Young v Evans-Jones & Anor

A restraint of trade covenant must be assessed for reasonableness when it was made. A covenant may remain reasonable where it protects a legitimate proprietary or financial interest, even if it may operate harshly in a future contingency. The court must consider both the parties’ interests and the public interest. Statutory restrictions imposed in the public interest may explain or reinforce the commercial justification for the restraint. A clause requiring cooperation in transferring or reissuing the authorisation needed to operate a pharmacy was therefore enforceable, although the court cautioned that the particular lease should not be treated as a general precedent.

The claimant pharmacist appealed from the decision of Jacob J in the Administrative Court concerning covenants in a 15-year lease of a purpose-built pharmacy within a medical centre. The lease was protected under Part II of the Landlord and Tenant Act 1954.

The principal challenge concerned a covenant requiring the tenant, at the end of the term, to use his best endeavours to procure the transfer, or surrender and reissue, of the authorisation required to operate the premises as a pharmacy. A related non-compete covenant had been accepted as practically removable. The central issue was whether the transfer covenant was an unreasonable restraint of trade or void for uncertainty.

1. Disposition. The appeal was dismissed, with costs awarded to the respondents. Permission to appeal to the House of Lords was refused.
2. The covenant was a restraint of trade, but its reasonableness had to be judged at the date when it was entered into. The fact that its operation was deferred until the end of the lease did not prevent the court from deciding its validity.
3. The covenant was not void for uncertainty. It appeared in a commercial document, and the court was required to give it a commercially sensible meaning. At the end of the term, the transfer obligation naturally referred to a person nominated by the landlords, such as a company controlled by them and managed by a qualified pharmacist, or another qualified pharmacist who was an actual or prospective tenant. The expression “surrender and reissue” adequately described the process contemplated by Regulation 4(3)(b) of the National Health Service (Pharmaceutical Services) Regulations 1992.
4. The doctors had legitimate interests capable of protection. They had provided purpose-built accommodation for a pharmacy and had a financial interest, and potentially a professional interest, in continuing to provide pharmacy services at the medical centre.
5. The restriction was reasonably necessary to protect those interests. Its possible future effect on the pharmacist’s goodwill, including the possible prevention of a minor relocation under Regulation 4(3)(a), did not make it unreasonable. The effect arose substantially from statutory controls on NHS pharmaceutical services, which Parliament had authorised in the public interest.
6. The court declined to treat the clause or the lease as an appropriate precedent for other cases, because the circumstances were unusual.

• Court of Appeal (Civil Division): appeal from the decision of Jacob J in the Administrative Court dismissed. The court upheld the validity of the transfer covenant and awarded costs to the respondents.