Murgitroyd & Company Ltd v Barry Purdy

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 01 June 2005
• Neutral Citation: [2005] IEHC 159
• Court: High Court
• Docket Number: [2005 No. 490P]
• Date: 01 June 2005

[2005] IEHC 159

THE HIGH COURT

[No. 490P/2005]

MURGITROYD & CO LTD v PURDY

MURGITROYD AND COMPANY LIMITED

PLAINTIFF

AND

BARRY PURDY

DEFENDANT

MCELLISTRIM v BALLYMACELLIGOTT CO-OPERATIVE AGRICULTURAL DAIRY SOCIETY LTD 1919 AC 548

STENHOUSE (AUSTRALIA) LTD v PHILLIPS 1974 AC 391 1974 2 WLR 134

MARIAN WHITE LTD v FRANCIS 1972 1 WLR 1423

HALSBURY'S LAWS 4ED VOL 47 PARA 31I

SITT & ANOR v GANSON 1899 43 SJ 744

KORES MANUFACTURING CO LTD v KOLOK MANUFACTURING CO LTD 1959 CH 108 1958 2 WLR 858 1957 1 WLR 1012

EMPLOYMENT

Contract

Restrictive covenant - Circumstances in which non-competition clause will be upheld- Whether non-competition clause enforceable - Whether regard should be had to prohibition and geographic scope of non competition clause in determining if clause reasonable - Whether geographic restriction based upon jurisdiction of Irish state unreasonable - Whether period of 12 months prohibition unreasonable - Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1959] Ch 108considered; McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society[1919] AC 548; Stenhouse Ltd v Phillips[1974] AC 391 applied - Claim dismissed as clause found to be unenforceable (2005/490P- Clarke J - 1/6/2005) [ 2005] IEHC 159, [2005] 3 IR 12

Murgitroyd & Co Ltd v Purdy

Facts: The plaintiff company which was engaged in the provision of intellectual property services employed the defendant as a European patent agent. The defendant was employed pursuant to an initial letter of engagement, which was followed by a written service agreement. That service agreement was to last for an initial three year period and contained a non competition clause. Following the defendant's departure from the plaintiff company he established his own practice, which competed with the plaintiff's business. Consequently, the plaintiff sought to enforce the non competition clause. The defendant submitted that the service agreement had ceased to have effect or in the alternative that the clause was unenforceable as being an unreasonable restraint of trade.

Held by Clarke J. in favour of the defendant:

1. That the terms of the service agreement and in particular the terms of the anti competition clause remained operative at the date of the defendant's termination of his employment.

2. That the prohibition on all competition in this case was too wide. A prohibition on dealing with identified customers would have been sufficient to prevent the defendant taking advantage of the plaintiff's trade connections. However, the wider restriction prohibiting the defendant from competing for business in which the plaintiff may have an interest but where the client was not an existing customer was directed to the wider aim of restricting competition. Consequently, the anti competition clause was unenforceable.

Reporter: L'O'S.

1 JUDGMENT of Mr. Justice Clarke1st June, 2005.

2 This case first came before the court when the plaintiff company sought various interlocutory injunctions against the defendant. That application was the subject of a judgment delivered by me on 14th April, 2005. The most urgent, and indeed difficult, of the questions which arose at the interlocutory stage concerned the case made by the plaintiffs to the effect that the defendant was bound by a non competition clause in his contract of employment which they sought to enforce, initially by interlocutory order. As indicated in my judgment on that occasion I came to the view that the balance of convenience would not favour the grant of an interlocutory injunction in respect of non competition provided that that aspect of the case could be made ready for trial in a very short period of time. In those circumstances I directed that a preliminary issue should be tried as to the applicability and enforceability of the non competition clause. That issue has now come on for trial and this judgment is, therefore, the final judgment in respect of that aspect of the plaintiff's case. In the course of a discussion with counsel for both sides immediately following the delivery of my judgment on 14th April it was agreed that there were three issues as to the applicability and enforceability of the non competition clause. Before setting out those issues it is necessary to put same into context by outlining both the non disputed facts and the contentions of the parties in respect of disputed facts.

Factual Context

3 As set out in my judgment of 14th April, 2005 the plaintiff company is engaged in the provision of intellectual property services, having eight offices spread throughout Europe. The company hired the defendant who is a European patent agent to work out of the plaintiffs Dublin office. An initial letter of engagement dated 7th February, 2001 was followed by a written service agreement dated 19th February, 2001. Clause 2.2 of that agreement provided that the service agreement was to last for an initial three year period which was specified as commencing on 30th September, 2001.

4 That same clause of the agreement provided for the possibility of a renewal for a further three years in the following terms:-

"On the Company receiving a written renewal request from the Executive in any September during the course of this agreement and thereafter unless and until the executive's employment hereunder shall be determined by either party given to the other written notice as aforementioned."

5 In the context of the agreement the defendant is "the Executive". So far as this preliminary issue is concerned it is also important to note that the service agreement provided at clause 11 as follows:-

"Undertaking

6 The Executive will not within the Republic of Ireland during the period of 12 months following determination of his employment hereunder on his account and in competition with the company carry on any business which competes with the business of the company or any associated company having intellectual property work as one of its principal objects existing as of the date of termination of the executive's employment hereunder and with which the executive shall have been directly or indirectly concerned PROVIDED THAT nothing contained in this clause shall preclude the executive from holding at any time any shares or loan capital (not exceeding one per centum of the shares or loan capital of the class concerned for the time being in issue) in any company whose shares are listed or dealt in on a recognised Stock Exchange and nothing in this Agreement will affect the Executive's right to accept employment as an employee in another firm of patent attorneys".

7 It is therefore common case that the defendant commenced his employment with the plaintiff on terms that included the above non competition clause. It is also common case that on 20th December, 2004 the defendant notified the plaintiff that he intended to leave the plaintiff's employment. On foot of that notice his employment ended on 19th January, 2005. Immediately thereafter the plaintiff commenced practising as "Purdy and Associates" at premises at Mespil House, 37 Adelaide Road, Dublin 2. It is not contested that in establishing the above practice the defendant is competing with the plaintiffs in a manner which would be in breach of the above clause 11 should that clause remain part of the agreement between the parties as of the date of termination of the defendants employment and be enforceable.

The Issues

8 The three issues which therefore arise are as follows:

9 (a) It is suggested by the defendant that on 18th or 19th February, 2002 he, the defendant, called Mr. Keith Young, Chief Executive of the plaintiff company, on his mobile phone and informed him that he wished to opt out of the service contract. It is contended by the defendant that an agreement was reached on that occasion to the effect that he would continue in employment but not under the service agreement. This is denied by the plaintiffs.

10 (b) Secondly the defendant places reliance upon the fact (which is common case) that the renewal of the service agreement contemplated by clause 2.2 thereof did not in fact occur. In the circumstances the defendant contends that the service agreement ceased to have any effect on the expiry of the three year term set out in its terms and thus that his continued employment after the expiry of that term in September 2004 was not on the basis of the service agreement. While accepting that there was no formal renewal of the service agreement as contemplated by the above clause the plaintiff contends that the appropriate interpretation of the continuance of the defendant in employment after the expiry of the three year period was that all of the terms and conditions previously applicable to his employment under the service agreement were to continue save that the agreement was no longer for a fixed period but indefinite.

11 (c) Thirdly the defendant contends that even if he loses on the above two issues so that as of the date of the termination of his contract of employment the non competition clause was still part of the terms of his employment that clause is unenforceable as being an unreasonable restraint of trade.

12 I deal with each of those matters in turn.

The Renegotiation

13 There is a significant measure of agreement between the parties as to the background facts relevant to this issue. Mr. Young is the Chief Executive of the...