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Cite as: [2006] ScotCS CSOH_174, [2006] CSOH 174

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OUTER HOUSE, COURT OF SESSION

[2006] CSOH 174

A2976/02

OPINION OF

LADY CLARK OF CALTON

in the cause

DUNEDIN INDEPENDENT plc

Pursuers;

against

KENNETH ANDERSON WELSH

Defender:

________________

Pursuers: Logan; Macbeth Currie

Defender: Jones, Solicitor; Brechin Tindal Oatts

14 November 2006

History and overview

[1] The pursuers are a company which may be described as a company which provides financial services. On 27 March 2001 the defender commenced employment with the pursuers as a director of the pursuers. In their employment, the defender was registered as an Independent Financial Adviser (IFA). The pursuers and defender subsequently executed a service agreement on 6 October 2001 which agreed an employment commencement date of 27 March 2001. On 12 September 2002 the parties agreed a compromise agreement in which it was acknowledged that the defender's employment with the pursuers is regulated by the terms of said contract dated 6 October 2001. They further agreed that the defender's employment with the pursuers terminated with effect from 9 September 2002. The issues at the proof did not turn upon the 2002 agreement, but related to provisions of the service agreement dated 6 October 2001. It was not disputed that clauses 11 and 13 of the 2001 service agreement continue to apply for a period after the termination of the employment contract.

[2 ] Said service agreement contains provisions in clauses 11.1 and 11.2 in relation to confidential information. Clause 13.2.1 is to the effect that the defender is not entitled to solicit custom or the business of persons in certain circumstances. Clause 13.2.2 is to the effect that the defender will not have business dealings with or accept business from any person in the circumstances specified. I deal with these clauses in paragraphs 29 to 38.

[3 ] The pursuers raised an action seeking interdict and interdict ad interim in respect of alleged breaches of said clauses 11 and 13 and for payment of damages. On 26 November 2002, after some amendment, Lord Johnston, having heard an opposed motion, granted the pursuers' motion in part. He granted interim interdict of the defender from using the pursuers' confidential information, as specified in clause 11.1, and from enticing, soliciting away or endeavouring to entice or solicit away the custom or business of any person in terms reflecting clause 13.2.1. He did not grant interdict ad interim to reflect part or any of clause 13.2.2. The interpretation of clause 13.2.2 and its enforceability were matters of dispute between the parties at the earliest stages of this legal action. The defender has always denied that he in fact breached clause 13.2.1. He has for long admitted that he has dealt with various clients of the pursuers under explanation that clause 13.2.2 is not enforceable. At the stage of interim interdict, it appears that the pursuers did not seek a condition to have the defender keep a list of any person covered by clause 13.2.2 and details of any business with such person. In any event no such condition was made. Such a list is commonly requested and made a condition in the event that interim interdict is not granted. This is often of assistance if damages remain in dispute and may assist in minimising the length of any proof.

[4 ] During the period April 2003 - November 2003 various documents were recovered by the pursuers following various commissions and diligence. Various minutes of amendment were granted and adjustments were made. On 21 October 2004 the cause was appointed to the procedure roll. Lord Menzies in his Opinion dated 16 April 2004 refused to admit certain averments of the pursuers to probation and quoad ultra allowed parties a proof before answer. Thereafter the pursuers sought further recovery of documents which was granted and further amendment was made.

[5 ] The case came before me on a closed record (as amended) dated 6 March 2006. Some 42 pages of pleadings detailed inter alia individual client transactions. Evidence was led over seven days commencing 7 March 2006. The case did not conclude in the time allocated. This was partly because of the nature of the Closed Record and the attempt in evidence to trace through the transactions of various clients, identify timings, identify individual commission and project commission earnings into the future. This laborious process was to some extent narrowed down in the course of submissions. By that stage there was limited agreement about the proper approach to assessing damages (if damages were due), the relevant clients for these purposes, the transactions and base figures. Submissions were heard over four days commencing 26 September 2006. At my request, parties produced written submissions which were developed in oral submission. The pursuers' written submission is 49 of process and the defender's written submission is 50 of process. Provision of the written submissions reflected a great deal of work for which I am grateful to both parties' representatives.

The pleadings and issues arising therefrom
[6 ] The first conclusion is for interdict against the defender from using the pursuers' confidential information, as specified in clause 11.1 of said service agreement. The pursuers insisted on this conclusion. The position of the defender was that he had no confidential information and did not use such information but he was not prepared to spend time at proof to dispute this conclusion. That was made plain to me at the commencement of the proof.

[7 ] The second conclusion is also for interdict and reflects the terms of clauses 13.2.1 and 13.2.2 of said service agreement. Both said clauses had a limitation period of twelve months from the date employment was terminated, 9 September 2002. It was not disputed that no interdict could be granted in terms of the second conclusion.

[8 ] The case which I have to consider is, in essence, a case of breach of contract in respect of clause 13 seeking damages based on alleged losses in respect of specific clients. This is reflected in terms of the third and fourth conclusions which seek damages apparently for alleged breaches of said clauses 13.2.1 and 13.2.2. The case is made more complex by the pleadings relating to alleged lack of authorisation on the part of the defender resulting (it is alleged) in work undertaken being illegal and a contravention of the "Financial Services Act".

[9 ] Articles 1-3 of condescendence narrate the parties' history, the employment service agreement and set out the terms of the restrictive clauses. In Article 4 of condescendence, the pursuers aver that the defender has contacted numerous established clients of the pursuers and names are listed. It is averred that

"In light of the number of his former clients contacted and the subsequent actions of several of them in transferring or writing new business with the defender as hereinafter condescended upon it is believed and averred that the purpose of said contacts was to induce or persuade those clients to transfer their business to the defender." (11D-E)

It is averred that each and all of these contacts were contraventions of either clause 13.2.1 or 13.2.2 or both of the defender's service agreement. There then follows averments about further specific contacts and it is averred that as a result of this the pursuers have suffered and will continue to suffer loss of commission and repeat commission in respect of the business of specified clients. It is averred that -

"The defender benefited from payment of commissions either directly from the product suppliers or indirectly from Spence & Spence. The contacting of these clients with a view to enticing or soliciting or endeavouring to entice or solicit business was wrongful. In the event that any of these clients sought out the defender accepting business from these clients was wrongful. Reference is made to clauses 13.2.1 and 13.2.2 of the service agreement." (14C-E)

There then follows various averments which relate to reasonable apprehensions and interdict which are not relevant for present purposes. In answering the specific averments, the defender admits many of the contacts, albeit not in the context of enticement or solicitation. It is not disputed that he accepted business from certain of the clients specified after he left the pursuers' employment during the 12 month period. The defender explains and avers that -

"on or about 1 November 2002 the defender commenced trading in association with Spence & Spence. Between 1 November 2002 and 12 February 2003 the defender was self-employed but worked with Spence & Spence. While working with Spence & Spence that firm used the trading name of Anderson Welsh for business referred by the defender. On 24 December 2002 the Financial Services Authority authorised the defender to conduct investment business. On or about 12 February 2003 the defender ceased to trade in association with Spence & Spence. On or about 13 February 2003 the defender was a director and employee of Anderson Welsh Limited." (20E-21B)

[10 ] In answer to these averments by the defender, the pursuers make certain averments which were the subject of objection and engaged a considerable amount of time in this case. I deal with the objection in paragraphs 24 to 28. The pursuers do not dispute that the defender commenced trading in association with Spence & Spence and that whilst operating under the aegis of Spence & Spence the defender was self-employed. But the pursuers aver -

"that the defender received authorisation from the Financial Services Authority to operate under the aegis of Spence & Spence as an investment adviser and pension transfer specialist on 23 December 2002. Any work undertaken in those capacities prior to that date was illegal and a contravention of the Financial Services Act. The defender continued to be authorised in respect of said capacities by the Financial Services Authority in the name of Spence & Spence until 9 April 2003. Any work that the defender undertook in providing financial services to clients required to be supervised and approved by Spence & Spence. After interim interdict was obtained by the pursuers against the defender, Mr Charles Spence, the senior partner of Spence & Spence, instructed the defender not to undertake work for his former clients at Dunedin. The defender disregarded that instruction and continued to undertake such work without lawful authorisation. In particular, Spence & Spence did not authorise work on behalf of Mr Bristow, Mr Fairclough, Mr Haddow and Mr Bryson. The defender has shown, and continues to show, a wilful disregard of both his contractual and legal responsibilities. In the circumstances interdict, as first concluded for, is necessary." (16B-17A)

The averments then continue to deal with specific points in relation to specific clients. It may be useful to state at this stage that I consider the pursuers' averments in Article 4 of Condescendence to be an amalgam of averments in support of interdict and interdict ad interim, on the basis that there have been various breaches in relation to specific clients of clauses 11, 13.1 and 13.2 of said service agreement. There are no averments that relate or connect the averments which I have quoted to damages.

[11 ] In Article 5 of Condescendence, the pursuers aver the defender breached the terms of the service agreement and in particular clauses 13.2.1 and 13.2.2. The pursuers then set out details of business transacted and various commissions and various projections of the commission into the future with reference to certain named individuals. This approach is adopted in relation to Graham Cole, Marilyn Cole, John Fairclough, Mr and Mrs Spencer and Mr and Mrs Bristow. There are then averments by the pursuers about what occurred when previous directors left, including rebuilding relationships with clients (31B-D). It is then averred that -

"on this basis the pursuer believes and avers that if the defender had either not sought out his clients or declined to act for them for the restrictive period they would have remained with the pursuer." (31D-E)

This is a critical averment, in my opinion, in relation to damages. This averment of the pursuers is oddly placed and interrupts the pursuers' averments about Mr and Mrs Bristow. The averments then continue to deal with other clients, namely Mr Bryson and Mr Haddow and conclude that the total commission lost to the pursuers is £36,534. For convenience I refer to the clients listed as the "Article 5 clients". It is then averred that:

"In each case the defender took advantage of work already undertaken by himself in the employment of the pursuer. The pursuer therefore incurred the costs of the work but were denied the commission." (page 32D-E)

The pursuers then makes averments about what happened when previous directors left and how clients were retained and avers:

"On this basis the pursuer believes and avers that if the defender had either not sought out his clients or declined to act for them for the restrictive period they would have remained with the pursuer. Had the defender complied with his undertakings and not written business for these clients within the 12 months after his departure, the pursuer believes and avers that the funds described would have remained with them." (33B-C)

These averments when read along with the averments at 31D-E are the averments which found the basis of causation in relation to the damages sought by the pursuers. They set out the reasons why the pursuers maintain they lost business as a result of breach or breaches of the agreement by the defender.

[12 ] These averments are answered by the defender. The defender admits various actings in respect of certain clients and various transactions, and avers reasons why the damages are said to be excessive. The defender's primary contention is that damages are not due as there has been no breach of 13.2.1 or 13.2.2 of the service agreement. The defender makes certain specific calls (1) to state what steps, if any, the pursuers took to retain or recover clients; (2) the factual basis for the pursuers' belief that they would have retained the business of persons with whom the pursuers had dealt and in particular the clients, and particularly would have retained them beyond 10 September 2003; and (3) seeks certain information about clients who left the pursuers (38B-D). With reference to the first call, the pursuers aver -

"The pursuers took no steps to seek to recover clients from the defender once the clients had decided to mandate their business to the defender. It would have been futile to do so. These clients had had the defender built up in their eyes whilst dealing with the defender when he was employed at the pursuers. The pursuers encourage a close personal relationship between their sales executives and their clients. It is for this reason the pursuers require to protect their business by the restrictions in the contract of employment. It is both predictable and understandable that some clients that the defender had dealt with whilst at the pursuers would seek him out. Clause 13.2.2 is therefore an essential requirement to protect the business of the pursuers when an executive leaves. The period of the restriction allows the pursuers the opportunity to build up a similar level of trust and confidence in the new executive dealing with the client. Any competition thereafter is therefore on an equal footing and not to the disadvantage of the pursuers. By breaching that term the defender has obtained an unfair advantage against the pursuers and thereby caused them to suffer loss." (33D-34B)

There is no specific answer to the second call but the pursuers do have averments about this issue at 31D-E and 33B-C to the effect that the clients would have remained with the pursuers if the defender had either not sought out the clients or declined to act for them for the restrictive period. Part of the case, which counsel for the pursuers sought to make out in eliciting evidence and in submissions, was to the effect that if the clients had known that the defender (as the pursuers contended) was acting contrary to the "Financial Services Act" and was unauthorised and that the clients would lose the protection of the Act, they would not have left the pursuers. I comment at this stage that, despite the defender's call, there are no averments by the pursuers supplementary to 31D-E and 33B-C which give any further specification as to the reasons the pursuers aver that clients would have remained with them. In relation to the third call, the pursuers have some specification to which I have already referred.

[13 ] Article 6 is not relevant for present purposes.

[14 ] The pleas-in-law which are relevant are the pursuers' fifth plea-in-law claiming that the defender having breached clauses 13.2.1 and 13.2.2, the pursuers are entitled to reparation therefor. Pleas-in-law 6 and 7 relate to the sums third and fourth concluded for being reasonable. The pursuers make it plain that the sum fourth concluded for relates to future loss arising from the defender's breach of contract. The defender has pleas directed to relevancy and the averments being unfounded in fact. In addition, plea-in-law 6 is directed to clause 13.2.2 as being contrary to public policy and not enforceable. It was conceded in submissions on behalf of the defender that plea-in-law 7 directed to clause 13.2.1 being wider than necessary to protect a legitimate business interest should not be upheld. Plea-in-law 8 is directed to the defender not having breached clauses 13.2.1 and 13.2.2. Plea-in-law 9 is a plea that the sum sued for is excessive. Pleas-in-law 10 and 11 are directed to a failure to mitigate loss and damages being too remote. These pleas were not insisted upon during submissions.

Evidence

[15 ] The witnesses led for the pursuers were:

Mr Irvine (managing director of the pursuers)

Mr Spence (managing director of Spence & Spence Limited)

Mr Bryden (senior partner with a firm of solicitors and an existing client of the pursuers)

Brenda Henry (customer service employee at Norwich Union)

Andrew Belchley (former managing director of the pursuers)

David Beattie (existing client of the pursuers)

David Reilly (business liaison manager of the pursuers).

The witnesses led by the solicitor advocate for the defender were:

Mr Bristow, Mr Fairclough, Mr Bryson, Mr Spencer, Mr Haddow, Mr Cole (all former clients of the pursuers)

Alistair Marr (a client until about 2005 of the pursuers)

The defender.

[16 ] Mr Irvine, age 39, independent financial adviser with an additional qualification in the pension industry, holder of a Financial Planning Certificate and G60 pension qualifications, was the main witness for the pursuers. He has been employed by the pursuers since June 1995. He explained that the principal asset of the pursuers is the client base and the renewal income which they generate, which includes trail commission which may be described in general terms as a continuing annual commission on various policies. He gave scene setting evidence about the financial services industry. His principal evidence involved trying to set out and explain the various financial arrangements made on behalf of the Article 5 clients with reference to many and varied documents. No report drawing this information together was made available in evidence. There was also considerable evidence from him about what he understood the defender had done for various clients and whether it was the same or different from work which had been done by or on behalf of the pursuers. With some limited exceptions he did not appear to have attempted to carry out any investigation of the pursuers' case except as a paper exercise. For example, in relation to Mr Marr, he said that Mr Marr had told him the defender had been in touch with him. He did not ask Mr Marr why the defender was in touch. He did not know whether the defender was trying to solicit Mr Marr. He did not hear the conversation and did not make enquiry. He did not know whether Mr Marr became a client of the defender. This is against the background of the record in which the pursuers aver that Mr Marr is a person in respect of whom it is believed and averred that the purpose of said contact by the defender was to induce or persuade clients to transfer their business to the defender. Mr Irvine did give evidence in relation to some of the Article 5 clients about some discussions which he had with them about the time of their leaving the pursuers. I make comment about that later. Although there was a great deal of evidence from Mr Irvine, very little of it bore upon the critical issues in the case, as I have identified them. Most of his evidence related to matters relevant to damages. I deal with aspects of his evidence in relation to various issues which I address later.

[17 ] For reasons which I explain in paragraphs 24-28 I give only an outline of the evidence of Mr Spence. Mr Spence, age 48, entered into an arrangement with the defender in which Mr Spence was responsible for the defender's compliance with FSA regulations. This was done with the assistance of two compliance officers and an outside agency. He thought the arrangement started about the end of 2002 when the defender was taken on as a self-employed consultant with agreement to split commission. The defender was asked to join and help run the Glasgow office. There is no evidence as to what this arrangement involved or about the specific terms of the agreement and its implications for individual clients in relation to registration as an independent financial adviser. According to Mr Spence the website of the FSA was not accurate. Arrangements about compliance were dealt with by his compliance department. He confirmed that he had never met Mr Cole and knew nothing about 6/25 of process. He knew nothing about a meeting with Mr Cole mentioned therein. He did not know about the letter referring to a proposed meeting with Mr Bristow. He had never met Mr Bristow. In response to legal documents served on behalf of the pursuers, which contained six specific names which he could not remember, he instructed the defender not to deal with the six names listed. What he intended to happen as a result of that was not explored. He was not asked whether he considered this had any implications for the defender in relation to the defender's authorisation with the FSA. Mr Spence said that he had received a letter from the FSA asking the firm to look at three bits of business transacted by the defender. This had been provoked by a complaint of the pursuers. Following that investigation he said that the FSA said there were no issues arising. There was an internal enquiry into the work of these three pieces of business. Cole and Spencer were looked at. I comment at this stage that at the end of Mr Spence's evidence, I was totally unclear about how this arrangement with the defender fitted in to the regulatory structure of the Financial Services and Markets Act 2000 and whether or not under that Act, Mr Spencer had any right to give instructions to the defender which might or might not result in the defender's loss of authorisation in relation to any specific clients. I was particularly puzzled by the fact that the instruction appears to have arisen out of Mr Spence's concern that there was a legal dispute between the defender and the pursuers involving their private contractual arrangements. Mr Spence did not have any knowledge of the merits of that dispute. As I did not know what was involved in the contractual arrangements between Mr Spence and the defender, I was not in a position to assess the legal effect of such an instruction even if Mr Spence had been able to remember to whom the instruction related.

[18 ] Glenda Henry, age 59, gave evidence that a call came into the call centre, which she did not receive. The call centre asked her to send a piece of work to "Kenneth". The enquiry did not make sense to her as the registered ISA at the time was the pursuers. She thought that Norwich Union received a mandate some time later. I accept her evidence as credible and reliable but did not find this evidence of assistance in relation to the issues which I consider critical.

[19 ] Andrew Belchley, age 53, was a self-employed antiquarian book seller. He had previously worked in the financial services industry as group managing director of the pursuers. He identified 6/15 of process as the report generated by the defender demonstrating the amount of income the defender thought he was likely to generate over the year. He confirmed that clients are the bedrock of the business. He described them as "property" of the business. He did not think he had a restrictive covenant when he was employed by the pursuers. I accept what I consider to be the most important part of his evidence that is the explanation of the report 6/15 of process and his description of the importance of clients to the pursuers' business. I did not consider that the rest of his evidence assisted me in relation to the critical issues.

[20 ] I deal with the very short passage of evidence from Mr Beattie in paragraph 42.

[21 ] Mr Reilly, age 46, has been the business liaison manager of the pursuers since November 1997. His task is researching and writing reports for directors. He is not registered to provide advice and he said that there was an important distinction between adviser and researcher. Reports went out in the name of the advisers. He spoke to Mr Bryson after the defender left. Mr Bryson telephoned to say that he had heard that the defender had left. Mr Bryson though the defender was a good guy, but said according to this witness that it did not make a difference to his relationship with the pursuers. That was the last time Mr Reilly spoke to Mr Bryson. The import of this evidence suggests that Mr Bryson was not unhappy with the service of the pursuers at the time. I do not accept this for the reasons explained in paragraphs 60-61.

[22 ] The remainder of the client witnesses are dealt with in paragraphs 48-64 where I deal with the evidence given by clients and former clients.

[23 ] The defender explained that he had a history in the financial services industry since about 1990, including periods in various financial institutions. He confirmed the employment date and the suddenness of the resignation. I accept his evidence on this point. It was not disputed that this was a sudden event and not planned. Most of the rest of his evidence related to his description of the various interactions with the Article 5 clients. He also gave some general evidence about how the commission system worked. The general thrust of his evidence was that he had not solicited. He admitted that he had dealings with and accepted business from the Article 5 clients. Because of the difficulties which I narrate in paragraph 24-48, I concluded that I could not properly assess the defender's evidence in relation to the important issues of his interactions with the specific clients. The defender declined, as he was entitled to do in the circumstances and subject to the warnings I had given, to answer questions in relation to certain documents and certain interactions. In all the circumstances, therefore, I did not feel confident about assessing his evidence in relation to specific clients. To the extent that his evidence might have provided corroboration in relation to some of the important issues, I am not prepared to find such corroboration in all the circumstances. In consequence, as I have explained, I have reached conclusions mainly on the basis of uncorroborated evidence given by individual clients.

Objections to evidence
[24 ] There were many objections to evidence, mainly on behalf of the defender. At the stage of submissions, many of these objections were withdrawn. There was a major part of evidence, however, to which objection was taken and I require to deal with that. Objection was taken to any line of evidence based on the pursuers' averments about illegal work being undertaken in various circumstances averred at page 16 of the Closed Record and to the evidence of Mr Spence. I deal with the averments in paragraphs 9-12.

[25 ] As the case was developed, it became clear that the pursuers' counsel wished to establish that in certain circumstances (not always clearly defined) the defender had been guilty of criminal conduct in acting or continue to act for former clients of the pursuers. On behalf of the defender a line of objection was taken at the due time based both on relevancy and lack of fair notice. I understand that because it was not anticipated that the pursuers might seek to develop a line that the defender's actions were criminal, this part of the closed record was not discussed at procedure roll debate. With the benefit of hindsight that is unfortunate. Having now considered the matter in detail, I am of the opinion that the averments and evidence about this are not relevant to the determination of the issues which are properly to be regarded as the subject of this case. The averments might, and I express no view about this, have been relevant to considerations about interdict and interdict ad interim but that cannot be extended on this record. At submission, counsel for the pursuers to a limited extent appeared to accept this. He accepted that the relevance of the issue of dishonesty and illegal behaviour was not of assistance if clause 13.2.2 was accepted as valid and enforceable. That is because it is not disputed that the defender accepted business and engaged in business dealings with various clients and in these circumstances the pursuers do not require to persuade the court to make inferences. Counsel for the pursuers insisted however that it is relevant to the pursuers' case re clause 13.2.1 and to the issue of damages is assessing whether the Article 5 clients would have stayed with the pursuers. I disagree. I have concluded that the defender did not breach clause 13.2.1 on the basis of clear evidence which I accept from the Article 5 clients (see paragraph 64). The submission in relation to damages was to the effect that the clients would have remained with the pursuers if they had been informed that the defender was not authorised to act and that his actions were criminal and removed them from the protection of the Financial Services legislation protection. So ran the hypothesis and the contention. I merely comment in passing that the pursuers' case was based on their establishing the defender as a key adviser for these clients. If the defender was a person who was so untrustworthy and engaged in criminal activity to the detriment of these clients after he left the pursuers' employment, it is not clear to me how this is likely to persuade clients to remain with the pursuers. One might conclude on this hypothesis and contention that the clients might be likely to have avoided both the pursuers and the defender and sought urgent advice elsewhere. In paragraphs 9-12 I have discussed the basis of the pursuers' case in relation to breach of contract and causation of damages. It is plain that there is no case on record linking alleged dishonesty and criminal behaviour with causation as to whether or not clients would have been likely to remain with the pursuers. The averments of illegality on which the pursuers seek to found are linked on record with interdict not damages. I do not regard this as a technical pleading point. The pursuers have set out on record clear averments in relation to causation and there is a specific call by the defender about this. No specific objection was taken on behalf of the defender to the few questions which were put to the witnesses in relation to damages. But there is no doubt in this case that root and branch objection was made on the basis of relevancy and fair notice to the chapter of evidence based on averments of illegality in all of its forms.

[26 ] I also consider that there is merit in the submission on behalf of the defender in relation to fair notice. The averments make no specific averment that actions allegedly involved criminal offences. There is a bare reference to the "Financial Services Act". This Act is repealed and the legislation in force is the Financial Services and Markets Act 2000. This is an Act of some considerable complexity. In submissions, counsel for the pursuers, in order to explain the basis of his allegations and hypothesis, also referred to the complex provisions in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. In addition in order to understand the pursuers' hypothesis, it is necessary to examine specific items of work about their nature and timing and have a proper understanding of the relationship between Mr Spence, Spence & Spence and the defender.

[27 ] There was no evidence from Mr Spence about the exact nature of his agreement or relationship with the defender during the relevant period. He did not suggest that any instruction he gave took away authorisation from the defender. Even the pursuer did not suggest that any such instruction should have resulted in some alteration in the public website about the authorisation made by the Financial Services Agency. The difficulties of trying to deal with this chapter of evidence became acute at the stage when the defender gave evidence. That was at the end of the proof. There was some criticism of this timing by the pursuers' counsel, but I reject that criticism. The defender was not present during the evidence of the clients led on behalf of the defender. It was explained that the timetabling for the defender's witnesses had been upset by the length of time taken to complete the pursuers' case in evidence. In any event, it is a matter for the solicitor advocate for the defender how he chooses to present his proof. By this stage of the evidence, it was plain that allegations of criminal conduct were being made on behalf of the pursuers in respect of some of the clients based on various hypothesis developed by pursuers' counsel. I required to give repeated warnings to the defender about his right not to answer questions in circumstances when it was not clear, even to me, where the hypothesis and contentions of the pursuers' counsel were leading. For these reasons I am not satisfied that fair notice was given and that this led to prejudice.

[28 ] Accordingly, I sustain the objection in relation to any evidence about this chapter based on these averments which includes the evidence insofar as relevant of Mr Spence.

The interpretation and enforceability of clauses 13.2.1 and 13.2.2 of the service agreement

[29 ] Clause 13.2.1 provides that the defender

"will not during the Employment and for the period of twelve months from the Termination Date entice or solicit or endeavour to entice or solicit away from the Company or any Associated Company the custom or business of any person, firm, company, or organisation who or which is or has been a customer or client of the Company or such Associated Company (as the case may be) and with whom or which the Executive has dealt at any time during the twelve months immediately prior to the Termination Date."

[30 ] Clause 13.2.2 provides that the defender

"will not during the Employment and for the period of twelve months from the Termination Date have business dealings with or accept business from any person, firm, company or organisation who or which is or has been a customer or client of the Company or any Associated Company (as the case may be) and with whom or which the Executive has dealt at any time during the twelve months immediately prior to the Termination Date by the Company or such Associated Company."

[31 ] During submissions, the solicitor advocate for the defender conceded that on a proper interpretation of clause 13.2.1 this clause was valid and enforceable. Standing that concession, which I consider to be properly made, no issue of construction remains in dispute about clause 13.2.1. There is still an issue as to whether there is a breach by the defender of clause 13.2.1 and I deal with that in paragraphs 39-47.

[32 ] Throughout the history of this case there was considerable dispute about the construction of clause 13.2.2 as to whether that clause was valid and enforceable. The matter was canvassed at the motion for interim interdict in November 2002 and at some length by the parties' same legal representatives before Lord Menzies at procedure roll. I refer to the opinion of Lord Menzies dated 16 April 2004. Having dealt with the submissions on behalf of the parties and considered the proper construction, he concludes in paragraph 26:

"I am accordingly not persuaded by the various attacks made by the defender on the pursuers' case based on clause 13.2.2 of the service agreement and I shall allow a proof before answer in respect of these averments."

Although there was some difference in emphasis in the submissions made on behalf of the pursuers and defender in relation to this, there was no fundamental dispute about the general principles or approach to be applied. The parties reached different conclusions about the result in the present case. Fundamental to the approach of both parties was the opinion of Lord Caplan in Malden Timber Limited v McLeish 1992 S.L.T. 727. At pages 730-731 he sets out the general principles to be applied. These principles and the authorities on which Lord Caplan relied were not in dispute before me or before Lord Menzies. The principles are referred to by Lord Menzies in paragraph 17 of his opinion. The solicitor advocate for the defender also prayed in aid the Opinion of Lord Bracadale in Axiom Business Computers Limited v Jeannie Frederick or Kenny (unreported) 20 November 2003 where Lord Bracadale considers the general principles from the leading cases, including Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company [1894] AC 535 at 565; Scully UK v Lee [1998] IRLR 259 and makes reference to the passage already quoted by Lord Caplan in Malden Timber Limited v McLeish (paragraphs 8-10).

[33] There was no significant dispute between the parties as to the principles of law applicable to restrictive covenants between an employer and an employee. It was also accepted that the task of the court at the interim interdict stage was different as consideration required to be given to the balance of convenience as well as the general principles of interpretation. There was also agreement that each case was dependent upon the particular wording of the restrictive covenant and the background factual circumstances in which the contract was concluded. The pursuers' counsel prayed in aid PR Consultants (Scotland) Ltd v Marvin 1997 S.L.T. 437 as being of particular assistance in relation to facts and circumstances similar to the present case. He also founded very strongly on the interpretation favoured by Lord Menzies. He accepted that I was not bound by the Opinion of Lord Menzies, which in any event was given at procedure roll before the factual background had been explored in evidence.

[34 ] With reference to PR Consultants (Scotland) Limited, the terms of the restrictive contact considered by Lord Caplan are set out at pages 437L-438C. The prohibition appears to be directed to the executive seeking employment or doing work or contracting or dealing with soliciting or interfering with the custom of any person who prior to the date of termination was a customer or client of the employer during the 12 month period. Lord Caplan, at page 441A-B, concentrates on the provision prohibiting the executive involving himself in "seeking employment or engagement with" one of the pursuers' customers. My difficulty with the wording in 13.2.2 is that even if one reads into the wording some restriction relating to the particular industry, as Lord Caplan did in the case before him in relation to the public relations services, and Lord Menzies did in relation to the present case, this only narrows the ambit of clause 13.2.2 sufficiently in relation to that part of the clause referring to "accept business". Even if one reads in a restricted meaning, the phrase "business dealing" plainly covers situations where the defender as an IFA or working in the financial services industry has business dealings with former clients not in relation to the clients' financial interests but in the specialist fields in which the clients operate. Even with a restricted meaning clause 13.2.2 in my opinion prevents the defender from having business dealings with a client in relation to the client's own business. For example, if the defender, while involved in the financial services industry contacted a client who was a recruitment specialist and sought his assistance on the defender's behalf to obtain other employment in the financial service industry, this would in my opinion amount to "business dealings" in breach of clause 13.2.2. Similarly, the clause even with a restricted meaning would prevent the defender while working in the financial services industry instructing a solicitor to give him legal advice or a printer to print his business cards, if the solicitor or printer were former clients. Neither Lord Caplan nor Lord Menzies consider such a situation. In my opinion Lord Caplan does not consider this because it does not arise in the restrictive covenant with which he dealt. Lord Menzies deals with the issue in the present case at paragraph 23 and states:

"It would in my view be stretching the meaning of clause 13.2.2 too far to suggest that it prohibited the defender from accepting business which was quite unrelated to the financial services industry from people who happen to have been customers of the pursuers."

He does not consider a situation where, for example, the defender while working in the financial services industry seeks to do business dealings with clients of the pursuers by seeking out their services in their own fields of work and expertise. This is not the kind of unlikely scenario which Lord Caplan was envisaging when he says at page 441A that:

"Given the context within which the covenant was devised it seems to be unlikely that the parties had any contemplation that the defender should be prevented from seeking a relationship with a former customer in the capacity of an office boy or doorman for example."

Even if one gives clause 13.2.2 the benefit of an interpretation more restrictive than the plain meaning of the words suggest, the clause still prevents activities by the defender in circumstances where the prohibition cannot be said to be designed to protect the pursuers' goodwill and business with their customers. It is one thing to prevent an employee from taking employment with or accepting business from a client of the employer with whom he has worked closely. It is a different, and in my opinion, illegitimate exercise to prevent an employee even if he remains in the same line of work as the employer from using the services of former clients of the employer. That involves business dealings with such a client. That situation is quite different from the situation contemplated by Lord Caplan in PR Consultant Limited at 439E-F where the restriction was designed to protect the pursuers' goodwill with their customers. The restriction was to prevent the employee

"for a reasonable time after leaving (the pursuers') employment act for established customers of the pursuers and build on the goodwill he had developed with such customers while working for the pursuers and given the privilege of access to their customers."

He concludes:

"The only practical form of protection was if for a reasonable period after termination of employment an employee should be precluded from working for an established customer."

It is a different situation to prevent an "established customer" working in his own field of expertise for the defender. I respectfully concur with Lord Menzies in his reasoning for rejecting the submissions on behalf of the defender attacking the validity of clause 13.2.2 at para.18-24 of his Opinion. But on the final point which Lord Menzies describes as "rather more finely balanced" in paragraph 25, I consider that there is merit in the submission that the clause does not provide any sufficient limitation on the type of business dealings prohibited for the reasons I have explained. In my opinion the clause is wider than is reasonably necessary to safeguard the pursuers' interests in their clients' goodwill, future business and trade connections.

[35 ] I draw some support for that conclusion when I consider the whole terms of the contract. I consider that it is not without significance that in another part of the contract, parties plainly had in mind the need to specify the type of business arrangements prohibited. I refer to clause 6.1.5, which provides:

"The executive shall not ... be engaged, concerned or interested in any business either:-

(1) involving the business or activities of an independent financial adviser, or

(2) of a similar nature to or which would or might materially compete with any business which was, at the date of commencement of such engagement, concern or interest, being carried on the company of any associate company, ...".

Clause 6.1 regulates the duties of the executive during employment, but it plainly envisages that the business or activities the parties contemplate may fall into different categories. No such restriction or specification is made in clause 13.

[36 ] I consider that clause 13.2.2 is capable of being construed in a number of different ways. Firstly, in its wide sense, giving effect to the plain meaning of the words, there is no limitation. Secondly, to read into it a limitation such as "have (as an IFA) business dealings with or accept business (as an IFA)". Thirdly, to read in a limitation such as "have (while involved in the financial services industry) business dealings with clients. The limitations are underlined. There are other possible ways of restricting and reading into the clause a restricted meaning. But I am not persuaded after proof that there is any compelling reason for reading in such restrictions or preferring one restricted meaning to another. Having heard evidence, I am satisfied that the pursuers' business arrangements are such that they have clients who themselves offer various services to the public, for example, legal services as a solicitor and recruitment services. Because of the nature of the commercial and business arrangements and the way in which personal contact may lead to and foster new business arrangements, it is easy to conclude that a broad interpretation of clause 13 is not in any way inconsistent with the commercial situation as envisaged by the parties. The parties' intention is to be construed from the document and that is what I have attempted to do in the light of the facts and circumstances which provide a background to the contractual arrangements. In this connection there was some evidence from Mr Irvine as to the meaning of the restrictive covenants and the extent to which he thought the pursuers were protected by them. It was not submitted that his view was relevant to the legal construction and I agree with that. It is relevant, however, to understand the context of this case and Mr Irvine's attitude to the protection to which he thought the pursuers were entitled under the contract. It was plain from the evidence of Mr Irvine that at the time of these events, he did not consider the clause restricted in the way contended for by counsel for the pursuers. Mr Irvine believed that essentially clause 13 provided a "no contact protection". In essence Mr Irvine considered it unacceptable, because of the restricted covenants, that the defender was contacting any client for any purpose with the possible exception of longstanding pre-existing friendship and even in that situation he expressed some reservations.