CONTRACTS OF EMPLOYMENT: IMPLIED TERMS LOSS : NON-SOLICITATION COVENANTS : RESTRICTIVE COVENANTS: ENFORCEABILITY OF COVENANT : WHETHER SOLICITATION OR BREACH OF FIDUCIARY DUTY
A restrictive covenant which prevented the defendant from soliciting business from the claimant’s customers for a period of six months after the termination of his employment was both reasonable and enforceable.
The claimant security company (S) brought a claim against the first defendant (C), as directing mind of the second defendant security company (F), for breach of a restrictive covenant. C counterclaimed against S on the basis that it was in repudiatory breach of contract.
C had worked for S as its business development director. C’s contract of employment contained a restrictive covenant which stated that for a period of six months after the termination of his employment he would not approach anyone who had been a customer of S during the period of his employment for the purpose of soliciting business which could have been undertaken by S. After a redundancy consultation meeting, C resigned, and the following day F was incorporated. Soon after, five of S’s customers cancelled their contracts with S to move to F. The issues were (i) whether the restrictive covenant was enforceable; (ii) whether C owed S a fiduciary duty; (iii) whether solicitation or breach of that fiduciary duty had occurred; (iv) whether C was the controlling mind of F; (v) whether S suffered loss by reason of the breach of fiduciary duty and/or the breach of restrictive covenant; (vi) whether there was an implied term in the contract to provide C with work; (vii) whether there was a repudiatory breach.
HELD: (1) The non-solicitation clause relied upon by S was reasonable and thus enforceable. It was well-drafted, unambiguous and provided appropriate protection for S and its customer base whilst allowing for limits so that C could still earn a living. The duration of the restriction and the class of customer with whom C was not to deal with had been appropriately confined (see paras 13, 15, 18 of judgment). (2) C was subject to a duty as director of S to avoid situations where his interests could conflict with S’s in respect of exploitation opportunities (para.47). (3) The affidavits of S’s former customers had been wilfully inaccurate and the evidence given that their reason for terminating their relationship with S was not a result of solicitation could not be accepted. Given that F did not have a “shop front” and that some customers joined F the day after its incorporation, it would have been impossible for them to know of F’s existence unless told by C. Contrary to C’s denials, there had been extensive contact between C and the customers. But for that solicitation, the customers would have continued their relationships with S until their contracts expired as they had no problem with S (paras 40-43). (4) On the evidence, C was clearly the directing mind of F, which was therefore jointly liable with him (paras 49-53). (5) S had suffered loss as result of the solicitation of its customers, and ?50,000 was awarded to S in damages (paras 55-57). (6) There was no need to imply a term into C’s employment to provide him with work where there existed an express term in his contract in relation to his hours of work. Accordingly, there was no implied term that S was to provide C with work (paras 59-61). (7) There had been no repudiatory breach of contract (paras 63-64).
Judgment for claimant
SAFETYNET SECURITY LTD v (1) LEONARD COPPAGE (2) FREEDOM SECURITY SOLUTIONS LTD (2012)
QBD (Merc) (Birmingham) (Judge Simon Brown QC) 15/08/2012
Lawtel Update 20.08.12