European Paint Importers Ltd v O'Callaghan and Others

• Jurisdiction: Ireland
• Judge: Mr Justice Michael Peart
• Judgment Date: 10 August 2005
• Neutral Citation: [2005] IEHC 280
• Docket Number: Record Number:2483P/2005
• Court: High Court
• Date: 10 August 2005

[2005] IEHC 280

THE HIGH COURT

Record Number:2483P/2005

EUROPEAN PAINT IMPORTERS LTD v O'CALLAGHAN & ORS

Between:

European Paint Importers Limited

Plaintiff

And

John O'Callaghan, Patrick O'Mahony, Complete Coatings Limited, Tikkurla Coatings Limited, and Tikkurla Coatings (IRL) Limited

Defendants

CURUST FINANCIAL SRVICES LTD v LOEWE-LACK-WERK 1994 1 IR 450

FACCENDA CHICKEN LTD v FOWLER 1987 1 CH 117 1986 1 AER 617

CONTRACT

Restrictive covenant - Interlocutory injunction- Contract of employment -- Interpretation of clause - Whether clause should be interpreted more restrictively than necessary to achieve object of clause - Maintenance of status quo -Whether fair issue to be tried - Whether damages adequate remedy - Balance of convenience - Order granted

Facts: The plaintiff sought to restrain the defendants, former employees and a third party, to compete with its business and relied on a restrictive covenant contained in the contract of employment. The net issue was the meaning of the phrase ‘seek to procure orders or do business with’.

Held by Peart J in acceding to the application:

1. The plaintiff could suffer irreparable damage as a result of the defendant’s actions in having solicited already all the customers of the plaintiff.

2. Damage would not be an adequate remedy. Curust Financial Servces Ltd v Loewe-Lack-Werk [1994] 1 IR 450 distinguished.

3. Balance of convenience favoured the plaintiff.

Reporter: BDD

Judgment of

Mr Justice Michael Peart

1 In the time available to me at this time of the year, and sitting as I am as the duty judge, I am not in a position to set out in full detail the affidavits filed on behalf of the parties to this application, nor do justice to the extensive and helpful oral and written submissions which have been made to the Court by Gary McCarthy BL for the plaintiff and David Holland SC for the first, second and third named defendants.

2 The plaintiff seeks an interlocutory injunction until the trial of this action to restrain the first and second named defendants, who were formerly its employees, and third named defendant which is a new company set up by the first and second named defendants and which is in competition directly with the business of the plaintiff company, from acting in breach of a restrictive covenant contained in the contracts of employment entered into by the first and second named defendants. That clause provides as follows:

"The employee covenants with the Company that he will not for the period of one year after ceasing to be employed by the Company, in connection with the carrying on of any business similar to or in competition with the business of Heavy Duty Coating, and Industrial Paint Sales, on its own behalf or on behalf of any person, firm or company, directly or indirectly seek to procure orders from or do business with any person, firm or company who has any time during the One Year immediately preceding such cessation of employment done business with the Company." (my emphasis)

3 There is a dispute between the parties as to precisely what meaning is to be attached to the words "seek to procure orders from or do business with………". The plaintiff submits that it means that the defendants shall not seek orders or do business, whereas the defendants submit that it means that they shall not seek orders or seek to do business". The distinction is not immediately but the plaintiff's contention is that by this clause the defendants must first of all not seek orders from existing customers of the plaintiff company, and that as a second matter must not do business with them. The effect of the latter, if correct, would be that even if no business was solicited and an existing customer of the plaintiff freely and voluntarily to do business with the defendants, the defendants would be bound to refuse that business even though they had not sought it out in contravention of the first requirement of the clause. The defendants on the other hand submit that the clause means that they must not seek orders and must not seek to do business. Accordingly, the defendants contention would mean, if correct, that they would be permitted to respond to business which came their way which had not been sought out or solicited by them.

4 The next relevant fact is that it is accepted and admitted by the defendants that contrary to the first part of the clause they did in fact seek orders from existing customers of the plaintiff, although they say that at the time that they approached these customers they were unaware of the existence of the restrictive clause in their contract of employment with the plaintiff company. They say that once they became aware that they were in breach of the clause, they acknowledged this and indicated a readiness to give an undertaking to the plaintiff company in terms which reflected their understanding of the meaning of the clause, namely that they would not seek orders or seek to do business with the plaintiff's customers, but that this would not prevent them from fulfilling orders for product which came their way without having been solicited in any way by them.

5 The difficulty which I see with an undertaking of that kind, even if it were to last only for a period between now until the trail of the action, is that the solicitation has already occurred and to all the plaintiff's customer base. That means that the damage has already been done, so that it would now be impossible to know if any order received by the defendants from any existing customer of the plaintiff came as a result of the solicitation or came spontaneously from the customer without regard to any approach from the defendants. If no solicitation had taken place, then there would be some point to seeking at this stage to make the distinction between the two possible interpretations of the clause, and decide which was correct. The Court could order, or accept the defendants” undertaking in that regard, that they would not seek orders or seek to do business. But6 in the present situation the Court feels that the only manner in which the status quo can be maintained is to order that the defendants may not either seek out orders, or do any business with existing customers who have already been solicited, since to do otherwise would be to permit the defendants reap the harvest of their acknowledged breach of the obligation not to seek orders. They have done so, and that removes any realistic possibility of deciding at some future date which of the orders came from the admitted solicitation and which came out of the blue, so to speak, and not as a result of solicitation.

6 Having said that, and I have been pressed by both parties to arrive at even a provisional interpretation of the clause at this interlocutory stage of the proceedings, I would be of the view, and I say immediately that it is unsatisfactory to arrive at a concluded view on the basis of an interlocutory hearing, that a reasonable and sensible view as to the meaning of the clause, and one which is proportionate is that the defendants are obliged not to seek orders from customers of the plaintiff for a period of one year from the date of cessation of employment, and not seek to do business with such customers. I appreciate as is submitted by the plaintiff that such an interpretation renders the second part of the clause to be redundant, in the sense that "to seek orders" amounts to seeking "to do business" and therefore the second part is...