England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand. London. WC2A 2LL
		4th August 2008

MR. JUSTICE OPENSHAW :

1. In this action the claimants, UBS Wealth Management (UK) Limited ("UBS") and UBS AG London Branch ("UBS AG") seek an injunction for springboard relief against the defendants pending a speedy trial, which cannot now take place until the beginning of next term in early October. The case came before me listed as a matter of urgency in the interim application court on Friday. I heard argument all day, and I adjourned judgment over the weekend to give me a little time to reflect.
2. The jurisdiction to grant springboard relief is derived from the case of Roger Bullivant v Ellis [1987] ICR 464, which was a case based upon the unlawful use of confidential information wrongly taken by an employee, which he sought to use for the benefit of a competitor to the detriment of his former employer. The purpose of injunctive relief was said by Nourse LJ at page 476G:

"To prevent the defendants from taking unfair advantage of the springboard which [the judge] considered that they must have built up by their misuse of the information."

3. There is some discussion in the authorities as to whether springboard relief is limited to cases where there is a misuse of confidential information. Such a limitation was expressly rejected in Midas IT Services v Opus Portfolio Limited, an unreported decision of Blackburne J made on 21^st December 1999, although it seems to have been accepted by Scott J in Balston Limited and Another v Headline Filters Limited and Another [1987] FSR 330 at 340. In the twenty years which have passed since that case, it seems to me that the law has developed; and I see no reason in principle by which it should be so limited.
4. In my judgment, springboard relief is not confined to cases where former employees threaten to abuse confidential information acquired during the currency of their employment. It is available to prevent any future or further serious economic loss to a previous employer caused by former staff members taking an unfair advantage, an "unfair start", of any serious breaches of their contract of employment (or if they are acting in concert with others, of any breach by any of those others). That unfair advantage must still exist at the time that the injunction is sought, and it must be shown that it would continue unless restrained. I accept that injunctions are to protect against and to prevent future and further losses and must not be used merely to punish past breaches of contract.
5. Valuable guidance as to how the court should proceed when faced with stark conflicts of evidence is given by the judgment of Staughton LJ in Lansing Linde Ltd v Kerr [1991] 1 WLR 251 at 258A-D:

"If it will not be possible to hold a trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired, it seems to me that justice requires some consideration as to whether the plaintiff would be likely to succeed at a trial. In those circumstances it is not enough to decide merely that there is a serious issue to be tried. The assertion of such an issue should not operate as a lettre de cachet, by which the defendant is prevented from doing that which, as it later turns out, he has a perfect right to do, for the whole or substantially the whole of the period in question. On a wider view of the balance of convenience it may still be right to impose such a restraint, but not unless there has been some assessment of the plaintiff's prospects of success. I would emphasise 'some assessment', because the courts constantly seek to discourage prolonged interlocutory battles on affidavit evidence. I do not doubt that Lord Diplock, in enunciating the American Cyanamid doctrine, had in mind what its effect would be in that respect. Where an assessment of the prospects of success is required, it is for the judge to control its extent."

6. In an interim application of this kind, all that I can do is to form the best view that I can of the relative strengths of the rival arguments as I must now attempt to do. I need briefly to set out the background.
7. UBS is a wealth management business, giving advice to clients on the investment of their assets. It is a wholly-owned subsidiary of UBS AG. In recent years, UBS bought out two traditional stockbroking firms. One was Laing and Cruickshank, a business formerly managed by Mr. Kerr-Dineen, and another was the much smaller operation, Scott, Goodman and Harris, formerly managed by the second defendant, Mr. Scott.
8. Following these buyouts, the staff, or most of the staff, of those firms were offered jobs at UBS. Many of the clients of those stockbroking firms transferred their business to UBS so that they could continue to deal with the same financial advisers. In the management of their wealth, individual private investors have individual needs, characteristics and attributes, and they value individual treatment, confidence and even friendship which familiar and trusted advisers can provide.
9. When Mr. Scott and his team sold out to UBS, they were paid handsomely. Furthermore, during the course of their employment, they were paid large salaries with substantial bonuses. Their contracts of employment imposed upon them various restrictive covenants barring them out during the course of their employment and for some time thereafter from trading in competition to UBS, from soliciting staff away from UBS and from soliciting clients away from UBS. Whether the terms of those covenants and, in particular, the length of time during which they are to run after the conclusion of their employment will be upheld will be a matter for the trial judge to determine. Subject to the length for which they are to run, those covenants are in usual form.
10. Every business is entitled to expect loyalty, fidelity and diligence from its staff. That is part of the bargain for which they are paid. It is only right that during the currency of their employment and for so long as is reasonable during the currency of their restrictive covenants thereafter, they should serve and respect the legitimate interests of their employer or former employer and their clients. The more senior the staff, the greater the remuneration and the greater the degree of loyalty, fidelity and diligence is required.
11. It is clear from the four lever arch files of evidence put before me that there are many complex disputes of fact between the parties which will eventually fall to be decided by the trial judge. It is however quite clear that there were tensions as those members of staff who had previously had a large measure of investment autonomy within the stockbrokers' firms found difficulty in conforming to the culture and working practices within UBS which, understandably and necessarily, had in place their corporate systems and protocols without which no commercial organisation can effectively and efficiently operate. The failure to resolve those tensions was the essential reason why Mr. Kerr-Dineen left UBS in 2006, taking with him a large number of its staff to found a new start-up business (Cheviot Asset Management). Many of their clients followed them.
12. After UBS had commenced proceedings against him, he negotiated with UBS what he has called, in a letter of 10^th July 2008 (bundle 3, tab 2, page 14) "a structured and consensual exit", as the result of which UBS let them go. As a result of those departures, the second defendant, Mr. Scott, was promoted to be the head of UBS. He had the responsibility of stabilising the business after these defections to Cheviot. The other defendants were appointed senior managers at UBS.
13. The circumstances which gave rise to Mr. Scott's dissatisfaction and disillusionment with UBS will be a matter for the trial judge to determine, but it seems clear, on the evidence available to me, that the tensions to which I have referred continued and may be even increased as Mr. Scott felt, rightly or wrongly, that the skills which he and his team had brought to UBS were not being deployed to their best advantage. In May 2007, Mr. Scott also resigned. UBS were anxious to enforce their restrictive covenants. Following negotiations, he agreed with UBS that he would be bound by the barring out covenants but for a few months only, which expired on 1^st September 2007.
14. Thereafter, Mr. Scott founded a new start-up business called Vestra Wealth LLP ("Vestra"). Vestra is now the first defendant in this action. Quite how Mr. Scott went about recruiting his staff is keenly disputed, and that dispute will lie at the heart of the trial. On 19^th May of this year, Mr. Scott went to the offices of UBS and handed in a letter of resignation from 52 separate employees. Each letter was written in the same, or very similar, terms. He had offered all 52 employees a job at Vestra. All 52 had accepted. In the weeks and months that followed, a further 23 employees of UBS resigned from UBS having accepted jobs offered by Mr. Scott at Vestra, making to date a total of 75 defections from UBS to Vestra.
15. I accept, of course, that the public interest requires that those with skill and enterprise are entitled to deploy their talents so as to generate wealth and employment for themselves and others. Our market economy is based on the encouragement and protection of fair competition. Such a right has been recognised many times, perhaps most clearly in the judgment of Cumming-Bruce LJ in G.D. Searle & Co. v Celltech Ltd [1982] FSR 92 at page 99:

"The court seeks to uphold the obligation of free contracting parties to a contract of service to honour their contractual obligations. On the other hand, the court seeks to respect the rights of servants to advance in their chosen trade and profession, and in this connection to promote their own private interest by changing their employment, and also to promote the public interest by better use of the servants' personal aptitudes, experience and skill."

At page 101:

"The picture that emerges is the market for labour in operation for the benefit of the employees and of the public, but in the short term, naturally to the disadvantage of the employer who loses in the competitive bargaining process. The usual procedure by which a business protects itself from competition for its employees is a restrictive covenant; that is conspicuous by its absence in the relevant contracts. If there were such covenants, the employee could invite the court to avoid them if on accepted principles of law they were unreasonable in their width or their duration ... The law has always looked with favour upon the efforts of employees to advance themselves, provided that they do not steal or use the secrets of their former employer. In the absence of restrictive covenants, there is nothing in the general law to prevent a number of employees in concert deciding to leave their employer and set themselves up in competition with him."

16. I stress that the circumstances in which this mass defection came about will be for the trial judge to determine. I accept that after Mr. Scot had served his time of being barred out on 1^st September 2007, he was entitled to start up his own new business. I accept that he was then entitled to recruit former colleagues at UBS. I accept that he was then entitled to seek to attract clients, including clients who had been or who were still clients of UBS. I am sure that he was given legal advice to this effect. He claims that he followed it to the letter. He says that he personally and separately dealt with each of the defectors and that each separately decided to come and join him without any encouragement from any other member of the staff or management at UBS. He concedes that the strike on 19^th May was coordinated, but he claims that it was coordinated only by him. I accept that if this is right, then he would not have been acting unlawfully.
17. It is his case that such was the nature of the dissatisfaction within UBS that he had no difficulty in persuading staff to join his new start-up company. He says that not only had the culture clash to which I have referred not been resolved but he claims that it had increased by the threat, as he saw it, of the integration of UBS within the larger UBS AG with the consequential further dilution of their investment autonomy and a further advance of the UBS corporate culture to the detriment, as he claims, of the personal and individual client care on which his version of private wealth management was based. Furthermore, he claims that morale in UBS and, indeed, among its clients had suffered in the wake of the credit crunch and the banks' huge and well-publicised losses by reason of their exposure to the sub-prime mortgage market.
18. In the short time available, solicitors acting on his behalf have produced letters and e-mails written by some 40 of the defectors in which they set out their personal dissatisfaction with what they sought to be the excessively bureaucratic formulaic and prescriptive procedures at UBS. Those are my words, but I have sought to catch the flavour of what they say. In these circumstances, Mr. Scott contends that the staff were eager to jump ship when he gave them the opportunity to do so.
19. It is important to consider the scale and nature of these defections. This is best shown in diagrammatic form in the so-called "Organogram" (bundle 1, tab 5, page 4 of Mr. Hall's statement). This shows at a glance that all the senior managers, that is to say the third, fourth, fifth and sixth defendants, defected from UBS to Vestra. Of the four so-called "core desks" handling wealth investment business, only one desk, that is desk 4, was left intact and untouched. Of the other three core desks, each head of department left and all the investment directors left. On desk 1, of seventeen employees, there were fifteen defections; only two secretaries remained. On desk 2, absolutely every one of eighteen employees left, including the secretaries. On desk 3, of seventeen staff, fifteen defected, leaving just one junior assistant and one secretary. In the small accounts department with a staff of four, two left. At the Taunton branch, of a staff of eight employees, two of the three investment directors, one of the two investment managers, and two of the three secretaries left.
20. Mr. Scott says that all this happened as a result, and only as a result, of separate discussions between him and the separate individual employees involved. It is said that he was the hub of this plan and the individual defectors were the spokes, and they did not arrange or organise the defection between them. I well understand that in the course of an interim application of this kind, when there is a keen dispute of fact and a mass of conflicting evidence, when I have not heard the witnesses give evidence or being challenged upon it, I cannot, indeed I must not, come to any clear conclusions of fact. That must be a matter for the trial judge.
21. However, in order to do justice to this application, and in order to see where the balance of convenience properly and fairly lies, I must examine the available evidence in so far as it can properly be done within these limitations. It seems to me to be inherently unlikely that whole departments should leave UBS en masse and join Vestra en masse without extensive discussion between staff beforehand. This is particularly so when they are leaving exceedingly well-paid employment at UBS for the gamble of joining a start-up business with no track record and, as yet, few clients. Various hints are made that Vestra was in some way backed or funded by Goldman Sachs. I should make clear that I have seen nothing in writing to confirm this, and there are no clear details of the nature and extent of this venture.
22. It is, to my mind, overwhelmingly likely that blandishments must have been made to the defectors, and those blandishments must have included these vital assurances, first, that all or nearly all the other members of the team, including the senior members of the team, and indeed all or nearly all the members of many other teams, including their senior members, were also going to defect; secondly, that these teams would bring many of their clients with them; thirdly, that UBS would be so weakened by the defections of staff and clients that there was only an uncertain future in staying with UBS and it was therefore safer to jump with Vestra rather than stay with UBS. Again, it is, to my mind, overwhelmingly likely that these blandishments and the resulting defections can only have happened with the active and knowing encouragement and assistance of many of the defectors, including particularly the third, fourth, fifth and sixth defendants, who are senior managers within the company.
23. I think that it is also increasingly clear that there is evidence from which it may in due course properly be inferred that Mr. Scott must have known what was going on; indeed, he may have initiated this course of conduct. If that is found, of course he would be a party to an unlawful conspiracy.
24. I find Mr. McGregor's argument, that there working within UBS internal recruiting officers, to be very persuasive. It is difficult to see how else the defections could have been organised or coordinated on this scale. I accept the convention in the City is that employees who are considering taking up alternative employment are under no obligation to their existing employers to disclose ongoing negotiations unless and until a clear agreement is made with the prospective employer, usually by the signing of a new contract of employment. I cannot accept that employees, in particular senior managers, can keep silent when they know of planned poaching raids upon the company's existing staff or client base and when these are encouraged and facilitated from within the company itself, the more so when they are themselves party to these plots and plans. It seems to me that that would be an obvious breach of their duties of loyalty and fidelity to UBS.
25. If authority for this proposition is needed, it is to be found in the judgment of Hart J in British Midland Tool v Midland International Tooling [2003] EWHC 466 Ch
26. Mr. Hall's affidavit contains clear and specific allegations against the fourth, fifth and sixth defendants, which have gone entirely unanswered, except by general denial, which is, to my mind, quite inadequate.
27. I am fortified in this view by consideration of the transcripts of some of the many telephone calls made by some of the defectors. As a matter of routine, calls made to or from landlines at UBS are recorded. All the staff know this. Since 19 May, the claimants have been examining the tens of thousands of hours of recordings in an attempt to find evidence of what was going on. The exercise is labour-intensive. It is far from finished. No doubt it will continue up to the trial. I do not think it is either necessary or desirable to refer to all the particular calls made by particular named defectors to which I have been referred, but it is already clear that there are many extracts which may lead to the inference being drawn that the defections were not just organised or arranged by Mr. Scott personally.
28. It is increasingly clear that there is evidence that all the departments affected had been seething with plotting and planning for the mass exodus of staff for many months. It seems to me to be in the highest degree likely if this claim is made out that this sustained course of conduct would have been an obvious and clear breach of their duties of loyalty and fidelity to UBS. It is also becoming clear that they intended to take with them as many clients as they could. Again, if that is made out, it will be a clear and, indeed, flagrant breach of their continuing obligations to UBS.
29. There is even some evidence -- I refer to the telephone transcript dated 19^th May, recently transcribed, reference SD 3007081424, but there are other references in the transcripts -- that Mr. Scott thought that his recruitments would be so successful that the staff of UBS would be stripped out to the extent that the company would be so weak as to no longer comply with the licensing requirements of the FSA. Clients would then be unable to remain at UBS and would have to leave. In reality, it was thought and hoped that they would go to Vestra.
30. There is also evidence which would justify the inference being drawn that Mr. Scott may have contemplated that as a further result of his raid on UBS, the company would be so stricken and left without any or any sufficient numbers of sufficiently skilled and experienced staff that he might be able then to buy the company up at a knockdown price. After his restrictive covenants had expired, he was of course free to act himself; but he was not free to assist and encourage the staff of UBS to act collectively to sabotage UBS in breach of their own duties of loyalty and fidelity.
31. I have carefully considered the forty-odd letters written by the defectors. None suggest any intervention by anyone other than Mr. Scott. I find this quite unconvincing. I detect clear signs that they have been given a party line to which they are all adhering in the face of what seems to me to be clear and obvious evidence to the contrary.
32. There is evidence of one particularly devious refinement. Junior employees were barred out for much shorter periods than the senior staff, typically only a couple of months. The plan was that junior employees would leave UBS and set up in Vestra and, using this so-called "bridgehead", would service the former UBS clients whom they had poached on a temporary or makeshift basis until such time as the senior members of staff could join them and take over where they had left off and so bring about what they claim to be a seamless transfer of clients from UBS to Vestra.
33. This seems to me an inference which could properly be drawn from the evidence and the telephone transcript (bundle 1, tab 6, page 312) of a call between an investment director and a client from which Mr. McGregor extracted the concept of "bridgeheading". The same point appears at other conversations, particularly at pages 356 and 366, of investment managers speaking to clients.
34. Perhaps they all thought that UBS would take this on the nose as they had taken the defections to Cheviot. They may have thought that UBS may not have wanted the possible adverse publicity of these proceedings, that UBS have this time decided to fight back as they are entitled to do.
35. For all these reasons, I am firmly of the view that the claimants have put together a formidable case that there was an unlawful plan to poach both staff and clients from UBS, that that plan was formulated and actively managed by Mr. Scott, and it was at every stage assisted and encouraged by senior staff, including each of these defendants. This is not, as Mr. Sutcliffe QC for Mr. Scott and Vestra contends, lawful competition dressed up as an unlawful conspiracy. It is, in my judgment, far more likely to be an unlawful conspiracy dressed up as lawful competition.
36. I have been referred to the well-known case of Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] 1 Ch 169. This was a case where the plaintiffs' workforce used the skills acquired during the course of their employment to do the same work for a rival in their spare time. Lord Green, MR, said this at page 179:

"This is a case of deliberate and secret action by these employees, deliberate and secret action by the defendants, in circumstances where both the employees and the defendants must have known the exact result of what they were doing and must have realised that what they were doing was wrong, even if they did not distinguish in their minds between the question of commercial morality and legal obligation. That being so, and there being in my opinion a prima facie case, the balance of convenience and fairness being in favour of the injunction, I think the learned judge who took the other view came to the wrong conclusion."

37. The defendants further argue that even if the claimants have established some breaches of contract in the organisation of the mass walkout, there is no causative link between the breaches and the staff loss because such was the dissatisfaction that sooner or later all would have gone anyway. Furthermore, they argue that this is the answer to the suggestion that the claimants should have had warning of their departure so that they could have the opportunity of persuading them to stay, for, say the defendants, such arguments would have fallen on deaf ears.
38. In my judgment, it would be one thing if these members of staff had independently and separately decided to go at times of their own choosing, as they are entitled to do. It is here the secret plotting to go together en masse and to join en masse a new startup competitor which is objectionable, for, as must have been foreseen and indeed intended, what was sought was a knockout blow to paralyse UBS, to torpedo them, as Mr. McGregor put it, to make it difficult for UBS properly and professionally to continue to service their existing clients or even to comply with the FSA criteria. UBS was entitled to their loyalty and fidelity which, it seems to me, it may not have received. It is, to my mind, highly likely that this plotting and planning will be held to have taken place, which would be unlawful in itself or at least an unlawful means conspiracy.
39. I turn then to the delay upon which the defendants also rely. These defections occurred on 19^th May. The defendants say that if the claimants wanted to take action, they should have done so promptly. Their first letters of the defectors dated 30^th May made no mention of a pending springboard action. Instead, they waited until 16^th July before sending a letter before action and until 18^th July before issuing proceedings, with the result that the action was not heard until Friday, 1^st August, only one working day before Vestra was due to start trading this morning.
40. This delay, argues Mr. Bear, on behalf of the third to sixth defendants, of itself disentitles them to the discretionary relief of an injunction. No doubt the claimants could have commenced proceedings earlier.
41. Mr. McGregor makes a number of points in answer to that. First, in the majority of cases, UBS required their senior managers to work out their notice, which will not expire until 10^th August, and there was no need to take action until that period expired. Secondly, it was their experience, when faced with the previous defections to Cheviot, that the commencement of proceedings against the defectors was claimed rightly or wrongly in itself to be a repudiation of the contract of employment, whereas here UBS were keen to require the defectors to work out their notice. Thirdly, and rather more importantly, by a letter written by UBS to Mr. Scott on 21^st May (bundle 2, tab 52, B1) UBS rehearsed his, that is to say Mr. Scott's, claims that he was acting alone in recruiting the defectors. They then wrote:

"You assured [UBS] that you had taken legal advice and followed it, that you instructed all resigning employees of UBS to comply with their obligations to UBS, and that you were unaware of any breaches, and certainly have not induced any. UBS, while concerned, are at present prepared to accept these assurances from you unless it becomes apparent that it is not the case, in which case UBS will take vigorous action to protect its business and franchise."

42. That, in my judgment, was a perfectly reasonable position for them to take. It is only the gradual transcription of the telephone calls which has provided further evidence of the nature and extent of the plotting and planning which preceded the defections. In my judgment, there is no culpable or inexplicable delay at all, and certainly not of the kind which might disentitle the claimants to relief nor, it seems to me, is there any real prejudice caused by this delay. Accordingly, I reject Mr. Bear's argument that the claimants have just sat on their hands, as he put it, waiting until Vestra is about to trade before acting, nor is it, as he further argues, outrageously unjust to permit them to act now in the changed circumstances of the further evidence becoming available.
43. I also reject entirely the suggestion that the proper undertakings by the third, fourth, fifth and sixth defendants are sufficient. It is only a limited help to UBS that these defendants do not in future solicit clients or staff. What is wanted is a limitation of the damage already done. No doubt most of the staff they want may already have gone over, but there may still be some who are vulnerable. Nothing can be done to prevent clients who had left for Vestra before the commencement of proceedings continuing to do business with Vestra, plainly, they cannot be compelled to return to UBS. These clients should not be serviced by former staff of UBS in breach of their continuing restrictive covenants. Neither until the trial of this action should the defendants solicit further defections of staff or clients of UBS with whom they have had recent dealings.
44. It is argued by the defendants that to impose an injunction upon a newly established business open for trade only this very morning would be unfairly to cast over its start up the suspicion that its inception was based on unlawfulness. I see no unfairness at all, except to the legitimate business interests of UBS who are entitled to go to court to protect their staff and client base against the threat of unlawful and unfair competition, of which there seems to me to be a very strong prima facie case. Vestra may of course continue to trade, but, as with any start-up business, must build up its own client base and not poach the readymade client base from its previous employers at a time when they are subject to restrictive covenants. If Vestra is indeed a start-up business, a delay of only a couple of months will not be critical. It can, if the action by the claimants fails, be adequately compensated in damages, whereas the loss to UBS of its clients will be incalculable and permanent. As Mr. McGregor has put it, unless the relief is granted, the defendants' plan will have succeeded.
45. Finally, I am asked by the defendants to consider whether anyone will benefit if an injunction is granted. It is said that the findings necessary to sustain an injunction will or may be damaging to each party and that the consequences of a contested action will be so troublesome to clients that they will want to be associated with neither UBS nor Vestra and will leave both. This, it seems to me, is a very unattractive argument to present. There may be a commercial fallout from these proceedings and from the granting of this injunction. It seems to me that it is the inevitable consequence of the defendants' action. I cannot and will not deprive the claimants of the protection to which they are entitled, just because the defendants think that the claimants have made a bad commercial decision in bringing the case against them.
46. For all these reasons, I am entirely satisfied that the claimants are, in principle, entitled to the springboard relief sought and that that should last until the trial. Whether it will then be continued is a matter for the trial judge to determine.