TFS Derivatives Led v Morgan

MRS JUSTICE COX: On the crucial issue of the construction of clause 12(1)(a) of the contract, I find in favour of the claimant, save in respect of the words “or similar to”, which in my judgment can and should be severed. My reasons for that decision and my other findings on the remaining issues will now follow in this judgment. To save time, I will not read out now either all the relevant contractual provisions or the extracts from the various authorities to which I was referred, but if any transcript is to be obtained I will ensure that these passages are inserted at the appropriate point.

In this action, the claimant company, TFS Derivatives Limited (“TFS”), claim injunctive relief in the terms of post-termination covenants contained in the contract of employment entered into with the defendant, Simon Morgan, their former employee, who worked as an equity derivatives broker. An ex parte order prohibiting the defendant from acting in breach of the relevant covenants was obtained by TFS on the usual undertakings on 6^th September 2004. On the return date, a week later, both parties were legally represented and consented to an order that there be a speedy trial of the issues of liability, the defendant giving undertakings in the terms of the covenants until the trial. The defendant’s employment ended on 7^th September and he has been paid up until that date. The principal restriction which the claimant seeks to enforce has the effect of keeping the defendant out of competition in the market place in which he worked until 22^nd December 2004.

Consequential directions for preparation for trial were also given on 15^th September and the trial was fixed to start on 9^th November, with an estimate of three days. That estimate proved to be entirely accurate, the evidence and the parties’ submissions being concluded on the afternoon of 11^th November.

At the trial oral evidence was given on behalf of TFS by Mr Samir Saffadi, the Managing Director of Tradition Financial Services Limited, of which the claimant company is a wholly owned subsidiary, and by Andrew Adamson, the Global Head of Equities at Tradition. Evidence was given on the defendant’s side by the defendant himself; by Mr Ron Levi, the Managing Director of GFI Holdings Limited (“GFI”), a competitor company of the claimant, where the defendant has agreed to work when he is lawfully free to do so; and, finally, Robert Andersen, a former equity derivatives broker with TFS, but who now works for GFI. The parties also referred to an agreed bundle of documents and relevant correspondence and provided both written and oral submissions to the court dealing with the factual and legal issues which arose.

At the end of the closing submissions I reserved judgment and, in view of the urgency of the matter and to avoid delay, I agreed to give judgment orally today, 15^th November, despite the fact that both counsel could not attend, so that the parties would know my decision and the reasons for it. I also agreed that the parties should have liberty to return to the court to apply for any consequential orders if they were unable to agree the terms of the final order which should follow this judgment.

The main issue to be resolved by the conclusion of the trial was whether the terms of clause 12 of the defendant’s contract and, in particular, clause 12.1(a) were void as being in unlawful restraint of trade. TFS contend that the clause, construed correctly, reasonably provides them with no more than is necessary to protect their legitimate business interests in the market in which they operate, and that the restrictions imposed on the defendant are therefore lawful. When the trial began, the defendant was contending, firstly, that TFS had acted in repudiatory breach of his contract by placing him on what is now commonly known as “garden leave” and by denying him the opportunity to be paid bonuses during his period of notice. He therefore alleged that he was discharged from his continuing contractual obligations and was free to work for GFI without any restrictions at all. However, at the end of the evidence the defendant abandoned this part of his case and defended the claim only on the basis that the covenants which TFS seek to enforce are unlawful as being in unreasonable restraint of trade.

It is common ground that the answer to this central dispute between the parties depends on the particular factual matrix in the case, and it is therefore necessary to set out the relevant background facts before turning to the defendant’s contract of employment.

TFS has offices in the various major financial centres across the world, including London. It deals in the inter-dealer brokering of “over the counter” physical and derivative products. Its activities cover global foreign exchange and the commodity, equity and paper markets. There is also a separate energy division, with which we are not concerned. The relevant activity in the present case is the equity derivatives market. Of the approximately 160 employees based in the London office, more than 40 of them specialise in equity derivates.

The equity derivatives brokers employed conclude options transactions on behalf of trader clients, in particular equity markets. The principal markets in which TFS deal are Eurostoxx, a Pan-European market, the DAX (Frankfurt), the CAC (France), the FTSE (London) and single stocks including Pan-European and US single stock markets. The brokers, approximately 40 in number, sit in one room in close proximity to each other, the room consisting of four long desks, parallel to each other. Up to 12 brokers sit on each table.

The broker acts essentially as an intermediary to his clients. Clients will usually approach the brokers showing an interest in a particular option. The broker will then go out into the market place to find the best possible price for the clients. At that stage, the brokers will typically not know whether the client wants to buy or sell the particular option structure and will go back with a price for both. Once a dealing price is agreed with the clients, TFS will confirm the deal with both the buyer and the seller and send confirmation to the parties.

It is common ground that in the market there are a finite number of clients operating, predominantly banks and other financial institutions. While TFS brokers will not work exclusively for those clients, the brokers endeavour to develop strong client relationships and to develop their knowledge with a view to solidifying and building upon TFS’s position in the market. Whilst clients may trade a number of different option structures each day, they will usually use their prime broking contact within the broking firm to handle all types of structures that they may be interested in that day, regardless of the underlying market. Most of the clients do not trade exclusively in one derivative market. Brokers from one desk may sometimes seek the assistance of brokers from another desk if a client’s needs require this. Equally, where there are strong relationships with clients on one desk, the aim is to persuade the clients to use TFS services on another. Brokers would, therefore, tend to know which are the strong client relationships and the areas in which TFS did well, both on their own desk and on those of others.

The nature of the job is such that it is extremely important for the brokers to build up good relations with their trader contacts within TFS’s client organisations. The market in which the brokers are dealing is a specialist one, and the number of traders operating in it is relatively small. It is essential for the brokers to cement their relationships with the traders. If a solid relationship can be established, the broker will usually be able to count on that trader for repeat business. Broking, as Mr Adamson observed, is a verbal business. As a result, working in the room, brokers generally tend to develop a knowledge of which clients use which brokers, how strong those relationships are, and the number of trades that brokers are doing for specific clients. They know which relationships are strong and which are in difficulties, together with the reasons behind any change. Brokers may need, on occasions, to cross their products to brokers dealing on other markets. For example, a broker who regularly trades on the DAX index may need to cross-sell on the CAC where a client asks them to broker a specific trade for them. Thus, the brokers need to build up an understanding of how the different markets operate, and they develop in the course of their work a knowledge of the business levels within those other markets.

The defendant joined TFS on 1^st November 2000 as an equity derivatives broker. His salary at the time of his resignation, excluding bonuses, was £75,000 per annum, although it is common ground that the substantial sums of money to be made as a broker come generally from the bonuses awarded and not the annual salary. Before joining TFS the defendant had worked in equity sales for a different company. When he joined TFS he learned how to broke wholesale equity derivatives, and it is accepted that the relationships and the expertise that the defendant developed in the equity derivatives market were all fostered whilst working for TFS, where he was given the opportunity to develop TFS’s existing client base and the facilities to build upon that base. The defendant specialised in the DAX market, and there were four brokers in all working on the DAX. The defendant was regarded as extremely competent in his job, and of the brokers working on the DAX index it was agreed that the defendant was the biggest producer in terms of the revenue generated. Whilst the defendant had worked exclusively on the DAX index, at the beginning of 2004 an effort was made to encourage the equity derivatives brokers to cross-sell into different markets for their specific client contacts. Accordingly, whilst the defendant’s efforts were clearly focused on the DAX, he started moving out into broking on other indices to some degree after that time.

A dispute arose on the evidence as to whether the defendant was properly to be categorised as a senior rather than a junior broker. The TFS witnesses described him as a senior broker, whereas the defendant himself considered that, based on the length of his experience, he could only properly be referred to as a junior broker. In fact, the evidence established to my satisfaction that in this job the value to be attached to a broker’s services was based not so much on length of service but rather on his skills and his perceived strength in the marketplace. In this sense, it is clear that the defendant was very highly valued by TFS. He was frequently the broker who was generating most of the income on the DAX. By June 2004 he had built up strong relationships with traders at about six or seven of TFS’s clients, and it emerged in the evidence that he was in fact being paid more than the person the defendant named as being senior to him, i.e. Patrick Dean. His salary of £75,000 per annum reflected his status; a junior broker earning usually in the region of £25,000 to £50,000 per annum, and the defendant earning a salary which would normally be commanded by a broker with ten years’ experience. Thus, he was regarded as a key member of the DAX team and as someone TFS would not want to lose to a competitor.

Before turning to the defendant’s departure, it is necessary to refer to events concerning another employee at TFS, Robert Andersen, the previous head of the CAC desk. On 30^th March 2004 Mr Andersen resigned and, pursuant to his contract, was placed on garden leave for the period of three months’ notice, his employment coming to an end on 30^th June 2004. TFS did not then know that Mr Andersen had been offered a job with GFI, where he commenced employment on 5^th July. When TFS discovered this, they threatened to commence proceedings for injunctive relief to enforce the post-termination covenants in Mr Andersen’s contract. Those proceedings were avoided, however, by Mr Andersen giving undertakings (amongst other things) not to solicit or accept business from any TFS customer for a period of three months while continuing to work for GFI.

Whilst Mr Andersen was working for TFS, he had also done a small amount of broking on the DAX for one client only, namely Barclays BZW. The agreement reached with him resulted in him undertaking not to deal with specific clients on the CAC and not to deal with Barclays BZW on the DAX. However, shortly after Mr Andersen commenced work at GFI, TFS’s brokerage from Barclays BZW completely disappeared and has since been transferred to GFI. Whilst TFS acknowledge that they have no proof that Mr Andersen acted in breach of any of the undertakings he gave, they took the view that the undertakings they had secured from him had proved worthless; that it was in practice impossible to police a non-solicitation covenant, and that it was necessary, in order for their legitimate business interests to be protected, that a broker departing to work for a competitor should be kept out of the relevant market place for a very limited duration through the non-compete clause contained in the broker’s contract.

As Mr Reade, appearing on behalf of TFS, expressed it, history and experience are teachers of hard lessons. There is no doubt on the evidence that their experience with Mr Andersen’s departure to GFI caused TFS to adopt a different approach to this defendant when he resigned.

The defendant’s evidence was that he had been unhappy at TFS for some 18 months. He regarded himself as the person who was generating most of the income on the DAX and he could see how much work the others were doing and with whom. He considered that he was insufficiently valued by his employers and that he was not receiving bonuses which he felt reflected the level of his contribution. Mr Levi, the Managing Director of GFI, contacted him in May 2004 and the defendant told him that he was unhappy with TFS. After meeting him, Mr Levi offered him a job with GFI. The defendant received an oral offer of employment before 7^th June 2004. The written offer was made on 16^th June, and the defendant signed the contract with GFI on 23^rd June. His employment with GFI is conditional upon him being lawfully free to start work with them.

In his discussions with Mr Levi, the defendant was told about wider brokering opportunities that would be available to him than would be available on the DAX desk, but it was obvious to the defendant that GFI were wanting to rely on his DAX experience. This was the sensible place for him to start, he said, because GFI had plans for the defendant to start up the DAX desk for them, and they talked about employing a junior broker to assist him. It is clear to me on the evidence that whatever long-term plans Mr Levi may have had for him at GFI, the defendant would be working for them, at least in the short term, on the DAX desk, i.e. in exactly the same capacity and on the same activities he had been working on for TFS.

The defendant resigned from TFS on 7^th June 2004, giving three months’ notice in accordance with his contract. Mr Saffadi discovered that he had obtained employment at GFI, and it is agreed that the defendant told Mr Saffadi that he had been recruited specifically to set up a DAX desk. Over the two weeks which followed, efforts were made by TFS to try to retain the defendant’s services, with offers of increased pay and responsibility, but all offers were rejected by the defendant. The following day, 22^nd June, Mr Saffadi wrote to him, saying that his resignation had been accepted and telling him that, in accordance with his contract, he was being placed on garden leave until his employment came to an end on 7^th September. He was told that he continued to be employed by the company on his current terms, save that, in accordance with his contract, he no longer qualified for any further bonus payments. He was also informed that he would continue to be bound by the restrictive covenants in clause 12 of his contract, and that his duty of confidentiality to TFS in clause 8 of the contract would continue indefinitely. There is no dispute in this case that the defendant is bound by the confidentiality clause in his contract of employment.

At this point, the defendant sought legal advice and, after a flurry of correspondence between solicitors on both sides (which it will be necessary to refer to in part in due course), TFS sought interim injunctive relief on 6^th September (to which I have already referred above). The position remains, therefore, that the defendant is anxious to begin his new job with GFI, but has undertaken not to do so pending the conclusion of this trial. It is of course common ground that he will be free to do so on the DAX desk as from 22^nd December next in any event.

I turn then to the defendant’s last contract of employment, dated 11^th March 2003, the relevant provisions of which are set out in the bundle of documents between pages 257 to 274. Clause 1 stated:

“You will be employed as an Equity Derivatives Broker of the Company from the effective date…”

Clause 2 stated that his employment under this contract

“…runs for a period of one year, commencing on 1^st April 2003 and thereafter until terminated by either party giving not less than 3 months’ written notice, such notice to expire at the end of the said period or on any date thereafter. Your period of continuous employment with the Company began on 1^st November 2000.”

Clause 3 defined the hours of work and the defendant’s duties.

Clause 4 dealt with salary and expenses and provided at clauses 4.1 to 4.3 as follows:

“4.1

You will be paid a salary at the rate of £75,000 per annum or such other sum as may be mutually agreed. Your salary will accrue from day to day and will be paid by equal instalments and normally on the 17^th day of each month, which covers payment for the whole calendar month, subject to such deductions as are required by law or under the terms of your employment.

4.2

In addition to your basic salary you will be eligible to participate in the TFS Derivatives quarterly bonus pool. Your personal bonus will be subjectively based upon factors such as profitability of the department, your personal contribution to the department’s performance and your initiative and cooperation with the team environment. Instances of serious misconduct or underperformance will also be taken into account in determining the amount of any bonus payable to you. The amount of any such bonus will be in the absolute discretion of the Company. All bonuses are paid less appropriate deductions for employee tax and other employee statutory withholdings.

4.3

Any bonus payment will be subject to you being employed by the Company at the date of payment and not being under notice of termination either given or received. All bonuses are paid less appropriate deductions for employee tax and other employee statutory withholdings.”

Clauses 5 to 7 dealt with ill health and injury, holidays and other benefits.

Clause 8 covered confidentiality and company property and provided at clauses 8.1 and 8.2:

“8.1

During your employment you will have access to and will be entrusted with confidential information and trade secrets relating to the business of the Group. This includes but is not limited to information and secrets relating to:

(a)

corporate and marketing strategy, business development and plans, and research results;

(b)

business methods and processes, and technical information and know-how relating to the Group’s business which is not available to the public generally;

(c)

business contacts, current planned transactions, lists of and names of clients and customers and details of terms of business with them and client and customer revenues;

(d)

brokerage rates and pricing policies;

(e)

budgets, management accounts, trading statement and other financial reports;

(f)

any document marked ‘confidential’.

8.2

You may not during your employment (otherwise than in the proper performance of your duties and then only to those who need to know such information or secrets) or afterwards (otherwise than with the prior written consent of the Board or as required by law) use or disclose any confidential information or trade secretes concerning the business of the Group or in respect of which the Group may be bound by an obligation of confidence to any third party. You should also use your best endeavours to prevent the publication or disclosure of such information or secrets. These restrictions will not apply after your employment has terminated to information which has become available to the public generally, otherwise than through unauthorised disclosure.”

Clauses 9 to 11 dealt with intellectual property rights and the disciplinary and grievance procedure and termination.

Clause 11.3 provided:

“If the Company wishes to terminate your employment or if you wish to leave its employment before the expiry of the notice in paragraph 2 and whether or not either party has given notice to the other under that paragraph, the Company may require you:

(a)

to perform duties not within your normal duties or special projects; or

(b)

not to attend for work for all or part of the period of the notice being given under paragraph 2 or (if no such notice has been given) for a period equivalent to the notice period required to be given by you to terminate the contract. For so long as you are not required to work during such period, you will remain an employee of the Company. You will continue to receive your salary and other contractual entitlements except for any bonus under paragraphs 4.2 and 4.3, and to be bound by all the terms of your employment. You will not directly or indirectly work for any person, have any contact with any customer of the Group or, for business purposes, any such employee without the prior written agreement of the Managing Director. If you are not to attend for work under this paragraph the company shall be entitled to offset any outstanding accrued holiday due to you for each day of non-attendance.”

Clause 12 contained the restrictive covenants which are at issue in this trial and, in view of its importance, I shall here set it out in its entirety.

“12.1

In view of your access to sensitive information about the Group and its business and since you are likely to acquire personal knowledge of and influence over its clients and in order to protect the goodwill of the Group, you agree that during your employment and for the periods set out below after its termination (less in the case of paragraph 12.1(a) any period during which you are not required to attend for work pursuant to paragraph 11.3(b)), you will not (except with the prior written consent of the Board) directly or indirectly do or attempt to do any of the following:

(a)

for 6 months undertake, carry on or be employed, engaged or interested in any capacity in either any business which is competitive with or similar to a Relevant Business within the Territory, or any business an objective or anticipated result of which is to compete with a Relevant Business within the Territory;

(b)

for 6 months entice, induce or encourage an Employee to leave or seek to leave his or her position with the Company or any Associated Company for the purpose of being involved in or concerned with either the supply of Relevant Services or a business which competes with or is similar to a Relevant Business or which plans to compete with a Relevant Business, regardless of whether or not that Employee acts in breach of his or her contract of employment with the Company or any Associated Company by so doing; or

(c)

for 6 months employ, engage or work with an Employee for the purpose of the supply of Relevant Services or a business which competes or which plans to compete with or is similar to a Relevant Business.

12.2

For the purpose of this paragraph 12:

(a)

‘Relevant Services’ means goods or services identical or similar to or competitive with those which at the expiry of the Relevant Period the Company or any Associated Company was supplying or negotiating or actively and directly seeking to supply to a Client for the purpose of a Relevant Business;

(b)

‘Relevant Business’ means the business of any business of the Company or any Associated Company in which, pursuant to your duties, you were materially involved at any time during the Relevant Period;

(c)

‘Territory’ means England and any other country or state in which the Company or any Associated Company is operating or planning to operate at the expiry of the Relevant Period. A business will be operating within the Territory if either any such business in which you were involved at any time during the Relevant Period is located or to be located within the Territory or it is conducted or to be conducted wholly or partly within the Territory;

(d)

‘Employee’ means a person who is employed by or who renders services to the Company or any Associated Company in a Relevant Business in a managerial, broking, settlement, computer support, telecommunication or accounting capacity and who in either case was so employed or so rendered services during the period of 6 months ending on the last day on which you actively worked under this Agreement for the Company or any Associated Company and who had dealings with you during that period;

(e)

‘Relevant Period’ means the period of 12 months ending on the last day of your employment or the period of your employment if shorter than 12 months.

12.3

Each sub-paragraph and part of such sub-paragraph of this paragraph 12 constitutes an entirely separate and independent restriction and does not operate to limit any other obligation owed by you, whether that obligation is express or implied by law. If any restriction is held to be invalid or unenforceable by a court of competent jurisdiction, it is intended and understood by the parties that such invalidity or unenforceability will not affect the remaining restrictions.

12.4

You acknowledge that before entering into this Agreement you had the opportunity to obtain legal advice and that each of the restrictions in this paragraph 12 goes no further than is necessary for the protection of the Company’s and each Associated Company’s legitimate business interests.

12.5

Before accepting any offer of employment either during the Appointment or during the continuance of the restrictions in this paragraph 12, you will immediately provide to the person making such offer a complete signed copy of this Agreement.”

I should add here that the evidence of Mr Saffadi, which I accept, is that the customary non-solicitation or non-dealing clause included in brokers’ contracts in addition to the non-compete clause at 12.1(a) was erroneously omitted from the defendant’s contract, due, it seems, to a fault in the computer processing of the particular template, with the result that it was unintentionally omitted from a few contracts.

Finally, clauses 14 to 17 contain provisions relating to corporate reconstruction, the service of notices, interpretation and definition, and miscellaneous matters, none of which is relevant to the issues before me.

The defendant, whilst on garden leave in accordance with clause 11.3(b), received his salary up to the end of the notice period, 7^th September 2004. It is common ground between the parties that the effect of the defendant electing to give notice of termination when he did is that, pursuant to clause 4.3 of the contract, he would not be paid any quarterly bonus that fell due in the notice period. He has not, since 7^th September, been receiving any income, either from TFS or, in the form of an upfront payment commonly described as a “Golden Hello”, from his new employers, GFI.

There is no doubt that clause 12.1(a) is a clause which, in its terms, is in restraint of trade, seeking, as it does, to restrict the defendant’s activities after his employment has ended. The question is therefore whether the clause is void as being in unlawful restraint of trade.

There is no dispute between the parties that the relevant legal principles to be applied in order to answer that question were set out by the Court of Appeal in the case of Office Angels Limited v Rainer Thomas & O’Connor [1991] IRLR 214, in the judgment of Sir Christopher Slade, with whom the other members of the court agreed. At paragraphs 21 to 25 he summarised the relevant principles as follows:

“(1)

If the Court is to uphold the validity of any covenant in restraint of trade, the covenantee must show that the covenant is both reasonable in the interests of the contracting parties and reasonable in the interests of the public: (see for example Herbert Morris Ltd v Saxelby [1916] AC 688 at p.707 per Lord Parker of Waddington).

(2)

A distinction is, however, to be drawn between (a) a covenant against competition entered into by a vendor with the purchaser of the goodwill of a business, which will be upheld as necessary to protect the subject-matter of the sale, provided that it is confined to the area within which competition on the part of the vendor would be likely to injure the purchaser in the enjoyment of the goodwill he has brought, and (b) a covenant between master and servant designed to prevent competition by the servant with the master after the termination of his contract of service: (see for example Kores Manufacturing Co Ltd v Kolok Manufacturing Ltd [1959] Ch 109 at p 118 per Jenkins LJ).

(3)

In the case of contracts between master and servant, covenants against competition are never as such upheld by the court. As Lord Parker put it in Herbert Morris Ltd v Saxelby (supra) at p 709:

‘I cannot find any case in which a covenant against competition by a servant or apprentice has, as such, ever been upheld by the Court. Wherever such covenants have been upheld it has been on the ground, not that the servant or apprentice would, by reason of his employment or training, obtain the skill and knowledge necessary to equip him as a possible competitor in the trade, but that he might obtain such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer's trade secrets as would enable him, if competition were allowed, to take advantage of his employer's trade connection or utilize information confidentially obtained.’

On this appeal we are not concerned with trade secrets. The plaintiff’s staff handbook contained special provisions (in clause 4.3) dealing with confidentiality, but no issue concerning confidentiality has been raised in this court.

(4)

The subject-matter in respect of which an employer may legitimately claim protection from an employee by a covenant in restraint of trade was further identified by Lord Wilberforce in Stenhouse Ltd v Phillips [1974] AC 391 (at p.400) as follows:

‘The employer's claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation.’

(5)

If, however the Court is to uphold restrictions which a covenant imposes upon the freedom of action of the servant after he has left the service of the master, the master must satisfy the Court that the restrictions are no greater than are reasonably necessary for the protection of the master in his business: (see Mason v Provident Clothing & Supply Co Ltd [1913] AC 724 at p.742 per Lord Moulton). As Lord Parker stressed in Herbert Morris Ltd v Saxelby (supra) at p.707, for any covenant in restraint of trade to be treated as reasonable in the interests of the parties ‘it must afford no more than adequate protection to the benefit of the party in whose favour it is imposed’ [Lord Parker’s emphasis].”

Thus, clause 12.1(a) will be unlawful unless it is justified by TFS as being reasonable, in the interests both of the parties and of the public. In assessing reasonableness, there is essentially a three-stage process to be undertaken.

Firstly, the court must decide what the covenant means when properly construed. Secondly, the court will consider whether the former employers have shown on the evidence that they have legitimate business interests requiring protection in relation to the employee’s employment. In this case, as will be seen later on, the defendant concedes that TFS have demonstrated on the evidence legitimate business interests to protect in respect of customer connection, confidential information and the integrity or stability of the workforce, although the extent of the confidential information is in dispute in relation to its shelf life and/or the extent to which it is either memorable or portable.

Thirdly, once the existence of legitimate protectable interests has been established, the covenant must be shown to be no wider than is reasonably necessary for the protection of those interests. Reasonable necessity is to be assessed from the perspective of reasonable persons in the position of the parties as at the date of the contract, having regard to the contractual provisions as a whole and to the factual matrix to which the contract would then realistically have been expected to apply.

Even if the covenant is held to be reasonable, the court will then finally decide whether, as a matter of discretion, the injunctive relief sought should in all the circumstances be granted, having regard, amongst other things, to its reasonableness as at the time of trial.

If a restrictive covenant applying after employment has terminated is held to be unreasonable, then it is void and unenforceable. The court cannot read down such a clause in an effort to render it reasonable and enforceable. In certain circumstances, however, if only a discrete phrase within a particular covenant is held to be unreasonable, individual words or phrases may be “blue-pencilled” or severed, provided that what is left makes independent sense without the need to modify the wording and that the sense of the contract is not changed. I shall consider this issue in greater detail below.

The first stage then is the construction of the contract. The normal principles of construction apply, as is clear from the decision of the Court of Appeal in Arbuthnot Fund Managers v Rawlings [2003] EWCA Civ 518, a case which involved proceedings to enforce post-termination restrictive covenants in a service agreement. Chadwick LJ, with whom Newman J agreed, stated as follows at paragraphs 20 to 24:

“20.

The first task of the court - faced with the contention that post-termination restraints on an employee's ability to engage in future business activity are not enforceable - is to construe the contract under which those restraints are said to be imposed. That, as it seems to me, is a task which the court ought to carry out on an application for interim relief (if there is one) if it can properly do so. Unless the court is satisfied that there are disputed facts which bear on the construction of the relevant contractual terms, and that those facts cannot be resolved without a trial, the court at the interlocutory stage is as well able to construe the relevant contractual terms as a court will be at a trial. There is no need to put off until trial determination of the question - what do the contractual terms mean? The court can, and should, determine the scope of the restraints which, as a matter of construction, the contractual terms seek to impose.

21.

It is not suggested, in the present case, that there are disputed facts which need to be resolved before the task of construction can properly be undertaken. In addressing that task, it is necessary to keep in mind two factors; the first is that the exercise is one of construction; and that, in the construction of a covenant in restraint of trade, the same principles are to be applied as in the construction of any other written term. The principles are conveniently set out in this context in the judgment of Lord Justice Harman in this Court in Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526. At page 533 he pointed out that it is the first principle in construing written documents that the court should consider the circumstances at the time when they were made, and the position of the parties who entered into them. He referred to the observations of Sir Nathaniel Linley MR in Haynes v Doman [1899] 2 Ch 13, 25;

‘Agreements in restraint of trade, like other agreements, must be construed with reference to the object sought to be attained by them. In cases such as the one before us, the object is the protection of one of the parties against rivalry in trade. Such agreements cannot be properly be held to apply to cases which, although covered by the words of the agreement, cannot be reasonably supposed ever to have been contemplated by the parties, and which on a rational view of the agreement are excluded from its operation by falling, in truth, outside, and not within, its real scope.’

22.

That approach is particularly apposite in a case such as the present. The opening words of clause 15.1, which govern the sub-clauses which come after it, are these:

‘In order to protect the goodwill confidential information trade secrets and business connections of the company ..... ‘

Those words direct the reader to construe what comes afterwards with that object in view. Unless compelled by the language to do so, the court should not construe what comes afterwards so as to encompass activities which could never have been thought by the parties as likely to damage the goodwill or business connections which the clause (as a whole) is intended to protect.

23.

The second factor which it is necessary to keep in mind is that it is not the function of the court to strive to give to the clause a meaning which enables it to have effect within the constraints of public policy if that is not the meaning which, as a matter of construction, the parties are to be taken to have intended that it should have. As Lord Justice Simon Brown put it in J A Mont (UK) Ltd v Mills [1993] IRLR 172 at paragraph 28 on page 176:

‘ ..... the court should not too urgently strive to find within restrictive covenants ex facie too wide, implicit limitations such as alone could justify their imposition.’

24.

The court must steer a course between giving to the clause a meaning which is extravagantly wide; and giving to the clause a meaning which is artificially limited. The task of the court, in construing the contractual term is simply to ask itself: "what did these parties intend by the bargain which they made in the circumstances in which they made it?"

A similar approach was adopted by the Court of Appeal in Turner & Others v Commonwealth & British Minerals Limited [2000] IRLR 114, where at paragraph 14 Waller LJ also said this:

“There is in my view some interconnection between the question of construction and the doctrine of restraint of trade. That, as it seems to me, must be so for a least one reason. If a particular construction was to lead to the view that the clause was unenforceable, then an alternative view, which did not lead to the same result if legitimate, ought to be preferred.”

I accept Mr Reade’s submission that if, having examined the restrictive covenant in the context of the relevant factual matrix, the court concludes that there is an element of ambiguity and that there are two possible constructions of the covenant, one of which would lead to a conclusion that it was in unreasonable restraint of trade and unlawful, but the other would lead to the opposite result, then the court should adopt the latter construction on the basis that the parties are to be deemed to have intended their bargain to be lawful and not to offend against the public interest.

Having regard to the evidence I have heard in this case, the factual matrix for this contract and clause 12.1(a) in particular, in my view, includes the fact that brokers exercise their skills in many different asset areas, including for example equities, credit and commodities. Each of these asset areas will comprise a separate business activity. Mr Levi recognised this at paragraph 3 of his witness statement, describing GFI as a company which “operates businesses in all of the major asset classes”. The businesses to which he was there referring were not businesses in the sense of separate legal entities, but business activities carried out in the various asset areas. The asset classes he referred to, including equity derivatives, are then subdivided into individual operating desks, each of which will have its own specific business activity and operate as an individual profit centre, possessing its own goodwill and confidential information. The brokers employed generally work on a particular desk. They develop and foster the client connections and carry out the work which is at the heart of the particular activity carried out on that desk. The witnesses all referred in evidence to broking on the DAX or the CAC or the Eurostoxx. When Mr Levi wanted to start up the DAX desk at GFI he was clearly interested in recruiting DAX brokers.

In clause 12.1(a) the word “business” as opposed to the expression “ Relevant Business” is not defined. Mr Sendall, for the defendant, submits essentially that the words “any business” in clause 12.1(a) refer to “a business” in the sense of a business entity. Accordingly, since GFI is “a business” which competes with the Relevant Business, namely TFS, it would be a breach of the terms of the clause for GFI to employ the defendant in any capacity. There is, he submits, no reason to apply a narrower definition to the expression “any business” in clause 12.1(a) than applies to the expression “a business” where it appears in the covenants at 12.1(b) and (c). Also, the definitions of “Territory” in the 1996 and 2001 versions of the defendant’s contract make it plain that it is a business that is referred to in 12.1(a). The clause, he contends, is an area-based non-compete clause, the principal purpose of which is to seek to prevent the defendant from working in any capacity for a business within the territory that competes with or is similar to a relevant business. As such, the clause seeks to prevent the defendant from working for GFI in any capacity, since GFI is a business which competes with a relevant business (TFS). This construction leads inexorably to his submission at the third stage of the process that TFS have failed to show that this wide covenant is reasonable. It must therefore be held to be unenforceable.

I have considered these submissions carefully, but I am unpersuaded by them. Firstly, seen in its factual context (as referred to above), this contract, particularly having regard to the definition of “Relevant Business” and the introductory words of clause 12.1, seems to me to have, as its focus, the business activity in which the defendant is involved.

Secondly, the words “a business”, signifying a single entity, do not appear in clause 12.1(a). Whilst I accept that the word “business” can have two meanings, namely business as either a generic entity or as a functional activity, the use of the word “any” before it denotes, in my judgment, a particular functional activity, as exemplified in the question, “Are you doing any business at the moment?”

Thirdly, that the whole focus of the clause is on the business activity seems to me to be evident from the fact that clause 12.1(a) describes the prohibition as being upon something which is competitive with, or similar to, a relevant business within the territory. “Relevant Business” is defined as:

“The business of any business of the Company or any Associated Company in which, pursuant to your duties, you were materially involved at any time during the Relevant Period”.

TFS Derivatives Limited is engaged, amongst other things, in broking equity derivatives. The defendant, under the contract, is employed as an equity derivatives broker. Thus, the business of any business of the claimant is clearly focused on the particular business activity.

Fourthly, limited assistance is to be gained, in my view, from a consideration of the definition of “Territory” in the previous contracts to which Mr Sendall referred, in describing clause 12.1(a) as an “area-based non-compete covenant”, because the wording changed in respects other than simply the range of the territory referred to. In the 1996 contract the definition was as follows:

“‘Territory’ means a radius of 3 miles of the premises of the Company or Relevant Business (as the case may be) operating or planned as at the date of termination of your employment. A business will be within the Territory if either any such business in which you are to be involved is located or to be located within the Territory or it is conducted or to be conducted wholly or in partly within the Territory”.

It is clearly referring to business in which the employee is to be involved in the future, and there is no reference to a relevant period.

In the 2001 contract the three-mile radius was changed to a ten-mile radius, but the wording was otherwise unchanged. In the 2003 contract, however, with which we are concerned, the definition is as follows:

“‘Territory’ means England and any other country or state in which the Company or any Associated Company is operating or planning to operate at the expiry of the Relevant Period. A business will be operating within the Territory if either any such business in which you were involved at any time during the Relevant Period is located or to be located within the Territory or it is conducted or to be conducted wholly or partly within the Territory.”

Thus, the relevant period of 12 months is introduced and the clause refers to business in which the employee was in the past involved. The reference in this definition clause to “a business” is clearly a reference to the business of TFS, not of the defendant. By contrast, the words “within the Territory” in clause 12.1(a) do not appear after the phrase “any business” in the second line, but follow the phrase “Relevant Business” as defined. They are, in my judgment, defining the location of that Relevant Business and not the competing business activity of the defendant.

It is clear, in any event, from this definition clause, that Territory, in terms of location, is recognised in the current contract to have limited relevance to the broking skills of today, applied as they are in global financial markets using the most sophisticated communication technology.

Further support for the correctness of this construction is to be found in other aspects of the factual matrix addressed in the evidence before me. In particular, Robert Andersen’s contract contained the same operative term. The evidence of the defendant and Mr Levi was that GFI made it a term of their contracts of employment that an employee could only work for them if he was lawfully free to do so. Mr Andersen commenced employment with GFI on 5^th July, almost immediately after the end of his garden leave, suggesting that GFI, who were aware of his contractual provisions, did not take the view that the clause prohibited him from working for GFI at all, but only from working in the particular business activity in which he had previously been engaged. On 9^th July 2004 TFS’s solicitors wrote to Mr Levi – page 384 – drawing attention to the restrictive covenants and stating:

“Our client was alarmed yesterday to learn that Mr Andersen has begun work for you in a similar capacity to his previous employment with our client and, further, that he has been dealing with clients with whom he previously dealt when employed by our client. These actions constitute breaches of both clauses 12.1(a) and 12.1(c) of his contract.”

Mr Levi, in his reply at page 390, stated:

“Given the nature of the work Mr Andersen is undertaking on our behalf, in particular taking into account the products he is working with and the contacts in the market that he is speaking to we fail to see how he can be acting in breach of his former contract of employment with your client.”

The solicitors in their letter of 9^th July did not suggest merely that Mr Andersen had commenced employment with a competitive business and was therefore in breach of the covenant. It seems to me that Mr Levi, in his reply, was focusing upon the particular work that Mr Andersen was undertaking, suggesting that he had understood clause 12.1(a) to bear the same meaning contended for by TFS in the present case. Further correspondence between solicitors concerning Mr Andersen was to the same effect.

Much time was spent in evidence analysing the correspondence between solicitors representing the parties in this case between June and September 2004. Mr Sendall submitted that it showed TFS now to be advancing a narrower construction of clause 12.1(a) than they had hitherto, and that this was a fallback or negotiating position adopted by them once they realised that the correct construction, as contended for by the defendant, meant that the clause was unenforceable.

I reject this submission. I rely, firstly, on the correspondence I have already referred to concerning Mr Andersen. Secondly, while there are points to be made on both sides in relation to the particular phrasing used by solicitors in correspondence when advocating the merits of their respective clients’ contentions, there is, nevertheless, merit in Mr Reade’s submission that all the correspondence must be read against the background that the defendant had expressly told Mr Saffadi in June that he was to commence employment with GFI as the manager on the DAX desk. The defendant admitted that he had said nothing to TFS subsequently to change the perception that that was the intention; and the entirety of the correspondence was conducted on the basis that TFS understood that the defendant would be employed in the same business activity he had worked in for them, i.e. brokering on the DAX desk.

The high point of Mr Sendall’s submissions was the letter from TFS’s solicitors dated 6^th September 2004 – page 492 – where it was stated:

“Your client must now provide us with either:

(a)

an undertaking that he will not, in breach of the restrictive covenant in paragraph 12.1(a) of his contract of employment, commence employment or be engaged in any capacity with GFI until 22 December 2004 and that he will adhere to the restrictions at paragraph 12.1(b) and (c) of his contract for the full period of the covenants; or

(b)

an undertaking that your client will not commence employment with GFI before the return date. We are prepared to make the application on notice provided that your client gives this undertaking.”

Whilst reference is made to employment “in any capacity” with GFI, the opening words of paragraph (a) do refer expressly to clause 12.1(a). Further, in their subsequent letter of 14^th September – page 504 – TFS’s solicitors stated:

“It is not our suggestion that our client’s position is that your client is unable to work for GFI in any capacity. We would refer you to the Order for an interim injunction of 7 September. The Order states, in terms, at 1(1) that your client must not be employed in any business which is competitive with a Relevant Business. A ‘Relevant Business’ is defined, in terms, to be any business of our client in which your client was materially involved at any time during the period of 6 months ending on the last day of his employment with our client. This Order does not prevent your client from working for GFI ‘in any capacity.’”

Whilst Mr Sendall referred to this paragraph as being somewhat “Delphic”, Mr Reade rightly points out that there was no response from the defendant’s side seeking clarification of the words used, or suggesting that they had understood the matter differently.

In conclusion, therefore, I regard clause 12.1(a) on its true construction as referring to the business activity in which the defendant is engaged and not to a separate business entity, and in my judgment this is what the parties intended by the bargain they made. I do not consider that there is any ambiguity, but, if there was, I would be minded to adopt the approach advocated in the case of Turner, and would adopt the narrower approach contended for by TFS. I reject entirely Mr Sendall’s submission that the clause should be declared void for uncertainty.

Mr Sendall further submitted that the clause was unreasonably wide because it sought to restrain employment “in any capacity” in any competitive business, or in any business which was “similar to” a Relevant Business within the Territory. However, it seems to me, firstly, that the words “in any capacity” relate only to the word “interested” and not to the words which precede that word in the clause. The clause identifies disjunctively a number of ways in which the defendant may be involved in a business activity: by undertaking, carrying on, being employed in, being engaged in, or being “interested in any capacity” in any business. Construed correctly, the phrase “interested in any capacity” seems to me to contemplate a situation where the defendant may not have a contract of employment or a contract for services, but may still have a direct interest, for example as a director of a company. So construed, the clause is not unreasonably wide, and Mr Sendall does not contend that it is if construed in that way.

I consider, however, that Mr Sendall is on stronger ground in his submissions relating to the inclusion of the words “or similar to”, which appear in sub-clauses (a), (b) and (c) of clause 12.1. It seems to me, reviewing the evidence, that no evidence whatsoever was put forward by the witnesses called on behalf of TFS to justify the extension of the restriction on an employee to business activity which is not only competitive with but is also “similar to” a Relevant Business. I regard these words as unreasonably wide and, therefore, unenforceable.

Mr Reade invites me, in those circumstances, to blue-pencil or sever the phrase “or similar to” from sub-clauses (a), (b) and (c) and, having regard to the relevant authorities to which I was referred, I have concluded that that is the correct course to take on the particular facts of this case. In Attwood v Lamont [1920] 3 KB 571 CA, Younger LJ stated that severance was only permissible where the covenant is not really a single covenant, but is, in effect, a combination of several distinct covenants. More recently, however, in the case of Sadler v Imperial Life Assurance Company of Canada Ltd [1988] IRLR 388 (High Court), the judge held, after reviewing the authorities, that a contract which contains an unenforceable provision nevertheless remains effective after removal by severance of that provision if the following conditions are satisfied:

“(1)

The unenforceable provision is capable of being removed without the necessity of adding to or modifying the wording of what remains.

(2)

The remaining terms continue to be supported by adequate consideration.

(3)

The removal of the unenforceable provision does not so change the character of the contract that it becomes ‘not the sort of contract that the parties entered into at all.’” (para 19)

This approach was followed in the later case of Marshall v NM Financial Management Limited [1996] IRLR 20 (High Court), in which the approach in Sadler was followed, but with the addition of a fourth condition, i.e. that the severance must be consistent with the public policy underlying the avoidance of the offending part.

I agree with Mr Reade’s submissions that all these conditions would be met in this case so far as the particular words “or similar to” are concerned. These words can, therefore, in my judgment, properly be excised from sub-clauses 12.1(a), (b) and (c). Even if it were necessary to find separate or distinct covenants within clause 12.1(a) for the words to be severed, in my judgment the effect of clause 12.3 of the contract (see above) is that clause 12.1(a) can properly be construed as comprising two distinct restrictions, as follows, namely, that the defendant will not:

“(a)

For six months undertake, carry on, or be employed, engaged or interested in any capacity in any business which is competitive with a Relevant Business within the Territory; and (b) for six months undertake, carry on, or be employed, engaged or interested in any capacity in any business which is similar to a Relevant Business within the Territory.”

If clause (b) is in unlawful restraint of trade, and I find that it is, then it can be excised and the remaining covenant remains in effect. Appropriate injunctive relief can be granted in those circumstances, reflecting that first restriction alone.

No dispute arises in this case in relation to the meaning of 12.1(b) or (c). The issue in respect of these covenants is as to the reasonableness of their restriction, having regard to the business interests of TFS which require protection. I shall deal with this issue below.

I turn then to the second stage of the three-stage process identified earlier in this judgment, namely the legitimate business interests of TFS. The evidence established and indeed, at the conclusion of the trial, the defendant properly conceded, that TFS had legitimate business interests to protect in the form of its client connection, the stability of the workforce, and confidential information, though the extent of that last interest is in dispute. I accept Mr Saffadi’s evidence that the key assets of most brokerage companies are generally their brokers, their brokers’ client relationships, and their confidential information. Brokers, as it emerged from the evidence, will regularly develop the closest of relationships with their key clients, and the market is relatively small with relatively few clients operating within it. Therefore, whilst clients do not work exclusively with TFS, a good broker will have superior connections with certain clients, who will look to them as the first point of call when they are thinking of showing an interest in a particular options structure. Through building those close client relationships with individuals, brokers are able to carve out for themselves a niche in the market.

Mr Adamson’s evidence, which I also accept, was that if a broker has established solid relationships with his contacts and then moves to a different employer, it is quite possible that the trader will move its business with the broker. All traders will have brokers whom they favour over others and, therefore, when a broker leaves, it is essential that there is time for established customer connections to be cemented by new brokers recruited to replace those who leave. Otherwise, the risk is that the business will always be lost to a competitor. This defendant had strong relationships with his clients, and it is entirely possible, therefore, that he would be able to bring those clients with him to his new employer.

It is also the case that traders will sometimes move from dealing on one market to another. If there is a strong connection with one particular broker, they will often want that broker to continue to carry out the trades for them or to introduce them to a colleague specialising in that particular market. This makes the trader’s life easier, and means that the broker has the chance to extend his remit with the client and to do more business with him. Consequently, losing a particular trader connection when a broker leaves can sometimes lead to business being lost in other markets in the future. Mr Saffadi’s evidence, with which Mr Adamson agreed and which I also accept, was that whilst personal relationships with their brokers are important, at the end of the day the trader clients are looking for the best rates they can achieve. Small differences in brokerage rates can cause clients to move their business to a competitor. For this reason, it is vital that the confidentiality of brokerage rates is maintained. Whilst it was accepted on the evidence that there was in many cases a headline rate, which was expressed as 50 cents in 90% of cases, it was also clear on the evidence that, on some occasions, special deals and discounts are agreed with particular clients. Thus, whilst some of the larger traders will be able to command a set brokerage rate which can become known in the market, the larger banks may have a panel of brokers whom they will use from time to time. These brokers will not know the rates that the other panel members are charging, and whether and, if so, by how much, some brokers might be undercutting the normal rate. Special deals, as I have indicated, can exist where a particular trade contact will agree a lower rate with a broker in return for increased business. Clearly, if a competitor knew of these rates, they could undercut them and attempt to take more business themselves. This defendant was well aware of the brokerage rates which TFS applies to its trader clients in the DAX market, as he would be referring to them on a daily basis in the trades that he was doing. He would have seen copies of the brokerage letters confirming the rates agreed, which are kept centrally in the equity derivatives room. He was also aware of the rates TFS charges in its other equity derivatives markets. One of his regular duties was to check clearing fee invoices for the DAX index. He also had the control of a DAX database, which is a record of all the trades being done on that particular desk, the total brokerage obtained, and the total charge to the client. He was responsible for compiling all that information.

Through working in the equity derivatives room, I accept Mr Adamson’s evidence that the defendant would have gained an invaluable insight into the amount of business being placed by certain clients. This would have been acquired in a number of ways, including checking the clearing fee invoices, checking the white board, which is a computerised system specifically developed by TFS for traders to be able to track their deals and the movement in prices being negotiated, and through his control of the DAX database. All this information, in my judgment, would be very helpful to a competitor. A competitor would no doubt be able to consider ways in which to reallocate its resources and target clients in a particular way which could bring them more business. This information, coupled with knowledge of the trader clients themselves and the strength of TFS’s broker relationships with those trader clients, would place another party at a significant competitive advantage.

The evidence as to the defendant’s knowledge of salary structures and bonuses awarded to other brokers and of future plans for TFS was disputed by the defendant, and I was not satisfied, on the evidence, that he would have any more than a general, and probably inaccurate, knowledge of current salaries and levels of bonus or in relation to the future direction of the company. However, the evidence as a whole clearly established that TFS had legitimate interests requiring protection in all the three categories listed above.

The third and final question to be answered in the process is, therefore, whether the covenants in clauses 12.1(a) to (c), are no wider than is reasonably necessary for the protection of those interests. In the case of Littlewoods Organisation v Harris [1977] 1 WLR 1472 CA, Lord Denning, with whom Megaw LJ agreed, stated at paragraph 1479A-E as follows:

“It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not: and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period. That appears from the judgment of Cross J. in Printers & Finishers Ltd v Holloway [1965] 1 W.L.R. 1, 6:

‘Although the law will not enforce a covenant directed against competition by an ex-employee it will enforce a covenant reasonably necessary to protect trade secrets . . . If the managing director is right in thinking that there are features in the plaintiffs' process which can fairly be regarded as trade secrets and which their employees will inevitably carry away with them in their heads, then the proper way for the plaintiffs to protect themselves would be by exacting covenants from their employees restricting their field of activity after they have left their employment, not by asking the court to extend the general equitable doctrine to prevent breaking confidence beyond all reasonable bounds.’”

In the present case, the defendant advances the interesting proposition that if clause 12.1(a), correctly construed, means what I have found it to mean, the covenant is nevertheless still in unlawful restraint of trade, because an alternative clause would be more appropriate, more effective and, therefore, more reasonable; namely a clause providing for six months’ notice entitling the employer to place the defendant on garden leave for the whole of that period. Mr Sendall submits, correctly, that there is as yet little authority on the interplay between garden leave and post-termination covenants. He invites me, therefore, to provide such guidance in this case and to find on these facts that six months’ notice on garden leave would have been a more flexible and more reasonable restriction to impose on this defendant. He contends that the courts should view suspiciously non-compete clauses of the kind contained in clause 12.1(a) and should recognise the greater flexibility inherent in garden leave clauses of the kind he advocates. One of his principal submissions in support of this proposition was that employers who wish to restrict the future employability of a former employee should be prepared to pay for such restrictions. He acknowledges that employees such as this defendant, working as brokers in the financial sector, command extremely high earnings, but points out that they enjoy a lifestyle commensurate with such earnings and have higher bills to pay than most. New employers on the horizon do not always offer a “golden hello”. He submits that this court should therefore take the opportunity, in one of the few cases of its kind to have reached a trial and where evidence has been heard, to say something about the reasonableness and greater attraction of garden leave clauses generally and to strike down clause 12.1(a).

Interesting though his invitation is, it seems to me that this is not a case in which it is appropriate to make any general observations or to seek to provide general guidance in relation to the role and usefulness of garden leave clauses as opposed to non-compete clauses of the kind included in this contract.

Firstly, given the urgency of the matter and the need for speedy judgment, I have had insufficient time in any event to consider and review all the relevant authorities, as would be required if general guidance on such an important issue was to be given.

Secondly, I am not in any event persuaded, on the evidence and the submissions I have heard in this case, that the point has now been reached for garden leave clauses, despite their popularity and prevalence, to negate the necessity for non-compete clauses in all cases. It seems to me that the matter will always fall to be determined on the particular facts of the case, and, on the evidence I have heard in this case, I am not persuaded that the clause Mr Sendall suggests to be preferable would in fact be more reasonable than clause 12.1(a) as I have construed it.

My reasons are these. Firstly, six months’ notice with enforced garden leave for the whole of that period can legitimately be regarded, in my view, as more onerous for this defendant than the three months’ non-compete clause in clause 12.1(a). The effect of it would be to keep this defendant out of employment completely and unable, therefore, to exercise his skills as a broker in any capacity. A broker’s skills in the marketplace would tend, it seems to me, to atrophy at least to some extent during six months’ enforced leave. That would be neither reasonable inter partes nor in the public interest.

Secondly, such a clause would not be appropriate in the case of an employee who is summarily dismissed from his employment, or who simply walks away without giving his contractual notice, in which case a reasonable and enforceable non-compete clause would be necessary in order to protect the employer’s legitimate interests.

Thirdly, a six-months’ enforced period of garden leave, even if in accordance with an express term of the contract, would in any event be likely to face resistance on the basis that its use amounts to a breach of the implied term of trust and confidence. This was in fact what the defendant was himself submitting when this trial began, in support of his contention that TFS were in repudiatory breach of his contract.

Fourthly, in relation to the submission that the employer should be prepared to pay his employee to stay at home in such circumstances, it seems to me that the question whether the individual employee is being paid is relevant only to the question of whether the terms are reasonable between the parties. Notwithstanding that this is a case occurring in the employment context, for employees such as this defendant, who are highly valued and most generously rewarded, the inequality of bargaining power, which is recognised to apply in many employment relationships, simply does not exist, or, at any rate, does not exist to such a degree as to render a non-compete clause of the kind which appears in 12.1(a) unreasonable as between the parties. This contract, taken as a whole, provided this defendant with a fixed and substantial salary for a one-year fixed term together with the opportunity to earn considerable, additional amounts by way of bonus awards. Part of the consideration he provided for that remuneration were the post-termination restrictions contained in clause 12.

Finally, in relation to Mr Sendall’s suggestion that clause 12.1(a) would not in any event provide the protection which TFS need and is, therefore, ineffective to protect their interests, in my judgment, the evidence in this case suggested otherwise. In particular, Mr Adamson’s evidence, which I accept, was that whilst there will always be difficulties to some extent in policing post-termination covenants of the kind in clause 12, greater protection is more likely to be secured from enforcement of a non-compete clause of the kind in clause 12.1(a) than from non-solicitation clauses which, as Mr Andersen’s case exemplified, are almost impossible to police in the circumstances of the employment with which we are concerned in this case.

I have concluded, therefore, that the claimant has succeeded in showing on the evidence that clause 12.1(a), correctly construed and with severance of the words “or similar to”, as I have already indicated, is no wider than is reasonably necessary to protect their legitimate interests and that it is reasonable in the interests both of the parties and of the public. In all the circumstances, I consider, in addition, that it is an appropriate case for the granting of injunctive relief in the terms of 12.1(a), and I shall so order. The defendant is consequently able immediately to work for GFI in business activities other than those on which he was engaged when employed at TFS. He will in any event be free to work on the DAX desk at GFI as from 22^nd December next.

I turn then, finally, to clauses 12.1(b) and (c), which I can deal with more shortly. Mr Sendall submits that there is no evidence of breach or intended breach of either clause, these being clauses that rely upon the claimant’s interest in maintaining the stability of the workforce. Accordingly, he submits that there is no basis for an injunction to enforce them. In any event, he submits that the scope of the restriction sought to be imposed is far too wide in respect of each covenant. He complains, in particular, that the duration (6 months) is too long in both 12.1(b) and (c) and has not been justified by the claimant; and that the definition of “employee” in 12.2(d) is too broad, in that even the most minor of “dealings” is apparently sufficient. Further, in relation to 12.1(c), he complains that the clause has no territorial restriction.

It is common ground on the evidence in this case that the time needed to secure client relationships is between six to twelve months, but the evidence before me pointed also to the impact on the team of brokers of one of their number departing and the destabilising effect that this can have on those who remain. The evidence was that two employees on the DAX desk at TFS also left the company after this defendant. In the circumstances, I accept Mr Reade’s submission that the vulnerability of those remaining to attempts from outside the company to solicit their services and to recruit individuals sequentially means that a period of more than six months would be reasonable in order to protect the integrity of the workforce. This is the factual matrix for determining the reasonableness of the protection sought for what it is conceded is a legitimate business interest of TFS. In my judgment, taken as a whole, the clauses go no further than is reasonably necessary in all the circumstances to protect that interest, and I uphold them as enforceable post-termination covenants, though with severance of the words “or similar to” for the reasons I have already given.

However, I accept Mr Sendall’s submission that there is no evidence, or rather no evidence has been advanced before me in this trial, that this defendant has, in the five months since his departure from TFS, breached, or even threatened to breach either of the covenants at 12.1(b) or (c). The evidence suggests that few, if any, of the original DAX team at TFS now remain. I consider, therefore, in all the circumstances, that it is not appropriate to grant injunctive relief today in the terms of 12.1(b) and (c).

These then are the reasons for the decision I have reached in this case. If further submissions are to be made as to the appropriate form of the order the parties can return to court.