Faccenda Chicken Ltd v Fowler

Faccenda Chicken Ltd. v. Fowler and Others

Fowler v. Faccenda Chicken Ltd.

Court of Appeal CA

Kerr, Neill and Nourse .

NEILL L.J.

The following judgment of the court was handed down

In these two appeals it will be necessary to consider the interaction of three separate legal

concepts. (1) The duty of an employee during the period of his employment to act with

good faith towards his employer: this duty is sometimes called the duty of fidelity. (2)

The duty of an employee not to use or disclose after his employment has ceased any

confidential information which he has obtained during his employment about his

employer's affairs. (3) The prima facie right of any person to use and to exploit for the

purpose of earning his living all the skill, experience and knowledge which he has at his

disposal, including skill, experience and knowledge which he has acquired in the course

of previous periods of employment.

The two appeals are against the orders of Goulding J. dated 8 November 1983, whereby

he rejected the claims by Faccenda Chicken Ltd., the plaintiffs, that the defendants, the

respondents to the appeals, had improperly used confidential information obtained during

their employment by the plaintiffs and had conspired together to injure the plaintiffs.

The events which gave rise to the claims which are the subject matter of these appeals are

set out with admirable clarity in the judgment of Goulding J. reported in [1984] I.C.R.

589. We propose therefore from time to time in the course of this judgment to adopt

passages from the judge's recital of the facts. In this case such a course is particularly

appropriate because we were not referred to any transcript of the evidence, and both sides

accepted before us that, for the purpose of ascertaining any matter of fact, we should not

look beyond the judge's judgment.

The plaintiffs carry on the business of breeding, rearing, slaughtering and selling

chickens. Their premises are at Brackley in the county of Northampton. The chickens are

sold as fresh chickens which means that, though after being slaughtered they are chilled

in refrigerators until sale, they are not actually frozen. At all material times Mr. Robin

Michael Faccenda has been the chairman and managing director of the plaintiffs. In about

1973 the plaintiffs engaged Mr. Barry Fowler, the first defendant, as sales manager.

The judge described the subsequent development of the business of the plaintiffs in these

terms, at p. 593:

wholesalers, and did not approach retailers directly. Mr. Fowler, who is agreed to be a

businessman of considerable ability, proposed to Mr. Faccenda the establishment of

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what he called a van sales operation, whereby itinerant refrigerated vehic

les would daily

offer fresh chickens to such traders as butchers, supermarkets and catering establishments.

Starting at first in a small way, Mr. Fowler built up this branch of the business until it

came to represent a substantial part, though always the smaller part, of the company's

trade. There were in all 10 refrigerated vehicles, each driven by a salesman and travelling

in a particular sector of the Midlands. The sectors radiated in different directions from

Brackley in Northamptonshire, where Faccenda Chicken Ltd. has its factory. Each

salesman followed a different round within his sector on each of the five working days of

the week, some customers receiving a call once a week and others twice a week,

according to their requirements and the possibilities of the van sales organisation. Thus,

the whole operation was based on 50 journeys or rounds, one for each vehicle on each

working day of the week. The journeys were, of course, not rigidly fixed, but variable

from time to time as particular customers were gained or lost or their requirements

changed. It is clear from the evidence that the weekly standing orders of customers were

not contractually binding on them. The evidence shows in my judgment that each

customer was freely permitted to take less than his standing order when the salesman

called, or to increase, or vary the composition of, his order if the goods he wanted on the

particular day were available in the van when it called. Firm orders were placed on

special occasions or by large customers by telephoning to the office of Faccenda Chicken

Ltd. at Brackley, but the van salesman played no part in their negotiation.

that by 1980 the van sales operation was prospering. The average weekly profit for the

period which covered approximately the second half of 1980 was about ?

2,500.

On 11 December 1980, however, the first defendant was arrested, together with another

man, on a charge of stealing some of the plaintiffs' chickens. The first defendant resigned

immediately as sales manager, and, though at his trial in September 1981 he was

acquitted of the charge of theft, his work with the plaintiffs was at an end.

During the early part of 1981 the first defendant considered the purchase of an hotel in

Cornwall, but the project fell through. Shortly afterwards he decided to set up his own

business of selling fresh chickens from refrigerated vehicles. This business was to be

carried on in the Brackley area. Though he had no source of supply under his own control,

there was no shortage of fresh chickens available for bulk purchase. In about May 1981

the first defendant advertised for employees under a box number in a local newspaper. As

a result of this advertisement eight employees of the plaintiffs applied to join his new

organisation. This was not surprising, because, although a box number was used, the

eight employees knew of the first defendant's intentions before the advertisement

appeared. The applications were successful; the first defendant was pleased to be able to

obtain staff whom he knew to be experienced and competent and who had worked with

him before.

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In the course of the next few weeks the eight employees, consisting of a

supervisor (Mr. Finch), five van salesmen (that is, half the van salesmen then employed

by the plaintiffs, and two ladies who had been employed in the plaintiffs' offices, gave

notice and joined the first defendant. The new business started its operations on 6 July

1981, although the first defendant's company (Fowler Quality Poultry Products Ltd., the

tenth defendant) was not incorporated until August.

The loss of such a high proportion of their experienced staff had a serious effect on the

plaintiffs. Indeed, ever since the first defendant had left at the end of 1980, the operations

of the plaintiffs' van sales division had been much less profitable, and after July 1981 the

position deteriorated further. Mr. Faccenda, not surprisingly, was dismayed by what had

happened, and on 10 September 1981, the date (it seems) of the first defendant's acquittal,

an action was started by the plaintiffs in the Chancery Division against him and his

company and the eight former employees of the plaintiffs.

In these proceedings two alleged causes of action were relied upon. (a) Breaches of

implied terms of the contracts of employment that the nine employees would faithfully

serve the plaintiffs and

them whilst in the plaintiffs' employment to the disadvantage or detriment of the

plaintiffs, whether during the currency of such employment or after its cessation.

unlawful conspiracy

the said confidential information and/or trade secrets of the plaintiffs gained by the

individual defendants whilst in the plaintiffs' employment ...

A year later, on 16 September 1982, the first defendant issued a writ in the Queen's

Bench Division claiming nearly ?

23,000 in respect of commission which he said was due

to him. In these proceedings the plaintiffs served a counterclaim which in effect repeated

the allegations of breaches of contract and conspiracy and also included a claim for ?

435

in respect of the chickens which it was said the first defendant had wrongly co

nverted in

1980 and which had been the subject matter of the criminal proceedings in which the first

defendant had been acquitted. The Queen's Bench action was transferred to the Chancery

Division in March 1983. On 27 June 1983 the two actions came on for hearing together

before Goulding J. After a hearing lasting 39 days, the judge, in a reserved judgment

delivered on 8 November 1983, dismissed the claims by the plaintiffs for damages for

breach of contract and for conspiracy. At the same time he gave judgment for the first

defendant for ?

15,316 in respect of his claim for commission and interest after making a

deduction in respect of the amount claimed by the plaintiffs in conversion, where a sum

was conceded by way of set-off without any admission of liability.

At the trial the claims for injunctions which had been included in the writ in the Chancery

action were not pursued owing to the lapse of time.

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An injunction had been granted

and certain undertakings had been given at an interlocutory stage, but it is not necessary

for us to make any further reference to these matters as it is agreed that the interlocutory

orders have no relevance to the issues now before the court. Moreover, we need only

make passing reference to the fact that at the trial a substantial amount of time was taken

to deal with allegations put forward on behalf of the plaintiffs to the effect that

documents in the possession of some of the employees during the period of their

employment had been wrongfully used or copied. The judge came to the conclusion that

none of these allegations had been satisfactorily proved. We can therefore concentrate

our attention on the matters round which the argument before us principally revolved.

The main case put forward on behalf of the plaintiffs before Goulding J., and the only

factual basis for the claims relied upon before us, was that the first defendant and the

other former employees of the plaintiffs as well as the new Fowler company had

wrongfully made use of confidential information which the first defendant and his

colleagues had acquired while in the employment of the plaintiffs.

This information, which was described by the judge compendiously as

information,

(2) the most convenient routes to be taken to reach the individual customers; (3) the usual

requirements of individual customers, both as to quantity and quality; (4) the days of the

week and the time of day when deliveries were usually made to individual customers; (5)

the prices charged to individual customers. It was submitted on behalf of the plaintiffs

that this sales information could be regarded as a package which, taken as a whole,

constituted

plaintiffs. In addition, however, particular attention was directed to the prices charged to

individual customers, because, it was submitted, information as to prices was itself

constituent element of the package of sales information. Thus our attention was drawn to

the following passage in the judgment, [1984] I.C.R. 589, 594:

to the importance of knowing the prices paid by the respective customers ... There has

been much controversy regarding the extent to which one trader's prices are generally

known to his rivals in the fresh chicken market. I find that an experienced salesman

quickly acquires a good idea of the prices obtained by his employer's competitors, but

usually such knowledge is only approximate; and in this field accurate information is

valuable, because a difference of even a penny a pound may be important.

It was further said on behalf of the plaintiffs that by wrongfully making use of this

confidential sales information the first defendant and his colleagues had seriously

damaged the plaintiffs' business. We understand that at the trial it was suggested that the

damages amounted to no less than about ?

180,000, though it may be noted that the judge

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concluded that, even if he had decided the issue of liability in favour of the

plaintiffs, he would have assessed the damages at ?

5,000.

In his judgment Goulding J. dealt with the allegations made by the plaintiffs in these

terms, at pp. 596-597:

analysis of the trading activities both of the Fowler business and of Faccenda Chicken

Ltd. during the weeks (and especially the first week) that followed the commencement of

the former. Faccenda Chicken Ltd. claims that it was the particular target of the operation.

It alleges that Mr. Fowler and his confederates deliberately arranged to call on its

customers on the same days of the week as its own salesmen, and generally at a

somewhat earlier hour. It is also strongly contended that the defendants pursued a

deliberate policy of undercutting Faccenda prices. I regard these allegations as greatly

exaggerated. It is certainly true that the majority of the customers of the new business had

previously been customers of Faccenda Chicken Ltd., and that in many (though not all)

cases they ceased to be so. It is difficult to know what significance to attach to this fact

without knowing to what extent Faccenda Chicken Ltd. had acquired the whole of the

available market in the larger towns within a radius of (say) 50 miles from Brackley. My

impression is that a large proportion of the relevant retailers were buying Faccenda

chickens, many of them also purchasing chickens (probably of lower quality) from one or

more of Faccenda's competitors. As to the timing of calls on customers, it was inevitable

that the Fowler salesmen should use the knowledge of customers' requirements that they

had acquired as Faccenda salesmen, but I do not find that routes and times were

deliberately planned and organised in the comprehensive way that Faccenda Chicken Ltd.

would have me believe. As to undercutting, I accept the defendants' explanation of their

pricing policy. It was to obtain a minimum gross profit on chickens of 4p per pound.

Prices yielding a lower profit were quoted as a temporary inducement, or introductory

offer, for a period of two or three weeks to potential customers thought to be of value.

They were also accepted when it was necessary, at the approach of the weekend, to get

rid of perishable stock in danger of deterioration. The result, in cases where a fair

comparison can be made, is that Fowler prices generally undercut Faccenda prices, but

there are also many examples where they were the same or higher.

It was argued in this court on behalf of the defendants that, by accepting their explanation

of their pricing policy, the judge was in effect making a finding that they had not made

use of their knowledge of the prices charged to individual customers of the plaintiffs

when fixing the prices they would charge the same individuals after they had become

customers of the tenth defendants. We are unable to accept this argument.

It seems to us to be clear from reading the judgment as a whole that the judge accepted

that, to a greater or less extent, all the constituent

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elements of the sales information

had been made use of for the purpose of the Fowler business. Furthermore, in the

passages in his judgment in which he applied the principles of law to the facts of the case

we can find no indication whatever that he intended to exclude the information about

prices from the rest of the sales information of which the defendants had made use.

Accordingly, we propose to consider the matter on the basis that the defendants made use

of the sales information for the purpose of the Fowler business and that this information

included information about prices charged to individual customers of the plaintiffs.

The judge came to the conclusion that, though use had been made by the defendants of

the sales information, such use did not involve any breaches of contract by them or

provide evidence of an actionable conspiracy. In this court counsel for the plaintiffs

criticised this conclusion on two broad grounds: (1) that the judge had misdirected

himself in law as to the relevant principles to be applied to the use by an employee of

information acquired during his employment; and (2) that in any event, in the

circumstances of the case and on the findings of the judge, the sales information as a

whole, or, alternatively, the information about prices, was confidential information or a

trade secret which could not be used by the defendants to the detriment of the plaintiffs.

We propose to turn first to consider the submission that the judge misdirected himself in

law. It will be convenient if we start by setting out some of the passages in his judgment

in which Goulding J. dealt with the law. He said, at pp. 598-599:

that anything I say about the law is intended to apply only to cases of master and servant.

In my view information acquired by an employee in the course of his service, and not the

subject of any relevant express agreement, may fall as regards confidence into any of

three classes. First there is information which, because of its trivial character or its easy

accessibility from public sources of information, cannot be regarded by reasonable

persons or by the law as confidential at all. The servant is at liberty to impart it during his

service or afterwards to anyone he pleases, even his master's competitor. An example

might be a published patent specification well known to people in the industry

concerned. ... Secondly, there is information which the servant must treat as confidential

(either because he is expressly told it is confidential, or because from its character it

obviously is so) but which once learned necessarily remains in the servant's head and

becomes part of his own skill and knowledge applied in the course of his master's

business. So long as the employment continues, he cannot otherwise use or disclose suc

h

information without infidelity and therefore breach of contract. But when he is no longer

in the same service, the law allows him to use his full skill and knowledge for his own

benefit in competition with his former master; and ... there seems to be no established

distinction between the use of such information where its possessor trades as a principal,

and where he enters the employment of a new master, even though the latter case

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involves disclosure and not mere personal use of the information. If an employer wants to

protect information of this kind, he can do so by an express stipulation restraining the

servant from competing with him (within reasonable limits of time and space) after the

termination of his employment.

of information, to the information about a manufacturing process which was in issue in

United Indigo Chemical Co. Ltd. v. Robinson (1931) 49 R.P.C. 178 and to the trade

information in E. Worsley & Co. Ltd. v. Cooper [1939] 1 All E.R. 290. Goulding J.

continued [1984] I.C.R. 589, 600:

though they may necessarily have been learned by heart and even though the servant may

have left the service, they cannot lawfully be used for anyone's benefit but the master's.

An example is the secret process which was the subject matter of

Amber Size and

Chemical Co. Ltd. v. Menzel [1913] 2 Ch. 239

.

Having explained his three-fold classification of information, the judge then applied the

law to the facts. He said, at p. 600:

Chancery action falls into my second class, and cannot be protected in the absence of an

express restrictive stipulation. The defendants being free to compete with Faccenda

Chicken Ltd. and to solicit its customers, it is impossible, in my judgment, to say they

must not use their own knowledge of the whereabouts and requirements of those

customers, the prices they have been paying, and the routes by which they are

conveniently visited.

Counsel for the plaintiffs made a number of criticisms of the judge's formulation of the

law. We can summarise the most important of these criticisms: (a) that the judge erred in

law in holding that there were two classes or categories of confidential information which

an employee might acquire in the course of his service; there was only one such class or

category. Confidential information remained confidential even after the employee had

left the employer's service; (b) that the law of confidence relating to employees was

merely a branch of the general law of confidence, and, though the obligations of an

employee were based on an implied term of the contract of service, this was immaterial

because the scope of the implied term was co-extensive with the obligations imposed by

equity on a person to whom confidential information was entrusted in circumstances

where no contract existed between the parties; (c) that the judge erred in law in holding

that confidential information in his second class could be protected by a restrictive

covenant. It was plain, it was submitted, that a restrictive covenant would not be enforced

unless the protection sought was reasonably necessary to protect a trade secret or to

prevent some personal influence over customers being abused in order to entice them

away: see

Herbert Morris Ltd. v. Saxelby [1916] 1 A.C. 688

,

per

Lord

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Parker of

Waddington, at p. 709; (d) that although some of the information, for example, the names

and addresses of customers, could not by itself be treated as confidential, the sales

information did constitute confidential information when looked at as a whole; (e) that in

any event information about the prices charged to individual customers was confidential

information; (f) that a clear distinction could be drawn between the skill and general

knowledge of a trade or business which an employee might acquire in the course of his

employment and which he was entitled to use in subsequent employment, and the special

knowledge of a former employer's business which the employee could not use thereafter.