United Kingdom House of Lords Decisions

You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Hadsley v. Dayer-Smith [1914] UKHL 647 (05 May 1914)
URL: http://www.bailii.org/uk/cases/UKHL/1914/52SLR0647.html
Cite as: 52 ScotLR 647, [1914] UKHL 647

[New search] [Printable PDF version] [Help]

SCOTTISH_SLR_House_of_Lords

Page: 647↓

House of Lords.

Tuesday, May 5, 1914.

(Before Lords Dunedin, Atkinson, Shaw, Sumner, and Parmoor.)

52 SLR 647

Hadsley

v.

Dayer-Smith.

( On Appeal from the Court of Appeal in England.)

Subject_Contract — Agreement in Restraint of Trade — Provision that an Outgoing Partner should not Carry on Business within a Certain Area.
Facts:

Where there was a clause in a contract of partnership between house agents prohibiting an outgoing partner from carrying on or engaging or being interested in a similar business within a given area, held that an outgoing partner could be restrained from advertising houses to be let within the area although his place of business was outside.

Headnote:

The facts are detailed in their Lordships judgment, which was given at the conclusion of the appellant's argument.

Judgment:

Lord Dunedin—The appellant in this case was in partnership with the respondent, and carried on with him the business of a house agent. Under the partnership articles there were provisions for bringing the partnership to an end and for the partners retiring, or under certain circumstances being expelled. The partnership, so far as these two persons were concerned, was brought to an end. I use a neutral expression because I understand that it is a matter of controversy, and is indeed being litigated at this moment, whether the way in which the partnership was brought to an end was by expulsion or retirement. But for the purposes of the question upon which we are engaged it matters not, because article 29 of the articles of partnership was in these terms—“An outgoing, retiring, or expelled partner” (and it is certain that the appellant comes within one or other of those designations) “shall not, nor, in the event of the partnership property being realised under clause 26, shall either or any partner for the term of ten years from the time of the dissolution of the partnership as aforesaid, carry on or engage or be interested, directly or indirectly, either as principal or as servant or agent of another, in any business of a nature similar to or competing or interfering with the business of the partnership, or any part of such business, within a radius of one mile from the premises of the said partnership.” Now the offices of the partnership were somewhere in Motcomb Street, Belgravia. The appellant set up in business for himself in Duke Street, Grosvenor Square, and it is admitted that Duke Street is at a distance of more than one mile from Motcomb Street. When there he inserted in the Morning Post two advertisements regarding houses to be let in Wilton Crescent, Wilton Crescent being

Page: 648↓

in close proximity to Motcomb Street, and another in Hill Street, Rutland Gate, which is admitted to be within a mile of Motcomb Street; and he also put up on the houses which were so advertised to be let a board on which were painted the words that the house was to be let, and reference was made for intending lessees to his address in Duke Street, Grosvenor Square. Upon that the respondent applied for an injunction to restrain the appellant from acting in a way inconsistent with the covenant contained in article 29 of the articles of partnership. That injunction has been granted by the Court of Appeal in terms which are an echo of article 29, and the appeal to your Lordships' House has been in order to say that this decision to which the Court of Appeal came was wrong.

I am of opinion that the decision of the Court of Appeal was quite right, and I agree with the reasons which are given by the learned Judges in their judgments. I think that the case as a matter of fact is really practically indistinguishable from the old case of Turner v. Evans, 2 De G., M. & G. 740, 2 E. &B. 512, which was cited, and the case of Brampton v. Beddoes, 13 C.B. (N.S.) 538, which came as a sequel to it. I think that the true criterion is given in Turner v. Evans. The point is to discover, by looking at the whole contract and the clause which says that certain things are not to be done, what is the true object of the prohibition. I think, treating the contract in that way, that the true object of the prohibition here was undoubtedly to prevent competition in the business of a house agent. It seems to me that when a person does those acts which I have mentioned as having been done by the appellant here, he is entering into competition with his old firm within the radius. Counsel for the appellant, in his very clear argument, urged that the business was only carried on at Duke Street and nowhere else. I do not think that a practical way of looking at a house agent's business. Certain references were made to certain dicta of noble and learned Lords in this House in the case of Kirkwood v. Gadd, [1910] AC 422, 48 S.L.R. 689. It is a trite saying that all dicta of Judges must be taken secundum subjectam materiam. The point in Kirkwood v. Gadd was to find what was the mischief which the Legislature had prohibited when it said that a moneylender should only carry on his business at his registered address, and it was held that his doing certain acts incidental to his business at other places did not contravene that prohibition. I do not think that remarks made in the course of examining that question can be taken as applicable to the question of determining what is the true meaning of the covenant here. When you take the covenant here I must say that it leaves no doubt in my mind that the substance of the matter is, “Has what the appellant has done been an act of real competition with his old firm within the prohibited area?” I think that it has, and accordingly I move your Lordships that the appeal be dismissed.

Lord Atkinson—I concur, and have nothing to add.

Lord Shaw—In cases of restrictive covenants such as the present, whether occurring in partnership agreements or in contracts for the sale of goodwill, one has to consider first the substance of the bargain between the parties, and, secondly, the nature of the business with regard to which the contract was made. In my opinion the substance of the bargain between these parties had reference to a possible rivalry by a partner expelled from or leaving the business the partnership wherein was dissolved. The words appear to me to aim at that thing, and that thing substantially. Within a definite circle of two miles diameter in the west end of London the expelled partner is not “to carry on or engage or be interested in any business of a nature similar to or competing or interfering with the business of the then existing partnership.

That being my view of the substance of the bargain, I ask myself what was the nature of the business? It was a house selling or house letting agency. The argument presented is that houses within the prohibited area may be let or sold by the appellant, that he may advertise for houses there, that he may placard houses there as for lease or sale by him as agent, and that all this may be done systematically and as part of his regular business without contravening the restrictive covenant, if only his business address, the head office, so to speak, of his undertaking be located just outside the prohibited circle. I am not putting the argument extremely; it was presented to your Lordships just as it was to the Court of Appeal, and I entirely agree with the judgment of the Court of Appeal upon it. I think such a construction of the contract much too narrow, and I venture to express my adherence to the view stated by the President of the Admiralty Division when he interprets the words “carrying on business,” occurring in the contract, as really meaning “continuing the advertising, purchasing, letting, hiring, or selling of similar houses—in a word, continuing the ordinary acts of the business of a house agent within the area of prohibition.” It appears to me that this is the good sense of the situation, that this interpretation accords with the intention of the parties. I should have said so had the words “carrying on” business stood alone, but when to that are added the terms “engaging in” “being interested directly or indirectly in” a rival business within the prohibited area for the prohibited time the construction is amply confirmed.

I agree with Lord Dunedin that the principle of Turner v. Evans applies in this case. The term “carrying on of the business” must of course be a flexible term, having in view the nature of the business to be carried on, and of the particular acts done. A useful help in the interpretation of this contract is by considering to what the opposite view leads. It leads to this,

Page: 649↓

that the appellant's whole business might continue to be the selling or letting of houses within the prohibited area, that he would draw his entire income from commissions on these transactions within the prohibited area, but that this would be permitted according to his construction of the contract if his office was a yard beyond it. That construction with its absurd results is not in accordance with ordinary rules of honesty, with the bargain, or with business habits. I agree with the motion proposed.

Lord Sumner—I concur.

Lord Parmoor—I concur, but I should like to say one word with reference to the judgment of Eve, J., on which the able argument of counsel for the appellant was founded. I think myself that the case is a mere question of the construction of article 29 of the partnership agreement, bearing in mind, of course, the nature of the business. The contention was that the only matter which was prohibited under the words of article 29 was the establishment of a business within the prohibited area, and Eve, J., who adopted that construction, read in the word “establishment” after the word “business” and before the words “within a radius of one mile from the premises of the said partnership.” If the covenant in question could be so construed I should have agreed with the judgment of Eve, J., and the argument of counsel for the appellant, but I think that it cannot be so construed, but has to be construed in the wider sense which has already been put before your Lordships' House, and I agree that the appeal should be dismissed.

Judgment appealed from affirmed, and appeal dismissed, with costs.

Counsel:

Counsel for the Appellant— Cozens-Hardy, K.C.— O. Thompson. Agents— Spyer & Sons, Solicitors.

Counsel for the Respondent— Clayton, K.C.— Jolly. Agents— Morgan & Upjohn, Solicitors.
1914