F W Farnsworth v Lacy and Ors
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Proudman |
| Judgment Date | 10 June 2013 |
| Neutral Citation | [2013] EWHC 3487 (Ch) |
| Docket Number | Case No: HC12C02438 |
| Court | Chancery Division |
| Date | 10 June 2013 |
[2013] EWHC 3487 (Ch)
Mrs Justice Proudman
Case No: HC12C02438
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London
EC4A 1NL
Mr Stuart Benzie appeared on behalf of the Claimant
Mr James Laddie QC appeared on behalf of the Defendants
Approved Judgment
This is the claimant's application for the court to commit the first and fourth defendants and to impose a fine on (and the application says: "…and/or sequestration of assets of") the third defendant, for contempt of court constituted by specified breaches of an order made by Henderson J on or about 22 nd June 2012 ("the Consent Order").
The power of the court to commit for contempt is the court's ultimate weapon in securing compliance with its orders. However, as it is a powerful one which can deprive the subject of his liberty, it must be exercised only where the court is sure that the alleged contemnor is in breach of an unambiguous order.
The burden of proof is on the claimants to establish the contempt and the standard of proof is the criminal standard. In other words the claimants have to satisfy me so that I am sure that the alleged contempts have been established. In the time honoured phrase, the matter must be beyond reasonable doubt. So if I conclude that the respondents' explanations might be true I must accept them. In this case the relevant defendants, who are represented by solicitors and counsel, admit breaches of the Consent Order.
The first claimant is generally known as Hollands Foods. Its particular speciality for present purposes is pies. The second claimant is its holding company. The first and second defendants were employed by the claimants and the fourth defendant had been so employed, but at the material time was the managing director (and co-owner of the shares) of the third defendant, which is alleged to be a competitor of the claimants. The first and second defendants resigned from the claimants having been in contact with the fourth defendant. The first defendant is now no longer with the third defendant and does not now work in pies at all.
The matter has perhaps an unhappy history. In the action the claimant alleges that the first and second defendants while in the employ of the claimants, covertly and as part of a conspiracy with the third and fourth defendants and others copied and passed on sensitive documentation, including recipes used by the first claimant in its business, pricing information for the group and technical information relating to processes used by the first claimant.
I should say and make it absolutely plain that I make no findings whatsoever in relation to the matters in issue in the action. I am not in a position to do so and that is not part of my function today. Today I am looking solely at the breach or breaches of the consent order.
The claimants made a without notice application to Henderson J on 18 th June 2012 and obtained an order on that day restraining the defendants from dealing with the claimants' confidential information pending a return date of 26 th June. The order also contained orders about the provision of information which are not strictly relevant to today's application.
Prior to the return date, 20 th June 2012, the claimants made a further application, this time on notice, seeking, among other things, to enforce a restrictive covenant in the first defendant's contract of employment. There was at that time a question whether that covenant in the contract was binding on the first defendant. Subsequently, on 16 th October 2012, Hildyard J decided as a preliminary issue that it was so binding, including that the restrictive covenant was a part of the contract that was binding on the first defendant.
On 22 nd June 2012 the parties agreed an order continuing the original order and annexing a schedule of agreed terms pending a return date to which I will return hereafter. The schedule refers to the Consent Order itself as being made on 22 nd June, but it seems to my mind clearly to be dated 27 th June (and not sealed until 9 th July) and the defendants' counsel in his skeleton argument said, apparently by mistake, 25 th June. At all events, by the Consent Order the first defendant agreed as a new term contained in paragraph 5 of the schedule that "until the Return Date":
"5.1 The first defendant will not work either directly or indirectly for any business which is engaged in any activity or business which is in competition with the claimants and in particular (but without limitation) will not work directly or indirectly for the third defendant.
5.2 The first defendant agrees to be bound by the terms of clause 15.4.1 of his employment contract dated 21 st September 2009 [that is to say the restrictive covenant]."
I should say that the restrictive covenant expired sometime in December last and I am told that it is common ground that 5.1 of the consent order has also now expired.
The parties did not comply with the best practice suggested in paragraph 5.30 of the Chancery Guide for continuing an injunction, that is to say, setting out the whole of the order sought in a new document complete with penal notice, but instead, they adopted the second of the three possibilities, scheduling the original order to the new one. They agreed to continue the injunction subject to certain variations plus the new terms and the new order did not contain a penal notice.
Penal Notice
It seems to me plain and beyond argument that the new terms were not subject to any penal notice. However if they constituted undertakings within CPR 81.9(2) they did not require one. CPR 81.9(1) provides that a judgment or order to do or not to do an act may not be enforced under Rule 81.4 (that is to say by committal) unless a warning (that is to say a penal notice) is prominently displayed on the front of the order. However, CPR 81.9(2) provides that an undertaking to do or not to do an act which is contained in a judgment or order may be enforced under Rule 81.4 notwithstanding the absence of a penal notice.
The context seems to suggest that an undertaking here means an undertaking to the court in lieu of an injunction: see the note at 81.9.1 and see volume 2 of the White Book at 3C-23 and Practice Direction 81 paragraph 2. I note that the Practice Direction (at paragraph 2.2) says that the court may decline to: (1) accept an undertaking and; (2) deal with disobedience in respect of an undertaking in contempt of court proceedings unless the party giving the undertaking has made a signed statement to the effect that the party understands the terms of the undertaking and the consequences of failure to comply with it. That must mean at the time the undertaking is given, because 2.3 goes on to say that: the statement may be endorsed on the order containing the undertaking or may be filed in a separate document such as a letter.
This part of the Practice Direction gives effect to the decision of the Court of Appeal in Hussain v. Hussain [1986] Fam 134 in which Neill LJ said:
"I have had the advantage of reading in draft the judgment of Sir John Donaldson MR. I agree with it. I only add a few words in order to make plain that in my view, where an undertaking has been given in lieu of an injunction the general practice to be adopted should be as follows: (1) The undertaking should be included as a recital or preamble in an order of the court. This should be done even where the substantive part of the order is merely "No Order". (2) The order incorporating the undertaking should be issued and served on the person who has given the undertaking. (3) The order should be endorsed with a suitably worded notice explaining the consequences of the breach of the undertaking."
(1) and (3) were not observed in this case even if, as I apprehend, the terms of paragraph 5 of the schedule are to be construed as an undertaking given to the court. The first and fourth defendants both used the expression "undertaking" in their affidavits, but I have felt some doubt whether there is an undertaking between the parties rather than undertaking to the court. The former would be a contract in the true sense and not an undertaking to the court at all. As the order is expressed to be by consent and contains an agreed schedule, it seems to me that there is no undertaking to the court, although, of course, 81.9(2) does not specifically require an undertaking to the court.
In any event I am, I understand, able to waive the requirements of CPR 81.9 (whether the requirements relating to an injunction or the requirements of the Practice Direction relating to undertakings) if I am satisfied that no injustice has been caused to the respondent. It is for the applicant to establish that.
In this context I take into account that, as in Serious Organised Crime Agency v. Hymans [2001] EWHC 3599 (QB) and I was also referred to the case of Prosser v. Prosser, the respondents admit under oath and through their counsel, Mr Laddie, that they well knew that they could be committed for contempt for disobedience. The order is the second in a series of related orders in which the former did contain a penal notice. The respondents received legal advice on Henderson J's original order and also on the Consent Order. The lack of a penal notice is not relied on because the respondents accept that they knew the consequences of breach.
Was the Consent Order an unambiguous one?
The second question is whether there was a clear breach of the...
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