BAILII is celebrating 24 years of free online access to the law! Would you
consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it
will have a significant impact on BAILII's ability to continue providing free
access to the law.
Thank you very much for your support!
[New search]
[Printable PDF version]
[Help]
OUTER HOUSE, COURT OF SESSION
[2021] CSOH 40
CA26/21
OPINION OF LADY WOLFFE
In the cause
APEX RESOURCES LIMITED
Pursuer
against
ROSS MACDOUGALL
First Defender
LISA MULHOLLAND
Second Defender
JENNA HILL or SEAGRIFF
Third Defender
CAVAL LIMITED
Fourth Defender
Pursuer: O'Brien QC, Tosh; Russel + Aitken Edinburgh LLP
on behalf of
Miller Samuel Hill Brown LLP
First to Third Defenders: Tyre; MacRoberts LLP
Fourth Defender: Webster QC; Anderson Strathern LLP
9 April 2021
2
Background
Introduction
[1]
The pursuer and the fourth defender ("Caval") are both recruitment consultants
specialising in matching individuals looking for work within the construction sector with
employers looking to fill vacancies in that. The first to third defenders are former employees
of the pursuer, having given up their respective employments with it in late December 2020
(the first defender) or in January 2021 (the second and third defenders). (I shall refer to the
first to third defenders collectively as "the former employees".) Not long after that, the
former employees all joined Caval, which, though it was an established recruitmen t agency
elsewhere in the UK, had (on the pursuer's narrative) established itself in Glasgow only in
January 2021. The former employees each signed employment contracts with the pursuer
("the contracts"). Each of those contracts contained a number of restrictive covenants
precluding them inter alia from competing with the pursuer or from soliciting clients of the
pursuer for a specified period of time in a specified geographical area (the UK).
The interim interdicts
Interdicts against the former employees (first to third conclusions)
[2]
This matter called before the Court on 5 March 2021 on the pursuer's ex parte motion
for interim interdict against the former employees from breaching their restrictive covenants
and also for interdict ad interim in terms of its fourth conclusion against all of the defenders,
including Caval, from breach of confidence. Mr Tosh appeared on that occasion ("the first
hearing"). After Mr Tosh's very full and careful submissions, made under reference to the
relevant productions, including Caval's reply to the pursuer's pre-action letter advancing
reasons why the pursuer's case was said to be ill-founded, and the relevant authorities, I
3
granted interim interdict against each of the defenders. In respect of each of the former
employees the interim interdicts were in identical terms, apart from the date to which the
interdict would run, reflecting their different dates of departures from the employment of
the pursuer. I therefore need quote only one of the interim interdicts granted against the
former employees. The interdict against the first defender was in the following terms:
"1.
interdicts the first defender,
(i)
in competition with the pursuer and/or so as to harm or interfere with the
goodwill of the pursuer, until 27 June 2021, directly or indirectly, whether
on his own account or in conjunction with or on behalf of any person,
firm, company, business entity or other organisation (a) being employed
or engaged in, or (b) performing or providing services to or in respect of,
or (c) otherwise being concerned with, or (d) having any interest in any
business or activity carried on by the pursuer on 27 December 2020 in
which the first defender was directly concerned at any time in the period
from 27 December 2019 until 27 December 2020 (the `Relevant Period') in
competition with the pursuer in the United Kingdom, whether as
principal, agent, director, partner, proprietor, employee, consultant or
otherwise;
(ii)
in competition with the pursuer and/or so as to harm or interfere with the
goodwill of the pursuer, until 27 June 2021, directly or indirectly, whether
on his own account or in conjunction with or on behalf of any person,
firm, company, business entity or other organisation and whether as
principal or otherwise:
(a)
canvassing, soliciting or assisting in canvassing or soliciting
business from, or dealing or doing business with, any person, firm,
company or other organisation whatsoever who was at any time in
the Relevant Period a client of the pursuer (a `Restricted Person')
(i) with whom the first defender had any material dealings in the
course of his employment with the pursuer in the Relevant Period
or (ii) for whom the first defender was, in a client management
capacity on behalf of the pursuer, directly responsible in the
Relevant Period;
(b)
canvassing, soliciting, assisting in canvassing or soliciting business
from, or dealing or doing business with, any person, firm, or
company who was on 27 December 2020 negotiating or in material
discussions with the pursuer with a view to dealing with the
pursuer as a client (a `Restricted Contact');
4
(c)
canvassing, soliciting, assisting in canvassing or soliciting, or
dealing with, any person in respect of whom the pursuer is in
possession of personal information for the purposes of its business
of advising on or advancing that person's career (i) with whom the
first defender had material dealings in the course of his
employment with the pursuer in the Relevant Period, or (ii) with
whom the first defender was, in a client management capacity on
behalf of the pursuer, directly responsible in the period from in the
Relevant Period; and
(iii)
until 27 June 2021, directly or indirectly, whether on his own account or in
conjunction with or on behalf of any person, firm, company, business
entity or other organization and whether as principal or otherwise
inducing, seeking to induce, soliciting, enticing, or procuring any person
who was employed by the pursuer on 27 December 2020 with whom the
first defender had material contact or dealings in the course of his
employment with the pursuer in the Relevant Period and who either
(a) had material contact or dealings with any Restricted Person or
Restricted Contact in the course of his duties of employment with the
pursuer or (b) who is likely to come into possession of confidential
information in performing his duties of employment with the pursuer or
any Associated Company, to leave the pursuer's employment, whether or
not that would be a breach of contract of the part of the said employee".
The date of expiry of the interim interdicts against the second and third defenders were,
respectively, 4 July and 23 July 2021, being six months from the date each left the pursuer's
employment.
[3]
Each of the terms capitalised in the interim interdicts are defined terms in the
contracts. It is not necessary for present purposes to set out those detailed and inter -linked
definitions, although I was taken through these are first hearing.
Interdict against all of the defenders (the fourth conclusion)
[4]
The interim interdict granted against all of the defenders, concerning confidential
information, was in the following terms:
"4.
interdicts the defenders from using or disclosing to any third party any
information which is in their knowledge or possession, which was obtained by
the first, second and third defenders in the course of their employment with the
5
pursuer, and which is confidential to the pursuer and, without prejudice to the
foregoing generality:
(i)
Any such information regarding persons seeking employmen t
with the assistance of the pursuer;
(ii)
Any such information regarding positions, vacancies, or
recruitment requirements of any client of the pursuer;
(iii)
Any such information regarding the pursuer's staff, especially
salary and personal details;
(iv)
Any such information other than that available to the public,
regarding the financial and operational performance of the
pursuer;
(v)
Any such marketing and sales information of the pursuer;
(vi)
Any such information concerning the business plans or dealings of
the pursuer;
(vii)
Any such historical or current information given to the pursuer in
confidence by any client of the pursuer; and
(viii) Any such information contained in any document marked
`Confidential' (or with a similar expression)."
The recall hearing
[5]
The defenders' motions for recall, due originally to call before me on 29 March, were
heard on the afternoon of 2 April. On that occasion, the pursuer was represented by
Mr O'Brien QC, as well as Mr Tosh, who appeared on his own at the first hearing on
5 March 2021. Ms Tyre represented the former employers and Mr Webster QC appeared on
behalf of Caval. In advance of the recall hearing all parties produced written submissions
(in the form of Notes of Argument or speaking notes) together with some authorities. I have
had regard to these materials and do not propose to repeat them.
6
The motions moved and the undertakings provided at the recall hearing
The pursuer's amendment
[6]
As is common in cases such as these, there was some refinement of the motions made
by the time of the recall hearing. The pursuer moved (i) to amend its conclusions directed
against the former employees relating to the "restricted Contracts" (a defined term in the
contracts), which had inadvertently omitted the proviso regarding material dealings
contained in the relevant covenants ("the amended conclusions) and (ii) to delete article 24
of condescendence. The defenders did not oppose that motion.
The former employees' undertakings for all but the non-compete conclusion
[7]
The former employees thereafter offered undertakings in terms of the conclusions, as
amended ("the undertakings"), other than in respect of sub-paragraph (i) of the first, second
and third conclusions (the "non-compete" interdict or "non-compete clause", as the context
requires). The former employees each undertook not to act in the manner set out in parts (ii)
and (iii) of the specific conclusion directed against him or her, or in the manner set out in
the fourth conclusion insofar as directed against that individual. (The references in those
undertakings to the first, second and third conclusions were references to those conclusions
as prospectively amended in terms of a minute of amendment which had been tendered on
behalf of the pursuer.) The pursuer accepted the undertakings.
The breach of confidence interim interdict against Caval not insisted in
[8]
In the course of submissions, Mr O'Brien indicated that the pursuer no longer
insisted on its fourth conclusion insofar as directed against Caval. Accordingly, the only
7
disputed matter to resolve at the recall hearing was whether the non-compete interdict
against each of the employee defenders should be recalled.
Focus of recall hearing on the non-compete interim interdict
[9]
Given the foregoing, the focus of Ms Tyre's submissions was to seek recall of the
non-compete interim interdict.
Discussion
The challenge to the non-compete clause and the non-compete interim interdicts
[10]
The former employees challenge the non-complete clause as unenforceable and,
separately, they challenge the width and scope of the non-compete interim interdict. They
challenge the latter on the footing that the non-compete interdict is so wide that each of the
defenders could easily fall foul of the restrictions through error, mistake or ignorance and
certainly without any intention of doing so. As a consequence of the non-compete interdict
they are unable to be employed at all in their sphere of work, in the United Kingdom, in any
capacity with Caval (or any other similar business), until the interim interdicts against each
of them expires (on 27 June, 4 July and 23 July 2021 respectively).
[11]
In developing her submission, Ms Tyre argued that the effect of the non-compete
interdict was that the employee defenders would be unable to accept employment in any
"other recruitment consultancy or business or organisation or firm" for a period of six
months after they ceased their employment with the pursuer. She acknowledged that,
arguably, the former employees should not have accepted employment with a competitor,
Caval, but that the former employees are now not able to work in their current roles given
the width of the latter part of interim interdict, without the risk that there may be, by
8
accident, some form of unknown cross-over between work carried out by both the pursuer
and Caval. Similarly, she criticised the non-compete clause (and the interdict) because it
extended throughout the UK, it endured for six months and it encompassed "any business
or activity carried out by the pursuer". In her submission, the non-compete clause (and
interdict) placed severe restrictions on the former employees' employment opportunities.
While restrictive covenants were permissible to protect legitimate business interests of a
company or employer, they were not designed to make employees unemployable or to take
away their livelihoods.
The test to be considered
[12]
Ms Tyre founded strongly on the case of Quilter v Falconer &Continuum 2020]
EWHC 3294 ("Quilter") (especially paras 161 to 164, and paras 171 to 180), a decision of
Mr Justice Calver, in which the restrictive covenants in that case were held to be
unenforceable and wider than was reasonably necessary. In that case, Mr Calver set out
three questions (derived from TFS Derivatives Ltd v Morgan [2005] IRLR 246 at paragraphs 36
to 8 and Office Angels Ltd v Rainer Thomas & O'Connor [1991] IRLR 214 at paragraphs 21
to 25) at paragraphs 162 to 163, namely:
"(1)
Have the former employers (Quilter) shown on the evidence that they have
legitimate business interests requiring protection in relation to the employee's
employment?
(2)
What does the covenant mean when properly construed?
(3)
The covenant must be shown by the employer to be no wider than is
reasonably necessary for the protection of his legitimate business interests.
Reasonable necessity is to be assumed from the perspective of reasonable
persons in the position of the parties as at the date of the contract having
regard to the contractual provisions as a whole and to the factual matrix to
which the contract would then realistically have been expected to apply. The
covenantee must show that the covenant is both reasonable in the interests of
9
the contracting parties and reasonable in the interests of the public. As
Lord Parker stressed in Herbert Morris Ltd v Saxelby (supra) at p.707, for any
covenant in restraint of trade to be treated as reasonable in the interests of the
parties `it must afford no more than adequate protection to the benefit of the
party in whose favour it is imposed'.
163.
Even if the covenant is held to be reasonable, the court will then decide
whether, as a matter of discretion, the injunctive relief sought should in all
the circumstances be granted, having regard, amongst other things, to its
reasonableness as at the time of trial."
The first and second questions
[13]
In relation to the three questions to be posed, Ms Tyre accepted, in my view rightly,
that the pursuer had a legitimate interest to protect, although she was sceptical about the
need to protect client relationships. (I discuss this below). There was no real dispute among
the parties as to the interpretation of the non-compete clause. On a proper construction, it
only prohibited each former employee from (reading short) being employed in:
(i)
any business or activity which was (a) carried on by the pursuer on the date
of termination of their employment and (b) in which he or she was directly
concerned at any time in the period of 12 months before that date;
(ii)
in which they would be operating in competition with the pursuer and/or so
as to harm or interfere with the pursuer's goodwill;
(iii)
in the United Kingdom;
(iv)
for a period of 6 months after termination of employment.
The pursuer's business was and is the supply of construction and industrial workers and the
former employees were all directly concerned in that business during their employment
with the pursuer. Accordingly, the effect of the non-compete clause was directed towards
the former employee's employment in a business or activity involving the supply of
10
construction or industrial workers. Mr O'Brien submits that this is a perfectly reasonable
result when the pursuer and Caval operate within the same "very competitive" market.
The third question
[14]
Where parties joined issue was on whether the non-compete was too wide (as the
former employees contend) or whether it was no wider than reasonably necessary for the
protection of the pursuer's legitimate business interests.
The pursuer's legitimate business interests
[15]
The pursuer's averments on the legitimate interests it seeks to protect are found in
articles 13 and 14 which, so far as material provide:
"13.
[...] The pursuer can only perform those services if it has strong relationships
with both its employer clients and its candidates. The relationships that the
pursuer builds with its employer clients and its candidates are its only source
of income. Those relationships have substantial value. Those relationships
are built by the pursuer acting through its recruitment consultants. The
pursuer's recruitment consultants are assigned to manage the pursuer's
relationships with particular employers and candidates. The success of the
pursuer's business depends on the strength and continuity of its relationships
with its clients and candidates. The strength and continuity of those
relationships are vulnerable when recruitment consultants leave the pursuer's
business. The pursuer relies on the integrity and stability of its workforce. It
also depends on the details of its clients and the other confidential
information it holds remaining confidential. Confidentiality allows the
pursuer to preserve its client relationships by not exposing them to
approaches by the pursuer's competitors, particularly when those
relationships are vulnerable. The pursuer's business is particularly
vulnerable to its competitors because it is a conduit between employers and
candidates. The pursuer's competitors can readily step and connect the same
employers with the same candidates if the pursuer's confidential information
is disclosed to third parties." (Emphasis added.)
14.
The six month period of post-termination restrictions are reasonable. That
period is necessary to enable the pursuer to transition the management of its
relationships with its employer clients and its candidates to new or
recruitment consultants with its business. It also protects the pursuer against
11
a former employee seeking to capitalise on the personality he or she has
brought to the pursuer's relationships with its employer clients and its
candidates to divert income and business opportunities away from the
pursuer's business. It is a standard component of employment contracts in
the recruitment industry."
I have highlighted the passage Ms Tyre criticised. I consider this issue further, but first note
the former employees' reliance on the facts and outcome of Quilter.
The former employees' reliance on Quilter
[16]
Ms Tyre founded strongly on Quilter. The pursuer did not suggest that Quilter was
wrongly decided. Indeed, it provides a recent, full and careful exposition of the law in this
area and of the test to be applied in the consideration of the enforceability of non-compete
and similar restrictive covenants. I propose to adopt and apply the approach set out by
Calver J in that case, and the three questions he identifies to determine the lawfulness or
enforceability of restrictive covenants used by employers. The principal issue in that case, as
in this, is the third question: whether the clause in question is no wider than is r easonably
necessary for the protection of the employer's legitimate business interests.
[17]
It is a truism that each case will turn on its own facts and circumstances and I am
bound to observe that the terms of the restrictive covenant in that case, and the factual
context, are very different from those in the present case. Moreover, the question of whether
a particular restrictive covenant is reasonably necessary for the protection of the employer's
legitimate business interests is likely to be highly sensitive to the context or field of
employment to which it is applied, as well as to the case the employer makes in respect of
the legitimate interest it seeks to protect. Different considerations may apply in industries
where establishing a client relationship requires compliance with detailed or onerous
regulatory requirements (e.g. as in financial services and the obligations to confirm the
12
identity and source of funds of a new client), and where, as a consequence, once established,
those same regulations create a certain friction or inertia for an existing customer to
overcome in order to leave, if it is obliged to repeat those procedures with a new service
provider. Clients of businesses which operate in areas without such regulations or similar
formalities, may more readily leave one service provider for another. These, and other
context-specific considerations, may be important factors informing the assessment of the
reasonableness or otherwise of the scope and duration of a restrictive covenant . So, too, will
be nature of the business interest the employer seeks to protect. Accordingly, an identically
worded clause might be demonstrated to be reasonably necessary in one context, but not in
another.
[18]
Turning to the facts in Quilter, the duration of the restrictive covenant was, at nine
months, materially longer than the six months' duration of the non-compete clause at issue
here. This nine-month period is referred to in no fewer than five of the fourteen factors that
the court in Quilter identified in determining that the clause in that case was objectionable. I
also note that the case concerned a very different employment sector, namely financial
services. By contrast with the process required to be followed to take on a new client in the
financial services industry, there is a far greater ease of movement by clients from one
recruitment agency to another in the industry in which the pursuer operates. Furthermore,
one of the factors that the court in Quilter found objectionable was that the non-compete
clause also precluded the former employee from doing any business with new clients of her
new employer. That is not the case with the several restrictive covenants here: by reason of
the defined terms (albeit not all of these feature in the non-compete clause), the restrictions
on each of the former employees is specific to the particular clients they had as the pursuer's
consultants (the stipulation in the non-compete clause is that the individual defender was
13
"directly concerned" in a specified period). I also accept Mr O'Brien's submission that, by
reason of the use of mandates issued by departing clients in fields such as the financial
services sector or law or accountancy, possible breaches of restrictive covenants may more
readily come to the notice of a former employer in those sectors than in the field in which
the pursuer operates (ie for which mandates are not used by the successor employer to
recover files from the former employer). Accordingly, while that was a factor which led the
court in Quilter to conclude that a non-compete clause was not necessary or could not be
justified on the basis that a non-solicit clause would otherwise be impossible to police, that is
not the case here, for the reasons noted. In the present case, the pursuer has sufficient
averments to advance a case that a non-compete clause may be regarded as reasonably
necessary, notwithstanding the existence of the non-solicit covenant (now embodied in the
undertakings).
[19]
Furthermore, the court in that case was considering the issue of enforceability after
proof and, indeed, the court found that the only justification established in the evidence that
the non-compete clause was necessary was that it was difficult to police post-termination
obligations of confidentiality. By contrast, at this stage the pursuer's averments are accepted
as pro veritate.
[20]
For these reasons, the case of Quilter is distinguishable on its facts from the present
case. Cogently reasoned though it is, and no doubt correctly decided on its facts, it does not
dictate the outcome of the former employees' motion for recall.
Consideration of the non-compete clause and the third question
[21]
Furthermore, in my view, Ms Tyre overstates the effect of the non-compete clause as
rendering the former employees "unemployable'. The non-compete clause does not have
14
this effect. Rather, it is confined to the specific sector of recruitment (in the construction
field) in which the pursuer is a specialist provider. Moreover, the non-compete clause
operates in a bespoke (not blanket) fashion in respect of each of the former employees,
because it is confined to the specific periods (defined as "the Relevant Period") for which
each of the three former employees was employed (the dates of the Relevant Period are
different for each of the former employees); and there is the further qualification that he or
she was "directly concerned" in the pursuer's business. The former employees are free to
become employed or engaged in any recruitment agency other than one involving
placements within the construction industry, or indeed they are free to become employed or
engaged in any other field of employment.
[22]
In relation to the scope and geographical reach of the restrictive covenant, it was not
suggested that there was any mismatch, in the sense that the non-compete clause
encompassed a wider geographical area or a broader range of activities than that in which
the former employees were engaged.
[23]
Finally, in my view, the pursuer has sufficient averments of a compelling and
reasoned basis for the six months' duration of the non-compete clause, a duration Ms Tyre
suggested was unjustified. While the former employees accepted that the pursuer has a
legitimate business interest in protecting its confidential information and that of its clients
and candidates (see their note of argument, para 6.3), the pursuer's position is that it also has
other legitimate business interests that merit protection, namely (i) the strength and
continuity of its relationships with its clients and candidates and (ii) the integrity and
stability of its workforce: article 13 of condescendence. It is well-recognised that those are
legitimate business interests that employers are entitled to protect: Sundolitt Limited v
15
[24]
The pursuer's relative averments are contained in articles 13 to 16 of
Condescendence, some of which are set out above (see para [14]). At the first hearing,
Mr Tosh augmented these averments in his oral submissions. As he explained, in relation to
the pursuer's legitimate business interests, the assets of the pursuer's business are not
tangible. The whole value of the pursuer's business resides in the strong and consistent
personal relationships individual employees build up over time with the pursuer's clients,
whether they are prospective candidates to be placed or prospective employers accepting
individuals for placement, and the confidentiality arises in respect of the details of those
client contacts. These relationships were central to the pursuer's business. He contrasted
this with other kinds of businesses, for example, supplying good, and in respect of which the
personal relationship was secondary to the goods supplied. For these reasons, it is not a
question of just transferring the clients of a departing employee to a new employee. It took
time for the new employee to develop a personal relationship anew. That was the legitimate
business interest the pursuer seeks to protect. I accept the force of those submissions.
[25]
For all of these reasons, I determine the third question in favour of the pursuer: the
pursuer has averred and presented a prima face case that the non-compete clause is no more
than is reasonably necessary to protect its legitimate business interests.
[26]
Accordingly, notwithstanding the carefully argued and full written and oral
submissions on behalf of the former employees advanced at the recall hearing, I remain of
the view that the pursuer has presented a prima facie case (in my view a strong one), that it
has legitimate business interests to protect and that, on a proper construction, the post -
termination obligations imposed by the contracts on the former employees go no further
than is reasonably necessary to protect those legitimate business interests: Sundolitt Limited,
paragraphs 21 to 23.
16
[27]
Furthermore, I do not accept the submission that the terms of the interlocutor was
too broad or unclear. In any event, at most Ms Tyre figured an accidental breach and a
breach of that character is unlikely to be visited with any sanction for breach or contempt.
[28]
If, after the determination of the three questions there is a residual discretion (as
suggested in para 136 if Quilter), in our procedure, at this preliminary stage, that is likely to
coincide with the balance of convenience, to which I now turn.
Balance of convenience
[29]
To the extent that this was put in issue, I find that the balance of convenience
continues to favour the pursuer. Given the timing of the grant of interim interdict relative to
the commencement of the six-month period, which in the case of the first defender was in
late December, the non-compete clause is not in fact relied on for the whole six months. At
the first hearing, Mr Tosh referred to the case of Chill Foods (Scotland) Ltd v Cool Foods Ltd
1977 SLT 38 and Lord Maxwell's observation (at p 41) that the balance of convenience will
favour the protection of an existing business as against a new one. It was explained at the
first hearing that, while Caval was an existing recruitment consultant elsewhere in the UK, it
only established a physical office in Scotland (in Glasgow) in January 2021. In that respect it
was a new business in the jurisdiction in which the pursuer operates. Furthermore, I was
advised at the first hearing that the pursuer estimated it was losing £5,000 per week since
January, when the Glasgow office of Caval was opened. While the businesses the pursuer
and Caval engage in may also now be conducted in part remotely or online, I nonetheless
regard Lord Maxwell's observation to be apposite. I also accept that it is not enough for the
defenders to say that the pursuer's remedy lay in a claim for damages, as proof of loss in
such cases may be difficult to establish. For completeness, I should note that, while I was
17
referred to a number of email exchanges, and on which the parties offered different
interpretations or explanations, those kinds of disputes are more appropriately resolved at a
proof, rather than on ex parte submissions, and I placed no weight on those materials.
Decision
[30]
For these reasons the motion for recall is refused. I reserve meantime all question of
expenses.
Coda
[31]
Immediately before the case called before me on 9 April to give my decision, the first
and third defenders produced an affidavit from an individual who used the services of
several recruitment consultants, including the pursuer. The subject-matter related to
whether the first defender had had contact with him. That issue is now covered by the
undertakings. The matters spoken to in the affidavit are not relevant to the non-compete
clause and does not cause me to change my decision, which is to refuse the motion for recall
of the non-compete order.
BAILII:
Copyright Policy |
Disclaimers |
Privacy Policy |
Feedback |
Donate to BAILII
URL: http://www.bailii.org/scot/cases/ScotCS/2021/2021_CSOH_40.html