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Leak to The Sun newspaper did not breach Naval Commander’s privacy

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The former Commanding Officer of a Navy frigate has lost his misuse of private information claim against the Ministry of Justice.

David Axon was the Commanding Officer of a Royal Navy warship, the HMS Somerset. In 2014, he alleged that someone from the Ministry of Justice must have leaked information surrounding his removal from office for bullying junior officers, leading The Sun newspaper to print three stories about it. He argued that the disclosure amounted to a breach of his rights to privacy and confidentiality.

The High Court dismissed Mr Axon’s claim. It held that he could not have a reasonable expectation of privacy regarding the circumstances of his dismissal, for a number of reasons. Mr Axon’s role was discharging a very public function and his gross misconduct had been found by the Navy to have “undermined the fighting effectiveness of his ship”. It held that, whilst the equal opportunities investigation was conducted in private, the unusual and grave nature of the case meant that it was bound to become a matter of public knowledge. The fact that the informant, an MoD employee, had acted wrongfully and received £5,000 for her story was relevant, but was outweighed by other factors.

This case could suggest that those who are: (i) particularly senior; (ii) in roles of national importance; and (iii) have been found guilty of gross misconduct could have a harder time establishing that they have a reasonable expectation of privacy. This could feasibly include CEOs of banks or national companies.

Axon v Ministry of Defence and News Group Newspapers [2016] EWHC 787 (QB)

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When can employers get “negotiation damages” from a former employee?

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The Courts have indicated that where an employee has breached restrictions relating to their conduct after they leave their employer, an appropriate remedy will quite often be the price employees would have had to have paid in negotiation to buy their way out of the contractual obligations.

Karen Morris-Garner became a director at One Step having sold her own supported living business to it. Ms Morris-Garner owned 50% of the shares in One Step, the other 50% belonging to Mr and Mrs Costelloe. The relationship between Ms Morris-Garner and the Costelloes deteriorated and, in 2006, Ms Morris-Garner and her civil partner incorporated their own company. Later, Ms Morris-Garner resigned as a director of One Step and sold her 50% shareholding in it to Mr Costelloe. The contractual documents surrounding the sale contained non-competition and non-solicitation covenants binding Ms Morris-Garner and her civil partner. Some months later, Ms Morris-Garner’s competing company began to trade.

The High Court found that Ms Morris-Garner and her civil partner were in breach of the restrictive covenants which bound them after the share sale was completed. As a result, it awarded to One Step negotiation damages, being the price which the parties would have agreed in return for One Step releasing Ms Morris-Garner and her civil partner from their restrictions.

The Court of Appeal upheld the High Court’s decision. It held that the award of negotiation damages is appropriate where it is a just response to a situation where it is very difficult (but not necessarily impossible) for the old employer to identify the loss it has suffered due to the breach. The case need not be exceptional in order for those factors to be present.

Negotiation damages were just in the present case considering that: (i) Ms Morris-Garner was the public face of the company and had the strongest client relationships; (ii) competition by Ms Morris-Garner could be very damaging to One Step; (iii) Ms Morris-Garner had been paid a substantial amount of money in consideration for signing up to the restrictive covenants; and (iv) Ms Morris-Garner and her civil partner had secretly and deliberately breached their restrictions.

Employers concerned about employee competition should take solace from this case. It is now clear that these damages may be available when it is difficult to quantify loss (or where there is no loss).

Morris-Garner and another v One Step (Support) Ltd [2016] EWCA Civ 180

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When can a contract be varied orally?

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Parties are at liberty to agree new terms orally or by conduct even where a prior contract contained a clause providing that all future variations must be in writing.

A commercial contract between two companies contained a term stating that their agreement “can only be amended by a written document which (i) specifically refers to the provision of this Agreement to be amended and (ii) is signed by both parties”.

In subsequent litigation concerning the contract, it was argued that this clause prevented the parties from varying the terms between them orally or by conduct.

The Court of Appeal, which determined another matter arising from the case, made some observations about the validity of that argument. It stated that the existence of the above term in the contract did not prevent the terms being varied by oral agreement or conduct, by virtue of the parties’ freedom to agree whatever terms they wish.

The Court noted that it may be more difficult to prove an agreement where it took place orally, but it would still be possible in some cases. In the present case, the evidence of the “open, obvious and consistent” dealings between the parties sufficed to show a variation by conduct had taken place.

Globe Motors, Inc & Ors v TRW Lucas Varity Electric Steering Ltd & Anor [2016] EWCA Civ 396

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Duty of care owed for gratuitous services given to friends

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A person owes a duty of care when doing work for free to do it to a standard which accords with the expertise they claim to have, even where the work is being done for their friends.

Ms Lejonvarn was an architect who was friends with Mr and Mrs Burgess. In 2012 the Burgesses obtained a preliminary design and a quotation in the region of £200,000 for landscaping works they were planning in their back garden. Ms Lejovarn suggested that the project could be completed with a smaller budget (one in the region of £130,000) and began to provide design and project management services. Ms Lejonvarn did not ask for payment and a formal contract was never discussed. As the project progressed, the Burgesses became concerned about the cost and quality of the work.

Their relationship deteriorated and the Burgesses hired an alternative landscape designer to finish the project. The Burgesses brought a claim against Ms Lejonvarn (with a value of up to £265,000) for the increased cost of the project and remedial works.

The High Court ruled that although the parties did not agree a contract, Ms Lejonvarn did owe a duty of care relating to the various services she provided. The court emphasised that the advice Ms Lejonvarn gave was neither ad hoc nor minimal and went beyond the kind of informal advice professionals often give to their friends. The case is currently pending full trial to determine whether Ms Lejonvarn’s actions breached the duty she owed.

The case is an abject lesson about mixing work and friendship.

Burgess & Anor v Lejonvarn [2016] EWHC 40 (TCC)

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No order for DSAR compliance where not reasonable or proportionate

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The courts will not enforce compliance with a data subject access request (also referred to as a DSAR) where compliance would not be reasonable or the search would require disproportionate effort. The motive for submitting the data subject access request will also be relevant to the court’s decision.

A mother and two children submitted a DSAR to a law firm, Taylor Wessing, which since 1987 had been the representative of a Bahamian trustee company with whom the mother was in a legal dispute. Taylor Wessing would not comply with the DSAR on the grounds that (i) many of the documents it holds are legally privileged and (ii) some of the information it holds dates back to its instruction in 1987 and has never been computerised. The claimants applied to the court in the UK to enforce compliance with the DSAR.

The High Court refused the application. To search for unprivileged documents from the duration of Taylor Wessing’s relationship with its client would be very time consuming and costly, particularly considering that Bahamian laws of privilege are complex and would require interpretation by a skilled lawyer. The court also agreed in principle that uncomputerised records were not intended to be covered by data protection provisions. In any event, the claimants’ motive for submitting the DSAR was to gain access to documents for the purposes of litigation, which is at odds with the data protection rules’ aim to allow data subjects to monitor the use and accuracy of their personal data.

This case is good news for employers because it confirms that they need not comply with every data subject access request they receive. Whilst employers will inevitably want to say that any request made by a disgruntled employee is made for the purposes of furthering a dispute and therefore does not need to be complied with, it is of course possible for an employee to be both in dispute with their employer and genuinely interested in how their personal data is being processed.

Dawson-Damer and others v Taylor Wessing LLP and others [2015] EWHC 2366 (HC)

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Constructive dismissal inapplicable to multi-party LLP agreements

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The High Court has made a significant decision which will prevent exiting members of an LLP from avoiding restrictive covenants by alleging they had resigned in response to the employer’s breach of contract.

Mr Flanagan was a member of Liontrust Investment Partners LLP. His membership was governed by a members agreement to which he was party. The law provides that where people are members of an LLP and a members agreement does not subsist default provisions under the Limited Liability Partnership Act apply. Liontrust took the decision to close the fund that Mr Flanagan was managing, thereby putting him on notice of compulsory retirement and on garden leave; however, they did not do so in accordance with the provisions of the members agreement which amongst other things required the approval of a properly constituted meeting of the Management Committee for a member to be put on garden leave. No such approval was obtained. Mr Flanagan sought to argue that the firm’s conduct amounted to a breach of the LLP Agreement sufficiently serious to demonstrate an intention by the LLP not to be bound by the members agreement, which, if the principle of repudiatory breach which applies to employment contracts applied here, would mean Mr Flanagan could say that the members agreement was terminated and instead Mr Flanagan could rely on the default legislative provisions entitling him to an equal share in the LLP’s capital, even though he was not entitled to any equity interest under the original agreement.

The High Court reached the decision that the doctrine of repudiatory breach could not apply to LLP agreements, as its application could result in members in the same LLP being bound by different arrangements with some members being bound by the members agreement whilst others would be covered by the default provisions under the LLP Act. The Court did leave open the possibility of the doctrine being applicable to LLPs with two members.

This important decision will significantly reduce the leverage available to disgruntled LLP members seeking to negotiate a favourable exit as it means there is no equivalent of constructive dismissal available to them. The fate of LLPs with only two members has yet to be decided in this respect.

Flanagan v Liontrust Investment Partners LLP and others [2015] EWHC 2171

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US company prevented from suing UK worker in US cou

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An injunction has been granted to require that a company withdraw its motions in a Massachusetts court against an employee domiciled in the UK. This was so despite the fact that the relevant agreement reserved jurisdiction to the Massachusetts courts.

Mr Petter was employed in the UK by EMC Europe Limited. EMC Europe’s parent company was EMC Corporation, a Massachusetts company. Mr Petter entered into a share incentive scheme with the US parent; the agreement for the scheme was governed by Massachusetts law and gave exclusive jurisdiction to the courts of Massachusetts. Mr Petter tendered his resignation in order to join a competitor and the US parent issued proceedings in Massachusetts seeking a declaration that awards of stock under the incentive scheme could be rescinded. In response, Mr Petter issued proceedings in the English courts seeking, amongst other things, an injunction restraining the proceedings in Massachusetts. The interim injunction application was heard in the High Court on 14 and 15 July 2015. Between then and the delivery of a judgment in the UK, EMC filed motions for an injunction preventing continuance of the UK action and summary judgment. The Massachusetts court obliged in granting the injunction.

The Court of Appeal granted an injunction to restrain the proceedings in Massachusetts. It held that the share incentive scheme was designed to reward on-going service with the UK entity, so was clearly related to Mr Petter’s contract of employment. As such, the Recast Brussels Regulation operated to protect Mr Petter by providing that he may only be sued in the UK, being the Member State in which he resided.

The Court of Appeal took the view that EMC’s activity in Massachusetts was calculated to pre-empt a decision in the English courts. With that in mind, it provided that the injunction be mandatory – not only was EMC restrained from continuing proceedings in Massachusetts, but it also had to take positive action to withdraw its motions.

Employers should note that even clear jurisdiction clauses in agreements with employees may not be definitive. The European regime provides robust protection and English courts have the authority to restrain proceedings elsewhere in these circumstances and may react adversely to employers’ attempts to subvert it.

Petter v EMC Europe Ltd v anor [2015] EWCA Civ 828

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Court tailors interim injunction to reduce client impact

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An employer has been granted an interim injunction restraining its former employees’ use of confidential information and intellectual property at a competitor. However, it has limited those restraints so as not to cause harm to a customer.

Allfiled UK created a data storage system allowing for the secure storage of confidential information such as bank details. A number of employees (including directors) left Allfiled and created a new company, Port Tech. Port Tech contracted with a client company, Magpie, to provide a data storage system which Allfiled alleged was based on its own system. Allfiled alleged that the employees had breached the confidential information and intellectual property covenants in their contracts and, on that basis, applied for an injunction.

The High Court held that imposition of an interim injunction pending a final hearing was justified. However, it tailored the prohibitions in the injunction to ensure that Port Tech was capable of carrying on a degree of business in the interim. This was partly due to the fact that, if Port Tech were driven into liquidation before trial, Allfiled’s claim for damages would be rendered worthless. Interestingly, the High Court also took into account evidence provided by Magpie which demonstrated the significant detriment Magpie would suffer if all business under its contract with Port Tech were to cease.

This case demonstrates that courts approach the question of whether to grant interim injunctions pragmatically and taking into account the prejudice caused to all interested parties. Considering the weight given to Magpie’s intervention in this case, companies facing an injunction may wish to consider asking key clients to provide evidence on the impact an injunction would also have on them.

Allfiled UK Ltd v Eltis and others [2015] EWHC 1300

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Court jails litigants for contempt of court

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Custodial sentences of 12 months and 20 months have been passed down in respect of two parties who were found to be in contempt of court.

One party to the case deliberately disposed of assets, and failed to disclose other assets, despite having been notified of a freezing order. The High Court took this to be a serious breach, which justified imprisonment of 12 months – although this was suspended to provide the individual a chance to repay the sum owed, which was in excess of USD 3 million.

Another party had signed a statement of truth for a defence, as well as a disclosure statement. The court found that she could not have believed the defence to be truthful, and that the disclosure statement had been misleading. The court concluded that 20 months imprisonment was justified in this case.

This case illustrates the seriousness of deliberate breaches of Court orders, and makes clear that a court will not shy away from a sentence of imprisonment in either of those occurrences. Parties should ensure they comply with any court orders.

Otrikitie International Investment Management Ltd and others v Gersamia and another [2015] EWHC 821 (Comm) (25 March 2015)

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Court refuses musicians specific performance of their contracts

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Musicians in a play at the National Theatre made an application to the High Court for specific performance of their contracts (i.e. that the High Court should make an order that they be reinstated rather than simply get damages) after their dismissals following a decision that their performances would be replaced by recorded music. The High Court refused to grant the application because such orders should only be granted in exceptional cases and on this occasion, the musicians’ interests would be adequately protected by damages.

The musicians were hired by the National Theatre in March 2009 to play their instruments for the production of War Horse. These contracts stated that the arrangement could be terminated by: (i) two weeks notice from the musicians to the National Theatre; (ii) two weeks notice from the National Theatre to the musician of the closure of the production; or (iii) one week’s notice to the musician within 26 weeks of press night. In March 2013, the National Theatre decided for creative reasons to use recorded rather than live music. After negotiation, the musicians’ roles were drastically reduced but their contracts were not terminated. One year later, the National Theatre sent letters to the musicians giving them notice of the termination of their contracts on grounds of redundancy in two weeks. The reason for this redundancy was the decision to use recorded music in productions.

The musicians made a claim to the High Court for breach of contract and sought specific performance of their contracts. Specific performance is a remedy which requires the party breaching a contract to perform its obligations under it, rather than financially compensating the other party. The High Court refused this application but found that the musicians had a strong claim for breach of contract given that the termination reason was not listed in their employment contracts. It refused a remedy of specific performance on the grounds that the musicians’ case was not an exceptional one and there had been a loss of confidence between the National Theatre and the musicians because of the dispute.

Interestingly, the National Theatre also made the argument that an order for specific performance would interfere with its right to artistic freedom (which is protected under article 10 of the European Convention of Human Rights (ECHR): the right to freedom of expression) and prevent it from continuing the play in the way they thought artistically preferable. Article 10(2) allows an individual’s rights to freedom of expression to be restricted to protect the rights of others. However, the High Court held that it would not be necessary or proportionate to interfere with the rights of the National Theatre to protect the rights of the musicians’ freedom of expression as the musicians could still continue to play their instruments elsewhere.

Ashworth and others v the Royal National Theatre [2014] EWHC 1176 (QB)

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