Rockall Ltd v Murray
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SLADE |
| Judgment Date | 01 March 1988 |
| Judgment citation (vLex) | [1988] EWCA Civ J0301-2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 88/0174 |
| Date | 01 March 1988 |
[1988] EWCA Civ J0301-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(SIR NEIL LAWSON, Sitting as a Judge of the High Court)
Royal Courts of Justice,
Lord Justice Slade
Lord Justice Russell
Lord Justice Taylor
88/0174
1987 R. No. 3900
MR BRUCE COLES, Q.C. and MISS C. ANDREWS (instructed by Messrs. Smith Fort & Symonds) appeared on behalf of the Appellant.
MR BRUCE MAULEVERER, Q.C. and MR J. STOREY (instructed by Messrs. Binks Stern & Partners) appeared on behalf of the Respondents.
This is an interlocutory appeal by the defendant in an action, Mr Philip Murray, from an Order of Sir Neil Lawson, sitting as a Judge of the High Court, made on 21st January 1988, whereby, on the application of the plaintiff Rockall Ltd. ("Rockall") he granted an injunction restraining the defendant "until the 20th October 1989 or further order in the meantime from canvassing in competition with the plaintiff company either on his own behalf or on behalf of any other person, firm or corporation, custom for the goods or services set out in the Schedule hereto from or to any organisation set out in the Schedule hereto".
The Schedule contained a large number of names or descriptions under the respective headings: "Organisations", "Contract Goods", "Goods of the same kind". The significance of these headings will appear later in this judgment.
The injunction was sought by Rockall to restrain alleged breaches or threatened breaches of Clause 10 (a) (ii) of a Service Agreement dated 3rd August 1987, made between Rockall and the defendant. Clause 2 of this Agreement provided for the employment by Rockall of the defendant as its Commercial Manager "for a period commencing on the date hereof until determined by three months notice in writing". Clause 5 (a) provided for payment to him of a salary of £19,500 per annum. Clause 10 (a) (i) imposed certain restrictions precluding him from divulging or communicating Rockall's trade secrets, manufacturing processes, and so forth.
By Clause 10 (a) (ii), with which this appeal is particularly concerned, the defendant undertook as follows:
"…..further and as a separate obligation he will not for a period of two years from the termination of his engagement canvass or solicit in company with the Company either on his own behalf or on behalf of any other person firm or corporation custom for goods or services of the kind supplied by the Company from or to any person firm or corporation which has during the period of 2 years preceding his employment been a customer of or in the habit of dealing with the Company".
In the forefront of his argument on this appeal Mr Coles, Q.C., on behalf of the defendant, has submitted that the form of this covenant in restraint of trade is wider than was reasonable in the interests of the parties, and is accordingly void. Since this was an interlocutory motion, this Court should not, and will not in any event, purport finally to decide this point.
Mr Mauleverer, Q.C., on behalf of Rockall, has submitted that Sir Neil Lawson was right to approach it, as he did, simply in accordance with the guide-lines laid down by the House of Lords in American Cyanamid Co. v. Ethicon Ltd. (1975) A.C. 396. Thus, in his submission, provided only that Rockall could show on the evidence (in the words of Lord Diplock, (1975) A.C. at page 407G): "….a serious question to be tried" as to the validity of the relevant covenant and as to its breach by the defendant; the only question for the Court was to decide whether, in accordance with the "check list" set out by Lord Diplock (at pages 407 to 408), the balance of convenience lay in favour of granting or refusing interlocutory relief.
He referred us, in this context, to a recent unreported decision, Bradford Paper Converters Ltd. v. Presnail (C.A. 6th March 1985)where this Court followed this course in dealing with an appeal from an injunction granted against an employee at the suit of an employer in a restraint of trade case.
On the other hand Mr Coles, on behalf of the defendant, relying in particular on the dicta of Lord Denning, M.R., in Fellowes & Son v. Fisher (1976) Q.B. 122, and Office Overload Limited v. Gunn (1977) FSPLR 39 and also on other decisions of this Court, submitted that the test applied by the learned Judge was too favourable to Rockall. In his submission, in the case of applications for interlocutory injunctions to enforce covenants in restraint of trade in employer-employee relationships, the proper test is to determine whether the covenant is prima facie enforceable and, if so, whether prima facie there has been an infringement of the covenant. Unless both these questions are answered in the affirmative, in his submission, interlocutory relief should be refused, and questions of balance of convenience will not arise.
Counsel on both sides were prepared to take us through a large number of (perhaps not entirely consistent) recent authorities dealing with the proper approach to interlocutory applications concerning covenants in restraint of trade. However, without objection on either side, we decided that, in the interest of possible saving of time and costs, full argument on this point—and indeed, also on questions of the balance of convenience—should be deferred until we had had the opportunity to consider whether or not, in the light of the evidence and the arguments submitted to us, Rockall has established a serious issue to be tried as to the validity of the covenant contained in Clause 10 (a) (ii) of the Service Agreement.
In the light of the observations of Lord Diplock in American Cyananmid, Mr Mauleverer rightly reminded us of the dangers of any Court which hears an interlocutory application forming views on legal issues in cases where the legal rights of the parties may depend upon disputed facts, and the available evidence is incomplete. We are fully conscious of these dangers. However, there is voluminous evidence already available to the Court, consisting of over 600 pages of documents. Most of those features of this evidence drawn to our attention by Counsel, which are particularly relevant to consideration of the validity of Clause 10 (a) (ii) of the Service Agreement, appear to be more or less common ground.
Having carefully considered these features of the evidence and the arguments submitted to us, we have come to the clear conclusion that Rockall has established no real prospect of succeeding in its claim for a permanent injunction at the trial, because it has no real prospect of satisfying the Court that the covenant contained in Clause 10 (a) (ii) is legally valid.
Lord Diplock in American Cyanamid (1975) A.C. at page 408A, accepted that if the material available to the Court fails to disclose any such real prospect, the proper course for the Court must be to refuse interlocutory relief, regardless of questions of the balance of convenience.
In these circumstances it is not necessary for us to decide whether the American Cyanamid test, or the test more favourable to the defendant (the " prima facie" test) is the correct test to apply. We are content to proceed on the assumption more favourable to Rockall (and indeed, albeit without having heard full argument on this point we are disposed to think) that the American Cyanamid test is the correct one. Even on this assumption, however, in our judgment Rockall has shown no real prospect of succeeding in this action.
In the course of his submissions Mr Mauleverer more than once referred to the intentions or understanding of the parties. It may be that Rockall, at least, had a clear understanding of the nature and extent of the obligations which it intended to impose on the defendant by Clause 10 (a) (ii) of the Service Agreement. It may also be that the construction which we will place on this sub-clause will not coincide with that understanding. There is, however, no claim for rectification of the Service Agreement. In the absence of such a claim, we are obliged to ascertain the meaning of the subclause simply from the words used by the parties, read in the light of the admissible evidence as to surrounding circumstances, which does not include direct evidence of the parties' intentions.
The proper approach to the construction of this subclause is, in our judgment, correctly summarised in the following passage in Chitty on Contracts, (25th Edition) paragraph 803:
"In order to enable a term of the contract to be interpreted or construed, the court is entitled (and, indeed bound) to see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances which the person using them had in view. The court must place itself in thought in the same 'factual matrix' as that in which the parties were. But the parol evidence rule also restricts the admissibility of extrinsic evidence to show what the maker or makers of the instrument intended by the words used: 'evidence of…..the parties' intentions…..ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction".
The words last quoted are derived from the often cited speech of Lord Wilberforce in Prenn v. Siminonds (1971) 1 W.L.R. 1381.
Following this approach, we propose to summarise the factual background to the Service Agreement, relying principally on Rockall's evidence, and only on...
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