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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 7
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P1006/07
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OPINION OF LORD OSBORNE
in the Petition of
(FIRST) SCOTTISH WIDOWS INVESTMENT PARTNERSHIP
GROUP LIMITED and (SECOND) SCOTTISH WIDOWS INVESTMENT PARTNERSHIP LIMITED
Petitioners;
against
(FIRST) MICHAEL CHANNING, (SECOND) THOMAS LAIDLAW
and (THIRD) CORDATUS PARTNERS LIMITED
Respondents:
for
Orders under the
Administration of Justice (Scotland)
Act 1972, section 1
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Petitioners: Lake; Maclay Murray & Spens LLP
Respondents: MacNeill, Q.C.; MacRoberts
16 January 2008
The background circumstances
[1] The
petitioners in this petition under section 1 of the Administration of Justice
(Scotland) Act 1972, "the 1972 Act", are part of a group of companies that
provides, among other things, services to investment funds. The first-named petitioners are the holding
company for a number of other companies through which such services are
provided. The second-named petitioners
are one of the subsidiaries of the first-named petitioners. It acts as investment managers for certain trusts. It enters into investment management
agreements with the trustees of trusts, to whom services of investment
management are provided. Fees are
charged for the provision of these services.
Until the events out of which the present petition has arisen, it
provided investment management services to U.K. Balanced Property Trust
Limited, "the Trust".
[2] The
first and second-named respondents and a Mr. Michael Cunningham were formerly
employed by the first-named petitioners and were engaged wholly in the business
of the second-named petitioners. The
second-named respondent held the senior position of Head of Property. He was the main client relationship contact
with the Trust. The first-named respondent
held the position of Deputy Head of Property and Senior Property Investment
Manager. He advised the Trust in
relation to investment property and discussed investment strategy with the
representatives of the Trust. Michael Cunningham
was employed as an Investment Director.
He worked exclusively as the Fund Manager for the Trust and worked with
the first and second-named respondents.
[3] The
terms and conditions of the contracts of employment between the first-named
petitioners and the first and second-named respondents are set out in copies of
those contracts, which are 6/2 and 6/1 of process. Both of those contracts placed restrictions
on the activities that might lawfully be undertaken by the employees during the
time when they were employed and also for a period of six months
thereafter. In addition, there was an
implied obligation of fidelity in the contracts of employment. The restrictions concerned are, so far as
relevant, to be found in paragraphs 1.1.1.2, 1.1.1.3 and 1.1.1.4 of Schedule 2
to those contracts of employment. They
are in the following terms:
"1.1 ... Therefore, .... you will not during the
period of your employment with the Company and for a period of six months after
the date on which your employment terminates ... either directly, or indirectly
through any other person, firm or other organisation:
...
1.1.1.2 solicit business which is of the same or
similar nature as the business with which you were involved during the last year
of your employment with the Company (such business referred to as the 'Business') from any person, firm or
other organisation which at the time during the last year of your employment
with the Company was a customer, investment fund (including, but not limited to
unit trust, investment trusts and investment bonds) or client of the Company or
a group company (and with whom you were actively involved during that time) and
you will not approach any client, investment fund or customer for that purpose
or authorise or approve the taking of such actions by any other person. For the purposes of this restriction, the
expression customer or client shall include all persons from whom the Company
or a group company has received enquiries for the provision of goods or services
where such enquiries have not been concluded;
1.1.1.3 employ or engage or otherwise solicit, entice
or induce any senior employee of the Company or a group company who has a
function that is not purely administrative to become employed or engaged by you
or any other person, firm or other organisation and you will not approach any
such employee for such purpose or authorise or approve the taking of such
actions by any other person; and
1.1.1.4 within the United
Kingdom be employed or engaged or otherwise
interested in a business which is the same as or similar to the Business."
[4] On
31 July 2006, the first and
second-named respondents tendered notice of their intention to resign from
their employment. In terms of their
contracts they were subject to a six month notice period. The first-named respondent was placed on
"garden leave" as from 11 September
2006. The second-named
respondent was placed on similar leave from 13 October 2006.
When their notice of intention to resign was acknowledged and when they
were put on garden leave, both of the respondents were reminded of the
restrictions placed upon them in their contracts of employment. Mr. Michael Cunningham tendered notice of his
intention to resign from his employment on 6 November 2006.
In terms of his contract of employment, he was obliged to give three
months notice. In paragraph 10 of the
Statement of Facts upon which this petition is based, the petitioners aver that
the first and second-named respondents have acted in breach of their
contracts. Those allegations are
specified in this way:
"During the
period when they were employed or within six months thereafter Mr. Channing and
Mr. Laidlaw solicited, enticed or induced Mr. Cunningham to become employed by
their new venture or authorised or approved others to solicit, entice or induce
him to that end. During the period when
they were employed Mr. Channing and Mr. Laidlaw were engaged or interested in a
business the same as or similar to that with which they were involved in the
last year of their employment. They were
involved in the business which is now to be carried on by Cordatus (Cordatus
Partners Limited). That business is the
same or similar to that carried on by the petitioners. During the period when they were employed or
within six months of the termination of their employment Mr. Channing and Mr.
Laidlaw solicited business from the Trust which was of the same nature as that
with which they were involved in the last year of their employment, or
authorised or approved the taking of such action by others. The Trust was an organisation which, during
the last year of their employment, had been a customer of the petitioners and
with whom they had been involved."
As I understand it, those averments
of breach of contract are made as a matter of inference from earlier averments
made by the petitioners in paragraphs 6, 7, 8 and 9 of the Statement of Facts
in the petition.
[5] In
paragraphs 11 to 15 of the Statement of Facts, the petitioners aver the basis
upon which the orders sought in the prayer are said to be justified. It is claimed that, as a result of the
actions of the first and second-named respondents in breach of their contracts
of employment, the petitioners have suffered loss. It is said to be likely that proceedings in
respect of that loss will be raised against, inter alia, those respondents.
[6] In
the prayer of the petition, the petitioners seek essentially authority for the
making of copies of certain computer hard drives and memories, certain other
media for the storage of electronic data and the recovery of certain documents
falling within the categories specified in the annex to the petition. The circumstances in which that is said to be
justified are specified in paragraphs 12 and 13 of the Statement of Facts.
The procedure followed in the petition so far
[7] The
petition came before the Lord Ordinary on 13 April 2007, who, being satisfied
that it was appropriate to make an order under section 1 of the 1972 Act made
an order for intimation and service;
appointed certain Commissioners; granted
commission and diligence; ordered the
Commissioners to furnish certain explanations to havers; granted warrant to and authorised the
Commissioners to enter the specified premises;
and to make one copy of the whole contents of certain computer hard drives
and/or memories of computers or other electronic devices and any media for the
storage of electronic data and also to search for and take all other steps
which they considered necessary to take possession of documents falling within
the categories specified in the annex to the petition.
[8] Following
the pronouncement of the interlocutor of 13 April 2007, the three Commissioners appointed
performed the tasks appointed to them.
Their reports are Nos. 9, 10 and 11 of process. In due course answers to the petition were
lodged on behalf of the respondents. On 12 June 2007, the Lord Ordinary
allowed time for the adjustment of the petition and answers and appointed the
case to a hearing in the form of a debate.
There followed an amendment procedure, which was concluded on 12 October 2007, the date on
which the hearing commenced. Due to lack
of time on that date, the hearing was adjourned to and completed on 20 December 2007.
Submissions of the petitioners
[9] At
the hearing, counsel for the petitioners moved the court to grant the prayer of
the petition, in so far as it had not already been granted. The petitioners' pleas-in-law ought to be
sustained. He drew attention to the
terms of section 1 of the 1972 Act. He
stated that the issue that had been focused was whether, in the circumstances,
civil proceedings of the kind contemplated by the petitioners were "likely to
be brought". If they were, then the
orders sought should be granted. He drew
my attention to relevant authorities.
The first of these was Pearson v
The Educational Institute of Scotland
1997 S.C. 245. That case was concerned
with an application for an order under section 1(1A)(b) of the 1972 Act; however, that was immaterial for the present
purposes since that provision also referred to "civil proceedings which appear
to the court to be likely to be brought".
It was held by the Second Division that, for a petition to succeed under
section 1(1A)(b), there had at least to be a statable case which an applicant
was in a position to make against the defender, even if the identity of that
defender was not known for the time being;
that that presupposed the availability to the applicant of responsible
legal advice as to the nature of the averments which would be required in order
to make such a case and whether the available information, apart from the
identity of the defender, was sufficient for that purpose. Counsel founded particularly upon
observations in the Opinion of the Court between pages 247 and 252. The reason why no order was made in that case
was that there was a gap in the pursuer's case.
However the test formulated there was applicable to such cases
generally. In Harwood v Jackson
2003 S.L.T. 1026, in the Outer House the approach explained in the former case
had been approved in relation to an application under section 1(1) of the 1972
Act. Reference was made to paragraph 8
of the Opinion at page 1029 and paragraph [11] at page 1030. Counsel also relied on Parks v Tayside Regional
Council 1989 S.L.T. 345 at pages 346 to 347.
[10] Counsel next turned to examine the averments which had been
made in the petition in association with the relevant documents, noting, in
particular, the contractual restraints imposed upon the first and second-named
respondents, to which I have already referred.
In doing so, he recognised that the petitioners' case was, in essence, a
circumstantial one. He invited the court
to draw inferences concerning breaches of contract on the part of the first and
second-named respondents from the circumstances averred in paragraphs 5 to 9 of
the Statement of Facts in the petition.
[11] Counsel laid emphasis on the averments made in paragraph 6, in
association with the affidavit by Mr. John Brett, 6/31 of process. Reference was also made to the circumstances
described in paragraphs 7 and 8 of the Statement of Facts.
[12] Paragraph 10 of the Statement of Facts set forth the nature of
the breaches of contract alleged. It was
submitted that the averments which the petitioners had made satisfied the test
which was applicable to cases of this kind.
Paragraph 11 of the Statement of Facts referred to loss sustained in
consequence of the alleged breaches. It
was acknowledged that the averments made there were not very specific. However, that had to be seen against the
background that the investment management agreement with the Trust had been
worth г4.2m per annum to the petitioners.
What was striking in the situation was that the Trust tendered to the
second-named petitioners a letter terminating their appointment as investment
managers on 15 February 2007,
within a very short period of the expiry of the restrictive covenants in the
contracts of employment. That
chronological sequence of events suggested that prior to the expiry of those
covenants, the first and second-named respondents had been involved in the
breaches of contract alleged.
[13] Counsel recognised that there might be thought to be
difficulties for the petitioners in respect that the employers of the first and
second-named respondents had been the first-named petitioners, while the
second-named petitioners had been the investment managers and had received the
fees for that service. He explained that
a concluded view had not, as yet, been reached concerning the effect of that
state of affairs. The second-named
petitioners were a wholly owned subsidiary of the first-named petitioners. The first-named petitioners might be able to
be seen as agents of the second-named petitioners in regard to the engagement
of employees. On another approach, upon
the basis of the principle of ius
quaesitum tertio, the second-named petitioners might be in a position to
enforce the contract entered into by the first-named petitioners. It was not contemplated that the arrangements
described would create insuperable difficulty as regards the recovery of loss
for the alleged breaches of contract. Counsel indicated that the remaining
Statement of Facts were concerned with procedure in relation to the recovery of
the relevant material and were not relevant at this stage.
[14] Counsel moved on to consider the answers which had been lodged
to the petition. He submitted that what
had been said in them was of little relevance to the question of whether a prima facie case had been demonstrated
by the petitioners. Certain areas of fact
were the subject of dispute, both as regards primary facts and the inferences
that could reasonably be drawn from them.
Those matters were not appropriate for determination now, but would be
in the contemplated future proceedings.
In order to succeed in resisting the petition, the respondents had to be
able to identify a fundamental shortcoming in the petitioners' case. The answers of the respondents to the
petitioners' Statement of Facts were, in general not destructive of the
petitioners' prima facie case. Much of what was averred in answer was
irrelevant to that case, including the alleged discontent referred to in answer
10. Counsel accepted that the Property
Opportunities Fund referred to in that answer would not have been in
competition with the second-named petitioners' business. As regards the payment of г1.35m referred to
in answer 11, it had not been compensation for loss of business, but was a
contractual penalty. In any event, the
real issue related primarily to what had been averred by the petitioners, as
compared with what might have been averred by the respondents.
[15] Counsel then turned to consider in detail the terms of the
prayer of the petition and the associated annex and appendix. Part III of the appendix was of importance. He proceeded to make submissions in detail
justifying the scope of that Part.
Submissions on behalf of the respondents
[16] Senior counsel for the respondents moved the court either to
dismiss the petition for lack of relevance, or to refuse the prayer of the
petition, so far as it had not already been exhausted. Upon the assumption that that motion were not
to be granted, any order pronounced should be limited to what was sought in
Part VII of the prayer. Part VIII should
not be implemented by delivery of the material concerned at this stage. Before that could properly happen, there
would require to have been a report from the Commissioners on the outcome of
the implementation of Part VII. There
might then require to be submissions to the court at a hearing on that report.
[17] However, senior counsel explained that his primary position was
that the petition should be refused. As
regards the law, he did not think that there was much difference between the
position of the petitioners and that of the respondents. However, he drew to my attention the further
authority of Colquhoun, Petitioner
1990 S.L.T. 43, particularly the observations of Lord Prosser at pages 44H to
45A. It was not a sufficient basis for
the granting of an order under section 1 of the 1972 Act that proceedings were
merely a possibility. In that particular
case the order sought had been refused.
It also showed that the likelihood of proceedings had to be assessed at
the time of the making of the application not following the recovery of the
material sought. Senior counsel also
drew my attention to Dominion Technology
Limited v Gardner Cryogenics Limited
(No. 1) 1993 S.L.T. 828, another case in which a petition under section 1
of the 1972 Act had been dismissed as irrelevant. Particular reference was made to the
observations of Lord Cullen, as he then was, at page 832B-G. What emerged from that case was that, while
pleadings in a petition such as this did not require to be scrutinised to the
standard which would be required in a debate on relevancy in the contemplated
proceedings themselves, scrutiny was required.
Turning then to consider the petitioners' averments, senior counsel
submitted that there was nothing controversial in paragraphs 1 to 4 of the
Statement of Facts; the same was largely
true of paragraph 5. It was in paragraph
6 that the formulation of the basis of the proceedings said to be likely to be
brought started. The actions and
meetings referred to in that paragraph were in fact not significant. The third-named respondent could not properly
be described as Cordatus in December 2006.
They were merely a shelf company.
Equally, the averments in paragraph 7 were insignificant. The inference sought to be drawn from them
was strained.
[18] Turning to paragraphs 8 and 9, the appointment of the first and
second-named respondents as Directors of the third-named respondent occurred on
1 February 2007. It was correct that on 15 February 2007, the Trust tendered to the
second-named petitioners a letter terminating their appointment as investment
managers with effect from 30 April
2007. Despite the fact that
private detectives had been engaged to observe the activities of the first and
second-named respondents, as appeared from the affidavit 6/31 of process,
paragraph 5, no significant information had been acquired by them. The e-mail communications which featured in
the petitioners' averments could not be seen as secure and could not reasonably
be seen as part of a covert operation.
As regards paragraph 10 of the Statement of Facts, the averments made
there were made as a matter of inference from what preceded them. Those averments amounted to an unwarranted
leap, an unjustified inference. There
was no evidence at all that the first and second-named respondents had solicited,
enticed or induced Mr. Cunningham to become involved in their intended
venture. It had to be recognised that
where valued employees left the employment of one employer, clients whose needs
they had serviced frequently followed those employees, in order to retain their
services in which they had confidence.
Such things occurred without solicitation, enticement or similar
behaviour. It was submitted that that was
exactly what had happened here. The
first and second-named respondents had left the employment of the first-named
petitioners for their own purposes; the
Trust, anxious to enjoy their services in the future, had followed them. The fact that Mr. Armstrong, of Messrs
Dickson Minto, W.S., had furnished certain legal services to the first and second-named
respondents did not indicate a ploy to take the Trust as a client, for which he
was also the solicitor. The explanation
for his engagement by the first and second-named respondents was provided in
answer 10 for the third-named respondents.
He was to make available his expertise in setting up property funds to
the first and second-named respondents.
The petitioners seemed to endeavour to show that the first and
second-named respondents had enticed Mr. Cunningham to join them in a new
venture, the purpose of which was to poach the Trust's business. There was no proper basis for such an
inference.
[19] Looking at the terms of the Calls formulated by the
petitioners, it was quite unclear what case the petitioners were seeking to
establish. In general, it was submitted
that the petitioners' averments showed that they were not really aware of the
basis of the contemplated action.
[20] Further, the petitioners faced a serious problem, which was
unresolved, concerning the recovery of any alleged loss. The first and second-named respondents had
been employed by the first-named petitioners, however, the loss referred to
appeared to have been sustained by the second-named petitioners. No attempt was made to resolve that problem
in the petitioners' averments.
[21] Senior counsel went on to draw attention to the fact that the
court had a discretion as to whether the orders sought should be granted. In that connection senior counsel repeated
the criticisms which he had already made of the petitioners' averments. He also invited consideration of the
averments of the respondents, in association with the documentation produced by
them. In this connection he relied on
what was said in answer 10 for the third-named respondents. The fact was that, after the resignation of
the first and second-named respondents, the Trust had been concerned with the
level of service which they could receive from the petitioners. The second-named petitioners appeared to have
accepted that their relationship with the Trust was under strain in respect of
their concession of more favourable terms than had previously existed in
respect of termination of the relationship.
Furthermore, the e-mail from Mr. Douglas Armstrong to the first and second-named
respondents, dated 11 December 2006,
No. 7/1 of process, undermined the petitioners' suspicion that there had been
elaborate planning to poach the Trust's business. The Trust had not given notice of the
termination of their relationship until 15
February 2007. The fact was
that the Trust had taken the initiative following the decision of the first and
second-named respondents to depart from their employment to secure their
services in a lawful manner. The first
and second-named respondents had intended to set up a business of creating and
running a property opportunities fund. The history of the transfer of the
business of the Trust was set out in answer 10 for the third-named respondents.
[22] A further document of importance was the response by the Trust
to the requisition by Scottish Widows Unit Funds Limited of an extraordinary
meeting of the Trust to be held on 31
July 2007. The letter from
the independent chairman of the Trust, commencing on page 3 of the document,
gave a detailed history of the situation which was relevant to the present
petition. That document had plainly not
been prepared for the purposes of this litigation. What was said in it was quite inconsistent
with the inferences that the petitioners invited the court to draw. The document confirmed that in January 2007
the Trust was still listening to the second-named petitioners' proposals
regarding the future management of its investments. However, in the end, the Trust was motivated
to secure continuity of proper management for their large portfolio of
property, of value around г400m. The
petitioners had quite failed to respond to the version of events set out in the
document concerned. In all these
circumstances, the court, in the exercise of its discretion, should take a view
that the petitioners' case lacked strength and substance.
[23] Senior counsel then went on to consider what steps had already
been taken in terms of the court's initial order and what steps would require
to be taken, if the court now granted the order sought. What would now have to be undertaken, if that
occurred would be extremely time consuming and expensive. That was a factor which the court should take
into account. There was insufficient
justification for the taking of those steps.
If the petitioners did indeed have the basis of a case against the
respondents, they could raise proceedings themselves in the usual way. However, it was contended that they did not,
in fact, have the basis of a case; the
present exercise was one on which they wished to embark in the hope of finding such
a basis. In short, it was a fishing
expedition. The prayer of the petition
should be refused as a matter of discretion.
Reply
[24] Counsel for the petitioners replied. There was no inconsistency between the test
explained in Dominion Technology Limited v
Gardner Cryogenics Limited (No. 2)
and the subsequent case of Pearson v The Educational Institute of Scotland. In considering the petitioners' case it was
not appropriate to focus attention exclusively upon the respondents'
averments. The prohibition contained in
the contracts of employment was against the soliciting of business. There was nothing in the circular, 7/2 of
process, inconsistent with the inference which the petitioners invited the
court to draw. The chronological
sequence of events suggested that, prior to the expiry of the restrictive
covenants, the enterprise which emerged after that date had been conceived and
born. There was no doubt that something
was happening in January 2007. The court
could not determine the merits of the issues between the parties before the
completion of the present proceedings.
That could be done only in the proceedings contemplated. Counsel then made certain submissions on how
expenses would be handled in this case.
The decision
The law
[25] There was little or no dispute between the parties to this
petition as regards the law which is applicable to the matter. Section 1(1) of the 1972 Act provides that
the court
"shall have
power ... to order the inspection, photographing, preservation, custody and detention
of documents and other property ... which appear to the court to be property as
to which any question may relevantly arise in any existing civil proceedings
before that court or in civil proceedings which are likely to be brought, and
to order the production and recovery of any such property, the taking of
samples thereof and the carrying out of any experiment thereon or therewith."
The controversy in the present
petition focused almost exclusively on the words "civil proceedings which are
likely to be brought" occurring in section 1(1). The significance of those words have been the
subject of consideration in several cases which were cited to me. In Colquhoun,
Petitioner Lord Prosser made certain observations of assistance in the
application of section 1 of the 1972 Act.
At page 44 he said this:
"It is to be
observed that in the petitioner's pleadings, there is some suggestion that 'due
investigation' might lead one to a position where it was likely that
proceedings would be brought. In my
opinion, the Act requires the court to take the view that such proceedings are
likely to be brought at the time of the application. I do not consider that an order of this type
should be granted where such proceedings are merely a possibility, but would be
rendered likely on the basis of the documentation recovered."
[26] The crucial words in the statutory provision were the subject
of authoritative consideration in Pearson
v The Educational Institute of
Scotland by the Second Division.
Lord Nimmo Smith, delivering the Opinion of the Court, at page 250 said
this:
"Before this
court, as before the Lord Ordinary, there was no dispute about the construction
of the words 'civil proceedings which appear to the court to be likely to be
brought' in section 1(1A)(b). This could
be taken from a number of Outer House decisions. In Parks
v Tayside Regional Council Lord
Sutherland accepted submissions, under reference to earlier cases, including Friel v Chief Constable of Strathclyde, that there must be averments which
establish an intelligible prima facie
case, though full averments of fact to make a relevant case would not be
required. There must be disclosure of
the nature of the claim which it is intended to make and there must also be
shown not only the intention of making it but also that there is a reasonable
basis for making it."
He went on at page 252 to say:
"There must at
least be a stateable case, or what Lord Sutherland in Parks v Tayside Regional
Council called an intelligible prima
facie case, which the applicant is in a position to make against the
defender, even if the identity of that defender is not known for the time
being. We would add that this
presupposes the availability to the applicant of responsible legal advice as to
the nature of the averments which would be required in order to make such a
case, and whether the available information, apart from the identity of the
defender, was sufficient for that purpose."
In Dominion Technology Limited v Gardner
Cryogenics Limited (No. 1) Lord Cullen said at page 832B-D:
"In an
application under section 1 of the 1972 Act in connection with prospective
proceedings it is, in my view, plainly necessary that the applicant should do
more than set out the nature of the proceedings which he is proposing to raise
... The court requires to be satisfied that the proceedings are 'likely to be
brought'; and that as a matter of the
exercise of its discretion it is appropriate that the order should be
granted. This entails in my view that
the applicant requires to make adequate averments as to the substance of and
basis for the case which he proposes to make.
To accept less than this would not do justice to the terms of section 1
and would create the risk of an order being granted where the applicant did not
know if there was a statable case".
[27] The guidance contained in the passages which I have quoted is
what I intend to follow in the circumstances here.
[28] The first issue which I have to consider is whether the
petitioners have made averments which demonstrate that the proceedings
contemplated by them are "likely to be brought". It is evident that the proceedings which the
petitioners contemplate are proceedings for the purpose of obtaining damages
for breach of contract on the part of the first and second-named respondents,
as outlined in paragraph 10 of the petitioners' Statement of Facts. The first serious difficulty which, in my
opinion, the petitioners face is that the first and second-named respondents
were formerly employees of the first-named petitioners, as appears from
paragraph 3 of their Statement of Facts.
However, the business of investment management carried on in the
petitioners' group and, in particular the business of the management of the
investment property of the Trust was carried on by the second-named
petitioners. Thus, any loss sustained in
consequence of any of the actions of the first and second-named respondents in
that business would, prima facie,
have been suffered by the second-named petitioners. Yet, they were not parties to the contracts
of employment which contained the restrictive covenants relied upon; rather the first-named petitioners were the
employers in terms of those contracts.
Putting the matter shortly, the first-named petitioners had the right to
enforce the restrictive covenants, but the second-named petitioners were the
party which might suffer loss in the event of those restrictive covenants
having been breached. Counsel for the
petitioners endeavoured to persuade me that this difficulty could be overcome
in several different ways. However, I
remain unpersuaded as regards that matter.
In my opinion, no coherent and persuasive explanation was given to the
court as to how that difficulty might be overcome. For that reason, if for no other, I am not
prepared to hold that the contemplated proceedings are "likely to be brought".
[29] Looking beyond the issues of title to sue and loss, on which I
have just commented, the task is to consider whether the petitioners have
shown, in their averments in this petition, that they have what was called in Pearson v The Educational Institute of Scotland and in other cases "an
intelligible prima facie case". Counsel for the petitioners was frank in
accepting that the petitioners' case in the present petition was what he called
a circumstantial case. The broad nature
of the contemplated proceedings was plainly an action of damages for breach of
contract. However, the basis upon which
it was being contended that a breach of contract had occurred was by inference
from the particular circumstances which the petitioners had averred. Those circumstances are set forth in
paragraphs 5 to 9 of the Statement of Facts.
I immediately accept that in examining the petitioners' case in this
petition, it is not appropriate to apply to it the same rigorous scrutiny as
would be applied to the relevance of the averments in the contemplated
proceedings themselves, had there been a
challenge to their relevance. However,
the court does have to be satisfied that those proceedings are likely to be
brought, which means that the test set out in, among other cases, Pearson v The Educational Institute of Scotland is met. Looking at the averments in paragraph 5 of
the petition, they do not go beyond the bare facts of the resignation of the
first and second-named petitioners. In
paragraph 6, various averments are made concerning meetings with Mr. Alex Porte
and Mr. Peter Arthur, who subsequently became Directors of the third-named
respondents. Also, meetings are averred
to have occurred with Mr. Douglas Armstrong, a solicitor with Messrs Dickson
Minto, W.S. Certain other actions of the
first and second-named respondents are also founded upon. It would not be fair to examine those
averments in isolation, since they form only part of the circumstances founded
upon by the petitioners, but if one does, I find it very difficult to regard
what is said in that paragraph as sinister in the context of the background to
this case. I take the same view about
the averments of the petitioners in paragraph 7 of the Statement of Facts. It appears to me that the significance of the
matters there referred to is very limited indeed. So far as the averments in paragraphs 8 and 9
are concerned, of course they relate to events which occurred outwith the
period of contractual restriction. No
doubt, anticipating what might be said about those matters, in paragraph 9
there are certain averments concerning what might be called general practice
where a property or investment manager is seeking to obtain the business of a
new client. While such a practice may be
followed in a situation where the parties involved have not previously been
known to each other, that was not, of course, the case here, so far as the
first and second-named respondents and the Trust were concerned. Looking at all of the averments which appear
to be the basis upon which it is said that a case of damages for breach of
contract is likely to be brought, I remain unpersuaded that what has been
averred in the petition can be seen as the basis for an intelligible prima facie case.
[30] Putting the matter in another way, if one looks at the
averments of the petitioners in the crucial paragraphs of the Statement of
Facts and asks the question whether anything said there is inconsistent with
the history of events set forth in the answers to those parts of the Statement
of Facts and in the associated documentation, I come to the conclusion that
there is no significant inconsistency.
It is quite plain that, having left the employment of the first-named
petitioners, the first and second-named respondents resolved to commence a new
business, which, it is a matter of agreement, would not have been in conflict
with contractual restrictions to which they were subject. That intention and the taking of steps to
further it appear to me to provide a comprehensible explanation for the events
which the petitioners regard as sinister.
It is of course necessary to recognise that the end point of the
sequence of events was indeed the appointment of the third-named respondent as
property manager for the Trust. If there
had been no material to illuminate the circumstances in which that came about,
the petitioners' position might have been rendered stronger by that event. However, I regard the response to the
requisition by Scottish Widows Unit Funds Limited for an extraordinary general
meeting of the Trust as a document of considerable significance. That document was, I understand, circulated
to the shareholders of the Trust. In
that part of the letter from the independent Chairman of the Trust to
shareholders to be found on pages 4 and 5 of the document, there is a detailed
explanation of the sequence of events which occurred, which, in my opinion,
must be accorded considerable credence.
The sequence of events set out there appears to me to undermine the
inferences which the petitioners asked the court to draw in relation to the
events upon which they found. In other
words, the events upon which the petitioners found, appear to me to be equally
consistent with respect on the part of the first and second-named respondents
for the contractual restrictions to which they were subject. Accordingly, for these reasons also, I am not
persuaded that the proceedings contemplated by the petitioners are likely to be
brought.
[31] Were I to be wrong as regards the inference which it is
possible to draw from the petitioners' averments, I would, in any event, as a
matter of discretion have been of the view that the petition should be
refused. Looking at the averments of the
respondents, it appears to me that in certain crucial respects they are
supported by documentary material which has been produced. I have already referred to the Trust's
response to the requisition for an extraordinary general meeting, 7/2 of process,
but there is also the e-mail, which I regard of some importance, dated 11
December 2006, 7/1 of process, from Mr. Douglas Armstrong to the first and
second-named respondents. That document
seems to me to demonstrate that all concerned were then recognising and
respecting the contractual restrictions to which those respondents were
subject.
[32] A further factor of some significance in this connection, in my
view, is to be found in the averments made by the respondents in answer 11, to
the effect that, on or about 15 May
2007, the second-named petitioner was paid compensation of г1.35m. This is averred to have been compensation for
the loss of the Trust's business in terms of its investment management
agreement with the Trust. Standing the averment
about this payment, which is neither admitted nor denied by the petitioners, it
becomes a matter of the greatest difficulty to understand what loss the
petitioners, or one or other of them, are saying they have sustained as a
result of the alleged breaches of contract on the part of the first and second-named
respondents.
[33] On the whole matter, my conclusion is that while it is a
possibility that certain proceedings may emerge from the sequence of events
described in the petition and answers, I cannot regard that as more than a mere
possibility. It is plain from what was
said in Colquhoun, Petitioner that
that would be an insufficient basis upon which to grant the remaining parts of
the prayer of this petition.
[34] In all these circumstances I shall sustain the fourth pleas in
law for each of the respondents and refuse the prayer of the petition, so far
as not already granted.
