ASSESSING LOSS FOR BREACH OF CONFIDENCE; SOME RECENT GUIDANCE ON LOST CHANCE AND WROTHAM PARK CLAIMS

March 14th, 2012 by Simon Devonshire QC

In Jones –v- Ricoh UK Limited [2012] EWHC 348 (Ch), the High Court has recently delivered a judgment that contains important guidance for employment lawyers in breach of confidence cases, on 3 key questions: (i) the nature of the interest the claimant must establish in confidential information before he can maintain a claim for breach of confidence; (ii) the availability of lost chance damages; and (iii) that availability of Wrotham Park damages.

Background to the litigation

Simplifying the facts somewhat, the claimant (“C”) entered into a confidentiality agreement with the defendant (“D”) under which D agreed to keep confidential and not to use or disclose any information supplied to it by C with a view to the conclusion of a possible agency agreement between them.   By that agreement, D also accepted a non-compete obligation, pursuant to which any one of its employees still in receipt or possession of C’s confidential information were not to contact any other ‘relevant person’ (including prospective mutual clients).    D in fact won a tender for business from a ‘relevant person’ which C alleged involved breaches of the non-compete and confidentiality obligations.   C sought to compute damages on the hypothesis that had D not breached those obligations, it would not have bid on its own but would successfully have bid together with C.

In a judgment handed down in July 2010 ([2010] EWHC 1743 (Ch)) Roth J struck out the claim for breach of the non-compete restriction on the basis that it contravened European competition law.   In doing so, he reiterated the important point that “once EU completion law applies and either strikes down or permits the restriction involved, the court is not permitted to reach a different result … under the domestic law of restraint of trade” (para 49).   

As a result, when the case went to full trial, it preceded only on the basis of the allegations of breach of confidence.    As to remedies, Roth J had concluded that a claim for an account was unsustainable in the absence of a fiduciary relationship (paras 88 & 89) but allowed an amendment to add a claim for Wrotham Park damages, which D “very properly did not seek to suggest that [C] cannot claim” (para 89).  

Breach of confidence

At trial, the judge rejected the claim that the confidentiality obligations had in fact been broken.  However, an issue arose as to the necessary nature of C’s interest in that information before he could claim protection over it.    C argued that to qualify for protection, C had to be entitled to the information  as principal, not as agent for a third party.   The Court accepted C’s contrary submission – the notion of title to confidential information is a red-herring; a duty of confidence is about the protection of the imparting of information in particular circumstances that give rise to a duty not to use or disclose it; “the appropriate inquiry should be directed to considering whether [C] had demonstrated that [it] had made a sufficient contribution to the creation of the relevant confidential information, in the furtherance of its own commercial interests, to justify the imposition of a duty …” (para 40); it was not about showing some ‘property’ in that information.

Lost Chance Damages

C’s damages hypothesis depended on assertions as to what a third party would have done but for D’s alleged breaches.   Did C have to establish its case as to the third party’s reaction on the balance of probabilities or could damages be assessed by reference to the lost chance principle?  The Judge cited Chitty on Contracts (2008) 30th Ed at para 26-044 for the proposition that “where the claimant claims that, in the absence of the breach of contract by the defendant, a third party would have acted in a particular way, so as to benefit the claimant, he need not prove the hypothetical action on the balance of probabilities.   Provided that the claimant can prove that in the absence of the breach there was a ‘real’ or ‘substantial’ (not a speculative chance) of the third party’s action, the court must assess the chance of that action resulting (usually a percentage) and then discount the claimant’s damages for his loss by reference to that percentage ”.   He would have applied this approach to the assessment of loss for the alleged breach of the confidentiality agreement – the principle in Laverack –v- Woods has “no application where the assessment of damages for the loss of a chance is dependent upon the hypothetical actions of a third party, rather than the contract breaker” (paras 86 & 87).   On the facts, however, the claimant could show no more than a speculative chance that the third party would have conferred the benefit contended but for the defendant’s alleged breach (para 95).

This is potentially very helpful to employment lawyers – e.g in breach of PTRC cases.   But what degree of probability qualifies as a real and substantial (as opposed to a speculative) chance?   This was not addressed in terms addressed in Ricoh, and there are dicta to the effect that it is unhelpful to seek to express a threshold degree of probability in percentage terms.  However, some guidance can be mined from earlier cases.    In IDC v Cooley [1972] 1 WLR 442, the Judge concluded that the Defendant’s wrongful diversion of a gas board contract had only deprived the Claimant of a 10% chance of winning that contract, but appeared to accept that that chance was sufficiently real and substantial to support a damages claim.  In Sanders v Parry [1967] 1 WLR 753, the Court assessed damages at 25% of one year’s net profits from a client’s estimated fees, after the client had been unlawfully poached by a departing employee.    A similar percentage approach was applied by Bell J. (painting with a fairly broad brush) in SBJ v Mandy [2000] IRLR 233 at paras 81-83.

Wrotham Park Damages

Whilst the judge found that (on the facts) a hypothetical negotiation would have yielded no (or at most a nominal) licence release fee, he did not suggest that this sort of case was per se inappropriate for such a Wrotham Park assessment of loss.   On the contrary, he regarded it as “now well established that in an appropriate case damages for breach of contract may be measured by the benefit gained by the contract breaker from the breach … the court may award damages to the claimant to represent  the price he could reasonably have extracted for requiring a licence payment in return for permitting the defendant to do what he has done” (para 97).   As already observed, this view as to the potential availability of such relief appears to have been accepted by Roth J at an earlier stage of the same litigation , and is worth contrasting with the more restrictive and dismissive approach taken by Jack J in BGC –v- Rees (covered in an earlier post).    However, the Court did observe that the consideration of the hypothetical negotiation had to be “founded upon the underlying realities of the situation against which it falls to be undertaken” (para 108) and would only be appropriate where it was manifestly unjust to leave the claimant with no award (para 109).   On the facts, the negotiation would have yielded no fee.    This is clearly an area to watch.

 

ONE MAN CONSPIRACIES IN EMPLOYEE DISLOYALTY CASES?

March 6th, 2012 by Simon Devonshire QC

There are potential tactical advantages to framing claims for tortious conspiracy against disloyal, departing employees.   In tort claims, damages are said to be ‘at large’; exemplary and punitive damages are available; the conspirators are jointly and severally liable for their wrongdoing.   But what is the position of a sole employee defendant, who leaves and diverts business to his own one-man company or corporate alter ego?   Can he be said to conspire with himself in such circumstances?    In Barclays Pharmaceuticals & Ors –v- Wayfarm LP & Ors [2012] EWHC 306 (Comm), Gloster J answered this question in the affirmative.   Her reasoning was as follows.  

Inducing breach of contract or causing loss by unlawful means required positive action by the defendant in relation to the claimant.   This was not the case in conspiracy, where liability might be grounded by the agreement between two persons, aimed at another, to use unlawful means, pursuant to which action was taken, resulting in damage to the victim.   There was no requirement that the defendant had to be the one taking the action, providing that he is party to the agreement (para 222).   It was a persuasive proposition that “agreement to cause injury by unlawful means is an actionable conspiracy notwithstanding that the parties to the agreement might be the natural person and a limited  company under his control, or two or more persons under the control of a single person” (para 227).   On this basis, the principal wrongdoer and the companies of which he was the controlling mind were jointly and severally liable in conspiracy (para 229).

 

FRANCHISE BUSINESS MODEL GIVES TUPE TRANSFEREE AN ETO REASON FOR DISMISSING INHERTITED WORKERS FOLLOWING A SUCCESFUL COMPETITIVE TENDER

March 5th, 2012 by Simon Devonshire QC

In the Eddie Stobart case (see the last TUPE post on this site), the EAT declined to construe the Service Provision Change (“SPC”) regime purposively with a view to extending its reach.    In Meter U Ltd –v- Ackroyd & Ors [2012] UKEAT/0206/11/CEA, a different division of the EAT has identified a business model which may enable contractors legitimately to dismiss transferring employees in change of contractor situations, without incurring liability for automatic unfairness.

The transferee (“Meter U”) provided meter reading services across the UK to electricity suppliers, through a network of one man limited company franchisees.   Siemens won two contracts to supply such services to Scottish Power and N Yorkshire Power, beating the incumbent contractors in a re-tendering process.   Siemens in turn sub-contracted the meter reading work to Meter U.   This was held to constitute a SPC from the incumbent contractors to Meter U.   After a process of consultation, Meter U dismissed the transferred workers, who were offered (but in the main refused) the opportunity of forming franchise companies and becoming Meter U franchisees.    Were those dismissals automatically unfair (as connected with a TUPE transfer) or was Meter U able to invoke the ETO exemption?

Reg 7(2) provides that a dismissal will not be automatically unfair where the reason for dismissal is an economic, technical or organisational reason entailing changes in the workforce.   It is settled law that this must involve more than just a change in the terms and conditions or identities of the workers employed to do the work, and requires a change in the numbers and/or functions of those employed; Berriman -v- Delabole Slate [1985] ICR 546.   In Meter U, the EAT (Slade J) concluded that these requirements were met by Meter U, rejecting the suggestion that the franchisees were part of the workforce for this purpose.    Meter U had always operated a franchise business model, and (subject to a remission in some of the cases for a consideration of whether those franchises were a sham, concealing a true employment relationship) the transferred employees had been dismissed for redundancy.   The workforce for the purpose of reg 7(2) did not include individuals providing their services through sub-contracted franchise companies.

It is trite law that the question of employee status is determined by reference to substance rather than the label the parties attach to the relationship.   Seeking to characterise an employee as a franchisee will not enable a transferee to invoke reg 7(2) if that does not represent the true reality of the relationship.   But for transferees who genuinely operate a franchise business model, this decision may give them an edge over ‘employer’ competitors in tendering processes.

 

EDDIE STOBART AND MOREMAN & ORS; SERVICE PROVISION CHANGES IN THE LOGISTICS INDUSTRY

February 28th, 2012 by Simon Devonshire QC

In Metropolitan Resources Ltd v Churchill Dulwich Ltd [2009] IRLR 700, the EAT observed that in construing the service provision change (“SPC”) regulations there was “no need for an employment tribunal to adopt a purposive construction … as opposed to a straightforward and common sense application of the relevant statutory words to the individual circumstances before them … [or] for a judicially prescribed multi-factorial approach … such as that which has necessarily arisen in order to enable the tribunal to adjudge whether there was a stable economic entity which retained its identity after what was said to be a transfer falling within what is now reg. 3(1)(a)”.   These observations have been approved and applied by other divisions of the EAT (see, e.g., Hamshaw; UKEAT/0037/11/JOJ).   The same approach is apparent from the recent decision of the EAT in Eddie Stobart –v- Moreman & Ors (UKEAT/0223/11/ZT).  

Eddie Stobart employed a number of employees at a site in Manton Wood to store and deliver meat on behalf of its supplier clients.    By the time that it came to close that business, Eddie Stobart serviced just two clients (Vion and Forza), whose requirements were in practice addressed (respectively) by the day and night shifts.   Eddie Stobart alleged that there had been a SPC of Vion’s logistics requirements to another logistics company, which inherited responsibility for the day shift employees.   But were those employees even an organised grouping for the purposes of the SPC regime?

As Underhill J observed (para 18), the SPC regulations did not merely say that it was sufficient that employees should in their day to day work in fact carry out the activities in question; they required that those activities should be the principal purpose of the organised grouping, and “that necessarily connotes that the employees be organised in some sense by reference to the requirements of the client in question”.   It was not enough that a combination of circumstances meant that this happened in practice “but without any deliberate planning or intent”.    Underhill J was unimpressed by the argument that this would move a lot of employees in the logistics industry out of the protection of TUPE, where it was rare to have identified, client dedicated teams (para 19).   Whilst the broad intent of TUPE was that employees should go with the work, “it remains necessary to define the circumstances in which a relevant transfer will occur, and there is no rule that the natural meaning of the language of the Regulations should be stretched in order to achieve transfer in as many situations as possible”.    On the contrary (para 20), the policy considerations pulled the other way – if the putative grouping did not reflect any existing organisational unit there were liable to be real practical difficulties in identifying which employees belonged to it, and employees should know where they stood, whereas “if the touchstones was whether a particular employee was assigned to a recognised team principally serving a particular client, the answer would normally be evident”.

In the 90s, TUPE seemed to extend to every contractor change, with even an office cleaner and her broom being treated as a business entity capable of transfer.   One of the ironies of the SPC regime is that it has gone some way towards reversing this trend domestically.  It has discouraged Tribunals from ‘discovering’ old style business entity transfers in change of contractor cases – resort to artificial constructs is no longer necessary in the light of the bespoke domestic legislation for SPCs.   Yet the SPC regime is not being construed purposively or with a view to extending its reach.   For those of us who have to advise on the application of TUPE in transactional situations, an emphasis on certainty and clarity of application is to be welcomed.

 

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 by Simon Devonshire QC

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.

 

TOWRY –v- BENNETT & ORS [2012] EWHC 224 (QB); AN EXAMPLE OF A LAWFUL TEAM MOVE?.

February 17th, 2012 by Simon Devonshire QC

In late 2009, Towry acquired the UK business of Edward Jones (an American financial advisory).    Towry sought to introduce a new business model, which led to the departure of a number of the most successful financial advisers and (in turn) their clients.   Towry sued 7 of the financial advisers and their new employer (Raymond James), alleging that the employees had acted in breach of post termination non-solicitation and confidentiality clauses and accusing them of an unlawful means conspiracy, both with each other (in various combinations) and with Raymond James.   The conspiracy was said to involve a pre-existing plan to poach Towry’s clients.   Raymond James was also accused of procuring the employee Defendants to breach their contracts.   Towry sought damages and/or accounts.  No claims were (or had been) made for injunctive relief.

Cox J has now dismissed all of Towry’s claims, and ordered it to pay the Defendants’ costs – reportedly on an indemnity basis in relation to the allegations of unlawful means conspiracy.    Three features of the judgment are of particular note.

First, this was not a case where any of the employee Defendants had walked out on contractual notice periods.   The employee Defendants were subject to non-solicitation and confidentiality clauses.   The Judge found these to be enforceable.  The judge held that solicitation required “that ex-employees must not directly or indirectly request, persuade or encourage clients … to transfer their business top their new employer.   Employers are entitled to prevent employees from exerting influence of this kind over their clients” (para 440).   On the facts, the judge found that solicitation had not been made out.   Whilst it was not as simple as asking who made the first approach, this was a relevant factor (para 903), and there would be no solicitation if the client “was exercising an independent decision to transfer, without any encouragement or persuasion to do so by the [employee]” (para 905).   It was not surprising that they wished to retain their personal financial adviser (para 905).  Tellingly, there were no non-dealings clauses in the defendant’s contract, which would have obviated these probative difficulties (at least in relation to liability).

Secondly, the Judge had found that the Defendants had waived the privilege in their legal advice, by seeking to rely positively on its substance, rather than merely on the fact that it had been taken.   She ordered disclosure of that advice at the outset of the trial (paras 13 & 14).   In the event, this proved to be the Defendants’ advantage.  The Judge noted that Raymond James had sought advice from an early stage, which it had then followed “by taking a series of steps designed to ensure that advisers complied with their contractual obligations” (para 922).    This demonstrates just how powerful such evidence can be, and can be contrasted with BGC’s refusal to disclose the substance of its advice in the well known Tullett Prebon litigation ([2010] EWHC 484 (QB)), where it was found guilty of both unlawful procurement and unlawful means conspiracy.   Cf too BGC –v- Rees & Anor [2011] EWHC 2009 (QB) , where Tullett voluntarily disclosed its advice and was acquitted of unlawful procurement.

Third, Towry had put in witness statements from some of its advisers recording discussions they had had with defecting clients (whilst attempting to keep them on board).    The Defendants made an application to cross-examine a number of those clients under CPR 33.4 (which permits a party to apply to cross-examine the maker of a hearsay statement tendered in evidence by the other party).   The judge acceded to that application in relation to 5 clients (paras 15 to 22).   Those clients were (of course) loyal to the Defendants, who enjoyed a ‘free hit’ in cross-examining them.   Towry was left having to disassociate itself from that evidence (paras 22-25 and 32).   This is clearly a trap for the unwary.

The case demonstrates that team recruitment can be lawfully achieved, particularly from a disaffected workforce.   If there is a moral in the case for employers, it is to ensure adequate protection through post termination restraint.   There is generally no difficulty in justifying a non-deal clause as necessary to police the observance of a non-solicitation obligation (as the judge here appeared to accept; para 438).   Non-dealing restrictions would have made Towry’s task an easier one.

 

Springboard Injunctions – the jurisdiction extended?

February 7th, 2012 by Simon Devonshire QC

Haddon-Cave J has just handed down judgment in QBE Management services (UK) Ltd –v- Dymoke & Ors [2012] EWHC 80 (QB), and granted an extended springboard injunction following a fully contested trial.   What does this judgment tell us about the nature and extent of employee’s duties and springboard relief?

Simplifying somewhat, QBE carries on business as a marine insurer.  The first 3 defendants (all senior employees) tendered the resignations in April 2011, with the express intention of joining a new competitive business (D4).   Over the next 3 months, 8 junior employees resigned, also expressing a wish to join D4.   In August, QBE obtained interim injunctions enforcing garden leave obligations and post termination restrictive covenants against Ds 1-3, to expire variously between October 2011 and January 2012, and orders for early disclosure.   That disclosure revealed that Ds 1-3 had been instrumental in setting up D4, had acted as recruiting sergeants for the new business, had solicited QBE’s clients whilst still employed, had abused confidential information, and had concealed their activities from their employer.    In October 2011, QBE obtained a springboard injunction restraining D4’s launch pending a speedy trial.   That trial took place over some 12 days in November 2011.   Judgment was handed down at the end of January 2012.

The disclosure was obviously key in this case.    As the judge observed, Ds 1-3 “did not envisage that many of their candid exchanges would see the light of day.   These contemporaneous documents tell their own story … which accords closely with [QBE’s] case” (para 44).   Their oral testimony simply could not live with the contemporaneous documents (para 46).   They recognised that their new start up would only work if it had “critical mass” – which included “sufficient numbers of experienced and suitably qualified personnel to provide the right standard of service to compete with the two established players ….” (para 55) – and that “it was going to be crucial to recruit impressive underwriting and claims teams in order to have credibility with the right financial backers and vice-versa” (para 56).    Ds 1-3 embarked on a campaign of targeted staff recruitment to this end.   They used only home e mail addresses and pay as you go mobiles (colourfully described as “bat phones”) to keep their activities from the gaze of QBE.   They used head-hunters to disguise their involvement in the recruitment process.

In considering the scope of the employee’s duties, the judge disagreed with the permissive approach taken by Hickinbottom J in Lonmar Global –v- West [2011] IRLR 138, and doubted that any reliance could be placed on the well-worn dictum of Cumming-Bruce LJ in Searle –v- Celltech [1982] FSR 92 (to the effect that there was nothing in the general law to prevent a number of employees deciding to leave in concert) given the way teams moves are generally planned and effected (paras 177-183).   He identified “a tightening in the law” on the obligations of disclosure impose on directors and senior employees to disclose action that if taken will lead to competitive activity and any action of their own as soon as an irrevocable intention to compete is formed (paras 191 & 192).   He did not accept that the non-compete covenants in the contracts of the 8 junior employees could be enforced against them (as they had no access top real confidential information) but this did not matter given the court’s conclusion on springboard relief.

The judge regarded the availability of springboard relief (to grant an injunction to deprive the worng-doer of the fruits of his wrong-doing) as well-established, and available for all breaches (not just breaches of confidence); paras 239-247.   Such an order could only be granted whilst the springboard advantage was still being enjoyed, but he regarded this an as an overwhelming case on the facts, and had enabled D4 to get up and running before the crucial renewals window for some 70% of the marine insurance business in February 2012.   He made a final springboard injunction to prevent D4 from starting up in competition with QBE, expiring 12 months after the resignations of Ds 1-3.

This is a useful judgment for claimants/employers.   It is consistent with the trend of the authorities (‘bucked’ in the Lonmar Global case) tightening the standards of good faith and loyalty expected of an employee.   The judge had no difficulty in concluding that a springboard injunction was available as a final remedy.   Arnold J had expressed some doubts about this in Vestergaard –v- Bestnet [2010] FSR 29, and although this decision was not discussed in the judgment in QBE, Vestergaard is clearly out of step with the flow of authority.   For another recent case adopting the same approach as applied in QBE, see Clear Edge & Anor –v- Elliot & Ors [2011] EWHC 3376 (QB).   In the instant case, the Judge was prepared to make an injunction stopping the operation of the new business at all.   The period of the injunction appears to have been informed by the time it had taken to set up the competitive venture, and by the new business’ need to be up and running before the critical renewals window.

 

Staying Tribunal Proceedings; Paymentshield Group Holdings Ltd –v- Halsted (2011) UKEAT/0470/11/DM

October 13th, 2011 by Simon Devonshire QC

Tribunals have usually been prepared to stay the statutory proceedings where the claimant has launched a parallel action in the High Court, and there is a considerable overlap between the two sets of proceedings.    Typically, it is said that the High Court is the more appropriate forum for the resolution of complex factual matters, and should not find itself embarrassed or constrained by the findings of the tribunal, particularly where the High Court action is the more valuable of the two claims.     Given the substantial expansion of the Tribunal jurisdiction over recent years, these ‘traditional’ assumptions will not always hold true, but the conventional approach recently received substantial endorsement by the EAT in Mindimaxnox LLP –v- Gover & Ors (HHJ McMullen; UKEAT/0225/DA), a case where the ex-employer relied on proceedings it had launched for declaratory and other relief in the High Court, to stay tribunal claims for unfair dismissal.  

In Paymentshield Group the same judge has gone a step further.   A tribunal claimant had also served a letter before action and draft particulars on his former employer.  By agreement, the tribunal proceedings were stayed.   The Claimant applied to have the stay lifted – he had not started his High Court Action and argued that he could only afford to do so with his tribunal award.   The Tribunal lifted the stay.   The EAT reinstated it.   It said that there was no difference in principle between a case where tribunal proceedings had been issued and a case where they had been threatened ina pre-action letter in accordance with the CPR.   The position would have been different had he not ‘uttered’ the letter before action – “he could have gone ahead with his employment tribunal case and the issues of concurrence, and embarrassment of the High Court would not have arisen, because it would be simply hypothetical” .

Can this really be right?   The EAT acknowledged that a respondent couldn’t keep the claimant out of the Tribunal for 6 years “just because he might possibly issue proceedings”.   Why should it make a decisive difference that he has issued a letter before action?   Why is this any different to the statutory claimant who expressly reserves the right to pursue his (valuable) contractual claims in the High Court in his ET1, but proceeds in the statutory forum first?   The High Court proceedings are more than ‘a glint in his eye’ (to use one of the touchstones identified by the EAT), but it is unlikely that the tribunal would stay in those circumstances.   Theoretically at least, the tribunal is intended to provide a forum for the prompt resolution of statutory employment claims, whereas the Limitation Act affords the employee a 6 year waiting period for pursuing his statutory claim.

What, then, are the ‘morals’.   An employee who wants to preserve his right to litigate in the tribunal first should be wary of taking any pre-action steps under the CPR to pursue his civil claim.   An employer who wishes to litigate in the High Court first, by contrast, might be well advised to consider forcing the issue by issuing some form of declaratory proceedings.   No doubt an employee would argue that a stay of tribunal proceedings should not be granted where the employer’s action is an obvious ‘spoiler’ (see, e.g., Charles Reynolds & Associates Ltd –v- Dand (1999) EAT/585/99).   However, such an argument would be more difficult to sustain where the employee had indicated an intention to launch High Court proceedings and the employer might justify his initiation of a civil action on the basis that he wanted to ensure that the resolution of the ‘senior’ claim was not compromised or embarrassed by the tribunal action.

 

BGC v Tullett, number 2

July 27th, 2011 by Simon Devonshire QC

In the widely reported case of Tullett Prebon & Ors –v- BGC & Ors [2010] EWHC 484, the High Court concluded that BGC had unlawfully poached some 10 brokers form Tullett Prebon’s Treasury Division in London, including four brokers from Tullett Prebon’s Forward Cable Desk.   Mr Justice Jack’s judgment was upheld on appeal ([2011] EWCA Civ 131), and Tullett’s damages claim was settled on confidential terms following some 4 weeks of contested evidence in March of this year.    Sir Raymond Jack has now given judgment in a follow on claim by BGC ([2011] EWHC 2009 (QB)), accusing Tullett of procuring breaches of contract by one of BGC’s employees, Peter Rees.

At the time of BGC’s poaching raid on Tullett’s Treasury Division (March 2009), Mr Rees was working as a forward Swiss trader for BGC in Nyon, Switzerland.   He was (as the Court found) the disaffected head of a failing and disintegrating ‘Swiss’ desk.   At the end of March 2009 he had his salary cut by 66%, under a performance adjustment clause in his contract.   He received advice from Swiss lawyers that this cut was unlawful and resigned on 6th April 2009.   He was recruited by Tullett Prebon to work on its Forward Cable Desk (filling vacancies created by BGC’s poaching raid), where he started in mid May 2009.    BGC alleged that Mr Rees had breached his contract in leaving early (he had 29 months of his Initial Term still to run) and had breached his PTRCs by working for Tullett.   BGC alleged that Tullett had procured those breaches.

The Court found that the salary cut was lawful and Mr Rees was not justified in resigning; he had been unfortunate to be wrongly advised by his Swiss Lawyers.   However, his early departure had caused BGC to suffer no loss, and he had not acted in breach of his PTRCs to any material extent, applying Swiss Law.   He was, however, obliged to repay a ‘forgivable loan’ (effectively a loyalty or signing payment he received on joining, but repayable in the event of early termination).

Of more interest in the context of business protection and recruitment disputes is the Judge’s handling of the procurement claims against Tullett.   He rejected the claim that Tullett had procured Mr Rees breaches in recruiting and employing him.   Tullett “only took him [Mr Rees] on once [it] had established, to the best of its legal department’s ability, that [it] was free to do so”.   So Tullett did not have the necessary intention, following the guidance given by the House of Lords in OBG.    In any event, BGC had failed to show any loss (a constituent element of the procurement cause of action).   The Judge rejected BGC’s claim that it was entitled to Wrotham Park or transfer fee damages for Tullett’s recruitment of Mr Rees – these were “not available as a substitute for conventional damages to compensate a claimant for damages he has not suffered.   Nor should it be used to award a larger sum than a conventional calculation of loss provides”.   Given his other findings, the Judge did not need to address the dispute between the parties as to the extent to which the alleged procurement had been causative of the breach, but expressed the (obiter) view that “if a contract would have been broken by a party to it whether or not the conduct relied on as inducement had taken place, it cannot properly be said that the breach was induced or procured by the conduct.   Neither can the other party say that his losses were caused by that conduct because they would have occurred in any event”.   

 

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