Credico Marketing Ltd v Benjamin Gregory Lambert
| Jurisdiction | England & Wales |
| Judge | Mr Justice Cavanagh |
| Judgment Date | 04 June 2021 |
| Neutral Citation | [2021] EWHC 1504 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Case No: QB-2020-004498 |
| Date | 04 June 2021 |
[2021] EWHC 1504 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Cavanagh
Case No: QB-2020-004498
John Mehrzad QC and Matthew Sheridan (instructed by Addleshaw Goddard) for the Claimants
Paul Casey and Nathan Webb (instructed by Brandsmiths) for the First and Second Defendants
Hearing dates: 12, 13, 14, 17, 18, 19 May 2021
Approved Judgment
Introduction
The First Claimant (“Credico”) is a business which provides direct or face-to-face marketing services. These services are provided by sales representatives who are known as Independent Sales Advisors (“ISAs”). ISAs sell to customers through residential door-to-door sales and through the use of pop-up booths at locations such as shopping centres and supermarkets. (Direct marketing can also consist of face-to-face selling to business customers, and telesales, but this case is not involved with these types of direct marketing). There is no direct contractual relationship between the ISAs and Credico. Rather, Credico contracts with Marketing Companies (“MCs”) which are based in cities and towns across the United Kingdom, and the MCs then engage and contract with the ISAs, on the basis that they are independent contractors rather than as employees of the MC, to do the actual selling. MCs are invariably owned by an individual who started off as an ISA and who has been nurtured and encouraged by the owner of the MC in which he or she began direct selling until s/he was ready to start up their own MC. MCs and ISAs are remunerated entirely by commission. Credico pays the MC commission for each successful sale or lead obtained by an ISA, and the MC pays the ISA a share of the commission in their turn. In addition, when the owner of an MC has sponsored an individual to spin off their own MC, the first MC owner will receive “override” commission from Credico for the sales achieved by the new MC. Where a new MC owner sponsors someone else to start up a further MC of their own, the first MC owner will receive override commission for the “second generation” or “third generation” etc MC that results. In this way, Credico (and its predecessor, the Second Claimant, “PerDM”) have built up a network of MCs, and successful MC owners have a subsidiary network of their own.
As I will explain in greater detail later in this judgment, the principal role of Credico is to find clients who wish to make use of direct marketing services, so as to provide work for MCs and ISAs to do. Credico also provides various other services to MCs, although the exact nature, scope, and value of these services has been in dispute in these proceedings. These other services include providing guidance, advice, and know-how to MCs, along with “back-office” services, such as banking and insurance facilities. Credico imposes a charge upon MCs for some of these services.
When an individual is invited to start up an MC, he or she enters into a contract with Credico (and formerly PerDM) in a standard form, known as the Trading Agreement. The Trading Agreement in effect ties in the MC to operate solely as part of Credico's direct marketing network. Though the Trading Agreement does not promise that Credico will offer the MC a particular amount of work, or, indeed, any work, the joint intention at the time that Trading Agreements are entered into is that Credico will provide campaigns for the MCs, which the MCs will fulfil through the use of their ISAs. The Trading Agreement is terminable by either side upon 14 days' notice.
The Trading Agreement contains two restrictive covenants, which are at the heart of this case. The first restrictive covenant, at clause 21.1, applies during the currency of the Trading Agreement. It prohibits the MC from carrying out or being involved in any similar type of business as outlined in the Trading Agreement. The second restrictive covenant, at clause 21.2, prevents the MC, during the period of six months following the termination of the Trading Agreement, from carrying out or being involved in any similar business conducted in a similar manner to that contemplated by the Trading Agreement, within a radius of 10 miles of the principal place of business of the MC during the last six months of the Trading Agreement.
Clause 16 of the Trading Agreement provides that the owner of the MC will sign a document (“the Guarantee”) under which he or she personally guarantees the obligations of the MC under the Trading Agreement. A standard form Guarantee is appended to the Trading Agreement. Clause 10 of the Guarantee states that “I agree that Clause 21 of the Agreement shall apply to me as though for reference to “the Company” in the first line there was substituted a reference to myself.”
The Trading Agreement also contains a standard form ISA Agreement which MCs are required to use. A central feature of the ISA Agreement is that it is drafted with a view to ensuring, so far as possible, that ISAs are not employees of MCs. Indeed, it is a key aspect of the business model of Credico that MC owners are not employees of Credico but run their own separate businesses, and that ISAs are not employees of the MC for which they work. This is designed to minimise costs, and also to place a distance between Credico and the activities of MCs and ISAs in the Credico network. The guidance that is provided by Credico to MCs about how they should run their businesses constantly stresses that MCs should make clear that ISAs are free to act as they wish and, for example, that MCs should not instruct ISAs to go to particular streets or locations to do the direct marketing.
The First Defendant, Mr Lambert, was the owner and sole director of S5. He entered into a Trading Agreement on S5's behalf, and signed the Guarantee on his own behalf, on 4 August 2010. Prior to that, in 2009, he had started as an ISA and had then risen swiftly through the ranks until he was offered his own MC. At the material times for the purposes of these proceedings, S5 was operating out of an office in central Manchester. Mr Lambert was successful, and was one of the few MC owners to have been granted Regional Consultant status by Credico. He managed a large team of ISAs, and by 2020 there were approximately 19 other MCs is his network which had been started by former ISAs whom he had sponsored.
In these proceedings, the Claimants allege that, in November and December 2020, S5 and Mr Lambert acted in breach of the restrictive covenants in the Trading Agreement by encouraging and assisting S5 ISAs to conduct door-to-door sales campaigns for a client called Novibet, and then for a rival to Credico called Energy Sales Marketing (“ESM”). The ESM campaign was called the “60 Second Challenge”. Mr Lambert and S5 do not deny that S5 ISAs carried out work for Novibet and then for ESM. Mr Lambert said that he arranged for this work to be done because Credico was failing to provide any work for S5 and its ISAs to do, and he needed to find a source of income for his ISAs in the run-up to Christmas. Mr Lambert and S5 dispute, however, that the two restrictive covenants in the Trading Agreement are enforceable, on the basis that (1) the Trading Agreement was entered into between S5 and PerDM, and PerDM ceased trading on 1 January 2016 and there was no novation of the Trading Agreement to Credico; (2) in any event, neither restriction is enforceable because it goes further than reasonably necessary to protect Credico and/or PerDM's legitimate business interests (if any). Mr Lambert also contends that, even if the restrictions in the Guarantee would otherwise be enforceable, they are rendered unenforceable because they are in breach of the Statute of Frauds. Still further, Mr Lambert says that the dealings that he had with Novibet and ESM did not breach either of the restrictive covenants. He said that he did the work with Novibet with the agreement and permission of Credico. As for the 60 Second Challenge, he said that this was not within the terms of the restrictive covenants, because ESM was not engaged in a similar type of business to that contemplated by the Trading Agreement, as ISAs working for ESM did not carry out door to door sales themselves: rather, they approached householders with a view to obtaining leads which would then be followed up by telephone sales advisers. He also contends that much of the dealings that he had with ESM did not amount to competitive activity with Credico.
On 3 December 2020, the Claimants wrote to Mr Lambert and S5, requesting that they sign draft undertakings (“the Undertakings”) that were enclosed with the letter, and warning that if Mr Lambert and S5 failed to do so, the Claimants would terminate the Trading Agreement and would apply to the court for injunctive relief. The draft undertakings broadly mirrored the restrictive covenants in the Trading Agreement. On 7 December 2020, Mr Lambert signed and returned the Undertakings on his own behalf and on behalf of S5, but only after deleting the wording in the draft Undertakings which referred to the consideration that had been given by the Claimants in return for the Undertakings. He did not draw the attention of the Claimants to this deletion.
The Claimants' solicitors, Addleshaw Goddard, sent Mr Lambert and S5 a letter before action on 10 December 2021. Mr Lambert responded the following day by giving notice of termination of the Trading Agreement, which therefore expired on 25 December 2020. On 17 December 2020, the Claimants issued a claim form and an application for injunctive relief to enforce the restrictions in the Trading Agreement (and for...
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...in enforcing restraints entered into by a party in negotiations in order to avoid legal proceedings, Credico Marketing Ltd v Lambert [2021] EWHC 1504 at [296] per Cavanagh J. The effect of this is that the restrictions relating to the clauses 11.1.3 to 11.1.8 are on any view 20 As to Dr Ald......