HENTLEY GARMENTS LTD. v. J. S. A. FERNANDO

026-SLLR-SLLR-1980-V-2-HENTLEY-GARMENTS-LTD.-v.-J.-S.-A.-FERNANDO.pdf


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Hentley Garments Ltd. v. J. S. A. Fernando
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HENTLEY GARMENTS LTD. v. J. S. A. FERNANDOCOURT OF APPEALRANASINGHE, J. & RODRIGO, J.
C.A. (S.C.) APPLICATION 624/78 D.C. MT. LAVINIA 235/ZJUNE 4 & 5, 1980
Contract – Agreement in restraint of trade – Considerations for issue of interiminjunction.
The petitioner company carrying on the business of manufacturing and exportingof garments, instituted action in the District Court against the respondent whowas at one time employed by the petitioner company as a shift supervisor, forbreach of a written contract of employment resulting from his resignation. Thepetitioner company sought an interim injunction against the respondentrestraining him from engaging himself in employment in any garmentmanufacturing or exporting business in terms of the contract. After inquiry thelearned District Judge refused to issue an interim injunction and vacated theenjoining order initially issued. The petitioner company appealed from that order.
Held:
‘‘All contracts in restraint of trade are prima facie void, and each case must beexamined having regard to its special circumstances to consider whether or notthe restraint is justified. The only ground of justification is that the restraint isreasonable having regard to interests of both contracting parties as well as to theinterests of the public".
There was a serious question to be tried at the trial and this was not a case wherematerial available to the District Judge at the time the order was made showedunmistakably that there was no case for an injunction at all; or that there wasprobably no right of the plaintiff which could have been violated. The facts andcircumstances of the case seemed to show that this was a case where thelearned District Judge should have dealt with the application for the interiminjunction and the substantial dispute at one and the same time. The order wasset aside and interim injunction as prayed for was directed to be issued.
Cases referred to:
Jinadasa v. Weerasinghe (t929) 31 NLR33.
Dissanayake v. Agricultural & Industrial Credit Corporation (1962) 64 NLR 283.
Richard Perera v. Albert Perera (1963) 67 NLR 445.
Mallika Ratwatte v. The Minister of Lands (1969) 72 NLR 60.
American Cyanamid Co. v. Ethicon Ltd. 1975 (1) AER 504.
Herbert Morris Ltd. v. Saxelby 1916-1917 AER 305 at 314; (1916) 1 AC 88.
Mitchelv. Reynolds (1711) 1 PWms 181.
Maxim Nordenfelt Gun Company v. Nordenfelt (1894) A.C. 535.
Mason Provident Clothing & Supply Co. Ltd. 1913 A.C. 724.
Foster & Sons Ltd. v. V. Suggett (1918) 35 TLR 87.
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Commercial Plastics Ltd. v. Vincent (1964) 3 AER 546.
Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1967) 1 AER 699.
Yakkaduwe Sri Pragnarama Thero v. Minister of Education (1968) 71 NLR506 at 511.
Marian White Ltd. v. Francis (1973) 3 AER 857.
APPEAL from the Order of the District Court of Mt. Lavinia.
H. W. Jayewardene, Q.C. with K. N. Choksy for the plaintiff-petitioner.
C. Ranganathan Q.C. with E. R. S. R. Coomaraswamy for the defendant-respondent.
Cur adv vuit.
26th June, 1980.
RANASINGHE, J.
The petitioner-Company (hereinafter referred to as “thePetitioner”), which carried on the business of manufacturing andexporting of garments, has instituted proceedings in the DistrictCourt of Mount Lavinia on 8.3.1978 in Case No. 235/Z against theRespondent on the footing that the Respondent, who was employedby the Petitioner as an Apprentice Shift Supervisor with effect from1.3.77 and was subsequently confirmed in the said post as from17.10.77, has, by tendering his resignation from the employment ofthe petitioner, by his letter dated 31.1.78, committed a breach of hiscontract of employment entered into with the Petitioner on 17.10.1977(a copy of which said contract is the document marked “D” annexedto the petition), and has prayed, inter alia, for an interim injunction“restraining the respondent from engaging himself in employment inany garment manufacturing or exporting business”.
The learned District Judge thereupon issued an ex parte Orderenjoining the respondent accordingly pending the disposal of theapplication for the interim injunction. The respondent then filedobjections to the issue of an interim injunction and also moved thatthe said enjoining order be vacated. After inquiry, the learned DistrictJudge, by his order dated 22.6.78, refused the Petitioner’sapplication for an interim injunction, and vacated the said EnjoiningOrder.
The learned District Judge has in his Order held that several of theterms and conditions set out in the said document marked “D” areunreasonable and illegal in that they constitute “a business or traderestraint”, and that the respondent is not therefore bound by theterms and conditions of the said document “D”.
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A consideration of the principles, which should guide a Court indeciding whether or not to issue an interim injunction, would at thisstage be most helpful.
In the case of Jinadasa v. Weerasinghe{,) Dalton, J. expressed theview that in an application for an interim injunction the Court “must besatisfied that there is a serious question to be tried at the hearing andthat on the facts before it there is a probability that the plaintiff isentitled to relief”. The application for an interim injunction was,however, refused in that case for the reason that, on the avermentsset out in the plaint itself, it was clear that there was “no case for aninjunction at all”.
The matters, which should be taken into consideration by a Courtfrom which an interim injunction is prayed for, were considered by(H.N.G.) Fernando, J. (as His Lordship the Chief Justice then was) inthe case of Dissanayake v. Agricultural and Industrial CreditCorporation(2). In that case a land which had been mortgaged to theA.I.C.C. was sold by the said Corporation in pursuance of thestatutory powers vested in it. Thereupon the mortgagor instituted anaction for a declaration that the said sale was void on the grounds ofmaterial irregularity, and he also moved for an interim injunction torestrain the said Corporation from confirming the said sale. Thelearned District Judge held an inquiry which turned out to be avirtual trial of the principal dispute in the action, and, having takenthe view that the plaintiff’s objections were frivolous, he dismissedthe plaintiff’s application for an interim injunction. (H.N.J.) Fernando,
J. set aside the order of the learned District Judge and in directingthat an interim injunction do issue, expressed the view that thelearned District Judge’s opinion that the plaintiff could not succeedin his substantive action is not by itself a ground for refusing aninterim injunction. His Lordship further stated, at page 285 asfollows:
“The proper question for decision upon an application for aninterim injunction is ‘whether there is a serious matter to be triedat the hearing’ (Jinadasa v. Weerasinghe). If it appears from thepleadings already filed that such a matter does exist, the furtherquestion is whether the circumstances are such that a decreewhich may ultimately be entered in favour of the party seekingthe injunction would be nugatory or ineffective if the injunction isnot issued”.
The question was once again considered by (H.N.G.) Fernando, J.in the case of Richard Perera v. Albert Perera.{3) In that case the
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plaintiff sued for a declaration that he was the life Managing Directorof the 5th Defendant-Company of which the 1st to 3rd defendantswere Directors and the 4th Defendant-Company the Agents andSecretaries. The plaintiff also prayed for an interim injunctionrestraining the defendants from removing him from the office ofManaging Director and from interfering with his duties and functionsin that capacity. The defendants averred that the plaintiff hadobtained loans from the Company and had thereby vacated his officeof Managing Director by virtue of the provisions of Article 72(5) of theTable “A” of the Companies Ordinance. When the matter was takenup for inquiry before the learned District Judge the plaintiff admittedthat he borrowed money from the Company. The learned DistrictJudge, taking the view that the proviso to Article 72 operated toprevent vacation of office by the plaintiff, however, made orderallowing the application for an interim injunction. Fernando, J. setaside the order of the learned District Judge, and, whilst re-affirmingthe view earlier expressed in Dissanayake’s case (supra), HisLordship expressed as follows at page 447:
“While adhering to the view that the trial Judge should notdecide the substantive question in considering an application foran injunction, I do not agree that some consideration of thesubstantive question at this early stage is necessarily irrelevant”;
and at page 448:
“Where the plaintiff through his Counsel and his evidencereveals information which justifies the prima facie view that he isnot entitled to the substantive relief claimed in his plaint, itwould, in my opinion, be wrong for a judge to ignore suchinformation and issue the injunction. If the material actuallyplaced before the Court reveals that there is probably no rightof the plaintiff which can be violated, it would be unreasonableto issue the injunction”.
It was contended on behalf of the plaintiff that what the learnedDistrict Judge had done was in effect decide the substantivequestion in dispute between the parties and that the learned DistrictJudge should not have taken that course but should have restrictedhimself to considering whether there was a serious matter fordecision and if so, whether prejudice would be caused to the plaintiffif the said injunction was not granted. It has to be noted that, eventhough His Lordship agreed with the view that the learned DistrictJudge had in effect decided the substantial dispute between theparties, yet refused the plaintiff the interim injunction which the
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plaintiff was seeking to obtain. The reason why His Lordship madesuch an order was due to the particular circumstances of that case.A document filed by the plaintiff himself with his pleadings and anadmission made by the plaintiff’s pleader at the inquiry, clearlysupported the defence position that the plaintiff had, by his ownactions, vacated his office as life Managing Director. The materialwhich was thus placed before the learned District Judge at theinquiry into the application for the issue of the interim injunctionrevealed that “there is probably no right of the plaintiff which couldbe violated” and justified “the prima facie view that he (plaintiff) is notentitled to the substantive relief claimed in the plaint”. It was in thesecircumstances that His Lordship expressed the view referred toabove at page 447:
“I do not agree that some consideration of the substantivequestion at this early stage is necessarily irrelevant”.
It has to be noted that His Lordship did at page 449 state that itwas also not a case where the grant of an injunction would ensurethe maintenance of the status quo at the time of the institution of theplaint.
A consideration of the judgment of Fernando, J. in Perera's case(supra) shows that, whilst re-affirming the principle laid down earlierin the Dissanayake case (supra), His Lordship neverthelessproceeded to modify it somewhat by stating that some considerationof the substantive question even at that early stage is not necessarilyirrelevant.
In the case of Mallika Ratwatte v. The Minister of Lands,m it waslaid down that; in order that an interim injunction may issue, it is notnecessary that the Court should find a case which would entitle theplaintiff to relief at all events: that it is quite sufficient if the Court findsa case which shows that there is a substantial question to beinvestigated and that matters ought to be preserved in status quountil the question can be finally disposed of.
The principles that should be followed in deciding whether or notan interim injunction should be issued have been considered inEngland by the House of Lords in the case of American CyanamidCo. v. Ethicon Ltd.™ where it was laid down that: there is no rule oflaw that the court was precluded from considering whether, on abalance of convenience, an interlocutory injunction should begranted unless the plaintiff succeeded in establishing a prima faciecase or a probability that he would be successful at the trial of the
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action: all that was necessary was that the court should be satisfiedthat the claim was not frivolous or vexatious, i.e. that there was aserious question to be tried. At page 510 Lord Diplock stated:
“It is no part of the Court’s function at this stage of the litigationto try to resolve conflicts of evidence on affidavit as to facts inwhich the claims of either party may ultimately depend nor todecide difficult questions of law which call for detailedargument and mature considerations. These are matters to be
dealt with at the trial
So unless the material available to the court at the hearing ofthe application for an interlocutory injunction fails to disclosethat the plaintiff has any real prospect of succeeding in hisclaim for a permanent injunction at the trial, the court should goon to consider whether the balance of convenience lies infavour of granting or refusing the interlocutory relief that issought”.
These then are the principles which are relevant in determiningwhether or not an interim injunction should have issued in this caseagainst the respondent. I shall now proceed to consider the materialwhich is relied on by the plaintiff in support of his claim for an interiminjunction. Before doing so I should refer to the argument advancedon behalf of the respondent: that the consideration of this questionshould be limited to the material set out in the plaint and the exhibitsannexed thereto, and that any material arising from the evidence ledat the inquiry should not be considered for this purpose.
Reliance was placed by learned Queen’s Counsel for therespondent on the judgment of Lord Shaw in the case of HerbertMorris Ltd. v. Saxelby.(6) Be that as it may, in the present case,however, the position is that at the time the learned District Judgecame to make his order he had before him not only the plaint and theexhibits annexed to the plaint, but also the evidence placed beforehim, without any objection, by both parties. In fact in the Perera Case(supra) the material elicited at the inquiry into the application for theinterim injunction was not only considered but also weighed heavilyin the ultimate decision not to issue the interim injunction prayed for.
It appears to me to be too late for the respondent to move that thecourt do shut its eyes to the material elicited at the inquiry heldbefore the learned District Judge on 10.4.78.
The plaint is based upon an alleged breach of clause (3) of theContract of Employment, the document “D", which is as follows:
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Hentley Garments Ltd. v J. S. A. Fernando (Ranasinghe, J.)
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“In consideration of the training you have just completed atHentley Garments Limited, you will hereby agree and undertakethat you will serve in the employment of Hentley GarmentsLimited for a minimum period of three years after confirmationof your services. In the event of your not serving as aforesaid oryour employment being terminated for any reason whatever,you will further undertake that you will not take employment inany garment manufacturing or exporting business for a periodof three years calculated from the date of your confirmation. Inthe event of any breach by you of this undertaking, HentleyGarments Limited will be entitled to restrain you by action at lawand by injunction, and you will be liable to repay to HentleyGarments Limited by way of liquidated damages a sumequivalent to the aggregate amount paid to you during theperiod of your training and probation”.
The position taken up by the respondent is that the restraintimposed by the Petitioner “is a restraint on the opportunity given tothe Respondent to earn his livelihood”, and “fails to satisfy the test ofreasonableness between the parties and in the public interest asrequired by law”, and that it cannot therefore be enforced.
Covenants embodied in contracts in restraint of trade fall into twofamiliar categories, viz. those by which an employee agrees that afterleaving his present employment he will not compete against hisemployer either by setting up business on his own account or byentering the service of a rival trader, and those by the vendor of thegoodwill of a business not to carry on a similar business incompetition with the purchaser. In this case we are concerned onlywith the earlier category.
The development of the English law relating to restraint of tradehas been greatly influenced by changing social concepts andconditions. Having begun with the view that all restraints of trade,whether general or partial, as being totally void as they tend to fostermonopolies, in the year 1711 in the case of Mitchel v. Reynolds,{7) theview was taken that although a general restraint is necessarily voidyet a partial restraint is prima facie valid and enforceable, ifreasonable. Thereafter in 1894, in the case of Maxim Nordenfelt GunCo. v. Nordenfeltm the House of Lords held that the old rule thatgeneral restraints were bad always and that partial restraints werebad if unreasonable has been modified and that the true test of thevalidity of a condition in restraint of trade is whether the restraint inthe particular case, be it general or particular, is or is not reasonable.Subsequently, in the case of Mason v. Provident Clothing and SupplyCo. Ltd.(9) the House of Lords laid down that all covenants in restraint
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of trade, whether partial or general, are deemed to be prima facievoid and unenforceable unless the test of reasonablenesspropounded by Lord Macnaghten in the Nordenfelt case wassatisfied. Their Lordships did also stress a sharp distinction betweencontracts of service and contracts for the sale of business, statingthat a restraint may be imposed more readily and more widely uponthe vendor of a business in the interests of the purchaser than upon aservant in the interests of a master. The House of Lords thereafter, inthe year 1916, gave effect to these principles in the case of HerbertMorris Ltd. v. Saxelby (supra), by holding that a covenant whichrestraints a servant from competition is always void as beingunreasonable, unless there is some exceptional proprietary interestowned by the master, whether in the nature of a trade connection orin the nature of trade secrets, which requires protection. A restraintagainst competition by a servant has been held to be justifiable if itsobject is to prevent the exploitation of trade secrets learned by theservant in the course of his employment – vide Forster and Sons Ltd.v. Suggett."0) In such a case the employer would have to provedefinitely that the servant has acquired substantial knowledge ofsome secret process or mode of manufacture used in the course ofhis business. Even the general knowledge derived from secretinformation which has taught an employee how best to solveparticular problems as they arises may be a proper subject-matter ofprotection – vide Commercial Plastics Ltd. v. Vincent."" The mostrecent decision in the development of this branch of the law inEngland appears to be the decision of the House of Lords in thecase of Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd."2)in which their Lordships affirmed the principles laid down in theNordenfelt case (supra). In the course of their respective judgmentstheir Lordships did, however observe: that the words of LordMacnaghten in the Nordenfelt case were not intended to indicate that“any contract which in whatever way restricts a man’s liberty to tradewas (either historically under the common law or at the time of whichthey were speaking) prima facie unenforceable and must be shownto be reasonable” (per Lord Wilberforce, at page 730): that thechanging face of commerce must always be borne in mind (per LordPearce, at p. 724): that restrictions which in an earlier age wereclassified as restraints of trade may, in the different circumstances oftoday have become “part of the accepted pattern or structure oftrade” as encouraging rather than limiting trade (per Lord Wilberforceat p. 731); that certain restrictive agreements have now “passed intothe accepted and normal currency of commercial or contractual orconveyancing relations”, and are therefore no longer suspect (perLord Wilberforce, at P. 729).

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Hentley Garments Ltd. v. J. S. A. Fernando (Ranasinghe, J.)
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Weeramantry: Law of Contracts, sec 396, at page 384,summarises the position thus: “therefore all contracts in restraint oftrade are prima facie void, and each case must be examined havingregard to its special circumstances to consider whether or not therestraint is justified. The only ground of justification is that therestraint is reasonable having regard to the interests of bothcontracting parties as well as to the interests of the public”.
The Petitioner has, in the plaint filed before the District Court,averred that:
“(11). (a) The defendant in breach of the contract dated 17.10.77has taken up employment with a garmentmanufacturing business, Aitken Spence GarmentsLimited which is a competitor of the Plaintiff.
The defendant after specialised training and skill in theday to day functioning, production, efficiency,supervision, co-ordination and control of the working ofthe manufacturing of garments left the services of theplaintiff in breach of his said contract with the plaintiffand joined another garment manufacturing business.

12
13
14. The Plaintiff further pleads that grave and irreparable loss anddamage will be caused to the Plaintiff unless the defendant isrestricted by an interim injunction from being in breach of the saidcontract dated 17.10.77 marked “D”.
At the hearing before this Court learned Queen’s Counsel on bothsides referred this Court to the evidence placed before the learnedDistrict Judge on behalf of the parties.
The defendant in the course of his evidence stated, inter alia, inexamination-in-chief:-
“a-jS-SgzaaO e5©oa>® Ozn 8®oea8s> eaazstSg ®o®zr©eJ cs®acos® ®o za©gzg edOcs €)ed cti&® zaazn fp«easc3zjf <s6% zaoa gzsfzna® iagO dOoSskaa^zn «f»eacs® d8 eddza 88ea zo8»j3 epOeMzn zacSznOa^ Scao a>co
cs>lS®a. efjg® zs>j8® zsed ®® eznoeS®ecrf seiOcs dQ6 SSs®zrt
ogSzsf ®@ zaegf zagzsf zac5@zrf 83 £>j£) szaD3e3®ca. Saefe®Q

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Hentley Garments Ltd. v. J. S. A. Fernando (Ranasinghe, J.)
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On a consideration of the principles set out in the cases dealingwith contracts in restraint of trade referred to above, it would appearthat, although a restrictive covenant in a contract of service would beconsidered to be prima facie void, yet, it is open to the employer toshow that, having regard to the particular facts and circumstances inwhich the said agreement has been entered into, the said agreementis reasonable. The employer would therefore have to place beforecourt all the evidence upon which he relies to establish thereasonableness of the covenants complained against. In such a casethe reasonableness of such a restrictive covenant will have to bedecided by court upon a consideration of not only the entirety of theevidence which the parties desire to and are entitled to place before

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court but also the principles of law relevant to this matter. Such a finaldecision cannot and must not be taken at an inquiry into anapplication for an interim injunction, the nature and the scope ofwhich is, as set out by the principles referred to earlier, very limited.
On a consideration of the averments set out in the plaint and theexhibits annexed to the plaint and those items of oral evidence led atthe inquiry, and referred to earlier, it appears to me that there is aserious question to be tried at the trial and that this is not a case wherethe material available to the learned District Judge, at the time the orderin question was made, showed unmistakably that there was “no casefor an injunction at all” (31 N.L.R. p. 33) or even “that there is probablyno right of the plaintiff which can be violated” (67 N.L.R. p. 448).
The views expressed by the learned District Judge in his orderdated 22.6.78, referred to earlier, show that the learned DistrictJudge has arrived at a finding on the main and the most crucialmatter in which the parties are at variance, viz: whether clause (3) ofthe document “D” referred to earlier, constituted a restraint on therespondent's freedom of employment, and, if so, whether suchrestriction is reasonable. Such a decision, to say the least, is not onlypremature, but also unfair particularly by the employer who would nothave placed at such an inquiry all the evidence which he would haveplaced at the trial itself.
I shall now proceed to consider whether the balance ofconvenience lies in favour of granting or refusing the interiminjunction. This principle has been discussed by Lord Diplock atpage 510 (f to i) in the judgment in the American Cyanamid case(supra). In the local case of Yakkaduwe Sri Pragnarama Thero v.Minister of Education}'® (H.N.G.) Fernando, C.J. too considered thisprinciple. The loss which the respondent would sustain in the eventof his ultimately succeeding at the trial, if he were now restrained byan interim injunction, would, in my opinion, be adequately met by anorder for damages against the Petitioner. The extent of any such losssustained by the respondent is capable of determination with nearprecision. It would, on the other hand, be very difficult to assess thedamages that would and could have been suffered by the Petitioneras a result of the respondent’s continuance of what he is beingsought to be prevented from doing, if the Petitioner was to succeedin establishing its rights at the trial.
According to clause (3) of the document “D” referred to earlier, therespondent has been confirmed in his post as from 1.10.77; andaccordingly the period of three years during which he could, if at all,be restrained in terms of the said clause would expire on 1.10.1980.
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As already stated the Petitioner instituted these proceedings on8.3.1978. The order sought to be revised was made on 22.6.78; andthe present application to this Court was made on 4.7.78. In the caseof Marian White Ltd. v. Francis,'1141 the Court of Appeal in England did,in a similar application, proceed to grant to the petitioner the reliefsought for (which was a declaration) even though by that time theperiod, during which the restrictive clause was to be in operation,had long expired. In these circumstances, even though there nowremains only a period of about three months, it appears to me thatthe Petitioner should not be denied on this ground alone the relief thePetitioner has moved for, as far back as March, 1978.
There is just one other matter I would like to refer to. The facts andcircumstances of this case seem to me to show that this is a casewhere the learned District Judge should have followed theobservations of (H.N.G.) Fernando, C.J. in the Perera case (supra)and dealt with the matter of the application for an injunction and thesubstantive dispute at one and the same time.
For the reasons set out above I make order setting aside the Ordermade by the learned District Judge on 22.6.80 dismissing theapplication for an interim injunction; and I direct that an interiminjunction, as prayed for in paragraph (c) of the plaint, be issued tobe in operation till 1.10.1977 upon the petitioner depositing, assecurity, a sum of Rs. 2,500/- in cash.
The parties are to bear their costs of this application. The costs ofthe inquiry held in the District Court are to abide the final decision ofthe action instituted by the Petitioner (the plaintiff) in the District Court.
RODRIGO, J. -1 agree.Appeal allowed.