One Step (Support) Ltd v Karen Morris-Garner and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Phillips |
| Judgment Date | 07 July 2014 |
| Neutral Citation | [2014] EWHC 2213 (QB) |
| Docket Number | Case No: TLQ/13/0127 |
| Court | Queen's Bench Division |
| Date | 07 July 2014 |
[2014] EWHC 2213 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Phillips
Case No: TLQ/13/0127
Mr Craig Orr QC and Mr Mehdi Baiou (instructed by Pitmans LLP) for the Claimant
Mr Stephen Knafler QC and Mr Peter Irvin (instructed by Neves LLP) for the Defendants
Hearing dates: 15 – 17, 20 – 24, 27 – 29 January, 2, 3 April 2014
Approved Judgment
Introduction
Until 20 December 2006 the first defendant was a director and the owner of one-half of the issued share capital of the claimant ("One Step"), a company in the business of providing "supported living" services to children leaving care and vulnerable adults. One Step supported service users referred from local authorities mainly in the West London and the Thames Valley areas. It had at least considered expansion into the Midlands.
On 20 December 2006 the first defendant sold her shareholding in One Step for £3,150,000, resigned as a director and entered into a deed with (amongst others) One Step whereby she agreed not to compete with or solicit clients or customers of One Step for a period of three years from the date of the Deed. The second defendant, the first defendant's civil partner, agreed to the termination of her employment by One Step and entered into a similar agreement not to compete with or solicit clients or customers of the claimant for the same three year period.
Unknown to One Step, the first and second defendants had already, the previous July, incorporated a company named Positive Living Limited ("Positive Living"), the first defendant owning 51% of its issued share capital, the second defendant owning the balance of 49%. In August 2007 Positive Living commenced trading. Part of its business was running a residential care home for six residents, but the main part involved providing rented accommodation to vulnerable adults and associated support and care services, trading in West London, the Thames Valley and the West Midlands. In relation to the former two areas, Positive Living dealt with several of the local authorities who had provided business to One Step. Positive Living's business was successful. The company was sold by the defendants in September 2010 for £12,823,205.
In these proceedings One Step seeks remedies for what it alleges were blatant breaches by the defendants of their restrictive covenants. One Step contends that Positive Living was clearly set up to and did compete with One Step and solicited One Step's local authority clients for business. One Step further alleges that the defendants used confidential information belonging to One Step, induced each other to breach the covenants and conspired with each other to injure One Step by unlawful means.
The defendants contend that the similarities between the two businesses were merely superficial and that, properly analysed, Positive Living did not operate in the same market as One Step and the defendants did not breach any of the restrictive covenants, nor did they act unlawfully. The second defendant pleaded that, in her case, the restrictive covenants were in unreasonable restraint of trade.
This judgment determines the issues of liability which arise between the parties, together with the question of the nature of the remedies to which One Step is entitled if liability is established. The parties agreed, and I have directed, that the quantification of any remedy should be deferred until after issues of liability have been determined.
At the start of the trial and at the invitation of the parties, I ordered that the identities of service users of both One Step's and Positive Living's services should be kept confidential and not be reported. For that reason in this judgment I shall refer to individual service users by their initials.
The background facts
(i) The concept of supported living
It is common ground that the concept of supported living was introduced and developed during the 1990s as an alternative to residential care for vulnerable people, including those with mental health and learning disabilities. It involves providing vulnerable people with rented accommodation and the support they need to lead as full and independent lives as possible within the community. The object is to avoid the need for institutional care, reduce the risk of vulnerable people becoming homeless and help those currently in institutional care to move to a more independent and stable home in the community.
One of the main principles underlying supported living is that vulnerable people should have control over the care and support they get, who they live with (if anyone) and how they live their lives. The concept assumes that all vulnerable people, whether with learning or other disabilities, are able (and should be supported) to make their own choices about how to live their lives.
Supported living was consistent with and encouraged by government policy designed to promote independence, choice, inclusion and rights in the provision of health and social care as reflected in the following (amongst other) initiatives:
(i) the White Paper Valuing People: A New Strategy for Learning Disability for the 21 st Century, presented to Parliament in March 2001;
(ii) the Department of Health's Building Capacity and Partnership in Care initiative, issued in October 2001;
(iii) the Department of Health Guidance on Supported Housing and Care Home Regulation, issued in August 2002 (the "DOH Guidance");
(iv) The Supporting People programme, introduced in 2003; and
(v) The White Paper Our Health, Our Care, Our Say, presented to Parliament in January 2006.
Although local authorities invariably required that providers be accredited by them before being invited to tender for work, there was (prior to 2010) no requirement that a provider of supported living services should be licensed or registered. A service provider would only have to register under the Care Standards Act 2000 as a domiciliary care agency if the services it provided included personal care which involved physical and intimate touching of the service user. As for the dividing line between personal care which could only be provided by a registered DCA and that which could be provided without registration, the DOH Guidance stated as follows:
"Personal care
…. Its established, ordinary meaning includes four main types of care which are:
• assistance with bodily functions such as feeding, bathing, and toileting
• care which falls just short of assistance with bodily functions, but still involving physical and intimate touching, including activities such as helping a person get out of a bath and helping them to get dressed
• non-physical care, such as advice, encouragement and supervision relating to the foregoing, such as prompting a person to take a bath and supervising them during this
• emotional and psychological support, including the promotion of social functioning, behaviour management, and assistance with cognitive functions
It is only the two more intensive kinds of personal care (1 st and 2 nd bullets), which trigger the requirement under the Care Standards Act for registration as a domiciliary care agency, although other kinds of personal care and support may also be provided by such an agency.
Non-physical care, emotional and psychological support do not of themselves trigger a requirement for registration with the National Care Standards Commission. Such care and support may be provided by various agencies according to the context and the persons' overall needs. In certain circumstances, these will be part of housing-related support, funded through Transitional Housing Benefit, or, from April 2003, Supporting People"….
(ii) The origins of One Step's business
The first defendant qualified as a social worker in 1996 and was employed by the London Borough of Ealing as a Child Protection Social Worker. During her time working there, the first defendant realised that there was no real provision for young people leaving the care system. In May 1999 the first defendant left Ealing Social Services to set up her own unincorporated business, One Step at a Time ("OSAAT"), to fill this gap. The business was based in Northolt in West London. The second defendant worked for OSAAT as its Operations and Area Manager.
OSAAT's business of providing accommodation and support to young people leaving local authority care expanded rapidly. Whilst focusing on young people leaving care, by 2001 OSAAT's Employee Handbook recorded that it had been successful in working with various client groups, including Young people/Adults with disabilities. It further stated that there was no maximum limit on the age of clients it would accept.
In 2002 the first defendant advertised OSAAT business for sale, ultimately agreeing to sell a 50% interest to the Costelloe family, Martin Costelloe being a successful entrepreneur with expertise in sales and marketing. One Step was incorporated as the vehicle for the transaction, acquiring OSAAT's business from the first defendant by an assignment dated 31 October 2002, the price being £1,450,000 (although £749,950 of that sum was funded by setting off a loan from the first defendant). The first defendant and Charmaine Costelloe (Martin Costelloe's wife) each subscribed for 50% of the issued share capital of One Step and were appointed its directors.
Mrs Costelloe (and other members of her family, including her husband) and the first defendant (apparently on behalf of members of her family, although they did not sign) entered a further agreement ("the Shareholders Agreement"), also dated 31 October 2002. The Shareholders Agreement included the following:
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