Arbuthnot Fund Managers Ltd. v Rawlings

On an application for an interim injunction enforcing a post-termination restraint, the court should determine the covenant’s proper construction unless material disputed facts prevent it. A restraint of trade is construed by ordinary contractual principles, in its commercial context and by reference to its stated protective object. The court must avoid both extravagant breadth and artificial limitation.

Interim enforcement is inappropriate to the extent that a restraint is plainly and obviously incapable of surviving trial. Protection of client connections could not justify restrictions concerning clients known to the employee without personal dealings, introductions unconnected with recent dealings, or prospective clients approached only by other employees.

Arbuthnot Fund Managers Ltd sought to enforce post-termination restraints against its former executive director, Nigel Rawlings. The restraints concerned existing and prospective investment clients. Mr Rawlings alleged constructive dismissal, but the facts relevant to that allegation required a trial.

His Honour Judge Heppel QC granted interim injunctions substantially reflecting clauses 15.1.1 and 15.1.2 of the service agreement, subject to modifications, and ordered an expedited trial. Mr Rawlings sought permission to appeal against the injunctions and costs order.

The central issues were the proper construction of the covenants and whether parts of the resulting restraints were so plainly excessive that they could not properly be enforced pending trial.

1. Permission to appeal was granted and the appeal was allowed. Lord Justice Chadwick delivered the leading judgment. Mr Justice Newman agreed entirely with his reasoning and proposed order.

2. At the interlocutory stage the court should construe the relevant contractual restraints if it can properly do so. Construction need not await trial unless disputed facts material to the meaning of the terms cannot then be resolved. A restraint of trade is construed according to the same principles as any other written contractual term.

3. The covenant had to be read in its commercial context and by reference to its express object of protecting goodwill, confidential information, trade secrets and business connections. Activities outside that real scope should not be included merely because the language could bear an extravagant meaning. Conversely, the court must not strive to insert artificial limitations simply to preserve an otherwise excessive covenant. The task is to identify the bargain intended by the parties in their circumstances.

4. Clauses 15.1.1 and 15.1.2 concerned existing or prospective investment clients, rather than every person who had business dealings with the company. Clause 15.1.1 covered clients who had done investment business with the company during the preceding 12 months and, apart from clients introduced by Mr Rawlings, with whom he had personally dealt during that period. Clause 15.1.2 concerned prospective clients with whom relevant discussions had occurred during the preceding six months.

5. The interlocutory question was whether the restraints, as construed, were plainly and obviously incapable of enforcement at trial. The restrictions were plainly excessive insofar as they covered clients of whom Mr Rawlings merely had knowledge, clients introduced at any time but with whom he had no dealings during the preceding 12 months, and prospective clients approached only by other employees.

6. The injunctions were modified accordingly. The first was confined to clients who had done investment business with the claimant and with whom Mr Rawlings had personally dealt during the preceding 12 months. The second was confined to prospective clients with whom he personally had relevant discussions. Redundant prohibitions against discouraging clients were removed because an existing undertaking addressed that conduct. The lower court’s costs order consequently fell to be reconsidered.

1. Court of Appeal (Civil Division): Granted permission to appeal and allowed the appeal. The interim injunctions were narrowed, and the costs order below fell to be reconsidered. [2003] EWCA Civ 518

2. High Court, Queen’s Bench Division: His Honour Judge Heppel QC granted interim injunctions substantially reflecting clauses 15.1.1 and 15.1.2 of the service agreement, awarded the claimant its costs and directed an expedited trial. No citation is stated in the judgment.