Croesus Financial Services Ltd v Bradshaw & Anor

Restrictive covenants protecting a financial-services business may validly combine non-solicitation and non-dealing obligations where solicitation would be difficult to identify or prove. The relevant contact must be business contact personally undertaken by the covenantor and more than trivial or de minimis. A 12-month restriction may be reasonable where clients are usually contacted annually and the business needs time to establish replacement adviser relationships.

A client’s initial contact does not automatically prevent solicitation. The court must examine all the circumstances and ask whether the former employee encouraged or persuaded the client to transfer business. Regulatory restructuring which leaves the employee’s work and income substantially intact does not, without more, amount to a repudiatory breach.

The claimant provided financial advice and products, deriving substantial recurring income from servicing existing clients. The first defendant, recruited as the second defendant’s successor, resigned and joined a competitor. The second defendant, his father, was also retiring and had contractual restrictions concerning the claimant’s clients.

The claimant alleged breaches of confidentiality obligations and restrictive covenants, unlawful means conspiracy, and knowing inducement of breach of contract. The defendants argued that the first defendant’s contract and covenants ended after an initial four-month period, that the claimant had repudiated the contract through regulatory changes, and that the covenants were unenforceable in restraint of trade.

The central issues were whether the covenants remained operative, whether they were enforceable, whether the defendants had solicited or dealt with clients, whether confidential information had been misused, and what relief should follow.

1. Contract and repudiation. The first defendant’s written agreement continued beyond the initial four-month period. Read objectively as a whole, the documents provided for an initial salaried period followed by commission-only remuneration. The reference in the restrictive covenant to termination of employment covered the continuing relationship, whether characterised as a contract of service or a contract for services. The covenant therefore remained in force until December 2012.
2. The claimant’s decision, following the Retail Distribution Review, to move advisers from independent to restricted status was a management decision made after proper consultation. The first defendant had no contractual right to remain independent and had adequate notice of the change. Refusal of a further grace period did not destroy trust and confidence or amount to repudiation. There was also no repudiatory breach when he left, because the parties agreed that he could leave immediately and be paid up to 14 December 2012.
3. Restraint of trade. Protecting goodwill and loyal customer connections was a legitimate interest. The phrase personal contact in the course of duties meant personally undertaken business contact, excluding trivial or de minimis contact. A non-dealing restriction could properly supplement non-solicitation obligations because solicitation is difficult to identify and prove. The 12-month period was reasonable, having regard to annual client contact, the strength of adviser-client relationships and the time needed to establish replacement relationships. Clause 16.2.1 was enforceable.
4. Breaches and liability. Solicitation is a question of fact and degree. A customer’s initial approach is relevant but not determinative; solicitation involves persuasion or encouragement to transfer business. Both defendants solicited clients. The evidence did not establish that client lists were retained or misused after departure. The claim for knowing inducement was not made out, but the defendants acted in concert in an unlawful means conspiracy, intending damage to the claimant’s business.
5. Relief. A limited injunction restraining solicitation, canvassing and dealing with clients was granted for the remaining period of the covenants. Damages were assessed on a broad-brush basis, with reductions to reflect credits and uncertainties, and the parties were invited to agree the consequential order.

First-instance decision. No prior appellate decision was stated in the judgment.