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

For a non-compete covenant, competition is assessed broadly and fact-sensitively. The court considers whether services are comparable or interchangeable, geographical overlap, realistic customer choice, any genuine market segmentation, and the realistic prospect of future supply. The protected business need not already be supplying the precise service to the relevant customer. A non-solicitation covenant covering orders for any services provided by the business is not confined to the particular service previously supplied. Wrotham Park damages are potentially available for breach of contract, including restrictive covenants. The governing question is whether that form of compensatory award is the just response. Neither absence of identifiable financial loss nor manifest injustice is an absolute precondition.

The appellants had sold an interest in a supported living business and entered into 36-month covenants against competition, solicitation and misuse of confidential information. They later established Positive Living, which provided supported living and registered personal care services in areas served by One Step.

Phillips J found breaches of the covenants and gave One Step the option of claiming Wrotham Park damages, deferring quantification. The appeal challenged the findings of competition and solicitation and the availability of that remedy. The central questions were the proper scope of competition and solicitation under the covenants, and whether the circumstances justified negotiating damages.

The Court of Appeal unanimously dismissed the appeal. Lady Justice King agreed with the judgment of Christopher Clarke LJ. Lord Justice Longmore agreed with the result and gave additional reasoning on Wrotham Park damages.

1. Non-compete covenant. Competition is a broad, fact-sensitive question. The court should consider whether the services are sufficiently comparable or interchangeable, the geographical area, whether customers could realistically purchase from either business, whether any apparent market segmentation is genuine, and, where a business hopes to supply a service it has not yet supplied, the genuineness and realism of that prospect. The essential question is whether the businesses fall within the same commercial scope. The judge was entitled to find that the supported living services supplied by One Step and Positive Living were interchangeable, that the relevant regions overlapped, and that cross-referrals and future adult work were realistic. Registration under the Care Standards Act 2000 did not place Positive Living outside the market. The breaches in West London and the Thames Valley were therefore upheld: see [2013] 3015 Ch.
2. Non-solicitation covenant. The relevant questions were whether the appellants were competing with One Step, whether they solicited orders for services provided by One Step, and whether the authorities solicited were significant customers within the contractual period. The covenant referred to any services provided by One Step. It therefore did not require proof that the appellants solicited the authorities for precisely the same services previously supplied to them.
3. Wrotham Park damages. Such damages are a potentially available compensatory remedy for breach of contract, including non-proprietary restrictive covenants. An injunction, or the possibility of an injunction, is not required. The court considered Wrotham Park [1974] 1 WLR 798, Attorney General v Blake [2001] 1 AC 268, Experience Hendrix [2003] EWCA Civ 323 and World Wide Fund for Nature v World Wrestling Federation Inc [2008] 1 WLR 445. The inability to identify financial loss is not an absolute precondition. Nor must the judge apply a separate manifest-injustice threshold. The governing question is whether the award is the just response. Difficulty proving ordinary loss, including loss of placements and goodwill, was relevant. The judge was entitled to take account of the importance of the covenants, the deliberate and secretive breaches, and the practical difficulty of establishing conventional damages.
4. Additional observations. The award should normally be assessed by reference to the hypothetical price for release from the covenant at the date of breach, although later events may be considered where justice requires. The court must avoid over-compensation and must exercise a robust judgment. Lord Justice Longmore additionally regarded the deliberate breach, difficulty of proving loss, legitimate interest in preventing the activity, and doubt about obtaining effective interim relief as relevant features in a sale-of-business case. Quantification remained for a later stage.

• Court of Appeal (Civil Division): Appeal dismissed. The court upheld the findings of breach and the option to elect for Wrotham Park damages.
• High Court of Justice, Queen’s Bench Division: Phillips J found breaches of the restrictive covenants and confidentiality obligations and gave One Step the option of claiming Wrotham Park damages, with quantification deferred: [2014] EWHC 2213 (QB).