Rock Refrigeration Ltd v Jones

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE SIMON BROWN,LORD JUSTICE MORRITT,JUSTICE PHILLIPS
Judgment Date10 October 1996
Judgment citation (vLex)[1996] EWCA Civ J1010-4
Docket NumberCase no.OBENF96/1085/C

[1996] EWCA Civ J1010-4

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM

(SIR MICHAEL DAVIES

sitting as a High Court Judge)

Royal Courts of Justice

Strand

London W2A 2LL

Before

Lord Justice Simon Brown

Lord Justice Morritt

Lord Justice Phillips

Case no.OBENF96/1085/C

Rock Refrigeration Limited
and
Michael Anthony Jones

and

Seward Refrigeration Limited

MR ELDRED TABECHNIC QC and MR A SENDALL (instructed by Messrs Ashurst Morris Crisp, London EC3) appeared for the Appellants.

MR A STAFFORD (instructed by Messrs Eversheds, Manchester) appeared for the Respondents.

1

(As Approved)

LORD JUSTICE SIMON BROWN
2

The question raised on this appeal

3

is one of some importance in the law relating to covenants in restraint of trade. Shortly stated it is this: Is a restrictive covenant which is expressly provided to take effect upon the termination of a contract of employment "howsoever occasioned" necessarily unreasonable and thus unenforceable?

4

The Judge below, Sir Michael Davies, held that it was, founding his decision squarely upon Laws J's judgment in D v M [1996] IRLR 192. By this appeal the erstwhile employers challenge that view.

5

It will readily be appreciated that this issue is one of general application whose resolution cannot depend upon the precise circumstances of the present case. The details here indeed, are calculated rather to obscure than to illuminate the point arising. I shall accordingly sketch in the facts only very briefly.

6

The appellants, (Rock), the plaintiffs below, carry on business in the Manchester area in connection with the sale, installation and maintenance of refrigeration and environmental control equipment. They have a number of associate companies carrying on broadly similar businesses throughout England.

7

Amongst their competitors in the Manchester area is the respondent company, Seward Refrigeration Limited, the second defendants below. Seward Refrigeration's managing director, Mr. Brian Seward, had formerly been managing director of Rock, who left Rock in June 1993 to set up Seward Refrigeration. The other respondent, Mr. Michael Anthony Jones, was first employed by the appellants in 1984. From 1985 to 1988 he had then worked for another company until rejoining the appellants in October 1988, first as contracts manager, and later as general engineering manager. In 1995 he made it clear that he was not happy and that he had been approached by another prospective employer (not Seward Refrigeration). To induce him to stay Rock offered him, and he accepted, the position of industrial sales director. It was a more responsible job and attracted a higher salary. His new contract was signed on 27th October 1995 to come into effect on lst January 1996.

8

In the event he remained in employment under this new contract for less than a month. In December 1995 he was approached by Seward Refrigeration and was offered the position of sales director with them. He accepted the offer, gave Rock a month's notice, and during January 1996 duly left their employment.

9

On 26th April 1996 Rock issued the present writ, which included claims both for damages and for injunctive relief based upon certain restrictive covenants in the 1995 contract.

10

On 10th May 1996 it was ordered that the plaintiff's "claim for final injunctive relief in this action be dealt with by way of an early trial". That trial took place in July 1996 before Sir Michael Davies and by agreement was confined to the question of the lawfulness or otherwise of the restrictive covenants. In the event they were held unlawful. Had they been held lawful, the further issues as to whether the defendants or either of them had breached the covenants and, if so, what if any damages Rock had suffered, would have had to be litigated thereafter.

11

The relevant covenants in the 1995 contract are these:

"10. Termination

10.3 The expiration or determination of this Contract howsoever arising shall not operate to affect such of the provisions hereof as are expressed to operate or have effect thereafter and shall be without prejudice to any other accrued rights or remedies of the parties.

11. Prevention of Unfair Competition

ll.2 The Employee shall not except as authorised or required by his/her duties reveal or disclose or through any failure to exercise all due care and diligence cause any unauthorised disclosure to any person persons or company any of the trade secrets secret or confidential operations processes or dealings or any confidential information concerning the organisation business finance transactions details of its research projects (including their organisation and staff involved) list of details of customers prices or commercial relationships or affairs of the Company or any trade secrets or confidential information obtained by the Employee from any third party which may come to his knowledge. This restriction shall continue to apply after the termination of this Contract without limit in point of time but shall cease to apply to information or knowledge which may become public knowledge otherwise than by the Employees default.

ll.6 The Employee shall not while this Contract remains in force or for a period of twelve months after its termination howsoever occasioned:

a) solicit or canvas or approach any person who to his/her knowledge was provided with goods or services by the Company at any time during the last year of his/her employment or was negotiating with the Company for the provision of goods or services by the Company at the date of termination provided that this sub-clause shall only be enforceable if and so long as the Company or its assigns shall carry on or continue to carry on the business of the Company or any part thereof;

b) offer to any person with whom the Employee shall have dealt in the course of his employment goods or services which were provided to him/her by the Company during the year prior to the termination of his/her employment year or which were the subject of the negotiations at the date of that termination provided that this sub-clause shall only be enforceable if and so long as the Company or its assigns shall carry on or continue to carry on the business of the Company or any part thereof;

c) accept orders from such a person for goods or services similar to or competitive with the goods or services which were provided to him/her by the Company during the last year of his/her employment or which were the subject of the negotiations at the time of that termination provided that this sub-clause shall only be enforceable if so long as the Company or its assigns shall carry on or continue to carry on the business of the Company or any part thereof."

12

That is a sufficient recitation of the facts with regard to the main issue. To set the scene for the resolution of the bare point of law now arising, I add only that the Judge below found, and it is not now contested, that Rock did indeed have legitimate interests suitable for protection by way of restrictive covenants of this general nature. The question, I repeat, is whether these particular covenants are unlawful because they are declared to operate upon the determination of the contract "howsoever arising" (clause 10.3 as applied to clause 11.2), or "howsoever occasioned" (clause 11.6—and similarly, although no issue now arises with regard to it, clause 11.5).

13

In holding these covenants unenforceable Sir Michael Davies expressly agreed with and followed Laws J's judgment in D v M from which he cited at length. It is essentially the correctness of that decision, therefore, which lies at the heart of this appeal and it is convenient at once to analyse the basis upon which it was reached.

14

Its starting point was the decision of the House of Lords in General Billposting Company v Atkinson [1909] AC 118. The employers there had dismissed their employee "in deliberate disregard of the terms of the contract" so as "to evince an intention no longer to be bound by the contract." In those circumstances it was held that the employee "was thereupon justified in rescinding the contract and treating himself as absolved from the further performance of it on his part" so as no longer to be bound by the restrictive trade covenant which the employers were seeking to enforce. For reasons which will appear, it is worth noting that the case was decided "on broader lines than those ……. as to mutual and independent covenants."

15

I turn next to Scott J's decision in Briggs v Oates [1990] ICR 473 where the question arose whether an assistant solicitor, whose contract had been brought to an end by the dissolution of the partnership which had employed him, was nevertheless bound by a restrictive provision expressed to operate once the agreement "shall have determined for whatever reason." Scott J held not:

"I am unable to accept this submission. First the obligation to which the defendant subjected himself under clause 8 cannot in my opinion be wholly separated from the other provisions of the agreement. The bargain between the plaintiff and Mr. Rees on the one hand and the defendant on the other hand was, in broad terms, that in return for a five-year employment on clause 6 remuneration terms, the defendant would, during the five-year term, discharge the duties imposed on him and after the termination of his employment observe the clause 8 restraint. The plaintiff and Mr Rees were together responsible for withholding from the defendant the benefit of employment for the last year of the five-year term. One year out of five is certainly not de minimis. The defendant was deprived, by a breach of contract for which the plaintiff and Mr Rees were together responsible, of...

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