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Phlo Technologies LTD against Nadeem Sarwar (Court of Session)
Factual and Procedural Background
This opinion, delivered by Judge Richardson, arises from litigation between Company A (the Plaintiff) and the Defendant concerning control and leadership of Company A and enforcement of restrictive covenants in a shareholders' agreement dated 29 March 2024. The Defendant was the founder and, before 30 August 2024, the chief executive of Company A; the parties dispute whether he remained a director after that date. Company A obtained ad interim interdicts on 15 January 2025 restraining the Defendant from being concerned with any United Kingdom trade or business competing with Company A's internet pharmacy business during the period 30 August 2022 to 30 August 2024 until 28 February 2026, and from certain dealings with persons who had been clients, customers or suppliers of Company A during that period. Company A alleged that the Defendant, as founder and sole director of Company B (which had acquired the business of Company C), acted in breach of that interlocutor. Company A lodged a Minute of Citation with the concurrence of the Lord Advocate; the Defendant answered, and a proof was allowed. The court heard limited witness evidence and a joint minute that set out agreed facts about the businesses and regulatory framework.
Legal Issues Presented
- Whether the Defendant's involvement with Company B constituted engagement in a trade or business "competing with" Company A's internet pharmacy business as carried on between 30 August 2022 and 30 August 2024, contrary to paragraph 2 of the interlocutor dated 15 January 2025.
- Whether the Defendant's conduct, if in breach of the interlocutor, amounted to contempt of court.
Arguments of the Parties
Plaintiff's Arguments
- The Plaintiff bore the burden of proof beyond reasonable doubt and submitted the Defendant knowingly continued his involvement with Company B after the interlocutor.
- The Plaintiff relied on authorities to argue that a prohibition on competition is not limited to active solicitation and that passive or unintended capture of business can constitute competition.
- The Plaintiff contended Company B, as a regulated distance selling pharmacy under the 2013 Regulations, was obliged to accept and fulfil NHS prescriptions and in fact had filled prescriptions for members of the public; that conduct competed with Company A's NHS prescription stream and other income streams, including business-to-business opportunities; the Defendant's subjective intention or reliance on advice was irrelevant to liability for contempt, though relevant to mitigation.
- The Plaintiff sought a finding of contempt and a further hearing on sanction.
Defendant's Arguments
- The Defendant argued Company B's principal business was supplying bulk prescriptions to care home operators, a market in which Company A had not operated during the material period, so there was no true competition with Company A's three-stream internet pharmacy business.
- The Defendant relied on expert evidence that Company B's website content reflected bare regulatory compliance under the 2013 Regulations and did not indicate an intention to compete for community NHS patients; any small community-patient activity resulted from regulatory obligations, not market competition.
- The Defendant submitted the interlocutor should be construed strictly and in light of the shareholders' agreement and petition background to require competition that is, in fact, detrimental to Company A's legitimate business interests; absent proof of detriment, there was no breach. He also relied on the expert evidence and unchallenged factual evidence about Company B's dispensing profile.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rogers v Drury (1887) 57 LJ Ch 504 | That a covenant against competition is not limited to active or solicited competition; distinction between active and passive competition rejected. | The court relied on the passage to reject an argument that competition required solicitation or subjective desire for the business; competition is to be assessed objectively. |
| Allied Dunbar (Frank Weisinger) Ltd v Frank Weisinger [1988] IRLR 60 | That prospects of obtaining new clients from recommendations and referrals form part of goodwill and are protectable. | Relied upon by the Plaintiff to support the proposition that restrictive covenants protect opportunities to obtain new clients; the court considered this but found it inapplicable to care-home services here. |
| One Step (Support) Ltd v Morris-Garner [2017] QB 1 | Analytical approach to whether two undertakings are in competition: comparability of goods/services and whether operating in same market/area. | The court adopted Lord Justice Christopher Clarke's two-part analysis (sufficiently comparable services and same market) as a helpful framework for assessing whether Company B competed with Company A. |
| Kennedy v Cordia (Services) Limited 2016 SC (UKSC) 59 | Limits on expert evidence: experts must not usurp the court's role; can address ultimate issues but should not supplant decision-maker. | The court considered this authority when assessing admissibility of the Defendant's expert evidence and concluded the expert's evidence did not usurp the court's function and was admissible. |
| Gribben v Gribben 1976 SLT 266 | That breach of interdict is disobedience of a court order and constitutes contempt of court. | The court referred to this authority to support the proposition that disobedience of a competent order may constitute contempt. |
| Murray v HMA 2022 JC 181 | Explained ingredients of contempt where conduct breaches a court order and the role of deliberate conduct; no strict liability; deliberate breach suffices for mental element. | The court relied on Murray for the proposition that deliberate conduct breaching an order constitutes contempt and that reliance on advice does not provide a defence to contempt (though may mitigate). |
| Robertson and Gough v HM Advocate (Lord Justice Clerk (Gill), para 29) | Definition of contempt as wilful defiance or challenge to authority of court. | Quoted within Murray and taken into account in assessing whether the Defendant's conduct was contemptuous. |
| Beggs v Scottish Ministers 2005 1 SC 342 | Treatment of "deliberate" conduct in assessment of breach. | The court cited Beggs to support the finding that the Defendant's continued involvement was deliberate and not accidental. |
| Sovereign Dimensional Survey v Cooper 2009 SC 382 | That invoking contempt jurisdiction is a matter of public interest and the court must consider whether it is in the public interest to make a finding. | The court applied this to conclude it was in the public interest to make a finding of contempt given the prolonged breach. |
| Rankin v Jack 2010 SC 642 | Test for exceptional circumstances (res noviter veniens ad notitiam) to admit new evidence post-proof. | The court referenced the test in refusing an application to recall a witness, noting it was unlikely to be met. |
| Arlidge, Eady & Smith on Contempt (5th edition) at 16-227 (and at 16-228) | Treatise references on burden/standard of proof in contempt and on strict construction of interlocutors. | The court relied on these statements for propositions about the burden and standard (beyond reasonable doubt) and the strict approach to construing interlocutors. |
Court's Reasoning and Analysis
Admissibility of Expert Evidence: The court considered the Plaintiff's objections to Expert Witness C (author of the advice note) on the grounds of partiality and usurpation of the court's function. Applying the principles in Kennedy, the court found the expert evidence admissible: prior advice did not render the witness partial where he understood he was assisting the court, and his opinions, although addressing the ultimate issue, did not supplant the court.
Construction of the Interlocutor: The court emphasised strict construction of interlocutors. Paragraph 2 proscribed engagement in any UK trade or business "competing with" Company A's internet pharmacy business as carried on from 30 August 2022 to 30 August 2024. Paragraph 2 contains no qualification requiring actual detriment; by contrast paragraph 3 expressly refers to "detriment". The court rejected an implied gloss that competition must be detrimental, as inconsistent with the interlocutor's wording and introducing uncertainty.
Meaning of "Competing With": The court adopted an objective natural meaning: two entities compete when they strive to win some part of the same custom. The court found Lord Justice Clarke's two-part analysis from One Step (comparability of goods/services and operation in the same market) a helpful framework. Subjective intention or whether the competitor "wanted" the business was irrelevant; passive or regulatory-driven capture of business can still amount to competition (drawing on Rogers).
Application to Facts — Business Streams: The court accepted the agreed description of Company A's three income streams during the material period: (1) fulfilling NHS prescriptions for individual patients (distance selling), (2) independent prescribing to individuals, and (3) business-to-business infrastructure/pharmacy services.
Remedi / Company B's Activities: The court accepted Witness D's unchallenged evidence regarding Company B's dispensing: approximately 55,000 monthly prescriptions to care homes and 114 monthly items to 79 "community" patients. Company B's website, while broadly worded to comply with regulatory obligations, invited NHS patients generally.
Care-home Business: The court concluded Company B's care-home bulk dispensing service did not fall within competition with Company A's internet pharmacy business during the material period: Company A did not offer an equivalent care-home operator service, and care-home operators would not view Company A's individual-patient service as a substitute. Allied Dunbar's principles about prospective clients were considered but found not to apply because the services were not comparable.
Community-patient Business: The court found Company B's community-patient activity—small though it was—offered the same or highly comparable NHS prescription service as Company A's first stream and targeted the same market of NHS England patients. Applying the objective test, Company B was competing with Company A for that stream despite the Defendant's assertion that the activity arose from regulatory compliance and lack of intent. The court rejected the view that regulatory compulsion excludes the activity from constituting competition.
Contempt: Having found that Company B's community-patient business competed with Company A's internet pharmacy business during the relevant period, the court concluded the Defendant's continued engagement with Company B after 15 January 2025 breached paragraph 2 of the interlocutor. Relying on authorities including Murray and Gribben, and treating the Defendant's conduct as deliberate, the court held that the breach constituted contempt of court. The Defendant's reliance on expert advice does not provide a defence but may be relevant to mitigation. The court also considered public-interest factors and concluded it was in the public interest to make a finding of contempt.
Post-proof Motion: The court refused the Defendant's motion to recall Witness A on the basis that the alleged new evidence about premises in The City was not material to the issues decided and did not demonstrate a contradiction warranting recall; the test for exceptional circumstances (res noviter veniens ad notitiam) was not met.
Holding and Implications
HOLDING: The court found that the Defendant's continued engagement with Company B after 15 January 2025 breached paragraph 2 of the interlocutor and that the breach amounted to contempt of court.
Implications: The direct consequence is that the Defendant is held in contempt; the court ordered that a further hearing be fixed to address sanction. The court noted that the Defendant's reliance on expert advice and the limited extent of competition may be relevant to mitigation. The opinion does not purport to establish a new legal precedent beyond applying existing authorities and principles to the facts; it enforces the interlocutor against the Defendant and confirms the court's intention to proceed to address sanction.
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