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Cite as: [1978] EWCA Civ 8, [1979] IRLR 445

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JISCBAILII_CASE_EMPLOYMENT

		Neutral Citation Number: [1978] EWCA Civ 8
		Case No.:1977 G. No. 2642

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM TEE HIGH COURT OF JUSTICE
CHANCERY DIVISION
GROUP A
(MR JUSTICE FOX)

Royal Courts of Justice.

22nd February 1978.

B e f o r e :

THE MASTER OF THE ROLLS (Lord Denning
LORD JUSTICE SHAW
and
LORD JUSTICE WALLER
____________________

	TERENCE MICHAEL GREER	Plaintiff (Respondent)
	v.
	SKETCHLEY LIMITED	Defendants (Appellants)

____________________

(Transcript of the Shorthand Notes of the Association of
Official Shorthandwriters Ltd., Room 392,
Royal Courts of Justice, and 2 New Square, Lincoln's Inn, London, W.C.2).

____________________

MR. J. MUMMERY (instructed by Messrs. Field Fisher & Martineau, Solicitors, London) appeared on behalf of the Plaintiff (Respondent).
MR. R. BUCKLEY (instructed by Messrs. Allen & Overy, Solicitors, London) appeared on behalf of the Defendants (Appellants).
____________________

HTML VERSION OF JUDGMENT
____________________

REVISED

THE MASTER OF THE ROLLS: Mr. Greer is now 42 years of age. He has been with Sketchleys, the well known dry cleaning service, for nearly all his working life. When he was 21, after he had done his National Service, he went to them as a management trainee in 1957. He gradually worked his way up. In 1974, when he was still under 40, he was made a director of their dry cleaning division.

The activities of Sketchiey Ltd. in England and Wales are all south of a line from Grimsby to Chester. They cover all the Midlands and the London area, but they do not include Devon and Cornwall. They include Cardiff but do not include the greater part of Wales. That is the area where the Sketchiey dry cleaning services operate with all their many shops which are used and valued by the public so much.

Mr. Greer's special responsibility, as director of the dry cleaning division, was the Midlands area.

On the 1st February, 1974, when he was made a director, he was given a written agreement. It was determinable on 12 months' notice on either side. He was getting what would be a reasonable salary at that time, some £5,000 -odd a year but with many fringe benefits. In the agreement there was a covenant restricting his activities after he left the company's service. I will read it a little later because a question arises as to its validity. It restrained him for a period of 12 months from engaging in any part of the United Kingdom in any similar dry cleaning business. I will come later on to the question of whether that is a valid restriction or not.

It appears that in 1976 and 1977 Sketchleys came under new management. For instance, Mr. Richardson, who was the managing director, had only been with Sketchleys for some 18 months. This new management brought difficulties between the personnel. Mr. Greer found himself unhappy and at variance with his superiors at Sketchley. He felt that he wanted to change his job. He did not do it, he said, for any financial gain at all. He went to the other big firm in the dry-cleaning business, a firm of which the holding company is Johnsons. They operate on a much wider scale than Sketchleys. They have shops all over England, Wales and Scotland, right up to Inverness. They cover the whole of the country with their various shops, not under the name of "Johnson" but under various subsidiary names.

Mr. Greer approached Johnsons. By that time his salary at Sketchleys was £9,000 -odd with fringe benefits like a car and so forth; and, if he went to Johnsons, he would get much the same -only a little more - about £10,000 a year with fringe benefits. Johnsons were ready to employ him if he left Sketchleys, and that is what he decided to do.

He told Sketchleys of his proposal at the end of August 1977. He wrote to them and told them that he was proposing to join Johnsons. Sketchleys were upset about it. They did not want him to do any more work for them in the dry-cleaning division. His service agreement would expire at the end of the year, December 1977. So he spent about four months with them on full pay. They offered to find him work in some other division, but he did not think that would help him. So he declined any offers by them. Sketchleys said quite clearly that they intended to insist on the 12 months restraint clause and said he could not go into any other similar business - he could not go into Johnsons - for 12 months from the end of December 1977 until the end of this year 1978.

Mr. Greer found himself in a difficulty then because it is quite plain on the evidence that the one trade in which he has spent his life is the dry cleaning trade. It is the one trade he knows as an expert. We all know that senior executives find it difficult to get jobs these days. He has no prospect of getting a senior executive job except this one with Johnsons. He went to management consultants. They told him that it would be very difficult for him to get any other job outside this business. In the words of one consultant: "You have 'dry cleaning 20 years' stamped on your back".

In those circumstances Mr. Creer did not go off to work for Johnsons at once. He did a very courteous and sensible thing, which I have never come across before in these cases. He said: "I want to know my legal position". He himself issued a writ, a fortnight after he left, on the 16th December, 1977 claiming a declaration that the restrictive clause was invalid. When that writ was issued on his behalf, Sketchleys countered it and said that the clause was valid and claimed an injunction to restrain him for 12 months from going into any other similar business and in particular from going into Johnsons.

It was arranged very wisely that the matter should be dealt with expeditiously. It was dealt with as a trial of an action by Mr. Justice Fox in January of this year. He refused to grant an injunction and he declared that the clause was invalid.

Now there is an appeal by Sketchleys to this court. We have heard argument on the first question in the case: whether this clause is valid or not.

The law as to covenants of restraint of trade between master and servant has been with us for years and years. The approach to it varies from one generation to another. At one time such clauses were very rarely held valid. They were held invalid if they were regarded as too wide, either in regard to the area they covered or in the length of time the restraint was to operate. That trend has altered in recent years, and especially since the recent case of Littlewoods Organisation Ltd. v. Harris (1977) 1 WLR 1472. There it does appear that the courts will not strain to hold these clauses invalid. If they are reasonable, the courts will seek to interpret them reasonably and to hold the restraint good if it is reasonable between the parties.; They would not hold them unreasonable simply because one can find some far-fetched examples of how they might operate unreasonably.

There are clauses about not soliciting customers or trade connections. They do not arise in this case. There is no suggestion that Mr. Greer would take any customers or trade connections of Sketchleys and hand them over to Johnsons. The important clause is clause 16 of the agreement of the 1st February, 1974. It reads as follows:

"In view of the access to trade secrets and secret processes 'which the Employee may have during the course of his employment - hereunder he shall not within a period of twelve months from the termination thereof either directly or indirectly and either alone or in association with any other person firm or company engage in any part of the United Kingdom in any business which is similar to any business involving such trade secrets and/or secret processes carried on by the Company or any of its subsidiaries during the course of his employment hereunder".

There it is: he will not engage in any part of the United Kingdom in any business similar to dry cleaning.

Is that too wide in geographical area? One must remember that in the cases between master and servant the master cannot protect himself from competition at the hands of an outgoing servant. He cannot prevent the outgoing servant from using the skill and experience he has acquired over the years, perhaps in the master's business. Those are the servant's own property. He is not to be denied the use of his own skill and experience even though he has acquired them in the course of the master's business. He can be prevented from soliciting the master's customers or trade connections. He can be prevented from using the employer's trade secrets. Also the master can be protected from the servant using confidential information which he acquired in the course of the master's business.

As Mr. Buckley rightly pointed out to us, in many of the earlier cases the courts were only concerned with subordinate servants - clerks, tallymen, and the like. Here we have a senior executive, a director of the dry cleaning division, a director who sat on the board at all the meetings in control of this division. He knew all the confidential information as to the conduct of the business, as to the management research, and so forth. Mr. Greer very fairly in cross-examination answered questions by Mr. Buckley in which he admitted as much. He said:

"I had acquired and been a party to seeing normal business confidential reports and information during my time at Sketchley, as had every other businessman in the course of his business. (Q) ... virtually everything about that particular business, plans for the future, profit margins - everything, you know about it all, do you not? (A) Yes, I do indeed".

Mr. Greer admitted that he knew about matters which would be regarded as confidential by the company. So a senior executive of this kind does, as I think we all know, acquire a great deal, of confidential information about the business; and, in these circumstances, certainly the employer can have a covenant which is reasonable to protect himself against any disclosure of it.

In a way, as the Littlewoods case illustrated, it is often difficult to sort out what is confidential and what is not. Sometimes it is permissible to make an agreement, as in that particular case, saying that the man is not to go to a rival concern for 12 months. That is what happened in the Littlewoods case. The Great Universal Stores in effect approached Mr. Harris and offered him all sorts of better terms and induced him to go to them. That was a breach of the restrictive covenant which Littlewoods had expressly made saying that Mr. Harris was not to go to their rival the Great Universal Stores for 12 months. That clause was held valid because it was the one way of protecting the position. But in this particular case it seems to me, for all Mr. Buckley's admirable arguments; this is a much wider clause which says that he shall not engage in any part of the United Kingdom in any similar business. If Sketchleys operated all over England, Scotland and Wales, it might be reasonable to have such a covenant, but Sketchleys do not operate as widely. In 1974 their operations were confined to the Midlands and the South of England, excluding Wales, Cornwall and Devon and Lancashire right up to the north. Sketchleys did not cover any of that area. Was it reasonable for them to have a covenant restraining Mr. Greer from going to any of these other parts of England, Scotland and Wales? Suppose for instance, there had been a group of dry cleaning shops in the Tyne and Wear conurbation or in the Lancashire conurbation or Glasgow and Edinburgh or down in Devon, Sketchleys had not any kind of operation in those areas then. Was it reasonable to restrain him from engaging in any of those businesses or with any of those groups which were in those areas in which Sketchleys did not operate at all? It is said by Mr. Buckley that they might expand into those areas in the future. Now over three years later they have not expanded into Devon and Cornwall or into Yorkshire or Lancashire or into the North of England or into Scotland. It seems to me that that problematical and possible expansion into all these other areas is much too vague and much too wide to justify restraint over every part of the United Kingdom.

I may add this further difficulty which emerged in the course of the case: What is the confidential information which can be. protected in this regard? The employers' general organisation and method of business, certainly on the cases, would not be regarded as the subject of protection by a restrictive clause in such a case as this. In the course of the case, these were the sorts of things which were suggested as being confidential information: Mr. Greer was especially concerned in a project which is called "Clean X service". That is to meet the needs of young people between 18 and 35. Apparently in these shops - and they have them on the continent - they have background music, and the staff wear white T-shirts and blue jeans, and the whole, emphasis is on youth, and they call it a "Clean X service". That idea came from the continent in the beginning - perhaps from France. That could not be called confidential information. Another project Mr. Greer was concerned with was "household services", which are centres where household furnishings and curtains can be dry-cleaned, but that cannot be called confidential information. The judge made many enquiries into many things which were being done. He came to the conclusion that there were only two or three matters which could be classed as confidential information, such as the names of the towns where Sketchley shops might be opened and where certain shops might be closed, and a proposed promotional calander which was being got out. Upon that Mr. Greer and his advisers undertook that they would not make use of such information as that. That is the sort of thing which might be protected, but not this wide range of activities such as have been dealt with here. That only shows the difficulty with dealing with a clause such as this.

The essential point to my mind, following the many earlier cases about it, is that the clause is geographically too wide. It covers the whole of the United Kingdom, whereas the areas which Sketchley could at the most stipulate for are the areas of their activities.

There is one last point. Mr. Buckley did urge that we should limit the operation of this clause by writing in the word "competing". He said: "If you only write in the words 'competing business' in this clause, all will be well". He said that the actual words should be, "will not engage in any part of the United Kingdom in any competing business". He urged us this afternoon to read the word "competing" in just as it appears to be read in in a case which was heard long ago in this court, Moenich v. Fenestre (1892) 67 LTR 602, which was quoted by Lord Justice Megaw in the Littlewoods case at page 1479. I must say that I can see no justification as a matter of construction for reading in the word "competing", quite apart from the difficulty of saying what is a competing business. It may only be one shop in one town. It seems to me that this is not a case where we can read in any such limitation as Mr. Buckley would urge us to do.

I am afraid on that short ground (but it is a decisive ground) of geographical area it seems to me that this covenant is too wide and is on that account invalid, and I would support the judge's judgment on the simple ground on which he made a declaration that the covenant is invalid.

In those circumstances, there is no need to go on to the further question of whether, if it were valid, an injunction should be granted. It is sufficient that it is not valid, and I would dismiss the appeal accordingly.

LORD JUSTICE SHAW: I agree. One begins with the established principle that in order to survive as an effective covenant in restraint of trade a clause must be no wider than is reasonably necessary to protect the legitimate business interests of the employers. Mr. Buckley, who has, if I may say so, put the case for Sketchleys with conspicuous ability, contends however that there is another principle which has to be concurrently applied, namely, that the courts should not seek to avoid a clause in restraint of trade or be astute to find vitiating factors but should rather seek a way to uphold it and give it as far as possible commercial and business efficacy. He says that in the present case all one need do is to introduce into the clause as a matter of good business sense the word "competing" as qualifying the word "business" instead of the word "similar" which appears in the clause itself. If one does that, Mr. Buckley submits, there results a restraint of trade which can be supported as being reasonably necessary to protect the proper commercial interests of Sketchleys.

He relied upon the judgment in Littlewoods Organisation Ltd. v. Harris in advancing his proposition. It seems to me however that Littlewoods was a very special case. There the restraint was in relation to a specified competitor and not in reference to a geographical area. The implication that the restraint was intended to apply only within the geographical area where the employer and the competitor both operated in the same commercial field was comparatively easy to imply. That does not seem to me to be the case here, and the majority decision in Littlewood affords in my judgment no assistance in resolving the problem which arises between the plaintiff and the defendants in the present case. As I see the matter, it would be necessary to go beyond introducing the word "competing" into the text of the clause to give it validity. It would be necessary to add also that it refers only to such competitors as exist at the time that the plaintiff leaves the employment of Sketchleys. In the light of these considerations it is not possible to qualify the plain language of clause 16 except by distortion and deformation of the clause itself. That is something a court ought not to seek to do to save a restraint of trade from ineffectiveness.

I would dismiss this appeal.

LORD JUSTICE WALLER: The learned judge found that the clause was invalid and, although his judgment dealt mainly with the question of non-confidentiality, both sides agree that he also decided that it was unreasonably wide. It was submitted before us that it was invalid because it was too wide because of the area covered, and it was too wide because the words "any business similar to" did not sufficiently limit the kind of business to which the respondent would be unable to go, and also it was submitted that it was invalid because the business itself had not provided trade secrets which could be protected by this covenant.

Mr. Buckley on behalf of the appellants submitted in two phases. Firstly, he submitted that the clause as it stood was proper and was not too wide for the proper protection of his clients' business. He submitted that because they were expanding and had large plans for expansion it was necessary to protect the whole of the United Kingdom. Seeing perhaps that that was not receiving a very enthusiastic reception from the court, he submitted that, alternatively, it could be restricted by inserting the word "competing", and then it would be proper to leave in the whole of the United Kingdom. He relied not only on the case of Littlewoods but on the case of Moenich v. Fenestre which was cited in that case by Lord Justice Megaw. Mr. Buckley submitted that where the words were "engage in any part of the United Kingdom in any business which is similar to any business involving such trade secrets", etc., the words "which is similar to" can properly be construed as meaning "which is in competition with"; and he relied on the words of Lord Justice Lindley in the case of Moenich v. Fenestre where he had read those particular words into a similar clause. Lord Justice Lindley had said:

"The words 'any trade or business' must mean any trade or business as commission merchant. Bearing that meaning in mind, I do not feel so much pressed by the argument founded on the words 'in connection with, etc' I see no difficulty in giving effect to those words when they are confined to any trade or business which competes with the plaintiff's".

For myself, had the matter rested there, I would have been prepared to read those words as being "in competition", but in my view, like my Lords, the area of the whole of the United Kingdom is one which is unreasonably wide and is one which could not be cut down without adding specific words and could not be cut down without substantial alterations in the whole clause.

We did not hear full argument about the existence of secrets which could be protected. The learned judge held that there were none, and Mr. Mummery has argued that there were none. As I see it, it may be very difficult to identify the confidential information for a man who is in a senior responsible position such as that occupied by Mr. Greer where he was the director of one division of a large company. But it seems to me that it should be possible to restrict someone in such a position who may have very considerable inside and secret knowledge, and Mr. Buckley did draw attention to some parts of the evidence which indicated the kind of knowledge which might come within that category. However, there was no proper argument about that matter and it is unnecessary to come to any decision about it.

I agree that the appeal should be dismissed. (Order: Appeal dismissed with costs)