Countrywide Estate Agents Limited v Jack Marchant & Ors

Mr Marchant and Mrs Hampton submitted that the test in American Cyanamid should be modified because this is a case where the period of restraint is so short as to preclude the opportunity for a trial. As such, it is submitted that the claimant needs to demonstrate not only that there is a serious issue to be tried but also that it is more likely than not to succeed at trial. Mr Marchant and Mrs Hampton referred in their written submissions to N.W.L Ltd v Woods [1979] 1 WLR 294 and to Lansing Linde Ltd v Kerr [1991] 1 All ER 418. Mr Northall very properly acknowledged the force of this line of cases.

Mr Marchant and Mrs Hampton submitted in essence that the claimant will not succeed at trial because the post-termination obligations were not likely to be found to be part of the contracts of employment and were not likely to be found reasonable. They submitted that a period of restraint of 12 months, as stipulated in the fresh covenants, was likely to be found greater than the minimum reasonably required to protect the claimant’s interests. A six-month period, which had been stipulated in the original covenants before fresh obligations were issued, was likely to be found reasonable. That period had lapsed for Mr Marchant and was soon to elapse for Mrs Hampton.

Mrs Hampton submitted, in addition, that the claimant was not likely to prove that she had breached any of her own obligations, and that the Court at trial would weigh the inequality of bargaining power between the claimant and her.

Mr Northall submitted that the case can readily be listed on an expedited basis before the expiry of the covenants. He submitted that, in any event, the claimant had sufficient prospect of success to warrant injunctive relief at this stage.

I agree with Mr Northall. The Court is able to expedite the trial. Alternatively, I would at this stage assess the defendants’ prospects of success as comparatively low and the claimant’s prospects as comparatively high.

The defendants took “pot shots” at Ms Hasking’s evidence and invited me to conclude that she is an unreliable witness. However, the foundation of the claimant’s case is clear. Mr Marchant and Mrs Hampton have set up a business together and seek to build their client base by resorting to soliciting the claimant’s clients in the area, at the very least, of SW7. These are the likely building blocks which the trial judge is likely to consider.

On the basis of these building blocks, the defendants are free to continue to conduct business and compete with the claimant for clients even in SW7. The restrictions sought by the claimant simply prevent them from soliciting restricted clients as defined in the contracts under which Mr Marchant and Mrs Hampton were likely working. It is likely that the trial judge will conclude that Mr Marchant breached enforceable post-termination obligations and that Mrs Marchant conspired with him to achieve this.

I emphasise that the trial judge may take a different view on additional evidence. I do not seek to usurp the role of the trial judge. However, for present purposes, I do not accept the defendants’ submissions on the respective merits of each party’s case. Arguments on the prospects of success do not assist the defendants. I would at this stage judge that the claimant is more likely than not to succeed.

Mr Marchant and Mrs Hampton submitted that damages will be an adequate alternative remedy for any breach which a trial judge might determine to have been committed. They submitted that it is well established that in cases where the remaining restrictive period is particularly short at the stage of interim relief, the Court will have good reason to consider damages to be an adequate remedy. Their written submissions refer in general terms to Phoenix Partners Group LLP v Maurice Asoyag [2010] EWHC 846.

However, the Court of Appeal has recently held in Derma Med Limited v Ally [2024] EWCA Civ 175:

“75.

[A]s Mr Justice Constable had recognised in his judgment when granting the without notice injunction:

'27.  The Claimant points to the following factors which demonstrate that damages would not be adequate. First, it is likely to be problematic to identify and quantify the loss to the Claimant which is attributable to D1's wrongdoing. Whilst this may be less likely in respect of the use of the Zettle machine (although this might depend if it was being used for some legitimate purpose as well), this point clearly has force where, as here, the evidence suggests that cash has been taken. Second, the Claimants would face a number of evidential problems, including how to prove that the loss of a client was due to Dr Ally's misuse of Confidential Information or rather than for other reasons; and how to prove that the departure of a client was due to the Defendants' actions (and not something else). Knock-on consequential losses because even further difficulty. …'

76.

Although it is not a rule of law that damages can never be an adequate remedy for breach of a covenant not to compete, the cases have recognised that the factors identified by Mr Justice Constable generally mean that they are not”.

The Court of Appeal, at para 76, cited the judgment of Underhill LJ in Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373, [2015] IRLR, para 57 which states:

“53.

… In a case of this kind there are evident and grave difficulties in assessing the loss which an employer may suffer from the employee taking work with a competitor; even where it is possible to identify clients who have transferred their business (which will not always be straightforward, particularly where the new employer is outside the jurisdiction) there may be real issues about causation and the related question of the length of the period for which the loss of the business could be said to be attributable to the employee’s breach. … There may be other intangible but real losses to the employer’s reputation. I do not say that there may not be particular cases in which relief should be refused on the basis that damages are adequate remedy –-Mr Craig referred us to Phoenix Partners Group LLP v Asoyag [2010] EWHC 846 (QB), [2010] IRLR 594 - but unless a specific case to that effect was explicitly advanced, the judge was in my view fully entitled to proceed on the assumption that injunctive relief was the appropriate remedy”.

The Court of Appeal went on to hold at para 77 as follows:

“Even more fundamentally, an injunction will generally be the appropriate remedy to enforce a lawful negative covenant on the straightforward basis that this is what the parties have bargained for. As it was put in D v P [2016] EWCA Civ 87, [2016] ICR:

‘15. The substantive effect of the defendant’s opposition to the claim for injunctive relief was to ask the court to release him from this contractual restraint so that he could be free to take up immediate employment with the very type of competitor in respect of whom the restraint was intended to apply. Had the claimant made an alternative claim for damages for breach of the restriction (which it did not), it might be said that he was not substantively seeking a total release from the restraint since he would or might still be exposed to a claim for damages for its breach. But in cases such as this damages are not what an employer wants. The damage potentially sufferable by a covenantee such as the claimant by a breach of the relevant restraint will usually be unquantifiable and will rarely, if ever, provide the covenantee with an adequate substitute for an injunction. That is what the judge said about a remedy in damages in this case.

16.

Why, therefore, in circumstances such as these, should the court's approach to the claimant's claim be other than one reflecting a firm recognition that the remedy to which it ought prima facie to be entitled is an injunction? As Lord Cairns LC said in his well-known dictum in Doherty v Allman (1878) 3 App Cas 709, at 720:

‘If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such a case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury – it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves’.

17.

That statement is bottomed in the recognition of a basic principle of which sight should not readily be lost, namely that contracting parties should ordinarily be held to their bargain, which is all that the claimant was asking for by claiming the injunction that it did.

18.

That said, I do not lose sight of the also basic principle that an injunction, like all equitable remedies, is a discretionary remedy which will not be granted as a matter of course. In his review of the authorities in Insurance Co v Lloyd’s Syndicate [1995] 1 Lloyd’s Rep 272, 276-277 (under the heading ‘The availability of a permanent injunction’) Colman J correctly recognised this in his conclusion that negative covenants will generally be enforced without proof of damage but that:

‘Although absence of damage to the plaintiff is not in general a bar to relief, there may be exceptional cases where the granting of an injunction would be so prejudicial to a defendant and cause him such hardship that it would be unconscionable for the plaintiff to be given injunctive relief if he could not prove damage. In such cases an injunction will be refused and the plaintiff will be awarded nominal damages’.’

78.

Although D v P was a case of a final injunction after a trial, and the adequacy of damages is a relevant consideration at the interim pre-trial stage when a court is considering the balance of convenience, it nevertheless remains the case that what an employer, or in the present case the purchaser of a business, has bargained for is not an uncertain and evidentially difficult remedy in damages, but the opportunity to develop its business free of competition from the defendant during the currency of the noncompete obligation. That factor has all the greater weight when a significant element of the value of the business is attributable to the reputation of the vendor himself, here Dr Ally”.

Applying the approach in Derma Med, I accept that the claimant faces the loss of longstanding clients which it has worked over many years to obtain. I do not therefore accept the specific submissions of the defendants that the assessment of damages is quantifiable in the sense that it would amount to a loss of a few months’ fees. That unrealistic submission fails to capture wider factors identified by Underhill LJ in the Sunrise case as recently adopted in Derma Med.

I conclude that damages are not an adequate remedy.

Mrs Hampton submitted that she should not be subject to an interim injunction as she had not dealt with clients while on maternity leave. It followed that she did not have contact with restricted clients during almost the entirety of the 12-month period before the termination of her employment. She said that she was not involved with the claimant’s business in any meaningful way during that period. There was no reason why she should not be free on her own, and independently of Mr Marchant if needs be, to continue to solicit business in the South Kensington area. She submitted that there were no, or very few, potential property owners who would fall within the scope of interim injunctive relief in her case.

In my judgment this misses the point. The claimant’s case is that Mrs Hampton at the least conspired with Mr Marchant to breach his post-termination obligations. It cannot realistically be suggested that she is not at present a proper defendant in a claim that concerns an alleged conspiracy. There is no evidence that she intends to act independently of Mr Marchant. They have established a business together. There is no suggestion that Mrs Hampton is willing to forego that business. As Mr Northall submitted, the injunction would lose a great deal of force if its terms could be avoided through Mrs Hampton’s solicitation of clients.

Mr Northall explained why the claimant had refused to accept the contractual undertakings offered. He provided three principal reasons. First, he pointed out that the contractual undertakings would limit the definition of “restricted client” to those operating in the SW7 postcode whereas the South Kensington branch clients were not restricted to SW7. He submitted that the geographical restrictions sought by Mr Marchant and Mrs Hampton would permit them to solicit business from the claimant’s clients based outside SW7 and would not reflect either the restrictive covenants or the claimant’s practical working arrangements.

Secondly, he submitted that the contractual undertakings would exclude Mr Sanghera, Home Minders and Monica Holdings from the scope of any restraints, which would not meet the defendants’ obligations under the restricted covenants.

Thirdly, he submitted that contractual obligations were unsatisfactory in a case concerning breaches of contract. The defendants could not be trusted to adhere to contractual undertakings so that the claimants sought the added reassurance of undertakings to the Court. Mr Northall emphasised that the enforcement of contractual undertakings would require a separate claim to be launched or, at the very least, another court appearance.

In discussion with the Court, Mr Northall submitted that the willingness to offer the contractual obligations showed that in most respects the defendants could tolerate the restrictions that would be imposed by an interim injunction. He submitted that I could and should weigh in the balance of convenience the fact that most of the terms of the draft order appeared, in substance, in the undertakings that Mr Marchant and Mrs Hampton have signed.

I asked Mrs Hampton, who took the lead on oral submissions for the defendants, to explain why she and Mr Marchant were willing to provide contractual undertakings but would not give undertakings to the Court. She did not answer the question.

Mrs Hampton appeared at one stage to suggest that the claimant had positively refused to accept undertakings to the Court. However, there was nothing to stop Mr Marchant or her from offering undertakings to the Court irrespective of the claimant’s position.

I agree with Mr Northall that the willingness to offer undertakings to the claimant but not the Court has two effects. First, in the absence of any good reason to refuse undertakings to the Court, it suggests a lack of commitment to the undertakings. Secondly, it suggests that the balance of convenience lies in imposing on Mr Marchant and Mrs Hampton what they have expressed themselves as willing to do in the undertakings.

As a consequence, the real dispute is whether the balance of convenience favours a geographical limitation and whether an injunction should exclude the three landlords which the defendants wish to be excluded. The defendants’ main argument is that the claimant is so large that solicitation makes no difference to it, whereas non-solicitation will be ruinous to the defendants. The company will fail. Mr Marchant and Mrs Hampton will be unable to support themselves and their families.

In considering the balance of convenience, I take account that the claimants remain free to operate their business. They remain free to solicit new clients. They remain free to make money. There is no proper evidence that, without soliciting the claimant’s clients, their business will fail. There is no proper evidence that, without soliciting the claimant’s clients, they will be unable to manage daily life through lack of money. They have made no money so far from Mr Sanghera or from the other two landlords, but their new business remains alive. Their personal situations will be no different under an interim injunction than now: they will not make money from the claimant’s clients.

On the other hand, unless the defendants are restrained, the claimant is, in my judgment, at serious risk of losing business that it has built up over many years. Its efforts and success at building its business should not be belittled or underestimated because it is big. It is entitled to come to court to enforce bargains struck with its employees, whether it is large or whether it is small. That is what it seeks to do: no more or no less. The balance of convenience falls in favour of the claimant.

The defendants have made no submissions on the terms of the draft order other than to oppose an interim injunction. As a matter of fairness to them, I asked Mr Northall whether the clause concerning delivery up of confidential documents was practical and enforceable. For example, Mr Marchant and Mrs Hampton may have client information on their phones. Short of examining the phones, which is out of the question, the Court cannot know whether they have stored information, and it may it be difficult for them to deliver up information on their phones. I suggested that the terms of the injunction might benefit from a list of documents that should be delivered up.

Mr Northall replied by saying that a list might obfuscate rather than clarify what the defendants would need to do. He submitted that modern technology would permit the defendants to transfer information on their phones to the claimant’s solicitor. I heard no submissions to the contrary on this, or any other, aspect of the wording of the injunction and I have therefore been provided with no grounds to amend the wording of the draft order.

The claimant has offered an acceptable cross undertaking in damages.

For these reasons, the claimant’s application is allowed. I shall grant an interim injunction in the terms sought and hear the parties on costs and any other consequential matters. I shall order a speedy trial and hear the parties on case management directions.