Quantum Actuarial LLP v Quantum Advisory Ltd

The restraint of trade doctrine has no single exhaustive threshold test. A court must first identify a practical restraint and then assess, by reference to public policy and all circumstances at contract formation, whether the restraint requires justification. The trading society approach is a guide, not a universal test.

A bespoke, freely negotiated commercial agreement may fall outside the doctrine where its restraints are fairly and properly ancillary to an agreed allocation of business and goodwill. If the doctrine applies, the restraint must protect legitimate private interests without injuring the public. A long duration is important but is assessed in its contractual and commercial setting.

Quantum Actuarial LLP was created during a restructuring of pensions-services businesses. Under a 99-year services agreement, it serviced legacy clients for a fee while the respondent retained the legacy goodwill and profit element. The agreement prevented the LLP from soliciting, accepting instructions from, or undertaking specified services for those clients otherwise than through the agreement.

The respondent sought declarations that the agreement was enforceable after the LLP asserted that the covenants were in unreasonable restraint of trade. HHJ Keyser QC, sitting as a High Court judge, held that the doctrine did not apply and that the covenants were reasonable in any event: [2020] EWHC 1072 (Comm). The LLP appealed on both issues.

1. Appeal dismissed unanimously. Lady Justice Carr gave the judgment, with whom Lord Justice Stuart-Smith and Lord Justice Moylan agreed.

2. The court held that the doctrine of restraint of trade requires a three-stage analysis. The court first asks whether the covenant is a practical restraint on trading. If it is, the court asks whether public policy nevertheless requires the covenantee to justify it. Only if the doctrine is engaged does the court decide whether the restraint is reasonable between the parties and in the public interest.

3. Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd [2020] UKSC 36 rejected the pre-existing-freedom test, but it did not replace the flexible common-law approach with a single universal trading society test. The relevant assessment is fact-sensitive, iterative and made at the date of contracting. Subsequent developments matter only as evidence of the contract's nature when made.

4. The covenants were a literal practical restraint. However, the parties had freely negotiated a bespoke arrangement on equal terms. The agreement enabled the LLP to trade using an established business, brand and infrastructure, while preserving the legacy clients and goodwill for the respondent. The restraints were fairly and properly ancillary to that agreed allocation and were not oppressive or a special feature requiring justification. The public interest in enforcing the freely negotiated contract prevailed.

5. In any event, the covenants satisfied the Nordenfelt test. They protected the legitimate boundary between the legacy business and the LLP's new business. Their duration matched the agreement which the LLP had proposed should last 99 years, and the restraints did not cause public harm. It was therefore unnecessary to decide the respondent's alternative agency and fiduciary-duty arguments.

• Court of Appeal (Civil Division): dismissed the LLP's appeal and upheld the enforceability of the covenants: [2021] EWCA Civ 227.

• High Court, Circuit Commercial Court: held that the restraint of trade doctrine did not apply and that the covenants were reasonable in any event: [2020] EWHC 1072 (Comm).