SKIPTON FINANCIAL SERVICES LTD AGAINST PAUL ALLAN
| OUTER HOUSE, COURT OF SESSION |
| | [2014] CSOH 106 |
| P428/14 | OPINION OF LORD MATTHEWS in the cause SKIPTON FINANCIAL SERVICES LTD Petitioner; against PAUL ALLAN Respondent: ________________ |
Petitioner Young; Eversheds LLP
Respondents: Catto Solicitor Advocate; HBJ Gateley
1 July 2014
Background
[1] The petitioner is a limited company which trades in the provision of financial services. This includes the provision of advice to customers on and carrying out transactions in financial investment instruments including, inter alia, insurance policies, pension schemes, government and public securities, individual savings accounts and share units. It extends, where required, to assisting customers with financial planning, inheritance tax planning and retirement planning. The petitioner has a diverse range of clients and numerous offices throughout the United Kingdom. On or around 16 August 2006 the respondent was employed by the petitioner to act as a financial advisor and in implement of a term in the employment contract they entered into a separate Deed of Protection of business interests dated 25 January 2007 (the Deed of Protection).
[2] Included amongst the provisions in the Deed of Protection were the following:
“2. RESTRICTIONS
2.1 The [respondent] will not without the prior written consent of the [petitioner], directly or indirectly and whether alone or in conjunction with or on behalf of any other person and whether as a principal, shareholder, director, employee, agent, consultant, partner or otherwise:
2.1.1 for a period of 12 months from the Termination Date so as to compete with the [petitioner] or any Relevant Group Company canvass, solicit or approach or cause to be canvassed, solicited or approached any Relevant Customer or Live Customer for the sale or supply of Relevant Products or Services or endeavour to do so;
2.1.2 for a period of 12 months from the Termination Date so as to compete with the [petitioner] or any Relevant Group Company deal or contract with any Relevant Customer or Live Customer for the sale or supply of Relevant Products or Services or endeavour to do so.
…
3. CONFIDENTIALITY
3.1 The [respondent] acknowledges that in the ordinary course of his employment by the [petitioner] he will be exposed to information about the business of the [petitioner] and that of the [petitioner’s] and the Group Companies’ suppliers and customers which amounts to a trade secret, is confidential or is commercially sensitive and which may not be readily available to others engaged in a similar business to that of the [petitioner] or any of the Group Companies or to the general public and which if disclosed will be liable to cause significant harm to the [petitioner] or such Group Companies.
…
3.3 The [respondent] will not either during his employment or engagement by the [petitioner] or after its termination without limit in time for his own purpose or for any purposes other than those of the [petitioner] or any Group Company (for any reason and in any name) use or divulge or communicate to any person, firm, company or organization except to officials of any Group Company who are entitled to know, any secret or confidential information or information constituting a trade secret acquired or discovered by him in the course of his employment or engagement by the [petitioner] relating to the private affairs or business of the [petitioner] or any Group Company or its/their suppliers, customers, management or shareholders.”
[3] The capitalised terms used in clauses 2 and 3 are defined more fully in clause 1 of the Deed of Protection as follows:
“APPENDIX 1
DEFINED TERMS
Relevant Group Company means “any Group Company (other than the [petitioner]) for which the [respondent] has performed services at any time during the Relevant Period”.
Group Company means “any holding company for the time being of the [petitioner] or any subsidiary or associated company for the time being of the [petitioner] or of any such holding company (for which purpose “holding company” and “subsidiary” have the meanings ascribed to them by section 736 of the Companies Act 1989 and “associated company” means any company which any such holding company or subsidiary holds more than 20 per cent of the equity share capital”.
Relevant Customer means “any person, firm, company or organization who or which at any time during the Relevant Period is or was: (a) negotiating with the [petitioner] or a Relevant Group Company for the sale or supply of Relevant Products or Services; or (b) a client or customer of the [petitioner] or a Relevant Group Company for the sale or supply of Relevant Products or Services; or (c) in the habit of dealing with the [petitioner] or any Relevant Group Company for the sale or supply of Relevant Products or Services and in each case with whom the [respondent] was directly concerned or connected during the Relevant Period”.
Live Customer means “any person, firm, company or organization who are which at any time during the [respondent’s] employment was a client or customer of the [petitioner] or any Relevant Group and: (i) who or which had a Live Policy with the [petitioner] at the Termination Date; and (ii) with whom or which the [respondent] was directly concerned or connected during his employment in respect of the Live Policy”.
Live Policy means “any policy or investment taken out with or via the [petitioner] or any Relevant Group Company by a client or customer of the [petitioner] or any Relevant Group Company, and which has not been surrendered and has not matured or terminated”.
Relevant Products or Services means “products or services with which sale or supply the [respondent] was directly concerned or connected during the Relevant Period”.
Products or Services means “products or services which are of the same kind or of a materially similar kind to or competitive with any products or services sold or supplied by the [petitioner] or any Relevant Group Company within the Relevant Period”.
Relevant Period means “the period of 12 months immediately before the Termination Date”.
Termination Date means the date of termination of the [respondent’s] employment with the [petitioner].”
[4] Given that the respondent’s employment with the petitioner terminated on 19 November 2013, that is the Termination Date.
[5] The petitioner avers that the respondent’s role as a financial advisor involved providing advice directly to the petitioner’s clients and customers on the use of financial investment instruments. It also involved executing those clients’ instructions to procure financial investment instruments pursuant to that advice. The advice he provided covered the full range of advice services provided by the petitioner. It is said that he was allocated to deal with around 300 existing clients of the petitioner and was also responsible for dealing with new clients of the petitioner during his employment.
[6] The respondent is now employed by Cornerstone Asset Management LLP. The petitioner avers that Cornerstone’s business is very similar to their own. It is said that they operate in the same market as the petitioner and that they are an independent financial advisory firm which deals with personal wealth management. It is said that their services include providing advice on all aspects of financial planning to their clients including placing client funds with particular financial investment instruments on behalf of their client. It is said that they use the same technology for placing their investments as is used by the petitioner. The respondent is registered on the Financial Services Register as providing a controlled function with reference “CF30-Customer”. In terms of section 59 of the Financial and Services Market Act 2000 this denotes that he has a substantial connection with dealing with customers and/or their property in relation to a regulated activity. In terms of Schedule 2 of the Act “regulated activity” includes inter alia dealing in investments, arranging deals in investment and advice on investments. It is said that this is the same controlled function which he performed while employed by the petitioner. It is believed and averred that his role at Cornerstone is identical to or materially similar to the role he had whilst employed by the petitioner and that the products and services provided by him are of the same kind as “or of a materially similar kind to, or competitive with, the products and services provided by the petitioner.”
[7] As a result of certain information narrated in the petition and which was expanded in argument before me the petitioner believes and avers that the respondent is in breach of the restrictive covenants to which I have referred. It is said that in the 12 months immediately before 19 November 2013 he was directly concerned or connected with the sale of goods and services to certain customers as follows.
[8] He provided Ms S-T with advice on her financial investments and pursuant to that advice procured a number of additional financial investments on her behalf, including investments in a unit trust, cash accounts, ISAs and a stakeholder pension scheme. He provided Ms GH with advice in respect of her existing financial investments. He provided Mr EG with advice on his existing financial investments and pursuant to that advice procured a number of additional financial investments on his behalf including investments in ISAs, unit trusts and cash accounts. He provided Ms PB with advice on her existing financial investments and procured a number of additional financial investments on her behalf including investment in an ISA.”
[9] It is said that they are all Relevant Customers for the purposes of the deed of protection. The petition goes on to aver:
“The provision of financial planning advice to these customers is a Relevant Product or Service for the purposes of the Deed of Protection. The provision of advice which is of a materially similar kind to, or competitive with, such financial planning advice is a Relevant Product or Services for the purposes of the Deed of Protection. The procuring of investment products such as ISAs, unit trusts, cash accounts and pension schemes on behalf of these customers are all Relevant Products or Services for the purposes of the Deed of Protection and the procuring of investment products which are of a materially similar kind to or competitive with such products is a Relevant Product or Services. Further, and in any event, all of these customers were Live Customers for the purposes of the Deed of Protection.”
[10] The petitioner sought certain undertakings from the respondent which were not forthcoming and now seeks interdict and interdict ad interim to prevent the alleged breaches of the covenants and the case called before me, a caveat having been lodged.
[11] I should say that the prayer of the petitioner simply reflects the relevant terms of the Deed of Protection.
Submissions for the petitioner
[12] Mr Young said that the petitioner did not directly offer financial products of its own. Its only income was from commission and fees and customer connections were a crucial element of the business. It spent a lot of money on supporting and enhancing its service to customers including employing support staff to train advisors and a dedicated technical research department looking at new financial services. An advisor was allocated to each customer to be a point of contact.
Mr Young submitted that the definition of “Relevant Products or Services” included the definition of “Products or Services”. He understood that Mr Catto would argue that the latter definition did not fall to be included but that made no sense. It might not matter in any event because “Relevant Products or Services” had to be construed broadly. The respondent’s employment had ended amicably, the petitioner being aware that he was going to work for Cornerstone and he was reminded by senior management of the terms of the deed before he left. He drew my attention to the incidents referred to in the petition which gave rise to the petitioner’s belief that he was breaching the Deed of Protection.
[13] On 6 January 2014 Ms S-T called into the branch and mentioned that she knew where the respondent had gone since he had left the petitioner and that she might want to stick with him. She was “under the impression” that there was a service that the respondent would be able to provide her at his new role which the petitioner could not provide although she did not give details of this. She had investments with the petitioner valued at a substantial sum. The basis for the averments is to be found in 6/14 of process, a document known as a defence pro-forma.
[14] On 7 January 2014 Ms GH came into the office to discuss a matured Barclays investment and another matter and repeated something she had said before, namely that she had spoken to the respondent before Christmas and that he had told her at that time that he was moving to Cornerstone. He provided her with his personal number at her request. On the previous day she had spoken to a Phil Rimmer of the petitioner and remarked to him that the respondent had moved to Cornerstone and had said that the petitioner would be more expensive in charges than he would be with regard to advice about her matured investment with Barclays. During the meeting on 7 January she indicated that she had completed a “mandate”, 6/15 of process, which asked the petitioner to provide Cornerstone with details of certain investments set out in the document. The “mandate”, dated 20 December 2013, was on Cornerstone headed paper. Ms GH later indicated that she had changed her mind and reversed the “mandate”. The relevant defence pro-forma is number 6/16 of process.
[15] On or around 12 February 2014 Mr EG met Phil Rimmer and indicated that the respondent had told him about his intention to move to Cornerstone when they had last met at the Edinburgh office. The respondent had said that he would be able to provide Mr EG with a better service at Cornerstone than he could whilst employed by the petitioner. Number 6/17 of process is the relevant defence pro-forma.
[16] On or around 14 March 2014 the first respondent telephoned a Mark Ridley, an employee of the petitioner, and indicated to him that he had dealt with some customers of the petitioner and as a result had been receiving correspondence from the petitioner’s agents. The advice he received was to ignore the correspondence. The relevant defence pro-forma is number 6/18 of process.
[17] On or around 1 April 2014 the petitioner received a request to transfer the financial investments of a Ms PD. Mr Denston of the petitioner telephoned her to find out the reasons for the transfer and she indicated that she was transferring her business to Cornerstone because she wished it to remain with the respondent. She apologised for not having notified the petitioner directly and explained that she had been under the impression that the respondent would be notifying the transfer on her behalf. She said that the principal reason for transferring her business was that she had been given the impression that the respondent could offer her services that the petitioner could not. The relevant defence pro-forma is number 6/19 of process.
[18] In each of the circumstances narrated, to varying degrees, it is “believed and averred” that the respondent (either directly or indirectly or in conjunction with others in Cornerstone) has canvassed, solicited or approached Relevant Customers for the sale and supply of Relevant Products or Services and that he has dealt or contracted with or will endeavour in the future to deal or contract with them in breach of clause 2.1.2 of the Deed of Protection. It is also believed and averred that he has used trade secrets for his own purposes in breach of clause 3.3 of the Deed of Protection by using his detailed knowledge of the products and services offered by the petitioner to contrast them unfavourably with the services of Cornerstone for the purposes of persuading customers to move their business to Cornerstone.
6/19 of process, the defence pro-forma relating to Ms PB, narrates that Mr Rimmer indicated in an email to colleagues that he had spoken to Ms PB and that she said that she had “stayed with [the respondent], who has moved to Cornerstone”. She apologised for not letting the petitioner know, but “thought that [the respondent] would be doing that”. Mr Rimmer asked why she moved and she said that she went to him because he was offering something the petitioners were not but she did not remember what that was as it was a while ago when she met him.
[19] Mr Young also referred to 6/30 of process, another defence pro-forma, dealing with the case of Ms DC who told Mr Rimmer on 15 May 2014 that she had transferred all her “cofunds” holding to the respondent after he left because she did not like change and he knew her situation. Her investments were valued at a significant sum.
[20] 6/31 of process was a defence pro-forma which indicated that the client in question had spoken to the respondent in March but that did not take matters very far.
[21] Mr Young then drew my attention to an affidavit by an Iain Lightfoot, a national distribution manager for the petitioner which, inter alia, gave details of the services offered by the petitioner. I need not go into that for present purposes.
[22] Mr Young said that the petitioner could not know exactly what Cornerstone did but he referred to the respondent’s CF-30 registration, which was the same code as he had when employed by the petitioner. 6/20 of process consisted of print outs from Cornerstone’s website and showed the respondent as a wealth manager. Their flagship offering, according to the website, was specifically designed for individuals looking for a higher level of ongoing service and advice and was generally suited to clients with more than £100,000 of investments. It had a number of key features and it was clear that they provided advice about products and financial planning and were able to obtain investments for their clients at a discount. The petitioner did the same.
[23] The respondent’s position appeared to be set out in a letter dated 23 January 2014 from his agents, number 6/23 of process. It suggested that the restrictions in clauses 2.1.1 and 2.1.2 of the Deed of Protection restricted him from soliciting certain individuals for the sale or supply of Relevant Products or Services and that these were defined as the products and services in which he was directly involved in selling in the 12 months leading up to his departure. According to the letter, these were life assurance, critical illness, permanent health, stakeholder pensions, HSBC investment bonds and unit trust funds. He had no involvement whatsoever in the sale of these products within Cornerstone and had not contacted any of his previous clients in connection with them. He was exclusively engaged to advise clients in a wealth management context in relation to the possible use of a multi-asset portfolio service using what was called the “Ascentric” platform. He advised on the attractions of such a service including the benefit of asset selection and re-balancing tools. He engaged clients with Ascentric and also with the fund manager whom the client selected. The fund manager appointed in the context of the foregoing service was appointed on a discretionary basis and at no time was the respondent involved in advising either on the characteristic of the products with which he had been involved while the petitioner nor on any individual provider of them. Mr Young submitted that despite the jargon in the letter there was no fundamental difference between his role with Cornerstone and his role with the petitioner. Why would customers transfer to Cornerstone if they were not receiving the same services, at least in a broad sense?
[24] There was no suggestion that the restrictive covenants were unreasonable and they were carefully framed for a legitimate purpose, the protection of trade secrets and confidential information. Reference was made to the cases of PR Consultants Ltd v Mann 1997 SLT 437 and FSS Travel and Leisure Systems Ltd v Johnson and another [1999] FSR 505.
[25] In the instant case the concern was to do with pricing information and the range of products provided. Existing customers would already know the prices but if services across the entire range were being compared that might be using information which the respondent held. Mr Young then referred to the case of International Computers Ltd v Eccleson and others (unreported 4 May 2000, Outer House). He sought to distinguish that case which was, he said, against him. He submitted that in the instant case it was reasonably clear what the respondent was being prevented from doing in terms of the interdict sought. There should be no difficulty with what was meant by confidential information and trade secrets. It was information which was not readily available to others engaged in a similar business. One could not outline all the information that might be caught by that. If one identified all the information and put it into the interdict sought that would lead to a regressive debate about whether one was innovating on the contract.
[26] Mr Young submitted that he had set out substantive grounds which showed a prima facie case in the sense of being a good, cogent arguable case rather than merely a colourable one. Solicitation meant any conduct on the part of the respondent which showed an active intention to obtain the business of customers. It would not cover merely telling someone he had left or meeting someone on an off chance or social occasion. It would, however cover, comparing products of a new employer favourably and telling a customer that an old employer was more expensive. It would cover telling customers that a new employer was ready and willing to deal with customers. In each of those situations there was an intention to obtain the business. There was a confession that the respondent had been dealing with customers and there were two customers who had actually transferred to the respondent’s new employer and said they wanted the respondent to continue dealing with them. One customer completed a mandate and then changed her mind and there was a general consistency in the story that the respondent told people that his new employer provided a better or more comprehensive or cheaper service than the petitioner. That all showed that the respondent had approached them and solicited them and intended to deal with them. It all supported the inference that someone, either the respondent directly or someone on his behalf, let them know he was working at Cornerstone and was available and that he would deal with them when they transferred.
[27] The balance of convenience favoured the petitioner. The respondent was unlikely to meet any award of damages. Even if there were no transfer of customers there was likely to be substantial damage to the goodwill of those customers. The petitioner would need to spend time and effort to build up the customer connection with them again. The damages claimed would involve innocent third parties as witnesses and breaches tended to take place behind closed doors so would be difficult to prove. There was no prejudice to the respondent, who could still be employed or self-employed with Cornerstone.
Submissions for the respondent
[28] Mr Catto agreed that a two stage test was appropriate. Was there a prima facie case and where did the balance of convenience lie? Under reference to the cases of Barry T Trentham Limited v Lawfield Investments Limited 2001 SC 401, Gillespie v Toondale Ltd. 2006 SC 304, Holden v Royal Bank of Scotland Plc [2011] CSOH 84 and Cowan v Royal Bank of Scotland Plc [2011] CSOH 85, he submitted that in considering the question whether there was a good prima facie case one also had to consider whether there was a substantive defence. The prima facie test was a substantial hurdle for the pursuer to surmount.
[29] Mr Catto then turned to the meaning of the term “Relevant Products or Services”. It was clear what it meant because it was defined. The term “Products or Services” was also defined, with the initial letters capitalised. That term was not used anywhere else in the Deed but that did not mean that it should be introduced into the definition of “Relevant Products or Services”. It was in the Deed through error. If the only use that could be made of it was to incorporate it into the definition of “Relevant Products and Services” then why not put it in there in the first place? In either event it was poor drafting. The fact that when each definition was used in the agreement they were used with the initial letters capitalised showed that he was right.
[30] Mr Catto submitted that there was no prohibition on making contact with customers, whether live or relevant ones. There was no prohibition on the respondent dealing with them or soliciting them other than in relation to “Relevant Products or Services” whatever that might mean. A number of instances of contact had been pointed to and inferences had been sought to be drawn but that was not good enough. The formula “believed and averred” was used eight times for crucial averments. There was nothing wrong with that in itself but sufficient facts had to be pled to enable the desiderated inferences to be drawn and those facts were missing. The formula was used at the end of the sixth statement of fact but it was a non sequitur, as it was in the eighth. What was averred there did not amount to a breach of contract. Nothing in that statement of fact showed that there was any discussion about “Relevant Products and Services” that was instigated by the respondent or that any attempt to canvass Ms S-T was made. She knew where the respondent had gone and might want to stick with him, which was not surprising given the substantial sums she had invested.
[31] The formulation was used in connection with Ms GH. The word “mandate” might imply an instruction to transfer business but that was not what it was and one could not draw the inference that the respondent had canvassed her. All that the petitioner averred was that the respondent met her and she completed a request for information about her investments before changing her mind. As far as Ms PB was concerned, it was said that she had been given the impression that the respondent could offer services the petitioner could not but that could not give rise to the necessary inference. She told the petitioner she wanted to move because she would get different services.
[32] Reference was made to the case of Brown v Redpath Brown & Co Limited 1963 SLT 219. Mr Catto submitted that there was a big gap between the facts averred and the averments which were said to be believed and averred and the latter were critical. There was not enough material when the averments were looked at individually or collectively to support the inference sought. The inference could not reasonably be drawn on the facts alleged and there was no affidavit from any customer saying what was said and what was proposed. The internal notes supported the respondent’s position.
[33] 6/3 of process is a note of an interview between the respondent and Mr Denston of the petitioner showing that the petitioner failed to understand the nature of the Deed. Mr Denston clearly understood that the respondent had an obligation not to contact customers at all but that was wrong. The same approach could be found in Mr Lightfoot’s affidavit.
[34] As far as the first respondent’s position was concerned, there was lengthy correspondence between the agents for the respective parties following the letter of 23 January. The petitioner had not challenged the assertion that the respondent dealt with the matters referred to while in their employment. There was a critical difference between the petitioner and Cornerstone. The former only offered restricted advice whereas the latter offered independent advice. The home page of the petitioner was at 7/11 of process and confirmed that the petitioner was “a Restricted Advisory firm focusing primarily on investment and inheritance tax planning”. On the other hand 7/12 of process was part of the home page of Cornerstone and indicated that they were “a full-service independent financial advisory firm that focuses on private wealth management and corporate solutions.” 7/13 was a document from the Financial Services Authority in connection with a retail distribution review comparing independent and restricted advice. Clauses 1.1 to 1.3 of the document read as follows:
“1.1 The Retail Distribution Review (RDR) resulted in new and updated rules, which will improve the clarity with which firms describe their investment advice services to customers. From the end of 2012, firms providing advice on retail investment products to retail clients will need to describe these services as either “independent” or “restricted”. We have also updated the rules that set out what is expected of a firm that describes it advice as being independent.
1.2 The new standard for independent advice is intended to ensure that such advice is genuinely free from bias towards particular solutions or any restrictions that would limit the range of solutions that firms can recommend to their clients. In providing independent advice, a firm should not be restricted by product provider, and should also be able to objectively consider all types of retail investment products which are capable of meeting the investment needs and objectives of a retail client.
1.3 Restricted advice, which is advice that does not meet the standard for independent advice, will come in many different forms. While a firm needs to describe the nature of its restricted advice service to clients, it is free to choose the words that are appropriate for its service.”
There was a regulated distinction between organisations like the petitioner, which were restricted, and organisations like Cornerstone which were independent. Independent advice was objectively seen as better. The mere knowledge that Cornerstone was independent and the petitioner were restricted was enough to show that the range of products which any employee of Cornerstone had the potential to be involved in was much wider than could be provided by the petitioner. There were many services which the respondent could carry out with Cornerstone that he could not with the petitioner. They included discretionary fund management, the use of multi-asset portfolios, re-balancing tools (enabling the client’s exposure to continue to be at the level they committed to notwithstanding changes in the value of assets), cash flow modelling (for example, planning for retirement and capital gains tax mitigation), venture capital trusts, enterprise investment schemes, AIM share portfolios, Exchange traded funds, holistic wealth management advice and discounted advice from other professionals, including wills, tax returns and powers of attorney. This was a non-exhaustive list.
[35] I asked Mr Catto if he could tell me what the nature of the relationship was between the respondent and the various customers named and he said it was different in each case.
[36] In relation to the letter of 23 January, the “Ascentric” platform was a means by which funds were invested. It was the same as “cofunds” to which reference was previously made. It was a means of spreading the risk across different assets. It was not the role of anyone at Cornerstone to invest the funds. That was what Ascentric and cofunds did. The respondent had only been involved in speaking to clients about wealth management and multi-asset portfolios, neither of which was offered by the petitioners. What he did now was not similar to anything offered by the petitioner. They could not offer it, in fact.
[37] If I applied the definition of “Products and Services” for which Mr Catto contended then those with which the respondent was now concerned were not ones with which he was involved during the relevant period. Even if the petitioner’s definition were applied they were still different. The petitioner could not offer them and they were not materially similar to anything supplied by them.
[38] This was a defence of apparent substance and applying the case of Barry T Trentham Ltd, the motion should be refused.
[39] As far as trade secrets and confidentiality was concerned, restricted advice did not meet the standard for independent advice as the FSA guidelines in the Retail Distribution Review said. It was extraordinary that the petitioner asserted that the inferiority of the range of services they provided as compared to Cornerstone was a trade secret. They had to advertise on their own website that they provided restricted advice. They were required by law to disclose that so that aspect of the petitioner’s case was certain to fail. As far as individual customers were concerned, they knew what they invested as did the petitioner and the respondent. That was not a secret. Pricing was not a secret because one could get details of the petitioner’s products on the website. There was no basis for inferring that the respondent had used confidential information.
[40] As far as the balance of convenience was concerned, it was averred that the petitioner had been responsible for handling in excess of 300 customers, representing a combined annual income in the region of £106,000. More than 6 months had now passed since the respondent left the petitioner’s employment and they had only found four examples of an alleged breach as well as two further examples which were not in the petition. Any claim was never likely to be of the order suggested in article 14. If interim interdict were granted it was quite likely that the respondent would face proceedings for alleged breach because of the dispute about what the Deed actually meant. He did not know exactly what he was or was not to do. The proper forum for determination of any dispute would be an action for damages. The inconvenience would also extend to the customers. They all had very large sums of money and the manner in which it was held and invested would be of significance to them. Their freedom of choice to invest where they chose was unfettered. The respondent would have to tell them that he could not deal with them. Even if interim interdict were not granted the respondent would still be bound by the Deed. On 19 November 2014 the petitioner could calculate whatever loss they believed they had suffered. It was likely to be a small amount.
Reply for the petitioner
[41] Mr Young submitted that the submissions for the respondent disclosed a weak and contradictory defence and nowhere near as substantial as was envisaged in Gillespie and Trentham, where the whole legal basis of the case was denied. There was no dispute that the respondent was bound by the contract, that it was reasonable and enforceable and that he had contacted a number of customers. The entire defence was predicated on the assertion that what Cornerstone did was not the same and was not materially similar to what the petitioners did. There was a contradiction at the heart of his defence. The essence of the difference between a restricted and an independent advisor is that the former would say that he was not going to advise on certain types of investments whereas the latter would advise on all of them. The respondent could not have it both ways and say he was not providing advice on particular types of investment. The reference to a multi-asset portfolio was just a reference to different types of investments dependent on the risk and that was exactly what the petitioner did. It was accepted that the petitioner did not advise on venture capital trusts and enterprise investment schemes but they did advise on discretionary fund management and they provided customers with the opportunity to be advised on different types of investments. Cash flow modelling was just jargon for advising on the likely outcome of investments and the petitioner did that. They were also involved in wills, powers of attorney and hedge funds. The restriction arose because venture capital trusts and enterprise investments schemes were deemed to be high risk. If the respondent was saying he only advised on those then he might have an argument but that was exceptionally unlikely. One of the customers concerned was 85 and another was in their late 60s. The notion that having transferred to the respondent with ISAs they were going to go into high risk trusts was fanciful. If a client said they were quite happy and wanted a few more unit trusts and ISAs then presumably at that point the respondent would have to tell them that he could not advise on those but that was never going to happen. It was not disputed that the products listed in the letter of 23 January were investment products. The respondent could not assert that he was not involved in those but on the other hand say he was independent. The “Ascentric” scheme was accepted to be the equivalent of cofunds and that showed that the same service was offered. The petitioners had a referral relationship with another company in the Skipton Group which did advise on venture trusts and enterprise investment schemes. The differences relied on by the respondent were illusory. When all was said and done there were two companies involved, both in financial services, both giving advice about investment products, both obtaining them and both regulated by the same body in connection with the same functions. The respondent himself had the same function as he had with the petitioners. As far as the definition of “Relevant Products and Services” was concerned there was another example of the same type of drafting in relation to “Group Company” and “Relevant Group Company”, the only difference being that where they was incorporated in “Relevant Group Company” the words “Group Company” had the initial letters capitalised. The only mistake in the Deed was that “products or services” had not had their initial letters capitalised. The intention was clear. The apparently substantial defence was a narrow distinction between businesses which were fundamentally identical.
[42] As far as loss was concerned, damages in a case like this could go into the future. The mere fact that there was a dispute over the meaning of “Products or Services” was neither here nor there.
Further reply by the respondent
[43] Mr Catto indicated that the reference to “Group Company” supported his position and further submitted that Ms.GH was in fact turned away by the respondent. He sent her back to the petitioner, she having approached him looking for products supplied by the petitioner. He would do so again in similar circumstances.
Discussion
[44] It seems to me that the first thing to do is to decide the extent of the obligation undertaken by the respondent in terms of the Deed of Protection. More particularly, what is meant by the phrase “Relevant Products or Services”? In my opinion, the definition proffered by the petitioner is to be preferred, in other words the “products or services” subsumed in the definition of “Relevant Products or Services” are those which are further defined. The alternative is that this further definition would simply be a random one inserted without any apparent purpose. The relationship between the definitions of “Relevant Group Company” and “Group Company” supports the argument. The fact that “products or services” are not given a capital initial in the definition of “Relevant Products or Services” is an easier mistake to make than the insertion of words which would seem to have no meaning. When one tries to read the definition of “Products or Services” into the definition of “Relevant Products or Services”, as Mr Young invited me to do, the result is that “Relevant Products or Services” are something like the following:
“products or services which are of the same kind or of a materially similar kind to or competitive with any products or services sold or supplied by the petitioner or any Relevant Group Company within the Relevant Period with which sale or supply the respondent was directly concerned or connected during the Relevant Period.”
It seems to me that while this is somewhat convoluted, it makes sense and is preferable to the contention of the respondent that the definition of “Products or Services” is a mistake. If there is a mistake it is much more likely to be the failure to capitalise the initial letters. That means that the “Products or Services” which are in issue are those which are the same as or materially similar to “Products or Services” sold or supplied by the petitioner or any “Relevant Group Company” in the 12 months before the “Termination Date” and with which the respondent was directly concerned or connected during that period. It thus does not seem to me that the prohibition extends to any “Product or Service” with which sale or supply he was not directly concerned or connected during the “Relevant Period”.
[45] It does not appear to be disputed that the customers referred to are “Relevant Customers” for the purposes of the Deed of Protection. There is a dispute as to whether any financial advice which the respondent has given or may give to these customers is a “Relevant Product or Service”. From the respondent’s point of view, I understand that the argument is that nothing he has done or may do in connection with these customers, at least until the end of the restricted period, was anything that he did in the 12 months prior to the “Termination Date”. The petitioner’s position is that the “Products or Services” are materially similar if not exactly the same and that they are competitive with the “Products or Services” offered by them.
[46] Having indicated which definition I prefer, has the petitioner set up a prima facie case of breach of the restricted covenants?
[47] In this connection I do not think that anything particularly turns on the use of the formula “believed and averred”. Mr Catto did not challenge that formula as such, his attack being, I think, that the averments which were made did not give rise to the inference which the petitioners sought to draw. I turn now to consider that matter.
[48] I think it fair to say that taken individually the various circumstances relied on by the petitioner may not, for the most part at least, amount to very much. However, taken together they seem to me to provide a cogent circumstantial prima facie case that the respondent has in fact solicited “Relevant Customers” and has dealt or intends to deal with them in relation to “Products or Services” which are at least materially similar to those with which he had a direct connection in the 12 months before his departure. As Mr Young submitted, there is a pattern from which an inference can be drawn that the respondent indicated that Cornerstone could provide a better service than the petitioner and two “Relevant Customers” (Ms PB and Mrs DC) have, on the face of it at least, transferred their business to the respondent. The fact that they have “transferred their business” rather than engaged in new business indicates that he is dealing with them in relation to the same “Products or Services as he did before. While the letter of 23 January indicates that he is now involved in different “Products or Services”, inquiry showed that the “Ascentric” platform is the equivalent of “cofunds”. The information before me, so far as it goes, is that Mrs DC transferred her “cofunds” holdings to the respondent and that tends to indicate that he is dealing with her in relation to “Products or Services” which are at least similar to those with which he was involved in the 12 months before he left. Furthermore, I agree with Mr Young that it is unlikely that customers who dealt previously with the respondent would materially change the nature of their investments.
[49] I consider that indicating that Cornerstone can provide a better service is tantamount to soliciting but I will have a little more to say about that in the context of trade secrets.
[50] The respondent’s answer to this lies first of all in the interpretation of the Deed of Protection which I was urged to adopt. For the reasons I have given I consider there is no substance in that. Neither do I consider that there is any substance in the fact that the petitioner is a restricted advisor while Cornerstone is an independent advisor. It appears that Cornerstone can provide a wider range of services than the petitioner but there is force in the suggestion by Mr Young that the respondent as an independent advisor would be likely to have to discuss the whole range of investments with his client and compare the merits and demerits of them, giving appropriate advice. I have no reason to doubt what was said on his behalf about his advising Ms GH to go back to the petitioners and, indeed, the fact that she changed her mind and stayed with them, as set out in the eighth statement of fact, would tend to support that. Nonetheless, the fact remains that prima facie two customers have transferred their business to the respondent.
[51] In all the circumstances it seems to me that the facts averred in the petition, as supplemented by the reference to Ms DC, to which no objection was taken, do support the inference which the petitioner seeks to draw.
[52] However, I am not persuaded that a prima facie case has been made out in relation to the alleged breach of clause 3.3 of the Deed of Protection (the use of trade secrets).
[53] On one view the description of the petitioner as a restricted advisor as compared to the restriction of Cornerstone as an independent advisor, which descriptions are available on the respective websites, might enable an individual to claim that Cornerstone were better than the petitioner or offered a better service. Whether that be the case or not, however, it seems to me that one could not infer that in making the comparison the respondent was going any further than indulging in what advertisers, I believe, call “puff”. The suggestion that it is based on private knowledge is speculative. Furthermore, the parties to whom such representations have been addressed are already aware of the service which the petitioner has offered to them and must be aware of what it cost them so any reference to prices cannot be said to be a secret.
The balance of convenience
[54] Having considered the matter I am of the opinion that the balance of convenience favours the petitioner. In the event that the respondent breaches what I might call his non-solicitation and non-dealing obligations I agree with Mr Young that it may be difficult for the petitioner to quantify the loss sustained. It will not do simply to say that the obligation only lasts for another 6 months or so because during that time the petitioner has the opportunity to nurture the relationship with those customers with whom the respondent dealt in order to ensure, as far as possible, that the business connection will be maintained, perhaps for a number of years. The respondent submits that the petitioner has been able to identify very few customers who might be affected but that is double edged. If there are few customers then he is unlikely to be affected to any significant extent by an interdict which is designed to ensure that he merely fulfils his contractual obligations. Mr Catto submitted that if interim interdict were not granted the respondent would remain bound by the Deed of Protection but on the other hand if interim interdict were granted the respondent would be likely to find himself in breach of it. It seems to me that these two submissions are self-contradictory. I have given an opinion as to the scope of his obligation and he should know whether or not any dealings which he has with former customers are affected. If he is aware of his obligations under the contract then he will equally be aware of his obligations in terms of any interdict which I pronounce, since the latter is based entirely on the former.
[55] In all the circumstances I shall grant interdict ad interim in terms of part (i) of the prayer and refuse it in relation to part (ii).
[56] The question of expenses was not canvassed before me. Unless parties can agree the matter no doubt an appropriate motion will be enrolled in due course.