Advocate Matthew John Thompson, Master of the Royal Court, sitting alone.
Christopher Charles Rokos
Brevan Howard (Jersey) LP (acting through its General Partner BHJ Limited)
Advocate A. D. Robinson for the Representor.
Advocate J. P. Speck for the Respondent.
CONTENTS OF THE JUDGMENT
1. Introduction Paras 1-3
2. The dispute 4-10
3. Procedural History 11-13
4. The Submissions 14-25
5. Decision 26-30
1. This judgment represents my detailed reasons for directing that the strike out application brought by Brevan Howard (Jersey) LP (acting through its general partner BHJ Limited) ("Brevan Howard"), in relation to the representation issued by Christopher Charles Rokos ("Mr Rokos") shall be heard at the same time as the trial of Mr Rokos's representation. This judgment is produced at the specific request of Mr Rokos, through his legal advisers.
2. It is a matter for the trial judge whether the Royal Court will hear the strike out application at the outset of the trial or as part of final submissions once it has heard evidence including cross-examination.
3. Following on from the decision I reached, I gave other directions including orders for specific discovery.
4. The dispute arises out of Mr Rokos's relationship with the Brevan Howard Group. By referring to the Brevan Howard Group I am referring to Brevan Howard, the respondent in these proceedings and a number of other entities. The precise structure of the Brevan Howard Group is complicated but it is not necessary for me to address the relationship between different parts of the Brevan Howard Group for the purposes of this decision. What is agreed is that Mr Rokos was one of founding partners of the Brevan Howard Group along with Alan Howard and various other individuals in 2002.
5. In June 2012, Mr Rokos resigned from all his entities in the Brevan Howard Group giving the requisite notice required for each Brevan Howard Group entity.
6. The present dispute concerns Brevan Howard, the respondent, which is a Jersey limited partnership. On 4th June, 2012, Mr Rokos gave twelve months written notice as a limited partner of the partnership. Without setting out the terms in detail, under the terms of the Jersey partnership agreement, including a deed of allocation dated 11th August, 2011, (the Deed) Mr Rokos became an outgoing limited partner and a retiring limited partner (as both terms are defined). Mr Rokos will remain an outgoing limited partner at least until the 1st July, 2018, (the precise date not being common ground).
7. Over the next five years he will receive two final payments due from other Brevan Howard entities and an annual share of the Brevan Howard profits (colloquially known as a "pension"). Although that "pension" for most individuals would be a significant sum, compared to Mr Rokos's earnings for 2007 to 2011 inclusive, it represents a small percentage of the returns he received from the Brevan Howard Group.
8. As an outgoing limited partner and retiring limited partner, he is subject to clause 8 of the Deed which provides as follows:-
"The Limited Partner shall for so long as he remains a Limited Partner or a Retiring Limited Partner:
act in the utmost good faith in his dealings with the Partnership;
(B) not be involved directly or indirectly in any commercial activity (including without limitation any commercial activity in relation to the management or marketing of, or the trading of assets belonging to, any hedge fund or any commercial activity carried on by proprietary trading desks at financial institutions) (but excluding, for the avoidance of doubt, his involvement in any commercial activity carried on by any Subsidiary or Associated Company) which is wholly or partly in competition with the Business or the business of any Subsidiary or Associated Company provided that the foregoing shall not prevent the Limited Partner at any time whilst he is a Retiring Limited Partner from taking preparatory steps in relation to establishing his own investment fund (whether in corporate, partnership, trust or any other form) provided that the Limited Partner shall be treated as having breached this provision if such preparatory steps include his having a Material Interest in an entity:
"(1) with regulatory approval to commence any investment management activities; or
(2) which commences the solicitation or acceptance of assets to be managed by such entity; or
(3) which has commenced trading activity in relation to securities;
(C) not collaborate or agree with any other Limited Partner or any employee of (or secondee to) the Partnership or any Subsidiary or Associated Company to leave the Partnership or any Subsidiary or Associated Company in order substantially together to become involved directly or indirectly in any commercial activity (including without limitation any commercial activity in relation to the management or marketing of, or the trading of assets belonging to, any hedge fund or any commercial activity carried on by proprietary trading desks at financial institutions) (but excluding, for the avoidance of doubt, his involvement in any commercial activity carried on by a Subsidiary or Associated Company) which competes with the Business or the business of any Subsidiary or Associated Company;
(D) not either on his own account or for or on behalf of any other person directly or indirectly solicit the employment or engagement of or interfere with or endeavour to entice away from the Partnership or any Subsidiary or Associated Company so as to obtain the employment or engagement of any Limited Partner or any Key Person; and
(E) not either on his own account or on behalf of any other person in competition with the Business or the business of a Subsidiary or an Associated Company directly or indirectly: -
(1) endeavour to entice away from the Partnership or any Subsidiary or Associated Company or canvas or solicit business or custom from any Relevant Person; or
(2) solicit or facilitate the acceptance of orders or instructions from any such Relevant Person."
9. In summary, Mr Rokos complains that the restrictions set out in clause 8.1 of the Deed are contrary to public policy, are in restraint of trade and are unenforceable. He argues that if he is unable to work for the next five years, his skills will atrophy. He contends, if he could not exercise his skills until 2018 or possibly 2019 when he will cease to be any form of partner in Brevan Howard, this would irreparably damage his chances of running his own investment fund and enjoying the benefits of that fund. In particular, he argues that an absence from the funds industry for over five years will impact adversely upon his track record and reputation.
10. Brevan Howard, in response, argues that the terms of clause 8 are partnership restrictions so that the doctrine of restraint of trade does not apply. Brevan Howard further contends that such restrictions are designed to remove the risk Mr Rokos would represent Brevan Howard if he was free to actively compete with Brevan Howard. It is further argued that Mr Rokos, having being permitted by Brevan Howard to operate a private family office, will still be in the market and be able to utilise his skills. Brevan Howard also make a counterclaim against Mr Rokos but it is not necessary for me refer to this for the purposes of the decision that I made. Mr Rokos disputes the response of Brevan Howard.
11. The present proceedings were commenced by representation presented to the Royal Court on 23rd May, 2014. On that day the Royal Court ordered that Brevan Howard be convened to a substantive hearing of the representation listed for four days at 10:00 a.m. on 17th November, 2014. The Court further directed the parties to agree a timetable, failing which I as Master was authorised to issue directions.
12. It is right to observe that Mr Rokos, in issuing his representation, has undertaken to abide by the restrictions he complains about, notwithstanding his challenge to them. Had he not done so, no doubt Brevan Howard would have applied for and obtained injunctive relief. I refer to this because I consider that the reason why the Royal Court approved a hearing of the representation within four months of its issue was because it was dealing with a restriction that affects an individual's ability to earn a living. Although no written reasons were produced by the Royal Court for its decision because the order was made at a normal sitting of the Samedi Division on a Friday afternoon on an ex parte basis, I have treated this action as being in effect a cause de brièveté. This was reflected in the directions I gave on 23rd June, 2014, which were ordered on the basis that the matter would be heard on 17th November, 2014, and in relation to the directions I gave following the decision that any application to strike out Mr Rokos's claim should be heard at the final hearing of Mr Rokos's representation. The representation is now listed for hearing on Wednesday, 25th March, 2015, for up to seven days, and directions have been given for the filing of further affidavits, specific discovery and skeleton arguments.
13. At the first directions hearing before me on 23rd June, 2014, Advocate Speck for Brevan Howard complained about the lack of particularity in the representation as originally filed. He also reserved his position as to whether he wished to apply for a preliminary issue. I accepted his submissions about the lack of particularity in the original representation and therefore ordered Mr Rokos to file an amended representation setting out all facts and matters including, where relevant, any principle of law relied upon as to why the provisions referred to in the representation as originally drafted were in restraint of trade. That has now occurred and a detailed answer (and counterclaim) and a reply (to the answer and counterclaim) has since been filed.
14. Without in any way being discourteous to the clear way in which Advocate Speck advanced his client's arguments, Brevan Howard's position is straightforward. Mr Rokos was a founding partner in the Brevan Howard Group and remains a partner until at least July 2018. He agreed the restrictions which he now complains about which followed earlier restrictions he entered into. It does not matter what kind of partner he is or whether he plays an active or passive role; the restraint of trade doctrine does not apply.
15. He referred me to BBGP Managing General Partner Limited & Ors v Babcock and Brown Global Partners  Ch 296, where at paragraph 11 Norris J stated:-
"Aside from these specific contractual obligations each of the partners owed to the others a duty of honesty and good faith in relation to the partnership business (including a duty not to use for personal advantage powers which are conferred as partner). The principle applies as much to limited partnerships as to other partnerships (notwithstanding the absence of general agency)."
16. The fact that as a partner was not an active partner in the business makes no difference (see Hodson v Hodson  PNLR 23.
17. The concept of partnership is very different from that of an employment relationship. In Dockrill v Coopers & Lybrand Chartered Accounts 111 DLR 62, R a decision of Nova Scotia Court of Appeal Chipman J. A., giving the judgment of the court stated:-
"It has to be remembered that we are dealing not with an anticipated dispute between a firm and its employee but between the firm and one of its very own members. The partnership is a totally different concept from the employees/employer relationship. Subject to the possibility of modification by express agreement, there are significant features the relationship. Each partner is an agent of the firm and its other partners with respect to the firm's business. A joint and several liabilities among partners exist with respect to all partnership liabilities. With respect to partnership business, the knowledge of one partner is at least prima facie deemed to be the knowledge of all. The utmost good faith between partners is an implied term of every partnership agreement. In short, the relation of partnership is one of the closest relationships known to the law and it leaves no room for exclusion from one partner of knowledge and information obtained by other partners in the course of the partnership's business."
18. Advocate Speck explained he only issued the strike out application once he had seen the amended representation of Mr Rokos and he therefore understood the basis upon which Mr Rokos was challenging the restrictions. Having issued his summons, he has a right to have it determined relying on the remarks of Lord Neuberger in Labrouche v Frey  1 WLR 3160 at 3166:-
"Accordingly, it seems to me clear that, where an application is brought to strike out the whole or part of a claim, then, unless for instance the applicant is in contempt or subject to a civil restraint order, the judge before whom the application is listed has a duty to consider it properly. In particular, the judge is bound to listen to oral argument in support of the application (unless he is satisfied by what he has read, before coming into court, that the application should be granted, in which case he could call immediately on the respondent to the application-but that is not always a wise course). Particularly where the judge has had the benefit of time to read all the papers, and to consider a full written argument on behalf of the applicant (and the respondent), he may quite properly be able to dispose of the hearing of the application far more quickly than the parties and their advisers may have expected. For instance, while again it often may be unwise to do so, the judge could (i) begin by saying that, having read the papers, his provisional view was that the application should be rejected on one of the many grounds raised by the respondent, (ii) then give the applicant a fair opportunity to disabuse him of this view through oral argument, and (iii) if the judge was unpersuaded by that argument, end the hearing by giving judgment for the respondent on the ground in question."
19. In response, Advocate Robinson argued that each case on restraint of trade was fact specific. By reference to Symbian Limited v Christensen  IRLR 77, it was possible for the restraint of trade doctrine to apply during the subsistence of a contract. At paragraph 45 of the Court of Appeal's judgment Morritt L. J. stated as follows:-
"It is submitted, and I accept, that the principle may be applicable to restraints imposed during the subsistent of the contract; Esso Protroleum v Harper's Garage  AC 269, 328-329 and Instone v Schroeder  1 WLR 1308, 1315."
20. As Advocate Speck observed, in Symbian Limited v Christensen, although the court recognised the possibility of the doctrine applying on the facts, the clause of the employment contract preventing Mr Christensen from having outside interests while an employee, was seen as being "obviously justifiable".
21. I was also referred by Advocate Robinson to a section in Chitty on Contracts 31st Edition at paragraph 16-116 headed Restraints during Currency of Employment. The extract is as follows:-
"It now appears probable that even restraints which operate only during the currency of employment are subject to the doctrine of restraint of trade, at any rate if they have as their objects the sterilising rather the absorption of a man's capacity for work, or perhaps are such that one of the parties is so unilaterally feted that the contract losses its character of a contract for the regulation and promotion of trade and acquires the predominated character of a contract in restraint of trade. The doctrine was also applied during the currency of the contract in Proactive Sports Management Ltd v Rooney  EWHC 1807."
22. Advocate Robinson made it clear that he was not arguing that Mr Rokos was an employee and accepted that he was a partner at all times. Nevertheless he contended that, if the doctrine of restraint of trade could in theory, by reference to the Symbian decision, apply to an employment contract it could also apply in appropriate cases to a partnership contract. In circumstances where it was said that Mr Rokos was effectively being kept out of the funds business for five years, his skills would atrophy and his earning power would be reduced substantially, this was the sort of case where the doctrine could be applied.
23. In Proactive Sports Management Limited v Rooney, the English Court of Appeal considered how it should approach the question that a contract might be in restraint of trade. The contract was not an employment contract but was an agency contract relating to the image rights of the defendant.
24. Paragraphs 57 to 59 of the judgment state as follows:-
"57 I propose pragmatically to start with the approach of Jonathan Parker J in Panayiocou v Sony Music Entertainment Ltd  EMLR 229 at 321, under which there are two stages involved in reaching the conclusion that a contract is in restraint of trade. At the first stage, the court has to address the question of whether the doctrine of restraint of trade is engaged, i.e. whether the contract is one to which the doctrine of restraint of trade applies at all, and, at the second stage of the process, if the party seeking to rely on the covenant raises this as a defence, the court will have to determine whether the restraint on trade is reasonable.
58 This is the way in which the judge approached the matter, and the way in which we are invited by Mr Jeans to approach the matter. Mr Jeans' first argument is that the doctrine was not engaged in this case, and that accordingly the court need not venture into the question of justification.
59 However, in practice, I find that the line between the two stages identified by Jonathan Parker J is not clear cut, and that the analysis has to be an iterative one between them. In particular, the matters that might be raised under the second stage might also be relevant to the question whether the doctrine of restraint of trade is engaged at all."
25. By reference to paragraph 59, Advocate Robinson argued that the right way to approach whether the doctrine of restraint of trade applied to a partnership agreement was to look at the factual context in which the restraint came about and how it was said to operate. Mr Rokos's representation could be not determined without an analysis of the factual matrix which led to the restrictions being created and the circumstances in which they operated. He argued that the current restrictions were much more onerous than previous restraints. To the extent that the legal test required his client to show that the restraints were oppressive, his client would argue that the restraints were unreasonably harsh and his client was at a commercial or negotiating disadvantage when concluding the restrictions Mr Rokos was now challenging. Finally Advocate Robinson reminded me that, while the present application is not determining the strike out application itself, it is well known that on a strike out application, if the dispute requires determination of material factual issues, it is inappropriate for a court to exercise the jurisdiction to strike out a claim.
26. Ultimately what I had to decide was when the strike out application issued by Brevan Howard should be heard. I accept Advocate Speck's submission that he has a right to have the summons heard. The issue for me was whether the strike out summons should be heard in advance of the main hearing or whether it should be left to the trial judge to determine whether it should be heard at the commencement of trial or alternatively dealt with as part of submissions made to the court once the court had heard all the evidence.
27. In my judgment, it is a realistic possibility that an argument that the restraint of trade doctrine does apply to partnerships is fact specific and therefore what is required is a trial to analyse how the restrictions came to be created and their effect if they were upheld. I agree with the observations of the English Court of Appeal at paragraph 59 of Proactive Sports Management Limited that it may not be possible to separate pure legal argument from the factual background. Whether the strike out application is to be adjudicated at the outset of the dates listed for trial or following the hearing of evidence is therefore a matter for the trial judge to determine, because of the possibility the Royal Court wanting to hear evidence in order to assess to what extent the doctrine of restraint of trade might apply.
28. The second reason for reaching the view that the strike out summons should be heard at the trial is that, if the strike out summons were heard in advance of the trial, the trial itself could be delayed due to appeals. Brevan Howard and Mr Rokos have been hugely successful over the last five years. For both sides, the amount of potential earnings that might be gained or lost, depending on the outcome of the litigation, vastly outweighs any costs that the parties will incur. Accordingly, if a strike out application were heard and adjudicated upon, the view I have reached is that, absent a settlement, an appeal would be highly likely, if not inevitable, by whoever was unsuccessful. The effect of an appeal could well be to delay any trial. This is important in the present case because any further delay of a final hearing reduces the balance of the period available to Mr Rokos, if he were ultimately successful. In referring to appeals I am also taking into account the likelihood of an appeal of any final trial, however it is determined. The possibility of appeals therefore means that the period for which Mr Rokos is out of the market is extended and importantly this would be so even if his arguments prevailed.
29. I therefore concluded that allowing the Royal Court an opportunity to determine all matters in issue in one hearing reduces the risk of multiple appeals and their potentially unfair consequences for Mr Rokos. I should make it clear that in reaching this conclusion I am not expressing the view that Mr Rokos will prevail in his arguments. I am simply noting the potential unfairness to him should he prevail, but the decision is appealed with a result that he cannot work until the appeal is determined. Again it is for the trial judge to decide what weight to give to this factor when he hears Brevan Howard's summons.
30. For both these reasons I therefore ordered that the Brevan Howard strike out summons be listed for hearing at the same time as the substantive hearing of Mr Rokos's representation. It is matter for the trial judge when and how he wishes to determine Brevan Howard's strike out summons.
Dockrill v Coppers & Lybrand Chartered Accounts 111 DLR 62, R.
Symbian Limited v Christensen  IRLR 77.
Chitty on Contracts 31st Edition.