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MediaMonks and WPP- an Opportune Time to Revisit Restrictive Covenants

06/07/2018 | Noel Deans & Sean Field-Walton
On 4 and 5 July 2017 the City AM and other outlets have reported on WPP and Sir Martin Sorrell’s likely upcoming battle over confidentiality and competition. Having exited WPP, the advertising and

On 4 and 5 July 2017 the City AM[1] and other outlets have reported on WPP and Sir Martin Sorrell’s likely upcoming battle over confidentiality and competition. Having exited WPP, the advertising and media goliath that he led as Chairman and Chief Executive Officer on less than good terms, Sorrell swiftly founded a new company called S4 Capital. Days after S4 Capital made a bid for a Netherlands based company called MediaMonks it transpires that WPP had shortly before made their own bid for the same outfit.

As reported by the City AM “[t]he corporate clash is expected to raise questions about WPP’s decision not to make Sorrell sign a non-compete clause preventing him from being involved in any rival marketing ventures after he resigned”.  As such, now is an opportune time to consider our and our clients’ approach to the incorporation of restrictive covenants in employment contracts of staff of all levels, but particularly senior executives.

The basic position

The oft forgotten starting point when considering the terms of restrictive covenants contained within employment contracts is that restrictions must protect the legitimate business interests of the employer.  A failure to closely align the terms of any restriction with this requirement creates a risk of unenforceability. Seeking an answer to what is a legitimate business interest is not a science. It is a question which must always be considered in light of the facts for each individual case.  This will mean taking into account the nature of the employer’s business and the role of the employee in the employer’s business.  Of particular importance is the employer’s likely exposure to confidential client information and/or client relationships or other matters which may give that employee some sway over the goodwill of the employer.  In practice, we are frequently instructed on matters where an employer has not taken due care to tailor restrictive covenants to an individual employee’s circumstances. We suspect that the reader will also be familiar with employers rolling out standard form restrictive covenants across the workforce with little delineation between categories of employee.


To be frank, it is rare to encounter an employer who has nothing to worry about when it comes to the restrictive covenants they apply to their workforce. We frequently find ourselves advising on methods to reduce the potential unenforceability exposures we identify.

An inbuilt protection against these exposures is that, in many cases, an employer benefits from their workforce’s inability to judge the enforceability of restrictive covenants for themselves. Some employers benefit from the deterrent effect of including restrictive covenants which are known to be unenforceable owing to the fact that many people do not understand the detail of the rules for determining the enforceability of such terms.

But what can a client do when faced by a sophisticated employee who is more attuned to these issues?  In short, if a restrictive covenant has been included in a contract which is so broad or endures for so long that it does not reflect the realities of the employee’s position there is little for an employer to do besides engage in some posturing which more often than not would include the threat of issuing High Court injunctive proceedings.

At this point, it is again worth emphasising that the enforceability of a restrictive covenant is judged by reference to the point that it was entered into. Clients can be surprised to hear them that a restrictive covenant which would be enforceable if the employee agreed to enter into it now is nonetheless unenforceable because the restrictive covenants were not appropriate when they were entered into. The normal position is that even if an employee’s responsibilities and role enlarge despite not being issued a new employment contract, this development will not operate to make initially unenforceable restrictive covenants enforceable. Note, however, that there are certain limited exceptions to this rule.

Senior staff exits

When dealing with exit negotiations in relation to senior and executive staff like Sorrell, there is often an emphasis on sensitivity and a desire to preserve goodwill. Having regard to such factors is not misplaced; however, the board and/or those in a position to negotiate the terms of an exit including ongoing restrictive covenants must remind themselves of their overriding fiduciary (and sometimes statutory) duties.  These duties require those bound by them to act in the employer’s, not the employee’s best interest.

Perhaps it was a failure to appreciate this which has resulted in WPP and its eponymous former leader being pitted against one another. It is certainly unusual for a senior executive of Sorrell’s pedigree to have unrestrained freedom to act in ways that directly compete with the business of their former employer.

That WPP have ended up in this position is surprising. The apparent absence of a non-competition restrictive covenant in his employment contract/service agreement may be an oversight. What is doubly intriguing is that WPP appear to have missed the opportunity to include the same in any settlement agreement which may have been signed as part of the exit process.

Our employment department has experience and expertise in all of the above areas.

 If you would like any further information, please contact Noel Deans at or on 0207 955 1413.

This article should not be taken as definitive legal advice on any of the subject matter covered. If you do require legal advice, please contact Rosenblatt as above.

[1] Issues 3,158 and 3,159

Employment Tribunals – Fees, Costs and Frivolous Claims

31/05/2018 | Noel Deans & Sean Field-Walton
Background and Cost Orders It is old news that in R (on the application of UNISON) v Lord Chancellor the Supreme Court held that the regime of case filing fees for claims brought in the Employment

Background and Cost Orders

It is old news that in R (on the application of UNISON) v Lord Chancellor [2017] the Supreme Court held that the regime of case filing fees for claims brought in the Employment Tribunal was unconstitutional. Generally, comment has regarded this as a success for access to justice.

Employees with meritocratic claims should not be deterred from bringing them because of a fee structure like that which has now been overhauled and which required upfront payments of (generally) between £390 and £1,200. Nonetheless, employees should not be provided with an incentive to bring frivolous claims and to “bet the company” in the hope of receiving an undeserved pay-out.  Regretfully, this is arguably the current reality.

An up front fee regime was always inappropriate and statistics released since the Supreme Court’s decision in 2017 do suggest the fees as they were applied were a barrier to access to justice for individual claimants. However, we frequently act for employers and have seen that the tools available to them to fend off entirely false and opportunistic claims are inadequate.

Options when faced with a frivolous claim

1) Costs Orders

The successful party to proceedings before the Employment Tribunal does not have an automatic right to recover their legal costs from the unsuccessful party as they do in the civil courts. This is often surprising to those of our clients who have not been involved in Employment Tribunal proceedings before. A party may apply for a costs order where the unsuccessful party’s conduct has been unreasonable. This would include pursuing a baseless claim. Sadly, Employment Tribunal judges consistently demonstrate a reluctance to make such orders and when they do their scopes varies quite unpredictably between roughly 20-80% of the costs incurred.

2) Strike Out Applications

A party to proceedings may apply to strike out the other party’s case on a number of grounds. These grounds are set out in Rule 37(1) of the Employment Tribunal Rules of Procedure 2013 (as amended) (the “Procedure Rules”). The most common grounds relied on are that the claim has no reasonable prospect of success and/or that the claim or response is scandalous or vexatious. Just as is the case regarding applications for costs orders set out above strike out applications are rarely successful. This is even more so when the claim includes whistleblowing or discrimination elements because it is established law that in such cases the Employment Tribunal should be extremely slow to award a strike out.

3) Deposit Orders

Another option for a party to proceedings is to apply for a deposit order under Rule 39(1) of the Procedure Rules. These are granted more often than cost orders or strikes outs by Employment Judges but cannot be considered frequent. Furthermore, albeit the award may signal an Employment Judge’s lack of confidence in a claim, the effectiveness of deposit orders are hamstrung by the £1,000 limit on what an Employment Judge can order is paid into the Employment Tribunal.

Meaning for employer respondents

In our experience, the combination of the above often leaves employers in a difficult position. Given the unlikelihood of recovering their costs or successfully striking out a claim an employer is faced with the prospect of incurring significant legal fees (particularly during the disclosure process). In light of this, it is easy to see why an employer may consider that it is best to cut their losses and offer a pay-out even where they know the claims levelled against them to be falsified.

It is certainly correct to recognise the asymmetrical power structures between employers and employees.  However, perhaps it is time to rethink the infrastructure of Employment Tribunals to ensure that employers too are also provided with access to justice and not encouraged to settle false claims. A system which can easily be used to strong-arm employers into making unjustified pay-outs surely cannot be desirable from a legal or policy perspective.

Moving forward

Our view is that the Supreme Court’s decision was correct. However, without encouraging Employment Judges to utilise the powers available to them to dissuade litigants from putting employers to costs in the hope of extracting a pay-out the system does seem loaded in favour of potential opportunist claimants. This is no fault of the Supreme Court’s. It is not their duty to legislate for a supplementary structure following their effective abolition of Employment Tribunal filing fees. Instead, we suggest that in light of the Supreme Court’s decision Parliament should consult on the issues set out in this bulletin. Our expectation is that our observations would be shared.

It may be time to reconsider the position that the unsuccessful party does not have to meet any of the successful party’s costs unless the successful party makes a successful costs application. Perhaps any such rule will need to be a diluted version of the same rule in the civil courts.  Maybe this could be in a rule that costs will follow the claim in an amount that the Employment Judge considers just having regard to all the facts of the case, including the strength of the evidence.

One way or another, the Employment Tribunal system and the practices within it may benefit from a recalibration so that access to justice is preserved for both the employee and the employer.

Our employment department has experience and expertise in all of the above areas.

 If you would like any further information, please contact Noel Deans at or on 0207 955 1413.

This article should not be taken as definitive legal advice on any of the subject matter covered. If you do require legal advice, please contact Rosenblatt as above.

Wrotham Park no more – moving forward with negotiating damages

03/05/2018 | Noel Deans & Sean Field-Walton
Morris-Garner and another (Appellants) v One Step (Support) Ltd (Respondent) UKSC 20 In Morris-Garner the Supreme Court had the opportunity to consider damages awards for breach of contract based o

Morris-Garner and another (Appellants) v One Step (Support) Ltd (Respondent) [2018] UKSC 20

In Morris-Garner the Supreme Court had the opportunity to consider damages awards for breach of contract based on the price that would have been hypothetically negotiated for releasing the restrictive term. It follows that from handing down of the judgment on 18 April 2018, Morris-Garner is now the leading case on the matter and should be a point of reference for practitioners and employers alike.

Background and Wrotham Park

The remedy for breach of contract is often given little more explanation than the often repeated phrase: “the measure of damages for breach of contract is to put the innocent party in the position that they would have been in had the contract been performed”. Damages are usually awarded in circumstances where a party can be considered to have suffered some financial loss through breach or non-performance of a contractual term. As such, they are usually considered compensatory. Nonetheless, in some cases, including those where enforcement is sought for breaches of restrictive covenants contained in employment contracts, injunctive proceedings in the High Court are another source of recourse.

There are, however, other scenarios where there is no clear economic loss suffered and an injunctive remedy is considered inappropriate. Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] was one such case. In Wrotham Park, a plot of land was sold subject to restrictive covenants on the development of a portion of that land. Ultimately, that land was transferred to a property developer who was not aware of the said restrictions. The developer proceeded to develop the land in breach of that restriction.

Despite being aware of plans to develop the land and a grant of planning permission, the party holding the right to enforce that restrictive covenant only made their objection known when they applied for an interim injunction against the developers. This was after the development had begun. Albeit the injunction was sought at an early stage of the development, Brightman J decided that although the claimant would ordinarily be entitled to an injunction it should be rejected as a matter of discretion. The state of law at the time suggested that no or nominal damages should be awarded as the claimant had suffered no financial damage from the breach of contract. Nevertheless, the claimant was awarded a sum equal to that which the Court considered they would have received on a negotiated release of the restrictive covenant; 5% of the developer’s anticipated profit. The award of damages on the basis of a hypothetical negotiation has until this point tended to be referred to as “Wrotham Park” damages. In Morris-Garner, the Supreme Court said that they prefer to call these “negotiating damages” and therefore we adopt this terminology for the purposes of this article.

The facts of Morris-Garner

Morris-Garner involved a joint venture between two defendants and the claimant. The joint venture provided rented accommodation and support services to enable vulnerable individuals referred by local authorities to live as independently as possible. In 2006, the first defendant transferred her 50% shareholding to the claimant in return for £3.15 million. The first defendant was subjected to confidentiality, non-solicitation and non-competition covenants running for three years. Within the restricted period and in breach of those restrictive covenants the first and second defendant founded and operated a business in competition with that of the claimant. In the words of Lord Reed who delivered the leading judgement on behalf of the Supreme Court in this case:

“[the claimant] sought an account of profits, or alternatively what were described as restitutionary damages, in such sum as it might reasonably have demanded as a quid pro quo for releasing the defendants from those covenants, or, in a further alternative, what were described as compensatory damages for the loss it had suffered by reason of the defendants’ breach of those covenants.”

                                                                                             Emphasis added.

The first instance judge applied Wrotham Park by saying that the claimant could elect to either receive negotiating damages calculated as the fee the defendants would have had to pay to be released from their obligation, or alternatively compensatory damages in the form of lost profits or possibly goodwill. At the Court of Appeal, this decision was upheld. That Court considered the test for whether negotiating damages could be awarded was whether an award of damages on that basis was a just response in the particular case which was a matter for the judge to decide on a broad brush basis.  The Supreme Court ruled that both the first instance judge and the Court of Appeal had taken an approach that could not be considered to be correct. The salient areas of the judgment in Morris-Garner are set out below.

A theoretical objection?

At paragraph 91 Lord Reed dealt with what some had argued was a bar to the award of damages on a negotiated damages basis, namely that “[t]he use of an imaginary negotiation can give the impression that negotiation damages are fundamentally incompatible with the compensatory purpose of an award of contractual damages”. He did so by stressing that the relevant contractual right should be conceptualised as an asset and an economic value being given to the fact that a party had been deprived of it.

Understanding contractual rights as assets

He also accepted at paragraph 95(9) that the normal inference “[w]here the claimant’s interest in the performance of a contract is purely economic, and he cannot establish that any economic loss has resulted from its breach” would be that they have suffered no loss and in that event, they could not be awarded more than nominal damages. However, he goes on to explain at paragraph 95(10) that “negotiating damages can be awarded for breach of contract where the loss suffered by the claimant is appropriately measured by reference to the economic value of the right which has been breached, considered as an asset”. The hypothetical negotiating is only a means of reaching a value.

No right to elect how damages are assessed

In rejecting the approach taken by both the judge at the first instance and by the Court of Appeal, Lord Reed at paragraph 96 clarified that no claimant is entitled to elect how their damages are assessed. Part of this confusion may have been caused by a misunderstanding of the previous cases which could be seen as treating Wrotham Park assessments as some entirely separate means of assessing damages. Shutting down this view, Lord Reed emphasised that using an imaginary negotiation is “merely a tool” for assessing the value of a financial loss.

Concluding thoughts

Morris-Garner has been remitted to the lower courts for the Court to consider the financial loss and/or loss of goodwill which the claimant has actually sustained.

Claimants should be encouraged in that the Supreme Court has clearly enunciated that an inability to show clear financial loss is not necessarily the be all and end when seeking a damages award for breach for contract.

By providing authoritative clarification on an area of law with confused reasoning, Morris-Garner has narrowed the scope for seeking negotiating damages. The Supreme Court is clear that the ordinary inference if no clear loss can be proven is that no or nominal damages should be awarded.

Nonetheless, claimants should fully explore recovering damages on a negotiated damages basis where they cannot easily identify a financial loss but can put an objective economic value to a benefit protected by the contractual term that has been infringed.

Negotiating damages are not understood as a departure from ordinary compensatory damages. They are ordinary damages awarded following the use of a hypothetical negotiation used to assist a judge in calculating the economic value of an asset or a right that is taken or infringed through breach of a contractual term.

Our employment department has experience and expertise in all of the above areas.

 If you would like any further information, please contact Noel Deans at or on 0207 955 1413.

This article should not be taken as definitive legal advice on any of the subject matter covered. If you do require legal advice, please contact Rosenblatt as above.

How far can a solicitor lien?

26/04/2018 | Charlotte Woodward
Gavin Edmondson Solicitors Limited v Haven Insurance Company Limited UKSC 21 Solicitors have long been entitled to a lien for payment of their costs and disbursements. A lien provides an equitable

Gavin Edmondson Solicitors Limited v Haven Insurance Company Limited [2018] UKSC 21

Solicitors have long been entitled to a lien for payment of their costs and disbursements. A lien provides an equitable form of security for solicitors agreed charges overs the fruits of the litigation. The solicitors’ equitable lien was developed to promote access to justice by allowing client’s with meritorious claims but without the financial resource to pay up front to pursue litigation on “credit”. This appeal, heard in February 2018, tested the limits, in the modern context, of the long established remedy.

The Facts

Several claimants were pursuing road traffic accident claims under the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (the “Protocol”) against drivers who were insured by the Haven. The claimants entered into CFAs with their solicitors (“Edmondson”) and their claims were entered online in to the Road Traffic Accident Portal (the “Portal”) in line with the Protocol by Edmondson. Haven knew that the claims had been notified under the Portal but it then settled the claims directly with the claimants (offering to pay the claimants more and more quickly, if they did not use solicitors), thereby depriving the claimants’ solicitors of their costs. Edmondson claim against Haven was for the fixed costs which it should have been paid under the Protocol. Specifically Edmondson sought enforcement of a solicitor’s equitable lien.


The Supreme Court has now unanimously dismissed the appeal and upheld Edmondson’s claim. They found Edmondson was entitled to the enforcement of the traditional equitable lien against Haven, as the client owed a contractual duty to pay the solicitors’ charges.

The law in relation to lien traditionally depends upon:

  1. The client having liability to the solicitors for his charges;
  2. There being something in the nature of a fund in which equity can recognise that the solicitor has a claim; and
  3. Something sufficiently affecting the conscience of the payer at the time of payment, either in the form of collusion with the client to cheat to the solicitor or notice or knowledge of the solicitor’s claim against or interest in the fund.

Overriding the Court of Appeal, the Supreme Court found that there was a contractual liability between the claimants and Edmondson. The client care letter explained that Edmondson would be able to recover it costs from the losing side if the claimants won, so that the claimants would not need to put their hands in their own pockets. This did not mean that the claimants were not contractually liable, it merely limited the recourse, and provides for sufficient foundation for a lien to operate.

The settlement fund must have in some way been created by the Edmondson. The Supreme Court found that Edmondson’s actions in logging the claim on the portal contributed to the settlement in two ways. First, it supplied the details of the claim to the insurers, and second, it demonstrated   the claimant’s serious intention to purse the claim, and ability to do with the benefit of a CFA.

Provided that the debt has arisen in part from the activities of the solicitor there is no reason in principle why formal proceedings must first have been issued. This was emphasised as a matter of policy as all courts encourage parties to attempt to resolve disputes by suitable forms of ADR.

Once notified that the claimant in a road traffic accident has retained solicitors under a CFA, and that the solicitors are proceedings under the Protocol, they have the requisite notice and knowledge that sums cannot be paid to directly to the claimant or would result in interference with the solicitors’ interest with the fruits of the litigation. The court ordered Haven to pay Edmondson’s costs under the CFAs.

For more information on the case please click on the below link:


When is hardball played too hard in the eyes of the Court?

27/03/2018 | Nick Leigh
The case of Al Nehayan v Kent The recent case of Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Ioannis Kent (AKA John Kent) EWHC 333 (Comm) recounts the breakdown of a friendship as well as a

The case of Al Nehayan v Kent

The recent case of Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Ioannis Kent (AKA John Kent) [2018] EWHC 333 (Comm) recounts the breakdown of a friendship as well as a business worth tens of millions of euros amongst acrimony, back-stabbing and even threats of personal violence. Yet it is made particularly notable by the judge’s comments on where the line should fall between the acceptable and unacceptable pursuit of commercial self-interest.

In 2008, Sheikh Tahnoon, an Abu Dhabi royal, and John Kent, a Greek businessman, entered into a joint venture [the “JV”]. Mr Kent had set up the Aquis group. Sheikh Tahnoon acquired 50% of Aquis Cyprus, the holding company, paying 4m euros, leaving Mr Kent owning the remaining 50%. The business purchased two hotels in Crete, along with the YouTravel website (via the purchase of Stelow Limited [“Stelow”], in which the Sheikh owned 60% and Mr Kent owned 40%).

In 2009, problems arose. Mr Kent sought cash injections from the Sheikh which meant that, by 2012, the Sheikh’s investment had ballooned to more than 31m euros. With the strain on the business causing a strain on their friendship, the Sheikh passed the matter over to his advisors, whose attempts to extricate their boss from the worsening financial problems included using Mr Kent’s fear that the business was about to fail as a means of getting him to sign a new agreement that left the Sheikh with the only assets of real value (the Crete hotels) [the “Framework Agreement”]. During the negotiations for the Framework Agreement, the Sheikh’s advisors made comments that Mr Kent took – and the Court found – to be veiled threats of serious physical violence against him if he did not sign up. Ultimately, the business failed anyway. Sheikh Tahnoon sued Mr Kent under the Framework Agreement for 15m euros. Mr Kent issued a counterclaim stating that the Sheikh had breached the fiduciary and contractual duties he owed Mr Kent under the original JV agreement.

Lord Justice Leggatt found that the Framework Agreement did not entitle Sheikh Tahnoon to the damages he sought. As well as concluding that Mr Kent entered into the agreement under duress (no great surprise in light of the threats of violence), the Judge also found that, whilst the Sheikh was not a fiduciary of Mr Kent’s, he nonetheless owed him a duty to act in good faith, and that by using Mr Kent’s fear that the business was about to fail as a means of extracting a better arrangement from the situation, the Sheikh (acting through his advisors) had breached this duty also.

The Judge found particularly egregious what he considered to be double-dealing by the Sheikh’s advisors in respect of FTI Touristik GmbH [“FTI”], a German tour operator that looked like it might provide help at a crucial juncture. Mr Kent spoke with FTI’s chief executive to discuss whether or not it (FTI) would be willing to accept delayed payment of sums it was owed by YouTravel. This evolved into a rescue plan for the JV, which would see FTI extend credit in return for two call options: one to buy the hotels in Crete for 40m euros (less liabilities) and the other to buy 40% of Stelow for £1. Mr Kent recommended to the Sheikh’s advisors that the FTI offer be accepted. However, whilst the Sheikh’s advisors did not oppose it, they would not agree to include in the Framework Agreement a clause that allowed Mr Kent to negotiate and conclude this deal. It was not until disclosure was provided by the parties in these proceedings that Mr Kent learned why: the Sheikh’s advisors were themselves negotiating with FTI at the same time without his knowledge, to sell them the Sheikh’s 60% shareholding in Stelow. Had the sale gone through, FTI would have become the majority shareholder, leaving Mr Kent still the minority. The judgment reports the Framework Agreement said that Sheikh Tahnoon “agreed to transfer to Mr Kent any remaining shares in Stelow once the “YouTravel solution” was concluded with FTI”, not that Mr Kent was sure to conclude the Framework Agreement as Stelow’s majority shareholder. Similarly, there is no reference to documents before the Court that precluded the Sheikh from entering into separate, secret negotiations with FTI in order to recover more of his money than he would otherwise receive. This did not prevent the Judge from finding this double dealing reprehensible, and a breach of a duty to act in good faith.

Was the Sheikh’s play hardball, but business is business? Or was Lord Justice Leggatt right to perceive such behaviour as being the untrammelled pursuit of his own best interests, which the Court had to prevent? This is not the first case in which the Judge construed the obligations between contractual parties as having, if not an actual fiduciary nature, then a wider obligation than may otherwise have appeared. In his judgment, he quoted from an earlier case of his, saying “[in Yam Seng Pte Ltd v International Trade Corp [2013] EWHC 111 (QB)] I drew attention to a category of contract in which the parties are committed to collaborating with each other, typically on a long term basis, in ways which respect the spirit and objectives of their venture but which they have not tried to specify, and which it may be impossible to specify, exhaustively in a written contract. Such ‘relational’ contracts involve trust and confidence but of a different kind from that involved in fiduciary relationships. The trust is not in the loyal subordination by one party of its own interests to those of another. It is trust that the other party will act with integrity and in a spirit of cooperation. The legitimate expectations which the law should protect in relationships of this kind are embodied in the normative standard of good faith.”

In Al Nehayan v Kent, Lord Justice Leggatt acknowledges that his construction of the terms of the Framework Agreement involves “some fairly muscular manipulation of the wording”. Whether or not this amounts to steering the outcome of the proceedings in equally robust fashion, the direction of the Judge’s thinking is clear: the Court is within its powers to take a view on whether or not business really is just business. Players of hardball should keep this in mind.

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