Peter Smith J :
INTRODUCTION
- This action came before me on 2nd November 2007 being the hearing of an application (released by the Interim Applications Judge) issued by the Claimant dated 26th October 2007 seeking to restrain the Defendants from using confidential information pending trial and requiring them to deliver up copies of documents containing confidential information and to provide information about the use made by them of such confidential information. The estimate for the hearing exceeded the 2 hours provided by the Chancery Guide with the result that the case was released to me.
- On that date I suggested to the parties that there should be a speedy trial of liability only in this matter. The parties agreed. I directed that the trial should start the following Wednesday i.e. 7th November 2007 and be heard over the next 3 days.
- Obviously that put a tremendous strain on the parties and their lawyers. Nevertheless they responded with a commendable zeal and the trial duly took place (serving of the Defence, disclosure and witness statements having taken place on the Monday and the Tuesday.) The parties lawyers provided me with comprehensive skeleton arguments.
- I was greatly assisted therefore by the way in which the parties and their lawyers addressed this task and I am grateful for that. Given the shortness of time allowances necessarily had to be made for errors and delays but I am satisfied that there was no injustice caused and all parties had a full opportunity to deploy their respective cases.
- Unsurprisingly the evidence time table was tight and it was only finished by my sitting until 8pm on Friday 9th November. I am grateful to the Court staff and my Clerk Miss Supriya Saleem for sitting outside normal hours to enable this hearing to be concluded by that date.
- Thereafter the parties served comprehensive closing written submissions and supplemental responses thereto.
EVIDENCE
- The Claimant called two witnesses Christopher Worrall its Managing Director and Paul Maynard a solicitor and partner in the firm of Gaby Hardwicke the solicitors who represent the Claimant in the proceedings.
- The Defendants called the First Defendant (Mr Rider) and the Second Defendant (Mr Stimson). The Third Defendant is a company which was incorporated in England and Wales in May 2007. Its sole directors are Mr Rider and Mr Stimson and they are the majority shareholders. It is alleged by the Claimant (not disputed by the Defendants) that any knowledge on the part of Mr Rider and Mr Stimson in relation to the allegations against them is attributed vicariously to it by reason of their office of directors.
- I will make more detailed observations on the witnesses further in this judgment.
THE CLAIM
- The First and Second Defendants are former employees of the Claimant they having left its employ on 8th June 2007.
- The Claimant is a company engaged in the design, production and supply of fabrics for home and commercial furnishing and decoration. It has a world wide customer base. When its transactions are effected in Europe they are often through commercial agents. Its commercial agents for Spain and Netherlands respectively at all material times were one Jose Basso and one Niels Groot.
- The Claimant was founded in 1978 by its Chairman and sole shareholder Derek Crowson. Under his control it enjoyed substantial growth making it one of the worlds leading producers, designers and suppliers of home furnishings. It is asserted that it is very much a design led company boasting its own design studios producing the finest range of furnishing fabrics and complimentary products including wall coverings made to measure and ready made curtains, trimmings and accessories.
- Its turnover peaked at £40,000,000 per year a few years ago and employing 200 people. Thereafter the turnover has declined in the past decade with turnover now of £10,000,000 approximately and the number of employees being around 65. Mr Crowson's expertise lies primarily in purchasing design development of fabric products. The Claimant is a wholesaler of fabrics to a large client base of retailers and distributers. Primarily it buys off the shelf but also works with manufacturers to modify or adapt bespoke orders. It also produces curtains and other fabric products to order and develops and designs fabrics in-house.
- Mr Crowson had a serious illness a number of years ago and thereafter did not attend full time to the business of the Claimant. He now spends a considerable amount of time in the Caribbean and on his yacht. Nevertheless it is clear he maintains a hands on control by proxy. It was said in evidence that he was a strong willed and forceful individual and in effect made all the important decisions about Crowson albeit from afar.
- Mr Crowson was not called to give evidence. That was the subject matter of criticism by the Defendants in their closing submissions. It was submitted that he had a central role in respect of the allegations and that I should draw a negative inference from his absence. This was based on the decisions of Karis v Lewis [2005] EWCA Civ 1637 para 33 and Baigent v The Random House Group Ltd [2006] EWHC 719 (Ch) paras 213-217. In both of those decisions I drew an adverse inference from the fact that a key witness was not called and no explanation was given for that witness' absence.
- I have no doubt that Mr Crowson is a strong willed and powerful individual. Self made businessman usually are. Equally I have no doubt that whilst he is absent abroad for significant periods of time he maintains a tight control over the Claimant and very few decisions are made without his approval. I do not see that this is relevant to any of the subject matters of the dispute before me. What is important is to examine the role that Mr Rider and Mr Stimson respectively had and the conclusions to be arrived at in the light of that role and what duties they owed to the Claimant. In the light of those duties it is then necessary to examine what they did and whether their actions once examined are a breach of any of those duties.
- I do not therefore see that Mr Crowson has any input in that analysis. I therefore reject the Defendants' submission that I should draw an adverse inference from his absence.
- Equally I reject the Claimant's contention that there was anything as structured as the organisation described in the action as the "Senior Management Team" ("SMT"). In my view it was a creation for the purpose of this litigation. There was in my view no such formalised structure and decisions were made on an ad-hoc basis as regards the Claimant's operation. I have already commented that Mr Crowson undoubtedly had the ultimate decision making process but equally depending on the nature of the topics discussed Mr Worrall, Mr Rider and Mr Stimson would participate in that decision making process but ultimately any final decision would be that of Mr Crowson.
MR RIDER
- Mr Rider was first employed by Crowson as a purchasing assistant on 15th February 1988 on a salary of £13,500 p.a. His written Statement of Terms of Employment are brief. They refer to various appendices. None of those appendices was actually produced during the trial and the Claimant accepts that there are no provisions which are relevant to the dispute before me. Thus there are no provisions in those appendices which deal with Mr Rider's duties generally and as regards the use of information and his obligations upon termination of employment. Equally there are no restrictive covenants applying post termination.
- By the time of his termination of employment Mr Rider was obliged to give 12 weeks notice.
- By a memo dated 8th November 2004 Mr Rider was appointed Product and Distribution Director with an increase of salary of £5,000 p.a. but whilst he was appointed a Director it was stated somewhat unusually that it "[had] no legal responsibilities". He never became an officer of the Claimant (unlike Mr Worrall). His duties were summarised as being applicable to commercial activities, purchasing support, studio, warehouse and distribution and quality control. By the time of his termination he was earning a salary of £50,000 p.a. He received various bonuses over the years but none was particularly large. Mr Worrall by contrast received a salary of £60,000 p.a.
MR STIMSON
- The only evidence of the Terms of Employment of Mr Stimson was a letter of offer dated 4th April 2005. By that letter he was offered a salary of £50,000 p.a. for an appointment as UK and Export Sales Manager. In cross examination Mr Stimson said his high relative salary was due to his successful negotiating at the time of employment. That letter also referred to appendices A-6. Thus he was required to give 4 weeks notice on termination of employment.
THE COMPANY HANDBOOK
- The Claimant contends that both Mr Rider and Mr Stimson were bound by the terms of a Company Handbook. This document had been in preparation from 2006. Both Mr Rider and Mr Stimson were aware it was being prepared for issue. This contains some express restrictions not to be found in the earlier documentation (Mr Stimson had none of those of course). Thus paragraph 1.14 stated that an employee could not be involved directly in any other business or other work without the Claimant's consent. Mr Rider acknowledged in cross examination that that was common sense but I do not regard that acknowledgment as being an acknowledgment by him that he agreed this provision.
- Section 4 (paragraph 4.1) provided that no confidential information belonging to the company should be disclosed during and after the period of employment and that the provision continued after termination of the employment until the information came into the public domain. Clause 4.2 obligated the employee upon termination to return all equipment, correspondence, records etc which were in their possession, power custody or control.
- The Handbook was not issued until 1st June 2007 when Mr Rider and Mr Stimson had left 7 days of their notice to run. They were not given a copy. Indeed the evidence was when copies of the Handbook were handed out they were expressly told there was not one for them.
- I find it a fact that the Terms of Employment between the Claimant and Mr Rider and Mr Stimson did not include the Company Handbook. There is in my view no evidence to show that the parties agreed the Handbook would bind them in the future and I do not see that the Claimant can unilaterally vary the terms of the contract of employment for these employees when they were working out their notice. They gave notice in accordance with the then terms. Suppose for example the Handbook imposed a restrictive covenant which operated for (say) 12 months. I do not see that it could be argued that the issue of the Handbook 7 days before the termination of the employment could in effect unilaterally impose a new and onerous obligation on the employee working out his notice. Taking all of those into account I do not accept therefore that the Handbook has any relevance to the issues before me.
THE CLAIM
- The Claimant contends that Mr Rider (ignoring the claims in respect of the Handbook) as an employee owed a duty of good faith and fidelity, was subject to an implied obligation not to copy, remove or misuse any of the Claimant's confidential business information with a view to use in a competing business. In addition the Claimant contends by reason of the seniority of his employment he owed a fiduciary duty to act in good faith, not to act so as to place himself in a position of conflict between his personal interests and those of the Claimant, a duty not to use or cause to be used any information or opportunity available to him by reason of his employment and his position as a fiduciary for any purpose other than furthering the interests of the Claimant, a duty to account to the Claimant for any personal gain or profit made using information or an opportunity that became available to him by reason of his employment and position of fiduciary and a duty to disclose to the Claimant any misconduct or breach of contract or duty by himself or Mr Stimson.
- The Claimant contends that Mr Stimson was subject to the same employee obligations and fiduciary duties and similarly was in breach of those duties.
- In voluntary further information served 2nd November 2007 the Claimant identified the references to confidential information contained in the Particulars of Claim. The list is as follows:-
(i) Names, addresses, contact names, telephone numbers or email addresses or the Claimant's customers;
(ii) Sales figures for the Claimant's customers;
(iii) Profit margins for the Claimant's customers;
(iv) Details of goods ordered by the Claimant's customers or priced paid by said customers;
(v) Names, addresses and contact details of the Claimant's suppliers;
(vi) The Claimant's suppliers', agents' names, addresses and contact details;
(vii) The Claimant's suppliers' carriage costs, lead times, types of products available, trade shows visited, or the cost negotiated with such suppliers
ALLEGATIONS AGAINST DEFENDANTS
- The Claimant contends that in January 2007 Mr Rider and Mr Stimson had decided to set up a competing business. In February 2007 a document was prepared by them using the Claimant's computer called "Critical Path Concept Fabrics". This, the Claimant contends is a document showing the various steps the Defendants intended to take to set up a rival business. Although the Third Defendant ("Concept") was not incorporated until May 2007 the Claimant contends that email facilities were operational by March 2007.
- Mr Rider gave notice on 4th March 2007 which was accepted on 5th March 2007 expiring on 8th June 2007. He plainly lied about what he intended to do. It is quite clear on the evidence (and Mr Rider acknowledged this ultimately in cross examination) that he told Mr Worrall falsely that he wanted to spend more time with his family and was taking up a new career change in the Housing Sector. He acknowledged also in his evidence that the reason for the lie was that if he had told them the truth the Claimant would have sent him home on garden leave. He did not reveal his true intentions until April when he told Mr Worrall falsely that he was going to join a competitor. What he did not say was that he and Mr Stimson were setting up the competitor. He thus lied to continue his employment actively whilst simultaneously taking steps to set up a rival business. When he revealed an apparent change of plan in April the Claimant did not send him on garden leave. Instead they gave him a task of setting up a Supplier Bible. This is one of the documents which the Claimant contends contained vital confidential information as it sets out all the details of the Claimant's sources of products. It may be surprising that it entrusted the task to Mr Rider given his notice but at the end of the day the Claimant can say with some force that it trusted Mr Rider to continue with his duties, comply with his obligations and behave honourably. The Claimant's attitude might have been different had Mr Rider told the truth (which he failed to do again) namely that he intended with Mr Stimson to set up a rival business from scratch.
- The Claimant contends that between February and June 2007 Mr Rider and Mr Stimson set about organising this competing business and that in so acting they were in breach of their fiduciary duties and their duties of good faith as employees. It is contended that during that period they ordered sample fabrics (for example) from Beaulieu which produced Crowson's "Penshurst" range and that the use of the targeting of this material was as a result of Mr Rider using confidential information belonging to the Claimant.
- It is also alleged that Mr Rider used Crowson's confidential and computer system on 20th April 2007 (shortly before he informed the Claimant on 26th April 2007 of his changed future plans) to produce a spreadsheet entitled "Concept forecast sales by customer". This spreadsheet listed 3,500 of the Claimant's customers ranked by level of 2007 sales with figures for each customer from 2006 and 2007 year to date. It also included an estimate for year 1 and year 2 sales by Concept to approximately 400 of the top ranked customers selected on the basis that those customers in question ordered Alaska and/or Penshurst fabrics from Crowson. Alaska is the Claimant's most popular selling product. The final page estimated that Concept would make sales of £748,000 in year 1 and £1,182,500 in year 2 using the selected Claimant's customers. Thus the projection contemplates sales based mostly on Concept successfully targeting the Claimant's largest customers in its most popular lines.
- On 8th May 2007 Mr Stimson resigned with effect from 8th June 2007 stating that he was going to accept a position elsewhere with a direct competitor. The Claimant contends that he falsely told Mr Crowson that he intended to join a French company called Casamance as its Sales Manager. The Claimant contends that as Casamance was not seen to be a serious competitor they did not place Mr Stimson on garden leave either. I accept this evidence.
- Whilst working out the notice Mr Rider and Mr Stimson incorporated the Third Defendant and identified and acquired a substantial lease hold premises from which to operate a new business. Similarly a computer and email system for the Third Defendant including an email account [email protected] was set up.
- Mr Stimson using the Claimant's computer system emailed customers such as John Lewis on 31st May 2007. That email was copied to the Concept-sales hotmail address. The email said (in part):-
"Crowson's have requested for me not to inform you that I will be leaving Crowson on 8th June but I feel that you need to be informed before I actually leave out of courtesy.
I am setting up a new fabric company with a colleague which will operate in a new format within the trade.
We already have a few exclusive deals that have been agreed with a number of high profile suppliers and have a number of products that I think you may be interested in. We have the flexibility of being able to sell under our own brand at great prices due to our structure.
We have secured private investors to support the company so we can give quality service to our customers from the beginning"
- In my view this was a flagrant breach of Mr Stimson's duties of fidelity. It is not for him to communicate to Customers behind the Claimant's back when he is told not to do so. The only possible reason for this was to tell the customer that he was going to set up a rival. Thus he solicited the custom of such customers. Mr Stimson in his evidence said it and the other solicitations discovered by the Claimant were unsuccessful. There are 2 ripostes to that. First it is his conduct that is relevant not whether it was successful and second there may have been other attempts which have not yet been discovered. I do not criticise the Claimant for not contacting customers and saying in effect "Has Mr Stimson solicited your custom?" That would be commercial suicide. Further customers rarely like to become involved in turf war disputes.
- On 6th June 2007 Mr Stimson using Crowson's computer system sent to the Concept hotmail address a list of more than 70 email addresses stored on Crowson's computer system outlook address book. The next day he arranged for a junior employee in Crowson's IT department to organise a telephone system for Concept and the production of a letterhead for it. Both of these actions again are flagrant breaches of his duty of fidelity as an employee in my view although the latter item is probably of little significance beyond showing that Mr Stimson simply looks to his own needs and saw nothing wrong in helping himself to the Claimant's resources if it suited his needs.
- The Claimant alleges that Mr Rider and Mr Stimson left its employment on 8th June 2007 and without its knowledge or consent they had already provided to Concept and or took with them or retained the spreadsheet and email addresses referred to above and the documents identified in schedule 1 to the Particulars of Claim. The Schedule lists a large number of documents which are plainly in my view Crowson documents. They were all delivered up by Mr Rider/Mr Stimson between 10th and 12th October 2007.
- By amendments to the Particulars of Claim (paragraphs 26A and 37A) the Claimant introduced new allegations. First was the allegation that Mr Rider and Mr Stimson solicited 2 of Crowson's European Sales Agents namely Mr Groot and Mr Basso with a view to obtaining customers business introduced through those agents for Concept.
- The second allegation is that whilst still employed by the Claimant Mr Rider and Mr Stimson diverted enquiries about new business and new orders received by them at the Claimant's office to Concept. Express reference is made to an email enquiry sent by Mr Rider to his home email account on 8th June 2007 relating to an enquiry about new business from Geert Van Brussel of BRU textiles NV and an email sent by Mr Stimson on 5th June relating to an enquiry from Mustafa at Rodesma and a further email sent by him to his email account relating to an enquiry about a new account from Dean Worsley a sole trader in the Algarve.
- I will deal with these allegations in more detail when I analyse the evidence but for present purposes I observe that the general thrust of the Claimant's allegations is not disputed by the Defendants. Their case is that what they did was not actionable.
- Included in the large amount of documentation handed over by the Defendants to the Claimant set out above were items 1-4 and 6 of a list of 6 items which the Claimant contended contained confidential material these were included in what was called the confidential exhibit as follows:-
(1) Customer listing – 8th August 2005
(2) Crowson's worldwide customer sales database
(3) Sales by customer by class 2006-7
(4) Supplier Bible
(5) Concept forecast sales by customer. This document was found on Mr Rider's old Crowson computer by the Claimant. He admitted in cross examination that he had printed off a copy but denied that he had retained a copy. I do not accept that evidence. He never explained what happened to the copy and I can see no reason why he would not having created the document not utilise it and very good reasons for doing so. It is of course no use to Crowson.
(6) Express costing
- Item 4 is a significant document. It was the Supplier Bible created in April by Mr Rider and the electronic version delivered up by the Defendants was created on 12th May 2007. This was a document which Mr Rider was asked to work on in the last few weeks of his notice period. It contains each supplier's name, address, full contact details, agents details, the individually negotiated carriage costs, lead times, type of product, what trade show they visited and the specifically negotiated costs for each of the transactions. Mr Worrall in his witness statement (paragraph 62) contended that this document was the combination of years of work and the value of the information to a competitor was literally priceless. He could not emphasise how much an advantage any competitor would have by receiving this information. I can see no legitimate reason for the copy to be created and retained by Mr Rider. The reality is that by retaining these documents the Defendants have saved themselves the trouble and time they would need to transform what they retained in their heads and what they could find by research on the internet or other sources or by contacting suppliers and customers. In other words in my view they have mounted a classic springboard operation using the Claimant's documents to provide themselves with a ready made source of everything they need for their fledgling business without themselves putting in the effort to put the material together.
- Item 5 was a sales forecast for Concept. It was based entirely on taking the Claimant's sales for 2007 and 2006 applying those to Concept and assuming that it would be able to obtain turnover of that amount. The Claimant found this on Mr Rider's desktop computer at the Claimants. It was not hidden in the sense that it was not deleted from the Claimant's computer. Other items were then discovered as set out in paragraph 5 of Mr Maynard's first witness statement.
- The Claimant initially asked that the hearing take place in Private when the details of those documents were considered. Sitting like that causes logistical difficulties and does not cover the difficulty that might ensue if documents are inadvertently referred to whilst the court is in open sitting. I accordingly heard the entirety of the case in Private. I will not refer to any of the confidential material in detail in this judgment as it is not necessary so to do in my opinion but will maintain the privacy as regards the hearing after the judgment is delivered.
DEFENDANTS' STANCE
- As I said above most of the detail of the Claimant's complaints against them is not disputed. The Defendants' stance is that none of the material that they created or used or retained at the end of their employment contains any confidential information. Their case is that all of the material is available in the public domain.
- Further the Defendants contend that all of the material is part of their own gathered knowledge acquired over the course of their employment which they are free to use (it being their own expertise and knowledge) after the termination and that the Claimant cannot prevent an ex-employee (absent a restrictive covenant) from using his own gathered knowledge and experience when he leaves the employment.
- As regards the acts done during the course of their employment whilst they were working out their notice the Defendants contend that none of the acts were wrongful. All of the acts were done in anticipation of setting up a business and operating that business after expiry of their notice. The Defendants contend they are perfectly entitled to organise a state of affairs whilst working out their notice so as to set up a business which will compete with the employers business but only do so after the termination.
- Although they have admitted retaining a large amount of documents that belonged to the Claimant and returned them they contend that they had no obligation to return them and have not used the information contained in the documents in any substantial way.
EVIDENCE
- The Claimant's main witness Mr Worrall was shown to be inaccurate in his evidence. First he wrongly maintained that the Claimant had a number of exclusive deals with suppliers and agents when plainly it did not. Second he repeatedly asserted that the Claimant's main product Alaska had been copied by the Defendants when selling another product manufactured by the same manufacturer known as Typhon. His statement that Typhon was a direct copy overstates the case.
- In relation to the Alaska product he alleged it was the Claimant's top seller and identified the sales as variously as £3,000,000, £2,000,000, and £500,000. It became clear that the second witness statement (paragraph 36) was misleading as regards Alaska's sales. In the body of the witness statement he referred to a schedule of sales over the last few years. The paragraph stressed that the figures were trade prices and the actual retail prices were significantly higher. The actual exhibit (page 672) suggested purchases of Alaska at £2,106,417 and onward sales of £2,851,835. In paragraph 7 of his first witness statement he suggested that Alaska made sales of approximately £3,000,000 of the Claimant's turnover. The significance of Alaska will appear later in this judgment. Not only is it the Claimant's largest product it is supplied by an Italian company named Para. When cross examined on this paragraph he admitted that the figure of £3,000,000 was wrong and agreed with the Defendants' put figure of £542,000. He confessed therefore to an overstatement of the amount by a factor of 6. The figures exhibited at paragraph 36 of his witness statement suggest a turnover of £2,800,000. His recollection as to how that exhibit came to be formulated was plainly defective. In cross examination he thought that the schedule was based on volume and not price. Mr Maynard in his second witness statement dated 7th November 2007 explained how this document came to be created. It is plain that the text of the witness statement as drafted by Mr Maynard for Mr Worrall does not reflect what the exhibit shows. This is casual behaviour but I do not think it deceptive.
- There is no doubt that Alaska is the Claimant's leading product and that is the issue. As set out above the Defendants prepared a Sales Forecast for Concept based on the Claimant's Alaska sales. Thus whilst Mr Worrall plainly was the subject of justified criticism for his inaccurate evidence there is no doubt that Alaska is a key product for the Claimant and that the Defendants not only knew that but also expected it to be used as the basis for Concept's business in its first years of trading. Typhon was not identical but it was similar and the Defendants saw it as a rival to Alaska.
- The Defendants were critical of this shambles and rightly so. However I do not think it takes the matter any further in the sense that I do not believe an attempt was made to mislead. It shows that Mr Worrall can be casual both in his substantive evidence and the evidence he gave in cross examination. He was plainly wrong when he explained how the exhibit to his second witness statement came to be created and he was plainly wrong in my view to accept without question the figure of £542,000 put to him in cross examination. The significance is not really of the description that Mr Worrall gives to it; it is on what the Defendants attribute to it. Confidential document number 5 was created by the Defendant using the Claimant's Alaska and Penshurst sales (Mr Worrall paragraph 24). The evidence shows Mr Rider created this on the Claimant's computer at 8.06 hours on 20th April 2007. Its purpose is plain to me. It is a projection of the likely sales that Concept can make by reference to the Claimant's lead products by reference to the sales of those products by customer that the Claimant makes. This was created whilst Mr Rider was working out his notice and at a time when the Claimant believed he was still going into the Housing Sector. He changed his story 6 days after this document was prepared.
CONSIDERATION OF DEFENDANT GENERATED DOCUMENTS
- The first of the Defendants' documents was the Critical Path for Concept Fabrics prepared by Mr Stimson but provided to Mr Rider. Mr Worrall found it on Mr Rider's Crowson computer in the "Prider" file which had been created on the T drive. It is dated 5th February 2007 and sets out a chronology of future events leading to the creation of Concept, Mr Stimson taking samples for an initial feed back, presentations to the bank, arranging supplier meetings by the end of February, placing fabric orders in March, Mr Rider taking a week off in April (which he did), delivery and distribution of initial hanger orders and moving in to basic warehouse premises. All of that was to take place before the end of April and before Mr Stimson was to give notice. It proposed also that initial stock orders would be delivered by the end of April.
- It is also clear that Mr Stimson had meetings with Mr Groot (an agent he had introduced to the Claimant the year before) and Mr Basso about them providing orders to Concept. Such meetings probably took place as early as February 2007 as the emails obtained from the Defendants show.
- The next document of significance was a Power Point presentation prepared in February 2007. Most of this is innocuous although the Sales Channels suggest that the Defendants intended to target 500 retailers reflecting in my view the targeting of Crowson's key retailers in the Concept forecast sales by customer document referred to in paragraph 54 above. The Sales Channel objectives also makes reference to European business and I have no doubt that the reference to Holland/France/Spain is a reference to Messrs Groot and Basso.
- The Critical Path document identified events happening as early as February 2007 with meetings with bankers, investors, nominated suppliers and the selection of products. In March 2007 the timetable moves on (for example) to placing production orders. April 2007 has initial product deliveries and the sending out of samples to retailers. All of these activities therefore start if they actually took place before even Mr Rider had given notice and continue whilst he was still working his notice out.
- On 11th March 2007 Mr Rider prepared projected Concept Accounts for the next 3 years and copied them in to Mr Stimson. Those are plainly based in my view on sales (for example) $748,500 (sic) which is clearly based on targeting of Crowson's main retailers in respect of its leading products.
- Finally in this review of documentation I refer to the Defendants' revised Power Point presentation of May 2007. This contains a number of changes from the February Power Point presentation. Under the heading "Partnerships-Suppliers" it suggests that Concept has allied itself with a number of the best suppliers that have signed up to its business, strong relationships have been built and full support is being offered from their nominated partners. Under the heading "Supplier Agreements" it is suggested that 4 suppliers are already on board, 2 suppliers have agreed to subsidise sampling costs by 50% - 90%.
- It is also clear that shareholder investors were sought and those potential investors are identified in various emails sent by Mr Rider from his private email address to the Concept email address (see for example his email dated 6/5/2007). Mr Stimson was copied in to those emails.
- On 6th June 2007 Mr Stimson copied the emails addresses of 70 of the Claimant's customer contacts to the Concept email address. I could see no legitimate reason for this exercise taking place 2 days before his employment was due to terminate and Mr Stimson was unable to give any legitimate reason for it when giving evidence.
THE DEFENDANTS' EXPLANATIONS
- The Defendants having received letters before action from the Claimant's solicitors in early September 2007 returned a large amount of documentation including 5 of the 6 Confidential Documents in the Confidential Bundle. Their solicitors on 15th October 2007 referring to the delivery up stated that it had been full and frank and that the Defendants had no intention to damage the Claimant by unlawful means or by gaining an unfair competitive advantage. It suggested that the nature of the Claimant's business means that there was no information which was really confidential and that the best that could be said was "it saved our clients a few hours in getting names and addresses from the competitor web sites and internet in general". The letter also stated that the Defendants were "emphatic no orders were placed, deliveries taken or premises contracted for prior to 8th June. Any activities carried out in the notice period which related to Concept were no more that merely preparatory" the letter then went on to say that the Claimant was well aware that Messrs Rider and Stimson had a detailed knowledge of the Claimant's client base, product range, pricing and suppliers legitimately acquired in the course of their employment and that they did not need any of the information delivered up. The letter also suggested that the Claimant was attempting to use the threat of litigation and its financial strength to stifle legitimate competition either through a Court Order or attrition by costs and time.
- That latter point seems at least partially a fair observation. Initially the Claimant's solicitor in their letter before action required written undertakings to be provided by the Defendants. Those undertakings included restrictive covenants for a period of 18 months. They were plainly designed to try and write in the contract by an allegation of breach of contract protective provisions which were not there. In cases like this there is always a need for the Court to consider all the competing priorities of the parties. The Claimant if it has legitimate right to protect is perfectly entitled to pursue its protection vigorously in the Courts. That is of itself not oppression. Equally however the Court has to be astute to ensure that the litigation (adopting the Defendants' solicitors phrase) by Court application or attrition as to costs is not used as an illegitimate trade protection exercise to stifle legitimate competition. In that context it is important to appreciate that former employees are entitled to go about their business in competition with their former employers (absent restrictive covenants) using such expertise and information that they have acquired during the course of their employment. They cannot be barred out from using their own accumulated skills and knowledge. Equally however the Court has to be satisfied that ex-employees do not go beyond using their own accumulated personal skills but instead decide to help themselves illegitimately to the ex-employer's material as a short cut.
- The Defendants attempted to bolster their stance by their solicitors' detailed letter dated 19th October 2007. In that they asserted that they did not actually adopt the Critical Path for Concept Fabrics. The letter further set out 13 express denials. These were referred to in the Defendants' witness statements as well. The witness statements were also verified at the start of their evidence thus confirming on oath the truth of the denials without reservation.
- They were forced to admit in cross examination that some of them were untrue. For example they were forced to admit they had supplier meetings in May (denial (iii)). They were forced to admit that fabric orders had been placed on behalf of Concept before 11th June (denial (v)) although this related to samples only. That however in my view is not significant. Finally they were forced to admit that denial (viiii) that there was no sourcing before 11th June 2007 was also a lie.
- Mr Rider and Mr Stimson were unable to explain the specific changes in the May Power Point presentation to which I have referred to above. Either they were preparing a dishonest presentation or their evidence before me was untrue.
- In addition although the Defendants made much of their full disclosure the Claimant showed that full disclosure had not taken place. An examination of Mr Rider's old Crowson computer revealed a number of emails identified on snapshots of the Concept inbox. The Defendants have disclosed Concept's emails (see item 2 of the electronic disclosure in the Defendants' standard disclosure dated 5th November 2007). The Claimant however recovered from Mr Rider's Crowson computer a list of emails which had been sent to the Concept email account. There were discrepancies in the periods of April – May 2007 between the electronic documents disclosed by the Defendants and those shown on the snapshots recovered by the Claimant. The ones which appeared to be "missing" related to the Claimant's major supplier Para which supplied the Alaska fabric and the Defendants' dealings with Mr Groot. The Defendants were unable to explain why these emails were missing from the Concept disclosure. Initially they suggested it was because of the operation of the Hotmail Account which automatically deleted emails after 30 days.
- That argument appears to be fallacious for 2 reasons. First it does not explain why all contemporary emails for the same period were not also deleted. Second as I understand it the Hotmail automatic deletion procedure only applies to unopened emails; all these emails in question were shown to have been opened. I put it to Mr Rider that if there was no other explanation the only conclusion I could draw was that someone had filleted the list. Mr Rider said he could not give any other explanation. This in my view is serious because it shows the Defendants have not been truthful about their allegedly open disclosure. Absent any other explanation I can only conclude that they removed the Para and Mr Groot emails from the Concept list of emails before they disclosed it.
- I ask myself why this should happen? The only conclusion I can draw is that they wanted to conceal from the Claimant and thus the Court the fact that they had had discussions with its major supplier Para whilst they were still in the Claimants employ and working out their notice. They perpetuated this in my view by attempting to deceive the Court. First their solicitor's letter of 19th October suggested falsely that there had been no dealings. That letter was verified as I have already observed in their witness statements and their witness statements were verified before they were cross examined in the usual way.
- Mr Stimson was forced to acknowledge that these lies would not have been discovered had not the Claimant's computer expert found the snapshots of these emails on Mr Rider's computer. I do not accept that the fact that they were on his old computer shows openness on his part; they had to be found and plainly the Defendants did not realise that they could be recovered from Mr Rider's old Crowson computer.
- This leads me to conclude that the Defendants have lied about a significant part of their pre 8th June 2007 activities. I remind myself of the need to analyse why people lie in the witness box see EPI Environmental Technologies Inc & Anr v Symphony Plastic [2004] EWHC 2945 (Ch) paragraph 66-76 (paragraph 74 in particular). I conclude that the Defendants lied to conceal the true extent of their activities before 8th June 2007. To that extent their evidence is unsatisfactory. I conclude that in the light of those lies and their inability (for example) properly to explain the changes to the May Power Point presentation that they were far more active than their disclosed documents suggest. They have attempted to deceive the Court but have failed. I take the May Power point presentation at face value. I am of the opinion that it accurately reflects the state of their preparations for their new business by that time. By that time also they had had discussions with suppliers, agents and as the emails show contacted various customers with a view to attempting to obtain business from them. They had also diverted very late in the day some small business opportunities for themselves as they admitted.
- Thus I find the allegations referred to in paragraphs 40 and 41 above (solicitation of the 2 agents and attempted diversion of the business opportunities) established. As regards the opportunities it does not matter that the Claimant would not have been interested; the issue is the opportunities coming to the Defendants' attention whilst employees and the taking of them for their own benefit see IDC v Cooley [1972] 1 WLR 443.
- They did all this against a backcloth of deception as to their future intentions.
- Finally they had retained and helped themselves to a vast amount of documentation which belonged to the Claimant and had used it for their own business projections in part.
- All of this took place whilst they were still in employment and obliged at the very least to work faithfully for the Claimant. In fact it shows that they were working to undermine the Claimant when they should have been working for its benefit.
DEFENDANTS' DUTIES
- There is no disagreement between the parties as to the duties Mr Rider and Mr Stimson owed as employees. The dispute between them is whether or not they also owed fiduciary duties to the Claimant. It is not suggested as I have said that Mr Rider despite the unusual terms of his appointment was actually a Director of the Claimant; its case is that by virtue of the senior position he and Mr Stimson had in the management structure of the Claimant they both owed it a fiduciary duty.
- I have already rejected the suggestion that there was actually anything as structured as a Senior Management Team. Nevertheless Mr Rider was given a nominal title of director. In cross examination he acknowledged he was completely trusted, was one of the inner-circle and was trusted to behave honourably because of his seniority. He was as he also accepted number 3 and thus part of the senior management of the Claimant. He accepted that he with Mr Worrall was invited to strategy discussions at Mr Crowson's yacht and at Mr Crowson's home this was in Barbados and this was not something ordinary employees were invited to do. He acknowledged in his first witness statement (paragraph 20) that as Mr Crowson spent more time in Barbados "he came to rely on me to remember and know the operational details of the business". He acknowledged this further in cross examination. He also acknowledged that he was the person asked to compile the "Supplier Bible" because he alone had the information at his fingertips and he was trusted to behave honourably. His remuneration was comparable with that of Mr Worrall and he received bonuses outside the staff bonus scheme although I do not think the level of bonuses was particularly significant.
- A senior management employee just below board level was in a fiduciary position in the decision of Tesco Stores Ltd v Pook [2004] IRLR 618. An employee does not generally owe fiduciary duties see Hanco ATM Systems Ltd v Cashbox [2007] EWHC 1599 (Ch). Some special role or status is required for him to be held to be a fiduciary.
- Where an employee is not a director it is essential to look at the role of that employee and determine whether or not the nature of that role is sufficiently senior for the Court to conclude that in addition to his normal duties as an employee he owed fiduciary duties.
- The clearest indication as to whether or not an employee was also a fiduciary is to be found in University of Nottingham v Fishel [2000] IRLR 471 approved by Moses LJ in Helmut Intgrated Systems Ltd v Tunnard [2007] IRLR 126 at paragraph 37 as follows:-
"….in determining whether a fiduciary relationship arises in the context of an employment relationship, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer. It is only once those duties have been identified that it is possible to determine whether the fiduciary duty has been breached. "
- The difference between the duty of fidelity and the fiduciary duty is that the latter must act solely or exclusively in the interest of his employer and that it is easier for an employer to establish that activities in preparation for competition were themselves in breach of a fiduciary obligation (Helmut paragraph 33).
- Analysing the status of Mr Rider as set out above I conclude that he was a fiduciary. He clearly had a senior role beyond that of a mere employee and was entrusted with senior tasks because he could be trusted.
MR STIMSON
- He had only been employed by the Claimant for a short period of time. He was its UK and Export Sales Manager and the most senior employee on the sales side. He reported to the senior management Mr Worrall and Mr Rider but given his seniority he was not merely involved in sales but also was required to implement sales strategies. His remuneration was comparable to that of Mr Worrall and Mr Rider but I accept his observation that he had been successful in his negotiations.
- Applying the Nottingham University case above I do not see that Mr Stimson is a fiduciary. In my view he was a senior and experienced salesman but his duties were no more than that.
- I doubt whether in fact there is any significance as to whether or not Mr Rider and Mr Stimson were employees or whether they owed in addition fiduciary duties save that it can be said that Mr Rider had an obligation to disclose his own breaches and those of Mr Stimson and he was in breach of that duty.
- I have already observed that the copying and retention of the Claimant's documents was done with the intention of benefiting themselves when they set up in their new business. That in my view is a plain breach of fidelity as an employee and would clearly be a breach of any fiduciary duty owed by Mr Rider.
- The Defendants made much play again on the fact that Mr Crowson had the final say in matters and the power lay ultimately with him. I do not see that this is an answer to what the Defendants did. Merely because Mr Crowson made the final decision does not mean that their activities in providing him with material to enable him to make that final decision were of a sufficiently senior nature as to justify imposing a fiduciary duty on them. Whether he had an autocratic style and whether there was no actual senior management team as alleged is also in my view irrelevant. Mr Crowson was the chairman and the 100% shareholder. However it is clear as Mr Rider acknowledged that he relied on Mr Rider and Mr Rider had senior duties devolved upon him which reflected in his status as a director (albeit without legal responsibility).
ACTS DONE BY THE DEFENDANTS
- The Defendants have admitted that they did a number of activities with a view to setting up their new business both before they had given notice and whilst they were working out their notice. I have already rejected their limited statement as to what they did. Further as I have set out above they plainly did more than they originally acknowledged as they were forced to concede in their evidence. The question to be considered is whether or not those activities are a breach of their duty of fidelity and Mr Rider's fiduciary duty or whether they are legitimate actions taken with a view to setting up a legitimate business post termination of the contracts of employment.
- It is often said that the test is whether or not the actions done were preparatory for the future activity or went beyond that.
- This is an over simplification as the Helmut case underlines in paragraphs 28 – 32 inclusive as follows:-
"The Legitimacy of Preparatory Activity"
28. The battle between employer and former employee, who has entered into competition with his former employer, is often concerned with where the line is to be drawn between legitimate preparation for future competition and competitive activity undertaken before the employee has left. This case has proved no exception. But in deciding on which side of the line Mr Tunnard's activities fall, it is important not to be beguiled into thinking that the mere fact that activities are preparatory to future competition will conclude the issue in a former employee's favour. The authorities establish that no such clear line can be drawn between that which is legitimate and that which breaches an employee's obligations.
29. Mr Tunnard relied on the dicta of Hawkins J in Robb (q.v.supra). In Balston Ltd & Anr v Headline Filters Ltd & Anr [1990] FSR 385 a former director who set up a rival factory and had taken a lease on future business premises and formed a company for his activity was held by Falconer J (at 412 ) neither to have breached his duty of good faith nor his fiduciary duty; he had merely taken preliminary steps to investigate the viability of his plan and to advance his intention.
30. But, as Mr Stafford QC on behalf of HISL has demonstrated, there are cases which show that the mere fact that activities during the course of employment may be described as "preparatory" will not necessarily be dispositive of the issue as to whether the employee acted in breach of his obligations to his employer. Hart J in British Midland Tool Limited v Midland International Tooling Limited and Others [2003] 2 BCLC decided that a director who has irrevocably formed an intention to engage in a competing business and has taken preparatory steps cannot rely upon the public interest in favouring competitive business as an answer to allegations of breach of fiduciary duty. He can only put an end to his fiduciary obligation by resigning his directorship. Until he has done so, preparatory steps taken in pursuance of an irrevocable intention to compete would generally amount to a breach of his fiduciary obligations as director (see para 89).
31. This approach was followed by Etherton J in Shepherd Investments Limited and Anr v Walters & Anr ]2006] EWHC 836 (Ch). He held that when former directors and employee set up a competing business, diverting business opportunities and misusing confidential information, they had acted in breach not only of their fiduciary obligations but their implied obligation of fidelity the moment that they procured the services of attorneys in the Cayman Islands to set up the rival business. On the facts of that case, he held that a former employee was also in breach of obligations as a fiduciary, whether or not he was to be regarded as a director, and that he was in breach of his duty of fidelity. The case affords an example, on its facts, of work of preparation which constituted breaches of both the implied duty of fidelity and fiduciary duties.
32. I agree that it is insufficient merely to cloak activities with legitimacy by describing them as preparatory. The first task, as Mr Stafford QC contended, is to identify the nature of the employee's obligations. Once they have been identified, the court is then in a proper position to discern whether the activities of an employee undertaken in pursuance of a plan to be fulfilled on his departure is in breach of his duty to his employee or not. It was the judge's failure, so Mr Stafford submitted, properly to analyse the nature of Mr Tunnard's express contractual obligations, as identified in the job specification, which led the judge into error. His conclusion, between paragraphs 61 and 65, that because Mr Tunnard had only undertaken acts of preparation, he had not acted in breach, either of his duty of fidelity or of any fiduciary duty, was wrong because it depended upon the conclusion that Mr Tunnard's activities were only acts of preparation. Proper analysis of his obligations would, so it was argued on behalf of HISL, have revealed that such activities amounted to a breach not only of the obligation of fidelity but also of an obligation which he owed as a fiduciary.
- In my view Messrs Rider and Stimson overstepped the line and their activities that they did as summarised above (after their cross examination) crossed over the line between legitimate steps for the future and breach of their duties of fidelity and (in the case of Mr Rider) his fiduciary duty. I accept that all of the activities as alleged by the Claimant in its closing were done by the Defendants and I reject their attempts to downplay what they did.
- For example I have rejected their evidence that the May Power Point presentation was not accurate. They have agreed that they did far more than they stated initially at the start of the litigation and helping themselves to the Claimant's documents as set out above were all illegitimate actions.
- This is reinforced in my view by the lies that Mr Rider told about his future intentions when he gave notice and the lies that they told when they verified the denials and the exercise of filleting the emails as set out above. Those are all actions designed to understate what they were actually doing. I conclude that they did that because they knew what they were doing was in breach of their duties and wished to conceal the true extent of their wrongdoing.
USE OF INFORMATION
- Part of the wrongful activity of the Defendants was to retain and divert to Concept for its benefit huge amounts of information contained in the vast array of documents retained or diverted. Basically the information provided Messrs Rider and Stimson with an instant set up database of the entirety of the Claimant's business operations, its pricing information, its special discounts, its suppliers and its customers. Relying on these documents they prepared their own projections for Concept which supposed that they were going to achieve a comparable level of sales to that of the Claimant in respect of its most popular products.
- The Claimant in their further information set out 7 areas of confidential information (see above at paragraph 29).
- I have no doubt that this is confidential information of the Claimant. I have no doubt that it is information that an employee as part of his duty of fidelity and a fiduciary to the Claimant would have to keep confidential whilst he was in employment or in a fiduciary relationship with the Claimant.
- The Defendants complain that the particulars given by the Claimant are not sufficient to identify which particular information is confidential relying upon the observations in Market Maker Beijing Co Ltd & Ors v CMC Group PLC & Ors [2004] EWHC 2208 at paragraph 77. There is in my view considerable force in this submission. The voluntary particulars basically lists every item of information in the Claimant's business operations. Plainly some of this cannot be confidential such as names and addresses of manufacturers of products, the names and addresses of businesses that might buy such products via the Claimant.
- Equally if the material is in the public domain and can be found from the public domain an ex-employee cannot be prevented from using that material provided he found it from the public domain. This is an important difference. If the material that the Claimant regards as being confidential is actually in the public domain the ex-employee is free to use it. In this context I refer (for example) to the observations of Lord Denning MR in Seager v Copydex (No1) [1967] RPC 349. I considered this decision in the EPI case at paragraphs 45 – 56 as follows:-
"Mr Hobbs QC also submitted that Lord Denning MR in Seager –v- Copydex Ltd (No 1) [1967] RPC 349 suggested that it was not permissible to dismember a body of information and that one must go to public sources."
With respect to Mr Hobbs QC, I do not accept that that is precisely what Lord Denning MR said. The part of the judgment (page 368) is as follows:-
"The law on this subject does not depend on any implied contract. It depends on the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it. He must not make use of it to the prejudice of him who gave it without obtaining his consent. The principle is clear enough when the whole of the information is private. The difficulty arises when the information is in part public and in part private. As, for instance, in this case. A good deal of the information which Mr Seager gave to Copydex Ltd. was available to the public, such as the patent specification in the Patent Office, or the KLENT grip, which he sold to anyone who asked. If that was the only information he gave them, he could not complain. It was public knowledge. But there was a good deal of other information he gave them which was private, such as the difficulties which had to be overcome in making a satisfactory grip; the necessity for a strong, sharp, tooth; the alternative forms of tooth; and the like. When the information is mixed, being partly public and partly private, then the recipient must take special care to use only the material which is in the public domain. He should go to the public source and get it; or, at any rate, not be in a better position than if he had gone to the public source. He should not get a start over others by using the information which he received in confidence. At any rate, he should not get a start without paying for it. It may not be a case for injunction or even for an account, but only for damages, depending on the worth of the confidential information to him in saving him time and trouble".
As Lord Denning makes clear, the principle is clear enough when information is wholly private, but the difficulty arises when the information is in part public and in part private. If Mr Seager had given them material that was available such as the patent specification or the KLENT grip no complaint could have been made. However, he gave further information, which was private. Lord Denning suggests that where information is mixed partly public and private, then the recipient must take special care to use only the material, which is in the public domain. The key sentence in the judgment in my view is the next sentence "He should go to the public source and get it; or, at any rate, not be in a better position than if he had gone to the public source."
In my judgment, what Lord Denning is saying is that a recipient of mixed information should take care only to use the public information. If he uses the private information he can only do so on pain of payment. Obviously the easiest way to establish that only public information has been obtained is to go to the public sources. It is instructive to see that Lord Denning was of the view (see the cases below) that publication of the patent and the use of the information in the patent would not be actionable. It is clear in my judgment that, in the second part of the sentence however, Lord Denning is acknowledging that it is open to the recipient of the information which is mixed public and mixed private to use the public information, but that he should not be in a better position than if he had gone to the public source. That to my mind means that if he is provided with information, which is in part public, provided that information is a public source, he can use it. It cannot be presumed that Lord Denning would expect the recipient of public source information to have to pay for it. It is clear from the next sentence of the judgment that when he is referring to paying and head start, he is referring to the extra private information that is provided contemporaneously with public information.
Relying on Seager, Mr Hobbs QC submits by the provision of the additive itself EPI provided that product in confidence and that product and that provision in that way was confidential private information which Symphony could not use. Thus he submits it was not open to Symphony to argue (as it does) that all the ingredients and processes which they used, which are to be found in EPI's products, are also to be found in the public domain, unless they use that public domain source for the exercise. To my mind it is important to appreciate that if the product is supplied in confidence and is merely copied completely (as occurred in the Saltman case and the Suhner case) I can well see how complaint can be made. If that exercise is done only, Symphony have the product of the use of EPI's brains time and energy in producing a finished product, which they merely replicate.
If there is something secret or confidential which they thereby merely copied that would be actionable. However, a thing does not become confidential merely because it is supplied confidentially. A number of examples were debated in argument. The use of examples is always difficult. However, take one example. Suppose EPI supplied Symphony with a formula for making a very special cake which would be very unique to EPI. A lot of the ingredients would be common ingredients, but it would be contended that the resultant product is arrived at by use of the secret formula.
Suppose the secret formula is not a secret formula at all, but is actually itself a copy of a cake formula that has been published generally for public use. The product and the formula that EPI provide cannot therefore be confidential.
That must equally be true in my view in respect of constituent parts. I have already identified that EPI itself proclaims what type the constituent parts of its products are. Equally, if there is other material in the public domain, which points to specific constituents, I do not see how that can be said to be private and I do not see how Symphony (absent a contractual provision) can be prevented even by examination and analysis of EPI's product of using information they acquire as a result of that exercise which is in the public domain.
They do of course take risks if they go that way for the reasons identified by Lord Denning in Seager.
This is the collision between the first part of the Saltman judgment referred to above and the second part.
It is well illustrated by the decision cited by Mr Prescott QC of O. Mustad & Son-v- Dosen (note) [1964] 1 WLR 109 (H.L.). Junior counsel for Symphony usefully also obtained the Court of Appeal decision from the Lincoln's Inn Law Library.
The plaintiff brought an action against an English firm of fishing tackle manufacturers and a man named Dosen. While Dosen was employed by a third party company, Thoring, he had an active role in the invention of an ingenious and invaluable automatic machine for making fish hooks. During the course of his employment with Thoring he signed a confidentiality agreement. The plaintiffs obtained an assignment of the benefit of Dosen's agreement, Thoring having gone into liquidation. It is important to appreciate (see page 279 of the Court of Appeal judgment) that the claim for damages was jettisoned at trial. There was no claim in substance that even nominal damages were claimed. The whole claim therefore revolved around the claim for an injunction and what Lord Justice Bankes (page 280) described as an appeal to the equitable jurisdiction of the court. The whole basis for the claim was the misuse of Thoring's secrets. At the trial of first instance (as Lord Justice Bankes sets out at page 280) there was discussion as to what a trade secret might be, as follows:-
"The learned Judge discussed with the Jury what constitutes a trade secret, but of course it is no good discussing what constitutes a trade secret if the person who is the owner of the particular thing which is claimed to be a trade secret has never made a secret of it. For instance, it is no use suggesting that Thoring's machine was a trade secret if as a matter of fact Thorings had allowed people to inspect the machine during construction or had exhibited it at a trade exhibition or something of that kind. It is no use saying it is very valuable; it is no use saying it might have been a trade secret if I had locked it up and allowed nobody to have access to it, and allowed nobody except a particular man to know how it was constructed, and so forth. No evidence seems to have been given about it – well, I will not say no evidence seems to have been given about it but it seems to have been treated at the trial as though the machine was a trade secret of Thoring's, and a question was put to the Jury, and the only question put to the Jury was on the footing apparently that it was a trade secret, and that in spite of the fact that the only man who knew anything really about it (Dosen) did say, and said more than once in his evidence, that it never was a secret, and that Thorings never treated it as a secret, and that it was quite open to everybody in the works to know exactly what it was and how it had been made, and the progress it was making and all the rest of it. It does seem to me, when one is considering what ought to be done in this case, one cannot overlook the fact that there was before the learned Judge, and there was before Counsel, evidence that this machine really – if the point had been properly investigated – turned out not to be a trade secret at all. However, that point apparently has never been decided."
- As I said absent an express restrictive covenant or the like information does not become confidential merely because the parties give it that label. If the information is in the public domain it is capable of being used even if it is derived from the Claimant's documents.
- Another factor is that it is impossible to prevent and ex-employee from using his own gathered skills and expertise earned over the period of his employment. If using his own memory and skills he can recall materials which were confidential whilst he was an employee he can nevertheless use them post employment. That has been well established see Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 C.A. The only information that is capable of being protected post termination is in the nature of a trade secret; confidentiality is not enough. I do not see what the information asserted by the Claimant to be confidential in its voluntary information is any different from the Faccenda case. I accept the evidence of Mr Rider and Mr Stimson (Mr Stimson in particular was impressive in this regard) that all of the information alleged to be confidential was either in the public domain or was easily discoverable by them (such as addresses and telephone numbers) or was in their heads. I do not accept it was necessarily easily discoverable. The documents they took appear to me to afford a considerable saving of time. However detailed consideration of that might well be postponed to the question of damages or other financial relief that is ultimately granted. I express no view about that at this stage.
- The only item which I had a lingering doubt over was information about the sales figures and profit margins. The reality however I suspect is that the profit margins are things which they would regularly carry out in their heads and the actual prices paid to suppliers or obtained from customers would be obtained from those organisations. They are going to be in a position to negotiate business with them and in such negotiations it is almost inevitable that the suppliers or customers will reveal what deals they have with the Claimant in order to obtain better terms from the would be new competitors.
- In other words I accept the Defendants' submission that the confidential information so described by the Claimant does not have the necessary indicia of the quality of confidence identified by Megarry VC in Thomas Marshall (Exports) Ltd V Guinle [1979] 1 Ch 227.
- This is reinforced by the fact that the Claimant was unable to identify any serious loss of business or customers by the time of the trial. That is not conclusive because the Defendants might be holding back in the light of this litigation. If an inquiry or account is ordered evidence of breaches including successful solicitations of business from the Agents may come to light whether from the Defendants or any third party disclosure provided by the Agents.
- Accordingly the Claimant has failed to establish that any of the information that they allege to be confidential is confidential to such an extent that they can prevent the Defendants from using that information post termination of their employment provided it is used in a legitimate way.
LEGITIMATE USE
- That is not however the end of the matter. Whilst the Claimant cannot stop the Defendants from using information that is in the public domain or which is part of their gathered knowledge and expertise they can stop illegitimate use of the information.
- It is well established that if an ex-employee deliberately copies or even deliberately memorises information for use post termination that is illegitimate and the ex-employees can be restrained from so acting. It is no defence to a claim for breach of an implied obligation of good faith and fidelity and breach of confidence for an employee who has taken a customer list to say that some or all of the information on the list is publicly available see Robb v Green [1895] 2 QB 1 at pages 18-19 as follows:-
"There is one other contention of the defendant's counsel I must refer to. He contends that the order-book of the plaintiff contained no more information than might be acquired by reference to directories and such-like publications; and, moreover, he says that the defendant's master, in seeking to advance his own business, before the defendant made the copy of the order-book, had published circulars or pamphlets containing the names of many of the customers who had sent him favourable testimonials; so that the defendant had when he made the list complained of materials at his command without making use of his master's book. This to a considerable extent may be true, but it is not so altogether. The order-book contains collected together the names and addresses of purchasers of pheasants' eggs spread over the length and breadth of England, Wales, and Scotland. No directory would give this information in this collocation; and though, of course, the testimonials would give similar information as to many of the names in the order-book, there are many names in the order-book which do not appear among the testimonials. The names of all the customers are collected together in the order-book in a manner not to be found in any other book or paper to which the defendant had access. To him, therefore, the possession of a copy of the order-book would be peculiarly valuable. He would be saved the expense and delay of searches, such as would be necessary to enable him to compile such a list for himself. Practically, to bring all those names together, even though singly each may appear in some directory or other, would be almost impossible; and it would obviously be much more difficult to ascertain whether they would be likely customers for pheasants' eggs. By making a copy of the order-book defendant was able to canvass at once each of his master's customers without trouble or expense; and the conversation with Mr. Barclay shows that he looked upon the list in that light. The collection together of these names and addresses in his order-book was the property of the plaintiff. It is the compilation which made the book and the list so valuable to the defendant, and facilitated his endeavours to entice his master's customers to the detriment of the latter."
- The Judge at first instance granted the plaintiff damages attributable to the unlawful actions of the Defendant that is to say the copying and use of the customer list. He also ordered the Defendant to deliver up the list of names and all copies and extracts from them and restrained the Defendant from making use of the information obtained by him by copying or extracting such names and addresses. The Court of Appeal affirmed the judgment [1895] 2 QB 315.
- The case was followed Roger Bullivant Ltd v Ellis [1987] ICR 464 C.A. at page 474F Nourse LJ said as follows:-
"Although reference is frequently made to the judgment of Maugham L.J. in Wessex Dairies Ltd. v. Smith [1935] 2 K.B. 80, 89, the decision which established the general rule about lists of customers was that of this court in Robb v. Green [1895] 2 QB 315, affirming the very elaborate and illuminating judgment of Hawkins J. [1895] 2 QB 1, as Greer L.J. described it in Wessex Dairies Ltd. v. Smith [1935] 2 K.B. 80, 85. Mr. Fitzgerald sought to avoid the application of the rule to the present case by relying on the evidence already quoted from paragraph 16 of the first defendant's second affidavit, which is to the effect that he only used the card index for the purpose of looking up the addresses, freely available elsewhere, of people who were already known to him personally. I will only say that that evidence falls short of convincing me that that would be found at trial to have been the first defendant's only use of material which, on his own evidence, was prepared at his request nearly five years after he joined the plaintiffs and only some two months before he gave in his notice. Be that as it may, and even allowing for some differences of fact between the two cases, I think that Mr. Fitzgerald's submission is effectively disposed of by a passage in the judgment of Hawkins J. in Robb v. Green [1895] 2 QB 1, 18-19.
The value of the card index to the defendants was that it contained a ready and finite compilation of the names and addresses of those who had brought or might bring business to the plaintiffs and who might bring business to them. Most of the cards carried the name or names of particular individuals to be contacted. While I recognise that it would have been possible for the first defendant to contact some, perhaps many, of the people concerned without using the card index, I am far from convinced that he would have been able to contact anywhere near all of those whom he did contact between February and April 1985. Having made deliberate and unlawful use of the plaintiffs' property, he cannot complain if he finds that the eye of the law is unable to distinguish between those whom, had he so chosen, he could have contacted lawfully and those whom he could not. In my judgment it is of the highest importance that the principle of Robb v. Green [1895] 2 QB 315 which, let it be said, is one of no more than fair and honourable dealing, should be steadfastly maintained."
- In my view this is precisely what the Defendants have done. I have already observed that there is no legitimate reason for them to divert to Concept and retain the vast amount of material and documents that clearly belonged to the Claimant. I accept the Defendants' contention that it is important to distinguish between information on pieces of paper and the pieces of per themselves. The Claimant is plainly entitled to delivery up of their pieces of paper and any copies of them.
- Whether they are entitled to an injunction restraining the Defendants from using some or all of the information on pieces of paper is an entirely different matter. I reject the submission by the Defendants that such is not included in the prayer for relief. It is to be found in paragraph 2 (ii) and the Claimant's application for interim relief which initially came before me. Equally the Claimant is entitled to delivery up of all copies of documents containing the same material.
- The Defendants have failed to persuade me that none of this vast array of material was of any use to them. It is an unattractive plea. If it was of such little use I cannot understand why it was taken or retained. If they had wished to use the material in the public domain and in their own heads that would not have been actionable. What the Defendants have done is shortcut that exercise in the same way in which the Defendants did in the Bullivant case. In other words they have sought to take an illegitimate step and provide themselves with a springboard so that their business is up and running "fully armed as it were" from the word go. There is no other reason why they would have all of this documentation. It is not theirs. They had no legitimate use for it thereafter. It is said that there was no mention made of an obligation to hand over the Claimant's documents. That in my view is disingenuous. As I pointed out in the course of the evidence would they expect to be asked to hand back the company car or would they think they could keep it for themselves if not asked. The obvious answer is "no". The same applies to the documentation. The documentation which they had legitimately whilst they were employees ought to have been returned. However the Defendants conduct goes beyond that. As I have set out above they helped themselves to some of the Claimant's documents for post employment use and there can be no legitimate reason for that.
- It follows therefore that the taking and retaining of the Claimant's documents is a breach of the Defendants' duties of fidelity and Mr Rider's fiduciary duty irrespective of whether or not the information contained therein was confidential.
INTELLECTUAL PROPERTY CLAIMS
- The Claimant asserts that the Mr Rider and Mr Stimson have infringed its Database Rights by a substantial extraction of information from that Database into the information held by Concept on its computer system.
- The Claimant in its Closing submits that the clearest examples are the Spreadsheet which Mr rider created on 20th April 2007 and which was created using information of The Claimant's sales, and the electronic documents which Mr Rider admitted he transferred to Concept's Computer namely confidential Exhibit 2 ( The Claimant's Worldwide Customer Database) and item 6 (The Express Costings). It seems to me that the transfer of the Email addresses by Mr Stimson on 6th June 2007 also appears to be from the Claimant's Database.
- The principles applicable to this area are usefully reviewed in Goulding "Employee Competition" (OUP) paragraphs 3.161 to 3.180. The protection derives from the Copyright and Rights in Database Regulations 1997 (" The Database Regulations"). Regulation 16 provides:-
"Acts infringing Database right
16 (1) Subject to the provisions of this part, a person infringes database right in a database right if, without consent of the owner of the right, he extracts or reutilises all or a substantial part of the contents of the database."
- The Claimant's case is based on extraction; the extraction being the items referred to above. I do not see how it can be seriously argued that the Claimant consented to the transfer to Concept. Whatever consent it gave to Messrs Rider and Stimson to utilise the database whilst employees was for the benefit of their employer as Mr Rider admitted in cross examination. For there to be a right protected the database must be arranged in a systematic or methodical way and be individually accessible by electronic or other means 9 Reg 12(1). The Confidential Documents referred to above satisfy those requirements in my view. The Database needs to be created as a result of substantial investment in obtaining verifying or presenting its contents (Reg 13(1)). Investment includes investment whether of financial, human or technical resources.
- The Defendants put the Claimant to proof of such investment. It was provided in Mr Worrall's 1st Witness Statement (para 28) and his 2nd Witness Statement (Paras 31-35). The evidence was not challenged; indeed Mr Worrall was not cross examined on it at all. The Claimant has satisfied me on the basis of his unchallenged evidence that it has made a substantial investment in the Database as required by the Regulations. Further it is plainly the Owner of the right.
- The Defendants submit there has been no copying of the Database. However the Claimant's case is based on extraction and I do not see how the admitted actions can be anything other than an extraction. Further it is clear that the extraction has been substantial. The extraction of confidential item 2 is the clearest possible example of substantial extraction. It is the act of transfer to Concept's computer that is the extraction and not as the Defendants submit the minimal use they subsequently made of it. I do not accept the extent of the use by the Defendants is clearly established at this stage but it does not help them if they extract substantial parts of the Database. They do not take it in my view for any reason other than to use it as they need from time to time.
- Accordingly in my view the Claimant has made its claim out in this regard.
CONCLUSIONS
- The trial is one for liability only. I have determined that the Defendants were in breach of their duty of fidelity and that Mr Rider was also in breach of his fiduciary duty in a number of ways. First they set about creating a rival business in breach of those duties. Second they retained or copied or transferred to Concept documents belonging to the Claimant with a view to using them as an illegitimate springboard to compete with the Claimant. Third they solicited the business of agents and some customers. Fourth they diverted some business opportunities to themselves.
- However the Claimant has failed to establish any of the information was confidential.
- I have determined that the Defendants have infringed the Claimant's Database Rights.
- I will consider what relief the Claimant ought to obtain in the light of this judgment. It may assist the parties if a make a number of observations in that regard.
- First I have real doubts about the worth and enforceability of a springboard injunction. The Robb and Bullivant cases show that the injunctions restrain them from using the information contained in the documents but do not prohibit them from using the information if it can be shown to have been part of their memory (see "Confidentiality" (2nd edition) paragraph 14-019 and 14-020). I have grave doubts therefore whether or not an injunction which will run in the light of the Bullivant case and the Claimant's contentions that an injunction until June 2008 should be granted as I do not see how it could be effectively policed. I also have doubts as to whether an injunction for such a period (i.e. its shortness) should be granted by the Court.
- At this stage it is difficult to see whether or not the Claimant has suffered any loss. It might be able to seek an Account of Profits which is not dependant on loss. However the profits must flow from the breach of fiduciary duty and not for example the wrongdoers own efforts necessarily. In that context I refer the parties to the decision in Crown Dilmun v Sutton [2004] EWHC 52 (Ch). The enquiry as to profits is likely to be difficult.
- Finally in this context the parties might like to consider whether the appropriate relief will be to grant damages in lieu of injunction measured by reference to what would be a reasonable price the Defendants ought to pay for using the Claimant's documents as a shortcut to setting up their business see World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2006] EWHC 184 (Ch).
- I do not by those observations pre judge any issue. The parties should attend the hand down of this judgment with their diaries to fix a date in early course of next term with an estimate of one day. Skeleton arguments in support of submissions for that hearing should cover those issues and any other outstanding issues and should be lodged and exchanged with the appropriate authorities not less than 2 days before the agreed hearing date.
