On 22 March 2016, the Court of Appeal handed down judgment in One Step (Support) Limited v Karen Morris-Garner [2016] EWCA Civ 180, upholding the judgment at first instance of Phillips J ([2014] EWHC 2213 (QB)). The Court of Appeal’s decision provides important guidance on the meaning and effect of non-competition covenants and the remedies available for breach of such covenants.
At first instance, Phillips J had found the Defendants (who were appellants in the Court of Appeal; the “Appellants”) to have been in breach of restrictive covenants given by them upon their departure from the claimant (“One Step”). These covenants prohibited the Appellants from engaging in any business concern which was in material competition with One Step, or soliciting any significant client or customer of One Step, for a period of three years. The Judge found that even prior to executing the restrictive covenants, the Appellants had incorporated a new company (by the name of Positive Living), which thereafter began trading in material competition with One Step. Phillips J held that One Step was entitled to judgment for damages to be assessed on the alternative bases of (i) Wrotham Park damages and (ii) ordinary compensatory damages, and to elect between these remedies.
The Appellants appealed the Judge’s findings both on liability and entitlement to remedies. The Court of Appeal unanimously dismissed the appeal.
The principal judgment was given by Christopher Clarke LJ. Longmore LJ gave a concurring judgment on entitlement to Wrotham Park damages. King LJ agreed with both judgments.
Christopher Clarke LJ analysed the concept of competition, saying that it involved at least two considerations. The first was whether two businesses were “properly to be regarded as supplying goods or services which are sufficiently comparable to mean that they are in competition” (paragraph 57). The second was whether the businesses were “to be regarded as competing in the same area” and if so, whether the area in which they were said to be in competition ought to be subdivided (paragraphs 58-59). He concluded that the “essential question is whether the scope of the businesses was the same” and whether the services provided by Positive Living were within the scope of One Step’s business plan (paragraph 64). On the facts, that was clearly the case.
On the question of Wrotham Park damages, Christopher Clarke LJ found that the Judge applied the correct test, namely whether an award of damages on the Wrotham Park basis “was the just response in this case” (paragraph 119). He rejected the Appellants’ argument that Wrotham Park damages were only available where a claimant could not demonstrate identifiable financial loss. He found that the facts of the case fully justified the Judge’s conclusion that Wrotham Park damages were the just response. The judge was in particular “entitled to take into account the difficulties which One Step would have in establishing damages on the ordinary basis” because of the complexity of proving what business it lost by reason of the appearance of Positive Living in its marketplace (paragraph 122).
Longmore LJ agreed that the justice of the case required a Wrotham Park award. He likewise rejected the Appellants’ argument that an absence of identifiable financial loss was a pre-condition to the grant of damages on a Wrotham Park basis (paragraphs 143-146). He cited and applied the three “important features” set out by Peter Gibson LJ in Experience Hendrix v PPX Enterprises as justifying a Wrotham Park award, namely (i) a deliberate breach by the defendant of its contractual obligations for its own reward; (ii) difficulty for the claimant in establishing financial loss; and (iii) the claimant having a legitimate interest in preventing the defendant’s profit-making activity in breach of contract (paragraph 147). Each of these features was present in the case before him, which (he added) was by no means a typical case because of “the subterfuge and furtiveness to which [the Appellants] resorted” when establishing their competing business (paragraph 150).
Craig Orr QC and Mehdi Baiou, instructed by Pitmans LLP, acted for One Step, both in the Court of Appeal and at first instance.