Beckett Investment Management Group Ltd and Others v Hall and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Maurice Kay,Lord Justice Carnwath,The Master of the Rolls |
| Judgment Date | 28 June 2007 |
| Neutral Citation | [2007] EWCA Civ 613 |
| Docket Number | Case No: A2/2007/0464 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 June 2007 |
[2007] EWCA Civ 613
The Master of the Rolls
Lord Justice Carnwath and
Lord Justice Maurice Kay
Case No: A2/2007/0464
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (HHJ SEYMOUR QC)
HQ06X03256
Mr Christopher Lundie (instructed by Messrs Gateley Wareing) for the Appellant
Mr Peter Oldham (instructed by Messrs Bradshaw Hollingsworth) for the Respondent
Hearing date: 21 May 2007
Any financial services company relies on employees to attract and retain a client base. If those employees who deal directly with clients leave the company and set up on their own account or go to work for a rival company, it is not unnatural that, one way or another, sooner or later, the clients will follow them. Although they have been the clients of the company rather than of its employees, from the clients' point of view it may well be the personal relationship with an individual adviser in which they have particular trust and confidence. A tension therefore arises between the interest of the company in protecting its client base in the event that one or more of its employees depart and the interest of such employees who wish for the freedom to develop their careers elsewhere. The clients are not captive. In this situation, it is inevitable that employers include in contracts of employment clauses which seek to limit the ability of employees to take the client base with them. This is the context of the present appeal.
Beckett Investment Management Group Ltd (BIMG) is the holding company within a group of companies (the Beckett Group) which provides financial services. Beckett Financial Services Ltd (BFS) is a subsidiary which provides advice and services to clients. Beckett Asset Management Ltd (BAM) is another subsidiary. Its purpose is to provide investment advice and management services. Mr Hall is an independent financial adviser, registered with the Financial Services Authority. His expertise is in the fields of investment advice and pensions. He had been employed within the Beckett Group for some years before entering into a contract with BIMG dated 1 January 2004. By that contract he was employed as Sales Director by BIMG. He was also a director of BFS and of BAM. He was based at the Leicester office of BFS. Mr Yadev is also registered as an independent financial adviser. His expertise is the provision of investment advice. He had been working within the Beckett Group for some time before 1 January 2004 but, on that date, he too entered into a new contract with BIMG. His status was that of financial consultant. He was based at the Leicester office of BFS. BIMG had no dealings with clients and provided no direct financial advice. All that was done by BFS. The contracts which Mr Hall and Mr Yadev had with BIMG contained identical clauses under the heading “Restrictions after Termination of Employment”.
On 28 April 2006 Mr Yadev submitted a letter of resignation to take effect on 31 May. It was addressed to Mr Hall, to whom Mr Yadev had indicated that he intended to establish his own business. At the time of receiving Mr Yadev's resignation, Mr Hall's own position was fluid. The terms upon which he would stay or leave were the subject of discussions and correspondence. The details are no longer relevant. It is sufficient to record that his employment by BIMG came to an end on 11 August 2006.
Meanwhile, Mr Yadev had obtained a shell company called Trueway Finance Ltd which was incorporated on 8 June and on 24 July 2006 its name was changed to Hyrifa Ltd (Hyrifa). It was the vehicle through which Mr Yadev was to run the new business. On 14 August, Mr Hall joined Hyrifa.
In the present litigation, BIMG, BFS and BAM have sought to establish that Mr Hall, Mr Yadev and Hyrifa have behaved unlawfully in the setting up and running of Hyrifa and have inflicted loss and damage on the claimant companies. The pleaded case alleged numerous causes of action, embracing conspiracy, the misuse of confidential information, breach of fiduciary duties and breach of express and implied contractual terms.
The trial
The trial of the action took place from 22—25 January 2007 before His Honour Judge Richard Seymour QC, who handed down his judgment on 16 February. He was very impressed with the evidence of Mr Hall, Mr Yadev and their witnesses, as a result of which he made unchallenged findings of fact in their favour. He also accepted the evidence of the claimants' witnesses but he rejected the inferences upon which the claimants' case was based. The most relevant findings of fact are to be found in the following extract from the judgment:
“Mr Yadev and Mr Hall did not discuss Mr Yadev's proposed new business at all until the day Mr Yadev handed in his resignation from BIMG, 28 April 2006 … By this date Mr Hall had written his letter of resignation of 4 April 2006, but had been in discussion with his fellow directors about the possibility that he would stay. The first discussion between Mr Yadev and Mr Hall was in May 2006 and at that time Mr Hall agreed in principle to join Mr Yadev in the new business. Mr Hall even at that time was considering all his options. He made his final decision on 30 June 2006. Mr Yadev and Mr Hall … each worked loyally and industrially for BIMG and BFS until each left his employment … Mr Hall and Mr Yadev never discussed or agreed that each or either of them should act in breach of his contract of employment in order to advance the business of Hyrifa. In fact … each of them set out not to solicit the custom of any existing BFS customer, but each decided, independently, that it was not unlawful for him to act for a former client of BFS who specifically requested him to act … They did not discuss the views to which they had come on this point at any stage prior to the commencement of this action. … Mr Yadev retained 17 files belonging to BFS after the termination of his employment by oversight and not out of some impure motive … Mr Hall was not aware of who Mr Yadev was acting for Trueway or Hyrifa whilst Mr Hall remained at BIMG. Even after Mr Hall joined Hyrifa I accept that essentially Mr Yadev and Mr Hall each had his own customers with whom he dealt and was not aware in any detail of the identities of the clients of the other until that issue fell to be addressed in the context of the present action. … Hyrifa has in fact done business for 32 clients for whom BFS had previously done business and been in contact with a further 31.”
In view of these findings, much of the claimants' case fell to the ground, including the grave allegation of conspiracy and the related issues of misuse of confidential information and breach of fiduciary duty. Essentially, the only surviving issues were as to the alleged breaches of express terms which related to post-termination restrictions. These issues included points of construction, enforceability and breach. The judge resolved all the important points in favour of the defendants and the claim was dismissed.
Express terms regarding Restrictions after Termination of Employment
In each of the contracts of employment, the relevant provisions are to be found in clause 17. Clause 17.2 is in the form of a 12 month non-solicitation clause. As the judge found no breach of it, nothing now turns on it. The present focus is on clause 17.3 which provides:
“The employee hereby agrees with the Company that for the period of his … employment and for the period of 12 months immediately following the termination of his … employment with the Company he … shall not, whether on his own account or with, through, for or on behalf of any other person, firm, company or organisation, directly or indirectly, deal with or attempt to deal with, any Relevant Client for the purpose of supplying, or seeking to supply, thereto any Prohibited Services.”
“Prohibited Services” are defined in clause 17.1.2 as meaning
“the provision of advice in relation to pensions, life assurance, investments and other advice of a type provided by the Company in the ordinary course of its business at the date of termination of the Employee's employment with it.”
“Relevant Client” is defined in clause 17.1.3 as, primarily,
“any person, firm, company or organisation whom or which was at any time during the period of 12 months immediately prior to the termination of the Employee's employment a client of the Company (or Subsidiary Company) with whom or which the Employee dealt in the course of his … employment during that 12 month period.”
That primary definition was extended in a way to which I shall return in paragraph 30.
Construction issues
The judge held that, in the construction of a covenant in restraint of trade, the same principles are to be applied as in the construction of any other written term: Arbuthnot Fund Managers v Rawlings [2003] All ER (D) 181, (per Chadwick LJ, at para 21). The principles are those identified by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912H-913E. That much is common ground.
At the trial, two points of construction taken on behalf of the defendants related to the words “deal” and “client” in clause 17.3. Essentially, Mr Oldham was contending for wide constructions which by their very width would have rendered the terms unreasonable. However, the judge rejected his submissions. He held that the word “deal” means “do business with” and that “client”...
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