Accountants cleared of breach of contract over rival hire

The Court of Appeal has thrown out a case over a dispute between two firms of chartered accountants over breach of contract when hiring a former employee

Carlisle-based David Allen Chartered Accountants took local firm Dodd & Co Ltd to court after one of David Allen’s staff quit the firm to join Dodds.

Partner David Allen argued that his former employee had taken up the new role at Dodd & Co in breach of a restrictive covenant in his employment contract and sued the firm, accusing them of inducing breach of contract.

Dodd & Co refuted the claim, stating that they had taken legal advice in advance of making the appointment and on the basis of that advice took the view that it was more than likely that the restrictive covenants were ineffective and unenforceable.

However, when the case went before the High Court in Manchester, Judge Halliwell ruled that despite the advice the firm had received the covenants were enforceable and that there had been a breach.

The judge cleared Dodd & Co of inducing any breach, saying that the firm had not turned a blind eye to the employee’s contractual obligations, had not been indifferent to those obligations and had gone to the trouble of taking early legal advice upon which they honestly relied.

He found that the fact that advice had turned out to be wrong was not sufficient for Dodd & Co to be found guilty of inducing the breach.

Now three of the country’s senior judges at the Court of Appeal have unanimously agreed and dismissed an appeal by Allen against the earlier ruling.

Lord Justice Lewison, sitting with Lord Justice David Richards and Lady Justice Rose said in dismissing the appeal: ‘It may be the case that if the legal advice goes no further than to say that it is arguable that no breach will be committed, that would not be enough to escape liability.’

‘In my judgment if the advice is that it is more probable than not that no breach will be committed, that is good enough. Whether something is more probable than not is a question that is frequently asked in the civil law.’

He said Dodd & Co had acted on advice that the covenant was not enforceable.

‘In my judgment Dodd was entitled to act on that advice without exposing itself to liability in tort,’ he said.

Allen told Accountancy Daily: ‘It is disappointing that partners in a professional firm of chartered accountants have behaved like this and gone out of their way to encourage a naïve new employee to breach the restrictive covenants in his contract with his previous employer.

‘This behaviour is not consistent with the professional standards of the ICAEW. These chartered accountants should be setting a better example.

‘Even though it was obvious to the court that Dodds had actively encouraged Craig to breach his contract, this was not inducement as they had got legal advice that they could have a go. Craig was very naïve and the partners in Dodds have shown themselves in a bad light. The judgment is what it is. There will be no appeal.’

Allen told Accountancy Daily: ‘It is disappointing that partners in a professional firm of chartered accountants have behaved like this and gone out of their way to encourage a naïve new employee to breach the restrictive covenants in his contract with his previous employer.

‘This behaviour is not consistent with the professional standards of the ICAEW. These chartered accountants should be setting a better example.

‘Even though it was obvious to the court that Dodds had actively encouraged the employee to breach his contract, this was not inducement as they had got legal advice that they could have a go. He was very naïve and the partners in Dodds have shown themselves in a bad light. The judgment is what it is. There will be no appeal.’

Dodd & Co Ltd have been contacted for comment.

 

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