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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> PAT Systems v Neilly [2012] EWHC 2609 (QB) (21 June 2012) URL: https://www.bailii.org/ew/cases/EWHC/QB/2012/2609.html Cite as: [2012] EWHC 2609 (QB) |
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QUEEN'S BENCH DIVISION
Strand, London WC2A 2LL |
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B e f o r e :
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PAT SYSTEMS |
Claimant |
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- and - |
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GRAEME NEILLY |
Defendant |
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165 Fleet Street, 8th Floor, London, EC4A 2DY
Tel No: 020 7421 4046 Fax No: 020 7422 6134
Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com
(Official Shorthand Writers to the Court)
MR D OUDKERK QC appeared on behalf of the Defendant.
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Crown Copyright ©
MR JUSTICE UNDERHILL:
Introduction
The employment agreement
"The Employee shall not save with the prior written consent of the Company for a period of twelve months from the termination of the Employment within the Restricted Area carry on or be concerned or engaged or interested directly or indirectly (whether as principal, shareholder, partner, employee, officer, agent, broker, consultant, investor or otherwise) in any trade or business which competes with any part of the Business or any other trade or business carried on by the Company in which the Employee (or any other employee on his behalf or under his instructions) shall have been actively engaged or involved at any time during the period of twelve months prior to the termination of his Employment.
The term "Restricted Area" is defined in clause 9.1 as follows:
"United Kingdom, Continental Europe & USA Commodities, Financial Futures & Options Trading, Securities Trading & Electronic Order Routing in such areas and information vending."
"The Business" is defined in the interpretation section of the agreement as follows:
"The Company's business of developing and marketing computerised financial trading systems for the financial trading industry, including (but not limited to) financial trading rooms of the foreign exchange, currency, commodity and securities trading rooms at the foreign exchange, trading markets and derivatives."
"in any trade or business which competes with any part of the Business, or any other trade or business carried on by the Company, in which the Employee" etc.
"The Employee (who acknowledges that, in the course of the Employment, he is likely to have dealings with the clients, customers, suppliers and other contacts of the Company) agrees that each of the restrictions in Clauses 8.1, 8.2(a), 8.2(b) and 8.3 is separate and distinct, is to be construed separately from the other restrictions, and is reasonable as regards its duration, extent and application for the protection of the legitimate business interests of the Company. However, in the event that any such restriction shall be found to be void or unenforceable but would be valid or enforceable if some part or parts of it were deleted or the period or area of application reduced, the Employee agrees that such restriction shall apply with such modification(s) as may be necessary to make it valid and effective."
"I agree to the variation of my terms with Patsystems, which are stated in this letter and I acknowledge and agree that all other terms and conditions outlined in my original documentation remain unchanged."
The termination of the employment
"I refer to my letter of 2 April 2012 and our subsequent conversations in which you confirmed that you intend to accept employment with Trading Technologies International Inc, or an affiliate ('Trading Technologies').
Clause 8.1 of your employment agreement with the Company dated 2 June 2000, as amended (the 'Agreement') states that you 'shall not save with the prior written consent of the Company for a period of twelve months from the termination of the Employment within the Restricted Area carry on or be concerned or engaged or interested directly or indirectly (whether as principal, shareholder, partner, employee, officer, agent, broker, consultant, investor or otherwise) in any trade or business which competes with any part of the Business or any other trade or business carried on by the Company in which the Employee (or any other employee on this behalf or under his instructions) shall have been actively engaged or involved at any time during the period of twelve months prior to the termination of his Employment'.
Your declared intention to commence employment with Trading Technologies clearly demonstrates that you have decided not to honour the obligations set out in the Agreement. This constitutes a repudiatory breach of the Agreement.
The Company hereby accepts your repudiation of the Agreement and elects as its remedy to terminate the Agreement and, consequently, your employment by Patsystems with immediate effect."
It has since transpired, though it is hardly surprising, that the letter had been drafted earlier in the day, before any contact had taken place between Mr Webber and the defendant, though it was Mr Webber's evidence that he did not finally decide to deliver it until the interval between the two meetings to which I have referred that afternoon, having taken further advice in the meantime.
The pleadings
The issues
(a) As a matter of construction, does clause 8.1 apply so as to prevent the defendant from being employed by TT during the twelve-month period there specified?
(b) If so, being a covenant in restraint of trade, is it justifiable? Within that broad issue is an important sub-issue as to the date at which the reasonableness of the covenant falls to be assessed.
(c) If so, is the claimant disentitled from relying on it because of its summary dismissal of the defendant?
(d) If not, should an injunction be granted?
I will take the issues in that order.
(a) Does clause 8.2 apply to the defendant's proposed employment with TT?
(b) Enforceability
"…the time for ascertaining the reasonableness of a restrictive covenant…is the time of the making of the contract"
(See per Pearson LJ at page 644B.) If the covenant is unreasonable at that date, it cannot be saved simply because a subsequent change of circumstances means that it would have been reasonable at the time that it falls to be enforced. As Diplock LJ put it in Gledhow Autoparts Ltd v Delaney [1965] 1 WLR 1366 at 1377D-E:
"A covenant of this kind is invalid ab initio or valid ab initio. There cannot come a moment at which it passes from the class of invalid into that of valid covenants."
Mr Oudkerk also referred to the statement by Lord Halsbury in Mogul Steamship Co Ltd v McGregor [1892] AC 25 (at 39) that the law treats a covenant which is in restraint of trade and which cannot be justified as if it had not been made at all.
"It was common ground between Mr. Colton and Miss Chudleigh that the question of the reasonableness of the Relevant Covenants fell to be considered as at the date of the Employment Contract, September 1999. Mr. Colton submitted that it was appropriate, in considering reasonableness as at that date, to have regard to the possibility of the promotion of Mr. Ayris, as happened, in the fullness of time to the position of Head of Sales and Marketing. Miss Chudleigh disputed that contention. She submitted that one should consider reasonableness as at September 1999 simply in the context of the agreement then made for employment in the position to which the contract related. I accept the submission of Miss Chudleigh on that point. Any alteration in the role in which Mr. Ayris was employed of necessity involved some variation to the Employment Contract, and possibly the making of an entirely new contract. A contract varying or superseding the Employment Contract might have contained whatever modifications to restrictive covenants contained in the Schedule which the parties considered to be appropriate to the new situation. It should not be assumed that on any alteration in role the existing restrictive covenants in the Schedule would simply continue. Moreover, it would be a very strange position if restrictive covenants which were unreasonable in the context of the position to which Mr. Ayris was appointed by the Employment Contract, if considered on its own, became reasonable because of the chance that he might be promoted to a role in which the restrictive covenants would be appropriate."
That passage is, broadly speaking, unhelpful to Mr Taylor's submission, but as Mr Oudkerk correctly accepted, it is not directly on the present point, because counsel for the employer did not rely on any subsequent variation as such, but rather on the asserted expectation, judged as at 1999, of promotion at some point in the future. In any event, the decision is not binding on me. I should therefore consider the question as one of principle.
(c) The summary dismissal of the defendant
"Ultimately it is a question of construction whether or not the parties intended the contractual obligation in question to survive the termination of the contract."
Mr Oudkerk acknowledged that the parties to a contract of employment are not likely to have intended that in circumstances where the employer is entitled to dismiss the employee for gross misconduct he can do so only at the cost of losing the benefit of an otherwise enforceable restrictive covenant. But he said that the position was different here, because the repudiation consisted of an anticipatory breach of the very obligation which the employer was seeking to enforce. In such a case, he submitted, the employer should indeed be put to his election. He should be allowed to hold the employee to his obligations under the restrictive covenant only if he himself is prepared to perform his own primary obligation, namely to continue to employ the employee and to pay him during the notice period: otherwise he would indeed be having his cake and eating it. In the present case the claimant had, he suggested, obtained an additional advantage by its election, in that by dismissing the defendant summarily it avoided the difficulties of managing him during the notice period in circumstances where the contract contained, unusually, no garden leave clause.
(d) Injunction.
Conclusion