GILFORD MOTOR COMPANY LTD V/S HORNE, 1933


INTRODUCTION:

The present case is a landmark case of English company law which dealt with the concept of piercing the corporate veil and the non-compete clause. The court of appeal allowed the appeal of the plaintiff's company holding that the non-compete clause was necessary to protect the plaintiff’s company’s trade and injuncted the defendant from violating it.

BRIEF FACT OF THE CASE:

The plaintiff company dealt in buying motor vehicle parts from manufactures and assembling them and selling it under their company’s name. The company engaged the defendant as a managing director in the company. The defendant signed an agreement with the plaintiff's company of which clause 9 was a non-compete clause which stated: “the defendant while acting as a managing director and afterwards will not solicit or entice away from the company any person, firm, or company who at any time during or at the date of the determination of the employment of the defendant as a managing director were customers of the company or were in the habit of dealing with the company”. After leaving the plaintiff’s company the defendant set up a new company with his wife for the sale of spare parts. The plaintiff company brought an action against the defendant alleging that the defendant was soliciting their customers and therefore has breached the non-compete clause and thus demanded specific performance of his obligation by seeking an injunction against the defendant.

CONTENTIONS FROM THE SIDE OF THE DEFENDANT:

  1. That the covenant is too wide and thus cannot be enforced as the words “in habit of dealing with the plaintiff's company” would cover any stranger who bought spare parts as the company sells spare parts to strangers for cash.

  2. That defendant while being managing director may not have known every such strangers and therefore the covenant is unreasonable and bad in law. 

CONTENTIONS FROM THE SIDE OF THE PLAINTIFF:

That the covenant is not too wide as the plaintiff's company deals in the supply of Gilford motor vehicles and spare parts. The words in the habit of dealing with the company is a surplusage and does not exceed the scope of restriction.




OBSERVATIONS OF THE CHANCERY DISVISON:

  1. The defendant was in a position to known the customers of the plaintiff company on its books but with regard to persons coming at the workshop and buying spare parts and paying for them on the spot, the identities of such persons would not be known to him.

  2. The words “persons in the habit of dealing with the company” are not surplusage. These words in the covenant imply to cover not only the customers of the company whose name and identity can be found in the books but also any persons who buys from the shop on cash basis.

  3. Thus, held the covenant too wide to be necessary for the protection of plaintiff's company and thus the plaintiff failed to prove its validity. 

OBSERVATIONS OF THE COURT OF APPEAL:

  1. The defendant created the company to solicit the customers of the plaintiff company so as to escape the liability under the covenant because as in law the company is a separate entity that from the defendant.

  2. The defendant did solicit away the customers of the plaintiff company by sending out the circulars that stated that the defendant is ready to supply spare parts for Gilford and did supply the parts at a considerably lower price than what the plaintiff company charged and thus the company was established as mere device to carry out the soliciting of customers.

  3. The covenant is not wide and is necessary for the protection of the plaintiff’s company as it specifies the duration or time period i.e. only during a specific period the persons or customers who had engaged with the plaintiff's company are covered and the defendant is only restricted to not trade with such persons or customers. 

  4. The words “customers in habit of dealing with the company” refers to those persons who buy from the plaintiff’s company and are on the books or may have not been yet registered but they are the persons who the defendant knows by the reason of being the managing director of the plaintiff company and not the ones that are dealing with the company after he left and therefore the employment of these were cannot be seen as an objection. 

DECISION:

In the light of the above observations, ruled in favor of the plaintiff and passed an injunction against the defendant’ company. 


REFERENCE: GILFORD MOTOR LIMITED COMPANY V/S HORNE, 1933 CH 935


By Amruta Pawar

Intern at Nyaya Nishtha