New ISG Ltd v Vernon and Others
| Jurisdiction | England & Wales |
| Judge | JOHN BEHRENS |
| Judgment Date | 14 November 2007 |
| Neutral Citation | [2007] EWHC B14 Ch,[2007] EWHC 2665 (Ch) |
| Date | 14 November 2007 |
| Court | Chancery Division |
| Docket Number | CASE NO: HC07C02618 |
[2007] EWHC 2665 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
John Behrens
CASE NO: HC07C02618
This is an application by New ISG Limited (“New ISG”) to continue an interim injunction made by Kitchin J on a without notice application on 11th October 2007. Kitchin J's order was varied by Warren J on 16th October 2007 and further varied by Blackburne J on 24th October 2007. On that day there was not enough time to deal with the matter so that this hearing is the first occasion when the matter has been fully argued.
All of the Respondents are ex-employees of New Infrastructure Services Group Limited (“ISG”) which went into administration on 13 th July 2007. On 27 th July 2007 the Joint Administrators sold some of the assets (including the goodwill) of ISG to New ISG – a wholly owned subsidiary of UK Rail Services Limited. (“UKRS”)
The application for without notice interim relief was protracted. There were hearings before Mann J on 28 th September 2007, Lightman J on 2 nd October 2007 and Kitchin J on 3 rd October 2007 before the hearing on 10 th October 2007. The hearings on 2 nd and 3 rd October had related to the adequacy of New ISG's undertaking in damages. On 10 th October Kitchin J accepted an undertaking from New ISG's parent UKRS.
Kitchin J's order was in 2 parts. One part related to misuse of confidential information. Under it the Respondents were restrained from divulging or making use of New ISG's confidential information, were ordered to deliver up documents containing confidential information or belonging to New ISG, and to give information relating to the whereabouts of that confidential information.
A number of documents have been delivered up pursuant to that part of the order. Affidavits have been filed giving the information sought. It is accepted by New ISG that the Respondents have complied with their obligations. It is accepted by the Respondents that the restraining order relating to confidential information must continue to trial.
The second part of the order related to the restrictive covenants in the Respondents' contracts of employment with ISG. New ISG contend that they are entitled to enforce those covenants. Kitchin J made an order enforcing the covenants which had the effect of preventing the Respondents from soliciting canvassing or dealing with any client, applicant and/or temporary worker of New ISG. He also required the Respondents to supply information in relation to persons they had canvassed. This information has been supplied.
Four of the Respondents have appeared to resist the continuation of the injunctions relating to the covenants pending trial. Ms Austin did not appear or make any representations though it is not suggested that her position is significantly different from that of Mr Vernon, Mr McMullin, or Mrs Harvey.
The principal point taken by the Respondents relates to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE 2006”).They contend that they have objected within the meaning of regulation 4(7) with the result that they never became employees of New ISG. Accordingly they contend that New ISG cannot enforce the restrictive covenants in the contract. They contend that the point is clear so that it can and should be determined on an interim application. There are a number of other points taken by the parties including the question of whether the covenants were incorporated into Mr Harvey's contract at all and I shall deal with them later in the judgment.
New ISG do not accept that there was a valid objection within the meaning of TUPE 2006. They contend that, as a matter of construction, any objection must take place before the transfer. They also suggest that there are serious issues to be tried as to whether the Respondents did in fact object in time. They contend that the application should be dealt with on ordinary Cyanamid principles and that, in effect, the balance of convenience favours the continuation of the injunction. They contend that it is inappropriate for the court to determine the TUPE 2006 point in this application.
Representation
New ISG was represented by Iain Pester instructed by Coffin Mew LLP of Southampton, Hampshire. Mr Vernon and Mr McMullin were represented by Simon Devonshire instructed by Berwin Leighton Paisner LLP of London EC4. Mr and Mrs Harvey were represented by Shaen Catherwood instructed by Just Employment of Guildford, Surrey.
All three Counsel produced very full clear and helpful skeleton arguments and argued the application with considerable skill. As the detailed provisions of TUPE 2006 are not the bread and butter of the Chancery Division – at least not in the north- east of England, I am most grateful to them for their very considerable assistance.
The Facts
Background
ISG was a business involved with the provision of recruiting agency services providing both white and blue collar workers to the rail industry. According to both Mr Vernon and Mr McMullin the rail industry is unlike other industries. There are fewer clients and a shortage of skilled professionals and engineers. Thus, those involved in the industry know and deal with almost all of the clients and candidates.
Employment Contracts
All of the Respondents were employees and part of the sales team of ISG until the end of July 2007. Mr Vernon was the Divisional Manager and describes himself as “one of the most senior of the recruitment consultants …dealing with white collar staff”. Mr McMullin describes himself as a recruitment consultant who had worked for ISG for 2 1/2 years before 1 st August 2007. He had worked exclusively in the rail industry building up a data base of contractors, candidates and employees. Mr Harvey was employed by ISG. He describes his role as that of Delivery Manager building up new business through studying the market. He focussed on blue collar workers. Mrs Harvey's role was that of Delivery/Account Manager working alongside her husband. She too focussed on blue collar workers. Ms Austin joined ISG as a trainee on 2 nd July 2007. She says she was acting under the supervision of Mr Vernon. He supervised her work during the initial period of her employment.
All of the Respondents except for Mr Harvey accept that they signed written contracts of employment and that their contracts contained restrictive covenants which prevented solicitation canvassing or dealing with clients or Temporary workers of New ISG for a period of 12 months from the termination of their contracts.
Mr Harvey's position
Mr Harvey's position is different. Mr Harvey originally worked for ISG pursuant to a contract dated 25 June 2003. It is accepted that this contract contained restrictive covenants in similar terms to those now sought to be enforced. He subsequently left the company's employment and later, on 12 January 2005 entered into a contract for services with very limited restrictive covenants.
He re-commenced employment with ISG in June 2006 but never signed the contract proffered by ISG in early 2007. According to Mr Harvey he refused to sign because he objected to the terms which included the covenants.
Mr Harvey's evidence is considered in reply by Mr Williams, a Director of New ISG. Mr Williams has no personal knowledge but has spoken to Ms Mahy, the HR Officer at ISG who dealt with his contract. Ms Mahy says that she periodically chased Mr Harvey for his contract but he told her that he was speaking to Mr Edge (the Chief Executive of ISG) about certain aspects of the contract.
Although Mr Harvey did not sign the contract it is clear that there were some documents that he was willing to sign. Thus on 2 nd June 2006 he signed a document setting out the commission structure under which he would be remunerated. On 1 st December 2006 he was sent and countersigned a letter setting out a revised package of a basic salary of £26,000 p.a with a car allowance of £4,500.
On these facts there seems to me to be considerable force in Mr Catherwood's submission that the restrictive covenants were not incorporated into Mr Harvey's contract. There was no written contract when Mr Harvey started work in June 2006. ISG attempted to vary the contractual terms by submitting a written contract in early 2007. Both Mr Harvey and Ms Mahy agree that he refused to sign the written agreement. In those circumstances it is difficult to see how the written terms were incorporated.
Insolvency of ISG and Sale to New ISG
ISG became insolvent and Joint Administrators were appointed on 13 th July 2007. On 19 th July 2007 the Joint Administrators offered some of the assets including the goodwill of ISG for sale. ESS Recruitment Limited (“ESS”) and UKRS were amongst those interested. On 27 th July 2007 UKRS (as surety) and its subsidiary New ISG agreed to purchase the assets for a total of £550,000 on deferred terms.
Relevant terms
A number of terms were referred to in the course of the argument. It is not necessary for me to refer to them all in this judgment. It is, however to be noted:
1. Under clause 2.2 £30,000 was payable on completion, £270,000 was payable within 7 days of completion, the balance was payable in 10 monthly instalments of £25,000 each. The payments dates have not been honoured. They have been rescheduled and the re-scheduled payments have not been punctually paid. As at the date of the hearing there was at least £45,000 outstanding. Under clause 1.5 the payment time of each instalment was “of the essence”. Under clause 1.4 the balance of the Purchase Price became due and payable if the Purchaser failed to make payment of any instalment.
2. Although the sale of the...
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