The defendant was the plaintiff’s former managing director. He was bound by a restrictive covenant after he left them. To avoid the covenant, he formed a company and sought to transact his business through it. At first instance, Farwell J had found that the company had been set up to enable the business to be carried on under his own control but without incurring liability for breach of the covenant. The reality was however that the company was being used as ‘the channel through which the defendant Horne was carrying on his business.’ In fact, he dismissed the claim on the ground that the restrictive covenant was void.
Held: The ruse was ineffective, and an injunction was issued to prevent Horne and his company from breaching the covenant he had given. The company was (as Lord Hanworth MR put it) formed in order to mask the effective carrying on of a business by Mr Horne, the purpose being to enable him to carry on that business in breach of a covenant he had entered into. The shareholders and directors of the company were Mr Horne’s wife and one Howard, an employee of the company.
Lord Hanworth MR said: ‘I have not any doubt on the evidence I have had before me that the Defendant Company was the channel through which the Defendant Horne was carrying on his business. Of course, in law the Defendant Company is a separate entity from the Defendant Horne but I cannot help feeling quite convinced that at any rate one of the reasons for the creation of the company was the fear of Horne that he might commit breaches of covenant . . and that he might possibly avoid that liability if he did it through the Defendant company . . I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the effective carrying on of the business of Horne. The purpose of it was to try to enable him under what is a cloak or a sham, to engage in business which, on consideration of the agreement which had been sent to him before the company was incorporated, was a business in respect of which he had a fear that plaintiffs might intervene and object.’
Lord Hanworth MR, Lawrence and Romer LJJ
[1933] All ER 109, [1933] Ch 935
England and Wales
Cited by:
Cited – Jones v Lipman and Another ChD 1962
The defendant had contracted to sell his land. He changed his mind, and formed a company of which he was owner and director, transferred the land to the company, and refused to complete. The plaintiff sought relief.
Held: Specific performance . .
Cited – Coles and others (Trustees of the Ward Green Working Mens Club) v Samuel Smith Old Brewery (Tadcaster) (Unltd Company) and Another CA 29-Nov-2007
The claimants appealed refusal of an order for specific performance of a contract for the purchase of land under the exercise of an option agreement. The defendant had conveyed the land to a subsidiary in order to defeat the option.
Held: ‘The . .
Distinguished – M and S Drapers (a Firm) v Reynolds CA 1956
The defendant, a collector salesman entered the employment of a firm of credit drapers at a weekly wage of andpound;10. He brought with him the connection of customers acquired in previous employments. He entered into a restrictive covenant that he . .
Cited – Associated Foreign Exchange Ltd v International Foreign Exchange (UK) Ltd and Another ChD 26-May-2010
The claimant sought interim injunctions to enforce a restrictive covenant against solicitation of customers in a former employee’s contract. The employee, a FOREX dealer, had been placed on garden leave for three months and then his contract . .
Cited – VTB Capital Plc v Nutritek International Corp and Others SC 6-Feb-2013
The claimant bank said that it had been induced to create very substantial lending facilities by fraudulent misrepresentation by the defendants. They now appealed against findings that England was not clearly or distinctly the appropriate forum for . .
Cited – Prest v Petrodel Resources Ltd and Others SC 12-Jun-2013
In the course of ancillary relief proceedings in a divorce, questions arose regarding company assets owned by the husband. The court was asked as to the power of the court to order the transfer of assets owned entirely in the company’s names. The . .
Cited – Ben Hashem v Ali Shayif and Another FD 22-Sep-2008
The court was asked to pierce the veil of incorporation of a company in the course of ancillary relief proceedings in a divorce. H had failed to co-operate with the court.
After a comprehensive review of all the authorities, Munby J said: ‘The . .
Cited – Alec Lobb (Garages) Ltd v Total Oil Ltd CA 1985
The court was asked whether the terms of a lease and lease back amounted to an unconscionable bargain and was unenforceable.
Held: The court affirmed the decision at first instance, but emphasised the need for unconscientious behaviour rather . .
Lists of cited by and citing cases may be incomplete.
Company
Leading Case
Updated: 10 November 2021; Ref: scu.259222
