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*935 Gilford Motor Company, Limited v. Horne.

[1932. G. 1418.]

Court of Appeal

CA

Lord Hanworth M.R., Lawrence and Romer L.JJ.

1933 April 27, 28.

Farwell J.

1933 Feb. 28; March 1.

Restraint of Trade--Agreement between Company and Managing Director--Covenant not to

solicit Customers or Persons "in the habit of dealing with the company "--Reasonableness of
Restriction.

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. Horne, either
directly or indirectly by means of the defendant company (called J. M. Horne & 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 plaintiffs were customers of or in the habit of dealing with the plaintiffs, and
to restrain the defendant Horne from directing or suggesting such solicitation, interference or
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 Horne contained in an agreement dated May 30, 1929,
and made between the plaintiffs and Horne.
The facts are fully set out in the judgment of Farwell 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, "or in the habit of
dealing with the company," are mere surplusage and do not extend the scope of the restriction.
The covenant is really one binding the defendant not to solicit the plaintiffs' customers, and
should be enforced as such. In Konski v. Peet [FN1] 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 all 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.

FN1 [1915] 1 Ch. 530.

Sir Walter Greaves-Lord K.C. and H. J. Astell Burtfor the defendants. The covenant is too wide
to be enforceable. The plaintiffs sell 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 *937 protection of employers and are not unreasonable or too wide: Attwood v.
Lamont [FN2]; Express Dairy Co. v. Jackson. [FN3]

FN2 [1920] 3 K. B. 571 .

FN3 (1929) 46 Times L. R. 147.

FARWELL J.

The plaintiffs in this action are a limited company, Gilford Motor Company, Ld., and they seek
an injunction against the first defendant, Edward Bert Horne, to restrain him 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
Horne 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. Horne &
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 incorporated in the year 1926, and its business is that of manufacturing 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 *938 plaintiff company has not any shop in the sense of a
place where there is a counter over which goods are sold, but they have a workshop into which
persons desiring to buy parts can go, and where parts can be purchased for cash and taken away
by the purchasers.
The defendant Horne 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 that:
"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 *939 appears in this particular clause, the covenant not to disclose to any
persons any information relating to this business is a covenant which can only come into
operation after the determination of his engagement as managing director, but the agreement
does not determine on that event happening, because by the very terms of it the covenant against
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
1250l. 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 remuneration 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 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 except with the consent in writing of the directors of the company for the time being."
Now, under that agreement the defendant acted as managing director until November or, I think,
the end of October of 1931. About that time the directors of the plaintiff company came to the
conclusion that in the interests of the company it was desirable to sever the defendant's
connection with the plaintiff company. The evidence before me as to that is quite plain, that
rightly or wrongly the directors had determined that they were not going to employ the defendant
any longer. But they had not, and there is no evidence that they had, considered whether they
were entitled to determine his employment under clause 6 of the agreement. They were, at any
rate, anxious to put an end to the engagement of him as managing director as soon as possible,
and with that end in view the directors of the plaintiff company deputed their chairman, Mr.
Baker, to interview the defendant Horne and, if possible, arrange with him the terms upon which
he would agree to give up 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 that he was speaking the truth. The effect of his evidence was that he was
deputed by his fellow directors to arrange, if he could, amicably with Horne, the terms upon
which Horne would cease to carry on his duties as managing director. Accordingly an interview
took place between Horne and Mr. Baker. The interview was on November 17, 1931. It 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. Horne has not given evidence and, therefore, I have
not his account of what took place, but according to the evidence of Mr. Baker the position was
fully discussed with Mr. Horne. He at that time had owing to *941 him by the company a sum of
some 750l., which was partly commission and salary due to him and partly director's fees. Mr.
Baker, on behalf of the company, was prepared to pay the defendant a further sum beyond that
which was due to him if he would agree to give up his position. Finally, subject to the authority
of the board, Mr. Baker agreed that a sum of 750l., in addition to the 750l. due to Mr. Horne,
should be paid to him, and that he should give up his position as managing director. The plaintiff
company at that time was short of ready money, and it would have been inconvenient to them to
have paid the 1500l. at once. Finally it was agreed that 500l. should be paid by cheque at once,
and that the two other sums of 500l. 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. Horne 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. It is in these terms:
"Dear Mr. Baker, I hereby tender my resignation as a director and joint managing director of the
Gilford Motor Co., Ld., on terms as arranged with you to-day, namely, that the company pay me
a cheque immediately for 500l., and give me two bills for 500l. each due on December 1, 1931,
and February 15, 1932, respectively, which sum of 1500l. 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. Horne."
At the same time Mr. Baker wrote and signed a letter addressed to Mr. Horne 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 to-day. I have pleasure in handing you herewith cheque for 500l. and will see that the two
bills for 500l. each are forwarded to you. Yours sincerely," and that is signed by Mr. Baker. Then
there is a note as to the dates on which the bills are to fall due.
That arrangement having been made, the defendant Horne 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. Horne'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 Horne 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 1l. 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 *943 the nature of a garage, where his business is carried on. The form of
billheads and other documents used by the defendant company were the same as the billheads
and documents used by Horne, except that the initials "E. B." were blocked out in black, and the
initials "J. M." substituted and the words "and Company" added. That company sent out 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. Horne
and by the defendant company were sent to persons or firms who had been customers of the
plaintiff company during the period while Mr. Horne was managing director of that company.
The defendant company is a company which, on the evidence before me, is obviously carried on
wholly by the defendant Horne. Mrs. Horne, 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 all dealings which he had with the defendant company the "boss " or the "guvnor,"
whichever term is the appropriate one, was the defendant Horne, 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 Horne was carrying on his business. Of course, in law the defendant company is a
separate entity from the defendant Horne, but I cannot help feeling quite convinced that at any
rate one of the reasons for the creation of that company was the fear of Mr. Horne that he might
commit breaches of the covenant in carrying on the business and in sending out circulars as he
was doing, and that he might possibly avoid that liability if he did it through the defendant
company. There is no doubt that the defendant company has sent out circulars to persons who
were at the crucial time customers of the plaintiff company.
*944 That state of affairs being brought to the attention of the plaintiff company, they on June 14
last year issued the writ in this action, and the statement of claim is framed on the footing that the
defendant Horne has committed breaches of the covenants in the agreement, and relief is sought
on that ground both against him and against the defendant company. There is a further claim
against the defendant company that the defendant company has "Induced, persuaded or
employed the defendant Horne to commit the aforesaid breaches of such agreement." No
evidence has been adduced before me in support of that claim, and there is no ground on which I
could find that that was the fact. It is important to notice that the relief sought in this case is
sought wholly upon the covenants in the agreement, and there is no claim against the defendant
Horne on the footing that 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 that 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. It 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; that is
to say, not only were the services of the defendant Horne terminated, but he was released from
his covenants contained in that agreement. Much reliance is placed, and quite naturally, upon the
fact that in the letter of November 17, written by Mr. Baker and signed by Mr. Horne, the word
"cancellation" is used, and it is said that what in fact happened was that the agreement was
cancelled, so that all rights and obligations on both sides were finally put an end to.
It is perhaps right that I should refer at this stage to the only material entry in the minute book
which is under date *945 November 17, 1931, a minute of a meeting of directors, in which this
appears: "The board resolved to accept the resignation as a director and joint managing director
of the company on terms as arranged in accordance with the letter handed in and signed by Mr.
E. B. Horne," and that is headed "Mr. E. B. Horne."
It is said further, apart altogether from the use of this word "cancellation, " that once the parties
had come to an agreement to put an end to this written agreement the whole agreement
necessarily goes, and that, if that 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. It is necessary in considering this matter to bear in mind that
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 engagement 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 that document - namely, some of the covenants -
only come into operation when the engagement of Horne as managing director determines,
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.
Horne's engagement as managing director, that did not involve the release by the company of the
covenants which were to come into operation as soon as that 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 that Horne ceased to be
managing director *946 of the company, ceased to be entitled to his remuneration as provided by
the agreement, but remained under the obligation to observe those covenants which were to have
effect after the determination of the agreement. Accordingly, in my view, the first line of defence
which has been set up by the defendants does not avail them.
Now the second, and in my judgment perhaps the more difficult line of defence, is this. It is said
that 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. In 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, that in approaching these questions the Court has to bear in mind (inter
alia) that a covenant which is in restraint of trade is prima facie invalid and that the onus is on the
person who seeks to enforce it to show that it is a valid covenant. In order to do that he must
prove that 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 that the covenant is framed in terms
which are reasonably unambiguous, so that 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. It is the
duty of the employer to see that 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. It is quite impossible to lay down any general rule as to the
validity or invalidity of such a covenant as this. It depends, amongst other things, upon the nature
of the business, and upon the nature of the employment. A *947 covenant against solicitation of
customers might be a perfectly reasonable and proper covenant in the case of one employee, and
utterly unreasonable in the case of another in the same business. Further, it has to be borne in
mind in considering a covenant of this kind, that, even without such a covenant, an employee is
not entitled to make a list of his principal's customers and to take that 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. In 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 necessitates a consideration of the true construction of
the covenant. It is a covenant against soliciting "any person firm or company who at any time
were customers of or in the habit of dealing with the company." I am told on behalf of the *948
plaintiff company that the words "customers of" and "persons in the habit of dealing with the
company" mean exactly the same thing; that the words "persons in the habit of dealing with the
company" are mere surplusage, and may be disregarded. The answer to that is this: that 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 that the words "persons in the habit
of dealing with the company" are mere surplusage. In my opinion those words were inserted by
the employers in the belief that 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, but 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 that their names and addresses are to be found in the books of the plaintiff
company, but also any persons who habitually buy spare parts in the shop on a cash basis. As it
seems to me, that is a covenant of a very wide nature. I can conceive that 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.
But in my judgment a covenant which includes persons who from time to time buy spare parts,
even though they may be spare parts for the Gilford *949 motor, but who do not enter into any
transaction which involves any entry in any book of the plaintiff company, or necessarily ever
come to the attention of the defendant in any way, is too wide to be necessary for the protection
of the plaintiff company. Such a covenant would prevent solicitation of persons quite unknown
to the defendant and whose names he would have no means of ascertaining, and might render
him liable for a breach of covenant years afterwards without in the least knowing he had
committed that breach, if he chanced to solicit some person who unknown to him had been a
customer of the plaintiff company at the material date. It is said that if that did happen, the Court
would never commit the defendant; he would be safe from any penalty because the Court would
come to the conclusion that he had acted innocently. But that is, in my judgment, not an answer.
The plaintiffs have got to satisfy me that the scope of the covenant is not wider than is necessary
for their protection, and in my 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 that 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, that 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 their covenants that they take rather less protection than they
think is strictly necessary; and, secondly, to see to it that 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 In my
judgment this covenant does not fulfil either of those requirements and, accordingly, on these
grounds the action fails and must be dismissed with costs.
(P. J. B.)
The plaintiffs appealed. The appeal was heard on April 27 and 28, 1933.
Sir Herbert Cunliffe K.C. 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 that 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. [FN4] The business in connection with which the covenant was enacted was
started by the defendant and carried on by him in partnership until a private company was
formed. In 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 that the defendant on being employed as
managing director of the company should enter into the covenant in question.

FN4 [1896] A. C. 7.

It 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 that list.
It has for many years been held reasonable to exact a covenant to prevent solicitation of
customers by a servant *951 after he has ceased to be employed provided that the covenant only
relates to persons who were customers during the employment: Trego v. Hunt. [FN5]

FN5 [1896] A. C. 7.

[ROMER L.J. That was a case of vendor and purchaser.]

Cases relating to master and servant are to the same effect: Mills v. Dunham [FN6]; Dubowski &
Sons v. Goldstein [FN7]; and see Herbert Morris, Ld. v. Saxelby [FN8] and Mason v. Provident
Clothing and Supply Co. [FN9]

FN6 [1891] 1 Ch. 576.

FN7 [1896] 1 Q. B. 478.

FN8 [1916] 1 A. C. 688, 702.

FN9 [1913] A. C. 724, 734.

Sir Walter Greaves-Lord K.C. and H. J. Astell Burtfor 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 [FN10] that 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, but in the case of a shop with
many branches it would obviously be unreasonable that 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. [FN11]

FN10 [1913] A. C. 724.

FN11 [1896] 1 Q. B. 478.

Here the defendant was general manager at High Wycombe and had nothing to do with the
service depot in Holloway Road.
[ Sir Herbert Cunliffe 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 [FN12] in 1 Smith's L.
C., 13th ed., pp. 475, 476.]
FN12 (1711) P. Wms. 181.

The present covenant is too wide in all its terms. The covenantor is entitled to know who are the
persons he may *952 not solicit. The covenant must not go further than is reasonably necessary
for the protection of the employer and must not go so far as to prevent the covenantor from
getting his living: Attwood v. Lamont. [FN13]

FN13 [1920] 3 K. B. 571.

The respondent also takes the further point that the first agreement containing the covenant was
superseded by the second agreement.
[They also referred to Express Dairy Co. v. Jackson [FN14]; Smith v. Hancock [FN15]; Baker v.
Hedgecock [FN16]; Hunt v. South-Eastern Ry. Co. [FN17]; Patmore v. Colburn. [FN18]]

FN14 46 Times L. R. 147.

FN15 [1894] 2 Ch. 377.

FN16 (1888) 39 Ch. D. 520.

FN17 (1875) 45 L. J. (Q. B.) 87.

FN18 (1834) 1 C. M. & R. 65.

Sir Herbert Cunliffe K.C. was not called upon to reply.

LORD HANWORTH M.R.

In 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, at High Wycombe. The business that was carried on was this they sold motors which
were assembled by them, but they were not in fact the actual manufacturers of the whole of the
motors thus sold; it was rather that they assembled and then completed the motors that they sold,
and were able to supply spare parts for these Gilford motor-cars. The defendant, Edward Bert
Horne, was a person who at that time, in May, 1929, was of primary importance in the business
that was carried on by the company, and on that date they made an agreement with him whereby
he was appointed a managing director, with a right to hold that office for a term of six years from
September 1, 1928; that is to say, the span for which he was engaged terminated on September 1,
1934. There were the usual clauses in that 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 1250l. a
year and to a certain percentage on the profits, *953 and during that time he was not to be,
directly or indirectly, in any capacity except as a shareholder, interested in any business or
company other than the Gilford Company. Then it was provided by clause 9 in terms 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 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 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."
Now it is the interpretation to be given to that clause 9, which has to be decided between the
parties in this action, and it is the first part of that clause, of which I have read both limbs, which
is in question. What happened was this. Difficulties arose between the company and Mr. Horne,
and letters passed on November 17, 1931, that is approximately some three years before the
termination of the span for which the managing director was employed. The letters that passed
were to this effect, that Mr. Horne tendered his resignation as a director and joint managing
director of the company "on terms as arranged with you to-day," and those terms are set out, that
there is to be a total of 1500l. paid to Mr. Horne by instalments of three several sums of 500l.;
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 my 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 that same day that the Board resolved to accept *954 the resignation as a director and
joint managing director of the company on terms as arranged in accordance with the letter
handed in and signed by Mr. E. B. Horne. After that resignation took effect Mr. E. B. Horne
established a business and carried it on at his own home, 170 Hornsey Lane, Highgate, and the
business he had was one carried on by "E. B. Horne," and there is no doubt that his business was
one of supplying spare parts and service for all models of the Gilford vehicles. (I ought to have
observed that 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 that way as "E. B. Horne," he became anxious as to
whether or not what he was doing - which I will refer to in a moment - was in accordance with,
or not in contravention of, the agreement which he had entered into and to which I have referred,
and so it was that on March 29, 1932, his solicitor wrote this letter to the Gilford Motor
Company:
"Dear Sirs, I am acting for Mr. E. B. Horne, the late joint managing director of your company,
and I understand that 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 shall be glad if you
will 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 yesterday's date, and in reply would inform you that Mr. E. B.
Horne'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 agreement of which I have read
some and indicated other portions of the terms. Following upon that reply of March 30, 1932, on
April 8 a limited company under the title of "J. M. Horne" was incorporated. It was incorporated
as a private company, and the paper which had been previously *955 "E. B. Horne" was altered
by blacking out the initials of Mr. E. B. Horne, "E. B.," and inserting at the commencement "J.
M." and adding "and Co. Limited." Now it so happens that "J. M." are the initials of the wife of
Mr. Horne. That company is a private company, as I have already said; its primary objects are to
carry on the business of factors' agents and distributors and vendors and buyers of accessories
and 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. Horne, 170 Hornsey Lane; the directors
are Jessie May Horne, the wife of Mr. E. B. Horne, and Mr. Albert Victor Howard, a person who
had been, as I understand, originally in the employ of Gilford Motors, but who was at that time
associated with Mr. E. B. Horne in the business which he carried on after November, 1931. The
nominal capital was 500l. divided into 500 shares of 1l. each, and the allotments that were made
on April 12 were, as to 101 shares, to Mrs. J. M. Horne, 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.
Farwell 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 Horne. Mrs. Horne, 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 all dealings which he had had with the defendant company
the 'boss' or the 'guvnor,' whichever term is the appropriate one, was the defendant Horne, 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 Horne was carrying on his business. Of course, in law the
defendant company is a separate entity from the defendant Horne, but I cannot help feeling quite
convinced that at any rate one *956 of the reasons for the creation of that company was the fear
of Mr. Horne that he might commit breaches of the covenant in carrying on the business, as, for
instance, in sending out circulars as he was doing, and that he might possibly avoid that liability
if he did it through the defendant company. There is no doubt that the defendant company has
sent out 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. 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 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 Horne, 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: "It 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. Horne, 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 it: "Admittedly the defendant Horne sent out circulars
to various persons in *957 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 what is known as undercutting the plaintiff company." In other words, there is no defence
at all to the claim made in this action unless the conduct of the two defendants can be excused on
one of two grounds: firstly, that the covenant is unenforceable in law by reason of the width of
its terms, or, secondly, that 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
that 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 that a covenant in restraint of trade is
prima facie one which the law will not enforce, but to that broad proposition there have been
many exceptions over a very long period of time, and the famous case of Mitchel v. Reynolds
[FN19] has decided, by a judgment delivered by Lord Macclesfield, within what limits and terms
the Court will enforce such agreements. The old rule was undoubtedly that it must be partial in
space or partial in time, but we have to bear in mind that the nature of these agreements has been
expounded in the light of later considerations 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 [FN20]: "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 that at that time they expressed the
opinions they did. Lord Watson has pointed out in the case of Nordenfelt v. Maxim Nordenfelt
Guns and Ammunition Co. [FN21] that the opinion of the judges of this age as to matters of
public policy may differ very much from that of judges *958 of a bygone age when the
circumstances of the world were different. The only test of the validity of an agreement in
restraint of trade now is whether or not such an agreement is reasonably necessary for the
protection of the person with whom it is made, " and, as pointed out on p. 475 of 1 Smith's
Leading Cases, dealing with the Nordenfelt Co.'s case [FN22], which went to the House of Lords
[FN23], 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
consider 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. [FN24] 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 [FN25] Lopes L.J. says [FN26]: "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.

FN19 1 P. Wms. 181; 1 Sm. L. C., 13th ed., p. 462.

FN20 [1896] 1 Q. B. 478, 484.

FN21 [1894] A. C. 535.

FN22 [1893] 1 Ch. 630.

FN23 [1894] A. C. 535.

FN24 [1913] A. C. 724, 741.

FN25 [1896] 1 Q. B. 478.

FN26 Ibid. 483.

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 Horne, 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 *959 it deals with or covers the case of a
person from whom the Gilford Motor Company buy and in respect of whose dealings there can
be no profit at all arising to the Gilford Motor Company. It is intended to deal with persons who
are upon their books or with whom they deal and, in the course of dealing, earn a profit.
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 defined, or the persons who were in the habit of
dealing with the company are not particularized, 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 employment 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 might have covered persons who are to be found in the alternative category.
Now, if that be so, it appears to me that this is a covenant which was required for the purpose of
reasonably protecting the company's business. It does not go so far as to cover customers who
become customers after the managing director has left, and it was a covenant entered into by him
with full knowledge of what he was doing, and with full knowledge of who were the persons
included in that phrase, and it is in respect of them that 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? It appears to me that this is an agreement which must be
upheld by 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 understand 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 that
may be, we have to say that the plaintiffs are entitled in this action to have this covenant upheld,
and an injunction is the proper mode of enforcing that as against these defendants.
The other ground of defence is that there has been an agreement whereby the defendant was
released from the restrictive covenant. It will be observed that as the matter went before the
Court the defence relied upon an oral agreement to release him, and now suggestion is made that
if you look to the letters of November 17 there is a cancellation *961 of the agreement, and the
cancellation means a release from clause 9. I do not so read the letters or the entry in the minute
book. It appears to me that the defendant rightly stated that there was an oral agreement, and
although some of the terms which have been agreed between the parties, particularly the one
under which the defendant was to 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 [FN27], 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: "If 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. Horne to continue to commit breaches
of clause 9, *962 and under those circumstances the injunction must go against both defendants,
the appeal must be allowed with costs here and below, and the injunction will be in the terms
asked in the prayer in the statement of claim.

FN27 [1894] 2 Ch. 377, 385.

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 covenantor's employment, and does not extend to prevent the
covenantor from soliciting persons who might become *963 customers of the company after his
employment had terminated.
In these circumstances I am clearly of opinion that the company was entitled not to have its
customers, by solicitation or any other means, enticed away by the covenantor after his
employment had terminated. By such a covenant 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 employment 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 *964 company, or to customers
mentioned in any list supplied by the company to the covenantor at the termination of the
agreement, or to customers who were defined in some other manner. With the greatest respect
for the opinion of the learned judge, I find myself quite unable to agree with this 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 *965 of the company, and was neither ambiguous nor did it impose too wide a
restraint on the covenantor.
There only remain two subordinate points to be considered. The first is whether the oral
agreement arrived at in November, 1932, operated to put an end to the covenant. Upon that
question I find myself in entire agreement with 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 formation 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 Horne 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 Horne.
I agree that this appeal ought to be allowed, with the consequences stated by the Master of the
Rolls.
*966 ROMER 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 *967 is sufficient to say that in my opinion it restrains the covenantor from soliciting
in the way of the business such as is carried on by the employers, persons who were customers of
the employers during, or at the date of, the termination of the defendant's employment as
managing director. I do not myself think that the words "or in the habit of dealing with 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 think it reasonable to suppose that the employers are
from time to time, during the man's employment, to hand to him a list of the customers of the
firm, so that he might know what customers he might and what customers he might not solicit
during the term of his employment. 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 to 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. In
Mills v. Dunham [FN28], in which there was a very wide covenant, a covenant in the sense that
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 agreement, 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, that any such
limitation of the word "customers" was necessary in order that the covenant should be
enforceable. Another case to which our attention was called was Dubowski, & Sons v. Goldstein.
[FN29] 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 that he would not *969
"interfere with, or cause to be solicited or interfered with, any of the customers who shall at any
time be served by or then belonging to the employer his successors or assigns in the said
business." Again, it was never suggested that any such limitation was necessary in order that the
covenant might be enforced, and, in my opinion, with the greatest deference to Farwell J., no
such limitation is necessary. The 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.

FN28 [1891] 1 Ch. 576.

FN29 [1896] 1 Q. B. 478.

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 Horne 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.

Representation

Solicitors for appellants: Cardew Smith & Ross. Solicitor for respondents: J. R. Cort Bathurst .

Appeal allowed. (W. I. C.)

(c) Incorporated Council of Law Reporting For England & Wales

[1933] Ch. 935

END OF DOCUMENT
(C) 2007 Thomson/West. No Claim to Orig. US Gov. Works.