Judgment Title: Net Affinity Ltd -v- Conaghan & Ors
Composition of Court:
Judgment by: Dunne J.
Status of Judgment: Approved
Neutral Citation Number:  IEHC 160
THE HIGH COURT
2011 1574 P
NET AFFINITY LIMITED
REVMAC LIMITED TRADING AS AVVIO
JUDGMENT of Ms. Justice Dunne delivered the 22 day of March 2011
The plaintiff in theses proceedings has sought a number of injunctions against the first named Defendant (Ms. Conaghan) and the second named Defendant (Avvio) at an interlocutory hearing before me. The relief sought on the notice of motion issued herein on the 17th February, 2011 and which came on for hearing before on the 10th March, 2011, is as follows:-
2. An injunction restraining the second named defendant from engaging or employing the first named defendant for a period of twelve months, or such suitable period as to this Court shall appear appropriate;
3. An injunction restraining the second named defendant from using the materials, documents, confidential information of the plaintiff in the conduct of its business;
4. An injunction restraining the first named defendant from commence (sic) or assist any competing individual, company or entity for a period of twelve months or such suitable period as to this Court shall appear appropriate;
5. An injunction restraining the first named defendant from soliciting any existing customers of the plaintiff or customers who have been such in the last six months, to do business with the second named defendant or any other competitor of the plaintiff for a period of twelve months;
6. An injunction restraining the first named defendant from discussing or disclosing any information of a confidential nature and/or the intellectual property of the plaintiff such as business information, secrets, secret processes, methods of manufacture, prices, accounts, dealings, transactions, affairs and other information relating to the plaintiff with the second named defendant or any third party;
7. An injunction restraining the second named defendant from discussing or disclosing any information of a confidential nature and/or the intellectual property of the plaintiff such as business information, secrets, secret processes, methods of manufacture, prices, accounts, dealings, transactions, affairs and other information relating to the plaintiff with the first named defendant or any third party;
8. An injunction requiring the first named defendant and/or the second named defendant to deliver up and return to the offices of the plaintiff all documents, materials and related files, articles and copies in their possession, power or control which contain information or data of or relating to the business and to clients of the plaintiff, to include material in hard copy and/or in digital format including inter alia, memory sticks and any other devices holding and storing data relevant to the plaintiff’s business.”
Ms. Conaghan joined net affinity in or around the 31st August, 2009. She had previously worked in the recruitment business and had extensive contacts in the hotel and hospitality industry. Ms. Conaghan on taking up her employment with Net Affinity was subject to a contract of employment which was signed by her and Mr. Cotter on the 31st August, 2009. One section of that contract of employment has been at the heart of these proceedings and for that reason I propose at this stage to set it out in full. In a clause headed “Confidentiality” the following appears:-
You must return to the company upon request and in any event upon the termination of your employment all documents and things belonging to the company which contain or refer to any confidential matters which are in your possession or control.”
It is a fundamental part of the case made by Net Affinity that Ms. Conaghan was at all times aware of the importance of the confidentiality clause. This is a reasonable view on the part of Mr. Cotter having regard to the Affidavits sworn herein.
According to the grounding affidavit of Mr. Cotter Avvio is one of his main competitors in the market and indeed he goes so far as to describe Avvio as the dominant player in the market. He stated that Avvio has around 700 clients and over 85% of the five star hotel market in Ireland and has approximately 40 employees. The plaintiff has 95 clients and 10 employees. In the grounding affidavit he described how he has positioned the plaintiff company as an expert in the area of new social media for hotels including Facebook and Twitter. He described a social media module which has been added to the booking engine that the plaintiff sells to hotels. He stated that it was a module unique to Net Affinity which has yet to be replicated by its competitors. He said that he has developed Net Affinity as an expert in training to assist hotels in increasing their business using new social media and that he trained Ms. Conaghan in the technical skills and knowledge to drive this aspect of the business. He claimed that Net Affinity had progressed faster than Avvio in that area.
On Monday the 14th February, 2011, Ms. Conaghan went to Mr. Cotter and informed him that she was going to work for Avvio. That announcement precipitated a chain of events that has culminated in theses proceedings.
Mr. Cotter in the affidavit grounding this application stated that Ms. Conaghan had a conversation with him for about 15 minutes and then left the office and premises. He stated he did not have a chance to find out the details as to when she was going to work for Avvio. He noted that she was required to provide four weeks notice but went on to say that he believed that she has gone or had plans to go immediately for work for Avvio. That averment was repeated subsequently in that affidavit, even though Mr. Cotter exhibited the letter of the 14th February, 2011, in which Ms. Conaghan formally tendered her resignation and gave one months notice. She added in that letter:-
There is a conflict on the affidavits before me as to what occurred on the 14th February, 2011, when Ms. Conaghan submitted her resignation to Mr. Cotter. In her second replying affidavit, Ms. Conaghan gives her account of what occurred on that day. According to her, having dealt with various matters that she was required to do by way of a “debrief”, she had a conversation with Mr. Cotter in which he asked her where her keys were and she asked him if he wanted her to leave at that stage. He confirmed that he did.
In his fourth affidavit, Mr. Cotter deals in more detail with the circumstances in which Ms. Conaghan left. It is not possible for me in the course of this application to resolve the conflict between Mr. Cotter and Ms. Conaghan as to the precise details of what occurred on that morning. However, it does seem to me as a matter of fact that Ms. Conaghan notified Mr. Cotter on that morning both orally and in writing that she was resigning, that she gave four weeks notice and that it was Mr. Cotter who asked her to leave that day and not to work out her notice. It is also fair to say, having regard to the affidavits and material before me, that Ms. Conaghan had anticipated correctly that she might not be asked to work out her notice and in that context she had taken steps to ensure that she was in a position to leave as and from the 14th February, 2011. I reiterate that I am at somewhat at a loss to understand why Mr. Cotter came to the conclusion, which he clearly did, that Ms. Conaghan was going to start work immediately for Avvio. No doubt, this is something that can be clarified at the full hearing of these proceedings in due course.
At the time of leaving the offices of Net Affinity, Ms. Conaghan left behind her work laptop computer and her work mobile telephone.
Mr. Cotter was clearly concerned about the circumstances in which Ms. Conaghan left his employment and in particular was concerned by the fact that she had informed him that she was going to take up employment with Avvio, a major competitor of Net Affinity. He has described Ms. Conaghan as a pivotal person in his company. She had originally been taken on as a business development manger and was subsequently promoted around June 2010, to the position of head of client development. Mr. Cotter described her as being a person within the organisation occupying the No. 2/3 key position with the company. He stated that Ms. Conaghan knows everything about the plaintiff’s business, its clients, its sales figures, proposals, service agreements, the renewal dates on the service agreements, its important clients, its competitive strategy and details of plans to enter the UK and European Markets. He added that she knows the plaintiff’s strength and weaknesses and would assist Avvio to exploit those. Mr. Cotter in his grounding affidavit went on to explain his fears in relation to the prospect of Ms. Conaghan going to work for Avvio. He stated in his affidavit as follows:-
Following the departure of Ms. Conaghan from the premises of Net Affinity, Mr. Cotter consulted his solicitors. A letter was sent to Ms. Conaghan on the 15th February, 2011, and a similar letter was sent to Avvio. The letters set in train a torrent of heated correspondence between the parties and have resulted in a number of interim applications to the court prior to the hearing before me. Apart from the general issue of the non-compete clause and the issue of confidentiality, issues arose in relation to what I will broadly describe as computers and the storage of electronic data. Those issues have led to a forensic investigation of laptops and electronic storage devices used by Ms. Conaghan. Before dealing with those specific issues I want to refer briefly to the letter of the 15th February, from Merrion Legal, Net Affinity’s solicitors, to Ms. Conaghan. That letter set out the entirety of the confidentiality clause contained in the contract between Ms. Conaghan and Net Affinity. It went on to emphasise the obligation of confidentiality of information and referred also to the non-compete clause. A number of demands were made of Ms. Conaghan and it is necessary to refer to those. She was called upon to ensure that she would return any and all documents, materials and items electronic or otherwise which related to Net Affinity or which were obtained pursuant to her relationship with Net Affinity and the letter went on to indicate items that were at issue including, inter alia, client listings, client information, pricing information, marketing and strategy documentation and information, financial and budgetary information. The letter then went on the following terms:-
Immediately withdraw your threats to assist and/or become engaged or employed by Avvio for a period of twelve months;
Immediately withdraw your actions and threats to our clients to use its materials, documents, confidential information and related items;
That you will not commence or assist any competing individual, company or entity for a period of twelve months;
That you will deliver up and return to our offices all documents, materials and related files, articles and copies in your possession, power or control which contain information or data of or relating to our client.”
As I have said a similar letter was sent to Avvio. Her reply was sent by letter dated the 17th February, 2011, by Thorntons, Solicitors, acting on behalf of the two defendants. In that letter it was indicated that Ms. Conaghan was not motivated to exploit the commercially sensitive information obtained by her with Net Affinity Limited and that Avvio had no desire to injure or impede Net Affinity in any way. It was also indicated that Avvio would never receive, use or handle confidential information from a third party. It was stated that:-
These proceedings were issued on behalf of the plaintiff and an application was made ex parte before Laffoy J. on Thursday the 17th February, 2001. Interim orders were made by the court. The letter from Thorntons, solicitors, was made available to the court at that hearing which took place shortly after the letter had been transmitted. It was provided that the matter would be returnable before the court, on the 22nd February, 2011 and there have been a number of applications in court since then.
Computers and Electronic Devices
There is no doubt that the discovery of the confidential information on the memory stick, but more importantly perhaps, the fact that the memory stick showed that there had been a process of copying carried out by Ms. Conaghan the night before she handed in her notice, was something which reinforced Mr. Cotter’s suspicions and alarmed him to a considerable extent. There is no issue but that Ms. Conaghan in the night before she carried out a number of steps in relation to copying of material from her work laptop to the memory stick. Equally, there is no doubt that some of the material copied by Ms. Conaghan was confidential information, the property to Net Affinity. Some of the material may not be confidential but would certainly be intellectual property of Net Affinity. There is a dispute between the parties as to the confidentiality of certain parts of the material.
Subsequently a number of further affidavits have been sworn by Mr. Cotter and Ms. Conaghan in relation to these activities. As a result of the examination by Mr. Cotter of the material on the memory stick, a further order was made by the court directing the handover of any other electronic devices held by Ms. Conaghan. That led to the production of a second memory stick, a laptop purchased by Ms. Conaghan on the 16th February, 2011, and the production of an external hard drive.
I have had the benefit of a number of further affidavits which have been exchanged between the parties dealing with issues arising from the production of those items and the activities of Ms. Conaghan around the 13th February, 2011. A report was furnished to the plaintiff’s solicitors by Grant Thornton who carried out a forensic investigation of the various devices. In their preliminary report of the 8th March, 2011, they have described various steps taken by them in relation to the extraction and comparison of data contained on Ms. Conaghan’s original laptop which was supplied by Net Affinity during the course of her employment, the original memory stick, the second memory stick, her laptop which she said she purchased on the 16th February, 2011 and the external hard drive. It is clear from their report that the forensic investigation is not complete, but they have identified a number of issues. Ms. Conaghan in her third affidavit explained that she had down loaded a number of documents and files in preparation for her resignation from her employment with the plaintiff the next day. In her third affidavit she went on to describe activities that took place on the 13th February, 2011 and also on the 23rd January, 2011. She explained that she bought the first memory stick referred to, to transfer files to give back to the plaintiff. She has also in that affidavit dealt with certain other issues in relation to on-line storage facilities such as “Google docs” and so on. I am of the view that the complaints made by Mr. Cotter in respect of those matters are not of any major significance in relation to this application.
It is clear from his affidavits that Mr. Cotter harbours the most serious suspicions as to the conduct of Ms. Conaghan in relation to the copying of documents and the retention by her of those documents on electronic devices other than the work laptop she had when employed by Net Affinity. I note the explanation given by Ms. Conaghan in her affidavits as to the circumstances in which some documents were retained by her subsequent to the letter of the 17th February, 2011 from her solicitors in which it was indicated that she had already returned everything that belonged to Net Affinity to Net Affinity. I should say in parenthesis that when I discuss or refer to documents having been copied I am, of course, referring to documents copied in an electronic format by electronic means.
Finally I should add that Ms. Conaghan has in the various affidavits sworn herein reiterated that she had no intention of using any confidential information of Net Affinity following her employment with them. Ms. Conaghan has given an explanation as to how these materials were retained on separate devices owned by her following her departure from Net Affinity. Ultimately, the question of what was done by Ms. Conaghan and the purpose behind that will be a matter for the trial judge at a plenary hearing of these proceedings. For present purposes, I accept that following the departure of Ms. Conaghan from Net Affinity, Mr. Cotter became aware of the fact that Ms. Conaghan had copied various documents including confidential documents from a company laptop onto other devices which she then retained. It is clear that that discovery has caused Mr. Cotter genuine concerns and has led to the situation in which there is a complete breakdown of trust between Net Affinity on the one hand and Ms. Conaghan and to some extent Avvio as well on the other hand.
Before dealing with the issues that arise for consideration on this application and the law relating to those issues I should just briefly mention that a number of other affidavits have been sworn herein by the various parties. I have considered those affidavits, but I do not feel that it is necessary to refer to them explicitly at this point in time. Those affidavits include affidavits sworn by Brian Reeves, the Chief Executive of Avvio. I have read and considered all of the affidavits sworn herein.
It is in the context described above that I now have to consider the legal issues raised in these proceedings.
2. What measures are required to enforce the protection of confidential information/intellectual property?
3. Whether the first defendant is in breach of her duty of confidence/contract of employment.”
The final question raised by the plaintiff relates to whether or not there has been a breach of the duty of confidence/contract of employment by Ms. Conaghan. Net Affinity has submitted that her conduct to date justifies the making of an order preventing her from working for Avvio pending the trial of the action or for 12 months. There is no doubt, and it is not in dispute between the parties that Ms. Conaghan on leaving Net Affinity retained material/documentation of a confidential nature belonging to Net Affinity. There is an explanation from Ms. Conaghan as to how this occurred. She also retained some documentation which says is not confidential but over which Net Affinity claims intellectual property rights. There is an issue between the parties as to whether Net Affinity has such intellectual property rights over some of the documentation retained by Ms. Conaghan. Let me say at this point that insofar as Ms. Conaghan retained documentation which she prepared during the course of her employment, even if that documentation or material was created in part by down loading and collating material from the internet, it seems to me that such documentation or material would be the intellectual property of the plaintiff, her employer. In making that observation at this stage, I do so without having seen the documentation or material concerned and it may be that on an examination of that documentation or material at the trial of the action, a different view will be reached, but for the purposes of this application I accept that the documentation retained by Ms. Conaghan includes documentation/material of a confidential nature and documentation/material over which Net Affinity has intellectual property rights. I have already observed that the affidavits sworn by Mr. Cotter on behalf of Net Affinity are replete with suspicion while those sworn by Ms. Conaghan give an explanation for how documents came to be retained by her, down loaded by her, copied by her and deleted by her. She has reiterated in a number of affidavits that she would not use confidential information belonging to Net Affinity. Thus, it is clear that at any trial of the action, there will be a significant issue as to whether or not Ms. Conaghan has been in breach of the duty of confidence owed to Net Affinity and has been in breach of her contract of employment.
I note at this point that during the course of the hearing before me, one of the issues that arose was the date upon which Ms. Conaghan was due to commence work with Avvio. I have referred to this dispute already and my views on that issue. There is no doubt whatsoever that Ms. Conaghan, a person who had previously worked in the recruitment business, was aware of the possibility when she handed in her notice that she would be asked to leave her employment there and then and that she would not be expected to work out her notice. It is clear that she took a number of steps in order to deal with that possibility. Indeed it is those steps that are the subject matter of these proceedings. Having said that it was clear from her letter of resignation that she was giving one month’s notice to Net Affinity and that accordingly, it is difficult to see why or how Mr. Cotter could have believed that she was taking up employment with Avvio immediately upon her leaving Net Affinity. I mention this issue again for two reasons, first, because it was such an issue during the course of the hearing before me and secondly because I think it is important to bear in mind that at this point there is no evidence whatsoever to suggest that Ms. Conaghan has provided any material belonging to Net Affinity either of a confidential nature or over which Net Affinity has intellectual property rights to Avvio. She has not yet commenced employment with Avvio.
The Non-compete Clause
With regard to the former test, I think it is clear that what is meant is that for a restraint to be reasonable in the interests of the parties it must afford no more than adequate protection to the party in whose favour it is imposed.”
Both parties in the course of their submissions referred to the judgment in the case of Stenhouse Limited v. Philips  AC 391 in which Lord Wilberforce said at p. 400:-
She also placed reliance on a passage from the judgment of Lord Denning M.R. in the case of the Littlewoods Organisation Limited v. Harris  1 All E.R. 1026, where having referred to the passage just referred to from the Herbert Morris case, Lord Denning M.R. went on to say:-
‘although the law will not enforce a covenant directed against competition by an ex employee it will enforce a covenant reasonably necessary to protect trade secrets . . . if [the managing director] is right in thinking that there are features in [the plaintiff] process which can fairly be regarded as trade secrets and which [their] employees would inevitably carry away with them in their heads, then the proper way for the plaintiffs to protect themselves would be by exacting covenants from their employees restricting their field of activity after they have left their employment, not by asking the court to extend the general equitable doctrine to prevent breaking confidence beyond all reasonable bounds.’”
It was noted at para. 11 of the judgment:
Thirdly, once the existence of legitimate protectable interests has been established, the covenant must be shown to be no wider than is reasonably necessary for the protection of those interests. Reasonable necessity is to be assessed from the perspective of reasonable persons in the position of the parties as at the date of the contract, having regard to the contractual provisions as a whole and to the factual matrix to which the contract would then realistically have been expected to apply.
Even if the covenant is held to be reasonable, the court will then finally decide whether, as a matter of discretion, the injunctive relief sought should in all the circumstances be granted, having regard, amongst other things, to its reasonableness as at the time of trial.”
Counsel on behalf of Ms. Conaghan and Avvio urged on the court that the appropriate authority to consider in assessing the non-compete clause was the decision of the High Court in the case of Murgitroyd and Company v. Purdy  3 IR 12, a decision of Clarke J. As appears from the head note, the plaintiff company was engaged in the provision of intellectual property services. The defendant was employed by the plaintiff as a European patent agent under a written service agreement which provided that it was to last for a period of three years and could be renewed for a further three years. The service agreement also contained a non- competition clause which provided that the defendant would not work within the Republic of Ireland for a period of twelve months following the termination of his employment of his own account and in competition with the plaintiff company. The defendant left the plaintiff employment and immediately commenced practising. The plaintiff sought various interlocutory injunctions against the defendant and a preliminary issue arise as to the enforceability of the non-compete clause contained in the service agreement. In the course of his judgment, Clarke J. referred to the twofold test derived from the decision in McEllistrim v. Ballymacelligot Co-Operative Agriculture and Dairy Society  A.C. 548 at p. 562 and considered in regard to the first test i.e. reasonableness inter partes, the comments of Lord Wilberforce in Stenhouse Limited v Phillips referred to above. Clarke J. then went on to say:-
Having regard to the specialised nature of the business I am also satisfied that a period of 12 months is not unreasonable.”
In those circumstances I have come to the view that the prohibition in this case on all competition is too wide. A prohibition on dealing with (in addition to soliciting of) customers of the plaintiff would, in my view, have been reasonable and sufficient to meet any legitimate requirements of the plaintiff. The wider prohibition which restricts dealing with those who might be, but are not, such customers is excessive.”
The non-compete clause in this case is not limited at all in its scope geographically. There is a temporal limitation for a period of twelve months after termination of contract. The extent to which a temporal limitation may or may not be reasonable depends on the facts of any given case. In this case, I would have no issue with a period of twelve months.
There are two aspects of the clause that cause me concern. The first of those is that there is not geographical limited contained in the clause. One could imagine a situation where Ms. Conaghan might seek employment outside this country in a similar business to that which is run by the plaintiff. Assuming for the sake of argument that such a business operated only booking engines for hotels in the United States, having regard to the terms in which the non-compete clause is phrased, she would be precluded from taking up such employment even though that employment would not be competing in any sense with that of the plaintiff’s business. If Ms. Conaghan was to take up employment in this country with a company which operated a business similar to that of the plaintiff, but which, for example, operated booking engines for hotels in France, likewise Ms. Conaghan would be precluded by virtue of the non-compete clause from taking up such employment. She is completely precluded by the clause from working “for any individual or company that provides or plans to provide services similar to that which is provided by [Net Affinity]. To my mind, the clause at issue in this case is far too wide to protect the legitimate requirements of Net Affinity. It is a clause which does in fact prohibit all competition by Ms. Conaghan in the area of services provided by Net Affinity. As has been made clear in the judgment of Clarke J. in the case of Murgitroyd and Company Limited v. Purdy such a clause is too wide. In those circumstances, I have come to the conclusion that the non-compete clause is void and unenforceable.
That does not conclude the matter. Mr. Cotter in the course of a series of affidavits in this case has raised serious concerns as to the manner in which Ms. Conaghan acted immediately prior to and subsequent to the 14th February, 2011. I have already referred to these matters at length above. In addition, counsel on behalf of Net Affinity has submitted that although it may not be possible to enforce the non-compete clause, the court should nonetheless prevent Ms. Conaghan from taking up her employment with Avvio for a period of time in order to protect confidential information acquired by Ms. Conaghan during the course of her employment. That confidential information is not confined to the documentation or material that was the subject of the various down loads referred to previously. It includes what was described by counsel as Ms. Conaghan’s “know how” and customer connections. I accept that as a matter of principle that the day to day interaction by an employee with clients or customers of an employer may be such as to require such injunctive relief where there is evidence that a close relationship has been built up between the customer and employee and such relationship is an important element of the employer’s business as in the case of T.F.S. Derivatives referred to above. In the course of the submissions, I was referred to a number of cases where such the granting of such relief was considered, including the well known case of Faccenda Chicken Limited v. Fowler and Ors.  1 All E.R. 724, Lansing Linde Limited v. Kerr  1 All E.R. 418 and Printers and Finishers Limited v. Holloway and Ors.  3 All E.R. 731.
I was also referred to the decision in the case of Norbrook Laboratories (GB) Limited v. Adair  IRLR 878. In that case Elizabeth Slade Q.C. sitting as a Deputy Judge of the High Court, stated at para. 63 of her judgment as follows:-
There is strictly speaking no evidence before me that Ms. Conaghan has passed any documentary material or confidential information of the type that could be down loaded to Avvio. Nonetheless, during the course of her employment with Avvio, confidential information which is encompassed by the phrase, customer connections, of the type I have described above would be available to Avvio via Ms. Conaghan. If it were the case that another employee of Avvio approached, solicited or dealt with an existing customer of Net Affinity it would be virtually impossible to establish that the contact between Avvio and the existing customer did not arise from some form of contact through Ms. Conaghan. To that extent it seems to me that it would be appropriate to grant injunctive relief against Avvio which would likewise prevent Avvio from soliciting, approaching or dealing with any existing clients of Net Affinity for a period of twelve months.
During the course of the hearing there was a discussion about target sales on the part of Net Affinity. Net Affinity and Avvio are involved in similar businesses. They each have a similar type of product on offer to the same general clientele. It is clear from the affidavits sworn herein by Mr. Reeves on behalf of Avvio that both Net Affinity and Avvio attend the same sort of trade events. They compete for the same type of customer. They are entitled to compete. There may be cases in which it is appropriate to impose a restriction to prevent a breach of confidentiality on an employee taking up employment elsewhere such that the employee cannot work for a competitor for a period of time but it does seem to me that if a court is asked to consider such a restriction that, just as in the case of considering what is appropriate in the context of a restraint of trade clause, the court should impose a restriction which is no more than is reasonably necessary in order to protect the employer’s legitimate interest. I am satisfied that to grant an injunction in the terms sought by the plaintiff in these proceedings would be more extensive than is reasonably necessary for the purpose of protecting the employer’s interest and it is for that reason that I am not prepared to go that far. The injunctive relief I have indicated seems to me to be appropriate to meet the circumstances of the case. For that reason I do not propose to grant any further or more extensive injunctive relief.