Rnd Holdings Ltd v Bullard et Al
| Jurisdiction | Bahamas |
| Judge | Lyons, J. |
| Judgment Date | 22 May 2002 |
| Court | Supreme Court (Bahamas) |
| Docket Number | 679 of 2002 |
| Date | 22 May 2002 |
Supreme Court
Lyons, J.
679 of 2002
Mr. O. Johnson with Ms. T. Archer for the plaintiff.
Mr. S. Collie for the respondents.
Employment law - Restraint of trade clause — Whether non-compete clause should be rendered void for being wide and unreasonable — Whether providing technical assistance of training for competing business is in contravention to the non-restraint clause.
By agreement dated the 31st July 2000 the applicants (RND) agreed with the respondents to purchase the respondents interest in Nature's Way Nutrition Limited (NWNL) of which the respondents were the beneficial owners.
NWNL's business consisted of a Health/Nutritional Foods Store situated in the vicinity of the Paradise Island Bridge at the eastern end of Mackey Street in Nassau, New Providence. It was located below Gold's Gym. As the shop sold vitamin supplements and the like, it drew regular patronage from persons who visited the gym, amongst others. It appears to have been a successful business with a gross turnover in excess of $400,000 per year.
The respondents, notably Mrs. Avis Bullard, were actively engaged in the store. Most particularly Mrs. Bullard had, over the years, achieved a significant knowledge and experience in the health and nutrition retail business. Not unexpectedly, she had a significant clientele, many of whom regularly placed orders with the health store.
As part of the agreement for sale/purchase, a ‘non-compete’ or restraint of trade clause was included. It reads: -
“Except with the approval of RND, Mr. and Mrs. Bullard nor any related parties (including present officers and directors of NWNL) shall, for a period of five (5) years from the date that Mr. and Mrs. Bullard cease to have a financial interest in NWNL or from the date that they cease to be employed by NWNL or RND, either in their own name or in the name of any other person or company or otherwise howsoever without the approval of RND/NWNL, under common seal first obtained, carry on in The Bahamas or be engaged or beneficially interest in or in any way connected with the operation of a health food store or the sale of vitamins and supplements.”
The purchasers (RND) also agreed to employ Mrs. Bullard as manager for a significant period after the closure date on the sale/purchase contract. It appears that Mr. Bullard also was kept on as an employee for a weekly sum of $240:00 per week. Presumably Mr. and Mrs. Bullard were seen as a ‘good team’ whose combined knowledge and expertise comprised what can be called the goodwill of the business of NWNL.
Mrs. Bullard resigned her position in the first week of March 2002. Mr. Bullard also is no longer on the payroll although it is unclear when that became the case. Mr. Bullard has independent (and primary) employment as a General Contractor and Heavy Equipment Operator.
In the last week or so of March 2002, Mrs. Bullard was seen in shopping premises in Rosetta Street seemingly setting up a new business to be similarly trading in health food/vitamin supplements. It is noteworthy that the premises from which NWNL conducts its shop is at the Eastern end of Mackey Street, Nassau. Rosetta Street runs off Mackey Street, within one to two miles from the NWNL premises.
Mrs. Bullard does not deny that she has done work in the new shop (Para 16 of her affidavit of 16 April). Mrs. Bullard further says that she is not, as yet, employed in the new store but will take up employment when the owners of the new business get their business licence (Para 13 and 16 of affidavit of 16th April).
The court is told that the new shop on Rosetta Street (Roberts Plaza, Palmdale) is owned by Mattjan Investments Company Limited (Mattjan). The beneficial owners of that company are a Mr. Matthew Higgs and Ms. Janet Darling, a businessman (who carries on ‘various types of business’) and a policewoman respectively. Both are well acquainted with Mr. and Mrs. Bullard. Mr. Higgs and Ms. Darling say they have done various market studies and investigations and have decided to commence doing business in Nassau in Health and Nutrition products.
Mr. Higgs has known Mr. and Mrs. Bullard for about twenty years. He knew Mr. and Mrs. Bullard were knowledgeable in the nutrition business. He recruited Mrs. Bullard to work in the new venture. Mr. Bullard declined as he wished to concentrate on his other businesses.
Mr. Higgs and Ms. Darling depose that they have used Mrs. Bullard's services to assist in the setting up of the business and the training of staff. It is said Mrs. Bullard has done that free of charge.
The applicant, RND, has filed a writ against Mr. and Mrs. Bullard seeking damages for breach of the sale/purchase agreement, specifically the non-compete clause.
As an interim measure. RND seeks an interlocutory injunction against Mr. and Mrs. Bullard restraining them from
“(a) engaging or being beneficially interested in or in any way connected with the operation of a health food store or the sale of vitamins and supplements until after the trial of this action or further order;
(b) in any manner directly or indirectly soliciting customers of Nature's Way as listed upon the Customer List of Nature's Way at or upon the date of the resignation of the Second defendant as an employee of the Nature's Way; and
(c) representing in any way that any other business they may be engaged in is a branch or a continuation of the business known as Nature's Way as formally carried on by the First and Second defendant.”
In their defence, counsel for Mr. and Mrs. Bullard submits that the non-compete clause should be rendered void as it is either to wide or unreasonable (or both). Further, it is submitted, the words “engaged in” should not be construed so widely as to prevent employment as an employee. The greater weight of authority is against these submissions. Lathan, C.J. remarked in Lindner v. Murdocks Garage [1950] 83 C.L.R. 628 at para 6:–
“It is well established that prima facie all restraints upon trade are invalid, but that they may be upheld if the party seeking to enforce them shows that circumstances exist which make the restraint reasonably necessary for protection of a covenantee's business and that it is not contrary to public interests. A distinction is drawn between a restraint upon trade included in an agreement for the sale of a business and a restraint included in an agreement with an employee. The restraint is more easily upheld in the former than in the latter case. In the former case the purchaser is entitled to protect himself against competition on the part of the vendor, but in the latter case he cannot acquire such a right by agreement with the employee: Herbert Morris Ltd. v. Saxelby [1916] 1 A.C. 688; Attwood v. Lamont [1920] 3 K.B. 571.”
(see also Nordenfell v. Maxims Nordenfeld Guns Co. [1894] A.C. 535).
Consistently courts have held that restraints of trade are valid where, on a purchase contract, they are put in place to protect the purchaser's bargain.
Lord Parker, in Herbert Morris Limited v. Saxelby [1916] 1 A.C. 688.. remarked at 708 - 709
“The goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment, and if the Purchaser is to take over such goodwill with all its advantages, it must in his hands remain similarly immune. Without, therefore, a covenant on the part of the Vendor against competition, a Purchaser would not get what he is contracting to buy, nor could the Vendor give what he is intending to sell.”
There is no dispute that Mrs. Bullard (and, indeed, Mr. Bullard to a lesser extent) are knowledgeable in this type of business. That is even the position adopted by the respondents. (See Mr. Higgs and Ms. Darling's affidavit). It is beyond dispute, then, that Mr. and Mrs. Bullard's combined knowledge and expertise formed the major portion of the goodwill of the business. That is what RND paid for and sought to protect, not only by the restraint clause, but by retaining both Mr. and Mrs. Bullard in the business as employees.
In the circumstances the clause under review is reasonably necessary to protect RND's newly purchased business. RND purchased the business of which Mr. and Mrs. Bullard (or more particularly the goodwill and expertise they possessed) were an integral, if not crucial part. If the clause were to be ruled unreasonable on this point, it could not be said that RND got what they purchased, nor that NWNL gave what they sold. Indeed RND would get significantly less than what they purchased. Mattjan would instead get that benefit.
Similarly it cannot be said (and nor was it argued) that the clause is contrary to public interest. Public interest requires that in an orderly society, parties get what they bargain for. There is no element of conflict with the wider public interest apparent in this clause.
As counsel's argument was understood, the clause should, it was argued, fail because...
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