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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Coppage & Anor v Safety Net Security Ltd [2013] EWCA Civ 1176 (11 October 2013) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2013/1176.html Cite as: [2013] EWCA Civ 1176, [2013] IRLR 970 |
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ON APPEAL FROM Birmingham District Registry
HHJ Simon Brown QC
2BM40032
Strand, London, WC2A 2LL |
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B e f o r e :
SIR BERNARD RIX
and
SIR STANLEY BURNTON
____________________
Leonard Coppage (1) |
Appellants |
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| - and - |
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| Freedom Security Limited (2) |
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| - and - |
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| Safety Net Security Ltd |
Respondent |
____________________
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mark Anderson QC with Ms Yasmin Yasseri (instructed by Cox Cooper Solicitors) for the Respondent
Hearing date: 5 March 2013
____________________
Crown Copyright ©
Sir Bernard Rix:
Coppage
, the first defendant in this litigation and in this court the first appellant, joined the claimant, here the respondent, Safetynet Security Limited ("Safetynet), a security company employing security guards and door supervisors in the Birmingham area. Its sole shareholder and chief executive is Mr Otis Hanley. Mr
Coppage
's role in Safetynet immediately on joining the company is not clear but he became a director of it on 5 May 2010 with the title of business development director and entered into a new contract of employment at that time (the "contract").
"It is a condition of your employment, that for a period of six months immediately following termination of your employment for any reason whatsoever, you will not, whether directly or indirectly as principal, agent, employee, director, partner or otherwise howsoever approach any individual or organisation who has during your period of employment been a customer of ours, if the purpose of such an approach is to solicit business which could have been undertaken by us."
Coppage
, as the judge found, or, as Mr
Coppage
submits, is unenforceable as being in unreasonable restraint of trade. It appears that the clause was present in Mr
Coppage
's contract of employment at all times. There are also issues concerning breach of fiduciary duty, and quantum. The judgment in question on this appeal is that of HH Judge Simon Brown QC dated 15 August 2012, sitting in the Birmingham mercantile court.
Coppage
described himself as "a key figure in [Safetynet's] business operation being the main person who was able to and did bring and retain new business". Although the judge plainly regarded Mr
Coppage
as a highly unsatisfactory witness, he nevertheless accepted this description of his role in the company, which does not appear to have been disputed. In an affidavit Mr
Coppage
described himself as employed "to be the face of the business". The judge recorded that in a witness statement Mr
Coppage
had boasted that at least one fifth of Safetynet's client base and income was as a result of his "pizzazz".
Coppage
. Mr Hanley considered that there was no need to employ a business development director and planned to take more of this function back to himself. At trial Mr
Coppage
counterclaimed for repudiatory breach of his employment contract on the basis that the redundancy exercise was a sham. However, the judge found that this was not so and rejected the counterclaim. Together with the other findings at trial, that is no longer in issue.
Coppage
resigned by email on 16 April 2012. What happened immediately thereafter was the catalyst for this litigation. An hour later, Mr Joshua Hadley, a 21 year old trainee electrician and part-time door supervisor, who had also been employed by Safetynet, resigned. On 17 April, it was Mr Hadley who incorporated the second defendant, Freedom Security Solutions Limited, ("Freedom"), here the second appellant. However, the judge found in effect that Mr Hadley was the mere face of Mr
Coppage
's enterprise and that it had been Mr
Coppage
who had been the directing mind of Freedom from its incorporation, even though he formally became its director only on 30 April 2012. Indeed, disclosure of telephone records revealed that there were 62 calls from Mr
Coppage
to Mr Hadley between 12 and 30 April, and 84 text messages in the same direction in the month of April. The judge therefore held that Freedom was liable alongside Mr
Coppage
for the breaches of Mr
Coppage
's restrictive covenant which he found had taken place in the immediate aftermath of Mr
Coppage
's resignation.
Coppage
's resignation and the day immediately after the incorporation of Freedom, two Safetynet customers, Lab 11 and Prince Albert, sent emails to Mr Hanley terminating their contracts. On 21 April, a third customer, Qclub, did the same. And on 30 April, two more, Fixxion Warehouse and Rainbow, followed suit, openly stating that they were moving to Freedom. At trial there were substantial issues as to whether this had occurred because Mr
Coppage
had solicited the custom of these five former customers of Safetynet or had simply occurred because of dissatisfaction with Safetynet. In a substantial central passage of his judgment, the judge set out his reasons for rejecting as false the defence evidence that there had been no solicitation by Mr
Coppage
. Disclosure of telephone records in the course of the litigation, after the defendants had committed themselves to false denials of any contact between Mr
Coppage
and the five Safetynet customers, was very damaging and led the judge, among other reasons, to the conclusion that Mr
Coppage
had deliberately sought to mislead the court. There had in fact been 135 calls and 175 texts from Mr
Coppage
to the five customers between 12 and 30 April 2012. All five had become customers of Freedom. They had given evidence to the judge in support of the defence, but the judge accepted none of that evidence. The judge found:
"43. Contrary to suggestions in their affidavits, there is no documentary evidence that any of the five customers were dissatisfied with the service that the Claimant was providing prior to 16 April 2012. Of the five customers who left, four were relatively new customers, but one, Rainbow, had been a customer of the Claimant since April 2008. In the face of the wilful inaccuracy of the affidavits, the customers' evidence that their reason for terminating their relationship with the Claimant was not by reason of solicitation is rejected…
48. I disbelieve each of the Defendants' witnesses that solicitation did not occur. I find them to be lying and acting under the control of MrCoppage
. But for the solicitation, in my judgment, the customers would have continued in their working relationship with the Claimant being bound by their contracts until a period of notice had expired as they had no complaints about Safetynet the company, just about Mr [Hanley] personally."
Coppage
's contract and/or on breach of fiduciary duty. The judge found each of those claims to have been satisfied. He went on the find damages of at least £50,000 proved. On this appeal, while unable to challenge the judge's findings of fact, the appellants raise three grounds of appeal. First, they submit that the non-solicitation clause was unreasonable because it ought to have been restricted to the non-solicitation of current customers, viz customers "within 6 or perhaps 12 months of the termination of the contract". It is suggested that only the interpolation of words such as "the last 12 months of" into the clause in question, so that it reads "you will not…approach any…organization which has during the last 12 months of your period of employment been a customer of ours" could save the clause from unreasonableness and invalidity. It is submitted that because the clause could have been so drafted, therefore it ought to be held to be unreasonable as affording the employer greater protection than was necessary. Secondly, they submit that the parties had joined issue for the purposes of the breach of fiduciary duty claim on post-termination events and that the law stigmatises only some breach of fiduciary duty which is at least initiated before that duty terminates with resignation. Thirdly, as to quantum, they submitted that the judge had no basis on which he could have found a loss of £50,000.
Ground 1: the validity of the non-solicitation clause
In G W Plowman & Son, Ltd v. Ash [1964] 1 WLR 568 (CA) the defendant covenanted not to "canvass or solicit…any farmer or market gardener who shall at any time during the employment of the employee hereunder have been a customer of the employer". The restraint was to last for 2 years post-termination. At an interlocutory stage, this court held that even though the clause applied to customers who had ceased to be customers before the end of the defendant's employment and to customers whom the defendant did not know, the clause would support the injunction ordered. Harman LJ emphasised the interlocutory nature of the court's decision (at 570-571), and that cases depended so much on their own facts that no one case "is a binding authority for any other" (at 572). On the issue in this case, he said (at 572):
"Thirdly, it is said (and this is, in my opinion, the nub of the matter) that, though customers are limited to those who were customers during the period of employment, it does not exclude people who have ceased to be customers and therefore form no part of the goodwill of the employer, nor does it confine itself to customers with whom in some way or other the employee has come into contact. It is on that ground, I think, that the learned judge refused the motion. I have felt great doubt on this point but on the whole, if a man was a customer at the beginning of the employment I do not see why hope should be abandoned of his becoming a customer again at the end of it and why, therefore, people who have, for the time being at any rate, ceased to be customers have fallen outside the proprietary interest."
"The difficulty with regard to ex-customers, or discontinued customers, as they were described in the course of the argument, did at one time appear to me to be a real one; but the answer, I think, is that already given by Harman LJ, in his judgment, namely that the employer is entitled to retain the possibility that those who at one time during the employee's employment placed orders with the employer and have discontinued their custom might come back again. It is to be remembered throughout the whole of this case that this covenant, whatever its meaning, is strictly limited to the period of two years after the cessation of the employee's contract."
Russell LJ, in agreeing on this point, emphasised that a contrary conclusion would be going beyond any of the decided cases, which he for one was not prepared to do on a motion for interlocutory relief (at 574).
"If this provision had been restricted to customers, then I think there could be no doubt that it would have been enforceable and I would agree with the judge in that respect."
Similarly, Diplock LJ said (at 1377H):
"I do not doubt that had the appropriate type of covenant been drafted – one, in particular, restricted to customers and possibly (though I express no final view on that) including persons on whom he had called although not customers – such a covenant might have been justified for the protection of the proprietary interests of the plaintiffs. But a much wider covenant was sought, one which extended to garages on whom the defendant might never call at all."
"The Court cannot say that a covenant in one form affords no more than adequate protection to a covenantee's relevant legitimate interests if the evidence shows that a covenant in another form, much less far-reaching and less potentially prejudicial to the covenantor, would have afforded adequate protection."
Mr O'Dair relies on that dictum, but in my view it does not carry across well to the current circumstances, where the evidence showed that 98 out of the 106 customers which Safetynet had had at any time during Mr
Coppage
's employment had remained current customers at the time of his departure. I will refer to these statistics again below.
"solicit…any person…who has at any time during the twelve months period immediately preceding such cessation of this agreement done business with the Company or the Group and whom he has introduced or with whom he had any business dealings or knowledge."
Thus the clause both looked forward and backward 12 months respectively.
Coppage
played a large role in Safetynet as its outward "face"; secondly, that Mr
Coppage
accepted in evidence that he had contact with all of the company's customers since he had taken on the role of operational director.
Coppage
's departure, and (b) on Mr
Coppage
's own evidence he and Freedom have not had any problems obtaining work outside Safetynet's customer base (judgment, at para 13). (The evidence as to the customer lists showed 93 current customers plus the 5 solicited away by Mr
Coppage
, plus only 8 which had ceased to provide business to Safetynet within the last 12 months of Mr
Coppage
's employment.) Secondly, the post-termination restraint was only six months. This is to my mind a fundamental consideration of reasonableness. One might debate matters such as the extent to which a non-solicitation clause is drafted in terms which go no wider than the legitimate protection required by an employer's proprietary interests: but if the restraint period is as short as six months, that must be a powerful factor in assessing the overall reasonableness of the clause.
Coppage
was a key employee. He was the "face" of the company and, as the judge found, in his latest role had been in contact with all of Safetynet's customers since May 2010. That indicated that he realistically had the power to influence all customers with whom he had come into contact, both current and past.
Coppage
's employment. He described this as the strongest argument in the appellants' favour. I disagree. The stability of the customer list and the small minority of relevant customers who had ceased to provide business within the last twelve months showed that it was entirely reasonable to draft the clause (in Plowman v. Ash style) to relate to all customers within the period of Mr
Coppage
's employment (a fortiori in the light of his contract's latest incarnation as of 5 May 2010 when he became a director of the company). The facts of this case are at the wholly opposite extreme to those of Office Angels. It cannot possibly be said in this case that the insertion of a twelve month retrospective limitation would have been "much less far-reaching and less potentially prejudicial". Mr O'Dair also submitted that, although jurisprudence left a decision theoretically open, nevertheless "in principle" a non-solicitation clause ought to be limited by a retrospective limitation along the lines of "within the last 6 [or 12] months" before cessation of employment. However, as indicated above by my consideration of the jurisprudence, I can find nothing to support such a conclusion: in this respect, contrary to the submission made by Mr O'Dair, I do not regard Arbuthnot as the modern answer to Plowman v. Ash, or as a case which ought to be preferred to it. It is Plowman v. Ash which continues to be regarded by treatises as the leading case in this context: see for instance Chitty at para 16-112, footnote 639.
Coppage
's employment as the "face" of that business is prima facie out of bounds, for the strictly limited period of six months, but subject to a proviso that there is a commercially realistic possibility of Safetynet providing services for the customers concerned. In effect, the proviso emphasises that the purpose of the clause is to counter the diversion, from employer to employee, of realistically available custom of customers who would be known to Mr
Coppage
through his employment.
Coppage
's contract of employment, it could theoretically be posited that he could have worked for Safetynet for (say) six years and be prohibited from soliciting an ex-customer who had been a customer at the outset of his employment but had left a short two weeks later: but that is an example of an argument from merely theoretical or fanciful possibilities which the jurisprudence decries. Similarly, in the modern context of unfair terms legislation, it has been said that –
"the court should, I think, take care to consider the clause as a whole in the light of the circumstances when the contract was made, in order to judge in the round whether it satisfies the requirement of reasonableness. The court should not be too ready to focus on remote possibilities or to accept arguments that a clause fails the test by reference to relatively uncommon or unlikely situations"
per Mance J in Skipskredittforeningen v. Emperor Navigation SA [1997] 2 BCLC 398 at 413, cited with approval in Regus (UK) v. Epcot Solutions [2008] EWCA Civ 361, [2009] 1 All ER (Comm) 586 at [36].
Ground 2: breach of fiduciary duty
Coppage
planned his resignation, the incorporation of Freedom, and the solicitation of Safetynet's known customers, and had started that solicitation, all while still a director.
"(1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
(2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity)."
"(1) The general duties specified in sections 171 to 177 are owed by a director of a company to the company.
(2) A person who ceases to be a director continues to be subject –
(a) to the duty in section 175 (duty to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director…
(3) The general duties are based on certain common law rules and equitable principles as they apply in relation to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director.
(4) The general duties shall be interpreted and applied in the same way as the common law rules or equitable principles, and regard shall be ahd to the corresponding common law rules and equitable principles in interpreting and applying the general duties."
Coppage
's fiduciary duty ceased on 16 April 2012 and that no particulars of breach prior to that date had been provided; and the reply merely denied that the fiduciary duty ceased on termination of employment as alleged. Nevertheless, it can be said that certain findings of the judge, such as the telephone calls and texts to customers from 12 April, suggest pre-resignation activity, as does the speed with which Mr Hadley resigned on 16 April and set up Freedom on 17 April. All that suggests forward planning. As the judge observed, albeit in dealing with Mr
Coppage
's counterclaim for repudiatory breach, Mr
Coppage
had used the problem of his potential redundancy to create an opportunity to "go alone". Nevertheless, the judge nowhere grasps the nettle of saying whether anything more is required for breach of fiduciary duty beyond solicitation after resignation: and at one point, the significant concluding paragraph 43 under the heading of "Findings of fact and evaluation of the evidence", he seems to refer to 16 April 2012 as a watershed (see para 43 cited above).
Ground three: Quantum
Coppage
, Safetynet would have earned, in gross fees, £159,587.31 from the five customers whom Mr
Coppage
took away with him. Mr Hanley's figures were supported by documentary evidence of the use made by the customers of Safetynet's services. The only response to the claim in the defence was to put Safetynet to proof. Safetynet had, however, limited its claim in its claim form to £50,000, as often happens. It is to be observed that these proceedings were issued and came to trial very promptly, so much so that the judge handed down his reserved judgment on 15 August 2012. In the circumstances, Safetynet did not go to great lengths to itemise its expenses, but Mr Hanley gave evidence that, although there was likely to have been some savings in salaries and overheads, the likely consequence of the customers' sudden departures was idle staff and that the loss of income was considerable. There was no cross-examination of Mr Hanley or of any of Safetynet's witnesses on the question of quantum, nor was any evidence adduced on the part of the appellants on quantum. Of course, Mr
Coppage
, as a leading executive of Safetynet for a number of years, would have known everything there was to know about its profitability. However, he neither proffered any evidence nor instructed any cross-examination about it.
Coppage to the contrary. There was and has been no submission that Safetynet had failed to provide any documents which it ought to have disclosed, or failed to provide any further information requested. None has been. The judge was a judge of the mercantile court in Birmingham, and concerned with a Birmingham based business. There was also evidence before the court of Safetynet's general profitability and its assets. Courts often have to do the best they can, sometimes on scanty evidence, to assess damages, and I cannot regard this case as being in any way out of the ordinary. It is not in the least unlikely that Safetynet's net loss of profit should have been at least about 30% of its gross revenue, especially in the circumstances governing the sudden and unexpected departure of the five customers.
Conclusion
Sir Stanley Burnton:
Lord Justice Ryder: