Gilford Motor Co Ltd v Horne
A company formed by a former employee to evade a restrictive covenant was a mere sham, so an injunction was granted against both him and the company.
Facts
Mr Horne was the managing director of Gilford Motor Co. His contract of employment included a covenant that, after leaving, he would not solicit the company's customers. After he left, he set up a company, JM Horne & Co Ltd, in the name of his wife and a friend, which solicited Gilford's customers. He argued that it was the new company, not him, that was soliciting the customers, so he was not in breach of the covenant.
Legal principle
The Court of Appeal granted an injunction against both Mr Horne and the company. Lord Hanworth MR said that the company was a mere cloak or sham, formed as a device or stratagem in order to mask the effective carrying on of a business by Mr Horne, and to enable him to evade his obligations under the covenant. The court would not allow the company to be used to avoid an existing legal obligation.
Related cases on separate legal personality and the corporate veil
- Adams v Cape Industries plc [1990] Ch 433
- Chandler v Cape plc [2012] EWCA Civ 525, [2012] 1 WLR 3111
- Re Darby, ex p Brougham [1911] 1 KB 95
- DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852
- Jones v Lipman [1962] 1 WLR 832
- Lee v Lee's Air Farming Ltd [1961] AC 12
- Macaura v Northern Assurance Co Ltd [1925] AC 619
- Okpabi v Royal Dutch Shell plc [2021] UKSC 3, [2021] 1 WLR 1294
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