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
		17/03/2016

Mrs Justice May DBE:

Introduction

1. On Friday last week, 11th March 2016, I heard an urgent application made by the Claimants on notice to the Defendants for interim relief. Various orders were sought in order; it was said, to protect the Claimants' business, and its confidential information. After hearing leading counsel for both sides I granted the orders, giving short-form conclusions at the time and indicating that full reasons would follow.
2. These are my full reasons for making the order.

Background

3. The identification of all parties and the detailed background to the application are set out in the affidavit of Mr John Piper, Commercial Director of the Claimants, in support of the application. In summary:

(1) The Second Claimant ("MEGR") is a wholly owned subsidiary of the First Claimant ("MEGSS"). The Claimants (together, "M&E") are in the business of supplying contractors to defence installations in Europe, in particular to three US defence installations in Germany. M&E place contract workers of various kinds (e.g. mechanics, warehouse operatives, communications engineers, quality control inspectors) where their services are required. The business giving rise to the relief sought in this action concerns contracts between M&E and two German-based firms, the Fifth and Sixth Defendants (together "DSG"), to supply them with workers for contracts that DSG have with third parties. One of these third parties is PAE Aviation Technical Services LLC ("PAE"). By January 2016 M&E were supplying around 110 personnel, through DSG, to 3 US defence sites in Germany, with more due to go out in the following weeks. According to Mr Piper these contracts with DSG represent 40% of M&E's annual turnover.

(2) Despite working away from the UK in Germany, M&E's contract workers remain within the UK tax and social care system. Having sought and obtained specialist tax advice M&E procured the necessary dispensations and certification from the UK and German tax authorities to permit this to happen. Mr Piper's evidence was that information regarding an approved UK overseas allowance is not in the public domain and that each of the dispensations had to be individually negotiated by qualified tax professionals specially engaged by M&E for the purpose; the process of negotiating and obtaining such clearances can take experienced professionals many months.

(3) The First Defendant ("Mr Tudge") was until 23rd October 2015 employed by M&E as Resource Manager with responsibility, ultimately, for HR sourcing and placing of personnel as required by DSG for its contracts with PAE. In that role Mr Tudge necessarily learnt of business development opportunities, was privy to confidential information about pay rates and profit margins and to advice and information obtained by M&E concerning the permissions and tax consents obtained by M&E for its employees working in Germany. Mr Tudge's employment contract contained 6-month restrictive covenants (the terms of which are set out and discussed below). Mr Tudge resigned from M&E on 12 October 2015 and his employment ended on 23 October 2015.

(4) The Second Defendant ("Mr Oaks") is a US citizen working for DSG in Germany. For a short time between June 2014 and April 2015 Mr Oaks also lived and worked part-time for M&E in the UK as a Business Development Manager. He and Mr Tudge became friends and worked closely together during that time.

(5) The Third Defendant ("Mr McIntosh") was one of M&E's workers in Germany until he was transferred by Mr Tudge in April 2015 to work for DSG in Germany, assisting with the deployment and accommodation of M&E's contractors. Mr Piper understands that Mr MacIntosh is now DSG's programme manager at two of the three sites in Germany to which M&E provide personnel.

(6) The Fourth Defendant ("Mr Kobicke") is the MD of both DSG companies. Mr Kobicke is also a shareholder, together with Mr Oaks, of the Seventh Defendant ("J&M"), a company incorporated by Mr Oaks in April 2015.

(7) D&G's contract with PAE is due to be re-negotiated/renewed on 15 March 2016. In January, therefore, D&G formally gave notice of the determination of its contract with M&E. Following a conversation at that time between Mr Piper and Mr Kobicke, M&E was led to believe that the notice was merely a formality and that its workers, in place in Germany, would continue to be required pending renewal of the PAE contract with D&G, and thereafter if the PAE contract was renewed, as expected. In February, however, when M&E pressed Mr Kobicke for the requisite bridging contract, Mr Kobicke claimed that DSG had not had its PAE contract extended and that Mr Oaks had started a new company to provide workers. Speaking to Mr Oaks, Mr Piper learnt that PAE had in fact renewed its contract with DSG two days previously but that DSG were not planning to use M&E to supply workers for that contract.

(8) M&E had at the same time been receiving reports from its employees in Germany suggesting that Mr Macintosh and Mr Oaks were spreading mis-information to them about M&E. Employees were being told that M&E was finished, that it was being investigated for fraud and that the workers' jobs in Germany would be safe, but that they would be employed by a different entity. J&M was mentioned.

(9) Following these calls, M&E began interrogating its systems, retrieving data. A number of emails passing between Mr Tudge and Mr Oaks the previous year were recovered. M&E discovered that at about the same time as Mr Oaks incorporated J&M (and after Mr Oaks had ceased working for M&E) Mr Tudge began sending information to him, including the following:

i. On 21 April 2015 Mr Tudge sent Mr Oaks and Mr McIntosh details of a new business development opportunity in Germany. Mr Tudge did not draw this to the attention of the M&E board.

ii. On 22 April Mr Tudge forwarded a confidential email sent to M&E concerning M&E's failed bid for work at another location.

iii. On 27 April Mr Tudge forwarded to Mr Oaks an internal M&E email about a business opportunity for the repair of helicopter services stations in Ansbach, Germany. This was not a service that DSG's business covered.

iv. On 29 September Mr Tudge sent Mr Oaks an email under the subject line "GERMAN TAX" attaching a spreadsheet setting out pay rates which M&E paid to its contractors (as distinct from the charge-out rates to customers like DSG), together with details of the pay structure operated by M&E pursuant to the UK tax allowances negotiated with the tax authorities. The email to Mr Tudge attaching this spreadsheet had expressly restricted its use and publication as confidential to M&E.

(10) M&E have also discovered that at the same time as sending out these emails Mr Tudge was updating his CV, indicating that, as early as April last year, he was intending to leave M&E. It was at this time also that Mr Oaks sought to amend the terms of DSG's contract with M&E to remove the requirement to pay an introductory fee when a third party took over one of M&E's contractors.

M&E now know that on leaving M&E both Mr Tudge and Mr Oaks deleted their Outlook folders and emptied the recycle bins. Mr Tudge also re-set his phone and iPad to its factory setting, thereby wiping existing data.

(11) In October 2015 Mr Tudge told M&E that, on leaving, he was going to work with Mr Oaks at DSG. He was reminded of the restrictive covenants in his contract and he signed a solicitor's letter at the time acknowledging the restrictions and agreeing to abide by them. In a telephone conversation in October 2015, Mr Oaks told Mr Piper that Mr Tudge was going to work for PAE as a Finance Director, in work unconnected with recruitment; however an email from Mr McIntosh to Mr Tudge in January 2016, mis-directed in error to Mr Tudge's old email inbox at M&E, suggests that Mr Tudge was working with, or in some way connected to, the recruitment of M&E personnel at sites in Germany serviced by DSG. Moreover Mr Tudge's name appears on DSG timesheets as "EVMS manager".

(12) Mr Piper believes that Mr Tudge is in fact working for J&M. The week before he resigned Mr Tudge had requested from Mr Piper a copy of M&E's tax advice relating to the UK/Germany tax arrangements for its workers. Mr Piper gave it to him, not knowing then of Mr Tudge's impending departure.

(13) M&E is very concerned, says Mr Piper, that J&M has been set up to be the UK provider of workers to DSG for the PAE contracts in place of M&E, that M&E workers are being induced to transfer over to J&M and that M&E's confidential information has been, or is being, used in order to give J&M an unfair head-start in this regard.

(14) Detailed letters of claim were sent out to all Defendants on 18 February 2016, with undertakings sought. Until the night before the hearing there had been no substantive response from any defendant, nor had any undertakings been offered. Moreover although all Defendants were represented by the same firm of solicitors based in Bromsgrove, Worcestershire, they would not accept service for defendants based in Germany, insisting that documents be translated and served there. Late on the Thursday evening before the hearing on the Friday morning, witness statements were served from Mr Oaks and Mr Tudge.

4. Against this background M&E sought orders as follows:

(i) An order enforcing the remaining few weeks of the 6-month restrictive covenant in Mr Tudge's employment contract with M&E.

(ii) Orders for the delivery up of all confidential information belonging to M&E in the Defendants' possession, and deletion of it from all the Defendants' electronic devices.

(iii) An affidavit confirming delivery up/deletion and providing information about the use that has been made of M&E's confidential information, including disclosure to and use by third parties.

(iv) Springboard relief preventing the Defendants from contacting current or former employees of M&E with a view to engaging them to provide services to D&G or PAE, or to operate J&M for the purposes of providing such services, pending trial or further order.

(v) Directions for a speedy trial.

Interim relief – General principles

5. The relief being sought is interim injunctive relief to which ordinary American Cyanamid principles apply. Before obtaining any order M&E must show (i) a serious issue to be tried, (ii) that damages would not be an adequate remedy and (iii) that the balance of convenience is in favour of making the order.
6. I address each of these requirements in turn below.

Serious issue to be tried

The restrictive covenant

7. The relevant clauses of Mr Tudge's employment contract ("the restrictive covenant") read as follows:

"27 Post-termination obligations

In this agreement the following words and phrases shall have the following meanings:

"relevant services" shall mean the sale or supply of any other products which are the same as or similar to those services or products provided or sold by the Company during the last 12months of your employment

"relevant person" shall mean any person, firm or company or other organisation and any prospective person, firm, company or other organisation with whom you dealt on behalf of the company or in respect of whom you have managerial responsibility during the last 12 months of your employment.

During the course of and as a consequence of your employment with the company you will have access to and acquire knowledge of confidential information. You will also have regular dealings with and establish relationships with relevant persons. In order to protect the Company's interest in both the confidential information and its client base, you agree that you will not, without the Company's written consent, directly or indirectly, and whether for yourself or on behalf of anyone else:

1. For a period of 6 months commencing on the date on which your employment ends, be engaged in the provision of relevant services to, for or on behalf of any relevant person.

2. For a period of 6 months commencing on the date on which your employment ends, solicit or attempt to solicit business from any relevant person in connection with the provision of relevant services"

8. In TFS Derivatives v. Morgan [2005] IRLR 246 Cox J reviewed the case law and (at paras 36-39) described a three-stage process to be applied to a consideration of any restrictive covenant: the court will first ascertain what the term means, then identify whether the employer has shown that it has a legitimate business interest requiring protection and lastly consider whether the term goes no wider than is reasonably necessary for the protection of such interests.
9. Here, as there is just 3-4 weeks remaining of the 6-month period stipulated for in Mr Tudge's contract, and given that the case will not come on for trial before expiry of that time, I must also undertake some assessment of the merits (see Lansing Linde v. Kerr [1991] 1 All ER 418).
10. Mr Zaman QC, for the Defendants, argued that the restrictive covenant is void and unenforceable. I did not understand him to be contesting the fact of M&E having a legitimate business interest to protect, but rather to say that the wording of the clause, as encompassing a much wider class of persons than customers or prospective customers of M&E, was too broad. The definition of "relevant person" he, submitted, would include anyone that Mr Tudge ever met, whether or not they were a customer or prospective customer.
11. Mr Solomon responded that the restriction read as a whole confines "relevant person" by reference to the provision of "relevant services", and thus goes no further than is reasonably necessary for the protection of M&E's legitimate business interests.
12. Mr Zaman next submitted that the definition of "relevant services" only prohibits the supply of "any other products", and that as Mr Tudge was not engaged in the sale of "products" it was not apt to cover his work in recruiting or placing personnel. Mr Solomon countered this by referring, again, to the full wording of the definition of "relevant services", arguing that read in full the term was easily understood as covering the provision of products or services in the form of personnel to fill particular roles or perform particular functions.
13. I have concluded that Mr Solomon is right. I am satisfied that the restrictive covenant complies with each of the three requirements set out by Cox J in the TFS case.
14. I am also satisfied, on the evidence as set out in Mr Piper's statement, and notwithstanding Mr Tudge's last-minute denial contained in his witness statement, that there is cogent evidence that Mr Tudge has breached the terms of the restrictive covenant; further that these breaches have been assisted or encouraged by one or more of the other defendants.

Confidential information – delivery/destruction/provision of information

15. Mr Solomon pointed out that every employee has a duty either as a matter of express or implied contract, or as an equitable adjunct to employment, not to misuse his employer's trade secrets (Faccenda Chicken v. Fowler [1987] Ch 117). An independent contractor is under the same obligation (Devere Holding Company Ltd and others v. Belgravia Wealth Management Europe KFT and others [2014] EWHC 3189). Mr Solomon directed me to the definition of a trade secret given by Staughton LJ in the Lansing Linde case, covering information used in the business which would cause harm if disseminated and in respect of which the employer has limited the dissemination. Mr Solomon submitted that the spreadsheet and tax advice fell precisely within this definition, given the contents and the context in which Mr Tudge received it.
16. Mr Zaman does not dispute the existence of the obligation on employees in general and on Mr Tudge in particular. He submitted, however, that neither the spreadsheet of pay rates nor the tax advice could properly be described as confidential information; in any event, he said, there was no evidence that either had been used by any of the defendants. He pointed, in this respect, to Mr Piper's evidence that no application had been received by HMRC from J&M for any dispensation and that as far as he, Mr Piper, knew, J&M was not trading.
17. Mr Solomon responded that, on the evidence, there was clearly a serious issue to be tried as to whether (i) the spreadsheet and tax advice were confidential information amounting to a trade secret and (ii) Mr Tudge had disseminated the information to Mr Oaks and others for use by them in taking over the business of M&E. Mr Solomon also sought delivery up pursuant to M&E's rights under s.4 of the Torts (Interference with Goods) Act 1977, irrespective of any issue about the confidential nature of the material.
18. I am satisfied that Mr Solomon is right and that there is a serious issue to be tried in relation to the taking/misuse by Mr Tudge of M&E's confidential information.
19. The orders for deletion and for the provision of information on affidavit as to the use to which the information has been put are properly ancillary to the grant of an order for delivery up of confidential information: Aon Ltd v. JLT Reinsurance Brokers Ltd [2010] IRLR 600.

Springboard relief

20. The requirements for springboard relief in the context of the misuse of confidential information are set out by Parker J in Sun Valley Foods v. Vincent [2000] FSR 825:

(i) The defendants have made unlawful use of material in which the claimant has a proprietary interest;

(ii) The defendants have thereby gained an unfair competitive advantage over the claimant;

(iii) As of today that advantage still exists and will continue to have effect unless the relief sought is granted.

21. Mr Solomon pointed to cases where relief has been granted in circumstances going beyond misuse of confidential information, to include taking unfair advantage by concerted efforts in poaching staff or by inducing breaches of contract on the part of existing staff causing serious economic loss to a present or previous employer (UBS Wealth Management (UK) Ltd v. Vestra Wealth LLP [2008] IRLR 965; also the Devere case cited above). Mr Solomon drew parallels between those "team-move" cases and the situation here, where the defendants are seeking to take over M&E's employees so as to replace M&E in providing services to PAE via DSG in Germany. Mr Piper in his evidence suggested that use of the confidential information about tax dispensations alone will have "bought" DSG/J&M an advantage of some 3 years when the time and cost of obtaining the tax advice and negotiating with the tax authorities is taken into account.
22. Mr Zaman submitted that the court should exercise great caution in deciding whether the conditions for the grant of springboard relief are met, referring me to the decision of Silber J in CEF Holdings v. Mundey [2012] FSR 35. He invited me to reject the submission that there has been any unfair advantage, past or continuing in this case, pointing to Mr Piper's evidence that J&M is not currently trading. The pay rates in the spreadsheet were last year's rates, he says, and could not be useful now. As to the tax advice, there is no evidence of its having been used at all.
23. I am quite satisfied, having regard to Mr Piper's evidence, that there is a serious issue to be tried concerning the advantage, if any, obtained by the defendants in having M&E's spreadsheet of pay rates and tax advice, taken together with the breaches and inducements to breach alleged by M&E in connection with its employees and its business in providing services to PAE. Even if the period of 3 years advantage asserted by Mr Piper in his evidence is a considerable over-estimate, the time to (an expedited) trial would be well within a realistic time-frame of unfair advantage, in the event that the allegations are made out.

Adequacy of damages and cross-undertaking

24. Mr Solomon referred to the evidence of Mr Piper as to the potential loss incurred by M&E if no relief were granted. The damage would be large and difficult to quantify, according to Mr Piper, moreover there are real concerns about the ability of the defendants to pay any damages. Mr Solomon argues that the defendants, by contrast, have made no response to the claim until the eleventh hour, even then they have said nothing about what loss they might suffer in the event of the relief being allowed.
25. Mr Zaman pointed me to the evidence of Mr Oaks at paragraph 82 of his witness statement; however this paragraph appears to concern damage associated with allegations of breach of confidentiality by M&E in a different context, not with the existence or extent of any damage which the defendants might suffer if relief were granted of the type sought here.
26. Mr Zaman called into question the value of the cross-undertaking and the ability of M&E to pay any damages or costs. He pointed me to the company accounts attached to Mr Piper's affidavit, arguing that M&E were only marginally balance-sheet solvent. Cash of some £300,000 in the bank as at today's date, Mr Zaman argued, is meaningless in the context of a business where £100,000 is going out per week, according to Mr Piper's evidence. Mr Solomon answered this by pointing to the absence of evidence of any prospective loss which the defendants might suffer, but indicated that his clients would be prepared to consider fortification of the cross-undertaking in the event that further evidence were forthcoming between now and trial.
27. Mr Zaman also submitted that, so far as the springboard relief was concerned, the effect of the relevant order would be to force DSG into renewing its contract with M&E for the provision of services to PAE. It amounted to a mandatory injunction and should be disallowed for that reason, he argued.
28. I do not accept that paragraphs 6 and 7 of the draft order amount to a mandatory injunction. It may or may not have that effect, I have seen no evidence of how many other companies DSG might be able to use to fulfil its contract with PAE, but there is no basis upon which I could conclude that that is the purpose of the relief sought.

Conclusion

29. In these circumstances I am satisfied that the balance of convenience lies in favour of making the orders sought. At the time of finalising this judgment the parties have agreed the order and directions for a speedy trial, which I have approved.