Factual and Procedural Background
Company A is a financial services company providing various financial products in the United Kingdom, including dental and medical consumer finance. Company B operates as a broker of financial products in the same market, exclusively working on behalf of Company A since 2006, earning commission from placements of Company A's financial products.
The relationship between Company B and Company A began in late 2005, formalised by an Approved Supplier Agreement (ASA) in November 2005. Under the ASA, Company B acted as Company A's agent to set up and administer finance schemes through dental and medical practices ("Suppliers") to provide finance to patients for dental treatments. Company B dealt only with Suppliers, not patients.
In 2010, the ASA was replaced by a new agreement (the 2010 Agreement), continuing Company B's role as agent with additional responsibilities and commission based on finance contracts concluded. The contractual relationships between Company A and Suppliers, and between Company A and patients, remained substantially unchanged.
On 3 October 2011, Company B was acquired by Company C, a business providing membership plans to dental practices. On the same day, Company B and Company A entered into a new agreement (the 2011 Agreement) reflecting the acquisition context and shared interest in maximising patient finance purchases. The 2011 Agreement was largely identical to the 2010 Agreement except for key additions in clauses 15 and 17 concerning responsibilities and termination, including undertakings restricting Company A's marketing and solicitation activities both during and for 24 months after termination.
The initial term of the 2011 Agreement was five years, expiring on 2 October 2016, with ongoing discussions about renewal proving unsuccessful. Company B was a significant broker in the dental consumer finance market, earning substantial commissions.
In November 2018, Company B informed Company A of its intention to terminate the 2011 Agreement and broker financial products for a subsidiary of Company D instead. Company A responded by threatening termination of the 2011 Agreement and direct contact with Suppliers. Company A served notice terminating the 2011 Agreement effective 12 June 2019.
Termination would end the relationship between Company B and Company A and cease Company B's commission entitlement, though existing Supplier Agreements would remain in place indefinitely, allowing Company A and Suppliers to continue their contractual relationship post-termination.
In response to Company A's proposed conduct, Company B applied for and obtained an interim prohibitory injunction restraining Company A from soliciting certain persons introduced by Company B. The injunction was continued pending trial, with directions for expedited trial and exchange of evidence. The trial addressed issues of interpretation, rectification, implication, restraint of trade, and confidentiality relating to the 2011 Agreement.
Legal Issues Presented
- What is the true meaning and effect of the final paragraph of clause 15 of the 2011 Agreement?
- What is the true meaning and effect of the final paragraph of clause 17 of the 2011 Agreement?
- Whether clause 15 of the 2011 Agreement should be rectified as contended by Company B.
- Whether an implied term should be read into the 2011 Agreement as contended by Company B.
- Whether clause 15 (or any rectified or implied version thereof) constitutes an unreasonable restraint of trade.
- Whether the list of Suppliers constitutes confidential information of Company B.
Arguments of the Parties
Company B's Arguments
- Clause 15(8) should be interpreted to mean that Company A will not actively market products not brokered by Company B to Suppliers and customers introduced by Company B.
- The 2011 Agreement should be rectified to include an explicit undertaking preventing Company A from soliciting or marketing to Suppliers or customers introduced by Company B during the term.
- An implied term should be read into the 2011 Agreement restricting Company A from solicitation or marketing to Suppliers or customers during the term.
- The restraint in clause 15(8) is reasonable and necessary to protect Company B's legitimate business interests.
- The information held by Company B regarding Suppliers is confidential, representing its work product, and Company A should be restrained from using it improperly.
Company A's Arguments
- The phrase "third party products" in clause 15(8) means products of persons other than Company A or Company B, not merely those not brokered by Company B.
- The 2011 Agreement accurately reflects the parties' intentions; rectification is not justified as there was no common continuing intention unreflected in the contract.
- The proposed implied term is unnecessary as the 2011 Agreement already provides sufficient restrictions and is commercially coherent without it.
- The restraint in clause 15(8) is unreasonable if extended to former Suppliers, as Company B has no legitimate interest in such entities.
- The information held by Company B is not confidential to it, having been obtained as Company A's agent and shared with Company A in circumstances that do not import an obligation of confidence.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Arnold v Britton [2015] UKSC 36 |
Principles of commercial contract construction |
Guided cautious and sceptical approach to construction, especially when comparing the 2011 Agreement with the 2010 Agreement |
| Wood v Capita Insurance Services Limited [2017] UKSC 24 |
Contract construction principles |
Supported approach to interpreting contractual provisions in commercial context |
| Prenn v Simmonds [1971] 1 W.L.R. 1381 |
Relevant factual matrix includes genesis and aim of transaction |
Informed consideration of background and purpose of the agreements |
| HIH Casualty and General Insurance v New Hampshire Insurance Co. [2001] EWCA Civ 735 |
Use of prior contracts in construing later contracts |
Adopted a cautious approach to considering prior agreements when construing the 2011 Agreement |
| Swainland Builders v Freehold Property Ltd [2002] EWCA Civ 560 |
Requirements for rectification for common mistake |
Applied to assess whether the 2011 Agreement should be rectified |
| Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 |
Rectification and contract construction principles |
Confirmed high standard of proof and objective approach for rectification claims |
| Tartsinis v Navona Management Company [2015] EWHC 57 |
Standard of proof for rectification claims |
Referenced in assessing standard of proof required |
| Wisniewski v Central Manchester Health Authority [1998] PIQR P324 |
Adverse inferences from failure to call witnesses |
Considered but found no basis for adverse inferences against Company A |
| Marks & Spencer PLC v BNP Paribas Securities Services Trust Co. (Jersey) Ltd. [2015] UKSC 72 |
Principles for implying terms into contracts |
Applied strict tests for implication of terms into the 2011 Agreement |
| Attorney General of Belize v Belize Telecom [2009] UKPC 10 |
Implication of contract terms as part of construction |
Discussed but applied with qualifications to avoid diluting tests for implication |
| Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] A.C. 535 |
Reasonableness test for restraint of trade covenants |
Applied to assess reasonableness of restraint in clause 15(8) |
| Cavendish Square Holdings BV v Makdessi [2012] EWHC 3582 (Comm) |
Deference to parties in freely negotiated restraints |
Considered in context of assessing restraint of trade clause |
| G.W. Plowman & Son Ltd. v Ash [1964] 1 W.L.R. 568 |
Restraint of trade protecting principal's business interests |
Distinguished from present case where restraint protects agent's interests |
| Coco v A.N. Clark (Engineers) Limited [1968] F.S.R. 415 |
Elements required for breach of confidence |
Applied to assess confidentiality claims regarding Supplier information |
| Hanover Insurance Brokers Ltd v Shapiro [1994] IRLR 82 |
Meaning of solicitation and marketing in commercial context |
Used by analogy to distinguish passive receipt of business from solicitation |
Court's Reasoning and Analysis
The court undertook a detailed construction of clauses 15(8) and 17(4) of the 2011 Agreement, concluding that "third party products" should be given its ordinary meaning as products of persons other than Company A and Company B. The court rejected Company B's narrower interpretation that it meant products not brokered by Company B, finding that such an interpretation was inconsistent with the language, context, and nature of the parties' relationship.
The court found that the term "Supplier" in these clauses refers only to Suppliers currently under contract with Company A, not former Suppliers, ensuring consistency across the agreement. It distinguished between "solicitation" (seeking business) and "marketing" (offering products for sale), both requiring positive initiative by Company A to breach the covenant.
On rectification, the court applied established principles requiring convincing proof of a common continuing intention not reflected in the contract. The court found that the 2011 Agreement accurately reflected the parties' intentions as evidenced by contemporaneous correspondence and witness testimony, rejecting the claim for rectification.
Regarding implication, the court applied the strict tests from leading authorities, concluding that the proposed implied term was neither necessary for business efficacy nor so obvious as to go without saying. It would also contradict express terms, and thus was not implied.
On the restraint of trade issue, the court held that clause 15(8) was reasonable as to current Suppliers but would be unreasonable if extended to former Suppliers, as Company B had no legitimate interest to protect in former Suppliers who had ceased their relationship with Company A.
Concerning confidentiality, the court found no express or implied obligation of confidence in the 2011 Agreement. The information held by Company B was not confidential, having been obtained as Company A's agent and shared with Company A in circumstances not importing confidentiality. Much of the information was publicly available, and Company A was entitled to use it to service existing Supplier Agreements.
Holding and Implications
Holding:
- The phrase "third party products" in clause 15(8) means products of parties other than Company A and Company B.
- The term "Supplier" in clauses 15(8) and 17(4) refers only to current Suppliers under contract with Company A.
- The words "solicitation" and "marketing" require positive initiative by Company A and do not include passive receipt of business.
- The claim for rectification of the 2011 Agreement is dismissed.
- The claim for implication of an additional restrictive term into the 2011 Agreement is dismissed.
- Clause 15(8) is a reasonable restraint of trade only insofar as it applies to current Suppliers; if extended to former Suppliers, it is an unreasonable restraint of trade.
- The information held by Company B regarding Suppliers is not confidential; Company A may use it to service existing Supplier Agreements.
Implications: Company A is permitted to continue performing existing Supplier Agreements and accept new finance applications under those agreements both before and after termination of the 2011 Agreement. Company A may contact existing Suppliers to inform them of the termination and post-termination arrangements, and may review pricing structures with Suppliers reflecting reduced costs post-termination. Company A may solicit or market to former Suppliers and customers after termination, but may not solicit or market to current Suppliers or customers introduced by Company B for 24 months post-termination. Company A must not provide services to existing Suppliers beyond those under existing agreements or market third party products to them during the term. No new precedent was established beyond the direct effect on the parties.