Ashcourt Rowan Financial Planning Ltd v Hall  EWHC 1185 (QB)
Judgment in proceedings where a former employer was seeking injunctions to enforce restrictive covenants. Application rejected.
The claimants are a firm of financial advisors. In 2008, they acquired a firm where the defendant was a part owner / director who joined the claimant as an employee subject to restrictive covenants. The defendant became dissatisfied with working conditions and gave six months notice in October 2012. He also made a point of stating that his six months 'garden leave' would count towards the 12 months restrictive covenant he was also subject to. The claimants disputed that the defendant was placed on 'garden leave' and when the defendant started work for another, allegedly competing, firm in April 2013 they applied for injunctive relief.
In this judgment, Andrew Smith J identifies that the two main issues are whether the defendant was placed on garden leave and, more widely, whether the terms of the covenant were enforceable. He concludes that, on the facts, the defendant was not on garden leave as, broadly, he still did carry out duties and there was no reason to expand the natural meaning of that term. However he finds that the covenant was ineffective for being too broad because the clause as worded would also have prevented the defendant from working for a competitor in a management role, not just in direct competition. ___________________
Neutral Citation Number:  EWHC 1185 (QB)
Case No: IHQ/13/0309
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
MR JUSTICE ANDREW SMITH
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Ashcourt Rowan Financial Planning Ltd (Claimant)
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Carlton John Hall (Defendant)
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Michael Duggan (instructed by Edwards Wildman) for the Claimant
Adam Tolley (instructed by Collyer Bristow LLP) for the Defendant
Hearing date: 25 April 2013
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Mr Justice Andrew Smith:
- The claimant, to whom I refer as ARFP, belongs to a group of companies (the "Group") of which the parent is Ashcourt Rowan Plc and which provides financial planning advice to clients. ARFP's turnover for the year ending 31 March 2012 was £13.6 million and that of the Group was £36.4 million. Mr Hall, the defendant, was an employee of ARFP until 28 March 2013 when six-months' notice of resignation which he gave on 28 September 2012 matured. On 11 April 2013 he started to work for Fidelius Limited ("Fidelius"), whose business includes the provision of retail financial advice as well as insurance broking and employee benefit services. In these proceedings ARFP seek to enforce post-termination covenants against Mr Hall, and inter alia an order which would prevent him from working for Fidelius until 28 September 2013. Mr Hall contends that ARFP are relying on covenants that are already spent and in any case are unreasonable restraints of trade and so unenforceable.
- On 19 April 2013 ARFP were granted a without notice interim injunction by Hickinbottom J at a hearing at which Mr Hall was represented but of which he had been given only a few hours' notice. The claim form was issued on 22 April 2013, but no particulars of claim have been pleaded. On 25 April 2013 the case came before me on the return date of the order of Hickinbottom J and, since I was unable to give judgment immediately, I made further orders against Mr Hall, albeit in more restricted terms than the order of 19 April 2013, designed fairly to preserve the position pending this judgment.
- In Lansing Linde v Kerr  ICR 428 Staughton LJ observed that in circumstances such as this the court should not merely decide whether there is a serious issue to be tried if that would lead to an order amounting to a "lettre de cachet" that would place a defendant under unwarranted restrictions for the whole or substantially the whole of the relevant period. I considered two possible courses to meet Staughton LJ's concern: I could have sought to bring about a speedy trial during (say) May 2013; or I could determine the main issues between the parties, and make an order reflecting my determination of them. The second course is available because with regard to liability (in contradistinction to the appropriate remedy if Mr Hall has acted and is acting in breach of his covenants or threatens to do so) the two main issues are (i) one of construction of the employment contract between ARFP and Mr Hall (the "garden leave" issue), and (ii) whether one of Mr Hall's covenants goes beyond what is reasonably necessary to protect ARFP's proper business interests so as to be unenforceable (the "enforceability" issue). Both Mr Michael Duggan, who represented ARFP, and Mr Adam Tolley, who represented Mr Hall, acknowledged that I have the essential material to engage with both questions. (Indeed, the alternative of a speedy trial was available because little more material would need to be presented at trial.) In these circumstances I shall determine the issues, and restore the case for further submissions as to what relief I should order, whether on an interim or final basis. This might help the parties to avoid potentially disproportionate expense that they both face in terms of legal costs, diversion of time and resources and probably deterrence of clients and potential clients.
- Mr Christopher Williams, ARFP's Chief Executive Officer, describes the Group as "specialist investment management businesses across the UK … focused on protecting and growing the finances of individuals, families and institutions". One company in the Group, Ashcourt Rowan Administration Ltd, provides pension administration services for member-directed pension schemes. ARFP provide financial planning advice to clients, including individuals, families, pension funds, charities and businesses, and have eleven offices in England and one in Edinburgh. They are concentrated in the south of England. Mr Hall worked out of the Chelmsford office, and they have other offices in Bath, Bournemouth, Cambridge, Exeter, Kings Hill, London, Salisbury and Torquay. Their two English offices north of Cambridge are in Manchester and Newcastle. They therefore have no offices in the Midlands, Yorkshire, Wales or Ireland (and, apart from Mr Williams' expression "across the UK", there is no evidence that the Group does). There is no indication that the distribution of ARFP's offices has changed since Mr Hall was first employed by ARFP and entered into the restrictive covenants. There is no evidence about what area their offices cover or from how large an area their clients typically are drawn.
- Mr Hall worked from his home address in Surrey, where ARFP provided him with telephone communications and computers, where he maintained client files and to where some client information was sent. His wife worked for him at home as a "part-time clerk" employed by ARFP to assist with filing. There is some difference between the evidence of Mr Williams and Mr Hall about how much use Mr Hall made of the Chelmsford offices but that is not important for present purposes. He met many clients at their homes or at the premises of what Mr Williams called "joint venture companies", the main joint venture being Wilkins Kennedy Financial Management ("WKFM"), who referred clients to ARFP and, as Mr Hall explained, is owned by Wilkins Kennedy LLP, who are chartered accountants: Mr Hall had been involved with WKFM since 2003. At the Chelmsford office, a "team" of seven financial advisers, administrators and "paraplanners" (who prepare and maintain client files and prepare and implement investment recommendations, but typically do not give investment advice) were employed by ARFP to support only Mr Hall. At one time ARFP also provided a driver for him.
- Mr Williams explained that ARFP have grown from merging with other financial planning businesses. Before joining ARFP in 2008 Mr Hall was a director of Independent Financial Solutions Group Limited ("IFS"), a wealth management business. Mr Nigel Thomas was IFS's managing director, he and his wife held a majority of the shares and Mr Hall and his wife held some 35%. In early 2008 IFS were acquired by the Group for £4.2 million, comprising £1.9 million paid on completion together with £200,000 for net assets, and a further £2.1 million paid two years after completion. The business of IFS was absorbed into ARFP, and Mr Hall, Mr Thomas and some 14 others working for IFS took employment with ARFP (then called Ashcourt Financial Planning Limited until a change of name in December 2009). I need not refer in any detail to the agreement for the sale and purchase of the shares, except to observe that Mr and Mrs Thomas and Mr and Mrs Hall entered into covenants by way of "Restrictions on Vendors Business Activities", which limited for three years from the date of completion what they might do in respect of "Restricted Business", that is to say the supply of services, including financial advisory services or any other business competing with the business of the Group for three years from the date of completion.
- Against this background Mr Hall entered into a contract of employment with ARFP signed on 30 January 2008. His terms and conditions (under the heading "Job Title") provided that his job title was "Senior Financial Advisor" and, that notwithstanding, ARFP might "require [him] to undertake additional and/or different tasks or duties (reasonably within [his] capabilities) from time to time and may appoint another person to carry out [his] duties alongside [him]". They stated that he should perform his duties at Chelmsford "or at any other reasonable location as [ARFP] shall from time to time determine and notify to [him]". His basic annual salary was £100,000, and he was entitled to a bonus payment at the end of an "earn out" period, details of which were set out in the share sale and purchase agreement. Mr Hall became what is commonly called CF30 for ARFP, that is to say he had authorisation from the Financial Services Authority (now the Financial Conduct Authority) designated Controlled Function 30 (Customer Function), which authorised him to deal and to arrange deals for clients and other "customers", and so allowed him to advise clients.
- Clause 14 of Mr Hall's terms and conditions of employment was headed "Fixed Term and Subsequent Notice Period", and since there is an issue about the proper interpretation of clause 14.2 I shall set out most of it:
"14.1 The "earn out" period will begin on the date of this agreement and continue for up to a maximum of two years depending on when the "earn out" is achieved. During this period, your employment cannot be terminated unless by reason of your gross misconduct justifying dismissal and notice cannot be served by either party. After this period you are entitled to receive and you must give the Company six months written notice to terminate your employment.
14.2 During any period of notice, the Company shall not be under any obligation to provide you with any work and may (without the need to give any reason for so doing) at any time require you to perform:
(a) all of your normal duties; or
(b) part of your normal duties and no others; or
(c) any other such duties as it may reasonably require; or
(d) no duties whatsoever
and it may suspend or exclude you from all or any of its premises and may require you to refrain from contacting or dealing with any customer, clients, suppliers, contacts or staff of the Company or the Syndicate Group of companies ("the Group") in connection with the business of the Company or the Group. You will continue to receive your salary and benefits in full during any such period ("the garden leave period").
14.3 The Company may terminate your employment with immediate effect and without compensation or pay in lieu if you are guilty of gross misconduct or commit a serious breach of these terms and conditions of employment or of any of the Company's policies or procedures ... ."
For convenience, I call the first part of the first sentence of clause 14.2 (to "(d) no duties whatsoever") as the "no obligation" provision, and the rest of the sentence as the "restrictions" provision.
- Clause 23 of the terms and conditions concerned "Confidential Information", and prohibited Mr Hall from using or disclosing trade secrets or other information of a confidential nature belonging to or relating to ARFP or the Group (except any that had come into the public domain without his default): confidential information included information relating to customers, potential customers and contact lists. It allowed ARFP to require Mr Hall to delete confidential information and destroy documents containing it. Clause 24 required him on termination of his employment to return to ARFP all their documents, papers and other properties.
- The terms and conditions had two appendices and Appendix II, headed "Restrictions", contained the provisions on which ARFP rely and are these:
"1. In this appendix, unless the context otherwise requires, the following expressions shall have the following meanings:
1.1 "Associated Company" shall mean any company which is for the time being the Company's subsidiary or holding company or a subsidiary of such holding company other than the Company itself in any jurisdiction in any part of the world as are defined in s736-736B of the Companies Act 1985;"
1.2 "Business" shall mean any business of or commercial activities carried on by the Company or any Associated Company as at the Termination Date;
1.3 "Prospective Customer/Client" shall mean any person, firm, company or organisation who or which had at the Termination Date or at any time in the 12 months immediately preceding the Termination Date been negotiating with the Company or any Associated Company with a view to dealing with the Company or any Associated Company as a customer/client;
1.4 "the Termination Date" shall mean the date on which your employment with the Company terminates.
- You covenant that you shall not at any time during your employment or for the period of 6 months from the Termination Date without the prior written consent of the Company either alone or jointly with or as employee, manager, officer, director, agent, consultant, contractor or partner of any other person, firm, company or organisation directly or indirectly be engaged or concerned in any business or activity which competes directly with the Business and with which Business you have been concerned in the performance of your duties under these Terms and Conditions during the 12 months immediately preceding the Termination Date.
"3. You covenant that you shall not at any time during your employment or for the period of 6 months from the Termination Date without the prior written consent of the Company, either alone or jointly with or as employee, manager, officer, director, agent, consultant, contractor or partner of any other person, firm, company or organisation directly or indirectly:
(a) in relation to any Business and in competition with the Company or any Associated Company canvass, solicit or endeavour to take away from the Company or any Associated Company the business or custom of any person, firm, company or organisation who or which was, at the Termination Date or at any time during the 12 months immediately preceding the Termination Date, a customer/client of the Company or any Associated Company with whom or which you shall have dealt in the performance of your duties under these Terms and Conditions during the 12 months immediately preceding the Termination Date;
(b) in relation to any Business and in competition with the Company or any Associated Company canvass, solicit or endeavour to take away from the Company or any Associated Company the business or custom of any person, firm, company or organisation who or which was, at the Termination Date or at any time during the 12 months immediately preceding the Termination Date a Prospective Customer/Client of the Company or any Associated Company with whom or which you have dealt with in the performance of your duties under these Terms and Conditions during the 12 months immediately preceding the Termination Date.
- You covenant that you shall not at any time during your employment or for the period of 12 months from the Termination Date without the prior written consent of the Company, either alone or jointly with or as employee, manager, officer, director, agent, consultant, contractor or partner of any other person, firm, company or organisation in competition with the Company or any Associated Company solicit or endeavour to entice away from the Company or any Associated Company any person who was on the Termination Date a director of the Company or of any Associated Company, a fund manager of the Company, a senior executive of the Company or any other employee identified within the Company's or any Associated Company's organisations as a key employee and with whom you have had personal dealings in the 12 months immediately preceding the Termination Date.
- You acknowledge and agree that the restrictions set out in clauses 2, 3 and 4 are fair and reasonable in the circumstances and that if any one or more or any part of such restrictions shall be rendered or judged invalid or unenforceable such restriction or part shall be deemed to be severed from this Agreement and such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining restrictions.
- Following termination of these Terms and Conditions you shall not falsely represent yourself or permit yourself to be represented as being in any way connected with or interested in the business of the Company other than as a shareholder.
- You hereby acknowledge that the restrictions contained in clauses 2, 3 and 4 shall operate for the benefit of the business and commercial activities carried on by the Company or any Associated Company and such restrictions shall be enforceable against you by the owner for the time being of such business and commercial activities as previously carried on by the Company or any Associated Company.
- Any period spent by you on garden leave as envisaged by clause 14.4 above shall be deducted from the period of restrictions referred to in clauses 2, 3 and 4.In clause 8 the reference to clause 14.4 was clearly a mistake for clause 14.2. I shall, for convenience (and perhaps at the expense of complete accuracy), refer to clause 2 as the "non-competition" covenant; to clause 3 as the "clients non-solicitation" covenant; and clause 4 as the "staff non-solicitation" covenant.
- Mr Hall's job title was therefore initially Senior Financial Advisor, and it was changed to Wealth Management Director while he was employed. He was not a director of ARFP or the Group. His main role was to advise clients, often particularly important clients, of ARFP and to maintain contact with them, and this was (as I infer from his first job title and is not, I think, disputed) what the parties contemplated when they made the contract of employment. ARFP have two types of financial advisers, the majority being low direct cost advisers (or "LDCs") and twenty or so being high direct cost advisers (or "HDCs"). Mr Hall was a HDC adviser. I infer that this too was contemplated by the parties to the contract of employment when it was made.
- There is some disputed evidence about the working methods typical of the different categories of advisers: for example, Mr Hall said that LDC advisers generally work at home and HDC advisers work more from offices, but Mr Williams does not agree with this. They also give different evidence about how much Mr Hall worked from home and how much from the Chelmsford office. But none of this is, to my mind, important for present purposes. There is also some inconsequential difference in the evidence about whether Mr Hall was a particularly important adviser in comparison with the ARFP's HDC advisers. Similarly the evidence about what duties Mr Hall performed while employed by ARFP, some of it disputed, is of little or no relevance to what I am here deciding. The meaning of a contract is determined without reference to subsequent events; and the validity and enforceability of a restrictive covenant is assessed at the date when the contract was made. What matters is what ARFP and Mr Hall contemplated on 30 January 2008, rather than what Mr Hall actually did while employed: Thomas v Farr Plc  EWCA Civ 118 at para 41.
- In any case, the differences between the parties about what Mr Hall actually did when employed do not amount to much and do not alter the overall picture of his role:
i) Mr Hall was temporarily appointed Regional Director of London and the South East, but he did not enjoy that role and relinquished it.
ii) Mr Williams said that thereafter Mr Hall was a "Financial Planning Director", but this, he explained, means only that he had the title given to all advisors with Mr Hall's seniority, and Mr Williams described him as having an advisory role ("providing advice and key client contact to a wide base of private and corporate clients").
iii) Mr Hall stated that, as a HDC adviser, he was required to "bear the cost" associated with some other employees at the Chelmsford office. As Mr Williams explained, this calculation related to bonuses and the arrangements to which Mr Hall was apparently referring were introduced from 1 April 2012. There is no evidence that they were contemplated when the terms of his employment were agreed.
iv) After Mr Thomas ceased to work for ARFP, before his death in August 2012, Mr Hall looked after Mr Thomas's clients, and so he dealt with more clients. Mr Hall said that he did so in order to assist Mr Thomas when he was ill, and without receiving or looking for remuneration. The circumstances in which Mr Hall came to deal with Mr Thomas's clients and the basis on which he did so are inconsequential.
v) Finally, there is evidence about Mr Hall becoming Managing Director of WKFM. Mr Williams said that he therefore had a management role in this and other joint venture companies, overseeing budgets and preparing financial statements as well as attending board meetings. Mr Hall disputed this and described himself as being appointed "purely as a figurehead" and because the position had to be held by someone with CF 30 authorisation. In any case it is not suggested that when he entered ARFP's employment this appointment was contemplated.
- Mr Hall's position necessarily involved him having access to ARFP's information about clients, including information kept on computerised databases. Such information included clients contact details, records of the advice that they had been given, records of meetings, correspondence and details of their investments and policies. Mr Williams described such information as "extremely valuable if not essential" to a competitor seeking a client's business: I accept that it would be useful, but I consider it an exaggeration to describe it as "essential".
- The background to Mr Hall resigning from ARFP and his reasons for doing so are disputed but also irrelevant for present purposes. I cannot and do not attempt to assess them. Apparently one reason was that Mr Hall was dissatisfied with his commission (in relation to a restructuring of the employee pension scheme and as to what he was paid in respect of Mr Thomas's former clients), and in May 2012 he invoked ARFP's grievance procedure. On 28 September 2012, at a meeting arranged to discuss the grievance, Mr Hall gave 6 months' notice of his resignation under clause 14.1 of the Terms and Conditions of Employment.
- After Mr Hall had resigned, on 4 October 2012 Mr Williams, with ARFP's Compliance Director, met Mr Hall, and after the meeting Mr Williams acknowledged the letter of resignation and wrote to make (or confirm) arrangements in light of it. Mr Williams stated the "primary duties, tasks and activities that [Mr Hall was] required to carry out during [his] period of notice" were these:
i) Mr Hall was to report directly to Mr Williams.
ii) He was to "continue to work mainly from home", but he was asked to attend meetings in the London office as required. Mr Williams did not anticipate that he would need to go to the Chelmsford office, but if Mr Hall thought otherwise he was invited to discuss the position with Mr Williams.
iii) Mr. Hall and Mr Williams were to work on a "formal plan to facilitate the smooth handover of clients together with other financial planners and, where appropriate, [other employees of ARFP]".
iv) "As part of the handover process" all clients meetings were to be arranged with and attended by another financial planner (as well as Mr Hall).
v) "[A] communication plan for clients" was to be formulated and agreed.
vi) A plan to arrange a handover of Mr Hall's responsibilities and duties as managing director of WKFM was to be formulated, agreed and carried out.
- On 9 October 2012 Mr Hall wrote acknowledging that "during my garden leave I remain bound by the express terms of the contract and following the termination of my employment will remain bound by clause 23 (Confidential Information)". He stated that the time that he spent "on garden leave" was to be deducted from the period of the restrictive covenants in Appendix II of the contract. He made observations about the proposals in Mr Williams' letter: he expressed concern about not attending the Chelmsford office; he said that the requirement that another financial planner attend client meetings "could be uncomfortable for some clients"; he pointed out difficulties if he were unable to contact Mr Williams easily and obtain quick authorisations; and he raised other matters of no present significance.
- In a reply dated 10 October 2012 Mr Williams stated that Mr Hall was not placed "on garden leave" and that the period of notice did not reduce the relevant periods of the restrictive covenants. He raised no objection to Mr Hall attending the Chelmsford office from Monday to Thursday during his notice period if he so wished (it is unclear why he referred only to those four days but no point is taken on that), and he offered to discuss other matters raised in the meeting. In a further letter of 15 October 2012 Mr Hall reiterated his contention that he was on garden leave, and referred in this context to another financial planner being present at meetings with clients, stating that this "could only lawfully be imposed under clause 14.2 of the Contract. … I am prepared to accept this requirement on the basis (and only on the basis) that it has been imposed under clause 14.2 of the Contract".
- Mr Williams wrote again on 18 October 2012: I set out what he wrote since Mr Duggan said that it encapsulates ARFP's case on the garden leave issue:
"Clause 14.2 of your Terms and Conditions of Employment ("Contract") refers to the steps that the Company may take during your period of notice, which includes suspending and/or excluding you from its offices and from having contact with clients and Company employees during your notice period. As you will accept this is not a step the Company has taken in your case. I agree that if the Company required you not to carry out your work and asked you not to attend the office during the notice period, this would constitute garden leave. However, this is not the case and the Company has a very clear plan of tasks for you during your notice period. To confirm, therefore you are not currently on garden leave and the restrictions contained in Appendix II to the Contract will not be reduced by the period of your notice. They will run in full from the date of termination of your employment."
- On 24 and 26 October 2012 seven people who had worked under Mr Hall gave one month's notice of their resignations from ARFP's employment. Only one of them was subject to any post-termination restrictions. Mr Duggan invites me to draw "the inexorable inference that there has been discussion and collusion going back some months", but I need not deal with that here.
- Mr Williams stated that during his notice period Mr Hall "complied with his duties in a professional manner" and he abided by the arrangements that had been made. He said that, particularly with the other resignations, ARFP needed Mr Hall to work for the period to handle his clients' requirements. Mr Hall, however, contended that during his notice period he was significantly restricted in what he was required and permitted to do, and that ARFP did not abide by the arrangements that he made with Mr Williams. Specifically, his evidence is that:
i) He and Mr Williams reached agreement on the wording of a letter that was to be sent above his signature and that of Mr Jonathan Polin, the Group's Chief Executive Officer, to all of Mr Hall's clients, stating that Mr Hall would be leaving ARFP and that he or "one of his team" would arrange a meeting to introduce the client to a "new financial planner" who was to "have responsibility for managing your affairs going forward". ARFP did not, however, send the letter to all of Mr Hall's clients.
ii) "If [the] action plan had been followed, [he] would have seen 200-300 clients during [his notice period] The reality is that [he] attended only 19 client appointments during that period, all of which he booked [himself] following telephone conversations from clients specifically asking to see [him]".
- Mr Williams does not dispute these contentions or explain why the arrangements with Mr Hall were not implemented, except to state in his evidence in reply that "one of the reasons why the letter agreeing the wording to be issued to all of Mr Hall's clients was delayed was WKFM misplaced their initial copy of the letter". (I do not overlook that the agreed wording told clients that "the team of people who have assisted [Mr Hall] will remain in place to ensure that you receive a continuing high level of service from this firm", but it was not suggested that the arrangements were disrupted by the need to amend this.) Mr Williams' evidence did not engage with the substance of Mr Hall's complaints, nor, to my mind, do Mr Williams' general statements that Mr Hall "continued his normal business practices during his notice period" and that he did not make any significant complaints to ARFP. Although Mr Duggan submitted that Mr Hall was to arrange meetings to see his clients and it was his responsibility that he saw fewer clients than usual, Mr. Williams did not so answer Mr. Hall's evidence when he replied to it. On the evidence before me, these complaints of Mr Hall appear well-founded, but I am not able to reach a concluded view about this and I do not need to do so in order to decide the two issues.
- Mr Hall makes other specific complaints about ARFP's conduct during the notice period, in particular that ARFP required others to be present when he met clients (to accompany him or, as Mr Hall presents it, to "supervise" him) and that he did not meet any new clients of ARFP with whom he had not previously had dealings. I generally find less force in these other complaints, but again I need not and do not express any concluded view about them. **
- Mr Hall took annual leave from 18 to 28 March 2013. On 28 March 2013, the last day of Mr Hall's employment, ARFP's solicitors wrote to him about the post-termination restrictions and his continuing duties of confidentiality and asked him to provide any new employer with a copy of the restrictions in Appendix II. Mr Hall did not reply: he was on holiday abroad until 9 April 2013. On 11 April 2013 Mr Williams learned that Mr Hall had taken employment with Fidelius (whom Mr Williams describes as "a direct competitor of Ashcourt Rowan", but it is unclear whether he means a competitor of ARFP or of the Group), and he became a director of Fidelius on 23 April 2013. According to Mr Williams, Fidelius describe themselves on their website as "a leading financial services company, providing a range of solutions to individuals and companies across three core areas: (1) wealth management and financial planning for private clients; (2) pension and employee benefit arrangements for employers; and (3) insurance services for both commercial and personal clients". Mr Williams acknowledged that Fidelius "provides a wider range of services to potential clients" than ARFP (or, as I understand his statement, the Group) do, but pointed out that their services include wealth management. Press reports of Mr Hall's move refer, for example, to Fidelius employing Mr Hall "to bolster its high net worth financial planning service" and Mr Hall in his new role "maintaining his specialism in financial planning for high net worths, business owners and trusts, all areas he has built expertise in over the last decade". Since he joined Fidelius, two of his clients with ARFP have moved to Fidelius and have requested ARFP to transfer their information to Fidelius; and ARFP have learned that (as well as Mr Hall) at least four of those who worked under him at ARFP have started to work for Fidelius.
- Mr Hall denies that he has acted in breach of his duties of confidentiality to ARFP or otherwise in breach of his duties to them. He does not accept the validity of the non-competition covenant and contends that it is unenforceable being in restraint of trade. He also disputes that, even if the non-competition covenant is valid and enforceable, it covers his employment with Fidelius.
- This last point raises the "garden leave" issue, which emerged in the correspondence in October 2012. Mr. Duggan submitted that, on the proper interpretation of clause 14.2 of the contract of employment, the last sentence applies and a period is treated as "the garden leave period" only if ARFP exercise their right in clause 14.2(d) and require Mr Hall to perform no duties whatsoever. The implication of this submission is that otherwise the non-competition covenant, the clients non-solicitation covenant and the staff non-solicitation covenant run for the periods specified in them whether the employment is terminated by notice from Mr Hall or from ARFP.
- Mr Hall disputes this interpretation of clause 14.2. He contends that the last sentence applies and so the label "the garden leave period" attaches throughout a period of notice whether ARFP require him to carry out all of his normal duties, some of his normal duties, other duties or no duties at all; and he submits that therefore under clause 8 of Appendix II the period from 28 September 2012 to 28 March 2013 is deducted from the period of the restrictions in clauses 2, 3 and 4, and so the non-competition covenant and the clients non-solicitation covenant expired on 28 March 2013 and the staff non-solicitation covenant will do so on 28 September 2013.
- Therefore the garden leave issue raises two questions:
i) What is the proper interpretation of clause 14.2 and in particular what does it treat as "the garden leave period"?
ii) If, as Mr Hall contends, the period of his notice is so treated, is it deducted from the period of the restrictions in clauses 2, 3 and 4 of Appendix II?
- I accept Mr Hall's first submission on the first point. I think it clear (and I do not understand either party to dispute) that the powers given to ARFP in the restrictions provision and the second sentence together with the definition "the garden leave period" apply in the same circumstances. The wording of the restrictions provision shows that it was not contemplated that ARFP should exercise the powers only if Mr Hall was not required to perform any duties: ARFP might exercise them to exclude Mr Hall from only some of their premises ("all or any of its premises") or to prohibit him from dealing with only some customers, clients, suppliers or staff ("any customer …"); that is to say, it allowed them to require him to perform only some of his normal duties.
- This conclusion seems to me to be reinforced by another (relatively minor) consideration: the last sentence refers to Mr Hall receiving his salary and benefits "in full" during a garden leave period. This seems designed to deal with any suggestion that Mr Hall should receive only part of his remuneration and so directed to the possibility of Mr Hall performing (and being required and permitted to perform) only some of his duties or "part of [his] normal duties".
- Mr Duggan advanced two main arguments against this interpretation. First, there is no punctuation after the words in (d) ("no duties whatsoever") and this, it is said, indicates that the words in the clause that follow apply only if ARFP require Mr Hall to perform no duties at all. I am not persuaded by this: the layout of the clause and in particular the new line introducing that words "and it may suspend …" seem to me to indicate an intention that they should apply whether ARFM exercised their rights under (a), (b), (c ) or (d).
- Secondly, the expression "garden leave" was said to connote that the employee is to do no work, and therefore, it is suggested, the expression "the garden leave period" naturally refers to a period when the employee is not required (and not permitted) to work. However, clause 14.2 does not refer to a period when Mr Hall was on garden leave: it simply labels something as "the garden leave period". It seems to me that the label could apply either to a period when Mr Hall was on garden leave or a period when ARFP were entitled to put him on garden leave.
- Mr Hall had an alternative argument about the meaning of clause 14.2, but if I am right thus far he does not need to rely on it. The argument advanced by Mr Tolley was, I think, along these lines: after Mr Hall gave notice on 28 September 2012, ARFP required that he be "restricted in the normal conduct of his duties during the notice period"; that in doing so ARFP were exercising their powers under the restrictions provision in clause 14.2; and that the period is therefore characterised as "the garden leave period". (It might be said, that, if ARFP exercised their powers under clause 14.2 at all, they did not do so immediately on 28 September 2012, but only when the arrangements were made in October 2012, but this point was not taken by ARFP and, at least for present purposes, would make no practical difference.)
- In my judgment, this argument fails on the facts. In the exchanges in October 2012 after Mr Hall's notice of resignation Mr Williams made certain requirements of Mr Hall, but I do not consider that ARFP required of him anything covered by clause 14.2. He was not excluded from premises: when Mr Hall took issue with the expectation expressed in the letter of 6 October 2012 that he would not attend the Chelmsford office, Mr Williams promptly made it clear that he might do so if he wished. He was not prevented from meeting clients, and the attendance of another planner made obvious sense if Mr Hall was leaving and clients were to have their affairs transferred to another adviser: in any case ARFP were entitled to "appoint another person to carry out [his] duties alongside" Mr Hall because the "Job Title" provision allowed this, and they did not need to invoke clause 14.2. Mr Hall was not required to refrain from dealing with clients or from contracting them as contemplated in clause 14.2. As I have said, I am inclined to accept that, after the arrangements were made in October 2012, ARFP were responsible for him not meeting as many clients as he usually did, but that was not pursuant to any requirement made of Mr Hall by them. I am not persuaded by Mr Tolley's submission that ARFP are to be taken to have exercised their rights under clause 14.2. They did not purport to do so, they protested that they were not doing so and they never evinced an intention to do so.
- In view of my conclusion in paragraph 29, I must consider the second stage of Mr Hall's argument: that, because clause 14.2 refers to the period of notice as "the garden leave period", therefore under clause 8 of Appendix II it counts towards the periods specified in the restrictive covenants. I do not accept this part of Mr Hall's argument on the garden leave issue. As Mr Duggan said, the expression "garden leave" most naturally connotes a time when an employee is not required or permitted to do any work. Mr Tolley was able to cite Goulding, "Employee Competition" (2nd Ed, 2011) at para 4.135 which recognised that clauses allowing an employer to change the employee's duties might be "part of the garden leave arrangement", but that does not, to my mind, affect the ordinary connotation that the expression "on garden leave" has had since it became common currency after featuring in "Yes, Prime Minister" in the 1980's. Appendix II clause 8 does not refer to the garden leave period or directly refer to the last sentence of clause 14.2. It simply refers to it being "envisaged" in clause 14.2 that Mr. Hall might spend a period on garden leave, and clause 14.2 undoubtedly envisages that ARFP might put him on garden leave in the conventional sense: he might be required "to perform … no duties whatsoever". Whatever is covered by the phrase "the garden leave period" on the proper interpretation of clause 14.2, there seems to me no reason to expand the natural meaning of "on garden leave" in clause 8 of Appendix II. Mr Hall was not on garden leave in that sense at any time before his employment ended, and he is not entitled to have any of his notice period deducted from the period of the restrictions.
- The other issue is the enforceability issue, whether the non-competition clause is enforceable. Unsurprisingly the relevant legal principles are not in dispute (and are drawn together in Brake Bros v Ungless  EWHC 2799 at para 15). I find it helpful to adopt the approach explained in TFR Derivatives v Morgan  IRLR 246 by Cox J, who identified four stages in the court's enquiry in cases of this kind (although in this judgment I defer the last stage):
"Firstly, the court must decide what the covenant means when properly construed. Secondly, the court will consider whether the former employers have shown on the evidence that they have legitimate business interests requiring protection in relation to the employee's employment. In this case, as will be seen later on, the defendant concedes that TFS have demonstrated on the evidence legitimate business interests to protect in respect of customer connection, confidential information and the integrity or stability of the workforce, although the extent of the confidential information is in dispute in relation to its shelf life and/or the extent to which it is either memorable or portable.
Thirdly, once the existence of legitimate protectable interests has been established, the covenant must be shown to be no wider than is reasonably necessary of the protection of those interests. Reasonable necessity is to be assessed from the perspective of reasonable persons in the position of the parties as at the date of the contract, having regard to the contractual provisions as a whole and to the factual matrix to which the contract would then realistically have been expected to apply.
Even if the covenant is held to be reasonable, the court will then finally decide whether, as a matter of discretion, the injunctive relief sought should in all the circumstances be granted, having regard, amongst other things, to its reasonableness as at the time of trial."
- I deal with two other points before these. First, there is a well-established difference in the courts' approach to covenants in contracts for sale of assets, which are more readily protected, and those in employment contracts: see, for example, Kores Manufacturing Ltd v Kolok Manufacturing Ltd,  Ch 109, 118 per Jenkins LJ. For this reason, no doubt, Mr Duggan emphasised that the background to Mr Hall's employment contract was the sale and purchase of IFS. I was not impressed by this point: as I have said, the sale and purchase contract included vendors' covenants protecting the assets that were sold, and it is to be supposed that the parties agreed that they defined what protection that ARFP should have as purchaser of the shares. The covenants in the employment contract were entered into by Mr. Hall as employee with ARFP as employer, and are justified (if at all) by ARFP's legitimate interests as employer. After all, they might have taken effect long after ARFP had acquired IFS under the sale and purchase agreement and at a time when they did not need and could not possibly have justified continuing protection for the shareholding interest that they bought.
- Secondly, I place little weight on the provisions of Appendix II in which Mr Hall acknowledged that the covenants were "fair and reasonable in the circumstances" and "shall operate for the benefit of the business and commercial activities carried on by [ARFP] and any Associated Company". It is as a matter of public policy that covenants in restraint of trade are not enforced if they go beyond what is reasonable between the parties and are injurious to the public interest, and the parties cannot by their bargain prevent or limit the enquiry about whether covenants comply with public policy.
- With regard to the proper interpretation of the non-competition covenant, it is well-established that, if a restrictive covenant of this kind can be construed in more than one way, an interpretation that upholds its validity is to be preferred to one that does not. The clause prohibits Mr Hall from "directly or indirectly be[ing] engaged or concerned in" any business or activity of a direct competitor. On a literal reading these words might be understood to prohibit Mr Hall from being "concerned in" a competitor without working or having active involvement in the competitor's business activities, for example by ("directly") holding shares or even ("indirectly") through a unit trust with a holding in a competitor. Such an interpretation would certainly give the covenant a wider application than anything reasonably necessary to protect ARFP's or the Group's legitimate interests. However, to my mind the covenant could have a narrower interpretation, and can be given a natural interpretation that limits it to prohibiting Mr Hall from being engaged or concerned in the business or activities of competitors by working but not from holding investments in them or having a purely financial "engagement" or "concern" in them. Indeed, if driven to choose between the two interpretations even regardless of the principle to which I have referred, I would, I think, prefer the narrower one. The covenant is not, however, directed only to Mr. Hall's employment by a competitor: it covers, for example, a non-executive directorship.
- There is another question of interpretation to which I should refer because it seems to me that something has gone wrong with the grammar of the last clause of the non-competition covenant ("with which Business …"). It is an adjectival clause and grammatically it can only qualify "business or activity", but that makes no sense. It is clearly intended to refer to "Business" of ARFP or an Associated Company, not to a competing business or activity. The intended meaning must be that Mr Hall is prohibited from being engaged or concerned in a business or activity if (i) (as required by the definition of "Business") that business or activity directly competes with a business or commercial activity carried on by ARFP or an Associated Company, and (ii) the business or commercial activity with which it competes is one with which Mr Hall had been concerned in the performance of his duties under his employment contract in the last 12 months of his employment.
- Business interests that employers may legitimately protect include "the names of customers and the goods which they buy": Lansing Linde v Kerr (cit sup) at p.437. Inevitably in view of his position, Mr Hall not only had access to, but actually knew, information of this kind about ARFP's clients. Mr Tolley submitted that what ARFP "purports to identify as the relevant confidential information in this case is information which is confidential to clients". This might be so as far as it goes, but Mr Tolley's underlying point is based on a false dichotomy: it does not follow that information about who clients are, their contact details and their investment history and decisions is not information properly treated as a valuable trade secret (or tantamount thereto). Indeed its value is illustrated by Mr Hall's own evidence that, when "replacement" advisers attended meetings with his clients, their attempts to suggest ideas previously discussed and dismissed made clients feel that their time had been wasted. Information of this kind is clearly, to my mind, by way of a business interest of ARFP that they could legitimately protect by restrictive covenants.
- ARFP also say that they have a legitimate interest in maintaining a stable workforce, and to prevent persons in Mr Hall's position from destabilising groups of workers and leading them to move to competitor businesses. As is clear from the judgment in the Brake Bros case cited above, sometimes employers can protect the stability of their work force, but it suffices to say that this consideration does not, in this case, add anything to ARFP's claim.
- Mr Tolley contended that the non-competition covenant is just that: that it is designed to prevent, or at least has the effect of preventing, Mr. Hall from working in the business in which he has worked for many years and, having no geographical limits, it would prevent him from doing so anywhere in the UK or beyond. He argued that other provisions of Mr Hall's contract of employment, in particular the obligations of confidentiality in clause 23 and the non-solicitation covenants, provide the protection to which ARFP are properly entitled.
- In support of this argument Mr. Tolley cited the observation of Lord Wilberforce in Stenhouse Australia Ltd v Phillips,  AC 391, 403D that, "The presence of one restraint diminishes the need for others, or at least increases the burden on those who must justify those others". However, this point, I think, has limited force in this case: as Lord Denning MR explained in Littlewoods Organisation v Harris,  1 WLR 1472, 1479 "… experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not: and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practical solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period". I return later to Lord Denning's second point, the need for the employer to be able to prove a breach, or to "police" a covenant. I say here only that the other provisions in Mr Hall's terms of employment do not materially impinge upon the need for ARFP to have restraints on Mr. Hall that work in practice, and this need is, as I see it, really at the heart of Mr. Duggan's argument.
- Can ARFP show, therefore, that the non-competition covenant is no wider than is reasonably necessary to protect ARFP's legitimate interests? The non-competition covenant refers to "Business", and Appendix II defines "Business" as "any business of or commercial activity carried on by [ARFP] or any Associated Company as at the [date when Mr Hall's employment terminated]", but this leads to the question how precise or how loose a view of what is "a business or commercial activity" should be adopted when applying the definition in any particular case. On one view ARFP might simply be said to be carrying on business in, and Mr. Hall to have been concerned with, "financial services", but equally the term "Business" might call for a tighter definition of the business or commercial activity that ARFP and their Associated Companies were carrying on (for example, in Mr Williams' words, "protecting and growing the finances of individuals, families and institutions", although he does not say that these were the only financial services that they provided or with which Mr Hall was concerned in the relevant period).
- This uncertainty, combined with the infelicitous grammar, to my mind obscure the meaning and effect of the non-competition covenant. But however that might be, the important limits on what is prohibited by the non-competition covenant are not in the definition or meaning of "Business" but introduced by the requirement that, if the covenant applies, the "business or activity" in which Mr Hall is engaged or concerned after termination is one that "directly competes" with the Business in which he was concerned when employed. Mr Duggan characterised the effect of this requirement as being that the covenant is "self-limiting", meaning that it is directed only to protecting the proper interests of ARFP at the time that the covenant takes effect. It is only applicable in the event of "direct competition" with business of ARFP or an Associated Company in which Mr Hall was concerned, and that limits both the nature of the businesses or activities that are prohibited and the geographical application of the prohibition.
- I see force in this argument but I am not persuaded that this confines the application of the covenant to what is reasonably necessary to protect ARFP's legitimate business interests. Its application is not defined by whether there is direct competition from Mr Hall in his new employment or from Mr Hall's own "business or activity". The wide words "either alone or jointly with or as employee, manager, officer, director, agent, consultant, contractor or partner of any other person, firm, company or organisation directly or indirectly be engaged or concerned in", and the looseness of the connection between Mr Hall's own work or activity and the prohibited business and activity mean that the scope of the covenant, is, in my judgment, wider than Mr. Duggan acknowledged. Although, as I have said, I do not consider that on their proper interpretation the words of the covenant are wide enough to prohibit a purely financial interest in a competitor, they do prohibit him from being indirectly concerned in the business or activity of a direct competitor, whether or not the work done by Mr Hall or his "activity" itself directly competes. Thus, the non-competition covenant not only covers Mr Hall being directly involved in dealing with clients when working for a competitor or being indirectly so involved by way of business development. It covers, for example, being indirectly concerned in such activities by way of a management role, regulatory compliance, training, research into investment products and other financial instruments and fiscal planning for the competitor business. After all, regard must be had to how financial services have been provided in the United Kingdom in recent years, and businesses in the financial sector do require significant ancillary services of this kind. There is no obvious justification for preventing Mr Hall from working for a competing business in such roles. But that, as I interpret the non-competition covenant, is what its effect would be.
- Moreover, for another reason the potential scope of the covenant seems to me wider than required to protect ARFP's legitimate business interests: it is, as I interpret it, limited by reference to Mr Hall being concerned with a business or commercial activity at any time or in any way during the last 12 months of his employment. He did not have to be so concerned in his capacity as Senior Financial Adviser (or Wealth Management Director): ARFP could require him to undertake other duties from time to time. Those other duties might take him into parts of the business where he was not involved with clients. There is no apparent justification for prohibiting Mr Hall after termination from being similarly engaged or concerned in a competing business or activity (especially if he was concerned in that area only transiently when employed by ARFP). After all direct competition in the financial services sector does not only involve competition to attract clients' business: for example there can be competition for the right to deal in particular investment products, and Mr Hall might have been required on behalf of ARFP to carry out research into them or to engage with those providing them.
- To meet these objections, Mr Duggan argued that the law recognises that in order for an employer to protect his business interests he needs the benefit of covenants that work in practice and that he can "police". I accept that: it has long been recognised that sometimes the difficulties of detecting and establishing breach of an obligation protecting trade connections, trade secrets or comparable information justify on practical grounds a prohibition upon working for a competitor of the employer. For example, it was said in the Brake Bros case (loc cit at para 15(13)) that "an area or non-competition covenant may be justified where the interest to be protected is trade secrets or confidential information akin to a trade secret, notwithstanding that there is an obligation present in the contract not to divulge confidential information post termination. Such a covenant, the authorities show, may be justified because it can be difficult for a former employer to police compliance with an obligation relating to trade secrets or confidentiality akin to a trade secret" As I have said, in the Littlewoods Organisation case Lord Denning MR made a similar point.
- However, this does not mean that such a prohibition can always be so justified: Gloster J in the Brake Bros case (after the passage cited above) went on to say that the courts will scrutinise "with particular care" arguments that seek so to justify restrictive covenants, "enquiring whether a lesser form of restriction (for example a non-solicitation clause) might not have given the employer sufficient protection and have been a more proportionate form of embargo than one which bars out competitive employment in the whole of the United Kingdom". The question whether a covenant can be so justified is fact-sensitive, depending on the facts of the particular case. It requires an assessment, as at the contract date, of the balance between the restraints that the covenant might impose on the employee even though he is not trespassing upon the legitimate business interests of the previous employer, and the need for such additional restraints in order to police the covenant or to give it practical effect. In this case to my mind the additional restraints of the non-competition covenant would, if enforced, prohibit Mr Hall from work in many parts of the financial services industry where, and in ways in which, it could not reasonably be said that ARFP's legitimate interests would or might be compromised. As at the date of the employment contract, when, as I have said, the question is to be judged, the potential additional restraints were even greater. Against that, when the need for "policing" is considered, it is of some significance that if clients of ARFP wish to change their advisers, they will, typically if not invariably, need or at least choose to contact ARFP to request and authorise the release of their information to the new adviser (as apparently two clients of Mr Hall have already done). To that extent ARFP will be alerted to possible misuse of information about their clients. Balancing these considerations, I conclude that the non-competition covenant is in restraint of trade and not enforceable.
- Therefore I reject Mr Hall's "garden leave" argument but uphold his challenge to the enforceability of the non-competition covenant. I shall invite submissions in light of my conclusions as to what orders (if any) I should make, and generally about the future management of this litigation.
- I add this: I have referred to various differences between Mr Williams' and Mr Hall's evidence. As things stand, they might be understandable differences between honest witnesses who have seen events from different points of view, and there is no reason to conclude that either has been dishonest in his statements. In these circumstances I see no reason to refer this litigation to the regulatory authorities, but this will not prevent another judge taking a different view if the case proceeds to trial.
Published: 16/05/2013 16:14