2 QB 913, 922F-923D), and that that precision could be achieved only by the preparation of a Schedule to the order identifying the information which the Claimant alleges to be confidential as at the time of this hearing. Given the passage of time since July 2012, and the fact that much information about at least some of the companies on that list has appeared publicly on the Claimant’s website, or has been disclosed by those companies directly to the Second Defendant, it seemed to me that the preparation of such a Schedule might not be a formality.

Even if such a list were to be prepared, the Defendants would be entitled to argue that information about companies appearing on the list was not confidential, for example because that information was also included in the list which they had acquired from TNT Multimedia, or because they had acquired it directly from the companies themselves without using the Claimant’s list.

Mr Redmayne did not object to being required to prepare such a Schedule, if the court were minded to grant an injunction in principle.

In my judgment the Claimant has shown a good arguable case that the Defendants have acted in breach of their obligations of confidentiality owed to the Claimant. That is not a finding of fact, and no finding of fact can be made by the court on contested evidence at an interlocutory hearing.

But I am not persuaded that the Claimant has shown a good arguable case that there is a real risk that the Defendants will breach their obligations of confidentiality in the future. I note that the First Defendant states that he has destroyed what he took from the Claimant. But that is not the basis of my decision on this point. That will be a matter for determination at any trial.

The basis for my decision in relation to the EAB list is that, on the undisputed evidence, any right of confidence the Claimant may have had in the EAB list has been lost by the disclosure of the updated information by EAB to the Defendants. In relation to the July 2012 list the Claimant has not attempted to distinguish what information, if any, remains confidential both now, in June 2013, and which he contends will remain confidential for any period into the future during which the injunction would run.

It would be wrong to grant an injunction in the terms sought, because, as matters stand today, the Defendants would have no means of knowing what it is that they are prohibited from doing. They would not know what information on the July 2012 list was still claimed to be confidential today and for the period of any injunction.

For these reasons I shall make the orders to which the Defendants do not object, but no other orders, save for directions for the further progress of this action, which I invite the parties to agree.