Rush Hair Ltd v Gibson-Forbes & Anor

Restrictive covenants given by the seller of a business are assessed by construing the covenant, identifying the legitimate business interests requiring protection, and asking whether the restraint goes no further than reasonably necessary. A covenant against canvassing, soliciting, enticing or employing named individuals may extend to acts done by the covenantor as agent for a company where that construction is commercially sensible in the contractual context. Incorporation of a company does not itself justify attributing the company’s acts to its controller. The corporate veil may be disregarded only under the concealment or evasion principles. In a sale-of-business context, protection of goodwill may justify restraints lasting two years and covering competition within a defined local area.

Rush Hair Ltd sold two franchised hairdressing businesses to Hayley Gibson-Forbes and obtained restrictive covenants in the share purchase agreement. Ms Gibson-Forbes later operated a competing Windsor salon through S.J. Forbes Ltd and engaged Jo Thomson, while previously employing two named former employees through a company associated with her. Rush withheld deferred consideration and sought declarations and injunctive relief for breach of the covenants.

The court permitted Rush to amend its claim to allege canvassing and soliciting, construed the covenants, considered their enforceability as restraints of trade, and determined whether the corporate structure affected liability. The final question, whether breaches should be restrained by injunction or compensated by damages, was reserved for further submissions.

1. Amendment. Rush was permitted to amend its particulars to allege that Ms Gibson-Forbes had canvassed or solicited Jo Thomson. Although the application was late, the defendants had addressed the issue in evidence and would not suffer material prejudice.
2. Construction of clause 7.1.2. “Canvass” and “solicit” required a positive act by the covenantor in approaching the individual. “Employ” was not confined to employment on the covenantor’s own behalf. Read in the context of the parties’ previous dealings and the way the businesses had operated, clause 7.1.2 prohibited Ms Gibson-Forbes from canvassing, soliciting, enticing or employing the named individuals either on her own behalf or as agent for another.
3. Corporate structure. S.J. Forbes Ltd was not a cloak or sham and neither the concealment nor evasion principle applied. The consultancy agreement was entered into by Ms Gibson-Forbes as agent for the company. Incorporation did not, without more, make the company’s acts hers.
4. Construction of clause 7.1.3. “The RUSH business” meant Rush’s hairdressing business. The covenant did not extend to a business concerned only with selling or promoting products outside the context of a competing hairdressing business.
5. Reasonableness. The three-stage approach in TFS Derivatives Ltd v Morgan applied, with appropriate recognition of the less stringent approach to covenants given on the sale of a business. Clauses 7.1.2 and 7.1.3 protected legitimate goodwill interests and were no wider than reasonably necessary. Their two-year duration and geographical scope were reasonable.
6. Ms Gibson-Forbes breached clause 7.1.2 by employing Luke Harris and Charlotte Hanson through a company acting through her, and by entering into Jo Thomson’s consultancy agreement as agent for S.J. Forbes Ltd. Rush was therefore entitled to withhold the deferred consideration.
7. Rush had not accepted any repudiatory breach so as to terminate the agreement. A demand for repayment of the initial consideration did not, without more, evidence an intention to end the contract. Ms Gibson-Forbes had not canvassed or solicited Jo Thomson, since the evidence indicated that Jo Thomson had approached her.
8. The question whether the breaches should be restrained by injunction remained to be determined after further submissions.