Covenants restraining ex-employees of firm of estate agents from carrying on, or being concerned with, the business of an estate agent within a defined radius of their former office — Restriction operative within a radius of 5 miles and applicable for three years in the case of an employee who had been the manager of the residential property side of the office and for one year only in the case of an employee who had been a senior negotiator — These two employees resigned their appointments with the firm of estate agents and shortly afterwards opened an office within 300 yds of that at which they had been formerly employed — Judge had to decide whether there was a serious issue to be tried and what was the balance of convenience in regard to the grant of an interlocutory injunction pending the trial of the action — Held that on the affidavit evidence the plaintiff firm had a reasonable prospect of successfully establishing that the covenants were valid and enforceable — Held also that there was a clear danger to the plaintiff firm from the defendants’ activities, to the injury of the plaintiff’s connection and reputation in the neighbourhood, and that the balance of convenience was in favour of an interlocutory injunction — Injunction accordingly granted in the terms of the covenants restricting practice as estate agents — Injunction not granted restricting soliciting former clients or making use of confidential information
The plaintiff
firm in this action, Hilbery Chaplin & Co, was an old-established firm of estate
agents, with offices in Romford, Hornchurch, Shenfield and Basildon in Essex.
The defendants, Malcolm Frank Trowbridge and Nicholas John Kaye, had been
employed by the firm at the Romford office until they resigned and subsequently
set up on their own in Romford.
James Goudie
(instructed by Hunt & Hunt, of Romford) appeared on behalf of the
plaintiff; Roger Kaye (instructed by Capstick-Dale & Partners, of Romford)
represented the defendants.
Giving
judgment, VINELOTT J said: This is an action of a familiar kind. The plaintiff
firm is an old-established firm of estate agents. It was founded in 1894. It
carries on business from four offices, one in Romford, one in Hornchurch, one
in Shenfield and one in Basildon. There are six partners and the firm employs a
staff of 42.
The first
defendant, Malcolm Frank Trowbridge, joined the firm as a senior negotiator at
its Romford office in 1975. He was shortly afterwards promoted to be the
manager of the residential property side of the business at the Romford office.
At the time when he was first employed he entered into a service agreement. The
agreement contained a usual provision for the termination of his employment by
three months’ notice on either side. It contained a provision for a fixed
salary and for a commission as a percentage of the firm’s commission on house
sales from the Romford office. Clause 4 so far as material provides that
for a period
of three years after the termination from any cause whatsoever of his services
hereunder the employee undertakes that he will not carry on either alone or in
partnership, nor be interested directly or indirectly in the business of an
auctioneer, valuer, surveyor or estate agent within a radius of 5 miles from
the office at 135 South Street aforesaid, with the exception of central Ilford,
and will not be engaged or act as clerk or assistant to any person carrying on
such business within such radius.
The
restriction in clause 4 of the draft agreement originally submitted by the firm
extended to a radius of 7 miles. It was reduced to 5 miles because Mr
Trowbridge’s immediately preceding employment had been with a firm in
Brentwood, which is more than 5 but less than 7 miles away from the Romford
office. It was also amended to exclude central Ilford from the area of restriction
because at an even earlier stage Mr Trowbridge had been employed by a firm
there.
The second
defendant, Mr Nicholas John Kaye, joined the firm in March 1980. He came from
Bairstow Eves’ Brentwood office. He did not enter into a service agreement, but
the terms of his employment were embodied in exchange of letters. The opening
paragraph of the letter setting out the terms of his employment, which is dated
March 5 1980, confirmed that he had been offered the position of senior
residential negotiator, ‘at our Romford office’. Clause 1 provided, ‘your
employment will be at our Romford office, although you may be required to
assist either temporarily or permanently at other offices of the firm should
the necessity arise’. There followed provisions dealing with salary, and
commission, again related to the commission at the Romford office. Clause 9
reads as follows
as you know
we require our senior staff to sign a short service agreement which will
preclude you if you leave our employment at any time from working for another
firm of estate agents or surveyors within a 5 miles radius of our offices for a
period of one year after you leave our employment.
I should say
at this stage that Mr Kaye after he joined the plaintiff firm worked as Mr
Trowbridge’s senior assistant.
Both Mr
Trowbridge and Mr Kaye resigned their positions with the plaintiff firm in the
autumn of last year. The arrangements under which they left were amicable. By
agreement the period of notice was abridged, although the firm paid them their
respective salaries for the full three-month period of notice. Mr Trowbridge
and Mr Kaye gave no indication that they were leaving in order to set up in
practice together in Romford. Mr Kaye gave as his reason for leaving that he
was joining a practice in North London. Mr Trowbridge said that he was thinking
of leaving the field of estate agency altogether, although earlier he had asked
to be relieved from his covenant. That request was refused.
On December 31
an advertisement appeared in the local newspaper announcing that a new firm
‘Trowbridge Kaye’ had commenced practice in Romford at an office some 300 yds
from the plaintiff firm’s Romford office. In the advertisement it is said, ‘The
partnership has 20 years’ experience in estate agency,’ a representation which
is apparently founded by adding together the total periods during which Mr
Trowbridge and Mr Kaye have respectively been employed in the estate agent’s
business. It is clear and not disputed that the conduct of both defendants
constitutes a breach of the terms of the covenants they have respectively
entered into. The quesion that will have to be decided in due course when the
action is heard, if it comes to trial, is whether the covenants are valid and
enforceable. The question I have to decide is whether pending trial the
defendants should be restrained from acting in breach of the terms of those
covenants.
The first
question I have to consider is whether there is a serious issue to be tried —
that is, whether it can be said on the affidavit evidence before me that the
firm has a reasonable prospect of successfully establishing that the covenants
are valid and enforceable. Taking Mr Trowbridge’s covenant first, I have no
hesitation in answering that question in the affirmative. Mr Trowbridge held a
senior position in the plaintiff firm for some six years before he left. Even
if he were subject to supervision by a partner in the firm he none the less
dealt on behalf of the firm with prospective vendors and purchasers, some of
whom are likely to sell or buy property in the neighbourhood within the next
three years and are likely to return to the firm or, if they know that the
manager with whom they dealt is practising only 300 yds away, to return to him.
The propensity of clients of a firm to return to the firm if, for instance,
they wish to sell a house they have bought through the firm is a form of
property which belongs to the plaintiff firm and which the plaintiff firm is
entitled to protect. Counsel for the defendants relied strongly on the decision
of the Court of Appeal in Fellows & Sons v Fisher [1966] 1 QB
122, where a restriction ‘against being interested or concerned in the legal
profession within the area of Walthamstow and Chigwell’ (an area of
approximately 12 square miles, and in shape one mile wide and 10 miles long)
was held to be invalid. I do not think that any assistance can be had from
comparing the area or period of restriction held valid or invalid in other
cases with the facts of any given case. In Fellows’ case the covenantor
had been employed as a conveyancing and probate clerk. It was unlikely that he
would have had occasion to deal as principal with clients of the firm. The
restriction was very wide and embraced any form of employment which would make
use of his legal experience. In the instant case Mr Trowbridge has effectively
represented the firm in dealings with residential property in the Romford area.
Of course, the area enclosed in a 5-mile radius is a large one. On the other
hand, the area is a homogeneous residential area and many clients wanting to
change houses within the area would be likely to resort to a firm only 5 miles
away with whom they had previously dealt.
What then of
the balance of convenience? Here again
the answer seems to be plain. On the one hand there is, as I see it, a clear
danger to the plaintiff firm from the first defendant’s activities which stems
not from fair competition but from the invasion of their connection and good
reputation in the neighbourhood, and that danger, that injury, is likely to be
both substantial and difficult if not impossible to quantify. Indeed, a
covenant of this kind is virtually valueless unless it can be promptly enforced
by an interim injunction. On the other hand, I see no real detriment to Mr
Trowbridge if he has to set up in practice or seek employment in, for instance,
Brentwood. It is said by his counsel that the knowledge and experience he has
acquired over the last six years and which he is entitled to exploit for his
own advantage is knowledge and experience of the house market in the Romford
area. That seems to me fanciful. The connection Mr Trowbridge has acquired has
been acquired on behalf of the firm. That connection may well be an asset of
value, but it is not something he is entitled to exploit for his own benefit
and to the detriment of the firm. The knowledge and experience he has acquired
of house prices and of the needs and expectations of clients in the
neighbourhood and matters of that kind are, it seems to me, as readily
applicable in the not dissimilar areas of Brentwood, Loughton, Chigwell,
Buckhurst Hill, Woodford, Wanstead and Redbridge, to name but a few near areas.
I should add that even if the balance of convenience were more evenly balanced,
so that I could take a second look and evaluate the plaintiff firm’s prospects
of success, my decision would be the same. In the circumstances of this case
the covenant in Mr Trowbridge’s service agreement is in my judgment prima
facie valid.
Turning to Mr
Kaye, the position is less clear. His covenant restricts him from working
within, ‘a 5-mile radius of our offices.’
Counsel for the defendants submits that that means 5 miles from any of
the firm’s offices. That would amount in the aggregate to a very wide area indeed,
but I am not satisfied that that is a reasonable construction. The covenant
refers to an area within a 5-mile radius measured from one point. The reference
‘to our offices’, can sensibly be read as a reference to the firm’s Romford
office. The opening paragraph of the letter of March 5, as I have pointed out,
makes it clear that Mr Kaye was employed at the Romford office and was to be
remunerated by a proportion of the commission on the firm’s sales from that
office, notwithstanding that he might be required to assist temporarily or
permanently at other offices of the firm. I should add that even if clause 9
could be read as imposing a restriction within an area comprising a number of
overlapping circles each with a radius of 5 miles of one of the firm’s offices,
it is by no means clear that it could not be severed by deleting the reference
express or implied to offices other than the Romford office.
In the case of
Mr Kaye the area of central Ilford is not excluded from the area of
restriction. Nothing turns upon that. Mr Kaye had been employed for only 20
months, but then the period of restriction is only one year. He was not a
manager, but he was a senior negotiator acting as Mr Trowbridge’s right-hand
man and no doubt dealt on occasions direct with clients. Together Mr Trowbridge
and Mr Kaye were the firm’s Romford office, at least as regards residential
property. Everything I have said in regard to the balance of convenience in
relation to Mr Trowbridge applies equally to Mr Kaye.
Both Mr
Trowbridge and Mr Kaye claim that when they first learned that the firm
proposed to impose a restrictive covenant they had already burned their boats
and given up their previous employment. The firm dispute their evidence as to
the dates on which they were respectively told that a covenant would be required.
I do not need to go further into this disputed evidence. It is not suggested,
and there is no ground for inferring, that the firm knew that Mr Trowbridge or
Mr Kaye had already relinquished his former employment when he learned that he
would be required to enter into
bargaining position. In the absence of evidence founding that inference the
particular situation of Mr Trowbridge and Mr Kaye when they respectively
entered into their covenants in my judgment is irrelevant to any issue raised
in the action.
I will in each
case, therefore, grant an injunction in terms of the covenant entered into by
Mr Trowbridge or Mr Kaye as the case may be. In the case of Mr Kaye the
injunction will restrain him from practising within a radius of five miles from
the Romford office. The plaintiff firm also seek injunctions restricting Mr
Trowbridge and Mr Kaye and each of them from soliciting former clients or
disclosing or making use of confidential information. The claim is founded in
the case of Mr Trowbridge on an express covenant also contained in the second
part of clause 4, and in the case of Mr Kaye on the general law. There is no
evidence that either of them has solicited or intends to solicit or make use of
confidential information, and it would, I think, be unsafe to found an
injunction merely upon the fact that both have been guilty of a breach of
covenant which they may have honestly believed to be invalid and unenforceable.
