Neutral Citation no. (1999) 1900

Ref:    

CARC2767

 

 

 

Judgment: approved by the Court for handing down

Delivered:

05/03/99

(subject to editorial corrections)

 

 

 

           IN HER MAJESTY'S COURT OF APPEAL IN NORTHERN IRELAND

 

                                                                       _____

 

BETWEEN

 

                                    CAPE INDUSTRIAL SERVICES LIMITED

 

                                                                                                                   (Plaintiff) Appellant

 

                                                                        and

 

                                                       (1)  BRIAN McCLURE

                                (2)  C & D INSULATION COMPANY LIMITED

 

                                                                                                       (Defendants) Respondents

 

_____

 

CARSWELL LCJ

 

            This is an appeal from a decision of Girvan J given in the Chancery Division on 28 October 1998, whereby he refused to grant to the appellant interlocutory injunctions directed to the respondents.  In the action the appellant seeks to restrain the first-named respondent Brian McClure from acting contrary to the terms of his contract of employment with the appellant by performing work for any competitors, soliciting its customers or divulging its trade secrets.  It also seeks to restrain the second-named respondent C & D Insulation Co Ltd ("C & D") from inducing further breaches of Mr McClure's contract of employment and disclosing or making use of the appellant's trade secrets.  On the appeal before us the terms of the injunctions sought by the appellant were rather more restricted than before Girvan J, and the claim against Mr McClure was confined to an injunction until 3 July 1999 against canvassing, soliciting or endeavouring to entice away from the appellant any person, firm or company who at any time during the last two years of his employment with the appellant was a customer of the appellant.  Against C & D the appellant sought only the first of the two injunctions claimed in the notice of motion.

             Mr McClure was first employed on 4 April 1988 in the capacity of General Manager by Cape Contracts Ltd, a member of the Cape group of companies, of which the ultimate holding company is Cape plc.  His contract of employment did not contain any covenants restrictive of his activities after the termination of his employment.  In late 1989 Mr McClure was offered the position of Regional Director Ireland.  It is not clear whether this involved a significant change in his responsibilities. Mr McClure denies that it did, but it appears that his employers regarded it as a promotion.  An "enhanced package" of terms and conditions of employment was made available to him in his new post, which he took up on 1 December 1989.  The successor to Cape Contracts Ltd is the appellant Cape Industrial Services Ltd, which combines the insulation business formerly carried on by Cape Contracts Ltd and the scaffolding business formerly carried on by Cape Scaffolding Ltd.

            On 18 November 1989 Mr Styles, a former group personnel executive of Cape plc, who had retired and was working on a consultancy basis, wrote to Mr McClure a detailed letter formally offering him the post of Regional Director Ireland and setting out the terms and conditions of employment in that post.  Clause 8, which was headed "Business Ethics", contained a number of covenants restricitng the activities of the employee during and after his employment.  The material provisions were contained in Clause 8.2, 8.4, 8.5 and 8.7:

                        "8.2      You will not at any time after termination of employment for whatever reason divulge or communicate to any other person any trade secrets concerning Cape PLC or any Cape Entity or any of their manufacturing processes or information of a confidential nature as to their business accounting, financing or contractual arrangements confided to you as a result of your employment.

 

                        ...

 

                        8.4       Further, and as a separate obligation, you will not for a period of twelve months' from the date of termination of employment for whatever reason, canvas or solicit in competition with Cape PLC or any Cape Entity either on your own behalf or on behalf of any other person, firm or corporation, custom for goods or services of the kind supplied by any Cape PLC or any Cape Entity from any person, firm or corporation which has during the period of two years preceding the date hereof been a customer of Cape PLC or any Cape Entity.

 

                        8.5       You shall not within twelve months after the termination of employment hereunder howsoever effected either on your own behalf or any other person, firm or company, canvas, solicit or endeavour to entice away from the Company any person, firm or company who at any time during the last two years of your employment with the Company has been an employee or customer or in the habit of dealing with Company.

 

                        ...

 

                        8.7       The restrictions contained above are considered reasonable by the employee and Cape PLC but in the event that any such restriction shall be found to be void, but would be valid if some point thereof were deleted, or the period of application reduced, such restriction shall apply with such modification as may be necessary to make it valid and effective."

            The letter of offer concluded by stating:

                        "We hope that you will decide to accept this promotion and we look forward to receiving back as confirmation the signed copy of this letter."

 

There was appended below a form by which Mr McClure could signify his  acceptance of the terms contained in the letter.  He did not sign this form, however, but wrote to Cape plc on 24 November 1989 in the following terms:

 

"Appointment Regional Director Ireland

                  I acknowledge recipt of your letter dated 15th November 1989 a propos the above proposed appointment.

     

                  Obviously one is delighted with the offer and will earnestly endeavour to discharge, for the Company good, the duties and responsibilities synonymous with it.

     

                  However having read the Statement of Terms and Conditions of employment associated with the post I feel unable to subscribe to Clauses 8.4 and 8.5 as they are presently written.  Clearly I understand fully the natural desire of the company in attempting to safeguard its interests, and this is commendable.  Nevertheless the above clauses are not equitable, and in my opinion offend the principle of fairness and justice.  Concerning Clause 8.4 I would be fully prepared to refrain from joining a competitive concern if I had, of my own volition, terminated my employment with the company.  If on the other hand the termination was effected by the Company then one must be free to earn a living by all appropriate means in whatever acceptable sphere of work.  I would also be prepared to agree to the substance of Clause 8.5 if it was modified to take cognizance of the changes sought to the previous clause as discussed above.  I have no objection whatsoever with any of the other clauses outlined in the Statement of Terms and Conditions of Employment and look forward to signing and returning the amended document."

The company did not reply to this letter.  The view which its officers took of Mr McClure's reservations are not known.  We were not given any information what steps Mr Styles or anyone else connected with the company took on receipt of Mr McClure's reply.  Mr McClure took up the post of Regional Director Ireland and carried out its duties until his resignation in 1998.

      By letter dated 13 April 1998 he gave the appellant three months' notice of his intention to resign from his post, commencing on 20 April 1998.  In the event his employment came to an end on 3 July 1998.  His actions in the ensuing period between his givng notice and his entering the employment of C & D on 3 August 1998 were set out in the following passage at pages 6 and 7 of the learned judge's judgment:

                  "Taking Mr McClure's case at its highest it must be said that he behaved in a manner which draws considerable suspicion upon himself.  It is not possible and it is inappropriate in an interlocutory application of this nature on conflicting affidavits to resolve the questions of fact in dispute between the parties.  The plaintiff's evidence if ultimately accepted by the court could lead a Court to conclude that Mr McClure did at least attempt to gather confidential information belonging to the plaintiff relating to its business before he left the plaintiff while he still had access to the plaintiff's premises and equipment before he joined C & D and that he did so with a view to using it or making it available for use for the benefit of C & D when he joined the latter company.  On the evidence as it stands there may be a suspicion that Mr McClure may have copied or transcribed some confidential information and taken it with him when he left the plaintiff.  The evidence which excites suspicions against Mr McClure include the averments and the affidavits sworn on the plaintiff's behalf in relation to his dishonest behaviour in relation to a mobile phone, his attendance at the plaintiff's premises at times when he alone could gain access to documents and information, his unconvincing case that he attended the plaintiff's premises to make private phone calls which could have been made more sensibly elsewhere, his conduct suggesting that he was going to work for a non‑competitor at a time when he must have been negotiating with C & D and/or known that he was about to join them, his approach to Vincent Quinn and another other (sic) employee of the plaintiff enticing them to join C & D and the attempts by somebody and most probably Mr McClure to hack into Mr Quinn's computer containing sensitive information."

 

      After some correspondence, which commenced on 21 August 1998, the appellant issued on 14 September 1998 a writ of summons and a notice of motion for interlocutory injunctions directed to both respondents.  The injunctions were in fairly comprehensive terms, seeking to restrain Mr McClure until 3 July 1999 from working for a competitor, canvassing or soliciting customers of the appellant and from divulging, communicating or using any trade secrets and/or confidential information.  The notice of motion also sought injunctions against C & D restraining it from inducing, procuring or facilitating further breaches of Mr McClure's contract of employment with the appellant and from disclosing or making use of the appellant's trade secrets and/or confidential information. 

      The learned judge dismissed the application on the grounds that (a) no agreement had been reached between Mr McClure and Cape Contracts Ltd on the content of any restrictive covenants (b) the appellant had not satisfied him that Mr McClure had used or was about to use, divulge or communicate information which the appellant was entitled to protect at that stage.  The appellant appealed by notice of appeal dated 16 November 1998 and the respondents issued a counter-notice on 23 November 1998.  At the hearing before us on 3 February 1999 counsel for the appellant did not seek to restrain Mr McClure from working for C & D, and confined his appeal to seeking an injunction against canvassing, soliciting or endeavouring to entice away customers of the insulation business of the appellant.  He wished nevertheless to argue that Clause 8.4 was incorporated into the contract of employment, since the appellant might in due course seek damages for its breach.

      The learned judge held, quite correctly in our opinion, that in the circumstances of the case it was necessary for the appellant to establish rather more than that there was a serious question to be tried and considered that it was appropriate for the court at that stage to determine as a matter of law the proper construction of the contractual documents.  In so holding he followed a series of cases culminating in Lansing Linde Ltd v Kerr [1991] 1 All ER 418.  The basic criterion was laid down in American Cyanamid Co v Ethicon Ltd [1975] AC 396 that once the plaintiff has established that there is at least a serious question to be tried the court should not embark further upon an examination of the plaintiff's chances of success.  In the series of subsequent cases it was held that that criterion was not always appropriate where the grant or refusal of an injunction would in effect dispose of the action finally in favour of the party succeeding in the interlocutory application.   As Staughton LJ said in Lansing Linde Ltd v Kerr at page 424, justice requires some assessment of the merits and more than that there should be a serious question to be tried.  The strength of the plaintiff's claim accordingly has to be taken into account in such cases, of which the present is one, and in doing so the judge was in our view right to decide the question of the correct construction of the documents. 

      The judge held that Mr McClure's letter of 24 November 1989 was insufficiently clear and precise to constitute a counter-offer and so amounted to no more than an invitation to treat with a view to reaching a final consensus.  Such consensus had never been reached and accordingly the covenants contained in Clauses 8.4 and 8.5 did not form part of his contract of employment. Counsel for the appellant challenged this conclusion on the ground that the criterion for determining whether a party wishes to make a counter-offer or is only issuing an invitation to treat is that of his intention, as it reasonably appears to the other party.  He submitted that certainty of terms goes to enforceability of the contract, not to the contractual intention.  In our view this distinction may be correct as a matter of principle, but one can have an effect on the other: if the terms put forward by one party are imprecise and will require further definition or clarification before they are sufficiently clear to be enforced, that may be a clear indication that his intention at that point was to enter into further negotiations and not to make a firm offer which was capable of being accepted without more.  With this in mind we shall examine the content of Clause 8.4 and 8.5.  In doing so we bear in mind the well-known observation of Lord Wright in Hillas and Co Ltd v Arcos Ltd (1932) 147 LT 503 at 514:

                  "Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise.  It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat.  That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as matter of machinery where the contractual intention is clear but the contract is silent on some detail."

 

Steyn LJ adopted the same approach in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25 at 27 when he said:

                  "... English law generally adopts an objective theory of contract formation.  That means that in practice our law generally ignores the subjective expectations and the unexpressed mental reservations of the parties.  Instead the governing criterion is the reasonable expectations of honest men.  And in the present case that means that the yardstick is the reasonable expectations of sensible businessmen."

 

      We also note the observations of Steyn LJ in the Trentham case concerning executed contracts and offers which are accepted by performance.  In the present case the employment of Mr McClure commenced as envisaged by the letter of offer and he worked for the appellant and its predecessor for a number of years.  In these circumstances it seems to us clear that a contract of employment came into existence between them and that its terms were those contained in the letter of offer, which were accepted by performance.  The issue therefore is whether Clause 8.4 and 8.5 were part of that contract in any form.

      Clause 8.4 in its original form as propounded on behalf of Cape Contracts Ltd contained a prohibition against canvassing or soliciting in competition with Cape plc or any Cape Entity custom for goods or services of the kind supplied by Cape plc or any Cape Entity from any person etc who had been during the period of two years immediately preceding the date thereof a customer of Cape plc or any Cape Entity.  The term "Cape Entity" is nowhere defined in the letter. The appellant has to assert that it means all companies in the Cape Group, for the customers referred to in the notice of motion are those of the appellant company, not of Cape plc.  It may be possible for it to claim that this is the obvious meaning, but it is a difficulty for the appellant to surmount.  Another is that the restraint is in respect of those persons etc who were customers during the period of two years immediately the date of the letter, a rather strange provision which might make it difficult to identify the customers covered by the prohibition, although as a matter of wording it is clear enough. 

      The major difficulty facing the appellant, however, is that Mr McClure did not purport in his letter of 24 November 1989 to accept the terms of Clause 8.4 as they stood, with the qualification that they should only apply if he terminated his employment with  Cape Contracts Ltd of his own volition.   Instead he used the phrase "I would be fully prepared to refrain from joining a competitive concern".  It might be possible to say, as we suggested in argument, that this was shorthand for refraining from canvassing or soliciting, since in practice this could probably only be done by joining a competitor company.  That was far from clear, however, and the lack of clarity is pointed up by the fact that the first injunction sought by the appellant was to prevent Mr McClure from performing work for any competitor of the appellant.  To found this they would have had to say that the original non-solicitation provision had been replaced by a prohibition against joining a competitive concern as the result of the wording of Mr McClure's letter.  The wording of the prohibition contained in Mr McClure's letter is such that its extent seems to us uncertain and difficult to enforce.  That tends also to show that he did not intend that it would be the final version of his obligation, but contemplated that that would be spelled out with more precision in a return draft from Cape plc, which he would accept by signing his agreement to the amended offer.  We accordingly are of opinion that the judge was correct in his conclusion that Mr McClure's letter did not constitute a counter-offer in respect of Clause 8.4, but was a mere invitation to treat.  We do not consider that it was made with the intention that it should become binding upon him as soon as it was accepted on behalf of Cape Contracts Ltd, the criterion for an offer: Chitty on Contracts, 27th ed, para 2-002.

      If Clause 8.5 stood by itself it would be easier for the appellant to establish that Mr McClure's letter constituted a counter-offer, which was accepted by the appellant by conduct.  In its original form the material terms for present purposes were that he would not canvas (sic), solicit or endeavour to entice away any person etc who during the last two years of his employment with the Company had been a customer or in the habit of dealing with the Company.  It may be noted that the terminology has changed from references to Cape plc and Cape Entities to the words "the Company", which can reasonably be understood from the rest of the document as meaning Cape Contracts Ltd.  There is some overlap with the prohibition in Clause 8.4 and the two do not sit well together, but the definition of customers in terms of time is quite different.  In his letter Mr McClure said that he would be "prepared to agree the substance of Clause 8.5 if it was modified to take cognizance of the changes sought to the previous clause as discussed above." 

      Taking Clause 8.5 on its own, we would find it possible to regard both the original terms and the modification proposed as sufficiently clear to be enforceable.   It does not, however, stand on its own.  It has to be read with Clause 8.4 and the proposals in Mr McClure's letter relating to both clauses.  If those proposals were only an invitation to treat, as we have held, we do not think it possible to isolate the portion of the letter relating to Clause 8.5 and regard it as constituting a counter-offer.  Mr McClure's contractual intention has in our opinion to be ascertained from the whole letter, and the part which deals with Clause 8.4 shows in our judgment that it had not crystallised into an intention to be bound by his proposals as a counter-offer.

      That conclusion is sufficient to dispose of the appeal.  Several other difficult and interesting issues were argued before us, the reasonableness of the breadth of the restrictions, the balance of convenience and the adequacy of damages, and the effect of the Transfer of Undertakings (Protection of Employment) Regulations.  Notwithstanding the quality of the arguments presented to us, we do not propose to express our views on these issues in this judgment.

      The appeal will be dismissed.


        IN HER MAJESTY'S COURT OF APPEAL IN NORTHERN IRELAND

 

                                                                   _____

 

BETWEEN

 

                                 CAPE INDUSTRIAL SERVICES LIMITED

 

                                                                                                           (Plaintiff) Appellant

 

                                                                     and

 

                                                    (1)  BRIAN McCLURE

                             (2)  C & D INSULATION COMPANY LIMITED

 

                                                                                               (Defendants) Respondents

 

_____

 

JUDGMENT

 

OF

 

CARSWELL LCJ

 

_____