Caterpillar Logistics Services (UK) Ltd v De Crean  EWCA Civ 1671
Application for permission to appeal decision to dismiss a claim, and discharge undertakings, where the applicant employer was seeking to prevent the defendant employee from working on a key agreement with her new employer, who was a customer of the applicant and at the time renegotiating the agreement between them. Permission allowed.
The defendant employee had been the Logistics Centre Manager for the applicant and worked on a significant customer service agreement for an automotive parts firm who used the applicant for its distribution. She applied, and was offered, a job at this customer, who had recently been acquired and were attempting to renegotiate their agreement. Following her resignation, the applicant initiated these proceedings seeking to restrain breach of confidential information and trade secrets and an order preventing the defendant from playing any part in the agreement. In the High Court the claim for an interim injunction was dismissed, as the judge felt that the defendant should not be oppressed by the litigation and that it was unlikely that the applicant would establish that the relationship between themselves and the defendant was one in which it would "be equitable to cast upon the defendant the burden of showing that [the defendant and her new employers] have taken effective measures to ensure that no disclosure will occur. No court has ever made such a finding in a case of an employer against an employee."
In this application, Ward LJ expresses doubts that the applicant would succeed in the appeal but allows permission as, he agrees with counsel's submission that following Bolkiah that "whilst it may be rare in the case of employer/employee, there is nothing wrong with the theory in an exceptional case which demands that the employee would not be put in a position of conflict as the new employment would expose her to."
Case No: A2/2011/3123
Neutral Citation Number:  EWCA Civ 1671
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION, ADMINISTRATIVE COURT
(MR JUSTICE TUGENDHAT)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: Thursday, 8 December 2011
LORD JUSTICE WARD
LORD JUSTICE HUGHES
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CATERPILLAR LOGISTICS SERVICES (UK) LTD (Appellant)
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PAULA HUESCA DE CREAN (Respondent)
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(DAR Transcript of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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Mr Selwyn Bloch QC and Mr Gavin Mansfield (instructed by Walker Morris Solicitors) appeared on behalf of the Appellant.
Mr Miller (instructed by Keelys) appeared on behalf of the Respondent.
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Judgment (As Approved by the Court)
Lord Justice Ward:
- This is an application which came to this court firstly for interim injunctive relief pending an application for permission to appeal. The order under appeal was only made last Friday, late in the afternoon. It has not yet been drawn up, but it is an order made by Tugendhat J on 2 December that the claim in this case be dismissed pursuant to CPR rules 3.4, paragraphs 2(a) and 2(b), with the claimant paying the defendant's costs of just under £54,000. But the judge also discharged undertakings that had been offered to Eder J on 16 September and refused, unusually as he said, to continue any undertakings or make any injunctions pending the appeal which was threatened and which has now come to pass.
- The papers were put before me. It seems sensible to me to list the application for permission to appeal and to have the help of my Lord in dealing with it, and that is what has come to pass. It has taken a lot more time than I had hoped and expected, but there we are. In the result, I have come to the view that permission should be granted, and so I will be necessarily short in giving a judgment.
- The matter arises in this way: the applicant, Caterpillar Logistic Services (UK) Limited, operate a site in Hinckley in Leicestershire where they service customers of theirs, and in particular a customer Quinton Hazel Automotive Limited ("Quinton"), providing them with logistics services under a Logistics Services Agreement which had been made in 2006.
- In essence, Quinton Hazel Automotive, who are suppliers of automotive parts, send all of these parts to the claimant's site in Hinkley. The claimant employs over 120 people to receive orders from Quinton Hazel's customers, collect the parts, send out the parts, process the orders and do goodness what else in addition. It is a very valuable contract worth $16 million a year to Caterpillar (as I will call the appellants).
- Quinton Hazel, at the time the agreement was made, were owned by a company called Affinia Group Incorporated, but they have now been taken over comparatively recently by Clarius Group Limited ("Clarius"). The Logistics Services Agreement is in some ways an unusual agreement. It is for a period of some ten or more years. It expires in fact on 8 May 2017, but there are other detailed provisions for its termination. It has a dispute resolution clause, it restricts assignment, and it has the unusual clause that, if at any time either party believes in good faith that one or more of certain stated assumptions has become materially incorrect in the ordinary course of business and through no fault of either party, then there is a procedure for possible modification of the agreement.
- If relations with Affinia were not cordial, relations between Caterpillar and Clarius are anything but. There appears to be a great deal of antagonistic posturing, from perhaps both sides or the other; Clarius seeking to renew the agreement, re negotiate its clauses and no doubt seek a more favourable financial position for themselves. All of that is starkly resisted by Caterpillar. That is the background.
- The problem is that the defendant, Mrs de Crean, who was employed by Caterpillar in 2005, is, it seems, a highly competent accountant who has risen through the Caterpillar ranks to the point that, latterly, she became the Logistics Centre Manager at Hinkley, having the full management of this agreement, and, as such, in possession of a good deal of confidential information and trade secrets that Caterpillar would seek to protect. Indeed, she was present at conferences with the lawyers when the acts of Clarius were under close discussion.
- Some time in August, as I understand it, she saw an advertisement in I think the Sunday Times put in by Clarius and seeking a position in a senior managerial capacity within that group. She applied for that job on 3 August, was interviewed the next day, had a second interview on 9 August and resigned on 11 August; by agreement that resignation taking place with immediate effect. But it was followed at the end of August by the letter from Caterpillar's solicitors threatening to bring this claim for injunctions to restrain breach of confidential information and trade secrets and to seek, in addition, an order preventing her from playing any part at all in anything to do with the operation and the continuation of the Logistics Services Agreement.
- She offered the undertakings to Eder J, as I have indicated, and the hearing of the interim injunctions were heard by Tugendhat J over two days. He refused any injunctive relief and indeed, as I have indicated, dismissed the claim altogether. The reason for his striking out the claim was very shortly developed in the brief exchanges that followed the final handing down of his judgment and the making of his order. Paraphrasing what happened there, he felt that having dismissed the interim application that there was very little else left in the case and so it should be struck out. This lady, he felt, should not be oppressed by further litigation. His approach to the strike out was so closely linked with the reasons he gave for not giving injunctive relief that the application for permission to appeal that part of his order should depend on whether the injunction or refusal of injunction should be given permission to appeal.
- The injunction falls essentially into two parts. The first is the more traditional injunction to restrain any breach of confidential information or trade secrets, and the judge began to deal with that in paragraph 83 of his judgment. He approached the case not only on American Cyanamid principles, but took the view that he should ask whether there was a reasonable prospect of eventual success, and that forms one complaint against his approach, it being submitted that he went too far. In paragraph 84 he refused to enforce the express terms of the confidentiality agreement in the contract of employment because he thought it was too wide in its terms to be capable of enforcement in that it included matters which cannot be included in the phrase "trade secrets". The complaint is that, if that was so, the blue pencil could be taken and the covenants severed, if that were possible.
- His third reason was the injunction went too wide because no time limit had been specified by the contract of employment or otherwise. If no time limit was expressed, the time limit would have to be implied, but one cannot imply that kind of term in this contract. As I pointed out, the case upon which the judge depended, Faccenda Chicken Ltd v Fowler  1 Ch 117, was a case where the clause did not have any limit of time and where the cause of action relied on implied terms. It seems to me, therefore, the judge may have erred in that respect.
- Paragraph 87 was again a reason based upon the width of the agreement. It seems to me that there is a good arguable case for a real prospect of success in challenging those decisions of the judge. Mr Miller, for the respondent, did not strongly seek to argue otherwise. His submission, powerfully made, is that it did not really matter that there was no limit in time because this defendant has always said she is not going to break the covenants which bind her, nor any other implied obligations which bind her. The heart of the case, the real nub of the case, is the fact that she would have wished to be involved in at least the operational aspects of the agreement between Quinton and Caterpillar if not any negotiations to vary it.
- Thus, the importance of the claim from the claimant's point of view is a claim based upon an extension of the well known case of Prince Bolkiah v KPMG  2 AC 222. The judge dealt with that in two parts in his judgment. In paragraphs 53 and 54 he observed:
"For present purposes it is enough to say that I accept that an employee may be a fiduciary in respect of specific property or confidential information entrusted to her care, even if her level of responsibility in the business is at the most junior level."
- This step in the argument for Caterpillar is a strong one. But he said in 54 that:
"…if the law relating to fiduciaries applies to former employees of companies such as [Caterpillar], the relevance of it has been overlooked in all the employment law cases sited above. It is not a new principle first recognised in Bolkiah."
- He returned to this question in a few short paragraphs, paragraph 90 of his judgment, when he dealt with what he had called the "barring injunction" and there he accepted that Caterpillar would be likely to succeed at a trial in establishing that the defendant was a fiduciary in respect of the information which is within the definition of a trade secret, but he found that Caterpillar would not be likely to succeed at a trial in establishing -- or even that there was a triable issue -- that the relationship between Caterpillar and herself is one in which it would be equitable to cast upon the defendant the burden of showing that she and Quinton or Clarius have taken effective measures to ensure that no disclosure will occur. No court has ever made such a finding in a case of an employer against an employee.
- I confess I have my real doubts as to whether Mr Bloch QC, with all his eloquence, even if those eloquent submissions are put before the court in a funny accent, is going to succeed in this appeal today. To start, an employee in effect carrying out the work for which she has be engaged by her new employer is tantamount to a restraint of trade and there is no express restraint of trade in this case. It could have been put in even if, more usually, the covenant is to prevent competition from a competitor, not a customer.
- But Mr Bloch has persuaded me that underlying at least a theme of the judgment in Bolkiah is the fact that both solicitors and accountant in that case, and, as the judge has found, the employee in this case, owed fiduciary duties not to make use of the employer's property, the employer's confidential information and trade secrets. He submits that the burden on a fiduciary is to act only in the interests of the employer and not in his own interest. Therefore he submits that she is in an impossible position if required by her new employment fully and faithfully to perform the duties of a fidelity she owes to them to act in their interest in the execution of all her duties when that comes into conflict with the enduring obligation imposed upon fiduciary.
- I see the argument. I cannot dismiss it as a fanciful argument. I cannot say it does not have a real prospect of success. Mr Bloch submits that whilst it may be rare in the case of employer/employee, there is nothing wrong with the theory in an exceptional case which demands that the employee would not be put in a position of conflict as the new employment would expose her to. So, with a degree of hesitation, I agree that permission should be granted there.
- The other grounds upon which permission is sought relate to the factual finding the judge made, albeit at this interlocutory stage, and it seems to me that they are so inextricably linked with the arguments that it would be wrong to refuse permission to appeal on those grounds. In saying that, I add this warning. We are asked to expedite the hearing of this appeal. I will do so, but it will be on an understanding that one day and no more is allowed for the hearing of this appeal and I urge counsel, therefore, not to use more of the time of the court in arguing matters of fact. The arguments are, I think, already sufficiently set out in skeleton arguments, and, if it is so desired, if counsel wish to substitute skeleton arguments as they might do with up to date references to documents and pages and there forth, I have no objection to that being done, but please do not waste time arguing facts which the Court of Appeal (I hardly need tell them) can say "please get a move on, what is your next point?" So with that caveat, permission can be given on everything.
- The question then arises: what about injunctive relief in the meantime? Mr Miller submitted that there is no allegation that the respondent has, in fact, disclosed any material that she should not have disclosed. He submits that there is no positive allegation that she will do so and that therefore this case is one in which the risk is a risk only of inadvertent disclosure. I was attracted to that argument. If the only risk is of inadvertent disclosure, then an undertaking intentionally not to do so takes the case no further forward. She would not have intentionally broken it if inadvertently she did so, and given the judge's impression, which is not in dispute, that she was a good, honest employee of Caterpillar's, and given her promises that she will not be a naughty girl, I was attracted to the submission that no relief should be granted.
- Mr Bloch, whilst acknowledging there is no evidence of breach already committed and nothing they can point to that is a positive allegation that she will be in breach, he submits that there is an arguable case that she might breach this contract and he relies heavily in that respect on the use she has made of her laptop. The judge dismissed these allegations, but Mr Bloch submits that there are matters calling for a trial of that issue. She took away her computer; she made a copy of relevant material on a hard drive; her computer is apparently encrypted but the hard drive was not, yet she took it on holiday for security purposes. He submits that the timing of those actions, the volume of the work she copied and the lack of a rational explanation for it mean that there is a real issue to try in this respect.
- It seems to me that I would be guilty of inconsistency if I limited my consideration to there only being a risk of inadvertent disclosure, having already given permission to appeal her use of the laptop. Consistency, it seems, compels me to require that there should be some interim protection appending this appeal. I would be prepared to accept her undertaking, if it is offered, to continue the undertakings she gave Eder J, which include her undertaking not to be involved in any way in the service agreement.
- I am comforted in that decision by the fact that, although this has been awkward, she has not in fact put forward a case of real hardship in continuing to operate her work in that way and, given that we hope to have this heard in January and that Christmas and the New Year intervene, I think the right and fair and just course is to seek either an undertaking in the form she gave or to impose an injunction in those terms, but not any wider than that.
- So I would allow the appeal and I would grant permission and impose the injunction unless an undertaking is given.
Lord Justice Hughes:
- I agree. I add only a few very short observations:
(1) The decision to strike out followed conclusions of law of which some at least are arguably wrong, particularly as to the need for a time limit to exist upon any contractual obligation to keep confidential information from others.
(2) It follows that permission should be granted.
(3) That leaves the question whether the case should nevertheless be struck out because it had no reasonable prospects of success for other reasons; and it leaves the question of whether the judge was wrong or right to refuse interim relief on the grounds simply that the facts did not call for it.
(4) Given that the defendant accepts and always has accepted her duty as to confidential information, it may be that the proper conclusion on the facts is that no injunction restraining disclosure is necessary. However, what was in dispute before the judge was whether injunctive restraint should go further by analogy with Bolkiah in order to restrain the defendant from doing particular things in her new employment and particularly from having anything to do with the contract between her old employers and her new. The judge concluded that as a matter of law that was not possible.
(5) With considerable hesitation I am persuaded that it is arguable that such a restraint can be granted as between employer and employee if it is shown on the facts to be necessary. The judge may well have been right I cannot avoid saying that personally I think he probably was that there is a marked difference between the case of a solicitor or litigation adviser as contemplated in Bolkiah and an ordinary employer/employee case. I have in mind particularly the counterbalancing public interest against restraint of trade in the case of employees, which barely exists in the same form in the case of litigation advisers.
- However, even if the judge was not right, it seems unlikely that resolution in this court of the point of principle will provide the answer to the question of whether such additional restraint is called for by the facts of this case or not. That further question seems to me to be likely to need investigation at trial, particularly of the asserted danger of deliberate disclosure and the relevance to that of the laptop history. Such matters can only really be investigated at trial with cross examination of the principal witnesses on both sides.
- Accordingly, we did try to investigate whether there existed any route by which this dispute could be brought to trial without further hearing before this court. After thought and the help of counsel on both sides, I am satisfied that it cannot be done because of the existence of rulings which the claimant seeks to challenge.
- Accordingly, I reach the same conclusions as those so clearly set out by my Lord.
Order: Application granted
Published: 20/01/2012 13:44