Coppage & Anor v Safety Net Security Ltd

A post-termination non-solicitation covenant is enforceable where it reasonably protects an employer’s proprietary interest and is no wider than reasonably necessary. Reasonableness is assessed when the contract is made, having regard to commercial realities rather than remote or fanciful possibilities.

A covenant may protect realistically recoverable business from former as well as current customers. A short restraint, the employee’s influence over the customers and a restriction to business which the employer could realistically have undertaken are powerful indications of reasonableness.

Damages for lost profits need not fail merely because the claimant supplies no detailed evidence of expenses. The court may estimate a minimum loss from reliable gross-revenue and general profitability evidence, particularly where the defendant produces no contrary evidence.

The respondent security company employed the first appellant as its business development director and outward-facing representative. His contract prohibited him for six months after termination from soliciting any organisation which had been a customer during his employment for business which the respondent could have undertaken.

After resigning, he directed the establishment of the second appellant and solicited five of the respondent’s customers. The Birmingham Mercantile Court found both appellants liable for breach of the covenant and breach of fiduciary duty, and awarded £50,000 damages.

The appellants challenged the covenant as an unreasonable restraint of trade, disputed the finding of post-termination fiduciary liability and contended that the evidence could not support the damages award.

1. The appeal was dismissed unanimously. The six-month non-solicitation covenant was a reasonable protection of the respondent’s customer connection and was enforceable. Post-termination restraints in employment contracts require careful scrutiny. The employer must establish a proprietary interest and show that the restraint is reasonably necessary to protect it.

2. The covenant was directed to solicitation rather than competition. Almost all customers acquired during the employment remained current when the employee left, while the employee had dealt with every customer and was the outward face of the business. The short six-month duration was a powerful factor supporting overall reasonableness. The case was therefore at the opposite extreme from Office Angels Ltd v Rainer-Thomas and O’Connor [1991] IRLR 214, where a nationwide restriction covered thousands of customers unknown to the employees.

3. A non-solicitation clause need not invariably be confined to customers who dealt with the employer during the final six or twelve months of employment. Former customers may remain part of the employer’s proprietary interest because their business may return. Arbuthnot Fund Managers Ltd v Rawlings [2003] EWCA Civ 518 was confined to its particular contractual wording, facts and interlocutory context.

4. The words limiting the covenant to business which the respondent “could have undertaken” referred to a commercially practical possibility, not a theoretical one. Solicitation of a former customer whose business the employer had no realistic prospect of recovering would therefore fall outside the covenant. The clause reasonably protected realistically available custom rather than every remote possibility.

5. The interaction between sections 170 and 175 of the Companies Act 2006 and the former equitable rules governing a director’s post-resignation conduct did not need to be determined. The trial judge had not clearly decided whether post-resignation solicitation alone sufficed or whether relevant conduct had begun before resignation. Since liability under the covenant was sufficient and full argument had not been heard, it would have been unnecessary and unsafe to determine that issue.

6. The £50,000 damages award was upheld. Reliable evidence showed lost gross revenue of £159,587.31, together with general evidence about profitability and the limited savings caused by the customers’ sudden departure. Detailed evidence of every expense was not a legal prerequisite. The trial judge was entitled to estimate a conservative minimum loss where the appellants neither challenged the evidence in cross-examination nor produced contrary evidence.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the findings that the restrictive covenant was reasonable and breached, and that damages of £50,000 had been proved. It declined to determine the fiduciary-duty ground because contractual liability independently disposed of the appeal.
2. Birmingham Mercantile Court: HHJ Simon Brown QC held on 15 August 2012 that the first appellant had solicited five customers in breach of his restrictive covenant and fiduciary duty, that the second appellant was jointly liable, and that the respondent had proved damages of at least £50,000.