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1 Ch. OHANCEEY DIVISION.

935

GILFORD MOTOR COMPANY, LIMITED v. HORNE. <1A.


1933
[1932. G. 1418.]
FARWELL
J.
Restraint of Trade—Agreement between Company and Managing Director— p i og .
Covenant not to solicit Customers or Persons "in the habit of dealing March 1.
with the company"—Reasonableness of Restriction.
l>. A..

The plaintiff company bought the various parts of motor vehicles '
from manufacturers, assembled the parts on the company's premises
and sold the products under the name of Gilford Motor Vehicles. They
also sold separate parts which were handed over to the buyers for cash.
By an agreement dated May 30, 1929, the defendant was appointed
managing director of the plaintiff company for a term of six years from
September 1, 1928. Clause 9 of the agreement provided that: " The
managing director shall not at any time while he shall hold the office of
a managing director or afterwards solicit, interfere with or endeavour to
entice away from the company any person, firm or company who at any
time during or at the date of the determination of the employment of
the managing director were customers of or in the habit of dealing
with the company." The employment of the defendant as managing
director was determined in November, 1931, by an agreement between
the parties under which the defendant was to receive a fixed sum
payable in instalments. Shortly afterwards the defendant opened a
business for the sale of spare parts of Gilford vehicles. In an action
by the plaintiff company to enforce the covenant : —
Held (by Farwell J.), that persons buying spare parts from the
plaintiff company, paying for them in cash and taking them away, would
be included in the covenant; that the defendant, as managing director,
would not come into contact with those customers and would not know
them or their names and addresses and that, therefore, the covenant
was too wide.
Held, by the Court of Appeal (reversing the decision of Farwell J.),
that in the circumstances the covenant was not wider than was reasonably
necessary for the protection of the plaintiff company's trade and was
therefore enforceable by injunction.

WITNESS ACTION.
In this action the plaintiffs asked for an injunction to
restrain the defendant E. B. Home, either directly or indirectly
by means of the defendant company (called J. M. Home & Co.,
Ld.) or otherwise, and to restrain the defendant company,
from soliciting, interfering with or endeavouring to entice
away from the plaintiffs any person, firm or company who
at any time during or at the date of the determination of the
employment of the defendant as managing director of the
936 CHANCERY DIVISION. [1933]
C. A.
plaintiffs were customers of or in the habit of dealing with
1933
the plaintiffs, and to restrain the defendant Home from
GILFOBD directing or suggesting such solicitation, interference or
Co. endeavouring to entice away by the defendant company or
„ "• any agent or servant thereof in breach of a covenant on the
— part of the defendant Home contained in an agreement
dated May 30, 1929, and made between the plaintiffs and
Home.
The facts are fully set out in the judgment of FarweH J.

Sir Herbert Cunliffe K.C. and W. E. Vernon for the plaintiffs.


The covenant in clause 9 of the agreement is for the protection
of the plaintiffs. It is not too wide considering that the
plaintiffs' business is to supply Gilford motor vehicles and
spare parts. The words, " o r in the habit of dealing with
the company," are mere surplusage and do not extend the
scope of the restriction. The covenant is reaUy one binding
the defendant not to solicit the plaintiffs' customers, and
should be enforced as such. In Konski v. Peet (1) it was
held that the agreement there not to solicit customers could
not be confined to persons who were customers during the
employment, but extended to aU persons who were customers
at the date of the agreement or at any time after that date,
and was therefore too wide. That case does not apply here.
Sir Walter Greaves-Lord K.C. and H. J. Astell Burt for the
defendants. The covenant is too wide to be enforceable.
The plaintiffs seU spare parts to strangers, who pay cash for
and take the spare parts away with them. Any strangers
who bought spare parts in this way several times would come
within the meaning of persons " in the habit of dealing with
the company." The defendant, as managing director, would
not come into contact with customers of that class and would
not know them, and might therefore quite innocently solicit
their custom. That renders the prohibition unreasonable
and makes the whole covenant bad. The tendency of the
Courts is to be strict in their consideration of these restrictive
covenants and to enforce only those which are formed for the
(1) [1915] 1 Ch. 530.
1 Ch. CHANCERY DIVISION, 937
protection of employers and are not unreasonable or too wide : C. A.
Attwood v. Lamont (1) ; Express Dairy Co. v. Jackson. (2) 1933
•-Y-'

GlWOBD
TARWELL J. The plaintiffs in this action are a limited Co?
company, Gilford Motor Company, Ld., and they seek an H •
*
injunction against the first defendant, Edward Bert Home, —
to restrain him from " soliciting, interfering with, or endeav­
ouring to entice away from the plaintiffs any person, firm
or company who at any time during or at the date of the
determination of the employment of the defendant Home
as managing director of the plaintiffs were customers of or
in the habit of dealing with the plaintiffs " ; and they seek
against the defendant company, the second defendant, J. M.
Home & Co., Ld., a similar injunction, the case against the
defendant company being really put on the ground that
the defendant company is merely the creature of the first
defendant, and the first defendant is committing breaches
of the covenant by the agency of the defendant company.
The facts which give rise to this dispute are these. The
plaintiff company is a public company which was incor­
porated in the year 1926, and its business is that of manu­
facturing a certain class of motor vehicle known as the
Gilford motors. " Manufacturing " is not a very accurate
term, because they only manufacture in the sense that they
procure from other manufacturers the various necessary
parts and then assemble those parts, so creating the motor
in question. Some of the parts which are thus bought by
the plaintiff company are what are known as standard parts,
but other parts are parts which are made to the direction
of the plaintiff company, especially for their particular class
of car. In addition to the manufacture and sale of the
Gilford motors, they also give to their customers what is
known as service, which I understand means doing repairs
to the motors which they sell, and in addition to that they
sell spare parts. They have a catalogue which contains the
various parts which they deal in, I think all of them parts
which are required or used in the particular motor. The
(1) [1920] 3 K. B. 571. (2) (1929) 46 Times L. R. 147.
938 CHANCERY DIVISION. [1933]

C. A. plaintiff company has not any shop in the sense of a place


1933 where there is a counter over which goods are sold, but they
GILFOBD have a workshop into which persons desiring to buy parts
Co. can go, and where parts can be purchased for cash and taken
awa
HOBNB. y by t h e PurCQasers-
FarwSi j The defendant Home was from the incorporation of the
company connected with it, and in the year 1929 he was
appointed managing director under the terms of a written
agreement dated May 30, 1929, and it is upon the covenants
contained in that agreement that this action is brought.
The agreement is not framed in the happiest of language,
and it is necessary for me to refer to several parts of it. It
is made between the plaintiff company of the one part and
the first defendant of the other part, and by that agreement
the defendant is appointed managing director to " perform
the duties and exercise the powers which may from time to
time be assigned to or vested in him by the directors of the
company." By clause 2 it is provided : " The managing
director shall hold the office for the term of six years as from
the first day of September One thousand nine hundred and
twenty-eight." I understand that the defendant had been
acting as managing director from September 1, 1928, and
that this agreement was intended to regularize his position
as such managing director. By clause 3 it is provided t h a t :
" The managing director shall during the continuance of
this agreement devote the whole of his time attention and
abilities during the business hours of the company to the
business of the company, and shall comply with the
directions and regulations given and made by the directors
of the company and shall well and faithfully serve the
company and use his best endeavours to promote the interests
thereof. The managing director shall not either before or
after the termination of this agreement disclose to any
person whomsoever any information relating to the business
of the company." Now pausing there for one moment, it
is, I think, reasonably plain that the word " agreement "
used in that clause must mean his engagement as managing
director, because, as will be seen later on and as in fact
1 Ch. CHANCERY DIVISION. 939
appears in this particular clause, the covenant not to disclose c. A.
to any persons any information relating to this business is 1933
a covenant which can only come into operation after the GILFORD
determination of his engagement as managing director, but Co.
the agreement does not determine on that event happening, H , , ^ .
because by the very terms of it the covenant against F(U^jj j .
disclosing is a covenant to come into operation at that date.
Then there is a provision as to the holidays to which the
managing director shall be entitled, and there is a provision
for a salary of 1250Z. a year, with further remuneration
by way of commission. Then there is a provision in
clause 6 that " If the managing director shall be guilty
of any breach of his duties as such or shall refuse or neglect
to carry out his duties as may be reasonably assigned to
him by the company or if he shall become bankrupt or make
any arrangement or composition with his creditors or if he
shall be incapacitated by ill-health from performing' his
duties for a period of six consecutive months the company
may forthwith determine this agreement and the company
shall not be liable to the managing director for any remunera­
tion subsequent to the date of such determination." There,
again, it seems to me the word " agreement " must mean
the employment of the defendant as managing director.
The power given to the directors is in terms to determine
this agreement, but I cannot have any doubt that what is
intended is that the agreement by which this gentleman is
to be employed is to come to an end, leaving his liability to
perform the covenants which are to come into effect and
have operation as soon as his employment is determined.
Clause 9 is the material clause in this case. " The managing
director shall not at any time while he shall hold the office
of a managing director or afterwards solicit interfere with
or endeavour to entice away from the company any person
firm or company who at any time during or at the date of
the determination of the employment of the managing
director were customers of or in the habit of dealing with
the company And also will not at any time within five
years from the determination of this agreement either solely
940 OHANOERY DIVISION. [1933]

C. A. or jointly with or as agent for any other person firm or


1933 company be engaged directly or indirectly in any business
GILFORD similar to t h a t of the company within a radius of three miles
Co. from any premises wherein the business of the company
snau
HOKNB f° r the time being be carried on except with the consent
m wr
Farwdi J. i * m g of the directors of the company for the time being."
Now, under t h a t agreement the defendant acted as
managing director until November or, I think, the end of
October of 1931. About t h a t time the directors of t h e
plaintiff company came to the conclusion t h a t in the interests
of the company it was desirable to sever the defendant's
connection with the plaintiff company. The evidence before
me as t o . t h a t is quite plain, t h a t rightly or wrongly the
directors had determined t h a t they were not going to employ
the defendant any longer. B u t they had not, and there is
no evidence t h a t they had, considered whether they were
entitled to determine his employment under clause 6 of the
agreement. They were, at any rate, anxious to p u t an end
to the engagement of him as managing director as soon as
possible, and with t h a t end in view the directors of the
plaintiff company deputed their chairman, Mr. Baker, to
interview the defendant H o m e and, if possible, arrange with
him the terms upon which he would agree to give u p his
position as managing director. Mr. Baker has given evidence
before me, and he is obviously a truthful person. He gave
his evidence fairly, and I have no doubt whatever t h a t he
was speaking the truth. The effect of his evidence was t h a t
he was deputed by his fellow directors to arrange, if he could,
amicably with H o m e , the terms upon which H o m e would
cease to carry on his duties as managing director. Accord­
ingly an interview took place between H o m e and Mr. Baker.
The interview was on November 17, 1931. I t took place
shortly before a meeting of the directors, and I think was
continued or did not wholly cease after the other directors
had assembled. Mr. H o m e has not given evidence and,
therefore, I have not his account of what took place, b u t
according to the evidence of Mr. Baker the position was fuUy
discussed with Mr. Home. He at t h a t time had owing t o
1 Ch. CHANCERY DIVISION. 941

him by the company a sum of some 7501., which was partly C. A.


commission and salary due to him and partly director's 1933
fees. Mr. Baker, on behalf of the company, was prepared GILFORD
to pay the defendant a further sum beyond t h a t which Co.
was due to him if he would agree to give up his position. H ™ E
Finally, subject to the authority of the board, Mr. Baker
Farwell J.
agreed t h a t a sum of 7501., in addition to the 750Z. due
to Mr. Home, should be paid to him, and t h a t he should
give u p his position as managing director. The plaintiff
company at t h a t time was short of ready money, and it
would have been inconvenient to them to have paid the
1500Z. at once. Finally it was agreed that 5001. should
be paid by cheque at once, and t h a t the two other sums of
5001. should be paid, one on December 1, 1931, and the other
on February 15, 1932, the payments being secured by bills.
That arrangement the board agreed to and authorized
Mr. Baker to accept, and accordingly Mr. Baker drafted in
his own handwriting a letter which he had asked Mr. H o m e
to sign, and which he did in fact sign. The letter, which is
dated November 17, 1931, and is addressed to the chairman
of the plaintiff company, is written on the plaintiff company's
notepaper and stamped with a sixpenny stamp. I t is in
these terms : " Dear Mr. Baker, I hereby tender my resig­
nation as a director and joint managing director of the
Gilford Motor Co.,Ld., on terms as arranged with you to-day,
namely, t h a t the company pay me a cheque immediately
for 5001., and give me two bills for 5001. each due on
December 1, 1931, and February 15, 1932, respectively,
which sum of 1500J. I agree to accept in full discharge of all
sums due to me by the company, including compensation
for cancellation of my joint managing director's agreement.
Yours faithfully, E. B. H o m e . " At the same time Mr. Baker
wrote and signed a letter addressed to Mr. Home of the
same date in these terms : " I beg to acknowledge receipt
of your letter of to-day's date tendering your resignation as a
director and joint managing director of this company on the
terms as set out in your letter. I have placed this before
my board and they have accepted same to operate from
942 CHANCERY DIVISION. [1933]
C. A. to-day. I have pleasure in handing you herewith cheque
1933 for 5001. and will see that the two bills for 500L each are
GILFORD forwarded to you. Yours sincerely," and that is signed
C0, by Mr. Baker. Then there is a note as to the dates on which
HOBNB *^e k*us a r e *° ^ a u due.
Farwil j That arrangement having been made, the defendant Home
ceased to have any business connection with the plaintiff
company, and ceased to act as its managing director. Shortly
afterwards he set up business on his own account at
his own private address. He seems to have had printed
cards and other documents. For instance, a card which has
been exhibited in this case is in this form : " Spares and
service for all models of Gilford vehicles. 170 Hornsey
Lane, Highgate, N. 6. Opposite Crouch End Lane," with
E. B. Home's name at the bottom, and then, " No connection
with any other firm." Similarly there were billheads in
much the same form. Admittedly the defendant Home
sent out circulars to various persons in which it was
stated that the defendant was ready and in a position to
supply spare parts for Gilford vehicles, and in fact he did
supply spare parts and at prices which were, I gather,
considerably lower than those charged by the plaintiff
company, so that in a sense he was doing what is known as
undercutting the plaintiff company. He appears to have
had some qualms about the matter, because, after he had
been carrying on business in that way for a short time, he,
through his solicitor, requested the plaintiff company to
send him a copy of the agreement of May 30, 1929, and after
having received that agreement the defendant company was
incorporated on April 8, 1932. The defendant company is
a small private company. It has a capital of 500 shares of
11. each, of which 202 have been issued, 101 being issued to
the defendant's wife and 101 to one Howard, who was an
employee of the plaintiff company and is now an employee
of the defendant company. The only two directors of that
company are the defendant's wife and Howard, and the
registered office of the company is the private house of the
defendant, to which there has been added something in
ICh. CHANCERY DIVISION. 943

the nature of a garage, where his business is carried on. The C. A.


form of billheads and other documents used by the defendant 1933
company were the same as the billheads and documents GILIOBD
!MoTOit
used by Home, except t h a t the initials " E. B . " were blocked Co.
out in black, and the initials " J . M." substituted and the -gioiura!
words " and C o m p a n y " added. That company sent out Fa^J j
circulars and other documents inviting persons to deal with
it as a company who could supply Gilford motor spare
parts, and admittedly some of the circulars which were
sent out both by Mr. H o m e and by the defendant
company were sent to persons or firms who had been
customers of the plaintiff company during the period
while Mr. H o m e was managing director of t h a t company.
The defendant company is a company which, on the evidence
before me, is obviously carried on wholly by the defendant
H o m e . Mrs. Home, one of the directors, is not, so far as any
evidence I have had before me, taking any part in the
business or the management of the business. The son, whose
initials are " J . M.," is engaged in a subordinate position in
t h a t company, and the other director, Howard, is an employee
of the company. As one of the witnesses said in the witness-
box, in all dealings which he had with the defendant com­
pany the " boss " or the " guvnor," whichever term is the
appropriate one, was the defendant Home, and I have not
any doubt on the evidence I have had before me t h a t the
defendant company was the channel through which the
defendant Home was carrying on his business. Of course,
in law the defendant company is a separate entity from
the defendant Home, b u t I cannot help feeling quite
convinced t h a t at any rate one of the reasons for the
creation of t h a t company was the fear of Mr. H o m e
t h a t he might commit breaches of the covenant in carrying
on the business and in sending out circulars as he was
doing, and t h a t he might possibly avoid t h a t liability if
he did it through the defendant company. There is no
doubt t h a t the defendant company has sent out circulars
to persons who were at the crucial time customers of the
plaintiff company.
944 CHANCERY DIVISION. [1933]

C. A. That state of affairs being brought to the attention of the


1933 plaintiff company, they on June 14 last year issued the writ
GILFORD in this action, and the statement of claim is framed on the
Co. footing t h a t the defendant H o m e has committed breaches
HOBNE °^ * n e c o v e n a n * s m the agreement, and relief is sought on
Fami J * n a * ground both against him and against the defendant
company. There is a further claim against the defendant
company t h a t the defendant company has " Induced,
persuaded or employed the defendant Home to commit the
aforesaid breaches of such agreement." No evidence has
been adduced before me in support of t h a t claim, and there
is no ground on which I could find t h a t t h a t was the fact.
I t is important to notice t h a t the relief sought in this case
is sought wholly upon the covenants in the agreement, and
there is no claim against the defendant Home on the footing
t h a t he has made use of confidential information which he
obtained while he was managing director by using lists of
customers which he had obtained from the plaintiff company,
or anything of t h a t sort. Unless the plaintiff company can
succeed on the agreement itself, this action cannot succeed
at all.
Now the defences set up in this case are three, but
either of the first two, if they are good, are sufficient to
dispose of this action, and will render any consideration of
the case against the defendant company unnecessary. The
first defence set up is this. I t is said that as a result of what
took place on November 17, 1931, the whole agreement of
May, 1929, was put an end to ; t h a t is to say, not only were
the services of the defendant Home terminated, b u t he was
released from his covenants contained in t h a t agreement.
Much reliance is placed, and quite naturally, upon the fact
t h a t in the letter of November 17, written by Mr. Baker
and signed by Mr. Home, the word " cancellation " is used,
and it is said that what in fact happened was t h a t the
agreement was cancelled, so t h a t all rights and obligations
on both sides were finally put an end to.
I t is perhaps right t h a t I should refer at this stage to the
only material entry in the minute book which is under date
1 Ch. OHANCEEY DIVISION. 945

November 17, 1931, a minute of a meeting of directors, in C.A.


which this appears : " The board resolved to accept the 1933
resignation as a director and joint managing director of the GILFORD
MOTOR
company on terms as arranged in accordance with the letter
Co.
handed in and signed by Mr. E. B. H o m e , " and t h a t is headed ■v.

" Mr. E. B. H o m e . " HORNE.


Farwell J
I t is said further, apart altogether from the use of this
word " cancellation," t h a t once the parties had come to an
agreement to p u t an end to this written agreement the whole
agreement necessarily goes, and that, if t h a t is not so, what
the parties were really doing was varying the agreement.
That is not the case which is pleaded; if it had been
pleaded, the Statute of Frauds might have been an answer
to it. I t is necessary in considering this matter to bear in
mind t h a t throughout this document the word " agreement "
is used in more than one place as meaning, not the whole
arrangement contained in the document, but the engage­
ment of the defendant as managing director, because, as I
have already pointed out, on the very terms of the document
itself a part of the arrangement contained in t h a t document
—namely, some of the covenants—only come into operation
when the engagement of Home as managing director deter­
mines, whether it be determined by effluxion of time, the end
of the six years, as provided by clause 2, or whether it be
determined at some earlier date under clause 6. Therefore,
in my judgment, when the parties came to an arrangement
whereby they agreed, as they did, to determine Mr. Home's
engagement as managing director, t h a t did not involve the
release by the company of the covenants which were to come
into operation as soon as t h a t engagement was determined.
As I read clause 9, the covenant against solicitation is to
come into operation both during the period while the
defendant is managing director and afterwards, and when
he ceases to be managing director for any cause, in my
judgment he does not cease to be liable to observe the
covenant with regard to solicitations.
The result, in my judgment, of what took place on
November 17, was t h a t Home ceased to be managing director
VOL. I. 1933. 32 1
946 CHANCERY DIVISION. [1933]

C. A. of the company, ceased to be entitled to his remuneration as


1933 provided by the agreement, but remained under the obliga-
GmroRD tion to observe those covenants which were to have effect
Co- after the determination of the agreement. Accordingly, in
*• m y view, the first line of defence which has been set u p b y
Farwell J.
the defendants does not avail them.
Now the second, and in my judgment perhaps the more
difficult line of defence, is this. I t is said t h a t this covenant
against soliciting is too wide to be enforceable. The question
of the validity of covenants in restraint of trade has been
considered many times in recent years in cases of the highest
authority. I n more than one case in the House of Lords
the principles applicable to these covenants have been laid
down, and it is quite unnecessary for me to attempt to lay
them down again. But I may say this, t h a t in approaching
these questions the Court has to bear in mind (inter alia) t h a t
a covenant which is in restraint of trade is prima facie invalid
and t h a t the onus is on the person who seeks to enforce it to
show that it is a valid covenant. I n order to do that he must
prove t h a t the covenant is one which is reasonably necessary
for the protection of himself, his business, and is not otherwise
contrary to public policy. Further, in my judgment, the
employer who seeks to impose a covenant of this kind must
see to it t h a t the covenant is framed in terms which are
reasonably unambiguous, so t h a t the employee may know
what it is he can or cannot do. In my judgment a covenant
which leaves the employee in a position of honest doubt as
to what the limits of his activities may be is not a covenant
which this Court will enforce. I t is the duty of the employer
to see t h a t the covenant is plain and unambiguous. Now
covenants against solicitation of customers are not uncommon,
and in many cases they may be necessary for the protection
of the employer, but whether a particular covenant is
reasonable or not must depend on the facts of each particular
case. I t is quite impossible to lay down any general rule as
to the validity or invalidity of such a covenant as this. I t
depends, amongst other things, upon the nature of the
business, and upon the nature of the employment. A
1 Ch. CHANCERY DIVISION. 947

covenant against solicitation of customers might be a perfectly c. A.


reasonable and proper covenant in the case of one employee, 1933
and utterly unreasonable in the case of another in the same GILTOBD
business. Further, it has to be borne in mind in considering ££°B
v
a covenant of this kind, that, even without such a covenant, TT -
HOBNE.
an employee is not entitled t o make a list of his principal's Farwell J.

customers and to take t h a t list away with him at the end of


his employment and then use that list for the purpose of
endeavouring to divert custom from the employer to himself
or other persons in whom he may be interested. That has
been held to be an infringement of the rule which forbids an
employee to make use of confidential information which he
obtains in the course of his employment, and although he
cannot be prevented from subsequently using any skill or
knowledge which he may have acquired in his former
employment he is not entitled to make use of or disclose
confidential information so obtained.
With these considerations in mind I approach this particular
case. I n the first place the defendant was the managing
director of the plaintiff company and therefore in a position
to know who were the customers of the plaintiff company
on its books, or at any rate if he did not know himself he
could easily in the course of his business ascertain the names
and addresses of the various persons who, while he was there
as managing director, had purchased Gilford motors, or had
had services rendered to them under service agreements. The
position, however, with regard to any persons who came
from time to time to the workshop and purchased spare
parts, and paid for them on the spot, is very different. Such
persons would be persons with whom there might well be no
contact whatever with the managing director and whose
identity would be wholly unknown to him. Under those
circumstances can such a covenant as this be reasonably
necessary for the protection of the employers. That necessi­
tates a consideration of the true construction of the covenant.
I t is a covenant against soliciting " any person firm or
company who a t any time were customers of or in the habit
of dealing with the company." I am told on behalf of the
32 2 1
948 CHANCERY DIVISION. [1933]

C. A. plaintiff company t h a t the words " customers of " and


1933 " persons in the habit of dealing with the company " mean
GILFORD exactly the same t h i n g ; t h a t the words " persons in the
Co. habit of dealing with the company " are mere surplusage,
anc
HOBKB. ^ m a y ^ e disregarded. The answer to t h a t is this : t h a t
rar^dl J. if employers are so unwise as to add unnecessary words to a
covenant of this kind they must face the fact that the Court
will not, prima facie at any rate, treat such words as
meaningless, but will endeavour to give a meaning to them,
and if, as the result of so construing the document, the scope
of the covenant is extended beyond what is reasonable, then
the employers have defeated their own ends by the use of
unnecessary words. I am wholly unable to say what precisely
the phrase used here means. I am not prepared to accept
the view t h a t the words " persons in the habit of dealing
with the company " are mere surplusage. I n m y opinion
those words were inserted by the employers in the belief t h a t
the covenant so worded would include some persons or
companies who would not come within the ambit of the word
" customers " ; otherwise I fail to see the use of putting
those words in, b u t whatever may be the exact meaning of
the words, in my judgment this covenant does include not
only persons who are customers of the plaintiff company in
the sense t h a t their names and addresses are to be found in
the books of the plaintiff company, b u t also any persons who
habitually buy spare parts in the shop on a cash basis. As
it seems to me, t h a t is a covenant of a very wide nature. I
can conceive t h a t if the plaintiffs in this case, having regard
to the nature of the defendant's employment, had been
content to seek to restrain him from canvassing the customers
whose names appeared in the books, or persons whose names
were on a list of customers supplied to the defendant, or in
some other way had limited and defined what was meant by
" customers," such a covenant might have been a reasonable
one, necessary for the protection of the plaintiff company
and, therefore, enforceable. B u t in m y judgment a covenant
which includes persons who from time to time buy spare
parts, even though they may be spare parts for the Gilford
1 Ch. CHANCERY DIVISION. 949

motor, but who do not enter into any transaction which C. A.


involves any entry in any book of the plaintiff company, 1933
or necessarily ever come to the attention of the defendant GILFORD
in any way, is too wide to be necessary for the protection of Co.
the plaintiff company. Such a covenant would prevent n0aNE
solicitation of persons quite unknown to the defendant and Far^J j .
whose names he would have no means of ascertaining, and
might render him liable for a breach of covenant years after­
wards without in the least knowing he had committed t h a t
breach, if he chanced to solicit some person who unknown to
him had been a customer of the plaintiff company at the
material date. I t is said t h a t if t h a t did happen, the
Court would never commit the defendant; he would be safe
from any penalty because the Court would come to the
conclusion t h a t he had acted innocently. B u t t h a t is, in
my judgment, not an answer. The plaintiffs have got to
satisfy me t h a t the scope of the covenant is not wider than
is necessary for their protection, and in m y judgment a
covenant against solicitation for the rest of the defendant's
life of possibly very large numbers of persons with whom
the defendant might never have come into touch at all during
the whole time of his employment, whose names would not
have been known to him, and to whom he might never have
even spoken, seems to me far wider than is reasonably
necessary for the protection of the plaintiff company. If the
covenant was intended to have the less extended meaning
than t h a t it was for the plaintiffs to so limit it. The plaintiffs
have not done it and, therefore, in my judgment they are
unable to establish the validity of the covenant on which
they sue.
Finally I would say this, t h a t employers when seeking to
impose covenants on their employees in restraint of trade
will be very well advised to consider carefully what is really
necessary for their protection, and then so to frame then-
covenants t h a t they take rather less protection than they
think is strictly necessary ; and, secondly, to see to it t h a t
the covenant is framed in terms which leave no reasonable
doubt in the mind of the employee what it is he may not do.
950 CHANCERY DIVISION. [1933]

c A. i n m y judgment this covenant does not fulfil either of those


1933 requirements and, accordingly, on these grounds the action
GUJTOBD fails and must be dismissed with costs.
MOTOR ,
B
Co. "• J- -
v.
HOBNE. The plaintiffs appealed. The appeal was heard on April 27
and 28, 1933.
Sir Herbert Cunliffe K.G. and W. E. Vernon for the
appellants. The appellants are entitled to an injunction to
restrain the defendant from soliciting their customers. At
the hearing before Farwell J . every point was decided in
favour of the appellants except the question of the
unreasonableness of the covenant obtained by the appellants
against the defendant. Farwell J . was wrong in holding
t h a t a covenant against solicitation of customers must in
order to be valid delimit the customers by reference to the
employers' books or to a specific list of their names. Such
a decision is contrary to many cases which have received
judicial approval, including Trego v. Hunt. (1) The business
in connection with which the covenant was enacted was
started by the defendant and carried on by him in partner­
ship until a private company was formed. I n 1929 the
company was turned into a public company, and it was a
term made by two persons bringing in a large amount of
new capital t h a t the defendant on being employed as
managing director of the company should enter into the
covenant in question.
I t is to be noted that the covenant against solicitation
is limited to soliciting persons who were customers during
the defendant's employment, and it is substantially identical
in form with a covenant in the Encyclopaedia of Forms and
Precedents (1907 ed.), vol. 13, p . 80. A list of customers
was missing after the defendant ceased to be employed by
the company, and the persons solicited were all contained
in t h a t list.
I t has for many years been held reasonable to exact a
covenant to prevent solicitation of customers by a servant
(1) [1896] A. C. 7.
1 Ch. OHANCEEY DIVISION. 951

after he has ceased to be employed provided t h a t the C.A.


covenant only relates to persons who were customers during 1933
the employment: Trego v. Hunt. (1) GILFORD
MOTOR
[ROMER L.J. That was a case of vendor and purchaser.] Co.
Cases relating to master and servant are to the same effect : v.
HORNE.
Mills v. Dunham (2) ; Dubowski & Sons v. Goldstein (3) ;
and see Herbert Morris, Ld. v. Saxelby (4) and Mason v.
Provident Clothing and Supply Co. (5)
Sir Walter Greaves-Lord K.C. and H. J. Astell Burt for the
respondents. The test in this case is whether the covenant
is proved to be reasonably necessary for the protection of
the employers. That can only be determined by a
consideration of the nature of the employers' business and
of the types of persons who would be included in the
expression " any customer of or any person in the habit of
dealing with " the plaintiff company.
In the case of a traveller or canvasser it is recognized in
Mason's case (6) t h a t the covenant against solicitation must
be limited to customers in the district in which he worked.
The proper limit in the case of a multiple shop has never
yet been determined, b u t in the case of a shop with many
branches it would obviously be unreasonable t h a t the
manager of a South London branch should be prevented
from soliciting customers of (say) Hertford. That is the
basis of the decision in Dubowski & Sons v. Goldstein. (3)
Here the defendant was general manager at High
Wycombe and had nothing to do with the service depot
in Holloway Road.
[Sir Herbert Cunlijfe K.C. The appellants deny this.]
In any case a covenant not to solicit customers cannot be
reasonable unless the customers are personally identified.
[LORD HANWORTH M.R. referred to the notes to Mitchel v.
Reynolds (7) in 1 Smith's L. C , 13th ed., pp. 475, 476.]
The present covenant is too wide in all its terms. The
covenantor is entitled to know who are the persons he may
(1) [1896] A. C. 7. (4) [1916] 1 A. C. 688, 702.
(2) [1891] 1 Ch. 576. (5) [1913] A. C. 724, 734.
(3) [1896] 1 Q. B. 478. (6) [1913] A. C. 724.
(7) (1711) P. Wms. 181.
952 CHANCERY DIVISION. [1933]

C. A. not solicit. The covenant must not go further t h a n is


1933 reasonably necessary for the protection of the employer and
GILFORD must not go so far as to prevent the covenantor from getting
M
Co?R his living : Attwood v. Lamont. (1)
v. Th.e respondent also takes the further point t h a t the first
— agreement containing the covenant was superseded by the
second agreement.
[They also referred to Express Dairy Co. v. Jackson (2) ;
Smith v. Hancock (3) ; Baker v. Hedgecock (4) ; Hunt v.
South-Eastern Ry. Go. (5) ; Patmore v. Golburn. (6)]
Sir Herbert Cunliffe K.C. was not called upon to reply.

LORD HANWORTH M.R. I n this case a business was


carried on by the Gilford Motor Company, Ld., which had
a registered office in Holloway Road, London, and they had a
manufacturing place in Green Lanes, a t High Wycombe. The
business that was carried on was this: they sold motors which
were assembled by them, b u t they were not in fact the actual
manufacturers of the whole of the motors thus sold ; it was
rather t h a t they assembled and then completed the motors
t h a t they sold, and were able to supply spare parts for these
Gilford motor-cars. The defendant, Edward Bert H o m e ,
was a person who at t h a t time, in May, 1929, was of primary
importance in the business t h a t was carried on by the
company, and on t h a t date they made an agreement with
him whereby he was appointed a managing director, with
a right to hold t h a t office for a term of six years from
September 1, 1928; t h a t is to say, the span for which
he was engaged terminated on September 1, 1934.
There were the usual clauses in t h a t agreement. The
managing director was to devote his whole time and
attention and abilities during business hours to the
company and the business of the company ; he was entitled
to certain holidays ; he was entitled to a remuneration of
1250Z. a year and to a certain percentage on the profits,

(1) [1920] 3 K. B. 571. (4) (1888) 39 Ch. D. 520.


(2) 46 Times L. R. 147. (5) (1875) 45 L. J. (Q. B.) 87.
(3) [1894] 2 Ch. 377. (6) (1834) 1 C. M. & R. 65.
1 Ch. OHANCEEY DIVISION. 953

and during t h a t time he was not to be, directly or C. A.


indirectly, in any capacity except as a shareholder, interested 1933
in any business or company other than the Gilford Company. GILFOBD
Then it was provided by clause 9 in terms as follows : " The ccL
managing director shall not a t any time while he shall hold H "•
the office of a managing director or afterwards solicit,
Lord M
Hanworth
A
interfere with or endeavour to entice away from the company
any person, firm or company who at any time during or at
the date of the determination of the employment of the
managing director were customers of or in the habit of
dealing with the company and also will not at any time
within five years from the determination of this agreement,
either solely or jointly with or as agent for any other person,
firm or company, be engaged, directly or indirectly,. in any
business similar to t h a t of the company within a radius of
three miles from any premises wherein the business of the
company shall for the time being be carried on." Now it
is the interpretation t o be given to t h a t clause 9, which has
to be decided between the parties in this action, and
it is the first p a r t of t h a t clause, of which I have read
both limbs, which is in question. What happened was
this. Difficulties arose between the company and Mr. Home,
and letters passed on November 17, 1931, t h a t is
approximately some three years before the termination of
the span for which the managing director was employed.
The letters t h a t passed were to this effect, that Mr. Home
tendered his resignation as a director and joint managing
director of the company " o n terms as arranged with you
to-day," and those terms are set out, t h a t there is
to be a total of 1500Z. paid to Mr. Home by instalments
of three several sums of 5001. ; and he concludes the letter :
" I agree to accept in full discharge of all sums due to me by
the company including compensation for cancellation of m y
joint managing director's agreement." The reply of the
same date was an acknowledgment of the letter tendering the
resignation and stating the Board had accepted the
resignation, to operate " from to-day," and it is recorded in
a minute of t h a t same day that the Board resolved to accept
954 CHANCERY DIVISION. [1933]

C. A. the resignation as a director and joint managing director


1933 of the company on terms as arranged in accordance with
GILFORD the letter handed in and signed by Mr. E. B. H o m e . After
Co. t h a t resignation took effect Mr. E. B. H o m e established a
HORNE business and carried it on at his own home, 170 Hornsey
Lord Hwiworth Lane, Highgate, and the business he had was one carried
^1 on by " E. B. H o m e , " and there is no doubt t h a t his
business was one of supplying spare parts and service for
all models of the Gilford vehicles. (I ought to have observed
t h a t in addition to the business then carried on by the Gilford
Motor Company they carried on the business of service as
well as the sale and supply of motors.) Having established
himself, or attempted to establish himself, in t h a t way as
" E. B. H o m e , " he became anxious as to whether or not
what he was doing—which I will refer to in a m o m e n t —
was in accordance with, or not in contravention of, the agree­
ment which he had entered into and to which I have referred,
and so it was t h a t on March 29, 1932, his solicitor wrote
this letter to the Gilford Motor Company : " Dear Sirs, I am
acting for Mr. E. B. Home, the late joint managing director
of your company, and I understand t h a t he entered into
certain agreements with your company as to service and
for sale. As I am desirous of advising him upon the terms
of these agreements, I shaU be glad if you wiU be good
enough to forward copies to me, and accept this letter as my
undertaking to pay your reasonable charges for such copies.
Yours faithfully, J. R. Cort Bathurst." The reply on
March 30 was : " We are in receipt of your letter of yester­
day's date, and in reply would inform you t h a t Mr. E. B .
Home's copy of the original service agreement with this
company was left with the writer for safe custody ; therefore
we have pleasure in enclosing it herewith." Thus the
solicitor was on March 30 placed in possession of the agree­
ment of which I have read some and indicated other portions
of the terms. Following upon t h a t reply of March 30, 1932,
on April 8 a limited company under the title of
" J . M. Home " was incorporated. I t was incorporated as a
private company, and the paper which had been previously
1 Ch. CHANCERY DIVISION. 955
" E. B. Home " was altered by blacking out the initials of C. A.
Mr. E. B. Home, " E. B.," and inserting at the commencement 1933
" J . M." and adding "and Co. Limited." Now it so happens GILFORD
that " J . M." are the initials of the wife of Mr. Home. That Co.
company is a private company, as I have already said ; its H O ^ E
primary objects are to carry on the business of factors' agents Lord ^ w o r t t l
and distributors and vendors and buyers of accessories and ^5:
spare parts of all classes of vehicles, and so on, and for
charabancs, motor-cars, taxis, and so on. The registered
office is at the private address of Mr. Home, 170 Hornsey
Lane ; the directors are Jessie May Home, the wife of Mr.
E. B. Home, and Mr. Albert Victor Howard, a person who
had been, as I understand, originaUy in the employ of Gilford
Motors, but who was at that time associated with Mr. E. B.
Home in the business which he carried on after November,
1931. The nominal capital was 500Z. divided into 500 shares
of 11. each, and the aUotments that were made on April 12
were, as to .101 shares, to Mrs. J. M. Home, and 101 shares
to Mr. A. V. Howard ; the solicitor of the company was the
writer of that letter of March 29 which I have already read.
FarweU J. heard the evidence about that company and had
these documents before him. He says this : " The defendant
company is a company which, on the evidence before me, is
obviously carried on wholly by the defendant Home.
Mrs. Home, one of the directors, is not, so far as any evidence
I have had before me, taking any part in the business or the
management of the business. The son, whose initials are
' J. M.,' is engaged in a subordinate position in that company,
and the other director, Howard, is an employee of the company.
As one of the witnesses said in the witness-box, in aU dealings
which he had had with the defendant company the ' boss '
or the ' guvnor,' whichever term is the appropriate one, was
the defendant Home, and I have not any doubt on the
evidence I have had before me that the defendant company
was the channel through which the defendant Home was
carrying on his business. Of course, in law the defendant
company is a separate entity from the defendant Home,
but I cannot help feeling quite convinced that at any rate one
956 CHANCERY DIVISION. [1933]

c. A. of the reasons for the creation of that company was the fear
1933 of Mr. Home that he might commit breaches of the covenant
GMTOBD in carrying on the business, as, for instance, in sending out
Co.B circulars as he was doing, and that he might possibly avoid
m
HOKNB a t liability if he did it through the defendant company.
Lord Hanworth There is no doubt that the defendant company has sent out
M-B
" circulars to persons who were at the crucial time customers
of the plaintiff company." Now I have recalled that portion
of the judgment of Farwell J., and I wish in clear terms to
say that I agree with every word of it. I am quite satisfied
that this company was formed as a device, a stratagem, in
order to mask the effective carrying on of a business of
Mr. E. B. Home. The purpose of it was to try to enable
him, under what is a cloak or a sham, to engage in business
which, on consideration of the agreement which had been
sent to him just about seven days before the company was
incorporated, was a business in respect of which he had a
fear that the plaintiffs might intervene and object.
Now this action is brought by the plaintiffs, the Gilford
Motor Company, Ld., to enforce the terms of clause 9 of the
agreement of May 30, 1929, on the ground that the defendant
Home, and the company, as his agent and under his direction,
have committed breaches of the covenant which I have
read. Admission has been made quite frankly and candidly
in this Court, as it was made below, that there have been
circulars sent out to the customers of the Gilford Motor
Company. The statement is made in the evidence in these
terms : " I t is admitted now, I gather—although my learned
friend says it is small, that does not seem to me to matter,
with respect—that persons were solicited by Mr. Home, both
before and after the formation of the company, who were
customers of the plaintiff company at the time he was in its
service. That is right, is it not ? " and Sir Walter Greaves-
Lord says : " That is right." So that the learned judge was
on sure ground when he said there was a clear admission
that these two defendants were soliciting the customers of
Gilford Motors ; and, as Farwell J. puts i t : " Admittedly
the defendant Home sent out circulars to various persons in
1 Ch. CHANCERY DIVISION. 957

which it was stated t h a t the defendant was ready and in a C.A.


position to supply spare parts for Gilford vehicles ; and in 1933
fact he did supply spare parts and at prices which were, I GILFOBD
IVtOTOIt
gather, considerably lower than those charged b y the Co.
plaintiff company, so t h a t in a sense he was what is known HOBNE.
as undercutting the plaintiff company." I n other words, Lord 5^WOIth
there is no defence at all to the claim made in this action ?t—
unless the conduct of the two defendants can be excused on
one of two grounds : firstly, that the covenant is unenforce­
able in law b y reason of the width of its. terms, or, secondly,
t h a t it has ceased to be operative by reason of the terms
which were arranged between the company for the discharge
or the release of the managing director from t h a t position
on November 17, 1931.
I , therefore, proceed now to consider those two points in
order, and, first: Is the covenant unenforceable as being bad
in law ? I accept the proposition t h a t a covenant in restraint
of trade is prima facie one which the law will not enforce,
but to t h a t broad proposition there have been many exceptions
over a very long period of time, and the famous case of
Mitchel v. Reynolds (1) has decided, b y a judgment delivered
by Lord Macclesfield, within what limits and terms the
Court will enforce such agreements. The old rule was
undoubtedly t h a t it must be partial in space or partial in
time, but we have to bear in mind t h a t the nature of these
agreements has been expounded in the light of later con­
siderations which have gradually arisen as there has been an
evolution or development of business transactions. As
Rigby L.J. points out in Dubowski & Sons v. Goldstein (2) :
" We have now gone far beyond what was supposed to be
the law in the time of Tindal C.J. and Lord Denman C.J.
I am not surprised t h a t a t t h a t time they expressed
the opinions they did. Lord Watson has pointed out in the
case of Nordenfelt v. Maxim Nordenfelt Guns and Ammunition
Co. (3) t h a t the opinion of the judges of this age as to matters
of public policy may differ very much from that of judges
(1) 1 P. Wms. 181; 1 Sm. L. C, (2) [1896] 1 Q. B. 478, 484.
13th ed., p. 462. (3) [1894] A. C. 535.
958 CHANCERY DIVISION. [1933]

C. A. of a bygone age when the circumstances of the world were


1933 different. The only test of the validity of an agreement in
GILFORD restraint of trade now is whether or not such an agreement
Co. is reasonably necessary for the protection of the person with
v
H - whom it is made," and, as pointed out on p. 475 of 1 Smith's
Lord M-B
Hanworth
Leading Cases, dealing with the Nordenfelt Co.'s case (1),
- which went to the House of Lords (2), the true view is
" that any restraint, whether general or partial, is prima
facie invalid, but may be good if the circumstances of the
case show it to be reasonable." We have, therefore, to con­
sider were the terms of this covenant in clause 9 reasonable ?
Let me just add one further passage from Mason v. Provident
Clothing and Supply Co. (3) Lord Shaw, in dealing with a
case where the activities of a canvasser were in question,
says : " A very reasonable restriction of a canvasser in such
circumstances as are here disclosed might no doubt have
been that he should not canvass his old customers or in the
limited locality of his former labour. This the law would
naturally and properly enforce, and would look upon as a
reasonable protection of the employer " ; and in Dubowski's
case (4) Lopes L.J. says (5) : " This agreement, like all
others, must be construed with regard to the surrounding
circumstances. It has been objected to as being too wide
in two respects : first, in respect of space ; secondly, in
respect of time," and he holds that the objection fails in
respect of those persons who were customers of the late
employers at the time when the employee was in their employ.
Now I turn to this agreement. What is its purpose ? It
is to protect the business, the profits which are to be earned
by the company with the persons, firms or companies who
at that time, the time of the employment of the defendant
Home, were customers of the company, and from whom, in
the business they did with them, the company derived profit.
I repudiate altogether the suggestion that you can, by reason
of taking one or two words such as " the habit of dealing
with the company," impute a meaning to this covenant that
(1) [1893] 1 Ch. 630. (3) [1913] A. C. 724, 741.
(2) [1894] A. C. 535. (4) [1896] 1 Q. B. 478.
(5) Ibid. 483.
1 Ch. OHANCERY DIVISION. 959
it deals with or covers the case of a person from whom the C. A.
Gilford Motor Company buy and in respect of whose dealings 1933
there can be no profit at all arising to the Gilford Motor GUJTOBD
Company. It is intended to deal with persons who are upon Co.
their books or with whom they deal and, in the course of JJ0H'NB
dealing, earn a profit. ^ ^ 5^ worth
Now objection is taken that these words are too wide, and ^-
Farwell J. has said that it may be that by reason of the fact
that the customers are not denned, or the persons who were
in the habit of dealing with the company are not particu­
larized, a danger might accrue to this man from an innocent
sale to one of such persons, and he might have been
imperilled during all time, long after his employment has
ceased, by the nature of such transactions. I cannot agree
that such is a fair test to apply to the covenant. It appears
to me that this covenant was, as in the many scores of cases
in which such covenants have been upheld in these Courts,
necessary for the protection of the plaintiff company's
business ; it operated after the determination of the employ­
ment and in respect of persons of whom the defendant
himself would have the best knowledge, for he was the
managing director of the company, and what it means is
that he is not to solicit, to interfere with or endeavour to
entice away for his advantage, customers or persons who
are in the habit of dealing with the company for the
company's advantage. Objection is taken that these words
" customers of or in the habit of dealing with the company "
either have no meaning or are tautological. I do not agree
with that. It appears to me that a customer is a person
who frequents a place of business for the purpose of making
purchases, and those persons may be determined in a
particular way by, for instance, having their names recorded
in the books of the company, or they may be upon a list,
but there may be other persons who are in the habit of
dealing with the company but whose names have not yet
been inscribed upon any register of customers, and I see no
reason at all to object to the employment of both those
terms by reason of the fact that one or other of them
960 CHANCERY DIVISION. [1933]

C. A. might have covered persons who are to be found in


1933 the alternative category. Now, if t h a t be so, it appears to
GILTOBD me t h a t this is a covenant which was required for the purpose
££°B of reasonably protecting the company's business. I t does
„ "• not go so far as to cover customers who become customers
Lord ianworth a^ier the managing director has left, and it was a covenant
M B
-; entered into by him" with full knowledge of what he was
doing, and with full knowledge of who were the persons
included in t h a t phrase, and it is in respect of them t h a t he
is debarred from solicitation, interference or enticing away.
The covenant is definite in date ; it is not uncertain, because
you have the time at which you are to look for the customers
or persons in the habit of dealing, and you have got therefore
a covenant which is reasonable in the sense of being necessary
for the protection of the plaintiff company's business.
The defendant has, by his own admission, solicited persons
who come within the ambit of the covenant. What is the
justification ? I t appears to me t h a t this is an agreement
which must be upheld b y the Court, and the plaintiff
company are entitled to the protection of the Court, and
the injunction must be granted. The question whether in
any particular case some casual purchaser from the defendant
may cause.the defendant to be in danger of further action by
the Court is quite a different question. I do not quite under­
stand the meaning of what is called a " casual customer."
I think the two words are mutually antagonistic : I think a
" customer " is a person who, as I said, frequents the shop ;
a casual purchaser seems to be a different person. But,
however t h a t may be, we have to say t h a t the plaintiffs are
entitled in this action to have this covenant upheld, and an
injunction is the proper mode of enforcing t h a t as against
these defendants.
The other ground of defence is t h a t there has been an
agreement whereby the defendant was released from the
restrictive covenant. I t will be observed t h a t as the matter
went before the Court the defence relied upon an oral agree­
ment to release him, and now suggestion is made t h a t if you
look to the letters of November 17 there is a cancellation
1 Ch. CHANCERY DIVISION, 961
of the agreement, and the cancellation means a release from C. A.
clause 9. I do not so read the letters or the entry in the 1933
minute book. It appears to me that the defendant rightly GILFORD
ATOTOR

stated that there was an oral agreement, and although some 0o>
of the terms which have been agreed between the parties, jx^^.
particularly the one under which the defendant was to 5^,W0rth
MB
receive compensation, may have been recorded in the --
letters, in the absence of any specific term dealing with
this protective clause 9, I agree with the learned judge
and do not accept the view that there has been any
release of the clause. Mr. Collier strenuously argued that,
inasmuch as there was a new agreement, there was a release
of this clause, but that, of course, will depend upon whether
or not the new agreement covered the same area that the
previous agreement had done. It appears to me that
the purpose of the second agreement was to deal with the
question of the shortening of the term of the employment,
and the compensation to be paid in consequence of that
shortening, and was not intended to deal with or release the
defendant from the restrictive covenant.
In these circumstances the appeal must be allowed,
and for the reasons which I have already stated I think
the injunction must go against the company. Sir Walter
Greaves-Lord admitted that if the company were such
as is indicated by Lindley L.J. in Smith v. Hancock (1),
it would not be possible to object to the injunction going
against the company. Lindley L.J. indicated the rule
which ought to be followed by the Court: " I f the
evidence admitted of the conclusion that what was being
done was a mere cloak or sham, and that in truth the
business was being carried on by the wife and Kerr for the
defendant, or by the defendant through his wife for Kerr, I
certainly should not hesitate to draw that conclusion, and to
grant the plaintiff relief accordingly." I do draw that
conclusion ; I do hold that the company was " a mere cloak
or sham " ; I do hold that it was a mere device for enabling
Mr.' E. B. Home to continue to commit breaches of clause 9,
(1) [1894] 2 Ch. 377, 385.
VOL. I. 1933. 4 A 1
962 CHANCERY DIVISION. [1933]

C. A. and under those circumstances the injunction must go against


1933 b.oth defendants, the appeal must be allowed with costs here
GIWOBD and below, and the injunction will be in the terms asked in
c£°R the prayer in the statement of claim.
v.
HOBNE.
— LAWRENCE L.J. The main question in this case is whether
the provision against solicitation contained in the agreement
of May 30, 1929, is too wide to be enforceable. The answer
to that question depends upon whether, upon the particular
facts of the present case, the covenant was reasonably
necessary for the protection of the business carried on by
the covenantees at the time when it was entered into. In
order to determine that question, the Court must have
regard, first, to the nature of the business ; secondly, to the
position of the covenantor; and, thirdly, to the scope of the
covenant.
As to the nature of the business, the company carried on
the business of suppliers of commercial motor vehicles
(including charabancs) and of suppliers of service for such
vehicles. In addition to those businesses, the company
supplied spare parts for the motor vehicles. The head
office of the company was situate in Holloway Road, London,
where the company also had a service depot. The company's
works were situate at High Wycombe, in Buckinghamshire.
As to the position of the covenantor, he was appointed
managing director, with the obligation of devoting his whole
time and attention to the business of the company, his
remuneration consisting of a substantial salary and a
percentage of the profits earned by the company. He was,
therefore, not in a subordinate position, but in a highly
responsible and confidential position, being placed in actual
charge of the business of the company.
As regards the scope of the covenant, it is plain that
the covenant is limited to the non-solicitation of customers,
or persons in the habit of dealing with the company,
during or at the date of the determination of the coven­
antor's employment, and does not extend to prevent' the
covenantor from soliciting persons who might become
1 Ch. OHANCfiEY DIVISION. 963
customers of the company after his employment had C. A.
terminated. 1933
I n these circumstances I airi clearly of opinion t h a t the GUTOBD
company was entitled not to have its customers, b y solicita- Co
tion or any other means, enticed away by the covenantor _ *•
after his employment had terminated. By such a covenant Lawrence L.J.
the company was legitimately endeavouring to protect what
it had (namely, the chance of its customers continuing to
resort to the company, or to its places of business) and not
to gain a special advantage which it could not otherwise
secure.
Farwell J. seems to have considered that the introduction
of the words " or persons in the habit of dealing with the
company" after the word " customers " rendered the
covenant ambiguous. In my opinion, there is no ambiguity
in the covenant, and the covenantor has not ventured to go
into the witness-box to say that he did not understand or
was in any way embarrassed by the wording of the covenant.
The expression " customers," in my judgment, is synonymous
with the expression " persons who are in the habit of
dealing with the company." The two expressions, to my
mind, mean practically the same thing, and the alternative
expression introduced after the word " customers " was, in
my opinion, inserted as a definition of the latter so as to
make it plain that what was intended to be guarded against
by the covenant was any interference with or enticing away
of those persons who were in the habit of dealing with the
company during the covenantor's employment. I cannot
myself think that there could have been any reasonable
doubt in the minds of the parties to this covenant as to the
class of persons who were not to be solicited after the employ­
ment had terminated.
The learned judge further held, and I think that this was
the main ground of his decision, that the covenant is too
wide, and unenforceable, because it does not specify which
of the customers the covenantor is not to solicit. The
learned judge points out that the covenant is not limited
to customers whose names were entered in the books of the
VOL. I. 1933. 4B 1
964 CHANCERY DIVISION. [1933]

c. A. company, or to customers mentioned in any list supplied


1933 by the company to the covenantor at the termination of the
GIMOBD agreement, or to customers who were defined in some other
C™R manner. With the greatest respect for the opinion of the
"■ learned judge, I find myself quite unable to agree with this
a w r ~ L J conclusion. In my judgment, having regard to the nature
of the business and to the position of the covenantor, it was
unnecessary further to define the persons who were not to
be solicited by the covenantor beyond describing them as
the " customers or persons in the habit of dealing with the
company during his employment or at its termination."
The learned judge seems to have considered that the
covenant was too wide because it would include customers
who might be in the habit of buying spare parts at the
service depot and at the works, without their names being
entered in the books of the company and without their
becoming personally known to the covenantor. Apart from
the question whether there is any evidence in the present
case to show that there were any such customers, I am clearly
of opinion that the fact that such customers were included ■
in the covenant would not make the covenant too wide.
The company, in my opinion, is entitled not to have that
class of customers enticed away by solicitation any more
than any other of its customers. The covenantor might
inadvertently solicit one of that class of customers, but in
such a case the Court would not grant an injunction against
him or commit him for contempt for the breach of any
injunction already granted if he could show that what he
had done was done inadvertently, and would not be repeated.
But where I think the learned judge has erred, is in making
the possibility of such an innocent breach of the covenant
a test of its validity. The position to which the covenantor
was appointed was one in which he had the fullest
opportunity of getting to know every customer of the
company, and it seems to me that in these circumstances
the restraint placed upon him was a reasonable restraint.
For the reasons stated, I am of opinion that the covenant
was one which was reasonably required for the protection
1 Ch. CHANCERY DIVISION. 965

of the company, and was neither ambiguous nor did it impose C. A.


too wide a restraint on the covenantor. 1933
There only remain two subordinate points to be considered. GILFORD
R
The first is whether the oral agreement arrived a t in Co
November, 1932, operated to put an end to the covenant. "•
Upon that question I find myself in entire agreement with
Lawrence Ii.J.
the Master of the Rolls and with Farwell J. The question
depends upon what took place at the interview at which the
oral agreement was arrived at. Apart from the prima facie
presumption that the company would not readily have
agreed that their managing director who had, for a
substantial time, been in control of their business should, on
leaving, be permitted to solicit their customers, there is no
evidence that at this interview it was agreed that the
covenant in question, which was to come into operation after
the termination of the employment, should be abrogated.
Secondly, as to the question whether the injunction ought
to extend to restraining the defendant company from
soliciting the plaintiff company's customers. I am of opinion
that the evidence amply justified the learned judge in drawing
the inference that the company was a mere cloak or sham
for the purpose of enabling the defendant to commit a breach
of his covenant against solicitation. I need not recall the
facts, but it seems to me that the evidence as to the forma­
tion of the company and as to the position of its shareholders
and directors leads to that inference. Of course, that
inference might have been displaced by evidence adduced
on the part of the defendants, but although the issue was
plainly raised on the pleadings, no such evidence was forth­
coming. In these circumstances, I agree with the finding
by the learned judge that the defendant company was a mere
channel used by the defendant Home for the purpose of
enabling him, for his own benefit, to obtain the advantage
of the customers of the plaintiff company, and that therefore
the defendant company ought to be restrained as well as the
defendant Home.
I agree that this appeal ought to be allowed, with the
consequences stated by the Master of the Rolls.
CHANCERY DIVISION. [1933]
ROMBB L.J. I have come to the same conclusion. The
covenant with which we have to deal in the present case is
obviously a covenant in restraint of trade. It is, therefore,
prima facie, unenforceable. It can, however, be enforced,
if it be shown that the covenant was reasonably necessary
and not more extensive than was reasonably necessary for
the protection of the covenantee. The particular covenant
with which we have to deal is a covenant which is commonly
referred to as a covenant against solicitation; that is to
say, it is a covenant by an employee that he will not, after
his employment shall have ceased, solicit orders from
customers of his employers' business who were such at
the time of the cessation of his employment or had
been such during the existence of that employment.
It is not, of course, every such covenant that is
reasonably necessary for the protection of the employers. I
can quite readily conceive cases in which such a covenant
by an employee is in no way necessary for the protection of
the employer. The question whether it be necessary or not
depends upon the nature of the business carried on by the
employer and the nature of the employment that is being
given to the employee. It has, however, been frequently
recognized in these Courts and is, in my opinion, established
law, that where an employee is being offered employment
which will probably result in his coming into direct contact
with his employer's customers, or which will enable him to
obtain knowledge of the names of his employer's customers,
then the covenant against solicitation is reasonably necessary
for the protection of the employer. In the present case the
covenantor was employed as a managing director of the
company, who are the covenantees, and it is perfectly obvious
that at the date of his employment it was extremely probable,
if not certain, that he would come into contact with the
customers of his employers who were customers during the
term of his employment. Now, in those circumstances, I
should have thought that this covenant was enforceable. I
will not read the covenant again, nor do I intend to comment
upon the precise words in which that covenant is framed. It
1 Ch. CHANCERY DIVISION. 967
is sufficient to say that in my opinion it restrains the covenantor C. A.
from soliciting in the way of the business such as is carried 1933
on by the employers, persons who were customers of the GIT-FORD
MOTOR

employers during, or at the date of, the termination of the Co.


defendant's employment as managing director. I do not HOBNE
myself think that the words " or in the habit of dealing with B O ^ J . J ,
the company " enlarge or diminish in any way the meaning
of the word " customers." But it was said, and the argument
has found favour with Farwell J., that the covenant is
unenforceable because the particular customers whom the
defendant is precluded by the covenant from soliciting are
not sufficiently defined in the covenant. Farwell J. said
that if the plaintiffs in this case had been content to
seek to restrain the defendant from canvassing the customers
whose names appear in the books, such a covenant would be a
reasonable one. But so to limit a covenant against solicitation
would not be sufficient protection for the employers. There
may be customers with whom the employee has come into
contact, whose names he would know, whose names do not
appear in the books, and in a case where the employee is a
person, one of whose duties might be to see that the names of
customers were inserted in the books, a covenant so restricted
obviously would not be a proper or sufficient protection for
the employers. Farwell J. also said that the covenant would
be enforceable if the plaintiffs had been content to confine
the customers to persons whose names were specified in a
list of customers supplied to the defendant. It must
be remembered, however, that the question whether the
covenant is a valid one or not, that is to say, whether it is
a reasonable covenant or not, is a question which has to be
determined as at the date of the covenant being entered
into. At that time, quite clearly, it would be impossible
to supply the defendant with a list of persons who would
become customers during the term of his employment.
Further, the covenant as a matter of fact extends in the
present case not only to the period after the defendant's
employment has come to an end, but also to the period
covered by the term of his employment. I do not
968 CHANCERY DIVISION. [1933]

C. A. think it reasonable to suppose t h a t the employers are


1933 from time to time, during the man's employment, to
GILTOBD hand to him a list of the customers of the firm, so
Co. t h a t he m ight know what customers he might and what
HOBNE customers he might not solicit during the term of his employ-
HomerL.j. nient. Then Farwell J . referred to, as other cases in which
the covenant might be enforceable, cases in which in some
other way the meaning of the word " customers " was limited
or defined. With great respect t o the learned judge, I cannot
myself think of any other way in which, consistently with
the proper protection of the employers, the customers who
are not to be solicited can be limited or defined other than
by calling them " customers." There are numerous cases
before the Courts where covenants against the solicitation
of customers have been considered, and I know of no
authority, and certainly our attention has not been called
to any authority, where any such limitation upon the
covenant as is suggested by Farwell J . has been held to be
necessary. Of the cases to which we have been referred in
which such covenants have been held to be good, there
was no such limitation. I n Mills v. Dunham (1), in which
there was a very wide covenant, a covenant in the sense
t h a t it extended not only to soliciting but to transacting
business with customers of the employer, no such words of
limitation were to be found. The covenant was against
transacting business with or soliciting orders from " any
person or firm who, during the continuance of this agree­
ment, shall be customers of the " employers. The case
came before Chitty J . and afterwards before the Court of
Appeal, and in neither Court was it suggested, either in
argument or judgment, t h a t any such limitation of the word
" c u s t o m e r s " was necessary in order t h a t the covenant
should be enforceable. Another case to which our attention
was called was Dubowski <fe Sons v. Goldstein. (2) That was
a case of a covenant entered into by an employee of
a man carrying on a milk business, who was employed as
a milk carrier, and the covenant was t h a t he would not
(1) [1891] 1 Ch. 576. (2) [1896] 1 Q. B. 478.
1 Ch. CHANCERY DIVISION.

" interfere with, or cause to be solicited or interfered with, C.A.


any of the customers who shall at any time be served by or 1033
then belonging to the employer his successors or assigns in GILFORD
MOTOB
the said business." Again, it was never suggested that any Co.
such limitation was necessary in order that the covenant v.
might be enforced, and, in my opinion, with the greatest HOBKB.

deference to Farwell J., no such limitation is necessary. The Homer L.J.

limitation that is necessary, of course, is a limitation to


persons who are customers during the employment of the
covenantor. No such limitation as is suggested by Farwell J.
is, in my opinion, necessary.
So far as regards the other two points upon which reliance
was placed by the respondents, I do not wish to add
anything. In my opinion Farwell J. was right in the
conclusion to which he came as to the effect of the oral
agreement come to between the parties in the month of
November, 1931, and was right in coming to the conclusion,
as I think he did conclude, that this defendant company
was formed and was carrying on business merely as cloak
or sham for the purpose of enabling the defendant Home
to commit the breach of the covenant that he entered
into deliberately with the plaintiffs on the occasion of and
as consideration for his employment as managing director.
For this reason, in addition to the reasons given by my
Lords, I agree that the appeal must be allowed, with the
consequences which have been indicated by the Master of
the Rolls.
Appeal allowed.

Solicitors for appellants : Cardeiv Smith & Boss.


Solicitor for respondents : J. B. Cort Bathurst.
W. I. C.