Company’s bid for interim interdict against former employee who set up competitor business refused

A FTSE 100 company which is seeking to enforce a contractual restriction preventing a former employee setting up a rival partnership business has had a motion for interim interdict refused.

A judge in the Court of Session said she was not persuaded to exercise her discretion by granting the interim order sought due to the “weaknesses” in the petitioner’s case.

Restrictive covenant

Lady Clark of Calton heard that the petitioner Informa UK Limited, which was until October 2017 the employer of the respondent Fraser McDougall, raised a petition for interdict against its former employee, founding on a restrictive term and condition in his contract of employment.

The company, which is a member of the Informa Plc group of companies and is involved in a multimillion pound business organising large scale events and exhibitions, providing professional training and specialist business intelligence to a wide range of customers, also lodged a petition in almost identical terms against another former employee, Allister Phillips.

The matter came before the court as a disputed motion on behalf of the petitioner for interim interdict and in her opinion Lady Clark dealt with the issues raised in the petition against Fraser McDougall only.

The court was told that in 2013 under a share purchase agreement, a partnership business called Phillips McDougall had been bought by the petitioner at substantial cost and the partners Matthew Phillips and John McDougall transferred all their shares at an agreed purchase price.

Existing staff of the partnership, which included Allister Phillips and Fraser McDougall - the sons of the founders of the partnership Phillips McDougall - were transferred to the employment of the petitioner.

Both Allister Phillips and Fraser McDougall were promoted in December 2015 and at that time both signed what the petitioner called “the standard BI anti-compete clause” which was added to their existing terms and conditions of employment.

Competitor company

But on 10 April 2017 they sent separate letters of formal notice of resignation, in which they stated that they would continue to work for the company for the next six months, until 10 October 2017, and advised that they would be joining a “competitor company” active in the agrochemical, seed and financial services industries.

The petitioner became aware that Fraser McDougall and Allister Phillips had resigned “to take up positions with Phil Mac Associates trading as AgBioInvestor” but following legal correspondence between the parties’ solicitors in which solicitors for the petitioner drew attention to the terms of the restrictive covenants in the employment contracts, the petitioner was advised that Fraser McDougall and Allister Phillips had been assumed as partners of Phil Mac Associates and were not employed by the partnership.

It became apparent to the parties that there was a live dispute as to whether being partners actively engaged in the partnership business trading as AgBioInvestor breached any aspect of the restrictive covenants, in particular post-termination clause 1.4, whereby the employees agreed that for a period of six months following their employment with the petitioner they would not “be employed by any direct competitor”.

Counsel for the petitioner, Aidan O’Neill QC argued that the word “employed” had to be interpreted in the general sense of “engaged”, otherwise it would make a “nonsense” of the intended breadth of the clause.

It was further submitted, under reference to Sundolitt Ltd v Addison CSIH 15, that courts in Scotland will uphold post-termination employment restrictions if the obligation, as in this case, can be said to be “reasonably necessary to protect the former employer’s legitimate interests”.

The main submission of counsel for the respondent, James Mure QC, was that the meaning of “be employed by” had a clear and actual meaning and there were no averments that the respondent was employed by the partnership firm.

It was argued that a proper reading of clause 1.4 did not prevent the respondent as an individual starting a new business.

Counsel also submitted that the way in which the petitioner had dealt with the respondent, by effectively placing him on “gardening leave” had given the company the benefit of the six months protection envisaged in the restrictive covenant.

Balance of convenience

In a written opinion, Lady Clark of Calton said: “The important issue which I consider at this stage bears upon whether the petitioner has a prima facie case is the interpretation and meaning of clause 1.4.

“I would accept at this stage that there appears to be legitimate business interests for the petitioner to protect and that, even if the clause has the wider meaning contended for by the petitioner, the restrictions are reasonably necessary for the protection of the petitioner’s interests. The submissions about interpretation made by counsel for the petitioner are certainly arguable for the reasons he gave but I do not agree with counsel that the petitioner’s case is a strong case.

“By choosing to use the words ‘be employed by’ in clause 1.4, I consider that there is a strong argument that the words ‘be employed’ or ‘employed’ are words being used with their most obvious meaning, as contended for by counsel for the respondent. In addition whatever clause 1.4 may mean, it does not appear to prohibit a former employee himself setting up as a sole trader and direct competitor.”

The judge added: “In any event if interim interdict was granted and was not well founded, I consider that it would be difficult to identify for the purposes of a calculation of damages the effect of interim interdict on the respondent.

“Taking into account what I consider to be weaknesses in the petitioner’s position in relation to the disputed interpretation of clause 1.4 which is the foundation of the petitioner’s case and trying to weigh up, as best I can, the balance of convenience I am not persuaded to exercise my discretion in favour of the petitioner.”

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