England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		8 June 2009

MRS JUSTICE SWIFT:

The application

1. There is an application for interim relief pending a speedy trial on issues of breach of directors' duties and of restrictive covenants to which it is alleged by the claimants that the defendant was and is subject. The trial is expected to last two or three days and can be accommodated by the court in July or, failing that, in October. Meanwhile, the claimants seek an injunction enforcing in part the relevant restrictive covenants.

The background

2. The first, second and third claimants are three of a much larger group of companies whose business is the sourcing and placing of specialist personnel for the oil and gas industries around the world. The first claimant is a holding company. The second claimant is also a holding company and a wholly owned subsidiary of the first claimant. The third claimant is a wholly owned subsidiary of the second claimant. The fourth claimant is a major investor in the third claimant.
3. The third claimant's business is the provision of services. It has its head office in London and operates in over 30 countries, with offices in ten countries. It is the leader in a field which is highly specialised and very limited in terms of the number of potential customers, as well as the number of personnel with the necessary expertise and experience to work in the oil and gas industries. The third claimant seeks to maintain its position as leader in the field by identifying suitable personnel quickly, by a carefully pitched and competitive pricing structure and by providing an efficient support service to deal with all administrative employment issues arising in the country where the employee is to work.
4. In addition to the second and third claimants, the claimants' group includes at least 12 other subsidiary companies.

The defendant's involvement with the claimant group

5. The defendant joined the claimant group in 1992/1993 as a recruitment consultant. He became a shareholder in the second claimant and, by June 2006, he owned 35 per cent of the shares. In May/June 2006, the claimant group underwent restructuring. The fourth claimant purchased a substantial shareholding in the group. At the same time, the defendant and Patrick Swift, the founder of the claimant group, sold their shares in the third claimant. The various transactions resulted in the defendant retaining a 30 per cent shareholding in the first claimant. At the same time, he was appointed Chief Executive/Managing Director of the first claimant. Mr Stewart Cantley became Chairman of the first claimant.
6. In December 2006, Mr Cantley took over from the defendant as Chief Executive/Managing Director, it being hoped and intended that he would expand the claimants' business significantly and increase its value. From that time, the defendant became a non-executive director of the first claimant. He sold 22 per cent of his shareholding in the first claimant, retaining an 8 per cent share. In March 2008, when the claimant group was experiencing financial difficulties, the defendant provided additional funding of £2 million to the group. He holds loan notes dating from the sale and purchase of May/June 2006. The value of those loan notes amounts to just under £6 million, on which about £1.5 million interest is owing. Thus, although the precise value of the defendant's interest in the claimant group is a matter of some dispute between the parties, it is plainly very substantial.
7. The defendant resigned his non-executive directorship in May 2009 in circumstances to which I shall refer in due course. However, his financial interest in the claimant companies remains as previously described.

The Kazakh companies

8. The Kazakh companies consist of Akzhaikservices LLP (Kazakhstan) and two wholly owned subsidiaries, Bolashak Atyrau LLP (known as Bolashak A) and Bolashak K (Kazakhstan) (known as Bolashak B). The Kazakh companies were formed in 2003 and took over the provision of services supplying manpower to the oil and gas industries within Kazakhstan. Those services had formerly been provided by a wholly owned subsidiary of the second claimant. The defendant and Mr Swift were involved in setting up the Kazakh companies and, at its formation, the defendant owned 29 per cent of Akzhaikservices LLP. He also provided services to that company, in addition to his work for the claimant group. Until very recently, the activities of the Kazakh companies have been confined solely to the territory of Kazakhstan.
9. From 2003, the claimant group and the Kazakh companies worked in co-operation under a series of agreements providing, in summary, that Bolashak A would employ and provide manpower recruited from within Kazakhstan only, while the claimant group would employ and provide manpower recruited from outside Kazakhstan. It was agreed that neither company would use the services of any other company to provide manpower. Thus the two groups were not in competition.
10. In 2005, an entity named Neftegazstroy (Kazakhstan) acquired 50 per cent of Akzhaikservices LLP. Thereafter, the defendant was left with a 14 per cent shareholding. He continued to provide services to the Kazakh companies as before.

The agreements of June 2006

11. Clause 7 of the Sale and Purchase Agreement dated 28 May 2006, by which the defendant and Mr Swift sold their shares in the third claimant, imposed certain restrictions upon them. In particular, clause 7.3 of that agreement provided:

"Each of the Sellers [the defendant and Mr Swift] severally covenants with the Purchaser with the intention of assuring to the Purchaser the full benefit and value of the goodwill and connections of each of the Group Companies and the Business and as a constituent part of the agreement for the Sale Shares that save with the previous written consent of the purchaser.

7.3.1 for the duration of the Restricted Period he will not:

(a) directly or indirectly deal with or engage in business with or be in any way interested in or connected with any concern, undertaking or person which engages in or carries on within any part of the Restricted Area any business similar to the Business; or

(b) directly or indirectly deal with or engage in any business with or be in any way interested in or connected with any concern, undertaking or person which engages in or carries on within any part of the Restricted Area any business which competes with the Business."

12. In clause 7.1, "Business" is defined as "the business of any Group Company at the Completion Date and in particular...the business of providing manpower services to the oil and gas industry". "Restricted Period" is defined as "the period from the Completion Date to the later of (a) the second anniversary of the Completion Date and (b) if a Seller is an employee of a Group Company after the Completion Date, the first anniversary of the date on which that Seller ceases to be an employee of the Group."
13. The Agreement also contained the following provision at clause 7.3.3:

"He (the Seller) will not for a period of five years after the date of this Agreement disclose to any person or otherwise make use or permit the use of any trade secrets or confidential knowledge or information concerning the business, finance or affairs of any Group Company or any of their customers, clients or suppliers, and will use his best endeavours to prevent the publication or disclosure of any such secrets, knowledge or information by any third party...".

14. Also on 28 June 2006, the defendant entered into a Service Agreement relating to his appointment as Chief Executive/Managing Director of the first claimant. Clause 4.3 of that Agreement placed upon him restrictions as to other activities which he could undertake during the period of his appointment. It provided as follows:

"During the Appointment the Executive shall not without the written consent of the Board (such concern not to be unreasonably withheld or delayed):

4.3.1 be engaged or interested either directly or indirectly (through any member of his family or household) in any capacity in any trade, business or occupation whatsoever other than the Business of the Company or the Group provided that the Executive shall not be prohibited from holding whether directly or indirectly up to 5% of the shares or stock of any class of any company listed on a recognised stock exchange or the Alternative Investment Market save that nothing in this clause 4.3.1 shall prevent the Executive from holding shares in Akzhaikservices LLP."

15. The Agreement also contained at clause 11 a non-compete restriction. Clause 11.3 provided:

"The Executive shall not without the prior consent of the Board (such consent not to be unreasonably withheld)...directly or indirectly, on his own behalf or on behalf of any person, firm or company:

11.3.1 be concerned (whether as a director, employee, shareholder, partner, lender, proprietor, agent or otherwise) in any business which competes with any business of the Restricted Companies at the Relevant Date in any territory in which such business was carried on at the Relevant Date."

16. "Restricted Company" was defined as:

"Any Group Company in relation to which the Executive shall either ordinarily or as part of his duties under his employment, or by virtue of any directorship held at the point and time by him pursuant to such employment, render any services or perform any function during the 12 months prior to the relevant date."

The "Relevant Date" was defined as the date of termination of the Executive's appointment.

17. Paragraph 11.6 provided:

"The restrictions contained in this clause are considered by the parties to be reasonable in all the circumstances".

18. Clause 10 of the Service Agreement contained detailed provisions relating to confidential information and imposed an indefinite duty not to use or disclose such information.
19. The third Agreement of 28 June 2006 was an Investment Agreement which was made between the first claimant, the second claimant, eight Managers (including the defendant) and the Lead Investors, who were members of the group which comprises the fourth claimant. The purpose of this Agreement was to set out the terms on which the Lead Investors had agreed to invest in the first and second claimants and how the affairs of the company were to be conducted as between the Managers and the Lead Investors.
20. Clause 7 of the Investment Agreement contained various undertakings by the Managers, the first of which related to restriction on other activities permitted during the course of their employment as Managers. Clause 7.2 provided:

"Without prejudice to Mr Mulcahy's 14% interest in Akzhaikservices LLP (Kazakhstan) and the level of service provided by him to that company as at the date of this Agreement, each of the Managers, for so as long as he is the director or employee of any Group Company, shall devote the whole of his time and attention to the business of the Group and shall not without Investor Consent be or become a director or executive officer of any other company (except another Group Company) nor be concerned or interested in any business other than that of the Company or of any Group Company provided that he may be interested as a holder, solely for investment purposes of not more than five per cent of the share capital of a company listed on a Recognised Investment Exchange".

21. Clause 7.3 provided:

"As each Manager, in the course of his employment and directorship is likely to obtain knowledge of trade secrets and other Confidential Information of Restricted Companies from time to time and will have dealings with the customers and suppliers of Restricted Companies, and in order to protect such trade secrets and other Confidential Information and the goodwill of the Restricted Companies, each of the Managers hereby severally covenants with and undertakes to each of the Investors and separately covenants with and undertakes with the Company as trustee for the Restricted Companies, that, except with Investor Consent and without prejudice to any other duty implied by law or equity, he will not directly or indirectly, either alone or jointly during the period of his employment with or directorship of a Restricted Company (save in pursuance of the exercise of his duties as an employee and/or director of a Restricted Company) and for the Relevant Period (other than in the case of clauses 7.3.7, 7.3.8, and 7.3.9 below which shall apply indefinitely) following the Relevant Date:

7.3.1 be concerned (whether as a director, shareholder, partner, lender, proprietor, agent or otherwise) in any business which competes with any business of the Restricted Companies at the Relevant Date in any territory in which such business was carried on at the Relevant Date".

The "Relevant Period" for the purposes of clause 7.3 was 12 months from the date of termination of the employment or directorship, whichever was the later, of the Manager.

22. Clause 7.3 differed from the equivalent provision contained within the Service Agreement in two significant respects. First of all, there was no requirement that consent to the Manager's involvement in other business interests should not be unreasonably withheld or delayed. Second, the period of the restriction was 12 months from the termination of employment, rather than the six month period which was contained within the Service Agreement.
23. Clause 7.6 of the Investment Agreement provided:

"Each of the restrictions contained in clause 7.3 shall be construed as a separate restriction and is considered reasonable by the Parties...".

24. Confidentiality was provided for in Clause 7.3.9 which provided:

"Except so far as may be required by law, use or disclose to any person any Confidential Information of a technical, trade or other character which he has acquired in the course of or as a result of his directorship of or employment by a Restricted Company or his ownership of shares in the capital of a Restricted Company".

25. Clause 7.8 of the Investment Agreement required Managers to provide the claimant group with details of any business or other commercial enterprise in which they were or became concerned in any capacity.

Agreements made in December 2006

26. In December 2006, when the defendant moved from his position as Chief Executive/Managing Director of the first claimant to that of a non-executive director, the terms of his appointment were set out in a letter dated 14 December 2006, which I shall refer to as the "Non-Executive Directorship Agreement". It was specifically agreed that the Agreement was a contract for services, not a contract of employment. The Agreement set out in some detail the role which the defendant would be required to fulfil and also the time commitment which would be required of him. The relevant passage provided:

"Overall we anticipate that you will spend one day per month on the business of the company."

The one day a month was expressed as including preparation for Board meetings, participation in Board meetings and also the performance of ad hoc tasks as agreed.

27. The Agreement contained no restriction on other activities by the defendant, save that it provided that he would be expected to discuss potential new appointments with the first claimant and keep it informed of any changes and that he would not be permitted to assume any appointment which may give rise to a conflict of interest with the first claimant.
28. The Agreement contained a non-compete clause in these terms:

"During the term of your appointment you undertake and covenant with the Company not to, either on your own behalf or jointly with another person, or as an officer, employee, advisor, consultant or agent for any other person, directly or indirectly, be engaged or interested in any other capacity in carrying on any business within the United Kingdom in competition with the business carried on by the company or any other Company within the group."

29. There was also a duty of confidentiality which was set out in the Agreement and which was to extend beyond the termination of the defendant's employment.
30. The claimants concede that the Non-Executive Directorship Agreement replaced the Service Agreement of 28 June 2006. However, they contend that the defendant remained subject to the provisions of the Investment Agreement.

The letter of 14 December 2006

31. The letter of 14 December 2006 was signed by the first claimant and, on behalf of the fourth claimant, the Lead Investors in the claimant group. It was not signed by the defendant.
32. The opening paragraph of the letter referred to the restrictive covenants contained in the Sale and Purchase Agreement, the Service Agreement and the Investment Agreement of 28 June 2006. The second paragraph of the letter provided:

"Notwithstanding the provisions of the above agreements or any other agreement between us, and as a written amendment to each of the same, we hereby consent to

(i) any increase in the level of the services provided by you to any of Akzhaikservices LLP (Kazakhstan), Bolashak Atyrau LLP and Bolashak K (Kazakhstan) and any members from time to time of their respective groups of companies (together 'Companies') (including, for the avoidance of doubt, your appointment as a director or member of management of any of the Companies); and

(ii) any increase in your shareholding in [Akzhaikservices LLP] beyond your existing 14% in A LLP or in any other companies

provided always that the activities of the Companies are and remain restricted to the territory of Kazakhstan only."

33. Thereafter, the defendant increased his shareholding in the Kazakh companies to 24 per cent, although this has recently been reduced to 22.5 per cent. Meanwhile, the shares in the Bolashak companies were subsequently transferred to a company called Dalar Services LLP, of which the defendant is a shareholder.

The events leading to these proceedings

34. The defendant's evidence is that, towards the end of 2008, he was informed by a fellow shareholder in the Kazakh companies, Mr Andrew McKinnon, of the possibility that Bolashak might open an office in London. He says that he urged Mr McKinnon to speak to the claimants about the idea because he was concerned, among other things, that it might disrupt the relationship and co-operation between the claimants and the Kazakh companies.
35. The matter was formally raised at a Board meeting of the Kazakh companies in February 2009. The defendant says that he was not in favour of the idea of the opening of an office in the UK, but he could not stop his fellow directors from going ahead. Because of the conflict of interests which he perceived might exist, he took no part in the discussions about the future opening of the London office (save to express the views which I have indicated) and he did not attend the Board meetings at which the matter was discussed.
36. On 17 March 2009, a new company, Bolashak International LLP, was incorporated. This is owned by one of the original Bolashak companies and Dalar Services. Bolashak International LLP proceeded to set up a London office and began to source personnel from outside Kazakhstan for work in that country. To that extent, it is now operating in competition with the claimant group of companies.
37. There is a dispute between the parties as to when the defendant first told anyone at the claimants about Bolashak's intention to open in London. The claimants say it was not until mid March 2009 that they were informed, when the defendant told Mr James Slipper that this might happen. They say that the position was confirmed to them on 31 March 2009 when (they say at Mr Slipper's insistence) the defendant informed Mr Cantley after a Board meeting of the first claimant. The defendant says that he notified the claimants somewhat earlier.
38. Be that as it may, on 6 April 2009, the claimant's solicitors, DLA Piper, wrote to the defendant alleging potential breaches of his duties as a director of the first claimant and of his duties of confidentiality and his obligations under clauses 7.2 and 7.3 of the Investment Agreement. No response was received and a further letter was sent on 24 April 2009. The defendant responded to that letter, by email, saying that he was "resolving the matter direct with principals". There was some communication at that time between the defendant and directors of the claimant group and, the defendant was informed on 30 April 2009 that he would not be permitted in the future to attend Board meetings of the first claimant or to receive Board documents. By an email, dated 5 May 2009, he accepted that decision.
39. Meanwhile, on 19 April 2009, the defendant had sent an email to Mr McKinnon which read:

"Further to our recent discussions and your shareholder meeting tomorrow, I confirm my request that you reconsider the decision to open the London office. As stated, I do not believe it best serves the Bolashak interests and feel it may do irreparable harm to the partnership with Swift. I will not continue to labour this point as you know my position."

40. On 7 May 2009, after further correspondence from DLA Piper, the defendant resigned his position as a non-executive director of the first claimant.
41. On 13 May 2009 DLA Piper sent a letter before action to the defendant. That was followed on 22 May 2009 by a without prejudice meeting between the parties which did not produce any resolution of their dispute.
42. On 26 May 2009, the defendant sent another email to Mr McKinnon, the relevant part of which read:

"As you are aware, I have on numerous occasions expressed serious concern on Bolashak's decision to open a London office and indeed asked the board to reconsider its decision at your last board meeting. I have always maintained that to open the office without having reached an understanding with Swift would be detrimental to the business. I accept that you have made several unsuccessful attempts to meet with Swift with a view to reaching such understanding but reaffirm that in the absence of any agreement with Swift my views are not changed and that the business will be adversely affected by your decision. You are also aware that Swift are in the process of issuing court proceedings against me, one of their main arguments being that I have a conflict of interest and this may very well continue to mean that I am unable to play an active role within Bolashak. In view of this, I request that you consider suspending all activities of the London office until such time as the issue is resolved with Swift."

43. On the same day, the defendant's resignation from the Board of the first claimant was accepted and he was reminded that it would take effect at the expiration of a month's notice.
44. On 27 May 2009, the defendant deposited hard copies of all documents that had been provided to him by the claimants, together with the laptop which he used to transact the claimant's business, with his solicitors, Travis Smith. He also deleted all copies of the relevant information held on the other laptop computer in his possession.
45. On 28 May 2009, the proceedings were issued and served. The order sought within these preliminary proceedings is that the defendant shall not, until trial or further order, without the written consent of the claimants, directly or indirectly, whether alone or jointly, be concerned as a director, shareholder, partner, lender, proprietor or otherwise in any business which competes with any business of the first, second or third claimants, or any of their subsidiaries, which is carried on as at the date of this order and in any territory in which such business was carried on at the date of the order, and in particular and without prejudice to the generality of the foregoing, the defendant shall not be concerned as aforesaid in the business or businesses of Akzhaikservices LLP or any of its subsidiaries (together with the 'Kazakh entities') for so long as the Kazakh entities, or any of them, shall compete with any business of the first, second or third claimants or any of their subsidiaries in the UK or 36 other named territories.
46. The order sought is not founded, I was told, on the directors' duties which are set out in the Particulars of Claim and which are alleged to have breached. Nor does the order seek (as the claimants at one stage intimated that they would) to prevent the defendant from holding or continuing to hold his interest in the Kazakh companies.
47. Subsequent to the issue of proceedings, the defendant offered undertakings as to confidentiality and an undertaking also that he would not take any action or do anything in relation to the Kazakh companies' UK interest. Those undertakings were not acceptable to the claimants; hence the present proceedings.

The parties' cases

48. The claimant's case can be summarised thus. Because of his longstanding involvement with the claimant group, the defendant has acquired an intimate knowledge of its financial and business affairs, its mode of operating, the strengths and weaknesses of its business and its business techniques which, in the small and highly specialised area in which it operates, are crucial to the maintenance of its strong position. He continued to receive detailed information of this kind up to the end of March 2009. As a non-executive director, he was giving advice on all aspects of the claimant's activities and had a considerable knowledge of the matters to which I have referred.
49. The fact that the Kazakh companies have now begun to operate in London, (a move in which the claimants suggest the defendant has had a significantly greater involvement than he admits) means that they are now in competition with the claimant group. The move, it is said, is likely to herald an expansion into other territories in which the claimant group operates. The information which the defendant has received by virtue of his position as a non-executive director, coupled with his previous experience with the claimants, makes it virtually inevitable, if he continues to be concerned in the business of the Kazakh companies, that he will (whether consciously or inadvertently) disclose to those companies and use information which will assist them in competing with the claimant group in the UK or elsewhere. Thus, the claimants say, it is not sufficient for the defendant merely to undertake, as he is prepared to do, that he will take no action in relation to the UK interest. All active involvment in the Kazakh companies must cease.
50. The claimants contend further that it is plainly arguable that the effect of Clause 7.3.1 of the Investment Agreement, coupled with the letter of 14 December 2006, is to restrict the defendant, both during the time of his non-executive directorship and for 12 months after the termination thereof, from being concerned with any business which is competing with any of the claimants' group companies in the UK or any other country, save for Kazakhstan where the claimant group does not carry on business. The claimants argue that the fact that, when the defendant's status changed, in December 2006, from that of Chief Executive/Managing Director to a non-executive director, the parties considered it necessary for the claimants to give the consents contained in the letter of 14 December 2006, demonstrates that they must have intended at that time that the terms of the Investment Agreement should remain in force thereafter.
51. The claimants further contend that it is not plain and obvious that the provisions of clause 7.3.1 of the Investment Agreement are unreasonable and therefore unenforceable. If granted, the injunction they seek would last only for a relatively short time, well within the period of the covenant itself. It would have the effect of maintaining the status quo (i.e. that the defendant should not be involved in a business that is competing with the claimant group) until the date of trial. Damages, it is said, would not be an adequate remedy to compensate for the harm that could be done by his involvement in such a business. There is no evidence that the defendant himself would suffer financial loss if the injunction were granted. In the circumstances, it is contended that the balance of convenience lies in favour of granting the injunction.
52. For the defendant, it is argued that, on their own case, the claimants have known about the risks of disclosure of confidential information and the like since the middle of March 2009. It is said that they have shown no urgency in taking steps to restrain the defendant. This, it is suggested, indicates that the claimants are not really worried about the risk of damage done by the defendant by disclosure of confidential information.
53. It is contended also that the claimants have no arguable case since it is evident that (save to the extent that the restrictions contained in the Investment Agreement continued for a specified period after termination of the defendant's employment as Chief Executive/Managing Director) the provisions of the Investment Agreement were not intended by the parties to bind the defendant beyond that time. Instead, it was intended that, as a non-executive director, he should be bound by the terms of the Non-Executive Directorship Agreement of 14 December 2006. Those terms were less onerous and expired at the time of the termination of his employment. The defendant points out that it would be very unusual to enforce restrictive covenants against an individual when his sole involvement in the claimants' business for two-and-a-half years has been as a non-executive director.
54. Furthermore, if the provisions of the Investment Agreement did apply, it is submitted that the restrictions imposed were far wider than was necessary to protect the claimants' interests, were unreasonable and therefore unenforceable. The defendant relies both on the width of the claimant's interpretation of Clause 7.3.1 of the Investment Agreement and the difference between the restrictions contained in the Service Agreement of 28 June 2006 (which was thought adequate to protect the claimants) and the more onerous conditions contained in the Investment Agreement of the same date.
55. The defendant refers to other unusual features of the case. He points out that he has a very substantial financial interest in the claimants' group, an interest which, it is said, must mean that he can have no intention to harm the claimants' interests. He himself has taken no steps to act in breach of covenant. Indeed, his case is that he did all that he could to prevent the Kazakh companies from setting up an office in London. Once the problem arose, he took steps to resign from the Board of the first claimant and has offered undertakings to protect the interests of the claimants. His employment contract with Bolashak specifically provides that he will not provide services in the UK and, if he did so, he would be at risk of losing his non-domicile tax status. He has handed over all the documents provided to him by the claimants and does not hold the details contained within those documents in his head.
56. The real purpose of the claimants' application, it is contended, is to bring pressure to bear on the Kazakh companies, which the claimants perceive to be a real competitive threat. There is no evidence at all that they are planning an expansion into any country except the UK. Moreover, the granting of the injunction would place both the defendant and the Kazakh companies at serious risk of losses which would be impossible to quantify.

Discussion and conclusions

57. In deciding whether to grant the claimants' application, I must consider first the defendant's submission that this is one of those rare cases in which it can be shown, even at this early stage, that the claimants have no real prospect of success in the main part of their application, namely that I should grant an injunction prohibiting the defendant from having any active involvement at all in the Kazakh companies until trial. The basis of that contention is that, as from 14 December 2006, he was not subject to the restrictions contained in clauses 7.2 and 7.3 of the Investment Agreement.
58. The Investment Agreement dated 28 June 2006 was made between the Lead Investors (the fourth claimant) and eight Managers of whom the defendant was one. All the Managers were also investors in the first and second claimants. All the Managers held executive positions within the claimant companies. The claimant was to be Chief Executive/Managing Director of the first claimant. It is quite clear from the terms of the Investment Agreement that it was intended to apply to Managers with an executive role. This is particularly evident from Clause 7.2 of the Investment Agreement, which requires each Manager to "devote the whole of his time and attention to the business of the Group" and not to take up other directorships or business interests without the consent of the Lead Investors. Such a provision would be wholly inappropriate to the position of a non-executive director who was required, as the defendant was from December 2006, to spend only one day a month on the claimants' business.
59. Clause 7.3 imposed restrictions on a Manager "during the period of his employment with or directorship of a Restricted Company" and for 12 months after termination of that employment or directorship. A "Restricted Company" was defined as "any Group Company in relation to which the Manager shall either ordinarily, as part of his duties under his employment, or by virtue of any directorship held from time to time by him pursuant to such employment, render any services or perform any function...". The claimants submit that, notwithstanding the fact that, in the a Non-Executive Directorship Agreement, it was specifically provided that the defendant's contract was a contract for services, rather than a contract for employment, he should nevertheless be construed as having been "employed" for the purposes of Clause 7.3 of the Investment Agreement.
60. In some circumstances, "employment" may well embrace work performed under a contract for services. However, it does not seem to me that that can be the case here. The references in the definition of "Restricted Company" to the Manager's duties "under his employment" or "by virtue of any directorship held from time to time by him pursuant to such employment" cannot be interpreted as including a non-executive directorship held by virtue of a contract of services.
61. It is clear in my view that Clause 7.3 was intended to cover the circumstances whereby a Manager (such as the defendant) was an employed executive of one of the claimant companies, and a director of others of the claimant companies pursuant to that employment. Such a Manager would have an interest in and knowledge of all those claimant companies. It is contended on behalf of the claimants that, as a non-executive director of the first claimant, with no formal nexus with other claimant companies, the defendant was nevertheless subject to restrictions in relation to his involvement with businesses which competed with any of the claimants' group of companies. It is argued that, since the first claimant and the second claimant are holding companies only, the third claimant (the company through which the business is conducted) must be included within the definition of "Restricted Company" for the purposes of clause 7.3.
62. In making this submission, the claimants rely on the case of Bennett Investment Management Group v Hall [2007] IRLR 793. However, the circumstances of Bennett were very different. In that case, the Court of Appeal found that the only sensible construction of a covenant not to compete with a holding company was that the parties had intended the word "company" to include its subsidiaries. Otherwise the relevant covenant would have had no effect at all. It could, therefore, be said that the parties must have intended to encompass the subsidiaries within the ambit of the covenant.
63. The circumstances of this case are very different. The Investment Agreement makes a clear distinction between "Group Companies" and "Restricted Companies", thereby indicating that the parties intended such a distinction. A failure to construe the provision in the manner contended for by the claimants will not rob it of any effect. The fact that it has effect only in the context of an executive employee (but not a non-executive director) merely goes to support the fact that the Investment Agreement was never intended to apply to the latter.
64. I accept that there is force also in the submission made on behalf of the defendant that, if the claimants' interpretation of "Restricted Company" were correct, the restrictions imposed would be very wide indeed. The employee (in this case a non-executive director) would be debarred, for the whole of his period of employment and thereafter, from involvement in any business that was in competition with any of the claimants' subsidiaries, whatever the nature of that subsidiary's business, in whatever country it operated and regardless of the fact that employee had no knowledge of or involvement in it.
65. What then of the changes made in December 2006? The defendant entered into a Non-Executive Directorship Agreement which imposed on him, as might be expected, conditions significantly less onerous than those of the Investment Agreement and his previous Service Agreement. The Non-Executive Directorship Agreement contained a confidentiality clause. It also prohibited the defendant during (but not after) the term of his appointment, from becoming involved in carrying on any business within the UK in competition with any group company.
66. As I have already indicated, the claimants conceded that the Non-Executive Directorship Agreement replaced the previous Service Agreement. Yet the first paragraph of the letter of 14 December 2006 refers specifically to the restrictive covenants contained in the Service Agreement, as well as in the Sale and Purchase and Investment Agreements. It states that the contents of the letter have the effect of amending all three Agreements.
67. The reason for that must be that, under the terms of the three Agreements made in June 2006, the defendant would remain subject to restrictive covenants extending beyond the termination of his employment as Chief Executive/Managing Director in December 2006. His obligations under Clause 7.3.1 of the Investment Agreement extended for 12 months and those in Clause 11 of the Service Agreement for six months. It is clear that the intention behind the letter of 14 December 2006 must have been to relax the restrictions to which he was still subject. It cannot be the intention that, despite the very limited extent of his commitment to the claimants' business (one day a month), he would still be required to "devote the whole of his time and attention" to the claimants' business and would have to seek the fourth claimant's consent to take on any other business interests, even if wholly unconnected with the claimant's business. Yet, if the claimant's contentions are correct, that would be the effect of his continuing obligation under Clause 7.2 of the Investment Agreement.
68. I am entirely satisfied that, as from 14 December 2006, the defendant was subject only to the restrictions contained within the Non-Executive Directorship Agreement, together (until December 2007) with the restrictions contained in Clause 7.3.1 of the Investment Agreement. The Non-Executive Directorship Agreement contains no post-termination restriction. There is, therefore, no existing non-compete restriction which can now be enforced. In those circumstances the claimants' main contention must fail.
69. Covenants in restraint of trade are prima facie unlawful and, accordingly, are, it has been said, to be "treated with suspicion". It is well established that it is for those seeking to enforce such agreements to show that the covenant extends no further than is reasonably necessary to protect their interests and that the court will enforce a covenant only if it goes no further than is reasonably necessary to protect the trade interest or other legitimate interest of the previous employer. (See for example, Scott L J, (as he then was) in Scully UK Limited v Lee [1998] 1 ICR 259.) I have already said that, if I am wrong and the terms "employment" and "Restricted Company" admit of the interpretation urged upon me by the claimants, the restrictions imposed upon the defendant, a non-executive director, would be very wide. Indeed, in my judgment, it would be plain and obvious that they were so wide as to be unreasonable and to go further than necessary to protect the claimants' interests.
70. The fact that a longer period for post-termination restriction was specified in the Investment Agreement than in the Service Agreement would not of itself have caused me to conclude that clause 7.3 of the Investment Agreement was plainly too wide. The character and purpose of the two Agreements were different and the distinction may have been justifiable. That would depend on evidence to be heard at trial.
71. Nor would I have been prepared to find on the available evidence that the nature of the information in the possession of the defendant was plainly not such as to justify the imposition of a covenant in restraint of trade. It is arguable in my view that it was confidential information akin to a trade secret of the kind referred to in the case of Thomas v Farr PLC [2007] IRLR at 419. That question would have to be determined in the light of evidence more detailed than was available to me.
72. I turn now to consider the balance of convenience. The risk that the defendant would cause intentional harm to the claimants' business seems to me to be remote, having regard in particular to the very substantial financial interest he has in the claimant group. It was suggested by Mr Cantley in his second witness statement that the defendant might in effect sacrifice the value of his interest in the claimant group for the greater gain that might accrue from the expansion and sale of the Kazakh companies. This is highly speculative, as in my view is the suggestion that the Kazakh companies have any immediate intention of expanding into other territories in which the claimants carry on business. The claimants do not appear to have feared that the defendant would cause them deliberate harm, otherwise one would have expected them to act much faster than in fact they did in seeking injunctive relief.
73. Insofar as there is a risk that the defendant might disclose confidential information (as he admits that he did when disclosing Key Performance Indicators produced by the claimants), it could in my view adequately be met by an order prohibiting him from divulging such information in the future.
74. I accept that, if the claimants' business interests were harmed, damages may not be a wholly satisfactory remedy. However, I am satisfied also that the making of an order of the width sought by the claimants could well result in significant and unquantifiable loss to both the defendant and the Kazakh companies. The defendant would be prevented from having any involvement in a business in which he has a considerable financial stake and his reputation and that of the Kazakh companies could well suffer considerable harm.
75. In my view, the most that the balance of convenience would require would be an injunction on the terms already offered by the defendant, i.e. of confidentiality and non-involvement in the Kazakh companies' UK interest.
76. As it is, having regard to the view I take about the non-application of the restrictive covenants contained within the Investment Agreement, there is no non-compete clause to enforce.
77. That does, however, leave the question of whether I should make an order enforcing the provisions to which the claimant remains subject under the Non-Executive Directorship Agreement, as well as the June 2006 agreements, restraining him from using or disclosing confidential information relating to the claimants' business and affairs. There is in my judgment a real risk that, unless restrained, the defendant may disclose such information, as evidenced by the incident involving the Key Performance Indicators. It would in my judgment be reasonable and proportionate to make an order pending the hearing of the claim. Such an order would serve to remind the defendant of his existing obligations and would increase his vigilance about using or disclosing such information inadvertently. It would cause no prejudice or damage to him and afford the claimants some measure of protection. I am satisfied that the balance of convenience lies in favour of making such an order, the precise terms of which should be capable of agreement between the parties.