In a somewhat surprising application of the rules of construction, the High Court has in Prophet plc v Huggett [2014] EWHC 615 (Ch) upheld a restraint preventing a salesman from selling software in the fresh produce sector for a period of 12 months.
Mr Huggett was engaged by his former employer, Prophet, in 2012 following its decision to send its existing UK Sales Director to the US. He was therefore its most senior sales person in the UK and had full knowledge of and access to all of its confidential information about its customers and leads, its charging structure, its weekly sales reports and the dates on which its customers’ annual contracts were up for renewal.
In December 2013, Mr Huggett resigned. After some initial “coyness” as to the identity and nature of his new employer or, as the Judge put it “resorting not only to concealment but blatant lies until the truth was dragged out of him,” Mr Huggett eventually revealed he was going to work for another software developer, K3, which also sold a software product for the fresh produce market.
Having established Mr Huggett’s intention, Prophet agreed in writing to release him early from his 12 weeks’ notice. The next working day, Prophet’s solicitors wrote requesting Mr Huggett’s undertaking that he would not work for K3 for 12 months on the basis of the non-competition clause in his contract. The clause contained the following proviso: “the restriction shall only operate to prevent the Employee from being so engaged, employed, concerned or interested in any area and in connection with any products in or on, which he was involved whilst employed hereunder.”
Construction
The first hurdle for Prophet was to persuade the Court that the above clause when properly construed prevented Mr Huggett from working for K3. The difficulty for Prophet here was that what the clause actually says is that that Mr Huggett cannot work with Prophet’s own products. At K3 Mr Hugget would not be working with Prophet’s products, he would be working with K3’s equivalent products – thus the clause read at face value was, as the Judge put it, totally pointless. This cannot have been what the parties intended. “That something had gone wrong in the drafting was therefore clear.”
The Judge in this case felt able to overcome this difficulty for Prophet. He did this by asking each counsel to provide language to reflect what a reasonable person would have understood the parties to have intended when entering into the contract (the “true meaning”) and ultimately using his own formula for achieving this by reading in the words “or similar thereto” into the clause so that K3 products were then covered.
The concept of omitting words from a clause using the “blue pencil test,” is a familiar one. In cases such as Francotyp Ltd v Whitehead, the Court has been able to sever words from a clause where doing so does not affect the rest of the wording of the clause or otherwise distort the parties bargain. It is far more unusual to find a Judge who is willing to read words in to a clause to find its true meaning. The Judge felt able to do so on the basis that the words added represented the minimum change necessary to produce a commercially sensible result and were the probable formula the parties would have adopted for this purpose.
This is of course only a first instance decision, but it does seem that the Judge was surprisingly willing to assist Prophet. He was doubtless influenced by the fact that he found Mr Huggett to be a thoroughly unreliable witness. Another Judge, another day and a more credible Defendant and Prophet could equally well have found itself to fallen foul of another well-known rule of construction – any ambiguity in drafting will be construed against the party seeking to rely on it.
12 months not too long
Having overcome this hurdle of construction, the Judge went on to decide with relative ease that Prophet had a legitimate interest in protecting its confidential information and that the clause was no more than was reasonable to protect that interest.
The renewal timescale of Prophet’s contracts with clients was a particularly important factor in persuading the Judge that the confidential information which Mr Huggett had access to remained fresh for a period of up to 12 months after his employment ended and 12 months was not therefore an excessive period for Prophet to seek to restrain him.
Exercise of discretion – modest risk of damage to Prophet no barrier to exercise of discretion
Finally, the Judge went on to consider whether it was appropriate to exercise his discretion to grant an injunction. Commonly in this type of case, the employer is looking for an interim injunction to preserve the position for a short period of time pending a speedy trial in which case the Court will apply the principles in the well-known American Cyanimide case, i.e. whether there is a serious issue to be tried. Here, however, Mr Huggett had given undertakings to Prophet pending a speedy trial, so the Judge was considering whether a final order should be made enforcing the clause for its full 12 month duration. This involved his considering factors such as the potential damage and risk to Prophet, the adequacy of damages as a remedy, the circumstances of the employment terminating and the hardship to Mr Huggett if the injunction were to be granted.
Whilst the Judge was satisfied that the risk of damage to Prophet if the injunction was not granted was “real and not fanciful”, he didnot think that the risk “greatly exceeded that low threshold”. He considered that Prophet’s account of the risk of damage if the injunction were not granted was “over-alarmist to a considerable degree.” Despite this and the “odour of bad faith” emanating from Prophet’s first releasing Huggett early to go to K3 and then seeking to restrain him from doing so, the Judge was still minded to grant the order preventing Mr Huggett from working on fresh produce products for K3 for the balance of the 12 month period.
Lessons learned
Were it not for the fact that Mr Huggett’s standards of integrity would make the average second hand car salesman blush, I suspect that Prophet would not have been so lucky. In exercising the discretion, the Judge expressly took into account factors such as Mr Huggett’s “thoroughly unreliable” performance as a witness and the possibility (supported by evidence of his having downloaded at least one sales report to an external hard drive before handing back his laptop) of his having ongoing access to Prophet’s confidential information.
There are two morals behind this tale. The first is that where a party comes across as an unreliable and untruthful witness, the Court is likely to decide against it on those issues which could go either way.
The second is that where an employer is aware that one of its employees is to leave to join a competitor and asks to be released early, it is advisable not to agree unconditionally to that request. If the employer is prepared to release early, it should make it clear that it still expects the employee to abide by his non-compete restraint. Prophet’s failure to do this gave Mr Huggett the ammunition to argue that Prophet had not come to the court “with clean hands”, which the Court takes into account when exercising its discretion whether to grant an injunction. Fortunately for Prophet, the judge decided that their hands were cleaner than Mr Huggett’s.
