February 17th, 2012 by Simon Devonshire QC

In late 2009, Towry acquired the UK business of Edward Jones (an American financial advisory).    Towry sought to introduce a new business model, which led to the departure of a number of the most successful financial advisers and (in turn) their clients.   Towry sued 7 of the financial advisers and their new employer (Raymond James), alleging that the employees had acted in breach of post termination non-solicitation and confidentiality clauses and accusing them of an unlawful means conspiracy, both with each other (in various combinations) and with Raymond James.   The conspiracy was said to involve a pre-existing plan to poach Towry’s clients.   Raymond James was also accused of procuring the employee Defendants to breach their contracts.   Towry sought damages and/or accounts.  No claims were (or had been) made for injunctive relief.

Cox J has now dismissed all of Towry’s claims, and ordered it to pay the Defendants’ costs – reportedly on an indemnity basis in relation to the allegations of unlawful means conspiracy.    Three features of the judgment are of particular note.

First, this was not a case where any of the employee Defendants had walked out on contractual notice periods.   The employee Defendants were subject to non-solicitation and confidentiality clauses.   The Judge found these to be enforceable.  The judge held that solicitation required “that ex-employees must not directly or indirectly request, persuade or encourage clients … to transfer their business top their new employer.   Employers are entitled to prevent employees from exerting influence of this kind over their clients” (para 440).   On the facts, the judge found that solicitation had not been made out.   Whilst it was not as simple as asking who made the first approach, this was a relevant factor (para 903), and there would be no solicitation if the client “was exercising an independent decision to transfer, without any encouragement or persuasion to do so by the [employee]” (para 905).   It was not surprising that they wished to retain their personal financial adviser (para 905).  Tellingly, there were no non-dealings clauses in the defendant’s contract, which would have obviated these probative difficulties (at least in relation to liability).

Secondly, the Judge had found that the Defendants had waived the privilege in their legal advice, by seeking to rely positively on its substance, rather than merely on the fact that it had been taken.   She ordered disclosure of that advice at the outset of the trial (paras 13 & 14).   In the event, this proved to be the Defendants’ advantage.  The Judge noted that Raymond James had sought advice from an early stage, which it had then followed “by taking a series of steps designed to ensure that advisers complied with their contractual obligations” (para 922).    This demonstrates just how powerful such evidence can be, and can be contrasted with BGC’s refusal to disclose the substance of its advice in the well known Tullett Prebon litigation ([2010] EWHC 484 (QB)), where it was found guilty of both unlawful procurement and unlawful means conspiracy.   Cf too BGC –v- Rees & Anor [2011] EWHC 2009 (QB) , where Tullett voluntarily disclosed its advice and was acquitted of unlawful procurement.

Third, Towry had put in witness statements from some of its advisers recording discussions they had had with defecting clients (whilst attempting to keep them on board).    The Defendants made an application to cross-examine a number of those clients under CPR 33.4 (which permits a party to apply to cross-examine the maker of a hearsay statement tendered in evidence by the other party).   The judge acceded to that application in relation to 5 clients (paras 15 to 22).   Those clients were (of course) loyal to the Defendants, who enjoyed a ‘free hit’ in cross-examining them.   Towry was left having to disassociate itself from that evidence (paras 22-25 and 32).   This is clearly a trap for the unwary.

The case demonstrates that team recruitment can be lawfully achieved, particularly from a disaffected workforce.   If there is a moral in the case for employers, it is to ensure adequate protection through post termination restraint.   There is generally no difficulty in justifying a non-deal clause as necessary to police the observance of a non-solicitation obligation (as the judge here appeared to accept; para 438).   Non-dealing restrictions would have made Towry’s task an easier one.