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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Seabrokers Ltd v Riddell [2007] ScotCS CSOH_146 (15 August 2007) URL: http://www.bailii.org/scot/cases/ScotCS/2007/CSOH_146.html Cite as: [2007] CSOH 146, [2007] ScotCS CSOH_146 |
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OUTER HOUSE, COURT OF SESSION [2007] CSOH 146 |
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A462/07 |
OPINION OF LADY PATON in the cause SEABROKERS LIMITED Pursuer; against GRAEME ALEXANDER RIDDELL Defender: ннннннннннннннннн________________ |
Pursuer:
Defender: Truscott, QC;
Simpson & Marwick, W.S.
[1] The
defender seeks recall of the following interim interdict, granted on
"The Lord Ordinary, having
heard counsel for the pursuer, no caveat having been lodged, ad interim interdicts the defender for a
period of 12 months commencing on 23 July 2007 either solely or jointly
with or as manager or agent or officer or employee for any person, firm or
company from directly or indirectly carrying on or being engaged, concerned,
interested or employed in a business which is providing ship brokerage services
in direct competition with the ship broking business of the pursuer in which
the defender had been involved in the 12 months preceding 23 July 2007."
The motion for recall was opposed by the pursuer on
the basis that the restrictive covenant was valid, and was necessary to protect
the legitimate interests of the pursuer.
The case came before the Vacation Court on
Defender's
employment with the pursuer
[2] In January 2006 the defender entered
into a contract of employment with the pursuer, a company providing ship
brokerage services. Clauses 1.11 and
1.13 of the contract provided:
"1.11 TERMINATION OF EMPLOYMENT
For new employees: This contract of employment may be terminated
by you or the Company giving the appropriate length of notice. The first six months will be treated as
a probationary period during which time your employment may be terminated by
yourself or by the Company on one month's written notice.
Following completion of 6 months
service, you are thereafter required to give the Company 3 calendar month's
written notice of termination.
Following completion of 6 months
service, you are entitled to receive 3 calendar month's written notice of
termination.
The Company reserves the right to make
payment in lieu of notice.
The
Company may require you to remain away from work during all or part of your
notice period (whether you or the Company gave notice). The Company will notify you in writing as to
what duties under your scope of work are expected of you during garden leave. Whilst on full pay during such time, you will
not be permitted to work for any other person, firm, client, corporation, or on
your own behalf without the Company's prior written permission.
At the commencement of the notice period,
you must return any and all Company documentation, including any contact lists
and any notes relating to existing or potential contracts. During this period you are not permitted to
make any contact with existing or potential clients unless directed by the
Company.
You
will remain entitled to any contractual benefits during the notice period
unless mutually agreed otherwise.
The normal retirement age is sixty five
years. This may be extended at the
Company's discretion and with the mutual agreement of the parties involved ...
1.13
QUARANTINE PERIOD
Upon termination of
employment, the Company may notify you of the length of a quarantine period,
commencing from the date of termination, subject to a maximum of 12 months. During the quarantine period, you shall not,
on a whole or part time basis, carry on, or be engaged, concerned, interested
or employed in a business which is carrying on business in direct competition
with the Company's business in which you had been involved in the 12 months
preceding the termination of your employment.
If this results in you having to refrain
from accepting any genuine documented offers of employment, the Company will
have the right to choose to cancel this quarantine clause in force, or if the
quarantine clause is to remain applicable, to pay you salary equivalent to your
basic salary at the time of termination, for the remaining part of the
quarantine period.
If it is agreed that the Company will pay
such salary, any other income that you may receive during the quarantine period
will be deducted from the Company's payment i.e. the Company will be required
only to make the net payment. You have
the sole obligation to inform the Company immediately of any alternative
income. In the event of alternative
income being received, you have an obligation to provide the Company with
substantiating documentation."
[3] An
affidavit by Kathleen Gay, the General Manager of the pursuer, describes the
"4. As a trained broker and the key principal
contact for Seabrokers' major client, BP, [the defender] was regarded as a
senior employee within the Seabrokers team.
Our employees are located in a relatively small open-plan office. This means that all employees have a good
knowledge of what is going on in the Company and can readily deputise for
colleagues who are absent in order to meet client demands. [The defender] was therefore privy on a daily
basis to an extensive amount of information, much of it highly sensitive
information, flowing between colleagues regarding Seabrokers' operations ...
Following his probationary
period, [the defender] then worked as a shipbroker. He became the main contact within Seabrokers
for its major client, BP. His work was
largely carried out by phone or e-mail.
[The defender] was heavily involved in providing a full range of ship
broking services to BP. He carried out
all elements of ship broking work for them, including long-term chartering and
short-term chartering. He was also
involved in all of the other aspects of the service that we provide to them,
including vessel logs and invoicing. In
practice, the client would contact [the defender] to discuss its requirements
and he would then be required to liaise with ship and vessel owners with a view
to sourcing a vessel which met the customer's requirements. In his role, he therefore had an extensive
amount of contact and dialogue with clients and with ship and vessel
owners. In his role as the main contact
for BP, [the defender] also attended the fortnightly BP Marine Strategy
Meetings held between Seabrokers and BP.
These were held by conference call ... A range of highly confidential
matters would be discussed, including BP's marine strategy and the strategic
placement of vessels. BP would discuss
their marine strategy with [the defender] in considerable detail and would seek
advice from him in relation to that strategy.
It is important to stress that [the defender] was dealing on a regular
basis with senior BP employees who had the authority to arrange and authorise
the chartering of vessels at significant expense to BP ..."
"7. The pursuers state that my training gave me
access [to] all parts of the business and allowed me access to documentation
and information of high commercial value.
I would not agree with that. I
worked only in the pursuers'
8. The pursuers also maintain that I had access
to commercially sensitive information which included the strategic and business
plans of the pursuers. I am not sure
exactly what information they are referring to but I certainly do not retain
any such information. As I have already
mentioned, I was employed as a spot broker.
Spot brokers would not have access to commercially sensitive information
such as strategic and business plans.
Only senior management would have access to that sort of
information. Insofar as the business
plans of the pursuers' major clients are concerned, Mrs Kathy Gay, who was managing
director of the pursuers in
The defender denied any particular knowledge of the
pursuer's pricing structure, pointing out that prices and rates were constantly
changing. While he had knowledge of
procedures developed for particular clients, many of those procedures were
common to all clients. The defender also
commented that he was not involved in delivering the additional "value added"
services which the pursuer provided to exclusive clients.
The defender was successful in his application. By letter dated
"I realise that my contract
of employment requires me to continue work with the Seabrokers team for a
period of 3 months, (plus cooling off period if applicable) however I'd be
grateful to be released earlier, and will assume that this is acceptable unless
you inform me to the contrary."
[8] By
letter dated
"I am writing to acknowledge
receipt of your resignation from Seabrokers Limited ("the Company"). In accordance with your contract of employment,
you are required to give three months contractual notice of your
termination. Accordingly this means that
your employment will terminate with the Company on
In accordance with Clause 1.11 of your
contract, you are hereby placed on garden leave for the remainder of your
notice period. During this period, you
are not permitted to work for any other person, firm, client, corporation or on
your own behalf without the Company's prior written permission. You will continue to receive your contractual
pay and benefits during this notice period and whilst you remain on garden
leave.
Furthermore, in accordance with Clause 1.13
of your contract, the Company hereby notifies you that with effect from the end
of your notice period, you will be placed on a further quarantine period, up to
a maximum of 12 months. During this
quarantine period, you are not on a whole or part time basis to carry on or be
engaged, concerned, interested or employed in a business which is carrying on
business in direct competition with the Company's business in which you have
been involved in the period of 12 months preceding the termination of your
employment.
If the quarantine period referred to above
results in you having to refrain from accepting any genuine documented offers
of employment, the Company will have the right to either terminate the
quarantine period or to continue with it, subject to you receiving payments of
salary equivalent to your basic salary as at the time of termination, for the
remaining part of the quarantine period.
In the event that the Company does pay such salary during the quarantine
period, any other income that you may receive will be deducted and the
Company's payment will be the net payment only.
You have an obligation in accordance with your contract of employment to
inform the Company immediately of any alternative income. In the event of alternative income being
received, you have an obligation to provide the Company with substantiating
documentation.
You stated that you were intending to take
up employment with Seascope Limited. As
you will be aware, this business is a direct competitor to the Company and
accordingly, you are prevented during the notice and quarantine periods from
taking up such employment. In the event
that you provide documented evidence of an offer of employment from Seascope
Limited, the Company will give consideration to payment of your basic salary
during the quarantine period.
In the event that you do not adhere to your
contractual obligations as provided for above, the Company will take all
necessary steps to enforce the obligations you have entered into, through Court
processes. We trust that this will not
be necessary."
[9] The
defender duly served a three month period of garden leave, during which he
did not attend at the pursuer's office in
"7. It has come to the knowledge of the pursuer
that the defender is intending to take up employment as a broker with a direct
competitor based in
The First Conclusion of the summons as originally
drafted sought interdict without limit of time.
At the hearing of the pursuer's motion for interim interdict, Lord Mackay
of Drumadoon made this point to Mr Napier Q.C. who appeared on behalf of the
pursuer. Senior counsel then moved to
amend the summons at the bar, by inserting the words "for a period of twelve months
commencing
Submissions
Submissions on behalf of the defender
[10] Senior counsel for the defender contended
that Clause 1.13 was too wide and too convoluted to be enforceable. Moreover the wording of the interim interdict
did not accurately reflect the wording in Clause 1.13. Also it was not clear in the circumstances
when the decision in relation to the quarantine period had been taken, and on
what basis. For example, if an employee
had enjoyed a certain level of contact with certain customers, a certain period
might be chosen for the company's protection.
The defender's position was that he had worked in the spot market
(namely receiving requests from clients for the hire of a vessel for a
particular purpose such as moving a rig from one place to another, and finding
a vessel at acceptable rates, the period of hire being 30 days or less). In the spot market, prices, rates, and deals,
depended upon current market conditions.
The defender was not in the management or executive levels of the
company. He did not have the degree of
knowledge attributed to him by the pursuer in Article 5 of Condescendence and
in Miss Gay's affidavit. He had no
commercially sensitive information, for example about pricing structures, nor
any knowledge which would damage the pursuer's legitimate trading interests if he
joined Seascope Limited. He was not
involved in the extra administrative services rendered to BP. In the ship broking business, most clients
retained a steady ship broker. Clients
did not go from broker to broker, searching for the best price for a deal. Reference was made to a diagram illustrating
the settled nature of client-broker relationships. The defender had offered an undertaking which
would protect the pursuer's interests.
By letter dated
[12] The
following authorities were then referred to:
Axiom Business Computers Limited v Kenny, 20 November 2003 (Lord
Bracadale), paragraphs [7] to [10]; Scully UK Ltd v Lee [1998] IRLR 259, paragraphs 8 and 9; Malden Timber Ltd v McLeish, 1992 S.L.T. 727; Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd, [1968] AC 269, at page 301; Malden Timber Ltd v Leitch, 1992 S.L.T. 757; Stenhouse Australia Ltd v Phillips [1974] AC 391, at page
402C-E; Dallas McMillan & Sinclair v
Simpson, 1989 S.L.T. 454; and Commerzbank AG v Keen, [2007] IRLR 132, paragraph 11. It was for the court to decide whether there
was a legitimate interest to protect, and whether the restraint applied was
sufficient to achieve that objective without running contrary to public
policy. In the present case, if it were
assumed that the employer had in fact selected the maximum period of 12 months,
the consequence was that the defender was prohibited from working for 15 months
(being the total of the garden leave of 3 months, and the quarantine
period of 12 months). No reason had
been given for the maximum period being chosen in the exercise of the
discretion contained in Clause 1.13. It
was questionable whether such a period was necessary, bearing in mind the
defender's type of work (spot broking) and the fact that BP's contract fell to
be renewed in November 2007. Ultimately,
counsel submitted that the period of the interim interdict imposed on the basis
of Clause 1.13 was too long, but also geographically too wide, being in effect
world-wide. It was not clear on what
basis the employer had exercised the discretion, nor what legitimate interests
were sought to be protected. The
restraint imposed was therefore unreasonable.
Indeed not only was the basis of the exercise of the discretion unclear,
but also the defender's primary position was that Clause 1.13 had never
actually been operated. The discretion
contained therein had never apparently been exercised during the course of the
defender's employment.
[15] It was
inappropriate to subject a letter such as that written by Miss Gay on
[16] The
general principles applicable were as set out in Nordenfelt v Maxim Nordenfelt
Guns and Ammunition Co. [1894] AC 535 at page 565; Malden
Timbers Ltd v McLeish, 1992 S.L.T. 727, Lord Caplan at page 730 et seq.;
Scully UK Ltd v Lee [1998] IRLR 259; and Axiom
Business Computers Ltd v Kenny, 20
November 2003 (Lord Bracadale).
[17] In
relation to the alleged world-wide effect of the restraint, counsel submitted
that the interim interdict did not have that effect. The
[19] It was
not necessary for an employer to spell out in the contract of employment what
the legitimate interests of the business were:
cf. Office Angels Ltd v Rainer-Thomas and O'Connor, [1991] IRLR
214, Sir Christopher Slade at paragraph [39].
In the present case, there were at least two legitimate interests
requiring protection: (i) confidential
information; and (ii) trade
connections: cf. Thomas v Farr plc [2007] IRLR 419;
PR Consultants Scotland Ltd v
Mann [1996] IRLR 188.
[25] Trade connections: Reference was made to Agma Chemical Co Ltd v Hart, 1984
S.L.T. 246; Scottish Farmers Dairy Co (Glasgow) Ltd v McGhee, 1933 S.C. 148; and PR Consultants Scotland Ltd v Mann [1996] IRLR 188, paragraph
[9]. The pursuer's concern was not that
Seascope Limited would approach BP and get their business, but that BP might
put their contract out to tender. The
fact that the defender had been working with certain representatives of BP
during his time with the pursuer gave him a strong competitive advantage. He had had considerable contact with people
likely to make decisions about the contract.
Reference was made to Salmon L.J. in Scorer
v Seymour Jones [1966] 1 W.L.R.
1419; and to Lord Wilberforce in Stenhouse Australia Ltd v Phillips [1974] A.C. 391.
In all the circumstances, particularly bearing in mind the nature of a
broking relationship, the restriction imposed was not an unreasonable one. A non-solicitation clause would in practice
be useless, as it would be difficult to prove a breach. Non-solicitation was not equivalent to
responding to approaches made by BP.
[26] The
lack of geographical restriction in Clause 1.13 reflected the fact that the
work was on one view international, although the pursuer's market was in fact
the
[27] Finally,
in the context of the balance of convenience, there was a strong prima facie case for the pursuer, which
was in itself a factor tending to tip the balance of convenience in favour of
the pursuer. Moreover the defender was
not faced with the choice of beginning paid employment with a new employer, as
against being unable to work and remaining unpaid. On the contrary, the pursuer was willing to
pay the defender his salary for a year (г30,000). Those were very generous provisions. Further, the defender could seek work in
other parts of the world, for example
[30] In the
present case, Miss Gay's letter of 25 April 2007 states:
"Furthermore, in accordance
with Clause 1.13 of your contract, the Company hereby notifies you that with
effect from the end of your notice period, you will be placed on a further
quarantine period, up to a maximum of 12 months
[italics added]..."
There is no further indication of the precise period
selected. Nor have I been referred to
any further correspondence or communication indicating the precise period
selected.
[31] In my
opinion, the letter of
[32] There
having been no valid exercise of the discretionary power contained in Clause
1.13 prior to the termination of the defender's employment on
