Coppage v Safetynet Security Limited

The Court of Appeal dismissed the appeal against a trial judge's findings that a six month post-termination non-solicitation covenant in an employment contract was reasonable and enforceable. The court applied the established test that post-termination restraints in employment contracts are enforceable if reasonable and necessary to protect an employer's proprietary interests such as customer lists and related goodwill. The restraint was characterised as a non-solicitation clause (not a non-competition clause), limited in duration to six months, and subject to a proviso that prohibited solicitation only where the business solicited was one which the employer could realistically have undertaken.

The trial judge's factual findings were upheld: the director-appellant solicited five former customers immediately after resignation, substantial telephone and text contact supported that finding, and a closely associated company was used as the vehicle for diversion. The court also upheld the trial judge's award of damages of at least £50,000, concluding the judge was entitled to assess minimum profit loss from the gross revenue figures presented in the absence of contrary evidence.

The respondent, Safetynet Security Limited, sued its former director Mr Coppage and a company, Freedom Security Solutions Limited, for breach of a contractual non-solicitation covenant and for breach of fiduciary duty after five customers left Safetynet shortly after Mr Coppage resigned and began to act through Freedom. The trial before HH Judge Simon Brown QC found that Mr Coppage had solicited those customers, that Freedom was effectively controlled by him, that the non-solicitation clause was reasonable, and that Safetynet had suffered at least £50,000 loss. The defendants appealed.

The issues on appeal were (i) whether the non-solicitation clause was unenforceable as an unreasonable restraint of trade and should have been restricted retrospectively to customers within the last six or twelve months of employment; (ii) whether breach of fiduciary duty required more than post-resignation solicitation and whether the judge had erred in finding such a breach; and (iii) whether the judge had any basis for finding loss of at least £50,000.

The Court of Appeal reviewed authorities on restrictive covenants, emphasising that non-solicitation clauses are more readily enforceable than wide non-competition clauses, that reasonableness is to be judged at the contract's outset, and that improbable or fanciful hypotheticals should not defeat an otherwise reasonable clause. The court accepted the trial judge's factual findings including the timing of calls and texts, the incorporation of Freedom immediately after resignation, and the lack of credible defence evidence. Applying the legal principles (including the protection of customer lists and a short six month duration), the court concluded the clause was reasonable on the facts and declined to disturb the judge's finding that the clause had been breached. On fiduciary duty, the court noted statutory duties in the Companies Act 2006 (sections 170–177 and in particular section 175) but declined to decide the broader legal question whether solicitation after resignation alone suffices for breach, preferring not to decide that point given the dismissal on the covenant ground. On quantum the court accepted the judge's assessment that £50,000 was a conservative minimum award based on gross revenues and the absence of contradictory evidence from the appellants.

Appeal dismissed. The Court of Appeal upheld the trial judge's findings that the six month non-solicitation covenant was reasonable and enforceable on the facts, that the appellant had solicited Safetynet's customers immediately after resignation and used Freedom as the vehicle for diversion, and that the trial judge's minimum award of £50,000 in damages was not vitiated by error. The court did not decide the broader legal question whether post-resignation solicitation alone always suffices for breach of fiduciary duty.

Appeal from Birmingham District Registry (Birmingham mercantile court). Trial judgment of HH Judge Simon Brown QC dated 15 August 2012 (2BM40032) was the subject of this appeal to the Court of Appeal (Case No A3/2012/2273; neutral citation [2013] EWCA Civ 1176).