Customer Systems PLC v Ranson & Ors  EWHC 3304 (QB)
Judgment in claims brought by employer against former employees who left to set up a rival business involving consideration of the whether there had been a breach of fiduciary duty, inducement to breach a contract and the enforceability of restrictive covenants.
Case No: HQ10X01669
Neutral Citation Number:  EWHC 3304 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
SIR RAYMOND JACK sitting as a Judge of the High Court
- - - - - - - - - - - - - - - - - - - - -
CUSTOMER SYSTEMS PLC (Claimant)
- and -
(1) JEREMY RANSON; (2) DAVID ATHERTON; (3) MARK EDMOND; (4) PATRICK OFFLAND (Defendants)
- - - - - - - - - - - - - - - - - - - - -
Martin Griffiths QC and Amy Sander (instructed by McGrigors LLP) for the Claimant
Andrew Stafford QC and Jeffrey Bacon (instructed by Sintons LLP) for the 1st Defendant
Peter Kirby and Emily Betts (instructed by Wright Hassall LLP) *for the 3rd Defendant*
Matthew Hodson (instructed by Julian Philip & Co) *for the 4th Defendant*
Hearing dates: 9-11, 14-17, 22, 23 November 2011
- - - - - - - - - - - - - - - - - - - - -
JudgmentSir Raymond Jack:
Part A Introduction1
Part B The Parties 3
Customer System plc 3
Mr Ranson 7
Mr Atherton 11
Mr Offland 12
Mr Edmond 15
Part C The claims against Mr Ranson arising from his conduct during his employment 17
The claims 18
The history 20
The law 64
The applications of the law 71
Part D The claim against Mr Ranson for inducing breach of contract 82
Part E The claims against Mr Offland 86
(1) Breach of duty by Mr Offland 87
(2) Breach of covenant by Mr Offland 98
(i) Enforceability 101
(ii) Breach of covenant 113
Part F The claims against Mr Edmond 117
(1) The Barclays claim 118
(2) Failing to inform Mr Scattergood correctly as to the work available at AstraZeneca 123
(3) Failing to inform CS of the existence of Praesto & the threat it posed in connection with AstraZeneca 131
(4) Breach of covenant132
(5) The sick pay claim 137A.**Introduction**
- In this action the claimant company, Customer Systems plc, brought claims against four of its former employees, Mr Jeremy Ranson, Mr David Atherton, Mr Mark Edmond and Mr Patrick Offland. The claims arise in connection with a company set up by Mr Ranson, Praesto Consulting UK Ltd. Praesto is not a defendant. The judgment is concerned with liability only. Such issues as arise as to remedy by way of damages or accounts of profits and of amount are to be decided subsequently. The relief sought has been monetary: no claims have been made for interim or permanent injunctions. The claims against Mr Atherton were settled very shortly before the trial of liability began.
- At the start of his opening of CS's case Mr Martin Griffiths QC outlined the claims which were made against each remaining defendant. I found that rather clearer than the pleading. It is this summary as further developed in Mr Griffiths' closing submissions which I will follow in setting out the claims in due course.
B. The partiesCustomer Systems plc
- Customer Systems plc, or CS as I will call it, is now the holding company of a group providing a specialist information technology consultancy. It specialises in customer relationship management – 'CRM' - software provided by the American software company, Siebel Systems Inc. The software product is simply called 'Siebel'. At some point the owner of Siebel became Oracle Corporation, the third largest software company in the world. In very broad terms the function of Siebel is to enable large corporations to manage and extract the huge quantities of information relating to sales and marketing which their employees place onto their computer systems. The service that CS provides is largely the adaption of Siebel to the particular needs of the client company. CS works closely with Oracle. Although CS has tried to divert into other software business, over the life of the company something like 98% of its work has related to Siebel if reporting tools connected with Siebel are included. One witness, Mr Boardman, described CS as a niche IT consultancy specialising in Siebel software product. The company is highly profitable. In its year to 31 January 2010 its profit before tax was £2.25 million on a turnover of £5.29 million. For the year to 31 January 2011 the figures were £2.730 million on £6.358 million.
- CS was founded by Mr Stephen Austen in 1998. It was then named Customer Systems Ltd. Mr Austen is the main shareholder and it is very much his company. It has offices in Chertsey in Surrey, but much of its work is done on site, that is, at the premises of its customers. A CS employee may spend a week working on site. He may also be in effect dedicated to a customer and work at the customer's premises for a year or more, tuning the software to the customer's needs on an on-going basis and solving particular problems.
- CS is a small company. I was told that there are between 30 to 40 employees at any one time. Immediately before Mr Ranson left there were 29 including Mr Austen. It aims to succeed by the ability of its employees and the quality of the service it provides. It recruits able young men usually direct from university, gives them a brief training and then allocates them to particular tasks somewhat on a sink-or-swim basis. They appear to swim. There are four grades of technical employee, that is those who actually work on the software. The lowest is application consultant, then senior consultant, then principal consultant, and finally managing consultant. The highest technical grade, managing consultant, may lead on to promotion to consultancy manager. That is a sales position with supervision responsibilities. A consultancy manager may become a divisional manager. That remains essentially a sales function but has wider responsibilities. The managing director is Mr Austen. His second in command is Mr Duncan Scattergood, who has the title 'Operations Director'. He is a director of the company. Mr Scattergood has the day-to-day management of the company under the close direction of Mr Austen. There is a financial controller with an assistant, and usually a recruitment and marketing manager with an assistant. At the date of Mr Ranson's notice of resignation, 12 January 2009, he was the only divisional manager, Mr Budd and Mr Offland were consultancy managers, there were 2 managing consultants, there were 6 principal consultants, there were 8 senior consultants and 3 applications consultants. Promotion may be swift as the progress of the defendants shows. But turnover of staff is also high. The average time a recruit stays with CS is about 4 years. The business is international and CS has provided its services in 30 countries but recently it has become increasingly focussed on the United Kingdom and the USA. It has an office in the USA which may have between 2 and 4 consultants working from it.
- When the defendants entered employment with CS, CS was the company supplying services to its customers. That position has now changed. The services are mainly supplied by a subsidiary of CS, Customer Systems UK Ltd., and it is that company which contracts with customers. Mr Austen said the aim was to provide a 'litigation buffer'. The American operation is provided through Customer Systems Inc, which is a subsidiary of Customer Systems International Ltd, which is in turn a subsidiary of CS.
- Mr Ranson is now aged 34. He graduated from Durham University with a master's degree in electronic engineering. While he was still at university he responded to recruitment material received from agents for CS and after an interview received an offer from Mr Austen dated 5 April 2001. He signed the offer on 18 April. He started work on 1 October 2001. He was then about 23. He was a success. He was good technically. He was also good at taking a wide view as to how a problem might be tackled. He was given lead roles on projects and spent periods in the United States. In October 2003 he was promoted to management consultant. In, it seems, early 2004 he was transferred to the United States as manager of CS's office in New Jersey. He and his future wife intended afterwards to move back to the north east of England, where they both came from. In early 2006, following the resignations of two consultancy managers, Mr Ranson was asked if he would like to return to England in that position. He agreed to do so and they came back to England in May 2006. Praesto was incorporated on 10 September 2007. I will return to the circumstances in due course. Mr Ranson was successful as a salesman and in early 2008 he was made a divisional manager. In the company's financial year 2008/9 he was responsible, directly or indirectly for 59% of the group's total revenue. But he could not see a satisfactory career path at CS. He wanted more of a management role. He wanted also the ability to work from his home in Darlington. His wife was living there with their first child, and working as a solicitor. During the week he was sharing a flat owned by another CS employee. The outcome was a meeting with Mr Scattergood on 5 January 2009 followed by one with Mr Austen and Mr Scattergood on 7 January. On 9 January he was offered a new role of as head of UK operations. He did not feel that this would involve him in the real management of the company. There was no movement on some working from home. On 12 January he gave notice of resignation ending on 13 February. He later agreed to extend that to Friday, 27 February. Before he left he had procured an order for Praesto signed on 25 February for work to be carried out for Diageo. He had also had an evening with Mr Boardman of AstraZeneca on 25 February. On 23 January he had extracted contact numbers from his company phone and emailed them to himself. On his last day, 27 February, he e-mailed to himself various forms used by CS. I will have to revert to these matters. Since his resignation he has carried on a successful consultancy business through Praesto providing consultancy services and competing with CS. A number of CS employees have come to work for Praesto including the other defendants.
- Mr Ranson's starting salary in 2001 was £22,500. His basic salary for 2008/9 was £62,100 with a target bonus as a percentage of sales of £35,775.
- Mr Ranson's contract with CS was drafted by Mr Austen. He plainly had some familiarity with typical contract terms. But he had taken no legal advice. He did not suggest Mr Ranson should take legal advice before signing, nor did Mr Ranson take advice. This applies as between CS and all the defendants. As with the other defendants Mr Ranson's contract remained unchanged during his employment by CS. The contract included the following terms:
In the course of your work you may be exposed to information of a confidential nature belonging to Customer Systems Ltd, its customers and its business partners. You agree to keep this information confidential. Should you cease to be employed by Customer Systems Ltd, you agree to maintain this confidentiality thereafter.Business Hours
…normal business hours are 9am to 5.30 pm….. . ..you may sometimes be required to work additional hours for which overtime will not be paid.Other employment
You may not undertake any other employment whilst employed by Customer Systems Ltd without the prior written consent of Customer Systems Ltd.Entire Agreement
This Offer Letter and Terms of employment together constitute the entire agreement between you and Customer Systems Ltd. Any prior arrangements and understandings are superseded by this agreement.'
The contract was to run until determined by notice. Mr Ranson was required to give notice of termination of one month. CS had to give notice of between one month and 12 weeks depending on the length of service. The other defendants had similar notice provisions. There were no covenants restricting what Mr Ranson did after he had ceased to be employed by CS.
- It was alleged in the particulars of claim that there was an implied term of the contract that Mr Ranson should serve CS with fidelity and in good faith. That term is well-established in the authorities and is not in dispute. A further six implied terms were also pleaded, namely to serve the interests of CS and not his own interests, to disclose his decision to compete with CS and the steps taken by him, not to compete while employed, to exploit business opportunities for CS's benefit and to disclose such opportunities, to avoid undisclosed conflicts of interest, and not to abstract or disclose confidential information during or after his employment but to use such information only for the benefit of CS. It was rightly accepted by Mr Martin Griffiths QC on behalf of CS that I should treat these six allegations as applications of the duty to serve with fidelity and good faith to the facts of the case rather than as implied terms in their own right. The position is the same in respect of the implied terms pleaded against Mr Offland and Mr Edmond. Each defendant relied on the 'entire agreement' clauses in their contracts as excluding the implication of terms. But each admitted the obligation of fidelity and good faith. So the dispute is as to the application of that duty to the facts in each defendant's case.
- The claim against Mr Atherton has been settled, but he gave evidence. He graduated from university in the summer of 2002 and accepted CS's offer of employment on 29 June 2002 – a year later than Mr Ranson. It was his first full time job. In time he became a managing consultant. From May 2007 until he left CS he worked at Thomson Reuters ending as technical architect with twenty software developers employed by Thomson Reuters working under him. By 2007 he was unhappy in that he could not advance his career at CS without moving into sales whereas he wanted to remain a technician, and because he felt CS was not advancing into new fields. Further he did not like what he saw as Mr Austen's autocratic style. He had become friendly with Mr Ranson and was involved in the setting up of Praesto in September 2007. Towards the end of 2008 an opportunity arose for him to enter employment with Reuters as a platform architect. But CS was able to bar this under the terms of the contract between CS and Reuters. In May 2009 he became concerned that the CS work at Reuters was coming to an end. He wished to leave CS. Following discussions with Mr Ranson he agreed to enter Praesto's employment. He gave notice to CS on 7 July 2009 and left on 7 August. He started with Praesto on 10 August.
- Mr Offland is the fourth defendant because he was not joined as a defendant until January 2011, the action having begun on 4 May 2010. But it is logical to take him before Mr Edmond, the third defendant.
- Mr Offland is 29. He left Oxford University in 2004 with a master's degree in engineering science. He signed his contract with CS on 5 August 2004. He worked for a large number of CS clients sometimes for as little as two to three days, some times much longer. He became a managing consultant. Between October 2006 and 31 July 2008 he worked at AstraZeneca and was the senior CS consultant with AstraZeneca. He then handed over to Mr Edmond. In the latter part of 2008 Mr Offland was asked if he wished to move up into the sales part of the business and he was made a consultancy manager at the end of the year. This was not a success. It involved a lot of cold-calling, to which he was temperamentally unsuited. He only obtained one new piece of work. He realised that his forte was in technical work, which he was no longer doing. Following discussions with Mr Ranson, which I will have to return to, on 23 March 2009 he gave notice to CS and left on 21 April. His employment by Praesto began on 27 April, although Praesto initially had no work for him. His starting salary with CS in 2004 was £22,500. As from 1 February 2009 that had become £53,400 and his target earnings with bonus and including car and pension had become £78,744.
- Mr Offland's contract with CS included terms as to confidentiality and other employment, which were in the same terms as Mr Ranson's contract. There were covenants under the heading 'non-solicitation', which I will set out when I come to consider CS's case under the covenants. There was a clause included with others under the heading 'Conduct and Capability', which provided:
'You agree to act at all times in the best interest of the company.'Mr Edmond – the third defendant
- Mr Edmond is 26. He graduated with a first in computer sciences from Liverpool University in June 2006. He signed CS's offer of employment as an application consultant on 22 December 2005 to start in July 2006. After four to five weeks in CS's office at Chertsey he was sent to America on his own to work at Novartis. In April 2007 he began a 13 month assignment at Barclays Bank in Cheshire. By May 2008 there had been a falling out between CS and Barclays. Mr Edmond then went to perform various tasks at AstraZeneca. He became technical architect at the site, taking over that role from Mr Offland. Early in 2009 Mr Edmond decided that he wanted a change of direction. He wanted to move into project management. A project manager in the sense I use it here is the overseer of an IT project, but unlike the CS consultants he is not involved in the design or the building of the software. AstraZeneca had work for Mr Edmond as a project manager but could not offer him employment. The outcome was that he joined Praesto and Praesto provided his services to AstraZeneca as a project manager. He gave notice to CS on 11 September 2009 and left on 9 October. He began with Praesto on 12 October. When Mr Edmond left CS he was a principal consultant. So he never had any major involvement in sales: he remained a technician. His starting salary in 2006 was £25,000.His basic salary for 2009/10 was £47,100 with target earnings including bonus, pension and company car of £57,444.
- Mr Edmond's contract with CS included the terms as to confidentiality and other employment which were the same as those in Mr Ranson's contract. There were very substantial provisions under the heading 'Non-solicitation/Non-competition/Proprietary techniques'. I will set out those parts relied on by CS when I come to CS' claims under the provisions. There was also a provision like that in Mr Offland's contract as to acting at all times in the best interests of the company.
C. The claims against Mr Ranson arising from his conduct during his employment by CS
- I will first describe the claims which are made, next set out the relevant history with my findings as to disputed facts, then the law, and finally I will provide my decisions on these claims in so far as they are not decided by my findings of fact.
- It is alleged against Mr Ranson that in addition to his contractual duty of fidelity and good faith he was subject to the duties of a fiduciary by reason of his position in CS. It is said that it was a breach of his duties to set up Praesto while still employed by CS and to seek business for it in competition with CS. It is said that Praesto was always intended by Mr Ranson to be a consultancy operating in competition with CS. It is said that he was bound to inform CS of what he was doing. It is said that, if he had, CS would have taken steps to prevent the diversion of business in particular that of AstraZeneca and Shire, and would have taken steps to secure its employees. The value of the business lost is put at £221,788 in respect of Shire up to 28 June 2010 but continuing, and £133,330 in respect of AstraZeneca and continuing. Alternatively an account of profits is sought. It is also said that in respect of Shire that Mr Ranson failed to pursue CS's opportunity with Shire during his employment with the object of diverting it to Praesto. It is alleged that Mr Offland played a part in that.
- As I have said, I am concerned only with liability, namely questions of breach of duty. I am not concerned with what CS might have done if it had been aware of Praesto. There is a question whether Mr Ranson may be liable personally to account for the profits made by Praesto. Praesto is not at present a party to the action, although Mr Griffiths stated that CS might apply to join Praesto following the judgment on liability. It is agreed that I am not concerned with the issues as to Mr Ranson's personal liability at this stage. It is also agreed that for the purpose of the claim against Mr Ranson of inducing breach of contract – a claim which requires proof of damage to be actionable, I should put the question of damage aside for determination subsequently.
- In 2007 both Mr Ranson and Mr Atherton were dissatisfied employees. They felt that they could not progress within the company as they would like. Mr Ranson wanted more genuine responsibility in management rather than being a senior salesman. Mr Atherton felt limited by CS's limited range of work and under paid given his very considerable technical expertise. The two had become friends and had taken to meeting on occasions for a drink after work. Most of their discussions in 2007 about what they might do as an alternative took place in a pub. At this time Mr Ranson was also looking independently for other employment. A possibility that both were considering was independent contracting. In this field an independent contractor, or simply a contractor, is a person who works on a self-employed basis for a client on a particular task under a one-off contract with the client. A contractor usually works through a company which he has formed for the purpose.
- I come to what is shown by the documents. On 5 September 2007 the name 'PRAESTOCONSULTING.COM' was registered by Mr Atherton as an internet domain. On 7 September Mr Ranson spoke to Mr Alan Davidson of Oracle about a project to be carried out for Oracle by Praesto. On 11 September he sent him an email from his private hotmail account attaching two CVs as they had discussed on the 7th. He said:
'The aim of the CV's is to give you an idea of our quality and experience. One of the CV's is for Analytics and the other for Siebel CRM resource to show the resources we have. I can provide other Siebel or other analytic resources if you think we are right for the role(s) or some resource who are skilled in both technologies. … .
Obviously any discretion you can use at this point would be very much appreciated but I realise that might be difficult.'
The CVs did not include the names of the consultants, but it is clear that one was for Mr Ranson and one for Mr Atherton. They were headed 'Managing Consultant, Praesto Consulting.' They described the experience of the two as if it had been acquired under Praesto.
- Mr Davidson replied on 14 September 2007. He said that Mr Ranson should talk to Caroline Crow. She, it appears, was in charge of professional services for Oracle. Mr Davidson went on:
'There is an immediate requirement for actuate and analytic skills. Happy for you to mention my name: I don't know Caroline but the Siebel practice managers said everything goes through her now. Looks like the project in Swindon is resourced up now, but there's always a demand. If anybody is looking to become a permy [permanent employee] they would snap them up.'
He gave Caroline Crow's telephone number and email address. It appears that Mr Davidson and Mr Ranson had had a further conversation between the two emails.
- Mr Ranson did not set out the story in his witness statement and I have only his answers to what he was asked in cross-examination as to what happened. It appears that the project for which Mr Ranson sent the CVs was the Swindon project referred to in the second email. So it went nowhere. Mr Ranson certainly obtained no work from Caroline Crow. There was no evidence that he tried to contact her.
- Meanwhile on 10 September Mr Ranson had had Praesto incorporated. The directors were Mr Atherton and himself and they split the shareholding. The strong probability is that he did this when he did with the Swindon project in mind.
- Mr Atherton's evidence – which I accept as to this, was that they had discussed the need to form a company and had considered the shareholding. He had been surprised how quickly Mr Ranson had gone ahead with the formation. He had provided Mr Ranson with his CV so it could be used if a prospect arose. He was unaware of Mr Ranson's discussions with Mr Davidson. What he had in mind was contracting: he was not interested in a consulting company. I may add that the daily rate for a contractor is commonly substantially less than a consulting company such as CS charges for one of its consultants.
- Mr Ranson did not disclose the Davidson material despite a second order for disclosure being made against him. He said this was because with Mr Davidson he had used his hotmail account. However on 1 June 2009 he had emailed to himself the email he sent to Mr Davidson and the two CVs. So he had not forgotten them then. I accept that documents which one would think would not be overlooked do on occasion get overlooked quite innocently. However, the probability must be that on this occasion it was deliberate.
- By 26 September Mr Atherton had opened two bank accounts for Praesto through his wife who worked for a bank. They were never used, and Mr Ranson set up a new account for Praesto after he left CS. At the same time he was looking into telephone numbers for Praesto.
- At about this time Mr Ranson prepared some documents which were called by Mr Griffiths 'the first business plan'. He emailed them to Mr Atherton on 3 October 2007. There were 6 pages. It included a list of target clients and of possible employees. Seven of the listed employees under the heading 'Siebel' were then employees of CS, and the other was an ex-employee. There were some sketchy financial tables for the growth of a business with up to five employees. It was a plan for a consulting business to compete with CS. It was not a plan for a two man contracting business.
- When Mr Atherton saw the plan he was disappointed. His view was that it would be unwise to start with a consulting business: they should begin by contracting. They should not look to recruit CS employees. If they did they were likely to end in court and he had very little money. That was said in the light of his view that Mr Austen aggressively pursued employees who left CS and in some way offered competition. Mr Ranson responded that the only way to make real money was to have a number of employees. Mr Atherton was less interested in money and more interested in getting away from CS and into what he called 'pastures new'.
- On 5 October 2007 Mr Ranson received possible logos for Praesto which he had ordered previously.
- Thereafter the plans for Praesto went into abeyance. Plans rather than plan is the correct word because Mr Ranson and Mr Atherton had different plans. It is likely that this difference was the major factor in Praesto being pursued no further at this point.
- During 2008 Mr Ranson's plans were in a state of flux. His wife was living in Darlington and their first child was born that October. He wanted to see more of them. He was looking for property in the south. He was looking for jobs in the north. He had money saved up so he could, if need be, be out of work for up to a year. The idea of a consulting company stayed in his mind. Praesto's internet domain was renewed on 5 April 2008.The annual return for Praesto for the year ending 11 September 2008 was duly filed. On 11 October 2008 while he was on paternity leave Mr Ranson prepared a second 'business plan' of three pages. It consisted of some sketchy financial calculations and showed what might be a loss-making business. Mr Atherton was not shown it or told about it. Mr Griffiths submitted that in recruiting CS employees to Praesto after he left at the end of February 2009 Mr Ranson was following this plan. There is a coincidence as to the rate of recruitment. But given how the opportunities to recruit in fact arose I am satisfied that the coincidence is accidental and that Mr Ranson did not have the plan in mind when recruiting.
- In July 2008 Mr Ranson had applied for a job with Deloittes in the north of England. He was offered a job in late November, but it was not the job he wanted and was at a lower level than had been advertised. He spoke to a partner who had interviewed him. He was told he could keep the offer open until the following Easter.
- Over Christmas 2008 Mr Ranson and his wife discussed the future. They decided that they should stay in the north east but that he should remain at CS provided he could arrange to have more time at home by working from home some days each week and provided he could have a career path beyond being a salesman. He had a meeting with Mr Scattergood on 5 January 2009 to that end. He went with a letter of resignation in his pocket. The meeting went reasonably well in that Mr Scattergood did not turn him down outright but said he would discuss the position with Mr Austen. At the meeting Mr Ranson played up the job offer from Deloitte suggesting that it was far better then it was. Prior to the meeting Mr Ranson had emailed the second business plan to his private hotmail address. Following the meeting Mr Ranson sent an email to his wife as to how it had gone. It referred to his wish not to burn bridges, that is, not to make it impossible to stay at CS. He said that it was up to CS whether they kept him or not.
- A meeting took place between Mr Austen, Mr Scattergood and Mr Ranson on 7 January. Mr Austen said that he very much wanted Mr Ranson to remain with CS, that he would increase his salary, and that he would give him increased responsibilities with a new job title but he could not look forward to becoming a director and would essentially remain a salesman: he would not permit him to work from home though he had no objection to Mr Ranson living in Darlington at weekends. (Mr Ranson had previously kept his Darlington home a secret because Mr Austen liked his employees to live within striking distance of Chertsey.) There was a dispute as to the cordiality of the meeting, which is unimportant, but I do not think Mr Austen showed much tact towards Mr Ranson. Afterwards Mr Scattergood prepared an improved salary package for Mr Ranson, which was approved by Mr Austen, and shown to Mr Ranson. As a result of the meeting Mr Ranson decided to leave CS. He gave notice on 12 January which made his last working day 13 February. At this time he was working on securing a £1.7 million contract between CS and Reckitt Benckiser. On 13 January he agreed to stay on until 27 February to see this through. Mr Ranson gave notice by reason of his unsatisfactory meeting on 7 January.
- On 4 February 2009 Mr Ranson was returning from a meeting with Reckitt Benckiser to which he had been accompanied by Mr Austen when Mr Austen told him that he would be very angry if after leaving Mr Ranson turned up in the industry in which he was working. I think that words were spoken to that effect. I am satisfied from the documents I have seen and the evidence which I heard that Mr Austen does like to keep a very close eye on employees who have left and tries to ensure that they do not work in positions where they might compete with CS. He also objects to employees leaving and using in a new position the skills and experience they have learnt at CS. He is of course entitled to prevent employees misconducting themselves while employed and, after they have left, to enforce such covenants as CS may have obtained provided that they are enforceable in law.
- On 20 January 2009 while on a flight returning from New York Mr Ranson created a third 'business plan' consisting of an 'action plan' and a spread sheet. The spread sheet showed earnings for Mr Ranson and Mr Atherton over a year commencing on 4 March 2007. The action plan included tasks for the two men. Among the joint tasks was to agree a contractor list. Six names were proposed, three of which were not on the list in the 2007 plan. There was also a target employee list of six, of whom only two were CS employees, James Melville, who is still at CS today, and James Coates who has left but still works for CS as a contractor. Neither Mr Atherton nor Mr Offland nor Mr Edmond were on the list. Mr Atherton was not shown the plan, nor told about it.
- During the flight Mr Ranson also extracted from his company mobile phone a large quantity of contact numbers. Some were of friends, but many were business related. He later extracted the rest of the numbers.
- I find that at some point following his resignation, probably in early February, Mr Ranson telephoned Mr Atherton (who was working at Reuters) and said he was leaving CS and asked if Mr Atherton was interested in leaving as well. He told Mr Atherton that he might be going contracting but had not fully made up his mind. Mr Atherton said he was staying put. As to the timing I record that Mr Atherton plainly features on the action plan prepared on 20 January. Either in that first conversation or in a later conversation they spoke about Praesto and Mr Atherton agreed to resign as a director and to give up his shares. His resignation is recorded as being on 16 February 2007. His shares were transferred on 24 February when he came into the CS office. Mr Atherton understood that Mr Ranson's intention was 'to go off as a one-man-band contracting'.
- Mr Alex Clothier was until the end of January 2009 employed at Reckitt Benckiser, a good customer of CS. Over two years he had worked closely with Mr Ranson and they had become friends. At the beginning of February 2009 he moved to Diageo Great Britain Limited as the 'IS director, business partner for global sales'. In anticipation of his move, on 17 December 2008 Mr Scattergood and Mr Ranson had lunch with Mr Clothier at Brown's restaurant in Windsor. It was clear that CS was interested in getting work with Diageo. It was agreed at the lunch or in a later conversation that Mr Clothier should be contacted after he had been with Diageo for about 4 weeks to see if there were opportunities for CS.
- On 21 January 2009 Mr Clothier asked Mr Ranson by email 'Can you give me a ring on a private matter?'. Mr Ranson said he could not remember what this was about. In his two witness statements Mr Clothier did not refer to it – the statements were put in evidence but he was not called. It was submitted for CS that this was concerned with the opportunity at Diageo to which I will come. I am satisfied that it was not: Mr Clothier then still had ten days to go at Reckitt Benckiser.
- When Mr Clothier started at Diageo he was immediately involved in discussions to upgrade Diageo's Siebel systems to achieve compatibility with Windows Vista. Between £4-6 million was estimated as the cost of upgrading to a compatible version. There was an urgent need to see if the existing Siebel software could be made to operate with Vista. Mr Clothier had had a similar problem at Reckitt. He knew that Mr Ranson was leaving CS and recommended him to Mr Bruhin who was coordinating the work at Diageo and was in a position to employ Mr Ranson.
- On 4 February 2009 Mr Clothier emailed Mr Ranson his telephone numbers at Diageo. Mr Ranson replied with his own personal number. He asked 'When do you need someone to do the analysis piece of work?' He said he was due to remain at CS until 27 February, but might perhaps finish earlier. Mr Clothier replied: 'I suppose we could get them to let you work on it earlier on the understanding that any work coming out of it could be potentially passed to CS. What do you think? (I guess you don't want to be managing development.)' On 5 February, the next day, Mr Clothier asked what rates Mr Ranson might charge and whether he would have a limited company. Mr Ranson responded that he was thinking of £800 per day and that his company was Praesto. On 16 February Mr Clothier asked Mr Ranson to contact him, saying he was not sure if he had left CS yet. On 19 February Mr Clothier arranged a telephone conference to introduce Mr Ranson to Mr Bruhin who was responsible for deciding who should be given a contract to assess Diageo's Siebel problem. Mr Bruhin was impressed by Mr Ranson and decided to give the contract to Praesto. A factor was that Praesto was an independent company with no tie to Siebel. On 20 February Mr Bruhin sent Mr Ranson a draft version of the proposed analysis. On 25 February Mr Bruhin signed an order to Praesto for the work. It was for 10 days at £800 per day.
- On 20 February Mr Clothier emailed to Mr Ranson 'I just dug this out again – I think Diageo may want something like this.' He attached a paper headed 'Response to Reckitt Benckiser master plan request for proposal' dated 12 September 2008. Mr Ranson responded that he would be extremely interested in doing the work and that he had people available to do it. The latter part would seem untrue. Mr Clothier replied that it was just an idea at the moment. Although Mr Ranson pursued this work, in the end he was unsuccessful.
- In 2009 Mr David Boardman was the manager of the information technology department of AstraZeneca's UK sales and marketing division. Over the 2 years before Mr Ranson left CS Mr Boardman dealt with him as the manager, as Mr Boardman put it, of the AstraZeneca account. He got to know him and they had a good rapport. Mr Ranson was his point of contact with CS, and he had met Mr Scattergood only twice prior to March 2009. He had never met Mr Austen. On 25 February, two days before Mr Ranson left CS, Mr Ranson invited Mr Boardman out to dinner. They went on to the Oxo Tower for drinks. It was an alcoholic evening. Mr Boardman already knew that Mr Ranson was leaving CS. It is obvious that at least a reason for Mr Ranson to entertain Mr Boardman was to pave the way to obtaining work from AstraZeneca after he had left CS. Nothing specific was discussed. I also find that no actual promises were made by Mr Boardman. But I am satisfied that Mr Boardman said that he would help Mr Ranson find work from AstraZeneca. That is what Mr Boardman said in cross-examination and I do not think that it went beyond that. This is confirmed by Mr Ranson's email to Mr Boardman on 4 March 2009: 'Hope things are well with you. Just a quick note so you have my new contact details. I am keen to meet up in the nearer future – is this something you are still happy to do? Do you have any time that work/don't work [sic] over the next few weeks?'
- What Mr Ranson told Mr Boardman as to his plans at this point is relevant. Mr Ranson certainly said that he was going to do some contracting work and that he had a company. Mr Boardman said that Mr Ranson also had aspirations for a consultancy – that is a larger organisation with employees, but he said it would not have been credible if Mr Ranson had said he was setting up a consultancy at that stage.
- Following further discussions with Mr Boardman, on 23 March Mr Ranson put in a proposal for some particular work. It remained in Mr Boardman's in-tray. Nor did anything else progress between Mr Ranson and AstraZeneca at this time.
- On the morning after the dinner with Mr Boardman Mr Ranson sent his brother an e-mail. It said:
'My first signed order has arrived. It is only for 10 days but I start on Monday. Also shook hands on my third deal last night.'
The order was the order from Diageo. The third deal must refer to Mr Boardman. But there was no deal at this point. The e-mail was in this respect a reflection of bravado or euphoria, and was untrue. What was the second deal? It was the matter raised by Mr Clothier on 20 February, which Mr Ranson pursued but did not succeed in getting. This e-mail was not disclosed by Mr Ranson but was found by forensic examination of his computer. Despite its apparently dramatic content it is not important because the progress of Mr Ranson's negotiations with Diageo and AstraZeneca is sufficiently documented elsewhere. It is suspicious but in this instance I am not satisfied that Mr Ranson deliberately concealed the e-mail.
- During his last day with CS Mr Ranson e-mailed to himself some invoices, time sheets and order confirmations. He wanted them so he could use the layouts for Praesto.
- On that evening Mr Ranson held a leaving party in a pub. It went well and he missed his last train. He needed a bed. He had two offers, and chose that of Mr Offland because he thought that Mr Offland's flat would be the cleaner. It was suggested that Mr Ranson had deliberately missed his train so he could recruit Mr Offland to Praesto. I have no hesitation in rejecting that. Mr Offland had earlier in the evening told Mr Ranson that he was not enjoying sales and was looking for a new job. His evidence was that in the taxi going to his home Mr Ranson said that he was thinking of starting his own consultancy and asked whether he would be interested in a role in the company. In his witness statement Mr Offland also said that at his home they discussed how the business would be structured and that Mr Offland would be head of the CRM division. He said it was a late night conversation after drinking, and Mr Ranson's ideas were flowing ahead of where he actually was. In the morning he did not know how serious Mr Ranson's plan was and he largely forgot about the conversation. In fact Mr Ranson was serious, because although he had no work for Mr Offland he had a very high regard for his ability as a technician. They had further discussions and the first e-mail between them is dated 15 March 2009.
- On 2 March 2009 Mr Ranson went to see a firm of accountants to take advice as to what needed to be done in the administration of Praesto. The accountant, Mr Waites, recorded in his manuscript notes 'Left employment last week and set up in competition. IT industry with blue chip clients.'
- I need now to go back in time to set out the facts in relation to a separate claim made against Mr Ranson in connection with Shire Pharmaceuticals. There is an overlap here with a claim against Mr Offland. Put very shortly the claim is the Mr Ranson & Mr Offland handled an opportunity of work at Shire so CS did not get work with Shire but Praesto did. I will set out the facts covering both claims.
- Shire Pharmaceuticals was not a customer of CS: it was a company which CS would have liked to have as a customer. It fell within Mr Ranson's sales 'territory' as a pharmaceutical.
- Mr Stephen Hind is employed as an IT business analyst by Reckitt Benckiser. He had become well-acquainted with Mr Ranson through CS's work for his employer. On 19 August 2008 Mr Ranson sent an email to Mr Hind:
'How's things going? You mentioned that Shire Pharmaceuticals might be looking for some Siebel help. Don't suppose you have a name down there that I might be able to call to introduce Customer Systems? No problem if you don't know or can't give me a name.'
Mr Hind replied that he would ask a friend of his, Stuart Mackintosh. Mr Mackintosh worked as an IT contractor at Shire. He had said that Shire were reducing employees working on Siebel and taking on more contractors. Neither Mr Ranson nor Mr Hind could remember whether anything further happened. The probability is that it did not lead to Mr Ranson getting a name to contact at Shire. For if he had, he would have followed it up and it is reasonably clear in the light of what did happen that that did not happen. I am satisfied that in pursuing this with Mr Hind, Mr Ranson was acting in the interests of CS and did not have his own interests as a possible competitor of CS at some future time in his mind at all. It is possible that Mr Ranson briefly discussed Shire with Mr Scattergood at this time. No notes were taken.
- On 19 November 2008 there took place what was called 'the Oracle marketing event'. It was held at Tate Modern and was attended by representatives of various companies and was a contact-making opportunity for CS. It seems that four CS representatives attended including Mr Austen, Mr Scattergood and Mr Offland. Afterwards Mr Austen circulated his notes as to whom he had met and he asked the others to make their own contributions. Mr Offland had briefly met Mr David Brown of Shire, and he made a note about him saying that Mr Brown was interested in business intelligence, namely the process of extracting information from that on computer systems. Mr Offland had not obtained any direct contact details for Mr Brown.
- On 15 January 2009 Mr Boardman emailed Mr Ranson from AstraZeneca saying 'I've spoken to David Brown and he is interested in getting involved in the pharma group. Can you include him on your invite list.' Contact details were given. The email suggests that Mr Ranson had asked Mr Boardman to get in touch with Mr Brown to see if he would like to join the group. The 'pharma group' was a group of pharmaceutical companies using Siebel organised by CS. The meeting was scheduled possibly for 25 February. On 19 January Mr Ranson informed Mr Scattergood of the invitation list for the meeting. It included 'Shire (David B)'. So Mr Ranson assumed that Mr Scattergood was familiar enough with the name to know who was referred to. That suggests Mr Brown had been previously referred to between them. In the passage in Mr Scattergood's statement setting out CS's case in relation to Shire, this email is not mentioned.
- On 10 February 2009 Mr Ranson emailed to Mr Offland (who was taking over much of his territory) a document he called 'Handover doc – draft 1'. He divided pharmaceutical clients into three categories: Hot leads/clients, Prospects and Other. Shire came under Prospects. Mr Ranson wrote:
'I have not spoken to this crowd but heard on the grapevine that they were having problems with their implementation after an IBM bodge job. Patrick [Offland] has already spoken to the key contact [i.e. at the November Oracle meeting].
Dave Boardman knows the ex-Accenture chap on site and has invited him to the Special Interest Group forum [the pharma group meeting]. I think that is the right opportunity to speak to this prospect. If the SIG [i.e. the meeting] is delayed any more then I think this chap needs a call.'
Mr Ranson did not copy Mr Scattergood in on the email. I do not think that there was anything sinister in that. Mr Scattergood saw it and discussed it with Mr Offland at a meeting. I am satisfied that in this document Mr Ranson was carrying out his duty to inform Mr Offland in good faith. He was not seeking to conceal anything. He was not seeking to keep CS away from Mr Brown until he had resigned and Praesto was under way. One important factor is the expression of his view that, if the meeting was delayed, a call should be made to Mr Brown. Mr Ranson was not at this point thinking of employing Mr Offland: Mr Offland was not on the 'employee target list' included in the third 'business plan'. Mr Ranson had not spoken to Mr Offland about what he might do when he left CS, and Mr Offland had no knowledge of Praesto.
- On 17 February 2009 Mr Ranson copied to Mr Offland his email from Mr Brown of 15 January with Mr Brown's contact details.
- On 24 February 2009 Mr Ranson emailed to Mr Scattergood an action list for his accounts as Mr Scattergood had asked. His 'territory' had been divided between Mr Offland and Mr Scattergood and the email divided the tasks between the two. Item 5 for Mr Offland related to Shire. It stated 'Chase Shire if the Pharma User Group is not sorted by Mid March.' An email of 22 February from Mr Scattergood to a Mr Hugh Murphy shows that Mr Scattergood then had in mind that the User Group would meet in 'late March/April'.
- Since Mr Offland had become a consultancy manager he had been closely supervised by Mr Scattergood and they talked frequently. It was put to him in cross-examination that Mr Scattergood had asked him to speak to Mr Brown and he had deliberately not done so. He said that it was plausible that Mr Scattergood had asked him to do so: he did not remember. He said he had a long list of cold calls to do at that time, and could not remember whether he tried to speak to Mr Brown. He did know that they did not speak. He could not remember any further conversation with Mr Scattergood about Mr Brown, but he would not have told him a lie. Mr Scattergood's evidence was that Mr Offland had told him that he had tried Mr Brown but had failed to get through to him. I accept Mr Offland's honesty in the witness box in relation to this, and his good faith in how he acted at the time. I accept that Mr Scattergood and Mr Offland did discuss Shire at this time. Mr Scattergood therefore knew what the position was. Mr Offland did not include Shire in his handover discussions with Mr Budd because Mr Scattergood was dealing with the matter. That also confirms that Mr Offland and Mr Scattergood had together considered what was to be done. It was not until 18 May that Mr Scattergood instructed Mr Budd to call Mr Brown. CS was unsuccessful in getting work from Shire. On 16 September 2009 Mr Scattergood e-mailed Mr Austen that Shire 'have never been a customer/serious prospect.'
- As I have related Mr Ranson first talked to Mr Offland about Praesto on the night of his leaving party, 28 February 2009. Discussions between them continued in March. Mr Offland gave notice to CS on 23 March. In an email to Mr Offland of 18 March Mr Ranson listed Shire among seven 'more uncertain' prospects for Praesto. The purpose was to encourage Mr Offland to move to Praesto. Mr Ranson had not then approached Shire. He did so by telephone to Mr Brown on 8 April. (I note that Mr Brown's number was not one of those extracted by Mr Ranson from his CS mobile phone.) This followed information given to him by Mr Hind that Shire was looking for Siebel contractors. I accept that Mr Hind gave this information in that April. He had given the same tip to another contact of his, Paul Harris, by email, and he had been able to check the date of that. I deduced that he had done this after he had made his witness statement which is imprecise as to timing. Mr Ranson had first telephoned Mr Hind soon after he left CS to ask him about the possibility of work at Reckitt Benckiser. Mr Ranson met Mr Brown on 23 April. Mr Offland came onto Praesto's pay roll on 27 April. Initially Mr Ranson had no work for him. Mr Offland worked at Shire without charge on 8, 9 and 10 June. This went well and Mr Offland began work at Shire on a paid basis on 24 June. Praesto have earned substantial sums from Shire.
- The allegation against Mr Ranson in respect of Shire is that he intentionally kept the 'opportunity' at Shire in a low profile while he was still employed by CS and arranged that it should not be pursued on behalf of CS but should be diverted to Praesto. I find that this simply did not occur. The case fails on the facts. I find that both men acted in good faith at CS in dealing with the Shire 'opportunity'. It is alleged against Mr Offland that in breach of his duty to carry out his functions with due skill he failed to exploit the Shire opportunity. That allegation also fails on the facts.
- There is a separate claim against Mr Offland that his duty to CS obliged him to inform CS of the threat of Praesto and that Praesto was seeking business from Shire. I will deal with this when I come to the other claims against Mr Offland.
- A large number of cases were cited as to the law relating first to what, during his employment, an employee may do and may not do with the aim of competing with his employer after he has left, and, second, as to his duty to inform his employer of any wrongdoing. As to the first there is an interplay between two concepts. One is that an employee should be free to prepare for his future after his present employment while still employed and should be free to compete with his employer after ending his employment. The other is that while employed he should serve his employer's best interests. As to the duty to inform of wrongdoing, historically the law began with the position that an employee is not under a duty to report his own wrongdoing but the law has moved substantially from that to find such a duty to report in many situations. I will keep my citation of authority to the minimum necessary to make clear my conclusions.
- In University of Nottingham v Fishel  ICR 1462 Elias J provided an often cited analysis of the nature of fiduciary duty and its distinction from the contractual duty of fidelity and good faith in the context of an employee who obtains contracts for his own benefit while employed.
- In Sybron Corporation v Rochem  Ch 112 the defendant in question was the company's European zone controller. He had, with others, set up companies which traded in competition with Sybron taking its business as part of a massive conspiracy to defraud. The Court of Appeal held that by reason of his position he was, by his contractual duty, bound to report the wrongdoing of his fellow employees even though it revealed his own misconduct.
- In Item Software (UK) Ltd v Fassihi  ICR 450 the Court of Appeal examined the duty of a director to report his own wrong. While the employer was negotiating a contract, the employee, a director, had approached the customer to divert the contract to his own company. Neither secured the contract. It is, of course, long-established that a director is a fiduciary towards his company. The court held that a director was subject to a fundamental duty of loyalty requiring him to act in what he, in good faith, considered to be the best interests of the company, and that as the director could not have but known it was in the company's interest to know of his breach of duty, he should have revealed it. The court said that it was unnecessary to consider to what extent an employee has a duty to disclose his own misconduct.
- In Helmet Integrated Systems Ltd v Tunnard  FSR 16 the employer manufactured helmets for fire fighters. The defendant employee was a salesman with responsibility for helmets in the civil market. In 2001 he conceived an idea for a new kind of helmet. He approached an industrial designer and secured a government grant. Two months after leaving his employment he set up a company to exploit the new design. In giving the leading judgment in the Court of Appeal Moses LJ stated in paragraph 28 that it should not be thought that 'the mere fact that activities are preparatory to future competition will conclude the issue in the employee's favour. The authorities establish that no such clear line can be established between that which is legitimate and that which breaches an employee's obligations.' It was crucial to identify the employee's obligations and only then to consider whether the employee's activity had broken them. Turning to fiduciary duty he stated in paragraphs 36 and 37:
- "It is commonplace to observe that not every employee owes obligations as a fiduciary to his employer. An employee owes an obligation of loyalty to his employer but he will not necessarily owe that exclusive obligation of loyalty, to act in his employer's interest and not in his own, which is the hallmark of any fiduciary duty owed by an employee to his employer. The distinguishing mark of the obligation of a fiduciary, in the context of employment, is not merely that the employee owes a duty of loyalty but of single-minded or exclusive loyalty. The decision of Elias J in University of Nottingham v Fishel & Anr  ICR 1462 provides the clearest analysis of the distinction between the duty of fidelity which every employee owes and a fiduciary duty which requires an employee to act solely in the interest of his employer and not in his own interest, still less the interests of anyone else. Care, as Elias J remarks, must be taken not to equate the duty of good faith and loyalty owed by every employee with a fiduciary obligation (see page 22). Unless that distinction is maintained common law rules of causation and remoteness of damages may be:-
"miraculously sidestepped by intoning the magic formula (breach of fiduciary duty)" (see Lord Millett in "Equity's Place in the Law of Commerce" (1998) 114 LQR 214 at 217).
- Elias J's decision is not only of importance in distinguishing between an employee's implied duty of loyalty and a fiduciary obligation but also in identifying how a fiduciary relationship might be established. I can do no better than recite Elias J's statement of principle:-
"…in determining whether a fiduciary relationship arises in the context of an employment relationship, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interest of his employer. It is only once those duties have been identified that it is possible to determine whether any fiduciary duty has been breached."
The employee's contract included an obligation to 'advise on competitor activity' and Moses LJ accepted that if it had been a third party devising the new helmet it would have been the employee's duty to report that. He also accepted, though with more difficulty, that if the employee had used such information involving a third party for his own benefit, he would have been in breach of a fiduciary obligation. He said:
"45. I am prepared to go thus far because HISL would have no control over how Mr Tunnard deployed what he had learned as a salesman, and would be dependent upon him to pass on the information. Were it not so, the employee could pick or choose what he did or did not pass on. Thus HISL would be vulnerable to any misuse of such information, the dissemination of which was outside the employer's control. Such vulnerability is what Lord Millett described (op.cit. 219) as a "defining characteristic" of a fiduciary relationship. To obtain and then divert the benefits of such information seems to me closely analogous to the condemned activities of the director, Fassihi."
But he held that there the employee, Mr Tunnard, was under no obligation, fiduciary or otherwise, to inform the employer of what he had done. First the job specification did not restrict his freedom to prepare for competition on leaving. Second, he was under no relevant fiduciary obligation. He was entitled to take preparatory steps to assess the viability of his proposed competition. He owed no relevant fiduciary obligation because he had a right to prepare for future competition, which was not restricted by his contract. It is clear that the decision would have been in favour of the employer if the activity of the employee in question had concerned sales, or if he had been employed as a designer.
- In Shepherds Investments Ltd v Walters  FSR 15 at 395 Etherton J had to consider whether preparatory acts carried out by directors were in breach of their fiduciary duty. He stated in paragraph 108 of his judgment:
"108. What the cases show, and the parties before me agree, is that the precise point at which preparations for the establishment of a competing business by a director become unlawful will turn on the actual facts of any particular case. In each case, the touchstone for what, on the one hand, is permissible, and what, on the other hand, is impermissible unless consent is obtained from the company or employer after full disclosure, is what, in the case of a director, will be in breach of the fiduciary duties to which I have referred or, in the case of an employee, will be in breach of the obligation of fidelity. It is obvious, for example, that merely making a decision to set up a competing business at some point in the future and discussing such an idea with friends and family would not of themselves be in conflict with the best interests of the company and the employer. The consulting of lawyers and other professionals may, depending on all the circumstances, equally be consistent with a director's fiduciary duties and the employee's obligation of loyalty. At the other end of the spectrum, it is plain that soliciting customers of the company and the employer or the actual carrying on of trade by a competing business would be in breach of the duties of the director and the obligations of the employee. It is the wide range of activity and decision making between the two ends of the spectrum which will be fact sensitive in every case. In that context, Hart J may have been too prescriptive in saying, at paragraph  of his judgment, that the director must resign once he has irrevocably formed the intention to engage in the future in a competing business and, without disclosing his intentions to the company, takes any preparatory steps. On the facts of British Midland Tool, Hart J was plainly justified in concluding, in paragraph  of his judgment, that the preparatory steps had gone beyond what was consistent with the directors' fiduciary duty in circumstances where the directors were aware that a determined attempt was being made by a potential competitor to poach the company's workforce and they did nothing to discourage, and at worst actively promoted, the success of that process, whereas their duty to the company required them to take active steps to thwart the process.
- In the present case, I find that by 12 August 2003, when Mr
**Walters was in contact with Soloman Harris, all the individual defendants had formed the irrevocable intention to launch the business now being carried on by Assured and PSL."
- In Towers v Premier Waste Management Limited  EWCA Civ 923 the Court of Appeal had to consider the position of a director who had borrowed equipment for his personal use from a customer. In giving the leading judgment Mummery LJ stated in paragraph 10:
"10. Thus a director's liability for disloyalty in office does not depend on proof of fault or proof that a conflict of interest has in fact caused the company loss: Foster Bryant Surveying Ltd v Bryant  EWCA Civ 200. A director's potential conflict of interest may arise, for example, in connection with a business opportunity. If a director obtains the opportunity for himself, he will be liable to the company for breach of duty regardless of the fact that he acted in good faith or that the company could not, or would not, take advantage of the opportunity."
Coming to his decision on the facts of the case he stated in paragraphs 48 and 51:
- "In my judgment, the submissions miss the point. The applicable duties are of a director's loyalty to the Company and the duty to observe the no conflict principle, which embrace a duty not to make a secret profit for himself. The no conflict duty extends to preventing Mr Towers from disloyally depriving the Company of the ability to consider whether or not it objected to the diversion of an opportunity offered by one of its customers away from itself to the director personally."
- "The "commercially sensible" defences set up by Mr Quiney to the breach of the undivided loyalty duty also miss the point: the strict duty of loyalty and no conflict duties were breached by Mr Towers. The absence of evidence that the Company would have taken the opportunity, or has in fact suffered any loss, or that Mr Towers or Mr Ford had any corrupt motive or that, if there had been no free loan, Mr Towers would have hired that sort of equipment in the market; the fact that the value of the benefit to Mr Towers was small and that Mr Ford received no benefit from it; the fact that Mr Rafter and not Mr Towers dealt directly with Mr Ford and was the prime mover: none of those matters supported the contention that there was no breach of the duty of loyalty or the no conflict duty."
- In the present case in 2009 Mr Ranson was the only person in CS with the title of divisional manager. He had eight technicians reporting to him. He was responsible for a large proportion of the company's sales. He may have been the third most important person in the company – I am unsure of the importance of the financial controller, who attended board meetings. Nonetheless Mr Ranson was carefully supervised by Mr Scattergood with important decisions going to Mr Austen. Mr Ranson had limited discretion in the terms he could offer clients. Taking all the evidence I heard together there was a clear contrast between the management roles played by Mr Austen and Mr Scattergood and the rest of the employees including Mr Ranson. I conclude that it would be wrong to hold that Mr Ranson was in a fiduciary position in all matters in the same sense that a director is. It is necessary to look at the particular situations to see first if he was there in breach of his contractual duty of fidelity, and second whether he was under a fiduciary duty which he also broke.
- The case of CS is that the whole of Mr Ranson's activity in connection with Praesto commencing in 2007 with the discussions with Mr Davidson of Oracle and the setting up of the company through to the end of February 2009 with his dealings with Diageo and his evening with Mr Boardman was in breach of his contractual and fiduciary duties. It is alleged that what he did was a breach of those duties and that it was a breach of those duties not to inform CS of what he was doing.
- Some reconstruction in addition to the facts I have set out is necessary to establish what was happening in 2007. Mr Ranson and Mr Atherton were considering leaving CS and they had discussed setting up as contractors. Mr Ranson thought that the real money was in consulting. An opportunity somehow arose for some contracting work through Mr Davidson. Mr Ranson's emails to Mr Davidson were sent out of office hours. He was not asked when they spoke by telephone. Mr Ranson was keen to take the opportunity and so Praesto was incorporated, the internet domain was set up and the bank accounts were opened. But the opportunity disappeared almost immediately. Mr Davidson gave Mr Ranson the direct line for Caroline Crow of Oracle Professional Services. But Mr Ranson did not follow it up. The first business plan followed. It was for a consulting business. Mr Atherton was against it. Their ideas of leaving CS and setting up together were dropped. So it might all be described as a damp squib.
- Were it not for the communications with Mr Davidson I would hold that Mr Ranson and Mr Atherton were entitled to discuss plans for the future, whether as contractors or consultants and to set up Praesto as a potential contracting company. Mr Ranson was not obliged to inform CS. The real issue is whether Mr Ranson was in breach of his duties to CS to discuss with Mr Davidson as he did, and, perhaps more importantly so far as damages are concerned, whether he should have told CS. Mr Ranson admitted in cross-examination that CS probably would not have approved of what he did, but that does not really help in answering the question. Nor were the issues relating to this period much considered in submissions, probably because those relating to February 2009 are so much more important. I have concluded that, taking full account of Mr Ranson's position in CS at this time, he was in breach of his duties. I think that while he may have been entitled to see what opportunities there were in a general way, by sending the CVs and applying for work for Praesto he was in breach of his duties as CS's most senior manager of sales. I hold that in dealing with sales he was in a fiduciary position not because he had a wide discretion in making a contract (he did not) but because he dealt with customers and CS had no means of controlling what he did with information he received. I refer to paragraph 45 of the judgment of Moses LJ in Helmet Integrated Systems Ltd v Tunnard, quoted above. I conclude that there were breaches of the contractual duty of loyalty and of fiduciary duty. I think that Mr Ranson should have told CS that he was seeking a piece of work from Oracle. It was an opportunity for a contractor, but that does not mean that it should not have been investigated whether CS could have got some work out of it. It is no answer that the opportunity quickly came to nothing because the duty to inform CS arose at the time that Mr Ranson was seeking to use the opportunity for his own benefit.
- I do not consider that Mr Ranson was in breach of his duty in connection with the second and third 'business plans'. He was entitled to plan a competing business. He had no fixed intention as to his future until after he had given in his notice. I find that his intention when he gave in his notice was not firmly fixed but was moving in the direction of doing contracting work with the idea of developing that into a full consultancy as and when the opportunity arose. By the time he was in discussion with Mr Clothier that was the route he had decided upon.
- In anticipation of Mr Clothier's move to Diageo Mr Scattergood and Mr Ranson had had lunch with him the previous December and then or soon after it had been agreed with Mr Clothier that CS, no doubt - as it was then thought - through Mr Ranson, would get in touch with him after he had been at Diageo for four weeks to see what opportunities there were. But what happened was that sooner than that Mr Clothier and Mr Ranson were discussing opportunities for Mr Ranson and Praesto. Mr Ranson's case is that the work which was the subject of the order was offered to him and that it was not available for CS. Mr Andrew Stafford QC submitted that diversion of the work from CS to Praesto was crucial. But Mr Ranson was the man with whom Mr Clothier dealt at CS. Mr Ranson could not properly use his relationship as he did without informing CS: his duty as divisional manager in charge of a high proportion of sales was to inform CS and let them decide. It does not assist Mr Ranson that his sales duties were reducing as Mr Offland took over or that Diageo was not within his 'territory'. Mr Ranson's position is here not materially distinct from that of the director defendant in Towers.
- I am satisfied that the situation with Mr Clothier was one in which fiduciary duties arose. They were broken when Mr Ranson did not inform CS of the opportunity for which he obtained an order, and of the opening with which Mr Clothier provided Mr Ranson on 20 February. He was also thereby in breach of his contractual duty of loyalty. That could be put more simply that it was his duty as someone employed to pursue sales to report these opportunities because of his self-interest in them.
- If Mr Ranson had performed his duty in connection with these opportunities, what would he have been obliged to report to CS? The fact that he was looking at the opportunities might well have told CS sufficient about his intentions after he had left. I do not, however, consider that he was obliged to inform CS expressly that he was thinking of developing a fully competing business.
- Mr Ranson's dinner with Mr Boardman was two nights before he left CS. Nonetheless it is the fact that he used the occasion to canvass Mr Boardman for work in competition with CS, and that he was then still employed by CS with the duties I have referred to. For the reasons I have stated in relation to his dealings with Mr Clothier, he was in breach of his contractual & fiduciary duties in canvassing Mr Boardman and in not informing CS of what he was doing.
- It was a breach of Mr Ranson's contractual duty of loyalty and good faith for him to transfer the business contacts from his company mobile phone for the purpose of using them in the business of Praesto. Having wrongly extracted them, he was under a fiduciary duty not to use them for any purpose contrary to CS's interests. I find that the likelihood is that in breach of that duty he used some of the numbers in the business of Praesto. The evidence does not enable me to be more specific.
- Mr Ranson was similarly in breach of his duty by copying the invoices, the time sheets and order confirmations. In further breach he used them to provide forms for Praesto.
D. The claim against Mr Ranson for inducing breach of contract.
- It is alleged that Mr Ranson induced Mr Offland to breach his contract with CS when he sent Mr Offland to work at Astra Zeneca in the autumn of 2009. I will deal with the primary issue, whether Mr Offland was in breach of an enforceable covenant by working at Astra Zeneca when I deal with the claims against Mr Offland. But my conclusion there is that the covenant in question was unenforceable as an unreasonable restraint of trade. So what follows is only relevant if that conclusion is wrong.
- It is accepted that Mr Ranson had sufficient knowledge of the covenant. But it is said that he did not have the necessary intent because he was aware that there were questions as to the enforceability of the covenants in the circumstances. He had taken no formal legal advice: his wife is a solicitor but does not practice in this field. He had also heard some chat about someone who had taken advice on a similar clause. I consider, however, that the position can be no different to that which would exist if he had taken advice and been told that the court might or might not hold Mr Offland in breach of his contract.
- I can take the law from the judgment of Lord Hoffman in OBG Ltd v Allen  AC 1. Under the heading of 'Inducing breach of contract: elements of the Lumley v Gye tort Lord Hoffman stated:
"39 To be liable for inducing breach of contract, you must know that you are inducing a breach of contract. It is not enough that you know that you are procuring an act which, as a matter of law or construction of the contract, is a breach. You must actually realize that it will have this effect. Nor does it matter that you ought reasonably to have done so. This proposition is most strikingly illustrated by the decision of this House in British Industrial Plastics Ltd v Ferguson  1 All ER 479 , in which the plaintiff's former employee offered the defendant information about one of the plaintiff's secret processes which he, as an employee, had invented. The defendant knew that the employee had a contractual obligation not to reveal trade secrets but held the eccentric opinion that if the process was patentable, it would be the exclusive property of the employee. He took the information in the honest belief that the employee would not be in breach of contract. In the Court of Appeal  4 All ER 504 , 513, MacKinnon LJ observed tartly that in accepting this evidence the judge had "vindicated his honesty … at the expense of his intelligence" but he and the House of Lords agreed that he could not be held liable for inducing a breach of contract.
40 The question of what counts as knowledge for the purposes of liability for inducing a breach of contract has also been the subject of a consistent line of decisions. In Emerald Construction Co Ltd v Lowthian  1 WLR 691 union officials threatened a building contractor with a strike unless he terminated a subcontract for the supply of labour. The defendants obviously knew that there was a contract—they wanted it terminated—but the court found that they did not know its terms and, in particular, how soon it could be terminated. Lord Denning MR said, at pp 700–701:
"Even if they did not know the actual terms of the contract, but had the means of knowledge—which they deliberately disregarded—that would be enough. Like the man who turns a blind eye. So here, if the officers deliberately sought to get this contract terminated, heedless of its terms, regardless whether it was terminated by breach or not, they would do wrong. For it is unlawful for a third person to procure a breach of contract knowingly, or recklessly, indifferent whether it is a breach or not."
41 This statement of the law has since been followed in many cases and, so far as I am aware, has not given rise to any difficulty.'
- In my judgment it follows from this statement of the law that, if an employer takes a chance on whether his employee will be in breach of covenant in carrying out particular work which the employer requires him to do, and it is found that the employee is in breach, the employer is liable for inducing the breach. He was reckless. It does not alter the position that the employer had no means of ascertaining his position with certainty short of a decision by the court. So, if the covenant had been enforceable, I would have found Mr Ranson liable for inducing a breach of it.
E. The claims against Mr Offland
- In his written closing submissions Mr Griffiths listed three heads of claim against Mr Offland. They were:
(1) his failure to alert CS to the existence of, and the threat posed by, Praesto while he was still employed by CS;
(3) Breach of his restrictive covenant.
It is convenient to take the first two together under the heading of breach of duty.Breach of duty by Mr Offland
- I have dealt with the case against him in relation to Shire in paragraphs 52 to 62 above as part of my consideration of the claim against Mr Ranson relating to Shire. I found that he was not in breach of his duty. That part of the claim relating to Shire fails.
- It will be remembered that Mr Offland has a very high technical ability but when promoted to consultancy manager in December 2008 found that the sales function did not suit his ability nor was to his liking. Because he was new to sales and was finding it difficult he was always closely supervised by Mr Scattergood. He had only been promoted to managing consultant, the highest technical role, during 2008. As consultancy manager his 'territory' included 'all non-North American and non-Australia/NZ pharmaceuticals'.
- Mr Offland was unaware of what Mr Ranson intended to do after he had left CS until Mr Ranson's leaving party on the day he left. I have dealt with that in paragraph 50. In the second week of March 2009 Mr Ranson began his recruitment of Mr Offland to Praesto. The first email between them was on 15 March. It concerned the notice Mr Offland had to give CS. It included 'Assuming you can sort what we discussed last week, do you want to grab a beer later in the week.' I am unable to make any finding as to what that referred to save that I do not think that it referred to work which Mr Ranson might have. On 18 March they met and Mr Ranson gave Mr Offland his proposed terms as to remuneration. Later that evening Mr Ranson sent Mr Offland an email titled 'Prospects'. It was evidently sent to reassure Mr Atherton as to Praesto's ability to provide work. The first heading was '90 – 100% likely' and included for May '50 – 100 days at AstraZeneca certain'. By email on 19 March Mr Ranson discussed how Praesto's income might be split and on 20 March he offered a 5% shareholding. The email of 19 March and Mr Offland's reply discussed what Mr Offland should say to CS about his future intentions when he left and the possibility of lies. This was in the context that Mr Austen had a reputation for being aggressive with employees who were leaving, as I have mentioned. It was also in the context that Mr Offland then anticipated that he would be working for Praesto at AstraZeneca in April – that did not occur: Praesto did not obtain work at AstraZeneca until the autumn. On 23 March Mr Offland gave notice to CS of termination of his employment on 21 April. He also sent an email to Mr Ranson as follows:
'Just wanted to make you aware that my CS contract has a clause about not working for past and present clients I have been personally involved with for 12 months after leaving CS. As I am currently managing the AZ account at CS which puts me in a bit of professional and ethical quagmire. We can talk about this further this evening if that is okay by you.'
- On 3 April 2009 Mr Ranson sent Mr Offland a two page draft proposal to AstraZeneca Global in Manchester asking for his comments. CS had previously done work for AstraZeneca Global in Manchester but it was not a current customer. AstraZeneca in Luton for which Mr Offland was responsible was an important CS client. The proposal described work done by Mr Offland at AstraZeneca as if it was done by Praesto. Mr Offland made some amendments to it. It Sought to obtain work for Praesto on something called the Quattro Project. The proposal was wholly unsuccessful, and Praesto did not get work from AstraZeneca Manchester.
- On 17 April Mr Offland sent Mr Ranson his comments on Praesto's proposed quotation for a training course at Reckitt Benckiser. Mr Offland knew Reckitt was a CS client but he did not know that CS were also quoting for the course. As it turned out CS got the contract and Praesto did not.
- If Mr Offland had simply been told by Mr Ranson that Praesto was seeking work at AstraZeneca, that would have raised the question whether an employee who learns of confidential matters relating to competition from a potential new employer is bound to pass the information to his existing employer. In Tullett Prebon plc v BGC Brokers LP  IRLR 420 at paragraph 42 Maurice Kay LJ suggested in an obiter passage that such an employee would be in breach of confidence to the second employer if he did. But what Mr Offland did here went beyond the receipt of information about Mr Ranson's intentions. He assisted Mr Ranson in seeking business from AstraZeneca while he was still employed by CS in a sales capacity.
- For the reasons which I have set out in relation to Mr Ranson and are the stronger in relation to Mr Offland (by reason of Mr Offland's lower position in CS), I do not think that Mr Offland is to be treated as a fiduciary in the same way as a director. However he is to be treated as a fiduciary in appropriate circumstances. Such circumstances arose when he assisted Praesto as I have set out in relation to AstraZeneca. His conduct put him in a clear position of conflict and in breach of his fiduciary duty as well as his contractual duty of fidelity and good faith. He was obliged, at least by his fiduciary duty, to inform CS of what he was doing.
- The position in respect of the training course at Reckitt Benckiser is complicated by the fact that it is not pleaded. Mr Griffiths said in opening that it was part of the claim against Mr Offland but its relevance was as to the obligation on Mr Offland to inform CS of the threat Praesto posed. In his oral closing submissions he said that it was not pleaded but supported CS's case as to the maturity of Praesto and Mr Offland's obligation to tell CS what he knew about Praesto. Because of this I should not consider Mr Offland's assistance to Praesto on its Reckitt training course bid and his failure to inform CS of that assistance as a breach of his duty to CS. That was not pleaded and CS deliberately chose not to put its case in that way. So, artificial as it may seem, I must put that out of consideration.
- As I have held that Mr Offland was in breach of his duty in assisting Praesto in its bid to AstraZeneca Global in Manchester and that he should have informed CS, it may not be important whether he had an independent duty to inform CS about Praesto. I bear in mind that what Mr Offland learnt about Praesto was learnt in the course of seeking employment from Praesto. In my judgment and as stated by Maurice Kay LJ in Tullett the law should recognise the need for an employee to seek new employment without coming under a duty to inform his employer of what he may learn in confidence while doing so. There can be no doubt that it was implicit in the discussions between Mr Ranson and Mr Offland that Praesto's selling opportunities were confidential. I have to bear in mind the position which Mr Offland held as a consultancy manager in CS, as I have described. Mr Griffiths submitted that the employee's duty to his current employer must always defeat any duty of confidence to the new employer. I do not think that this is an answer. That is because an employer must be taken to accept that an employee is free to seek new employment and that in the course of doing so he may be entrusted with information in confidence. I think that, as so often, the answer in a particular case must turns upon the particular circumstances. The express terms of the contract of employment are important. I should not attempt to state the law as it may apply in relation to all employees ranging from directors to persons in modest positions in a sales office. I conclude that in the present case, provided he did nothing to assist Praesto in competition with CS, Mr Offland was entitled to receive information about Praesto and its prospects without coming under a duty to inform CS. So in my judgment Mr Offland did not owe a duty to inform of 'the threat posed by Praesto'. I refer to a duty by reason of his contractual duty of fidelity and good faith and to his limited potential fiduciary duties.
- In the same limited way that CS relied on the facts relating to the Reckitt training course CS relied on Mr Offland's supply to Mr Ranson of the contact details for Mr Whitwell of Ruleburst on 30 March 2009. Mr Ranson had asked Mr Offland to do this because Mr Ranson had been asked by a former CS employee, Mr Versluys, to help him by providing a contact. I will not take up time describing this matter more fully. I accept what Mr Offland says in paragraph 30 of his first witness statement. There is nothing in the allegation.
- On 14 April 2009 Mr Ranson provided Mr Offland with a list of things to do when he started with Praesto on 27 April. One task was to make a list of his contacts. Mr Offland was entitled to do that once he had left CS.
- Mr Offland's contract with CS contained three covenants under the heading of 'Non-solicitation'. CS relies on the third:
'During your employment with Customer Systems and for a period of one year afterwards you undertake not to be employed directly or indirectly by any present or past customer of Customer Systems with which you have been personally involved in the course of your employment by Customer Systems.'
'Customer Systems' refers to Customer Systems plc.
- The case of CS is that by working as an employee of Praesto at AstraZeneca starting in October 2009 Mr Offland was in breach of the covenant. Damages are claimed, which relate to the amounts billed by Praesto.
- Mr Offland's case is that the covenant is void as an unreasonable restraint of trade and that in any event it was not broken.
- The principles are well-established and were not in dispute. To be enforceable a covenant which is in restraint of trade must be reasonable as between the parties and in the public interest. It will only be reasonable if it protects an interest of the employer which it is legitimate for him to seek to protect. The enforceability of the covenant is to be judged at the time it was made: it is either enforceable or unenforceable from the start. The burden is on the employer to establish that it is reasonable. The court should not seek to strike down a covenant freely entered into by looking for unlikely events or taking a technical construction, but in appropriate circumstances should take the construction which upholds the covenant. That is a brief and no doubt imperfect summary.
- Two interests were relied on by CS in its evidence. One was what is conveniently called 'customer connection' and relates to the connection which the employer has with a customer through the employee. The employer is vulnerable to the employee taking the customer with him when he goes to a new employer, and the employer is entitled to take an appropriately limited covenant to prevent that happening. I accept that this was the situation here. Thus employees of CS often spent long periods working at the premises of CS's customers and would establish strong personal relationships with the customer. The second interest identified by Mr Austen was the need to preserve a stable work force. That can be an interest which the employer is entitled to protect. Thus an appropriate covenant to prevent ex-employees from soliciting other employees to leave will be valid in appropriate circumstances. But this covenant did not have that effect. In so far its aim was to prevent employees from leaving by making it more difficult for them after leaving, that was not legitimate. So the issue turns on customer connection.
- The first point raised on behalf of Mr Offland as to reasonableness as a restraint to protect customer connection was as to the length of one year. It was said that IT is fast paced. I do not think that that is relevant. The connection with the customer is independent of the pace of IT. The length of the protection sought in similar contracts assists as an indication of what is thought sufficient in similar situations. A contract offered by another company to Mr Atherton in August 2008 had a six month provision. A contract dated 8 January 2010 entered into by CS and an employee whose name has been redacted contained a 9 month provision. It is evident that at this time CS was taking further covenants from its employees in order to protect its business from Praesto. Contracts entered into by Praesto with its employees appear to have a six month period. That is of limited assistance because while Praesto has an interest in protecting its own customer connection the dispute with CS is also relevant.
- In giving the judgment of the Privy Council in Stenhouse Ltd v Phillips  AC 391 Lord Wilberforce stated at page 402:
"The question is not how long the employee could be expected to enjoy, by virtue of his employment, a competitive edge over others seeking the clients' business. It is, rather, what is a reasonable time during which the employer is entitled to protection against solicitation of clients with whom the employee had contact and influence during employment and who were not bound to the employer by contract or by stability of association. This question, secondly, their Lordships do not consider can advantageously form the subject of direct evidence. It is for the judge, after informing himself as fully as he can of the facts and circumstances relating to the employer's business, the nature of the employer's interest to be protected, and the likely effect on this of solicitation, to decide whether the contractual period is reasonable or not. An opinion as to the reasonableness of elements of it, particularly of the time during which it is to run, can seldom be precise, and can only be formed on a broad and common sense view."
- It would be a mistake to look at the criticisms of the clause in isolation. The question is whether the clause as a whole is reasonable. I think that 12 months in the circumstances here is in any event at least pushing at the limit. But taken with the fact that there is no time limit on the interval between the employee's involvement with the customer and his leaving CS and with the fact that his involvement with the customer may have been slight, I am clear that it is too long.
- The second point raised on behalf of Mr Offland is that there is no restriction on the interval between the employee's involvement with the customer and his leaving. So, for example, he might have had a limited involvement many years before. In Plowman & Son Ltd v Ash  568 the Court of Appeal held, with doubt on the part of at least Harman LJ, that on the facts of the case the employer was entitled to protect all customer connections, past and present, during the employment. That was an interlocutory decision and, more important, as in all these cases is specific to its particular facts. In Arbuthnot Fund Managers Ltd v Rawlings  EWCA Civ 518 a very much more restrictive view was taken of what was reasonable in the circumstances before the court. I should mention Dentmaster (UK) Ltd v Kent  IRLR 636, as it was relied on by CS in its pleading. The structure of the clause as to time limitations was markedly different to that of the clause here, and I do not find it helpful.
- Mr Austen's evidence was that a client's good impression of an employee may be long-lasting and that CS was entitled to protect its connection whether the customer was present or past.
- There are really two issues here. One arises from the inclusion of past customers. So where Mr Offland worked at the start of his employment for a customer who was then lost as a customer, he would then be prevented from working for that customer. I conclude that the inclusion of past customers without limit of time is unreasonable. But that is not fatal to the covenant as a whole. For the reference to past customers can be excised under what is conveniently called 'the blue pencil rule'. That would not affect its enforcement against Mr Offland in relation to AstraZeneca.
- The second issue arises from the absence of any time limit on the employee's previous involvement with the customer. I am satisfied that this was unreasonable. That is particularly so because the clause is unspecific as to the degree of personal involvement required. It might be slight. The decision whether there was 'personal involvement' is one for the court to make on the facts before it and I do not think that there would usually be any insuperable difficulty despite the lack of definition. So I would not hold that the inclusion of those words in themselves made the clause unreasonable. But they are an important factor in holding unreasonable the absence of a limitation of time between the involvement with the customer and the cessation of employment.
- It was submitted that the provision was also unreasonable because it applied to any kind of employment, and so would prevent Mr Offland taking work with a customer which work was outside CS's field. CS's answer was that the provision was by implication limited to employments of the same kind as Mr Offland's with CS. In Plowman & Son Ltd v Ash Harman LJ resolved the similar problem in that case, saying 'In my opinion, it is no wider than that: the articles in which he may not canvas are the very articles in respect of which his employer employed him.' Russell LJ stated 'As a matter of the sensible construction of this document as a whole, I have no doubt that the field of solicitation and canvassing which is forbidden is that of the trade of the employers in which the employee was engaged.'
- In Home Counties Dairies v Skilton  1 WLR 526 the Court of Appeal had to consider a covenant given by a milk roundsman that he would not 'serve or sell milk or dairy produce'. The court over-ruled the decision of the judge who had held that because the clause would have prevented the employee from selling butter and cheese in a grocers it was unreasonable. [The case may have proceeded on the basis that in the 1960s grocers did not sell milk.] Harman LJ stated: 'It is in fact, on its true construction an agreement not to serve an employer as a milk roundsman calling on customers of the old milk round whom he had served in the last 6 months. ' Salmon LJ stated: 'The clear intention of clause 15 was to afford that business protection against Mr Skilton's activities while carrying on a dairy business of his own or while engaged in another dairy business after his employment with Westcott Dairies Ltd had ended.' So in that case as in Plowman the court limited the activity prohibited by consideration of the purpose of the covenant read in the context of the agreement as a whole, and so upheld the covenant as reasonable.
- It was submitted for CS that Mr Offland's covenant clearly did not apply to work which was wholly unrelated to that carried out by CS, such as an airline pilot. That seems to me to miss the real point. In Plowman's case and in the Dairies case the court had no difficulty in the circumstances of those cases in stating where the line was to be drawn. But it was not submitted on behalf of CS, at least in writing, where it was to be drawn here. Would it be limited to work in IT, or to work as an IT technician, or as to work relating to Siebel? There are other possibilities. The argument raised by Mr Edmond, to which I will come, that his work at AstraZeneca as a project manager was outside the covenant underlines the difficulty. Mr Austen's evidence at one point (he said other things too) was that he intended that the covenant should prevent Mr Offland from becoming a Siebel consultant. That is not admissible evidence in considering the clause. It is also contrary to the use that CS seek to make of the clause against Mr Edmond. I conclude that the unrestricted width of the clause in this respect cannot be cured by construing a limitation from the context of the agreement, and that it is for this reason also, unenforceable. On this aspect of the clause I was also referred to the decision of the Court of Appeal in Turner v Commonwealth & British Minerals Ltd  IRLR 114. It is a helpful case as to the principles to be applied. However the clause in that case could be construed in a way which resulted in it being upheld, whereas, for the reasons I have given, I do not think that can be done here.
(ii) Breach of the covenant
- Two submissions were made as to why Mr Offland was not in breach of the terms of the clause. These, of course are only relevant if I am wrong in holding that the clause was unenforceable as an unreasonable restraint of trade. The first was that AstraZeneca was not a customer of CS but of Customer Systems UK Ltd. The second was that he was not 'employed directly or indirectly by' AstraZeneca, the customer.
- The problem of covenants and subsidiaries arose in the Stenhouse case. The case was relied on by CS as providing an answer to the point. There the claimant company carried on business through subsidiaries. Following termination of Mr Phillips' employment an agreement was entered into with him which, among other matters, restricted his activities in relation to the company's clients. 'Client' was defined as 'any person firm or corporation who … was a client of Stenhouse or any of its associated companies'. Lord Wilberforce stated at page 404:
"It was submitted that whereas the agreement of March 23, 1972, was made with the appellant company, the interests to be protected were the interests of its subsidiaries-independent legal entities-and reference was made to Henry Leetham & Sons Ltd. v Johnstone-White  1 Ch. 189;  1 Ch. 322. That was a case where the agreement, as interpreted by the Court of Appeal, was with one company of a group, that one company having a limited business, whereas the restraint was expressed in far wider terms, extending to the area covered by the operations of the group as a whole. The facts of this case are different and do not support the respondent's argument, technically attractive though it may appear. The evidence is clear that the business of the Stenhouse Group was controlled and co-ordinated by the appellant company, and all funds generated by each of the companies were received by the appellant. The subsidiary companies were merely agencies or instrumentalities through which the appellant company directed its integrated business. Not only did the appellant company have a real interest in protecting the businesses of the subsidiaries, but the real interest of so doing was that of the appellant company. It is not necessary to resort to a conception of "group enterprise" to support these proceedings. The case is, more simply, that of the appellant's business being to some extent handled for it by subsidiary companies. Their Lordships therefore agree with the judge in rejecting this argument."
The argument had been, it seems, that the company did not have a sufficient interest in its subsidiaries' customers for the protection to be reasonable. The report of the appellant's argument does not cover the point, but it is dealt with in the respondent's argument at page 396H. That is not the issue here. The issue is whether, one way or another, the present clause should be construed to cover a situation which did not exist when the contract was made, namely that where CS's business is carried on through a subsidiary.
- This is a somewhat technical point which only arose shortly before the trial, perhaps because the defendants' advisers only then became aware of the role of Customer Systems UK Ltd. How is the clause to be applied in the new situation? In my view the answer to it is that the customers of the subsidiary are to be treated as the customers of CS. That is surely the answer which would have been given had the question been raised, whether by 'an officious by-stander' or not, at the time the contract was made.
- The second point turns on the meaning to be given to 'employed indirectly by any customer'. It is used in conjunction with 'employed directly'. That obviously means having a contract of employment with the customer. 'Employed indirectly' must suppose the intervention of a third party between the customer and Mr Offland, which third party employs Mr Offland. It was submitted for Mr Offland that the phrase should be construed as covering the situation where the customer used a contractor who operated through his company, which company was the contractor's employer. It was submitted that it should not cover the wider situation where the customer used a consultant with a number of employees including the individual in question. It was submitted that this limitation to contractors was the way it would be read by those familiar with the IT work place. But no such usage was established by the evidence. It was submitted for CS that the wider construction was to be preferred and there was no reason to limit it to the particular situation of one-man-band independent contractors. I should consider the intended function of the clause. It was to protect CS's customer connection by preventing the employee taking advantage of his relationship with a customer to work at the customer following the termination of his employment with CS. It is consistent with that to construe the words 'employed indirectly by a customer' as covering the situation where the employee does work for the customer while employed by any other entity: it is not to be construed as limited to the independent contractor situation.
F. The claims against Mr Edmond
- In contrast with Mr Ranson and Mr Offland it is not alleged that Mr Edmond was under any fiduciary duties. There were five claims against Mr Edmond, one of which was accepted by him. It is convenient to take them in turn.
(1) The Barclays claim
- From July 2001 Barclays Bank had been a customer of CS. Mr Edmond worked at Barclays from about April 2007 to May 2008. In 2008 there was a major falling-out with Barclays in which CS was effectively accused of dishonesty. This arose in the context that CS's work was for what was then a separate division of Barclays for IT purposes, which was called Barclays Business Banking or Barclays Commercial Banking. CS had received a substantial sum on account of work to be called off by Barclays Commercial Banking in the future. The rest of Barclays' IT was handled by what was called at the trial Central IT, but more properly, I think, called GRCB Technology. Early in 2008 Central IT took over the IT of Barclays Commercial Banking. CS was initially reluctant to inform Central IT of the upfront payment because that was the wish of the Business Banking side that Central IT should not be informed. The outcome was that CS ceased to do work for Barclays in May 2008. But the problem over the advance payment was not the only reason. Central IT were using an American company called Cognizant which by out-sourcing work to India could charge very much lower rates than CS. The consultancy manager covering Barclays for CS, Ben Wales, was told that CS would have to reduce its rates to keep its work. But CS did not do so. In January 2008 Mr Edmond had been asked by Barclays if he would like to carry on the work he was doing but as an employee of Barclays. He wanted to do that, but CS refused to release him as, under its contract with Barclays, it was entitled to do.
- On 30 April 2009 Mr Edmond received a message to call Mr Wayne Swinglehurst of Barclays and did so. Mr Swinglehurst was part of Business Banking though not in the IT team, and Mr Edmond knew him. Mr Swinglehurst told Mr Edmond that the work he had being doing at Barclays the year before had not progressed and he suggested that Mr Edmond should return to complete it as a contractor. The 12 month restriction on Barclays employing Mr Edmond was close to expiry. Mr Edmond told Mr Swinglehurst that although he was looking to leave CS he wanted employment rather than a contracting job and he wanted to move away from Siebel. Mr Edmond asked Mr Swinglehurst if he should try to find somebody else within CS, but was asked not to in view of the way the relationship between Barclays and CS had ended and because of the high rates CS charged. Mr Swinglehurst asked Mr Edmond if he could recommend some one else. Mr Edmond thought of Mr Ranson. He knew that he was carrying out contracting work at Reckitt Blenckiser and so thought he might be interested. He put the two men in touch. On 12 May he spoke to Mr Ranson for 7 minutes, and to Mr Swinglehurst for just over a minute. Emails were exchanged on the same day. Mr Ranson was unsuccessful in getting any work for Praesto from Barclays.
- CS's case against Mr Edmond arising from this is that he wrongly failed to pass on to any one else at CS that there was an opportunity for work at Barclays. It is said that thereby CS lost an opportunity to re-establish the relationship and obtain work. The latter may seem rather far-fetched in view of Mr Swinglehurst's reaction to the suggestion that another analyst at CS might do the work: but I am not concerned with damages. The issue is whether it was Mr Edmond's duty to inform his superiors at CS.
- I must bear in mind that there was an express provision in his contract that he at all times act in the best interest of the company. There was a similar clause in the employee's contract in Helmet Integrated Systems. It did not assist the company. In [Lonmar Global Risks Limited v West]()  IRLR 138, Hickinbottom J stated in paragraph 190 of his judgment respect of a similar clause:
'.. but in my view, that is a general clause which, certainly without more, could not require the law to impose wide-ranging duties to report wrongdoing and conduct which might be contrary to the interests of Global Risks, to persuade clients or employees to stay when he is going.'
I agree with that approach. The present clause should be taken as no more than an expression of Mr Edmond's duty of good faith and loyalty.
- My starting point is that I am clear that in acting as he did Mr Edmond acted honestly and in good faith. He did not think that there was any possibility of CS getting the job, and so he did not report it. Although it was part of his duty to be alert for selling opportunities, he was not a salesman. He was entitled to assist Mr Swinglehurst and Mr Ranson if it did not affect CS. He would have earned himself some credit with each of them by doing so. There was no harm in that. It might also have worked to CS's advantage that he, a CS employee, had been helpful to Mr Swinglehurst instead of declining to help. I do not consider that it was any breach of Mr Edmond's duty to CS in the circumstances not to have reported his conversation with Mr Swinglehurst. Neither do I consider that it was any breach of his covenant not to solicit a customer to place its business elsewhere.
(2) Failing to inform Mr Scattergood correctly as to the work available at AstraZeneca
- Mr Edmond gave notice to CS on 11 September 2009, left on 9 October and began work for Praesto as a project manager at AstraZeneca on 12 October. During his handover period he was asked by Mr Scattergood as to the on-going work available at AstraZeneca. CS's case is that he misinformed Mr Scattergood and said that there was less than there was with the outcome that Mr Scattergood only offered AstraZeneca one employee, Mr Crites, who had only a few months experience. AstraZeneca found that unacceptable and terminated CS's work. It went to Praesto and was carried out by Mr Atherton and Mr Offland.
- There is no record of what Mr Edmond said. Mr Edmond was not actually accused of having lied to Mr Scattergood, but it seems to me that that is what the case comes to.
- Mr Edmond had been full-time at AstraZeneca since he left Barclays in May 2008. He became the technical architect at AstraZeneca in about August 2008. Between July and September 2009 Mr Denis Hang, a senior consultant, and Mr Matthew Crites also worked there on occasion. So there was a full-time job for a senior consultant and other work arising from time to time. There was no reason not to expect that to continue. I am satisfied that this is what, in effect, Mr Edmond told Mr Scattergood. He said that there would be at least the on-going work that he had been doing. He did not say that there would be no more than that. He gave Mr Scattergood his honest estimation of the situation. He did not expect CS to lose the work and he was not seeking to benefit Praesto. In fact it turned out that the work available at AstraZeneca to that Christmas was 53 days – which was carried out by Mr Atherton and Mr Offland. The other work provided at AstraZeneca was Mr Edmond's work as a project manager. That was not under consideration. I will deal with Mr Edmond's alleged duty as to it shortly. So the work in fact available was very much as Mr Edmond told Mr Scattergood.
- What is recorded is the following. On 11 September Mr Edmond emailed Mr Scattergood suggesting that either Mr Hang - who was liked and trusted at AstraZeneca, or Mr Callear - another senior consultant, should take over from him. He said he would do a full, professional handover. The papers include a very brief note of two points relating to AstraZeneca which Mr Scattergood made at a meeting with Mr Edmond. They are irrelevant. During that autumn CS were short-staffed and this forms the background to Mr Scattergood's discussions with Mr Boardman of AstraZeneca as to what should happen after Mr Edmond left. On 21 September he said that it would be very difficult to provide Mr Hang for significant time. He said Mr Crites could be made available from 19 October, leaving only a gap of a week. On 23 September, as recorded in Mr Scattergood's email the next day, AstraZeneca said that they would not replace Mr Edmond because they did not regard Mr Crites as an adequate replacement. (Mr Crites had joined CS in June or July and had then had about 6 weeks training before commencing work. It was not surprising that AstraZeneca were unimpressed.)
- It was of course open to Mr Scattergood in his discussions with Mr Boardman about the staff CS could provide to check with Mr Boardman what work was available. Indeed, it would be very surprising if he had not. Mr Boardman's evidence was that he told Mr Scattergood that 53 days were required, and that he only turned to Praesto when CS could not provide someone suitable. I accept that.
- This claim has come into being because Mr Scattergood made a decision not to provide AstraZeneca with a person qualified to do the job as it would mean moving someone from other work. That was a judgment which he had to make. It is now seen to have been the wrong decision. There is no merit in the claim.
- By mid 2008 Mr Edmond had decided he wanted to leave CS. He had seen that AstraZeneca employed formal project managers who oversaw IT projects dealing with a variety of IT situations. The role involved planning the logistics of the project and managing the team carrying it out. It did not involve designing or building IT systems. That is to say it was not a technician's job. Mr Boardman knew Mr Edmond wanted to leave CS and was interested in project management because he had asked him to be a referee in seeking other employment. At his annual review meeting in February 2009 with Mr Scattergood Mr Edmond had discussed a project management role, but Mr Scattergood was, in short, dismissive. In June and July Mr Edmond made job applications. In August he was telephoned by Mr Ranson who had been informed of his position by Mr Boardman. He had further discussions with Mr Ranson in which Mr Ranson suggested he become an employee of Praesto to carry out project manager work at Astra Zeneca. He accepted. He was not involved in the discussions between Mr Ranson and Mr Boardman as to his role.
- It is alleged by CS that Mr Edmond should have informed CS as to the availability of a project management role at AstraZeneca in particular because he was CS's representative at Astra Zeneca. I do not consider that he had any duty to do so. Subject to his covenants – a different question, he was free to seek employment at a customer of CS without informing them of the outcome. It is not alleged that Mr Edmond was, or became, a fiduciary. He did not involve himself in assisting Praesto while employed. What I have said in paragraph 95 above regarding Mr Offland applies here. Further, Mr Edmond rightly considered that the work he would be doing at AstraZeneca as a project manager was not work that CS would be interested in. I do not accept CS's evidence to the contrary, which was guided by hindsight and a desire to make a case. There was no evidence that CS had ever provided a project manager service in the sense in which I am using that term here.
(3) Failing to inform CS of the existence of Praesto and the threat it posed in connection with Astra Zeneca
- Mr Scattergood conducted the negotiations with Mr Boardman which led to the termination of work for CS at AstraZeneca. Mr Edmond did not know that the outcome would be work for Praesto. He was unaware of that specific threat. The obtaining of the work by Praesto, which had been CS's, was negotiated between Mr Boardman and Mr Ranson, and Mr Edmond had no involvement or knowledge. For reasons which I have set out in relation to Mr Offland in paragraph 95 I do not consider that Mr Edmond's knowledge of Praesto coming from his negotiations with Mr Ranson for employment required him to report anything to CS.
(4) Breach of covenant
- Under the heading 'Non-solicitation/Non-competition/Proprietary techniques' Mr Edmond's contract contained thirty-three unbroken lines of covenants. Those relied by CS are:
'During your employment with Customer Systems, and for a period of one year afterwards, you undertake not to solicit any organisation that you know to be a customer of Customer Systems to place its business with an organisation or party other than Customer Systems.' – the non-solicitation covenant.
'During your employment with Customer Systems and for a period of one year afterwards, you undertake not to be employed directly or indirectly by any present or past customer of Customer Systems with which you have been personally involved in the course of your employment by Customer Systems' – the employment covenant.
'During your employment with Customer Systems and for a period of 9 months afterwards, you undertake not to enter, directly or indirectly, or via another employer, into the supply of services or products which compete with those provided by Customer Systems' – the supply covenant.
A confidential information covenant.
CS's written opening stated in paragraph 142 that the most in point was the employment covenant.
- No breach of the non-solicitation covenant was in the end alleged.
- The employment covenant is in the same terms as Mr Offland's and is likewise unenforceable. The only difference between the two men arises in this way. Mr Edmond is now doing project management work in the sense that I have described. This is not a service that is offered by CS, and is thought little of by Mr Scattergood. If the covenant is to be construed as limited to the kind of work which CS carry out, then Mr Edmond's employment work at AstraZeneca would fall outside its terms. In short, CS cannot save the covenant and catch Mr Edmond within it.
- The non-compete covenant is a straight covenant against competition and is not aimed at the protection of a legitimate interest. It is unenforceable.
- No misuse of confidential information by Mr Edmond was finally alleged.
(5) The sick pay claim
- On 11 August 2009 Mr Edmond had a job interview in Liverpool. He did not want Mr Austen to know he was looking for employment elsewhere. So he sent an e-mail saying he was sick and compounded the lie by further inventions as to his subsequent recovery. In consequence he was paid for the day, and CS claimed £222.78. Once the limits of the claim were established, it was admitted.
Published: 21/12/2011 14:58