Various disputes between estate agent and former employee–Commission payable on sales negotiated before, but completed after, leaving principal’s service–Covenant restricting employee from setting up in practice or accepting employment in estate agency within a certain radius–Principles governing such restrictive covenants–Restriction in present case held to be unreasonable in scope and therefore void as contrary to public policy
This was an
action brought by Keith Luck against his former employer, Michael Gordon
Davenport-Smith FSVA for relief on various grounds, including a claim for
commission on sales negotiated by the plaintiff while still in the defendant’s
employment. The defendant, who carried on the business of an estate agent from
offices at Peacehaven, Saltdean and Patcham in Sussex, raised a number of
matters by way of defence and counterclaimed to enforce a covenant in restraint
of trade against the plaintiff.
M D Kennedy
(instructed by David M Laing, Brighton) appeared for the plaintiff, and B
Galpin (instructed by Weeks, Legg & Dean, Brighton) represented the
defendant.
Giving
judgment GIBBENS J said: The outline of the history of the relationship of the
parties is this. When he was 18 years of age Mr Luck, having had some small
experience with a one-man firm, applied for employment by Mr M G
Davenport-Smith, who was carrying on the business of an estate agent in
Peacehaven, Saltdean and Patcham in Sussex. His letter of application of March
6 1965 was successful, because on March 19 1965 Mr Davenport-Smith wrote to
give Mr Luck employment on the terms set out in that letter, the employment
being subject to an initial period of three months’ probation, after which,
subject to approval of both parties, it says, ‘You will then become a permanent
member of our staff.’ On January 1 1969
Mr Luck was moved from the office in Peacehaven to Patcham, where he became
branch manager; it was a small office but it entitled him to that appellation.
Again in the same year, on August 30 1969, he was transferred to the Saltdean
office, this time with the title of senior negotiator which, although it sounds
less, I think was not in fact in any way a demotion, because he was proving to
be a valuable servant and assistant to Mr Davenport-Smith and it was indeed a
more responsible job. But Mr Luck was, quite understandably, ambitious and
wished to improve his position, and, as a result, in May 1970 he accepted
employment with another firm of estate agents in the Sussex field, Dutton
Briant & Watts, who, I think, have their main offices in Brighton. But,
having formed a good opinion of Mr Luck, Mr Davenport-Smith sought to dissuade
him from leaving and proposed a partnership between them. Negotiations went on
for a partnership, during which time Mr Luck was really treated as a partner;
but eventually, on March 17 1972, the negotiations were abruptly broken off by
a letter which indicated that as several drafts had been prepared without
reaching agreement the negotiations would now be at an end. At that time, owing
to the change in prospects, Mr Luck and Mr Davenport-Smith had a discussion as
to the terms which should now govern Mr Luck’s employment for continued service
with the defendant; and, on p 33 of the bundle of agreed correspondence, we
find Mr Luck’s own holograph note of what took place in that discussion and
what he says was agreed. Mr Davenport-Smith’s version of the matter is to be
found in his own note made on the cover of Mr Luck’s employment file, which has
been produced in this case, exhibit D2. On July 4 1973 Mr Luck wrote to the
defendant, saying, ‘After much consideration, I have decided to relinquish my
position in your Saltdean Park Road office,’ and giving one calendar month’s
notice to expire on Saturday August 4 of that year. He explained his departure
by saying that he trusted his new job with Fox & Sons (another firm of
estate agents principally situated in Brighton but having wide connections over
the whole of the South Coast down, I understand, as far as Cornwall) could give
him improved prospects of becoming a manager in years to come. Although the
notice was expressed to expire on Saturday August 4 Mr Luck did in fact stay on
to help out, because of a temporary staff shortage experienced by the
defendant, and he helped out by staying in the office at Peacehaven as
assistant manager on the terms set out in a letter at p 36 of the bundle of
correspondence. Again, on p 37, he indicates (in a letter to Mr
Davenport-Smith) that there was further discussion between them, but he still felt
that it would be in his best interest to leave as ‘whilst you have made a most
generous offer in financial terms the prospects of actual management seem very
remote.’ Those letters indicate how
highly Mr Davenport-Smith valued the services of the plaintiff. On September 25
1973 the plaintiff finally left the defendant’s employment and began his
service with Fox & Sons. During all the time that he had been with the
defendant firm the plaintiff’s remuneration had been varied from time to time
in different ways, and the chronology is set out in paragraph 3(a) of the
amended statement of claim, which I do not feel I need repeat.
That is the
outline of the plaintiff’s service with the defendant. I begin my examination
of the evidence by saying this, that Mr Davenport-Smith has paid a tribute to
the honesty of Mr Luck, saying that he is a completely honest as well as
efficient servant. I think that the same tribute should really be offered to Mr
Davenport-Smith, too. I think that perhaps, as happens even with the most
honest of people, the pressures of cogitation in the litigation that has
transpired have caused Mr Davenport-Smith to make mistakes in recollection
which enabled counsel for Mr Luck to impeach Mr Davenport-Smith’s evidence in
some respects; but I do not think that he was in any way dishonest
intentionally, and being faced with the contrary recollections of two people
trying to be absolutely honest makes it none the easier for a judge to sort out
where the actual truth lies.
The issues in
this matter may be summarised in this way. Firstly, there is an allegation by
the defendant of a most
allowance. That has been conceded by the plaintiff as being unworthy of
argument, and, therefore, lest I forget it, the defendant is entitled to that
sum. Secondly, there was a sum mentioned in the reamended defence and
counterclaim, paragraph 5 (particulars of sums overpaid to or retained by the
plaintiff or paid out without authority) subparagraph (b), where it is alleged
that the plaintiff, acting for the defendant, collected rent from the tenants
of 9 Cissbury Crescent, Saltdean, which the defendant as managing agent for
that property had transferred to the landlord Mr Poultney. The amount is £80.
It is quite clear that a mistake did arise–Mr Luck has freely admitted it–and
that it was his fault. The reason for the mistake was that the tenants had to
pay for the period ending, as the correspondence shows, on January 12 1973, the
sum of £80; and they paid that on January 13 1973 and at the same time were
presented with a demand for the next and final period of their tenancy, namely,
from January 13 to February 10 1973, exactly the same amount. It seems that,
having received that demand, the tenant–assuming good faith on his part–thought
that it was the same bill which had come back again and he remonstrated with Mr
Luck, who fell into the same confusion and wrote a letter apologising for the
mistake, as he thought it was, and gave a receipt for that £80 which he had in
fact never received. That sum of money, less commission, was paid to the
landlord out of the defendant’s funds. That was a mistake on Mr Luck’s part.
But it is said by the defendant that the result is that the rent so over-acknowledged
to the landlord is irrecoverable. This is very unsatisfactory, because in fact
the defendant knows the present address of the then tenant, Mr Coulter (it
appears indeed in his reamended defence, in paragraph 14) and no effort at all
has been made to recover that sum from Mr Coulter. It is true that Mr Coulter
might, if he was less than honest or if he still laboured under the same
mistake, have said, ‘I have a receipt for it.’
That would occasion a good deal of trouble to Mr Davenport-Smith in
trying to enforce the claim, but it is not very impressive to find out that he
has not even troubled to ask Mr Coulter whether he realises the mistake that
was made and would he pay up. I think this item, therefore, constitutes an
undoubted error and inefficiency on the part of Mr Luck, but I do not think
that it is recoverable in the circumstances by Mr Davenport-Smith, simply
because he has not taken the trouble to establish that part of his claim that
he could not have got it back willingly from Mr Coulter. I would therefore find
in that respect in favour of Mr Luck.
The next item
(but it comes in subparagraph (a) of the same particulars) is the question of a
sum of £100 that was lost at the time when the plaintiff Mr Luck was serving at
the Saltdean office. It represents a deposit in cash received by Mr Luck in
respect of a house called 34 Chichester Drive. The money apparently was paid in
cash, and he gave a receipt for it (which is to be found on p 14 of bundle B)
on January 4 1973. Though that came in, as far as I understand it, during
ordinary business hours, Mr Luck was not able to pay the money into the bank,
probably because the bank had closed, though he does not really recall very
accurately one way or another. So Mr Luck put the money into the only safe in
the office. He did not put it into his drawer, which would be locked with a
key, or anywhere else. He put it into the safe, which was an article that
belied its name, because the lock was defective and the key had been lost; so
it was used only for storing documents and there was no receptacle for money
that required to be kept safely. Mr Luck had been told by Mr Davenport-Smith
not to leave money in that safe overnight but rather to take it home if he
could not do anything else with it; bank it preferably, but to take it home
otherwise, or indeed, if he liked, to take it over to the police station office
and leave it there. On this occasion, having put it in the safe, Mr Luck left
it there overnight, and the next morning when he went to pay the money into the
bank he found that it was gone. He says–and I accept it–that he told Mr
Davenport-Smith at once that the money had been lost and asked whether he
wanted to notify the police or the insurance company. Mr Davenport-Smith was
annoyed but decided that nothing else should be done. I think that that is to
be accepted as the fact, because Mr Davenport-Smith acknowledged that at that
time he did not realise his insurance policy would cover the transport of money
to an employee’s home and nor did he feel, as I am sure was the case, that the
insurance company would pay up if the money had been left unguarded in a safe
which could not be locked; so he did nothing about it. But later on he
discovered that his insurance policy would cover money taken home by the employee
up to the sum of £100, so he then made a claim, and it is obvious from the
letter that came back from the insurance company that he made the claim on the
basis that Mr Luck had taken the money home, and he was unwilling to admit that
the loss had really occurred in that safe. The plaintiff was responsible for
that money; he was the manager or the senior person in that office. However
unreasonable it was–and I think it was unreasonable–to be told to take the
money home, he had been so instructed and, either negligently or deliberately,
he failed to take it home; he left it in the safe. Of course, the office being
locked, one would have thought that it was pretty safe anyway. No forcible
breaking and entering occurred as far as could be seen–no burglary–and the
money must have been taken by someone in the office when the office was open,
or who had gained access with a key. So Mr Luck’s failure to take the money
home, or leaving it overnight in the safe, seems to have occurred at an
unfortunate time. Nonetheless, I think that Mr Luck has failed to show that he
took reasonable care of that money and, by disregarding the instructions, that
he must be responsible for that amount. But Mr Davenport-Smith is not by any
means to be exculpated for what happened. I think it was a great pity that he
should have put forward his claim to the insurance company on what I consider
to be less than a frank basis. But leaving that aside, he had known for a long
time that the safe was useless for security. He had chosen not to get a
key–easily enough done–and to put the safe in order. He had chosen instead to
tell employees to take the money home, which exposed them to possible suspicion
if the money were lost, however accidentally, and imposed upon them
responsibilities which were not a part of their employment. I think he was very
much to blame, and I will put his responsibility for this loss at 75 per cent,
which means that Mr Luck will need to pay him no more than £25.
The fourth
issue raised in the case is the question of Mr Luck’s claim to commission after
leaving Mr Davenport-Smith’s employment. In paragraph 6 of the amended
statement of claim, the plaintiff says that he is entitled to receive the sums
calculated on the net profits of the defendant’s practice in the way that was
clearly agreed during his service, and he also asks for commission due in
respect of properties the sale of which he negotiated but for which the sales
were not completed until after he left. The defendant does not deny that he
would be liable to an account if commission is due or a share of profits is
due. But, as regards the commission, the plaintiff claims only in respect of
sales negotiated by him while he was at the Saltdean office between June 1972
and July 1973, and at the Peacehaven office from the beginning of August 1973
to September 1973, the time when he was helping out, so to speak, as I have
already mentioned. This is a matter which of course depends on the
interpretation of his terms of employment. It is quite clear that upon the authorities
he is entitled to commission, notwithstanding that he left the defendant’s
service, if, before
allowed that he should be paid notwithstanding that the entitlement was concluded
after his service ceased. I need not refer to all the authorities that have
been cited to me, but I take that to be the result of the various cases that I
have studied.
The commission
situation, if I may call it that, in the defendant’s service may be illustrated
by letters in the course of the plaintiff’s service. In the letter of March 19
1965 paragraph 3 reads: ‘Commission of 7 1/2 per cent on all sales effected by
you,’ and then, in paragraph 12, there is reference to a special situation,
giving a Mr Cross, manager of the Peacehaven office, priority on all
applicants; but it is perhaps relevant to note that, in the circumstances there
which would entitle the plaintiff to commission, the last sentence reads,
‘Commissions are paid on the first pay day after the completion of a sale or
letting.’ On March 24 1966, when the
plaintiff received another letter containing what was said to be new terms of
employment from March 21 1966, ‘Commission is 2 1/2 per cent on all sales
negotiated at the Peacehaven office, also to include introductory fees for
insurance,’ etc, and it goes on, ‘In fact this applies to all business
negotiated from March 23 1966 until you have been requested by the Saltdean
office to accompany one of their applicants to newer properties and you effect
a sale immediately to that applicant you will still be paid 2 1/2 per cent
commission on the sale.’ In April 1967
the commission was increased to 3 1/4 per cent, and to quote the letter, ‘to be
paid on all sales completed from June 29 1967.’ Likewise, on November 13 1968, the letter
appointing him senior negotiator says ‘4 per cent commission on all sales
negotiated from January 1 1969,’ and so on; I need not read all of the letter.
Except in the letter of March 23 the word ‘sale’ is always qualified. Coming
nearer to the present time, on June 1 1970 Mr Luck received a letter saying:
‘Your commission will be reduced to 3 1/2 per cent for sales negotiated which
proceed to completion from June 1 to June 28 inclusive of this year.’ When the negotiations for a partnership were
terminated Mr Luck’s note reads that he was promised commission at 5 per cent
as well as a share of the profits. Mr Davenport-Smith’s note on the file,
exhibit D2, reads: ‘From April 1’–this was in 1972–‘commission of 4 1/2 per
cent on all sales, Saltdean and Roedean,’ and later on, ‘From April 1 1972,
sales negotiated which are completed, commission 4 1/2 per cent.’ Of course it is well known that the courts
have decided, in claims by estate agents against their clients or customers for
commission, that when the word ‘sale’ is used, just as when the word
‘purchaser’ is used, that means a concluded sale where someone has in fact
bought the property. But in this case, where, as I have shown, the expression
used is ‘sales negotiated,’ and distinguished from ‘completion,’ I think the
meaning is that when the plaintiff has negotiated the proposed sale of property
to such an extent that the purchaser or intending purchaser has agreed subject
to contract, and the matter has passed from the estate agent’s hands to the
hands of solicitors for final completion, he has then earned his commission,
though he will not be paid unless and until the intending purchaser finally
completes the sale and the commission is received by Mr Davenport-Smith. An
example of that is the letter of June 1 1970, which I have already read, where
the words are ‘for sales negotiated which proceed to completion.’ I think it indicates that there are two parts
to the matter: first of all, the earning of the commission by Mr Luck; and,
secondly, the condition precedent to his receiving the money. His own aim is to
get the matter to such a head that nothing then remains but for the conveyance
to be completed.
I take the
view that that is how the two parties to this agreement understood the matter.
Indeed the course of conduct shows that it was so understood. Mr Luck received
payments after leaving the service of the defendant in many instances. So did
other people, like Mr Ost, who left the defendant’s employment and who were
paid without question for matters that they had negotiated during their
service, but which had not been completed, and for which, therefore, Mr
Davenport-Smith had not received the commission until after their service had
ended. Mr M C Ayling, who was asked about this matter, said that when he left
the defendant he was senior negotiator at Saltdean and he always understood
that he was entitled to commission on the introduction of a prospective
purchaser to a property, and he said, ‘There never was a suggestion that I
would not be paid commission after I had left. I expected to be paid, and I
would have insisted on being paid.’ Mr W
J Hannington, who was a man of great experience and has been for, I think he said,
50 years in the estate agency business, told the court that the negotiator
would always be entitled to commission after leaving the service of a
particular agent on sales negotiated before leaving; the matter would have to
be brought to the stage of ‘subject to contract,’ he said, and, having done
that, the negotiator would merely have to wait for the completion to get his
commission. In his evidence Mr Davenport-Smith said that the negotiator is
entitled to commission on completion of the sale but his entitlement after
leaving the service of a particular estate agent is only moral entitlement or a
moral obligation to pay, and he said ‘I paid Mr Ost and Mr Ayling after they
left, because I had no reason not to pay them. Indeed I paid the plaintiff
after leaving because I had no reason not to pay him.’ ‘But,’ he said, ‘I did not know that, having
gone to Fox & Sons he was about to be planted in the Saltdean area, which I
raised with the plaintiff subsequently, and which I say is in breach of his
restrictive covenant. Consequently I withheld payment.’ I think it is perfectly clear from the
evidence and on the interpretation of the letters, to which I have referred,
that the negotiator is entitled to commission on matters negotiated by him to
the point where the papers pass from the estate agent to the solicitor; and, as
I say, ‘negotiated by him’ means, of course, when he was with the defendant. He
cannot have done it otherwise. In those circumstances, I do not think that the
defendant is entitled to withhold payment because he disapproves of the
plaintiff’s subsequent conduct or because he thinks the plaintiff has broken a
restrictive covenant. Matters of set-off may arise, but there is no doubt that
the plaintiff is entitled to insist on his commission being brought into
account and, unless there is a set-off, to be paid that commission.
Consequently, finding in his favour, I would direct that an account should be
taken of the amount of commission and profits payable to him.
Now I come to
the matter which is perhaps of major importance in this case, that is the
defendant’s claim to enforce against the plaintiff a covenant restraining him
from setting up a practice or from being employed by another estate agent
within a certain area. The matter arose in this way. In the original letter of
employment on March 19 1965, when, of course, the plaintiff was only 18 years
of age, the defendant Mr Davenport-Smith said that one of the terms of
employment was that the plaintiff would sign an agreement ‘not to join or open
an estate office within a one-mile radius of our present offices.’ That is void, for many reasons, among which,
of course, are that, although the plaintiff signed that letter to indicate his
acceptance of all those terms, he had not in fact signed an agreement at that
time including that restraint, but it is also void for being unreasonable in
point of time and having regard to the plaintiff’s age and circumstances which
I need not go into more fully. But when he became 21 the plaintiff was
presented with a formal agreement, dated November 13 1967, which reads in its
material parts as follows. ‘Whereas the employee on March 22 1965 entered into
the employment of the employer upon the terms and conditions set out in the
letter of March 19 1965 and whereas it was prior to the date
parties would enter into this agreement now it is hereby agreed as follows:
‘Employer will employ’–the plaintiff–‘in his aforesaid business and the
employee expressly agrees as follows,’ and the subparagraph of that latter
agreement reads:
Not at any
time during a period of three years after the determination of his employment
hereunder (whether the same shall be determined by notice or otherwise) to
undertake or carry on or be employed either directly or indirectly concerned or
interested as employer, journeyman, manager, clerk, canvasser or otherwise
howsoever (except only as a servant of the employer) in any business of a
house, land and estate agent . . . at any place within a radius of 1 mile from
the said business premises in Saltdean, Peacehaven, and Patcham aforesaid or
within the like radius from the premises of the particular business of the
employer in which he shall be employed at the time of such determination.
The breach in
this case alleged is ‘within 1 mile of the Saltdean offices,’ because in July
1973 he joined Fox & Sons, who have a large number of offices over the
South Coast, and in April 1974 they moved him to be manager of their offices in
Saltdean. They took the view that the covenant which I have referred to was not
enforceable and they say that they wished to move the plaintiff to Saltdean
simply because he was continuing to live there (no one could prevent him from
living there), and so it was more handy, so to speak.
The question I
have to determine is, first of all, whether that agreement has contractual
effect, that is to say, whether there is consideration for it. What did the
defendant give as a quid pro quo to the plaintiff for entering into that
restrictive agreement? Did he give
anything new to the plaintiff? The
plaintiff had, as the agreement recites, been employed under the terms of the
letter of March 19 1965, which provided that the employment should be
determined at one month’s notice on either side. It is to be noted that the
agreement in 1967 merely says, ‘The employer will employ the employee in his
aforesaid business’: there is no provision whatever for a period of notice or
other method of determination. The only indication of a notice is in the body
of the covenant at issue, where in parenthesis it says ‘whether the same’–that
is, whether the employment–‘shall be determined by notice or otherwise.’ Under that agreement, it would appear to me
that less is offered than was previously offered. I see no reason why it should
not be terminated fairly swiftly, even on reasonable notice, landing the
plaintiff in a situation where he had got no job and is prevented by the
covenant which he had now entered into from practising elsewhere. However, he
had been employed on the basis that he would enter into that covenant, and he
knew–and has acknowledged–that if he refused to enter into that covenant then,
at any rate at one month’s notice, his employment would be terminated. So he
had got an agreement which was really putting into effect past consideration,
on the basis that he would continue in the old employment. So with some
hesitation, particularly after reading the case of Coleborne v Kearns
(1912) 46 ILT 305, a case decided in 1912, I think that there was consideration
for that new agreement. I do not think it was superseded, as alleged by the
plaintiff, by any subsequent change in the terms of his employment. It is
noteworthy that, although that covenant was adumbrated (that new agreement was
foreseen in the letter in 1965) it had never again been mentioned until it was
entered into. I do not think I need go into the dispute between the witnesses
as to whether Mr Davenport-Smith spoke to the plaintiff about it before putting
it forward for his signature. There is a direct conflict of evidence on that,
and I do not think it helps one way or the other to decide that issue. That
agreement was intended to be the continuing and basic contract of service, as
it were, but the various incidental details could be separately agreed from
time to time; that is why it was put in a separate document.
That is not
the end of the matter, because an agreement in restraint of trade is prima
facie void as being contrary to public policy, unless the defendant who
maintains it shows that it is both reasonable in the particular circumstances
of the case and reasonable having regard to what is called public policy,
namely, the public interest. The evidence that I have heard may be thought to
indicate that there is no goodwill (I quote Mr Hannington) in an estate agent’s
business, at any rate so far as buying and selling of houses is concerned.
There may be in the management of property–I do not know–but as regards the
buying and selling of houses there is no goodwill, he says. Therefore a restrictive
covenant is never required, never reasonable, between estate agents and
employees. Mr Hannington strongly rejects any suggestion that there should be
such covenants in his business, except of course where principals are partners
and wish to restrain each other from breaking off and setting up as principals
elsewhere, because, he said, in such circumstances obviously the personality
and connections of one man may be much more important than in the case of an
employee. That view of the matter cannot be right, as demonstrated by the fact
that there are many cases in the reports where covenants of that nature between
estate agents and their employees have been enforced by the courts.
Consequently such covenants do exist and have been thought in some instances to
be reasonable and in the public interest. In the case of Scorer v Seymour
Jones [1966] 1 WLR 1419 an estate agent who had a long-established business
in Dartmouth, Devonshire, opened a new office in Kingsbridge in the same county
and engaged the defendant, a Mr Jones, to work in that office as a clerk and
negotiator and to conduct the business of the office with the assistance of a
typist. At the time when the defendant entered into that employment he
understood that there would be some restriction imposed by the plaintiff on his
business activities should he leave the plaintiff’s employment, but no formal
agreement as to the restrictions to be imposed was reached at that time. In
June of the same year, 1964, the Contracts of Employment Act made it necessary
for the terms of employment to be set out in writing, and the parties entered
into a written agreement setting out the terms of the defendant’s employment,
and clause 8 of that agreement contained a restriction that during a period of
three years after leaving the plaintiff’s service the defendant, Mr Jones,
would not be employed or interested directly or indirectly in any capacity
whatsoever in the business of an auctioneer, surveyor or estate agent or in any
ancillary business carried on within a radius of 5 miles of the plaintiff’s
premises nor use or disclose any information concerning the plaintiff’s
business. That contract was upheld though it was severed in respect of part of
it. Salmon LJ, in that case, referred to the case of Bowler v Lovegrove
[1921] 1 Ch 642, which was a case which decided that a covenant intended for no
other purpose than to restrict competition was void, and Salmon LJ said that
that case went to the verge of getting the defendant home. But he goes on, at p
1425, as follows:
The county
court judge in his judgment says (rightly, I now think) that the circumstances
of the instant case are quite different from the circumstances of Bowler
v Lovegrove. He did not, however, state the respects in which the
circumstances were different. Our attention has been drawn to these very
important matters by Mr Crawford on behalf of the plaintiff. P O Lawrence J
said: ‘It is true that the defendant came into personal contact with the
plaintiffs’ customers. But this fact loses its significance when the nature of
the business carried on by the plaintiffs and the duties of the defendant in
connection with such business are considered. The plaintiffs’ customers with
whom the defendant came into personal contact were not the ordinary recurring customers
such as exist in most other businesses.’
He was saying that the fact that a servant comes into personal contact
with
its significance in the case he was considering because the customers were not
recurring customers. In the instant case, the judge has accepted the evidence
which was called by the plaintiff; and there was cogent evidence on behalf of
the plaintiff that he had many recurring customers. This is the fact which to
my mind distinguishes the instant case from Bowler v Lovegrove.
When the defendant was in the Kingsbridge office he was in effect the
Kingsbridge office. Every customer who came into that office dealt with him. He
was in a position in which he would have every opportunity of gaining knowledge
of the customers’ business and influence over the customers.
I think that
the whole of the law on this subject is set out in two short passages in the
speech of Lord Parker of Waddington in Morris (Herbert) Ltd v Saxelby
[1916] 1 AC 688. He said, speaking of covenants such as these: ‘Wherever such
covenants have been upheld it has been on the ground, not that the servant or
apprentice would, by reason of his employment or training, obtain the skill and
knowledge necessary to equip him as a possible competitor in the trade, but
that he might obtain such personal knowledge of and influence over the
customers of his employer . . . as would enable him, if competition were
allowed, to take advantage of his employer’s trade connection. . . .’
If one
remembers that in the instant case there were recurring customers who formed a
large part of the plaintiff’s trade connection, this seems to me to be an
obvious illustration of a case where a man, because of his employment, is enabled
to gain personal knowledge of and influence over the customers which will allow
him to take advantage of his employer’s trade connection unless there is a
covenant such as this in his service agreement.’
As I say, and
need not repeat by reading it, the case of Bowler v Lovegrove was
a case where, although the employee came into contact with the customers, they
were not recurring customers. That, as Salmon LJ said, distinguished the case
from Scorer’s case. The evidence in this case directed to the reasonableness
of requiring a covenant of any kind restraining competition, seems to amount to
this. The plaintiff continued living in Saltdean, a relatively small community,
in which, up till that time, namely, July 1973, the defendant was, so to speak,
the estate agent. [At this point in the judgment the defendant’s
counsel, Mr Galpin, interrupted to say that the plaintiff lived in Peacehaven,
not Saltdean.] The plaintiff lived
in Peacehaven, a small community, and to explain the error of what I was saying,
fairly close to Saltdean, especially having regard to present communications.
In that area, the defendant was really the estate agent, and the
plaintiff became a very successful manager of the Saltdean office. So that one
may assume that his personality and efficiency impressed themselves upon
customers, and played some part in his success. The success, however, had not
been achieved by 1967, and at that time the agreement was entered into by the
parties merely because of Mr Davenport-Smith’s wish to protect himself against
a man who might in the future be successful and who might in the future be
able, either on his own or as someone else’s employee, to take away some of his
customers. But there is absolutely no evidence that the plaintiff in fact took
any customer away from the defendant. In fact the evidence is to the contrary
that he ever made any attempt to seduce clients of the defendant or that the
defendant’s clients came to him because they found out that he was in a rival
office. In paragraph 14 of the amended defence, the defendant has done the best
he could to set out the instances of people he believed were lost to him
because the plaintiff is now with Fox & Sons at the Saltdean office, and
really that allegation in paragraph 14 has proved disastrous for the defendant
because in about eight out of ten cases it seems that the property was not sold
by or under the influence of the plaintiff, and, indeed, in at least two
instances the property was sold by the defendant himself. So I find that the evidence
is, so far as it goes (and Mr Galpin has made the point that further discovery
and minute examination might prove otherwise) to the contrary that any customer
has followed the plaintiff to the rival firm, and I accept that. The reason is
(according to Mr Hannington’s experience–and I accept his evidence) that people
just do not go back to one particular estate agent. The tendency is to spread
their custom among a number of estate agents; just as people advertise in more
than one newspaper to attract greater attention, so they spread their tentacles
to different estate agents. According to Mr Hannington, ‘sole agencies are not
now general practice for ordinary people, except perhaps banks and that sort of
organisation, but even where sole agencies are given they are for a restricted
time, and as far as I know’–and I accept his evidence on this point–‘the
plaintiff has never asked anyone for a sole agency.’ One sole agency was, I think, virtually
forced on him by one of the customers–I think it was Mr Venus or Mr Back, but
the name does not matter: but that was the only instance. Mr Hannington
maintains that an estate agency has no goodwill, so you have nothing to
protect; and he has never had a negotiator coming to him, seeking employment,
who has come labouring under the burden of a restrictive covenant from his
previous employer, except Mr Ost, who came from the defendant. His firm does
not seek to impose any restrictive covenant on employees, because they have
found that such covenants are unnecessary, and, in so far as statistics go,
recurring trade is minimal. He said that over 10 years he has found that they
have resold for only 2.8 per cent of their customers in Saltdean; in
Rottingdean it is rather more, 7 per cent; and Peacehaven, 6.8 per cent; and it
is agreed now that on the defendant’s figures the highest at which recurring
trade could be put is 8 per cent. Another witness, M H de Silva, was called on
behalf of the defendant. He is a chartered surveyor and a partner in the firm
of Parsons, Son & Basley, estate agents and surveyors, who practise in
Brighton and Hove, and he is speaking from experience in the business since
1948. He said that there are about 20 firms in the Brighton and Hove area,
with, between them, about 43 offices, and he was told at those offices there is
a restrictive covenant demanded of some kind or other; the more senior the
employee, the more need, he said, for a restrictive covenant, and the more
isolated the community the more usual it is to have it. It is less usual for
negotiators in the town centre to be put under a restrictive covenant. But he
said, in any case, one should introduce the covenant at an early stage so as to
make sure that the employee is not going to leave on the crest of sudden
success without restraint upon him.
This, as I
have said, was a small community, in which the plaintiff was a near neighbour
(I am talking now about Saltdean). His personality must have been known, but in
1967 it must have been almost totally unknown and there could have been little
danger, at the age of 21, of any immediate threat of competition from Mr Luck.
I think it was not reasonable to have this restrictive covenant in 1967. But if
I am wrong about that, was it reasonable in its scope? The expert witnesses are agreed about that.
In my judgment, it would be unreasonable to have a limitation extending for
three years, because, as I have said, the recurring trade is small and is
likely to be confined, if it occurs at all, to the immediate community, not
very far afield. In this instance, the plaintiff is bound in a radius of one
mile from the business at Saltdean and Patcham, and, though one mile is
reasonable, according to Mr Hannington and to Mr de Silva, I think that,
combined with the requirement that it should be for a period of three years,
the whole covenant becomes unreasonable.
That being so,
there being no question of any severance of the covenant, I must hold that the
covenant is void and unenforceable. Therefore the counterclaim on that issue
fails. I perhaps ought to add that I am not saying that in no case is an estate
agent’s restrictive covenant enforceable. Mr Davenport-Smith has other
covenants with all his employees,
depends upon its own facts, and there may be those which are enforceable and
those which are not.
Judgment was
given for the plaintiff for an account of the commission and profits due to him
and judgment for the defendant for £30 on his counterclaim. There was no order
as to costs except liberty to apply failing agreement.
