OUTER HOUSE, COURT OF SESSION [2006] CSOH 174
A2976/02	OPINION OF LADY CLARK OF CALTON in the cause DUNEDIN INDEPENDENT plc Pursuers; against KENNETH ANDERSON WELSH Defender: ­­­­­­­­­­­­­­­­­________________

Pursuers: Logan; Macbeth Currie

Defender: Jones, Solicitor; Brechin Tindal Oatts

14 November 2006

History and overview

[1] The pursuers are a company which may be described as a company which provides financial services. On 27 March 2001 the defender commenced employment with the pursuers as a director of the pursuers. In their employment, the defender was registered as an Independent Financial Adviser (IFA). The pursuers and defender subsequently executed a service agreement on 6 October 2001 which agreed an employment commencement date of 27 March 2001. On 12 September 2002 the parties agreed a compromise agreement in which it was acknowledged that the defender's employment with the pursuers is regulated by the terms of said contract dated 6 October 2001. They further agreed that the defender's employment with the pursuers terminated with effect from 9 September 2002. The issues at the proof did not turn upon the 2002 agreement, but related to provisions of the service agreement dated 6 October 2001. It was not disputed that clauses 11 and 13 of the 2001 service agreement continue to apply for a period after the termination of the employment contract.

[2] Said service agreement contains provisions in clauses 11.1 and 11.2 in relation to confidential information. Clause 13.2.1 is to the effect that the defender is not entitled to solicit custom or the business of persons in certain circumstances. Clause 13.2.2 is to the effect that the defender will not have business dealings with or accept business from any person in the circumstances specified. I deal with these clauses in paragraphs 29 to 38.

[3] The pursuers raised an action seeking interdict and interdict ad interim in respect of alleged breaches of said clauses 11 and 13 and for payment of damages. On 26 November 2002, after some amendment, Lord Johnston, having heard an opposed motion, granted the pursuers' motion in part. He granted interim interdict of the defender from using the pursuers' confidential information, as specified in clause 11.1, and from enticing, soliciting away or endeavouring to entice or solicit away the custom or business of any person in terms reflecting clause 13.2.1. He did not grant interdict ad interim to reflect part or any of clause 13.2.2. The interpretation of clause 13.2.2 and its enforceability were matters of dispute between the parties at the earliest stages of this legal action. The defender has always denied that he in fact breached clause 13.2.1. He has for long admitted that he has dealt with various clients of the pursuers under explanation that clause 13.2.2 is not enforceable. At the stage of interim interdict, it appears that the pursuers did not seek a condition to have the defender keep a list of any person covered by clause 13.2.2 and details of any business with such person. In any event no such condition was made. Such a list is commonly requested and made a condition in the event that interim interdict is not granted. This is often of assistance if damages remain in dispute and may assist in minimising the length of any proof.

[4] During the period April 2003 - November 2003 various documents were recovered by the pursuers following various commissions and diligence. Various minutes of amendment were granted and adjustments were made. On 21 October 2004 the cause was appointed to the procedure roll. Lord Menzies in his Opinion dated 16 April 2004 refused to admit certain averments of the pursuers to probation and quoad ultra allowed parties a proof before answer. Thereafter the pursuers sought further recovery of documents which was granted and further amendment was made.

[5] The case came before me on a closed record (as amended) dated 6 March 2006. Some 42 pages of pleadings detailed inter alia individual client transactions. Evidence was led over seven days commencing 7 March 2006. The case did not conclude in the time allocated. This was partly because of the nature of the Closed Record and the attempt in evidence to trace through the transactions of various clients, identify timings, identify individual commission and project commission earnings into the future. This laborious process was to some extent narrowed down in the course of submissions. By that stage there was limited agreement about the proper approach to assessing damages (if damages were due), the relevant clients for these purposes, the transactions and base figures. Submissions were heard over four days commencing 26 September 2006. At my request, parties produced written submissions which were developed in oral submission. The pursuers' written submission is 49 of process and the defender's written submission is 50 of process. Provision of the written submissions reflected a great deal of work for which I am grateful to both parties' representatives.

The pleadings and issues arising therefrom
[6] The first conclusion is for interdict against the defender from using the pursuers' confidential information, as specified in clause 11.1 of said service agreement. The pursuers insisted on this conclusion. The position of the defender was that he had no confidential information and did not use such information but he was not prepared to spend time at proof to dispute this conclusion. That was made plain to me at the commencement of the proof.

[7] The second conclusion is also for interdict and reflects the terms of clauses 13.2.1 and 13.2.2 of said service agreement. Both said clauses had a limitation period of twelve months from the date employment was terminated, 9 September 2002. It was not disputed that no interdict could be granted in terms of the second conclusion.

[8] The case which I have to consider is, in essence, a case of breach of contract in respect of clause 13 seeking damages based on alleged losses in respect of specific clients. This is reflected in terms of the third and fourth conclusions which seek damages apparently for alleged breaches of said clauses 13.2.1 and 13.2.2. The case is made more complex by the pleadings relating to alleged lack of authorisation on the part of the defender resulting (it is alleged) in work undertaken being illegal and a contravention of the "Financial Services Act".

[9] Articles 1-3 of condescendence narrate the parties' history, the employment service agreement and set out the terms of the restrictive clauses. In Article 4 of condescendence, the pursuers aver that the defender has contacted numerous established clients of the pursuers and names are listed. It is averred that

"In light of the number of his former clients contacted and the subsequent actions of several of them in transferring or writing new business with the defender as hereinafter condescended upon it is believed and averred that the purpose of said contacts was to induce or persuade those clients to transfer their business to the defender." (11D-E)

It is averred that each and all of these contacts were contraventions of either clause 13.2.1 or 13.2.2 or both of the defender's service agreement. There then follows averments about further specific contacts and it is averred that as a result of this the pursuers have suffered and will continue to suffer loss of commission and repeat commission in respect of the business of specified clients. It is averred that -

"The defender benefited from payment of commissions either directly from the product suppliers or indirectly from Spence & Spence. The contacting of these clients with a view to enticing or soliciting or endeavouring to entice or solicit business was wrongful. In the event that any of these clients sought out the defender accepting business from these clients was wrongful. Reference is made to clauses 13.2.1 and 13.2.2 of the service agreement." (14C-E)

There then follows various averments which relate to reasonable apprehensions and interdict which are not relevant for present purposes. In answering the specific averments, the defender admits many of the contacts, albeit not in the context of enticement or solicitation. It is not disputed that he accepted business from certain of the clients specified after he left the pursuers' employment during the 12 month period. The defender explains and avers that -

"on or about 1 November 2002 the defender commenced trading in association with Spence & Spence. Between 1 November 2002 and 12 February 2003 the defender was self-employed but worked with Spence & Spence. While working with Spence & Spence that firm used the trading name of Anderson Welsh for business referred by the defender. On 24 December 2002 the Financial Services Authority authorised the defender to conduct investment business. On or about 12 February 2003 the defender ceased to trade in association with Spence & Spence. On or about 13 February 2003 the defender was a director and employee of Anderson Welsh Limited." (20E-21B)

[10] In answer to these averments by the defender, the pursuers make certain averments which were the subject of objection and engaged a considerable amount of time in this case. I deal with the objection in paragraphs 24 to 28. The pursuers do not dispute that the defender commenced trading in association with Spence & Spence and that whilst operating under the aegis of Spence & Spence the defender was self-employed. But the pursuers aver -

"that the defender received authorisation from the Financial Services Authority to operate under the aegis of Spence & Spence as an investment adviser and pension transfer specialist on 23 December 2002. Any work undertaken in those capacities prior to that date was illegal and a contravention of the Financial Services Act. The defender continued to be authorised in respect of said capacities by the Financial Services Authority in the name of Spence & Spence until 9 April 2003. Any work that the defender undertook in providing financial services to clients required to be supervised and approved by Spence & Spence. After interim interdict was obtained by the pursuers against the defender, Mr Charles Spence, the senior partner of Spence & Spence, instructed the defender not to undertake work for his former clients at Dunedin. The defender disregarded that instruction and continued to undertake such work without lawful authorisation. In particular, Spence & Spence did not authorise work on behalf of Mr Bristow, Mr Fairclough, Mr Haddow and Mr Bryson. The defender has shown, and continues to show, a wilful disregard of both his contractual and legal responsibilities. In the circumstances interdict, as first concluded for, is necessary." (16B-17A)

The averments then continue to deal with specific points in relation to specific clients. It may be useful to state at this stage that I consider the pursuers' averments in Article 4 of Condescendence to be an amalgam of averments in support of interdict and interdict ad interim, on the basis that there have been various breaches in relation to specific clients of clauses 11, 13.1 and 13.2 of said service agreement. There are no averments that relate or connect the averments which I have quoted to damages.

[11] In Article 5 of Condescendence, the pursuers aver the defender breached the terms of the service agreement and in particular clauses 13.2.1 and 13.2.2. The pursuers then set out details of business transacted and various commissions and various projections of the commission into the future with reference to certain named individuals. This approach is adopted in relation to Graham Cole, Marilyn Cole, John Fairclough, Mr and Mrs Spencer and Mr and Mrs Bristow. There are then averments by the pursuers about what occurred when previous directors left, including rebuilding relationships with clients (31B-D). It is then averred that -

"on this basis the pursuer believes and avers that if the defender had either not sought out his clients or declined to act for them for the restrictive period they would have remained with the pursuer." (31D-E)

This is a critical averment, in my opinion, in relation to damages. This averment of the pursuers is oddly placed and interrupts the pursuers' averments about Mr and Mrs Bristow. The averments then continue to deal with other clients, namely Mr Bryson and Mr Haddow and conclude that the total commission lost to the pursuers is £36,534. For convenience I refer to the clients listed as the "Article 5 clients". It is then averred that:

"In each case the defender took advantage of work already undertaken by himself in the employment of the pursuer. The pursuer therefore incurred the costs of the work but were denied the commission." (page 32D-E)

The pursuers then makes averments about what happened when previous directors left and how clients were retained and avers:

"On this basis the pursuer believes and avers that if the defender had either not sought out his clients or declined to act for them for the restrictive period they would have remained with the pursuer. Had the defender complied with his undertakings and not written business for these clients within the 12 months after his departure, the pursuer believes and avers that the funds described would have remained with them." (33B-C)

These averments when read along with the averments at 31D-E are the averments which found the basis of causation in relation to the damages sought by the pursuers. They set out the reasons why the pursuers maintain they lost business as a result of breach or breaches of the agreement by the defender.

[12] These averments are answered by the defender. The defender admits various actings in respect of certain clients and various transactions, and avers reasons why the damages are said to be excessive. The defender's primary contention is that damages are not due as there has been no breach of 13.2.1 or 13.2.2 of the service agreement. The defender makes certain specific calls (1) to state what steps, if any, the pursuers took to retain or recover clients; (2) the factual basis for the pursuers' belief that they would have retained the business of persons with whom the pursuers had dealt and in particular the clients, and particularly would have retained them beyond 10 September 2003; and (3) seeks certain information about clients who left the pursuers (38B-D). With reference to the first call, the pursuers aver -

"The pursuers took no steps to seek to recover clients from the defender once the clients had decided to mandate their business to the defender. It would have been futile to do so. These clients had had the defender built up in their eyes whilst dealing with the defender when he was employed at the pursuers. The pursuers encourage a close personal relationship between their sales executives and their clients. It is for this reason the pursuers require to protect their business by the restrictions in the contract of employment. It is both predictable and understandable that some clients that the defender had dealt with whilst at the pursuers would seek him out. Clause 13.2.2 is therefore an essential requirement to protect the business of the pursuers when an executive leaves. The period of the restriction allows the pursuers the opportunity to build up a similar level of trust and confidence in the new executive dealing with the client. Any competition thereafter is therefore on an equal footing and not to the disadvantage of the pursuers. By breaching that term the defender has obtained an unfair advantage against the pursuers and thereby caused them to suffer loss." (33D-34B)

There is no specific answer to the second call but the pursuers do have averments about this issue at 31D-E and 33B-C to the effect that the clients would have remained with the pursuers if the defender had either not sought out the clients or declined to act for them for the restrictive period. Part of the case, which counsel for the pursuers sought to make out in eliciting evidence and in submissions, was to the effect that if the clients had known that the defender (as the pursuers contended) was acting contrary to the "Financial Services Act" and was unauthorised and that the clients would lose the protection of the Act, they would not have left the pursuers. I comment at this stage that, despite the defender's call, there are no averments by the pursuers supplementary to 31D-E and 33B-C which give any further specification as to the reasons the pursuers aver that clients would have remained with them. In relation to the third call, the pursuers have some specification to which I have already referred.

[13] Article 6 is not relevant for present purposes.

[14] The pleas-in-law which are relevant are the pursuers' fifth plea-in-law claiming that the defender having breached clauses 13.2.1 and 13.2.2, the pursuers are entitled to reparation therefor. Pleas-in-law 6 and 7 relate to the sums third and fourth concluded for being reasonable. The pursuers make it plain that the sum fourth concluded for relates to future loss arising from the defender's breach of contract. The defender has pleas directed to relevancy and the averments being unfounded in fact. In addition, plea-in-law 6 is directed to clause 13.2.2 as being contrary to public policy and not enforceable. It was conceded in submissions on behalf of the defender that plea-in-law 7 directed to clause 13.2.1 being wider than necessary to protect a legitimate business interest should not be upheld. Plea-in-law 8 is directed to the defender not having breached clauses 13.2.1 and 13.2.2. Plea-in-law 9 is a plea that the sum sued for is excessive. Pleas-in-law 10 and 11 are directed to a failure to mitigate loss and damages being too remote. These pleas were not insisted upon during submissions.

Evidence

[15] The witnesses led for the pursuers were:

Mr Irvine (managing director of the pursuers)

Mr Spence (managing director of Spence & Spence Limited)

Mr Bryden (senior partner with a firm of solicitors and an existing client of the pursuers)

Brenda Henry (customer service employee at Norwich Union)

Andrew Belchley (former managing director of the pursuers)

David Beattie (existing client of the pursuers)

David Reilly (business liaison manager of the pursuers).

The witnesses led by the solicitor advocate for the defender were:

Mr Bristow, Mr Fairclough, Mr Bryson, Mr Spencer, Mr Haddow, Mr Cole (all former clients of the pursuers)

Alistair Marr (a client until about 2005 of the pursuers)

The defender.

[16] Mr Irvine, age 39, independent financial adviser with an additional qualification in the pension industry, holder of a Financial Planning Certificate and G60 pension qualifications, was the main witness for the pursuers. He has been employed by the pursuers since June 1995. He explained that the principal asset of the pursuers is the client base and the renewal income which they generate, which includes trail commission which may be described in general terms as a continuing annual commission on various policies. He gave scene setting evidence about the financial services industry. His principal evidence involved trying to set out and explain the various financial arrangements made on behalf of the Article 5 clients with reference to many and varied documents. No report drawing this information together was made available in evidence. There was also considerable evidence from him about what he understood the defender had done for various clients and whether it was the same or different from work which had been done by or on behalf of the pursuers. With some limited exceptions he did not appear to have attempted to carry out any investigation of the pursuers' case except as a paper exercise. For example, in relation to Mr Marr, he said that Mr Marr had told him the defender had been in touch with him. He did not ask Mr Marr why the defender was in touch. He did not know whether the defender was trying to solicit Mr Marr. He did not hear the conversation and did not make enquiry. He did not know whether Mr Marr became a client of the defender. This is against the background of the record in which the pursuers aver that Mr Marr is a person in respect of whom it is believed and averred that the purpose of said contact by the defender was to induce or persuade clients to transfer their business to the defender. Mr Irvine did give evidence in relation to some of the Article 5 clients about some discussions which he had with them about the time of their leaving the pursuers. I make comment about that later. Although there was a great deal of evidence from Mr Irvine, very little of it bore upon the critical issues in the case, as I have identified them. Most of his evidence related to matters relevant to damages. I deal with aspects of his evidence in relation to various issues which I address later.

[17] For reasons which I explain in paragraphs 24-28 I give only an outline of the evidence of Mr Spence. Mr Spence, age 48, entered into an arrangement with the defender in which Mr Spence was responsible for the defender's compliance with FSA regulations. This was done with the assistance of two compliance officers and an outside agency. He thought the arrangement started about the end of 2002 when the defender was taken on as a self-employed consultant with agreement to split commission. The defender was asked to join and help run the Glasgow office. There is no evidence as to what this arrangement involved or about the specific terms of the agreement and its implications for individual clients in relation to registration as an independent financial adviser. According to Mr Spence the website of the FSA was not accurate. Arrangements about compliance were dealt with by his compliance department. He confirmed that he had never met Mr Cole and knew nothing about 6/25 of process. He knew nothing about a meeting with Mr Cole mentioned therein. He did not know about the letter referring to a proposed meeting with Mr Bristow. He had never met Mr Bristow. In response to legal documents served on behalf of the pursuers, which contained six specific names which he could not remember, he instructed the defender not to deal with the six names listed. What he intended to happen as a result of that was not explored. He was not asked whether he considered this had any implications for the defender in relation to the defender's authorisation with the FSA. Mr Spence said that he had received a letter from the FSA asking the firm to look at three bits of business transacted by the defender. This had been provoked by a complaint of the pursuers. Following that investigation he said that the FSA said there were no issues arising. There was an internal enquiry into the work of these three pieces of business. Cole and Spencer were looked at. I comment at this stage that at the end of Mr Spence's evidence, I was totally unclear about how this arrangement with the defender fitted in to the regulatory structure of the Financial Services and Markets Act 2000 and whether or not under that Act, Mr Spencer had any right to give instructions to the defender which might or might not result in the defender's loss of authorisation in relation to any specific clients. I was particularly puzzled by the fact that the instruction appears to have arisen out of Mr Spence's concern that there was a legal dispute between the defender and the pursuers involving their private contractual arrangements. Mr Spence did not have any knowledge of the merits of that dispute. As I did not know what was involved in the contractual arrangements between Mr Spence and the defender, I was not in a position to assess the legal effect of such an instruction even if Mr Spence had been able to remember to whom the instruction related.

[18] Glenda Henry, age 59, gave evidence that a call came into the call centre, which she did not receive. The call centre asked her to send a piece of work to "Kenneth". The enquiry did not make sense to her as the registered ISA at the time was the pursuers. She thought that Norwich Union received a mandate some time later. I accept her evidence as credible and reliable but did not find this evidence of assistance in relation to the issues which I consider critical.

[19] Andrew Belchley, age 53, was a self-employed antiquarian book seller. He had previously worked in the financial services industry as group managing director of the pursuers. He identified 6/15 of process as the report generated by the defender demonstrating the amount of income the defender thought he was likely to generate over the year. He confirmed that clients are the bedrock of the business. He described them as "property" of the business. He did not think he had a restrictive covenant when he was employed by the pursuers. I accept what I consider to be the most important part of his evidence that is the explanation of the report 6/15 of process and his description of the importance of clients to the pursuers' business. I did not consider that the rest of his evidence assisted me in relation to the critical issues.

[20] I deal with the very short passage of evidence from Mr Beattie in paragraph 42.

[21] Mr Reilly, age 46, has been the business liaison manager of the pursuers since November 1997. His task is researching and writing reports for directors. He is not registered to provide advice and he said that there was an important distinction between adviser and researcher. Reports went out in the name of the advisers. He spoke to Mr Bryson after the defender left. Mr Bryson telephoned to say that he had heard that the defender had left. Mr Bryson though the defender was a good guy, but said according to this witness that it did not make a difference to his relationship with the pursuers. That was the last time Mr Reilly spoke to Mr Bryson. The import of this evidence suggests that Mr Bryson was not unhappy with the service of the pursuers at the time. I do not accept this for the reasons explained in paragraphs 60-61.

[22] The remainder of the client witnesses are dealt with in paragraphs 48-64 where I deal with the evidence given by clients and former clients.

[23] The defender explained that he had a history in the financial services industry since about 1990, including periods in various financial institutions. He confirmed the employment date and the suddenness of the resignation. I accept his evidence on this point. It was not disputed that this was a sudden event and not planned. Most of the rest of his evidence related to his description of the various interactions with the Article 5 clients. He also gave some general evidence about how the commission system worked. The general thrust of his evidence was that he had not solicited. He admitted that he had dealings with and accepted business from the Article 5 clients. Because of the difficulties which I narrate in paragraph 24-48, I concluded that I could not properly assess the defender's evidence in relation to the important issues of his interactions with the specific clients. The defender declined, as he was entitled to do in the circumstances and subject to the warnings I had given, to answer questions in relation to certain documents and certain interactions. In all the circumstances, therefore, I did not feel confident about assessing his evidence in relation to specific clients. To the extent that his evidence might have provided corroboration in relation to some of the important issues, I am not prepared to find such corroboration in all the circumstances. In consequence, as I have explained, I have reached conclusions mainly on the basis of uncorroborated evidence given by individual clients.

Objections to evidence
[24] There were many objections to evidence, mainly on behalf of the defender. At the stage of submissions, many of these objections were withdrawn. There was a major part of evidence, however, to which objection was taken and I require to deal with that. Objection was taken to any line of evidence based on the pursuers' averments about illegal work being undertaken in various circumstances averred at page 16 of the Closed Record and to the evidence of Mr Spence. I deal with the averments in paragraphs 9-12.

[25] As the case was developed, it became clear that the pursuers' counsel wished to establish that in certain circumstances (not always clearly defined) the defender had been guilty of criminal conduct in acting or continue to act for former clients of the pursuers. On behalf of the defender a line of objection was taken at the due time based both on relevancy and lack of fair notice. I understand that because it was not anticipated that the pursuers might seek to develop a line that the defender's actions were criminal, this part of the closed record was not discussed at procedure roll debate. With the benefit of hindsight that is unfortunate. Having now considered the matter in detail, I am of the opinion that the averments and evidence about this are not relevant to the determination of the issues which are properly to be regarded as the subject of this case. The averments might, and I express no view about this, have been relevant to considerations about interdict and interdict ad interim but that cannot be extended on this record. At submission, counsel for the pursuers to a limited extent appeared to accept this. He accepted that the relevance of the issue of dishonesty and illegal behaviour was not of assistance if clause 13.2.2 was accepted as valid and enforceable. That is because it is not disputed that the defender accepted business and engaged in business dealings with various clients and in these circumstances the pursuers do not require to persuade the court to make inferences. Counsel for the pursuers insisted however that it is relevant to the pursuers' case re clause 13.2.1 and to the issue of damages is assessing whether the Article 5 clients would have stayed with the pursuers. I disagree. I have concluded that the defender did not breach clause 13.2.1 on the basis of clear evidence which I accept from the Article 5 clients (see paragraph 64). The submission in relation to damages was to the effect that the clients would have remained with the pursuers if they had been informed that the defender was not authorised to act and that his actions were criminal and removed them from the protection of the Financial Services legislation protection. So ran the hypothesis and the contention. I merely comment in passing that the pursuers' case was based on their establishing the defender as a key adviser for these clients. If the defender was a person who was so untrustworthy and engaged in criminal activity to the detriment of these clients after he left the pursuers' employment, it is not clear to me how this is likely to persuade clients to remain with the pursuers. One might conclude on this hypothesis and contention that the clients might be likely to have avoided both the pursuers and the defender and sought urgent advice elsewhere. In paragraphs 9-12 I have discussed the basis of the pursuers' case in relation to breach of contract and causation of damages. It is plain that there is no case on record linking alleged dishonesty and criminal behaviour with causation as to whether or not clients would have been likely to remain with the pursuers. The averments of illegality on which the pursuers seek to found are linked on record with interdict not damages. I do not regard this as a technical pleading point. The pursuers have set out on record clear averments in relation to causation and there is a specific call by the defender about this. No specific objection was taken on behalf of the defender to the few questions which were put to the witnesses in relation to damages. But there is no doubt in this case that root and branch objection was made on the basis of relevancy and fair notice to the chapter of evidence based on averments of illegality in all of its forms.

[26] I also consider that there is merit in the submission on behalf of the defender in relation to fair notice. The averments make no specific averment that actions allegedly involved criminal offences. There is a bare reference to the "Financial Services Act". This Act is repealed and the legislation in force is the Financial Services and Markets Act 2000. This is an Act of some considerable complexity. In submissions, counsel for the pursuers, in order to explain the basis of his allegations and hypothesis, also referred to the complex provisions in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. In addition in order to understand the pursuers' hypothesis, it is necessary to examine specific items of work about their nature and timing and have a proper understanding of the relationship between Mr Spence, Spence & Spence and the defender.

[27] There was no evidence from Mr Spence about the exact nature of his agreement or relationship with the defender during the relevant period. He did not suggest that any instruction he gave took away authorisation from the defender. Even the pursuer did not suggest that any such instruction should have resulted in some alteration in the public website about the authorisation made by the Financial Services Agency. The difficulties of trying to deal with this chapter of evidence became acute at the stage when the defender gave evidence. That was at the end of the proof. There was some criticism of this timing by the pursuers' counsel, but I reject that criticism. The defender was not present during the evidence of the clients led on behalf of the defender. It was explained that the timetabling for the defender's witnesses had been upset by the length of time taken to complete the pursuers' case in evidence. In any event, it is a matter for the solicitor advocate for the defender how he chooses to present his proof. By this stage of the evidence, it was plain that allegations of criminal conduct were being made on behalf of the pursuers in respect of some of the clients based on various hypothesis developed by pursuers' counsel. I required to give repeated warnings to the defender about his right not to answer questions in circumstances when it was not clear, even to me, where the hypothesis and contentions of the pursuers' counsel were leading. For these reasons I am not satisfied that fair notice was given and that this led to prejudice.

[28] Accordingly, I sustain the objection in relation to any evidence about this chapter based on these averments which includes the evidence insofar as relevant of Mr Spence.

The interpretation and enforceability of clauses 13.2.1 and 13.2.2 of the service agreement

[29] Clause 13.2.1 provides that the defender

"will not during the Employment and for the period of twelve months from the Termination Date entice or solicit or endeavour to entice or solicit away from the Company or any Associated Company the custom or business of any person, firm, company, or organisation who or which is or has been a customer or client of the Company or such Associated Company (as the case may be) and with whom or which the Executive has dealt at any time during the twelve months immediately prior to the Termination Date."

[30] Clause 13.2.2 provides that the defender

"will not during the Employment and for the period of twelve months from the Termination Date have business dealings with or accept business from any person, firm, company or organisation who or which is or has been a customer or client of the Company or any Associated Company (as the case may be) and with whom or which the Executive has dealt at any time during the twelve months immediately prior to the Termination Date by the Company or such Associated Company."

[31] During submissions, the solicitor advocate for the defender conceded that on a proper interpretation of clause 13.2.1 this clause was valid and enforceable. Standing that concession, which I consider to be properly made, no issue of construction remains in dispute about clause 13.2.1. There is still an issue as to whether there is a breach by the defender of clause 13.2.1 and I deal with that in paragraphs 39-47.

[32] Throughout the history of this case there was considerable dispute about the construction of clause 13.2.2 as to whether that clause was valid and enforceable. The matter was canvassed at the motion for interim interdict in November 2002 and at some length by the parties' same legal representatives before Lord Menzies at procedure roll. I refer to the opinion of Lord Menzies dated 16 April 2004. Having dealt with the submissions on behalf of the parties and considered the proper construction, he concludes in paragraph 26:

"I am accordingly not persuaded by the various attacks made by the defender on the pursuers' case based on clause 13.2.2 of the service agreement and I shall allow a proof before answer in respect of these averments."

Although there was some difference in emphasis in the submissions made on behalf of the pursuers and defender in relation to this, there was no fundamental dispute about the general principles or approach to be applied. The parties reached different conclusions about the result in the present case. Fundamental to the approach of both parties was the opinion of Lord Caplan in Malden Timber Limited v McLeish 1992 S.L.T. 727. At pages 730-731 he sets out the general principles to be applied. These principles and the authorities on which Lord Caplan relied were not in dispute before me or before Lord Menzies. The principles are referred to by Lord Menzies in paragraph 17 of his opinion. The solicitor advocate for the defender also prayed in aid the Opinion of Lord Bracadale in Axiom Business Computers Limited v Jeannie Frederick or Kenny (unreported) 20 November 2003 where Lord Bracadale considers the general principles from the leading cases, including Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company [1894] A.C. 535 at 565; Scully UK v Lee [1998] I.R.L.R. 259 and makes reference to the passage already quoted by Lord Caplan in Malden Timber Limited v McLeish (paragraphs 8-10).

[33] There was no significant dispute between the parties as to the principles of law applicable to restrictive covenants between an employer and an employee. It was also accepted that the task of the court at the interim interdict stage was different as consideration required to be given to the balance of convenience as well as the general principles of interpretation. There was also agreement that each case was dependent upon the particular wording of the restrictive covenant and the background factual circumstances in which the contract was concluded. The pursuers' counsel prayed in aid PR Consultants (Scotland) Ltd v Marvin 1997 S.L.T. 437 as being of particular assistance in relation to facts and circumstances similar to the present case. He also founded very strongly on the interpretation favoured by Lord Menzies. He accepted that I was not bound by the Opinion of Lord Menzies, which in any event was given at procedure roll before the factual background had been explored in evidence.

[34] With reference to PR Consultants (Scotland) Limited, the terms of the restrictive contact considered by Lord Caplan are set out at pages 437L-438C. The prohibition appears to be directed to the executive seeking employment or doing work or contracting or dealing with soliciting or interfering with the custom of any person who prior to the date of termination was a customer or client of the employer during the 12 month period. Lord Caplan, at page 441A-B, concentrates on the provision prohibiting the executive involving himself in "seeking employment or engagement with" one of the pursuers' customers. My difficulty with the wording in 13.2.2 is that even if one reads into the wording some restriction relating to the particular industry, as Lord Caplan did in the case before him in relation to the public relations services, and Lord Menzies did in relation to the present case, this only narrows the ambit of clause 13.2.2 sufficiently in relation to that part of the clause referring to "accept business". Even if one reads in a restricted meaning, the phrase "business dealing" plainly covers situations where the defender as an IFA or working in the financial services industry has business dealings with former clients not in relation to the clients' financial interests but in the specialist fields in which the clients operate. Even with a restricted meaning clause 13.2.2 in my opinion prevents the defender from having business dealings with a client in relation to the client's own business. For example, if the defender, while involved in the financial services industry contacted a client who was a recruitment specialist and sought his assistance on the defender's behalf to obtain other employment in the financial service industry, this would in my opinion amount to "business dealings" in breach of clause 13.2.2. Similarly, the clause even with a restricted meaning would prevent the defender while working in the financial services industry instructing a solicitor to give him legal advice or a printer to print his business cards, if the solicitor or printer were former clients. Neither Lord Caplan nor Lord Menzies consider such a situation. In my opinion Lord Caplan does not consider this because it does not arise in the restrictive covenant with which he dealt. Lord Menzies deals with the issue in the present case at paragraph 23 and states:

"It would in my view be stretching the meaning of clause 13.2.2 too far to suggest that it prohibited the defender from accepting business which was quite unrelated to the financial services industry from people who happen to have been customers of the pursuers."

He does not consider a situation where, for example, the defender while working in the financial services industry seeks to do business dealings with clients of the pursuers by seeking out their services in their own fields of work and expertise. This is not the kind of unlikely scenario which Lord Caplan was envisaging when he says at page 441A that:

"Given the context within which the covenant was devised it seems to be unlikely that the parties had any contemplation that the defender should be prevented from seeking a relationship with a former customer in the capacity of an office boy or doorman for example."

Even if one gives clause 13.2.2 the benefit of an interpretation more restrictive than the plain meaning of the words suggest, the clause still prevents activities by the defender in circumstances where the prohibition cannot be said to be designed to protect the pursuers' goodwill and business with their customers. It is one thing to prevent an employee from taking employment with or accepting business from a client of the employer with whom he has worked closely. It is a different, and in my opinion, illegitimate exercise to prevent an employee even if he remains in the same line of work as the employer from using the services of former clients of the employer. That involves business dealings with such a client. That situation is quite different from the situation contemplated by Lord Caplan in PR Consultant Limited at 439E-F where the restriction was designed to protect the pursuers' goodwill with their customers. The restriction was to prevent the employee

"for a reasonable time after leaving (the pursuers') employment act for established customers of the pursuers and build on the goodwill he had developed with such customers while working for the pursuers and given the privilege of access to their customers."

He concludes:

"The only practical form of protection was if for a reasonable period after termination of employment an employee should be precluded from working for an established customer."

It is a different situation to prevent an "established customer" working in his own field of expertise for the defender. I respectfully concur with Lord Menzies in his reasoning for rejecting the submissions on behalf of the defender attacking the validity of clause 13.2.2 at para.18-24 of his Opinion. But on the final point which Lord Menzies describes as "rather more finely balanced" in paragraph 25, I consider that there is merit in the submission that the clause does not provide any sufficient limitation on the type of business dealings prohibited for the reasons I have explained. In my opinion the clause is wider than is reasonably necessary to safeguard the pursuers' interests in their clients' goodwill, future business and trade connections.

[35] I draw some support for that conclusion when I consider the whole terms of the contract. I consider that it is not without significance that in another part of the contract, parties plainly had in mind the need to specify the type of business arrangements prohibited. I refer to clause 6.1.5, which provides:

"The executive shall not ... be engaged, concerned or interested in any business either:-

(1) involving the business or activities of an independent financial adviser, or

(2) of a similar nature to or which would or might materially compete with any business which was, at the date of commencement of such engagement, concern or interest, being carried on the company of any associate company, ...".

Clause 6.1 regulates the duties of the executive during employment, but it plainly envisages that the business or activities the parties contemplate may fall into different categories. No such restriction or specification is made in clause 13.

[36] I consider that clause 13.2.2 is capable of being construed in a number of different ways. Firstly, in its wide sense, giving effect to the plain meaning of the words, there is no limitation. Secondly, to read into it a limitation such as "have (as an IFA) business dealings with or accept business (as an IFA)". Thirdly, to read in a limitation such as "have (while involved in the financial services industry) business dealings with clients. The limitations are underlined. There are other possible ways of restricting and reading into the clause a restricted meaning. But I am not persuaded after proof that there is any compelling reason for reading in such restrictions or preferring one restricted meaning to another. Having heard evidence, I am satisfied that the pursuers' business arrangements are such that they have clients who themselves offer various services to the public, for example, legal services as a solicitor and recruitment services. Because of the nature of the commercial and business arrangements and the way in which personal contact may lead to and foster new business arrangements, it is easy to conclude that a broad interpretation of clause 13 is not in any way inconsistent with the commercial situation as envisaged by the parties. The parties' intention is to be construed from the document and that is what I have attempted to do in the light of the facts and circumstances which provide a background to the contractual arrangements. In this connection there was some evidence from Mr Irvine as to the meaning of the restrictive covenants and the extent to which he thought the pursuers were protected by them. It was not submitted that his view was relevant to the legal construction and I agree with that. It is relevant, however, to understand the context of this case and Mr Irvine's attitude to the protection to which he thought the pursuers were entitled under the contract. It was plain from the evidence of Mr Irvine that at the time of these events, he did not consider the clause restricted in the way contended for by counsel for the pursuers. Mr Irvine believed that essentially clause 13 provided a "no contact protection". In essence Mr Irvine considered it unacceptable, because of the restricted covenants, that the defender was contacting any client for any purpose with the possible exception of longstanding pre-existing friendship and even in that situation he expressed some reservations.

[37] If I am correct in concluding that the clause was intended to have the natural meaning of the words used, which is the wider meaning, I do not understand it to be disputed that the clause is an unreasonable restraint of trade. In my opinion, the pursuers have no legitimate interest, for example, to prevent the defender using a former customer or client as a recruitment consultant or as a printer, whether or not the defender continued in any way in the financial industry or not. But the plain ordinary meaning of the words, in my opinion, prevent that. Even if I am wrong in concluding that the broad construction applies, I am of the opinion that both the narrower constructions have the same result when applied to "business dealings". I consider that this goes beyond any legitimate protection to which the pursuers are entitled to protect the goodwill of clients and business connections. In my opinion, whether one adopts a broad or narrower construction clause 13.2.2 is invalid and not enforceable for the reasons which I have given.

[38] The pursuers' counsel submitted under reference to C R Smith Glaziers (Dunfermline) Ltd v Greenan 1993 S.L.T. 1221 that in principle a "no solicitation" clause required to be bolstered by a "no act" clause. I accept that in certain circumstances it may be appropriate and acceptable to have both forms of clause. The mere fact that both forms of clause are contained in the contract does not, in my opinion, raise prima facie problems about validity and enforceability. It is necessary, however, to consider each clause and the combined effect in all the circumstances of the case to consider the interpretation and resolve issues of validity and enforceability.

Have the pursuers proved a breach of clause 13.2.1?

[39] Counsel for the pursuers accepted that it might be difficult for a pursuer who was not party to the communications with clients to prove a breach of clause 13.2.1. I did not understand it to be any part of the pursuers' case that a breach of this clause entitled the pursuers to nominal damages. Counsel for the pursuers made no reference to nominal damages either in the pleadings or in submissions. It is plain that the damages sought in this case are based on alleged actual loss. This was averred in Article 5 of condescendence to be commission in the case of specific clients, namely Graham Cole, Marilyn Cole, John Fairclough, Mr and Mrs Spencer, Mr Bristow, Mrs Sylvia Bristow, Mr Bryson and Mr Haddow (the Article 5 clients). There was no record and no submissions made that, if there was proof of solicitation of any other client, that should result in damages. As I understand the pursuers' case, evidence of solicitation of other clients was led to put in context the actions of the defender in relation to the Article 5 clients in which loss allegedly arose.

[40] In relation to this chapter of the case, evidence on behalf of the pursuers was led from Kenneth Brydon and David Beattie. These were the only clients (or former clients) tendered as witnesses by counsel for the pursuers. Neither of these clients became clients of the defender and they remained clients of the pursuers at the date of proof.

[41] Kenneth Brydon explained that he was senior partner of a solicitors firm and on occasion acted for the pursuers. Since 2001 he had been a client in a personal capacity with the pursuers. The defender became his adviser in 2002. His recollection was that after the defender left, he received a call from him. He could not remember much about the call. It was a discussion about business generally. There was some reference to his personal business, but there was no evidence as to who raised that or the context. He recalled that the defender said he might come back sometime in the future, but the defender did not do so. I accepted this witness as credible but his recollection of the phonecall and context was vague.

[42] David Beattie, was a company chief executive with various company interests. He was a client of the pursuers for about four years. The defender became his financial adviser. He said the defender gave him a call and said he was leaving. The defender asked when he left could he come and see Mr Beattie. His recollection was that there was a conversation, not a telephone message. There was no meeting ever set up with the defender. While I accepted Mr Beattie was trying to assist the court his memory of events did not appear to be very clear.

[43] There was also some hearsay evidence from Mr Irvine about what he had been told by Linda Taylford and Alistair Marr. I did not find this evidence enlightening. I was also not assisted by an analysis of the phone records in a situation where there was no evidence as to what was said by the defender to the clients.

[44] For the sake of completeness in this chapter, I refer to the evidence of Mr Marr who was led on behalf of the defender. Mr Marr, age 47, was the managing director of a firm of printers in 2002. He provided services to the pursuers. The pursuers provided financial services to his company and some personal pension planning for himself. He heard "on the grapevine" that the defender had left. He was not informed by the pursuers. After the defender had left his employment, he phoned Mr Marr and asked if he could recommend a printer to print business cards. There was no other discussion. In particular, the defender did not ask Mr Marr what he was doing about his pension. Mr Marr did not consider changing his business at the time. In about 2005 Mr Marr did leave the pursuers and is now a client of a company to which the defender is connected. I accept the evidence of Mr Marr as credible and reliable.

[45] In my opinion the restrictive clause 13.2.1 did not prevent the defender "contacting" clients and this chapter of evidence did not in my opinion demonstrate anything other than contact. I accept that Mr Irvine was genuinely suspicious and upset by this information about contact by the defender and he considered that this was not acceptable behaviour by the defender. I am not however persuaded that the contact proved in this chapter demonstrates a breach of 13.2.1 which is intended to cover not merely contact but "entice or solicit or endeavour to entice or solicit away custom or business." I consider that the evidence of a pattern of solicitation which counsel for the pursuers invited me to accept was unclear and equivocal. It was certainly not enough to persuade me on a balance of probabilities that there was solicitation of article 5 clients in circumstances where I had the opportunity to hear the evidence of the article 5 clients because the clients were led as witnesses by the solicitor advocate for the defender.

[46] The crucial evidence as to whether the defender breached clause 13.2.1 in respect of the Article 5 clients is in my opinion to be found in the evidence of the clients and in the evidence of Mr Irvine to the limited extent that he has any direct knowledge about this. I deal with this in paragraphs 48 to 64. For the reasons I explain in paragraph 25 to 27. I am not prepared or able to rely on the defender's evidence in relation to this

[47] I now turn to consider the evidence given by the Article 5 clients and Mr Irvine in relation to his direct involvement with the Article 5 clients.

Graham Cole

[48] Mr Cole, age 59, is qualified as a CA and holds a non-executive director position. He lives in London. He had partnership experience for many years in large accountancy firms. His wife works in financial services and introduced him to the pursuers. Mr Cole's recollection was that he received a call from the defender to say he was leaving. Mr Cole interpreted this as a professional courtesy call to inform a client. He said that the defender did not ask him to follow him. He would have found that offensive. He said it was his own decision to follow the defender when he left. As I understood his evidence, the reason for that decision was that in all his dealings with the pursuers, the defender was the person in whom he had trust and confidence. His previous dealings with other people in the pursuers' business were not in his opinion constructive. He confirmed that he had written letters (7/2 and 7/3 of process). He explained that he had written 7/2 of process because the defender had told him that people were saying that the defender had enticed him away. That was not true, he said. He said he was not easily led. He accepted that he had agreed with the pursuers an introducers' fee. He introduced Mr Bristow to the pursuers but not Mr Fairclough. He also had a fee-splitting arrangement with the pursuers with 40% of the commission remitted back to him. Under reference to 6/34 of process he rejected the suggestion that the defender had influenced him by offering him a better fee-splitting arrangement. He accepted that he had never seen letter 6/10 of process and had never met Mr Spence. During cross-examination he accepted that the defender told him at an early stage he had not received clearance from the FSA and that he was being "grandfathered" by another organisation until he was registered. Mr Cole said that he would certainly have cast around for someone to whom he would be able to speak, like the defender, if the defender left the pursuers. He had not found that in the pursuers. Mr Irvine was the only person he knew and he would not have wanted to carry on with Mr Irvine. In about September 2002 Mr Cole was talking to another firm about all this. He was thinking who else he might go to. He said it would have been enormous work by the pursuers to keep him. He accepted that Mr Irvine might have thought there was no problem, but that was not the position. His experience of the pursuers was that there was a succession of people whom he did not trust. After Mr Cole left he received an invoice for work from the pursuers which they were not entitled to charge for. He never paid the invoice.

[49] Mr Cole impressed me as a financially sophisticated person with much knowledge of the financial services industry. I had no hesitation in accepting his evidence as credible and reliable. He was well connected if he required to seek new advisers. He knew he did not have expertise in investing. He was very concerned to ensure that the person who invested on his behalf had that expertise and was able to communicate successfully with him. He was plainly unimpressed by Mr Irvine and other persons whom he had met at the pursuers. He did not have confidence in them. He plainly wished to have advice from the defender and, if the defender was not available, from someone similar to the defender whom he would actively seek out. By about October 2002 he had made up his mind that such a person did not exist in the pursuers. He had the opportunity to consider Mr Irvine as an adviser after the defender left, but Mr Cole made up his mind that he would not carry on with him. I consider that Mr Cole would have found it unacceptable if attempts had been made to entice him or solicit him by the defender, or indeed by anyone else. He took the view that this was a matter entirely for him to make up his mind about. It is interesting that Mr Irvine remains of the impression that he and Mr Cole had a good relationship and that he considers there were no problems for Mr Cole caused by the defender leaving. I consider this view to be unrealistic but it may be explained by the fact that Mr Cole had not shared his views with Mr Irvine. Mr Cole kept his own counsel and came to his own conclusions in his own time. Mr Cole impressed me as a man who was used to getting what he wanted and that he would have no hesitation in leaving the pursuers if that was denied him. He wanted the defender, and in the absence of the defender he did not want the pursuers. I am satisfied that Mr Cole would not have trusted his financial business which was very substantial to the pursuers in the absence of the defender. I am also satisfied that if Mr Cole could not have the defender as his IFA he would almost certainly not have remained with the pursuers.

Marilyn Cole

[50] There was some reference in the pleadings and evidence to Mrs Cole. She did not give evidence. No submission was made on behalf of the pursuers that there was any breach of clause 13 in respect of her and no loss was claimed.

John Fairclough
[51] Mr Fairclough, age 60, retired in 2000 after 35 years in British Airways and had a very substantial pension provision. He lives in the south of England. He was introduced by his friend Mr Bristow to the pursuers in March 2002, but did not transfer his pension business to the pursuers at that time. By March 2003 he was increasingly dissatisfied with his IFA (a different firm from the pursuers) who dealt with his pension. The pension value had substantially dropped. In February 2003 he informed his IFA that he did not wish them to continue to look after his affairs. At that date he had no idea that the defender had left the pursuers' employment. In relation to non-pension business, he remains a client of the pursuers. He gave clear evidence that he was not told by the pursuers or the defender that the defender had left. He said that Mr Bristow told him that the defender had left and gave him the defender's number. He was adamant that the defender never contacted him. He was unaware that the defender had left Dunedin until days before 23 February 2003. He identified the signature on 7/7 of process as his signature, but had no clear recollection of the circumstances in which it was written. He was very unhappy with the investments made by his previous financial adviser and wanted to go for advice and business to the defender. His opinion was that if the defender had not been in practice and available for him, that there are a lot of people in the market place.

[52] I was satisfied on the evidence that the pursuers were not dealing with the pension of Mr Fairclough prior to the defender leaving employment. I accept Mr Fairclough as a credible and reliable witness on the issues of importance. He was rather vague about some of the details of the financial arrangements which is not surprising in view of the complexity of the arrangements. Mr Fairclough had a low opinion of financial advisers in general and as at February 2003 there was no particular reason for Mr Fairclough to move his pension arrangements to the pursuers. I consider that if the defender had not been able to take business from Mr Fairclough in or about February 2003, he would have spent a period in considering the matter and assessing the market place until he found someone with whom he had the confidence to invest this substantial pension business. He said that his investment had been disastrous as it had gone down 50-60%. He was in the market for a new financial adviser. It took him a year to make that decision. He did not want to act impetuously. Plainly, Mr Fairclough was aware of the service offered by the pursuers but he showed no inclination to move his pension business to the pursuers in the absence of the defender. Mr Irvine's evidence was to the effect that after the defender left employment, he was dealing with Mr Fairclough. He said he did not meet him. In Mr Irvine's opinion the pursuers were his agents but he conceded that he might be wrong about that. Mr Irvine did accept that as at February 2002, another IFA was Mr Fairclough's adviser in relation to his pension. The general impression which I formed was that Mr Fairclough had not been kept informed by the pursuers about what the pursuers were doing, if anything, for him. Mr Fairclough was plainly very concerned at the time about his pension investments and I consider it very unlikely that he would have moved his pension arrangements to anyone unless that person had his confidence. I am not satisfied on the balance of probability that had the defender declined to act, Mr Fairclough would have moved his pension business to the pursuers before the expiry of the 12 month restrictive period.

Mr and Mrs Spencer

[53] The evidence tended to refer to Mr Spencer only, albeit the life policy which was in contention is in joint names. Mr Spencer, age 42, had known the defender prior to his employment with the pursuers. Mr Spencer was a recruitment consultant who did work with Scottish Amicable when the defender worked there. Mr Spencer said that he had known the defender for over 10 years and that he had previously helped him to look for a job and successfully placed him in a previous employment. He explained that he had dealt with the pursuers seeking term assurance for himself and his wife because he needed a re-mortgage. He approached the pursuers for an execution only policy and signed the documents. He gave the names of his doctors but the pursuers did not appear to be able to get information and complete the transaction. Time was passing and he needed the policy. He approached one person outwith the pursuers but that person could not help. Eventually he and Mrs Spencer (from whom he is now divorced) became increasingly anxious that the pursuers were not able to finalise the policy. Mrs Spencer asked him to speak to the defender. After the defender had left, Mr Spencer and the defender had discussions about new employment for the defender. Mr Spencer set up six or seven interviews for the defender. In cross-examination Mr Spencer made it plain that he was increasingly frustrated with the service offered by the pursuers. He said that it was "a young lassie" who was dealing with the work and "that he kept telling her that he wanted it sorted". Her name was Wendy Sloan and he said that he left messages. "This was going on and on". He understood from Wendy Sloan that the pursuers had not got the necessary medical declarations. He said that he and his wife were increasingly agitated by all this. He explained that after the defender left, he got an email from the pursuers saying that they did not want to deal with him as a recruitment consultant. After that the pursuers tried to charge him, but he refused to pay as they had not done the work. In relation to this transaction Mr Irvine considered the files and said that everything was in place. He took the view that there was no basis for Mr Spencer's complaint but accepted that if that was Mr Spencer's opinion, "he will be telling the truth". With reference to 7/6 of process he accepted that it does appear that Mr Spencer approached the defender. He said he was "staggered" by that letter. According to Mr Irvine, Mr Spencer is financially astute and he accepted that there was no lengthy relationship between Mr Spencer and the pursuers. Mr Irvine insisted that according to the file, all the work had been done in relation to an insurance policy and then Mr Spencer did not proceed. He said that he spoke to Mr Spencer on the phone. Mr Spencer was basically saying that "there would be blood coming out of a stone" before he took out a policy through the pursuers. Mr Irvine described Mr Spencer as aggressive and that he launched into a tirade. This occurred in about November/December 2002.

[54] Mr Spencer is a friend of the defender but I have no reason to disbelieve his account of the problems which he described in relation to the completion of the policy. His description of the frustration which he felt when the pursuers did not finalise the policy to make it effective was plain. It is not disputed that there was considerable discussions between the defender and Mr Spencer following the defender's termination of employment. But I am of the view that the defender was entitled to seek the services of Mr Spencer who had expertise and experience in relocation of workers in the financial services industry. This is not in my opinion a breach of 13.2.1. Mr Irvine did not himself deal with the business of Mr Spencer and it was not disputed that this was very minor business. Mr Irvine gave no evidence that he made an investigation about the transaction. I understood that his evidence was based on the files. I accept that Mr Spencer believed that he received inadequate service after the defender left, in circumstances which were important and urgent to him. I consider that had the pursuers been able to deal with Mr Spencer in the time period that he thought important, he would not have left them before the policy was completed and made effective. But that did not happen and Mr Spencer left. Mr Spencer's main aim was to sort out his financial arrangements as quickly as possible. I am in no doubt however that thereafter Mr Spencer would not have been likely to seek advice or instruct further business with the pursuers. He was annoyed with the pursuers and Mr Irvine was not able to satisfy him about the complaint which Mr Spencer considered he had. In the longer term, in any event, I consider that Mr Spencer would have been likely to leave the pursuers and seek out the assistance of the defender with whom he had a longstanding relationship. If the defender had not been able to act for Mr Spencer, he is in my opinion unlikely to have remained with the pursuers bearing in mind his perceived experience of their work when he was very anxious for a quick resolution. His friendship tie with the defender would also make it unlikely that he would remain a client of the pursuers for any length of time after the defender left.

[55] Mrs Spencer did not give evidence. There is also a claim by the pursuers in respect of Mrs Spencer alone but there is insufficient evidence about this to persuade me to reach any conclusion.

Dereck Bristow
[56] Mr Bristow, age 67 lives in East Sussex. He founded a company which he sold in 1999. Mr Cole who is a personal friend of Mr Bristow recommended the defender to him. Mr Bristow accepted that he wrote the letter 7/4 of process. He explained that by chance he telephoned the defender about half an hour after the defender left his employment. The defender seemed upset. He said, "I have left and cannot speak". Mr Bristow phoned the pursuers' office and the defender was not available. Mr Reilly, an employee of the pursuers, gave him the defender's mobile number. Mr Bristow phoned the defender who sounded distressed or emotional. Mr Bristow said he would contact him in a few weeks. Thereafter he said nobody from the pursuers contacted him. Mr Bristow contacted the defender some three weeks later by phone. He had about five financial advisers in the past and it was the defender who made the most sense to him. The others were not so good. Mr Bristow said he chose to leave the pursuers. After Mr Bristow told the pursuers that he was leaving, he got a telephone call from Mr Irvine. The telephone call upset Mr Bristow. A few days later he got an invoice from the pursuers. Mr Bristow phoned the pursuers and said that he had no contract for such a payment. He required to instruct solicitors when the pursuers said they were taking legal action to collect the sum sought. Eventually, through solicitors, it was accepted by the pursuers that the contract which the pursuers had with Mr Bristow was a commission only contract and the sum sought in the invoice was not due. Mr Bristow said that the defender explained to him that he did not have authorisation and that he could not trade until he got it. The defender said he would use the offices of Spence and Spence. Mr Bristow never met Mr Spence and had no recollection of the letter 6/64 of process. In Mr Bristow's business it is a natural progression that people leave. He thought that the pursuers had already had large commissions from him.

[57] Mr Irvine accepted that 6/63 of process was an invoice seeking payment to which the pursuers were not legally entitled. He accepted that the pursuers did chase the invoices until they found out they were not entitled to the sums. With reference to the letter 7/4 of process in which Mr Bristow said there was no solicitation. Mr Irvine said "that he cannot disagree with Mr Bristow if that is what he says".

[58] Mr Bristow impressed me as a very hard headed businessman who had considerable experience in the past of services from financial advisers and strong views about their strengths and weaknesses. I accept him as a credible and reliable witness. I consider that he held the opinion that as a client he was entitled to obtain advice and assistance from anyone he wished and he had little sympathy with anyone who tried to prevent that. He had no particular loyalty to the pursuers and merely wanted the type of service which the defender had provided to him. If for some reason the defender was not in a position to provide that, I am in little doubt that Mr Bristow would have left the pursuers to find such a person as soon as convenient to him.

Sylvia Bristow
[59] There was some reference in the pleadings to Mrs Bristow. She did not give evidence. No submission was made on behalf of the pursuers that there was any breach of clause 13 in respect of her and no loss was claimed.

Alan Bryson
[60] Mr Bryson, age 52, lives in Surrey. He is the managing director of his own company with a work history in industry. His initial contact with the pursuers was in relation to business on behalf of a company in which he was managing director. Problems had arisen about the company business and a new director of the company wished to appoint other advisers other than the pursuers. The defender helped to find a solution for these difficulties and the company business remained with the pursuers. Mr Bryson wrote the letter 7/5 of process. After the defender left, the pursuers never phoned him. He contacted the defender. He said to the defender that if he set up Mr Bryson would go with him. Otherwise he would find someone else in London. If the defender had not continued as a financial adviser, he most certainly would have gone to somebody in London he said. He was working in London. It was a sheer coincidence that the business was in Edinburgh. He said that the defender told him at the time that he had to wait until he got accreditation and that he was using Spence & Spence. Mr Bryson explained that it was his personal money and that what he chose to do is his business. He chose to go with the defender. If the defender had not worked as a financial adviser then he would have gone to London for an adviser.

[61] That is an outline of Mr Bryson's evidence. In submission it was accepted on behalf of the pursuers, that on Mr Bryson's evidence, there was no loss to the pursuers. I consider that concession well made. I did not understand the pursuers' counsel to contend in respect of Mr Bryson that there was a breach of clause 13 in any respect.

David Haddow
[62] Mr Haddow, age 49, lives in Dunbar where he has run a recruitment business for five years. He was a financial adviser for about twenty years and worked with the defender for a period from about 1993. They kept in touch. He regards himself as a friend of the defender. He had never heard of the pursuers before the defender went to work there. After the defender joined the pursuers, he did not really require advice but he wanted to give the defender the business commission. After the defender left, the defender phoned Mr Haddow to say that he was looking for a job. There was discussion about that. Mr Haddow said to the defender that wherever you end up, he would transfer his business. Mr Haddow said that if the defender had not been available, he would have transferred his business to his wife, who is a financial adviser. The reason that he had given his business to the defender was because the defender would gain more in commission than his wife.

[63] I consider that the evidence of Mr Haddow was partisan in favour of the defender. He made no secret of his friendship and support for the defender. He and his wife are longstanding personal friends of the defender and I accept that the only reason he did business with the pursuers was because the defender was working there. His business was of a relatively minor nature. Whatever the defender's attitude, I am in no doubt that Mr Haddow would have left the pursuers as soon as possible after the defender left because of that friendship. My impression is that even if the defender had asked Mr Haddow to stay with the pursuers, he would have been unwilling to do so in a situation where there was conflict between the pursuers and defender. Mr Haddow did not have any history of a relationship with the pursuers and he certainly did not need to be with them.

[64] I have set out the evidence which I consider to be relevant in relation to the Article 5 clients and explained my views of that evidence. I do not interpret contacting friends or seeking assistance in obtaining work or mere contact as a breach of clause 13.2.1. There is no evidence which I accept which satisfies me on a balance of probability that the defender was in breach of clause 13.2.1 in relation to the clients specified in Article 5.

Have the pursuers proved a breach of clause 13.2.2?
[65] The short answer is in the negative. As I have decided that clause 13.2.2 is not valid and enforceable, there is no breach. If I am wrong about that and the clause is valid, there is plainly evidence of prima facie breach. There is evidence that the defender accepted business from and had business dealings with Mr Cole, Mr Fairclough, Mr and Mrs Spencer, Mr Bristow, Mr Bryson and Mr Haddow in prima facie breach of clause 13.2.2. Indeed, I do not understand the defender to dispute that.

Causation

[66] I now turn to consider the matter on the hypothesis that there is a breach of 13.2.1 and for 13.2.2. It is essential to consider for the purposes of this action whether the breach or breaches in respect of individual clients resulted in loss of commission. The pursuers' case is based on damages for loss of commission both during the twelve month restrictive period and thereafter in respect of said clients. Having considered the chapter of evidence which I have narrated and assessed in paragraphs 48-63, I have no difficulty in concluding that the pursuers have not proved on the balance of probability their averments on Record that if the defender had either not sought out clients or declined to act for them for the restrictive period, the client would have remained with the pursuers. In my opinion, the evidence clearly demonstrates that these clients, for a variety of reasons which I have explored, would have left the pursuers shortly after the defender left. Even if the defender had refused to act for any of the clients, the clients in my opinion on a balance of probabilities would not have remained or returned to the pursuers but would have sought advice elsewhere.

[66] In these circumstances I conclude that the pursuers have failed to prove on the balance of probability the case which they have pled on record and therefore the pursuers are not entitled to damages.

Damages
[67] In view of the conclusions which I have reached, the issue of damages does not arise for three reasons. Firstly, clause 13.2.2 is unenforceable; secondly, in any event the pursuers have not proved on the facts any breach by the defender of clauses 13.2.1. Thirdly, the pursuers have failed to prove on the balance of probability that but for the alleged breach of 13.2.1 and/or 13.2.2, the pursuers would have retained work in respect of one or more of the Article 5 clients and commission resulting therefrom and/or that the pursuers would have obtained commission from said clients in the future. In the event that I am in error about that, it may be helpful to express my views in relation to the damages sought.

[68] By the conclusion of submissions, a table was agreed by parties' representatives of commission figures actually generated by the defender in respect of the clients specified in Article 5. (No.52 of process) These figures for the 12 month period have been considered on behalf of the pursuers and certain discounts made to reach a figure for the total loss. This is set out in the written submissions on behalf of the pursuers in the schedule of loss for the 12 month restrictive period. This takes into account the interpretation of counsel for the pursuers of the evidence in respect of each client. The total schedule of loss within the 12 months period is £56,455.80. As the clients in fact left the pursuers, the likely business and commission earned is hypothetical. It depends on a variety of factors. For example, the stage the transactions had reached before the client left and the assessment of what further work required to be done including any investment advice which might have been given by the pursuers, if the clients had remained with their firm. Detailed criticisms were made of the pursuers' assessment in respect of each client and these are recorded in the submission on behalf of the defender. I consider that in all the circumstances esto damages were due it would be appropriate to adopt a broad approach to the calculation of damages. By the end of the case, there appeared to be agreement that the proper approach to the assessment of damages was not what the defender might have gained (albeit that may provide some guidance) but the loss of profit of the pursuers. That in my opinion is the correct approach. In general in relation to this issue I am content to accept Mr Irvine's evidence about what the pursuers would have been likely to do if the clients had remained in the 12 month period and the commission which the pursuers would have earned in these circumstances. It is his evidence which forms the starting point for the schedule of loss contained in the submissions on behalf of the pursuers. Although I consider that Mr Irvine is generally best placed to deal with this issue, in some respects there is evidence from other sources which I consider should be taken into account and reflected.

[69] In respect of Mr Cole I accept the pursuers' calculation in the said schedule of loss but I consider that a further reduction of 10% would be appropriate to represent additional work which required to be done and uncertainties about levels of commission. No claim for damages in respect of Marilyn Cole was advanced on behalf of the pursuers. In relation to Mr Fairclough, I think there is substance in the submission on behalf of the defender that substantial work would have been required to be done by the pursuers if Mr Fairclough's pension had been transferred. I consider it appropriate that a 40% discount be made to the sum in the said schedule of loss. In respect of Mr and Mrs Spencer, I consider that the commission in respect of the policy set out in the schedule of loss would be an appropriate figure less 5% bearing in mind that Mr Spencer's evidence, which I accept, was to the effect that some administrative work was still outstanding. In respect of Mr Bristow base figures were agreed only in respect of Scottish Provident and Namulas in 52 of process. It was not disputed that 10% of any gross commission would have been paid to Mr Cole and therefore should be deducted. I accept that if Mr Bristow had remained with the pursuers, he is likely to have contracted with Scottish Equitable Trust and I accordingly accept the calculations of the pursuers in respect of this. I am not prepared to proceed on the basis of the defender's evidence in relation to this matter. Having considered the criticisms made on behalf of the defender, I am not persuaded that Mr Irvine's evidence in relation to these matters should not be accepted. In relation to Mr Haddow, there was no dispute that the actual commission is £240.95. No damages were submitted to be due in respect of Mr Bryson.

[70] In Schedule 2, counsel for the pursuers set out future loss based upon trail commission. His calculations apply Ogden Table 28, that is a multiplier for pecuniary loss for term and using a return of 2.5%. Based on the evidence of Mr Irvine, he did not seek to claim the gross profit but worked on a figure of net profit of 30%. I accept that figure. I do not consider the use of Ogden Tables helpful in this case and I certainly was not satisfied on the balance of probability that the clients would be likely to remain with the pursuers until they were 75. This part of the pursuers' case relied on the evidence of Mr Irvine to the effect that in his experience clients very rarely left the pursuers. He described situations where other directors had left and that loss of clients had not resulted. He conceded that in one case clients had been taken of consent. I did not accept Mr Irvine's assessment of the Article 5 clients or his optimistic view about the future. Mr Irvine did not demonstrate any ability to see the situation from the clients' perspective. This was a sudden unplanned departure of a key employee. The Article 5 clients were not the type of clients who were passive and inert. They had their own views and agendas. I consider that Mr Irvine was unrealistic in his views about the future relationship of these clients with the pursuers in such a situation. In addition, I do not consider that he gave sufficient weight to other potential factors such as the client's need to obtain pension money, problems of life such as divorce which affect investment plans and, most importantly, the effect of commercial competition including the defender's right to compete at the end of the 12 month period. None of these factors are reflected in the Ogden tables. Even if the defender had refused to act for the clients and even if the clients had thereby remained with the pursuers, I consider that it is likely in all the circumstances that at the end of the 12 month period, the defender would have been active in soliciting their business, as he was entitled to do. I consider therefore that any future loss beyond the 12 month period is speculative and I do not consider it helpful to consider this issue further.

[71] Accordingly, as explained in paragraph 6, of consent I sustain the second plea-in-law for the pursuers, quoad ultra I dismiss the pleas of the pursuers and assoilzie the defender. It was agreed that I should in due course appoint the case to the By Order roll to deal, if necessary, with any outstanding issues in relation to interest or expenses.