Competition

Case Note:  International Consulting Services (UK) Ltd. v Hart

Jane Lambert

This case note first appeared on the Old Colony House website in May 2000

Last updated 21 Dec 2005

Three issues arose in this action. The first was the validity and construction of a covenant restraining a senior consultant of a telecommunications consultancy whether on his own behalf or on that of another from canvassing, soliciting, approaching, dealing or contracting with:

"any company, firm or person who at any time during the twelve months immediately proceeding the date of termination is or was:
(a) negotiating with the Employer for the supply of services;
(b) a client or customer of the Employer; and/or
(c) in the habit of dealing with the Employer
where the dealing or contracting relates to services which are competitive with or of the type supplies by the Employer in respect of the supply of which the Employee was engaged or concerned in the last 12 months immediately preceding the date of termination and where the Employee (or one of his subordinates) dealt or had contact with that person."

The restraint was to last for 12 months from the date of termination of D's employment and was not limited in geographical scope. The second issue was whether D was entitled to damages on C's cross-undertaking as to damages for loss sustained by reason of an interim injunction restraining him from dealing with 33 prospective customers. The third was the appropriate remedy for breach of D's implied duty of loyalty in seeking business for a new business that he was about to set up while still on C's payroll.
Objections to the Covenant

D had attacked the validity of his restrictive covenant on the following grounds:

	a covenant preventing him from dealing with companies with whom C had "negotiated" (as opposed to actual customers) was flawed because the meaning of the verb "negotiate" is elastic to the point of uncertainty; the restraint was too broad in that many customers (such as British Telecommunications Plc) had many departments and the restriction would have prevented D from dealing with departments with which he had no previous contact;
	C had no legitimate interest in preventing approaches to prospective customers with whom there had been negotiations; and
	the final limitation "where the Employee (or one of his subordinates) dealt or had contact" was insufficient as it could cover contacts who were not involved in any contract or negotiations with C.

Rejection of Uncertainty Objection

Mr. Strauss rejected the first objection defining "negotiations" as "a discussion between the parties about the terms of a contract which both parties have in view and which is a real possibility." Anything less than that would fall outside the restraint. D was free to approach companies who had merely expressed interest in dealing with C. There was no authority for the second objection and, in any case, the restriction could be justified on the ground that D might otherwise get work from a department of a company with whom he had no previous contact by referring to his dealings with a department with whom he had dealt. Taking the third and fourth objections together, the learned deputy judge regarded the restriction as reasonable:

"Because of the complexity of the subject matter of negotiations and the long period of time over which they are often conducted, [C] did in my view legitimately regard the connection with customers resulting from negotiations as forming part of their business goodwill which required protection."

Although the case was on the borderline, the fact that the restraint operated even where D's contact with a customer was unconnected with the negotiations and was a long time in the past did not quite tip the balance.

Breadth of Injunction
On an application without notice Richards J had restrained D from dealing with 33 named customers. His lordship directed himself that C had to show in relation to each customer that there were contractual relations or negotiations (in the way that he had defined the term above) in the 12 months before D's departure and that D had contact with that customer in order to make out its case. C was able to prove that it had a contract or entered negotiations with only some of those companies. It followed that C should not have obtained injunctive relief as to the rest and that it should compensate D for any loss sustained by reason of the restraint and Mr. Strauss ordered an inquiry as to D's damages on C's cross-undertaking. However, to take account of D's conduct, the deputy judge directed D's compensation to be reduced to half his actual loss.

Defendant's Duty of Loyalty

While still employed by C, D met representatives of UTA and persuaded them to deal with him and his associates as individual consultants rather than with his employer, which had offered to supply full project management services. D knew that UTA would prefer to hire individuals to do specific tasks rather than consultancies to provide packaged solutions. The deputy judge described such conduct as a flagrant breach of his duty to do all he could to obtain UTA's custom for C. C did not claim any relief that would have prevented D from supplying individual consultants as opposed to packaged solutions but sought either an account of profits or damages. His lordship indicated his willingness to order an inquiry as to C's damages noting that they would probably be assessed on the basis in Sanders v Parry [1967] 1 WLR 753 (that is to say, for breach of equitable rather than contractual duty).

 

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