Scottish Court of Session Decisions

At advising, on 15th July 1988, the Lord Ordinary recalled the interim interdict which had previously been granted but de novo pronounced interdict ad interim in terms of the pursuers' motion.

LORD DERVAIRD'S OPINION.—In this case the defenders seek recall of an interim interdict pronounced against them ex parte in terms of the first branch of the second and third conclusions respectively. In terms thereof each of them is interdicted from "working for any previous or present client of the Hinton & Higgs group of companies, and from providing by himself or in association with the second defender (or the first defender as the case might be) the services of consultancy in health and safety to any such previous or present client including in particular certain specified companies". Each of them was formerly an employee of the pursuers and each of them signed a contract of employment which included a clause 14 in the following terms: [his Lordship quoted same and continued thereafter].

Upon averments that the two defenders have or are proceeding to set up a consultancy firm the pursuers claim that they are in breach of the first part of the provisions of clause 14 quoted above and obtained interim interdict accordingly. The actual duration of the period of each interim interdict was related to the 18 months from the end of that particular defender's employment, hence there are different periods for which those interdicts run.

In seeking recall of the interim interdict counsel for the defenders presented two main arguments, one based on the construction of the relevant part of the clause, and in particular the meaning of the phrase "work for"; the other a contention that in any event the clause amounted to an unreasonable restraint of trade and was therefore unenforceable. Although the arguments were presented in the reverse order the latter appears to be logically prior, and I shall deal with it first.

The first branch of that contention relating to unreasonableness was that the clause went far beyond the legitimate area of protection as regards the persons in relation to whom the defenders were restricted from working. The restriction applies to any previous or present client of the pursuers (and their group). The pursuers aver that they have been in business for some 20 years. The defenders joined their employment much more recently, in May 1985 in the case of the first defender and 1st October 1986 in the case of the second defender. In my opinion the words "previous or present" are far too wide to be necessary for the protection of the pursuers' legitimate interests. Two separate points appear to me to arise. The first is what interest the pursuers have in preventing the defenders from carrying out work for a person who ceased to be a client say more than ten years ago. It does not seem to me that the pursuers can have any legitimate interest to protect in relation to such a person. The second is this: authority cited to me suggests very strongly that the only legitimate connection justifying protection is that which relates to customers or clients who were such while the defenders were employees. The rationale appears to be (see G. W. Plowman & Son Ltd. v. Ash [1964] 1 W.L.R. 568) that during this period of employment the employee may at least have had an opportunity to meet with or learn about the customer. Whether that be right the rule seems fairly firmly fixed, at least as a generality, that the restriction should only relate to customers who were such during the period of employment of the person against whom the restrictive covenant is sought to be enforced. Against the general background that a restrictive covenant, being in restraint of trade, and hence prima facie unenforceable unless it can be demonstrated to be necessary for the legitimate protection of the employer, it appears to me to be a sound working rule to be applied, unless the circumstances lead to the opposite conclusion, that a restriction covering customers of the employer outwith the period of employment of the employee is too wide to be enforceable. I have reached the clear prima facie view that the restriction, seeking to cover previous and present clients is too wide and cannot be enforced.

Confronted with the difficulties posed by these words counsel for the pursuers drew my attention to clause 15. That is in these terms:—[his Lordship quoted same and continued]. So far as the first part of that is concerned, being a declaration the parties regard clause 14 as reasonable, no argument on that was pressed and I regard it as probably an illegitimate attempt to oust the jurisdiction of the court. The second part however contemplates that the parties will abide by a result which may be effected by deletion of some unreasonable part of the contract rendering the contract as a whole, reasonable. It has often been said that the courts will not make contracts for the parties. Here however, as it seems to me, the parties have agreed in advance, they will accept as continuing to bind them such part of the arrangements which they have made as the court finds by deletion only to be alterations which permit the restriction to be regarded as reasonable. On my part I do not see why the court should refuse to perform that role not being one of rewriting the contract but of selecting that version of it which the parties have inter aliamade with each other and enabling the bargain as so modified to stand. I would therefore be willing to accede to the proposal which counsel made and permit deletion of the words "previous or" from clause 14 so that in its terms the clause only related to "present customers" of the pursuers. That however raises other difficulties for the pursuers. In ordinary circumstances the reasonableness of the restrictive covenant has to be tested at the time that the contract is made. Since clause 14 in this case is referable to leaving the employment, it seems clear that present clients cannot mean the clients at the time the contract was made but the clients at the time that the contract was terminated. In the present case the defenders' employments were terminated at different times. The customers or clients in respect of whom the prohibition will apply may therefore vary considerably; and in the end this might have to be the subject of detailed averment. Bearing in mind the views of the court expressed in Group 4 Total Security Ltd. v. Ferrier 1985 S.C. 70, I do not reach a concluded decision on this matter in the present stage of the pleadings. Had this been the sole basis for recall of the interdict therefore I would only have allowed it to the extent of the deletion of the reference to previous customers. However, there are other formidable objections to the clause. It is implicit in the views expressed in the previous paragraph that I do not regard it as fatal to the enforceability of such a clause that the employee has had no contact with a particular client. In principle I consider that an employer is entitled to have his entire goodwill protected within reasonable limits and the fact that an employee has access to a company's books and records may render it not unreasonable that he should be restrained in respect of all customers or clients during his period of employment. However, so to state the proposition goes too far. The geographical area of the restriction must also be of significance in this context. It is one thing to protect a company against an attempt by an ex-employee to deal with customers in a limited area of the country (as for example in Plowman's case or the Group 4 case cited above). It is quite another to protect an employer against competition from an ex-employee throughout the world. On the face of it the present restriction is worldwide. Counsel for the pursuers argued that having regard to the averments there was no suggestion that the activity of the pursuers (or their group) extended beyond the United Kingdom. If that be right then I do not see why they are entitled to protection on a worldwide scale. The argument that a court would not hold it to be a breach of the interim interdict already granted for the defenders to "work for" a present client of the pursuers in Holland seems to me not well-founded. In any event the defenders should not have to rely on the discretion of the court in practice modifying the wide words of the interdict or the effect thereof.

However if I am wrong on that point and it is legitimate standing the pursuers' averments to regard the group (and the restrictions) as confined to the UK, I would still regard the restriction as unreasonably wide. According to their contracts each of the defender's area of operations was Scotland. I see nothing in this case which renders it as necessary for the legitimate protection of the pursuers' interests that the defenders be restricted from seeking to "work for" clients in other areas of the United Kingdom. The matter does not end there. This restriction relates in terms not only to the pursuers but to the group of companies of which the pursuers form part. The submission for the defenders in reliance on the Group 4 Total Security case was that the most that an employer could properly protect was his own interests, not those of other people, and that the attempt to prevent the defenders from working for clients of other companies in the group rendered the restriction unenforceable. For his part counsel for the pursuers pointed out that in the Group 4 case the Lord Ordinary had taken the view that it was reasonable for companies to protect the business interests of their subsidiary or associated companies, which were all within a single group. Counsel accepted that the case of D.H.N. Food Distributors v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852 relied on by the Lord Ordinary, had been the subject of a degree of adverse comment in Woolfson v. Strathclyde R.C. 1978 SC (HL) 90. More to the point the Inner House in the Group 4 case, expressly without deciding the matter, stated that the respondent had presented prima facieargument which had merit to controvert the view of the Lord Ordinary on this particular point. It appears to be clear that they only recalled the interdict at the stage they did (there being no challenge on the balance of convenience) because they did not agree with the Lord Ordinary's view. The other case upon which the Lord Ordinary relied (Littlewoods Organisation Ltd. v. Harris [1977] 1 W.L.R. 1472) appears to me to relate to a rather different question: the interests being protected there were those of one person and the restriction on the employee working for any member of the rival group seems entirely appropriate. In my opinion in the absence of some special circumstances there is no ground for considering it necessary for the protection of the interests of the pursuers that the defenders be restricted from working for any client of any other company in the same group as the pursuers. No special circumstances are averred here, nor were any suggested.

I am accordingly of the view that this clause is unreasonably wide in so far as it places no geographical limitations on the restriction imposed, and in that it seeks to restrict the employee from "working for" not only the pursuers but also other companies in the same group. I am also of the view that the clause is unreasonably wide in so far as it relates to previous and present clients irrespective of the defenders' involvement with the company, let alone those clients at the time that they were such. I would have accepted deletion of the references to previous clients in accordance with clause 15 had that been the only ground for holding the clause unreasonably wide. As it is however, I hold the clause even with such deletion to be unenforceable for the reasons mentioned.

The defenders also argued that the reference to "at least 18 months" rendered the temporal restriction unreasonable. I do not agree. I consider that the words "at least" have no validity, but they leave standing the 18 months period which as a period of time was not challenged as unreasonable.

The pursuers argued that clause 14 was severable, and that even if certain parts were unenforceable, the rest remained valid. The application of that principle in the present case does not assist them because the part of the clause which I have held to be unenforceable is not in my opinion capable of severance within itself. However a similar issue arises in another context. Clause 14 read as a whole contains three restrictions which are expressed in a very odd way. They are restrictions first of all against working for previous or present clients without permission for a period of 18 months (reading short), and secondly, a restriction on confidential information about the company being given to others, and thirdly, but prefaced by the word "or", entering into any other occupation which conflicts with their duties whilst employed by the Hinton & Higgs group of companies. Counsel for the pursuers conceded at once that the last part of the clause was unenforceably wide. The question which must then arise is whether when the employee has been restricted from doing one thing and a second thing or a third thing, and that third thing turns out to be unenforceable, it still remains possible for the employer to insist on the restriction against the first and the second since they are couched as alternatives to the third. Counsel argued that while "or" is normally to be read disjunctively, that is not so where the context requires otherwise. I have come to the view that that is a correct approach in the present case, and that notwithstanding the unenforceability of the apparent alternative it falls to be treated simply as a severable part of clause 14 leaving the rest unaffected by its unenforceability.

The above is sufficient for the decision of the defenders' motion for recall, but I have also to deal with the argument advanced as to the meaning of the phrase "work for". For the defenders it was contended that it meant work in the capacity of a servant and it did not include work performed by way of a contract for services. For the employers it was contended that work in this context simply meant working as a health and safety consultant irrespective of the mode in which that task was performed. I consider that the pursuers' view is sound. To give the phrase "work for" a sensible meaning in this context it must be related to the type of work which the employers performed. They carry out health and safety consultancy services for clients. To work for a client in that context does not appear to me to require limitation to contracts of service. Accordingly I would have been in favour of the pursuers on this issue. A subsidiary argument for the defenders related to the form of the particular conclusions for interdict appears to me to have no substance. However, for the reasons already given I shall recall the interim interdict.

At the same hearing counsel for the pursuers moved a motion for interim interdict and in terms of the second branch of the second and third conclusions against passing on confidential information. The basis for this motion is that the pursuers aver that certain pricing structures which they aver to be confidential information of theirs have been passed over to a former client. In answer the defenders formally deny this but their answer is really devoted to an explanation why that should not be treated as a breach of the provision in that the client in question, it is averred, already had access to that material by reason of its previous involvement with the pursuers. That matter appears to be in issue as a matter of fact. While that may or may not afford a defence in regard to the specific act complained of at the end of the day, it seems to me to amount to an admission that the defenders were in fact passing on information, and the pursuers claimed that such answers justified a fortiori their demand for an interim interdict against the passing on of such information. I have come to the view that the pursuers have made out a prima facie case that they are entitled to protection in this respect. It was not suggested on the defenders' behalf either that this particular branch of the clause, if severable as I have already held, was unreasonably wide or that the fact that certain others may have access to certain of the material has removed the quality of confidentiality in relation to such information as a whole. Nor was it suggested that there was anything in relation to such information as a whole. Nor was it suggested that there was anything in relation to the balance of convenience which operated in favour of the defenders. Accordingly I shall grant interim interdict in terms of the second branch of each of conclusions 2 and 3.