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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Christie Owen & Davies Plc v Walton [2008] ScotCS CSOH_37 (22 February 2008)
URL: http://www.bailii.org/scot/cases/ScotCS/2008/CSOH_37.html
Cite as: [2008] CSOH 37, [2008] ScotCS CSOH_37

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OUTER HOUSE, COURT OF SESSION

 

[2008] CSOH 37

 

A39/08

 

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD HODGE

 

in the cause

 

CHRISTIE OWEN & DAVIES PLC

 

Pursuers;

 

against

 

GARY WALTON

 

Defender:

 

 

ญญญญญญญญญญญญญญญญญ________________

 

 

 

Pursuers: Davies; Harper Macleod

Defender: Hardman; Ross Harper

 

22 February 2008

 

Background
[1] The pursuers, who are surveyors, valuers and agents, employed the defender, who is a chartered surveyor, from January 2002 until December 2007. He worked in their valuation services team from 2002 to 2005 and thereafter worked in their agency department, specialising in the care sector. The pursuers aver that he was principally engaged in the appraisal, acquisition and sale of nursing homes, care homes and children's day nurseries. On 17 December 2007 the defender took up employment with C B Richard Ellis ("CBRE") to establish an agency based in Scotland working in the healthcare sector in Scotland.

[2] During 2007 the defender expressed interest through a recruitment agency in obtaining employment with other employers. The defender met with Mr Skinner of CBRE on 12 September 2007 and with Mr Smith and Mr Matheson of CBRE on 2 October 2007 to discuss a possible role for the defender in their operation to establish an agency business in the healthcare sector in Scotland. On 6 November 2007 CBRE e-mailed the defender an offer of employment and on 14 November 2007 Mr Skinner had a further meeting with him. They negotiated over his salary and on 6 December 2007 CBRE sent the defender a revised offer which was accepted and signed on 14 December 2007.

[3] On 26 November 2007 and on 29 November 2007 the defender sent e-mails to his girlfriend's computer in her flat. He attached substantial files to the e-mails. The pursuers' IT security system detected the transfer of the large files and the pursuers' senior management were alerted to the transfers on 29 November 2007. The e-mail which the pursuer sent on 26 November 2007 had as an attachment a spreadsheet which contained the names and contact details of company-owned care homes in Scotland. The e-mail of 29 November 2007 had as an attachment an Excel document which contained the care sector mailing list of the pursuers' Edinburgh office. The pursuers aver that, having sent the e-mails, the defender deleted them from his computer.

[4] There is a dispute between the parties as to the purpose for which the defender sent the material to his girlfriend. The pursuers inferred from his doing so, and from what they aver he said when confronted by two of their directors on 30 November 2007, that he was gathering confidential material to take to his intended new employers as a springboard for their expansion into care sector agency in Scotland. The defender on the other hand in his affidavit stated that he sent the material to his girlfriend's home where he was residing in order to work at home and that it had been his practice during his employment with the pursuers to work at home in the evenings. At a subsequent meeting on 3 December 2007 the defender handed to Mr Ferguson, a director of the pursuers, hard copies of the following documents which he had removed from the pursuers' premises:

(i) the company-owned nursing home mailing list which included in many cases details of the persons to contact within the organisations,

(ii) the Edinburgh office care sector mailing list, including contact details and in many cases details of when the premises had been inspected by employees of the pursuers, turnover details and valuations of the businesses,

(iii) the Glasgow office care sector mailing list which contained the same details as (ii) above,

(iv) extracts from the Glasgow office Applicants' List containing details of potential buyers of care sector businesses,

(v) the Edinburgh office Applicants' List, containing details of such potential buyers, and

(vi) a delegate list of attendees at the Scottish Care conference which took place in November 2007.

The pursuers accepted that document (vi) was not confidential but asserted that all the other documents were. Mr Simon Hughes, a director of the pursuers, in his affidavit stated that items (ii)-(v) contained confidential details which would take a competitor a long time to compile and that the applicants' lists contained very valuable intelligence as many sales of businesses in the care sector were "off market" transactions.

[5] On 7 December 2007 the pursuers terminated the defender's contract of employment on the ground of gross misconduct. The defender appealed that decision and there is a continuing dispute whether the pursuers were entitled to terminate his contract.

[6] The pursuers averred that after the termination of the contract of employment the defender tried to solicit business from certain of their customers and prospective customers. They averred that the mailing lists and applicants' lists which the defender had removed from their premises contained valuable information on the care sector of the market and would have provided a springboard for the defender and CBRE to penetrate that sector. They averred a reasonable apprehension that the defender would use confidential information to solicit customers and compete unfairly with them by use of that information. They also averred a reasonable apprehension that the defender would continue to work with CBRE in the care sector in breach of his restrictive covenant referred to below.

[7] On 24 January 2008 I granted interim interdict against the defender. In his motion seeking recall of that order the defender was content at this stage not to challenge the interim interdict so far as it related to the communication of confidential information and confined his motion to the interdict against employment in a prohibited business and against canvassing or soliciting customers of the pursuers.

 

The contractual provisions
[8]
The defender's contract of employment dated 27 July 2005 contained the following provisions which impose obligations on the defender on termination of his employment. First, clause 15.4 (which is relevant to the pursuers' application for an order under section 47(2) of the Court of Session Act 1988) provided:

"On or before the Termination Date, the Employee will promptly (unless otherwise agreed):-

(A) deliver up to Christie + Co all lists of customers, correspondence, documents, notes, memoranda, day books, diaries, telephone and address books, materials, records, papers, software, computer and portable telephone memory and information on whatever media and wherever located relating to the business of Christie + Co or any other company in the Group, any magnetic discs on which such information is stored and any keys or other property (including any car) belonging to Christie + Co or any other company in the Group which may be in his possession, custody, care or control;

(B) irretrievably delete any information relating to the business of Christie + Co or any other company in the Group stored on any magnetic or optical disc or memory and all matter derived therefrom which is in his possession, custody, care or control outside the premises of Christie + Co and shall produce such evidence of compliance with this sub-clause as Christie + Co may require."

[9] Secondly, clause 18 contained post-termination covenants, restrictions and undertakings, including the following:

"18.2 The Employee will not following the termination of his employment hereunder disclose, communicate or divulge or permit to be disclosed, communicated or divulged, to any person (except such other employees of any Group Company whose responsibility it is to know the same) any Confidential Business Information (as hereinafter defined) of Christie + Co or of any Group Company.

18.3 The Employee shall not during the period of 12 months after the Termination Date (however the termination is caused) whether on his own account or with or on behalf of any other person, firm, company or unincorporated association whatsoever directly or indirectly:

18.3.1 procure or attempt to procure the transfer from Christie + Co or any other Group Company of any business of any description transacted with Christie + Co or any other Group Company by any person, firm, company or unincorporated association and with which the Employee has been in any way connected;

18.3.2 induce or endeavour to induce any such person, firm, company or unincorporated association as aforesaid to discontinue business of any description transacted with Christie + Co or any other Group Company;

18.4 The Employee shall not during the period of 12 months after the Termination Date (however the termination is caused) directly or indirectly whether on his own account or on behalf of or in conjunction with any person, firm, company or unincorporated association whatsoever or any other organisation, canvass or solicit or attempt to canvass or solicit Prohibited Business with any Restricted Customer or Prospective Customer.

18.5 The Employee shall not during the period of 12 months after the Termination Date (however the termination is caused) directly or indirectly whether on his own account or on behalf of or in conjunction with any person, firm, company or unincorporated association or any other organisation, carry on Prohibited Business with any Restricted Customer or any Prospective Customer.

18.6 The Employee shall not during the Restricted Period whether directly or indirectly:-

18.6.1 take up or hold any office, employment or consultancy in connection with any business which is engaged or is intended to be engaged in the Prohibited Business within the Restricted Area; or

18.6.2 take up or hold any other post or position which enables or permits the Employee to exercise whether personally or by an agent and whether on his own account or in association with or for the benefit of any other person a controlling influence over any business which is engaged or is intended to be engaged in the Prohibited Business within the Restricted Area, which would have the necessary or probable result of the Employee being engaged within the Restricted Area in business activities which are the same or substantially similar to the Prohibited Business or of the Employee being expected or required to use or disclose Confidential Business Information."

[10] Clause 21 of the contract of employment contained the following definitions of terms:

21.2 Restricted Period shall mean:

...

(b) in the case of any other employee a period of 6 (six) months from Termination Date (however the termination is caused).

21.3 Restricted Area shall mean the area described in the Third Schedule hereto and any other area within which the Employee shall have worked during the Relevant Period.

21.4 Prohibited Business shall mean any business or activity of a kind carried on by Christie + Co at the Termination Date or at any time in the Relevant Period with which the Employee at any time within the Relevant Period shall have been directly or materially concerned in the course of his employment.

21.5 Restricted Customer shall mean any person, firm, company or unincorporated association or other entity who or which was at any time during the Relevant Period a customer of Christie + Co in respect of the sale or purchase or valuation of any property or business and with whom during the Relevant Period the Employee shall have had personal dealings and a customer shall include someone with whom Christie + Co did business whether or not a fee was charged therefore.

21.6 Prospective Customer shall mean any person firm, company or unincorporated association who or which was at the Termination Date or at any other time during the Relevant Period negotiating or dealing with Christie + Co about, or who had communicated to Christie + Co an interest in, the sale or purchase or valuation of any property or business and with whom the Employee shall have had personal dealings during the Relevant Period.

21.7 Relevant Period shall mean the 18 month period ending with the date on which notice of termination was given in accordance with this agreement or where no notice of termination was given the 18 month period ending with the Termination Date.

21.8 Group Company shall mean any associated Company of Christie + Co and any company, which is for the time being a subsidiary or holding company of any associated company within the meaning of section 416 of the Taxes Act 1988.

21.9 Confidential Business Information shall mean all or any of the following:

21.9.1 any private, confidential or secret information of Christie + Co or any Group Company (including trade secrets; secret or confidential operations; information about strategy; proposals for the development of new services; targets, rates, commissions, sources, dealings, business finances or affairs (to include business statistics) of Christie + Co or any Group Company; lists or details of customers of Christie + Co whether written, visual or oral and whether or not recorded on computer disk; the databases or tapes to which the Employee has had access to by virtue of his employment; and all information, reports, recommendations or advice given to Christie + Co or any Group Company by the Employee in pursuance of his duties) and further any information from whatever source supplied to or obtained by the Employee during his employment and in respect of which Christie + Co or any Group Company is or may be bound by a duty of confidence to any third party.

21.9.2 The restrictions contained in this clause shall not apply to:

(A) any disclosure or use authorised by the Board or required in the ordinary and proper course of the employment of the Employee or as required by a court or tribunal or competent jurisdiction or as required by an appropriate regulatory authority; or

(B) any information which the Employee can demonstrate was known to the Employee prior to the commencement of his employment by Christie + Co or any other Group company or is in the public domain otherwise than as a result of a breach of this clause or breach of an equivalent provision by any other employee of the Group."

The Third Schedule included a map showing the Restricted Area as the land registration counties for which the pursuers' Glasgow office was principally responsible, namely Argyll, Ayr, Bute, Clackmannan, Dumfries, Dumbarton, the Barony and Regality of Glasgow, Kirkcudbright, Lanark, Renfrew, Stirling and Wigtown. The pursuers' Edinburgh office is principally responsible for the remaining land registration counties in Scotland.

 

Discussion

[11] In seeking partial recall of the interim interdict Mr Hardman on behalf of the defender concentrated on (a) the terms of the contract which he submitted imposed too wide restrictions in the context of the scope of the defender's activities as an employee of the pursuers and (b) the balance of convenience. The former challenge involved the construction of the contract and the application to it of well-established principles in relation to contracts in restraint of trade.

[12] In relation to the former argument parties were agreed on the rules which applied to such contracts. I was referred to Scully UK Limited v Lee [1998] IRLR 259, in which the Court of Appeal in the judgment of Aldous LJ summarised the governing principles by reference to the leading cases of Nordenfeldt v Maxim Nordenfeldt Guns and Ammunition Company [1894] AC 535, Mason v Provident Clothing and Supply Company Limited [1913] AC 724 and Herbert Morris Limited v Saxelby [1916] A.C. 688 and to other cases including Home Counties Dairies Limited v Skilton [1970] 1 W.L.R. 526. In relation to restrictions imposed by an employer on an employee, which take effect at termination of employment, the matter may be summarised briefly:

(i) Contractual provisions which restrict the ability of a former employee to carry on his trade or profession must be reasonable both in reference to the interests of the parties concerned and in reference to the interests of the public;

(ii) The public have an interest in economic activity and competition and therefore in allowing a person to exercise his skills and powers to earn a livelihood. An employee has a strong interest in the latter regard. Thus the law will not enforce restrictive covenants where an employer seeks to restrict the former employee to a greater extent than is reasonably necessary to protect his proprietary interest;

(iii) The courts will enforce contracts which protect the employer against the competition of a former employee who may take advantage of interests which the law will protect, namely his employer's trade connection, trade secrets and other information which the employee has obtained confidentially in his capacity as employee;

(iv) Thus an employer may not restrict a former employee from using his skills, aptitude and general technical knowledge which he has acquired while in employment but may impose reasonable restrictions to protect himself against the former employee's use of his knowledge of and influence over the employer's customers and his awareness of the employer's trade secrets or confidential information.

(v) It is necessary to have regard to the nature and character of the business in which the employer and employee have been involved when deciding whether a restriction is reasonable; and

(vi) Where an employee has had access to confidential information and has acquired knowledge of the employer's customers, it may be difficult to identify precisely what is confidential information and who may have been a customer during the employee's period of service. To protect the business connection and confidential information the law in such cases may enforce a restriction against competition which is reasonable in the scope of activities which it restricts, in time and in geographical extent: Turner v Commonwealth & British Minerals Limited [2000] IRLR 114, Waller LJ at paragraph 18 (see also Littlewoods Organisation Limited v Harris [1977] 1 W.L.R. 1472, Lord Denning MR at p.1479, Bluebell Apparel Limited v Dickinson 1978 SC 16, Lord President Emslie at p.29).

[13] While the defender deponed that he had had possession of the pursuers' documents for bona fide reasons in relation to his employment with the pursuers, parties were agreed that the pursuers had pleaded a prima facie case of breach by the defender of his duty of fidelity to his employers. Accordingly, Mr Hardman, in seeking recall, focused on the enforceability of the contractual prohibitions and the balance of convenience.

 

The breadth of the contractual prohibitions

(a) Clause 18.6.1

[14] The defender challenged the breadth of the prohibition in clause 18.6.1 which sought to prevent him taking up or holding any office, employment or consultancy in connection with any business which was engaged or was intended to be engaged in the Prohibited Business within the Restricted Area. Mr Hardman submitted that "business" (where it appears above in italics) meant a company, partnership or other business undertaking and that the prohibition had the effect of preventing the defender from working in any capacity for any business organisation which had as part of its business that which fell within the definition of "Prohibited Business". He also submitted that by reference to the definition of "Prohibited Business" the defender was excluded from carrying out any activity as a chartered surveyor. He explained that while, since 2005, the defender had worked principally as an agent in the care sector, his employment in the agency department had on occasion involved him in buying and selling sites for residential and commercial purposes. In particular he had sold a development site in Dumbarton for residential use in July 2006 and three flats in Glasgow in July 2007 and he had surveyed a development site in Oban in January 2007. He had also advised his colleagues on questions of valuation and had overseen some valuations. Thus, Mr Hardman submitted, the defender had been directly and materially involved in a wider range of activity than the care sector and that the prohibition was accordingly unreasonably wide to protect the pursuers' trade connection in relation to that sector.

[15] I agree with Mr Hardman that the natural meaning of "business" in clause 18.6.1 is that it refers to a business undertaking, but I consider that the pursuers are correct in their interpretation of the clause by reference to Turner v Commonwealth & British Minerals Limited. In that case the Court of Appeal interpreted a prohibition against involvement with "any business which competes with or is likely to compete with any business or project carried on by the company ... at the termination date in which business or project the employee was involved in the course of his employment by the company". The court applied the principle that a contract should be interpreted in a way which made it enforceable if that interpretation were legitimate. It held that the clause restricted an employee from competing with any aspect of the company's business being carried on at the date of the termination in which the employee was actually involved during his employment but not otherwise.

[16] Taking that approach, I consider that the word "business" does not necessarily cover only an entire business undertaking but is open to the interpretation that it extends only to a part of the business structure or activity of such an undertaking. Thus, if the defender were to be employed by a rival undertaking in a division or department of that undertaking which was engaged in the Prohibited Business, the prohibition would bite. If he were to be employed by that undertaking in another division or department which was not engaged in the Prohibited Business, it would not.

[17] In the definition of Prohibited Business in clause 21.4 the contract restricts the prohibition to business in which the employee had been "directly and materially" involved in the course of his employment in the eighteen months prior to the termination of his contract. By so restricting the definition the contract appears to recognise that an employee may have performed various activities in the course of his employment, not all of which are to be prohibited by the restrictive covenant after he ceases to be employed. Businesses and activities in which the employee was only indirectly involved and businesses and activities in which his involvement was not "material" are excluded. In this context I interpret material involvement as an involvement in businesses and activities which amounted to a significant part of his work as an employee in the relevant period. There is a dispute of fact as to the extent of the defender's activities outside the care sector in this period. The pursuers' position, set out in the affidavit of Mr Simon Hughes, was that the defender was employed in the care sector. The defender, as stated above, submitted that he had on several occasions been involved in wider matters. It is not possible to resolve the factual dispute at the interim stage. I am satisfied however that occasional involvement in the provision of advice to colleagues or in the acquisition or sale of sites which were not in the care sector would not amount to business in which the defender was "directly and materially concerned" in the course of his employment.

[18] Thus, in my opinion, the prohibition in clause 18.6.1, which is designed to protect the pursuers' business connection, would not prevent the defender from taking up employment as a chartered surveyor with a competitor of the pursuers in any field other than the care sector in the six month period after the termination of his employment. Having regard to the knowledge which the defender would have acquired through his employment of the pursuers' client base and potential client base, both through his personal contacts with operators in the care sector and also his possession and use of the mailing lists and applicants' lists, the six month prohibition against employment in the care sector is in my opinion not unreasonable.

 

(b) Clause 18.3.1

[19] This clause and the following clauses imposed a twelve month prohibition on the employee.

[20] The defender submitted that the prohibition in clause 18.3.1 was too wide because it prevented him from working in any capacity as a chartered surveyor. I am satisfied that that is not the case. The words "transacted with Christie + Co or any other group company" qualify the term "business". What clause 18.3.1 prohibits is procuring or attempting to procure the transfer of any business transacted with the employer or group company with which the employee had been in any way connected. It is designed to protect the pursuers against the transfer of their existing business with which the employee had been connected. Thus if the employee had been involved in a transaction to acquire or sell a particular care home or site for a care home, he would be prohibited from seeking to procure the transfer of that particular business. If he had not been involved in the transaction of that business he would not be prohibited under this clause. This prohibition is not unreasonable.

 

(c) Clause 18.3.2
[21]
The defender submitted that the clause had the effect of prohibiting him from seeking to induce anyone to discontinue business of any description transacted with his employer. He submitted that this was far too wide: as in clause 18.3.1 the words "with which the employee has been in any way connected" referred to the businesses and not the persons, there was no limitation on the persons covered in clause 18.3.2. The reference to "such person" in clause 18.3.2 meant that it covered everyone. In my opinion that interpretation is incorrect. Clause 18.3.2 seeks to protect the same business connection as that covered by clause 18.3.1, which prohibits procuring or attempting to procure the transfer of existing business transacted with the pursuers or their group companies with which the employee has been connected. Clause 18.3.2 deals not with the transfer of that business but with its discontinuance. As Mr Davies pointed out on behalf of the pursuers, the clause refers to "such person" ... "as aforesaid" and that refers to persons who transacted business with the employer or group company in a context where that the employee had been connected with the business transactions. Again I consider the prohibition to be a reasonable restriction to protect the pursuers' business connection.

 

(d) Clauses 18.4 and 18.5
[22]
These clauses prohibited the employee from either canvassing or soliciting, or carrying on Prohibited Business with any Restricted Customer or Prospective Customer. Mr Hardman's challenge in relation to these clauses rested on his submission that "Prohibited Business" was too wide as it was not confined to the care sector in the context of the defender's circumstances but covered all of the business in which the defender had been involved in the Relevant Period. For the reasons set out in my discussion of clause 18.6.1 in paragraphs [14] - [18] above, I reject that submission. In addition I observe that the definition of "Restricted Customer" and "Prospective Customer" would limit the prohibition to persons with whom the defender had had personal dealings in the relevant period. I consider those clauses to be reasonable restrictions in the circumstances.

[23] Accordingly the challenges to the breadth of the clauses, which found the interim interdict, fail.

 

Balance of convenience
[24]
I am satisfied that the balance of convenience favours the retention of the interim interdict. It appears to me that the nature of the pursuers' business in brokering deals and the market knowledge in relation to the pursuers' client base, which the defender will have acquired through his employment in agency work in the care sector, entitle the pursuers to impose the challenged restrictions to protect their business connection and their confidential information. It is accepted that the pursuers have a prima facie case of breach of the duty of fidelity. There is a factual dispute as to the reasons why the defender had the confidential information in his possession away from the pursuers' premises at a sensitive time. His behaviour called for an explanation which he has sought to give. The contractual restrictions on the defender do not preclude him from working as a chartered surveyor with CBRE or any other organisation in fields other than the care sector. He has experience in other sectors and had specialised in the care sector only in the past three years.

[25] I take account of the facts that there is potentially a dispute about the pursuers' entitlement to terminate his contract of employment and that the defender did not take up the offer of employment by CBRE until after he had been dismissed. I take account of the fact that the defender voluntarily returned the confidential information which he had had at his residence on 3 December 2007. I also have regard to the possibility that CBRE will not continue his employment if he is excluded from working in the care sector until after 6 June 2008. I note that the contract was a standard form contract and the pursuers are a multi-national organisation. But those factors do not outweigh the pursuers' right to protect their business connection or confidential information by reasonable restrictions. I am not persuaded that the unchallenged paragraphs of the interim interdict are sufficient by themselves to protect the pursuers' confidential information.

[26] If once the facts have been determined it is established that the pursuers were not entitled to the interim interdict, it should be possible without great difficulty to calculate the damages which would be due to the defender. If on the other hand the interim interdict were recalled, it would be very difficult to calculate the damages due to the pursuers for any breaches of the restrictive covenants.

[27] In these circumstances I refuse the motion to recall the interim interdict.

 

Order under section 47(2) of the Court of Session Act 1988

[28] On the unopposed motion of the pursuers I grant an interim order for delivery of the documents and property in terms of conclusion 1 of the summons.

 


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