Credico Marketing Limited & Anor. v Benjamin Gregory Lambert & Anor.

A restraint of trade covenant must protect a legitimate interest and go no further than reasonably necessary in the parties’ and public interests. During a commercial relationship, exclusivity may be justified as the quid pro quo for a continuing supply of business opportunities and valuable operational support, even where conventional goodwill, confidential information and know-how are absent.

After lawful termination, however, investment in developing the other party’s business does not alone justify a non-compete restriction. A post-termination restraint requires a distinct protectable interest. A business may ordinarily use its general knowledge and experience in competition. Inequality of bargaining power weakens any inference that the agreed restriction is reasonable.

Credico operated direct-marketing campaigns through independently incorporated marketing companies. S5 Marketing Ltd, owned by Mr Lambert, entered a Trading Agreement under which it was to work exclusively within Credico’s network. Clause 21.1 restricted similar work during the agreement. Clause 21.2 imposed a six-month, ten-mile post-termination restriction.

S5 and Mr Lambert arranged work for third parties while the agreement remained in force. They also gave undertakings which broadly mirrored the contractual restraints. After a speedy trial, Cavanagh J held both covenants enforceable and granted declaratory and injunctive relief: [2021] EWHC 1504 (QB).

The appeal concerned whether the two restrictive covenants were reasonable restraints of trade. The validity of the undertakings was not challenged.

1. Appeal allowed in part. Sir Patrick Elias, with whom William Davis and Underhill LJJ agreed, upheld the declaration that clause 21.1 was valid and enforceable. The court held that clause 21.2, the post-termination covenant, was invalid as an unreasonable restraint of trade.

2. The applicable question was whether each restraint was reasonable in the interests of the parties and the public. The covenantee had to identify a legitimate interest that free competition would undermine, and the restriction had to be no wider than necessary. The court applied the approach summarised in Quantum Advisory Ltd v Quantum Actuarial LLP, [2021] EWCA Civ 227. The court also accepted that it should interfere with the trial judge’s evaluative conclusion only if it was wrong, applying Re Sprintroom Ltd, [2019] EWCA Civ 932.

3. Clause 21.1 was justified. Credico’s legitimate interest was not goodwill, confidential information or valuable know-how. It lay in receiving the exclusive benefit of an available marketing workforce while it supplied campaigns and invested time, resources and valuable back-office support in the marketing company. That exclusivity was a reasonable quid pro quo during the short-notice, continuing agreement. A restriction limited to competing campaigns would not protect that interest, because work on any outside campaign would reduce the value of Credico’s investment and the workforce available for its campaigns.

4. The post-termination position was materially different. Once the agreement ended, Credico could not expect continuing access to the workforce. The trial judge’s findings also established that S5 had obtained no goodwill, confidential information or special know-how capable of protection. General experience and skills acquired through commercial dealings may be used in competition unless a special protectable interest makes that use unjust. Investment in providing work and support did not itself create such an interest.

5. The franchise authorities, including Prontaprint Plc v Landon Litho Ltd, [1987] FSR 325, and ChipsAway International Ltd v Kerr, [2009] EWCA Civ 320, did not assist Credico. They concerned protection of franchisor goodwill and customer connection, which were absent here. Nor did the six-month and geographic limits save clause 21.2. The restriction was not tied to any protectable interest and was arbitrary in permitting the same competition outside the ten-mile area.

6. The injunction restraining post-termination activity was not discharged. Although clause 21.2 could not support it, the unappealed and valid undertakings independently justified that relief. The court reserved the form of order and consequential matters.

• Court of Appeal (Civil Division): Allowed the appeal in part: clause 21.1 remained enforceable, but clause 21.2 was held invalid. The existing injunction remained justified by the valid undertakings: [2022] EWCA Civ 864.
• High Court (Queen’s Bench Division): Cavanagh J held both restrictive covenants enforceable after a speedy trial on liability and granted declarations and injunctive relief: [2021] EWHC 1504 (QB).