Mary Caroline Tillman v Egon Zehnder Ltd

JurisdictionEngland & Wales
JudgeLord Justice Longmore,Lord Justice Patten,Lord Justice Sales
Judgment Date21 July 2017
Neutral Citation[2017] EWCA Civ 1054
Docket NumberCase No: A3/2017/1597
CourtCourt of Appeal (Civil Division)
Date21 July 2017

[2017] EWCA Civ 1054

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

THE HONOURABLE MR JUSTICE MANN

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Right Honourable Lord Justice Longmore

The Right Honourable Lord Justice Patten

and

The Right Honourable Lord Justice Sales

Case No: A3/2017/1597

Between:
Mary Caroline Tillman
Appellant
and
Egon Zehnder Limited
Respondent

Mr Daniel Oudkerk QC (instructed by Simmons & Simmons LLP) for the Appellant

Mr James Laddie QC (instructed by Reynolds Porter Chamberlain LLP) for the Respondent

Hearing dates: 11 th July 2017

Judgment Approved

Lord Justice Longmore

Introduction

1

On 5 th January 2004 Ms Mary Caroline Tillman began employment with the respondent Egon Zehnder Ltd as a Consultant under a written contract of employment containing post-termination restrictive covenants and dated 16 th December 2003. In 2006 she was promoted to Principal and in 2009 to Partner. In 2012 she was appointed as co-Global Head of the Financial Services Practice Group. On 23 rd January 2017 she gave notice to Egon Zehnder and was put on garden leave and on 30th January 2017 it terminated her employment with immediate effect. She wishes to take employment with a United States firm Russell Reynolds Associates ("RRA") and the question in this appeal is whether Egon Zehnder can restrain her from doing so for the six month period after termination. She asserts that the restrictive covenant in her contract of employment is in unreasonable restraint of trade since it prevents her from becoming a shareholder in a competitor. The fact that she does not propose to become a shareholder is, she says, irrelevant. Mann J has held that, on its true construction, the covenant does not prevent her from becoming a shareholder in a competitor. The covenant was not, therefore, in unreasonable restraint of trade and was enforceable. The judge proceeded to grant an injunction restraining Ms Tillman from working for RRA for the six month period in the covenant.

2

It is significant that during her employment she was permitted to take a shareholding in a publicly quoted competitor provided that it did not exceed 5% of the company's total equity.

3

The clauses containing the relevant covenants are 4.5 and 13.2:-

"4.5 You shall not, during the course of your employment, directly or indirectly, hold or have any interest in, any shares or other securities in any company whose business is carried on in competition with any business of the Company or any Group Company, except that you may hold or have an interest in, for investment only, shares or other securities in a publicly quoted company of up to a maximum of 5 per cent of the total equity in issue of that company.

13.2 You shall not without the prior written consent of the Company directly or indirectly, either alone or jointly with or on behalf of any third party and whether as principal, manager, employee, contractor, consultant, agent or otherwise howsoever at any time within the period of six months from the Termination Date:

13.2.3 directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company which were carried on at the Termination Date or during such period."

Factual Background

4

Egon Zehnder Ltd is a global executive search firm specialising in executive search and advisory services. It is the UK subsidiary of a worldwide group ("the EZ group") whose holding company is Swiss. The company seeks to identify the needs of employer clients and headhunts senior executives. In common speech, it is a "headhunter".

5

The EZ group operates in each country through a locally incorporated company. All UK-based employees are employed by Egon Zehnder Ltd. However, there is very considerable cross-group engagement with a worldwide approach to business planning.

6

The group has nine practice areas of which "financial services" is the relevant one for the purposes of this appeal. Within that practice area, practitioners may be members of Global Practice Groups, core global group members, members of regional practice groups, core regional group members and local group members. Each segment of the business has a sub-group leader. The financial services area is very important for the EZ group and currently generates 22.5% of global revenue billing.

7

Before joining Egon Zehnder, Ms Tillman had a high-powered job as European Managing Director and COO of JP Morgan. She began work as a consultant with Egon Zehnder in the financial services practice area on 5 th January 2004 on the terms of a letter of appointment which set out her contract of employment. There was a hope and some expectation on both sides that she would be quickly promoted if she found the work congenial; that hope and expectation was amply fulfilled for 13 years. Further background is set out in the judgment.

The question of construction

8

Ms Tillman submits that clause 13.2.3 prevents her from being engaged or "concerned or interested in any business carried on in competition with any business" of Egon Zehnder. If she acquired a shareholding in a competitor, she would be "interested" in a competing business. Egon Zehnder agrees that if the word "interested" covers the acquisition of a shareholding, however minor, the clause would be in unreasonable restraint of trade because it would be wider than would be necessary for the protection of the company's interests after termination. But it says that the clause does not cover the acquisition of a shareholding at all. Clause 4.5 of the contract shows that the parties can specifically prohibit the acquisition of shareholdings when they wish to do so; they did not wish to do so after termination and therefore made no provision restricting the acquisition of shareholdings in a competitor after termination and Ms Tillman was (and is) free to acquire shareholdings in competitors if she wishes to do so, provided that she does not actively participate in the competitor's business.

The Judgment

9

The judge agreed with Egon Zehnder's submission. He began by setting out the general principle set out in Chitty, Contracts, 32 nd edition (2015) para 16–085:-

"All covenants in restraint of trade are prima facie unenforceable at common law and are enforceable only if they are reasonable with reference to the interests of the parties concerned and of the public. Unless the unreasonable part can be served by the removal of either part or the whole of the covenant in question, its inclusion renders the covenant or the entire contract unenforceable. A covenant in restraint of trade (if unreasonable) is void in the sense that courts will not enforce it, but if the parties wish to implement it they would not be acting illegally and the courts would not intervene to prevent them from doing so. It has been held that "a covenant which is unenforceable ab initio should simply be disregarded unless and until it is subsequently and explicitly re-agreed". … The validity of a covenant in restraint of trade is assessed at the date when the contract is entered into."

He emphasised the requirement that the question of validity must be judged as at the time when the contract was made (January 2004) not when Ms Tillman became co-Global Head of her group (in January 2012). He recorded Mr Laddie QC's submission for Egon Zehnder that, in the light of clause 4.5, it would be commercially anomalous if the post-termination non-compete covenant prohibited all shareholdings (including the innocuous 5% holding in a public company) because the post-termination covenant would then be wider than the applicable covenant during employment. He then said:-

"I consider that there is sufficient ambiguity in the expression "directly or indirectly … interested in any business" to justify considering indicia as to what was really meant. All three concepts – "engage", "be concerned" and "interest" – are linked to the concept of "business", not an entity. The first two connote a close connection in the nature of a real involvement in the actual conduct of the business. The third imports a lesser connection, but it is capable of taking its colour from the first two. It would cover an actual interest in the business (as in a partnership, for example). It would be capable of stopping there, with an "indirect" interest being such an interest held through a nominee. On the other hand it would also, as accepted by Mr Laddie, be capable of catching a shareholding – that would be a form of indirect interest in the business (though a more tenuous one). That lack of complete clarity justifies looking for indicia elsewhere, and … I find that the presence of clause 4.5, which expressly deals with shareholding (so the parties know how to deal with that problem if it arises) and yet permits a limited shareholding, demonstrates that the non-compete clause was not intended to deal with shareholding at all. Otherwise the anomaly identified above would exist. I consider that on normal principles of construction it would be right to favour a construction which does not gives rise to an anomaly, and in addition it would be right to favour a construction which validated rather than invalidated the clause … It follows that this construction point does not lead to an invalidation of the clause."

The submissions

10

There is one ground of appeal namely that the judge was wrong to hold that clause 13.2 did not prohibit a shareholding in a competitor after termination. In support of that ground Mr Daniel Oudkerk QC submits:-

i) the natural meaning of "interested in any business carried on in competition with any of the businesses" of Egon Zehnder includes a shareholding;

ii) such meaning is consistent with such authorities as there are;

iii) the...

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