QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
B e f o r e :
|BALDWINS (ASHBY) LIMITED||Claimant|
|ANDREW JOHN MAIDSTONE||Defendant|
Crown Copyright ©
(1) to construe what is meant by 'canvassing, soliciting or enticing away' in the contractual 'non solicitation' clause;
(2) to determine whether the Defendant intended to do so in relation to his 7 identified former clients;
(3) to determine whether the Defendant did any such acts in breach of that clause in respect of any of them; and
(4) to calculate what loss, if any, has been sustained by the Claimant due to any such breach(es).
"for a period of 3 years from Completion he/she will not for the purpose of any business supplying products or services similar to or capable of being used in substitution for any product or service supplied by the Company within the 12 months preceding Completion canvass, solicit or endeavour to entice away from the Company any person who during the period of two years prior to Completion has been a client of the Company or who has purchased or agreed or offered to purchase services from the Company or has employed its services or who has been canvassed by the Company (otherwise than by general advertising) with a view to becoming a client of the Company" [emphasis added];
'I think it is now generally conceded that it is to the advantage of the public to allow a trader who has established a lucrative business to dispose of it to a successor by whom it may be efficiently carried on. That object could not be accomplished if, upon the score of public policy, the law reserved to the seller an absolute and indefeasible right to start a rival concern the day after he sold. Accordingly it has been determined judicially, that in cases where the purchaser, for his own protection, obtains an obligation restraining the seller from competing with him, within bounds which having regard to the nature of the business are reasonable and are limited in respect of space, the obligation is not obnoxious to public policy, and is therefore capable of being enforced. Whether when the circumstances of the case are such that a restraint unlimited in space becomes reasonably necessary in order to protect the purchaser against any attempt by the seller to resume the business which he sold a covenant imposing that restraint must be invalidated by the principle of public policy is the substance of the question which your Lordships have to consider in this appeal'. Per Lord Watson in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co Ltd  A.C. 535, 552-3.
'Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.'
'Agreements in restraint of trade, like other agreements, must be construed with reference to the object sought to be attained by them.' Per Sir Nathaniel Lindley MR in Haynes v Doman  2 Ch 13, at p.25, quoted with approval by Lord Denning MR in Littlewoods Organisation Ltd v Harris  1 WLR 1472, 1481.
'The goodwill which has been the subject of sale is nothing more than the probability that the old customers will resort to the old place'; and
Lord Macnaghten in Trego v Hunt  AC 7:
'It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money'.
"Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v Lye  17 Ves 335 that goodwill was nothing more than "the probability that the old customers would resort to the old places" was expanded by Wood V.C. in Churton v. Douglas  John 174 to encompass every positive advantage "that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business". In Trego v. Hunt  AC 7 (HL) Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his Introduction to the Law of the Property describes it as property of a highly peculiar kind. In CIT v. Chunilal Prabhudas & Co.  76 ITR 566 the Calcutta High Court reviewed the different approaches to the concept (pp. 577, 578):
It has been horticulturally and botanically viewed as 'a seed sprouting' or an 'acorn growing into the mighty oak of goodwill'. It has been geographically described by locality. It has been historically explained as growing and crystallising traditions in the business. It has been described in terms of a magnet as the 'attracting force'. In terms of comparative dynamics, goodwill has been described as the 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a 'habit' and sociologically it is a 'custom'. Biologically, it has been described by Lord Macnaghten in Trego v. Hunt  AC 7 (HL) as the 'sap and life' of the business. Architecturally, it has been described as the 'cement' binding together the business and its assets as a whole and a going and developing concern."
'The principle on which Labouchere v. Dawson rests has been presented in various ways. A man may not derogate from his own grant; the vendor is not at liberty to destroy or depreciate the thing which he has sold; there is an implied covenant, on the sale of goodwill, that the vendor does not solicit the custom which he has parted with: it would be a fraud on the contract to do so. These, as it seems to me, are only different turns and glimpses of a proposition which I take to be elementary. It is not right to profess and to purport to sell that which you do not mean the purchaser to have; it is not an honest thing to pocket the price and then to recapture the subject of sale, to decoy it away or call it back before the purchaser has had time to attach it to himself and make it his very own.'
'This is really the strong point in the position of those who maintain that Labouchere v. Dawson was wrongly decided. Cotton L.J. says:
"It is admitted that a person who has sold the goodwill of his business may set up a similar business next door and say that he is the person who carried on the old business. Yet such proceedings manifestly tend to prevent the old customers from going to the old place. I cannot see where to draw the line. If he may, by his acts, invite the old customers to deal with him and not with the purchaser, why may he not apply to them and ask them to do so?"
I quite feel the force of this argument, but it does not strike me as conclusive. It is often impossible to draw the line and yet possible to be perfectly certain that particular acts are on one side of it or the other. It does not seem to me to follow that because a man may, by his acts, invite all men to deal with him, and so, amongst the rest of mankind, invite the former customers of the firm, he may use the knowledge which he has acquired of what persons were customers of the old firm in order, by an appeal to them, to seek to weaken their habit of dealing where they have dealt before, or whatever else binds them to the old business, and so to secure their custom for himself.
This seems to me to be a direct and intentional dealing with the goodwill and an endeavour to destroy it. If a person who has previously been a partner in a firm sets up in business on his own account and appeals generally for custom, he only does that which any member of the public may do, and which those carrying on the same trade are already doing. It is true that those who were former customers of the firm to which he belonged may of their own accord transfer their custom to him; but this incidental advantage is unavoidable, and does not result from any act of his. He only conducts his business in precisely the same way as he would if he had never been a member of the firm to which he previously belonged.
But when he specifically and directly appeals to those who were customers of the previous firm he seeks to take advantage of the connection previously formed by his old firm, and of the knowledge of that connection which he has previously acquired, to take that which constitutes the goodwill away from the persons to whom it has been sold and to restore it to himself. It is said, indeed, that he may not represent himself as a successor of the old firm, or as carrying on a continuation of their business, but this in many cases appears to me of little importance, and of small practical advantage, if canvassing the customers of the old firm were allowed without restraint.' [emphasis added]
' 'MMs Enright's counsel refers the Authority to Black's Law Dictionary definition of a non-solicitation agreement as this:-
"A promise in a contract for the sale of a business, a partnership agreement, or an employment contract, to refrain, for a specified time, from either (1) enticing employees to leave the company or (2) trying to lure customers away".
 It is also submitted that if solicit means to entice, then appropriate synonymous for 'entice' include "tempt", "lure", "persuade", and "inveigle". I accept that solicit should be interpreted similarly.
 In Sweeney v Astle Stout J noted that 'solicit' was a common English word, and in its simplified form meant 'to ask' and that its other meanings included 'to call for', 'to make request', 'to petition', 'to entreat', 'to persuade'.
 The Employment Court in Deloitte & Touche Group-ICS Ltd v Halsall referred to Sweeney and also the Shorter Oxford Dictionary definition "to seek assiduously to obtain", "to ask earnestly or persistently for" and 'request' or 'invite'. More recently,
the High Court in TAP (New Zealand) Pty Ltd v Origin Energy Resources NZ Ltd considered that solicit in its ordinary use "has connotations of impropriety or persistence" and then cited the definition from the Shorter Oxford Dictionary that had
also been referred to in Deloitte.
 It matters not who initiates the contact. The question of whether solicitation occurs depends upon the substance of what passes between parties once they are in contact with each other. There is solicitation of a client by a former employee if the former employee in substance conveys the message that the former employee is willing to deal with the client and, by whatever means, encourages the client to do so.
 In my view, "canvass" is synonymous with soliciting. Both words involve an approach to customers with a view to appropriating the customer's business or custom. I consider a degree of "influence" is required. There must be an active component and a positive intention'.
''Credibility' involves wider problems than mere 'demeanour' which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person telling something less than the truth on this issue, or though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by over much discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. [emphasis added] And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness. And motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part.'
(2) Redhall Garages
(3) Ivanhoe Feeds
(4) Keller Construction
(5) Mr and Mrs Hall
Further Breaches (No Loss)
(6) Quiet Storm
(7) T Wainwright Haulage
Advert in the Ashby Times
(1) Gross v Net fee income? The losses above in this case for the agreed maximum one year amount to a total of £31,875. It is self evident that had those fees been received they would have gone straight to the Claimant's bottom line the Claimant was running an established business and it could not reasonably be suggested that it has failed to mitigate its losses by not cutting overheads. The direct loss to the Claimant is therefore the gross amount. Moreover, all references to fee income within the Sale Agreement were to gross recurring fees, and the Defendant's own commission was calculated on gross fees. It is difficult to adopt any other measure of the currency of loss in those circumstances without an exhaustive (and expensive) accountancy exercise upon the Claimant firms accounts something which the court was not asked to do, nor would the same have been proportionate. The Defendant relies upon CMS Dolphin Ltd v Simonet  2 BCLC 704 as the legal basis for his submissions. However, that is in a very different context -there an account of profits was sought against a director who in breach of fiduciary duty set up a new business, not an existing one that would obviously require an offset for new overheads. In my judgment, gross not net fee income is the currency of damages for the breach of contract between these parties.
(2) Loss of a Chance: This is a case where the clients in question were already clients of the Claimant; very different from the 'potential client' in IDC v Cooley  1WLR 443, relied upon by the Defendant. For the reasons given above, in my judgment it is more likely than not that each of the clients analysed would have placed their business with the Claimant for at least 1 more year, and it would be wrong to hazard the loss of a chance approach.