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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Exchange Communications Ltd v Masheder [2009] ScotCS CSOH_135 (01 October 2009)
URL: http://www.bailii.org/scot/cases/ScotCS/2009/2009CSOH135.html
Cite as: [2009] CSOH 135, 2009 GWD 34-579, 2009 SLT 1141, [2009] ScotCS CSOH_135

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OUTER HOUSE, COURT OF SESSION

[2009] CSOH NUMBER135

A434/08

OPINION OF MORAG WISE, Q.C.

(Sitting as a Temporary Judge)

in the cause

EXCHANGE COMMUNICATIONS LIMITED

Pursuers;

against

WILLIAM MASHEDER

Defender:

________________

Pursuers: P. Motion, Solicitor Advocate; bto

Defender: Marney, Advocate; Lindsays

1 October 2009

[1] This is an action at the instance of a company engaged in supplying communications equipment including communication lines and business telephone systems. It is averred that the defender was employed by the pursuers between 31 January 2006 and 30 November 2006 and that his employment was regulated by a contract dated 19 January 2006. That contract of employment contained clauses designed to prevent the defender from using or divulging any confidential information relating to the pursuers' business or finances. It also contained clauses seeking to prohibit the defender from soliciting away business from the pursuers? to those in competition with its business. The contract included a specific restrictive covenant prohibiting employment within the Greater Glasgow area for a period of one year after ceasing to be employed by the pursuers.

[2] The pursuers seek payment from the defender for damages for breach of that contract of employment. Further, it is claimed that the defender infringed the pursuers' database rights under the Copyright and Rights in Databases Regulations 1997 ("the Database Regulations") and damages are sought for that. The action came before me by way of Procedure Roll discussion on the defender's first plea-in-law.

Submissions for Defender

[3] Mr Marney presented his submissions in support of a motion to dismiss the action under three separate chapters. First, he argued that no relevant case was averred under the 1997 Regulations. Secondly, he argued that the confidentiality clause in the contract of employment was too wide to be enforceable and thirdly, he maintained that the restrictive covenant or non-competition clause and the non-solicitation clause did not on the face of the pleadings, meet the test for minimum restraint and should be dismissed.

Copyright and Rights in Databases Regulations 1997
[4] Mr Marney drew my attention to part III of the 1997 Regulations and in particular Regulations 12-16 thereof. Regulation 12, which contains the interpretation provisions defines "extraction" as meaning "the permanent or temporary transfer of those contents to another medium by any means or in any form" and "re-utilisation" as "making those contents available to the public by any means". The case against the defender was that he had extracted and used the pursuers' contact details for a particular entity, Scottish Provincial Press ("SPP"), details of the telephony equipment and related equipment that the pursuers intended to offer SPP as well as the prices and discounts the pursuers intended to offer that company, all in breach of Regulation 16. Regulation 16 provides:

"(1) Subject to the provisions of this part, a person infringes database right in a database if, without the consent of the owner of the right, he extracts or re-utilises all or a substantial part of the contents of the database."

Mr Marney commented that the protection afforded was a statutory right created by the regulations, passed to comply with Directive 96/9/EC. The purpose of the protection provided for in the Directive is to protect the maker of a database. Article 7 of the Directive (96/9/EC) is in very similar terms to the provisions of the regulations quoted above. The wording of the directive has been subject to judicial scrutiny and reference was made to The British Horse Racing Board Ltd and Ors v William Hill [2005] 1 CMLR 15 and Directmedia Publishing GmbH v Albert-Ludwigs-UF [2009] 1 CMLR 7. In the British Horse Racing Board case the European Court of Justice confirmed that even where the maker of a database has made it in whole or in part accessible to the public and has authorised a specific third party to distribute it to the public, the transfer of the contents or part of it to another medium and acts of re-utilisation require the authorisation of the said maker - see paragraphs 6 and 67. The case makes clear that the intention is to give the concepts of extraction and re-utilisation a wide definition - paragraph 51. Protection does not extend to consultation only of a database - paragraph 54. My attention was drawn to paragraph 82 of the decision where it is said that in deciding whether an extraction or re-utilisation is substantial, the alleged infringement must be assessed in relation to the total volume of the contents of the database, quantitively or qualitatively. Mr Marney argued that a pursuer would require to make averments about whether a substantial part of the database had been extracted or re-utilised and one must identify that in terms of quality or quantity compared with the whole. So far as the Directmedia Publishing case was concerned, attention was drawn to paragraph 6 of the court's judgment where it was said that the decisive criterion for infringement was to be found in the existence of an act of "transfer" of all or part of the contents of the database concerned to another medium and that such a transfer implied that all or part of the contents of a database are to be found in a medium other than that of the original database.

[5] Turning to the pursuers' pleadings, Mr Marney submitted that a bold averment that the defender extracted and used the pursuers' contact details for a particular proposed customer, together with details of equipment and prices and discounts did not constitute a relevant case under the 1997 Regulations. He argued that the pursuers must plead what the act of extraction actually was. He contended that the pursuers would have to plead that data was extracted on a particular day or date and how it was extracted and to what other medium it was transferred. It was not in dispute that during the employment relationship the defender had access to the database, but a distinction had to be drawn between information he might hold in his head from having consulted it on the one hand and specifically appropriating data on the other. In any event, he argued that there were no relevant averments of an act of re-utilisation. Under reference to the interpretation regulation (Reg 12) the wrong was making the contents available to the public, which could only mean the public at large. Further, it was said that while the pursuers does have averments about the time spent on the database and money invested in it, that was not sufficient to offer to prove that all or a substantial part of the database had been extracted and re-utilised.

Confidentiality Clause
[6] The defender's contract of employment included, inter alia, the following provisions:

"Restrictive Covenant

Confidentiality

(a) You are aware that in the course of employment you will have access to and be entrusted with information in respect of the business and financing of the company and its dealings, transactions and affairs all of which information is or may be confidential.

(b) You shall not (except in the proper course of your duties) during or after the period of your employment divulge to any person whatever or otherwise make use of (and shall use your best endeavours to prevent the publication or disclosure of) any confidential information concerning this business or finances of the company or any of its dealings, transactions or affairs, or any such confidential information concerning any of its suppliers, agents, distributors or customers."

The pursuers aver in Article 7 of Condescendence that they were not awarded the SPP contract because the defender used confidential information belonging to them. In particular it is alleged that he used the pursuers' contact details for SPP, details of the telephony equipment and related equipment the pursuers intended to offer SPP as well as the prices and discounts the pursuers intended to offer that organisation. Mr Marney argued that the confidentiality provision in the contract of employment was too wide to be enforceable. He referred to a number of authorities. Under reference to Faccenda Chicken Ltd v Fowler and Others [1985] 1 Ch. 117 he said that the Court of Appeal had emphasised the distinction between the duty of an employee not to disclose confidential information and the right of any employee to use his own skill. Five principles were enunciated in that case which remained good law. These were as follows:

(1) Where the parties are or have been linked by a contract of employment, the obligations of the employee are to be determined by the contract between him and his employer,

(2) in the absence of any express term the obligations of the employee in respect of the use and disclosure of information are the subject of implied terms,

(3) where the employee remains in the employment of the employer the obligations are included in the implied term which imposes a duty of good faith or fidelity on the employee although the extent of that duty will vary according to the nature of the contract and the duty of good faith will be broken if an employee makes or copies a list of the customers of the employer for use after his employment ends or deliberately memorises such a list even though, except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer,

(4) the implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret. The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in employment, and in particular may not cover information which is only "confidential" in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith,

(5) in order to determine whether any particular item of information falls within the implied terms so as to prevent its use or disclosure by an employee after his employment as ceased, it is necessary to consider all the circumstances of the case. These include, inter alia the nature of the employment, the nature of the information itself, the extent to which the employer impressed on the employee the confidentiality of the information and whether the relevant information can easily be isolated from other non-confidential information. Restrictive covenants 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.

[7] Mr Marney criticised the express contractual clause in this case because it made no attempt to distinguish obligations prior to termination of the contract of employment from those post its termination. Further, there was no attempt in it to distinguish between "trade secrets" and information, which might be legitimately protected during employment, to that not subject to protection in law on the other. In any event, he maintained that the present contract fails to acknowledge the legitimate right of an employee to apply skill and knowledge acquired during the period of employment after its termination. He referred to Malden Timber Ltd v McLeish 1992 S.L.T. 727. In that case, seven propositions in law had been made by counsel which were accepted by the court and had been followed in subsequent decisions. These were as follows:

1. The covenant in restraint of trade is void unless it is reasonable in the interests of the parties and in the public interest.

2. Covenants between an employer and employee will be viewed more strictly by the court than other forms of covenant where some consideration has passed.

3. For a restraint to be reasonable it must afford no more than adequate protection.

4. An employer is not entitled to seek protection against mere competition from a former employee.

5. An employee may have acquired additional skill and knowledge through his employment but, however, that belongs to him and cannot be protected by the employer.

6. An employee has a duty of confidence but that once employment terminates, the duty is restricted to not disclosing trade secrets and trade information.

7. The proper approach is to ascertain what legitimate interest the employers are entitled to protect and then to see if restraint is required.

Mr Marney contended that a very widely drawn confidentiality clause could not satisfy the requirements set out in Malden Timber case. He referred also to Malden Timber Ltd v Leitch 1992 S.L.T. 757. The propositions referred to above were reiterated in that case. Mr Marney suggested that the analysis adopted by Lord Penrose in that case (at p 763) should be followed. In particular he argued that one must distinguish between the obligation of confidentiality which exists during employment which will be comprehensive and the obligation of confidentiality which an employer will be able to enforce after termination of the contract. Those two classes of confidentiality are distinct and the contract should differentiate between them. It was inappropriate, he went on, for an employer simply to stipulate confidentiality in the contract and leave it to the court to determine. Further, the adoption of very wide terminology leads necessarily to the view that the restraint is more than would normally be allowed.

[8] It was also contended for the defender that a confidentiality clause requires some provision as to time and that the contract under scrutiny had none. In International Computers v Eccleson, Gordon & Street (Lord Gill, unreported, 4 May 2000) there was some criticism of a confidentiality clause in a contract of employment that had no restriction as to time in the absence of specific averments that could justify that. In First Peoples Solutions Group v Jack (Lord Kinclaven, unreported, 27 April 2007, the passage from International Computers criticising the lack of averments supporting a confidentiality clause without restriction of time was referred to with approval. Quite properly Mr Marney also referred to the case of TSB Bank Plc v Connell 1997 S.L.T. 1254 in which Lord Osborne specifically disagreed with the approach taken by Lord Penrose in Malden Timber Ltd v Leitch. In TSB Bank Plc Lord Osborne considered that the lack of a time restriction in a confidentiality clause need not be fatal to the employer's case. He opined that material of the nature of trade secrets could be protected for an indefinite period to time, subject to the survival of that characterisation in the circumstances. Further, the lack of a distinction between the pre and post termination situations was said by Lord Osborne not to be significant. Mr Marney examined the cases of Thomas Marshall v Guinle [1979] C.H. 227 and Lansing Linde Ltd v Kerr [1991] 1 W.L.R. 251 referred to by Lord Osborne and submitted that neither altered the basic rule that clauses should provide no more than necessary protection.

[9] Criticism was made of the pursuers' pleadings in relation to the confidentiality aspect. In Article 8 of Condescendence it is clear what the confidential information was said to be, but Mr Marney contended that the pursuers failed to aver what exactly the defender did with that confidential information, when he took it and how he used it. It was argued that the pursuers cannot inhibit the use of "know how" that the defender might carry in his head. The averments were too general to be relevant. Finally under this chapter, reference was made to Lux Traffic Controls v Healy 1994 S.L.T. 1153 where the propositions approved in Malden Timber Ltd v McLeish were again cited with approval. In Lux the employers had failed to separate trade secret knowledge from general knowledge that the employee might have.

Non-competition clause and non-solicitation clause
[10] The non-solicitation clause in the defender's contract of employment stated the following:

"Non- Solicitation
You covenant with the Company that you will not for the period of one year after ceasing to be employed under this contract without the proper written consent of the Directors in connection with the carrying on of any business, similar to or in competition with the business of the construction of communication lines on your own behalf of any person, firm or company directly or indirectly:

(a) Seek to procure from or do business with any person, firm or company who has at any time during the one year preceding the termination of your employment with the Company done business with the Company, and with whom or with which you were personally engaged or for which business you were personally responsible;

(b) Endeavour to entice away from the company any person who has at any time during the one year immediately preceding such cesser being employed or engaged by the company

Provided that nothing in the clause shall prohibit the seeking or procuring of orders or the doing of business not relating or similar to the business described above."

[11] The non-competition clause provided as follows:

"Non-Competition
You covenant with the Company that you will not within Greater Glasgow area and for the period of one year after ceasing to be employed without the prior written consent of the directors either alone or jointly with or as manager, agent, consultant or employee of any person, firm, or company directly or indirectly carry on or be engaged in any activity which shall be in competition with the business of the construction of communication lines."

[12] Mr Marney submitted that while a non-solicitation clause may properly seek to protect goodwill, there is no general right to protect against competition. Parties' pleadings would have to spell out why a non-competition clause was necessary by reference to the legitimate interest sought to be protected.

[13] So far as the duration of the clause was concerned, Mr Marney queried why the non-competition clause should subsist for a year. He argued that a lesser period would fulfil the requirement of adequate protection. He submitted that the greater the restraint in time or area or business affected the more it must be justified. The specific terms of the clause prohibiting competition in the Greater Glasgow area for a period of one year in any activity or business directly in competition with the business of construction of communication lines lacked appropriate definition. It was pointed out that on their own averments the pursuers are suppliers of communication equipment and lines thus the clause does not give them the protection they seek and is too vague to be enforceable. Further it was argued that the geographic restriction was not justified by averment and was not adequately defined, there being no common understanding of what the Greater Glasgow area is. In summary it was submitted that the test of minimum restraint was not met.

[14] So far as the non-solicitation clause was concerned, again the period in question was a year. Reference was made to the disjunctive "or" in the expression "similar to or in competition with the business ...". It was argued that the pursuers have no legitimate interest in prohibiting similar business nor any right to protect other businesses, only their own. In short, it was said that the clause was far too wide. In any event, in sub-paragraph (a) Mr Marney queried what the expression "done business with" meant. He argued that it was unclear whether "doing business with" required a transaction of some sort and suggested that it could go beyond mere solicitation. In the event that I did not consider that the clause was unenforceable through ambiguity Mr Marney argued that in any event there were no averments on record to justify why one year's non-solicitation was appropriate. He acknowledged that such a clause would be legitimate if it could be said that it was designed to protect goodwill alone but again the period of one year without explanation was questioned.

[15] Mr Marney reiterated his motion for dismissal of the action.

Submissions for Pursuers
[16] Mr Motion for the pursuers urged me to refuse the defender's motion and allow a proof before answer on all matters. Again he divided his arguments into three sections similar to those presented by Mr Marney.

Copyright and Rights in Databases Regulations 1997
[17] Mr Motion submitted that the pursuers have done what they can to plead a case in accordance with the guidance in the case law and the regulations. He referred to the pleadings in some detail. In particular, at page 7 he noted that an averment had made for the pursuers that they require to protect themselves against unlawful misuse of their confidential information, such as that contained in their databases, by former employees such as the defender. He drew my attention also to averments in Article 3 of Condescendence which offer to prove that the pursuers' experience has been that their customers wish to renew their telephone systems and IT systems at intervals of every five or ten years or longer according to the customers' preference. The pleadings go on to narrate the information contained in the pursuers' database. Mr Motion argued that such averments gave rise to an inference that the period of time over which protection was required could not be defined. In Article 5 of Condescendence the pursuers aver that the defender was supplied with highly sensitive confidential information over and above that which would be given to other staff. In particular he was allowed access to more than one core database. Details of both the core database and second database to which he had access are set out. In Article 6 of Condescendence there are detailed averments offering to prove that the pursuers have invested substantial amounts of time and capital in obtaining materials and collating their database. Specific costs and costs, including salary costs, of that are narrated. Details are given of what the defender is said to have extracted from the database. In Article 7 of Condescendence it is specifically averred that data relative to SPP began to be entered into the pursuers' database on 7th September 2006 and that a proposal document for the potential client SPP was drawn up. In Article 8 of Condescendence the sequence of events that led to the pursuers' understanding that they were to be awarded the contract with SPP is averred and in Article 9 of Condescendence it is averred that the organisation for which the defender left the pursuers to work had won the order from SPP because the defender used confidential information belonging to the pursuers or copied from their database. Mr Motion argued that these averments were sufficient to state a relevant case under the regulations. He referred me to a recent decision of the Fourth Chamber of the European Court of Justice Apis-Hristovich EOOD v Lakorda AD C-545/07 (CJ Fourth Chamber 5 March 2009). In that case the court had reiterated that the Directive ought to be given a broad interpretation as referring to any unauthorised act of appropriation of the whole or part of the contents of a database and states in terms that the nature and form of the process used was immaterial. Further, the court made clear that acts of temporary transfer would be covered within the concept of extraction (paragraph 42) and that there was no de minimus rule in relation to the gravity of any infringement (paragraph 43). Mr Motion argued that it could not be necessary to say when exactly material was extracted and the court in Apis-Hristovich indicated that the time could be inferred as being the time at which the materials extracted were placed on a medium other than that of the original database (paragraph 45). Further, the court had indicated that the size of the contents of the database into which material from a protected database had been transferred was of no relevance in assessing the substantial nature of the part of the contents of the latter database affected by the alleged extraction (paragraph 60). Thus Mr Motion argued it was not necessary to aver the relative size of either database. He disagreed with any suggestion that the pursuers had to make a choice between whether they said that the material extracted was qualitatively or quantitatively substantial That would be a matter for proof in due course. All that mattered was that they had averred the importance of the database to them and that the material extracted was part of that. In summary, Mr Motion submitted that taking all of the averments for the pursuers together, it could never be said that the case under the 1997 Regulations would necessarily fail even if they were all proved.

Confidential Information
[18] Mr Motion submitted under reference to Herbert Morris v Saxelby [1916] A.C. 688 at 700 that issues about covenants in restraint of trade would ordinarily be dealt with at proof after the facts and circumstances for and against reasonableness of the provision in question had been ascertained. (See page 700). In this case the defender had ceased to be employed by the pursuers in 2006 and he has been working for a competitor since then. It would be somewhat unrealistic to deal with the matter without proof. Similarly, under reference to Terrapin v Builders Shipping Co (Hayes) Ltd 1960 R.P.C. 128, it could be seen that questions of whether information was confidential could be a mixed question of fact and law, again that could only be determined after proof.

[19] While there were no pleadings about implied terms of confidentiality, Mr Motion argued that even if the express term used in the contract was not enforceable, the court could rely on there being an implied term of any contract of employment not to misuse confidential information. It was accepted that it could be difficult to distinguish between information obtained in the course of employment and a trade secret. Mr Motion relied on Thomas Marshall v Guinle [1978] 3 W.L.R. 116 where it was said that some costs and prices which are not generally known may well constitute confidential information. Here the pursuers offered to prove that the defender drafted a tender/proposal document for SPP. That proposal document has been produced and incorporated into the pleadings. It was clear from production 6/4 and 6/5 that the information contained therein was confidential, especially in relation to pricing. While it was accepted that trade secrets may be short lived, Mr Motion said that if the pursuers could show that the SPP information was part of a package, some of which was not confidential, it was sufficient for his purposes that there were confidential parts. It was also pointed out in relation to the absence of a limit of time to the confidentiality clause that the pursuers were offering to prove that the proposal in question was made within 2‑3 months of the defender leaving the pursuers' employment. It would not be reasonable to expect the pursuers to carry out an audit of their business with a view to providing time limits on confidentiality clauses for different parts of what they did. Mr Motion refuted the suggestion that there was something objectionable per se about a confidentiality clause without limit of time. Much of the case law was concerned with interim interdicts but in this case where the court has the luxury of time, the facts should be established before any decision was made about the enforceability of the confidentiality clause. A number of cases were cited in support of a contention that the scope of a confidentiality provision and whether or not it had been breached could not be determined without proof, including LAC Minerals Ltd v International Corona Resources Ltd [1989] 2 S.C.R. 574 and Harben Pumps (Scotland) Ltd v Lafferty 1989 S.L.T. 752.

[20] It was pointed out that in the Malden Timber Ltd v McLeish case, the court had used terms implied by law given that the express term in the contract had been unenforceable. So far as TSB Bank Plc v Connell was concerned, Mr Motion argued that this was properly decided. He noted that Lord Osborne had also indicated in that case that the issue of whether or not the information was in the category of a trade secret could only properly be determined after proof.

[21] Mr Motion accepted under reference to the decision in International Computers v Eccleson, Gordon & Street that there was an exacting onus on a petitioner or pursuer of demonstrating that a confidentiality clause without limit of time was reasonable in the circumstances. In this case, he argued, the pursuers have pleadings sufficient to justify that. He pointed to averments in Article 3 of Condescendence as to the nature of the pursuers business. In particular, there were averments about the length of time they had been trading, their customer loyalty, their standing in the business community and the extent to which their original customers had remained with them. Details of the business model they operated were set out. Having regard to all of that, it could be seen that the pursuers were offering to prove that in the particular context the confidentiality clause in question was fair and reasonable. In First Peoples Solutions Group v Jack (Lord Kinclaven, unreported 27 April 2007, there had been criticism about a failure to specify the confidential information that was the subject of the petition with sufficient precision. This case was distinguishable according to Mr Motion because there was a very specific reference to a tender or proposal document which contained the confidential information in question.

Non-solicitation and non-competition clauses
[22] So far as the geographical restraint argument was concerned, Mr Motion argued under reference to Nordenfelt v Nordenfelt The Maxim Nordenfelt Guns and Ammunition Company Limited 1894 AC 535 at 575 that the generality of time or space would always be an important factor in the consideration of reasonableness though not per se a decisive test. In this case where the restriction was to the Greater Glasgow area, this could be easily defined according to post codes and the concept was effectively within judicial knowledge.

[23] So far as the non-solicitation clause was concerned, it was pointed out that it was not directed at all those with whom the company has done business but rather those with whom the defender was personally engaged. The restriction was narrowed down also by the clarifying statement at the end which made clear that any other type of business not covered by the substance of the clause was permissible.

[24] Mr Motion drew my attention to certain aspects of the defender's contract of employment with the pursuers. His remuneration was made up of salary and commission at 12% of the gross profit of the sale of a telephone system. There is an admission on record that the defender now works for Digital IP, a competitor company. The pursuers, he said, have properly and clearly protected themselves in relation to a specific area of their business and it is a matter for proof whether or not the defender's breach fell within it.

[25] The incorporated document 6/4 of process made clear that the tender or proposal in question involved the development or creation of communication lines. In Ploughman v Ash [1964] 1 W.L.R. 568 a restrictive covenant for prohibiting the employee carrying out the employer's business of distributing animal feeds for a period of two years post-termination within a 20 mile radius was held to be reasonable. In Littlewoods Organisation Ltd v Harris [1978] All E.R 1026 a mail order company was found entitled to the protection of a reasonable covenant restraining a former employee from going to work for a rival in the mail order business for a period of one year after he had left their employment. In the Littlewoods case, the Court of Appeal also suggested that where a covenant in restraint of trade could be construed in a way which was not unreasonably wide, that should be done. In Bluebell Apparel Ltd v Dickenson 1980 SLT 157 it was held that a restrictive covenant prohibiting employment with a competitor for two years post termination anywhere in the world was in the circumstances of the business concerned, acceptable. In that case the First Division noted the combination of restrictions regularly sought in contracts of employment protecting against the use or disclosure of trade secrets by a former employee together with a separate restriction prohibiting him from entering the service of a competitor. The question was always said to be whether the restriction imposed was wider than was necessary or reasonable for the protection of the employer.

[26] Mr Motion sought to distinguish the case of Lux Traffic Controls Ltd v Healy 1994 S.L.T. 1153. In that case the petitioners had not specified the parts of the information that were separate from knowledge the employee could reasonably have acquired during the course of his employment. In the present case, a detailed list was given at the end of Article 6 of Condescendence of the specific information that fell foul of the clause under discussion.

[27] Mr Motion then referred to the Court of Appeal decision in Donnay, Day & Co Limited and another v D'Alphen and others [1998] ICR 1068. In that case it was made clear that the categories of case in which covenants in restraint of trade were enforceable were neither rigid nor exclusive and included any case where the covenantee had a legitimate interest of whatever kind to protect and where the covenant was no wider than was necessary to protect that interest. It was also said there that the court requires to apply the test of reasonableness to the facts and circumstances of the particular case - see page 1106. In International Consulting Services (UK) Limited v Hart [2002] I.R.L.R. 227, a case also involving the telecommunications sector, a non-solicitation clause restraining a former employee for a period of 12 months from termination from dealing or contracting with any company with whom any employer had been in negotiations for the supply of services of the type with which the employee was concerned if the employee or one of his subordinates had dealt with that person, was held not to be too vague to be enforced. It was noteworthy, according to Mr Motion, that the decision on enforceability was taken after trial. He argued that there was a clear analogy with the "doing business" reference in the defenders contract.

[28] Reference was then made to Axiom Business Computers Limited v Kenney (Lord Bracadale, 20 November 2003, unreported). That case involved a motion for recall of an interim interdict. The petitioners were a company engaged in the development and sale of computer software programmes to commercial customers. The respondent had been a technical services director with the company. Her contract imposed prohibitions on seeking or accepting employment with any of the petitioners' competitors in the field of computer systems for a period of one year after termination of employment, together with a prohibition for eighteen months after termination from seeking to transact business with any of the petitioners' customers in respect of the provision of any goods, services or facilities in which they were involved. Customers in that context were those with whom the petitioners had concluded business transactions or those with whom the respondent had already had dealings, whether or not such dealings had resulted in the conclusion of a business transaction. In Axiom, Lord Bracadale found that that part of the clause which prohibited employment with a competitor for a period of one year without any territorial restriction whatsoever was too wide and thus unenforceable. It was said that the court recognised a particular concern with respect to the solicitation of customers but had been seen to be more reluctant to uphold a restraint on employment. The latter would be justified only if it was considered necessary to protect trade secrets and/or the customer base of the employer. As far as the non-solicitation covenant in Axiom was concerned, the court accepted that it was legitimate to protect in the contract the interests of the petitioners with respect to negotiations they had had with potential customers. There was reference to the nature of the business involved in that case being such that significant time and resources were invested in negotiations with a view to forming a relationship. It was said also to be important to take into account the continuing nature of the service provided by the petitioners. Where the intention of the clause in question was to protect the present customers of a company and those who have been customers during the employment by it of the respondent it was legitimate for the company to seek to protect their business connections. In those circumstances the clause prohibiting solicitation of business with any of the company's customers for eighteen months after termination was not thought to be unreasonably wide - see paras 29-33.

[29] Mr Motion pointed out that the non-solicitation clause in the present case was there, on the averments of the pursuers, to protect their relationship with longstanding customers of the company who placed new orders, maintenance contracts and the like. The relevant distinction between Axiom and the current case was of course in relation to the restrictive covenant as there was a clear territorial restriction in this case.

[30] Willow Oak Developments Limited v Silverwood and others [2006] C.W.C.A. 660 was cited as another example of a concern about territorial restriction that was country-wide which was said to be too much but again there could be said to be no such complaint here given the specific reference to the Greater Glasgow area. In Beckett Investment Management Group Limited v Hall [2007] IRLR 793 a clause in the contract prohibiting an employee in the financial services sector from, inter alia, dealing or attempting to deal with any relevant client of the employer for the purposes of supplying prohibited services to them for a period of twelve months immediately following termination was considered. It was pointed out that the word "deal" in that context was said to mean "do business with" - para 12. The Beckett case was also referred to for its citation of the test for severing an unenforceable provision from an otherwise enforceable contract. As Mr Marney had conceded that the three clauses in question were severable the pursuers' esto position was that if any of the clauses were found to be unenforceable at this stage, the unenforceable clause or clauses could be removed - see paragraph 40. Mr Motion then went on to address me further on the clauses in turn.

Confidentiality
[31] It was submitted that the restraint in the contract in this respect is valid and enforceable and goes no further than is necessary, Herbert Morris v Saxelby (cited supra). Particular reliance was placed on Lord Osborne's approach in TSB Bank v Connell 1997 SLT 1254. It was noteworthy that that case had involved a Procedure Roll discussion where the outcome had been the allowance of proof before answer. It was in that context that Lord Osborne had indicated that the question of whether information was in the category of a trade secret could only be dealt with ordinarily after proof (page 1260B) and the lack of a time restriction in the confidentiality clause in that case being said not to be fatal had to be seen in that context. So far as the decision of Lord Gill in International Computers Limited v Eccleson Gordon and Street was concerned it was contended that the decision was not authority for the proposition that a confidentiality clause without restriction of time was always unenforceable. Under reference to Malden Timber Limited v McLeish 1992 SLT 727 at 734 it was submitted that the pursuers in this case were not seeking to extend the usual doctrine beyond reasonable bounds.

Non-solicitation and non-competition

[32] Mr Motion concluded by reiterating that these clauses were no wider than was necessary for the protection of the employers. He urged me to take a pragmatic approach. He said that it was important that the non-solicitation clause was restricted to those that the defender had had dealings with. In all the circumstances the court ought to remit this case for a proof before answer.

The defender's reply
[33] In reply, Mr Marney pointed out that as Mr Motion had quite candidly accepted that it was not within the pursuers knowledge whether or not the defender had placed the data said to be removed onto another medium then he could not support the proposition that a transfer had taken place so far as the database regulations were concerned. He argued that it was not appropriate to seek to prove that case by inference. It was said that there was nothing in the Apis case which affected the earlier cases cited by him.

[34] So far as confidentiality was concerned it was argued that it could not be said that even if the express clause was too wide there could be a proof on an implied term because if the clause was found to be too wide and deleted there would be no averments at all for proof on that matter.

[35] On the issue of the non-competition clause, Mr Marney submitted that I ought to consider how the words ought to be construed at the time. The pursuers' averment is that they are the suppliers of communication equipment. He maintained that there was a stark inconsistency between what the pursuers say they do and what the contracts says.

[36] So far as Lord Gill's opinion in the International Computers Limited case was concerned Mr Marney argued that it should be noted that what was said in that case in plain terms was that it was a very high onus indeed to have a confidentiality clause without limit of time. He said there was little to be gained by looking at examples of cases where twelve months restriction on employment was approved. He urged me to consider the general principle that no more protection could be imposed than was reasonably necessary.

[37] Mr Marney accepted that each clause was severable from the other although repeated his argument that each was void through unenforceability.

[38] Finally, Mr Marney pointed out that in the Axiom case, the employee in question had been the most senior member of staff of the company and care should be taken in using it as an analogy because, as he put it, "context is everything in these cases". He also suggested that many of the implied term cases referred to by Mr Motion were irrelevant to the discussion before the court.

Discussion

[39] I propose to address first the argument in relation to the three clauses of the contract on confidentiality, non-solicitation, and non-competition before considering the more unusual issue of the Database Regulations.

[40] In considering the restrictions imposed by this contract as a whole, I have no difficulty in adopting the seven propositions in law that were made by counsel and accepted by the court in Malden Timber v McLeish 1992 SLT 727. The issue that arises in this case is whether the restraint sought to be imposed by these clauses seeks to provide more protection for the pursuers than is necessary or adequate. This requires investigation into the legitimate interest the pursuers are entitled to protect.

[41] I acknowledge that the confidentiality restrictions in this particular contract are without limit of time. In the absence of specific averments to justify that, I would be slow to regard these restrictions as enforceable. However, Article 3 of condescendence contains a number of averments about the pursuers' trading record and market rating. The particular reference to the nature of their customer base and their particular business model might, if proved, justify the absolute restriction on the disclosure of confidential information about the company by a former employee without limit of time. The pursuers make a specific averment that having regard to the nature of their business, it is neither appropriate nor possible to limit in time the restraint in respect of confidential information. In my view it would be artificial to determine the issue of enforceability without a proof. The cases of TSB Bank Plc v Connell and International Computers v Eccleson Gordon and Street are consistent with this approach. In the former, the court considered that the lack of a time restriction in a confidentiality clause need not be fatal to the employer's case and that it would be a matter for proof. In the latter, Lord Gill criticised the lack of a time restriction in the confidentiality clause in the absence of specific averments to justify it but did not conclude that it could never be so justified. In this case, I consider that it would be going too far too fast to conclude at this stage in the proceedings that the confidentiality clause goes beyond what was necessary to provide adequate protection without giving the pursuers the opportunity to prove some of the circumstances that they aver to justify such an onerous restriction. There is sufficient in the pursuers' pleadings to give notice to the defender of the aspects of the clause that he is alleged to have breached. In particular, it is said that he was supplied with information concerning potential sales prospects, including incoming "hot leads" obtained by the pursuers from their telephone sales staff, website and other sources. It is also averred that he was given access to highly sensitive confidential information about the business that sales staff were not permitted to see including details of revenues generated from each customer, the contracts for which the customers had signed up with dates for recurring contracts and renewals and the terms upon which the pursuers had offered or were considering offering the customers. The proposal documents that have been produced and incorporated into the pleadings appear to include confidential information about pricing. On the face of it, that is all information that could be of significant interest to a competitor of the pursuers and could not in any sense be characterised as "know how" of the industry in question.

[42] Turning to the non-solicitation and non-competition clauses, a significant attack was mounted in relation to the duration of one year for each of these. In my opinion, without enquiry into the facts, it cannot be said that a period of less than a year would fulfil the requirement of adequate protection in this particular case. While I accept that all of the cases cited as examples of periods of restriction that were found to be appropriate are no more than that, it seems to me that, as counsel for the defender himself put it, that "context is everything". Until the pursuer proves the averments in relation to the nature of the business and its customer base, one cannot judge whether or not said that a particular period of time for non-solicitation and non-competition is too restrictive. So far as the other criticisms about the non-solicitation clause are concerned, I am of the view that the term "doing business with" is well understood as involving creation or maintenance of a business relationship. It may or may not include entering into a transaction depending on the circumstances. I tend to agree with Mr Motion that the restriction at the end of the non-solicitation clause further clarifies that only the business of the company with which the defender personally was involved in or was responsible for is covered by it.

[43] In relation to the geographical area covered by the non-competition clause, I regard the term "Greater Glasgow area" as being one that is easily understood and identifiable, in the same way that "Greater London" or "the City of Edinburgh" would be. A degree of common sense is required in approaching this term of the contract. The pursuers aver that they have a place of business in Kirkintilloch, Glasgow, G66 1LF. Clearly that address is within the Greater Glasgow area, albeit not within the city centre. I cannot say on the basis of the pleadings and arguments before me that such a geographical restriction would be void through ambiguity. In the context of who the pursuers are and where they operate, there seems to me to be nothing, on the face of it, that is objectionable in that part of the non-competition clause.

[44] In summary, I am not persuaded by any of the arguments presented by counsel for the defender that any of the three express clauses in question are on the face of it so wide as to be unenforceable without the need for enquiry.

[45] Turning to the issue of the 1997 Database Regulations, the decision is more finely balanced. The pursuers do have detailed averments in Article 6 of condescendence about the amount of time and capital they have spent in collating the database, including the employment of certain individuals to manage it. They do not aver in terms how significant a part of that database the information allegedly extracted by the defender was, albeit that by referring to Regulation 16 of the 1997 Regulations they must be taken as offering to show that "all or a substantial part of the contents of the database" are involved.

[46] It is noteworthy in this context that a breach of Regulation 16 may occur by the act of extraction of the material alone. Reutilisation is a separate breach which may or may not follow on from an unlawful extraction. Accordingly, if the pursuer has made averments of extraction of information from the database that may be sufficient, if proved, to establish the breach. In this context, nothing in the cases cited to me from the European Court of Justice supported the rather restrictive interpretation of the Regulations suggested by Mr Marney. In the case of Apis-Hristovich EOCD v Lakovda AD C-545/07 (CJ14, 5 March 2009) it is clearly stated that the concept of extraction must refer to "....any unauthorised act of appropriation of the whole or a part of the contents of a database, the nature and form of the process used being immaterial." The earlier cases of The British Horse Racing Board and Ors v William Hill [2005] 1C.M.L.R.15 and Direct Media Publishing GmbH v Albert-Ludwigs-UF [2009] 1C.M.L.R. 7 were cited in support of that statement.

[47] Against a background of averments about the constitution of the pursuers' database and the defenders access to it, the pursuers offer to prove that the defender extracted and used the pursuers contact details for Scottish Provincial Press, plus details of the telephony equipment and related equipment the pursuers intended to offer SPP as well as the prices and discounts the pursuers intended to offer that organisation. They seek to infer that he did so by copying the information from the database as the precise means of extraction is not known to them and so cannot be averred.

[48] Having considered this matter carefully, and bearing in mind that the alleged breach of the 1997 Regulations arises out of the same set of circumstances as the alleged breach of the contractual clauses discussed above, I do not consider it appropriate to exclude this part of the pursuers' claim from probation. In my view it is sufficient that the pursuers offer to prove the breach of a specific Regulation and to identify the particular material from the database that they wish to prove was extracted by the defender. The clear aim of the Regulations and the Directive they implement is to protect those who have applied time and resources and effort to collating data often with significant commercial importance. It cannot be said that, even if the pursuers prove all of the averments they make in connection with the alleged breach of the 1997 Regulations this aspect of their claim would necessarily fail. Accordingly, on balance, I consider that this aspect of the claim should also be sent for a proof before answer.

Decision
[49] For the reasons given above, I propose to allow a proof before answer, leaving the defender's first plea-in-law standing.


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