Gilford Motor Co, Ltd. V.

Horne and others (1933)

INTRODUCTION:

The primary issue in this case related to the enforceability of restraints of trade. However, for the
purposes of corporative law, it is frequently cited in relation to situations where the court will
pierce the corporate veil due to a company being used as a cloak or sham.

FACTS:

Gilford was in the business of buying parts of motors from manufacturers, assembling them, and
then selling the assembled product under the name of Gilford Motor Vehicles. It also sold spare
parts and serviced the motors. Gilford hired Horne as its managing director for a period of six
years.

The employment agreement included a restraint of trade provision as follows: “The managing
director shall not at any time while he shall hold the office of a managing director or afterwards
solicit, interfere with or endeavor 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 that 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.”

After around two and a half years, Horne’s employment was terminated (and unfortunately no
reason was given in the decision). The directors of Gilford agreed to pay out Horne over a few
installments. This is where Horne gets really dodgy, and he takes a series of actions which
ultimately sets up the scene for the court to pierce the veil of J M Horne & Co.

Farewell J notes that “shortly afterwards [Horne] set up business on his own account at his own
private address.” He also printed out various advertising materials such as cards and billheads,
and posted out circulars soliciting custom from various people. On this point, in the summary of
Gilford’s argument by its counsel, it is noted that: “A list of customers was missing after the
defendant ceased to be employed by the company, and the persons solicited were all contained in
that list.”

Horne then gets his lawyers involved, who request from and are given a copy of the employment
agreement by Gilford.
ISSUE:

 Can the court pierce the veil of the J M Horne & Co Ltd on the basis that it is a cloak or
sham incorporated by Horne to circumvent the restraint of trade covenant in Horne’s
employment agreement?

DECISION:

Gilford lost at first instance. Farewell J considered two defences that were available to Horne,
being that (i) the restraint (and other terms of the employment agreement) did not survive the
termination of the employment agreement, and that (ii) the restraint was too wide to be
enforceable.

Farewell J held that the argument succeeded, and so he didn’t even consider whether J M Horne
& Co Ltd was a cloak or sham – the restraint wasn’t even enforceable against Horne himself.

On appeal, Lord Hanworth MR and others disagree with Farewell J’s decision on the restraint, so
Gilford’s injunction based on peircing the veil of J M Horne & Co Ltd is still in play.

Indeed, Lord Hanworth MR again sets out the very dodgy series of events whereby Horne sets
up a very similar business to Gilford and then, after becoming anxious as to whether this was “in
accordance with, or not in contravention of, the [employment] agreement”, seeks legal assistance
and then soon after incorporates J M Horne & Co Ltd.

Lord Hanworth MR quotes : “I am quite satisfied that this company was formed as a device, a
strategem, in order to mask the effective carrying on of a business of Mr Horne. 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 [employment] 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.”

With that position clear, Horne’s die is cast.

Lord Hanworth M R briefly raises and dismisses the only two defences available to Horne.

The final part of Hanworth’s judgment is less clear. He says that “for the reasons I have already
stated I think the injunction must go against the company”.
The other justices agree and Gilford gets its injunction against by Horne and the company.