On 7 July 2014, Phillips J gave judgment on liability for One Step in its claim against Karen and Andrea Morris-Garner (together, “the Defendants”) for breach of restrictive covenants entered into by them upon their departure from One Step.
Mrs Karen Morris-Garner had been a director and 50% shareholder of One Step, a company engaged in the business of providing ‘supported living’ services to children leaving care and vulnerable adults, mainly referred by local authorities in the West London and Thames Valley areas. It had also considered expansion into the Midlands. In December 2006, Mrs Karen Morris-Garner sold her shareholding in One Step for £3,150,000, resigned as a director and agreed not to compete with or solicit clients or customers of One Step for a period of three years. Mrs Andrea-Morris Garner (Mrs Karen Morris-Garner’s civil partner and a senior employee of One Step) left the company at the same time and entered into similar restrictive covenants with One Step.
Unknown to One Step, the Defendants had already, the previous July, incorporated a company by the name of Positive Living, which they then established and operated as a provider of rented accommodation and associated support and care services to vulnerable adults after leaving One Step. Positive Living operated in West London, the Thames Valley and the Midlands. The business was successful and sold by the Defendants in September 2010 for £12,823,205.
One Step alleged that the Defendants had breached their restrictive covenants, and Mrs Karen Morris-Garner had breached her obligations of confidence to One Step, by establishing and operating Positive Living. The Defendants denied any breach of covenant or obligation of confidence. Following a two week trial dealing with issues of liability and the question of the remedies to which One Step was entitled, Phillips J held that the Defendants had been in breach of both the non-compete and non-solicitation covenants and that Mrs Karen Morris-Garner had breached her obligations of confidence to One Step.
Much of the trial was taken up with examination of the factors relied upon by the Defendants in an attempt to distinguish the business of Positive Living from that of One Step, the Defendants arguing that these alleged distinctions took Positive Living outside the scope of the non-compete and non-solicitation covenants.
Phillips J held that One Step’s supported living business in the West London and Thames Valley areas was in competition with One Step because the services offered by Positive Living in those areas were effectively interchangeable with the services offered by One Step (or were such as could readily be supplied by One Step) in the same areas. The two companies were therefore rivals in business, and operating within the same market, in these areas. In relation to the Midlands, Phillips J held that One Step’s plans to expand into that region were not sufficiently advanced to bring the business of Positive Living within the scope of the restrictive covenants.
Phillips J further held that Mrs Karen-Morris Garner had breached her obligations of confidence to One Step by uploading confidential marketing research to her personal email account in April 2006, before her departure from One Step. Phillips J was satisfied that she took this information for subsequent wrongful use and did so wrongfully use the material.
On the question of remedies, Phillips J held that the case was not sufficiently exceptional to justify an account of profits (Attorney General v. Blake), but was a “prime example” of a case in which Wrotham Park damages should be and were available: the Defendants had breached straightforward restrictive covenants in circumstances where it would be difficult for One Step to identify the financial loss it had suffered as a result, not least because there was a degree of secrecy in the establishment of Positive Living’s business which was not fully reversed by the disclosure process. It was therefore just for One Step to have the option of recovering damages in the amount which might reasonably have been demanded for release of the restrictive covenants.
One Step was represented by Craig Orr QC and Mehdi Baiou, instructed by Pitmans LLP.
A copy of the Judgment can be found here.