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IN THE SUPREME COURT OF JUDICATURE CHANF 97/0237/B

Royal Courts of Justice

Strand, London WC2

Thursday, 22nd May 1997

B e f o r e :

LORD JUSTICE NOURSE

LORD JUSTICE EVANS

LORD JUSTICE WARD

---------------

(1) DAWNAY, DAY & CO LIMITED

(2) WILCOURT INVESTMENTS LIMITED

(suing on its own behalf and on behalf of

all the shareholders in the Fifth Defendant

other than the First to Third Defendant

Plaintiffs/Respondents

-v-

(1) FREDERIC DE BRACONIER D'ALPHEN

(2) PATRICK JOHN-PIERRE JOHNSTON

(3) SALLY ANN PARKMAN

(4) CANTOR FITZGERALD INTERNATIONAL

(an unlimited company)

(5) DAWNAY, DAY SECURITIES LIMITED

Defendants/

Appellants (Defendants 1-3)

---------------

Handed Down Judgment prepared by

Smith Bernal Reporting Limited

180 Fleet Street London EC4A 2HD

Tel: 0171 831 3183 Fax: 0171 831 8838

(Official Shorthand Writers to the Court)

---------------

MR P ELIAS QC and MR A CLARKE QC (instructed by Messrs Olswang, London WC2) appeared on behalf of the Appellant First, Second and Third Defendants.

MR A GRABINER QC and MR R HILL (instructed by Messrs Hobson Audley Hopkins & Wood, London EC4) appeared on behalf of the Respondent Plaintiffs.

----------------

J U D G M E N T

(As Approved by the Court)

Crown Copyright

Thursday, 22nd May 1997

LORD JUSTICE EVANS:

The plaintiffs ("DD") are investment bankers. The individual defendants are experienced managers in the business of broking European bonds. I will call them "the managers". Formerly they were employed by Euro Suisse Securities Ltd. ("Euro Suisse"). They left Euro Suisse in 1992 in order to establish a new joint venture business with the plaintiffs in the same field. The venture involved the creation of a jointly owned company, Dawnay Day Securities Ltd. ("DDS"), by whom they were employed and of which they became directors. DDS is the fifth defendant but it plays no active role in these proceedings. The managers have now moved on from DDS to the fourth defendant, Cantor Fitzgerald International ("Cantor"). In essence, they have agreed to take up employment with Cantor or an associated company, on financial terms which are sufficiently attractive to have induced them to make the move but which have not been revealed to the Court.

On 11 November last they gave three months' notice to terminate their employment with DDS. That was the same day as their agreement to join Cantor. On 20 November DD issued these proceedings claiming to enforce inter alia contractual undertakings by the defendants not to compete with the business of DDS, not to solicit business from the customers of DDS and not to solicit or entice away members of the staff of DDS, for the period of one year from 11 February 1997, the date when their employment ended. The managers contend that the undertakings are void and unenforceable against them as being an unlawful restraint of trade.

Lightman J. directed on 20 December 1996 that the validity of these covenants should be decided as a preliminary issue. On 14 February 1997 after hearing six days of evidence and submissions Robert Walker J. held that the undertakings referred to above are valid and enforceable in accordance with their terms, although he also held in the defendants' favour that some other undertakings were not. The defendants now appeal, and there is no cross-appeal by the plaintiffs on those issues which the judge decided against them.

The relevant clauses are these :-

Heads of Agreement (dated 30 January 1992) between DD and the Managers

9. Restrictive Undertakings and Confidentiality

9.1 In consideration of the agreement of DD to incur the Preliminary Expenditure and subscribe for shares of the Company each of the Managers undertakes to and covenants with DD that he (or she) shall not either on his or her own account or jointly with or as Manager, agent, officer, employee or otherwise on behalf of any other person, firm, or corporation directly or indirectly:-

(a) for a period of two years from the date of this Agreement carry on or be engaged, concerned or interested in or assist any business which competes with the business of Eurobond Broking as carried on from time to time by the Company;

(b) for a period of two years from the date of this Agreement canvass or solicit in competition with the Company orders or custom from any person firm or company who shall have engaged the services of the Company nor directly or indirectly assist any person to do so;

........

9.2 The restrictions accepted by the Managers shall be extended where applicable beyond the respective periods provided in Paragraph 9.1 to a period terminating one year after the date that each respective Manager ceases to be either an employee or a director of the Company.

........

SERVICE AGREEMENTS (dated 18 June 1992) between DD, DDS and individual Managers

12. RESTRICTIVE COVENANTS

12.1 During the period of this Agreement and for the period of twelve months next following its termination (howsoever arising) the Executive shall not directly or indirectly (whether as principal, shareholder, partner, employee, agent or otherwise) and whether on his own account or in any capacity on behalf of any other person firm corporation or organisation:-

12.1.1. solicit or entice away or endeavour to solicit or entice away from the Company any person who had been at any time during the Executive's employment by the Company a director or senior employee of the Company; or ....."

The following summary is taken, largely verbatim, from the admirable judgment of Robert Walker J. I would be glad to quote the whole of the relevant passages in extenso , but for present purposes it is unnecessary to do so.

The managers each gave evidence at the hearing. The judge described them as "intelligent, shrewd and ambitious individuals". Their skills and experience lie in the European bond-broking business. Their success as employees of Euro Suisse led them to seek a business partner with capital to invest, so that they could establish a new business of their own. They were hopeful that all or most of the personnel on the French and Belgian desks at Euro Suisse would decide to move en bloc within them. They were introduced to directors of DD which specialised in joint ventures, especially in the area of financial services. Seven meetings took place in December 1991 and January 1992 where the proposed joint venture was discussed and negotiated in great detail. DD took legal advice, and two of the managers, Mr Johnston and Mr d'Alphen had done so previously, in October 1991. Miss Parkinson received informal advice from a solicitor before the negotiations were concluded, although initially in her affidavit evidence she said that she had not. The judge was satisfied that they were all in a position to obtain further independent advice, had they wished to do so.

The plaintiffs' evidence was that the terms of the restrictive covenants were gone through during the negotiations, and the judge accepted this. The defendants said that they had no recollection of this being done. The judge said :-

"They did not however deny that those events occurred. Although it is sometimes credible for witnesses to forget discussions and negotiations (and even very important discussions and negotiations) after five years, I do find the managers' apparent amnesia very surprising and almost incredible. They had made a dramatic departure from Euro Suisse and there was a threat of legal action against them".

I would add this, although without the benefit which the judge had of seeing the managers give evidence. If the discussion of these terms made little or no impression upon them, that can only have been because they did not contemplate that they would wish to leave or compete with the proposed new business, which they could not start except as a joint venture with DD which was providing the whole of the capital, at any time during the foreseeable future. If that is the correct explanation, then it casts some light on the nature of the joint venture upon which they embarked.

All parties recognised the fact that bond-broking of this sort is a team operation. Its success depends not only on skilled individuals but also upon establishing and maintaining the loyalty of a team, which means that leadership skills are also at a premium. During the negotiations with DD, the managers introduced the existing Euro Suisse teams to them, and in the event the French desk personnel did all come over. "The Belgian desk did not, but it folded soon afterwards as a result of personnel moving elsewhere". The vital importance of team spirit and of leadership thus was graphically demonstrated. It was referred to in the following passages from the judgment :-

" I also find that the managers had, in their influence over Euro Suisse's French and Belgian desks, a marketable commodity of potentially great value; and that the managers were well aware of that. It is irrelevant for present purposes whether the marketable commodity ought to have been regarded as Euro Suisse's either by the managers themselves or by Mr Naggar and his colleagues; no "clean hands" defence is raised against the plaintiffs. The negotiations between the joint venturers started from the shared expectation that the managers could in practice bring the desks across from Euro Suisse. If DD was not interested, others would be". (p.24/66)

" Finally (in this part of my judgment) I should refer to the importance of the team element in this type of bond-broking. The evidence on that was all one way. Desks have their leaders and their stars but a successful desk, working (not always but sometimes) under great stress, must operate as a team. It follows naturally from that (and from it being a fairly small world) that a team will tend to follow its leader, if he or she moves. The managers' teams would have a natural tendency to follow to Cantor, where the managers want to return, despite some fairly uncomplimentary things that have been said about Cantor needless to say I make no findings at all about that, or about the merits of the managers' dissatisfaction with Euro Suisse)." (p.27/69)

Also important is the connection with clients. The judge said this :-

" All the evidence supported the general proposition that the client connection is very important to an inter-dealer broker, and has a large influence on his success. The client is in this situation not a particular house (such as Morgan Stanley, Paris, JP Morgan, Paris or Salomon Brothers, London) but a particular individual (or small group of individuals) dealing in bonds of a particular type. No substantial house would deal exclusively through one single broker. The business is offered around, and ultimately each of the two principals (between whom the broker is an intermediary) is interested in competent and (in terms of rates of commission and discounts) economical service. Nevertheless, the personal relationship is important, and is generally understood by the market as being important".

The Heads of Agreement having been signed on 30 January 1992, both parties (meaning DD and the managers) prepared for their parts in the joint venture scheme. The joint venture company was formed. DD took 150 £1 shares through its subsidiary, Wilcourt, the second plaintiff, and the managers took 50 £1 shares each. This was the only financial investment the managers made. The plaintiffs provided capital of £350,000 for equipment and working capital and a further £300,000 to satisfy the capital adequacy requirements of the Securities and Future Agency. These sums were secured in part by the issue of redeemable preference shares in DDS and partly by subordinated loans. Premises were obtained (part of DD's existing premises at 15 Grosvenor Gardens S.W.1), and the necessary equipment was installed. The managers gave one month's notice on 28 February 1992 to terminate their employment with Euro Suisse, and on 1 April 1992 they started working for the new business, though their service agreements with DDS were not signed until June.

It was intended from the start that the business would expand into fresh areas or ´desks', though always dealing with European bonds. The business prospered and the financial rewards for the managers were substantial. During the four year period from 1992 to 1996 each of them received about £300,000 in salary and more than £660,000 in dividends which were net of tax credits (over £800,000 gross). The plaintiffs, through Wilcourt, have received the same dividends, although their total capital investment has proved to be about £1,165,000. As to the 1996 value of the business, there was evidence which suggested that this was in excess of £7 million.

The three managers, although they have ceased to be employees of DDS and have entered into agreements for their present or future employment by its competitor, Cantor, remain its directors and owners of one-half of the shares. The other three directors are nominees of DD, and so currently the board is in dead-lock. It is accepted by the defendants that in these circumstances DD is entitled to bring proceedings in the name of DDS under the Service Agreements, to which DD itself is not a party.

(1) The first and principal issue is whether DD is able to enforce the covenants against competition and solicitation of customers in clause 9.1 of the Heads of Agreement, which were expressed to continue for a one-year period from the termination of the managers' employment with DDS. It is not suggested that the one-year period would be unreasonable or that, subject to issue (2) below, the covenants could not be enforced, if the covenants were made with DDS and if DDS was claiming under them. The managers' submission is that DD has no legitimate or lawful interest in enforcing the covenants in the circumstances of this case. DD was, it is submitted, no more than an investor in and a creditor of the business which is owned and carried on by DDS.

(2) On the construction of clause 9.1(a) of the Heads of Agreement, Mr Elias submits that the words "competes with the business of Eurobond Broking as carried on from time to time by the Company" are wide enough to include a business which is commenced after the employee has left the company although within the one-year period provided for by clause 9.2. Therefore, he submits, the covenant goes beyond what is necessary to protect the business of the company as it was at the date of termination, and the clause is invalid on this ground.

(3) On the construction of clause 12.1.1. of the Service Agreement, Mr Elias submits, first, that DDS is not entitled to protection against solicitation of its work-force to work elsewhere, by the managers after they have left its employ, and secondly, that the meaning of "senior employee" is so uncertain that the clause is void for that reason alone.

Mr Elias submits that the only reported cases where anti-competition and anti-solicitation covenants have been enforced are those where the covenant was necessary to protect the interests of a business, meaning either its goodwill or specific confidential information which it owned, and where the plaintiff i.e. the covenantee was the owner of the business, as distinct from being merely an investor in it. Thus, he submits, where the business is owned by a company, a shareholder in the company cannot enforce such a covenant against its employees or ex-employees, however much it might be in his financial interest to do so. Nor can a person who has provided capital for or otherwise invested in the business do so, unless he has a proprietary interest in the business itself, as distinct from the rights of a creditor against its owner. Here, the good will is owned by DDS, which was not a party to the Heads of Agreement, and DD has no interest of a kind which has been recognised by the Courts.

Mr Grabiner Q.C. makes what are essentially two submissions for the respondents. First, he submits, the correct approach is for the Court to consider the substance and not merely the form of these transactions. So regarded, DD as the managers' joint venturer (I avoid the term "partner", for reasons which will appear below), under the Heads of Agreement between them dated 30 January 1992, does have a clear commercial interest which should be recognised and regarded as legitimate, even if it is not identical with any that has been recognised in any of the reported cases. Secondly, again having regard to the substance of the matter, DD does have a recognisable interest in the goodwill of the joint venture business, notwithstanding that the chosen vehicle for developing and owning the business was a jointly-owned limited company, and therefore an independent legal person

The judge held that DD does have a legitimate interest, which enables it to enforce the covenants. He reached his conclusion partly by reference to the concept of partnership. He said :-

"Had the business of DDS been owned by the joint venturers as partners in the full sense, each partner would plainly have had a legitimate interest in restraining competition by an outgoing partner (once the business had become established with its own goodwill, as the venturers reasonably expected .... . In this case DD and the managers decided to proceed through the medium of a company incorporated with the privilege of limited liability ...." (pages 32/33, 74/5).

This reference is criticised by Mr Elias, because the Heads of Agreement provide expressly by clause 12(c) "Nothing in this Agreement shall constitute a partnership between any of the parties". Therefore, he submits, the partnership analogy proves nothing. This was not a partnership, and nothing is gained by supposing that it was.

In my judgment, clause 12(1)(c) is relevant in the present context only because it prevents the importation of any terms, statutory or otherwise, which might be implied or incorporated if the venture was held to be a partnership in law. No such term, however, is relied on. Without any such implication, the Court has to consider the legal consequences of what was created in fact. That was a joint venture business to be carried on by a jointly-owned limited company. In deciding what the legal consequences were, it may or may not be possible to derive some assistance from the partnership analogy, if and to the extent that the analogy exists. But the fact that the arrangement was expressly declared not to be a partnership has no greater relevance than the negative factor referred to above.

So the question can be re-formulated thus. Does a joint venturer (who is not a partner) have a sufficient interest to be permitted to enforce anti-competition and anti-solicitation covenants against his fellow joint venturer, when the business is to be developed and carried on by a jointly-owned company?

There is no doubt as to the basic common law rule. This was stated by Sir Christopher Slade giving the leading judgment of the Court of Appeal in Office Angels Ltd. v. Rainer-Thomas [1991] IRLR 214 :-

"(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 bought, 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).

In a later paragraph, he said :-

"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]".

The first question is whether as a matter of law such covenants can never be upheld outside the established categories of vendor/purchaser (of a business) and master/servant cases. I am sure that this is not the law, nor does Mr Elias contend otherwise. The House of Lords so held in Esso Petroleum Co. Ltd. v. Harper's Garage (Stowpart) Ltd. [1968] AC 269, and the speeches are replete with references to the need to state and apply the principles broadly. For example, Lord Wilberforce at page 831F :-

"The common law has often (if sometimes unconsciously) thrived on ambiguity and it would be mistaken, even if it were possible, to try to crystallise the rules of this, or any, aspect of public policy into neat propositions. The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason".

Moreover, there are recent authorities which have underlined the need for such an approach.

In Stenhouse Ltd v. Phillips [1974] AC 391, an employment case, the need for the covenantee to show that the restraining covenant was necessary for the protection of some legitimate interest of his own was stated thus, in the judgment of the Privy Council delivered by Lord Wilberforce :-

"Leaving aside the cause of misuse of trade secrets or confidential information ....., 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" (400E).

In that case, the business of insurance broking was carried on by the plaintiff company through its subsidiaries. It was submitted that the plaintiff had no separate interest of its own. The submission failed :-

"The subsidiary companies were merely agencies or instrumentalities through which the appellant company directed its integrated business. Not only did the appellant company have a real interest in protecting the business of the subsidiaries, but the real interest of so doing was that of the appellant company" (404D).

That clearly was different from the relationship between DD and DDS (which is not a subsidiary, though it bears what might be regarded as a ´group' name) in the present case.

The basic principle was held by the Privy Council, in Deacons (a firm) v. Bridge [1984] A.C. 705, to include the interest which the partners have in the goodwill of the partnership :-

".... the partners in the plaintiff firm, as constituted from time to time, are the owners of the firm's whole assets, including its most valuable asset, goodwill" (716A).

The plaintiffs, a firm of solicitors in Hong Kong, were entitled to enforce a covenant which bound a retiring partner for a period of 5 years not to act for clients or former clients of the partnership, whether or not they were clients of his own. Lord Fraser described the Court's approach :-

".... a decision on whether the restrictions in this agreement are enforceable or not cannot be reached by attempting to place the agreement in any particular category" (714E).

and he endorsed what Lord Reid said in Esso Petroleum :-

"I think it better to ascertain what were the legitimate interests of the appellants which they were entitled to protect, and then to see whether those restraints were more than adequate for that purpose" ([1968] A.C. at 301).

In two more recent cases, the covenants formed part of a transaction which involved both the sale of a business and the relationship of employer and employee. This occurs, for example, when the purchaser of the business retains the services of the vendor after the business has changed hands. In both cases it was submitted that the Court should decide into which of the two categories the transaction and therefore the covenant should be placed, so as to know whether the more stringent test of reasonableness which is appropriate in employer/employee cases should be applied. Both Millett J. in Allied Dunbar (Frank Weisinger) Ltd. v. Weisinger [1988] IRLR 60 and Harman J. in System Reliability Holdings p.l.c. v. Smith [1990] IRLR 377 held that it was wrong and unnecessary to categorise the cases strictly in this way. The question is one of substance, not of form (per Millett J. at 64 para. 21), and the court has always "to try and apply the test of reasonableness to the facts and circumstances of the particular case" (per Harman J. at 382 para. 48). These judgments were followed by Robert Walker J. in the present case, and in my judgment he was right to do so.

The same approach was adopted by the Court of Appeal in Office Angels Ltd (above). The plaintiffs had employed the defendants in their employment agency. They maintained a pool of temporary workers which enabled them to supply their clients with temporary rather than permanent employees, when that was required. It was argued that their connection with the temporary workers was not a legitimate interest which they were entitled to protect at law. The argument was rejected.

"In principle, I can see no reason why the plaintiff's trade connection with its pool of temporary workers should not in law be capable of protection by a restriction no greater than is reasonably necessary for such purpose" (Sir Christopher Slade at 219, para. 37).

In my judgment, far from confining the circumstances in which covenants in restraint of trade may be enforced to certain categories of case, and defining those categories strictly, the courts have moved in the opposite direction. The established categories are not rigid, and they are not exclusive. Rather, the covenant may be enforced when the covenantee has a legitimate interest, of whatever kind, to protect, and when the covenant is no wider than is necessary to protect that interest.

The fact therefore that DD was neither the purchaser of a business from the defendants, nor their employer, does not mean that the covenants cannot be enforced.

Before considering what the nature of DD's interest was - it is common ground between the parties that the relevant date is when the Heads of Agreement were signed - I should refer to an unreported authority which Mr Grabiner's good memory as well as his diligence enabled him to produce. This is the Court of Appeal judgment in George Silverman Ltd v. Silverman (C.A. 2 July 1969). The defendant, a talented dress designer, was employed by the plaintiff company. He and his father owned almost all of its share capital until they sold their shares to a public company in return for a substantial price. Following the sale, they entered into service contracts with the company, the defendant's for a period of seven years and at a "quite substantial" salary. The service contract contained the restriction against competition, which the plaintiffs claimed to enforce after the defendant was dismissed. The Court declined to apply the master/servant test whilst ignoring the vendor/purchaser aspect of the overall transaction. "It would in my view be wholly wrong to accept [counsel's] invitation to look at the service agreement in isolation" (per Fenton Atkinson L.J. at 8D). "The Court has to consider that clause and construe it so as to give it proper commercial validity" (per Phillimore L.J. at 10B).

As regards the reasonableness of the restriction in that case, Phillimore L.J. gave weight to the fact that the parties themselves were well able to judge where their reasonable commercial interests lay :-

"These parties were well able, I have no doubt, on both sides to look after themselves in this trade ; they were advised as they freely negotiated the whole of this package deal. In such circumstances it would be wrong where there is nothing to suggest that there is anything contrary to public interest to interfere with the agreement that they made" (11E).

Mr Elias does not dissent from this proposition. His submission is that DD cannot establish that it has an interest which the law protects, however reasonable from a commercial point of view the wish for protection may be.

The judge expressed his conclusion as follows. After describing the effective contribution of start-up capital which DD made, he continued :-

"Mr Elias says that those made DD (and, I suppose he would say, his clients [i.e. the managers]) investors, and so in one sense they were. But they were not mere investors. They were joining together to participate in a new and risky but potentially very profitable trading venture, to be carried out through the medium of a limited company ..... I conclude that DD did have a sufficient legitimate interest of a proprietary nature to entitle it to seek protection in the form of restrictive covenants by the managers".

In my judgment, neither the judge's approach nor his conclusion can be faulted. I do not agree with Mr Elias' submission that they were vitiated by his previous reference to partnership. Rather, that was entirely appropriate as an analogy, subject to the qualification I have referred to above and which the judge clearly had in mind. When the Heads of Agreement were entered into, the joint venture company was not yet formed. Each party depended on the other's proposed contribution for the development of the business which they set out jointly to create. DD's undertaking to make the capital contribution, and certainly the contribution after it was made, gave DD a clear commercial interest in safeguarding itself against competition from the managers, individually or collectively, for the agreed periods set out in clause 9. The fact that the interest was "commercial" does not mean that it was not lawful. In my judgment, the judge was correct to describe it as an interest "of a proprietary nature" which falls within the established principle that "a proprietary or quasi-proprietary interest" is entitled to protection, where and to the extent that protection is reasonably necessary (see Chitty on Contracts (27th ed. Vol.1 para. 16-075). I would also be prepared to say more generally that DD had a clear commercial interest in the success of the joint venture, by reason of its contribution to it, and that whether or not the interest can be classified as proprietary or quasi-proprietary, DD is entitled to claim protection for that interest in the form of the covenants which it now seeks to enforce. That further issue, however, does not arise for decision in the present case.

These words in clause 9.1(a) are applied by clause 9.2 to the one-year period after the managers have ceased to be employed by the joint venture company (DDS). They open up the possibility, therefore, that the managers could be in breach of covenant by carrying on a particular kind of European bond-broking business which DDS itself was not carrying on when they left but which it has started up in the course of the year. As the judge said, "It could not be right for the managers to start work at Cantor on a desk which does not compete with DDS, and then for the business of DDS to be expanded (by the creation of an entirely new desk) with either the object or the effect of putting the managers in breach".

The judge held that the solution, should this problem arise, would be to restrict the scope of an injunction, so as to exclude such a case. Mr Elias submits that that is not the correct approach, and I agree. If the clause is unreasonably wide, then it cannot be enforced, and the possibility of granting a limited injunction cannot rescue an invalid clause.

In my judgment, therefore, it is necessary to consider

afresh whether the clause is invalid on this ground. There is authority that a covenant against soliciting a customer who "is or has been during your period of employment a customer of the company" cannot be enforced as regards persons who become customers (of the employer) during the period of restraint, after the employment has ended. The words "is or" were deleted by severance, with the result that only the remaining words could be enforced : Rex Stewart v. Parker [1988] IRLR 483. The plaintiffs do not claim severance here. On a literal reading, therefore, it can be suggested that the clause is invalid, because new i.e. post-termination business as well as the existing business is within its scope.

The judge also relied, however, on the nature of the business which the company was intended to and has carried on. It has been expanded to include different kinds of securities, all of them European, but involving different countries and different types of bonds. Preparation involves not just installing the necessary facilities and equipment, but more importantly, establishing personal links with proposed clients, here and in the European countries concerned. "New desks cannot be created and start trading overnight". It was part of the initial plan that the business would expand, and the original French ("OAT") desk was joined in 1993 by a Strips desk for zero-coupon bonds ; in 1994, by a Repo's desk ; and in 1995, two further desks followed. "Last year [1996] there were plans for a desk dealing in pfandbriefe (German mortgage bonds) but it has not yet [Feb. 1997] begun trading".

In my view, the judge was entitled to hold, as he did, that the restriction against competition (and against solicitation of customers) by the managers during the period of one year after termination of their employment by DDS was reasonable in the circumstances of this case. He had also found that "there was confidential information in the back office of DDS to which the managers ... had access. The confidential information included (at least) the rates of differential discounts (as opposed to standard discounts) and the identities of favoured clients who were allowed to have them .... ; business plans, (in particular, for new desks or screen systems) ; and remuneration of individual team leaders and other brokers". Taking these factors together, DD clearly in my view was entitled to claim protection not only for those kinds of business which DDS was carrying on when the defendants left, in the sense that their desks were actively dealing with clients, but also for other kinds which were in an advanced state of preparation. That would mean that facilities were being installed, traders recruited and trained, and that all the necessary connections were being established with intended or hoped-for clients. The managers were privy to the plans generally and to details of that sort. If some protection post-termination is justified, then it becomes necessary to consider how long the period should be. It was not suggested to us that the period should be less than one year, and in any event in my judgment this is a matter where the Court should be slow to interfere with the parties' own assessment of what a reasonable period was. The judge found that the covenant "should be treated as part of a commercial bargain between business people of broadly equal bargaining power", and there is ample authority, to which I have already referred, that the parties are likely to have been the best judges of what was reasonable between them. No question of public interest can be said to arise (cf. per Phillimore L.J. in Silverman, quoted above).

For these reasons, I would hold that the covenants in clause 9.1(a) and (b) of the Heads of Agreement are enforceable by DD.

By clause 12.1.1, each of the managers undertook, for the twelve-month period after ending their employment with DDS, not to solicit or entice away any "director or senior employee" of DDS. The second point taken by Mr Elias, which I should mention first, is that "senior employee" is so uncertain that the covenant should be regarded as unenforceable, on that ground alone. I do not agree. The meaning of the words themselves is not ambiguous or even uncertain : what can be said is that the definition may be difficult to apply in circumstances where a borderline case may arise. Mr Elias rightly submits that the Courts should not compel individuals to undertake the burden and risks of litigation before they can know whether or not they are affected by the clause. But it seems to me that the term "senior employee" is not objectionable on this ground. First, because the broad classification is clear, and I can see no reason to suppose that applying it presents any undue difficulty to any person with knowledge of the kind of business carried on by DDS. Secondly, because I am not clear what other formula could be adopted, if something more precise and detailed was required.

Mr Elias' first and principal submission was that the judge was wrong to consider himself bound to follow the judgment of Leggatt L.J., with whom Russell L.J. agreed, in Ingham v. ABC Contract Services (12 December 1993, C.A.), where he said that the provision in question :-

"is intended to prevent the defendant from poaching the plaintiffs' employees after he has left their employment. They have a legitimate interest in maintaining a stable, trained work force in what is acknowledged to be a highly competitive business [that of an employment agency]. That is an interest which the plaintiffs are entitled to protect against solicitation and enticement by the defendant."

Mr Elias further submitted that that statement of law was wrong, in any event. Moreover, it differed from an earlier judgment given by Dillon L.J. in Hanover Insurance v. Schapiro [1994] IRLR 82, which it appears was not cited in the later case. Dillon L.J. expressed what the judge called "a general view .... that an employer does not have any sort of proprietary interest in a stable team of staff entitling the employer to impose restrictions on solicitation of staff", and Nolan L.J. agreed with him.

Before us, counsel agreed that neither of these two-judge interlocutory judgments should be regarded as binding us in the present case.

For my part, I have some reservation as to whether the validity or otherwise of a non-solicitation covenant of this kind should properly be regarded as a question of law. The authorities to which I have referred above demonstrate that the general principles are clear and that their application depends upon the terms of the undertaking and the factual circumstances in every case. I would agree with Leggatt L.J. that an employer's interest in maintaining a stable, trained work force is one which he can properly protect within the limits of reasonableness by an undertaking of this sort. But it does not follow that that will always be the case.

The clause can be regarded as objectionable because it restricts not only rights of the former employee to recruit staff for his new business, but also the opportunities of the remaining employees to learn about future employment possibilities for themselves. However, their ability and right to do so through making enquiries of their own, and through advertisements and other channels of communication in the normal way, is not restricted at all. The employer's need for protection arises because the ex-employee may seek to exploit the knowledge which he has gained of their particular qualifications, rates of remuneration and so on which the judge included in his general description of specific confidential information which the managers acquired.

In my judgment, the circumstances of the present case amply suffice to justify the one-year restriction contained in clause 12.1.1, and I would uphold the judge's ruling on this clause also.

For these reasons, I would dismiss the appeal.

LORD JUSTICE WARD:

I agree.

LORD JUSTICE NOURSE:

I also agree.

Order: appeal dismissed with costs.