October 15, 2014

Terms of Agency Agreement too wide to enforce

The First Defendant initially worked as an agent and later became a director of the Claimant. While he was a Director he set up his own company in competition with the Claimant (Third Defendant) with his then girlfriend (the Second Defendant).

The terms of the agency agreement provided: “the agent agrees not to make contact in any way with the principal’s suppliers and/or customers for a period of 12 months from the date of termination and will not use any data, information or knowledge gained directly through or from the principal during the lifetime of this agreement, to continue trading in a similar way or within the same market sector with which trading took place between the agent and the principal”.

When the Claimant issued proceedings for damages for breach of the terms of this agreement as well as breach of fiduciary duty and misuse of confidential information, the High Court found that the terms of the agency agreement were too wide to be enforceable because they effectively prevented the First Defendant from acting in competition and amounted to an unlawful restraint of trade. It also held that the prohibition on the use of data was too wide since it included, “a general fund of information and knowledge acquired in the course of his work which an agent and a director is entitled to exploit in a new position after the termination of the relationship with the Claimant”.

However it was not all bad news for the Claimant company – the High Court held that the First Defendant was indeed in breach of his fiduciary duty and had misused confidential information. The Judge also found that all the defendants were parties to an unlawful means conspiracy; and the First Defendant took steps which far exceeded legitimate preparatory steps to compete and was in fact being dishonest in trying to divert as much of the Claimant’s business as he could to the Third Defendant by dishonestly using his contacts with the Claimant’s business and customers.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.

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