Case No. HC07C02914

(q.v.supra ). In Balston Ltd & Anr v Headline Filters Ltd & Anr [1990] FSR 385 a former director who set up a rival factory and had taken a lease on future business premises and formed a company for his activity was held by Falconer J (at 412 ) neither to have breached his duty of good faith nor his fiduciary duty; he had merely taken preliminary steps to investigate the viability of his plan and to advance his intention. 30. But, as Mr Stafford QC on behalf of HISL has demonstrated, there are cases which show that the mere fact that activities during the course of employment may be described as “preparatory” will not necessarily be dispositive of the issue as to whether the employee acted in breach of his obligations to his employer. Hart J in British Midland Tool Limited v Midland International Tooling Limited and Others [2003] 2 BCLC decided that a director who has irrevocably formed an intention to engage in a competing business and has taken preparatory steps cannot rely upon the public interest in favouring competitive business as an answer to allegations of breach of fiduciary duty. He can only put an end to his fiduciary obligation by resigning his directorship. Until he has done so, preparatory steps taken in pursuance of an irrevocable intention to compete would generally amount to a breach of his fiduciary obligations as director (see para 89). 31. This approach was followed by Etherton J in Shepherd Investments Limited and Anr v Walters & Anr ]2006] EWHC 836 (Ch). He held that when former directors and employee set up a competing business, diverting business opportunities and misusing confidential information, they had acted in breach not only of their fiduciary obligations but their implied obligation of fidelity the moment that they procured the services of attorneys in the Cayman Islands to set up the rival business. On the facts of that case, he held that a former employee was also in breach of obligations as a fiduciary, whether or not he was to be regarded as a director, and that he was in breach of his duty of fidelity. The case affords an example, on its facts, of work of preparation which constituted breaches of both the implied duty of fidelity and fiduciary duties. 32. I agree that it is insufficient merely to cloak activities with legitimacy by describing them as preparatory. The first task, as Mr Stafford QC contended, is to identify the nature of the employee's obligations. Once they have been identified, the court is then in a proper position to discern whether the activities of an employee undertaken in pursuance of a plan to be fulfilled on his departure is in breach of his duty to his employee or not. It was the judge's failure, so Mr Stafford submitted, properly to analyse the nature of Mr Tunnard's express contractual obligations, as identified in the job specification, which led the judge into error. His conclusion, between paragraphs 61 and 65, that because Mr Tunnard had only undertaken acts of preparation, he had not acted in breach, either of his duty of fidelity or of any fiduciary duty, was wrong because it depended upon the conclusion that Mr Tunnard's activities were only acts of preparation. Proper analysis of his obligations would, so it was argued on behalf of HISL, have revealed that such activities amounted to a breach not only of the obligation of fidelity but also of an obligation which he owed as a fiduciary. 92. In my view Messrs Rider and Stimson overstepped the line and their activities that they did as summarised above (after their cross examination) crossed over the line between legitimate steps for the future and breach of their duties of fidelity and (in the case of Mr Rider) his fiduciary duty. I accept that all of the activities as alleged by the Claimant in its closing were done by the Defendants and I reject their attempts to downplay what they did.93. For example I have rejected their evidence that the May Power Point presentation was not accurate. They have agreed that they did far more than they stated initially at the start of the litigation and helping themselves to the Claimant’s documents as set out above were all illegitimate actions.94. This is reinforced in my view by the lies that Mr Rider told about his future intentions when he gave notice and the lies that they told when they verified the denials and the exercise of filleting the emails as set out above. Those are all actions designed to understate what they were actually doing. I conclude that they did that because they knew what they were doing was in breach of their duties and wished to conceal the true extent of their wrongdoing. USE OF INFORMATION 95. Part of the wrongful activity of the Defendants was to retain and divert to Concept for its benefit huge amounts of information contained in the vast array of documents retained or diverted. Basically the information provided Messrs Rider and Stimson with an instant set up database of the entirety of the Claimant’s business operations, its pricing information, its special discounts, its suppliers and its customers. Relying on these documents they prepared their own projections for Concept which supposed that they were going to achieve a comparable level of sales to that of the Claimant in respect of its most popular products. 96. The Claimant in their further information set out 7 areas of confidential information (see above at paragraph 29). 97. I have no doubt that this is confidential information of the Claimant. I have no doubt that it is information that an employee as part of his duty of fidelity and a fiduciary to the Claimant would have to keep confidential whilst he was in employment or in a fiduciary relationship with the Claimant. 98. The Defendants complain that the particulars given by the Claimant are not sufficient to identify which particular information is confidential relying upon the observations in Market Maker Beijing Co Ltd & Ors v CMC Group PLC & Ors [2004] EWHC 2208 at paragraph 77. There is in my view considerable force in this submission. The voluntary particulars basically lists every item of information in the Claimant’s business operations. Plainly some of this cannot be confidential such as names and addresses of manufacturers of products, the names and addresses of businesses that might buy such products via the Claimant.99. Equally if the material is in the public domain and can be found from the public domain an ex-employee cannot be prevented from using that material provided he found it from the public domain. This is an important difference. If the material that the Claimant regards as being confidential is actually in the public domain the ex-employee is free to use it. In this context I refer (for example) to the observations of Lord Denning MR in Seager v Copydex (No1) [1967] RPC 349. I considered this decision in the EPI case at paragraphs 45 – 56 as follows:- “Mr Hobbs QC also submitted that Lord Denning MR in Seager –v- Copydex Ltd (No 1) [1967] RPC 349 suggested that it was not permissible to dismember a body of information and that one must go to public sources.” With respect to Mr Hobbs QC, I do not accept that that is precisely what Lord Denning MR said. The part of the judgment (page 368) is as follows:- “The law on this subject does not depend on any implied contract. It depends on the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it. He must not make use of it to the prejudice of him who gave it without obtaining his consent. The principle is clear enough when the whole of the information is private. The difficulty arises when the information is in part public and in part private. As, for instance, in this case. A good deal of the information which Mr Seager gave to Copydex Ltd. was available to the public, such as the patent specification in the Patent Office, or the KLENT grip, which he sold to anyone who asked. If that was the only information he gave them, he could not complain. It was public knowledge. But there was a good deal of other information he gave them which was private, such as the difficulties which had to be overcome in making a satisfactory grip; the necessity for a strong, sharp, tooth; the alternative forms of tooth; and the like. When the information is mixed, being partly public and partly private, then the recipient must take special care to use only the material which is in the public domain. He should go to the public source and get it; or, at any rate, not be in a better position than if he had gone to the public source. He should not get a start over others by using the information which he received in confidence. At any rate, he should not get a start without paying for it. It may not be a case for injunction or even for an account, but only for damages, depending on the worth of the confidential information to him in saving him time and trouble”. As Lord Denning makes clear, the principle is clear enough when information is wholly private, but the difficulty arises when the information is in part public and in part private. If Mr Seager had given them material that was available such as the patent specification or the KLENT grip no complaint could have been made. However, he gave further information, which was private. Lord Denning suggests that where information is mixed partly public and private, then the recipient must take special care to use only the material, which is in the public domain. The key sentence in the judgment in my view is the next sentence “He should go to the public source and get it; or, at any rate, not be in a better position than if he had gone to the public source.” In my judgment, what Lord Denning is saying is that a recipient of mixed information should take care only to use the public information. If he uses the private information he can only do so on pain of payment. Obviously the easiest way to establish that only public information has been obtained is to go to the public sources. It is instructive to see that Lord Denning was of the view (see the cases below) that publication of the patent and the use of the information in the patent would not be actionable. It is clear in my judgment that, in the second part of the sentence however, Lord Denning is acknowledging that it is open to the recipient of the information which is mixed public and mixed private to use the public information, but that he should not be in a better position than if he had gone to the public source. That to my mind means that if he is provided with information, which is in part public, provided that information is a public source, he can use it. It cannot be presumed that Lord Denning would expect the recipient of public source information to have to pay for it. It is clear from the next sentence of the judgment that when he is referring to paying and head start, he is referring to the extra private information that is provided contemporaneously with public information. Relying on Seager, Mr Hobbs QC submits by the provision of the additive itself EPI provided that product in confidence and that product and that provision in that way was confidential private information which Symphony could not use. Thus he submits it was not open to Symphony to argue (as it does) that all the ingredients and processes which they used, which are to be found in EPI’s products, are also to be found in the public domain, unless they use that public domain source for the exercise. To my mind it is important to appreciate that if the product is supplied in confidence and is merely copied completely (as occurred in the Saltman case and the Suhner case) I can well see how complaint can be made. If that exercise is done only, Symphony have the product of the use of EPI’s brains time and energy in producing a finished product, which they merely replicate. If there is something secret or confidential which they thereby merely copied that would be actionable. However, a thing does not become confidential merely because it is supplied confidentially. A number of examples were debated in argument. The use of examples is always difficult. However, take one example. Suppose EPI supplied Symphony with a formula for making a very special cake which would be very unique to EPI. A lot of the ingredients would be common ingredients, but it would be contended that the resultant product is arrived at by use of the secret formula. Suppose the secret formula is not a secret formula at all, but is actually itself a copy of a cake formula that has been published generally for public use. The product and the formula that EPI provide cannot therefore be confidential. That must equally be true in my view in respect of constituent parts. I have already identified that EPI itself proclaims what type the constituent parts of its products are. Equally, if there is other material in the public domain, which points to specific constituents, I do not see how that can be said to be private and I do not see how Symphony (absent a contractual provision) can be prevented even by examination and analysis of EPI’s product of using information they acquire as a result of that exercise which is in the public domain. They do of course take risks if they go that way for the reasons identified by Lord Denning in Seager. This is the collision between the first part of the Saltman judgment referred to above and the second part. It is well illustrated by the decision cited by Mr Prescott QC of O. Mustad & Son-v- Dosen (note) [1964] 1 WLR 109 (H.L.). Junior counsel for Symphony usefully also obtained the Court of Appeal decision from the Lincoln’s Inn Law Library. The plaintiff brought an action against an English firm of fishing tackle manufacturers and a man named Dosen. While Dosen was employed by a third party company, Thoring, he had an active role in the invention of an ingenious and invaluable automatic machine for making fish hooks. During the course of his employment with Thoring he signed a confidentiality agreement. The plaintiffs obtained an assignment of the benefit of Dosen’s agreement, Thoring having gone into liquidation. It is important to appreciate (see page 279 of the Court of Appeal judgment) that the claim for damages was jettisoned at trial. There was no claim in substance that even nominal damages were claimed. The whole claim therefore revolved around the claim for an injunction and what Lord Justice Bankes (page 280) described as an appeal to the equitable jurisdiction of the court. The whole basis for the claim was the misuse of Thoring’s secrets. At the trial of first instance (as Lord Justice Bankes sets out at page 280) there was discussion as to what a trade secret might be, as follows:- “The learned Judge discussed with the Jury what constitutes a trade secret, but of course it is no good discussing what constitutes a trade secret if the person who is the owner of the particular thing which is claimed to be a trade secret has never made a secret of it. For instance, it is no use suggesting that Thoring’s machine was a trade secret if as a matter of fact Thorings had allowed people to inspect the machine during construction or had exhibited it at a trade exhibition or something of that kind. It is no use saying it is very valuable; it is no use saying it might have been a trade secret if I had locked it up and allowed nobody to have access to it, and allowed nobody except a particular man to know how it was constructed, and so forth. No evidence seems to have been given about it – well, I will not say no evidence seems to have been given about it but it seems to have been treated at the trial as though the machine was a trade secret of Thoring’s, and a question was put to the Jury, and the only question put to the Jury was on the footing apparently that it was a trade secret, and that in spite of the fact that the only man who knew anything really about it (Dosen) did say, and said more than once in his evidence, that it never was a secret, and that Thorings never treated it as a secret, and that it was quite open to everybody in the works to know exactly what it was and how it had been made, and the progress it was making and all the rest of it. It does seem to me, when one is considering what ought to be done in this case, one cannot overlook the fact that there was before the learned Judge, and there was before Counsel, evidence that this machine really – if the point had been properly investigated – turned out not to be a trade secret at all. However, that point apparently has never been decided.” 100. As I said absent an express restrictive covenant or the like information does not become confidential merely because the parties give it that label. If the information is in the public domain it is capable of being used even if it is derived from the Claimant’s documents. 101. Another factor is that it is impossible to prevent and ex-employee from using his own gathered skills and expertise earned over the period of his employment. If using his own memory and skills he can recall materials which were confidential whilst he was an employee he can nevertheless use them post employment. That has been well established see Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 C.A. The only information that is capable of being protected post termination is in the nature of a trade secret; confidentiality is not enough. I do not see what the information asserted by the Claimant to be confidential in its voluntary information is any different from the Faccenda case. I accept the evidence of Mr Rider and Mr Stimson (Mr Stimson in particular was impressive in this regard) that all of the information alleged to be confidential was either in the public domain or was easily discoverable by them (such as addresses and telephone numbers) or was in their heads. I do not accept it was necessarily easily discoverable. The documents they took appear to me to afford a considerable saving of time. However detailed consideration of that might well be postponed to the question of damages or other financial relief that is ultimately granted. I express no view about that at this stage.102. The only item which I had a lingering doubt over was information about the sales figures and profit margins. The reality however I suspect is that the profit margins are things which they would regularly carry out in their heads and the actual prices paid to suppliers or obtained from customers would be obtained from those organisations. They are going to be in a position to negotiate business with them and in such negotiations it is almost inevitable that the suppliers or customers will reveal what deals they have with the Claimant in order to obtain better terms from the would be new competitors. 103. In other words I accept the Defendants’ submission that the confidential information so described by the Claimant does not have the necessary indicia of the quality of confidence identified by Megarry VC in Thomas Marshall (Exports) Ltd V Guinle [1979] 1 Ch 227.104. This is reinforced by the fact that the Claimant was unable to identify any serious loss of business or customers by the time of the trial. That is not conclusive because the Defendants might be holding back in the light of this litigation. If an inquiry or account is ordered evidence of breaches including successful solicitations of business from the Agents may come to light whether from the Defendants or any third party disclosure provided by the Agents.105. Accordingly the Claimant has failed to establish that any of the information that they allege to be confidential is confidential to such an extent that they can prevent the Defendants from using that information post termination of their employment provided it is used in a legitimate way. LEGITIMATE USE 106. That is not however the end of the matter. Whilst the Claimant cannot stop the Defendants from using information that is in the public domain or which is part of their gathered knowledge and expertise they can stop illegitimate use of the information.107. It is well established that if an ex-employee deliberately copies or even deliberately memorises information for use post termination that is illegitimate and the ex-employees can be restrained from so acting. It is no defence to a claim for breach of an implied obligation of good faith and fidelity and breach of confidence for an employee who has taken a customer list to say that some or all of the information on the list is publicly available see Robb v Green [1895] 2 QB 1 at pages 18-19 as follows:- “There is one other contention of the defendant's counsel I must refer to. He contends that the order-book of the plaintiff contained no more information than might be acquired by reference to directories and such-like publications; and, moreover, he says that the defendant's master, in seeking to advance his own business, before the defendant made the copy of the order-book, had published circulars or pamphlets containing the names of many of the customers who had sent him favourable testimonials; so that the defendant had when he made the list complained of materials at his command without making use of his master's book. This to a considerable extent may be true, but it is not so altogether. The order-book contains collected together the names and addresses of purchasers of pheasants' eggs spread over the length and breadth of England, Wales, and Scotland. No directory would give this information in this collocation; and though, of course, the testimonials would give similar information as to many of the names in the order-book, there are many names in the order-book which do not appear among the testimonials. The names of all the customers are collected together in the order-book in a manner not to be found in any other book or paper to which the defendant had access. To him, therefore, the possession of a copy of the order-book would be peculiarly valuable. He would be saved the expense and delay of searches, such as would be necessary to enable him to compile such a list for himself. Practically, to bring all those names together, even though singly each may appear in some directory or other, would be almost impossible; and it would obviously be much more difficult to ascertain whether they would be likely customers for pheasants' eggs. By making a copy of the order-book defendant was able to canvass at once each of his master's customers without trouble or expense; and the conversation with Mr. Barclay shows that he looked upon the list in that light. The collection together of these names and addresses in his order-book was the property of the plaintiff. It is the compilation which made the book and the list so valuable to the defendant, and facilitated his endeavours to entice his master's customers to the detriment of the latter.” 108. The Judge at first instance granted the plaintiff damages attributable to the unlawful actions of the Defendant that is to say the copying and use of the customer list. He also ordered the Defendant to deliver up the list of names and all copies and extracts from them and restrained the Defendant from making use of the information obtained by him by copying or extracting such names and addresses. The Court of Appeal affirmed the judgment [1895] 2 QB 315.109. The case was followed Roger Bullivant Ltd v Ellis [1987] ICR 464 C.A. at page 474F Nourse LJ said as follows:- “Although reference is frequently made to the judgment of Maugham L.J. in Wessex Dairies Ltd . v . Smith [1935] 2 K.B. 80, 89, the decision which established the general rule about lists of customers was that of this court in Robb v