An established clientele is the most valuable asset of most businesses and there is little point in acquiring such enterprises if their customers swiftly follow the former management out of the door. The point was powerfully made by a High Court case concerning the former owners of a firm of independent financial advisers.
The former owners disposed of their interests in the firm for about £10 million. The purchase price was payable by instalments and they had so far received about £7 million. They served as consultants to the firm for about two and a half years prior to commencing a separate business in the same sector.
The firm launched proceedings, alleging that they were in breach of consultancy and settlement agreements that required them to thoroughly hand over their clients to the firm by the end of the consultancy period and to delete client details and other confidential information belonging to the firm from their electronic devices.
They were alleged to have taken steps to divert hundreds of the firm's clients to their competing business. Instead of deleting clients' details, they were said to have copied them and to have actively communicated with them in order to solicit their business. The clients concerned were said to be the very ones they had been paid millions to thoroughly hand over to the firm.
The former owners denied any wrongdoing and, following a pre-trial hearing, the Court identified weaknesses in the firm's case. In particular, its argument that they had, by their unlawful conduct, garnered an unfair competitive advantage that would last at least 18 months was very weak. There was evidence that many clients' longstanding attachments were not to the firm but to the former owners personally.
In granting the firm a so-called 'springboard' injunction on an interim basis, however, the Court found that it had raised serious issues to be tried in respect of the former owners' alleged breaches of contract and in relation to the nature and length of the claimed unfair advantage.
If the injunction subsequently turned out to have been wrongly granted, an award of damages would be an adequate remedy for the former owners. The Court heard further argument as to the precise terms of the non-solicitation injunction, which would remain in force pending a speedy trial of the action.
For advice on any contractual matter, please contact Roy Colaba r.colaba@sydneymitchell.co.uk 08081668827
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