Thomas v Farr Plc and another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Toulson,Lord Justice Scott Baker,Lord Justice Chadwick |
| Judgment Date | 20 February 2007 |
| Neutral Citation | [2007] EWCA Civ 118 |
| Docket Number | Case Nos: A2/2006/2322 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 February 2007 |
[2007] EWCA Civ 118
Lord Justice Chadwick
Lord Justice Scott Baker and
Lord Justice Toulson
Case Nos: A2/2006/2322
A2/2006/2323
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT QUEEN'S BENCH DIVISION
Ramsey J
HQ06XD1766
Mr Paul Nicholls (instructed by Barlow Lyde & Gilbert) for the Appellant
Mr Selwyn Bloch QC and Stuart Ritchie (instructed by Herbert Smith LLP) for the Respondents
Hearing date: 5 February 2007
This case is about the enforceability of a clause in a contract of employment of a managing director of a firm of insurance brokers, prohibiting him from competing with the company for 12 months after the termination of his employment. The issue is whether it was an unreasonable restraint of trade.
The Parties
Farr is an insurance broker which specialises in providing services for providers of social housing, in particular housing associations. Before he joined Farr, Mr Thomas had been employed in the insurance industry for about 10 years and was running an established regional brokerage with a general insurance business. He had no previous experience of the social housing market, but, as he said in one of his witness statements, “In whatever sector one works, the same skills are required in order to be a good insurance broker”.
Mr Thomas began his employment with Farr as an account director, responsible for managing key client relations. After 18 months he was appointed a director. In 2000 he was appointed operations director. In December 2003 he was appointed managing director.
When Mr Thomas joined the company, Farr formed part of FMW International Insurance Brokers Limited. In 2000 the group was sold to Hercules Property Services PLC, which in turn was acquired in 2004 by Erinaceous Group PLC (“Erinaceous”). On 1 July 2006 there was a restructuring of Erinaceous' business under which the business of Farr was transferred to Hanover Park Commercial Limited another subsidiary of Erinaceous.
Mr Thomas terminated his employment with Farr by a letter dated 27 April 2006, because he was unhappy about the consequences of the proposed restructure on his employment and he contended that Farr was in repudiatory breach of contract. At the time Mr Thomas was on a salary of £176,900 and had the benefit of a bonus scheme which meant that he earned sums well in excess of his annual salary. He saw the proposed restructure as involving a demotion and potential loss of income.
Mr Thomas received approaches from a number of potential employers. He decided to accept an offer from a company which intended to compete with Farr. Farr had about one third of the market share of housing association work in England and Wales. The company which Mr Thomas proposed to join was a new entrant to the market.
The insurance market in social housing is a small and specialist market. There are in all about 1500 housing associations, of whom 350 were Farr's clients. About 20% of those clients were responsible for 80% of Farr's income.
Farr had between 40 and 50 employees. In a witness statement Mr Thomas described his role as follows:
“As managing director of Farr my role was to develop and deliver Farr's strategic plan and to ensure Farr's objectives were met within its budget. I provided leadership and direction to Farr's employees, particularly those in management positions, and chaired the various management meetings. In respect of third parties, I was ultimately responsible for relations with Farr's housing association clients and with insurer suppliers with whom Farr was placing its insurance…
Farr did not hold formal board meetings as such, but there was a monthly meeting between Farr and Erinaceous…
The day-to-day management of Farr was the responsibility of a management board which consisted of…and me. The management board met monthly, normally a day of two before the Farr and Erinaceous meeting. All the detailed work in the business was overseen by the management board…and I directed and supported them in that work…
There was in place a formal process of reporting to the management board and these same reports were also presented to the main board. These reports were first presented to me for comment and input and were a formal means by which I could receive feedback from the key areas of the business…These reports covered many different areas and typically I would have sessions with each individual to go through the reports and to ensure that I understood all the key issues. I would provide guidance when necessary or give authorisation for actions where required.
For many years, I have not been involved in the detail of client management, negotiating individual cases with insurers, assessing appropriate levels of income on individual cases or rating individual policies using delegated rates from the insurers. Even where there were problems in such areas, they would be resolved by the relevant member of the management team.
Farr has three main insurer suppliers, all of whom were needed by Farr to ensure it was able to provide clients with competitive quotations. Each insurer was anxious to grow their premium income and it was a delicate balancing act to keep each satisfied. It was essential that business was retained with each insurer and not moved unless absolutely necessary and that new business was shared as equitably as possible. Lost business had to be replaced with new business but at the same time it was crucial that the best possible terms were obtained for the client. I was the logical person to coordinate placements between existing and new business teams at Farr and the insurers themselves. I spent a lot of time with client managers of Farr and with the insurers insuring that everyone was happy and that insurers' and Farr's objectives were being achieved.”
On 20 June 2006 Mr Thomas issued proceedings against Farr claiming damages for breach of contract, a declaration that he had been constructively dismissed and a declaration that the non-competition clause in the contract was an unreasonable restraint of trade and unenforceable. The issue as to unreasonable restraint of trade was heard by Ramsey J as a preliminary issue. In a reserved judgment given on 12 October 2006 he held that the clause was enforceable. Mr Thomas appeals against that judgment.
The Contract
The relevant clause (“the clause”) is contained in the first schedule to a written agreement dated 11 December 2000 but it is common ground that the agreement was varied when Mr Thomas was appointed managing director in December 2003, and that the reasonableness of the clause has to be judged at December 2003.
The clause provided as follows:
“The Executive accordingly covenants with the Company that…he will not (other than for and on behalf of the Company or any company in the Group) without the prior written consent of the Board (such consent to be withheld only so far as may be reasonably necessary to protect the legitimate interests of the Group) directly or indirectly: —
3.1 At any time during the Restriction Period:—
3.1.1 (Except as the holder, by way of bona fide investment only, of shares or securities listed dealt in or traded on a recognised stock exchange not exceeding 3% in nominal value of the securities of that class) be engaged or concerned or interested or participate in any business which is the same as or in competition with the Business or relevant part thereof anywhere in any Restricted Territory provided always that this paragraph shall not restrain the Executive from being engaged or concerned in any business concern in so far as the Executive's duties or work shall relate solely to:—
(a) geographical areas where the business concern is not in competition with the Business; or
(b) services or activities with which the Executive was not concerned to a material extent during the 12 months prior to the Termination Date (or, if earlier, the start of any Garden Leave Period).”
The “Restriction Period” was 12 months from the date of termination of the agreement.
The “Restricted Territory” meant:
“any geographic area in which any company in the Group conducts the Business or part thereof and for which the Executive was responsible or to which he rendered services in the 12 months preceding the Termination Date”.”
“The Business” meant:
“The business of providing the Specified Services or any part thereof carried on by the Company as at the termination date and during the 12 months prior thereto….and any other business carried on by the Company or any company in the Group at the Termination Date to which the Executive has rendered Material Services or about which he has acquired Confidential Information or by which he has been engaged at anytime during the period of 12 months prior to the Termination Date.”
“Material Services” meant services to which he had devoted a substantial proportion of time in developing and promoting insurance products.
“The Specified Services” were defined as including property and buildings insurance and risk management and training.
“Confidential Information” was defined in clause 1 of the agreement as:
“1.1.5.1 Any trade secrets, customer lists, trading details or other information of a confidential nature relating to the good will and secrets of any company in the Group (including, without limitation, details of the activities, businesses, forward planning programmes or finances of any such company and details...
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