Le Puy Ltd v Potter & Anor

This is an application to continue an injunction, originally granted by Patterson J on 2 January 2015, to enforce certain of the post-termination restrictive covenants and covenants relating to confidential information in what is alleged by the claimant (“Harpur”) to be the contract of employment which subsisted between Harpur and the first defendant (“Mr Potter”). The principal issue in the action is whether Mr Potter signed or otherwise agreed to be bound by the written contract dated 16 October 2013 (“the Alleged Contract”) on which Harpur relies. If (contrary to his primary case) Mr Potter is held to be bound by the Alleged Contract, subsidiary issues may include whether Mr Potter was constructively dismissed, whether the relevant covenants in the Alleged Contract are enforceable, and whether Mr Potter has already broken, or intends to break, any of them.

On this application Ms Meech, who appears for Mr Potter, argues that I should not apply the threshold test for the grant of an interim injunction laid down in Cyanamid (Footnote: ¹)- of whether there is a serious question or issue to be tried - but should instead reject this application in limine unless I am satisfied that it is more likely than not that Harpur will succeed at trial (Footnote: ²). She submits that, on the evidence before me, I should not be so satisfied in relation to any of the relevant issues (other than that of constructive dismissal, which she does not invite me to consider at this stage). Alternatively, she argues that I ought - at the least - to take the merits (or lack of them) of Harpur’s case into account when exercising my discretion. She also submits that damages would, on the facts of the present case, be an adequate remedy for Harpur, and that the balance of convenience is, in any event, in favour of the injunction being refused.

The background to this dispute, as it appears from the first witness statement of Harpur’s Finance Officer, Mr Day, is as follows. The claimant company, Le Puy Limited, trades as Harpur Recruitment. Harpur is a recruitment agency whose business is the supply of temporary workers to warehousing, construction and logistics-based businesses. Its offices are in Milton Keynes. Mr Day established the business in 1994 as a sole trader. It was incorporated in 2008 and, in 2011, Mr Day’s “life partner”, Ms Nichols, became the sole shareholder and director.

Mr Potter joined Harpur in June 2012. He was made a director in October 2012, and was given a 30% shareholding in December 2012. A further 5% shareholding was allocated to him in September 2013.

Mr Day and Mr Potter divided the business between them. Mr Day worked mostly from home, dealing with accountants, invoicing, payroll and other financial matters. Mr Potter, by contrast, dealt with the customers - both the temporary staff, and the businesses to which Harpur supplied them. He would make weekly site visits to each of Harpur’s customers, where he would have face-to-face meetings with supervisory staff, management staff and (occasionally) with directors who had the authority to decide which recruitment agency to use. He would also have regular conversations with Harpur’s temporary workers, as most of them would come to Harpur’s office at the end of each week, or telephone Mr Potter seeking work. In Mr Day’s words, Mr Potter was “in effect the face of Harpur”.

Ordinarily, Harpur would place approximately 150 to 350 staff per week (although that figure could vary widely from time to time throughout the year). In the year ending May 2014, it had an annual turnover of approximately £4 million. At the end of 2014, Harpur had a staff of seven people, including Mr Day. Harpur has a relatively small customer base. Approximately 95% of its revenue comes from just four customers. One customer - Hobbycraft Trading Ltd (“Hobbycraft”) - accounts for 40% of turnover. The other three major customers of Harpur are Greetings International UK Ltd (“Anker”), Clipper Logistics plc (“Clipper”), and UK Mail Ltd (“UK Mail”).

The market in which Harpur operates is very sales driven, with probably about 200 recruitment agencies operating in the Milton Keynes area. Competition is fierce, long-term supply agreements with recruitment agencies are rare (although Harpur has a 12 month contract with Hobbycraft, which was due for renewal in January 2015), and (in Mr Day’s words) “there is a great deal of value placed by customers .. in the relationships they have with individual sales persons with whom they deal, the relationships often having developed and solidified over many years .. [P]ersonal connections are of paramount importance”.

The second defendant (“Abstract”) was incorporated on 14 October 2014. On Sunday, 16 November 2014, Mr Potter emailed Mr Day, informing him that he was resigning from Harpur with immediate effect. That email stated

I have been reflecting on my current position, both with Le Puy and in my personal life and have concluded that I am unable to continue working as I am, and will not be returning to work next week.

My health is my biggest consideration and as you are aware I have a cardiac condition which gives me cause for concern each and every day. I know my own limits, and I’m no longer prepared to sacrifice my health for any prize. You know I have not been sleeping for months now, but I am constantly “on-call” as I have been telling you, I can no longer cope with the pressure of working at Le Puy ..

.. I hope you can see it from my point of view and that we can part on good terms.

I spent time with Hayley on Friday, she has all client details and client expectations for bookings. I am unable to assist with any client contact as I feel on the verge of a breakdown, I am an emotional wreck and need time out. I cannot even face talking to anyone, be it at work or at home ..

In the days following Mr Potter’s resignation, Mr Day contacted Hobbycraft, Clipper, Anker, UK Mail and a number of other customers. It is Mr Day’s evidence that, in the course of these contacts, he learned that Mr Potter was now working for Abstract (despite the suggestion in Mr Potter’s 16 November 2014 resignation email that he was too unwell to work), and that Abstract was a competing business which was supplying (or attempting to supply) temporary workers to Harpur’s customers. Mr Day also learned that Kim Johnson, who had been Contracts Coordinator at Harpur until her resignation on 25 October 2014, was now working with Mr Potter at Abstract. Ms Johnson had given as one of her reasons for leaving Harpur that she could no longer work with Mr Potter.

On 28 November 2014 Harpur’s solicitors wrote to Mr Potter, referring to Mr Potter’s duties as a director and to the restrictive and confidential information covenants in the Alleged Contract. That letter asked Mr Potter to give undertakings, and recommended that he should take legal advice. Mr Potter responded by email sent on 2 December 2014, asking for further time to respond (which was granted). On 5 December 2014 Mr Potter sent a further email, rejecting the notion that he owed duties as a director, and saying “as regards to the documents that I signed as an employee, please send me a signed copy”.

On 16 December 2014, Harpur solicitors sent a letter before action to Mr Potter’s solicitors. Mr Potter’s solicitors’ response, by email sent on 17 December 2014, repeated the request for “a signed copy of the contract of employment you allege Mr Potter entered into”. This action was begun by Claim Form issued on 22 December 2014. On the same date an Application Notice seeking injunctive relief was issued, supported (inter alia) by Mr Day’s first witness statement.

Mr Day’s first witness statement describes how Mr Potter and he had both signed employment contracts on the same day, 16 October 2013. It also gives an explanation of why Harpur was unable to produce a signed copy of the Alleged Contract:

.. Mr Potter’s contract was signed at our then offices at Bletchley Park, with each of us retaining a copy. At that time, I operated out of my own office space and stored all company documents in a four-tier filing cabinet. I place the signed contracts in sealed brown envelopes with their contents marked on the front of the envelopes. When the offices were moved to Central Milton Keynes in February 2014, I began to work from home and the filing cabinet was stored in the company offices due to space constraints at home.

When the offices were moved again in September 2014 to what are now our current premises .. the filing cabinet was positioned next to Mr Potter’s desk. At that time, the contracts would still have been located in this Cabinet.

However I cannot find the signed copy of Mr Potter’s or my own contract there now.

Mr Potter had the key to the cabinet. He ordinarily kept this in his drawer, however the key was left in the cabinet following his departure which leads me to believe that he had accessed the cabinet shortly before his departure.

Knowing what I now know about Mr Potter’s conduct surrounding his departure from Harpur .. I believe that he has taken the signed copies in an attempt to frustrate Harpur’s attempts to hold him to the terms of his contract

Mr Potter made a witness statement dated 31 December 2014 in opposition to Harpur’s application. In that witness statement, he categorically denied Mr Day’s account:

.. A draft shareholder Agreement and Director Service Agreement were produced on 19 November 2012 but these were never entered into ..

I have draft copies of Director Agreement and Shareholder Agreements, but these were never signed off or agreed. I was never issued with either agreement. I did not sign an employment contract at any time during my employment with [Harpur]. .. I did not sign or accept the terms of any written contract of employment with [Harpur] ..

I note that Mr Day is accusing me of having signed a contract of employment and subsequently removed this from [Harpur]’s filing cabinets. I absolutely deny this accusation. I did not sign an employment contract nor do I know of the contents of anything that was kept in the filing cabinet Mr Day refers to, or in fact which filing cabinet he is referring to. All cabinets were moved each time we moved offices. I have no idea what key Mr Day is referring to either.

Mr Potter amplified this account in his second witness statement, made on 16 January 2015, in which he said:

I have reviewed the contract of employment that has been produced by the claimant, in its claim that I signed and/or accepted its terms. Had this contract been put in front of me to sign, I would have refused to sign it until elements of it were clarified or corrected I would never have signed or agreed to a contract that in my opinion was not in my interest

That witness statement also drew attention to a number of provisions in the Alleged Contract that were either inapposite to Mr Potter’s position and status with Harpur in October 2013, or were terms that it would have been contrary to Mr Potter’s interests to agree. These matters, Mr Potter asserted, showed how unlikely it was that he had signed the Alleged Contact, and supported his case that he had not done so.

Shortly before this application came on for hearing, Mr Day made and served a further (third) witness statement dated 20^th January 2015. This stated that:

Mr Potter’s original contract of employment with Harpur, signed by him on 16 October 2013 has [now] been discovered ..

I learnt of the location of Mr Potter’s signed contract on 15 January 2015, when my accountant, Sean Craven, at Anthistle Craven, called me that day to tell me he had found it in his filing cabinet

Mr Craven has also made a witness statement. In it, he describes how Mr Day had asked him to look for any copy of Mr Potter’s contract, and how he had checked his firm’s document management system before calling Mr Day back to confirm that he could not find one. Mr Craven then goes on to describe how, in investigating a later query from Mr Day about Mr Potter’s salary, Mr Craven had at that point:

.. Checked the hardcopy payroll file .. [and] .. discovered an envelope containing the signed employment contracts for Mr Potter and Mr Day.

As the envelope was located in the 2013/14 payroll file, I presumed it had been there for some time. We would not normally hold employment contracts in payroll files hence why I had not looked there initially.

.. I can only assume therefore that the contract came into the office with a bundle of bookkeeping papers, possibly in error, and that one of my assistants must simply have filed them on the payroll file for safekeeping, not realising that we would typically scan such documents into the document management system ..

In assessing this latest evidence from Mr Day and Mr Craven, I bear in mind that it was served on Mr Potter too late to afford him any effective opportunity to investigate what is now said or to respond with further evidence of his own.

By this application, Harpur seeks to enforce only certain of the post-termination restrictive covenants and confidential information obligations contained in the Alleged Contract. The relevant covenants are those contained in clauses 16.5.1, 16.5.2 and 18, which provide as follows:

16.5

during the period of 12 months following the date of termination of your employment you will not directly or indirectly whether on your own account or jointly or as an employee agent consultant manager shareholder direct or otherwise:

16.5.1

canvas or solicit the custom of any person firm or company;

16.5.1.1 who is then; or

16.5.1.2 who you know or ought to know was at any time during the period of one year prior to the date of termination aforesaid

a customer or client of any branch office of [Harpur] from which you were actively employed at any time during the one year preceding the termination of your employment for the supply of services

16.5.1.3 which are competitive to those then supplied: and

16.5.1.4 which belong to the same generic class of those supplied at any time during the period of one year prior to the date of termination aforesaid in each case by [Harpur] or

16.5.2

deal with such a customer for the supply of such services as each case are described in clause 16.5.1

18.2

you undertake at all times after the termination of your employment to keep secret and not to use any information obtained by you during the course of your employment which is of a confidential nature and of value to [Harpur] including without limitation:

18.2.1

secret business methods of [Harpur] and confidential lists, and particulars of

18.2.2

persons registered with [Harpur] at the date of termination of your employment for the purposes of obtaining temporary or permanent work who have worked for [Harpur] or been introduced by [Harpur] to a permanent employment position within the six months prior to termination of your employment.

18.2.3

any person firm or company to whom within the six months prior to the date of termination of your employment [Harpur] has supplied or on whose behalf at the date of termination of your employment [Harpur] is recruiting temporary and/or permanent staff

whether or not in the case of documents they are, or were, marked “Confidential”.

Against the background which I have briefly summarised above, I now turn to consider Ms Meech’s submission that I should not apply the threshold test for the grant of an interim injunction laid down in Cyanamid, but should instead reject this application in limine unless I am satisfied that it is more likely than not that Harpur will succeed at trial.

As Lord Diplock observed in NWL v Woods (Footnote: ³), the Cyanamid approach “was not dealing with a case in which the grant or refusal of an injunction at that stage would, in effect, dispose of the action finally in favour of whichever party was successful on the application, because there would be nothing left on which it was in the unsuccessful party’s interest to proceed to trial”. As Staughton LJ explained in Lansing Linde v Kerr (Footnote: ⁴):

If it will not be possible to hold the trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired .. Justice requires some consideration as to whether the plaintiff would be likely to succeed at trial. In those circumstances is it is not enough to decide merely that there is a serious issue to be tried ..

In the present case, however, the only covenants which Harpur is asking the Court to enforce are expressed to last for 12 months from the termination of Mr Potter’s employment. On the assumption that Harpur accepted Mr Potter’s resignation on 16 November 2014 as immediately effective, those covenants (assuming them to be binding) will expire in mid-November 2015. It appears to be common ground that there could and should be a speedy trial of the issues relating to liability in this action in April 2015, which will probably result in a judgment in April or May 2015. That will leave some five (or perhaps six) months of these 12-month covenants still to run.

In my judgment, that sort of timetable does not make the Cyanamid approach inapplicable. My decision on this application will not “in effect dispose of the action finally”. Nor will the relevant covenants, by the time of judgment after trial, have “substantially expired”. The preliminary question that I must ask myself therefore remains whether there is a serious question to be tried.

Even so, it seems to me that Ms Meech is right in her alternative submission, at least to this extent: that the fact that Mr Potter vehemently contests the fundamental basis of Harpur’s claim to enforce these covenants, and that any interim order that I might make will (unless discharged in the interim) have the effect of enforcing that hotly contested claim for approximately half of the covenant period, is a consideration which I ought to, and will, bear in mind when I come to consider the balance of convenience.

Ms Meech in any event submits that the evidence presently before the Court fails to establish that there is a serious question to be tried in relation to the Alleged Contract. She submits that Harpur’s initial inability to produce a signed copy, the inconsistencies and improbabilities in the account given by Mr Day and Mr Craven of the belated discovery of what is now alleged to be a signed copy, the inconsistency between the signature on that alleged signed copy and Mr Potter’s signature on his witness statements and other documents before the Court, the many inapposite provisions in the terms of the Alleged Contract, the overall probabilities as set out in Mr Potter’s second witness statement, and all the circumstances of the case, clearly show that Harpur’s case on this point is likely to fail.

I have given each of these points careful consideration: but I am nevertheless satisfied that, on this question, there is a serious question to be tried. In those circumstances, it is right that should I say no more about Ms Meech’s points than is strictly necessary to explain the basis of my decision.

In my judgment, the evidence of Mr Day and of his accountant, Mr Craven - even taking all of Ms Meech’s criticisms into account, individually and collectively - is not so obviously incredible that I can reject it at this stage. It establishes a sufficiently good arguable case to satisfy the Cyanamid threshold test. Beyond that, I cannot – and need not – go. Unless and until disclosure takes place, and Mr Day, Mr Craven and Mr Potter are all cross-examined, it is simply not possible for the Court to form any concluded view as to where the truth on this issue may lie. There may perhaps be explanations for any inconsistencies in Mr Day’s and Mr Craven’s accounts (and the fallibility of human memory (Footnote: ⁵) means that it is not unknown for wholly honest witnesses to give evidence that is inconsistent with that of other honest witnesses, or even with other parts of their own testimony). There is material, even in the evidence presently before the Court, which might perhaps be used to test Mr Potter’s own credibility. There may perhaps be explanations (including simple mistake or inadvertence) for the inclusion in the Alleged Contract of apparently inapposite and/or disadvantageous provisions. There may perhaps be reasons, not yet explored (or fully explored) in evidence, for one or other of the witnesses not to tell the truth. It would be wrong for me, at this stage, to speculate further. As for the suggested inconsistency in the signature on the recently produced copy of the Alleged Contract, it is not so immediately obvious as to permit me – who am not an expert in the examination of questioned documents – to form any useful view, one way or another. These are all matters for trial, not for this interim application. As Lord Diplock stated in Cyanamid (Footnote: ⁶)

.. It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial ..

Assuming, therefore, that the Alleged Contract binds Mr Potter, I now turn to the issue of the enforceability of the restrictive covenants contained within it, and to consider Ms Meech’s submission that Harpur has failed to establish, even to the required preliminary standard, that the covenants which it wishes the Court to enforce are not void as unlawful restraints of trade.

There was no dispute between Ms Meech and Mr Delehanty (who appeared for Harpur) as to the relevant law on this point. As is stated in Chitty on Contracts (Footnote: ⁷), all covenants in restraint of trade are prima facie unenforceable at common law, and are enforceable only if they are reasonable with reference to the interests of the parties concerned and of the public. Unless the unreasonable part can be severed by the removal of either part or the whole of the covenant in question, its inclusion renders the covenant or the entire contract unenforceable. The doctrine of restraint of trade is probably one of the oldest applications of the doctrine of public policy.

Both sides agreed that the basic principles of law that I should apply in deciding whether these particular sub-clauses in this particular contract were “reasonable with reference to the interests of the parties concerned and of the public” were accurately stated by Sir Bernard Rix in his judgment in Coppage v Safety Net Security Ltd (Footnote: ⁸) as follows:

“(1)

Post-termination restraints are enforceable, if reasonable, but covenants in employment contracts are viewed more jealously than in other more commercial contracts, such as those between a seller and a buyer.

(2)

It is for the employer to show that a restraint is reasonable in the interests of the parties and in particular that it is designed for the protection of some proprietary interest of the employer for which the restraint is reasonably necessary.

(3)

Customer lists and other such information about customers fall within such proprietary interests.

(4)

Non-solicitation clauses are therefore more favourably looked upon than non-competition clauses, for an employer is not entitled to protect himself against mere competition on the part of a former employee.

(5)

The question of reasonableness has to be asked as of the outset of the contract, looking forwards, as a matter of the covenant's meaning, and not in the light of matters that have subsequently taken place (save to the extent that those throw any general light on what might have been fairly contemplated on a reasonable view of the clause's meaning).

(6)

In that context, the validity of a clause is not to be tested by hypothetical matters which could fall within the clause's meaning as a matter of language, if such matters would be improbable or fall outside the parties' contemplation.

(7)

Because of the difficulties of testing in the case of each customer, past or current, whether such a customer is likely to do business with the employer in the future, a clause which is reasonable in terms of space or time will be likely to be enforced. Moreover, it has been said that it is the customer whose future custom is uncertain that is 'the very class of case against which the covenant is designed to give protection . . . the Plaintiff does not need protection against customers who are faithful to him' (John Michael Design plc v Cooke [1987] 2 All ER 332, 334).

(8)

On the whole, cases in this area turn so much on their own facts that the citation of precedent is not of assistance.”

According to Mr Day, the proprietary interest which these covenants were designed to protect was Harpur’s trade connection with its customers: the personal connection built up by Mr Potter with Harpur’s customers while Mr Potter was working for Harpur.

In my judgment, the evidence presently before the Court establishes the existence of that proprietary interest, at least to the required preliminary standard of a serious question to be tried. In addition to Mr Day’s account (which I have summarised above) Mr Potter’s own account of his role in his first witness statement seems to me to be particularly telling:

.. Mr Day would not employ any other consultants, so it fell to me to build and maintain the relationships we had with clients .. In addition to attending weekly client meetings, I was available 24 hours a day and would often take calls from clients who needed last minute bookings for staff filled .. I had a very good relationship with my clients and it was understood that I was the reason they most of them would use [Harpur]’s services ..

I therefore turn to the issue of whether Harpur has made out a sufficient case that these covenants are no wider than was reasonably thought necessary, at the time of the Alleged Contract, to protect that proprietary interest.

In relation to clause 16.5.1 (Footnote: ⁹), which prohibits Mr Potter from canvassing or soliciting customers, Ms Meech submits that it is unnecessarily wide, because it applies to the whole operation of those customers, including branches or depots in far-flung part of the UK which have never dealt with Harpur. Ms Meech submits that, in this sector of industry, each branch is responsible for hiring its own temporary staff. In her submission, therefore, even if Harpur has a connection with branch A of a particular company that it may be entitled to protect, it can have no such connection with branch B of that company, unless it (through Mr Potter) has also dealt specifically with branch B.

This aspect of the matter is not fully explored in the evidence (Footnote: ¹⁰). However, even assuming the factual basis of this submission to be correct, the answer to it would seem to me to lie (at least for present purposes) in the terms of sub-clause 16.5.1.3. That limits the restriction to “the supply of services which are competitive to those then supplied”. It seems to me to be well-arguable that the “then” in this sub-cause refers back to the period of “one year preceding the termination of your employment” in the immediately preceding part of the clause: and that sub-clause 16.5.1.4, which follows, indicates that sub-clause 16.5.1.3 is not referring merely to the type of services, but is adding in the filter of competition with the particular services supplied during that earlier period. If that be right, it is well-arguable that, properly interpreted, clause 16.5.1 will only prohibit the supply of services to branches with which Harpur had dealt in the 12 months prior to termination.

I do not need to, and do not attempt to, decide this point of interpretation finally now. It is sufficient for me to say that I am satisfied that, on this point, there is a serious question to be tried.

In relation to clause 16.5.2 (Footnote: ¹¹), which prohibits “dealing”, Ms Meech submits that this is unnecessarily wide, because it effectively stops customers from making even an unsolicited choice to deal with Mr Potter – an agent that they like and have dealt with for a number of years - rather than with Harpur. The expression “deal with” is in any event too vague and wide to be enforceable.

Again, I do not need to, and do not attempt to, decide this point finally now. It is sufficient for me to say that I am satisfied that, on this point also, there is a serious question to be tried. The expression “deal with” appears in the restrictive covenants considered in a large number of reported cases, and I am not aware of any previous suggestion that it, of itself, produces too wide a restriction, if the class of persons with whom such dealing is prohibited is properly limited. After all, it is the customer whose future custom is uncertain that is the very class of customer against which the covenant is designed to give protection.

For completeness I should add that, although I have only dealt in this brief judgment with the points specifically argued by Ms Meech, I have also considered in this connection the other aspects of these covenants that bear on the issue of whether Harpur has established to the necessary preliminary standard that they are no wider than was reasonably thought necessary, at the time of the Alleged Contract, to protect Harpur’s proprietary interest. Those include: the temporal limit on the customers covered; the limitation to customers of the offices at which Mr Potter was actively employed; the limitation to actual customers; the definition of the business covered; and the limitation of the covenants to 12 months.

Clause 18 of the Alleged Contract (Footnote: ¹²) includes within the definition of “Confidential Information”:

.. particulars of

18.2.2

persons registered with [Harpur] at the date of termination of your employment for the purposes of obtaining temporary or permanent work who have worked for [Harpur] or been introduced by [Harpur] to a permanent employment position within the six months prior to termination of your employment.

18.2.3

any person firm or company to whom within the six months prior to the date of termination of your employment [Harpur] has supplied or on whose behalf at the date of termination of your employment [Harpur] is recruiting temporary and/or permanent staff

Ms Meech submits that the contact details of customers and employees cannot, as a matter of law, amount to confidential information. In support of that submission, she invites my attention to the following passage from the judgment of Neil LJ in the well-known case of Faccenda Chicken v Fowler (Footnote: ¹³):

In our judgment the information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret eo nomine. The restrictive covenant cases demonstrate that a covenant will not be upheld on the basis of the status of the information which might be disclosed by the former employee if he is not restrained, unless it can be regarded as a trade secret or the equivalent of a trade secret: see, for example, Herbert Morris Ltd. v. Saxelby [1916] 1 AC 688, 710 per Lord Parker of Waddington, and Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, 1484 per Megaw L.J.

We must therefore express our respectful disagreement with the passage in Goulding J.'s judgment .. where he suggested that an employer can protect the use of information in his second category (Footnote: ¹⁴), even though it does not include either a trade secret or its equivalent, by means of a restrictive covenant. As Lord Parker of Waddington made clear in Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 709 .. a restrictive covenant will not be enforced unless the protection sought is reasonably necessary to protect a trade secret or to prevent some personal influence over customers being abused in order to entice them away.

In our view the circumstances in which a restrictive covenant would be appropriate and could be successfully invoked emerge very clearly from the words used by Cross J. in Printers & Finishers Ltd v Holloway [1965] 1 WLR 1, 6 ..

“If the managing director is right in thinking that there are features in the plaintiffs' process which can fairly be regarded as trade secrets and which their employees will inevitably carry away with them in their heads, then the proper way for the plaintiffs to protect themselves would be by exacting covenants from their employees restricting their field of activity after they have left their employment, not by asking the court to extend the general equitable doctrine to prevent breaking confidence beyond all reasonable bounds.”

Mr Delehanty, in response, relied upon the later Court of Appeal decision in Lansing Linde v Kerr (Footnote: ¹⁵)and, in particular, upon the following passage from the judgment of Staughton LJ (with whom Butler-Sloss LJ agreed) (Footnote: ¹⁶), which sheds light on what the Court of Appeal really meant in Faccenda:

It appears to me that the problem is one of definition: what are trade secrets, and how do they differ (if at all) from confidential information? Mr. Poulton suggested that a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication.

That is my preferred view of the meaning of trade secret in this context. It can thus include not only secret formulae for the manufacture of products but also, in an appropriate case, the names of customers and the goods which they buy. But some may say that not all such information is a trade secret in ordinary parlance. If that view be adopted, the class of information which can justify a restriction is wider, and extends to some confidential information which would not ordinarily be called a trade secret.

By way of riposte, Ms Meech submitted that, on the fact of this case, the contact details of Harpur’s customers could not be confidential, since the main switchboard number of each of them was readily and publicly available, and simply calling that publicly available main number and asking to speak to the person responsible for hiring temporary staff would result in being put through to the correct person, without the need for any knowledge of who that person was or how they could be contacted directly.

Again, this aspect of the matter is not fully explored in the evidence: and I am not clear that the factual basis of Ms Meech’s submission is properly made out. However, even if Ms Meech’s factual propositions were correct, it would not necessarily follow that details of the correct person to speak to for particular types of temporary worker and/or details of how to contact that person directly would not be of sufficient value to Harpur (and, thus, to a competitor of Harpur) to fall within Staughton LJ’s expanded definition of the kind of “trade secret” that it is possible in law to protect. It seems to be to be well-arguable that there is value to a recruitment agency in knowing, in advance of making contact, the name of the particular person that they should be speaking to and how to make contact with that person directly. If recruitment agencies saw no value in this information, why would they collect it?

On the facts of this case, Mr Day’s evidence is that Mr Potter used his own personal mobile telephone for Harpur’s business (an allegation supported by the reference in Mr Potter’s 16 November 2014 resignation email to the “Company Blackberry (which doesn’t work)”). According to Mr Day, this personal mobile telephone (which Mr Potter, as he was entitled to, kept after his resignation) contained as stored contacts the details of Harpur’s customers and of the temporary workers with whom Mr Potter dealt on Harpur’s behalf. Mr Day also asserts (though this is strongly disputed by Mr Potter) that Mr Potter also took away with him a number of registration packs, containing details of new temporary staff seeking placements through Harpur.

In the circumstances of this case, it seems to me to be well arguable that the matters covered by these covenants satisfy each of the three limbs of Staughton LJ’s definition. In particular, it seems to me to be well arguable that they would be liable to cause real (or significant) harm to Harpur, if disclosed to a competitor, by giving that competitor a real practical advantage in its attempts to compete with Harpur, by comparison with the position that the competitor would have been in but for the disclosure. I do not need to, and do not attempt to, decide the point finally now. It is sufficient for me to say that I am satisfied that, on this point as well, there is a serious question to be tried.

For these reasons, I am satisfied that Harpur has shown a sufficiently arguable case on each of the matters which it has to establish in order to make out its case against Mr Potter to establish that there is, on each of those matters, a serious question to be tried.

It follows that I must now go on to consider whether an injunction is justified, and whether damages, rather than an injunction, would be an adequate remedy for Harpur, and thereafter to consider in the round the balance of convenience.

Mr Potter, in his evidence, admits that, on about 5 November 2014 (and therefore while he was still a director of and employed by Harpur), he passed to Abstract some work from Clipper that ought to have gone through Harpur. Otherwise, he denies the factual basis of all of the breaches of covenant alleged against him, stating that:

I have not carried out any work for any clients of [Harpur] following my resignation, nor has [Abstract]. I wholly disagree with [Harpur]’s allegations that I have solicited these clients, or that I have solicited business away from it.

Ms Meech submits that Mr Day has been prone, in his evidence, always to put the worst possible construction on the limited information that he has about Mr Potter’s activities; that Mr Day’s evidence is therefore insufficient for me to be satisfied (in the face of Mr Potter’s denials) that any actual breaches have occurred after the termination of Mr Potter’s employment; and that, in those circumstances, Harpur has not made out (in the face of Mr Potter’s disavowal of any intention to act wrongfully) a sufficient case that any injunctive relief is required.

I do not accept that submission. Quite apart from Mr Day’s evidence (which, in my judgment, itself establishes a sufficient prima facie case), it seems to me that I can I any event infer from the undisputed circumstances of the case that Mr Potter sufficiently “threatens and intends” to do things which an injunction in the terms sought would forbid, to justify the grant of such an injunction. Those circumstances include: (i) the fact that he diverted work to Abstract while still employed by Harpur; (ii) the fact that, on leaving Harpur, he immediately went to work for a newly set-up competing business; (iii) the fact that he did not tell Mr Day about what he was going to do, but instead sent the 16 November 2014 email, which gave the misleading impression that he was too ill to work; and (though this is of less significance, given Mr Potter’s denial that he is bound by the Alleged Contract) (iv) the fact that has refused to offer any undertaking not to solicit Harpur’s clients, though invited to do so.

In Sunrise Brokers v Rogers (Footnote: ¹⁷) (also a case involving the enforcement of post-termination restrictive covenants, though in a very different industry), Underhill LJ pointed out that:

.. In a case of this kind there are evident and grave difficulties in assessing the loss which an employer may suffer from the employee taking work with a competitor: even where it is possible to identify clients who have transferred their business (which will not always be straightforward ..) there may be real issues about causation and the related question of the length of the period for which the loss of the business could be said to be attributable to the employee's breach. If the sums potentially lost are large they will not be realistically recoverable from the employee in any event ... There may be other intangible but real losses to the employer's reputation.

Most of those considerations seem to me to be applicable to the facts of the present case. Ms Meech submitted that the present case was distinguishable from Sunrise Brokers, because the small number of Harpur’s principal customers meant that it would be straightforward for Harpur to calculate its losses; those losses would not be large; and (unlike the position in Sunrise Brokers) there is a claim against Abstract as well as against Mr Potter, both of whom are within the jurisdiction. However, in my judgment, that analysis over-simplifies the position. Harpur has only a small number of principal customers: but the evidence suggests that its overall number of customers is larger. In the case of any given customer that takes its business away from Harpur, or reduces the volume of business that it puts through Harpur, it may be difficult or impossible for Harpur to establish whether that is attributable to any given breach of covenant by Mr Potter, or is just an unrelated fact of business life. In the words of Underhill LJ, there may be real issues about causation and the related question of the length of the period for which the loss of the business could be said to be attributable to the Mr Potter’s breach. There may also be other intangible but real losses to Harpur’s reputation.

I am therefore satisfied that damages would not be an adequate remedy for Harpur.

Finally, I come to the balance of convenience. That is a shorthand expression to describe a wide-ranging concept. The underlying principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other (Footnote: ¹⁸). As Lord Diplock stated in Cyanamid (Footnote: ¹⁹)

.. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case.

Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo. If the defendant is enjoined temporarily from doing something that he has not done before, the only effect of the interlocutory injunction in the event of his succeeding at the trial is to postpone the date at which he is able to embark upon a course of action which he has not previously found it necessary to undertake; whereas to interrupt him in the conduct of an established enterprise would cause much greater inconvenience to him since he would have to start again to establish it in the event of his succeeding at the trial.

Mr Potter is not shown as a director of, or shareholder in, Abstract. Mr Potter’s evidence (which Mr Day does not accept) is that he is simply an employee. However, even if Abstract is (as Mr Potter says) an independent third party, it seems to me that it would be right also to take the effect of the injunction on Abstract into account as part of this exercise.

The Court is therefore required to balance the effect of any injunction on Mr Potter’s ability (both during the injunction and afterwards) to earn his living, and on Abstract’s business, set up in October 2014 (both during and after the period of the injunction), against the effect on Harpur’s business (set up in 2008) of the refusal of an injunction. In both cases, the decision may have reputational consequences, and may indirectly affect others not party to this action, including the employees of the two companies (other than Mr Day and Mr Potter), and the customers and temporary workers who deal with either or both of these competing companies.

My decision to grant or refuse the injunction sought will inevitably cause some irremediable prejudice to one or other side. As indicated in paragraph 23 above, I take fully into account the fact that Mr Potter vehemently contests the fundamental basis of Harpur’s claim, and that any interim order that I might make will (unless discharged in the interim) have the effect of enforcing that hotly contested claim for approximately half of the covenant period.

However, on balance, it seems to me that the harm to Harpur from refusing the injunction would be likely to be greater than the harm to Mr Potter and to Abstract from granting it over until a speedy trial in April. Harpur has the established and subsisting relationship with its customers. If injunctive relief is refused, and Mr Potter is allowed wrongly to take those customers away to Abstract (if he can), it would be hugely disruptive and perhaps impossible for those relationships to be re-established by Harpur, were Harpur later found to be in the right. The customers would be quite likely, at that point, to resent Harpur for causing them the inconvenience of being obliged to cease to deal with Mr Potter and Abstract, and might well not be prepared to return to Harpur. By contrast, Mr Potter’s venture with Abstract is a new one. The effect of the injunction will simply be to delay for a short time its efforts to acquire Harpur’s customers for itself. That, of course, may also cause some loss to Mr Potter and to Abstract: but, in the nature of things Abstract cannot yet be as dependent as Harpur upon Harpur’s customers.

Subject to the points dealt with below concerning the form and scope of my Order, I therefore propose to grant the injunction sought by Harpur, and to give directions designed to lead to a speedy trial in April 2015 on all issues other than those relating to causation and quantum of loss.

For the reasons already given, it seems to me that Harpur’s undertaking in damages should extend (as it presently does) to cover any losses that Abstract (or any other person) may suffer. It must, of course, cover any losses suffered by Mr Potter himself.

Ms Meech submits that I should require Mr Day to give a personal guarantee to reinforce Harpur’s undertaking. However, Harpur’s audited annual accounts and latest management accounts show it to be a solvent company, with a turnover in the year to May 2014 in excess of £4 million, and net assets as at 31 December 2014 of over £270,000. It is difficult to assess Mr Potter’s and Abstract’s likely losses from the grant of the injunction. Mr Potter does not deal with this issue in his evidence. However, doing the best that I can, I am satisfied that those losses are unlikely to exceed Harpur’s ability to pay. After all, as Mr Delehanty submitted, Abtract’s losses are in the nature of things likely to be mirrored (albeit inexactly) in Harpur’s profits.

I therefore decline to require Harpur to reinforce its undertaking at this stage.

The draft Order filed and served by Harpur for the purposes of this hearing seeks, in paragraphs 6 to 12, orders requiring Mr Potter (in summary) to deliver up any documents containing “Confidential Information”, and to swear Affidavits explaining the use to which he has put any such information.

The foundation of the jurisdiction to grant such a disclosure order, and the considerations which a Court should take into account in deciding whether to grant such an order, were helpfully discussed by Mackay J in Aon Ltd v JLT Reinsurance Brokers (Footnote: ²⁰), and by Slade Jin Landmark Brickwork Ltd v Sutcliffe (Footnote: ²¹). It appears from those cases that a Claimant, such as Harpur, is entitled to the Court’s assistance in order to obtain “information which is required either to assist in giving effect to the injunctory relief, or to assist them in undoing the harm which has been unlawfully done” (Footnote: ²²). However, it is also clear that the Court must be careful not:

.. to subvert the normal accusatorial basis of our litigation, where the horse precedes the cart, into an inquisitorial one starting from an assumption that guilt has been proved, and saying to the defendants, 'Tell us everything you and others have done which was wrong.' [when] all that has been shown to date is a good arguable case, no more and no less. .. (Footnote: ²³)

In my judgment, the orders sought in paragraphs 6(a) and (b) of the draft (which are limited to documents) are justified, on the facts of this case, on the basis described in paragraph 63 above. The order sought in paragraph 6(c), to the extent that it is limited to Abstract and to First Call Contract Services Limited (a company whose involvement in the story is already described in the evidence), and the further orders sought in paragraphs 8 to 12 are all, in my judgment, also justified on that basis. I am therefore prepared to make orders in the terms sought in those paragraphs, suitably amended to limit paragraph 6(c).

Beyond that, however, the orders sought in paragraphs 6 and 7 of the draft seem to me to infringe the principle quoted above, and I therefore decline to make them.

For these reasons, I will make orders in the terms of the draft filed and served by Harpur for the purposes of this hearing, suitably amended to accord with the terms of this judgment.

I am grateful to both counsel for their submissions. I invite them to agree a Minute of Order giving effect to this judgment, and including directions for a speedy trial in April 2015 of all issues except those relating to causation and quantum of loss.

My provisional view is that, given the centrality of the dispute as to the signing of the Alleged Contract, the costs of this application should be reserved to the judge who hears the trial in April and who will decide that issue. However, that is only a provisional view, and I will hear submissions on the terms of the Order and/or on the incidence of costs, if any of those matters cannot be agreed.