Scottish Court of Session Decisions

This action came before me on 24 November 1998 when the pursuers sought interdict ad interim against the defender until 31 July 1999 from transacting business with, canvassing, soliciting or endeavouring to take away from the pursuers, whether directly or indirectly, and whether on his own behalf or on behalf of any other person, firm or company, any customers or clients of the pursuers who were such customers or clients during the defender's employment by the pursuers and with whom he had personal dealings between 1 August 1997 and 31 July 1998.

The pursuers carry on business as insurance brokers. Until 31 July 1998 the defender was employed by them as Assistant Director at their Glasgow office. It was accepted between the parties that one of the conditions of the defender's employment (the terms of which were essentially repeated in the interdict sought) was Clause 11.1 of certain House Rules which provided:

The pursuers aver that in or around July 1998 the defender accepted a redundancy option which had been offered to him and in terms of that offer and acceptance his employment was terminated by consent of both parties with effect from 31 July 1998. The pursuers further aver:

The pursuers go on to aver inter alia that they have called upon the defender to cease the activities complained of, but that the defender has given no assurance that he will do so.

In moving me to grant the motion counsel for the pursuers accepted that in this essentially a matter for my discretion he required to satisfy me that the pursuers had averred a prima facie case and, further, that the balance of convenience was in favour of the grant of interim interdict at this stage.

As to the former, and in supplement of the averments made at condescendence 4, counsel explained that prior to signing the contract documents the defender had been employed by a smaller company of insurance brookers. Towards the end of October 1998 the pursuers became aware that certain clients of theirs had mandated their insurance business to the defender, or to the firm with which he was, they understood, now associated. In particular A Barr & Co., referred to in the Summons, did so on or about 27 October. On making enquiry the pursuers learned that the defender had personally gone to see the owners of that business and stressed that he could provide a more personal service in relation to their insurance requirements. Following that, Buchanan Orthotics Limited (again referred to in the Summons) mandated their business to the defender or to the firm with which he was associated. Again, on making enquiries, the pursuers were informed that the defender had gone personally to see representatives of that company, and that although the company had said they were happy to remain with the pursuers, he had indicated that he could under-cut the renewal premiums which they would require to pay if they dealt with him. All the companies referred to in Article 4 of the condescendence were companies with whom the defender had had personal dealings as part of his employment with the pursuers within the twelve months preceding the termination of his employment. A total of some fifteen such companies had now mandated their business to the defender or to the firm with which the defender was associated. In these circumstances it was submitted that the defender was in breach of the relevant condition of his employment which prima facie afforded reasonable protection of the pursuers' legitimate interests.

As regards the balance of convenience, counsel argued that unless the defender was interdicted the pursuers would be liable to suffer loss of business from the loss of substantial numbers of clients prior to 31 July 1999 (with effects extending beyond that date) with consequential loss of profits and damage to goodwill - loss and damage which, it was argued, would be difficult to quantify. By contrast the defender would not be prevented in the relevant limited period from working in the business of insurance broking (a restriction which the pursuers might reasonably have sought to impose on former employees such as the defender), and the restriction was short and was essentially confined to the solicitation of customers with whom he had had personal dealings in the year prior to the termination of his employment.

Subject to two comments, counsel for the defender did not, it seemed to me, seriously dispute that the pursuers had averred a sufficient prima facie case on the basis of averred past and future apprehended breaches of the relevant condition of the defender's contract. The first comment was that the defender did not accept that his contract had been lawfully terminated in circumstances of consent as was averred by the pursuers. Instead, as I understood it, the defender's position was that although for a period he had agreed with the pursuers that he would take leave from work (when told by the pursuers that they had no need for him to continue to do the work he had been doing), there had been no agreement to terminate his contract such as averred by the pursuers. Counsel accepted however that this matter gave rise to an issue of fact which he could not and would not seek to develop further at this sage. Secondly, as I understood it, he wished at least to observe that the actions of which the pursuers were complaining could on the face of it be seen as ones reasonably taken in the course of legitimate competition. These observations aside, the main lines of argument which he wished to develop at this stage were (1) that the pursuers could not be said to have averred a sufficient prima facie case in circumstances where the restrictions contained in the relevant clause were manifestly too wide and thus unreasonable and (2) that the balance of convenience was plainly against the grant of interim interdict.

By way of background counsel informed me that the defender was now 55. He had worked in the insurance sector for over 20 years. He had worked for the pursuers for a period prior to the signing of the contractual documents in question in December 1996. The nature of his work up to the termination of his employment involved the assessment of the insurance needs of numbers of commercial clients, not only when they first sought to take out insurance but when the question of any renewals arose. This involved discussions with and advice to clients and potential clients at a personal level. By calls and personal visits there was established a bond of trust between himself and clients. The defender had, by the end of his employment with the pursuers, built up what he regarded as his portfolio of clients, who in turn essentially regarded him as their insurance broker. What had happened, it was said, was that the pursuers had come to a policy decision that clients whose business did not generate at least £2,500 per annum would no longer be afforded the same personal service and attention. This, it was said, lay at the root of the termination of the defender's employment. He had since November 1998 (having enjoyed, so far as I understood it, a period in which he had chosen not to work gainfully), begun to try to establish himself essentially on a freelance basis. He was not employed by George Weightman but was using their services because large insurers would not deal with small brokers. He was seeking to service the needs of what he regarded as his pre-existing portfolio of clients on whom it was said he would effectively have to rely at least initially for any business.

Against that background counsel argued first that the terms of the relevant restriction were unreasonably wide and went far beyond what might reasonably be required to protect the legitimate interests of the pursuers. Even if I was not prepared to find that this was plainly so at this stage I should nevertheless take into account, as a strong factor against the grant of interim interdict, the apparent weakness of the pursuers' position in this respect. It was argued, in particular, that the restriction against the defender transacting business with or canvassing the relevant clients would, on the face of it, cover any business dealings with these clients at all and would prevent the defender from, for example, selling baked beans to such customers if he wished. Further, albeit the relevant customers were restricted to those with whom he had "personal dealings" in the last twelve months of his employment, that, on the face of it, would cover any kind of contact and would not be restricted to what might be described as professional dealings. No question of the severability of the terms complained of could arise.

Further, it was argued, as indicated above, that the balance of convenience was firmly against the grant of interim interdict. The pursuers, it was argued, had no need of any interim interdict to protect their interests. What they were seeking to prevent the defender from doing was what they themselves had decided they did not wish to do in relation to those clients. The commissions which would be lost were small and would make no real difference to the pursuers. The six former customers referred to in the Summons generated commissions of £1,200, £600, £400, £1,000, £1,700 and £600 respectively. At a later part of his argument he submitted the total business of the relevant customers or clients referred to in the clause would amount to about £37,000. The pursuers would be likely to lose the business about which they claimed to be concerned in any event given the policy decision they had taken. By contrast the defender would be prejudiced, if interdict was pronounced, in seeking to try to establish his own business and any delay could make any potential resumption after 31 July 1999 more difficult.

In response to the defender's particular arguments counsel for the pursuers submitted that the relevant clause, properly construed, was not unreasonably wide. The clause required to be construed against the background that this was a contract of employment between a firm of insurance brokers and an employee whose sole job with them and apparently for some time had been in the insurance broking business. The clause was plainly intended to protect the pursuers' business interests. In that context "personal dealings" referred plainly to personal dealings in the course of and for the purposes of employment. Equally, it was reasonably clear that what the defender was restricted from doing was transacting business and canvassing etc., in relation to insurance business. I was referred to a decision of the Court of Appeal in Dentmaster UK Limited v Kent 1997 I.R.L.R. 636, where the court was prepared to uphold the reasonableness of a clause which restrained an employee from soliciting trade from persons who were customers with whom he had dealt at any point in the past from the commencement of his employment. In any event, it was difficult for employers, if any contact with clients was made shortly after leaving their employ by a former employee whose business skills and interests were solely in their area of operations, to know or to establish what mischief to their legitimate interest might be occurring and therefore even if the defender's construction was correct, the protection provided was a sensible practicable protection and one which was not unreasonable in the circumstances. Reference, in particular, was made to the opinion of the Lord Ordinary in P.R. Consultants (Scotland) Limited v Mann 1997 S.L.T. 437, in particular at pages 440H to 441E. Counsel also submitted that Lord Osborne had recently declined to accept arguments, albeit in another case brought by the same pursuers, that the clause in question was unreasonable as being too wide.

Counsel for the pursuers accepted that the defender's claim that the contract had not legitimately been terminated (although not yet having formed any part of correspondence between the defender and the pursuers) appeared to be one which would require determination on evidence. It was not argued that the clause in question would operate if termination was not lawful.

On the balance of convenience counsel for the pursuers did not accept as a matter of fact that the pursuers had taken a policy decision of the type suggested but, in any event, maintained that it was quite wrong to suggest that the pursuers had any interest other than the protection of their whole customer base, including those with whom the pursuer had worked. The emphasis on the personal attention devoted by the defender to the clients in question while in their employ simply underlined, in accordance with the authorities, the reasonable need for the pursuers to seek protection for a limited period of their legitimate interests. The total loss to the pursuers of commission from the clients with whom the defender had personally dealt (of whom there were about 60) would represent about £70,000 per annum, which on no view could be said to be immaterial, quite apart from the potential loss of repeat business and damage generally to goodwill.

On the question of the construction of the clause it seemed to me prima facie that that construction contended for by the pursuers would, on the basis of the information afforded to me at this stage, fall to be preferred. Trying to ascertain the meaning which the clause would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract, it seemed to me that that interpretation - which counsel for the defender accepted was possible - was the one which made commercial sense. This was a contract of employment between insurance brokers and an employee whose experience was in insurance broking. In my view it was difficult against that background and having regard to the whole language of the clause to read the words "personal dealings" in the narrow way contended for by counsel for the defender. This seemed to me also to be the case in relation to the words "transact business with" and "canvass" when read in the context of the whole clause. Even if in relation to these matters that were not so, it seemed to me that the clause would almost certainly fall to be regarded as a practical and not unreasonable means of protecting the pursuers' interest for the sort of reasons advanced by the Lord Ordinary in P.R. Consultants (Scotland) Limited. Far therefore from being persuaded that the clause was manifestly too wide, it seemed to me reasonably clear that it would be regarded as affording no more than a reasonable protection in the circumstances. I thus considered that the pursuers has clearly averred a prima facie case. I should however add that I did not find the case of Dentmaster UK Limited - the decision being apparently particular to its own facts - to be of much assistance and that although I was not surprised to be told that Lord Osborne had resisted arguments attacking the clause in another case, I could go no further in the absence of further information. Equally, although I preferred the pursuers' approach to the clause itself given that there was apparently an underlying dispute as to whether the termination of the defender's employment had or had not been legitimate, on which I was not addressed, I did not consider I could approach the question of balance of convenience on the basis that the pursuers' case was obviously stronger.

In assessing the question of balance of convenience I took account of all the factors referred to by both counsel. I came to the clear view that the balance of convenience favoured the pursuers. It seemed clear that if interdict was not pronounced they faced on any view the prospect of loss of a not insignificant number of clients who brought in a not insignificant amount of business, with loss of profit, not merely until 31 July 1999 but potentially thereafter, and also potential danger to goodwill - all in circumstances in which the losses could be difficult to quantify. Against that I plainly had to take account, and did take account, of the fact that the pursuers' counsel was not in a position to dispute the defender's submission that he would be prejudiced, if interdict was pronounced, in proceeding with, or at least continuing to try to establish, his own business and that delay could make any potential resumption after 31 July 1999 more difficult. Equally, although there was no specific argument addressed to me on this matter, I was prepared to assume that any loss to the defender would not necessarily be straightforward to quantify either. On the other hand, it seemed to me to be important that the pursuers were not seeking to prevent the defender from using his skills as an insurance broker at all, that what was proposed was for a limited period in relation to specified customers and that what the defender plainly intended, in relation to business operations which he had only very recently begun and which were in no sense established, was in any event not merely to rest on what he called his existing portfolio but to build thereon with new clients.

In all the circumstances for these reasons I granted the pursuers' motion for interim interdict.

Act: Shedden

Maclay Murray & Spens

Alt: Howlin

MacRoberts

3 December 1998