TFS Derivatives Ltd v Morgan
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE COX |
| Judgment Date | 15 November 2004 |
| Neutral Citation | [2004] EWHC 3181 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Case No: 04/TLG/1029 |
| Date | 15 November 2004 |
[2004] EWHC 3181 (QB)
Mrs Justice Cox
Case No: 04/TLG/1029
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR D READE (instructed by Mayer Brown Rowe & Maw) appeared on behalf of the CLAIMANT.
MR A SENDALL (instructed by DLA) appeared on behalf of the DEFENDANT.
On the crucial issue of the construction of clause 12(1)(a) of the contract, I find in favour of the claimant, save in respect of the words "or similar to", which in my judgment can and should be severed. My reasons for that decision and my other findings on the remaining issues will now follow in this judgment. To save time, I will not read out now either all the relevant contractual provisions or the extracts from the various authorities to which I was referred, but if any transcript is to be obtained I will ensure that these passages are inserted at the appropriate point.
In this action, the claimant company, TFS Derivatives Limited ("TFS"), claim injunctive relief in the terms of post-termination covenants contained in the contract of employment entered into with the defendant, Simon Morgan, their former employee, who worked as an equity derivatives broker. An ex parte order prohibiting the defendant from acting in breach of the relevant covenants was obtained by TFS on the usual undertakings on 6 th September 2004. On the return date, a week later, both parties were legally represented and consented to an order that there be a speedy trial of the issues of liability, the defendant giving undertakings in the terms of the covenants until the trial. The defendant's employment ended on 7 th September and he has been paid up until that date. The principal restriction which the claimant seeks to enforce has the effect of keeping the defendant out of competition in the market place in which he worked until 22 nd December 2004.
Consequential directions for preparation for trial were also given on 15 th September and the trial was fixed to start on 9 th November, with an estimate of three days. That estimate proved to be entirely accurate, the evidence and the parties' submissions being concluded on the afternoon of 11 th November.
At the trial oral evidence was given on behalf of TFS by Mr Samir Saffadi, the Managing Director of Tradition Financial Services Limited, of which the claimant company is a wholly owned subsidiary, and by Andrew Adamson, the Global Head of Equities at Tradition. Evidence was given on the defendant's side by the defendant himself; by Mr Ron Levi, the Managing Director of GFI Holdings Limited ("GFI"), a competitor company of the claimant, where the defendant has agreed to work when he is lawfully free to do so; and, finally, Robert Andersen, a former equity derivatives broker with TFS, but who now works for GFI. The parties also referred to an agreed bundle of documents and relevant correspondence and provided both written and oral submissions to the court dealing with the factual and legal issues which arose.
At the end of the closing submissions I reserved judgment and, in view of the urgency of the matter and to avoid delay, I agreed to give judgment orally today, 15 th November, despite the fact that both counsel could not attend, so that the parties would know my decision and the reasons for it. I also agreed that the parties should have liberty to return to the court to apply for any consequential orders if they were unable to agree the terms of the final order which should follow this judgment.
The main issue to be resolved by the conclusion of the trial was whether the terms of clause 12 of the defendant's contract and, in particular, clause 12.1(a) were void as being in unlawful restraint of trade. TFS contend that the clause, construed correctly, reasonably provides them with no more than is necessary to protect their legitimate business interests in the market in which they operate, and that the restrictions imposed on the defendant are therefore lawful. When the trial began, the defendant was contending, firstly, that TFS had acted in repudiatory breach of his contract by placing him on what is now commonly known as "garden leave" and by denying him the opportunity to be paid bonuses during his period of notice. He therefore alleged that he was discharged from his continuing contractual obligations and was free to work for GFI without any restrictions at all. However, at the end of the evidence the defendant abandoned this part of his case and defended the claim only on the basis that the covenants which TFS seek to enforce are unlawful as being in unreasonable restraint of trade.
It is common ground that the answer to this central dispute between the parties depends on the particular factual matrix in the case, and it is therefore necessary to set out the relevant background facts before turning to the defendant's contract of employment.
TFS has offices in the various major financial centres across the world, including London. It deals in the inter-dealer brokering of "over the counter" physical and derivative products. Its activities cover global foreign exchange and the commodity, equity and paper markets. There is also a separate energy division, with which we are not concerned. The relevant activity in the present case is the equity derivatives market. Of the approximately 160 employees based in the London office, more than 40 of them specialise in equity derivates.
The equity derivatives brokers employed conclude options transactions on behalf of trader clients, in particular equity markets. The principal markets in which TFS deal are Eurostoxx, a Pan-European market, the DAX (Frankfurt), the CAC (France), the FTSE (London) and single stocks including Pan-European and US single stock markets. The brokers, approximately 40 in number, sit in one room in close proximity to each other, the room consisting of four long desks, parallel to each other. Up to 12 brokers sit on each table.
The broker acts essentially as an intermediary to his clients. Clients will usually approach the brokers showing an interest in a particular option. The broker will then go out into the market place to find the best possible price for the clients. At that stage, the brokers will typically not know whether the client wants to buy or sell the particular option structure and will go back with a price for both. Once a dealing price is agreed with the clients, TFS will confirm the deal with both the buyer and the seller and send confirmation to the parties.
It is common ground that in the market there are a finite number of clients operating, predominantly banks and other financial institutions. While TFS brokers will not work exclusively for those clients, the brokers endeavour to develop strong client relationships and to develop their knowledge with a view to solidifying and building upon TFS's position in the market. Whilst clients may trade a number of different option structures each day, they will usually use their prime broking contact within the broking firm to handle all types of structures that they may be interested in that day, regardless of the underlying market. Most of the clients do not trade exclusively in one derivative market. Brokers from one desk may sometimes seek the assistance of brokers from another desk if a client's needs require this. Equally, where there are strong relationships with clients on one desk, the aim is to persuade the clients to use TFS services on another. Brokers would, therefore, tend to know which are the strong client relationships and the areas in which TFS did well, both on their own desk and on those of others.
The nature of the job is such that it is extremely important for the brokers to build up good relations with their trader contacts within TFS's client organisations. The market in which the brokers are dealing is a specialist one, and the number of traders operating in it is relatively small. It is essential for the brokers to cement their relationships with the traders. If a solid relationship can be established, the broker will usually be able to count on that trader for repeat business. Broking, as Mr Adamson observed, is a verbal business. As a result, working in the room, brokers generally tend to develop a knowledge of which clients use which brokers, how strong those relationships are, and the number of trades that brokers are doing for specific clients. They know which relationships are strong and which are in difficulties, together with the reasons behind any change. Brokers may need, on occasions, to cross their products to brokers dealing on other markets. For example, a broker who regularly trades on the DAX index may need to cross-sell on the CAC where a client asks them to broker a specific trade for them. Thus, the brokers need to build up an understanding of how the different markets operate, and they develop in the course of their work a knowledge of the business levels within those other markets.
The defendant joined TFS on 1 st November 2000 as an equity derivatives broker. His salary at the time of his resignation, excluding bonuses, was £75,000 per annum, although it is common ground that the substantial sums of money to be made as a broker come generally from the bonuses awarded and not the annual salary. Before joining TFS the defendant had worked in equity sales for a different company. When he joined TFS he learned how to broke wholesale equity derivatives, and it is accepted that the relationships and the expertise that the defendant developed in the equity derivatives market were all fostered whilst working for TFS, where he was...
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