Atwood v Lamont revisited

In Attwood v Lamont [1929] 3 KB 571 a restraint was sought to be used to restrain an employee from being in any way concerned in any of the trades or businesses conducted by the employer, being ‘the trade or business of a tailor, dressmaker, general draper, milliner, hatter, haberdasher, gentlemen’s, ladies’ or children’s outfitter’ within ten miles of Kidderminister. This was a description of all of the businesses conducted by the plaintiff employer. However, the defendant employee only worked in the tailoring department of the employer. Subsequently, the defendant left the employer’s employment and set up a business as a tailor and although that business was more than 10 miles away, the defendant came back to Kidderminster to obtain and execute tailoring orders including from the claimant employer’s former customers. The employer sought to have the court sever from the restraint clause all reference to trades or businesses other than that of a tailor.

At trial it was held by the Divisional Court on appeal from the county court, that the particular restraint clause was too wide but, nevertheless, it should be severed so as to enable the reference to all trades other than that of a tailor to be removed. This severance meant that the restraint was valid so as to preclude the defendant from carrying on business from trading as a tailor within ten miles of Kidderminster. However, the Court of Appeal unanimously allowed the appeal albeit with differing reasons and held that, as a matter of construction of the restraint clause, there was ‘in truth but one covenant for the protection of the respondent’s entire business, and not several covenants for the protection of his several businesses. The particular restraint was held not to be severable by the Court of Appeal. In reaching this conclusion, and insisting upon a narrow approach to severance in the context of restraint of trade clauses, Younger LJ referred to Mason v Provident Clothing Supply Company Limited where, in relation to severance, Lord Moulton said:

[It] ought only to be done in cases where the part so enforceable is clearly severable, and even so only in cases where the excess is of trivial importance, or merely technical, and not a part of the main purport and substance of the clause. It would in my opinion be pessimi exempli if, when an employer had extracted a covenant deliberately framed in unreasonably wide terms, the Courts were to come to his assistance and, by applying their ingenuity and knowledge of the law, carve out of this void covenant the maximum of what he might validly have required. It must be remembered that the real sanction at the back of these covenants is the terror and expense of litigation, in which the servant is usually at a great disadvantage, in view of the longer purse of his master.

In Egon Zehnder Ltd v Tillman [2020] AC 154, the defendant had been an employee of the claimant company for approximately 13 years until 2017 pursuant to a written employment contract.  In January 2017 the defendant informed the claimant that from May 2017 she intended to take up employment with a competitor of the claimant.  In April 2017the claimant sought injunctive relief to enforce a restrictive covenant in the defendant’s employment contract prohibiting her from engaging or being concerned or “interested in” any business carried on in competition with any business of the claimant. The defendant argued that the restrictive covenant was an unreasonable restraint of trade since it prevented her from even becoming a shareholder in a competitor.

The trial judge granted the relief sought holding that the restraint was not an unreasonable restraint of trade and was enforceable. The Court of Appeal allowed the defendant’s appeal holding that the restraint was unenforceable.   The matter was then appealed to the United Kingdom Supreme Court where one of the questions was whether, assuming that the restrictive covenant was an unreasonable restraint of trade, was it severable from the remainder of the restrictive covenant which would therefore survive so as to prohibit the employee’s entry into the proposed transaction.

The Supreme Court, in allowing the appeal, held that the words “or interested” in the restraint were capable of being removed from the non-competition covenant and stated that the applicable criterion was whether it could be so removed without the need to add to or modify the wording of the remainder and whether the removal of the prohibition would not generate any major change in the overall effect of the restraints.[2] The removal was said to be analogous to running a “blue pencil” through the offending words.  In he circumstances those words could be severed and removed so as to enforce the balance of the restraints.

Despite the above rejection of the decision in Attwood v Lamont as authoritative,  Australian courts  continue to apply the decision.[3]  More recently, in Chubb v Edwards[4] Edelman J cited Attword in support of the approach to severance in contract law in the context of covenants in unreasonable restraint of trade, as involving the application of a blue pencil to allow severance "where the covenant is not really a single covenant but is in effect a combination of several distinct covenants" and for the proposition that “the severance must not alter the nature of the contract”.[5] Importantly, EdelmanJ went on to note that it is a different and much more controversial issue, at least in the absence of a contractual term permitting it, to disapply a contractual clause that would otherwise be void to an extent that would ensure its validity

[1]          Egon Zehnder Ltd v Tillman[2020] AC 154 at 181 and 184 per Lord Wilson JSC (wth whom Baroness Hale of Richmond PSC, Lord Kerr of Tonaghmore, Lord Briggs and Lady Arden JJSC agreed).See also, W Day, “Freedom of Contract and Restraint of Trade”, [2020] 11 Cambridge Law Journal 11.

[2]          Egon Zehnder Ltd v Tillman[2020] AC 154 at 183.

[3]          See, for example, Emeco International Pty Ltd v O'Shea [No 2] [2012] 225 IR 423 at [216] per Edelman J; Bis Industries Limited v Toll Holdings Limited (2012) 228 IR284 at [101] per Bergin CJ in Eq; Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657 at [94] per Warren CJ and Davies AJA); Sportsbe tPty Ltd v Carpanini and Anor [2014] VSC 166 at [31] per Emerton J; Workplace Access and Safety Pty Ltd v Mackie [2014] WASC 62 at [51] per Edelman J); Bend-Tech Group (A Firm) v Beek [2015] WASC 491 per Pritchard J; Just Group Limited v Peck [2016] 344 ALR 162 at [57] per Beach JA, Ferguson JA and Riordan AJA; Habitat 1 Pty Ltd v Formby (No 2) [2017] WASC 331 at [171]per Banks-Smith J.

[4]          (2019) 366 ALR 1.

[5]          Chubb v Edwards (2019) 366 ALR 1at [420].