The Judicial Committee of the Privy Council Decisions

"Whereas Mr. Phillips [the respondent] has tendered his resignation as an employee of Stenhouse and has requested Stenhouse to release him from his obligations under the above-mentioned Agreements; And whereas Stenhouse has agreed so to release Mr. Phillips but only on the conditions that he undertakes to be bound by the obligations hereinafter stated ".

" 4. Mr. Phillips covenants that he will not for a period of five years from the said 9th day of July, 1971 unless with the prior written consent of Stenhouse directly or indirectly as principal servant or agent solicit whether by written or oral communication or otherwise insurance business from any client as hereinafter defined.

5. In the event that any client of Stenhouse shall within a period of five years from the said 9th day of July 1971 (and that whether or not such client is a client of one or more of the Stenhouse companies at the time) place insurance business whether or not business of a type presently transacted by Stenhouse for such client through the agency of Mr. Phillips or through any agency other than that of one of the Stenhouse companies referred to in Clause 2 of this Agreement so that Mr. Phillips or any person firm or corporation for whom Mr. Phillips is a principal or agent or by whom Mr. Phillips is employed and with whom he is associated or connected in any other way receives or becomes entitled to receive directly or indirectly any financial benefit from the placing of such business then Mr. Phillips agrees to pay or procure that there shall be paid to Stenhouse a one· half share of the commission received in respect of such transaction and such commission shall be the gross commission (including any allowances) paid by the Insurance Company in respect of such transaction without allowance for any rebate made to the client and after deduction of any procurement fee properly payable in respect of prospective clients as hereinafter defined to any third party for the introduction of such business such procurement fee not to exceed one-third of the total initial commission. The sums payable to Stenhouse pursuant to this clause shall continue to be paid for a period of five years (but only if there is a financial benefit as aforesaid for each year) from the date on which such insurance business is so first placed and shall be paid to Stenhouse concurrently with the settlement of the net premium due to the Insurance Company concerned.

6. Mr. Phillips covenants that except in the circumstances provided for in Clause 5 hereof he shall not for a period of three years from the said 9th day of July 1971 unless with the prior consent in writing of Stenhouse directly or indirectly as principal servant or agent act as Insurance Broker for any client as hereinafter defined."

"8. For the purposes of Clauses 4, 5 and 6 of this Agreement the word 'client' shall mean any person firm or corporation who at the said 9th day of July 1971 or in the preceding month was a client of Stenhouse or any of its associated companies with whom in the course of his employment with Stenhouse Mr. Phillips has had dealings or negotiations and further shall mean a prospective client of Stenhouse or of its associated companies whose insurance business was the subject of negotiation with Stenhouse through the services or agency of Mr. Phillips either at the said 9th day of July 1971 or within the period of 12 months preceding that date but shall be construed as excluding any person firm or corporation who was a client or prospective client of Stenhouse as aforesaid and whose business is acquired by or who becomes thereafter a subsidiary of any other person firm or corporation which is at the said 9th day of July 1971 or may become during the term of this Agreement a client of Mr. Phillips or any person firm or corporation by whom he is employed or for whom he is acting as agent, and further shall be construed as excluding any Insurance Company."

1. Its expressed duration is for 5 years, but effectively is for less than 4½ years since the period runs from July 1971.

2. The prohibited activity is soliciting, a narrow prohibition, which leaves open (apart from other clauses in the agreement) a wide field in which competitive action by the employee is unrestrained, and one which has often, if suitably confined, been accepted by the Courts.

3. The clients, whom the respondent may not solicit, though widely defined in Clause 8 and including prospective clients, are limited to clients of the Stenhouse Group with whom the respondent has had dealings or negotiations. Even more importantly the definition expressly excludes any Insurance Company. This exclusion was certainly obtained by the respondent and was of great importance to him since the greater part of the work he did was, as already stated, re-insurance. There was nothing corresponding to this exclusion in the earlier agreement. This means that the covenant against solicitation in practice only extends to the comparatively small number of clients with whom the respondent has dealt directly.

1. Severance. The only context in which a question of severance can arise, on the opinion previously expressed by their Lordships, is whether Clause 4 can remain effective if Clauses 5 and 6 do not. Cases as to severance were duly cited in argument (Attwood v. Lamont [1920] 3 K.B. 571 et a/.) but there is no need to refer to them. Clause 4 is in no way dependent upon other clauses declared to be unenforceable and since the effect of a holding that a contractual provision is in unreasonable restraint of trade is merely to render that provision unenforceable, without destroying the rest of the contract, there is no reason against enforcement of Clause 4 alone.

2. It was submitted that, since the agreement of 23rd March 1972 was entered into after the termination of the employment, it was an agreement "in gross" and so for that reason unenforceable. But this argument fails to take account of the circumstances in which the agreement was made. As already stated, there were, in 1971-72, questions in dispute and unsettled between the appellant and the respondent: first, the question whether the employment had been validly determined by the notice given by the respondent: secondly, there were questions concerning the effect of the restrictions contained in the agreement of 11th December 1964 -particularly the restriction against insurance broking within 25 miles of the General Post Office at Sydney. The agreement of 23rd March 1972 recited the previous agreements, the respondent's tendered resignation, and his request to be released from his obligations under the earlier agreements, and recited the appellant's willingness to release him "only on the conditions that he undertakes to be bound by the obligations hereinafter stated". In the face of these facts it is impossible to agree that the new contract, of March 1972, was unrelated to a subsisting contract of employment, and was merely an agreement in gross. It was not contended that there was no consideration for the respondent's covenants therein contained.

3. It was submitted that whereas the agreement of 23rd March 1972 was made with the appellant company, the interests to be protected were the interests of its subsidiaries-independent legal entities-and reference was made to the case of Henry Leetham & Sons Ltd. v. Johnstone-White [1907] 1 Ch. 189,322. That was a case where the agreement, as interpreted by the Court of Appeal, was with one company of a group, that one company having a limited business, whereas the restraint was expressed in far wider terms, extending to the area covered by the operations of the group as a whole. The facts of this case are different and do not support the respondent's argument, technically attractive though it may appear. The evidence is clear that the business of the Stenhouse Group was controlled and co-ordinated by the appellant company, and all funds generated by each of the companies were received by the appellant. The subsidiary companies were merely agencies or instrumentalities through which the appellant company directed its integrated business. Not only did the appellant company have a real interest in protecting the businesses of the subsidiaries, but the real interest of so doing was that of the appellant company. It is not necessary to resort to a conception of " group enterprise" to support these proceedings. The case is, more simply, that of the appellant's business being to some extent handled for it by subsidiary companies. Their Lordships therefore agree with the Judge in rejecting this argument.

3142816-1 Dd. 178189 75 10/73