26 May 2010, High Court (Chancery Division). Marcus Pilgerstorfer represented the successful Defendants.
Summary
The Court held that a restrictive covenant preventing a foreign currency exchange account executive from soliciting customers or potential customers of his ex-employer for 12 months was likely to be held to be an unreasonable restriction in terms of (i) duration and (ii) its reach to potential customers, and was therefore likely to be unenforceable. Injunction refused.
The Facts and the Clause
AFEX trades in foreign currencies and Mr Abbassi had been employed by AFEX as an account executive under a contract of employment. His employment ended on 24 December 2009, but for the three months prior to that date, he had been placed on garden leave.
The contract of employment had a number of restrictive covenants, including the following:
“13.1 The Employee undertakes that he will not, in any Capacity (without the previous consent in writing of the Employer) for:…
13.1.2 a period of 12 months immediately after the Termination Date, [in any Capacity for a Competitor] negotiate or, solicit Business from, or endeavour to entice away from the Employer a Customer, or a Potential Customer.
13.3 The periods for which the restrictions at clauses … 13.1.2, … apply shall be reduced by any period that the Employee spends on Garden Leave (pursuant to clause 10) immediately prior to the Termination Date.”
After the termination of his employment, Mr Abbassi obtained alternative employment with IFX, a competitor.
The Decision
The Court (Mr Jeremy Cousins QC, sitting as a deputy judge) held that:
(a) As it would not be possible for the trial to be held before the expiry of the restrictive covenant, the Court would focus to a greater extent upon the underlying merits of the claim, Lansing Linde Ltd v Kerr [1991] IRLR 80 applied (§§21-22).
(b) AFEX had demonstrated a legitimate business interest which required protection by the clause: “In the case of a recently departed employee there is a real prospect that there will have been dealings or communication close in time to his departure, so that the influence of the relationship with the customer may be significant. These are legitimate interests to protect, so that a non-solicitation covenant can be justified.”(§61)
(c) However, to be enforceable, the covenant “must be no more than is reasonably necessary to protect the business interests concerned... [a matter to be] judged as at the time when the contract was made, viewed from the perspective of persons in the position of the parties, looking at the contractual provisions as a whole, and in the factual setting in which the contract was expected to operate” (§62).
(d) Mr Abbassi did not hold a senior position at AFEX (§64)
(e) The Judge was not persuaded that it “will probably be established that there was likely to be any adverse effect on customer connections as a result of Mr Abbassi’s solicitation, after any significant break (such as six months) in his dealing with them”; Stenhouse Australia Limited v Phillips [1974] AC 291 applied (§64).
(f) In particular the Judge held: “In the highly competitive market in which AFEX operated, with customers hunting for keen prices, and being hunted by dealers seeking to undercut one another, I consider that it is likely to be found that by the time that an individual such as Mr Abbassi has seen out his six-month non-dealing covenant, during which he has been on garden leave for two months, things will have moved on so much that protection against solicitation from him is unnecessary. A significant amount of business with AFEX’s customers is likely to have occurred in the intervening period. Customers are likely to have had dealings with other individuals at AFEX, and very possibly with other dealers either because they have sought prices from them, or because they have been canvassed by the dealers” (§65)
(g) The Judge further held that it was unlikely to be established that information regarding pricing would be a significant factor because “the foreign exchange market is notoriously fast moving” (§66). (h) Quite apart from the duration of the protection, the Judge was not satisfied that it was likely to be found reasonable or necessary to extend protection beyond customers to potential customers (§70).
Accordingly, the Judge refused to issue an injunction. |
