Threlfall v ECD Insight Ltd & Anor  EWHC 3543 (QB)
Judgment concerning claim and counter claims where the claimant was seeking shares, dividends and bonus payments he alleged he had been due and the respondent counter-claimed for breaches of restrictive covenants, duty and good faith. Both parties were partially successful.
The claimant, a journalist and business news broadcaster, joined the respondent company in 2002 at a time when the company had ambitious growth plans. The service agreement set out the package which included salary, commission/bonus and equity. The claimant's role was to provide media skills coaching, bring in new business and develop the network of associates. Before joining the company, the claimant had also been hired to moderate high level conferences and events. He continued to undertake this work for the respondent but only some of the events generated revenue for the respondent, with others being carried out in the claimant's own time. In 2005 the claimant was offered an increase in his equity stake to 20% but when he resigned in 2008 and sought to consider realisation of that stake the respondent sought to resile from the agreement as the business was in financial difficulty at the time.
In this judgment, Lang J provides an extensive review of the facts underpinning the agreements and working arrangements. She finds that the claimant was entitled to realise the equity stake provided he did not leave to compete with the respondent. Further she found the claimant did not leave to engage in event moderation but to return to news presenting and in any event the moderation work was only a sideline that was not a business activity of the respondent. The claimant was therefore due the equity, and resulting dividends, but a claim for a bonus payment was rejected as the decision not to award a bonus was, following Commerzbank AG v Keen, not irrational. The judge then goes on to find that the claimant's actions with regards to two event moderations carried out towards the end of his employment did come within the scope of "soliciting or canvassing clients, as set out in the authorities" and so constituted a breach of contract but that he had not breached restrictive covenants because this work fell outside the the core area of work defined in the service agreement.
Case No: HQ11X04305
Neutral Citation Number:  EWHC 3543 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
THE HONOURABLE MRS JUSTICE LANG DBE
- - - - - - - - - - - - - - - - - - - - -
AXEL THRELFALL (Claimant)
- and -
(1) ECD INSIGHT LIMITED; (2) GLENN WHITNEY (Defendants)
- - - - - - - - - - - - - - - - - - - - -
Mr Sam Neaman (instructed by Penningtons Solicitors LLP) for the Claimant
Mr Seb Oram (instructed by Blandy & Blandy LLP) for the Defendants
Hearing dates: 23rd, 26th, 27th, 28th November 2012
- - - - - - - - - - - - - - - - - - - - -
Mrs Justice Lang DBE :**Introduction**
- The Claimant brings this claim for breach of contract against his former employer, the First Defendant ("ECD"), and its managing director, Mr Glenn Whitney, who is the Second Defendant. The Claimant was employed by ECD as Head of Media from 3 February 2003 to 19 September 2008, when he left to take up a post as a television news presenter with Reuters Ltd.
- The Claimant seeks declaratory relief, damages and specific performance of his employment contract with the First Defendant, claiming that he is entitled to:
i) an 8 percent share in the equity of the First Defendant, increasing to 20 percent from November 2005;
ii) share dividends;
iii) a termination payment;
iv) a bonus payment in respect of the final three months of his employment in 2008.
- The Second Defendant was joined in a personal capacity as he owns 100 percent of the shares in the First Defendant, which is a private company. Therefore the relief sought in relation to the ownership of shares might have to be against him, not the company.
- The Defendants dispute the claim, on the following grounds:
i) although the Claimant's employment contract made provision for an 8 percent equity stake, this was forfeited pursuant to paragraph (d) of schedule 2 to the contract, by reason of his breach of the restrictive covenants in clause 15 of his contract;
ii) the forfeiture provision in schedule 2 was reasonable and in any event, was not capable of being severed;
iii) there was no concluded agreement with the First Defendant to increase his equity stake to 20 percent;
iv) the First Defendant (acting through the Second Defendant) properly exercised its discretion to refuse the Claimant bonus payments in respect of the final three months of his employment in 2008,
v) the employment contract did not make provision for a termination payment.
- The First Defendant also counterclaims for breach of contract, alleging breach of the restrictive covenants and a breach of fiduciary duty and/or good faith.
- In response, the Claimant denies that he has acted in breach of contract and he denies that he owes a fiduciary duty. Alternatively, he submits that the provisions in schedule 2 to the contract, providing for forfeiture of the equity stake, are an unlawful restraint of trade and should be severed.
- I heard oral evidence from the Claimant, and the following witnesses who gave evidence on his behalf: Mr Steve Clarke, Ms Joanna Sheldon, Ms Susan Watson and Ms Jane Tomlin.
- I heard oral evidence from the Second Defendant, and the following witnesses on behalf of both Defendants: Mr Julian Lewis, Mr Jeremy Adams and Ms Helen Lucas.
- I received some 1500 pages of documentary evidence.
- In the course of the hearing, I ruled on the admissibility of hearsay evidence. Under the Civil Evidence Act 1995 ("CEA 1995"), evidence is not to be excluded on the ground that it is hearsay evidence, but the circumstances in which the hearsay evidence is adduced will go to the weight to be attached to the evidence by the court.
- Applying these principles, I ruled that the Claimant could rely upon hearsay evidence given by Mr Michael Gestrin, Ms Helen Fisher and Ms Brenda Killen, pursuant to the CEA 1995, section 1 and CPR rule 33.2(3). They are employees of the Organisation for Economic Co-operation and Development ('OECD') who approved draft witness statements but their statements were never finalised (only one was signed and none of them had made statements of truth) because the OECD stated in a letter dated 10 February 2012 that its officials should not give evidence as they were "immune from legal process in respect of things done by them in their official capacity", by virtue of the "OECD Protocols on the Privileges and Immunities of the Organisation". I did not consider that I was bound either by the letter or the immunity from legal process to exclude the draft statements from the evidence.
- I concluded that CPR rule 33.2(3) was sufficiently wide in scope to include these draft statements. The Defendants were given notice of their evidence and the reason why they could not be called to give oral evidence. I accepted that it was impossible for the Claimant to call them to give oral evidence, and that these statements were genuine and approved by the three employees, Nonetheless I could only give the statements limited weight since, if they had attended court, there would have been supplementary questions to ask by way of cross-examination.
- A witness statement was served by Mr Neil McNeil, and the Claimant notified the Defendants by letter that he was not available to give oral evidence at trial. Reasons were not given. Although this evidence was admissible under Civil Evidence Act 1995, section 1 and CPR 33.2(2), the fact that Mr McNeil was not available for cross-examination meant that I could only give his statement limited weight.
- The Claimant also relied on emails submitted by two individuals, Ms Ehrenstrahle and Ms Baerveldt, in response to requests for information from the Claimant or his representatives. These were documents containing hearsay, and governed by the notice requirements of CPR rule 33.2(3). No notice was served, the reason given was that they were only received in the last few weeks. I did not accept the Claimant's argument that the late arrival of the emails, and thus the failure to serve a notice, was a result of late disclosure from the Defendants. However, under the CEA 1995, the failure to serve a notice did not prevent the emails from being admitted in evidence, although it was potentially relevant to the weight to be given to them.
- The Defendants applied under CPR 33.4 to cross examine Ms Ehrenstrahle and I granted the application. The Claimant then decided not to call her as a witness, and gave as a reason that Mr Adams had accepted that she had not attended the conference in Stockholm, on the basis of her email. This was somewhat disingenuous as Mr Adams had also said that it was his understanding that she was due to attend the conference and she ought to be asked why she had not done so. However, ultimately the Claimant was at liberty to decide which witnesses to call, and since the Claimant had effectively decided not to rely upon her evidence, I ruled that the email from her should not be admitted in evidence.
- The Defendants did not seek to cross-examine Ms Baerveldt, and her email was admitted in evidence. However, I could only give her evidence limited weight because it was contained in an informal email to the Claimant, not a signed witness statement with a statement of truth; there was no explanation for her failure to attend to give oral evidence; and there was no opportunity to test her evidence in cross-examination.
- ECD was incorporated on 21 May 2001. It is a small private company, with one Director, Mr Whitney. Mr Whitney is the managing director and actively controls the company.
- Mr Whitney was the founder of the company. In a "Growth Plan", prepared by Mr Whitney in 2002, he stated that he founded the company in 1998. It appears from his personal tax returns that he was trading as a self employed "Communications Consultant" under the name ECD Insight prior to incorporation of the company.
- The company accounts record that 100 Ordinary shares of £1 each have been allotted and paid and are held by Mr Whitney. Regular and substantial dividend payments have been made to Mr Whitney, totalling about £489,703 between April 2003 and June 2011.
- ECD has offices in London, France and the USA, and has subsidiary companies registered in France and the USA.
- Mr Whitney, who is a national of the USA, is resident in France and divides his working time between the various offices of ECD.
Recruitment of the Claimant
- Before joining ECD, the Claimant was employed as a print journalist and as a business news broadcaster and presenter. In 2002, when he was working for CNBC, a business news channel, he was approached by Mr Whitney to join ECD. Mr Whitney had been searching for someone with media experience and had been impressed by the Claimant's broadcasting skills. They had discussions over several months and Mr Whitney promoted the company to him as a fast-growing international consultancy with predictions of a substantial increase in revenue over the next five years. Although the turnover in the year ending 31 June 2002 had been only £546,068, Mr Whitney's revenue projections, based on anticipated growth, were as follows:
2003: £1.29 million
2004: £3.175 million
2005: £5.56 million
2006: £8.9 million
2007: £12.5 million
- Mr Whitney offered the Claimant an opportunity to share in the future success of the company, by offering him a share in the equity, as well as linking the level of his salary to turnover/profit, and basing his commission/bonus upon his success in attracting new business. Mr Whitney had to make the offer sufficiently attractive to the Claimant, in financial terms, to persuade him to join ECD, and the offer of a share in the equity was an important part of the overall package. Mr Threlfall was a rising star in business broadcast journalism and had high earning potential in that career. He was persuaded to change careers and join ECD because he was impressed and excited at the prospect of becoming a major player in a business where he stood to benefit personally from the high returns which were anticipated.
- A "Service Agreement" was signed on 19 November 2002 and provided that, with effect from the commencement date of 3 February 2003, the Claimant would be employed by ECD as "Head of Media". There was a generous financial compensation package comprising (1) salary; (2) commission/bonus and (3) an equity stake.
ECD's activities and moderations
- A major issue in this case was the nature of ECD's business activities. The company accounts described the principal activity of ECD as "communications consultancy services". Mr Whitney said that initially ECD used the "tagline" of "management and communications development" but in around 2007, it was changed to "communications consulting and coaching".
- The "ECD Insight Business Growth Plan" prepared in 2002 by Mr Whitney described ECD as "a fast-growing management and communications development consultancy" focussing on four main areas:
i) Media and presentation skills and advice
ii) Leadership coaching
iii) Team building
iv) Organisational change consulting
- The Plan explained:
"ECD … activities are being arranged across a continuum. At one end of the continuum is the Internal side. This is the coaching and counselling of leaders and their teams to perform better and eliminate negative behaviour patterns, particularly in the way they communicate among themselves. At the opposite end of the continuum is the External side. These are services to help organisations and their top representatives to communicate more effectively to outside audiences, for example to shareholders, financial analysts and the media."
- In the document entitled "Realistic Job Preview", dated 2002, Mr Whitney explained the role of coach/consultant and said:
"If you like to see your name in print or be recognised as you walk down the street, this is not the job for you. Consultants, even highly paid and very well-reputed ones, tend to have to be low-key and take a back seat to their clients."
- The Claimant's offer letter of 22 October 2002 stated that the head of media was expected to spend his time on the following:
* Advising/consulting with clients on media skills
* Training and rehearsal for presentations
* Setting up and developing broadcasting capabilities within corporationsApproximately 25%
* New business development via general networking activities
* On-going client relationship management – e.g. breakfast/lunch/dinner with clients
* Generating invitations to meet prospective clients
* Preparing for presenting at more formal "pitches"Approximately 25%
* Developing the network of ECD Insight associate consultants – building their coaching and consulting skills, orienting them and motivating them to help bring in new business relationships"
- In practice, the Claimant spent 75 percent of his time at ECD training clients on how to deal effectively with the media and how to develop and deliver presentations to clients. He took over Mr Whitney's work in this area, enabling Mr Whitney to focus instead on leadership coaching programmes. The Claimant spent the remaining 25 percent of his time "pitching" the company's communications training programmes to clients; managing client relationships, and helping ECD hire and train new consultants. Despite the reference in the offer letter of 22 October 2002 to setting up and developing broadcasting capabilities within corporations; this was never discussed or taken further.
- The Claimant's business card accurately summarised his job as:
* "Leadership & team communication
* Organisational message building
* Pitch consulting and coaching
* Presentation development & delivery
* Print & TV interview preparation"
- During his time as a broadcaster, the Claimant was occasionally invited to moderate high-profile events for corporate or public sector organisations. The Claimant helpfully defined "moderation" in paragraph 28 of his first witness statement:
"It involves chairing a discussion or debate between several high-profile individuals, often at ministerial level or above, and on occasion involving heads of state. This will be in front of large audiences which will typically be in excess of 200 people. Moderation requires a very specific set of skills, crucially including the ability to lead and guide a discussion whilst keeping to strict timings. It also requires the use of key skills I have gained from my broadcasting experience, including the strict management of conversations between often feisty panellists and the ability to keep the discussion relevant and compelling for large, live audiences. These are invariably nerve-wracking, high-pressure events, under hot lights, in front of a wall of television cameras and very large audiences.
Moderators must be able to 'carry' the room, engage and keep the attention of hundreds of people. They must, of course, have a firm grasp of the subject at hand, but are chosen for their ability to think quickly on their feet and be ready for any eventuality – all quite specific skills I gained a television anchor. Most of the events I have been asked to moderate have been high-level international events for supranational organisations such as the United Nations or the OECD, but I have also moderated large events for the private sector. Panellists at the former are usually at the ministerial level. Panellists at the latter are usually in top-level management, or are high-profile economists and investors. By definition these events do not come about often, even for well-respected and well-known moderators."
- Having considered the witness and documentary evidence, it is clear that event moderation at conferences was not part of ECD's activities at the time when the Claimant joined ECD. The role of ECD consultants was to train others to communicate effectively by coaching in small groups or one to one. In my view, event moderation was a qualitatively different activity. ECD consultants did not participate in debates on public affairs, performing on a platform in the public eye. Event moderation did not fall within the company's "tagline" of "management and communications development" or "communications consulting and coaching".
- In the extensive company literature which I have seen, there is nothing which suggests that event moderation was carried out by ECD consultants at any time. Consultants were occasionally asked to run an in-house discussion or seminar with a panel of speakers (e.g. the event in October 2008 attended by Paul Gallagher), but this was an extension of the training role rather than event moderation. I did not accept the evidence of Mr Whitney or Mr Adams or Ms Lucas to the contrary. It is significant that, apart from the Claimant, none of the consultants at ECD had the broadcasting experience or the personal qualities which would make them marketable as moderators at high-profile international events.
- Ms Jane Tomlin, the office manager from 2000 to 2007, gave evidence that event moderation services were not offered to clients by ECD during the time she worked with the company. Mr Neil McNeil, an associate consultant who had worked for ECD since 1997, providing media training, said in his witness statement that neither he nor anyone else at ECD (other than the Claimant) had been offered an event moderator role. Although he was not available to be cross-examined, and therefore his evidence could not be given the same weight as a witness who attended court, the Defendants did not adduce any evidence of offers of moderating work to other consultants at ECD.
- While the Claimant was at ECD, he received and accepted two invitations to conduct major high-profile moderations:
i) The OECD's Global Forum on International Investment, Paris, in March 2008;
ii) The Eurofinance Cash & Treasury Management Conference in the Nordic and Baltic regions, Stockholm, in May 2008.
- Mr Whitney gave him permission to participate in both these events, which took place during the Claimant's working hours, and the Claimant received his salary as usual for these events (he did not take leave). ECD billed for his services and he was described as an ECD consultant in the event programmes. OECD entered into a formal contract with ECD for its event.
- Both Mr Whitney and the Claimant expressly recognised that ECD could potentially benefit from the Claimant's participation in such high-profile events, in terms of publicity and marketing of its consulting services. Mr Whitney sent one of ECD's administrators, Sofia Ehrenstrahle, to Stockholm with the Claimant to assist with marketing of ECD. The Claimant and Ms Ehrenstrahle met some ECD clients or prospective clients in Stockholm prior to the conference, but once the conference began, she returned to the UK, for reasons which were unclear. She did not give evidence, as I have explained above, in the section headed 'Evidence'.
- Mr Gestrin, senior economist at the OECD, said in a signed statement that he had met the Claimant running an ECD communications workshop for the OECD. He subsequently approached him to moderate at the March 2008 conference because of the Claimant's reputation as an excellent moderator, not because he worked for ECD. The Claimant received a further invitation from the OECD to moderate a high level ministerial event in September 2008, but Mr Whitney would not allow him to attend so close to his departure from the company. Brenda Killen of the OECD said in her unsigned statement that she approached the Claimant personally to moderate this event. She said she would not have asked anyone at ECD to carry out the role, and indeed it was common ground that she did not do so. Mr Whitney discussed with the Claimant whether another ECD employee could be put forward, but the person concerned was not available. The evidence of Mr Gestrin or Ms Killen was not subject to challenge in cross-examination, and so I can only give it limited weight. However, it is consistent with the other evidence before me – both documentary and oral – which gives their evidence credibility.
- The Claimant also chaired two panel debates, prior to 2008. These were not event moderations, but they were closer in character to moderations than the work which ECD normally carried out. They were not ECD activities because the Claimant carried them out in his own time in his personal capacity and ECD did not enter into an agreement to provide these services. Nor was ECD paid for the events. They may have prompted the Claimant to go on to develop the event moderation work further whilst at ECD, resulting in the 2008 events with OECD and Eurofinance referred to above.
- The two events were:
i) a panel debate on diversity in front of an audience of 40 to 50 people, organised by Citigroup in June 2007;
ii) a panel debate for British American Business Incorporated (BaBi) in front of an audience of 40 to 50 people.
- The Citigroup event took place outside of working hours, in the Claimant's own time. He was not paid for it, and nor was ECD. Mr Whitney complained that the Claimant had agreed to facilitate the event for no fee, and failed to send an invoice to Citigroup, indicating that he thought the event was on behalf of ECD, but in my view he was mistaken. The Claimant was not identified as an ECD consultant, and so there was no obvious promotional or marketing benefit to ECD. However, it appears that the Citigroup event led to a lunch between some members of Citigroup and ECD, indicating that it had some promotional benefits for ECD.
- Ms Susan Watson, who organised the Citigroup event, gave oral evidence. She said that she met the Claimant during an ECD training event, and mentioned to him over lunch that she was looking for someone to facilitate the diversity debate which she was planning. He explained that he had relevant experience, gained as a television 'anchor' and offered his services. She said that she invited the Claimant in a personal capacity, because of his suitability for the task, not as a representative of ECD. She would not have approached ECD to carry out this task as her understanding was that ECD provided coaching/training services, not conference services. In any event, she did not have a budget to enable her to pay for a commercial booking; she was looking for a volunteer.
- Ms Watson explained that the Claimant was a facilitator rather than a moderator at this event. The distinction she drew was that a facilitator need not have any expertise in the subject-matter under discussion, whereas a moderator has to be an expert in the subject-matter.
- The BaBi event also took place outside of normal working hours; no fee was paid; and the Claimant was not identified as an ECD consultant. I did not receive any further evidence about the BaBi event but I note that in the Claimant's Development Plans in 2006 and 2007, the Claimant himself made the suggestion that he should try to organise at least one speech/moderation event per quarter, similar to the BaBi event, as part of his individual professional development and as a marketing goal.
- I do not consider that either the Claimant or Mr Whitney had in mind that he would develop event moderation as part of his work at ECD when he first joined the company. The Defendants relied on a paragraph in the letter of 22 October 2002 which stated:
"It should be highlighted that the role requires a considerable amount of creativity. It is expected that you will generate new ideas for services we offer, find and develop new client groups and invent innovative business practices."
I consider that, if Mr Whitney had in mind event moderation as a new service, it would have been referred to in the documentary evidence describing ECD's activities. Also, that it would have developed at an earlier stage in the Claimant's career with ECD. In the email of 13 February 2008, Mr Whitney dissected in some detail the Claimant's failure to develop new clients, contacts and areas of work, but made no mention of event moderation. In my view, if Mr Whitney considered that event moderation was part of the activities of the company which the Claimant was meant to be developing, he would have referred to event moderation in that email.
- My conclusion is that the Claimant was carrying out a limited number of moderations as an employee of ECD, for which ECD was entering into contracts and receiving a fee. Event moderation therefore became a minor activity of ECD while he was working for the company. It was a small sideline which the Claimant was keen to develop both for himself and to benefit ECD. The offers came to the Claimant because of his personal qualities and his background in broadcasting. If he was unavailable, the organiser would select another individual with the required qualities and training. It was a niche market. Mr Whitney and the other lead consultants at ECD were not sought after as moderators and were not offered this work, even when the Claimant was not available.
- In June 2008, after the Stockholm moderation, the Claimant was contacted by Eurofinance and invited to moderate the Eurofinance International Cash and Treasury Management conference in Barcelona in October 2008. He was asked to carry out a broadcast-style interview of a high profile investor, Mark Mobius, in front of an audience of about 500, and also moderate some other parts of the event. Julian Lewis, a freelance associate with ECD, had recommended him because Eurofinance was looking for a moderator with broadcasting experience.
- The Claimant obtained Mr Whitney's permission to moderate the event, and it was agreed that he could carry out the work during working hours and ECD would be paid an agreed fee (1 day for £1,200 plus travel and accommodation). The arrangements with Eurofinance were finalised on 17 June 2008.
- On 18 June 2008 the Claimant handed in his notice to leave ECD, having been offered a job by Reuters to be the main presenter/anchor on its new broadband television service on financial markets. This marked a return to his previous career as a broadcast journalist, and it was an entirely different job to his job at ECD. The Claimant no longer wanted to train, coach or consult. Reuters Television is a television channel run by an international news agency. It is simply not in the same line of business as ECD.
- The Claimant informed Eurofinance of his resignation in a telephone conversation with Lauren Brodie in July or August 2008. I accepted his evidence that, having taken legal advice, he told her that he would only be able to continue to moderate the event once he was at Reuters on condition that (1) Eurofinance would not have invited anyone else at ECD to moderate; (2) the event was not related to "management and communications development"; and (3) he would receive no remuneration for the assignment. His evidence was supported by an email dated 5 December 2008 to Georgina Wellman of Eurofinance, in reference to another Eurofinance event in Singapore in 2009, when he reiterated that he had to apply the same pre-conditions as he had done in respect of the Barcelona event. In the course of the telephone conversation with Lauren Brodie, she confirmed these conditions and the event went ahead.
- The Claimant did not discuss his proposals regarding the Eurofinance moderation with Mr Whitney, which I consider he should have done since there was an existing contract for ECD to be paid for the Claimant's services at this event. By arranging to do the Eurofinance moderation after he left ECD, the Clamant was diverting income and work away from ECD. However, I accept that even if the Claimant had not approached Eurofinance covertly, Eurofinance would not have offered the moderation to anyone at ECD in place of him, as none of the others at ECD had the required qualities and expertise. I doubt whether the fact that Reuters would not charge for the Claimant's services would have been a decisive factor; it was more important to select a suitable candidate.
- The Claimant's new employer, Reuters, agreed in July 2008 that he could moderate the Eurofinance event in October 2008. Mr Steve Clarke, who was the Claimant's manager at the time, gave oral evidence, and explained the emails he wrote at the time. Event moderation plainly was not part of Reuters' business activities, and Reuters had no need or wish to expand into that area of work. Reuters refused to accept a fee for the event or to allow the Claimant's expenses to be paid by Eurofinance in accordance with its standard practice of not compromising its independence by accepting payments. I concluded that Reuters allowed the Claimant to attend partly as a favour to a valued employee but also because the contacts he made at such an event might be useful to him in his role at Reuters. It was significant that Mr Clarke wanted him to attend the moderation as a Thomson-Reuters representative, not in a personal capacity.
- The potential benefit to Reuters was made explicit when the Claimant asked Mr Clarke's permission to attend another moderation, this time on behalf of OECD, in December 2008. Mr Clarke saw the event as a valuable opportunity to generate some good contacts for potential interviews on the television service which the Claimant was presenting.
- During his time at ECD, the Claimant had developed a good relationship with the OECD, a major client of ECD. Before the Claimant left ECD, he informed the OECD, in emails to Ms Brenda Killen and Mr Michael Gestrin, that he would be interested in moderation work in future. The OECD moderation in Paris in December 2008 was a high profile panel discussion in front of 300 – 400 delegates. The Claimant was approached by Brendan Gillespie of the OECD in September 2008 and he also exchanged emails with Helen Fisher of the OECD. The Claimant explained to them that he was subject to restrictions contained in his contract with ECD, and he could only moderate the event on condition that it was not related to "management and communications development" (the wording in the restrictive covenant clause in the Claimant's contract). Emails between the Claimant and Helen Fisher in October 2008 revealed that the Claimant refused to attend an event in October "to work with the environment and economics folks on messaging in advance of a book about the financing of climate change mitigation" because it would be a breach of his contract with ECD. He could only attend a pre-meeting in October if it was limited to planning for the Paris moderation in December. He explained that Reuters would not allow the OECD to pay for his services. These conditions were agreed and the event went ahead.
- Since leaving ECD, the Claimant has refused requests to carry out media or presentation training from RBC Capital Markets, UBS and Deutsche Bank, and a further request from the OECD in January 2009.
- The Claimant has continued to be invited to moderate at high-level international conferences. They are too numerous to list in full, but some examples are set out below:
i) The OECD Regional Policy Forum: Global Crisis, Regional Responses, 30 March 2009, for the OECD
ii) Eurofinance invited him to moderate an event in Singapore in May 2009
iii) Ireland and the Lisbon Treaty, 7 September 2009, for Thomson Reuters Newsmaker
iv) The Economics of Climate Change, September 2009, for the OECD
v) United Nations Global Forum on Local Development, October 2010, Kampala
- My conclusion is that when the Claimant left ECD, the event moderation work followed him, because those clients particularly wanted him to moderate their high-level conferences, and they did not consider anyone else at ECD was suitable. So, after 19 September 2008, event moderation ceased to be part of ECD's activities. Even if the Claimant had refused all event moderation work for 6 months after departure, to avoid any suggestion of a breach of clause 15 of the contract, the event moderation work would not have come to ECD instead. Other individual moderators would have been chosen, and the work would have reverted to the Claimant once the 6 month period had passed.
Staff and management
- During the Claimant's employment, ECD had a small staff. In the London office, there was a small group of full-time consultants employed by the company who were supported by a small administrative team. There were also associate consultants, who were not employed by the company, and who would provide services as and when required. Mr Whitney, as Managing Director, was in overall charge.
- I do not accept Mr Whitney's evidence that he and the Claimant formed the senior management team, supported by the lead consultants, Helen Lucas and Jeremy Adams (and latterly Paul Gallagher). Instead, I consider that the Claimant's description of himself as one of the lead consultants (along with Ms Lucas, Mr Adams and later Mr Gallagher), is an accurate description. The Claimant appears to have been the most senior of the consultants, in terms of his expertise and the level of work which he undertook with clients. He was also much more highly paid than the other consultants, which in part reflected the market price which Mr Whitney had had to offer him to persuade him to leave broadcasting and join ECD. However, Jeremy Adams was also described as an "executive" in his contract and had an equity share and a bonus scheme (although less favourable than the Claimant's). Helen Lucas worked part time, and did not have an equity stake, but she had the longest service with the company and she had a closer relationship with Mr Whitney than the Claimant or Mr Adams (their families were close and they were personal friends).
- Although in the offer letter of 22 October 2002 Mr Whitney said that the Claimant would have a management role, in reality, Mr Whitney was not willing to cede power to him. Mr Whitney decided what work the Claimant would do. The Claimant did not even have the authority to enter into contracts with clients without Mr Whitney's prior approval. The Claimant would seek Mr Whitney's approval to participate in specific meetings and projects on behalf of clients, and Mr Whitney kept a close watch over the Claimant's work. Although Mr Whitney described the Claimant as a "partner", he treated him like an employee who needed to be managed and supervised in all respects: see, for example, the micro-management displayed in the emails of 13 and 18 February 2008.
- Mr Whitney was in charge and there was no formal management structure beneath him. The lead consultants, including the Claimant, met regularly with Mr Whitney and discussed management issues, clients, strategy and finance and other business issues, but decisions were always made by Mr Whitney. The only evidence of the Claimant taking on a managerial role beyond that of the other lead consultants was his involvement in discussions with Mr Whitney about the level of bonuses to be paid to other staff. This was an indicator of his seniority. However, the evidence suggested that Mr Whitney consulted the Claimant and then made the decision himself; it was not a joint decision-making process.
- The Claimant had no knowledge of, or involvement in, ECD's finances or corporate structures. Mr Whitney controlled ECD and its foreign subsidiaries and he managed the staff and finances of the Paris and New York offices. The Claimant had no involvement in Mr Whitney's decision to receive his remuneration in dividends, to reduce his personal tax liability, nor in Mr Whitney's decision not to formally transfer any shares to the Claimant, nor to pay him any dividends. Effectively, Mr Whitney ran ECD as a private company of which he was the sole director and shareholder and therefore not accountable to anyone else.
- Under the terms of the Claimant's contract, in clause 6 and the Second Schedule, upon entering employment with ECD, the Claimant was entitled to a stake of 8 percent in the equity of ECD, on condition that he remained with the company for a minimum of 2½ years from the date on which his employment commenced. The precise terms upon which he held the equity stake turn on the construction of the contract, which I deal with in a separate section below.
- The Claimant contended that he and Mr Whitney entered into an agreement to vary the size of the equity stake, referred to in schedule 2, from 8 percent to 20 percent. On 22 November 2005, Mr Whitney sent the Claimant an email in which he said, in part:
"I want to formally and meaningfully increase your equity stake so that you become a real, significant owner in this company. There are potentially tax issues to handle, but I propose that through whatever means are most tax-efficient, your effective equity stake be increased to total 20% from 7% at present."
- Mr Whitney discussed the proposals with the Claimant at a meeting on the morning of 22 November. The Claimant sent a response by email later the same day, thanking him for the increased equity stake and Mr Whitney's "vote of confidence" in him.
- The Defendants said that the increased equity stake was only a proposal at this stage, and it was conditional upon changes to the structure of the business, in particular from a limited company to a limited liability partnership, which never took place. It was also conditional upon the Claimant agreeing to a longer notice period, to demonstrate his commitment to the company. It was never formally put into effect.
- I did not find Mr Whitney's evidence credible. The email did not refer to any such pre-conditions, and I did not think that they could be inferred from Mr Whitney's reference to achieving a tax-efficient means of transferring the equity. There was no reference to a change in business structure from a company to a partnership. The references to "firm" and "partner" could not be interpreted to refer to such a change. Mr Whitney used the terms "partner" "firm" and "company" interchangeably, as he did in many other documents which were in evidence. Crucially, the wording of the offer referred to an increased equity stake "in this company". The Defendants did not produce any evidence of discussions with the company's accountants and lawyers about a possible change of structure. Nor were there any subsequent email exchanges with the Claimant indicating that the proposed equity stake was still under consideration and had not yet been finalised. Mr Whitney could have insisted on a longer notice period in exchange for the increased equity stake, but there is no evidence that he did so, either in the email or subsequently.
- The Claimant insisted that the offer of an increased stake was not conditional, and it had been finally agreed between them on 22 November. In support of this, he referred to Mr Whitney's email of 13 February 2008, criticising the Claimant's performance, in which he said:
"With ECD Insight, if we finally get our "model" right, this business could easily be worth £3 million pounds or more – your stake could net you £600,000 or more."
On the basis of these figures, Mr Whitney was referring to the Claimant's equity stake as 20 percent, not 8 percent. In an email dated 15 April 2008, Mr Whitney referred to the Claimant as a "key equity owner". On another occasion Mr Whitney asked the Claimant to buy some art on behalf of ECD, commenting that the Claimant would own 20 percent of it.
- In 2008 when the Claimant had given notice of his intention to leave, to join Reuters as a business news broadcaster, he sent emails to Mr Whitney referring to the realisation of his 20 percent stake, and there was no hint in those emails of any dispute between them as to the size of the stake.
- I find that there was a concluded agreement between the Claimant and Mr Whitney, as principal shareholder and managing director of the company, that the Claimant's equity stake under the Second Schedule to the contract would be increased from 8 percent to 20 percent. This was a variation of the contract, for which there was adequate consideration, as set out in the text of the two emails. The effective date of the variation was 22 November 2005. I consider that the absence of a formal signed agreement was typical of the informal way in which Mr Whitney ran the company.
- I conclude that Mr Whitney was seeking to resile from the agreement he made to give the Claimant an equity stake of 20 percent because the financial implications of doing so were damaging both to ECD and to himself personally.
- ECD's turnover figures show that the company was struggling to expand, and that Mr Whitney's 2002 growth plan, with its high revenue projections, had not been realised. Although Mr Whitney sought to blame his consultants (the Claimant and Mr Adams) for their failure to generate sufficient new business, it seemed to me more likely that Mr Whitney's original projections had been over-optimistic. Added to that, ECD's core client base comprised financial institutions which had borne the brunt of the financial and economic crisis from 2007 onwards. Inevitably this had led to a reduction in business for ECD. The following turnover figures are taken from the accounts:
Year ending Turnover
- The Claimant and Mr Whitney met to discuss his departure, including realisation of his equity stake, in August 2008. Mr Whitney pressed the Claimant to remain at ECD, offering various incentives. Alternatively, he suggested that the Claimant should keep his stake if he returned to ECD within a year, but otherwise forfeit it.
- The Claimant took legal advice and in a letter dated 3 September 2008, the Claimant stated that he wanted to realise his 8 percent stake immediately and retain the remaining 12 percent for the time being. No shares had ever been formally transferred to the Claimant during the course of his employment with ECD although it was common ground that he had an equity stake.
- The Claimant's last day at ECD was 19 September 2008. Email exchanges after that date show that Mr Whitney delayed and prevaricated about making the arrangements for the Claimant to realise his equity share. Mr Whitney insisted that the other consultants, Helen Lucas and Jeremy Adams, should be present at a meeting to discuss the way forward. In an email dated 24 October 2008, he said:
"Please ... understand that any decisions that get taken will be taken with the complete involvement of Helen and Jeremy. Their financial livelihoods are just as affected as mine."
I thought that the sentence underlined above was a telling insight into the financial difficulties which Mr Whitney believed that ECD faced.
- Shortly afterwards, in November 2008, Mr Whitney began to question the Claimant's continuing involvement with clients of ECD, after discovering that the Claimant had moderated a conference for Eurofinance in Barcelona in October 2008. This led to the instruction of solicitors and allegations that the Claimant had acted in breach of the restrictive covenants in his contract, and thus forfeited his equity stake.
- The Claimant's contract set out, in the First Schedule, an elaborate formula for the payment of a bonus. Initially, he was paid a bonus upon that basis. However, during the course of his employment Mr Whitney unilaterally changed the basis upon which bonuses would be calculated and paid, stating that they would be paid on a discretionary basis. Bonuses were regularly paid to staff at ECD, especially to the lead consultants. Mr Whitney made different arrangements for himself, drawing dividends to reduce his liability to income tax. The Claimant received a generous quarterly bonus throughout his employment. He received at least £9,800 quarterly from May 2007 until August 2008. I saw from the documentary evidence that the accountants had already made provision for the Claimant's third quarter 2008 bonus in the sum of £9,800, anticipating that he would receive this. Bonus payments were made in arrears, and the Claimant's final bonus, for the third quarter, July – September 2008, was calculated in December 2008, after he had left ECD. Mr Whitney decided that he should be awarded a nil bonus.
- I did not accept that the true explanation for this was under-performance. Under-performance in earlier quarters had not led to any reduction in bonus: for example, the highly critical email from Mr Whitney on 13 February 2008 had not led to any reduction in the Claimant's bonus in that quarter. Moreover, there was no evidence of under-performance in this quarter. During this period Mr Whitney complimented him on his performance and begged him to stay at ECD on several occasions. For example, in an email dated 15 September 2008 Mr Whitney wrote: "your contributions are hugely appreciated and recognised – you are one of the very best media consultants in the business and a cherished colleague".
- The financial crisis in the USA and Europe was at its height in the latter part of 2008 and ECD was particularly vulnerable because its main clients were financial institutions. This meant that ECD was not in a position to pay bonuses to its staff at the same level as previously. According to Mr Adams, bonuses were not paid after 2008 because of the downturn in business. Other lead consultants received reduced bonuses for the last quarter of 2008, and I consider that, if the Claimant had remained at ECD, his bonus would probably have been reduced by the same percentage as the other lead consultants.
- Mr Whitney's additional explanation for the nil bonus was that, in the autumn of 2008, he discovered that the Claimant had been diverting work and clients away from ECD while he was working out his notice period.
- The evidence from the Claimant's emails showed that he was seeking to maintain contact with ECD clients after he left ECD. I accept that the reason for this was that they might be useful to him, as potential interviewees or sources of information, in his new position as presenter/anchor on the Reuters business broadcast. It was common ground that this would not be in breach of contract because, in his new job at Reuters, he would not be carrying out any of the coaching or consultancy functions of ECD.
- However, the position in relation to the Eurofinance moderation in October 2008 was different. The Claimant arranged with Eurofinance that he would attend under the auspices of Reuters, rather than ECD, and the existing contract with ECD, for a fee of £1500, was effectively cancelled. I have made detailed findings about this at paragraphs 48 to 53 above.
- On 4 August 2008, the month before he left ECD, the Claimant emailed Brenda Killen at the OECD expressing disappointment that he could not moderate at the Ghana event. He added: "I wanted to thank you for your interest and to make sure we stay in touch as I am available to do this sort of event if the opportunity arises again." On 19 September 2008 he emailed Michael Gestrin at the OECD, saying "Just wanted to let you know my personal details as today is my last with ECD Insight. I start with Reuters mid October and will follow up with new details then.... Hope to see you soon. I look forward to working with you again."
- In these emails he was soliciting an existing client of ECD to use him for event moderations after he had left ECD and moved to Reuters. The OECD did subsequently invite him to conduct the moderation in Paris in December 2008, and other moderations in 2009.
- In considering whether or not the Claimant's conduct was a genuine reason for the award of a nil bonus, I have taken into account the fact that it was only proffered at a late stage in the proceedings. However, I accepted that Mr Whitney was genuinely aggrieved at the Claimant's actions, whether justifiably or not, and that they were a significant reason for his decision not to award a bonus.
- In conclusion, I find that there were two main reasons why ECD did not pay the Claimant his bonus for the third quarter. First, Mr Whitney wished to reduce the financial burden on the company, because of the difficult economic circumstances at the time. The second reason was that he was in dispute with the Claimant following his discovery that Eurofinance and the OECD were using him for their event moderations. Whether out of pique (as the Claimant suggests) or legitimate complaint (as the Defendants suggest), Mr Whitney decided that the Claimant should receive a nil bonus.
The equity stake, dividends and the termination payment
- Clause 6.13 of the contract provided:
"Upon commencing and continuing his employment with the company the executive will be entitled to the equity share and the equity options as set out in Schedule 2 to the agreement."
- The Second Schedule provided:
"Upon the executive entering in to full time employment with ECD Insight Ltd he will be offered the following equity stake and equity options:
(a) Immediate stake of 8% in the equity of the company on condition that he remains with the company for a minimum of 2 ½ years from commencement date;
(b) The company will be valued on the basis of gross turnover multiplied by 1 (one) or the final valuation agreed upon in the event of a merger or acquisition
(c) The executive shall be entitled to additional equity stakes and/or options for equity stakes based on meeting of financial targets to be set in consultation with the Managing Director.
(d) In the event of leaving [the] company after 2 ½ years on a non-competitive basis, the executive is entitled to receive compensation representing the percentage of equity stake multiplied by the gross turnover of the company, as outlined in (b) above. In the event of leaving the company to engage in activities in competition with ECD Insight's activities, the executive agrees to forfeit his equity stake entitlement."
- I have considered the principles of construction, and the authorities, submitted to me by both counsel. In my judgment, the proper construction of these terms of the contract is as follows:
i) The Claimant would have an 8 percent stake in the equity of ECD, on condition that he completed 2½ years service. This occurred automatically under the terms of the contract; the Claimant was not required to make a formal request for his stake, contrary to the Defendants' contention.
ii) If the Claimant terminated his contract with ECD at any time after he had completed 2½ years service, on a non-competitive basis, he would be entitled to a payment representing the percentage of his equity stake multiplied by the gross turnover of the company.
iii) This payment represented the realisation of his equity stake; it was not, as the Claimant contended, a termination payment in addition to his equity stake. The Second Schedule only made provision for an "equity stake and equity options"; it did not purport to make provision for termination payments as well. Sub-paragraph (d) referred to the valuation of the equity stake identified in sub-paragraph (a), to be calculated in accordance with the formula set out in sub-paragraph (b). These paragraphs were inter-related and all related solely to the equity stake.
iv) The Claimant was not required to take the payment at (ii) above (as the Defendants contended). The payment was described as an entitlement not a requirement. He had the option of retaining his equity stake in the form of shares instead.
v) However, if he left the company "to engage in activities in competition with ECD's activities", he would forfeit the entitlement set out at (i) to (iii) above. In those circumstances (and only those circumstances), he would not be leaving "on a non-competitive basis", the phrase used in the first sentence of sub-paragraph (d). The meaning of "competition" in the clauses "in competition with" and "on a non-competitive basis" was the same.
vi) Sub-paragraph (d) was free-standing and had to be interpreted according to the ordinary and natural meaning of the words used. It was not defined by reference to clause 15 of the contract, which contained the restrictive covenants. Clause 15 is not mentioned, and in any event it is quite different in content and scope, so could not provide a basis for the application of sub-paragraph (d).
vii) The question whether or not the Claimant left in order to engage in competition with ECD's activities, and therefore triggered the forfeiture provision, had to be decided as at the date of the Claimant leaving. Unlike the restrictive covenants in clause 15, it did not operate as a continuing restriction for a set period of 6 months.
- I accept the submission made on behalf of the Claimant that he did not leave ECD "to engage in activities in competition with ECD Insight's activities". The Claimant left ECD in order to become a television presenter/anchor with Reuters. He did not leave to join a competitor company to ECD, nor did he set up a competitive business on his own account. He did not leave to engage in ECD's activities, which were coaching, training and consulting.
- In my findings of fact, I have found that the Claimant had developed a sideline as an event moderator, particularly at high level international conferences, before he came to ECD. He continued this work while he was at ECD, conducting a total of two moderations in his time there. Because ECD entered into contracts and was paid a fee for these events and the Claimant was paid his ECD salary for them, the Claimant's event moderation sideline became part of ECD's "activities" at least while the Claimant was with ECD.
- However, on my findings, the Claimant did not leave ECD to engage in event moderations. Event moderations were an occasional sideline for him. The Claimant left ECD in order to become a television presenter/anchor, and he would have done so whether or not there was any future opportunity to moderate at conferences. Therefore, I find that he did not leave to engage in activities in competition with ECD, and the forfeiture provision in sub-paragraph (d) was not triggered. I also accept the Claimant's submission that event moderation ceased to be an activity of the First Defendant after the Claimant left on 19 September, applying the approach taken in Phoenix Partners Group LLP v Asoyag  EWHC 846. Event moderation was only carried out by ECD because it was a personal sideline of the Claimant's. It was not carried out by ECD before the Claimant did it, and it has not been carried out since he left. Therefore any event moderation work carried out by the Claimant after he left ECD would not be "in competition with" a business activity of ECD.
- In view of my findings, it is not necessary for me to go on to consider the Claimants' alternative submission that the forfeiture clause was an unlawful restraint of trade and should be severed.
- For the reasons set out in my findings of fact at paragraphs 64 to 77, I find that the contract was varied by agreement so that the amount of the Claimant's equity stake was increased from 8 percent to 20 percent with effect from 22 November 2005. The effect of this was to substitute the figure of 20 percent for the figure of 8 percent in sub-paragraph (a) of the Second Schedule.
- Although there is no express mention of share dividends in the contract, it follows from the grant of an equity stake that the Claimant was entitled to all the benefits of share ownership, which included the right to receive dividends. As the equity stake was "immediate" "upon entering into full time employment with ECD", his entitlement to dividends began at the date of commencement of employment (February 2003), even though his entitlement was conditional upon the completion of 2½ years service.
- In Clark v Nomura International plc  IRLR 766 (QB), at , Burton J. said that, in considering the lawfulness of an exercise of discretion in the award of a bonus:
"the right test is one of irrationality or perversity (of which caprice or capriciousness would be a good example) i.e. that no reasonable employer would have exercised its discretion in this way."
- The burden of establishing irrationality was emphasised in Commerzbank AG v Keen  IRLR 132, CA at .
- I refer to my findings of fact on the bonus payment, at paragraphs 78 to 87 above. Mr Whitney, acting on behalf of ECD, awarded the Claimant a nil bonus for the third quarter of 2008 for two main reasons. First, he wished to reduce the financial burden on the company, given the difficult economic circumstances at the time.
- Secondly, he was aggrieved at the Claimant's conduct during the third quarter in relation to ECD's client base. I found that, by arranging to do the Eurofinance moderation after he left ECD, the Clamant was diverting income and work away from ECD. I found that the Claimant was at fault in not discussing the proposals regarding the Eurofinance moderation with Mr Whitney. He also asked an existing client of ECD (the OECD) to use him for moderations after he had left ECD and moved to Reuters. The OECD did subsequently invite him to conduct the moderation in Paris in December 2008.
- Having carefully considered Mr Whitney's reasons for refusing to pay a bonus, I do not consider that the decision was so irrational or perverse that no reasonable employer would have exercised its discretion in this way. In my judgment, the decision was within the band of reasonableness.
- The Claimant's claim succeeds on the following issues:
i) The First Defendant has wrongfully and in breach of contract failed to transfer or issue to the Claimant 20 percent of the equity in the First Defendant or, at the Claimant's election, a payment representing the percentage of equity stake multiplied by the gross turnover of the company.
ii) The First Defendant has wrongfully failed to pay the dividends due to the Claimant in respect of his share of the equity in the First Defendant, initially at 8 percent and from November 2005, at 20 percent.
The Claimant's claim for (i) a termination payment and (ii) a bonus payment for the third quarter of 2008 is dismissed. For the avoidance of doubt, I reject the Claimant's submissions (only made after the judgment was handed down in draft) that the Second Defendant should be personally liable for the First Defendant's breach of contract, on the grounds that he owns and controls the company and it is an extension of him. The Claimant's contract was with his employer, the First Defendant. It is a limited liability company, solvent and trading, and there is no proper basis, on the evidence or in law, to make the Second Defendant personally liable for the breaches of contract on the part of the First Defendant. The First Defendant ran a legitimate defence at trial, albeit ultimately unsuccessful. As I recorded at paragraph 3 of my judgment, the court was informed at the hearing that the only reason why the Second Defendant had been joined was because it might be necessary to order him to transfer a proportion of his shares in the First Defendant to the Claimant, to give effect to the judgment, if the Claimant succeeded. In the event, the Claimant has elected to take a payment in lieu of shares, and so there is no need for any order to be made against the Second Defendant.**The First Defendant's counterclaim**
- Clause 15.1 of the contract provided:
"15. Restrictive Covenants
15.1 The Executive hereby agrees that for a period of 6 months following termination of the Employment he will not directly or indirectly (whether on his own account or jointly in association with or on behalf of any third party) :-
(a) solicit, canvas or endeavour to obtain business relating to management and communications development which is in direct competition with the Company's activity from any person, company, firm or corporation who or which was a client or customer of the Company or any Group Company at the date of termination of the Employment and with whom or which he was in the habit of dealing/had had contact in a business capacity whether for existing projects or at tender or proposal stage at any time in the 12-month period preceding termination of the Employment;
(b) accept orders or business relation to management and communications development which is in direct competition with the Company's activity from any person, company, firm or corporation who or which was a client or customer of the Company or any Group Company at the date of termination of the Employment and with whom or which he was in the habit of dealing/had had contact in a business capacity in the 12-month period preceding termination of the Employment; …"
- The First Defendant contends that, in the six months following the termination of his employment with ECD, on 19 September 2012, the Claimant undertook two moderation events for organisations which were clients of ECD, and thereby breached clause 15.1 (b):
i) 2 October 2008, Eurofinance treasury conference in Barcelona;
ii) 1-2 December 2008, the OECD Global Forum on Sustainable Development, Paris.
The moderation event on 30 March 2009 on behalf of OECD post-dates the conclusion of the 6 month period from termination, by which time the Claimant was no longer restricted from competing with ECD.
- The First Defendant also contends that the Claimant solicited ECD's clients during this period. I have found that the Claimant made arrangements to moderate the Eurofinance event during the course of his employment, not after it had terminated, and so clause 15 does not apply. In relation to the OECD event in December 2008, by the time the Claimant left ECD, the arrangement for him to moderate the event in December 2008 and attend the pre-meeting in October 2008, had already been made: see the email of 18 September from Mr Brendan Gillespie to the Claimant, confirming the booking in principle and referring to an earlier telephone conversation. Although there were subsequent discussions about arrangements, the act of "soliciting/canvassing" occurred prior to termination of employment, and so clause 15 did not apply.
- It was not in dispute that the restrictive covenants in clause 15.1(a) and (b) only applied to "business relating to management and communications development". This was the description of ECD's business used by the First and Second Defendants at the time the contract was entered into, in 2002. Its "tagline" was later changed to "communications consulting and coaching", for greater clarity: see paragraph 33 above. In my judgment, the activity of event moderation falls outside the natural meaning of the words "business relating to management and communications development". In my findings of fact I have found that (1) event moderation was not part of ECD's activities when the Claimant joined ECD; (2) neither the Claimant nor the Second Defendant anticipated event moderation becoming part of ECD's activities at the time the Claimant joined ECD; (3) event moderation only became part of ECD's activities when the Claimant developed it as a sideline to his work at a later date. I conclude therefore that clause 15.1 did not apply to event moderation at conferences.
- I also accept the submission made, in the alternative, by the Claimant that, even if event moderation was at one point ECD's activity because the Claimant carried it out, and he was an employee of the company, then that activity ceased being a company activity when the Claimant left the company. The activity was defined by the person who carried it out - it was not carried out before he did it, and it has not been carried out since he left. Therefore, when the Claimant carried out moderations in late 2008, he was not carrying out activities which were in competition with the activities of the First Defendant, because they were no longer the activities of the First Defendant at the point that the Claimant carried them out.
- The case is similar to [Phoenix Partners Group LLP v Asoyag]()  EWHC 846 (QB). While at Phoenix, Mr Asoyag traded equity derivatives related to various indices, specifically "EuroStoxx". Mr Asyoag then left Phoenix and was then engaged by GFI Holdings Ltd ("GFI") to carry out broking on the EuroStoxx index. Mr Asoyag had a non-compete covenant. Mr Asoyag's case was that (1) the only work he was performing for GFI was EuroStoxx broking; (2) since he left Phoenix, it had all but ceased EuroStoxx broking; (3) since Mr Asoyag's departure the trades Phoenix had carried out in that market were so insignificant that they could not be said to amount to "competition" between Phoenix and GFI within the meaning of the non-compete clause.
- The High Court discharged an injunction originally obtained by Phoenix. The Court held that there was no reasonable prospect of the Court upholding the non-compete covenant in circumstances where the employee was carrying on an activity which he used to carry on with his former employers, but which had ceased or all but ceased since he left.
- Applying that analysis to this case, by the time the Claimant carried out the event moderation in the final quarter of 2008, these activities were no longer the activities of the First Defendant.
Breach of contract
- The First Defendant claims that the Claimant solicited its clients, the OECD and Eurofinance, to withdraw their business from ECD and to place it with the Claimant, in breach of his implied duties of good faith and fidelity and or the fiduciary duties he owed as a senior management figure in the company.
- By failing to disclose his intention to compete with OECD and Eurofinance, or by failing to protect the company's interests, he acted in breach of clause 4.3 of the contract and/or in breach of his fiduciary duty.
- I have considered the authorities on fiduciary duty cited to me ([Ranson v Customer Systems plc]()  IRLR 769; University of Nottingham v Fishel  IRLR 471; Shepherds Investments v Walters  2 BCLC 202 (Ch), [QBE Management Services Ltd v Dymoke]()  EWHC 80 (QB); Helmet Integrated Systems Ltd v Tunnard  IRLR 126; Henderson v Merrett Syndicates Ltd.
- The Claimant was not a director and he did not owe any specific contractual obligations of the kind which may give rise to a fiduciary duty. His duties, as Head of Media, under clause 4 of the contract, including the obligation to keep the Board informed of his conduct of the business of the company, were not a sufficient basis upon which to found the existence of a fiduciary duty, particularly in the light of his role in the company. My findings of fact on the nature of the Claimant's role within the company are set out at paragraphs 59 to 63. He was a senior employee but he was under the close management and supervision of the Managing Director, who was the sole shareholder and director of a private company, and exercised absolute control of ECD and its activities. In my judgment, the Claimant's role within the company did not give rise to fiduciary duties.
- The Claimant had a contractual duty to act in good faith, the scope of which has to be distinguished from a fiduciary duty. In Helmet Integrated Systems Ltd v Tunnard  IRLR 126, Moses LJ said, at :
"It is commonplace to observe that not every employee owes obligations as a fiduciary to his employer. An employee owes an obligation of loyalty to his employer but he will not necessarily owe that exclusive obligation of loyalty, to act in his employer's interest and not in his own, which is the hallmark of any fiduciary duty owed by an employee to his employer. The distinguishing mark of the obligation of a fiduciary, in the context of employment, is not merely that the employee owes a duty of loyalty but of single-minded or exclusive loyalty. The decision of Elias J in the University of Nottingham v Fishel and anor  IRLR 471 provides the clearest analysis of the distinction between the duty of fidelity which every employee owes and a fiduciary duty which requires an employee to act solely in the interest of his employer and not in his own interest, still less the interests of anyone else. Care, as Elias J remarks, must be taken not to equate the duty of good faith and loyalty owed by every employee with a fiduciary obligation (see page 22). Unless that distinction is maintained common law rules of causation and remoteness of damages may be:
'miraculously sidestepped by intoning the magic formula (breach of fiduciary duty)' (See Lord Millet in 'Equity's Place in the Law of Commerce' (1998) 114 LQR 214 at 217)."
- The contractual duty is described in Chitty on Contracts, paragraph 39-057, in the following terms:
"It is another implied term in a contract of employment that the employee will serve the employer with fidelity and in good faith. Thus an employee, during his period of employment, may not solicit the customers of his employer to transfer their custom to him after he has left the employment, nor may he solicit orders from the employer's customers or suppliers, or otherwise deal with them, on his own behalf rather than his employer's behalf."
- A fundamental requirement of the rule prohibiting an employee from competing with his employer is that the competition is actual competition, not merely contemplated: see the review of the case law in Employee Competition: Goulding, 2nd ed. 2010, at pp 40 – 44.
- In my judgment, the Claimant did act in breach of the implied term of good faith during his employment by arranging with Eurofinance, in July/August 2008, that he would carry out the Eurofinance moderation in Barcelona in October 2008 under the auspices of Reuters, after he left ECD. In June 2008, the Claimant had negotiated a contract between ECD and Eurofinance for the Claimant to do the moderation, during his working hours with ECD, for which ECD would be paid a fee of £1500. The Claimant was thereby diverting fee income away from ECD. Clearly Eurofinance had to be informed of the Claimant's departure, as it meant that ECD could no longer perform the contract for the Barcelona event on the basis agreed in June 2008. However, the Claimant did not fairly represent ECD's interests, because of his desire to secure the contract for himself in his new post at Reuters.
- In addition, the Claimant was under a contractual obligation to keep the Board informed, under clause 4.3 of the contract, and breached that obligation by failing to inform the Board, i.e. Mr Whitney, of the discussions he was having with Eurofinance about the Barcelona event.
- However, even if the Claimant had not acted in breach of contract in this manner, I am satisfied that Eurofinance would not have invited anyone at ECD to moderate its event, other than the Claimant, for the reasons set out in my findings of fact at paragraphs 25 to 38. This was a prestigious event for which Eurofinance would hand-pick an experienced moderator from a select group of individuals, across Europe, who were perceived to have the required skills. No one at ECD matched the profile required. The same applied to any subsequent moderations organised by Eurofinance.
- The Claimant's emails to the OECD employees, asking them to consider him for event moderation work in future, after leaving ECD, are in a different class to the Eurofinance episode, because there was no agreement in existence with ECD that the Claimant would moderate at a specific event organised by the OECD.
- However, the OECD was one of ECD's most-valued customers. Did the Claimant solicit the OECD? In QBE Management Services (UK) Ltd v Dymoke & Ors  IRLR 458, Haddon-Cave J. helpfully considered the meaning of solicitation at  -:
"Meaning of 'solicitation'
Counsel debated the meaning of 'solicitation'. Mr Bloch QC cited Sweeney v Astle  NZLR 1198 and Equico Equipment Finance Ltd v Enright Employment Relations Authority 2009 AA 2412/09 5158060 and suggested that HHJ Simon Brown QC in Baldwins (Ashby) Ltd v Maidstone QBD, 3 June 2011 (unreported) correctly added a requirement that there must be a 'direct and specific appeal' in the context of solicitation of customers rather than a more general approach (paragraphs 22-27).
….in my view, HHJ Simon Brown QC did not 'add' any requirement but merely echoed the language of Cotton LJ in the time-honoured test in Trego v Hunt  AC 7, 65 LJ Ch 1, [1895-9] All ER Rep 804 which requires that there should be a 'specific and direct' appeal. In any event, in my view, allowing for the different context, a helpful recent statement of the test for present purposes is that cited by HHJ Simon Brown QC at paragraph 22 namely Equico Equipment Finance Ltd v Enright Employment Relations Authority (at paragraph 32):
'In my view, "canvas" is synonymous with soliciting. Both words involved an approach to customers with a view to appropriating the customer's business or custom. I consider a degree of "influence" is required. There must be an active component and a positive intention.' "
- In Ranson v Customer Services plc  IRLR 778, Lewison LJ distinguished between canvassing customers and being "as agreeable, attentive and skilful as it is in his power to be to others with the ultimate view of obtaining the benefit of the customers' friendly feelings when he calls upon them if and when he sets up business for himself", citing Maugham LJ in Wessex Dairies v Smith  2 KB 80.
- In my judgment, the Claimant's actions did fall on the wrong side of the line. When his departure from ECD was imminent, he made overt requests for future event moderation work to the OECD which had entered into a contract with ECD for event moderation services as recently as earlier in 2008. This action came within the scope of the definition of soliciting or canvassing clients, as set out in the authorities. The fact that I have found that the OECD would not, in fact, have used anyone else at ECD to moderate these events did not excuse his actions.
- I have considered whether, in the light of my finding that the OECD moderation work was not a breach of the restrictive covenant, the Claimant could be in breach of the implied term of good faith for soliciting such work. In my judgment, there is a clear distinction between the two claims. First, at the time the Claimant was soliciting the OECD, I have found that event moderation was an activity of ECD. It only ceased to be an activity of ECD after the Claimant left ECD. Second, the restrictive covenant is narrowly defined so as to be limited to orders or business "relating to management and communications development", which was ECD's core work. I have found that moderation falls outside the scope of this core area of work. However, the implied term of good faith is not limited in the same way.
- I am satisfied that, even if the Claimant had not solicited the OECD for event moderations, the OECD would have sought him out for future work because the staff had a very high regard for his talents. The OECD would not have invited anyone else at ECD to moderate its events for the reasons set out in my findings of fact at paragraphs 25 to 38. The OECD events were major international conferences and, just as in the case of Eurofinance, when a moderator was needed, an experienced moderator would be chosen from a select group of individuals, across Europe, who were perceived to have the required skills. No one at ECD matched the profile required.
- The claim that the Claimant acted in breach of contract during the course of his employment with ECD succeeds, and judgment is entered accordingly.
- The claim that the Claimant acted in breach of the restrictive covenants in the contract after the termination of his employment with ECD is dismissed.
Published: 30/12/2012 18:22