One Step (Support) Ltd v Morris -Garner & Anor

Restrictive covenants must first be construed without considering their validity. They are construed in context, having regard to the transaction’s purpose and the legitimate interests being protected. A non-compete covenant may protect a business’s general goodwill and potential new clients, not merely existing customers covered by a non-solicitation clause. Businesses may compete where their services are sufficiently interchangeable, even if one provider can supply an additional regulated service or operates through split provision. A covenant may protect business in an area where expansion plans were only general and dormant, but not business in an area where expansion was in an advanced state of preparation. Where financial loss from deliberate competition is difficult to measure, damages assessed on a release-price basis may be available, although an account of profits remains exceptional.

One Step (Support) Limited sued Karen Morris-Garner and Andrea Morris-Garner for breaches of restrictive covenants entered into when the first defendant sold her shareholding in One Step and both defendants left the business. The defendants had established Positive Living Limited, which operated supported-living services in areas where One Step traded and later in the Midlands.

The issues were whether Positive Living was in material competition with One Step, whether the defendants solicited significant One Step clients, whether the second defendant’s covenants were enforceable, whether the first defendant misused confidential information, and what remedies were available. The court also considered whether the Midlands formed part of the goodwill protected by the covenants.

1. Liability. The defendants breached the non-compete covenant by operating Positive Living in West London and the Thames Valley between August 2007 and December 2009. They also breached the non-solicitation covenants by soliciting seven significant local-authority clients. The first defendant additionally breached her confidentiality covenant and equitable duties of confidence.
2. Restrictive covenants are construed initially without regard to legality, in context and in light of the factual matrix and the commercial object of the transaction. The non-compete and non-solicitation covenants were independent restrictions. The former protected competition generally; the latter protected relationships with significant existing clients. The non-compete covenant therefore was not limited by the non-solicitation provision.
3. Positive Living and One Step operated in the same supported-living market. The ability of Positive Living to provide registered personal care did not prevent competition because local authorities commonly divided accommodation, support and care between providers. The services were sufficiently interchangeable, and One Step could compete for clients whose registered care was supplied separately.
4. The Midlands activities did not breach the covenant. Although One Step had considered expansion, its plans lacked facilities, staff, accreditation, commissioner relationships or other features demonstrating an advanced state of preparation. The court distinguished Dawnay, Day & Co. Ltd. v. D’Alphen [1998] ICR 1068.
5. The second defendant’s covenants were enforceable. Substance, rather than formal status as employee or vendor, governed. She was closely associated with the vendor and the covenants were necessary to protect the sale and were no wider than necessary.
6. An account of profits was unavailable because the breaches were not exceptional: Attorney General v. Blake [2001] 1 AC 268 and Experience Hendrix v. PPX Enterprises Inc [2001] All ER (Comm) 830 were considered. Wrotham Park damages were available because financial loss was difficult to measure. One Step was entitled to elect between such damages and ordinary compensatory damages: WWF World Wide Fund for Nature v. World Wrestling Federation Entertainment Inc [2008] 1 WLR 445.