APEX RESOURCES LTD AGAINST ROSS MACDOUGALL AND OTHERS [2021] ScotCS CSOH

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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> APEX RESOURCES LTD AGAINST ROSS MACDOUGALL AND OTHERS [2021] ScotCS CSOH_40 (09 April 2021) URL: http://www.bailii.org/scot/cases/ScotCS/2021/2021_CSOH_40.html Cite as: [2021] ScotCS CSOH_40, [2021] CSOH 40, 2021 GWD 12-173, 2021 SLT 781

OUTER HOUSE, COURT OF SESSION

[2021] CSOH 40

CA26/21

OPINION OF LADY WOLFFE

In the cause

APEX RESOURCES LIMITED

Pursuer

against

ROSS MACDOUGALL

First Defender

LISA MULHOLLAND

Second Defender

JENNA HILL or SEAGRIFF

Third Defender

CAVAL LIMITED

Fourth Defender

Pursuer: O'Brien QC, Tosh; Russel + Aitken Edinburgh LLP

on behalf of

Miller Samuel Hill Brown LLP

First to Third Defenders: Tyre; MacRoberts LLP

Fourth Defender: Webster QC; Anderson Strathern LLP

9 April 2021

Background

Introduction

[1]

The pursuer and the fourth defender ("Caval") are both recruitment consultants

specialising in matching individuals looking for work within the construction sector with

employers looking to fill vacancies in that. The first to third defenders are former employees

of the pursuer, having given up their respective employments with it in late December 2020

(the first defender) or in January 2021 (the second and third defenders). (I shall refer to the

first to third defenders collectively as "the former employees".) Not long after that, the

former employees all joined Caval, which, though it was an established recruitmen t agency

elsewhere in the UK, had (on the pursuer's narrative) established itself in Glasgow only in

January 2021. The former employees each signed employment contracts with the pursuer

("the contracts"). Each of those contracts contained a number of restrictive covenants

precluding them inter alia from competing with the pursuer or from soliciting clients of the

pursuer for a specified period of time in a specified geographical area (the UK).

The interim interdicts

Interdicts against the former employees (first to third conclusions)

[2]

This matter called before the Court on 5 March 2021 on the pursuer's ex parte motion

for interim interdict against the former employees from breaching their restrictive covenants

and also for interdict ad interim in terms of its fourth conclusion against all of the defenders,

including Caval, from breach of confidence. Mr Tosh appeared on that occasion ("the first

hearing"). After Mr Tosh's very full and careful submissions, made under reference to the

relevant productions, including Caval's reply to the pursuer's pre-action letter advancing

reasons why the pursuer's case was said to be ill-founded, and the relevant authorities, I

granted interim interdict against each of the defenders. In respect of each of the former

employees the interim interdicts were in identical terms, apart from the date to which the

interdict would run, reflecting their different dates of departures from the employment of

the pursuer. I therefore need quote only one of the interim interdicts granted against the

former employees. The interdict against the first defender was in the following terms:

"1.

interdicts the first defender,

(i)

in competition with the pursuer and/or so as to harm or interfere with the

goodwill of the pursuer, until 27 June 2021, directly or indirectly, whether

on his own account or in conjunction with or on behalf of any person,

firm, company, business entity or other organisation (a) being employed

or engaged in, or (b) performing or providing services to or in respect of,

or (c) otherwise being concerned with, or (d) having any interest in any

business or activity carried on by the pursuer on 27 December 2020 in

which the first defender was directly concerned at any time in the period

from 27 December 2019 until 27 December 2020 (the `Relevant Period') in

competition with the pursuer in the United Kingdom, whether as

principal, agent, director, partner, proprietor, employee, consultant or

otherwise;

(ii)

in competition with the pursuer and/or so as to harm or interfere with the

goodwill of the pursuer, until 27 June 2021, directly or indirectly, whether

on his own account or in conjunction with or on behalf of any person,

firm, company, business entity or other organisation and whether as

principal or otherwise:

(a)

canvassing, soliciting or assisting in canvassing or soliciting

business from, or dealing or doing business with, any person, firm,

company or other organisation whatsoever who was at any time in

the Relevant Period a client of the pursuer (a `Restricted Person')

(i) with whom the first defender had any material dealings in the

course of his employment with the pursuer in the Relevant Period

or (ii) for whom the first defender was, in a client management

capacity on behalf of the pursuer, directly responsible in the

Relevant Period;

(b)

canvassing, soliciting, assisting in canvassing or soliciting business

from, or dealing or doing business with, any person, firm, or

company who was on 27 December 2020 negotiating or in material

discussions with the pursuer with a view to dealing with the

pursuer as a client (a `Restricted Contact');

(c)

canvassing, soliciting, assisting in canvassing or soliciting, or

dealing with, any person in respect of whom the pursuer is in

possession of personal information for the purposes of its business

of advising on or advancing that person's career (i) with whom the

first defender had material dealings in the course of his

employment with the pursuer in the Relevant Period, or (ii) with

whom the first defender was, in a client management capacity on

behalf of the pursuer, directly responsible in the period from in the

Relevant Period; and

(iii)

until 27 June 2021, directly or indirectly, whether on his own account or in

conjunction with or on behalf of any person, firm, company, business

entity or other organization and whether as principal or otherwise

inducing, seeking to induce, soliciting, enticing, or procuring any person

who was employed by the pursuer on 27 December 2020 with whom the

first defender had material contact or dealings in the course of his

employment with the pursuer in the Relevant Period and who either

(a) had material contact or dealings with any Restricted Person or

Restricted Contact in the course of his duties of employment with the

pursuer or (b) who is likely to come into possession of confidential

information in performing his duties of employment with the pursuer or

any Associated Company, to leave the pursuer's employment, whether or

not that would be a breach of contract of the part of the said employee".

The date of expiry of the interim interdicts against the second and third defenders were,

respectively, 4 July and 23 July 2021, being six months from the date each left the pursuer's

employment.

[3]

Each of the terms capitalised in the interim interdicts are defined terms in the

contracts. It is not necessary for present purposes to set out those detailed and inter -linked

definitions, although I was taken through these are first hearing.

Interdict against all of the defenders (the fourth conclusion)

[4]

The interim interdict granted against all of the defenders, concerning confidential

information, was in the following terms:

"4.

interdicts the defenders from using or disclosing to any third party any

information which is in their knowledge or possession, which was obtained by

the first, second and third defenders in the course of their employment with the

pursuer, and which is confidential to the pursuer and, without prejudice to the

foregoing generality:

(i)

Any such information regarding persons seeking employmen t

with the assistance of the pursuer;

(ii)

Any such information regarding positions, vacancies, or

recruitment requirements of any client of the pursuer;

(iii)

Any such information regarding the pursuer's staff, especially

salary and personal details;

(iv)

Any such information other than that available to the public,

regarding the financial and operational performance of the

pursuer;

(v)

Any such marketing and sales information of the pursuer;

(vi)

Any such information concerning the business plans or dealings of

the pursuer;

(vii)

Any such historical or current information given to the pursuer in

confidence by any client of the pursuer; and

(viii) Any such information contained in any document marked

`Confidential' (or with a similar expression)."

The recall hearing

[5]

The defenders' motions for recall, due originally to call before me on 29 March, were

heard on the afternoon of 2 April. On that occasion, the pursuer was represented by

Mr O'Brien QC, as well as Mr Tosh, who appeared on his own at the first hearing on

5 March 2021. Ms Tyre represented the former employers and Mr Webster QC appeared on

behalf of Caval. In advance of the recall hearing all parties produced written submissions

(in the form of Notes of Argument or speaking notes) together with some authorities. I have

had regard to these materials and do not propose to repeat them.

The motions moved and the undertakings provided at the recall hearing

The pursuer's amendment

[6]

As is common in cases such as these, there was some refinement of the motions made

by the time of the recall hearing. The pursuer moved (i) to amend its conclusions directed

against the former employees relating to the "restricted Contracts" (a defined term in the

contracts), which had inadvertently omitted the proviso regarding material dealings

contained in the relevant covenants ("the amended conclusions) and (ii) to delete article 24

of condescendence. The defenders did not oppose that motion.

The former employees' undertakings for all but the non-compete conclusion

[7]

The former employees thereafter offered undertakings in terms of the conclusions, as

amended ("the undertakings"), other than in respect of sub-paragraph (i) of the first, second

and third conclusions (the "non-compete" interdict or "non-compete clause", as the context

requires). The former employees each undertook not to act in the manner set out in parts (ii)

and (iii) of the specific conclusion directed against him or her, or in the manner set out in

the fourth conclusion insofar as directed against that individual. (The references in those

undertakings to the first, second and third conclusions were references to those conclusions

as prospectively amended in terms of a minute of amendment which had been tendered on

behalf of the pursuer.) The pursuer accepted the undertakings.

The breach of confidence interim interdict against Caval not insisted in

[8]

In the course of submissions, Mr O'Brien indicated that the pursuer no longer

insisted on its fourth conclusion insofar as directed against Caval. Accordingly, the only

disputed matter to resolve at the recall hearing was whether the non-compete interdict

against each of the employee defenders should be recalled.

Focus of recall hearing on the non-compete interim interdict

[9]

Given the foregoing, the focus of Ms Tyre's submissions was to seek recall of the

non-compete interim interdict.

Discussion

The challenge to the non-compete clause and the non-compete interim interdicts

[10]

The former employees challenge the non-complete clause as unenforceable and,

separately, they challenge the width and scope of the non-compete interim interdict. They

challenge the latter on the footing that the non-compete interdict is so wide that each of the

defenders could easily fall foul of the restrictions through error, mistake or ignorance and

certainly without any intention of doing so. As a consequence of the non-compete interdict

they are unable to be employed at all in their sphere of work, in the United Kingdom, in any

capacity with Caval (or any other similar business), until the interim interdicts against each

of them expires (on 27 June, 4 July and 23 July 2021 respectively).

[11]

In developing her submission, Ms Tyre argued that the effect of the non-compete

interdict was that the employee defenders would be unable to accept employment in any

"other recruitment consultancy or business or organisation or firm" for a period of six

months after they ceased their employment with the pursuer. She acknowledged that,

arguably, the former employees should not have accepted employment with a competitor,

Caval, but that the former employees are now not able to work in their current roles given

the width of the latter part of interim interdict, without the risk that there may be, by

accident, some form of unknown cross-over between work carried out by both the pursuer

and Caval. Similarly, she criticised the non-compete clause (and the interdict) because it

extended throughout the UK, it endured for six months and it encompassed "any business

or activity carried out by the pursuer". In her submission, the non-compete clause (and

interdict) placed severe restrictions on the former employees' employment opportunities.

While restrictive covenants were permissible to protect legitimate business interests of a

company or employer, they were not designed to make employees unemployable or to take

away their livelihoods.

The test to be considered

[12]

Ms Tyre founded strongly on the case of Quilter v Falconer &Continuum 2020]

EWHC 3294 ("Quilter") (especially paras 161 to 164, and paras 171 to 180), a decision of

Mr Justice Calver, in which the restrictive covenants in that case were held to be

unenforceable and wider than was reasonably necessary. In that case, Mr Calver set out

three questions (derived from TFS Derivatives Ltd v Morgan [2005] IRLR 246 at paragraphs 36

to 8 and Office Angels Ltd v Rainer Thomas & O'Connor [1991] IRLR 214 at paragraphs 21

to 25) at paragraphs 162 to 163, namely:

"(1)

Have the former employers (Quilter) shown on the evidence that they have

legitimate business interests requiring protection in relation to the employee's

employment?

(2)

What does the covenant mean when properly construed?

(3)

The covenant must be shown by the employer to be no wider than is

reasonably necessary for the protection of his legitimate business interests.

Reasonable necessity is to be assumed from the perspective of reasonable

persons in the position of the parties as at the date of the contract having

regard to the contractual provisions as a whole and to the factual matrix to

which the contract would then realistically have been expected to apply. The

covenantee must show that the covenant is both reasonable in the interests of

the contracting parties and reasonable in the interests of the public. As

Lord Parker stressed in Herbert Morris Ltd v Saxelby (supra) at p.707, for any

covenant in restraint of trade to be treated as reasonable in the interests of the

parties `it must afford no more than adequate protection to the benefit of the

party in whose favour it is imposed'.

163.

Even if the covenant is held to be reasonable, the court will then decide

whether, as a matter of discretion, the injunctive relief sought should in all

the circumstances be granted, having regard, amongst other things, to its

reasonableness as at the time of trial."

The first and second questions

[13]

In relation to the three questions to be posed, Ms Tyre accepted, in my view rightly,

that the pursuer had a legitimate interest to protect, although she was sceptical about the

need to protect client relationships. (I discuss this below). There was no real dispute among

the parties as to the interpretation of the non-compete clause. On a proper construction, it

only prohibited each former employee from (reading short) being employed in:

(i)

any business or activity which was (a) carried on by the pursuer on the date

of termination of their employment and (b) in which he or she was directly

concerned at any time in the period of 12 months before that date;

(ii)

in which they would be operating in competition with the pursuer and/or so

as to harm or interfere with the pursuer's goodwill;

(iii)

in the United Kingdom;

(iv)

for a period of 6 months after termination of employment.

The pursuer's business was and is the supply of construction and industrial workers and the

former employees were all directly concerned in that business during their employment

with the pursuer. Accordingly, the effect of the non-compete clause was directed towards

the former employee's employment in a business or activity involving the supply of

construction or industrial workers. Mr O'Brien submits that this is a perfectly reasonable

result when the pursuer and Caval operate within the same "very competitive" market.

The third question

[14]

Where parties joined issue was on whether the non-compete was too wide (as the

former employees contend) or whether it was no wider than reasonably necessary for the

protection of the pursuer's legitimate business interests.

The pursuer's legitimate business interests

[15]

The pursuer's averments on the legitimate interests it seeks to protect are found in

articles 13 and 14 which, so far as material provide:

"13.

[...] The pursuer can only perform those services if it has strong relationships

with both its employer clients and its candidates. The relationships that the

pursuer builds with its employer clients and its candidates are its only source

of income. Those relationships have substantial value. Those relationships

are built by the pursuer acting through its recruitment consultants. The

pursuer's recruitment consultants are assigned to manage the pursuer's

relationships with particular employers and candidates. The success of the

pursuer's business depends on the strength and continuity of its relationships

with its clients and candidates. The strength and continuity of those

relationships are vulnerable when recruitment consultants leave the pursuer's

business. The pursuer relies on the integrity and stability of its workforce. It

also depends on the details of its clients and the other confidential

information it holds remaining confidential. Confidentiality allows the

pursuer to preserve its client relationships by not exposing them to

approaches by the pursuer's competitors, particularly when those

relationships are vulnerable. The pursuer's business is particularly

vulnerable to its competitors because it is a conduit between employers and

candidates. The pursuer's competitors can readily step and connect the same

employers with the same candidates if the pursuer's confidential information

is disclosed to third parties." (Emphasis added.)

14.

The six month period of post-termination restrictions are reasonable. That

period is necessary to enable the pursuer to transition the management of its

relationships with its employer clients and its candidates to new or

recruitment consultants with its business. It also protects the pursuer against

a former employee seeking to capitalise on the personality he or she has

brought to the pursuer's relationships with its employer clients and its

candidates to divert income and business opportunities away from the

pursuer's business. It is a standard component of employment contracts in

the recruitment industry."

I have highlighted the passage Ms Tyre criticised. I consider this issue further, but first note

the former employees' reliance on the facts and outcome of Quilter.

The former employees' reliance on Quilter

[16]

Ms Tyre founded strongly on Quilter. The pursuer did not suggest that Quilter was

wrongly decided. Indeed, it provides a recent, full and careful exposition of the law in this

area and of the test to be applied in the consideration of the enforceability of non-compete

and similar restrictive covenants. I propose to adopt and apply the approach set out by

Calver J in that case, and the three questions he identifies to determine the lawfulness or

enforceability of restrictive covenants used by employers. The principal issue in that case, as

in this, is the third question: whether the clause in question is no wider than is r easonably

necessary for the protection of the employer's legitimate business interests.

[17]

It is a truism that each case will turn on its own facts and circumstances and I am

bound to observe that the terms of the restrictive covenant in that case, and the factual

context, are very different from those in the present case. Moreover, the question of whether

a particular restrictive covenant is reasonably necessary for the protection of the employer's

legitimate business interests is likely to be highly sensitive to the context or field of

employment to which it is applied, as well as to the case the employer makes in respect of

the legitimate interest it seeks to protect. Different considerations may apply in industries

where establishing a client relationship requires compliance with detailed or onerous

regulatory requirements (e.g. as in financial services and the obligations to confirm the

identity and source of funds of a new client), and where, as a consequence, once established,

those same regulations create a certain friction or inertia for an existing customer to

overcome in order to leave, if it is obliged to repeat those procedures with a new service

provider. Clients of businesses which operate in areas without such regulations or similar

formalities, may more readily leave one service provider for another. These, and other

context-specific considerations, may be important factors informing the assessment of the

reasonableness or otherwise of the scope and duration of a restrictive covenant . So, too, will

be nature of the business interest the employer seeks to protect. Accordingly, an identically

worded clause might be demonstrated to be reasonably necessary in one context, but not in

another.

[18]

Turning to the facts in Quilter, the duration of the restrictive covenant was, at nine

months, materially longer than the six months' duration of the non-compete clause at issue

here. This nine-month period is referred to in no fewer than five of the fourteen factors that

the court in Quilter identified in determining that the clause in that case was objectionable. I

also note that the case concerned a very different employment sector, namely financial

services. By contrast with the process required to be followed to take on a new client in the

financial services industry, there is a far greater ease of movement by clients from one

recruitment agency to another in the industry in which the pursuer operates. Furthermore,

one of the factors that the court in Quilter found objectionable was that the non-compete

clause also precluded the former employee from doing any business with new clients of her

new employer. That is not the case with the several restrictive covenants here: by reason of

the defined terms (albeit not all of these feature in the non-compete clause), the restrictions

on each of the former employees is specific to the particular clients they had as the pursuer's

consultants (the stipulation in the non-compete clause is that the individual defender was

"directly concerned" in a specified period). I also accept Mr O'Brien's submission that, by

reason of the use of mandates issued by departing clients in fields such as the financial

services sector or law or accountancy, possible breaches of restrictive covenants may more

readily come to the notice of a former employer in those sectors than in the field in which

the pursuer operates (ie for which mandates are not used by the successor employer to

recover files from the former employer). Accordingly, while that was a factor which led the

court in Quilter to conclude that a non-compete clause was not necessary or could not be

justified on the basis that a non-solicit clause would otherwise be impossible to police, that is

not the case here, for the reasons noted. In the present case, the pursuer has sufficient

averments to advance a case that a non-compete clause may be regarded as reasonably

necessary, notwithstanding the existence of the non-solicit covenant (now embodied in the

undertakings).

[19]

Furthermore, the court in that case was considering the issue of enforceability after

proof and, indeed, the court found that the only justification established in the evidence that

the non-compete clause was necessary was that it was difficult to police post-termination

obligations of confidentiality. By contrast, at this stage the pursuer's averments are accepted

as pro veritate.

[20]

For these reasons, the case of Quilter is distinguishable on its facts from the present

case. Cogently reasoned though it is, and no doubt correctly decided on its facts, it does not

dictate the outcome of the former employees' motion for recall.

Consideration of the non-compete clause and the third question

[21]

Furthermore, in my view, Ms Tyre overstates the effect of the non-compete clause as

rendering the former employees "unemployable'. The non-compete clause does not have

this effect. Rather, it is confined to the specific sector of recruitment (in the construction

field) in which the pursuer is a specialist provider. Moreover, the non-compete clause

operates in a bespoke (not blanket) fashion in respect of each of the former employees,

because it is confined to the specific periods (defined as "the Relevant Period") for which

each of the three former employees was employed (the dates of the Relevant Period are

different for each of the former employees); and there is the further qualification that he or

she was "directly concerned" in the pursuer's business. The former employees are free to

become employed or engaged in any recruitment agency other than one involving

placements within the construction industry, or indeed they are free to become employed or

engaged in any other field of employment.

[22]

In relation to the scope and geographical reach of the restrictive covenant, it was not

suggested that there was any mismatch, in the sense that the non-compete clause

encompassed a wider geographical area or a broader range of activities than that in which

the former employees were engaged.

[23]

Finally, in my view, the pursuer has sufficient averments of a compelling and

reasoned basis for the six months' duration of the non-compete clause, a duration Ms Tyre

suggested was unjustified. While the former employees accepted that the pursuer has a

legitimate business interest in protecting its confidential information and that of its clients

and candidates (see their note of argument, para 6.3), the pursuer's position is that it also has

other legitimate business interests that merit protection, namely (i) the strength and

continuity of its relationships with its clients and candidates and (ii) the integrity and

stability of its workforce: article 13 of condescendence. It is well-recognised that those are

legitimate business interests that employers are entitled to protect: Sundolitt Limited v

Addison [2017] CSIH 15 ("Sundolitt Limited"), paragraph 21.

[24]

The pursuer's relative averments are contained in articles 13 to 16 of

Condescendence, some of which are set out above (see para [14]). At the first hearing,

Mr Tosh augmented these averments in his oral submissions. As he explained, in relation to

the pursuer's legitimate business interests, the assets of the pursuer's business are not

tangible. The whole value of the pursuer's business resides in the strong and consistent

personal relationships individual employees build up over time with the pursuer's clients,

whether they are prospective candidates to be placed or prospective employers accepting

individuals for placement, and the confidentiality arises in respect of the details of those

client contacts. These relationships were central to the pursuer's business. He contrasted

this with other kinds of businesses, for example, supplying good, and in respect of which the

personal relationship was secondary to the goods supplied. For these reasons, it is not a

question of just transferring the clients of a departing employee to a new employee. It took

time for the new employee to develop a personal relationship anew. That was the legitimate

business interest the pursuer seeks to protect. I accept the force of those submissions.

[25]

For all of these reasons, I determine the third question in favour of the pursuer: the

pursuer has averred and presented a prima face case that the non-compete clause is no more

than is reasonably necessary to protect its legitimate business interests.

[26]

Accordingly, notwithstanding the carefully argued and full written and oral

submissions on behalf of the former employees advanced at the recall hearing, I remain of

the view that the pursuer has presented a prima facie case (in my view a strong one), that it

has legitimate business interests to protect and that, on a proper construction, the post -

termination obligations imposed by the contracts on the former employees go no further

than is reasonably necessary to protect those legitimate business interests: Sundolitt Limited,

paragraphs 21 to 23.

[27]

Furthermore, I do not accept the submission that the terms of the interlocutor was

too broad or unclear. In any event, at most Ms Tyre figured an accidental breach and a

breach of that character is unlikely to be visited with any sanction for breach or contempt.

[28]

If, after the determination of the three questions there is a residual discretion (as

suggested in para 136 if Quilter), in our procedure, at this preliminary stage, that is likely to

coincide with the balance of convenience, to which I now turn.

Balance of convenience

[29]

To the extent that this was put in issue, I find that the balance of convenience

continues to favour the pursuer. Given the timing of the grant of interim interdict relative to

the commencement of the six-month period, which in the case of the first defender was in

late December, the non-compete clause is not in fact relied on for the whole six months. At

the first hearing, Mr Tosh referred to the case of Chill Foods (Scotland) Ltd v Cool Foods Ltd

1977 SLT 38 and Lord Maxwell's observation (at p 41) that the balance of convenience will

favour the protection of an existing business as against a new one. It was explained at the

first hearing that, while Caval was an existing recruitment consultant elsewhere in the UK, it

only established a physical office in Scotland (in Glasgow) in January 2021. In that respect it

was a new business in the jurisdiction in which the pursuer operates. Furthermore, I was

advised at the first hearing that the pursuer estimated it was losing £5,000 per week since

January, when the Glasgow office of Caval was opened. While the businesses the pursuer

and Caval engage in may also now be conducted in part remotely or online, I nonetheless

regard Lord Maxwell's observation to be apposite. I also accept that it is not enough for the

defenders to say that the pursuer's remedy lay in a claim for damages, as proof of loss in

such cases may be difficult to establish. For completeness, I should note that, while I was

referred to a number of email exchanges, and on which the parties offered different

interpretations or explanations, those kinds of disputes are more appropriately resolved at a

proof, rather than on ex parte submissions, and I placed no weight on those materials.

Decision

[30]

For these reasons the motion for recall is refused. I reserve meantime all question of

expenses.

Coda

[31]

Immediately before the case called before me on 9 April to give my decision, the first

and third defenders produced an affidavit from an individual who used the services of

several recruitment consultants, including the pursuer. The subject-matter related to

whether the first defender had had contact with him. That issue is now covered by the

undertakings. The matters spoken to in the affidavit are not relevant to the non-compete

clause and does not cause me to change my decision, which is to refuse the motion for recall

of the non-compete order.

Scottish Court of Session Decisions