Breaches of covenants, loss and causation.

This article addresses the case of Jerroms Trafalgars Ltd & Anor v Tilson & Ors [2022] EWHC 1420 (ChD) with regards to the Court’s consideration when addressing a breach of a covenant and the areas to be addressed when determining damages.

The Defendants in this matter were former employees of the Claimant. Upon leaving their employment with the Claimant, the Defendants (Mr Tilson, Mr Qureshi and Ms Roche) were hired by Hayward Wright who was the Fourth Defendant listed in this claim. The Claimant alleged that Mr Tilson, Mr Qureshi and Ms Roche had solicited clients during their employment with the Claimant and had then utilised confidential information owned by the Claimant to transfer the clients’ custom to their new employer. The Claimant further alleged that Hayward Wright had used unlawful means to hurt their business. All Defendants denied liability.

Following cross examinations of the witnesses, the Claimant focused their claim on the actions of Mr Tilson and an alleged conspiracy with Hayward Wright, however they did not drop the allegations against Mr Qureshi or Ms Roche. It was the Defendants’ Defence that the clients would have transferred their custom regardless of the confidential information and that Mr Tilson’s unlawful actions in approaching those clients, securing the payroll files and/or his use of confidential information to prepare competitive prices for the work he was to do were not the dominant nor a substantial cause of the loss the Claimant suffered when these clients terminated their retainers.

Particular focus was given to the accounts of two clients named MKG and Plastics Plus respectively. They had been clients of the Claimant’s practice for 28 and 20 years respectively. Mr Tilson had been employed under the Claimant for 24 years, and had been doing these accounts for a long time. The clients had a close working relationship with Mr Tilson and did know any of the other employees who were employed by the Claimant.

The Judge held that it was not unusual for businessmen to want to keep the professional advisers they know and trust. The Judge evaluated the Claimant’s conduct in that there had not been any steps taken over the previous 3 years to introduce their long-held clients, who had grown to trust the Defendants, to other members of their staff. There was no real opportunity for another member of staff to become acquainted with these clients, let alone an opportunity to build up a relationship of trust.

With regards to causation, the Judge stated that it would have been surprising if these clients had not followed the Defendants to Hayward Wright when they found out that they were moving on. Mr Tilson was deemed to have used confidential information to price his work competitively however, there is no evidence to the effect that the use of this information caused loss to the Claimant.

Further the Court took into consideration that of the staff who decided to leave, Mr Tilson had been employed under the Claimant for 24 years, Ms Roche for 18 years, and Mr Qureshi for 15 years. With all this change, it was deemed reasonable to expect clients to transfer their business elsewhere.

The Judge ruled that the probability was that the Claimant’s previous clients would have followed Mr Tilson regardless of his unlawful approaches to them, just as Mr Qureshi’s clients followed him, and Ms Roche’s clients followed her.

It was held that the claims against Mr Tilson and Ms Roche for breach of contract and/or breach of confidence succeeded however the Claimant failed to prove any substantial loss. In those circumstances the Claimant was entitled to judgment for nominal damages against Mr Tilson and Ms Roche. The claims against Mr Qureshi and Hayward Wright were dismissed.

This establishes that the Court, when evaluating a breach of convention, will require evidence that the loss suffered was strictly due to the breach and not parallel to the breach. It also establishes that a breach was not paramount to an award of compensation with consideration provided to the respective conduct of the parties involved, including third parties.

How can PIC help?

At PIC, we are continuously monitoring precedent and adapting our practises to be aware of all rule changes and potential arguments that the opposition may raise. Utilising our expertise we will be able to argue on your behalf and ensure that your best interests are protected.

Wagdi Mohammed, Costs Consultant