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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Tillman v Egon Zehnder Ltd [2017] EWCA Civ 1054 (21 July 2017) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2017/1054.html Cite as: [2017] EWCA Civ 1054, [2017] WLR(D) 492, [2017] IRLR 906, [2018] ICR 574 |
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CIVIL
DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE MANN
Strand, London, WC2A 2LL |
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B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE PATTEN
and
THE RIGHT HONOURABLE LORD JUSTICE SALES
____________________
MARY CAROLINE TILLMAN |
Appellant |
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- and - |
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EGON ZEHNDER LIMITED |
Respondent |
____________________
Mr James Laddie QC (instructed by Reynolds Porter Chamberlain LLP) for the Respondent
Hearing dates: 11th July 2017
____________________
Crown Copyright ©
Lord Justice Longmore:
Introduction
"4.5 You shall not, during the course of your employment, directly or indirectly, hold or have any interest in, any shares or other securities in any company whose business is carried on in competition with any business of the Company or any Group Company, except that you may hold or have an interest in, for investment only, shares or other securities in a publicly quoted company of up to a maximum of 5 per cent of the total equity in issue of that company.
…
13.2 You shall not without the prior written consent of the Company directly or indirectly, either alone or jointly with or on behalf of any third party and whether as principal, manager, employee, contractor, consultant, agent or otherwise howsoever at any time within the period of six months from the Termination Date:
…
13.2.3 directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company which were carried on at the Termination Date or during such period."
Factual Background
The question of construction
The Judgment
"All covenants in restraint of trade are prima facie unenforceable at common law and are enforceable only if they are reasonable with reference to the interests of the parties concerned and of the public. Unless the unreasonable part can be served by the removal of either part or the whole of the covenant in question, its inclusion renders the covenant or the entire contract unenforceable. A covenant in restraint of trade (if unreasonable) is void in the sense that courts will not enforce it, but if the parties wish to implement it they would not be acting illegally and the courts would not intervene to prevent them from doing so. It has been held that "a covenant which is unenforceable ab initio should simply be disregarded unless and until it is subsequently and explicitly re-agreed". … The validity of a covenant in restraint of trade is assessed at the date when the contract is entered into."
He emphasised the requirement that the question of validity must be judged as at the time when the contract was made (January 2004) not when Ms Tillman became co-Global Head of her group (in January 2012). He recorded Mr Laddie QC's submission for Egon Zehnder that, in the light of clause 4.5, it would be commercially anomalous if the post-termination non-compete covenant prohibited all shareholdings (including the innocuous 5% holding in a public company) because the post-termination covenant would then be wider than the applicable covenant during employment. He then said:-
"I consider that there is sufficient ambiguity in the expression "directly or indirectly … interested in any business" to justify considering indicia as to what was really meant. All three concepts – "engage", "be concerned" and "interest" – are linked to the concept of "business", not an entity. The first two connote a close connection in the nature of a real involvement in the actual conduct of the business. The third imports a lesser connection, but it is capable of taking its colour from the first two. It would cover an actual interest in the business (as in a partnership, for example). It would be capable of stopping there, with an "indirect" interest being such an interest held through a nominee. On the other hand it would also, as accepted by Mr Laddie, be capable of catching a shareholding – that would be a form of indirect interest in the business (though a more tenuous one). That lack of complete clarity justifies looking for indicia elsewhere, and … I find that the presence of clause 4.5, which expressly deals with shareholding (so the parties know how to deal with that problem if it arises) and yet permits a limited shareholding, demonstrates that the non-compete clause was not intended to deal with shareholding at all. Otherwise the anomaly identified above would exist. I consider that on normal principles of construction it would be right to favour a construction which does not gives rise to an anomaly, and in addition it would be right to favour a construction which validated rather than invalidated the clause … It follows that this construction point does not lead to an invalidation of the clause."
The submissions
i) the natural meaning of "interested in any business carried on in competition with any of the businesses" of Egon Zehnder includes a shareholding;
ii) such meaning is consistent with such authorities as there are;
iii) the clause must be intended to prohibit a substantial shareholding on any view;
iv) the judge was therefore wrong to find any ambiguity in the clause; and
v) the judge was also wrong to hold that the clause was concerned only with business in the abstract and not "an entity" which had legal personality.
It follows that the injunction granted by the judge should be set aside.
"14. 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 far at 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."
Ambiguity was not a pre-condition to the operation of this principle which only required an "alternative … legitimate" construction to be available. If he was wrong on construction and the words "interested in" covered a shareholding in a competitor, he submitted (by way of a respondent's notice), that the words "or interested" in the covenant should be severed from the covenant, leaving a valid covenant which could be duly enforced.
Construction
"But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage."
Severance
"The learned judges of the Divisional Court, I think, took the view that such severance always was permissible when it could be effectively accomplished by the action of a blue pencil. I do not agree. The doctrine of severance has not, I think, gone further than to make it permissible in a case where the covenant is not really a single covenant but is in effect a combination of several distinct covenants. In that case and where the severance can be carried out without the addition or alteration of a word, it is permissible. But in that case only."
This court also relied on Lord Moulton's speech in Mason v Provident [1913] AC 724, 745 in which he said that it was no business of the courts to come to the assistance of an employer who had exacted an unreasonably wide covenant and, by applying their ingenuity and knowledge of the law, to carve out of the void covenant the maximum of what the employer might validly have required. Severance was also refused in the British Reinforced Concrete case for the reasons given in Attwood v Lamont.
"a contract which contains an unenforceable provision nevertheless remains effective after the removal or 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 continued 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"."
Conclusion
Lord Justice Patten:
Lord Justice Sales: