“it is a sufficient justification and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in relation to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.”
“(1) If the court is to uphold the validity of any covenant in restraint of trade, the covenantee must show that the covenant is both reasonable in the interests of the contracting parties and reasonable in the interests of the public (see for example Herbert Morris Ltd v Saxelby[1916] 1 AC 688 , 707 per Lord Parker of Waddington) . . . (3) In the case of contracts between master and servant, covenants against competition are never as such upheld by the court . . . (4) The subject matter in respect of which an employer may legitimately claim protection from an employee by covenant in restraint of trade was further identified by Lord Wilberforce in Stenhouse Australia Ltd v Phillips[1974] AC 391 , 400 as follows: “The employers” claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation.” (5) If, however, the court is to uphold restrictions which a covenant imposes upon the freedom of action of the servant after he has left the service of the master, the master must satisfy the court that the restrictions are no greater than are reasonably necessary for the protection of the master in his business (see Mason v Providence Clothing and Supply Co Ltd[1913] AC724 , 742 per Lord Moulton) . . .”
“25. The first thing to notice about this is that it accepts in principle the reasonableness of a covenant against dealing in the circumstances of this case, notwithstanding the existence of the non-solicitation covenant in clause 17.2. I agree with the judge about that. In the course of submissions I put to Mr Oldham a proposition gleaned from Bowers, A Practical Approach to Employment Law, 7th ed (2005), para 6.51, which is in these terms: “The courts will, in most cases, carefully consider the nature of the market in which the employee was engaged. The narrower and more specialist the market, thus the more likely it is that a non-dealing covenant will be upheld, given that clients will in those circumstances naturally gravitate to the ex-employee who opens a new, competing company in such a case.” “29. … For these reasons I consider that the confinement of reasonableness to a period of three months was wrong. Whilst I do not consider that a period in excess of months would have been reasonable in respect of either Mr Hall or Mr Yadev, I am prepared to hold that months was a reasonable period in both cases. In reaching this conclusion I have specific regard to their seniority and importance, to the evidence about business patterns, to the logistics of replacing them, and to the uncontradicted evidence of an industry standard of months. In my judgment, a non-dealing clause for months was reasonable between the parties and reasonable in the interests of the public.”
“11. In essence the judge began by considering clause 15 and this he struck out essentially on the basis that the prohibition against competing in any capacity ‘with any business carried on’ by Wincanton was plainly too wide. As he rightly pointed out, Wincanton’s business has a number of facets. It is apparently concerned not merely with distribution, but also for example with what is called logistics, and the use of the standard restraint clauses was obviously designed to extend their restrictive effect on ex-employees beyond the particular field of activity (in Mr Cranny’s case the European transport operation) in which personally they had been engaged. The further objectionable words in clause 15 ‘or with any of Unigate’s subsidiary or associated companies’ the judge felt able to sever. So far, so good. The judge however then proceeded to clause 16 and, having quoted only the opening words, he said this: ‘Again, I repeat that the words “any business carried on by the company” extends to matters outside the scope of the transport business with which the contract of employment was originally concerned.” “17. First, however, as to clause 15. I need say no more than that on its face it plainly falls foul of all the well-known authorities in this field. Mr Duggan himself appears to recognise that it is necessary to read it down for it to become enforceable. He seeks to rely for the purpose upon the well-known trilogy of cases, G W Plowman v Ash[1964] 1 All ER 10 , Littlewoods Organisation Ltd v Harris[1978] 1 All ER 1026 and Business Seating (Renovations) Ltd v Broad[1989] ICR 729 . 18 In my judgment, however, the approach adopted in those cases cannot apply in a case like the present where, so far from there having been any attempt to formulate the covenant in a way which focuses upon the particular restraint necessary in respect of a particular employee, the clause is in a standard form plainly intended to apply to the widest possible range of situations. This court’s judgment in J A Mont (UK) Ltd v Mills[1993] IRLR 172 is in my judgment fatal to the enforceability of a clause drawn as intentionally widely as clause 15(a) in the present case.”
“54. The definition of a covenant in restraint of trade presents “peculiar conceptual difficulty”: Chitty comments that all contracts are to some extent in restraint of trade by at least preventing the parties to the contract from trading with others. However, there has been no suggestion that all contracts are or should be subject to the doctrine, which is rather “to be applied to factual situations with a broad and flexible rule of reason” (see Esso (at 331G per Lord Wilberforce)). The courts have made no apologies for refraining from any attempt to identify the dividing line between contracts which are and are not in restraint of trade. It has been described as “uncertain and porous” (see Proactive Sports Management Ltd v Rooney[2012] FSR 16 ("PSM") (at [55] per Arden LJ). The courts have emphasised repeatedly that the categories of restraint of trade are not closed (see for example Petrofina (Great Britain) Ltd v Martin[1966] Ch 146 (at 169 per Lord Denning MR)) (“Petrofina”). …. 60. I draw together the relevant legal principles from the authorities (including most recently Peninsula) as follows: (i) The doctrine is not confined to immutable boundaries or rigid categorisation, but there are certain categories of covenants to which the doctrine traditionally applies, in particular those by which an employee undertakes not to compete with his employer after leaving the employer's service and those by which a trader who has sold his business agrees not thereafter to compete with the purchaser of the business. The doctrine has been held to apply to franchise agreements, share-purchase agreements and the assignment of a patent; (ii) There are no clear limits on the scope of the doctrine and no precise or exhaustive test can be stated. The doctrine is to be applied to factual situations with a broad and flexible rule of reason (see Esso (at 331G per Lord Wilberforce)). The question is whether or not in all the circumstances the contract should be excluded from the application of the doctrine or, as Lord Wilberforce put it in Esso (at 332G), whether it is appropriate to dispense the contract “from the necessity of justification under a public policy test of reasonableness”; (iii) Contractual restraining provisions which are of a sort which have become part of the accepted machinery of a type of transaction which have generally been found acceptable and necessary – reflecting the accepted and normal currency of commercial or contractual conveyancing relations - will generally fall outside the scope of the doctrine (following the “trading society” test discussed above and approved in Peninsula Securities); (v) Determining whether contractual restraints fall outside the range of a normal commercial contract imposing restrictions on a contracting party’s ability to carry on a business activity is a question of evaluating all the relevant factors to be assessed cumulatively...; (vi) The assessment of application of the doctrine is to be carried out by reference to the position as at the time that the contract is made (not by reference to subsequent performance and events). How the contract turns out may be relevant only in so far as it furnishes evidence of the nature of the contract in question when made…; (vii) The application depends less on legal niceties or theoretical possibilities than on the practical effect of the restraint in hampering the freedom to trade…. It is a question of substance not form…; (viii) The doctrine can apply to restraints operating during the currency of the contract, as well as post-contractually. However, the distinction between pre-and post-termination restraints is not without relevance. The fact that a restraint is limited to the period of the contract may be a factor in favour of excluding the doctrine (or a factor to be brought into account on the side of justification)… (ix) As already set out above, where the doctrine applies, the contractual restraints are prima facie unenforceable but all, whether partial or total, are enforceable if reasonable. 61. The approach of the courts to analogous factual situations may be of assistance in determining the correct approach to be taken but is unlikely to be determinative because of the fact-sensitive nature of the exercise to be carried out.”
“reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is no way injurious to the public.” 63. Whilst in some of the authorities the courts have conflated the two (private and public interest) aspects of the test (see for example Attorney-General of the Commonwealth of Australia v Adelaide SS Co[1913] AC 781 (at 795 per Lord Parker) and Esso (at 324D per Lord Pearce)), the broad view appears to be that Lord Macnaghten’s dichotomy is to be preferred. Where businesses have dealt at arm’s length with each other, they can usually be regarded as adequate guardians of their own interests. However, the possible impact of the bargain upon third parties, or the public more generally, may call for careful judicial scrutiny. Clarity of analysis is more likely to be facilitated by preservation of both limbs of the exposition. The Claimant relies on this paragraph to support its assertion that this was an arms length contract so no issue of restraint of trade applies. However, Carr LJ continued thus “64. A court will be slow to substitute its (objective) view as to the interests of the contracting parties for the (subjective) views of the contracting parties themselves. The law recognises that if business contracts are fairly made by parties who are on equal terms such parties should know their business best (see in particular Esso (at 300C-D per Lord Reid; at 305B-D per Lord Morris and at 323B-E per Lord Pearce)). That consideration will carry less or no weight if the parties were negotiating on other than equal terms (see Panayiotou (at 332 per Jonathan Parker J)). The absence of independent legal advice for the weaker party may also be relevant (see PSM (at [100] per Arden LJ)). 65. Beyond this, and again drawing the relevant threads together by way of summary: i) The onus of establishing that a covenant is no more than is reasonable in the interests of the parties is on the person who seeks to rely on it (see in particular Attwood v Lamont[1920] 3 KB 571 (at 587-588 per Younger LJ). If he/she establishes that it is no more than reasonable in the interests of the parties, the onus of proving that it is contrary to the public interest lies on the party attacking it (see in particular Saxelby (at 716 per Lord Shaw)); ii) The time for considering reasonableness is again the time of the making of the contract (see in particular Gledhow Autoparts Ltd v Delaney[1965] 1 WLR 1366 (at 1377 per Diplock LJ); Shell v Lostock Garage Ltd[1976] 1 WLR 1187 (at 1197-1198 per Lord Denning MR) and Schroeder (at 1309H per Lord Reid)); iii) It is no answer on the question of reasonableness to say that there have been substantial financial rewards on all sides. The question of reasonableness has to be considered by reference to the terms of the contract (see in particular PSM (at [104] per Arden LJ)); iv) For a restraint to be reasonable between the parties it must be no more than what was reasonably required by the party in whose favour it was imposed to protect his legitimate interests (see in particular Saxelby (at 701 per Lord Atkinson) and Schroeder (at 1310B per Lord Reid and 1315H per Lord Diplock)); v) The court is entitled to consider whether or not a covenant of a narrower nature would have sufficed for the covenantee’s protection (see in particular Office Angels Ltd v Rainer Thomas and O’Connor[1991] IRLR 214 (at 220 per Sir Christopher Slade)); vi) What is reasonable may alter with the changing nature of commerce and society (see in particular Nordenfelt (at 547 per Lord Herschell)); vii) Factors to be considered when assessing reasonableness between the parties include the character of the business (see in particular Nordenfelt (at 550 per Lord Herschell)) and also: a) The relevance of the consideration for the restraint; b) Inequality of bargaining power; c) Standard forms of contract; d) Whether the restraints operate during or post-contract; e) The surrounding circumstances, including the factual and contractual background; (see in particular Panayiotou (at 329-336 per Jonathan Parker J)); viii) The duration of an agreement in restraint of trade is a factor of great importance in determining whether the restrictions in an agreement can be justified (see in particular Schroeder (at 1312F-G per Lord Reid)); ix) The level of compensation may be relevant to the question of reasonableness (see Esso (at 300B-C per Lord Reid) and (at 329-330 per Jonathan Parker J));” … “68(ii) The question is whether or not (as a matter of public policy) it is appropriate to dispense the contract from the necessity of justification under a public policy test of reasonableness” … “79…..Public policy, which sets a high threshold, remains the foundation of the doctrine. As the authorities make clear, there is no bright line to be drawn (and it would be wrong to attempt to define one). But what does have to be decided is on which side of the line the facts of any given case fall. This involves an assessment of public policy to be carried out by reference to the facts as they stood at the time that the contract was entered into, balancing the competing considerations of holding parties to freely negotiated contracts whilst not permitting them to be restricted unduly in their ability to trade. The freedom to contract is itself in the public interest (see Esso (at 304F-306C per Lord Morris)). The doctrine is not there to rescue business men and women from having entered into agreements which they may later regret.”
“230. The level of scrutiny that is applied depends upon whether the restriction was imposed in the context of an employment relationship, or something that is akin to an employment relationship, on the one hand, or in the context of a commercial relationship, on the other. The task of showing that the restrictions go no further than is reasonably necessary to protect the Claimant’s legitimate business interest is much more onerous in an employment relationship case than in other types of case. The standards of scrutiny are not binary, however, and, in a non-employment case, the extent of the scrutiny depends on all of the circumstances of the case: there is no one size-fits-all standard.” … Later Cavanagh J considered the types of contract which would attract restraint of trade thus: “252. In practice, in my view, it will often be the case that where a restriction is on the cusp of falling into a category in which the doctrine of the restraint of trade does not apply at all, it will be clear that, even if the doctrine does apply, the restriction is enforceable on the basis that it is no greater than reasonably necessary for the proper protection of protectable interests. In such cases, the outcome will be the same whether the restriction is regarded as one which is outside the doctrine of restraint of trade altogether, or as one which is within the scope of the doctrine but which is enforceable in accordance with the doctrine.”
“102. It is not in those circumstances necessary for me to add anything, but I would just like to draw attention to two points that emerge from their judgments. First, an application for an interlocutory injunction is not the appropriate occasion to expect the Court to give any definitive answer to the question whether a covenant is enforceable or not. Ever since the seminal decision in American Cyanamid Co v Ethicon Ltd[1975] AC 396 , it has been established law that the Court should not usually seek to resolve the substantive issues on such an application. At the first stage of the analysis the question is whether there is a serious issue to be tried. This is not a demanding test, and it really only serves to exclude the case where the claim is frivolous or vexatious, or otherwise demonstrably bad. If a restrictive covenant is clearly wider than is reasonably necessary for the protection of the employer’s legitimate interests, then the Court can so hold and refuse an injunction, but prolonged examination of the merits at the interlocutory stage is not appropriate and in many cases of this type, as the judge rightly found here, there will be at least a serious issue to be tried.”
“109. There are two ways of dealing with injunction applications of this kind. One is to order a very speedy trial (that is to say one taking place within weeks rather than months) and to make an interim order which will hold the ring for the short period pending that trial. But trials are very expensive, and the costs may be beyond the resources of one or even both parties. Sometimes the judge on the interlocutory application is in as good a position as a trial judge would be to assess the validity of the covenant. In a high proportion of cases, including this one, following the judge’s decision on the interlocutory injunction application, time for service of pleadings is extended by agreement and the claim at first instance proceeds no further.” “111. In this case it is not disputed that there is a serious question to be tried as to the validity or otherwise of the covenant against competition.”