By an Agreement of Service the plaintiffs employed the defendant for a period of two years on an annual salary of £1,500 with an additional sum of £100 per annum as special consideration for agreeing to Clause 6 of the Agreement.

Clause 6 of the Agreement imposed on the defendant a restrictive provision, to wit:-

"Upon the determination of his employment for any cause or by any means whatsoever the Employee shall not for a period of one year next thereafter undertake to carry on either alone or in partnership nor be employed or interested directly or indirectly in any capacity whatever in the business of Merchants Engineers or any other business carried on by the Company within a radius of fifty miles from any Trading Station in West Africa which is now or shall at any time during his employment be established or owned or managed by the Company and will not during the like period and within the same area either personally or by his agent or by letters, circulars or advertisements whether on his own behalf or on behalf of any other person, firm or company compete or seek to compete with the Company in any such business as aforesaid nor in any way interfere with any of the Company's customers nor use any information concerning the Company's business or affairs or customers of the Company which may have been acquired by him in the course of or as an incident to his employment hereunder for his own benefit or to the detriment of the Company or intended probable detriment."

One month after the determination of employment under the plaintiffs the defendant took up appointment with Messrs Nigerian Technical Company Limited which was situate in a premises lying within a radius of one mile from the plaintiffs. The defendant was being employed in the Spare Parts Department of his new employers. The defendant was employed throughout his service under the plaintiffs in the capacity of a Spare Parts specialist The plaintiffs and Messrs Nigerian Technical Co. Limited are competitors in so far as spare parts are concerned.

When the fact of the defendant's employment became known to the plaintiff, a letter was addressed to him drawing his attention to Clause 6 of the Agreement, the alleged breach thereof, and demanding the payment of the sum of £1000 by way of liquidated damages in terms of Clause 8 of the Agreement. The defendant resisted the claim and thereupon the plaintiffs brought this action against the defendant claiming the sum of £1000 as liquidated damages and an injunction.

Counsel for the defendant submitted, inter alia, that there was no evidence that the defendant was in any position where he could influence any of the plaintiffs' customers, and further, that the restraint as to fifty miles radius was far too wide and therefore unenforceable.

Counsel for the plaintiffs contended that a clear case had been made out for the restraint to be enforced by the court.

HELD:

(1)     The defendant has committed a breach of the restrictive provision of the Agreement in being employed in a business which operated in competition with the plaintiffs. Consequently, the plaintiffs were entitled to enforce the provisions of Clause 6 against the defendant considering the position occupied by him at the time of his employment.

(2)     What in effect the plaintiffs and the defendant did in this case was to pre-estimate the damage, bearing in mind the fact that the amount agreed upon as liquidated damages was much below the defendant's annual salary.

(3)     Under Clause 6 of the Service Agreement, the remedy of an injunction in this case could only operate against the defendant during one year following the determination of his employment with the plaintiffs. As the defendant's employment ceased on 31st December, 1969, there was barely two weeks of his restraint now remaining. Consequently the matter would be more suitably dealt with by damages than by Injunction.

Judgment for the Plaintiffs.

Cases referred to:

Millers Limited v. Steedman (1915) 84 L.J.K.B. 2057

Whitehill and ors. v. Brandford [1952] 1 A.E.R. 115

Lamson Pneumatic Co. v. Phillips [1904] 91 L.T. 363.

Dunlop Pneumatic Tyre Co. Limited v. New Garage and Motors Co. Limited [1915] A.C. 79.

ACTION ON CONTRACT.

Majekodunmi, for the Plaintiffs.

Bentley, for the Defendant.

Lambo, J.:-By an Agreement of Service made on the 19th September, 1969, in Cyprus, the plaintiffs employed the defendant for a period of two years for service in their overseas establishment. He arrived in Nigeria and assumed duties on the 13th November, 1967. He was employed on an annual salary of £1,500 with an additional sum of £100 per annum, as special consideration for agreeing to Clause 6 of the Agreement. When the defendant left the services of the plaintiff in December, 1969, he was on an annual salary of £2,100. Now Clause 6 of the Service Agreement (exhibit A) imposes on the defendant a restrictive provision, to wit:-

"Upon the determination of his employment for any cause or by any means whatsoever the Employee shall not for a period of one year next thereafter undertake to carry on either alone or in partnership nor be employed or interested directly or indirectly in any capacity whatever in the business of Merchants Engineers or any other business carried on by the Company within a radius of fifty miles from any Trading Station in West African which is now or shall at any time during his employment be established or owned or managed by the Company and will not during the like period and within the same area either personally or by his agent or by letters, circulars or advertisements whether on his own behalf or on behalf of any other person firm or company compete or seek to compete with the Company in any such business as aforesaid nor in any way interfere with any of the Company's customers nor use any information concerning the Company's business or affairs or customers of the Company which may have been acquired by him in the course of or as an incident to his employment hereunder for his own benefit or to the detriment of the Company or intended probable detriment."

On the determination of his employment under the plaintiffs on the 31st December, 1969, the defendant was given a Testimonial (exhibit B) the contents of which are set hereunder:-

TESTIMONIAL

TO WHOM IT MAY CONCERN

MR A.I. KOUMOULIS

THIS IS TO CERTIFY that MR KOUMOULIS, was employed by this Company as follows:-

(1)     DATE OF FIRST ENGAGEMENT (2) POSITION HELD

(3)     DATE OF LEAVING

(4)     REASON FOR LEAVING

13TH NOVEMBER, 1967 SPARE PARTS SPECIALIST 5TH JANUARY, 1970

EXPIRATION OF CONTRACT (WHICH HE DOES NOT WISH TO RENEW)

Mr Koumoulis has occupied a responsible position in our Mercedes-Benz Central Spare Parts Store at Apapa for a period of two years, and has carried out his duties to our full satisfaction.

(C. LEVENTIS.) Director.

LAGOS 5TH JANUARY, 1970."

It should be noted that not only was the defendant described in exhibit B as a Spare Parts Specialist, he was also similarly described by the plaintiff company's Personnel Manager in his evidence.

The defendant did not give evidence at the hearing and so did not deny the special position he was said to have held while he was in the service of the plaintiff company.

A week after the determination of his employment he left Nigeria, but returned three weeks later and took up appointment with Messrs Nigerian Technical company Limited at Apapa-which is situate in a premises lying within a radius of one mile from the plaintiffs'. The defendant was being employed in the Spare Parts Department of his new employers; this is borne out by letters of the 22nd August and the 7th October, 1970, signed by him and addressed to the plaintiffs. When the fact of defendant's employment became known to the plaintiffs, a letter of the 9th February, 1970, was addressed to him in which his attention was drawn to Clause 6 of his Service Agreement. The letter (exhibit C) from the plaintiffs' Solicitor drew defendant's attention to the alleged breach of the Service Agreement and demanded, in terms of Clause 8 thereof, the payment of the sum of £1,000 by way of liquidated damages.

By letter of the 24th February, 1970, the defendant's Solicitors, in reply to plaintiff's letter under reference, observed as follows:-

"...it appears that you are claiming a penalty in respect of a restrictive covenant which is quite obviously far too wide. We, therefore, write to inform you that if any claim is filed by your clients, it will be strenuously resisted."

Although the Service Agreement did not describe the defendant as a Spare Parts Specialist, it is, certainly, not in doubt that was the capacity in which he was employed throughout his service under the plaintiff company. That he acquired a special skill in spare parts business is indeed borne out by paragraph 6 of the Statement of Defence, to wit:-

"The knowledge that the defendant has of spare parts was acquired by him over a period of thirteen years before he was employed by the plaintiffs..."

It is not denied that the plaintiffs and the defendants are engaged in identical business, particularly in the sale of spare parts. It was also not denied at the trial that certain spare parts sold by the defendant's employers are suitable for vehicles sold by the plaintiffs. This was in effect confirmed by Mr Egon Kurtz, the 2nd plaintiffs' witness, who said further:-

"The plaintiffs and Messrs Nigerian Technical Co. Ltd are competitors in so far as spare parts are concerned."

If I accept the uncontradicted evidence of Mr Kurtz on this point, then I have to consider, as a matter of law, whether the restrictive provision of Clause 6 is valid or whether, as contended by the Defence, it is far too wide and, therefore, unenforceable.

In considering this question, I have to advert my mind to the reasonableness of the restraint in all its circumstances.

Mr Bentley, learned Counsel for the defendant, had submitted, inter alia, that there was no evidence that the defendant was in any position where he could influence any of plaintiffs' customers, and, further, that the restraint as to 50 miles radius is far too wide.

Mr Majekodunmi, who appeared for the plaintiffs, had argued strenuously that a clear case had been made out for the restraint to be enforced by the court. He cited several authorities in support of the various aspects of his submissions.

In deciding whether Clause 6 of the Agreement is unenforceable as being in restraint of trade, I am obliged to view the matter from the following angles:-

(a)     The fact that both the plaintiffs and the defendant's employers are engaged in identical business.

(b)     The geographical limitation of the restriction.

(c)     The limitation in point of time.

(d)     The salary of the defendant, and

(e)     The additional payment to the defendant of £100 as special consideration for observing the terms of the restrictive covenant in Clause 6 of the Agreement.

In my view, the defendant has committed a breach of the restrictive provision of the Agreement in being employed in a business which, according to Mr Kurtz, operates in competition with the plaintiffs.

Issues as to the geographical limitation of the restrictive covenant, in point of space and time, are very much relevant to the enforceability or otherwise of the covenant. In the case of Millers Limited v. Steedman (1915) 84 L.J.K.B. 2057, the defendant entered into an agreement with the plaintiffs to serve them for five years as supervising agent at certain of their stations in West Africa. The Agreement contained restrictive covenants to the effect that the defendant was not to engage in anything competing with any business carried on by them within 50 miles of any West African Port for five years after the end of his employment. It was held that the restriction imposed was necessary for the protection of the plaintiffs' business and was not void as being in restraint of trade; see also Whitehill and others v Bradford (1952) 1 All E.R. 115 where the Court of Appeal held that a prohibition of ten miles imposed on a retiring partner was held not unreasonable as to radius. In like manner in Lamson Pneumatic Co. v. Phillips (1904) 91 L.T. 363:-

"Where by an agreement by which the defendant was appointed manager of the plaintiffs' business he had contracted that, if he left the plaintiffs' service, he should not engage or be employed during the following five years in any business similar to that of the plaintiffs "within the limit of the Eastern Hemisphere," it was held (dissentient Cozens-Hardy, L.J.) that the agreement, whether regarded as applying to the United Kingdom only or as extending throughout the whole world, was not so wide as to go beyond what was reasonably necessary for the protection of the plaintiffs in their business, having regard to the peculiar nature of that business, and to the position occupied by the defendant therein."

It, therefore, seems to me that the plaintiff company is entitled to enforce the provisions of Clause 6 against the defendant considering the position occupied by him at the time of his employment. The learned Author of Chitty on Contracts 21st Edition at page 482 states as follows:-

"Even if the restraint be unlimited in time or in space it will be upheld if it is reasonable although, of course, the absence of such a limit may be an important factor in determining whether it is in fact reasonable."

This brings me to Clause 8 of the Agreement which provides for the payment of £1,000 as liquidated damages upon each and every breach of Clause 6 or 7. Lord Dunedin in Dunlop Pneumatic Tyre Co. Limited v. New Garage and Motor Co. Limited (1915) A.C. 79 said as follows at page 86:-

"Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The court must find out whether the payment stipulated is in truth a penalty or liquidated damages."

What, in fact, the plaintiff company and the defendant did in this case was to pre-estimate the damage, bearing in mind the difficulty in expressing the real damage with precision-vide English Hop Growers v. Dering (1928) 2 K.B. 174. There is also the element of the defendant's annual salary, and the fact that the amount agreed upon as liquidated damages is much below the former.

I am of the opinion that the defendant has committed a breach of Clause 6 of his Service Agreement with the plaintiff company. Having come to this conclusion, it now remains for me to consider whether the plaintiff company ought to pursue, at this late stage, the remedy for an Injunction cumulatively and not alternatively to the claim for liquidated damages. I say "at this late stage" because in my understanding of Clause 6 of the Service Agreement, the remedy for an Injunction in this case can only operate against the defendant during one year following the determination of his employment with the plaintiff company. As the defendant's employment ceased on the 31st December, 1969, there is barely two weeks of his restraint now remaining. I am of the view, therefore, that the matter will be more suitably dealt with by damages than by Injunction.