Credit Suisse Asset Management Ltd v Armstrong
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NEILL,LORD JUSTICE MORRITT,LORD JUSTICE HUTCHISON |
| Judgment Date | 15 May 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0515-4 |
| Docket Number | FC3/96/5992/E |
| Court | Court of Appeal (Civil Division) |
| Date | 15 May 1996 |
[1996] EWCA Civ J0515-4
Lord Justice Neill
Lord Justice Morritt
Lord Justice Hutchison
FC3/96/5992/E
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(Mr David Steele QC)
Royal Courts of Justice
Strand
London WC2
MR P ELIAS QC and MR G CLARKE (Instructed by Rowe & Maw, EC4V 6HG) appeared on behalf of the Appellants
MR M BURTON QC and MR A CLARKE (Instructed by Theodore Goddard, EC1A 4EJ) appeared on behalf of the Respondent
( )
Wednesday, 15th May 1996
Credit Suisse Asset Management Ltd (CSAM) carries on business as a provider of investment services to both private individuals and to institutions. One division of CSAM provides fund management services to private clients. CSAM is a subsidiary of Credit Suisse. Until the determination of their contracts of employment all the ten defendants were employees of CSAM working in the private client division. The sixth defendant Mr Lynne was a marketing officer. The other defendants were fund managers. Mr Knowles' contract terminated on 23rd November 1995. The contracts of Mr Horstead and Mr Tripp terminated on 8th February 1996. Mr Side's contract terminated on 21st February 1996. The contracts of employment of the other six defendants terminated on 28th February 1996.
In the summer of 1995 the senior management responsible for CSAM sought to introduce various changes in the manner in which clients' portfolios were supervised by fund managers. In particular, it was proposed that there should be an increase in the amount of centralised decision-making and that there should be a greater emphasis on the use of authorised unit trusts. The defendants were unhappy about these and other changes and, on various dates beginning on 9th August 1995, they gave in their notice. On giving in their notice the defendants were almost immediately placed on what is called garden leave. They continued to be employed by CSAM but were not required to undertake any duties in regard to fund management.
It soon became apparent that the defendants were seeking employment with James Capel and Co Ltd, which operates a private client fund management business in the City which is in direct competition with CSAM. In these circumstances CSAM thought it necessary to take steps to protect its position and to try to ensure, as far as possible, that its private clients remained despite the departure of the individual fund managers who had supervised their investments.
CSAM sought to rely not only on the duty of confidence owed by each of the defendants during the remainder of their employment but also on the restrictive covenants which, it was said, controlled the activities of the defendants for a period after their contracts of employment had terminated.
The matter could not be resolved amicably and on 15th February 1996 CSAM issued a writ against the ten defendants seeking injunctive relief and damages.
The application for an injunction came before Mr David Steele QC, sitting as a deputy judge of the Queen's Bench Division, on 20th and 21st February 1996. In his judgment delivered on 28th February the judge granted injunctions against the defendants. I should refer to the terms of the order.
"IT IS ORDERED THAT
1. Each of the Defendants be restrained for a period of 6 months following the termination of his employment (being the date specified against his name in the Second Schedule hereto), or trial or further Order in the meantime (whichever shall be the soonest) from directly or indirectly (and whether for himself or on behalf of some other person) without the prior written consent of the Board of the Plaintiff…
(i) canvassing, soliciting or approaching, any business of a kind offered by CSAM at the termination of his employment and which the employee performed for CSAM during the last 12 months of his employment, from a client of CSAM with whom that employee dealt in a material way in the course of business on behalf of CSAM in that 12 month period and which client was in the habit of dealing with or had transacted business with CSAM in that period or at the date of the termination of his employment was in the process of negotiating with CSAM.
(ii) performing any such business (which, for the avoidance of doubt, shall include the managing of any assets, funds or accounts) for a client of CSAM with whom that employee dealt in the course of business on behalf of CSAM in the last 12 months of his employment and which client was in the habit of dealing with or had transacted business with CSAM in that period or at the date of termination of the employment was in the process of negotiating with CSAM.
Provided that:
(1) the restrictions in i. and ii. shall not apply in the case of any Defendant, to their own funds and to clients to whom they are related or to assets, funds or accounts which belong to a family trust of which he is a trustee and a member of the family.
(2) in the case of each of the Defendants, each of the restraints in i. and ii. above shall apply to a client of CSAM (who is in the habit of dealing with or had transacted business with CSAM in the last 12 months of his employment or at the date of the termination of his employment was in the process of negotiating with CSAM), assets, funds or accounts for which he performed services which were of a kind offered by CSAM at the date of the termination of his employment, prior to the commencement of his employment with CSAM or which or whom he introduced to CSAM."
The judge refused an application for leave to appeal, but leave was subsequently given by Leggatt LJ on 11th March 1996.
The six-month periods specified in the order will expire in the case of Mr Knowles on 23rd May 1996 and in the case of the other nine defendants on various dates between 8th and 28th August 1996.
I come now to the issues which arise on this appeal.
The first issue concerns the proper approach to the grant of an injunction. It is said that, as the matter cannot be tried until after the expiry of the covenants, it would not be right to adopt the conventional approach set out in American Cyanamid. It is necessary for the court to have regard to the merits: see Lancing Linde Ltd v Kerr [1991] 1 W.L.R. 251.
The second issue relates to the 1994 edition of the CSAM Handbook. It is accepted that Mr Mercer (the seventh defendant) is bound by the covenants in this handbook, but it is argued on behalf of the other defendants that they are not so bound.
If the defendants, other than Mr Mercer, are not bound by the 1994 covenants it is necessary to consider the effect of the covenants contained in the 1992 handbook. It is accepted that these covenants formed part of the contracts of the second, fourth, sixth, eighth and tenth defendants. It is also common ground that unless the first, third, fifth and ninth defendants are bound by the 1994 covenants the restrictive covenants in their original contracts of employment have no bearing on this appeal. In relation, however, to the five defendants bound by the 1992 covenants, it is said that the covenants are unenforceable for two reasons.
First, it is said that the 1992 covenants purported to apply after the termination of the employees' employment "however caused". They purported, therefore, to apply in the event of an unlawful determination of the employment by the plaintiff. Such a provision was unreasonable and rendered the covenants unenforceable.
Secondly, it is said in summary that the 1992 covenants prohibited the defendants from managing funds et cetera, even if their contact with the relevant clients had been very slight. There was no provision, as there was in the 1994 covenants, to the effect that their concern with that client had to be material. The validity of the 1992 covenants gives rise to the third main issue.
If on the other hand the 1994 covenants are incorporated into the contracts of the defendants, it is then necessary to consider whether the period of notice specified in these covenants can be enforced on the facts of this case. The defendants ceased to work at the plaintiffs' premises almost immediately after they sent in their letters of resignation. They then began a period of garden leave corresponding with the contractual term of their notice. The period of notice in the case of Mr Knowles was three months; in the case of Mr Horstead, Mr Mercer and Mr Side it was six months, and in the case of the other six defendants it was twelve months.
It is argued on behalf of the defendants that, as the post-termination restrictive covenants set out in the 1994 handbook are stated to last for a period of six months, this period must be treated as the period which CSAM has itself chosen as the length of time during which it needs protection from the activities of former employees and during which it requires an opportunity to rebuild a team of investment managers. In this case, it is argued, CSAM has already had the complete protection afforded by the six months of garden leave and the effect of the judge's order is to double the period of time which CSAM has itself selected.
This argument gives rise to the fourth main issue.
The fifth issue relates to the interrelation between two of the covenants set out in the 1994 handbook. I need say no more about this issue at this stage.
I propose to deal with these issues in turn.
The Approach to the Injunction
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