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Cite as: [2003] ScotSC 52
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Leah Health Care Services v. Deluca, [2003] ScotSC 52 (25 September 2003)
A1465/03
JUDGMENT OF SHERIFF PRINCIPAL EDWARD F BOWEN QC
in the cause
LEAH HEALTH CARE SERVICES
PURSUERS
against
DR DAN DELUCA
DEFENDER
Act: McLean, Tods Murray, WS, Edinburgh.
Alt: O'Hanlon, E & W Mains, Solicitors, East Kilbride
GLASGOW, 25 September 2003.
The Sheriff Principal having resumed consideration of the cause, sustains the appeal in part; recalls the sheriff's interlocutor complained of dated 29 April 2003; recalls the interim interdict pronounced in terms of craves 1 and 3 of the initial writ on 31 March 2003; finds the pursuers and respondents liable to the defender and appellant in the expenses of the appeal and remits the account thereof when lodged to the auditor of court to tax and to report thereon; quoad ultra remits to the sheriff to proceed as accords.
NOTE:
[1] This is an appeal against an interlocutor refusing to recall certain interim orders pronounced on 31 March 2003. Those orders granted interim interdict in terms of craves 1, 2 and 3 of the initial writ. The order in respect of crave 2 was effective until 23 August 2003. As it has now ceased to have effect it is unnecessary to deal with that order. The order granted in terms of crave 3 ought to have been effective to that date. Per incuriam it is effective until 23 August 2004, and I have now recalled it.
[2] The pursuers carry on business as Chiropractors. They have a clinic at 210 Battlefield Road, Glasgow. The defender is also a Chiropractor. On 28 November 2000 the parties entered into an agreement, the terms of which are set out in a "Statement of Particulars of Agreement". In that document the defender was described as "employee", and the document purported to be a statement setting out details of the main terms of his employment with the pursuers as required under the provisions of the Employment Rights Act 1996. It set out that the defender's employment commenced on 10 November 2000 for a fixed term of four years.
[3] Paragraphs 1.20 and1.21 of the above Agreement contain the terms which give rise to the present litigation. Under the heading "Non-Solicitation" it is provided in Clause 1.20 that:
"The employee covenants with the Company that he or she will not for the period of six months after ceasing to be employed under this contract in connection with the carrying on of any business (similar to or in competition with) the business of providing chiropractic services on his own behalf or on behalf of any person, firm or company directly or indirectly: (a) seek to procure orders from or do business with any person, firm or company who has at any time during the 12 months immediately preceding such time done business with the Company, and with whom the employee has personally dealt; or (b) endeavour to entice way from the Company any person who has at any time during the 12 months immediately proceeding such time been employed or engaged by the Company".
Under the heading "Restriction on Future Employment" Clause 1.21 provides:
"The employee covenants with the Company that he or she will not, within a five mile radius of any clinic operated by the Company, and for the period of one year after ceasing to be employed either alone or jointly with or as manager, agent, consultant or employee of any person, firm or company directly or indirectly carry on or be engaged in any activity or business which shall be in competition with the business or providing chiropractic services".
[4] In the present action the pursuers aver that the defender left their employment on 23 February 2003. Upon a narrative that in March 2003 they received information that the defender was to set up a chiropractic clinic at 1012 Cathcart Road, Glasgow they sought, and obtained, awards of interim interdict. The order pronounced in terms of crave 1 reflects the provisions of Clause 1.21 above quoted. The orders pronounced in terms of craves 2 and 3 reflect the terms of Clause 1.20 parts (a) and (b) respectively.
[5] In essence two matters arise for consideration. The first is whether any employment of the defender by the pursuers "ceased" as at 23 February 2003, because it is the cessation of employment which brings into effect the terms of Clauses 1.20 and 1.21. In that respect the defender in submissions both to me and the sheriff, founded on certain aspects of the Statement of Particulars of Agreement, and certain external factors as pointing to a situation in which he did not fall to be regarded as an "employee" of the pursuers. In terms of Clause 1.10 of the Statement of Particulars he was paid only commission and was required to pay and maintain his own "personal taxes". Certain of the pursuers' worksheets which were produced bore the defender's name only until 19 February 2002. From that date onwards they were in name of a company, Dasplaid Limited which the defender had incorporated at that time. From February 2002 onwards payments were made by the pursuers to Dasplaid Limited. On that basis it was strenuously argued that even if the defender had initially been employed by the pursuers in terms of the Particulars of Agreement he could not fall to be regarded as "employed" by them after February 2002.
[6] The sheriff rejected this argument. He observed that in his view the defender was "merely using this company arrangement for tax reasons". He held that essentially the pursuer was still employed by the defenders in terms of the original contract and accepted remuneration calculated in accordance with it.
[7] While the matter is by no means free from doubt I am not disposed to take a different view on this issue to that of the sheriff. As is pointed out in Harvey, Industrial Relations and Employment Law (vol 1) under the heading "Categories of Workers" para 9, a person may be regarded as a servant or employee for some purposes but not others. In the present case it may well be that the defender would not have been regarded as an employee for tax purposes. That does not assist in resolving what I consider to be the relevant question at this stage namely whether, on a prima facie view, the defender was working for the pursuers within the scope of the agreement of November 2000 at the time when he ceased to work with them in February 2003. Although the Statement of Particulars of Agreement is less than satisfactory as evidencing a contract of employment, on a broad view it can be regarded as such. There is no question of it having been formally terminated. Any question of termination can only be by implication from the fact that payment of the sums due under the Agreement was made to a limited company and not to the defender. In my view that is insufficient to displace the prima facie view that the defender remained in the pursuers' employment.
[8] The second question which arises is whether the restraints which the pursuers seek to enforce afford them more protection than is reasonable. There is little doubt as to the applicable law, and a number of propositions which have been advanced regularly are not in dispute. For present purposes these are (1) that covenants between an employer and employee will be viewed more strictly by the court than other forms of covenant where some consideration has passed; (2) that for a restraint to be reasonable it must afford no more than adequate protection; and (3) that an employer is not entitled to seek protection against mere competition from a former employee. These propositions are to be found, for example, in the Opinion of the Lord Caplan in Malden Timber Ltd v McLeish, 1992 SLT 727 at 730.
[9] In the present case the sheriff held that the restraints were reasonable. He said this:
"This case relates to the comparatively new science of chiropractice. A substantial element of delectus personae is involved in this particular area. Patients would normally become involved with a practitioner, as opposed to the practice. Employers would require to invest capital in setting up the facilities for a practice. It seems to me in these circumstances to be reasonable, and in the interests of parties and the public interest that, when a contract of employment is entered into allowing an individual to take advantage of the investment of capital by an employer, certain restrictions should be put in place to protect the employer's position...the public interest requires that such restrictions be recognised in order that companies will invest. They are entitled to rely on reasonable restrictions being placed on persons who have left their employment".
He continued:
"Having carefully considered all the evidence before me and the submissions which are made I considered the restrictions imposed on the defender in terms of the Statement of Particulars of Agreement were reasonable. I took this view in particular having regard to the nature of the work involved and the substantial element of delectus personae which is involved in this type of science ".
[10] I am in full agreement with the remarks in the first paragraph above quoted. Whether or not chiropractice is a "new" science may be debatable but it is certainly arguable that in the case of any form of treatment which is a relative novelty it will be necessary to make some efforts to convince patients of its value. It is also a valid point that while there may be capital investment involved in setting up a business the patients attracted to it will form a strong personal connection with the practitioner treating them, rather than with the practice itself. In that context it is interesting to note that the General Chiropractic Council, established under the Chiropractors Act 1994 expresses the view in its Code of Conduct that patients of a practice are "deemed...to be the patient of the chiropractor to whom the practice belongs" irrespective of who treats them (Clause 4.3.2 of the relevant Code). In the light of these factual considerations, and the rule of law that an employer is entitled to project his legitimate interest in his business connection (Scottish Farmers Diary Co Ltd v McGhee, 1933 SC 148 per Lord President Clyde at 153) I agree with the sheriff's view that the pursuers are "entitled to rely on reasonable restrictions being placed on persons who have left their employment".
[11] There is, however, a second question which is whether the restrictions which the pursuers seek to enforce are reasonable. With respect to the sheriff, it does not seem to me that he has dealt with that distinct issue, and in particular has not given reasons to justify upholding orders which are distinguishable from each other in terms of both duration and practical consequence. The solicitor for the pursuers urged me not to interfere on the basis that this was a matter of discretion which could not be said to have been exercised unreasonably, but I consider that this is a situation where, in the absence of stated reasons, I am required to exercise my own judgment.
[12] Accepting, as above indicated, that the pursuers are entitled to a measure of protection of their business connection, it may well be reasonable for the defender to be restricted for a period of six months after leaving the pursuers' employment from soliciting custom from their established clientele. That is the effect of Clause 1.20(a) and crave 2 of writ. Whether an interdict to enforce that is necessary is a separate matter since, as I shall point out later, the defender is permanently prohibited by a rule applicable to his profession from approaching someone who is the patient of another chiropractor.
[13] Clause 1.21 and crave 1 of the writ, however, go much further. The effect of these is to prevent the defender from operating as a chiropractor within most of Greater Glasgow. The area covers (and includes) from Hillington on the west to Cambuslang on the east and Newton Mearns to the south. It includes an area well to the north of the M8 motorway and the western section of M80. Nothing is said in the pleadings to justify the significance of this geographical restriction. Nothing is said about distances which patients are prepared to travel to obtain chiropractic services or the availability of these. At best it may be inferred that this being a relatively novel form of treatment practitioners are thin on the ground and it may be that patients are prepared to travel to receive treatment, but that it is a matter of conjecture. In the absence of any specific averments there must, having regard to the density of the population in the relevant area, be a serious question as to whether this is a reasonable geographical restriction. In my judgement when a party seeks to uphold, within a significant segment of a heavily populated area, a clause in restriction of a "trade" providing a service to the public it is incumbent upon that party to aver specifically why it is necessary. The case is distinguishable from Fitch v Dewes, 1921 2 AC 158, founded on by the pursuers, in which the "restriction of space" was not in dispute (see the speech of Lord Birkenhead LC at p162).
[14] The matter does not, however, end there because one requires in my view to take into account that the defender is subject to the Professional Code of Conduct to which I have already referred. Clause 4.33 of that Code provides that "Chiropractors shall not approach someone who is the patient of another chiropractor with the intention of persuading that person to become their patient". For a chiropractor to do so would on the face of it constitute "unacceptable professional conduct" which may be subject of proceedings before the appropriate Committee of the General Chiropractic Council. That being so the pursuers are protected from the luring away of patients to an extent which goes well beyond the "non-solicitation" provisions of Clause 1.20(a). What Clause 1.21 accordingly seeks to protect them from is direct competition. They have no interest in, or right to protect themselves from, the defender attracting new business. Not only does the proposed restriction cover that, it would prevent any of their existing customers, who might have entirely legitimate reasons for wishing to move on, from seeking treatment from the defender within the specified area.
[15] In the present case the pursuers aver that the defender has indicated an intention to "open up a clinic near the pursuers' Battlefield Clinic in particular 1012 Cathcart Road, Glasgow". I can well see their concern at that and with an improved degree of specification the pleadings might disclose a prima facie case that such an occurrence would cause damage to the pursuers' business connection. The restriction which they found on does not, however, seek to prohibit the defender from operating "nearby". It seeks to prohibit him from operating anywhere within a five mile radius. I cannot see how it can be in the public interest, or that it can be said to be reasonable, to have in place an interdict which prevents him from practising in Hillington, Cambuslang or Newton Mearns. In consequence I conclude that the restriction on which the pursuers seek to found is not reasonable.
[16] In that situation I have recalled the interim interdict pronounced in crave 1. That being the substantial issue in this appeal, it follows that the defender is entitled to expenses.