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Restraint of Trade Clauses

15 Aug 2014, 11:08 by Edward Webb

Labels: contract, court, employee, employer, employment, trade-clauses

A restraint of trade clause is a term contained within a contract that seeks to limit a party’s ability to be employed by an alternative business. The most common type of restraint clause is contained within a contract of employment and is one which simply seeks to restrict an employee’s ability to work for another business during the term of their employment.
The next level of restraint of trade clause seeks to limit an ex-employee from working for a competitor for a specified period of time. Clauses such as this are prima facie void, they will only be uphold by the court if the employer can show it has a ‘legitimate proprietary interest to protect’ (LPI).
An LPI may be a trade secret, a list of existing clients, a manufacturing process or other important confidential information.
One of the leading cases on restraint of trade clauses is Faccenda Chicken Ltd v Fowler [1986] I.C.R. In this case Mr Fowler had previously worked for Faccenda Chicken Ltd, when he finished his employment he set up his own business. Faccenda Chicken Ltd sued Mr Fowler and argued he had information about the names and address of its clients. The court held that whilst there is a clear obligation not to disclose information that may cover a secret process or other information which is a sufficiently high degree of confidentiality to amount to a trade secret it does not extend to all information acquired by an employee during the time of their employment.
The question of whether a restraint of trade clause will be deemed enforceable or not is by no means a simple question. The court will look at a number of factors.
The first is whether the clause is an express or implied term (i.e. written into the contract of employment or not). If it is an implied term the court is not likely to enforce the contract but if it is an express term, the court will then look to see if there is a LPI (e.g. trade secret).
The next stage is to consider the extent of the clause. The court will want to see that the clause goes no further than offering the minimum protection necessary to protect the employer. If the clause is too restrictive it is not likely to be enforced. The characteristics of the clause that will be considered are the time restriction, geographical restriction and scope of the clause.
The above characteristics are taken on a case by case basis. I have previously dealt with a restraint of trade dispute in the aerospace industry. My client wanted to employee Mr A from its rival (Party B) however, Mr A had a 12 month restraint of trade clause. At first, it was argued this clause would not be enforced because whilst Mr A was aware of some trade secrets / client lists, these were largely historic. Party B protested and investigated it’s employee further, it transpired that Mr A was aware of a technical specification for a new product and had emailed this to himself the night before his resignation. Unfortunately this was not helpful. In any event, I was able to argue for a reduction in the restrain to trade clause to 5 months because it was clear this was all that was necessary to protect Party B’s interests.
Historically, restraining someone for a period of over 5 years had been enforceable (Forster & Sons Ltd v Suggett (1918) 35 T.L.R 87), indeed in more high value cases a clause restraining someone’s ability to work for 25 years in a particular industry has been held to be enforceable (Nordenfelt v Maxim Nordenfelt Guns Co Ltd [1984] A.C. 535).
Owing to the complexities of restraint of trade clauses, due consideration must be given when drafting the same. It may be that each department in a given business will need a different level of protection and the more senior the employee the more extensive the restriction.

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Family Care Proceedings - a risk of future harm

26 Sep 2013, 17:39 by Priya Bakshi

Labels: adoption, appeal, barrister, care, court, direct-access, family-law, interim-care-order, judge, lawyer, public-access, supervised-contact

The case of Re B (A Child) [2013] UKSC 33 concerned an appeal made by parents to the Supreme Court in relation to a final care order made under Section 31 of the Children Act 1989. 

Both parents suffered from psychological problems. The mother had been diagnosed with somatisation disorder and a psychiatric condition involving the deliberate fabrication or exaggeration of symptoms. She had had significant difficulties in her life early on, having been abused by her step-father. She also had criminal convictions relating to fraud and dishonesty. The father too had a history of criminality and drug abuse.    

The child, A, was removed from her parents at birth and placed in foster care under an interim care order.  While the child was in foster care, the parents frequently had supervised contact with her, developing a positive and committed relationship. The question was not whether the child
had suffered harm attributable to the parents' care but whether the child was likely to suffer significant harm due to the risks posed by the parents. The local authority's plan was adoption for the child.

The trial judge held that the parents did pose a risk to the child. The bond formed between the A and her parents was not doubted. However if the child was placed in her parents' care there was a risk of significant harm to A caused by the mother's somatisation disorder and her psychiatric condition, and that A might grow up to copy her mother's behaviour. It was also found that the father was not capable of protecting A from harm. Therefore in weighing up all the factors, a care order with a view to adoption was needed to prevent such harm to A. The Court of Appeal upheld that judgment.

The Supreme Court too agreed with the trial judge by a majority of 4:1 and dismissed the parents appeal, concluding that the threshold conditions for making the care order had been satisfied in this case. The Supreme Court dealt with a number of issues.    

Before a care order is made the judge has to be satisfied that: (a) the child is suffering or is likely to suffer significant harm; and (b) the harm or likelihood of harm is attributable to the care likely to be given to the child if a care order is not made, not being what it would be reasonable to expect a parent to give to the child, or to the child's being beyond parental control. A common sense approach should be taken to the meaning of ‘significant'. ‘Likelihood' was confirmed to mean no more than a ‘real possibility'.

The causation required is only as between the care and the harm but in
this case the character of the parents was relevant to each stage of the
inquiry. 

Article 8 of the ECHR is not engaged when the court assesses whether
there was ‘significant harm'. It is engaged only once the court determines whether or not a care or supervision order should be made.  If the decision is that adoption is necessary, or that a child should be placed under care with a view to adoption, a high degree of justification is needed under Article 8. Adoption must be the last resort and all other options must be explored. 

The appellate court must approach cautiously in overturning the trial
judge's decision; the test is whether the decision was ‘wrong' (not ‘plainly
wrong'). Further, where Convention rights are engaged, the appellate court is not required to determine afresh issues; it is only required to review the
lower court's decision.

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Lifting the Corporate Veil in Matrimonial Law

25 Jun 2013, 09:25 by Priya Bakshi

Labels: barrister, commercial, commercial-law, court, divorce, family-law, fraud, lawyer, legal-proceedings, matrimonial-law

In commercial cases the key principle is that a company is independent of its shareholders and so one cannot get at the company's assets in legal proceedings unless there has been fraudulent or dishonest use of the company, 

On 12 June 2013 the Supreme Court unanimously allowed the corporate veil to be lifted in financial divorce proceedings in the case of Prest v Petrodel Resources Limited and others [2013] UKSC 34. The question in this appeal brought by Mrs Prest was whether the court had power to order the transfer of properties to her given that they legally belonged not to Mr Prest but to his companies. 

Under the Matrimonial Causes Act 1973 section 24(1), it states that the court may order that "a party to the marriage shall transfer to the other party...such property as may be so specified, being property to which the first-mentioned party is entitled, either in possession or reversion."

On the facts of this case, Mr Prest, and not his companies, originally provided the funds for the acquisition of the properties. He had control of the company assets as if they were his own during the marriage. Mr Prest concealing these facts coupled with the continuous failure to cooperate with disclosure and transparency, the Court inferred that both he and the companies were attempting to conceal the true beneficial ownership of the properties. 

Mrs Prest won in her appeal and the Court held that the properties invested in Mr Prest's companies were on trust for him. It was ordered that these assets be handed over to his wife. Therefore, in these exceptional circumstances, the Court disregarded the corporate veil in order to give effective relief. 

This landmark ruling has provided some clarity as to when the courts can lift the corporate veil, and that business people cannot deliberately hide assets in companies to protect them in the event of a divorce.

 

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