Freshashia Foods Ltd. v Jing - The Trial
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| Author Scott Foresman |
Jane Lambert
Chancery Division (Mr Justice Arnold) Freshasia Foods Ltd v Jing Lu [2019] EWHC 638 (Ch) 20 March 2019
This was a claim by an employer against its former employee for breach of restrictive covenants in his contract of employment, breach of confidence and infringement of copyright and database right. I have already mentioned the facts of this dispute in Restrictive Covenants - Freshasia Foods Ltd v Jing Lu 11 Jan 2019. On that occasion, Mr Daniel Alexander QC had to consider the claimant's application for an interim injunction to restrain those alleged breaches and infringements until judgment in the action or further order. On 7, 8 and 11 March 2019, this action came on before Mr Justice Arnold for trial.
The Facts
As I set out the basic facts and the covenants relied upon in my previous case note, there is no need for me to repeat them Only two witnesses gave evidence at trial, namely one Calvin Lau on behalf of the claimant company and Mr Jing Lu for himself. The judge had problems with the evidence of both witnesses but stated at paragraph [43] of his judgment that he was disposed to prefer the evidence of Mr Jing to that of Mr Lau whenever they were in conflict. There was a dispute as to whether Mr Jing had any substantial personal contact with the claimant's customers. His lordship found at [87] that Mr Jing's contact with those customers had been minimal. In the course of his work, Mr Jing kept information relating to Frashasia Foods on his personal computer and Google drive. It was common ground that he should have deleted that material when he left that company and that he had failed to do so.
The Issues
The issues that the judge had to decide at trial were the enforceability of Mr Jing's restrictive covenants, whether he had breached his obligation of confidence and whether he had infringed Freshasia's copyrights or database rights.
Enforceability of the Covenants
His lordship referred to the following passage from the judgment of Sir Bernard Rix in Coppage and Another v Safety Net Security Ltd, [2013] EWCA Civ 1176, [2013] IRLR 970:
"(i) Post-termination restraints are enforceable, if reasonable, but covenants in employment contracts are viewed more jealously than in other more commercial contracts, such as those between a seller and a buyer. (ii) It is for the employer to show that a restraint is reasonable in the interests of the parties and in particular that it is designed for the protection of some proprietary interest of the employer for which the restraint is reasonably necessary. (iii) Customer lists and other such information about customers fall within such proprietary interests. (iv) Non-solicitation clauses are therefore more favourably looked upon than non-competition clauses, for an employer is not entitled to protect himself against mere competition on the part of a former employee. (v) The question of reasonableness has to be asked as of the outset of the contract, looking forwards, as a matter of the covenant's meaning, and not in the light of matters that have subsequently taken place (save to the extent that those throw any general light on what might have been fairly contemplated on a reasonable view of the clause's meaning). (vi) In that context, the validity of a clause is not to be tested by hypothetical matters which could fall within the clause's meaning as a matter of language, if such matters would be improbable or fall outside the parties' contemplation. (vii) Because of the difficulties of testing in the case of each customer, past or current, whether such a customer is likely to do business with the employer in the future, a clause which is reasonable in terms of space or time will be likely to be enforced. Moreover, it has been said that it is the customer whose future custom is uncertain that is 'the very class of case against which the covenant is designed to give protection…the plaintiff does not need protection against customers who are faithful to him' (John Michael Design Plc v. Cooke [1987] 2 All ER 332, 334). (viii) On the whole, cases in this area turn so much on their own facts that the citation of precedent is not of assistance."
As for the non-compete clause, Mr Justice Arnold considered whether Frshasia had any legitimate business interests requiring protection and concluded that it did not. He said:
"[139] ................ So far as customer goodwill is concerned, I have found that Mr Jing's contact with customers was minimal. Even if Mr Jing had had more contact with customers in the first 18 months of his employment, that would not justify imposition of the non-compete clause on 25 July 2016, particularly given that Mr Jing might be (and was in fact) employed for over two years after that.
[140] As for Freshasia's confidential information, this was protected by separate covenants and no covenant was required anyway because confidential information akin to a trade secret would be protected by an equitable obligation of confidence. Furthermore, the information contained in the Protected Documents is very detailed information which it would be very difficult for Mr Jing to remember in enough detail for it to be useful, and thus the key remedy would be to ensure deletion of electronic copies of the Protected Documents.
[141] Even if Freshasia had legitimate business interests requiring protection, the clause is wider than reasonably necessary to protect those interests in terms of its geographic scope. It extended to the whole of the European continent, whereas Freshasia only had customers in nine European countries. The answer would be the same if "European" was interpreted to mean "EU".
[142] Furthermore, in my view the clause is also too wide in that it would stop Mr Jing from being employed by a competitor to Freshasia in a non-marketing role. Counsel for Mr Jing gave as examples working as a dumpling maker or recipe tester. Counsel for Freshasia submitted that those examples were fanciful. I am inclined to agree with that, but a different example which is not fanciful would be working as a production manager for a competitor. Mr Jing is a native Mandarin speaker, has reasonable English, has IT skills and has experience in the food industry (as well as Freshasia, he worked for Nestlé China in the past), and would therefore be suited to a role as a production manager.
[143] Furthermore, on the assumption that the applicable period was 12 months, I consider that it is too long. The only factor relied on by Freshasia as supporting this period was the evidence that it takes 12 months to build a relationship with a customer. It does not follow that Freshasia needed protection for a period of 12 months following Mr Jing's departure. 12 months' protection would only be required in respect of a customer who had only just become a customer at the end of Mr Jing's employment, but it is inevitable that Mr Jing would have little connection with such a customer. So far as the evidence goes, it appears that most of Freshasia's 500 customers have been customers for some time."
As to the non-solicitation clause, the learned judge was not satisfied that Freshasia had legitimate business interests requiring protection and, even if it did, the restrictions were unnecessarily wide. The covenants could not be saved by severance. Even if they could the judge would not have been minded to grant a final injunction because the term of the restriction was about to expire. Moreover, an injunction would have affected Mr Jing's immigration status and the adverse consequences for him would have outweighed any benefit to the claimant,
"[139] ................ So far as customer goodwill is concerned, I have found that Mr Jing's contact with customers was minimal. Even if Mr Jing had had more contact with customers in the first 18 months of his employment, that would not justify imposition of the non-compete clause on 25 July 2016, particularly given that Mr Jing might be (and was in fact) employed for over two years after that.
[140] As for Freshasia's confidential information, this was protected by separate covenants and no covenant was required anyway because confidential information akin to a trade secret would be protected by an equitable obligation of confidence. Furthermore, the information contained in the Protected Documents is very detailed information which it would be very difficult for Mr Jing to remember in enough detail for it to be useful, and thus the key remedy would be to ensure deletion of electronic copies of the Protected Documents.
[141] Even if Freshasia had legitimate business interests requiring protection, the clause is wider than reasonably necessary to protect those interests in terms of its geographic scope. It extended to the whole of the European continent, whereas Freshasia only had customers in nine European countries. The answer would be the same if "European" was interpreted to mean "EU".
[142] Furthermore, in my view the clause is also too wide in that it would stop Mr Jing from being employed by a competitor to Freshasia in a non-marketing role. Counsel for Mr Jing gave as examples working as a dumpling maker or recipe tester. Counsel for Freshasia submitted that those examples were fanciful. I am inclined to agree with that, but a different example which is not fanciful would be working as a production manager for a competitor. Mr Jing is a native Mandarin speaker, has reasonable English, has IT skills and has experience in the food industry (as well as Freshasia, he worked for Nestlé China in the past), and would therefore be suited to a role as a production manager.
[143] Furthermore, on the assumption that the applicable period was 12 months, I consider that it is too long. The only factor relied on by Freshasia as supporting this period was the evidence that it takes 12 months to build a relationship with a customer. It does not follow that Freshasia needed protection for a period of 12 months following Mr Jing's departure. 12 months' protection would only be required in respect of a customer who had only just become a customer at the end of Mr Jing's employment, but it is inevitable that Mr Jing would have little connection with such a customer. So far as the evidence goes, it appears that most of Freshasia's 500 customers have been customers for some time."
As to the non-solicitation clause, the learned judge was not satisfied that Freshasia had legitimate business interests requiring protection and, even if it did, the restrictions were unnecessarily wide. The covenants could not be saved by severance. Even if they could the judge would not have been minded to grant a final injunction because the term of the restriction was about to expire. Moreover, an injunction would have affected Mr Jing's immigration status and the adverse consequences for him would have outweighed any benefit to the claimant,
Breach of Confidence and Copyright and Design Right Infringement
Although M Jing had confidential materials on his laptop and Google drive there was no evidence that he had misused them or even access them, The claim for breach of confidence and copyright or database right infringement therefore failed.
Although M Jing had confidential materials on his laptop and Google drive there was no evidence that he had misused them or even access them, The claim for breach of confidence and copyright or database right infringement therefore failed.
Conclusion
His lordship concluded at [156]:
"Freshasia's claims are all dismissed except for its claim that Mr Jing breached clause D by retaining copies of Protected Documents on his laptop and/or personal Google Drive from 28 September 2018 to 30 November 2018, which succeeds."
"Freshasia's claims are all dismissed except for its claim that Mr Jing breached clause D by retaining copies of Protected Documents on his laptop and/or personal Google Drive from 28 September 2018 to 30 November 2018, which succeeds."
Comment
As this case was launched after 9 June 2018 when Directive (EU) 2016/943 came into force it is perhaps surprising the Freshasia did not allege infringement of art 4 (2) or (3) (see The Trade Secrets Directive 7 July 2016 and Transposing the Trade Secrets Directive into English Law: The Trade Secrets (Enforcement etc) Regulations 6 July 2018).
Contact
Anyone wishing to discuss this case or trade secrets, restrictive covenants, copyrights and database rights generally should call me on 020 7404 5252 during office houses or send me a message through my contact page.
As this case was launched after 9 June 2018 when Directive (EU) 2016/943 came into force it is perhaps surprising the Freshasia did not allege infringement of art 4 (2) or (3) (see The Trade Secrets Directive 7 July 2016 and Transposing the Trade Secrets Directive into English Law: The Trade Secrets (Enforcement etc) Regulations 6 July 2018).
Contact
Anyone wishing to discuss this case or trade secrets, restrictive covenants, copyrights and database rights generally should call me on 020 7404 5252 during office houses or send me a message through my contact page.
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