Restrictive covenant in contract of employment with estate agents placing restrictions on activities of ex-employee during period of a year after cessation of employment — Application for interlocutory injunction pending trial of action — Covenant purported to prohibit ex-employee from soliciting or acting for anyone who at the date of termination of the employment ‘shall have been’ a client of the employer, and from being concerned in the business of estate agent, surveyor or valuer within 3 miles of the branch office in which he was employed at the date of termination — There was an issue, which would have to go for trial, as to whether the employer had in fact agreed to delete this covenant from the service agreement — Whether covenant was prima facie valid or void as in restraint of trade — Judge decided that the purported prohibition of acting for anyone who at any time had been a client of the firm was much too wide — There was a triable issue, however, as to the validity of the ‘soliciting’ part of the covenant and the 3-mile ‘area restriction’ was not obviously too wide — These were matters which would be actually decided at the trial — On the balance of convenience between granting and not granting interlocutory relief, the judge decided in favour of granting it — One matter which influenced the judge was that the defendant had set up in business ‘provocatively close’ to, between 200 and 400 yds from, the firm’s office in which he had last been employed — The judgment contains, inter alia, some interesting observations on the ‘area restriction’ in these covenants
In the present
proceedings the plaintiffs, Curson & Poole, a firm of estate agents,
valuers and surveyors, with a large number of branch offices, as mentioned in
the judgment, sought an interlocutory injunction, pending trial of the action,
to restrain a former employee, Rodney Rash, the defendant, from acting in
breach of a restrictive covenant said to be a term of his service agreement.
Miss J M L
Treharne (instructed by Hewitt, Woollacott & Chown) appeared on behalf of
the plaintiffs; T Wormington (instructed by Robinson & Co) represented the
defendant.
Giving
judgment, VINELOTT J said: The question in this case is whether the plaintiffs,
Curson & Poole (a firm), are entitled to interlocutory relief restraining
the defendant, Rodney Rash, from acting in breach of a restrictive covenant
said to have been contained in his contract of employment and which, if it was
a term of his employment, and if valid, restricts certain activities for a
period of one year from the time that he left the plaintiffs’ employment, which
was on November 16 1981.
The plaintiff
firm is a firm of estate agents with a large number of offices stretching (as
it has been put) along the railway line from Waltham Cross to Ponders End,
Enfield, Southgate, Cuffley, Cheshunt, Broxbourne and Hoddesdon to Hertford.
There are only two partners, but the offices are run by managers. The defendant
joined the firm in April 1971 as a senior sales negotiator at the Broxbourne
office. Then he moved a little nearer London in January 1974 and became the
branch manager of the Cuffley office. That was rural suburbia, if I may so
describe it, getting on towards the country districts of Hertford. In October
1978 the defendant was moved to a new office opened in Southgate where he
became what is called an associate partner. In 1977 he was asked to enter into
a service agreement. The reason given by Mr Poole (one of the two partners) is
that some years ago a manager left, taking lists of clients and contacts, and
competed unfairly with the plaintiffs. Be that as it may, a service agreement
was entered into on December 6 1977, though it related back and was deemed to
have commenced on January 1 1977. At that time the defendant was manager of the
Cuffley office. Clause 2 provided that the agreement should be deemed to have
commenced on January 1 1977 and should continue until determined as
thereinafter provided. Then in clause 14 there is provision for determination
by three months’ notice on either side. Then clause 15 reads as follows:
For a period
of one year next after the determination of the Associate’s employment
hereunder whether by effluxion of time or in any other way whatsoever the
Associate shall neither
(a) on behalf of himself or of any person, firm
or company solicit or act for any person, firm or company who shall at the time
of such determination have been a client of the firm nor
(b) directly or indirectly be concerned in the
business of that of an Estate Agent, Surveyor or Valuer within a radius of 3
miles from the Branch.
The branch was,
of course, the Cuffley office.
On June 12
1978 the defendant entered into a new agreement, similar in all respects save
that the basis of the remuneration was significantly altered, in particular the
method of calculating bonus and commission. Clauses 2, 14 and 15 were
substantially the same. Again it was antedated, to January 1 1978, and under
clause 2 it was to ‘continue until determined’. Then, as I have mentioned, in
October 1978 the defendant was moved and became the manager of the Southgate
office. On October 20 Mr Curson (one of the two partners) wrote to him and,
referring to earlier discussions, said:
I now write
to set out the details covering the arrangements for your transfer of your
Associate Partnership to the new Branch at 3 Chase Side, Southgate, London N14.
The terms and conditions contained in the Agreement signed by you dated June 12
1978 to remain unchanged apart from the fact that we are now talking of the
Southgate Office, and therefore that address is substituted for that of 10
Station Road, Cuffley which is embodied in the signed Agreement.
Then the letter
goes on to make a number of amendments to the basis of remuneration; in effect,
the partners gave a guarantee of a minimum income calculated by what he might
have expected to earn at Cuffley if he had not been asked to start up a new
branch. But, subject to those modifications, the effect of paragraph 1 of that
letter to my mind is quite clearly that the 1978 agreement was to continue in
force subject only to the substitution of the reference to the Southgate office
for the reference to the Cuffley office.
Then, on
January 22 1979, Mr Curson wrote again to explain another basis of
remuneration, again substantially different from that embodied in the 1978
agreement, and in the penultimate paragraph he says:
The other
terms and conditions of your employment remain the same and I enclose herewith
the new formal Agreement for your signature, which I would be obliged if you
would return to me before 25th January as all of the foregoing is subject to
your entering into this Agreement.
In fact the
defendant did not sign the agreement, but he remained in the employment of the
firm and drew remuneration, and in other respects conducted himself in
accordance with the terms of the 1978 agreement as modified by the two letters
to which I have referred. That went on for two and a half years until he left
on November 16, the three months’ notice having been waived by consent. It is
said by the defendant that he refused to sign the draft agreement supplied in
1979 and that the plaintiffs were well aware that his reason for refusing was
that he was not prepared to be bound by a restrictive covenant taking effect
from the centre of Southgate in place of Cuffley. He says that the plaintiffs
in effect by their conduct agreed that this clause would not be enforceable and
that his employment would be governed by the 1978 agreement as modified by the
two letters which I have mentioned, save only that clause 15 would be treated
as deleted.
The
continuation of the 1978 agreement in October 1978 quite clearly embodied this
alteration from Cuffley to Southgate, and, as I see it, must have continued
after the end of 1978 (it was of course expressed to continue until terminated
by notice). To my mind it is quite clear that there must be a triable issue
whether the defendant did not continue to be bound by clause 15. At the very
least it seems to me that the burden must be on the defendant to show that
notwithstanding that agreement and the letter of October 1978, which was never
in terms answered in correspondence, there was some oral arrangement modifying
the agreement by excluding that term. But, as I say; it is only possible for
me, on affidavit evidence, to say that I am quite satisfied that there is a
triable issue on this point.
The main issue
is whether clause 15 is prima facie valid or void as in restraint of
trade. I should say at the outset that it is to my mind impossible to justify
subparagraph (a) of clause 15 in so far as it purports to restrict the
defendant from acting for ‘any person, firm or company who shall at the time of
such determination have been a client of the firm’. That, as I see it, is
hopelessly wide — far wider than would be necessary for the protection of any
legitimate interest of the plaintiffs. The firm, as I said, has a very wide
geographical spread, and I think I am entitled to infer that it has been in
existence for some considerable time. To prohibit the defendant from acting for
anyone who at any time had been a client of the firm is in effect to prohibit
competition, and not merely to protect the legitimate interest of the
plaintiffs. The real issue turns on (b), which I will call the ‘area
restriction’. The defendant points to the size of the whole area — some 17
square miles — and to the size of the population in that area — some 250,000 —
and to the fact that there are, as he calculates, over 70 other firms with
offices in that area, and indeed two other offices of the plaintiff firm in
that area. He points out that it is an area comprising very different types of
housing, ranging from the rather luxurious houses in Winchmore Hill to the
smaller, more modest, streets of Southgate itself.
As against
that, the plaintiffs say that the tendency of clients — on the sale of a house
which they have bought through an agent, if the agent is geographically conveniently
near — is to return, and that that is a connection which the plaintiffs are
entitled to protect, just as they are entitled to protect the connection which
the defendant, as their manager and in effect their representative at the
Southgate office, is likely to have built up on behalf of the firm with persons
likely to be able to influence vendors and purchasers of houses in the area,
that is, solicitors (dealing for instance with the administration of an estate
comprising a house), bank managers, building society representatives, and the
like. I would add to that list other estate agents, who commonly enter into
half commission arrangements between themselves and who no doubt tend to enter
into these arrangements more readily with firms and people they know, and trust
and respect.
It has been
recognised in many cases that a firm of estate agents can acquire, and in fact
does normally acquire, a connection of this kind which it is entitled to
protect, more particularly against a senior employee who, like the defendant,
is the representative of the firm in a particular office. I do not propose to
refer in detail to any of the cases; the facts of one case can never usefully
be compared with the facts of another case. But there is a useful analysis of the
principles in the judgment of Graham J in Calvert, Hunt & Barden v Elton
(1975) 233 EG 391, [1975] 1 EGLR 27 which, like this case, was a 3-mile
restriction, though in an area rather further from the more populous parts of
London. I do not think it is possible to say that an area of 3 miles is ex
facie wider than is reasonable to protect a connection of this kind. It
must be borne in mind that part of this wider area comprises different kinds of
housing development running from detached rural houses to the north to the more
modest houses on the south and west, and that the surrounding area is
homogeneous in the sense that once you get, beyond the 3-mile limit you
continue with similar kinds of housing. There is nothing to stop the defendant,
subject to the soliciting covenant, from starting just over the 3-mile border
where he would be dealing with houses not very different from those with which
he would be dealing in that part inside the 3-mile border, so that he would not
be deprived of the opportunity of exploiting the knowledge, skill and
experience he has acquired in dealing with property of the kind he dealt with
in the plaintiffs’ employment. He does in fact live in Enfield and he could
practise there without infringing the covenant. It must be borne in mind also
that it is quite a short period of restriction.
Counsel for
the defendant stressed that it is a different kind of area from that centred on
a county town where a 3-mile restriction might comprise the whole town; but it
seems to me that that consideration, if anything, favours the plaintiffs
because it is a harsh thing to exclude a defendant altogether from practising
in a county town (which may be the only town he knows) by enforcing a covenant
which might require him to move to a totally different town in an unfamiliar
area: whereas, as I have said, the move from within to without the 3-mile
boundary, at any point on the perimeter of this 3-mile limit, is a move within
an area where houses are indistinguishable for all practical purposes. It is
not, of course, for me to decide on this occasion whether the restriction is or
is not wider than is reasonably necessary to protect the plaintiffs’
connection. It is sufficient to say that I am wholly unpersuaded that it is
obviously too wide. Indeed, it seems to me on the evidence I have seen to be
nothing more than (as was expressed by counsel for the plaintiffs) a
restriction which will provide protection by imposing a ‘cooling-off’ period
during which the defendant’s successor can do whatever lies within his power to
keep the connection, particularly with building societies and the like, within
the area, and to make sure that he does not have to build or retain that
connection against unfair competition.
Then there is
the soliciting covenant. That seems to me rather near the borderline. It has
been pointed out in more than one case that it is difficult, where a soliciting
covenant is drawn as widely as this, extending as it does to all persons who
have been clients of the firm, for the covenantor to know whether he is
breaching the covenant or not. The answer that has been given, in particular in
G W Plowman & Son Ltd v Ash [1964] 1 WLR 568, is that a
defendant in these circumstances must act with circumspection (in this case for
a period of only seven months); if he does so, and inadvertently solicits
former clients, he will not be at risk of being committed. On the whole,
although with some diffidence, I think there is at least a triable issue
whether the soliciting part is not also valid.
Before turning
to the balance of convenience, I should say something about a further point
that has been raised by the defendant. He says that the plaintiffs have been
guilty of undue delay. What happened was this: on November 16 1981 the firm had
letters from the defendant and his brother, who was also employed by the firm
in a senior capacity and who was in fact a qualified chartered surveyor. The
brother, Mr C S Rash, said this:
You will no
doubt be aware that senior appointments were available to me with other firms
in the East Herts area, but I decided that this would be unfair to both you and
myself after our long and close association. The alternative was to commence
business on my own account, but once again I rejected the idea of starting in
the East Herts area for the same reason.
Finally, I had
the opportunity of acquiring an existing estate agents’ office on the fringe of
your firm’s area in Southgate, and after some months this acquisition has now
been finalised.
Although it
was not my original intention, my brother Rod was so unsettled by my move from
your Southgate office and was seeking other employment, that the result is that
he will be joining me in the new practice.
The plaintiffs
read the reference to ‘the fringe of your firm’s area in Southgate’ as a
reference to the 3-mile area from the Southgate of-
had opened an office very near to the Southgate office — the plaintiffs say 200
yds away, and the defendant says 400 yds away. The new office opened on January
1. The writ was issued a month later and a notice of motion four days after
that. There was clearly no undue delay in starting proceedings after they
learned where the office was, and it seems to me that they were not unreasonable
in delaying launching into litigation until they knew where the new office
would be. If it had been on the edge of the 3-mile area, they might well have
decided to do nothing about it. So I do not think there has been undue delay.
What is more, I find it very difficult to see what detriment the defendant
claims to have suffered from the delay. It is said by the defendant that his
brother has spent £15,000 since the office was opened on launching the
business. But it is quite clear from the letter of November 16 that Mr C S Rash
was fully committed long before he or his brother gave any notice to the firm.
They had acquired an existing business by that date and had been in negotiation
for some months. In so far as the plaintiffs have delayed in bringing these
proceedings, the defendant and his brother have had that much longer to launch
themselves in their new business.
I turn
therefore to the balance of convenience. It has often been pointed out that in
these cases refusal of interlocutory relief can amount to the destruction of
the benefit of a restrictive covenant which transpires at the trial to be
wholly valid and enforceable. Bridge L J in Office Overload Ltd v Gunn
3 Fleet Street Reports 39, at p 44, said:
If it were
not possible for the court to grant interlocutory relief to enforce a
restrictive covenant of limited duration such as this, then, in cases like the
present, such covenants could never be enforced by the courts, and parties
entitled to the benefits of them would always be left to their remedy in
damages, which in such cases might frequently be an indeterminate remedy.
That applies,
it seems to me, more particularly where, as in this case, only seven months of
the restrictive period has yet to run.
As against
that, that is the risk that the plaintiffs would be deprived by the refusal of
an injunction of the whole benefit of the covenant, even though it transpires
that it was a term of the employment and valid, I have to weigh the possible
injury to the defendant if the injunction is granted and it transpires either
that it was not a term of the contract of the employment or was too wide to be
enforced. What is that damage? If the
business started by his brother survives, then there will be no irreparable
damage, and to the extent that the defendant has an interest in that business,
any damage suffered by his exclusion for seven months from participating in it
should be capable of being measured, as also the damage to him of being perhaps
left without employment for seven months. The defendant says that the business
may ‘go under’ if he is not there to help. I confess that I find this claim
exaggerated. We are dealing with a period of only seven months; one brother
(who gave no covenant) will be there all the time, and can employ other staff
for seven months when the defendant can rejoin him. As against such risk as
there may be that the business will fail if the brothers are unable to work
together for the seven-month period, I must weigh the fact that the defendant
and his brother chose to set up business in what seems to me a position
provocatively close to the plaintiffs’ office, and negotiated and completed
their arrangements over a period of several months, and gave no indication even
when they left of how close that office would be to the Southgate office. I
think it lies ill in their mouth to complain that enforcement of the covenant
might mortally injure their business.
In these
circumstances, therefore, I will grant the injunction, though the first part
will be restricted to soliciting, and I will direct that the costs of the
plaintiffs be costs in the cause, including costs previously reserved.
(It was agreed
that the words ‘or act for’ in paragraph (a) of clause 15 of the agreement
should be taken out.)
