Caretower Ltd v Posner

The Claimant (“Caretower”) seeks an interim injunction restraining the Defendants from breaching contractual provisions designed to protect its interests in confidential trading information.

The First Defendant, Mr Posner, is Caretower’s ex-employee. The relevant contractual provisions are contained in his contract of employment. The Second Defendant (“Epaton”) is Mr Posner’s current employer. The Third Defendant (“NG”) is a company that is said to be associated with Epaton.

Caretower and Epaton/NG are represented by counsel. Epatom and NG have offered undertakings that are acceptable to Caretower and it is not therefore necessary for me to make a ruling in respect of that part of the application, save to approve the undertakings that have been made.

Mr Posner acts in person. He explained to me that he had recently returned to the country and he had only had since Monday of this week to consider the papers. In the event, Mr Quinn for Caretower opened the application. Mr Posner then, in discussion with me, made some very clear observations about the need for an injunction. He denies breaching his contract with Caretower. He says that he has no intention of doing so and has no intention of competing with Caretower. I explained to him that I would not be making any finding as to whether he had in fact breached the contract and that the issue for the Court was what, if any, order would be most just to all of the parties in relation to the period until trial. After allowing him some time to consider the position he indicated that rather than offer undertakings in line with those offered by Epaton/NG he would prefer to leave the matter in the Court’s hands.

This is an interim application. I have not heard oral evidence. Caretower has filed witness statements from George Neophytou and Emmanuel Sonubi, each with extensive documentary exhibits. The Defendants did not until this morning file any evidence. This morning they filed statements from Jonathan Lassman and Phillip Dick. The following account of the facts is based largely on the untested material that has been filed by Caretower and is necessarily provisional, given the nature of this hearing. If the case proceeds to trial this summary of the facts will in no way bind the trial Judge.

Some of the documentation that is relied on by Caretower is said to be commercially sensitive. I therefore invited submissions on the appropriateness of an order pursuant to CPR 31.22(2) prohibiting the use by the Defendants of the confidential annexes to the witness statements except for the purpose of these proceedings. I am satisfied that it is appropriate to make such an order and I do so in order to allow Caretower to advance their claim without having to risk publication of that which is confidential, and thereby defeat the very object of these proceedings.

Caretower is a company that specialises in information technology and cyber-security. A substantial part of its business involves the sale of third-party products to its customers. It contends that its relationships with its customers, and the information it derives from its customers, are of the utmost importance to its business. That is because a substantial part of its income is derived from repeat business with individual customers. In relation to any particular customer it will know the key contacts, the customer’s particular information technology needs, what software it is using, pricing information in relation to products that have been supplied to the customer, when the software licences expire, the vulnerabilities that are inherent in the customer’s systems and the customer’s concerns in relation to cyber security. Caretower contend that this is all confidential information and it is essential to maintain that confidentiality both for its own business interests and to protect the interests of its customers.

Mr Posner worked for Caretower as a New Business Development and Account Manager in 2000. He left in 2003 and worked overseas. He returned to work for Caretower as an Enterprise Account Manager on 1^st December 2014.

His contract of employment had the following material provisions:

“12.

CONFIDENTIAL INFORMATION

12.1

The Employee acknowledges that during his employment Confidential Information will be made known to him…

12.2

The Employee agrees that… he will not… during his employment or at any time thereafter communicate or disclose to any person, firm or company or use for his own purposes any trade secrets or Confidential Information in any manner whatsoever save as is or may be reasonably necessary for the promotion of the business of the Company or any other Group Company.

…

12.4

On the termination of the Employee’s employment… the Employee shall deliver to the Board all notes, memoranda and drawings (whether recorded in physical or electronic form) relating to Confidential Information received or made by the Employee in the course of his employment.

…

18

RESTICTIONS AFTER TERMINATION OF EMPLOYMENT

…

18.2

The Employee shall not during [a prescribed period from the date of termination of his employment]… do… any of the following:

18.2.1

use or disclose Confidential Information… obtained by him during the last three years of his employment and belonging to the Company

18.2.2

so as to compete with the Company within [Great Britain] carry on or be engaged or concerned or interested [as an employee] in any business engaged in any Relevant Business;

18.2.3

invite, solicit or procure an order to supply or perform Relevant Goods and Services to or for a Relevant Contact in [Great Britain];

18.2.4

agree or accept an order to, or supply or perform Relevant Goods and Services to or for a Relevant Contact in [Great Britain];”

Relevant Business is defined as “a business of the Company in which the Employee has direct personal involvement during any part of the Relevant Period.”

Relevant Contact is defined as “a person: (a) who has purchased or supplied goods or services from or to the Company for the purpose of a Relevant Business, or has agreed or is in negotiations to do so; and (b) with whom the Employee had personal dealings and influence during the Relevant Period in the course of his employment by the Company. The Relevant Period is 12 months ending on the last day of the Employee’s employment by the Company.”

Whilst he was employed by Caretower it is said that Mr Posner emailed certain confidential information from his Caretower email account to his personal email account. Not surprisingly, Mr Quinn relies strongly on that conduct as indicating an intention to misappropriate Caretower’s confidential information. That may be one possible interpretation, but at this stage it is not necessary to make any finding, even to a lowered threshold, and I do not do so.

Mr Posner resigned from his employment with effect from 20^th April 2018. In a letter dated 18^th April 2018 Caretower agreed to release Mr Posner from his contractual obligation to serve out a notice period of 3 weeks. In that letter Caretower reminded Mr Posner that he was still bound by the obligations and restrictions set out in clause 18 of his contract of employment. By a letter dated 20^th April Caretower drew Mr Posner’s attention to clauses 12 and 18 of the Contract and asked him to sign a “Confidentiality Declaration” in the following terms:

“I Jonathan Posner hereby confirm that I understand that I shall continue to be bound by Clause 12 of my contract [erroneous date given]… in relation to the disclosure of Confidential Information following the termination of my employment with the Company.

I understand and acknowledge that in accordance with my contract of employment Confidential Information includes…

Details of the Company’s clients…

I hereby acknowledge that any breach of the terms of contract employment relating to the disclosure of Confidential Information may lead to the Company bringing legal proceedings against me and any third party to whom such information is disclosed.”

Mr Posner signed the Confidentiality Declaration on the same day.

Mr Neophytou says that he reinforced the importance of maintaining the confidentiality of customer details at a meeting he held with Mr Posner on 20^th April 2018. Mr Posner signed a further document, headed “Confidentiality Undertaking”, which stated:

“I shall abide by clauses 12 and 18.2.1 of my employment contract … relating to confidential information.”

Mr Neophytou says that on the same day Mr Posner wrote an email to over 120 of Caretower’s current and prospective clients and informed them that he was leaving Caretower. Mr Quinn relies strongly on that as indicative of an intention to poach clients away from Caretaker. Mr Posner objects to that characterisation and says he was simply maintaining contact with industry colleagues with whom he had built a relationship. Again, it is not necessary to make any finding about that and I do not do so.

On 1^st May 2018 Mr Posner wrote to a Caretower client from his new, Epaton, email address and requested a meeting in order, it appears, to discuss the possibility of business between Epaton and that client. The client replied to the email by using Mr Posner’s Caretower email address, thus resulting in this coming to Caretower’s attention.

Mr Neophytou says that on 23^rd May 2018 Mr Posner contacted an individual who had been a customer contact of Mr Posner when he was working at Caretower. The contact related to the sale of a system to that customer. Mr Posner had been marketing that same system to the customer whilst he was employed by Caretower. Caretower discovered this by happenstance in mid July 2018.

Caretaker contends that the it has a legitimate business interest in maintaining the confidentiality of details of its customer relationships. Given the privileged information and relationships that Mr Posner will have obtained and developed as a result of working with Caretower it says it also has a legitimate business interest in preventing Mr Posner from competing with it for a reasonable period of time. Accordingly, it says, the contractual provisions restraining Mr Posner from making use of such information and from competing go no further than is reasonably necessary to protect Caretower’s legitimate interests. It follows that the relevant contractual provisions are not unenforceable on grounds of public policy as being an unjustified restraint of trade. Mr Posner’s conduct, as set out above, amounts to a breach of contract. Unless he is restrained he is likely to continue to breach the contract in a like manner. Damages will not be an adequate remedy. Conversely, if Mr Posner suffers any loss as a result of an order that can be made good by way of an undertaking in damages. The balance of convenience clearly falls in favour of granting injunctive relief. The appropriate order is one that requires Mr Posner to:

Mr Posner maintains that he has not breached the contract, that he has no intention of competing with Caretower that he has already agreed not to do so, and that it is not therefore necessary to grant injunctive relief.

The general approach to be taken to an application for an interim injunction is governed by the well known guidance set out in American Cyanamid v Ethicon [1975] AC 316, namely whether there is a serious issue to be tried, whether damages would be an adequate remedy, where the balance of convenience lies and whether there are any other special factors.

Where that guidance falls to be applied in the context of an application for a mandatory injunction a degree of caution is required in order to accommodate the greater risk of injustice if an order is made which, on full examination at trial, turns out not to be merited. The principles to be applied in that context are those set out in Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 per Chadwick J at 474, as subsequently approved by the Court of Appeal: [1995] FSR 605. Those principles are as follows:

“First, this being an interlocutory matter, the overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be ‘wrong’…

Secondly, in considering whether to grant a mandatory injunction, the court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage, may well carry a greater risk of injustice if it turns out to be wrongly made than an order which merely prohibits action, thereby preserving the status quo.

Thirdly, it is legitimate, where a mandatory injunction is sought, to consider whether the court does feel a high degree of assurance that the plaintiff will be able to establish his right at trial. That is because the greater the degree of assurance the plaintiff will ultimately establish his right, the less will be the risk of injustice if the injunction is granted.

But, finally, even where the court is unable to feel any high degree of assurance that the plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if this injunction is refused sufficiently outweigh the risk of injustice if it is granted.”

Much was made by Caretower in its written argument of the authorities as to implied terms of confidentiality in employment contracts, it being said that such a term should be implied into Mr Posner’s contract. However, that contract had express terms dealing with Mr Posner’s contractual duties to protect his employer’s rights of confidentiality. The parties to the contract thereby expressly addressed their minds to the question and reached a detailed and sophisticated written agreement. In those circumstance it is neither necessary nor appropriate, at least at this stage, to consider the question of implied terms, and Mr Quinn did not address the matter in oral argument.

There was an express term to protect confidential information. I am satisfied to a high degree of assurance that Caretower will establish at trial that details of client contacts and client IT needs amounted to confidential information and that confidentiality continued to attach to that information in the months following the termination of Mr Posner’s employment. I am so satisfied on the basis of the detailed evidence given by Mr Neophytou in his witness statement as to the reasons why that information is confidential. Moreover, it is striking that Mr Posner expressly agreed, following the termination of his employment, and in circumstances where he was under no obligation to do so, that this amounted to confidential information within the meaning of his contract of employment.

By virtue of clause 18.2.1 of the contract the express term purports to apply even after Mr Posner’s employment came to an end. It is reinforced by clauses 18.2.2-18.2.6 which restrain Mr Posner from competing with Caretower in Great Britain for a period of 12 months. Those terms will be unenforceable on grounds of public policy, as being in restraint of trade, unless they can be justified as going no further than is required to protect Caretower’s legitimate business interests.

It will therefore be necessary for Caretower to establish at trial that these clauses did no more than protect its legitimate business interests. That is an issue that is contested, at least by Epaton and NG.

I am, however, entirely satisfied that Caretower have a real prospect of establishing at trial these clauses are enforceable, and that Mr Posner acted in breach of them as a result of the two contacts with former Caretower customers that are set out above.

The evidence of Mr Neophytou together with the email correspondence between Mr Posner and the two customers referred to above, is strong evidence of such use. The fact of his emails to these clients, in the context of his previous employment with Caretower and his exposure to those clients in the course of that employment, is strong evidence that this amounted to use of confidential information that he had secured in the course of his employment with Caretower.

On the limited material that is currently before the Court, and in the light of the evidence that has been filed by Epaton, I cannot rule out a contrary conclusion being reached at trial. Whether there is a sufficient prospect of success so as to justify the grant of a mandatory injunction is best determined by reference to the particular orders that are sought.

I am satisfied that damages would not be an adequate remedy. That is because of the nature of the case. Caretower’s business is heavily dependent on its customer list and once that it is compromised its entire business model is at very significant risk. That is not something that can readily be compensated by an award of damages. Moreover, I have no evidence as to Mr Posner’s means and it is uncertain whether Mr Posner would be able to satisfy any award of damages.

Conversely, an order that effectively requires Mr Posner to do that which he voluntarily agreed both when signing the contract of employment, and when signing the subsequent confidentiality undertaking and confidentiality declaration, is unlikely significantly to impact on Mr Posner’s legitimate interests. He maintains today that he has no intention of competing with Caretower. If it is found at trial than an injunction is not merited and that Mr Posner has sustained loss then that can be remedied by calling on Caretower’s cross-undertaking in damages.

The balance of convenience therefore strongly favours the grant of relief to the extent of requiring Mr Posner to comply with the contractual requirements in clauses 12 and 18.2.1-18.2.6 of his contract of employment.

The order as originally drawn had far too broad an impact, particularly in relation to its mandatory terms. It would, for example, have purported to require Mr Posner to deliver up to an independent expert every personal electronic storage device in his possession, whether or not it contained any of Caretower’s information. I would not have been prepared to make an order in those terms. It was not pressed by Mr Quinn. I am, however, satisfied that it is appropriate to make an order that has a mandatory component to the extent of requiring delivery up of Caretower’s confidential information and delivery up to an independent expert such computers and storage devices as have such material or evidence of access to such material, and requiring the provision of a witness statement to certify compliance.

Accordingly, the application for an interim injunction succeeds against Mr Posner, albeit the proposed draft order will be significantly modified. It is not necessary, for the reasons given, to rule on the application as against Epaton and NG.