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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> BlueBell Apparel Ltd v Dickinson [1977] ScotCS CSIH_4 (14 October 1977)
URL: http://www.bailii.org/scot/cases/ScotCS/1977/1978_SC_16.html
Cite as: 1980 SLT 157, [1977] ScotCS CSIH_4, 1978 SC 16

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JISCBAILII_CASE_SCOT_CONTRACT

14 October 1977

BLUEBELL APPAREL LTD
v.
DICKINSON

LORD ROSS'S OPINION.—In support of his motion for recall of the interim interdict granted on 31st August 1977, counsel for the respondent submitted in the first place that the petitioners' averments did not give fair notice of their assertion that the respondent had access to secret information. In particular he complained of lack of specification and fair notice in respect of what was averred in statements 7, 8 and 9 of the petition.

There is obviously force in this submission, but, at this stage of the litigation, it is not appropriate to subject the petitioners' pleadings to a detailed analysis. I am satisfied that the petitioners' averments regarding the respondent's access to secret and confidential information are prima facie relevant. I agree with counsel for the respondent that some of the petitioners' averments appear to say little more than that he acquired skill and general technical knowledge in their employment, and that he thereby became familiar with their method of working.

In Commercial Plastics Ltd. v. Vincent [1965] 1 Q.B. 623, Pearson L.J. (as he then was) observed "It is clear from the authorities that the plaintiffs were not entitled to impose a restriction which would prevent the defendant from using in competition with the plaintiffs the skill and aptitude and general technical knowledge acquired by him in his employment by the plaintiffs." Subsequently Pearson L.J. further observed "The plaintiffs' scheme of organisation and methods of business are not to be counted as trade secrets, but fall into the same class as the general technical knowledge referred to above."

I respectfully agree with those general observations, but, I have come to be of opinion in the present case that the petitioners' averments go further, and that the petitioners have averred a prima faciecase that the respondent had access to trade secrets and confidential information for which protection can properly be claimed by the petitioners. I have reached this opinion with some hesitation particularly since there is no express averment that the respondent actually acquired information regarding any trade secrets of the petitioners. As I understand the averments, the most that is averred is that he was given access to certain information and was instructed in certain processes. At this stage, however, I am prepared to regard the petitioners' averments as prima facie sufficient to support a case that the petitioners enabled the respondent to obtain information of a confidential nature relating to what can be called trade secrets, in respect of which they are entitled to protection.

Where an employer enables his employees to obtain such information, it is recognised that merely to prohibit the employees from disclosing such information to unauthorised persons is not sufficient protection for the employer but that the proper course for the employer to take is to impose a restrictive covenant on the employees prohibiting them from competing with the employer or being employed by a competitor after leaving the employer's service. (Printers & Finishers Ltd. v. Holloway [1965] 1 W.L.R. 1.) In Haynes v. Doman [1899] 2 Ch 13, Lindley M.R. observed at p. 23 "The prohibition against disclosing secrets is practically worthless without the restriction against entering the employ of rivals."

In the present case, the petitioners have imposed both a prohibition against disclosing secrets and a restriction against competition in Articles I and II of the Security Agreement. At this stage it is necessary to determine whether the restrictive covenant in Article II is prima facie valid.

Counsel for the respondent challenged the validity of the covenant on three principal grounds. In the first place, he pointed out that it imposes a world-wide restraint. Counsel for the petitioners conceded that the restriction was world-wide but contended that the averments showed that it was a world-wide product which required protection throughout the world. As Lord Evershed M.R. observed in Vandervall Products Ltd. v M'Leod. [1957] R.P.C. 185, it is very rare to find an ex-employee restrained from exercising his trade in a competing business anywhere in the world. In such a situation, prima facie justification of the world-wide restriction is required. (See Commercial Plastics Ltd. v. Vincent per Pearson L.J.) The petitioners have sought to justify the world-wide restriction by reference to Statement 6 of the petition. I cannot, however, regard these averments as prima facie justification of the world-wide restraint. These averments relate to the world-wide activities of a difierent legal persona namely the petitioners' parent company. There are no averments to the effect that the petitioners operate outside the U.K., and in my opinion, there is no prima facie justification for a world-wide restriction being imposed in favour of the petitioners. The Security Agreement does refer in the preamble to the activities of the parent company and its other subsidiaries, but Article II is solely concerned with the petitioners and not their associated companies. If the respondent were to take up employment within the next two years with a foreign company engaged in jeans manufacture, then, unless the petitioners were operating in that foreign country or the foreign company sold goods in the U.K., I do not see how the foreign company could be regarded as being "in competition with the corporation." The foreign company engaged in the manufacture of jeans might well be in competition with the parent company, but it does not follow that it would be in competition with the petitioners. I mention this in order to illustrate that the petitioners' averments do not disclose any ground for concluding that the petitioners require world-wide protection.

In all the circumstances, and in light of the averments presently made by the petitioners, I am not satisfied that there is any prima facie justification for the world-wide extent of the restriction contained in Article II.

The second ground of challenge was that the restriction was too wide since it was to operate for a period of two years after the end of the respondent's employment with the petitioners. In the circumstances, however, I do not regard the restriction as too wide on this ground.

The third ground of challenge was that the restriction was too wide in that it would cover employment in a field which had nothing to do with the subject of the trade secrets. Counsel for the respondent gave the example that it would prevent the respondent from taking employment as a doorman in the employment of a competitor in Nicaragua. Leaving aside the question of whether a jeans' manufacturer in Nicaragua could properly be regarded as in competition with the petitioners, the clause would appear to have this effect. Counsel for the petitioners maintained that this was a fanciful example, and pointed out that the restriction should not be treated as void merely because the words used are capable of being construed so as to cover a case which cannot reasonably have been supposed to be in the contemplation of the parties when they entered the agreement. (Haynes v. Doman supra per the Master of the Rolls.) I fully accept the principles therein propounded by the Master of the Rolls, but I understood counsel for the petitioners to assert that the clause in question was wide enough to prevent the respondent from taking up employment with a competitor of the petitioners even if the employment was in a field that had nothing to do with the manufacture of jeans. The words are certainly capable of such a construction. What is prohibited is the performing of "any services, either as owner, partner, employee or consultant, for any person or business entity (or a subsidiary thereof) in competition with the corporation." No justification has been suggested for a restriction which would prevent the respondent from taking up employment with a competitor in a department that had nothing to do with jeans manufacture at all. It follows that on this ground also the restrictive covenant appears to be too widely stated. Certainly the petitioners have not satisfied me that it was necessary for the restrictive provision to apply to employment of the respondent by a competitor in a department or activity remote from the manufacture of jeans.

At this preliminary stage, I am therefore faced with a restrictive covenant which prima facie is too wide on at least two grounds. If a restriction is too wide, it is unreasonable and so is unenforceable. At this stage, if a restrictive covenant is prima facie too wide and so unreasonable, that is an important factor in determining whether interim interdict should be granted, or if granted, should be recalled. In addition, one must of course, have regard to the balance of convenience. Having regard to the size of the operations conducted throughout the world by the petitioners' parent company (as averred in Statement 6 of the petition), I cannot believe that permitting the respondent to take up employment with a competitor would have any very drastic effect on those operations; on the other hand, allowing the interdict to stand would prevent the respondent from accepting employment which he has been offered, and would circumscribe his freedom to take up other employment to a material extent. When I also take into consideration that the restrictive covenant sought to be enforced is prima facie unreasonable and unenforceable, and that prima facie the respondent's accepting employment with Levi would not involve any breach of contract, it appears to me in the exercise of my discretion that the balance of convenience lies in favour of recalling that part of the interim interdict relating to the restrictive covenant.

I have reached this conclusion with some regret since I have some sympathy with the petitioners and can understand their concern. On the other hand, they could have avoided this consequence by drafting the restrictive provision more carefully.

I have already observed that the prohibition against disclosure in Article I of the Security Agreement is a somewhat unsatisfactory protection, but it is independent of the restriction in Article II, and I understood counsel for the respondent to agree that it might be left standing even if the interdict against entering the competitor's employment were to be recalled. In the circumstances I feel that the petitioners should still be entitled to prohibition against disclosure quantum valeat.

I appreciate that the granting of an interdict against disclosure without the conjunction of an interdict against entering the employment of a competitor, has been held to be undesirable in England. (See Haynes v. Doman supra per Romer L.J. at p. 29;Printers & Finishers Ltd. v. Holloway supra per Dross J.) With all respect, however, I do not agree that the ex-employee is placed in an impossible position. I do not see why he should not be told that he may, while employed by the competitor, make use of any skill and aptitude and general technical knowledge acquired in his employment by the petitioners, but that he must not disclose trade secrets. Accordingly if the petitioners wish to maintain the part of interdict relating to the disclosure of trade secrets, I would be prepared to let it stand. If on the other hand, they feel that it would be a worthless protection, I would recall it along with the interdict against the respondent entering the employment of Levi Strauss & Co. either in the U.K. or elsewhere in the world, for a period of two years.

(After the recall of the interim interdict in relation to the restriction of employment, the respondent took up employment with Levi Strauss & Co.)

The petitioners reclaimed against the decision of Lord Ross. The Reclaiming Motion was heard in the Summar Roll before the First Division on 11th October 1977.

At advising on 14th October 1977, the opinion of the Court was delivered by the Lord President.

LORD PRESIDENT (Emslie).—The respondent is a young man who holds a degree in Mechanical Enginering and Business Studies. By the end of 1976 he had had experience in the manufacturing side of the garment industry. In January 1977 he joined the petitioners as a management trainee. The petitioners are a limited company with a place of business at Nottingham. They are a wholly owned subsidiary of Blue Bell Incorporated of North Carolina which, with its subsidiaries in many countries of the world, is said to be one of three companies which dominate the world market in jeans. The jeans which they make are known by the name "Wrangler." According to the averments introduced by amendment in the Inner House, the petitioners are themselves engaged in a world-wide trade of selling "Wrangler" jeans and for aught yet seen they make and sell no other product. According to the averments, further, the petitioners employ in the manufacture of their jeans various trade secrets, including machines invented by their American parent, and methods of working unknown to their competitors.

On joining the petitioners' service the respondent entered into a Security Agreement with them. The preamble identifies the respondent as a person likely to work with methods, procedures, equipment and other confidential information that are in the nature of trade secrets. It then makes reference to the origin of these trade secrets and to the obligation of the petitioners to protect them in order that the group may benefit from them. In short the preamble makes it clear that the objective of the Agreement is to prevent unauthorised disclosure by the respondent of trade secrets and confidential information to which he is likely to have access in the course of his employment with the petitioners. By Article I of the Agreement the employee (the respondent) is taken bound not to make any unauthorised disclosure of, inter alia, any of the trade secrets of the petitioners or of any wholly owned subsidiaries of the American parent company. Article II provides that "the employee agrees that" except with written permission from the petitioners he will not for a period of two years after the end of his employment with them "perform any services, either as owner, partner, employee, or consultant for any person or business entity" in competition with the petitioners.

From the petition we learn that the respondent was trained at their main Scottish factory at Falkirk and visited their other factories at Stirling and Kilwinning. In or about March 1977 he was, it appears, appointed Assistant Plant Manager at Kilwinning and from June 1977 was in sole charge there. By the middle of July the petitioners had it in mind to offer the respondent the post of manager of one of their Scottish factories. The respondent, however, then intimated his intention to leave the petitioners' employment on 31st August 1977 to take up employment which had been offered to him by Levi Strauss & Co. When he left them on that date the petitioners brought this petition to enforce by interdict the restrictions placed on the respondent by Articles I and II of the Security Agreement. They did so because according to the averments, the respondent had learned trade secrets of the petitioners in the course of his service with them, and because his prospective employers are one of the two major competitors of the petitioners, and the group of which they are part, in the world market in jeans. In the prayer of the petition the order sought was to interdict the respondent "from entering into employment with Levi Strauss & Co. either in the United Kingdom or elsewhere in the world" and "from communicating to the said Levi Strauss and Co. or any other trade competitors of Blue Bell Inc. and their subsidiaries" certain trade secrets learned by the respondent from the petitioners.

In seeking the first order for intimation and service of the petition the petitioners moved for and were granted interim interdict in terms of both branches of the prayer. When answers had been lodged by the respondent the Vacation Judge on 14th September 1977 heard debate on the respondent's motion for recall of the interim interdict, and by his interlocutor of 15th September he granted that motion in part, and gave leave to reclaim. What he did was to recall the interim interdict in so far as it related to the respondent's entering into employment with Levi Strauss, leaving intact the prohibition against disclosure of trade secrets. We are informed that the petitioners sought to persuade the Vacation Judge to suspend the recall of the interim interdict pending the outcome of a reclaiming motion but he declined to do so. What happened thereafter, according to averments added by amendment, is that the respondent took up employment with Levi Strauss & Co. on 16th or 19th September 1977 and the petitioners say that he was employed as a manager in the jeans manufacture section of that company.

In this reclaiming motion the petitioners have moved us upon the unadjusted pleadings which have been expanded somewhat by amendment to restore the interim interdict recalled on 15th September 1977. No question arises as to the interim interdict against disclosure of trade secrets by the respondent and all that requires to be said in that connection is that the respondent did not seek to disturb the finding by the Vacation Judge that the petitioners' averments were prima facie sufficient to support a case that they enabled the respondent to obtain confidential information relating to trade secrets in respect of which they are entitled to protection. The argument must accordingly be approached on the footing that at this stage it must be assumed that the respondent is in possession of trade secrets which it is important and reasonable for the petitioners to protect by interdict against their disclosure by the respondent to one of their major competitors in the world market in jeans.

In opening his submission, counsel for the petitioners reminded us that a prohibition against disclosing trade secrets is practically worthless unless it is accompanied by a restriction upon the employee possessed of secrets against entering the employ of rivals. This has been recognised in judicial pronouncements over the years and the Vacation Judge in his opinion notices certain well known cases in which such pronouncements have been made. Further, if an employer arms himself only with a covenant against disclosure of secrets it may well be very difficult for him to detect in advance any breach of that covenant. The justification for taking from an employee a further covenant restricting him from entering the service of a competitor is accordingly well recognised, and the first question in this case is whether upon a proper construction of Article II of the Security Agreement the restriction accepted by the respondent can be said at this stage to be, as the Vacation Judge thought, wider than was necessary or reasonable for the protection of the petitioners. If this cannot be said then it should be enforced by interim interdict if the balance of convenience requires it. So far as Article II is concerned, when it is read in its context, and in light of what would be reasonably within the contemplation of the parties to the Agreement when it was entered into, it means just what it says. In particular it prohibits the employee in the possession of important trade secrets who is under a duty not to disclose them from inter alia working as an employee of a competitor in any capacity for a period of two years after the end of his employment with the petitioners. There is nothing whatever unreasonable in this restriction for the risk of disclosure of secrets consciously or unconsciously is bound to be present whenever the employee has entered the service of any competitor to whom the trade secrets would be of value. The Vacation Judge was of opinion that the restriction would prohibit the respondent from working for Levi Strauss & Co. in any country in the world and he was clearly right in this. One of his reasons for holding that the restriction was too wide was, however, that on the averments before him there was nothing to show that the petitioners traded anywhere except in the United Kingdom. That reason, if it was a good reason, has now disappeared as the result of the amendment of the pleadings allowed in this Court. The only other reason which the Vacation Judge gave for holding the restriction to be too wide was that it appeared to prohibit the respondent from taking up employment with a competitor in a department of the competitor's business which was not concerned itself with the manufacture and sale of jeans. The fact that the restriction does have this effect, however, does not make it unreasonable since the risk of disclosure of trade secrets is bound to arise whenever the restricted employee becomes an employee of a competitor and it does not matter where in the competitor's organisation he is required to serve, nor does it matter either in what capacity he enters that employment.

In his reply on this branch of the argument, counsel for the respondent who was not in dispute with the petitioners upon the relevant law, renewed the submission made to the Vacation Judge and contended in the first place that the restriction was too wide since it would prevent the respondent from working for Levi Strauss & Co. in, say, Taiwan even if the petitioners did not trade there at all. The second submission followed the reasoning of the Vacation Judge in urging us to hold that a restriction which precluded the respondent from taking up employment of any kind with a competitor was prima facie unreasonable and unnecessary for the petitioners' protection.

In our opinion the submissions for the petitioners are to be preferred. We accept that the restriction when it is properly understood, having regard to its context and the objectives of the Agreement, means that the respondent must not be employed by a competitor anywhere or in any capacity for the limited period of two years after 31st August 1977. Is such a restriction too wide having regard to the legitimate interest of the petitioners to prevent their trade secrets from coming to the knowledge of any competitor of theirs? If it is accepted, as it must be at this stage, that the respondent is an employee in the possession of trade secrets which would be of value to any competitor of the petitioners in the world's jeans market and that the respondent has properly been interdicted ad interim from disclosing these secrets, the restriction, as we have construed it, is not prima facie unreasonable at all. The risk of trade secrets of the petitioners coming into the knowledge of rivals obviously arises whenever an employee in possession of these secrets joins the ranks of a competitor for in the service of that competitor, in any capacity, anywhere in the world, the employee may deliberately or unwittingly enable the competitor to acquire the benefit of these trade secrets in the trade in which he is in competition with the petitioners. There is no doubt in this case, according to the averments, that Levi Strauss are among the most important competitors of the petitioners in the world market in jeans and, having regard to the real interest of the petitioners to prevent even unintentional disclosure of their trade secrets to a competitor by a former employee, we can see nothing unreasonable in a restriction designed not only to prevent the respondent from working for such a competitor in any of their jeans factories or departments, but also to prevent him from becoming employed by that competitor at all during the short period of the restriction.

If, as we have held, the restriction is not prima facieunreasonable, ought it to be enforced by interim interdict? We have no doubt that it should be, for the balance of convenience strongly favours that enforcement. The risk of serious and, it may be, irreparable damage to the petitioners' business and interests if no interim interdict is pronounced far outweighs the consequences to the respondent of restoring the order which was recalled in the Vacation Court. He will, no doubt, lose for two years, or until the petition is disposed of on its merits, whichever is the earlier, the opportunity of working for Levi Strauss & Co., but it cannot be left out of account that the petitioners are willing to continue to pay his salary while the litigation continues and to assist him to find other employment in the garment manufacturing industry in any capacity which does not involve direct competition with the petitioners' product nor the risk of disclosure of their secrets to their trade rivals.

All that remains for consideration is the form of the order to be pronounced. Since 15th September 1977 the respondent has altered the position by joining Levi Strauss & Co. although he knew full well that the petitioners were determined to enforce Article II if they could, and to come to this Court at the earliest opportunity. In these circumstances we have allowed amendment of the prayer of the petition and what the petitioners now seek is an order interdicting the respondent from continuing in employment with Levi Strauss & Co. either in the United Kingdom or elsewhere in the world for a period of two years. In the events which have happened that is an appropriate order and in allowing the reclaiming motion we shall pronounce interim interdict in these terms.

[1978] SC 16

The permission for BAILII to publish the text of this judgment
was granted by Scottish Council of Law Reporting and
the electronic version of the text was provided by Justis Publishing Ltd.
Their assistance is gratefully acknowledged.


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