Stenhouse Australia Ltd v Phillips

JurisdictionUK Non-devolved
Judgment Date1974
CourtPrivy Council
[PRIVY COUNCIL] STENHOUSE AUSTRALIA LTD APPELLANT AND MARSHALL WILLIAM DAVIDSON PHILLIPS RESPONDENT [ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES] 1973 July 9, 10, 11; Oct. 2 Lord Reid, Lord Morris of Borth-y-Gest, Lord Wilberforce, Lord Simon of Glaisdale and Sir Garfield Barwick

Australia - New South Wales - Restraint of trade - Managing director of insurance broking company - Termination of employment - Covenant not to solicit insurance business - Covenant to pay half-share of commission to previous employer - Covenant not to act as insurance broker for any client of employer - Whether restrictions more than reasonably necessary for protection of employer - Whether restrictions enforceable

The appellant company carried on business through subsidiaries as an insurance broker. The respondent served under a contract of employment as managing director of two of the subsidiary companies. In May 1971, the respondent gave notice of his intention to resign. He left in July and started to set up a business in competition. In negotiations with regard to the termination of his employment the company agreed to release the respondent from his obligations under his contract of employment and, in March 1972, a new agreement was executed between the parties. Clause 4 provided that the respondent would not for a period of five years from July 9, 1971, solicit insurance business from the company's clients. Clause 5 provided that in the event that any client of the company should within a period of five years from July 9, 1971, place insurance business so that the respondent received or became entitled to receive directly or indirectly any financial benefit from the placing of such business, then the respondent agreed to pay to the company a one-half share of the gross commission he received in respect of the transaction. Clause 6 provided that the respondent should not for a period of three years from July 9, 1971, act as insurance broker for any client of the company. In July 1972, the company sought declarations from the court as to the validity of those provisions. The Supreme Court dismissed the proceedings on the ground that the clauses in question were unenforceable, or void, as being in restraint of trade.

On appeal by the company to the Judicial Committee: —

Held, allowing the appeal in part, (1) that the provisions of clause 4 were in restraint of trade but, having regard to the field in which that clause was designed to operate, they were reasonable and, since they were not dependent upon clauses 5 and 6, they were enforceable (post, pp. 138F, 139B–D, 140F–G, 141F–H).

(2) That the stipulation in clause 5 on its face was not in restraint of trade; but whether it operated in restraint of trade was to be determined not by its form but by its effect in practice and, read together with clause 6, the two clauses amounted to a restriction against the respondent acting as insurance broker for a client of the company unless payment was made in accordance with clause 5, and from its severity it followed that it did so unreasonably (post, pp. 140G–H, 141C–D); that, accordingly, clauses 5 and 6 read together were unreasonable and unforceable.

Judgment of the Supreme Court of New South Wales reversed in part.

The following cases are referred to in the judgment:

Attwood v. Lamont [1920] 3 K.B. 571, C.A.

Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1968] A.C. 269; [1967] 2 W.L.R. 871; [1967] 1 All E.R. 699, H.L.(E.).

Hudson (Howard F.) Pty. Ltd. v. Ronayne (1969) 71 S.R.(N.S.W.) 269; (1972) 46 A.L.J.R. 173.

Leetham (Henry) & Sons Ltd. v. Johnstone-White [1907] 1 Ch. 189; [1907] 1 Ch. 322, C.A.

The following additional cases were cited in argument:

Attorney-General of the Commonwealth of Australia v. Adelaide Steamship Co. Ltd. [1913] A.C. 781; 18 C.L.R. 30, P.C.

Butt v. Long (1953) 88 C.L.R. 476.

Connors Bros. Ltd. v. Connors [1940] 4 All E.R. 179, P.C.

Fitch v. Dewes [1920] 2 Ch. 159, C.A.; [1921] 2 A.C. 158, H.L.(E.).

Gilford Motor Co. Ltd. v. Horne [1933] Ch. 935, C.A.

Holdsworth (Harold) & Co. (Wakefield) Ltd. v. Caddies [1955] 1 W.L.R. 352; [1955] 1 All E.R. 725, H.L.(Sc.).

Lindner v. Murdock's Garage (1950) 83 C.L.R. 628.

Lucas (T.) & Co. Ltd. v. Mitchell [1972] 1 W.L.R. 938; [1972] 2 All E.R. 1035; [1972] 3 W.L.R. 934; [1972] 3 All E.R. 689, C.A.

Mason v. Provident Clothing & Supply Co. Ltd. [1913] A.C. 724, H.L.(E.).

M. & S. Drapers v. Reynolds [1957] 1 W.L.R. 9; [1956] 3 All E.R. 814, C.A.

Morris (Herbert) Ltd. v. Saxelby [1916] 1 A.C. 688, H.L.(E.).

Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. [1894] A.C. 535, H.L.(E.).

Plowman (G. W.) & Son Ltd. v. Ash [1964] 1 W.L.R. 568; [1964] 2 All E.R. 10, C.A.

Strange (S. W.) Ltd. v. Mann [1965] 1 W.L.R. 629; [1965] 1 All E.R. 1069.

Wyatt v. Kreglinger and Fernau [1933] 1 K.B. 793, C.A.

APPEAL (No. 4 of 1973) from a judgment and order (October 26, 1972) of the Supreme Court of New South Wales (Mahoney J.) dismissing a suit by the appellant, Stenhouse Australia Ltd., claiming declarations and injunctions against the respondent, Marshall William Davidson Phillips, based upon the allegation of a breach by the respondent as its former employee of the terms of certain covenants in restraint of trade contained in an instrument under seal dated March 23, 1972, made between the appellant and the respondent.

The facts are stated in the judgment of their Lordships.

James P. H. Mackay Q.C., J. A. D. Hope (both of the Scottish Bar) and J.R.T. Wood (New South Wales Bar) for the appellant company.

A. J. L. Lloyd Q.C. and B. A. Beaumont (New South Wales Bar) for the respondent.

Cur. adv. vult.

October 2, 1973. The judgment of their Lordships was delivered by LORD WILBERFORCE.

This appeal from the Supreme Court of New South Wales involves the question whether certain provisions in an agreement under seal dated March 23, 1972, between the appellant and the respondent are or are not unenforceable as being in restraint of trade. Before stating the provisions in question, it is necessary, for later discussion, to refer to some previous history concerning the relations of the appellant and the respondent.

The appellant is a company having an office in Sydney with a considerable business in the field of insurance. It carries on business itself as an insurance broker and also has a number of wholly owned subsidiaries through which it carries on the business of insurance broking in the states of Australia. It will be convenient to refer tb the appellant and its subsidiaries as “the Stenhouse Group.”

On December 11, 1964, the respondent entered into an employment agreement with one of the companies in the Stenhouse Group, namely, Stenhouse Scott North Australia Ltd. The agreement was expressed to continue until the respondent should attain the age of 60 years and thereafter, subject to certain conditions, from year to year until determined by six months' notice on either side. It contained, inter alia, two covenants on the part of the respondent. The first was a covenant not, for five years after the determination of his services, within 25 miles from the General Post Office, Sydney, to engage in the business of insurance broking, nor to solicit the custom of any person who during the continuance of the agreement should have been a customer of any company in the Stenhouse Group. The second was a covenant not, for a similar period, to be concerned in the business of an insurance broker in any town in Australia in which any company of the Stenhouse Group should, at the date of termination of the agreement, have a recognised place of business, nor...

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  • U.S. and E.U. Non-Competition Agreements Compared and Contrasted
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    • 18 December 2007
    ...Paramount Termite Control Co. v. Rector, 238 Va. 171, 174 (1989). [10] Id.at 175. [11] Stenhouse Ltd v. Phillips [1974] AC 391. [12] Herbert Morris Ltd v. Saxelby [1916] AC 688. [13] See, e.g., TFS Derivatives Ltd v. Morgan [2004] EWCH 3181. [14] Thomas v. Farr plc & Hanover Park Commercial......
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    ...Paramount Termite Control Co. v. Rector, 238 Va. 171, 174 (1989). [10] Id.at 175. [11] Stenhouse Ltd v. Phillips [1974] AC 391. [12] Herbert Morris Ltd v. Saxelby [1916] AC 688. [13] See, e.g., TFS Derivatives Ltd v. Morgan [2004] EWCH 3181. [14] Thomas v. Farr plc & Hanover Park Commercial......
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