Scottish Court of Session Decisions

Pursuers: A. Duncan, Advocate; Shepherd & Wedderburn

Defender: H. Currie, Q.C., J Brown, Advocate; Balfour & Manson LLP

25 February 2009

[1] The pursuers are a firm of solicitors who practise as a limited liability partnership. The defender is a solicitor who carried on his profession under the name of Clairmonts. With effect from 1 August 2006 the defender sold his business to the pursuers and became a member of the pursuers. Payment for that business was to be made in instalments. On 2 August 2008 the defender gave notice that he would resign as a member of the pursuers with effect from 2 February 2009. Since early February 2009 the defender has been a member a Harper MacLeod LLP.

[2] The dispute arises out of the terms of the Business Transfer Agreement by which the defender sold his business to the pursuers. The Agreement, which was dated 13 and 27 July 2006, involved the sale of the business and its goodwill, which included the right of the purchasers to represent themselves as carrying on business in succession to the vendor. The restrictive covenants in issue in this case cover the behaviour of the defender both while he remained a member of the pursuers and also his behaviour afterwards. Clause 12.1 of the Business Transfer Agreement provided:

"For the purpose of assuring to the Purchaser the full benefit of the Business and the Goodwill, the Vendor agrees with the Purchaser that...

12.1.2 He shall not while he is a member of the Purchaser (except as may be agreed with the Purchaser, or in respect of Private Client Services and other legal services not provided by the Purchaser or referrals in the event of conflict) either on his own account, or through or with any other person directly or indirectly solicit, interfere with or endeavour to entice away from the Purchaser and/or thereafter deal with: any Clients.... any client of the Purchaser.

12.1.3 He shall not for the period of 1 year after he ceases to be a member of the Purchaser either on his own account, or through or with any other person directly or indirectly solicit, interfere with or endeavour to entice away from the Purchaser and/or thereafter deal with: any Clients ... any client of the Purchaser."

There is also a complication in that clause 12.2.2 provided that the restrictive covenants would not apply if the pursuers failed to pay an instalment of the purchase price timeously. The pursuers have not paid the final instalment of £250,000 which was due on 2 February 2009. But the pursuers argue that that involves no failure on their part as they allege that the defender was in breach of his restrictive covenant under clause 12.1.2 while he remained a member of the pursuers and clause 3.5 of the Business Transfer Agreement provided that he would forfeit his right to any outstanding instalment if he breached the restrictive covenants.

[3] The issues which arise at this interim stage therefore are whether the pursuers have made out a prima facie case of breaches of both clause 12.1.2 and 12.1.3 and where the balance of convenience lies. No issue is taken today as to the reasonableness of the restrictions in those clauses.

[4] Before addressing those matters it is necessary to consider the phrase in the relevant clauses, "solicit, interfere with or endeavour to entice away from the Purchaser and/or thereafter deal with". Mr Duncan on behalf of the pursuers submitted that the use of the words "and/or" meant that the clause should be construed to mean that the prohibition covered soliciting etc and also dealing with clients whether or not there had been prior solicitation. Mr Currie, QC for the defender on the other hand submitted that the reasonable man who was informed of the circumstances would concentrate on the word "thereafter" as a limitation on the restriction so that the prohibition against dealing arose only where that dealing was a consequence of the solicitation. In my opinion the interpretation which the defender advances gives no meaning to the words "and/or" which are not superfluous. I consider that while the clause could have been much more clearly worded, the reasonably informed reader would interpret the phrase to mean in short "solicit and thereafter deal with the client or deal with the client". I am fortified in this view by the consideration that this interpretation gives effect to all the words used while that advanced by the defender makes the "and/or" option meaningless as the word "and" alone would have sufficed. Further my construction gives meaning to the word "thereafter" in its context. No words need to be deleted. I am also supported in this view by the consideration that the contract is a business transfer agreement and not an employment contract. It is not surprising that a purchaser would seek and a vendor agree for a limited period after the vendor ceased to be a member of the purchaser that he would not deal with the clients whose business formed part of the goodwill which he had sold.

[5] Turning to the allegations of breaches of the two restrictive covenants I have to consider whether the pursuers have made out a prima facie case of breach. In relation to clause 12.1.2 the pursuers referred to a number of transactions including communings involving a Mr Reid, L Miller Ltd, The Fashion Retail Academy Ltd, LEBC Group, MJM International Ltd and Mr Jim Gibb and companies in which he was involved. They also referred to the setting up and use of an email account to which the defender had transferred certain business documents. The inference which the pursuers drew from these communings with clients was that there had been solicitation while the defender was a member of the pursuers. In relation to the alleged breach of clause 12.1.3 the pursuers founded on a farewell drinks invitation, on an email sent from Harper Macleod dated 3 February 2009 giving new contact details and praising the firm, referring to their brochure which demonstrated the depth and breadth of their client base, and also communings between the defender and Mr Stephen Beaumont in relation to Compact Armour Technologies Ltd. On the other hand the defender has rightly submitted that the materials relied on must be seen in their proper context in which the parties had agreed not only that the defender could conduct private client work for his former clients (clause 12.2.1 of the Business Transfer Agreement) but also by agreement dated 22 December 2008 that he could carry out company secretarial work for his corporate clients. There are in my opinion issues to be determined after proof whether the documents on which the pursuers found do in fact establish breaches of clause 12.1.2 and support reasonable apprehension of breaches of clause 12.1.3. I recognize that the defender has provided material which is capable of negativing adverse inferences in relation to the transactions from which the pursuers have inferred breach of clause 12.1.2 but at the interim stage I consider that the events could give rise to such inferences. I consider that there is therefore a prima facie case. It is difficult at this stage to ascertain its strength. In relation to the apprehension of a breach of clause 12.1.3, I am satisfied that the email of 3 February 2009 which was sent to former clients of Clairmonts among others would be a basis for a reasonable apprehension that the defender was soliciting business from such clients in breach of that clause.

[6] To succeed eventually the pursuers need to establish their cases in relation to both clause 12.1.2 and clause 12.1.3. While the pursuers have a prima facie case, it is not possible, on the information available to the Court, to reach a firm view on the strength of that case particularly when information which might have been made available in the form of affidavits from the pursuers has not been produced.

[7] On the balance of convenience I take account of this uncertainty on the merits but it appears to me that the decisive consideration is that the pursuers can be adequately protected by an award of damages. If the pursuers ultimately succeed in their claim it might be possible for them to recover documentation which would demonstrate any loss which they incurred as a result of the defender having dealt with former clients in breach of his contractual obligations. By contrast the defender would have very considerable difficulty in establishing a claim for damages as he would have to constitute a hypothesis of what he would have achieved with his former clients had he not been restricted by an interim interdict. In addition, the pursuers are due to pay out the defender his interest in the pursuers' business which Mr Currie estimated to have a value of about £400,000. They therefore have some security for any claim for damages which they might pursue in the future.

[8] In the circumstances where the strength of the prima facie case cannot competently be assessed and having regard to the balance of convenience I refuse the motion for interim interdict in hoc statu.