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Davies Horizon International Cargo Limited v Hart: View from Littleton

Nicholas Goodfellow writes for our monthly column “View from
Littleton Chambers” in Tolley’s Employment Law Newsletter. This article
first appeared in the August 2015 edition.

Mr
Hart was a former director of Horizon International Cargo Limited (Horizon), a
freight forwarding company. Mr Davies was and is the majority shareholder in
Horizon. Mr Hart’s employment terminated on 27 September 2013 pursuant to a settlement
agreement (SA) in relation to which Mr Hart received independent legal advice.
The SA provided that restrictive covenants contained in a directors’ service
agreement (DSA) would continue in force for one year following termination, and
further specified a non-exhaustive list of “restricted clients”. On the same
day, Mr Hart sold his shareholding in Horizon to Mr Davies pursuant to a share
sale agreement (SSA). The SSA contained restrictive covenants restraining Mr
Hart from:

(a)
competing with Horizon for 12 months;

(b)
soliciting restricted clients for two years; and 

(c) soliciting a defined class
of employees of Horizon for two years.

Following
the termination of his employment, Mr Hart breached the restrictive covenants
in the DSA, SA and SSA, including by starting trading as a competitor business
in August 2014. On 20 January 2015, an interim injunction was obtained against
Mr Hart ([2015] EWHC 607 (QB)) (the injunction order) at a hearing before
Nicola Davies J. Following that hearing, Mr Hart failed to file and serve an
affidavit as required by the injunction order and contempt proceedings were
commenced against him, which subsequently settled. Mr Hart failed to
acknowledge service or file a defence on time, and judgment was entered in
default against him. Mr Hart applied to set that judgment aside within 23 days
of becoming aware of it. In his draft defence, he asserted that the restrictive
covenants in the DSA, SA and/or SSA were void and further denied acting in
breach of the same. Wilkie J declined to set aside the judgment, despite
finding that the application had been made promptly, holding that: 

There
was no reasonable prospect of success of Mr Hart succeeding with his arguments
that the restrictive covenants in the SA and/or SSA were unenforceable. In
reaching this view, Wilkie J placed reliance on:

(a)
the fact that the SA had been entered into under legal advice, having regard to
the authorities of
Thurstan Hoskin & Partners v Jewill Hill & Bennett [2002] EWCA Civ 249 and World Wide Fund for Nature v World Wrestling
Federation
[2002] FSR 33; and

(b)
the fact that the duration of the covenants in the SSA had been the subject of
specific negotiation, also having regard to the different approach to the
enforceability of covenants in a vendor/purchaser context (Dawnay, Day & Co v De
Braconier D’Alphen
[1997] IRLR 442).

While
Mr Hart had a reasonable prospect of successfully defending some of the
allegations of breach against him, there were four specific allegations where
he had no reasonable prospect of success. On this basis, Wilkie J considered that the
overriding objective, which he was obliged to consider when deciding whether to
set aside default judgment, favoured ordering that the default judgment stand
in respect of the four specific allegations of breach, but that the remainder
of the allegations be addressed on both the issue of liability and quantum at
the “quantum hearing”. This case is of interest because: 

  • It is a useful illustration of the
    court taking a pragmatic approach to the issues to give effect to the
    overriding objective. 
  • It provides support for the view that
    when applying to set aside default judgment, the defendant ought to be able to
    satisfy the court that s/he has a real prospect of defending all of the claims
    against him/her. 
  • It might provide support in a similar case,
    where robust covenants are contained in a settlement agreement or a share sale
    agreement and there is clear evidence of breach, for summary judgment to be
    sought on an issue basis. By obtaining such relief at an early stage, this puts
    a claimant in a very strong position on the costs risks going forward.

Nicholas
Goodfellow
appeared for the claimants, instructed by Shoosmiths LLP.

 

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