Morris-Garner & Anor v One Step (Support) Ltd

Factual and Procedural Background

This case concerns alleged breaches of non-compete and non-solicitation covenants arising from the sale of a business providing "supported living" services for children leaving care and vulnerable adults. The business originally operated under the name One Step At A Time ("OSAAT") and was founded by the Plaintiff, a qualified social worker, who sold it to a company controlled jointly by the Plaintiff and third parties. The business expanded to provide supported living services beyond children leaving care, including adults with mental health issues and disabilities.

Following a breakdown in the relationship between the Plaintiff and the co-owners, the Plaintiff and her civil partner secretly incorporated a new company ("Company B") which began operating in competition with the original business ("Company A"). The Plaintiff and her partner had entered into restrictive covenants as part of the sale agreement, including non-compete and non-solicitation clauses lasting 36 months.

Company A alleged that Company B breached these covenants by competing in the same geographical areas (West London and Thames Valley) and soliciting significant clients of Company A. Proceedings were issued seeking remedies for these breaches, including damages and an account of profits or Wrotham Park damages. The court determined liability and the nature of remedies, deferring quantification for later consideration.

Legal Issues Presented

1. Whether the appellants breached the non-compete covenants by operating a competing supported living business in the West London and Thames Valley areas during the restraint period.
2. Whether the appellants breached the non-solicitation covenants by soliciting significant clients of Company A during the restraint period.
3. Whether the appellants misused confidential information belonging to Company A.
4. The appropriate remedy for the breaches, including whether Wrotham Park damages were available and appropriate.

Arguments of the Parties

Appellants' Arguments

• The non-compete covenant was wrongly interpreted by the judge; competition required more than a speculative or potential overlap in services or geography.
• Company A was not in an advanced state of preparation to provide adult services in certain local authority areas at the time of the covenant, so Company B's activities did not amount to competition.
• There was insufficient evidence of actual solicitation of significant clients by the appellants, especially where services offered differed.
• The judge erred in allowing Company A to elect for Wrotham Park damages without a finding that identifiable financial loss was impossible to prove or that such damages were necessary to avoid manifest injustice.
• Wrotham Park damages should be exceptional and not become the norm in restrictive covenant cases.
• Company A had suffered no loss or could prove damages adequately by conventional means.

Company A's Arguments

• The appellants deliberately and secretly breached the restrictive covenants by setting up a competing business and soliciting Company A's significant clients in the same geographical areas.
• Company A was a diversified supported living provider catering to both children and adults, and the services offered by Company B were sufficiently interchangeable to constitute competition.
• The non-solicitation covenant was breached by solicitation of seven local authorities that were significant clients of Company A.
• Company A faced real difficulties in quantifying damages due to the secretive nature of the breach and the loss of goodwill, making Wrotham Park damages an appropriate remedy.
• The judge was correct to allow Company A the option of Wrotham Park damages as a just response to the breaches.
• Evidence showed that Company B’s marketing and client acquisition occurred in Company A’s core business areas and damaged Company A's goodwill and business prospects.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed factual and legal analysis of the nature of the businesses, the scope of the restrictive covenants, and the competitive landscape at the time the covenants were entered into. It applied established principles for construing restrictive covenants, emphasizing the need to interpret them in context and in light of the factual matrix at the time of agreement.

The court found that Company A had a diversified supported living business serving both children and adults, and that Company B’s services were sufficiently similar and interchangeable (except for registrable personal care) to constitute material competition within the West London and Thames Valley areas. The court rejected the appellants' argument that Company A’s limited prior adult service provision in certain local authorities meant there was no competition, holding that the potential for cross referrals and the broad scope of Company A’s business supported a finding of competition.

Regarding non-solicitation, the court accepted that the appellants solicited seven local authorities that were significant clients of Company A, and that the solicitation was not limited to the specific types of services previously provided.

On breach of confidence, the court found that the Plaintiff wrongfully took and used confidential information belonging to Company A.

Concerning remedies, the court considered the difficulty Company A would face in quantifying financial loss due to the secretive and deliberate nature of the breaches and the intangible loss of goodwill. It analyzed the appropriateness of Wrotham Park damages as a compensatory remedy in this context, referencing key authorities to support that such damages are available where loss is difficult to prove but justice requires compensation beyond nominal damages.

The court rejected the appellants’ submission that Wrotham Park damages require a complete absence of identifiable financial loss, holding instead that difficulty in proving loss and the need for a just response suffice. It also addressed concerns about potential overcompensation and the risk of Wrotham Park damages becoming the norm, concluding that the facts of this case were sufficiently exceptional to justify the award.

The court found the appellants’ breaches deliberate, secretive, and damaging to Company A’s goodwill and business prospects, and that the restrictive covenants were a crucial part of the transaction for which the Plaintiff received substantial consideration. The court upheld the judge’s findings on breach and remedy, respecting the trial judge’s detailed fact-finding and assessment of justice.

Holding and Implications

The court DISMISSED the appellants' appeal, affirming the trial judge’s findings that the appellants breached the non-compete and non-solicitation covenants and misused confidential information.

The court upheld the availability and appropriateness of Wrotham Park damages as a remedy in this case, allowing Company A to elect this form of damages due to the difficulty of quantifying loss and the deliberate nature of the breaches.

The decision confirms that restrictive covenants should be construed broadly in context, protecting both existing and potential future business goodwill. It also clarifies that Wrotham Park damages may be awarded even where some financial loss is identifiable but difficult to prove, provided that justice requires such an award.

No new precedent was established beyond the application and confirmation of existing legal principles to the facts of this case.