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Thursday, 12 January 2012

Faccenda Chickens rule the roost as judge nips Caterpillar in the bud

Some caterpillars change into butterflies; others
become litigants. But which are more appealing?
Caterpillar restrains in vain. Caterpillar Logistics Services (UK) Ltd v Huesca de Crean [2011] EWHC 3154, a decision last month from Mr Justice Tugendhat is one of those slightly misplaced creatures, a case with intellectual property content but which ends up in a non-IP court (in this instance, the Queen's Bench rather than the Chancery Division of the High Court for England and Wales). This happens from time to time with disputes concerning contracts with an IP flavour, as was the case here.

Accountant Paula Huesca had a middle management post with Caterpillar Logistics till she left in August 2010 to take up a senior management position with Quinton Hazell Automotive Limited (QH). Her contract of employment with Caterpillar didn't contain a restrictive covenant, though she did sign a separate confidentiality agreement, unlimited in time, in which she undertook not to use or divulge Caterpillar's trade secrets or confidential information during or after her employment.

A year later, Caterpillar told Huesca that it intended to sue her for breach of a fiduciary duty which she owed the company by accepting the QH position . Huesco denied the allegation, maintaining that she had no intention of disclosing confidential information to QH and even undertaking not to do so. Not daunted by this display of confident denial, Caterpillar issued proceedings: the order which it sought contained a generic definition of confidential information which did neither specified any particular information which was stated to be confidential not listed any documents by which it could be ascertained precisely what was included.  According to Caterpillar,despite the requirement laid down by the Court of Appeal in Faccenda Chicken Ltd v Fowler [1987] Ch 117 and Roger Bullivant Ltd v Ellis (1987) ICR 464 that the confidential information be identified, the court could still apply the principle established by the House of Lords in Bolkiah v KPMG [1998] UKHL 52 that an ex-employee can be barred from carrying out specified work for a new employer unless that employee is able to satisfy the court that all reasonable measures have been taken to ensure that no disclosure would occur.

Mr Justice Tugendhat dismissed Caterpillar's application.

  • The learned judge wasn't persuaded of the utility of the Bolkiah principle. Apart from the fact that no order had ever been made on behalf of an employer against an employee in reliance on it, Bolkiah wasn't an employment case and contained no reference to any employment case law. All it established was that a solicitor remained under a continuing duty, after a retainer had ended, to preserve the confidentiality of information imparted by a client during the fiduciary relationship which had previously existed.  If Bolkiah was relevant to the relationship of an employee to an employer, it was odd that its relevance had been overlooked in all the major employment cases since it was decided.
  • The judge agreed that an employee might indeed be a fiduciary in respect of specific property or confidential information entrusted to his or her care -- and that such an employee might even have a relationship with the employer which was analogous to that of a trustee to a beneficiary or solicitor to client. However, that was not the usual case.  In general, in a normal employment relationship, the balance of power was with the employer -- not the employee.
  • If Bolkiah didn't apply, what did? The judge explained that Faccenda Chickens still ruled the roost: this meant that the extent to which an employer was free by agreement to restrain the use or disclosure by a former employee of confidential information depended on the nature of the information and the period and territory in which the restraint was to apply.
  • In any event, Caterpillar's application was doomed for several reasons, but mainly because (i) the confidentiality agreement was too wide to be enforceable since it sought to include both information and other matter that employees would normally carry around in their heads and would be entitled to use for their own benefit after the employment relationship ended, and (ii) the form of the injunction which Caterpillar was too wide because it was not clear what information it was seeking to protect and also because it specified no time limit; 

The IPKat understands that permission to appeal has been granted. He thinks the decision is correct on the facts and agrees that the application of the principle in Bolkiah would be inappropriate here. However, he doesn't like the idea that, if Bolkiah had been relevant, it would have been cited in all the leading employment cases by now: that argument can be used against any means of legal reasoning in which a perceptive lawyer is able to graft a precedent from one field of application so that it bears fruit in another.

Recipes for chicken and caterpillar here and here
The chicken, the cat and the caterpillar here

3 comments:

Anonymous said...

Employers are funny people. They are under the strange impression that they can pay you for a month or two yet own you for life. They expect you to commit your life to the company yet offer no return bargain. They expect you to abide by every dotted 'i' and crossed 't' in a contract yet in return don't believe that the term providing for a '40 hour working week' applies at all.

Funny people, employers.

Anonymous said...

It is interesting how these issues keep on recurring in the law. Point (i) summarised in Jeremy's last bullet point is supported by Ixora v Jones [1990] FSR 251. A point which is not mentioned by Jeremy but which greatly exercised Tugendat J is the claimant's failure to serve its particular of claim on time - echoes of Hytrac Conveyors v Conveyors International [1983] FSR 63. It appears that neither of these cases was cited by counsel for the defendant, presumably because (a) he is too young to have been around in those days and (b) there is no good textbook on breach of confidence which deals with points like this. Let's hope the 2nd edition of Gurry will solve this problem.

John Simpson said...

The idea from Faccenda Chicken that a confidentiality restraint must
have a time limit to be enforceable doesn't make much sense to me.
Shouldn't the restraint be enforceable for as long as the information remains confidential - but for a breach by the former employee? I think the Alberta Court of Queen's Bench (over here in the colonies) put it well last year in Evans v. The Sports Corporation, 2011 ABQB 244 where it stated (though without citing Faccenda Chicken):

[240] There has never been any general requirement for temporal limitations on the wrongful disclosure of truly confidential
or proprietary information by former employees. At common law,
employees may not disclose their employer’s confidences. They are only released from such obligations when the information is no longer
confidential or proprietary, or limitation periods have passed. It is
illogical to suggest that an employer must, to validly protect its confidences and proprietary information, specify a reasonable date after which a former employee is free to use the information for his own benefit and to the detriment of the former employer. These types of restrictions are not the sorts of restrictions that are prima facie in restraint of trade and void, and presumed to be unenforceable.

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