Hanover Insurance Brokers Ltd & Anor v Schapiro & Ors

Factual and Procedural Background

This appeal concerns a dispute between a company, Company A, that operates as insurance brokers, and four former employees, the Defendants, who were employed under service contracts containing post-termination restrictive covenants. The Defendants held senior positions within Company A, which is a subsidiary of a conglomerate, Company B. The restrictive covenants sought to limit the Defendants' ability to solicit customers or employees of Company A and its parent group for 12 months after termination.

The action was initiated by Company A on 6th July 1993 to enforce these restrictions, alleging that the Defendants were breaching the covenants by attempting to carry on insurance brokerage business through other entities. Initially, an ex parte injunction was granted restraining the Defendants from soliciting customers or employees. Subsequent procedural steps included variations and applications to discharge or vary the injunction. A judgment by Judge Latham on 6th August 1993 dismissed some applications and discharged others, leading to the present appeal and cross-appeal.

Legal Issues Presented

1. Whether the wording "or endeavour to take away from Company A" in the restrictive covenant is too uncertain to be enforced by injunction.
2. Whether the restrictive covenant in the first Defendant's agreement is an unreasonable restraint of trade, particularly regarding clients he introduced to Company A before his employment.
3. Whether the restrictive covenant in the third and fourth Defendants' agreements is unreasonably wide because it extends to the parent company and all its subsidiaries, not just Company A.
4. Whether the restriction should be limited to customers known to the third and fourth Defendants during their employment, a point raised for the first time on appeal.
5. Whether the injunction preventing solicitation or enticement of employees is valid.

Arguments of the Parties

Defendants' Arguments

• The phrase "or endeavour to take away from Company A" is too vague and uncertain to enforce.
• The first Defendant argued that the restraint is unreasonable because it prevents him from acting for his personal clients, whom he introduced to Company A before employment.
• The third and fourth Defendants contended that the restraint is unreasonably wide as it covers the entire parent company group and subsidiaries, not just Company A.
• The third and fourth Defendants also argued that the restriction should only apply to customers they actually knew during their employment, a point not raised below.
• A point was raised concerning the fourth Defendant’s lack of contact or knowledge of trade secrets justifying restraint, but it was not pursued in court below and thus not entertained on appeal.

Plaintiffs' Arguments

• The Plaintiffs maintained that the phrase "endeavour to take away" simply prevents active solicitation and is sufficiently clear.
• They argued that the first Defendant’s position as Chairman and consultant distinguishes him from a travelling salesman, justifying the restraint.
• Regarding the third and fourth Defendants, the Plaintiffs accepted that "business" should be construed as insurance broking business only, limiting the scope of the covenant.
• The Plaintiffs opposed limiting the restriction to customers known personally to the Defendants during employment, relying on precedent supporting broader application.
• The Plaintiffs sought to reinstate the injunction preventing solicitation or enticement of employees.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Kores Manufacturing Co. Ltd. v Kolok Manufacturing Co. Ltd [1959] Ch 109	Non-poaching agreements between employers are generally unenforceable because employees have the right to work for whom they choose.	The court relied on this to dismiss the cross-appeal seeking to reinstate the injunction preventing solicitation of employees.
Konski v Peet [1915] 1 Ch 530	A covenant restricting competition with customers who became clients after termination is invalid.	Used to support the principle that restrictions cannot cover customers acquired after employment ends.
M. & S. Drapers (A Firm) v Reynolds [1957] 1 WLR 9	Restrictive covenants may be unreasonable if they prevent former employees from dealing with their pre-existing personal connections.	Distinguished in the present case; the court held the restraint on the Chairman was reasonable given his senior position.
Gilford Motor Co. Ltd v Horne [1933] Ch 935	Distinguishes between managing directors and travelling salesmen in assessing reasonableness of restrictive covenants.	Applied to support that the first Defendant, as Chairman, could be restrained more than a travelling salesman.
Home Counties Dairies Ltd. v Skilton [1971] WLR 526	Restrictive covenants should be construed narrowly, applying to relevant business activities only.	Supported limiting the covenant to insurance broking business within the conglomerate.
G.W. Plowman & Son Ltd. v Ash [1964] 1 WLR 568	Restrictive covenants need not be limited to customers personally known to the employee.	Supported the broader application of the restriction to all customers during employment, not just those known personally.
Marley Tile Co. v Johnson [1982] IRLR 75	Restrictive covenants may be unreasonable if they cover an excessively large customer base or geographical area.	Distinguished on facts; the present case involved a smaller, more defined customer base.
J. A. Mont (UK) Ltd v Mills [1993] IRLR 172	Recent authority on construction of restrictive covenants, showing an unsympathetic approach to excessive breadth.	Referenced but noted as distinguishable; full resolution deferred to final hearing.
Littlewoods Organisation Ltd. v Harris [1987] 1 WLR 1472	Supports a more flexible and supportive approach to restrictive covenants.	Referenced in contrast to Mont (UK) Ltd; no definitive ruling made.
Lansing Linde v Kerr [1991] 1 WLR 251	Consideration of interlocutory injunctions when trial timing affects the practical effect of the injunction.	Distinguished; timing in present case made interlocutory decision significant.

Court's Reasoning and Analysis

The court analyzed the enforceability of the restrictive covenants by applying established legal principles governing restraints of trade and injunctions. It upheld the injunction preventing solicitation of customers based on a clear interpretation that "endeavour to take away" means active attempts to solicit business, clarifying that passive dealings initiated by customers do not breach the covenant.

Regarding the first Defendant, the court distinguished his senior role from that of a travelling salesman, holding that the restraint was reasonable given his position and the nature of his contributions to Company A’s business.

For the third and fourth Defendants, the court accepted that the covenant must be construed as relating only to insurance broking business within the parent group, not other unrelated subsidiaries. It rejected arguments that the covenant should be limited only to customers personally known by the Defendants, emphasizing that this point was raised for the first time on appeal and lacked sufficient factual basis for interlocutory determination.

The court dismissed the cross-appeal seeking to reinstate the injunction preventing solicitation or enticement of employees, citing precedent that such non-poaching agreements are generally unenforceable due to employees’ right to choose their employer.

The court also considered the practical timing of the interlocutory injunctions, recognizing that the injunctions would cover a significant portion of the restricted period before trial, affecting the balance of convenience.

Holding and Implications

The court DISMISSED BOTH THE APPEAL AND THE CROSS-APPEAL, thereby:

• Upholding the injunction restraining the Defendants from soliciting or canvassing customers of Company A and its relevant subsidiaries for the 12-month post-termination period, with the clarified interpretation of the phrase "endeavour to take away."
• Dismissing the cross-appeal seeking to reinstate the injunction preventing solicitation or enticement of employees, confirming that such non-poaching restraints are unenforceable.
• Rejecting the argument that the restrictive covenants are unreasonably wide on the grounds raised, including the scope of customers and the knowledge required of the Defendants.

The decision preserves the enforceability of reasonable post-termination restraints on soliciting customers in senior employment contracts but confirms limits on restraints affecting employees. No new legal precedent was established; the ruling applies established principles to the facts of the case, emphasizing the need for factual clarity and procedural propriety in raising new points on appeal.