Bartholomew Hawkins Asset Management Ltd v Bartholomew Hawkins Ltd

This is the hearing of the claimant’s on notice application, filed on 1 June 2020, for interim injunctive relief. The parties attended by counsel: Mr Burgess for the claimant, Mr Tonnard for the defendant; both had provided skeleton arguments for this hearing, for which I am grateful.

In support of its application, the claimant relied on the statement of its director, Mr Cantlay, and documents exhibited thereto. On the evening before the hearing, the defendant filed and served its evidence, resisting the application, in the form of a statement from its director, Mr Lord.

It is the claimant’s case that, following its purchase of the defendant’s assets and goodwill, pursuant to a business purchase agreement dated 21 June 2019 (“the BPA”), the defendant has wrongly withdrawn the claimant’s access to the software platform containing the data of all the clients it has acquired pursuant to the BPA. The claimant says that is in clear breach of the BPA and has left it unable to properly advise some 842 clients, with severe and ongoing prejudice being caused to those clients and to the claimant. By this application, the claimant seeks an interim injunction requiring the defendant to maintain the status quo and restore its access to the software platform.

The defendant resists the application on the basis that it has only acted consistently with the BPA; access to client data ceased when the claimant was granted relevant permissions from the Financial Conduct Authority (“the FCA”) and previous secondment arrangements then ended, pursuant to the BPA. The defendant had sought to work with the claimant to ensure the necessary consents were obtained for the claimant to then access client data. There was no arguable breach of the BPA and the claimant was not seeking to restore the status quo, but to obtain access to data on an entirely new basis; while new arrangements were put in place the defendant was able to manage client interests on behalf of the claimant and injunctive relief should not be granted, not least as it risked putting the defendant in breach of the General Data Protection Regulations 2018 (“the GDPR”).

Given restrictions necessitated by the current coronavirus pandemic, and with the parties’ agreement, this hearing has taken place remotely. It was originally intended to take place by video but IT difficulties initially rendered this impossible, and with the cooperation of all attending, yesterday’s hearing was converted into a telephone hearing; it remained, however, a public proceeding and details had been published in the cause list, giving relevant information for any person who wished to attend. Due to the technical difficulties thus experienced, the start of the hearing had also been delayed and it was not practical to give judgment on the same day. It was duly arranged that the hearing would resume, for judgment to be given the following day (the hearing now taking place by video).

The claimant and defendant are companies within the Bartholomew Hawkins Group (“the group”). Both are regulated by the FCA; the claimant provides asset management services, the defendant financial planning advice. Mr Burgess, acting for the claimant, has explained to me that in 2019 a third party - Independent Wealth - sought to acquire the group and it was determined that that should be affected by a transfer of assets from the defendant to the claimant; Independent Wealth would then acquire the claimant by way of share purchase.

That explains the background to the BPA of 21 June 2019, which is expressly stated to be an agreement ‘relating to all the Business and Assets of [the defendant]’. By clause 2.1, the defendant agreed to sell, and the claimant purchase, the ‘Business’ (which is defined as the ‘business of providing regulated activities and financial advisory services carried on by [the defendant]’) and the ‘Assets’ of the defendant ‘as a going concern’.

At clause 6.3, the defendant warranted that the ‘Assets’ ‘comprise all the assets, contracts and rights now used in the Business and which are necessary for the effective operation of the Business and the [defendant] does not make use of any other asset in the operation of the Business’. It is the claimant’s case that, as a result of the BPA, the defendant is thus, in effect, a shell company. For the defendant it is said this is not an accurate description as the defendant still holds legal title to assets of the business, albeit these are held on trust for the claimant. This is a point to which I return, below.

Relevantly, for the purposes of the BPA, ‘Assets’ include (see the definitions at clause 1 and schedule 1 of the BPA):

What was excluded from the sale was set out at schedule 2 of the BPA, which listed the ‘Excluded Assets’ and ‘Excluded Liabilities’, as follows: ‘Part 1 - Excluded Assets 1.The Cash Balance.

At the date of the BPA, it was further provided that:

Pending the transfer of any Assets, clause 4.3 of the BPA provides that the defendant is required to:

Additionally, clause 4.3 provides:

To the extent that assets could not be delivered or transferred to the claimant upon completion of the BPA, clause 4.6 further provides, as follows:

Clause 4.7 then provides for an indemnity from the defendant against any losses that the claimant may suffer in connection with the non-performance of obligations under each client contract, where that is due to the defendant’s act or omission. Additionally, clause 4.8 addresses the position where relevant consents are not obtained requiring the parties to use, ‘all reasonable endeavours to achieve an alternative solution’, pursuant to which the claimant will, ‘receive the full benefit of the relevant Asset’.

Clause 7 of the BPS addressed the position of the employees of the Business. As I understand the position, there were around 21 employees at the relevant time, each of whom acted as financial advisors to clients of the Business. Acknowledging the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006, the employees thus transferred to the claimant, albeit it was then provided that they would be seconded back to the defendant for the secondment period (see clause 7.6 BPA).

As already noted, pursuant to clause 4.6.2 (b) of the BPA, pending the transfer of the client contracts, the claimant was to act as the defendant’s agent in servicing those contracts through its employees. This was effected by the employees of the claimant being seconded to the defendant and, as such, they were granted access to the relevant client data. The BPA provided that the secondment period would be:

Because of delays obtaining FCA consents, it was subsequently agreed by the parties that the secondment period would end when those permissions were granted. The Dispute

The relevant data of the defendant’s clients is stored on a software platform for financial advisors called Intelligent Office (“the IO platform”), which is licensed from a third-party company.

For the defendant it is said that the IO platform is not itself an asset for the purposes of the BPA; it is merely a licence and contains thousands of clients’ data, only some of which are the subject of the BPA. It is the defendant’s case that the Business Intellectual Property Asset, for the purposes of the BPA, is limited to the data on the IO platform (“the IO data”) and not the IO platform itself. The claimant says, however, that it is plain that the IO platform is an asset as defined by the BPA, falling under multiple of the relevant definitions. It observes that, if this were not the case, the defendant would be in breach of its warranty at clause 6.3. In any event, the claimant points out that the defendant has accepted that the IO data is an Asset and submits that, by clause 4.6.2 (c), it was thus required to do what was reasonably requested of it to ensure that the claimant had the benefit, use and enjoyment of that Asset; the reasonable request was to grant the claimant’s employees access to the defendant’s IO platform.

It is agreed between the parties that it is the IO platform that holds all the data necessary to provide advice to clients, including: client contact information, ‘know your client’ information, client ‘fact finds’ and details of client plans and policies serviced by the advisory business; it thus holds documentation relating to the financial advice that the clients have received, and the ongoing services provided to them by their advisor. For the defendant it is said that the IO platform also holds historic data, which the claimant is not entitled to access.

As I have already indicated, following the BPA there was a delay in transferring the client contracts to the claimant as a result of the time taken for the FCA to grant the variation of permission (“VOP”) necessary for the claimant to carry out the services required under those contracts. Mr Cantlay has explained that the FCA imposed a condition to the VOP, that Mr Lord and Mr Davies - who had both previously been directors of the claimant - stand down from their positions before such permission was granted. I understand that Mr Lord and Mr Davies were therefore removed as directors of the claimant and are presently placed on garden leave, pending disciplinary proceedings, albeit they still serve as directors of the defendant. In the meantime, however, pursuant to the secondment arrangements under the BPA, the financial advisors that had transferred to the claimant were able to access the defendant’s systems, in particular the IO platform, and to continue to service their clients.

On 21 May 2020, the FCA advised the claimant that the VOP had been approved. On 26 May 2020, Mr Lord, acting on behalf of the defendant, emailed the claimant stating that, as the VOP had now been granted, the defendant expected a swift conclusion of the interim arrangements, confirming that the defendant would: ‘begin closing down the various operations that have allowed it to support the claimant’; those ‘operations’ included access

Mr Lord stated it was the defendant’s understanding that the claimant had been ‘preparing to re-paper’ its clients, and he confirmed that the defendant would ‘now be engaging with all clients directly to make clients aware of the situation’ and would ‘use its reasonable endeavours to ensure a successful completion of the re-papering whilst ensuring full compliance with its GDPR requirements’. Confirming that the defendant would continue to hold income from clients on trust for the claimant, pending the formal re-papers which would reasonably be completed by the end of June, Mr Lord stated that, as a result of the VOP being approved, the claimant would no longer be authorised to ask as agent for the defendant in relation to its clients; it could now only act in its own name.

There followed correspondence between the parties, with the claimant seeking that its access to the IO platform be reinstated. The defendant declined to agree to this. On 1 June 2020, the claimant issued this application.

The court’s jurisdiction to deal with this matter derives from its general power to grant interim injunctions, pursuant to Section 37 of the Senior Court Act 1981, and CPR Part 25. The approach I am to adopt is that laid down by the House of Lords in American Cyanamid Co -v- Ethicon Limited [1975] A.C. 396, as follows:

As Mr Tonnard submitted, the question here is whether the claimant has demonstrated a serious - that is, not frivolous or vexatious - issue to be tried in its assertion that the defendant has been acting in breach of the BPA. The defendant says it is plain that it has not: once the FCA granted VOP, the claimant could no longer act as its agent and the secondment arrangements automatically fell away; the obligation was then on the claimant to work with the defendant, each party using all reasonable endeavours to obtain the necessary client consents. In the meantime, the defendant continued to service the client contracts and to hold any income on trust for the claimant.

The claimant’s case is premised on clause 4.6.2 (c) of the BPA. That provision is engaged where an Asset is still to be delivered or transferred to the claimant. Here, the Asset is the client data held on the IO platform, for which the defendant holds the licence. Although there has been some argument on the point, whether the Asset is the platform, the licence or the data seems to me to be an unnecessary distraction given that it is common ground that the data itself is an Asset for the purposes of the BPA and would plainly fall within the definition of Business Intellectual Property under the BPA. Were it necessary for me to form any view on the point, however, I am satisfied that, in any event, a serious triable issue has been identified that the IO platform - the means of accessing client data – is, itself, an Asset. Whether that is as part of the ‘Computer Systems’ of the Business or as one of its ‘Moveable Assets’, which include the ‘computer … software … owned and used by or for

Turning then to clause 4.6.2 (c), in relation to the Asset in question, the defendant is obliged to do each and everything reasonably requested of it by the claimant, to provide for the claimant the benefit, use and enjoyment of that Asset. Here, the claimant is requesting continued access to client data by means of access to the IO platform. There is no dispute that this would enable it to benefit, use and enjoy the Asset. The only question is whether it has shown a serious triable issue that its request in this regard is reasonable.

The defendant says the claimant has failed to meet this threshold requirement: the parties had agreed arrangements that were in place up to the grant of VOP - the secondment arrangements – but the BPA expressly provided that those would fall away once VOP was in place; the claimant could no longer act as the defendant’s agent and needed client consents; clause 4.8 provided for how the parties were to cooperate to achieve an alternative solution in the interim.

Acknowledging that clause 4.8 makes specific provision for the parties to use reasonable endeavours to agree an alternative solution if the necessary consents were not obtained

In reaching this view, I have taken into account the defendant’s further argument - albeit (i) raised late in the day, and (ii) directed at a later stage of the American Cyanamid test (that of considering comparative prejudice) - that granting the claimant access to client data might place the defendant in breach of its obligations under the GDPR.

If the defendant is correct that the claimant can no longer act as its agent, that would change the position previously in place under the secondment arrangements: the claimant’s employees would be accessing data directly on behalf of the claimant and not as agent for the defendant. By Article 6(1) of the GDPR, however, it is provided that the processing of data will be lawful if one of six situations apply. One of those is that the data subject has given consent. Assuming that is not the case here - i.e. that client consents have not been obtained - access to data is also allowed where ‘processing is necessary for the performance of a contract to which the data subject is party’ (see Article 6(1) (b)) or where ‘processing is necessary for the purposes of the legitimate interests pursued by the controller or a third party, except where such interests are overridden by the interests or fundamental right and freedoms of the data subject which require protection of personal data’ (see Article 6(1) (f)). In this case, I am satisfied that the claimant has again demonstrated a serious triable issue that its access to the data in question would be lawful under these alternative provisions, either because it is necessary for the performance of client contracts or because it is in the interests of the claimant that the claimant has access to the client data in order to service its clients and maintain its business; additionally, those interests are not overridden by the interests of the clients, who have a shared interest in the claimant’s employees being able to continue to provide them with financial advice.

On the question of adequacy of damages, the defendant says it is apparent that little prejudice has in fact been suffered by the claimant: the defendant continues to hold the underlying client contracts and Mr Lord and Mr Davies - who still hold relevant FCA approvals – have been able to service such enquiries that have arisen (albeit, on Mr Lord’s evidence, very few have in fact been made - only four since 26 May 2020). The defendant also points out that it will hold any income received, on trust, for the claimant. Moreover, if there were any losses, the defendant says these would, in any event, have arisen only as a result of the claimant’s failure to cooperate in obtaining client consents and putting alternative arrangements in place. Yet further, and to the extent that the defendant had caused any such losses, the claimant would be protected by the indemnity provision under the BPA.

There is a dispute on the evidence in this regard, with Mr Cantlay stating that there were in fact 67 documented instances where the claimant’s financial advisors needed to access the IO platform to assist clients in the week before 26 May 2020. I cannot resolve that dispute at this stage, but I am satisfied that the potential damage arising from the claimant’s inability to access the IO data could be considerable and would be hard to quantify. It is hard to predict what assistance clients might need at a time such as the present and I do not consider it is an answer to say that Mr Lord and Mr Davies can deal with client enquiries: clients are likely to want to speak to the financial advisor with whom they have already been dealing; those advisors, in turn, will need to be able to access their client’s records. Where that cannot be achieved, clients may well go elsewhere; goodwill may be lost. At present, the claimant is effectively unable to provide financial advice to some 842 clients in circumstances where, given the current situation, such advice might urgently be sought and required. There is, therefore, clearly a customer flight risk for the claimant: without advice, the clients may well decide to seek another advisor who can assist them if the claimant cannot. The claimant contends that the overall commercial, financial, and reputational harm it is suffering is therefore substantial and will be difficult to quantify in damages; I am persuaded that that is indeed the case.

I am also satisfied that there is a very limited prospect of the defendant being able to meet any claim for damages. The evidence before me suggests that the defendant is indeed now a shell company, whose only asset is a limited cash reserve (£380,000 as at the date of the BPA); it may hold the legal title to certain assets, but the benefit of those assets has now passed to the claimant. There is nothing in the evidence adduced by the defendant that has properly countered the account given by Mr Cantlay of the resources left within the defendant and that, it seems to me, is insufficient to provide the claimant with the necessary indemnity.

On the other hand, should it transpire that the injunction should not have been granted, it is unclear what damage the defendant would suffer. The only matter raised by the defendant relates to the potential risk of it having been found to have acted in breach of its GDPR obligation and I have already addressed that question, in dealing with the first part of the American Cyanamid test. As for the claimant’s ability to meet such costs, the evidence before me confirms that it has the necessary resources to do so; the claimant’s most recent return to the FCA records that it had total assets of £1.572 million as at 31 December 2019.

Without wishing to repeat points already made, I am further satisfied that the balance of convenience would also point in favour of granting the injunction. At present the claimant is unable to service some 842 clients who, in turn, are unable to access proper advice regarding their portfolios from their existing financial advisors. This is a time of huge financial uncertainty, when clients are likely to want to be able to secure advice and will no doubt wish to do so from people they have been using before. Without access to the IO platform, the claimant has none of the data regarding the clients’ affairs necessary for it to provide that advice. It seems to me likely that this is what the defendant agreed to facilitate

For all those reasons, therefore, and subject to certain additional matters relating to the terms of the order, I grant the injunction sought.

THE HONOURABLE MRS JUSTICE EADY DBE

BARTHOLOMEW HAWKINS ASSET MANAGEMENT LIMITED

and

BARTHOLOMEW HAWKINS LIMITED

SECOND JUDGMENT

(Approved)

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Ubiqus hereby certify that the above is an accurate and complete record of the proceedings or part thereof

THE HONOURABLE MRS JUSTICE EADY DBE

BARTHOLOMEW HAWKINS ASSET MANAGEMENT LIMITED

and

BARTHOLOMEW HAWKINS LIMITED

COST JUDGMENT

(Approved)

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Ubiqus hereby certify that the above is an accurate and complete record of the proceedings or part thereof