Turner & Ors v Commonwealth & British Minerals Ltd

A post-employment covenant restraining competition is enforceable only so far as it reasonably protects the employer’s legitimate proprietary interests, such as trade connections or confidential information. Payment for the covenant and equality of bargaining power do not remove that requirement.

The covenant must be construed by reference to its language and the restraint-of-trade doctrine. It may restrain competition only in an aspect of the employer’s business being carried on at termination and in which the employee was actually involved during employment. General involvement as a director is insufficient. A project abandoned by the employer, with no intention of revival at termination, is outside the covenant.

The employees entered into severance agreements with the company on 23 January 1996. In return for payments, they gave covenants concerning confidentiality, dealings with specified individuals, solicitation of employees and competition for twelve months after termination.

The employees subsequently established Oxus Resources Corp., undertaking mineral exploration activities in Central Asia. The company alleged breaches of the covenants and sought forfeiture of the severance payments. His Honour Judge Hallgarten QC found no breach. The company appealed only on the construction and enforceability of the competition covenant, clause 5.6, and on whether the employees’ activities concerning Chulboi breached it.

1. Appeal dismissed unanimously. Lord Justice Waller delivered the judgment, with Lord Justice Laws and Lady Justice Butler-Sloss agreeing. The order below was upheld, with costs and payment of £15,000 out of money paid into court pending detailed assessment.
2. Clause 5.6 was a restraint of trade. Under Morris v Saxelby [1916] AC 688 and Attwood v Lamont [1920] 3 K.B. 571, the company had to show that the restraint was reasonable between the parties and in the public interest, and went no further than reasonably necessary to protect a proprietary interest, such as trade connections or trade secrets. A covenant restraining competition alone was unenforceable between employer and employee.
3. The additional payment under the severance agreement and the employees’ legal advice were relevant circumstances, but did not relieve the company of the obligation to justify the restraint.
4. The covenant was construed more narrowly than a restraint covering all mining or exploration in the Central Asian Republics. “Business” meant the aspect of the company’s business in which the employee was actually involved during employment. The clause also required that the relevant business or project was being carried on at the termination date. Indirect or merely general involvement as a director was insufficient.
5. The covenant was reasonable on that construction. Activities outside Tajikistan did not breach it because the employees had not been directly involved in those aspects of the company’s business. Chulboi had once been within the aspect of the business in which they were involved, but the company had not pursued it by the termination date and had no intention of taking it on. It was therefore unnatural to treat the employees’ activities concerning Chulboi as competing with the company’s business then being carried on.
6. The court rejected the company’s broader construction. If, at termination, the company had had designs on areas outside the 3,000 km² zone and the employees had sought to compete for that business, the covenant could have applied.

• Court of Appeal (Civil Division): appeal from the judgment of His Honour Judge Hallgarten QC dated 27 July 1998. Appeal dismissed with costs.
• Central London County Court: found that the company had not established breaches of the covenants and rejected the claim for forfeiture of the severance payments.