Lapthorne v Eurofi Ltd

Covenants restraining a consultant’s activities during the contract are subject to the restraint of trade doctrine. They are enforceable only where reasonably required to protect a legitimate business interest, or where incidental and normal to the contract’s positive commercial arrangements. A termination right is relevant but not decisive. A restraint requiring the consultant to account for all fees from services supplied to a client is unreasonable where the business interest is confined to specialist services and the covenant extends to unrelated services and clients. A fiduciary duty concerning business opportunities depends on a realistic conflict between duty and personal interest. Where the parties contemplated and consented to the consultant’s separate business, and no such conflict existed, the duty did not extend to those opportunities.

The claimant, a self-employed financial consultant, claimed consultancy fees under a 1985 agreement with Eurofi Ltd. Eurofi counterclaimed for alleged breaches of contractual restraints and fiduciary duty arising from services supplied by the claimant to Turnock’s and Albion Graphics Ltd.

After an eight-day trial in the Birmingham Mercantile Court, His Honour Judge Perrett QC awarded the claimant his fees and largely dismissed the counterclaim. He held that clauses 3(a) and 3(b), concerning services supplied outside Eurofi’s specialist business, were restraints of trade and unenforceable, and rejected the fiduciary-duty claim except for a small claim concerning specialist services.

Eurofi appealed against those findings. The central issues were whether the contractual restraints were enforceable, whether Turnock’s remained a client, whether consent could reasonably have been withheld, and whether the claimant owed a fiduciary duty in relation to the separate provision of services.

1. Appeal dismissed. The contractual restrictions and the alternative fiduciary-duty claim did not justify the counterclaim, save for the small amount already recovered in respect of specialist work undertaken for Turnock’s.
2. The doctrine of restraint of trade applies to covenants operating during the contract as well as after termination. Such a covenant is justified only if reasonably required to protect the relying party’s legitimate interests, or if incidental and normal to the contract’s positive commercial arrangements. The fact that the agreement was terminable on notice is relevant but not decisive. The issue is judged when the contract was made, not by the consultant’s later allocation of time.
3. Eurofi had a legitimate interest in protecting its specialist grants-and-loans business. Clause 2 protected that interest by preventing the consultant from providing the specialist Services to Eurofi’s clients on his own account. Clause 3(b), however, captured all services supplied to Eurofi clients, without limiting the restriction to specialist work or clients with whom the consultant had dealt in that capacity. It therefore went beyond what was reasonably necessary and was unreasonable. Clause 3(a) was likewise unenforceable.
4. Whether a person is a client depends on the circumstances, with the nature of the services being of prime importance. A client may cease to be one when the services are completed and paid for, or may remain a client for years while there is a real prospect that further services will be required. The finding that Turnock’s was no longer a client was questionable, but the consent issue was correctly resolved because withholding consent would not have protected a legitimate interest.
5. The fiduciary-duty claim failed in relation to ordinary services. The court accepted that the established rule concerning conflicts and maturing business opportunities could apply in principle, but held that it did not extend to opportunities which the parties contemplated would be pursued by the consultant personally, where Eurofi had little or no interest in providing them and no realistic conflict arose. Arden LJ additionally observed that any general duty might be relaxed or excluded by full and fair disclosure and consent. She considered that the parties’ correspondence and conduct amounted, as a practical matter, to consent to the separate business.
6. Arden LJ noted that the modern scope of the conflict rule, including the real sensible possibility of conflict formulation, had not been fully argued and should await another case. The appeal was dismissed with costs assessed at £8,506.65, and leave to appeal was refused.

• Court of Appeal (Civil Division) [2001] EWCA Civ 993: appeal dismissed with costs; leave to appeal refused.
• Birmingham Mercantile Court: His Honour Judge Perrett QC awarded the claimant’s consultancy fees and largely dismissed Eurofi’s counterclaim, holding the relevant restraints unenforceable and rejecting the fiduciary-duty claim except for a small specialist-services claim.