Prescott v Dunwoody Sports Marketing

A court may substitute a successor to a party’s interest under rule 19.2 of the Civil Procedure Rules after judgment. Substitution does not itself establish the successor’s entitlement to every remedy previously awarded.

The benefit of a restrictive covenant protecting goodwill may pass with the business. The successor may enforce it only according to its language. A court will not rewrite a covenant expressed solely by reference to the former partnership and its customers so that it protects a successor company after the partnership has ceased trading.

Where an assignment raises a distinct question about recovery of losses suffered after the transfer, fairness may require an enquiry into the assignee’s entitlement and quantum.

Dunwoody Sports Marketing obtained default judgment against a former partner, Mr Prescott, for £62,912 and injunctions enforcing two restrictive covenants. Before judgment, the partnership had transferred its business and assets to a company. The company was substituted as claimant only after judgment.

Permission to appeal was confined to the consequences of that substitution and transfer. The principal issues were whether the company could enforce covenants protecting the partnership’s customers and staff, and whether it was entitled to damages attributed to the period after the transfer.

1. Appeal allowed in part. Rule 19.2 of the Civil Procedure Rules permits joinder or substitution after judgment as well as before it. The existing substitution order had not been challenged and therefore remained effective. Substitution did not, however, determine whether the company possessed the substantive rights for which relief had been granted.

2. A restrictive covenant intended to protect the goodwill of a business may be assigned with that goodwill. Clause 5.1.2, which prohibited the former partner from enticing away or employing persons who had been partners or employees at the succession date, could operate according to its terms for the company’s benefit.

3. Clause 5.1.1 was materially different. It restrained interference with relationships between the partnership and its customers in respect of goods or services supplied by the partnership. After the partnership ceased trading, it had no customers, customer relationships or supplies capable of protection under that wording. Construing “the Partnership” to include a successor company would rewrite, rather than interpret, the restrictive covenant. The injunction enforcing clause 5.1.1 was therefore discharged.

4. The transfer assigned the partnership’s accrued cause of action concerning the alleged enticement of an employee. Mr Prescott’s procedural default prevented him from reopening the quantification of losses suffered by the partnership. It did not automatically entitle the company to retain judgment calculated on the same basis for the period after the transfer. The company had not been owed the duty against enticement, and the partnership suffered no loss after that date.

5. It would be unjust to prevent Mr Prescott from disputing the company’s entitlement and the quantum of post-transfer losses. The court discharged £27,160 of the damages judgment, representing the period after 1 August 2005, and ordered an enquiry into whether the company was entitled to damages for that period and, if so, in what amount. Any enquiry was to be transferred to the Central London County Court. Toulson LJ agreed with Lawrence Collins LJ.

1. Court of Appeal (Civil Division): The appeal was allowed in part. The customer-solicitation injunction was discharged. The award of £27,160 for the period after 1 August 2005 was discharged and remitted for an enquiry into entitlement and quantum. [2007] EWCA Civ 461

2. High Court, Queen’s Bench Division: Simon J entered judgment for £62,912 and granted injunctions enforcing the restrictive covenants. No neutral citation is stated.

3. High Court procedural stages: Master Eyre entered judgment for the claimant following Mr Prescott’s failure to exchange document lists. After final judgment, Master Eyre ordered the successor company’s substitution as claimant.