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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Dyson Technology Ltd v Pellerey [2016] EWCA Civ 87 (12 February 2016)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2016/87.html
Cite as: [2016] ICR 688, [2016] CP Rep 21, [2016] WLR(D) 76, [2016] EWCA Civ 87, [2016] IRLR 355
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Snowden
Strand, London, WC2A 2LL |
||
B e f o r e :
SIR TIMOTHY LLOYD
and
SIR COLIN RIMER
____________________
| DYSON TECHNOLOGY LIMITED |
Claimant/ Respondent |
|
| - and - |
||
| PIERRE PELLEREY |
Defendant/ Appellant |
____________________
Paul Nicholls QC and Simon Forshaw (instructed by Slaughter and May) for the Respondent
Hearing dates: 19 and 20 January 2016
____________________
FOR HANDING DOWN
Crown Copyright ©
- This is an expedited appeal by Dr Pierre Pellerey, the defendant, against an order made by Snowden J in the Chancery Division on 30 October 2015 following an expedited trial in September. Most of the trial was conducted in private and the judge's reserved judgment of 23 October was also issued in private. The claimant, respondent to the appeal, is Dyson Technology Limited ('DTL'). By its claim, DTL sought injunctions: (i) preventing Dr Pellerey until after 15 June 2016 from taking up a job as an electric motor engineer with Tesla Motors Inc ('Tesla'), a Californian company; and (ii) restraining him from making use of DTL's confidential information. The judge made an order under head (i) but refused that claimed under head (ii). Dr Pellerey challenges the head (i) order.
- The appeal was expedited because it was essential for it to be heard before the end date of the injunction: otherwise success on the appeal, were that to be the outcome, would be substantially worthless to Dr Pellerey. In addition, Dr Pellerey, who is currently unemployed, is anyway anxious, if he can, to achieve an early discharge of the injunction so that he can start work at Tesla.
- Following an application at the opening of the appeal made by Mr Nicholls QC, for DTL, the court was satisfied that the commercial sensitivities of the issues at the heart of the appeal required that, until further order: (i) the appeal be listed as D. v. P. and heard in private; and (ii) that no non-party should have access to the appellant's notice, the skeleton arguments, the parties' correspondence with the court, any documents placed before the court or the recordings or transcripts of the proceedings. Ms Ellenbogen QC, for Dr Pellerey, did not argue otherwise and the court made an order to that effect. I shall explain briefly at the end of this judgment why the court did so. Whether our judgments were also to be issued in private was to be the subject of further argument when counsel had considered them in draft.
- The essential facts are not in dispute. The judge's careful judgment explained them very fully. I must repeat their essentials in order to identify the issues raised by the appeal.
- DTL is a research and development member of the Dyson Group of companies which is well known for its innovative vacuum cleaners and 'air-blade' hand driers. Tesla is a leading manufacturer of electric cars. Dr Pellerey, a French national, is aged about 30. He graduated in France with first class honours in electrical and mechanical engineering and, between 2009 and 2012, conducted research for his PhD in acoustic noise and vibration in motors for electric vehicles. Whilst working on his PhD, he assisted Renault in the design of the electromagnetic parts of motors and powertrain with a view to reducing the acoustic noise and vibration in its electric cars. In 2012, he applied for several jobs, including an advertised post as a motor design engineer at DTL, and he uploaded his CV to the Tesla website. He was offered and accepted the DTL job and, in March 2013, started work as a motor drives engineer at an annual salary of £40,000 at the Dyson Group's Wiltshire headquarters.
- Dr Pellerey's contract of employment with DTL was dated 5 February 2013. The material provisions start on page 4 and are as follows:
- The material definitions in the Schedule are these:
- Dr Pellerey was initially a junior member of the DTL research team. He worked on the design of electric motors for vacuum cleaners and, between January and May 2015, was also involved in a project comparing different electric motor technologies that might work in an electric bicycle ('Project B'). He did not work on the acoustic noise or vibration aspects of the motors. Following his notification to DTL of a job offer from a London CCTV company, DTL induced him to stay on by, on 5 March 2015, promoting him to Senior Motor Drives Engineer and increasing his salary to £51,000.
- In the meantime, on 20 November 2014 Dr Pellerey had been contacted by a Tesla recruiter. Tesla was interested in him because of his previous expertise concerning the reduction of acoustic noise and vibration in electric drivetrains. His Skype and telephone interviews with Tesla on 3 December 2014 and 29 January 2015 were followed on 19 February 2015 by personal interviews and his making of a presentation in California.
- On 18 March 2015, Tesla offered Dr Pellerey an appointment as a Staff Drive Motor Engineer, providing a job description in accompanying documents but also explaining that it might be changed at any time. The offer letter asked him to disclose to Tesla all agreements relating to his prior employment that might affect his eligibility for employment by Tesla. It emphasised that it did not want him to bring any confidential or proprietary materials of his former employer that might violate his obligations to that employer; and it stipulated that he agreed 'not to make any unauthorized disclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of [his] former employers'. Tesla made a slightly revised offer of employment on 23 March 2015, one proposing a start date of 24 August 2015 and which was conditional upon Dr Pellerey obtaining proof of a right to work in the United States.
- Dr Pellerey accepted that offer on 24 March 2015 and Tesla started the process of applying for a visa for him. On 12 May 2015, Tesla informed him that the application was unlikely to succeed and that it was looking at 'other methods we can use to get you a visa'. Dr Pellerey did not inform DTL of Tesla's offer.
- On the morning of 27 May 2015, Dr Pellerey was told of, and started working on, 'Project E' at DTL. The judge explained the nature of the project and Dr Pellerey's role in it in paragraphs 22 to 32 of his judgment. I shall not repeat all he there explained. Its essence was that Project E was for the development of an electric car. Sir James Dyson told Dr Pellerey and his colleagues who were assigned to the project that it was to be kept confidential not just as regards the outside world but also as regards all other Dyson group personnel not involved in it: the team was to work in a secure area, to which no other personnel had access. The basic idea of the project was to make use of a solid-state battery and to couple with that Dyson's expertise in electric motor technologies. By contrast, the majority of electric cars in current production used lithium ion batteries.
- Dr Pellerey's initial task on Project E was to look at torque/speed curves. In the first week or so the team reviewed and compared the publicly available information relating to various currently marketed electric cars, including those made by Tesla. Sir James Dyson visited the team in its secure area and explained his intentions for the car's basic nature, size, price and performance targets. Several target specifications were set out on a whiteboard for all the team to see. From about 1 June 2015, Dr Pellerey's work on Project E expanded to the development of software programmes to produce drive cycle simulations, an exercise building on work he had done on Project B (for an electric bicycle). The judge summarised as follows the fruit of the first two weeks of work on Project E:
- In paragraphs 33 to 42, the judge explained DTL's approach to matters of confidentiality and the importance it attaches to maintaining the confidentiality of its research and development activities: the evidence described confidentiality as one of Dyson's most critical assets. It applies not just to the design processes of new products, but also to the fact that a new product is being worked on. The judge referred to Mr Bowen's evidence about this (he is the Dyson Group's General Counsel), part of which was that:
- The judge noted Dr Pellerey's acceptance that DTL had, from the start of his employment, impressed upon him the need to preserve confidentiality, and that it took steps designed to keep the existence and nature of Project E highly confidential from the remainder of its workforce and the outside world. The judge found that, had Dr Pellerey told DTL of his acceptance of Tesla's offer, it would not have allowed him to be involved in Project E. Having accepted that offer, Dr Pellerey admitted he felt 'a little uncomfortable' at becoming involved in the project. That was because he would be involved with electric cars at Tesla, although he would there be focussing on the acoustic noise of electric powertrain, which he was not involved in at DTL. However, he foresaw the possibility of conflict in the future, as he did not know what his role in Project E was to be. On 3 June 2015, about one week into Project E, Mr Bowen re-emphasised to the team the importance of maintaining the confidentiality of their work on the project. This caused Dr Pellerey to email Tesla on 4 June 2015 for an update on his visa application, explaining that '[i]t becomes difficult for me to continue with my current employer without risking some kind of conflict of interest so I would like to hand in my notice quickly'.
- On Friday 12 June 2015, Tesla made Dr Pellerey an unconditional offer of a job in Europe which avoided the need for him to obtain a United States visa. On Monday 15 June 2015, he handed in his 12 weeks' notice to DTL. It expired on 7 September 2015, which thus became the 'Termination Date' of his employment within the meaning of the scheduled definitions. The giving of the notice was not well received by DTL, which during the following days told Dr Pellerey that unless he undertook not to work for Tesla – and not to disclose to Tesla the reason why he was doing so – DTL would sue him. On 15 June 2015, DTL placed Dr Pellerey on garden leave, following which he did not return to work. 15 June 2015 was, therefore, the 'Relevant Date' within the meaning of the scheduled definitions because, in comparison with the Termination Date, it was 'the [earlier] date from which [Dr Pellerey was] required not to attend work during [his] notice period'.
- Dr Pellerey informed DTL on 24 June 2015 that Tesla had agreed to indemnify him against the costs of any proceedings DTL might bring. On the same day DTL's solicitors, Slaughter and May, wrote him a letter before action saying, inter alia, that Tesla was engaged in the same type of business as that comprised in Project E and so was a direct competitor of that business. They said that DTL was anxious that he should abide by the restrictive covenant in his employment contract and not work for Tesla for 12 months. Dr Pellerey forwarded that letter to Mr Mohamed, Tesla's Associate General Counsel in California. He should not have done so, as it had been marked 'Confidential, not for publication', but Mr Mohamed had told him he could pass it to him, although Mr Mohamed's evidence was that he had not shared the letter with anyone at Tesla. The disclosure of that letter to Mr Mohamed told him, a member of the outside world, that DTL was working on an electric car. That was just the type of disclosure that the Project E team had had impressed upon it that it must not make.
- By its claim, DTL sought to restrain Dr Pellerey from working for Tesla for 12 months from 15 June 2015 on two alternative bases. First, by enforcement of the post-termination restraint in clause 1(a) of the post-employment obligations in his employment contract. Second, by a claim for so-called 'springboard' relief. This was based on the assertion that Dr Pellerey was not entitled to enjoy the benefit at Tesla of the illegitimate headstart he was said to have gained by acting in breach of clause 5 of his post-employment obligations. That was the clause that had required him 'immediately' to notify DTL of any approach in connection with the offering to him of employment 'which is or potentially may be in competition with' DTL or any Dyson Group company. DTL also sought an injunction to restrain Dr Pellerey from using its confidential information.
- Dr Pellerey denied DTL's right to any relief. He challenged the validity of the clause 1(a) restraint: he said that the facts did not engage it and that it would anyway be unjust to enforce it. He denied that he had committed any breach of contract under clause 5 such as might trigger a claim to 'springboard' relief and said again that an injunction restraining him from working for Tesla would anyway be an inappropriate response because neither he nor Tesla stood to gain any advantage as a result of any such breach. As for the claim to restrain his use of confidential information, he said he was well aware of his obligations in that respect and had neither threatened, nor intended, to breach them. He had also offered undertakings not to do so.
- The outcome was that the judge ordered that Dr Pellerey must not until after 15 June 2016, so as to compete with any Dyson Group company, be employed or engaged by, or concerned or interested in, the business of any Tesla company, or carry on, or be engaged or employed by, or concerned or interested in, any 'Restricted Business'. The injunction thus tracked the language of the restraint in the employment contract. He held that the 'springboard' claim was also made out but, as DTL was claiming under it the like injunction that he proposed to grant under the employment contract, there was no need to grant any separate or additional injunction. The judge made no order restraining the use by Dr Pellerey of DTL's confidential information. By his appeal, Dr Pellerey challenges the grant of the injunction. Before coming to the appeal, I shall summarise the judge's reasons for his aforesaid grant and refusal of the claimed relief.
- The parties were agreed that the judge's inquiry into this claim involved four successive stages: (i) the interpretation of the restraint; (ii) whether, so interpreted, it was no wider than was reasonably necessary for the protection of DTL's legitimate business interests; (iii) if yes, whether Dr Pellerey's proposed employment with Tesla would infringe it; and (iv) if yes, whether, as a matter of discretion, in light of all the circumstances, the restraint ought to be enforced by injunction. The judge derived this staged approach from the summary of the principles in Cox J's judgment in TFS Derivatives Ltd v. Morgan [2005] IRLR 246, at paragraphs 36 to 40.
- As regards the first stage, the judge referred to some well-known authorities on the interpretation of documents and also to two recent authorities to the effect that it is not the function of the court either to give a restrictive covenant a meaning it cannot reasonably bear in order to improve it so as to make it a restraint that would be of some use in practice (Prophet v. Huggett [2014] EWCA Civ 1013, at paragraph 35), or to 'read down' a clause in order to save a restraint that would otherwise be unreasonably wide (Ashcourt Rowan Financial Planning v. Hall [2013] EWHC 1185 (QB), at paragraph 47). His self-direction as to the interpretation of the restraint is not questioned. He then turned to the two issues of interpretation that were raised.
- The first issue was whether the words 'so as to compete with the Company or any Group Company' in clause 1(a) qualified the whole of what followed or were merely descriptive of it. The judge held that they qualified it, so that it was 'only conduct of Mr Pellerey which falls within the second half of the [restraint] clause and which competes with DTL or any Group Company that is intended to be caught by the clause'. That conclusion is not challenged.
- The second interpretation issue was as to the sense of these words in the 'Restricted Business' definition, namely 'any business being carried on by [DTL] or any Group Company on the Termination Date …'. DTL's case was that they applied to its research and development activities generally (including its Project E activities), whereas Dr Pellerey's case was that they applied only to research and development activity carried out by DTL for an external trade in a type of product that Dyson was selling at the Termination Date. The judge accepted DTL's submission and gave short reasons why the research and development business being carried on by DTL (which did not itself sell any products) was a 'business being carried on by [DTL]' within the meaning of the clause and that the ambit of the restraint was not limited by reference to products already being sold by Dyson Group companies. Finally, in that context, the judge said this:
- The judge's interpretation of the sense of 'any business being carried on by [DTL]' is challenged by Dr Pellerey on this appeal.
- The judge turned next to the second stage of his inquiry, namely whether the restraint was no wider than was reasonably necessary for the protection of DTL's legitimate interests. The interest for which DTL claimed the benefit of the restraint was the protection of its trade secrets and other confidential information. The judge noted, by reference to Littlewoods Organisation v. Harris [1977] 1 WLR 1472, at 1479, that the inclusion in an employment contract of a separate clause restricting the disclosure of confidential information does not prevent a non-competition clause from being reasonable. After referring to further authorities (including Faccenda Chicken v. Fowler [1987] 1 Ch 117, at 137B to 138H) and to various submissions advanced by Dr Pellerey, the judge held that the restraint was no wider than was reasonably necessary for the protection of DTL's legitimate interests. He said:
- There is no appeal against that conclusion.
- The third stage in the judge's inquiry was whether Dr Pellerey's employment by Tesla would infringe the restraint. DTL's case was that Tesla's research and development of electric cars was a 'Restricted Business' within the meaning of the scheduled definition because it 'is similar' to the Project E business that DTL was carrying on at the Termination Date and with which Dr Pellerey had been involved during the 'Relevant Period'. DTL said also that Dr Pellerey's role in Tesla's business would be such that he would be 'competing' with DTL since his function at Tesla would be to assist it in producing an electric car superior to the Dyson car when launched.
- Dr Pellerey disagreed, submitting that as Dyson was years away from bringing an electric car to the market, nothing he might do at Tesla could be viewed as competing with Dyson. Moreover, his role at Tesla would be limited to work on minimising the acoustic impact of its cars, being work he had not done at DTL, nor would DTL be addressing such considerations for some time.
- The judge accepted DTL's arguments on these two issues, and summarised his conclusions in two paragraphs:
- The judge, in paragraphs 118 to 120, then explained why he considered that, even though Dr Pellerey would be working at Tesla on acoustic noise matters rather than torque/speed curves and drive-cycle simulations, he would still be competing with DTL or other Dyson companies in his new job. He said that 'Any person contributing to one aspect of the project does not work in isolation from other contributors and his work is very likely to have an effect upon the overall design.' He referred to part of Dr Pellerey's oral evidence as supporting this conclusion.
- The fourth and final stage in the judge's inquiry was whether, as a matter of discretion, it would be appropriate to grant an injunction by way of enforcement of the restraint. As this part of the judge's reasoning was the subject of the bulk of the argument on the appeal, I shall deal with the way the judge approached the matter a little more fully.
- The judge opened his discussion by repeating Cox J's summary in the TFS case of the existence of the discretionary stage, in respect of which she said:
- He referred next to Dyson Technology Limited v. Strutt [2005] EWHC 2814 (Ch), a decision of Sir Donald Rattee in the Chancery Division, in which Sir Donald held that the principle so stated by Cox J had to be applied 'subject to the well-established principles' set out by Colman J in Insurance Co v. Lloyd's Syndicate [1995] 1 Lloyd's Law Reports 272, at 276 to 277 (under the heading 'The availability of a permanent injunction'). The judge cited Colman J's summary of those principles (at 277), which was as follows:
- The judge then considered to what extent the decision of the Supreme Court in Lawrence and another v. Fen Tigers Ltd and others [2014] AC 822 had modified that approach. That case was concerned not with a contractual claim to enforce by injunction a negative restraint, but with a tort claim to restrain by injunction a private nuisance; and the part of the guidance in Lawrence relied upon was that relating to the circumstances in which the court might exercise its discretion under what is now section 50 of the Senior Courts Act 1981 (and was originally the Chancery Amendment Act 1858, more commonly known as Lord Cairns' Act) to award damages in lieu of an injunction. The judge accepted that Lawrence showed that his decision as to whether or not to grant an injunction was not a mechanistic exercise, that it required a consideration of all the facts and that it did not require 'exceptional' circumstances for an injunction to be refused. He held, however, that it remained for Dr Pellerey to show why an injunction should be refused, which he derived from what Lord Neuberger of Abbotsbury said at paragraph 121:
- So directing himself, the judge then considered the four main points advanced on behalf of Dr Pellerey as to why no injunction should be granted. The first was that an injunction to restrain the disclosure to Tesla that DTL was working on an electric car would be pointless since it was likely that Tesla already knew that. The judge agreed that was likely, but said the injunction was not directed solely at keeping that piece of information secret from Tesla. Dr Pellerey had, whilst working for DTL, also obtained confidential information about the intended specifications and design targets for the Dyson car, information that Tesla does not know. DTL had a real commercial interest in keeping it secret.
- Dr Pellerey's second point was that he had no intention of breaching his obligations of confidence and that Tesla did not require him to do so. The judge accepted Dr Pellerey's good faith, but said the purpose of a restraint of trade injunction is not limited to preventing deliberate disclosure of confidential information. It may be difficult to differentiate precisely between what is and what is not confidential and it is also impossible for the first employer to monitor what the ex-employee is doing in his new job so as to detect whether an innocent breach of covenant has occurred. The judge said these considerations were well illustrated by the facts of this case. In paragraph 130, he gave two instances of the passing by Dr Pellerey of confidential information to Tesla or its agents in circumstances in which he thought it permissible to do so although in fact it was not. One instance was the passing of the Slaughter and May letter to Mr Mohamed. The other was a disclosure made by Dr Pellerey following his February 2015 interview with Tesla: he disclosed to Tesla the speed and efficiency values for the latest Dyson Digital Motor, one that he had designed but which was not yet in production. Dr Pellerey's explanation of that in evidence was that he had not given any thought to whether the information was by then in the public domain, but he accepted that it was not.
- Dr Pellerey's third point was that the information to which he had access during the early stages of Project E was limited and general. It was said to be uncertain whether DTL would continue to develop an electric car but even if it did, the risk of harm to DTL from inadvertent disclosure of such material to Tesla was said to be minimal. The judge rejected that submission too. He said:
- Dr Pellerey's fourth and final point was that he would suffer exceptional financial hardship and damage were he to be prevented from using his skills for the rest of the 12 month period prescribed by the covenant. The judge dealt with that as follows:
- The judge accordingly enjoined Dr Pellerey from working for DTL until after 15 June 2016, with the proviso that the injunction should cease to operate were DTL to discontinue work on an electric car at any earlier date.
- DTL advanced this as an alternative route to its claimed injunction. Its essence was that Dr Pellerey had breached the clause 5 notification obligation in his employment contract by failing to disclose to DTL Tesla's job offer to him, a breach which led to his being engaged on Project E for two and a half weeks, whereas had he disclosed that offer he would not have been engaged on the project at all. The consequence was that what he had learned on Project E had given him an unfair advantage of potential use to competitors and the just way to prevent him from exploiting it was by way of a like 12 month restraint against working for Tesla. The judge referred to the origin of 'springboard' injunctions as being in a dictum of Roxburgh J in Terrapin Ltd. v Builders Supply Co (Hayes) Ltd [1976] RPC 349, at 375.
- Dr Pellerey's responsive case was that he had not breached the clause 5 notification obligation because when Tesla made its original job offer approach, Project E was not yet born and so he had no reason to regard any employment with Tesla as actually or potentially in competition with Dyson. DTL's reply to that was that clause 5 imposed a continuing obligation so long as a job offer was in existence, and that the disclosure obligation under it was triggered when, during the currency of the offer, Dr Pellerey was informed of Project E.
- The judge accepted DTL's argument on the clause 5 notification issue. He rejected Dr Pellerey's submission that the notification obligation was invalid as in restraint of trade; and, even if it was in the nature of a restraint of trade, he held that it was a reasonable one. Having so concluded, the judge held that it was appropriate to grant a 'springboard' injunction. Such an injunction could in principle last until the confidential information to which Dr Pellerey was privy had ceased to be confidential, but DTL sought no more than an injunction for the same 12 month period as under the contractual restraint, which the judge regarded as a concession favourable to Dr Pellerey. As he proposed to grant an injunction for such a period by way of enforcement of the restraint, he did not consider that aspect of the 'springboard' claim further.
- Finally, the judge explained why he did not propose to restrain Dr Pellerey from making use of DTL's confidential information. He said the only basis for granting such an injunction would be if he considered there was a real risk that Dr Pellerey would disclose, or improperly use, the confidential information. He repeated that he accepted Dr Pellerey's good faith and that he did not intend deliberately to disclose any details of Project E to any third party. His concern was as to the risk of inadvertent disclosure. He said:
- I add only that the order included confidentiality orders in relation to all the proceedings, orders and judgments in the case.
- Unless the judge was correct to answer this in the affirmative, DTL's case that Tesla was carrying on a 'Restricted Business' must fail. There is of course no suggestion that DTL was not carrying any business. The dispute is whether the operations of Project E formed part of its business. Ms Ellenbogen QC, for Dr Pellerey, submitted in her skeleton argument that the judge was wrong to regard 'any business being carried on' by a Dyson company as including activity not relating to an existing product line or a sector presence within the group. In her oral argument, she submitted that the point at which a research activity such as Project E would become part of the 'business' of DTL would be when it received 'proof of concept' by board approval, a point not reached by Dr Pellerey's Termination Date. She said the pursuit of Project E had not by then become part of DTL's business.
- Ms Ellenbogen referred us to paragraph 31 of the judge's judgment (cited in paragraph 13 above) as showing that during Dr Pellerey's involvement Project E was in its infancy. It was still at an exploratory stage and had not yet reached the point at which a business case for its adoption had been, or could be, put to the Dyson board. It was no more than a mere idea, which might or might not mature into something that could be developed into a new product line, but whose investigation at that early stage could not, said Ms Ellenbogen, reasonably be characterised as part of DTL's 'business'. If DTL's 'business' were to be interpreted as embracing the investigation of all new ideas, whether or not they matured into the development of new product lines, the contractual restraint could potentially have a wide stifling effect on the ability of DTL's employees to seek employment elsewhere, which would make it unreasonably wide.
- In support of her suggested limitation on the extent of DTL's 'business', Ms Ellenbogen invoked sub-paragraph (iii) of the definition of 'Restricted Business'. She said it extended the ambit of protection to the carefully defined 'circumstances where a new product is planned to be launched …', which she said showed that it is only the pursuit and development of projects that have received board approval that can be encompassed within the 'business' of DTL. As for the assistance with regard to the sense of the words 'business being carried on by [DTL] …' that the judge had derived from Rolls v. Miller (1884) 27 Ch D 71 and In re Sarflax Ltd [1979] 1 Ch. 592, Ms Ellenbogen submitted that they were decided on their own facts and provided no guidance for the interpretation of the key words in this case.
- In Rolls, the lease of a house prohibited its use for 'any trade or business of any nature whatsoever' and it was held by Pearson J and the Court of Appeal that the provision in the house by its lessees (who were charitable trustees) of rent free accommodation for homeless working girls amounted to the carrying on of a 'business' in breach of the covenant. In Sarflax, a company had ceased to trade and had sold its fixed assets, stock-in-trade and work in progress to its parent company. Over the following period of some two years, it then devoted itself to getting in its remaining assets and applying them in discharge of its liabilities to its creditors, without however making any provision for one Italian creditor. A liquidator brought a claim under section 332(1) of the Companies Act 1948, which gave the court jurisdiction to grant relief of various types 'if … it appears that any business of the company was carried on with intent to defraud creditors …'. One issue before Oliver J was whether the two-year activity just described amounted to the carrying on of a 'business'. He held that the continuous course of conduct over that period in the collection and distribution of the business assets did so amount.
- Neither authority purported to provide comprehensive guidance as to what will or will not amount to the carrying on of a business. In Rolls, in deciding whether the activities of the trustees amounted to the carrying on of a 'business' within the meaning of the covenant, the Court of Appeal was clearly in part influenced by their assessment that the primary purpose of the covenant was to keep the house as a residence or dwelling house and they approached the appeal on the basis that they had to interpret the words of the covenant with reference to what they held was its apparent object: see Cotton LJ at 84 and Lindley LJ at 87.
- That said, neither member of the court decided the case on the basis that any use of the premises other than as a private dwelling house must necessarily involve the carrying on of a trade or a business. Cotton LJ said there may be many businesses which are not trades, and his ultimate conclusion, at 86, was that even though the lodging of the girls in the house was provided gratuitously, what was being done was the carrying on of a business of a lodging-house. Perhaps more helpfully, Lindley LJ said, at 88:
- Ms Ellenbogen deployed her argument on this ground of appeal carefully and clearly, but I am satisfied it is misplaced. DTL is a research and development company. It carries out its operations for the benefit of the Dyson Group, its function being the development of advanced technology for Dyson products. It does not carry on its operations for the intellectual pleasure of its workforce. It is a part of the Dyson group whose operations are carried on for commercial purposes and it is in my view obvious that all its daily operations are – and, like Lindley LJ, using the word in its ordinary sense – in the nature of a 'business'. The 'business' it so carries on must include all its operations, ranging from its research into, and investigation of, new projects at early, exploratory stages to the development at subsequent stages of projects that receive board approval. There is, I consider, no rational basis for confining its 'business' to activities of the latter kind. Its 'business' must also include activities of the former kind.
- Ms Ellenbogen's submission that if DTL's 'business' activities do encompass those of the former kind, the contractual restraint would be unreasonably wide is, with respect, both illegitimate and irrelevant. It is illegitimate because the judge held that it is not unreasonably wide, against which there is no appeal. It is irrelevant because the meaning of a restraint is not determined by reference to propositions as to whether or not the alternative meanings canvassed would, or would not, be unreasonably wide. The first stage is to interpret the restraint. Questions as to its reasonableness or otherwise are then addressed to the covenant as so interpreted.
- Nor do I consider that Ms Ellenbogen derives assistance from paragraph (iii) of the definition of a 'Restricted Business'. Whereas paragraphs (i) and (ii) focus on the employee's involvement in a Dyson business during the 12 months immediately preceding his Termination Date, paragraph (iii) casts the net back over a longer 24 month period. Its effect is that any employee who is not caught by either of paragraphs (i) and (ii) may still be caught by paragraph (iii) if, during that 24 month period, he was 'involved in the planning, research, development or manufacture' of a 'new product … planned to be launched' and still has 'Confidential Product Information' as a result of that involvement. If Dyson were later to plan the launch of an electric car, I can see no reason why an employee's involvement in the early stages of Project E during the 24 month period would not constitute 'research' within the meaning of paragraph (iii); if so, it must follow that the 'research' referred to in paragraph (iii) constitutes part of the 'business' of the relevant company for the purposes of the definition.
- I consider that the judge decided this point correctly and would dismiss this ground of appeal.
- Ms Ellenbogen's submission under this head was that, if Project E was part of DTL's business, Tesla's business in the manufacture of electric cars cannot be regarded as 'similar to' that business or at any rate the Project E part of it. She said there was a material difference between the types of activity in which, in relation to electric cars, DTL and Tesla were respectively engaged. With Project E, DTL was engaged in an exploratory 'blue skies' feasibility study directed at investigating whether or not DTL should, for the first time, extend its product range to include the manufacture and sale of electric cars. Tesla, by contrast, is an established designer and manufacturer of electric cars. It had been doing so successfully for years. In consequence, the type of research and development in which it is and will be engaged is far in advance of what DTL was doing in its early feasibility studies into what might or might not develop into a new product line. It is, therefore, unreal to regard Tesla's business as 'similar' to DTL's.
- Ms Ellenbogen was, in particular, critical of the judge's conclusions in paragraphs 115 and 116 of his judgment (cited in paragraph 30 above). It was, she said, inaccurate for him to say that, at the time that Dr Pellerey resigned, both companies 'were engaged in the business of designing electric cars'. DTL was not, by that early exploratory point, even close to including the design of electric cars as part of its business; it was also inaccurate for the judge to say that '[u]ltimately, each company is striving to design a superior electric car that will sell better than the other's product.' In concluding that the two businesses were similar, the judge had wrongly failed to take account of the fundamental difference in their respective states of advancement in the electric car business.
- Mr Nicholls's response was that, if (as, like the judge, I would hold) DTL's Project E research into the development by Dyson of an electric car was part of DTL's business, then Tesla's existing electric car business was obviously a 'similar' business. Tesla's business was the sale of existing products, namely the electric cars forming part of its product line, and the development of new electric cars to be introduced in the future. Project E was part of DTL's business directed at the development of a new electric car for production and sale in the future. Tesla's business was therefore 'similar', as the judge had rightly held in paragraph 115. He was also correct, in paragraph 116, to find that, ultimately, each company was striving to design a superior electric car that will sell better than the other's. Project E had identified the competitors in the market, including Tesla, and DTL's intentions were to produce a car that would compete with Tesla's cars.
- I consider that the judge was right to find that Tesla is carrying on a business 'similar to' DTL's. Both companies are engaged in a business that includes the design of electric cars. Tesla is of course far advanced in the field, but DTL's entry into it is directed at the production by Dyson of an electric car that will be superior to the Tesla cars. The companies are, therefore, true competitors and Dr Pellerey accepted in his oral evidence (Day 4, p. 51, lines 11 to 13) that his role at Tesla would be to assist it in producing a better electric car.
- Again, this issue falls to be considered on the premise that the judge was, as I would hold, correct in deciding that Tesla is carrying on a business similar to DTL's. The focus here, however, is on Dr Pellerey's role at Tesla were he to join it; and Ms Ellenbogen said that requires a consideration of whether his role there will require personal competitive activity vis-à-vis the 'blue skies' feasibility study being carried out for the purposes of Project E. She said that the judge's error, reflected in both of paragraphs 115 and 116 of his judgment, was that Dyson already had a competing electric car, or else would definitely have one, although she accepted that he was more accurate to say what he did in the words I have emphasised below in his paragraph 120:
- Ms Ellenbogen said the emphasised words correctly recognised that during Dr Pellerey's short time on Project E, Dyson was not yet a manufacturer of electric cars, nor had a settled plan to manufacture such cars, nor was even preparing to compete with Tesla and other electric car manufacturers: it had not yet decided whether it would do so. Moreover, Dr Pellerey's role at Tesla, as described in the documents accompanying his job offer, was quoted as follows by the judge in paragraph 19 of his judgment:
- Ms Ellenbogen said that Dr Pellerey was not involved in an NVH role in Project E and his different role in that expertise at Tesla would be performed at the end of the design process. Whilst the judge had held that his work on NVH could or would have implications for other design processes, this would be end stage work, which would not be one that DTL would reach for years, if at all. There was thus no sound basis for the judge's conclusion that anything that Dr Pellerey would be doing at Tesla would compete with DTL.
- Ms Ellenbogen advanced this argument very persuasively, but I would nevertheless not accept that this court can or should disagree with the judge's conclusion, after hearing and assessing the evidence – including that of Dr Pellerey – that Dr Pellerey's role at Tesla in the design of Tesla electric cars will be one involving competition with DTL in the design of a Dyson electric car. There is, as I have said, no doubt that, at the early stages of Project E, DTL regarded Tesla as a competitor. It is true that Dr Pellerey was not involved in NVH matters in Project E, whereas he would be so involved at Tesla. But the judge rejected the submission that this meant that nothing he would be doing at Tesla would compete with what DTL was doing. He said:
- The judge then quoted some of Dr Pellerey's evidence, which I consider supported his point in the last quoted sentence of his paragraph 119. He then proceeded to arrive at the overall conclusion in paragraph 120, quoted above in paragraph 60.
- In my judgment, the question of whether Dr Pellerey's activities at Tesla would be such 'as to compete' with the business of DTL required the making by the judge of an assessment in the nature of a finding of fact. He had to make it on the basis of the evidence he had read and heard. He plainly had careful regard to that evidence, including the technical evidence relating to the role performed by Dr Pellerey in Project E, the role he would be performing at Tesla and the impact his role at Tesla would be likely to have on the design of Tesla's electric cars. In light of that evidence, he concluded as he did in paragraph 120. Ms Ellenbogen's submissions did not persuade me that this court is in any position to second-guess the judge on his conclusion in this respect and to substitute a different finding. He was, I consider, entitled on the evidence to make the finding that he did, and I would not disturb it.
- Dr Pellerey's challenge under this head is as to the judge's decision to exercise his discretion to grant the injunction. Ms Ellenbogen says that the judge made substantive errors in the manner in which he approached the exercise of his discretion, omitted to take into account certain matters he should have taken into account, supported a material part of his conclusions with inadequate reasons and, in arriving at the final result, exceeded the 'generous ambit' afforded to first instance decision makers in the exercise of a judicial discretion. The criticism amounts in part to a challenge of perversity.
- The judge approached the exercise of whether or not to grant an injunction as one for which relevant guidance was given in Lawrence. I admit to at least some respectful doubts as to whether the guidance in Lawrence was directly applicable to the particular discretionary exercise with which the judge was faced although, as I shall explain, I do not consider that the judge's adoption of that guidance resulted in an incorrect approach to such exercise.
- As I have said, Lawrence concerned the approach that courts should adopt in response to the commission of a tort (in that case, nuisance) when considering whether or not to award damages in lieu of an injunction. The present case is materially different. DTL's claim against Dr Pellerey is not a claim in tort. It is a claim in contract to enforce a negative restraint to which Dr Pellerey had voluntarily agreed, one as to which the judge's unchallenged finding was that, at the date of the employment contract, it was reasonably necessary to protect DTL's legitimate commercial interests in its trade secrets and other confidential information that both parties might reasonably have anticipated Dr Pellerey would acquire in the course of his employment. It was a restraint that was in the interests of both parties, was not contrary to the public interest and was and is enforceable.
- The substantive effect of Dr Pellerey's opposition to the claim for injunctive relief was to ask the court to release him from this contractual restraint so that he could be free to take up immediate employment with the very type of competitor in respect of whom the restraint was intended to apply. Had DTL made an alternative claim for damages for breach of the restriction (which it did not), it might be said that he was not substantively seeking a total release from the restraint since he would or might still be exposed to a claim for damages for its breach. But in cases such as this damages are not what an employer wants. The damage potentially sufferable by a covenantee such as DTL by a breach of a non-compete restraint will usually be unquantifiable and will rarely, if ever, provide the covenantee with an adequate substitute for an injunction. That is what the judge said about a remedy in damages in this case.
- Why, therefore, in circumstances such as these, should the court's approach to DTL's claim be other than one reflecting a firm recognition that the remedy to which it ought prima facie to be entitled is an injunction? As Lord Cairns LC said in his well-known dictum in Doherty v. Allman (1878) 3 App. Cas. 709, at 720:
- That said, I do not lose sight of the also basic principle that an injunction, like all equitable remedies, is a discretionary remedy which will not be granted as a matter of course. In his review of the authorities in the Insurance Company case, Colman J correctly recognised this in his conclusion that negative covenants will generally be enforced without proof of damage but that:
- That conclusion followed his consideration of several authorities, including the dictum in Doherty. Colman J said that Lord Cairns was not there 'withdrawing injunctions in support of express negative covenants from the category of discretionary remedies: he was merely emphasizing the point that the Court would not be deterred from making such an order by the absence of proof of loss or damage to the applicant.' He went on to explain that it was 'clear that the courts do exercise a discretion to refuse such injunctions in cases where some particular hardship would be caused to the defendant by enforcement of the covenant although no damage would be caused to the applicant if there were no enforcement.' In support, he referred to Sharp v. Harrison [1922] 1 Ch 502 and Shaw v. Applegate [1977] 1 WLR 970, at 980/981, per Goff LJ.
- If I may say so, and by reference to Colman J's summary quoted in paragraph 71 above, I have some respectful reservations as to the value of judicial observations to the effect that a particular principle will ordinarily apply save in 'exceptional cases' or 'exceptional circumstances', since it usually leaves open an unhelpfully wide margin for parties in future cases to find themselves at odds as to whether or not their case is 'exceptional'. That said, I consider that Colman J's quoted summary would in fact be just as valuable if he had omitted the word 'exceptional' since he anyway explained the type of circumstances he had in mind in which it might not be appropriate to grant an injunction. Sir Donald Rattee, in Dyson Technology Limited v. Strutt, endorsed and applied Colman J's guidance and held that the case before him was not the type of exceptional case to which Colman J had referred and that Mr Strutt should be held to his bargain by the grant of an injunction.
- I respectfully agree with the approach reflected in the Insurance Company and Strutt cases, namely that the starting point in the consideration of a claim by an employer to enforce an employee's negative covenant is that the ordinary remedy is an injunction. Given, however, that an injunction is a discretionary remedy, that is not necessarily also the finishing point, although I would be wary of attempting to prescribe with any sort of particularity the types of circumstances in which it might be appropriate to refuse an injunction. The exceptional circumstances referred to by Colman J do, I consider, provide a helpful general explanation as to the type of case in which it may be just to do so. But the categories of circumstances are never closed and every case will turn on its own facts. Mr Nicholls gave as a simpler example of a case in which it would probably be just to refuse an injunction one in which the covenant had been imposed to protect the employer's confidential information, being information which, by the time of the trial, was all in the public domain and so anyway available to the competitor whom the covenantor wished to join (I infer that the example presumed that it was not the covenantor who had released the information).
- There is in my view, therefore, no doubt that the approach to the exercise of the discretion is, as the judge held, not a 'mechanistic' one. Nor in my view, as he also held, is there any doubt that in a case such as the present the burden of showing why an injunction should not be granted is on Dr Pellerey. I reach both those conclusions by reference to the authorities relating to the breach of negative covenants and that pre-dated Lawrence. The approach is, however, essentially consistent with that to be derived from Lawrence.
- Whilst, therefore, I have some doubts as to the direct application of the Lawrence guidance to the exercise that the judge had to perform in determining whether or not to grant an injunction, I doubt if it matters whether such guidance is or is not directly applicable. In recognising that the relevant burden was on Dr Pellerey, the judge had in mind that the prima facie position was that DTL was entitled to an injunction, which I regard as correct; and in assessing whether Dr Pellerey had discharged the burden, he directed himself to the various points advanced on his behalf as to why, as a matter of discretion, an injunction should be refused, which was also correct. I turn now to consider the basis of Ms Ellenbogen's challenge to the soundness of the judge's conclusion that he should grant an injunction.
- Ms Ellenbogen did not represent Dr Pellerey before the judge, but we were shown the full written closing submissions of leading counsel who did (and relevant parts of oral submissions) and, in my view, subject to what I say below, the judge correctly absorbed and recorded their essence and dealt with them in his judgment.
- One criticism of his judgment is, however, that he did not refer to, or take into account, what was said to be the potentially chastening effect on Dr Pellerey's future conduct of the fact of these proceedings themselves, the point apparently being that their impact upon him would likely lessen the prospect of any inadvertent disclosure of confidential information to Tesla if no injunction were to be granted, and would be likely also to heighten Tesla's sensitivity to the need to respect the bar in Dr Pellerey's contract against the disclosure of confidential information. As, however, that point, for what it may be worth (which I would not regard as very much), was not made to the judge, he cannot be criticised for not referring to it.
- Another omission for which he is criticised is that he did not refer expressly in his judgment to the fact that Dr Pellerey had offered undertakings to the court not to disclose confidential information to Tesla. That submission was made to the judge, but I regard his omission to deal with it as of no significance. That is because he in terms acknowledged Dr Pellerey's good faith, whom he accepted did not intend deliberately to disclose confidential information to Tesla. The judge's concern, however, was as to the risk of inadvertent disclosure. The undertakings went only to deliberate disclosure and so an express consideration of them by the judge could not have affected his judgment in this respect.
- A central challenge advanced by Ms Ellenbogen was as to what the judge said in paragraph 132 (quoted in paragraph 38 above). The essence of her complaint was that, having mildly criticised Mr Clothier and Mr Bowen for an aptness to over-state the importance of some peripheral matters, the judge did not then identify with sufficient precision the 'core of information' to which he then referred as 'on any view [qualifying] as confidential information akin to a trade secret', nor did he make a finding as to which of it was known to Dr Pellerey. It was said that, having just indicated that he did not accept all that Messrs Clothier and Bowen had said, it was incumbent upon him to specify precisely which heads of information which emerged in the pursuit of Project E did amount to confidential information akin to a trade secret. His omission to do so was said to be a fatal shortcoming in his reasoning for concluding that an injunction should be granted. He failed to identify the confidential information that the injunction was directed at protecting.
- Mr Nicholls's response was that the judge's judgment must be read as a whole. He referred to paragraphs 22 to 32, in which the judge explained in some detail the nature of Project E and the types of projections, calculations, targets and other matters referred to in paragraph 132 in which the team was engaged. Mr Nicholls also referred us to the documents generated during Dr Pellerey's time in Project E which were the source of the matters to which the judge had referred to in paragraphs 22 to 32. He said that a reading of the judgment as a whole shows perfectly well the areas of confidential information to which the judge was referring in paragraph 132 and he did not there need to identify them more specifically. Ms Ellenbogen's rejoinder was Mr Nicholls's submissions amounted to a repetition of DTL's case at the trial, as to which the judge failed in his paragraph 132 to make sufficient findings, and such repetition did not fill the gap in the judge's conclusions in that paragraph.
- Ms Ellenbogen's submissions were, again, very persuasive. In my view, however, they were sufficiently answered by Mr Nicholls. The first point I would notice is that since the essence of the challenge to the judge's paragraph 132 is, I consider, really in the nature of a reasons challenge, there is perhaps something to be said for the view that Dr Pellerey ought to have responded to it by asking the judge to give his reasons for his conclusions in paragraph 132 more fully (compare English v. Emery Reimbold & Strick Ltd [2002] EWCA Civ 605; [2002] 1 WLR 2409). That, however, was not done, but I shall say no more about it beyond making clear that, as the point was not argued before us, I do not hold it against Dr Pellerey.
- I anyway, however, regard the challenge to the judge's paragraph 132 as misplaced. It is obvious from what he said in paragraphs 84 and 112 (quoted above in paragraph 26) that he found that Dr Pellerey's employment with DTL would daily expose him to highly confidential information regarding the research and development of existing and potential products. In paragraphs 22 to 32, the judge explained what Project E was about in some detail, also explaining matters in relation to the early research into an electric car that obviously formed part of the highly confidential information to which he referred in paragraph 84. The fact that this information was confidential was not disputed by Dr Pellerey, who offered undertakings not to disclose or use it and so he presumably understands to what the judge was referring. I also regard it as unreal to suggest that it was incumbent on the judge in paragraph 132 to identify each head of Project E's confidential information that was known to Dr Pellerey.
- In my view, the second sentence of paragraph 132 summarises quite sufficiently the various heads of information relating to the research for an electric car that the judge held as amounting to confidential information akin to a trade secret, and I consider that he needed to say no more there than he did. The paragraph was part of his response to the point by Dr Pellerey that DTL faced only a minimal risk of harm if he were to make inadvertent disclosure of such information to Tesla. What the judge was saying in paragraph 132 was that this information was truly confidential to DTL; and what he then went on to explain in paragraph 133 was his conclusion that Dr Pellerey (upon whom the burden lay) had not persuaded him that such information would be of no use to Tesla and that DTL would suffer no real harm if the information were to be disclosed to it. He concluded that section of his conclusions by saying, in paragraph 134, that if any such disclosure were to take place, it would be impossible to quantify the harm that would be caused to DTL. This was therefore not a case in which the prospect of a recovery of damages provided a fair or adequate substitute for an injunction.
- Ms Ellenbogen also criticised the judge's approach in section 133. She said that he was wrong there to say that the burden was on Dr Pellerey to persuade him that he could reach a reliable conclusion that such information would be of no use to Tesla and that DTL would suffer no real harm were the information to be disclosed. She said that Dr Pellerey's burden was merely to persuade the judge that, in all the circumstances, the injunction ought not to be granted. I agree that that was what Dr Pellerey had to do. But a crucial consideration of whether he had any prospect of succeeding in it was whether any inadvertent disclosure by him of the information to Tesla would or might cause real harm; and if it would or might do so, that was a real pointer towards the need for the grant of an injunction.
- Ms Ellenbogen, however, also criticised the judge's assessment of the existence of a risk of inadvertent disclosure. She said that once, as he did, the judge had ruled out deliberate disclosure, he failed to give sufficient weight to this when assessing the risk of inadvertent disclosure. She took the new point (which I have already referred to) that the proceedings would themselves give Dr Pellerey a heightened awareness of what is said to be confidential information relating to Project E; and she built on it by saying also that Tesla itself will be more sensitive to the need for Dr Pellerey to respect the need to avoid disclosing confidential information. She also said the judge was wrong to attach the weight he did to the fact of the two disclosures that Dr Pellerey had made (referred to in paragraphs 17 and 37 above).
- In my judgment, this section of the judge's reasoning is unimpeachable. He was addressing himself to Dr Pellerey's point that during his time in Project E Dr Pellerey had access only to limited and general information, of which the inadvertent disclosure to Tesla would give rise to minimal risk of harm. The judge's response was that the nature of the information to which Dr Pellerey was exposed included commercially sensitive information of various types known only to DTL, that there was a real risk of damage to DTL if it were to be inadvertently disclosed to Tesla and that it would be quite impossible to quantify any such harm to DTL that that might cause. The judge was plainly satisfied that there was a risk of inadvertent disclosure, and that was a view he had formed having heard and considered the evidence. I regard it as impossible for this court to second-guess the judge with regard to the making of that assessment. In sum, in measuring the weight to be attached to the point that Dr Pellerey was advancing, the judge was there performing the function that was pre-eminently his as the trial judge. He decided it the way he did, and the notion that this court is in a position to substitute a different view is, in my view, fundamentally mistaken.
- In my judgment, the judge's overall conclusion that he should grant an injunction was one to which he was plainly entitled to come. It was a conclusion that reflected what I consider was the correct approach, namely that DTL was prima facie entitled to an injunction unless Dr Pellerey could persuade him why, as a matter of discretion, it would be unjust to grant one. He considered Dr Pellerey's case in that respect with care and rejected it. The suggestion that his conclusion was outside the generous ambit given to judges engaged in the type of exercise in which he was engaged is one that I do not accept and would unhesitatingly reject.
- I would not disturb the judge's conclusion that he ought to grant an injunction. I would dismiss the appeal against the order he made.
- It is strictly unnecessary to deal with this part of the appeal, since success on it will leave undisturbed the injunction made in respect of the threatened breach of covenant. I shall, however, discuss one aspect of it, namely whether the judge was correct that, when on 27 May 2015 Dr Pellerey was informed of Project E, he came subject to an obligation under clause 5 of the post-employment obligations in his contract to notify DTL of Tesla's offer of employment to him in March 2015. Whether the judge was correct on this is important, because it was upon this alleged breach that DTL built its 'springboard' edifice. As explained in paragraph 10 above, Tesla made its original approach and offer on 18 March and then made a revised offer on 23 March, but there is no need in what follows to distinguish between the two offers.
- I would respectfully differ from the judge's conclusion on this. The language of clause 5 is clear. Its temporal operation is to focus on the 'approach' to the employee in relation to an 'offering' of actually or potentially competing employment. The sense of the carefully drawn language is that the employee must make a prompt assessment upon the making of the approach as to whether or not the offered employment is actually or potentially of a competing nature. If it is, he must 'immediately' notify DTL of it, in default of which he will be in breach. If it is not, he need make no 'immediate' notification of anything, and his omission to do so will not be a breach. On the contrary, he will be entitled to say the clause 5 obligation simply had no application to the approach and offer made to him. If later (in this case, over two months later) circumstances so change that the earlier offered employment suddenly emerges as in fact being of an actually or potentially competing nature, nothing in clause 5 requires a notification of the change. That is because by then the operation of clause 5 is spent.
- In defence of the judge's decision, Mr Nicholls submitted that the correct analysis was that the change of circumstances on 27 May 2015 triggered the happening of the second of the two events whose occurrence required a clause 5 notification. The first event was the 'approach' (which had happened in March) and the second was the emergence on 27 May of the fact that the offered employment was actually or potentially competing. The occurrence of that second event triggered the notification obligation. Mr Nicholls accepted that there had been no prior such obligation.
- A creative re-writing of clause 5 under the guise of interpretation might enable a conclusion along these lines to be arrived at. It is, however, not what clause 5 provides for and it involves attributing no sense to the word 'immediately', which is related temporally to the combination of approach and offer, both of which in this case happened in, and only in, March 2015. Mr Nicholls's suggested interpretation may well make good commercial sense, but its problem is that it seeks to apply the language of clause 5 to circumstances which its authors did not foresee and for which they did not therefore cater. There is, in my view, no orthodox basis upon which clause 5 can be distorted into covering such circumstances, and Mr Nicholls (rightly, in my view) did not suggest that there was any question of implying a term into clause 5 so as to fill the gap which the facts have revealed. It may perhaps be, but I express no view on it, that once Dr Pellerey was introduced to Project E, his duty of fidelity as an employee who had been offered a job by a company which had by then become an actual or potential competitor required him promptly to tell DTL about it. But DTL did not advance any such case on appeal, and so I shall say no more about it.
- In my view it follows that the judge ought to have held that the foundation upon which the 'springboard' edifice was built did not exist, with the consequence that the claim ought to have failed. In those circumstances, I do not propose to consider the arguments advanced to us on other aspects of the claim save to express my gratitude to counsel for them. I add only that I consider that my conclusion in paragraph 91 does not vitiate the judge's reasoning in his paragraph 136 (quoted at paragraph 39 above). The non-disclosure of the offer was still unwise, as the judge said. Nor was any argument addressed to us that such a conclusion would vitiate his reasoning.
- I said in paragraph 3 above that I would explain briefly why the court heard the appeal in private and made the other orders also there referred to. It will by now be self-evident, but the essence of the reasoning was founded on the court's recognition that the confidentiality asserted by DTL related not just to the Project E research on the possible development of a Dyson electric car, but also to the very fact that DTL was engaged in such research. The evidence explained why secrecy of the latter nature was an essential part of the Dyson approach to possible new products and this court, like the judge, was satisfied that Dyson's commercial reasons for wishing to maintain that secrecy were ones that the court should respect. Once it had come to that conclusion, the court regarded it as clear that it ought to hear the appeal in private and make the other orders it did.
- In Scott (otherwise Morgan) and Another v. Scott [1913] AC 417, at 437, Viscount Haldane LC said:
- The court was of course sensitive to the consideration that open justice is and should be the norm, but in this case it concluded that, in order to do justice to DTL, the general rule had to yield. A public hearing would inevitably result in a central part of DTL's secret becoming public knowledge. The court considered that it would also have been impracticable to hear any part of the appeal in public. It was also satisfied that its obligations under the European Convention on Human Rights and Fundamental Freedoms did not require it to do otherwise than proceed as it did.
- I would dismiss Dr Pellerey's appeal.
- I agree.
- I also agree.
Sir Colin Rimer:
The facts
Dr Pellerey's contract of employment
'Confidentiality
The contractual relationship between Dyson and yourself is founded on trust. At any time during or after the termination of your employment you agree not to disclose to any person or use for your own purposes other than those of the Company, any private, confidential or secret information specific to the business of the Company. Any breach of this trust by you, such as the unauthorised disclosure to a third party of confidential material relating to the business of the Company will result in disciplinary action and/or civil proceedings to restrain you from disclosing or making use of the information without authority, or for damages if loss to the Company results from the unauthorised disclosure.
Loyalty and other employment
During the term of this agreement you shall use your reasonable endeavours to promote the interests of, and shall act in good faith in relation to, the Company. In addition you shall not (unless otherwise agreed by the Company) undertake any other business or profession or become an employee or agent of any other firm, company or other person. …
Obligations after employment
Definitions used in this clause are set out in the Schedule to this Agreement.
1. You will not for the Restricted Period:
a) so as to compete with the Company or any Group Company, carry on or be engaged, concerned or interested in any Restricted Business …
4. Each of the restrictions above shall apply whether you act as principal or agent and whether alone or jointly, with or as a director, manager, partner, shareholder, employee or consultant or any other person, and whether you act directly or indirectly.
5. You agree that if any person approaches you in connection with offering you employment which is or potentially may be in competition with the Company or any Group Company then you will immediately inform the Company of that approach. In addition, you will disclose to any potential new employer before accepting such an offer of employment the extent of your notice period and the obligations after employment which you owe to the Company and any Group Company and will confirm to the Company that you have provided that notification.'
' "Confidential Product Information": means any confidential information relating to:
(i) any product or plans for a product not yet launched by the Relevant Date;
(ii) current or future product strategy;
(iii) product design; or
(iv) the marketing or sales strategy of any product,
in each case excluding information in the public domain other than as a result of a breach by you of your obligations under this Agreement;
"Relevant Date": means the Termination Date, or if earlier, the date from which you were required not to attend work during your notice period; …
"Relevant Period": means the twelve months immediately preceding the Relevant Date;
"Restricted Business": means any business which is similar to any business being carried on by the Company or any Group Company at the Termination Date and with which you were either:
(i) involved at any time during the Relevant Period; or
(ii) materially informed about or had responsibility for during the Relevant Period; or
(iii) in circumstances where a new product is planned to be launched, involved in the planning, research, development or manufacture of that product in the 24 months prior to the Relevant Date and as a result of that involvement still have Confidential Product Information; …
"Restricted Period": means the period of 12 months following the Relevant Date; and
"Termination Date": means the date on which your employment with the Company ends.'
More facts
Project E
'31. By the end of the first two weeks of work on Project E (11 and 12 June 2015) the core market propositions and target technical specifications for an electric car had been discussed by the members of the Project E team and a rough degree of consensus reached. Such matters included the market sector, type of vehicle, price, weight and dimensions, the target range in realistic driving conditions, the top speed and acceleration. Although the evidence of Mr Clothier for DTL sought to stress the importance of these early works in setting the direction for future work, in my judgment the reality was that the project was still very much in its infancy. Though obviously important, the work done in developing a target specification was at a fairly high level and was aimed at providing the basis for the development by December 2015 of a credible business case for submission to the Dyson board. …'.
'… Accordingly, confidentiality is central to what Dyson does. We rely upon confidential information for our research and development work, in particular for the design and manufacture of our products, to keep ahead of our competitors and ensure the long-term success of the Dyson business. Moreover, much of Dyson's research and development work is conducted over an extremely long time-frame. In extreme cases, a particular product might take more than a decade from initial idea to launch, and it is essential that we maintain commercial confidentiality at every stage of that process … we need to ensure that competitors do not discover our plans or products before we are ready to launch them in public. …
Further, our approach involves an element of surprise. We enter markets that may be unconnected with previous markets we have developed. We arrive at an innovative product and capture consumers' imagination before the competition can react. For this reason, knowledge of our intention to enter a new market is a key aspect of our confidential information.'
Subsequent events
DTL's claims against Dr Pellerey
A. The claim to enforce the clause 1(a) restraint
'74. Nor do I accept that sub-clause (iii) [of the definition of 'Restricted Business'] was only intended to apply if "proof of concept" approval had been given, or specific plans had been laid for the launch of a finished product onto the market by the Termination Date. The clause makes no mention of "proof of concept" or any particular marketing stage at all. Instead, I read it as designed to apply at any time from the point in time at which a potential product was conceived (by DTL) until it was actually made available to the market (by another Dyson Group company), provided that Mr Pellerey had been involved with some stage of that development process in the 24 months prior to the Relevant Date, and provided also that he still had Confidential Product Information (as defined) relating to it.'
'84. Applying these principles, I have no doubt whatever that at the time of entering into the Employment Contract the parties must have envisaged that Mr Pellerey's employment would involve him being exposed on a daily basis to highly confidential information regarding the research and development of existing and potential products by DTL that could properly be described as trade secrets or information of equivalent confidentiality. I have set out in paragraphs 33 and 34 above the evidence of Mr Bowen and Mr Clothier as to the nature of DTL's business and the Dyson Group's strict approach to confidentiality and the practical steps taken to preserve it. That approach was not materially challenged and I accept it. Given the manifest importance to DTL of the confidential information concerning the research and development being undertaken by its staff, and the steps taken to protect that information, there can be no doubt that DTL had a legitimate business interest in such information that it was entitled to protect by a suitable covenant restraining Mr Pellerey from engaging in a competitive activity after termination of his employment. …
112. … I consider that DTL has established that the restraint sought to be imposed on Mr Pellerey in the Employment Contract was no wider than was, at the date of the contract, reasonably necessary to protect DTL's legitimate commercial interests in the trade secrets and equivalent confidential information relating to its business that both parties might reasonably have anticipated Mr Pellerey would acquire in the course of his employment. The covenant was therefore in the interests of both parties and not contrary to the public interest, and hence it is enforceable against Mr Pellerey.'
'115. There can, I think, be no real doubt that the research and development activities of Tesla are a Restricted Business within the meaning of the Employment Contract. At the time at which Mr Pellerey resigned, both DTL and Tesla were engaged in the business of designing electric cars, and Mr Pellerey had been involved to the requisite degree in Project E at DTL.
116. I also consider that the fact that Project E is less advanced than Tesla's established car business is not relevant to the question of whether Mr Pellerey would be competing with DTL in his new job at Tesla. I accept Mr Nicholls' argument that since DTL commenced work on Project E, DTL and Tesla have been business rivals, irrespective of the respective stages which their research and development have reached. Ultimately, each company is striving to design a superior electric car that will sell better than the other's product.'
'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.'
'The effect of the authorities can be summarised as follows: (1) Express or implied negative covenants will in general be enforced by injunction without proof of damage by the plaintiff. (2) The principle does not depend on whether the plaintiff is a person or a corporation. The ready availability of the remedy is not the consequence of equity's regard for the plaintiff's personal feelings, but of equity's perception that it is unconscionable for the defendant to ignore his bargain. (3) Although absence of damage to the plaintiff is not in general a bar to relief, there may be exceptional cases where the granting of an injunction would be so prejudicial to a defendant and cause him such hardship that it would be unconscionable for the plaintiff to be given injunctive relief if he could not prove damage. In such cases an injunction will be refused and the plaintiff will be awarded nominal damages.'
'I would accept that the prima facie position is that an injunction should be granted, so the legal burden is on the defendant to show why it should not.'
'132. Thirdly, whilst I think that a good deal of the confidential information to which Mr Pellerey had access during his limited time on Project E tended to be of a preliminary nature, and I formed the impression that Mr Clothier and Mr Bowen were apt to over-state the importance of some of the peripheral matters, there was, nevertheless, a core of information generated in the period of time that Mr Pellerey was engaged on Project E that must on any view qualify as confidential information akin to a trade secret. Although many of the projections and calculations of the performance of various motors and hypothetical vehicles which Mr Pellerey performed or contributed to could be replicated by use of a similar computer programme, the particular targets set by the DTL team and Sir James Dyson for the range and performance of the car, the body shape and size, the proposals for the air cooling of the motor and heating of the battery, and an unusual idea for design of the car's wheels are commercially sensitive matters known only to DTL.
133. Even allowing for the Dyson Group's preoccupation with secrecy, the very fact that DTL went to considerable efforts to keep these matters confidential to the Project E personnel must lend weight to the arguments that disclosure of these matters could cause significant harm to DTL and the Dyson group. Whilst (for obvious reasons) I can have no direct evidence of what would happen if these details were revealed to Tesla, I also have no real basis upon which to discount the views of Mr Clothier and Mr Bowen as to the damage that might be done to the business of DTL and the Dyson Group if that were to occur. In this respect, as Lord Neuberger accepted in Lawrence, the onus must be on Mr Pellerey to persuade me that I can reach a reliable conclusion that such information would be of no use to Tesla and that DTL would suffer no real harm were the information to be disclosed. I am not so persuaded.
134. Moreover, and picking up the main point made by Mr Nicholls in response to this issue, it would simply be impossible to quantify the harm that would be caused to DTL were any such disclosure to take place. In those circumstances I do not think that the prospect of recovering damages for breach of confidence provides a fair or adequate substitute for the grant of an injunction to prevent – for a limited period – the situation existing in which inadvertent disclosure and consequent harm is most likely to take place.'
'136. Finally, although I have considerable sympathy for the predicament that Mr Pellerey finds himself in, I cannot disregard the fact that Mr Pellerey is largely the author of his own misfortune. As I shall indicate below, I do think that Mr Pellerey acted unwisely and breached his contractual duties to DTL when failing to inform it on 27 May 2015 when he was asked to work on Project E (or even after the security briefing on 4 June 2015) that he had received and had accepted a conditional job offer from Tesla. Whatever Mr Pellerey's concerns at the time, I do not accept the suggestion that DTL would have held that fact against him, and more importantly, had Mr Pellerey told DTL of the job offer (which he did when it suited him to do so in relation to the offer from the CCTV company in October 2014) he would not have become involved with Project E, and DTL would have been unable to prevent him leaving to work for Tesla when his job offer was confirmed.'
B. The claim for a 'springboard' injunction
C. Injunction to restrain breach of confidence
'163. … But if, as a result of the injunction to restrain Mr Pellerey from working for Tesla, Mr Pellerey is not placed in such an environment, then I see no basis upon which to grant an injunction against him.
164. I accept, of course, that the position might change were Mr Pellerey to take up employment with Tesla or another electric car manufacturer after 15 June 2016, but if that were to occur, a court would have to look at the circumstances afresh at that stage.'
The judge's order of 30 October 2015
The appeal to this court
A. The judge's decision to enforce the clause 1(a) restraint by injunction
(i) Was Project E, when Dr Pellerey was involved in it, part of the 'business being carried on by' DTL?
'When we look into the dictionaries as to the meaning of the word "business," I do not think they throw much light upon it. The word means almost anything which is an occupation, as distinguished from a pleasure – anything which is an occupation or duty which requires attention is a business – I do not think we can get much aid from the dictionary. We must look at the words in the ordinary sense, and we must look at the object of the covenant; and, looking at both, I have no hesitation in saying that this is clearly within the words and within the object of the covenant.'
(ii) Is Tesla's business 'similar to' DTL's and so, therefore, a 'Restricted Business'?
(iii) Will Dr Pellerey's employment in Tesla's 'Restricted Business' be 'so as to compete with [DTL] or any [Dyson] Group Company'?
'120. Accordingly, even accepting Mr Verzeni's unchallenged evidence that it is "anticipated" that "the focus" of Mr Pellerey's work for Tesla for several years would be on the NVH [noise, vibration and harshness] of electric motors, I accept Mr Nicholls' submission that the overwhelming likelihood is that Mr Pellerey will be involved in work and discussions at Tesla which will involve other aspects of the design of a car. That work at Tesla will inevitably be aimed at the design of a better car that will be able to overcome a challenge from anything that the Dyson Group or other manufacturers might produce. Accordingly, I think that Mr Pellerey would be competing with DTL or other Dyson Group companies in his new job.' (My emphasis)
'The Staff Drive Motor Engineer reports into the Propulsion Team and will interact heavily with the Electromagnetic Design and Motor Control teams. He will be heavily involved in all design aspects of the electric motor mechanical design and participate in defining the optimal parameters for the electromagnetic design of the drive motor.
Working with the manufacturing teams he will assist with vendor, material and assembly selection for creation of early and pre-production prototypes.
The Drive Motor Engineer will be responsible for dynamic mechanical simulation of new and existing motor concepts, and perform combination of Electro-Magnetic and structural acoustic analysis to predict and optimize motor designs for NVH [noise, vibration and harshness] and durability and assist the [Electromagnetic] design team to achieve the best overall design for NVH.'
'119. But I do not accept Mr Sims' argument that Mr Pellerey's intended job at Tesla would not result in him competing with DTL because it would involve acoustic noise work rather than work on torque/speed curves and drive-cycle simulations. The technical evidence that I heard from both Mr Clothier [DTL's director of Technical Research] and Mr Pellerey made it very clear that the development of an electric car is a complex undertaking, in which many aspects of the design and specification of the car are inter-related and choices in one area have an implication for other aspects of the design. Any person contributing to one aspect of the project does not work in isolation from other contributors and his work is very likely to have an effect upon the overall design. Mr Pellerey's evidence on this issue was typified by the following exchange ….'
(iv) Was the judge wrong to grant the injunction?
'If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such a case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury – it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves.'
That statement is bottomed in the recognition of a basic principle of which sight should not readily be lost, namely that contracting parties should ordinarily be held to their bargain, which is all that DTL was asking for by claiming the injunction that it did.
'Although absence of damage to the plaintiff is not in general a bar to relief, there may be exceptional cases where the granting of an injunction would be so prejudicial to a defendant and cause him such hardship that it would be unconscionable for the plaintiff to be given injunctive relief if he could not prove damage. In such cases an injunction will be refused and the plaintiff will be awarded nominal damages.'
B. The claim for a 'springboard' injunction
The hearing of this appeal in private
'The other case referred to, that of litigation as to a secret process, where the effect of publicity would be to destroy the subject-matter, illustrates a case which stands on a different footing. There it may well be that justice could not be done at all if it had to be done in public. As the paramount object must always be to do justice, the general rule as to publicity, after all only a means to an end, must accordingly yield.'
Disposition
Sir Timothy Lloyd :
Lord Justice Lindblom :