Ideal Standard International S.A v Mr. Anthony Herbert
| Jurisdiction | England & Wales |
| Judge | Sir Ross Cranston |
| Judgment Date | 22 November 2018 |
| Neutral Citation | [2018] EWHC 3326 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000735 |
| Date | 22 November 2018 |
[2018] EWHC 3326 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Sir Ross Cranston
(Sitting as a Judge of the High Court)
Case No: CL-2018-000735
Mr. Daniel Oudkerk QC and Mr. Jeremy Brier (instructed by Taylor Wessing LLP) for the Applicants
Mr. Jonathan Cohen QC (instructed by CM Murray LLP) for the Respondent
Approved Judgment
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This is an application for an interim injunction to restrain breach of the non-compete clause in a shareholders' agreement. The application was first issued in the Queen's Bench Division under section 37 of the Senior Courts Act 1981 but was transferred to this court to be heard together with an application for identical relief under section 44 of the Arbitration Act 1996. It has been granted an expeditious hearing.
The well-known principles contained in American Cyanamid v Ethicon Ltd. (No. 1) [1975] AC 396 apply, i.e. whether there is a serious issue to be tried and whether the balance of convenience favours relief. Also to be borne in mind is that a matter of construction can, in some circumstances, be finally determined on an application for interim relief. See for example the discussion of Jacob LJ in Khatri v Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A [2010] EWCA Civ. 397, paragraphs 4 to 5.
The background to the applications is this. The Ideal Standard International Group manufactures bathroom ceramics and fittings. It is based in Brussels. For convenience I will refer to it the group and its members as “Ideal Standard” unless the context demands otherwise. The group has an extensive corporate structure but the applicants, in effect, are the owners of the operating companies. A Bulgarian subsidiary owns a hotel. Apparently the origin is that when a factory was built in Bulgaria, there was no suitable accommodation for the group's employees in the vicinity. The hotel is now open for commercial use as well.
Mr. Herbert, the respondent, worked for Ideal Standard for about twenty years. He was employed in the main operating company of the group, Ideal Standard International BVBA, under a Business Manager Agreement dated 7th May 2013. (Ideal Standard International BVBA subsequently became Ideal Standard International NV.) That, what I shall call “the Employment Agreement”, is subject to Belgian law. It does not contain any post termination restrictions but there are confidentiality provisions which survive termination.
From February 2017 Mr. Herbert was Vice President of Products and Innovation. As a senior employee Mr. Herbert was a member of the Executive Management Team. In that capacity he became a party to a Subscription and Securityholders' Deed dated 4th March 2017, what I call “the Share Agreement”. That is a deed between five members of the Ideal Standard group based in Luxembourg and so-called “participants”, defined to include executive participants. Mr. Herbert was an executive participant. As a result he became a shareholder to the extent of 35,147 shares in Ideal Standard MIP SARL.
The agreement provides that the proceeds from the shares crystallise on an exit event such as an IPO or qualifying sale under clauses 10 and 12. Clause 15 is headed “Executive Undertakings”. Under clause 15(a)(i)(A), until the date a party to the agreement ceases employment, he shall not be interested in any other profession, trade or business, except as a passive investor in not more than 5% of any class of securities quoted on a public securities market.
The agreement also contains what in the judgment is described as the non-compete clause, clause 15(a)(ii)(E). Under it, for the duration of the applicable undertaking period, an executive participant like Mr. Herbert must not:
“… carry on or be engaged in or concerned or interested in any business within the jurisdictions in which the Group carries on business … as at the Cessation Date … that is in competition with Business as carried on at the Cessation Date.”
“Undertaking Period” is defined in clause 1 for those like Mr. Herbert as 18 months from his cessation date, i.e. 18th May 2018. “Business” is defined as the business activities of the Group or any Group Company from time to time. Clause 23 provides that any waiver of any term or breach of the agreement must be in writing and signed by the party granting it. Under clauses 25 and 27 parties may appoint attorneys to act on their behalf in relation to the agreement.
The share agreement is governed by English law. It also provides for arbitration under London Court of International Arbitration rules in clause 36. The right to seek injunctive relief from the Court pending commencement of an arbitration is preserved by that clause.
In his first witness statement Mr. Schiller, who is the head of Human Relations and Communications for the operating company in the Ideal Standard Group states that the Share Agreement was intended to incentivise executive participates like Mr. Herbert on a long-term basis.
On 29th March 2016 Mr. Herbert entered a memorandum of understanding with Ideal Standard International NV whereby he received a retention payment of £484,000, with a consequent reduction of his entitlement under the Share Agreement. Mr. Herbert was dismissed on 18th May 2018. The termination letter reminded Mr. Herbert of his confidentiality obligations under Article 11 of the Employment Agreement and of the non-compete obligation in clause 15 of the Share Agreement.
On 2nd October 2018 Mr. Herbert and Ideal Standard International NV entered into a Settlement Agreement to compromise claims related to the termination of his employment, what I will call “the Settlement Agreement” in the judgment. Mr. Torsten Turling signed it for and on behalf of Ideal Standard International NV. The recitals state, amongst other things, that it is intended to settle outstanding differences which exist with Ideal Standard International NV “and/or any other company belonging to the Ideal Standard International group of companies”.
Clause 2.6 provides that the parts of the employment agreement which aim to remain applicable after its termination remain in full force and effect.
Article 3 has the heading “Warranties and Waiver”. Under clause 3.1 the parties warrant that they are unaware of information which is disclosed which would affect their entry into the agreement. Clause 3.2 reads, in part:
“With exception of what is provided in the Agreement the Parties declare expressly that none of them will have any obligations vis-à-vis the other Party”.
By clause 3.3 Mr. Herbert acknowledges that having had time to consider and obtain advice on the Settlement Agreement he “explicitly waives the right to invoke any error or ignorance as to the facts or the law regarding the existence and scope of his right”.
Clause 3.4 states:
“Ideal Standard International ensures that the waiver also applies to other companies and entities of the Group.”
The Settlement Agreement was subject to Belgian law and jurisdiction as a result of clause 4.3. Neither party has sought to rely on Belgian law so under well-known principles I proceed as if English law applies.
On about 10th October 2018 Ideal Standard's Chief Executive Officer discovered that Mr. Herbert had become engaged by Kohler Mira Limited, what I will call “Kohler” in the judgment. Mr. Herbert had apparently updated his LinkedIn account. Kohler is a competitor of Ideal Standard. Ideal Standard's lawyers wrote to Mr. Herbert and Kohler shortly afterwards and then on a number of occasions. Eventually Kohler's lawyers responded on 1st November 2018. Proceedings were commenced the following day in the Queen's Bench Division but, after Mr. Herbert's solicitors raised the arbitration point, on 7th November proceedings were transferred here. Yesterday was the first date the matter could be heard in this court.
In his witness statements Mr. Schiller explains that in his role with Ideal Standard Mr. Herbert acquired and, in many cases, developed himself highly confidential and sensitive information. He also states that the key purposes of the non-complete obligation is to protect the goodwill of the business, maximise its value on sale, protect the confidential information and ensure the stability of the workforce against other defections. In his senior role, he continues, Mr. Herbert had extensive access to confidential information which has a considerable shelf life.
Against this background Ideal Standard seeks the interim...
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