Pricewaterhousecoopers LLP v Nicholas Carmichael
| Jurisdiction | England & Wales |
| Judge | Pelling QC |
| Judgment Date | 15 March 2019 |
| Neutral Citation | [2019] EWHC 824 (Comm) |
| Docket Number | Case No: LM-2019-000044 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 15 March 2019 |
[2019] EWHC 824 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (QBD)
Rolls House
7 Rolls Buildings
London EC4A 1NL
HIS HONOUR JUDGE Mark Pelling QC
(Sitting as a Judge of the High Court)
Case No: LM-2019-000044
Mr R Howe QC appeared on behalf of the Claimant
Mr C Ciumei QC appeared on behalf of the Defendant
HH Judge
This is the hearing of an application by the claimant (“PwC”) for an order restraining the defendant (“NC”) from breaching clause 13.10 of the PwC LLP members' agreement dated 31 December 2002 as amended thereafter by various members' resolutions (“MA”). The application as issued originally sought injunctions restraining breach of various other post-termination restraints within part 13 of the MA, but those elements of the application have been compromised.
The MA contains a comprehensive disputes' resolution provision within part 17, which culminates in clause 17.2.1(iii), which it is common ground constitutes an arbitration agreement between the parties to this dispute. The parties have, or shortly will refer the dispute concerning the enforceability of the post-termination restraints to arbitration. There is currently a hiatus caused by a connection between the proposed arbitrator and NC's solicitor. However, it is anticipated this will be resolved within a few days. This application is brought pursuant to section 44(3) of the Arbitration Act 1996. The circumstances leading to this application are not seriously in dispute, at any rate for the purposes of this application.
PwC is a well-known professional services firm. It currently has some 926 partners, each of whom are members whose relationship is governed by the MA. NC joined PwC in 2011 and became a partner and member on 1 July 2013. NC was a member of PwC's refinancing and restructuring group (“RRG”).
PwC's case is that NC has had access to significant confidential information while he was a partner. PwC's evidence in support of its application is contained in a statement from Mr Perkins. He states at paragraphs 21 and 22 of his statement as follows:
“As a partner in the BRS business and as part of the projects and transactions referred to above, Mr Carmichael had access to the most confidential information and trade secrets of PwC an its clients. This includes pricing structure, strategies and significant information about sensitive and high-value projects with such information being ‘live’ and highly confidential today.
As an example, the R&R team runs a watchlist of stressed and distressed situations, and of restructurings across the market that are very specific to PwC. All market intelligence from the PwC partners and staff is stored into a secure IT library called the Opportunities Unit. Mr Carmichael had access to this information on a daily basis and up until the period on which he went on garden leave, and no doubt retains some of it in his mind today.
I understand that many of the names and cases on the watchlist remain live and current for the reason that they would be developed by the team over a number of months and years. As I have stated above, I understand that some of the projects and transactions on which Mr Carmichael performed material work are also still ongoing. For example, Mr Carmichael worked on phase 1 of a project for an energy company which commenced in 2016, and the project is currently in phase 3. Mr Carmichael also worked on phase 1 and the first part of the second phase of a project for a steel product manufacturer.
The information obtained during work on these projects is highly confidential and commercially sensitive, and would be of incalculable value to a competitor such as FTI as it seeks to develop and strengthen its capabilities and business in this area.”
Mr Perkins added at paragraph 25(e) as follows:
“As to clause 13.10 which prevents a retiring member from joining a competitor for a period of six months after his termination date, I believe that this is similarly plainly reasonable in order to protect PwC's legitimate business interests as a member of PwC such as Mr Carmichael will inevitably obtain detailed knowledge of highly confidential and commercial matters in the course of his duties.
Although clause 13 contains an expressed confidentiality clause, these types of clauses are broad and difficult to police in practice. The only effective way to ensure that a retiring member does not unfairly compete by making use of such information is to have a short post-termination non-competition covenant in clause 13.10.”
At the end of 2016, PwC was approached by FTI Consulting (“FTI”) concerning a proposed acquisition by FTI of PwC's RRG. That culminated in an offer from FTI in May 2017 that was rejected. PwC alleges that thereafter FTI attempted to recruit some or all of the partners in PwC's RRG. Three partners in the RRG retired from PwC in or around the end of January 2018. NC was one of those partners. He gave notice to retire on 25 January 2018. PwC's case is that each intended to join FTI. NC does not dispute that was his intention. Indeed, his case is that he intends to join FTI with immediate effect unless restrained by court order.
On 28 March 2018, PwC wrote to NC informing him that his retirement had been approved with a period of 12 months' notice and requiring him to take garden leave from 1 April 2018 until 24 January 2019 when his retirement was to take effect. This was a period of just over nine months. The letter informing NC of these arrangements stated amongst other things:
“All the provisions of the members' agreement will continue to apply to you. Clause 12 sets out the restrictions and obligations relating to partners on required leave, and all these restrictions and obligations will apply to you. In particular, save as provided for in this letter, you are prohibited from having any communication with any clients of the LLP or any members or employees and/or receive, have access to or copy any confidential information such as agreed otherwise in writing with Marissa Thomas.
Please note that certain activities on social media, such as updating your LinkedIn profile by stating that you will be leaving, on garden leave or have left, or by providing information about a new role with a competitor, will amount to solicitation and will be considered a breach of clause 12 of the members' agreement. A copy of clause 12 and a summary of the information which applies to you for the period of your garden leave is enclosed.”
The letter added at the end:
“Consequence of ceasing to be a partner.
I would take this opportunity to remind you that one of the clauses of the members' agreement, clause 13.10, prohibits you from joining a competitor of PwC LLP as a member or partner for a period of six months from the date of your retirement from the LLP. Deciding whether a business is in competition with the LLP is at the discretion of the management board, but this would clearly include FTI Consulting.
Clause 13 of the members' agreement sets out the consequences of ceasing to be a partner. A copy is enclosed for your information together with clause 15 to which clause 13 refers. I also enclose the guidance notes on the clause 13 restrictive covenants for your reference.
Please note that as the membership of the LLP is inter-conditional with being a partner in the partnership, the equivalent clauses of the partnership agreement, clauses 11, 12 and 13.10(a) will also apply. We would also like to refer you to clause 13.17 of the members' agreement, in the event that we have become aware of behaviour amounting to specified conduct as defined in the members' agreement at any stage prior to or after your retirement we will have no hesitation in invoking the full range of sanctions contained within that clause.”
On 17 December 2018, PwC wrote to NC again, again drawing attention to the post-retirement restrictions contained in the MA. Insofar as is relevant, that letter stated:
“Whilst all of the post-termination restrictions set out in the two agreements will apply to you, I wish to bring two key clauses of PwC LLP's members' agreement to your attention.
1. Clause 13.10 prohibits you from joining a competitor of PwC LLP or any PwC network firm as a member or a partner for a period of six months from the retirement date. Deciding whether a business is in competition with PwC LLP or any PwC network is at the discretion of...
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