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Cite as: [2000] ScotCS 245

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OUTER HOUSE, COURT OF SESSION

OPINION OF LORD GILL

in the cause

INTERNATIONAL COMPUTERS LIMITED

Petitioner;

against

KENNETH ECCLESON, KENNETH GORDON and STEVEN STREET

Respondents:

________________

Petitioner: Brodie, Q.C.; Masons, Solicitors, Glasgow

Respondents: Upton; Drummond Miller, W.S.

4 May 2000

I The proceedings to date

[1] The petitioner is a limited company that provides consultancy services in the field of information technology. In January 2000 the petitioner raised petitions for interdict against three respondents, who were then employees of the petitioner. The proceedings arise from the decision by the respondents to resign from the employment of the petitioner and to set up a similar business of their own known as HeXiis Limited. The pleadings and the issues are the same in all three cases.

[2] On 26 January 2000 Lord Macfadyen granted interim interdict against each of the respondents ex parte in the following terms:

"The Lord Ordinary on the motion of the petitioner no caveat thereto having been lodged ad interim interdicts [the respondent] except with the prior written permission of the petitioner or as he may be required by law in connection with any proceedings civil or criminal and whether pending or threatened, from (First) disclosing to any person, firm, company or organisation (other than to the petitioner, its directors, officers or employees to whom disclosure is necessary in the course of the petitioner's business) any information acquired in the course of the petitioner's business which (a) is confidential or proprietary to the petitioner, or (b) is classified with a security marking or (c) concerns the affairs of the petitioner or of any past, present or prospective customer, supplier or employee of the petitioner and the disclosure of which may damage the interests of the petitioner, customer, supplier or employee; (Second) using for his own purpose or profit or for purposes other than those of the petitioner, any information which he may have acquired concerning the affairs of the petitioner or of any past, present or prospective customer, supplier or employee of the petitioner; and instructing or authorising any other person to do any of the foregoing; (Third) without the permission of the petitioner, and until [the date of expiry of the contractual period of notice] competing with or becoming involved with any company or persons who would be a competitor of the petitioner in the provision of consultancy services in information technology."

[3] On the same date Lord Macfadyen granted orders in favour of the petitioner under section 1 of the Administration of Justice (Scotland) Act 1972 for recovery of certain documents, computer disks and the like. The petitioner recovered certain information in both hard copy and electronic form. According to counsel for the petitioner, information was taken from the computer records of the respondent Steven Street. This appeared to the petitioner to be sensitive and confidential information that he had had no right to collect. There was reason to think that the respondents were in breach of their contracts with the petitioner.

[4] The parties then entered into a joint minute relating to the evidence that the petitioner had recovered under the section 1 orders. In the joint minute they agreed inter alia that there would be an expert inspection of the recoveries and that for that purpose the documents and computer files that had been recovered would be allocated into three categories. Clause 10 of the joint minute was in the following terms:

"All documents falling into category (2) may immediately thereafter be delivered and permanently returned to the respondents or their agents, notwithstanding the Interlocutors of 26 January 2000, but subject to the interim interdicts pronounced that day."

I understand from counsel that the expert inspection has yet to take place.

[5] The respondents have lodged answers to the petitions on the merits. They aver that the setting up of their business was done openly, with the full knowledge of the petitioner and without objection by the petitioner; that the petitioner is personally barred from seeking interdict in the terms prayed for; and that in any event the respondents' business is not in competition with that of the petitioner. None of these questions arises at this stage.

[6] The respondents plead inter alia that the petition is irrelevant and that the interim interdicts should be recalled (a) on the basis that the petitioner has not made out a prima facie case that the computers and computer files hold information protected by law as confidential and (b) on the balance of convenience.

[7] When the petitions were raised, each of the respondents had given notice of termination of his employment in accordance with his contract of service. The contractual periods of notice expired in these cases in February and in March 2000. For this reason, the parties agree that in each case head (Third) of the interim interdict is now spent.

[8] On 4 April 2000 each of the respondents enrolled a motion in the following terms:

"On behalf of the respondent to recall the interim interdict granted by Lord Macfadyen on 26 January 2000 in respect that its terms are unreasonable and too vague and as a consequence unduly oppressive."

The petitioner opposed each of the motions on the following grounds:

"1) In terms of paragraph 10 of the Joint Minute agreed between the parties the respondent has agreed to be subject to the interim interdict pronounced on 26 January 2000; and

2) In any event the terms of the interdict in its current state are not unreasonable or vague and are supported by the documents now recovered."

II The relevant clause in the contract of service

[9] In each case the respondent was bound by the petitioner's General Conditions of Employment. Clause 7 of the General Conditions is in the following terms:

"7. Disclosure of Information

You agree that you will not during your employment with the Company (sc. the petitioner), or at any time thereafter, without the written permission of the Company, disclose to any person, firm, company or organisation (other than to ICL PLC Group company directors, officers or employees, to whom disclosure is necessary in the course of the company's business) any information acquired in the course of the Company's business which:

is confidential or proprietary to any ICL PLC Group company or
is classified with a security marking, or
concerns the affairs of any ICL PLC Group company or of any past, present or prospective customer, supplier or employee and the disclosure which [sic] may damage the interests of such company, customer, supplier or employee.

You agree that you will not use for your own purpose or profit or for purposes other than those of the Company, any information which you may acquire concerning the affairs of any ICL PLC Group company or of any past, present or prospective customer, supplier or employee and you further agree that where your work involves matters, which are confidential or secret to any such ICL PLC Group company or customer you may be required to provide further particulars and/or further undertakings to the Company or such other party as the Company may direct.
You understand that disclosure or use of information in breach of this clause could be detrimental to such company, to its customers, to its suppliers or to fellow employees, collectively or individually, and that any such disclosure or use, may lead to disciplinary action including dismissal, civil proceedings for injunction and/or damages, and/or criminal prosecution
Procedures have been established and guidance will be provided by your manager on the measures of care to be taken to ensure the security of appropriate information and of the channels through which information may be passed."

III The hearing on the motions

[10] When these motions were argued before me, counsel agreed that the decisive issue concerned the interpretation of clause 7 and its enforceability. Unlike the pursuers in Malden Timber Ltd v McLeish (1992 SLT 727, at p. 734H-K) and TSB Bank plc v Connell (1997 SLT 1254, at p. 1255H-I and 1261C-E), the petitioner does not rely on any implied term in the respondents' contracts of employment.

[11] Counsel for the respondents submitted that the petitioner had not made out a prima facie case and therefore that the interim interdicts should be recalled forthwith. Counsel for the petitioner accepted that if I were to decide that the petitioner had not made out a prima facie case, I would be entitled to recall the interim interdicts without having to consider the balance of convenience. This was the course taken by Lord Penrose in Malden Timber Ltd v Leitch (1992 SLT 757). Counsel for the petitioner did not suggest that the decision on these motions should be deferred until the pleadings had been finalised. That was a responsible attitude since the cases turn on clause 7 and the form of the interdicts, and since the interim interdicts may affect the respondents' ability to earn a livelihood in their field of expertise.

IV The submissions for the parties
For the respondents

[12] Counsel for the respondents submitted (a) that the ambit of clause 7 was unnecessarily wide and (b) that the interim interdicts sought and granted were too imprecise in their terms to be enforceable.

[13] Clause 7 was objectionable overall because it applied without limit of time. Moreover, each sub-clause was unenforceable because it was either too vaguely or too widely expressed. In particular, clause 7(1)(a) applied to the disclosure of information that was "confidential" or "proprietary." There was no contractual definition of "confidential" that could be applied in a post-employment situation (Malden Timber Ltd v Leitch, supra, Lord Penrose at p. 763 D-F); nor was there a definition of "proprietary." Information that was proprietary need not be confidential. If it was not, the petitioner had no right to restrain its disclosure.

[14] Clause 7(1)(b) applied to everything that was classified by the petitioner with a security marking. The application of this classification to individual items of information was therefore entirely at the petitioner's discretion, however unreasonably that discretion was exercised (cf. Prosoft Resources Ltd v Griffiths 1999 SLT 1255, Lord Maclean at p. 1256 I-J).

[15] In any event, the interim interdicts founded on clause 7(1)(a) and (b) were not specific as to the confidential or proprietary information that the petitioner sought to protect.

[16] Counsel for the respondents also argued that clause 7(1)(c) and clause 7.2 were unenforceable; but I need not rehearse his arguments since counsel for the petitioner expressly conceded, rightly in my view, that he could not insist on interdicts that reflected either of these provisions.

For the petitioner

[17] Counsel for the petitioner argued that the motions were premature by reason of clause 10 of the joint minute. Clauses 9 and 10 of the joint minute regulated the return of the documents recovered under the specification. Clause 10 constituted an agreement that the interim interdicts would stand for at least the period during which the petitioner's inspection of the information was taking place.

[18] Counsel for the petitioner accepted at the outset the general proposition put to Lord Caplan in Malden Timber Ltd v McLeish (supra) and to Lord Penrose in Malden Timber Ltd v Leitch (supra) that the proper approach for the court in a case like this is to ascertain what legitimate interest the employer is entitled to protect and then to see if restraint is required (cf Malden Timber Ltd v Leitch, supra, at p. 760F).

[19] As to the general objection that the whole of clause 7 applied without limit of time, Lord Osborne had decided in TSB Bank plc v Connell (supra) that there was no need for a time limit. If the interest to be protected is legitimate, it will remain so for as long as the information in question deserves to be called confidential. It is a question of fact in each case when that point is reached. It would be illogical to require a fixed term, because the petitioner's legitimate interest might cease within that period.

[20] Counsel for the petitioner did not accept that confidentiality required to be defined in the contract. In TSB Bank plc v Connell (supra, at pp. 1225 F and L, and 1260) Lord Osborne had not accepted Lord Penrose's view to that effect. In that case, following the view taken in Harben Pumps (Scotland) Ltd v Lafferty (1989 SLT 752) and in Malden Timber Ltd v McLeish (supra), Lord Osborne had held that what was confidential was a matter for proof (ibid., at p. 1260 B-J). The same approach was taken in England (Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch 227, Sir Robert Megarry V-C at pp. 248-9, which was not cited to the court in Malden Timber v Leitch, supra). These cases established that the court could give meaning to an undefined reference to "confidentiality" after the facts had been established.

[21] The petitioner had a right to protect its interest in proprietary as well as confidential information. If the petitioner collected such non-confidential information, the collection of it would be proprietary to the petitioner and be protected. It could include copyright information.

[22] Counsel for the petitioner did not suggest that clause 7(1)(a) could or should be enforced under severance of the words "or proprietary."

[23] As to clause 7(1)(b), counsel for the petitioner argued that if the petitioner were to classify information with a security marking, it would have to demonstrate that that classification was made on a rational basis. But prima facie what was so marked was confidential and the court should proceed on that basis at this stage. If not, the court could sever this part of the clause, as Lord Maclean did in similar circumstances in Prosoft Resources Ltd v Griffiths (supra).

[24] If the court considered that the interim interdicts were not specific, it could pronounce an interlocutor specifying the information referred to, perhaps by reference to the list of files set out in the inventory of the recoveries.

[25] Counsel for the petitioner moved me to refuse the motions for recall so far as they related to head (First) of the Interlocutors of 26 January 2000.

V Decision
The joint minute point

[26] If the parties had intended to agree that for so long as the process of recovery and inspection continued, the interim interdicts would stand regardless, they could have provided for that result in clear and simple terms. It seems to me to be unlikely that that should be the effect of a coda to a clause (viz clause 10 of the joint minute) that bears to regulate a quite different matter. In my view, the proper interpretation of the clause is that its operation is to be subject to the terms of the interim interdicts so long as they remain in force. If the interim interdicts are recalled, that part of clause 10 will simply cease to have effect. I therefore reject the argument for the petitioner on this point.

The general objection to clause 7

[27] In general, any restraint on the actions of a former employee imposed by a confidentiality clause in his contract of employment must be justified on the ground of reasonableness (cf. Gloag, Contract, 2nd ed, p. 570; McBryde, Contract, pp. 591-3; 597-9; Gurry, Breach of Confidence, p. 203-5). If interdict is to be granted, it should be no wider in scope than is adequate for the protection of the employer's legitimate interests (Malden Timber Ltd v McLeish, supra; Bridge v Deacons [1984] AC 705). The length of time during which the restraint applies is a material consideration (Gurry, op cit, p 216).

[28] In my opinion, the objection to the duration of clause 7 is well founded. Clause 7 imposes restrictions on the respondents during the period of their employment "or at any time thereafter." This restriction could prevent the respondents from disclosing information that was confidential, or was classified with a security marking, long after the petitioner had any serious interest to protect it. A restriction without limit of time could be upheld if the petitioner were to discharge the exacting onus of demonstrating that it was reasonable in the circumstances of these cases. In my view, the petitioner has failed to do so. There are no averments in these petitions that could justify the granting of interdict, interim or permanent, without limit of time: nor has any cogent reason for such an interdict been put forward at the hearing. For this reason alone, I would have granted these motions.

The interdicts so far as founded on clause 7(1)(a) and (b)

[29] Since head (Third) of each Interlocutor is now spent, and since counsel for the petitioner no longer insists on interim interdict in terms of clause 7(1)(c) and 7(2), the remaining questions are whether the interdicts so far as they are founded on clause 7(1)(a) and 7(1)(b) are specific and reasonable.

Clause 7(1)(a)

[30] The decisions are at odds on the question whether a contractual restriction against the disclosure of confidential information must define what confidential information is. In TSB Bank plc v Connell (supra) Lord Osborne held, under reference to Harben Pumps (Scotland) Ltd v Lafferty (supra), Malden Timber Ltd v McLeish (supra), and Thomas Marshall (Exports) Ltd v Guinle (supra), that the question whether information is within the category of a trade secret is in the ordinary case a matter for proof, and that the court will in appropriate circumstances permit the enforcement of contractual terms that are drafted widely and in a general form (TSB Bank plc v Connell, supra, at p. 1260B-D). In Malden Timber Ltd v Leitch (supra, at p. 762L-763F) Lord Penrose held that without such a definition the restriction was not effective.

[31] It is unnecessary for me to express a view on the point because I consider that that is not the decisive question that arises under clause 7(1)(a). The question here is whether the court can enforce such a term by means of an interdict that simply echoes the wide words of the contractual term without any further specification of the information that the petitioner seeks to protect.

[32] In each of these cases the prayer of the petition seeks interdict in terms that echo clause 7 without further specification. Each of the interim interdicts has simply been applied for and granted in terms of the prayer.

[33] Any interdict pronounced by the court must be "so precise and clear that the person interdicted is left in no doubt what he is forbidden to do" (Murdoch v Murdoch, 1973 SLT (Notes) 13, Lord President Emslie at 13R). Head (First) of the blanket interdicts pronounced in these cases prohibits disclosure of "any information ... which ... is confidential or proprietary to the petitioner." It does not specify the information that the petitioner seeks to protect in a question with these respondents.

[34] In my view, even if a clause that prohibits the disclosure of "confidential or proprietary" information without further definition is valid, any interdict that gives effect to the prohibition must comply with the normal requirement of specification and leave the person interdicted in no doubt as to the information that he is prohibited from disclosing. That would be a fatal objection to any interdict granted in terms such as these; but the point has even greater practical significance in these cases because the petitioner no longer employs the respondents. The respondents cannot know what specific information the petitioner seeks to protect in this case, nor whether it is of a kind that the petitioner is now entitled to protect; nor can they assess whether the petitioner continues to have any material interest in enforcing the clause in respect of a particular item of information.

[35] These cases may be contrasted with Harben Pumps Ltd v Lafferty (supra, at p. 753H), Malden Timber Ltd v McLeish (supra, at p. 728A-C), Prosoft Resources Ltd v Griffiths (supra, at p. 1256C) and TSB Bank plc v Connell (at p. 1255F and L). In each of those cases the pursuer's conclusion for interdict amplified a general contractual prohibition by specifying the information that the pursuer sought to protect.

[36] For these reasons I consider that the interim interdicts, so far as based on clause 7(1)(a), ought not to remain in force.

[37] I would not accede to the proposal of counsel for the petitioner that the information covered by the interim interdicts could be further specified by the court, perhaps by reference to the list of the petitioner's recoveries. In the absence of a proposed amendment to the prayers of the petitions, it is not for the court to rewrite the interim interdicts. In any event, I have been given no reason for which to conclude that the recoveries referred to, which have yet to be inspected, should be held to cover information that the respondents ought not to disclose.

[38] In any event, I am of the opinion that clause 7(1)(a) is too widely expressed. It applies both to information that is confidential and to information that is proprietary. Proprietary information need not be secret or confidential. I have not been referred to any authority for the proposition that proprietary information may legitimately be protected in this way. It may be that an ex-employer has certain remedies in respect of proprietary information, for example under the law of copyright, but in my view he is not entitled to enforce a general contractual prohibition against its disclosure in cases where ex hypothesi there is nothing confidential about it.

[39] I conclude therefore that the petitioner has not made out a prima facie case for interdict in terms of clause 7(1)(a).

Clause 7(1)(b)

[40] The interdicts founded on clause 7(1)(b) apply to "any information ... which ... is classified with a security marking." In my opinion, this part of the interdicts also suffers from the same lack of specification as the part founded on clause 7(1)(a). For this reason they should not remain in force.

[41] I am also of the view that clause 7(1)(b) is unreasonably wide. It entitles the petitioner to protect any information that it pleases, merely by classifying it in this way. The clause sets no objective standard by which the need for such a marking may be assessed. On the contrary, by leaving the petitioner as the sole arbiter of that question it enables the petitioner to enlarge the protection of the clause beyond those interests that the petitioner can legitimately protect in a question with an ex-employee.

[42] If I had held that the petitioner had a prima facie case under clause 7(1)(a), I would have severed clause 7(1)(b). However, in the circumstances that point does not arise.

VI Interlocutor

[43] Since I am of the view that the petitioner has failed to set out a prima facie case on either of the provisions on which head (First) of the interim interdicts was granted, I shall recall the interim interdicts.