CATERPILLAR LOGISTICS SERVICES (UK) LIMITED –V- PAULA HUESCA de CREAN; A WARNING AGAINST OVER AGGRESSIVE LITIGATION STARTEGIES WHEN SEEKING INTERIM RELIEF IN ALLEGED EMPLOYEE DISLOYALTY CASES?

February 23rd, 2012

The Court of Appeal has recently handed down judgment in Caterpillar Logistics Services (UK) Limited –v- de Crean [2012] EWCA Civ 156.   Unsurprisingly, the Court rejected the suggestion that an employee’s post-termination obligations of confidentiality to her ex-employer could support an injunction preventing an ex-employee from working for one of the employer’s important clients.   The case is perhaps more interesting for highlighting the obligations on employers seeking urgent injunctive relief in cases of alleged employee disloyalty and defection,  and as a reminder that an over aggressive litigation strategy can often backfire.

The employer supplied logistics services to the Caterpillar group (of which it was part) and to various clients in the automotive industry.   The employee had been employed as account manager in its Land Rover commercial team.   Her contract contained no post termination restrictive covenants, but a fairly conventional express obligation requiring her to respect the employer’s trade secrets and confidential information both during and after termination of employment.   She resigned on notice, to join one of the employer’s important customers (QH), with whom she had dealt during her employment.   The employer alleged that by accepting her new position, she put herself in a mirror image role with QH to that which she had carried out for the employer, on the opposite side of many of the issues she had previously been dealing with for it.   It was said that QH had employed her to exploit her confidential information about the employer’s business.  It was said that this placed her in breach of fiduciary obligation “in that there was an extremely strong likelihood (if not and inevitability) that you will use (even if not disclose) [the employer’s] confidential information …”.   The employer sought an injunction restraining the use or disclosure of confidential information and a “barring-out order”, preventing the employee from undertaking any task with her new employer that touched on its commercial/client relationship with her ex-employer.   An order in these terms made by consent on the first return date (September 2011) was discharged by Tugendhat J in November 2011, who also struck out the claim as disclosing no cause of action.   The Court of Appeal upheld Tugendhat J’s decision, in a judgment handed down a couple of days ago.

The Court adopted the proposition in the employer’s Counsel’s own text book on the subject, that (save in the most exceptional circumstances) barring out relief was not available to prevent an ex-employee from joining one of the ex-employer’s rivals as a means of protecting against the future misuse of confidential information, absent a reasonable post termination restrictive covenant (e.g paras 56, 60 & 61, 65).   The position was not improved by seeking to characterise the employee as a fiduciary – “The word fiduciary was brandished a cure for all ills.   Certainly …. the [employee] owed certain fiduciary duties.   But that did not make her a fiduciary in the sense that a trustee or solicitor is to his beneficiary or client” (para 58).   It was only in such cases that barring-out relief might be appropriate.    Whilst a conventional injunction restraining breach of confidence might have been appropriate, the employee had been prepared to give a contractual undertaking, and there was no evidence of threatened breach – “an employer is not entitled to injunctive relief simply because he seeks it” (paras 66-68).    The case had been properly struck out (para 70; Maurice Kay LJ dissenting on this point; see below).

As already observed, none of this is much more than a statement of the orthodoxy.    The Court went on to sound a number of warning shots to over aggressive employers.   First, the allegation that the employee might deliberately misuse the employer’s confidential information in the future “was wholly unsupported … and … should not have been made” (para 39).   Secondly, the Court was highly critical of the failure to explore an amicable solution before engaging in aggressive correspondence and then litigation – “particularly … where there is on one side a large corporation and on the other a former employee whose annual salary would be a small fraction of the costs of the litigation.   Many Defendants, faced with such a claim, would simply concede rather than risk bankruptcy” (para 71).   Thirdly, the Court endorsed Tugendhat J’s criticisms in delays in serving the Particulars of Claim, particularly given the serious allegations made (on Tugendhat J’s analysis, tantamount to criminal conspiracy).     As Stanley Burnton LJ put it: “[The employer’s] Counsel told the Judge that it was normal practice in claims for confidentiality injunctions for the service of the particulars of claim to be deferred until after the application for an interim injunction has been dealt with.   If that is the normal practice … it should be discontinued … it is the interests of justice and the efficient and fair conduct of proceedings that the claimant’s case be defined and pleaded as soon as possible, so that the defendant knows precisely what is the case against her, and so does the judge … particularly … where, as here, allegations of misconduct are made against a  defendant ”.

Applicants for freezing and search and seizure orders are used to the requirement that they must produce their Particulars of Claim with expedition, after obtaining urgent relief.   This judgment seems to proscribe a similar approach in confidential information and employee disloyalty cases.   As such cases (almost inevitably) depend upon inference, the early production of Particulars is not always an easy task, particularly when judgement calls have to be made about applying for relief on sparse or incomplete information.

It is also possible that this judgment will encourage submissions that injunctive relief should be refused, because insufficient attempts have first been made to explore an accommodation, particularly in alleged ‘David and Goliath’ disputes.   The Court’s judgment certainly seems to have been influenced by its distaste for the employer’s aggressive tactics.  It is worth pointing out that Maurice Kay LJ seemed to accept that the evidence raised at least an inference that the employee had a case to answer and that some limited injunctive relief might have been appropriate, notwithstanding “its [the employer’s] initially heavy handed approach to this litigation”, and he would have allowed the appeal against the strike out  (para 78).   It would seem that an employer who unnecessarily or over vigorously rattles the sabre, does so at his peril.

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