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QUEEN'S BENCH DIVISION
B e f o r e :
____________________
TAKÉ LIMITED | Claimant | |
- and - | ||
BSM MARKETING LIMITED | Defendant | |
- and | ||
BARRIE MORLEY |
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Official Shorthand Writers and Tape Transcribers
Quality House, Quality Court, Chancery Lane, London WC2A 1HP
Tel: 020 7831 5627 Fax: 020 7831 7737
MR. DONALD McCUE appeared on behalf of the Defendant.
____________________
Crown Copyright ©
JUDGE TOULMIN:
Introduction
The Issues
a. Were the defendants in breach of their duty of loyalty during the subsistence of the agency agreement with Také?b. If yes, did the breach cause any financial loss in respect of Také's relationship with three specific companies (a) Dreams, (b) Benson and (c) Argos? If the answer to this question is "Yes" in respect of any of these companies, the issue of quantum will be heard at a later stage.
c. Did the defendants have a duty of confidence towards Také? What was the nature of the duty and how long did the duty subsist?
d. What would be the effect, if any, of a repudiation of the contract between Také and BSM (Mr. Morley) by Také on any continuing duty?
e. What were the categories of confidential information in this case? What information was in fact disclosed, to whom, and was it disclosed in circumstances of confidence?
f. What were the terms of the contract between Také and BSM (Mr. Morley) after the 31st March 2005? When and by whom was it terminated?
g. Was it justifiable in law to grant an interim injunction against Mr. Morley and BSM? If not, what is the measure of damages?
h. Should the interim injunction be continued and, if so, for how long? Should it be made permanent?
i. Can the defendants succeed in their counterclaim?
The Law
"The relationship of principal and agent can only be established by the consent of the principal and agent. They will be held to have consented if they have agreed to what amounts in law to such relationship even if they do not recognise it themselves and even if they have professed to disclaim it. ... But the consent must have been given by each of them either expressly or by implication from their words and conduct."
"A fiduciary must act in good faith; he must not make a profit out of his trust; he may not act for his own benefit or the benefit of a third party without the informed consent of his principal.
"The principal remedy for breach of duty is an account of profits and the principal may be able to trace the money not only against the agent but also into the hands of third parties."
"An agent may not put himself in a position or enter into a transaction in which his personal interest or his duty to another principal may conflict with his duty to his principal unless his principal, with full knowledge of all the material circumstances and of the nature and extent of the agent's interest, consents - See also Bray v. Ford [1896] AC 44 at 51."
"If the information in question can fairly be regarded as a separate part of the employee's stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer and not his own to do as he likes with, then the court, if it thinks that there is a danger of the information being used by the ex-employee to the detriment of the old employer will do what it can to prevent the result by granting an injunction. Thus an ex-employee will be restrained from using or disclosing a chemical formula or a list of customers which he has committed to memory."
"'Once the employment relationship ceases, there is no continuing occasion for loyalty. All that is left is a residual duty of confidentiality in respect of the employer's trade secrets. That, as many of the cases acknowledge, is in reality enforceable by taking a covenant from the employee by which he is not to go to work for a rival in a trade', per Lord Denning in Littlewoods in the passage already cited - itself an echo of Sir Nathaniel Lindley's judgment in Haynes: 'The prohibition against disclosing secrets is practically worthless without the restriction against entering the employ of rivals'."
"Much will depend on the circumstances. These may be such as to show that information is or is being treated as confidential; and it would be unrealistic to expect such a small and informal organisation to adopt the same business disciplines as a larger and more bureaucratic concern. It is plain that if an employer is to succeed in protecting information as confidential he must succeed in showing that it does not form part of an employee's own stock of knowledge, skill and experience ... Ultimately the court must judge whether the employee has illegitimately used the confidential information which forms part of the stock in trade of his former employer or whether he has simply used his own professional expertise gained in whole or in part during his former employment."
"1. Where the parties are or have been linked by a contract of employment the obligations of the employee are determined by the contract.
"2. In the absence of any express term, the obligations of the employee in respect of the use and disclosure of the information are the subject of implied terms.
"3. While the employee remains in the employment of the employer the obligations are included in the implied term which imposes a duty of good faith or fidelity on the employer.
"4. The implied term which imposes an obligation on the employee after the determination of his employment is more restrictive than during his employment and is restricted to genuine trade secrets."
"5. In order to determine whether any item of information has the necessary quality of secrecy, attention must be paid to the following amongst other circumstances: (a) the nature of the employment; (b) the nature of the information which it is desired to protect. It must be a genuine trade secret or the equivalent of a trade secret; (c) whether the employer impressed on the employee the confidentiality of the information; (d) whether the relevant information can clearly be isolated from other information which the employee is free to use or disclose."
These are factors which a court must take into account in considering whether the circumstances imposing the obligation of confidence have arisen and whether the duty has been breached.
"There must be something which is not only a trade secret but which was known or ought to have been known to both parties to be so. The normal presumption is that information which the employee has obtained in the ordinary course of his employment, without specific steps such as memorising particular documents, is information which he is free to take away and use in alternative employment."
The Facts
"BSM will act in a professional manner at all times. Should BSM breach any confidentiality and/or act in a manner that results in conflict with its customers, employees or suppliers at any time, the company reserves the right to terminate the agreement without notice and fully withhold all amounts unpaid in respect of the consultancy fees and all future fees that would have been earned but for the remaining period."
Dreams
"Please could you pass this on to the Wuhan Factory for them to make up as soon as possible and give us an idea on costing at their earliest possible opportunity".
"Detailed below are suggestions of how we can go forward if Mr. Chew decides to withdraw from Také Limited. We have two options.
1. Set up UK company to handle Mr. Chew business. It can be under factory name. To do this would require an office and office staff.
2. I have UK company Test Rite UK Limited which a friend of mine already has in the UK with a trading office and is fully staffed. The company consists of:
"*Sales Team.
"*Quality control department.
"*Designers.
*Customers based in the UK, Europe, USA and Australia.
The company currently import/sell ...
They do not have a furniture department which they are currently looking for. I would head this department up.
THIS IS WHERE MR. CHEW'S SALES WILL INCREASE.
Areas for discussion are
*B Morley's commissions 8/70% depending on how we go forward". (I was told that the figures should have been 5%-7% with the higher commission due on FOB rather than retail prices)
Once Mr. Chew breaks with Také Limited I am sure we can move very quickly to increase sales for factory.
Potential new customers.
*Argos.
Focus It All.
B&Q
Asda...
It can all be good news once agreed and set up. Most importantly working together to obtain orders not working against each other.
Please discuss with Mr. Chew and advise of his comments."
"Listed below FOB $(dollar) prices which I require for Dreams Plc.
1. On the base/system I added 15% you quoted to cover both our commissions".
Benson
"9. Také will be given a greater share and will supply the bed division in the UK of Homestyle to include Benson ... so gaining a material increase in volume sales in consideration for this lower Také margin ...
"11. Také have undertaken not to accept any new orders from Sleep Depot (Mr. Kelly's new company). (This was committed outside the meeting with Ray and Ian and Majid has subsequently advised Sleep Depot)".
Argos
Confidential Information
1. The information which is protected must be genuinely information which is a trade secret i.e. class 3 of Goulding J's classification in Faccenda Chicken.2. There is no application to enforce the anti-competition clause. In these circumstances Mr. Morley is now entitled to compete with Také in any way he chooses subject to the question of whether he should be restrained from using confidential information.
3. It is necessary to consider all the circumstances of the case including the matters set out by Neill LJ in Faccenda Chicken.
4. The test is not only whether it was a trade secret but whether it was known or ought to have been known to the parties at the time to have been so. See Lancashire Fires.