Cayman Stock Exchange v Nealon

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 29 July 1999
• Court: Grand Court (Cayman Islands)
• Date: 29 July 1999

Grand Court

(Smellie, C.J.)

CAYMAN ISLANDS STOCK EXCHANGE

and

NEALON

J.J. McMullen Q.C., H. St. J. Moses, A.J. Bolton and J.P. Walton for the plaintiff;

Ms. C. Booth, Q.C., A.J.E. Foster and A. Turner for the defendant.

Cases cited:

(1) American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396; [1975] 1 All E.R. 504, dicta of Lord Diplock applied.

(2) Att. Gen. v. Guardian Newspapers Ltd. (No. 2), [1990] 1 A.C. 109; [1988] 3 All E.R. 545, distinguished.

(3) Balston Ltd. v. Headline Filters Ltd., [1987] F.S.R. 330, not followed.

(4) Bullivant (Roger) Ltd. v. Ellis, [1987] I.C.R. 464; [1987] I.R.L.R. 491, applied.

(5) Coco v. A.N. Clark (Engrs.) Ltd., [1969] R.P.C. 41, dicta of Megarry J. applied.

(6) Faccenda Chicken Ltd. v. Fowler, [1985] 1 All E.R. 724; [1984] I.C.R. 589; on appeal, [1987] Ch. 117; [1986] I.C.R. 297, applied.

(7) Lock Intl. PLC v. Beswick, [1989] 1 W.L.R. 1268; [1989] 3 All E.R. 373, distinguished.

(8) Marshall (Thomas) (Exports) Ltd. v. Guinle, [1979] Ch. 227; [1978] 3 All E.R. 193, distinguished.

(9) Saltman Engr. Co. Ltd. v. Campbell Engr. Co. Ltd.UNK(1948), 65 R.P.C. 203; [1963] 3 All E.R. 413n, dicta of Lord Greene, M.R. applied.

(10) Terrapin Ltd. v. Builders” Supply Co. (Hayes) Ltd., English Chancery Division, July 31st, 1959, unreported; on appeal, [1960] R.P.C. 128, dicta of Roxburgh J. applied.

Injunctions-interlocutory injunction-factors to be considered-court to assess whether triable issues-relative merits of each party”s case to be considered only if probable damage from grant or refusal of injunction comparatively equal-balance of convenience tips in favour of party with disproportionately strong case

Employment-duties of employees-faithful service-confidentiality-contract inoperative after termination to prevent use of confidential information obtained during employment-equitable duty of confidentiality may be implied from nature, source and availability of information and manner in which obtained-irrelevant whether future competition with employer intended

Employment-duties of employees-faithful service-confidentiality-no indefinite restriction on use of confidential information after termination of employment unless trade secret-may restrain use for reasonable time to prevent unfair advantage to employee in future employment

The plaintiff applied for an injunction to restrain the defendant from using confidential information obtained in the course of her employment.

The defendant was employed as C.E.O. of the Cayman Islands Stock Exchange. Her contract of employment contained prohibitions on divulging confidential information at any time and defined such information as including ‘lists of prospective members and listed companies and information concerning them.’ It provided that its terms would be binding on employer and employee notwithstanding termination of the employment.

Shortly after her appointment, the defendant began negotiating with a local firm of attorneys regarding future employment with them. She contacted a number of firms and institutions whose names had been supplied by a listing agent to the stock exchange, asking for information about their relationships with that agent and whether they might in future choose to instruct another agent. On each occasion, the defendant purported to be conducting ‘informal research’ on behalf of the stock exchange and forwarded the information to a representative of her intended employer as a rival agent, asking her contact to keep the message confidential.

The plaintiff dismissed the defendant from her employment and applied ex parte for an injunction to restrain her from making further use

of the information. She was restrained from divulging or using in any future employment confidential information obtained whilst employed by the plaintiff, including details of any contact person or institution associated or doing business with any stock exchange listing agent for the purpose of listing business.

The defendant applied for the setting aside of the injunction. She submitted that (a) the information passed to the local attorneys regarding contacts for possible listings did not fall within the definition of confidential information in the contract, and the contract could not restrict the use of information other than trade secrets after its termination; (b) the information was not impliedly confidential, since it was readily obtainable from public sources; (c) in any event, the plaintiff had suffered no prejudice since she did not intend to be employed in competition with it; (d) since she had not taken written information with her for use after the termination of her contract and since her experience acquired during employment with the plaintiff did not constitute a trade secret, the court should not, in the absence of an enforceable covenant, uphold the present injunction; and (e) the plaintiff had failed to disclose that she had offered to give an undertaking so as to avoid the need for an injunction.

The plaintiff submitted in reply that (a) the defendant had acted in breach of the express terms of her contract, which were binding on her notwithstanding termination of her employment; (b) in any event, the information was impliedly confidential, since (i) it had largely been provided in confidence for the purpose of marketing initiatives, (ii) it could not easily be obtained by members of the public from the relevant institutions, (iii) considerable resources had been invested in compiling it, and (iv) the defendant”s manner of obtaining and passing on the information showed that she had regarded it as such, and she therefore owed the plaintiff an equitable duty of confidence independently of the terms of her contract; (c) the plaintiff had suffered detriment in the form of loss of reputation; (d) accordingly, the defendant should be restrained indefinitely from using any such information to obtain an unlawful advantage in the field of her employment; and (e) it was unaware of any offer by the plaintiff to give an undertaking.

Held, varying the terms of the injunction:

(1) In deciding whether to uphold the injunction, unless the evidence failed to disclose any real prospect of success in obtaining a final order, the court had to consider where the balance of convenience lay. It would have regard to the relative merits of each party”s case only if the probable damage to the parties resulting from its decision would be comparatively even and one party”s case was disproportionately strong, in which case the balance of convenience would lie in favour of that party (page 365, line 41 – page 366, line 12).

(2) As the defendant”s contract of employment had ended, she was no longer bound by its express terms so as to restrict her use of confidential

information as defined therein for personal benefit afterwards. The term prohibiting use of such information ‘at any time’ would not be literally construed, and no such term, prescribing no geographical boundaries, would be enforced. It was arguable, in any event, that the terms of that clause did not cover the information so far divulged (page 375, lines 24–32).

(3) However, there was a triable issue as to whether the information was sufficiently confidential so as to impose an equitable duty of confidence on the defendant after the end of her contract. This could arise from the following circumstances: the information had been provided in confidence by other listing agents, it could not be readily obtained by members of the public, and its compilation had required much effort and expense. Furthermore, the defendant”s apparently disingenuous method of obtaining the information, ostensibly on behalf of her employer, and the clandestine manner in which she had passed it on, suggested that she had been aware of its confidential nature. This duty existed even though she did not intend to enter into competition with the plaintiff (page 369, line 29 – page 370, line 45; page 371, line 11 – page 372, line 2; page 372, line 43 – page 373, line 32; page 374, line 40 – page 375, line 8).

(4) Since the information divulged did not amount to a trade secret, it would be an unreasonable restraint of trade for the court to prevent its use indefinitely. Nor could the defendant be restrained, beyond the end of her contract, from making use of her general commercial knowledge of stock exchange business. However, she would be restrained from using the contacts in question to create an unlawful advantage for herself in future employment within a reasonable period of one year or the further trial of the action, whichever was the sooner. The balance of convenience in this matter lay in the plaintiff”s favour, since (i) there was strong evidence that the defendant had abused her duty of confidence and breached the terms of the stock exchange code of practice (and possibly her contract), (ii) she would suffer no inconvenience through being so restrained, and (iii) damages would be an inadequate remedy for the plaintiff”s loss of reputation in the financial community (page 366, lines 12–26; page 372, lines 3–38; page 373, line 33 – page 374, line 13; page 375, line 33 – page 376, line 30).

(5) There was no evidence that the defendant had offered, prior to the ex parte hearing, to give an undertaking so as to avoid the need for an injunction, and since she did not acknowledge that she had acted wrongly in the first place, any such offer was irrelevant to the matter in hand (page 376, line 30 – page 377, line 3).

SMELLIE, C.J.: On May 27th, 1999 orders were made on an ex parte
25	application by the Cayman Islands Stock Exchange (‘the CSX’),
restraining the defendant from divulging or otherwise making use in her
intended employment (with the law firm of W.S. Walker & Co. or
elsewhere) of confidential information gained in the course of her
employment with the CSX. The information in issue is information

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