1. The plaintiffs are suing on foot of restraint of trade clauses in two agreements executed on 11 March 1977, one being a sale by the defendant to Vescom B.V. (the second-named plaintiff herein) of his shares in John Orr Ltd (the first-named plaintiff herein) and the other being a service agreement which he entered into with John Orr Ltd. Having instituted these proceedings the plaintiffs on 12 May last applied for an interlocutory injunction to restrain breaches of these clauses. It quickly became clear that the main issue between the parties was whether the restraint clauses were enforceable and I decided to try this point as a preliminary issue and fixed 19 June for hearing oral evidence and submissions on it, and adjourned the motion until the enforceability issue had been determined. I adopted this course because of the possibility that an injustice might result from the application to the special facts of this case of the principles on which interlocutory relief is usually granted or refused, principles which are, of course, different from those applicable when a trial on the merits has taken place. The restraints imposed by the agreement were of one years duration and will expire on 31 October next. As in all probability the trial could not take place until after that date, a finding by the trial judge that the restraints were enforceable would not enable the plaintiffs to obtain the injunction to which his judgment would entitle them. In the meantime, interlocutory relief might have been refused. This undesirable possibility could be avoided, it seemed to me, by adopting the procedures I have just outlined.

2. The principles of law to be applied in the issue are not in controversy and can be briefly stated. All restraints of trade in the absence of special justifying circumstances are contrary to public policy and are therefore void. A restraint may be justified if it is reasonable in the interests of the contracting parties and in the interests of the public. The onus of showing that a restraint is reasonable between the parties rests on the person alleging that it is so. Greater freedom of contract is allowable in a covenant entered into between the seller and the buyer of a business than in the case of one entered into between an employer and employee. A covenant against competition entered into by the seller of a business which is reasonably necessary to protect the business sold is valid and enforceable. A covenant by an employee not to compete may also be valid and enforceable if it is reasonably necessary to protect some proprietary interest of the covenantee such as may exist in a trade connection or trade secrets. The courts may in certain circumstances enforce a covenant in restraint of trade even though taken as a whole the covenant exceeds what is reasonable, by the severance of the void parts from the valid parts.

3. The facts established at the hearing are as follows. John Orr Ltd was established by the defendant in 1971 and carried on a business in Navan, County Meath, manufacturing and selling upholstery fabrics and garment fabrics. It had two members, the defendant and a Mr. Jerry Linscheid. In the early part of 1977 it was failing badly – indeed it was insolvent. In an endeavour to revitalise the company (an attempt which in the event proved eminently successful) an agreement was entered into on 11 March of that year (the ‘share-transfer agreement’) by which Vescom B.V. (a company registered in Holland) would purchase the business of John Orr Ltd and invest £50,000 in it. It did this by purchasing the shares in the company owned by the defendant and Mr. Linscheid for a nominal sum. As part of the financial package then negotiated the Industrial Development Authority agreed to make grants to the company, Foir Teoranta agreed to make available certain financial facilities, and certain major creditors agreed to write off their debts. As a result of this agreement John Orr Ltd became a wholly owned subsidiary of Vescom B.V. The share transfer agreement also contained provisions for the future role of the defendant and Mr. Linscheid in John Orr Ltd, requiring both to enter into service agreements with the company by which the defendant would be appointed as its commercial director and Mr. Linscheid its technical director. The share transfer agreement also contained a clause, clause 6(c) which falls for consideration in these proceedings. It provided that until the expiry of one year from the determination of his service agreement the defendant should:-

4. The following points are to be noticed about the restraints on competition; (a) they are for a twelve month period; (b) they are world wide; (c) they apply to goods similar to and competing with goods manufactured by (i) John Orr Ltd and (ii) its parent company, Vescom B.V. As to the restraints on soliciting customers it is to be noted (a) that they, too, are to operate for a twelve month period; (b) they apply world-wide; and (c) they apply not only to customers of John Orr Ltd, but also to customers of Vescom B.V. and to customers of any subsidiary or associated companies of Vescom B.V.

5. The defendant also on 11 March 1977 entered into a service agreement with John Orr Ltd. This took the form of a letter sent to him by the company which he signed. This confirmed that the defendant was to be employed as commercial director of the company as from 11 March 1977 and that the appointment should continue until terminated by a six months notice given by either side. It contained a clause restricting the defendants trading activities for a period of one year after termination in exactly the same terms as those of the share transfer agreement and a non-solicitation obligation in exactly similar terms.

6. The defendant took up his duties under the service agreement. The company prospered (sales expanding to £1.7m in 1984). But the defendant decided to resign in 1985 and his resignation, having been accepted, became effective from 31 October of that year, from which date the restraints began to run. Unknown to the plaintiffs the defendant had established in England a company called Rossbrae Ltd which began trading on 1 November 1985 in upholstery fabrics. Early this year the plaintiffs ascertained that Rossbrae Ltd was doing business with one of John Orr Ltd’s most important customers in England and furthermore that the defendant had been visiting some of its most valuable customers in the United States soliciting business for his new company. These proceedings followed shortly thereafter.

7. The reasonableness of the restraints imposed on the defendant is to be tested by reference to the commercial realities of the situation which existed when they were imposed, that is in the year 1977. So the question for determination is whether in that year it was reasonably necessary for the protection of Vescom’s investment in John Orr Ltd to impose the restraints contained in the share-purchase agreement and whether it was reasonably necessary for the protection of John Orr Ltd’s trade connections that it should impose the restraints contained in the service agreement. The business actually carried on by John Orr Ltd in that year is obviously of crucial importance. But what was in the reasonable contemplation of the parties for its future development is also relevant and some limited assistance on this aspect of the case can be obtained from evidence of what happened to the business in subsequent years.

8. The evidences show that:-

9. I have no doubt that in 1977 the parties hoped that the company’s business would expand and that new markets would be entered. But there is no evidence to suggest that the parties had at that time any plans to develop it on a world-wide basis. North America and Europe were then the only areas in which the company’s products were sold, sales in those areas being confined in the main to a small number of customers.

10. These findings lead me to the following conclusions on the enforceability of the restraint of trade clauses in the two contracts of 11 March 1977.

11. It is also excessively restrictive for another reason. It prohibited the defendant from manufacturing or trading in upholstery fabrics in any part of the world during the limitation period. In 1977 the vast bulk of the business of John Orr Ltd was done with a limited number of customers in a limited number of countries. A restriction on the defendant which would prohibit him for one year after termination of his service contract from manufacturing or selling in the countries in which John Orr Ltd had customers could well have been justified as necessary to protect Vescom’s investment in this case. Indeed, it might even have been possible to justify a wider restriction if it could have been shown that in 1977 John Orr Ltd had definite proposals for expanding into markets outside North America and Europe. But a blanket world wide restraint based merely on the possibility that markets in other parts of the world might be entered by the company is to my mind an unreasonable one as it was not reasonably required for the protection of Vescom’s investment in the company.

12. The defendant’s counsel had urged that if I found that the restraints imposed by clause 6(c)(i) of the share-purchase agreement and clause 7(1) of the service agreement were excessive and therefore unreasonable that the clauses were unenforceable because I could not apply the severance rule to them as to do so would amount to re-writing the parties’ contracts. The plaintiffs’ counsel forcibly submitted that the world-wide restraints in the two agreements were reasonable ones, but did not suggest that if I were to hold otherwise that the infirmities could be cured by severing the unenforceable parts. In these circumstances I must hold that these two clauses are unenforceable.

13. That brings me to the plaintiff’s motion for an interlocutory injunction. In the light of my decision on the preliminary issue it follows that if the trial of this action takes place before 31 October 1986 the trial judge would grant an injunction, (damages being an inadequate remedy) limited in the way I have described, and would in addition decide whether any breaches of the enforceable part of the non-solicitation clauses had occurred and if so what damages resulted. This means that I do not consider the plaintiffs’ claim to interlocutory relief by the principles established in American Cyanamid Co. v Ethicon Ltd [1975] AC 396 but rather on the basis that the plaintiffs’ right to an injunction has in fact been established. Although the defendant through his counsel has offered to give an undertaking not to solicit I think that to avoid any doubts as to the parties rights I should formally make an order. This will restrain until 31 October 1986 the defendant either personally or by means of Rossbrae Ltd or any other company or firm with which he may be associated either directly or indirectly from soliciting or seeking orders from or interfering with or endeavouring to entice away any person firm or company which were customers of John Orr Ltd or were in the habit of dealing with John Orr Ltd at any time within the period of twelve months ending 31 October 1986.