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Tillman v Egon Zehnder Ltd
Factual and Procedural Background
Company A employed the Employee under a written agreement dated 10 December 2003. The contract contained post-employment restraints, the most important of which (the “non-competition covenant”) barred the Employee from being “engaged, concerned or interested” in any competing business for six months after termination.
The Employee’s employment ended on 30 January 2017. She informed Company A that she intended to join a competitor on 1 May 2017 but would honour every restraint except the non-competition covenant, which she said was void as an unreasonable restraint of trade.
Company A sought an interim injunction. Judge Mann (High Court) granted it; Judge Longmore (Court of Appeal) set it aside, holding the covenant void and refusing severance. Company A appealed to the Supreme Court.
Legal Issues Presented
- Issue A – Scope of Restraint-of-Trade Doctrine: If the covenant, on the Employee’s construction, bars even a minority shareholding, does that part nevertheless fall outside the restraint-of-trade doctrine?
- Issue B – Construction: Does the word “interested” in the covenant, properly construed, prohibit the Employee from holding any shares in a competitor?
- Issue C – Severance: If “interested” is void for unreasonable restraint, can it be severed so the remainder of the covenant survives?
Arguments of the Parties
Company A’s Arguments
- Issue A: Even if “interested” covers shareholding, that prohibition is not a restraint of trade and therefore escapes the doctrine.
- Issue B: Read in context, “interested” does not include passive shareholding; at most it covers active involvement.
- Issue C: If the Court finds “interested” void, it can be neatly severed, leaving a valid restriction against working for a competitor.
Employee’s Arguments
- The covenant, on its face, bars any shareholding, however small, in any competitor and is therefore unreasonably wide.
- The restraint falls squarely within the restraint-of-trade doctrine.
- Following Attwood v Lamont, the covenant is a single promise; the offending words cannot be severed without rewriting the bargain.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| NWL Ltd v Woods [1979] | Enhanced merits test for interim injunctions | Explained why a fuller merits inquiry was undertaken at first instance. |
| Scully UK Ltd v Lee [1998] | Assumed “interested” includes shareholding within doctrine | Noted as an assumption, not binding authority. |
| Geo Hill & Co v Hill (1886) | Similar assumption on “interested” | Used to illustrate lack of focused authority on Issue A. |
| National Enterprises Ltd v Racal Communications Ltd [1975] | Point decided on an assumption carries no precedent | Supported taking Issue A despite no prior finding below. |
| Dyer’s Case (1414) | Early absolute invalidity of restraints | Historical background to doctrine. |
| Colgate v Bacheler (1601) | Invalidity regardless of time/place limits | Illustrated evolution toward reasonableness. |
| Mitchel v Reynolds (1711) | Introduced presumption of invalidity rebuttable by reasonableness | Cited as seminal authority on reasonableness test. |
| Nordenfelt v Maxim [1894] | Reasonableness may justify very wide restraints | Showed doctrine’s adaptability. |
| Herbert Morris Ltd v Saxelby [1916] | Different policy for vendor vs employee restraints | Explained stricter scrutiny of employee covenants. |
| Servais Bouchard v Prince’s-Hall Restaurant (1904) | Boundary between doctrine and ordinary commercial contracts | Example of courts sliding to reasonableness without boundary test. |
| Dickson v Pharmaceutical Society [1970] | Similar boundary issue | Context for discussion of doctrine’s reach. |
| Esso Petroleum v Harper’s Garage [1968] | Doctrine applied to “solus” agreements; length of restraint | Analogy for limits of doctrine. |
| Warner Bros v Nelson [1937] | Exclusive-service contracts outside doctrine | Cited in boundary discussion. |
| Proactive Sports Management v Rooney [2011] | Doctrine applies to ancillary image-rights business | Adopted “broad, practical” approach used on Issue A. |
| Wood v Capita Insurance Services [2017] | Contextual contract interpretation | Ground for Company A’s Issue B construction argument. |
| Tradition Financial Services v Gamberoni [2017] | Alternative reading of “interested” excluding shares | Court distinguished and declined to follow. |
| Smith v Hancock [1894] | Natural meaning of “interested” = proprietary/pecuniary interest | Supported finding that word covers shares. |
| Gophir Diamond Co v Wood [1902] | Historic use of “engaged or concerned or interested” | Reinforced traditional drafting meaning. |
| CEF Holdings Ltd v Mundey [2012] | Breadth of covenant barred even one share | Cited to demonstrate accepted meaning of “interested”. |
| Re Baden’s Deed Trusts [1969] | Validity principle engaged when rival meanings “evenly balanced” | Framework for Issue B interpretation. |
| Inland Revenue Comrs v Williams [1969] | Validity principle applies where court in “real and persistent uncertainty” | Helped define threshold for deploying validity principle. |
| Great Estates Group Ltd v Digby [2011] | May adopt less natural construction if realistic and validates clause | Part of discussion on alternative constructions. |
| Tindall Cobham 1 Ltd v Adda Hotels [2014] | Need for a “realistic” alternative to engage validity principle | Adopted as appropriate threshold. |
| TFS Derivatives Ltd v Morgan [2004] | Validity principle applies with any “element of ambiguity” | View ultimately rejected as too wide. |
| Anglo Continental Educational Group v Capital Homes [2009] | Clause enforceable if agreement “susceptible” of valid meaning | Cited in validity-principle debate. |
| Carney v Herbert [1985] | General severance principles in illegal contracts | Provided comparative backdrop for Issue C. |
| Chesman v Nainby (1726) | Early acceptance of severance in restraint covenants | Historical example favouring severance. |
| Mason v Provident Clothing [1913] | Lord Moulton’s strict view: severance only if excess trivial/technical | Formed basis of restrictive rule later overruled. |
| SV Nevanas & Co v Walker [1914] | Clarified Lord Moulton not aimed at clauses already severable | Early criticism of Mason approach. |
| Goldsoll v Goldman [1914] | Further judicial hostility to wide restraints | Illustrated tension leading to Attwood. |
| Attwood v Lamont [1920] | Introduced two strict requirements for severance (separate covenants; triviality) | Supreme Court overrules. |
| Putsman v Taylor [1927] | Example where court severed locations and enforced remainder | Showed limitations of Attwood. |
| Scorer v Seymour Jones [1966] | Similar severance of geographical limb | Contrasted with Attwood. |
| T Lucas & Co Ltd v Mitchell [1974] | Court rejected “trivial/technical” limb of Attwood | Foundation for modern, less rigid approach. |
| Sadler v Imperial Life Assurance [1988] | Formulated three criteria for severance | Adopted as modern test later. |
| Marshall v NM Financial Management [1995] | Applied and refined Sadler; added fourth policy criterion | Cited in shaping severance test. |
| Beckett Investment Management v Hall [2007] | Approved three-fold severance test, rejected Attwood strictness | Supreme Court endorses. |
| East England Schools CIC v Palmer [2013] | Example of severing shareholding ban under modern test | Illustrative support. |
| UK Power Reserve Ltd v Read [2014] | Obiter support for modern severance criteria | Reinforced trend. |
| Freshasia Foods Ltd v Lu [2018] / [2019] | Recent survey; questioned reconciliation of authorities | Cited as contemporary commentary. |
| Shafron v KRG Insurance Brokers (2009, Canada) | Canadian Supreme Court still follows Attwood approach | Compared foreign position. |
| Lee Gwee Noi v Humming Flowers (2014, Singapore) | Singapore applies three-fold Beckett test | Comparative perspective. |
| Ashcourt Rowan Financial Planning Ltd v Hall [2013] | “Concerned” requires active involvement, not mere shareholding | Answered Court of Appeal’s concern post-severance. |
| British Reinforced Concrete Engineering Co v Schelff [1921] | Severance does not alter original construction of remaining words | Used to dismiss argument that meaning changes after deletion. |
| M & S Drapers v Reynolds [1957] | Need to protect ordinary employees from over-broad covenants | Policy backdrop to cautious severance. |
Court's Reasoning and Analysis
Issue A: Assuming “interested” bars shareholding, that prohibition still restricts the Employee’s capacity to work by limiting her ability to take equity stakes in competitors. It therefore falls within the restraint-of-trade doctrine. The Court found it “curious” to treat one word in an otherwise restraining covenant as outside the doctrine and rejected Company A’s contention.
Issue B: Applying orthodox contract construction and the validity principle, the Court held that the ordinary meaning of “interested” encompasses any shareholding, big or small. The contextual points (separate clause on shareholding during employment, omission of the word “shareholder” in the capacity list, and expression “in any business”) were insufficient to displace that meaning, and no realistic alternative construction existed. Consequently, the prohibition against being “interested” was an unreasonable restraint.
Issue C: The Court re-examined the common-law rules on severance. It overruled Attwood v Lamont and adopted the three-fold test approved in Beckett v Hall:
- The offending words must be removable by simple deletion (“blue-pencil” test).
- (In usual employer-claimant cases) further consideration analysis is unnecessary.
- Deletion must not significantly change the overall effect of the remaining restraints.
The words “or interested” satisfy those criteria: they can be struck out without adding new language, and their removal leaves a covenant (against being “engaged or concerned” in a competing business) whose legal effect is substantially unchanged. The Court further clarified that “concerned” refers to active involvement and does not catch passive share ownership, so the remainder is enforceable.
Accordingly, the covenant survives with the offending words severed.
Holding and Implications
Holding: APPEAL ALLOWED. The words “or interested” are severed from the non-competition covenant; the injunction granted at first instance is reinstated.
Implications: The Supreme Court abolishes the rigid Attwood restrictions on severance, confirming the more flexible three-part test from Beckett v Hall. Employers may still enforce post-employment restraints after excising unreasonable elements, but only where blue-pencil deletion leaves the covenant’s overall effect materially the same. The decision clarifies the meaning of “engaged, concerned or interested” and emphasises cautious scrutiny of over-broad clauses.
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