Gilford Motor Co. vs. Horne(1933)1Ch. 935
FACTS OF THE CASE
Mr EB Horne was formerly a managing director of the Gilford Motor Co Ltd. He agreed in writing (clause 9) to not solicit customers of the company when he left employment. Then he was fired. He set up his own business and undercut their prices. Then he got legal advice saying that he was probably acting in breach of contract. So he set up a company, JM Horne & Co Ltd, in which his wife and a friend called Mr Howard were the sole shareholders and directors. It took over Horne’s business and continued. He sent out fliers saying, “Spares and service for all models of Gilford vehicles. 170 Hornsey Lane, Highgate, N. 6. Opposite Crouch End Lane... No connection with any other firm.” The company had no such agreement with Gilford Motor about not competing, however Gilford Motor brought an action alleging that the company was used as an instrument of fraud to conceal Mr Horne's illegitimate actions.
DECISION OF THE CASE
Farwell J held that the covenant that Mr Horne would not compete was broken. ‘I cannot help felling quite convinced that at any rate one of the reasons for the creation of that company was the fear of Mr Horne that he might commit breaches of the covenant in carrying on the business…’ But because the covenant was too wide and against public policy (restraint of trade?) he refused to enforce it. Gilford Motor appealed Court of Appeal
Lord Hanworth MR granted an injunction. ‘I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the effect carrying on of a business of Mr EB Horne. The purpose of it was to enable him, under what is a cloak or sham, to engage in business which, on consideration of the agreement…’ was one the former employers would object to. Lawrence LJ and Romer LJ concurred.
Gilford Motor Company Ltd v...