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Number of documents delivered: IP POOL SHIBBOLETH Tuesday, 26 October, 2010 at 16:36 BST ukfederation uk-searchall A&D Bedrooms Ltd v Michael Current Document 1

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*297 A & D BEDROOMS LTD. v MICHAEL

Outer House 8 March 1983

1984 S.L.T. 297

(Lord Cowie) 8 March 1983 ContractRestrictive covenantRestriction on employee working elsewhere after termination of employmentWhether reasonableWhether interim interdict appropriateBalance of convenience. InterdictInterim interdictWhether appropriateBalance of convenienceRestrictive covenantRestriction on employee working elsewhere after termination of employment. A qualified interior designer entered into the employment of a fitted bedroom furniture company on 30 August 1982. It was subsequently agreed between the parties that she would continue in this employment until 29 August 1983. Her contract of service provided that she was not to enter the employment of a trade competitor of her employers anywhere in the United Kingdom for a one-year period after termination of her contract. In January 1983 a rival company approached the employee and informed her of a vacancy in that company. On 26 January 1983 the employee agreed to begin working for the rival company on 28 February 1983. The former employers raised an action of interdict. They sought interim interdicts against the employee (the first defender) working for the rival company (the second defenders) during the 12-month period from 31 January 1983 and against the second defenders employing her during that period. The first defender contended (1) that the pursuers had no averments that her actings were likely to cause damage to their business, and (2) that the restriction sought was unreasonable, being a restriction on competition. Held: (1) that there were averments in the condescendence from which it could reasonably be inferred that the pursuers' business would be damaged if interdict was not pronounced, and (2) that the pursuers were seeking to protect their legitimate business interests by preventing the disclosure of confidential information by an ex-employee to a business rival; and, on the balance of convenience test, interim interdict granted. A. & D. Bedrooms Ltd. raised an action of interdict against (1) Anna Michael, and (2) Hyphen Fitted Furniture Ltd., to interdict the defenders from entering into a contract of service with each other. On 15 February 1983 the Lord Ordinary (Cowie) granted interim interdict. The first defender enrolled a motion for recall of the interim interdict. The pursuers' counsel moved at the bar for the conclusions of the summons to be amended, in respect that it appeared that a contract had already been entered into, and for interim interdict to be granted in terms of the conclusions as amended. On 8 March 1983 Lord Cowie granted interim interdict in terms of the conclusions as amended. Lord Cowie. On 15 February 1983 I pronounced an interlocutor in this action granting interim interdict against the first defender from entering into a contract of service with the second defenders for a period of 12 months from 31 January 1983 and ad interim interdicting the second defenders from offering to enter into and entering into a contract of service with the first defender during the same period. These two interim interdicts were granted on the unopposed motion of the pursuers in terms of the first and third conclusions of the summons as originally served on the defenders. I refused interim interdict as concluded for in the second conclusion of the summons on the ground that counsel for the pursuers indicated that if interim interdict was pronounced in terms of the first conclusion it was unnecessary to do so in terms of the second conclusion.

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The case has now come back before me today on the motion of the first defender for recall of the interim interdict against her, and this motion is opposed by the pursuers. The second defenders were not represented at the hearing, but counsel for the first defender intimated that if his motion was successful it was the intention of the second defenders to enrol for recall of the interim interdict against them. The basic facts of this case as disclosed by the summons and by counsel were that the first defender was a qualified interior designer who prior to 30 August 1982 had been employed by a firm of furniture dealers in Glasgow for about five years. She entered the employment of the pursuers on 30 August 1982 and her job was to visit the homes of prospective customers and design appropriate furniture for their bedrooms. If these designs were acceptable an estimate for the cost was provided for the customer who then decided whether to buy the bedroom furniture and have it installed, or not. The first defender did not enter into any formal contract of service at the outset of her employment, but on 15 December 1982 she signed a contract of service. There is some dispute about how she came to sign this document, but, for present purposes, I must assume that she signed it in full knowledge of what it contained. In particular, notwithstanding the date of signing, the first defender's appointment under the contract of service was deemed to have commenced on 30 August 1982 and was to continue until 29 August 1983 and thereafter subject always to the right of either party to determine the appointment on 29 August 1983 or at any time thereafter by either party giving to the other not less than one month's notice in writing expiring on or at any time after 29 August 1983. It would appear, therefore, that the first defender had no right to terminate the contract of service prior to 29 August 1983. As it turned out the first defender was approached by an employee of the second defenders in January 1983, and he informed her that there was a vacancy in his firm for her if she wished *298 to apply for it. It is understood that she did apply for it, was offered the vacancy and accepted it on 26 February 1983 with a starting date on 28 February 1983. On 31 January 1983 the first defender informed the pursuers that she was leaving their employment and going to join the second defenders. In these circumstances the present action was raised, and it was raised on the understanding that the first defender had not by then accepted employment with the second defenders. When in the course of the hearing before me it became apparent that she had been offered employment by the second defenders and had accepted it prior to the action being raised, it was obvious that the interim interdicts granted on 15 February were inept and had to be recalled. Accordingly counsel for the pursuers asked leave to amend the conclusions of the summons and this motion not being opposed by counsel for the first defender, I granted it. The effect of the amendment was, in the first place, to conclude for interim interdict against the first defender from commencing or carrying on a contract of service and employment with the second defenders during the period of 12 months from 31 January 1983; in the second place, to conclude for interim interdict against the first defender during the period of 12 months from 31 January 1983 from soliciting for the second defenders the business of the design manufacture and installation or sale of fitted bedroom furniture from any client or customer of the pursuers with whom she had dealings or for whose business she was responsible at any time within the period of 12 months prior to 31 January 1983, and, in the third place, to conclude for interim interdict against the second defenders from offering to enter into and from entering into a contract of service with the first defender and from employing the first defender during the period of 12 months from 31 January 1983. Counsel for the pursuers then moved of new for interim interdict in terms of all three conclusions of the summons as amended, and it is in effect that motion which is presently before me rather than the recall of the interim interdicts granted on 15 February 1983. Before turning to the submissions which were made, I should make it clear that counsel for the first defender indicated that whether I granted interim interdict in terms of the first conclusion as amended or not, he would have no objection to interim interdict being granted in terms of the second conclusion as amended, since his client had no intention, in any event, of soliciting business from customers of the pursuers with whom she had had dealings. I shall accordingly grant interim interdict as concluded for in that conclusion. As regards the first conclusion of the summons as amended, it is based on the second half of clause 11 (b) of the contract of service; for convenience I shall quote the appropriate parts of clause 11 (b). Reading it short, that sub-clause is in the following terms:

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In the event of the appointment being determined in any way whatsoever [the first defender] (either personally or by her agent) shall not (b) for a period of twelve months after the date of the termination of her employment hereunder enter into a Contract of Service or other agreement of a like nature with any person, firm or corporation carrying on business in the United Kingdom which is concerned directly or indirectly in the business of design, manufacture, installation or sale of fitted bedroom furniture or any other trade or business of [the pursuers] in which she was engaged in any capacity at any time within a period of twelve months immediately prior to the termination of her employment nor shall she at any time within the said period of twelve months after the date of termination carry on or be interested either alone or with any other person or persons in any such business anywhere within the area or areas in the United Kingdom for which she had responsibility as a sales designer/executive on behalf of [the pursuers] at any time within the said period of twelve months prior to the said date of termination. In respect of that clause and with particular reference to the latter part of it, counsel for the first defender submitted that the interdict sought by the pursuers was irrelevant in that there were no averments that the actings of the first defender were likely to cause damage to their business, and in any event, that the restriction sought by the pursuers was unreasonable in respect that the terms of clause 11 (b) were too wide, and that the restriction was not necessary for the protection of the pursuers' legitimate business interest, but was, in effect, purely designed to prevent competition. As regards the first point taken by counsel for the first defender, while appreciating the force of his argument, I am of the opinion that having regard to the stage at which the pursuers' pleadings are being considered, the absence of specific averments of damage to the pursuers' business is not fatal to the motion which they are making. The summons was drafted as I have already explained, on the misconception that the first defender had not by that time entered into a contract of employment with the second defenders, and now that that fact has been clarified, I am satisfied from what counsel for the pursuers told me, that such averments can be made during the adjustment period. In any event, while they do not go the whole way to meeting counsel for the first defender's point there are averments in the second half of art. 7 of the condescendence from which it can reasonably be inferred that if the interdict is not pronounced, damage to the pursuers' business would follow. Accordingly, assuming for the moment that the provisions of clause 11 (b) are not too wide and that the restriction sought is reasonable for the protection of the pursuers' legitimate business interests, I would not be prepared to refuse interim interdict solely on the basis of counsel for the first defender's first submission. As regards counsel for the first defender's second submission that the restriction sought is unreasonable and amounts in effect to a restriction on competition only, several factors were founded upon. It was said that clause 11 (b) was too wide with particular reference first of all to the words *299 directly or indirectly. Such words however, are not unusual in restrictive clauses and they are not necessarily too wide. In any event the point in the present case is that the pursuers are saying that the second defenders are directly concerned in the same kind of business as the pursuers, and that in my opinion meets this objection. Then it was said that the area specified in clause 11 (b), being the United Kingdom, was too wide, but this again is, in my opinion, not correct. It is averred that the pursuers carry on business throughout the United Kingdom and accordingly it is not unreasonable that the restriction should cover that area. For the purposes of the present action it is interesting to note that the pursuers aver that the second defenders are in direct competition with them in the United Kingdom. Apart from the terms of clause 11 (b) themselves, counsel argued that it was unreasonable to enforce the restriction because the first defender was not a free agent when she signed the contract of service. She had been employed by the pursuers for four months when she was presented with the contract of service and she was thus not in a good bargaining position to accept or refuse it. This fact was hotly disputed by counsel for the pursuers and I have no reason to dispute what he said. On the face of it, the first defender was well aware of what she was signing and chose to do so. In these circumstances, I cannot hold that it is unreasonable for the pursuers to seek to enforce the terms of the contract of service and in particular clause 11 (b) on this ground. It was also said in this connection that the lack of averments of damage to the pursuers' business and of soliciting business from customers, showed that the pursuers were only complaining about competition. I have already dealt with the lack of averments in the condescendence and as I have already indicated I am not prepared to draw the inference which counsel for the first defender asked me to draw from the absence of those averments at this stage in the action. It was also said that the pursuers and defenders operated in different fields, but counsel for the pursuers persuaded me that that was not so. At least part of the second defenders' business involved the sale of bedroom

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furniture. They had a concessionary department in Frasers' shop in Glasgow and they were moving more and more into the field of supplying bedroom furniture. Looking at the whole question of the reasonableness of the restriction, I have come to the conclusion that clause 11 (b) is not too wide and that the restriction is not simply in restraint of trade, but is designed to protect the legitimate business interests of the pursuers. Bearing in mind the stage which these proceedings have reached, I am satisfied that the averments of the pursuers and the information which was placed before me by counsel for the pursuers support the view that the purpose of the restriction is not to prevent competition only, but to protect the pursuers from the disclosure of confidential information by one of their ex-employees to a business rival. This has been recognised in many cases as justifying a restriction on an ex-employee from taking up employment with a rival business, and it seems to be applicable to the present case. In art. 2 of the condescendence the pursuers aver that employees like the first defender are supplied with confidential information relating to the nature and prices of the pursuers' products and to the pursuers' existing and potential customers. These averments were expanded by counsel for the pursuers in his submissions to me, and I am satisfied that at least prima facie the first defender is in possession of confidential information which, if disclosed to a rival, could damage the pursuers' business. In these circumstances I am not prepared to hold that the restriction is unreasonable. It is of course one thing to decide at this stage of the proceedings that the restriction is not unreasonable, but it is another thing to decide whether interim interdict to enforce that restriction is justified. This question must turn on the balance of convenience, and in that connection, I have reached the conclusion that the balance tips in favour of pronouncing interim interdict. Admittedly such a step will inevitably mean that the first defender will lose her job with the second defenders, and be unable to exercise her skill in her specialised field for 12 months. On the other hand if she is allowed to take up her employment with the second defenders, untold damage could be caused to the pursuers' business through the disclosure of confidential information relating to their price structures and their existing and potential customers. Such damage would be difficult, if not impossible, to remedy, and, accordingly, it seems to me that I have no alternative but to accede to the pursuers' motion at today's hearing, namely, to recall the interim interdicts granted on 15 February 1983, and, of new, grant interim interdict in terms of the first three conclusions of the summons as amended, and that is what I propose to do. Counsel for the pursuers moved for the expenses of today's hearing but I have decided that the expenses should be expenses in the cause.

Representation
Counsel for Pursuers, Clyde, Q.C., Currie; Solicitors, Shepherd & Wedderburn, W.S.Counsel for First Defender, D. I. Mackay; Solicitors, Gray Muirhead & Carmichael, W.S. AM (c) W. Green & Son Limited
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