Restraining dismissal & Restraint of Trade Recent developments & The practicalities of litigation

Transcription

1 Restraining dismissal & Restraint of Trade Recent developments & The practicalities of litigation Peter Linstead Paul Stevenson

2 Restraining dismissal & Restraint of Trade The practicalities of litigation Paul Stevenson

3 Interim relief pre-action disclosure An application for pre action disclosure may only be made: Where the applicant and respondent are likely to be parties to the proceedings; If proceedings had been started, where the respondent s duty by way of standard disclosure would extend to the document or class of document of which pre-action disclosure is sought (see CPR r (3)(a), (b), and (c)); and So long as disclosure before proceedings have started is desirable in order to dispose fairly of the anticipated proceedings, assist the dispute to be resolved without proceedings or save costs. See CPR r (3)(d)).

4 Interim relief pre-action disclosure This approach can be used by a litigant to ascertain whether or not he/she/it has a cause of action. Very useful in cases which relate to alleged use of confidential client contact details. See Intelsec Systems & Ors v. Grech-Cini & Ors [2000] 1 W.L.R per Nicholas Warren QC (sitting as a deputy High Court Judge (allegations made that a former employee had contacted names and addresses of business contacts): If the employee has approached the contact on his own account the employer must be entitled to claim the contact as his own there is a strong case for disclosure to the employer of names and addresses

5 Interim relief pre-action disclosure Social media See Hays Specialist Recruitment & Ors v. Ions [2008] EWHC 745 (Ch) per David Richards J. Invitations sent to clients of Hays to connect using Linked-In when the respondent had uploaded addresses. Court was willing to accept that Hays had reasonable grounds for considering that it had a claim against Mr Ions as regards the transfer of information regarding clients from his uploading that information to his Linked-In account while employed by Hays. s and communication sent to and/or received from a Linked-In account was subject to pre-action disclosure.

6 Other interim remedies By way of CPR Part 25 the Court may grant a number of specific interim remedies which could be of use in cases which involve employee competition. They include orders for: Detention, custody or preservation of relevant property; The inspection of relevant property; or An order (referred to as a search order under s. 7 of the Civil Procedure Act 1997) which requires a party to admit another party to its premises for the purposes of preserving evidence.

7 Interim remedies - timing By way of Part 25, see 25PD.2(1), an order for an interim remedy may be made at any time including: (1) Before proceedings are started; and (2) After judgment has been given. The Court will only grant an interim remedy before a claim has been made if: (1) The matter is urgent; or (2) It is otherwise desirable in the interests of justice. Where an interim remedy is granted before a claim has been commenced, the Court will order the applicant to commence its claim.

8 Interim remedies property recovery Section 4 of the Torts (Interference with Goods Act) 1977 allows a Court to make an order for the delivery up of any goods which are or may become the subject matter of proceedings in Court. CPR r. 25.1(1)(e) provides that the Court may grant an order under section 4 of the Torts (Interference with Goods) Act 1977 to deliver up goods. Applications under CPR r. 25.1(1)(e) should be made to a Master or District Judge in accordance with Part 23. Main problem is usually showing whether the goods are in fact in control of the ex-employee. Where an ex-employee is less scrupulous a search order may be needed.

9 Interim remedies detention, preservation and inspection CPR r. 25.1(1)(c) provides that a court may make an order: (i) (ii) For the detention, custody or preservation of relevant property; or For the inspection of relevant property CPR r. 25.1(1)(d) provides for: An order authorising a person to enter any land or building in the possession of a party to the proceedings for the purposes of carrying out an order An ex-employer could seek an order for the preservation of certain documents without a search order.

10 Interim remedies search orders ( Anton Pillar orders) See Indicii Salus Limited v. Chandrasekaran [2007] EWHC 406 (Ch). An extremely strong prima facie case is required. Full and frank disclosure of all facts that are material for the judge to know. There must be clear evidence that the respondent has in its possession incriminating documents or things. There must be a real possibility that the material might be destroyed before a hearing takes place at which both parties are present. The harm to be caused to the respondent must not be out of proportion to the legitimate object of the order. Evidence must be given by affidavit not witness statement: see CPR 25PD3.1)

11 Interim relief pre-action disclosure & third parties Disclosure may be made against non-parties (see CPR r (2)). The application must be supported by evidence and the documents must support the applicant s case or adversely affect the respondent s case and disclosure must be needed to dispose of the claim fairly or save costs: CPR r (3). An order won t be made if there is another way of obtaining the information or costs would be increased: see Frankson v. Secretary of State for the Home Department [2003] 1 W.L.R (CA).

12 Interim remedies Norwich Pharmacal order Order for immediate disclosure by third parties who might be mixed up in wrongdoing. Norwich Pharmacal Co v. Customs and Excise Commissioners [1974] A.C. 133, HL. No need to join the proposed information provider into proceedings. Conditions: (1) Wrong carried out by an ultimate wrongdoer; (2) Need for an order to enable action to be brought against the ultimate wrongdoer; (3) Person against whom the order is sought must be mixed up in the wrongdoing so as to have facilitated it or be able to provide information so that the wrongdoer can be sued.

13 Interim remedies choice of court Interim relief in an employment context can be sought in the Queen s Bench Division or the Chancery Division of the High Court or the County Court (depending on what relief is sought). There is no monetary limit on the jurisdiction of the County Court to award damages in actions in contract and tort but Circuit judges have limited power to grant search orders. Consider whether other remedies are sought, such as breaches of copyright which might require proceedings to be brought in the Chancery Division. Practical considerations will include the urgency, as in the QBD a special appointment is needed for any hearing which is listed for longer than one hour. Also consider the trial lists. This might give an indication of how soon a trial could come on.

14 Interim remedies expedited trials Consider an application for a speedy trial. The Court has the power to fix the date under its general powers: see CPR r. 29.2(2) and to expedite any hearing date: CPR r. 3.1(2)(b). Judicial commentary has been supportive of speedy trials in restrictive covenant cases but see Ifone Ltd v. Davies [2005] EWHC Laddie J commented that the Court should not order an expedited trial unless it was convinced that there were pressing reasons to justify the course of action.

15 Interim remedies evidence Often the greatest challenge is posed by the need to obtain evidence of a breach of covenant or confidence. There is no reason in principle why enquiry agents should not be used. In principle, an agent provocateur could be used to place trap orders but an applicant would need to make full disclosure of this in any application for interim relief. Covert video evidence has been held to be admissible in a personal injury trial and the Court of Appeal has approved its use: Jones v. University of Warwick [2003] 3 All ER 760.

16 Interim remedies costs Assuming the application is on notice, in the Queen s Bench Division the usual order is costs in the case. In the Chancery Division, if the applicant wins, applicant s costs in the case. If the respondent wins, respondent s costs in the case. However, the order in the Chancery Division can reflect that made in the QBD. In the County Court, usually costs in the case. The Court may impose costs for an ill-conceived application: see CPR r. 48.1(2). In QBE Management Services (UK) v. Dymoke [2012] EWHC 116 (QB) per Haddon-Cave J indemnity costs were ordered against Defendants for a persistent lack of candour.

17 Interim remedies creative options See Caterpillar Logistics Services (UK) Limited v. Huesca de Crean [2012] EWCA Civ 15 for a recent attempt to extend the scope of interim remedies. CLS attempted to seek by interim injunction an order preventing Defendant from undertaking any work in relation to the LSA, i.e. barring-out relief relying on the principle in Bolkiah v. KPMG [1999] 2 AC 222.

18 Interim remedies Springboard relief Relief to prevent an employee from misusing confidential information to gain an unfair competitive advantage. See Terrapin Ltd v. Builders Supply Co (Hayes) Ltd [1967] R.P.C On a classic application, applicant must show: (1) Unlawful use of its confidential information; (2) Respondent has thereby gained an unfair competitive edge over Applicant; (3) The advantage exists when the relief is sought and will continue unless relief is granted. Principal extended to protect other legal rights. See team moves cases: Tullett Prebon plc v. BGC Brokers LP [2009] EWHC 819 (interim).

19 Interim remedies Springboard relief Other criteria now apply. See QEB Management Services (UK) Ltd. v. Dymoke & Ors [2012] EWHC 80 (QB). Should aim to restore the parties to the position in which they would have been but for the Defendant s misconduct Will not be granted where a monetary award would have provided an adequate remedy. Springboard relief is not intended to punish a Defendant for wrongdoing. It is to provide fair and just protection for unlawful harm on an interim basis measured by i) the effect of the unlawful act on the Claimant ii) extent to which Defendant has gained an unlawful competitive advantage. The Claimant must spell out the precise nature and period of the competitive advantage.

20 Interim remedies garden leave injunction See Provident Financial Group plc v. Hayward [1989] ICR 160: i. The Court can restrain an employee on garden leave from joining a competitor during that period; ii. The negative obligation not to work is simply a corollary of the obligation to devote whole time and attention to an employer s business; and iii. The practice of long periods of garden leave is, however, an abuse.

21 Interim remedies garden leave injunction The general rule is that garden leave will only be enforced for a limited period; the minimum length of time to protect the employer s legitimate interest. An employer must be able to show that there is some detriment which is caused by the employee going to work for a rival. As a rule of thumb garden leave injunctions will not be awarded for a period of more than six months. The Court can reduce the duration of leave to a period which is less than the notice period.

22 Interim remedies garden leave injunction Note interplay with restrictive covenants: TFS Derivatives v. Morgan [2005] IRLR 246. Note also interplay of restraint of trade and questions of repudiatory breach: see J M Finn & Co Ltd v. Thomas Brook Holliday [2013] EWHC 3450 (QB). Must judge the reasonableness of a garden leave obligation at time of enforcement not at the time it was entered.

23 Final remedies - damages for breach of covenant Usual measure: contractual measure. Aim to put the (ex) employer in the position in which he would have been but for the breach of covenant. Usually required to show that the contract in question would have been placed with the (ex) employer. Loss is more likely to be loss of a chance and the Court will need to evaluate the chance of which an (ex) employer has been deprived. This is usually expressed as a fixed % chance of making a given profit. Alternatively an account could be taken but in a contractual case this would be very rare. Best known example is Attorney General v. Blake [2001] 1 AC 268.

24 Final remedies - damages for breach of confidence If there is a contract, contractual measure of loss. Where the breach causes an (ex) employer to lose business the measure of loss will be the loss of a chance of retaining that business: see SBJ Stephenson v. Mandy [2000] FSR 286 (often based on a proportion of lost net commission or similar). Usually the claim is for a loss of profits. The claimant must establish: i. That the business in question was obtained as a result of the misuse of the claimant s confidential information; and ii. That, but for the defendant obtaining the business, the claimant would have done so, in whole or in part.

25 Final remedies where loss is hard to prove Consider damages under the principle in Wrotham Park Estate Co Ltd v. Parkside Homes Ltd [1974] 1 WLR 798. The fact that damages are difficult to assess should not relieve the wrongdoer of the requirement to pay damages for breach of contract. Looks to the hypothetical sum which the wrongdoer would pay for release from the restrictive covenant had the parties made reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that the notional negotiation should have taken place. See approach of Arnold J in Force India Formula One Limited v. Malaysia Racing Team SDN BHD & Ors [2012] EWHC 616 (Ch) at [386].

26 Final remedies where loss is hard to prove Attempt to harmonise damages: Force India Formula One Limited v. Malaysia Racing Team SDN BHD & Ors [2012] EWHC 616 (Ch): The same approach is to be adopted to the assessment of damages or equitable compensation whether the obligation of confidentiality which has been breached is contractual or equitable. Where the claimant exploits the confidential information by manufacturing and selling products for profit, and his profits have been diminished as a result of the breach, then he can recover his loss of profit. Where the claimant exploits the confidential information by granting licences to others, and his licence revenue has been diminished as a result of the breach, he can recover the lost revenue.

27 Final remedies - damages for wasted management time Horace Holman v. Sherwood International [2001] (QB), LTL 14/11/2001 per Judge Bowsher QC: [72] in principle a claimant may be able to claim for the expense of time lost by directors and staff, although there may be difficulties of proof where time has not been recorded. In Tate & Lyle v. GLC [1982] 1 WLR 149 Forbes J. indicated that in principle, there should be compensation for the cost of managerial time wasted. He also found that in that case there was no evidence that managerial time has been so spent [73] I cannot and do not say, in the absence of records there is to be no recovery.

28 Practical points costs budgets New costs provisions CPR Part 3 Section II and Practice Direction 3E. Applies where the amount claimed is less than 10m or the claim is valued at up to 10m. Requirement to serve costs budgets by the date specified in the notice of proposed allocation sent with directions questionnaires or, if no date is given, 7 days before the first CMC: CPR rule Need to divide costs already incurred from predicted future costs. Failure to file a budget will lead to a costs limit comprising court fees only (subject to relief from sanctions).

29 Practical points costs assessment See new CPR rule 44.3 and requirement for costs to be proportionate to the matters in issue. See criteria in CPR rule 44.3(5). The award of indemnity costs is usually reserved to cases where the court wishes to indicate disapproval of the conduct in the litigation of the party against whom costs are ordered. Unreasonable conduct to high degree will be sufficient. Can apply where a party issues without consideration of undertakings: QBE Management Services (UK) v. Dymoke [2012] EWHC 116 (QB).

30 Practical points relief from sanctions Contentious following decisions of CoA in Mitchell v. News Group Newspapers Ltd [2013] EWCA Civ 1537 as clarified by Denton v. TH White [2014] EWCA Civ 906. Three stage test: (1) Identify and assess the seriousness and significance of the failure; (2) Where the breach is serious and significant, consider why it occurred and whether there is a good reason for it; (3) Consider all the circumstances of the case Read across to defaults elsewhere in CPR including failure to comply with orders and failure to pay sums into court when required.

31 Before you issue: points to consider

32 Practicalities: undertakings (i) voluntary undertakings between the parties Pre-action, employer can seek undertakings and threaten proceedings against (ex) employee if they will not give those undertakings Form of undertaking may follow wording of restrictive covenant and restrain specified activity for duration of covenant (or different period if springboard argument is relied on)

33 Practicalities: undertakings (ii) status of a voluntary undertaking Contractual consideration provided by forbearance to sue Employer could rely on a breach as a basis for injunction proceedings Breach could be relied on as evidence of untrustworthiness/ bad faith and may help employer in relation to costs arguments/indemnity costs. Arguably, an employee s acceptance of undertakings demonstrates a degree of acceptance that restrictive covenants are reasonable and/or enforceable If it is not intended they should have that effect, it is best to include a carve out to the effect that they are entered without admission as to the reasonableness or enforceability No cross undertaking in damages, if not made before court

34 Practicalities: undertakings (iii) Undertakings given to court Often given on a without notice application pending return date, or pending trial For an (ex)employee Defendant, often preferable to court ordering an injunction as gives control over wording of order and (possibly) costs paid to Claimant Matter could be settled on basis of court undertakings, particularly where they have a time limit; consent order would then stay proceedings, save for the purpose of enforcing the undertakings In practice the undertakings can be included in the body of a consent order Given to court not to other side; breach is a contempt of court, which could result in prison, fine or seizure of assets Cross undertaking in damages will be implied (Chancery Guide 1A-39) but better if express.

35 Practicalities: evidence How good does evidence have to be of breach of covenant / removal of confidential information? Some actual evidence of contact with customers is generally necessary. Wording of covenant ( solicitation / supply services to etc.) affects evidence required Can assist to put to (ex) employee in correspondence. Failure to contest allegations (or admission) often relied on in support s and/or expert computer analysis often relied on to show removal of database / customer information

36 Practicalities: evidence Legal test at interim injunction stage is to show serious question to be tried. Unless the material fails to disclose that C has any real prospect of succeeding, the court should go on to consider the balance of convenience (American Cyanamid [1975] AC 396, pp 407B and 408G). But where grant or refusal of injunction will effectively end the action it is appropriate for the court in assessing the balance of convenience to investigate degree of likelihood of C succeeding at trial (WNL v Woods [1979] 1 WLR 1294 p1306).

37 Litigation checklist Put together the best evidence from the information which is available. Be aware of duty of full disclosure if applying ex parte and without notice. In an appropriate case, seek undertakings from the other side. Prepare application notice in form N244 along with evidence in support (witness statement or affidavit where required). Where pre-action application, ideally have draft pleadings ready. Otherwise give an undertaking to issue. Have a draft order ready in hard and electronic copy. Provide a hard copy with the application notice. Pay fee at the fees office (room E01) and lodge with the Action Department in the East Block; An application without notice will have an initial hearing and a subsequent return date and which the court will consider whether to continue or discharge.