Estate agent — Partnership — Two-man firm — Restrictive covenant to protect goodwill — Whether covenant in reality to prevent competition — Plaintiff seeking injunction to enforce covenant — Judge upholding covenant — Defendant appealing — Appeal dismissed
The plaintiff, an estate agent in Christchurch, had extensive experience of both commercial and residential property. He had worked with the defendant, a younger man whose experience covered the residential side of the business, from 1985 to 1987 in a firm which was taken over by the Prudential. When he left in 1989 the plaintiff was bound by a restrictive covenant, imposed by the Prudential, preventing him from being involved in residential selling. At the end of 1991 that covenant was about to expire and the plaintiff decided to set up his own firm. The plaintiff was initially bound by the restriction on selling residential property, in which the defendant specialised, and their partnership was a natural combination. The partnership agreement of February 15 1994 contained three restrictive covenants and the defendant gave undertakings to the court, inter alia, that he would not within two years of the partnership ending practice as an estate agent either on an employed or self-employed basis within two miles of the premises of the partnership. The area covered by the covenant included the whole of Christchurch in which there were then 23 other estate agencies.
In May 1995, at a time when business was still difficult due to the state of the property market, the plaintiff had merger talks with another small estate agency. The defendant was not attracted by the idea and decided to leave the partnership. He first joined another firm, which went into liquidation, and then obtained work as a negotiator with a rival firm within the two-mile radius. The plaintiff applied for an injunction seeking to hold the defendant to the restrictive covenants and stop his employment with the rival firm. The judge found that the plaintiff had a legitimate interest to be protected and that the defendant had not shown the covenants to be unreasonable, invalid or unenforceable. The defendant appealed.
Held The appeal was dismissed.
1. Goodwill, the “attractive force which brings in custom”, was a legitimate interest capable of protection. That protection was to be based upon the identification of an advantage or asset inherent in the business which could properly be regarded in a general sense as the property of the plaintiff, and which it would be unjust to allow the defendant to appropriate for his own purposes: see per Lord Wilberforce in Stenhouse Australia Ltd v Phillips [1974] AC 391 at p400. The advantage in the instant case was the goodwill of the partnership to which the defendant had obviously contributed in that he formed half of the “attractive force”. The judge had been entitled to find that the restrictive covenant was not to be construed as in reality a covenant against competition. It was a covenant protecting the goodwill, a legitimate interest which the plaintiff was entitled to protect to make sure that half the attractive force did not move down the road and open shop with competitors nearby.
2. The judge had found on the facts that the restriction contained in the covenant was no more than adequate to protect the interest in that it was not excessive as regards area, duration or prohibited activity. On the facts it was clear that it was likely that the defendant’s move to a rival firm within the two-mile radius would damage the goodwill of the firm and there were no grounds upon which to upset the judge’s decision.
Ian Peacock (instructed by Ellis Jones, of Bournemouth) for the appellant defendant; Paul Cairnes (instructed by Richards & Morgan, of Bournemouth) appeared for the respondent plaintiff.
