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TREGO v. HUNT, H.L.

and Cruttwell v. Lye (3) was the case of a bankrupt's assignee who, as Jessel, M.R., pointed out in Ginesi v. Cooper (5), was not in the position of an ordinary purchaser. Page-Wood, V.C., in Churton v. Douglas (6), thought that Lord Eldon's definition of "goodwill" in the cases referred to above was not intended to be exhaustive. The modern authorities begin with Labouchere v. Dawson (1), decided in 1872, which is exactly in point. But there has been a conflict of authority since that date. Jessel, M.R., emphatically approved Labouchere v. Dawson (1), and even extended it by prohibiting in Ginesi v. Cooper (5) the retiring partner from dealing with the old customers. The extension, but the extension only, was overruled in Leggott v. Barrett (7). The principle of Labouchere v. Dawson (1) in voluntary sales was recognised in Walker v. Mottram (8), though Baggallay, L.J., seems to have disapproved Labouchere v. Dawson (1). Cotton, L.J., was also perhaps doubtful of that decision; but it has been expressly approved by the present Master of the Rolls when Lord Justice, and by Lush, L.J., and Lindley, L.J. It is immaterial whether the doctrine be implied contract or derogation from grant. Brett, L.J., held it to be implied contract. Lord Romilly's decision was also followed by Fry, J., in Mogford v. Courtenay (9). The balance of authority was strongly in favour of Labouchere v. Dawson (1) until the Court of Appeal, in Pearson v. Pearson (10), overruled it. Stirling, J., and the Court of Appeal in the present case felt bound to follow that case. But Pearson v. Pearson (10) is wrong and ought to be overruled. See also Cook v. Collinridge, cited in Collyer on Partnership (2nd ed.), p. 209, and Johnson v. Helleley (11).

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Sir R. E. Webster, Q.C., and H. Burton Buckley, Q.C. (George Henderson with them), for the respondent.-Pearson v. Pearson (10) is good law, and ought to be followed. If solicitation of old customers is to be forbidden, it must be by express contract, and the rights of an outgoing partner cannot be restricted by implication. The term "goodwill" was defined by Lord Eldon in Cruttwell v. Lye (3) to be the habit of old customers to go to the old place. It implies that the outgoing partner must not represent his business to be that of the old firm, and must not use any trade name of the old firm. Labouchere v. Dawson (1) is inconsistent with Cruttwell v. Lye (3). It is inconsistent on the one hand to forbid solicitation, and on the other to allow the retiring partner to set up next door to the old place. In some cases success depends upon personal skill. Why should a man be deprived of the benefit of his special skill and knowledge? Why should he not be allowed to say, "I was the brewer or the tea-taster of Messrs. A & B?" It is expressly provided in the articles of partnership that each member of the firm may take extracts from the books. It cannot be assumed that he does so for an improper purpose.

[They also cited Dawson v. Beeson (12) and Hall v. Barrows (13).]

H. H. Cozens-Hardy, Q.C., in reply.All the appellant asks is an injunction to restrain the use of the extracts for the purpose of soliciting custom. The respondent has taken a list of 5,000 names for the acknowledged purpose of canvassing

customers.

The House took time for consideration.

LORD HERSCHELL.-A very important question, which has given rise to much difference of judicial opinion, presents itself for decision in the present case. For some years prior to 1876 William Henry Trego, the husband of the appellant Anna Trego, had carried on business as a varnish and japan manufacturer, at Bow and in London, under the name of Tabor, Trego & Co. In that year he took the respon

(12) Law Rep. 22 Ch. D. 504.

(13) 4 De Gex, J. & S. 150; 33 Law J. Rep. Chanc. 204.

TREGO v. HUNT, H.L.

dent into partnership, but upon the terms that the goodwill of the business should be and remain the sole property of William Henry Trego. The partnership continued until his death. In February, 1889, a partnership agreement was made between the appellants and the respondent that they should carry on the business under the old style of Tabor, Trego & Co. for a term of seven years. The agreement provided that the goodwill should nevertheless be and remain the sole property of Anna Trego. In December of last year the appellants found that the respondent had employed a clerk of the firm, out of office hours, to copy for him the names, addresses, and businesses of all the firm's customers. The respondent admits that his object in having the copy made was to acquire information which would enable him, when the partnership comes to an end, to canvass these persons, and to endeavour to obtain their custom for himself. The appellants accordingly brought this action, and moved for an injunction to restrain the respondent from making copies of, or extracts from, the partnership books for any purposes other than the business of the partnership. Mr. Justice Stirling, in the course of his judgment, said: "It has been admitted in the argument, and for the purposes of it, that the defendant intends, in the event of the partnership coming to an end at the beginning of next year, to use this list for the purpose of soliciting the customers of the present firm. He proposes then to engage in a business of a similar nature to that carried on by the firm, and the question which I have to decide is whether he is entitled to make such a use of the list." It seems clear, therefore, that the point in contest before the learned Judge who heard this motion was whether the respondent was entitled to make use of the list of the customers of the firm which he had obtained in order to canvass them when he started business on his own account. I mention this because it may have been open to contention on behalf of the respondent that he was, at all events, entitled, whilst he remained a partner, to make copies of the partnership books, and that it was premature to come

to the Court to restrain the use of these copies even if he were not entitled when he ceased to be a partner to canvass the customers of the firm; but in view of the fact that the respondent threatened to use the list for the purpose of canvassing the persons named therein, and having regard to the course taken before the learned Judge, I think it would have been open to him to grant an injunction, though not in the terms prayed for, if the canvassing of those customers would be a wrongful act on the part of the respondent.

Mr. Justice Stirling and the Court of Appeal had, I think, no alternative but to refuse to grant any injunction. They were bound by the decision of the Court of Appeal, in the case of Pearson v. Pearson (10), that even though the goodwill belongs to one of the partners, it is lawful for the other, on the termination of the partnership, to canvass the customers of the firm. Consistently with that decision, I think it would have been impossible to hold that the appellants were entitled to an injunction. That case is, however, open to review by your Lordships, and the real question in the present case is whether it was well decided. The question whether a person who had sold the goodwill of his business was entitled afterwards to canvass the customers of that business came first before the Courts for decision in the case of Labouchere v. Dawson (1). Lord Romilly, Master of the Rolls, answered in the negative. He was of opinion that the principles of equity must prevail, and that persons are not at liberty to depreciate the thing which they have sold. He considered that the defendant was not entitled personally, or by letter, or by his agent or traveller, to go to any one who was a customer of the firm and to solicit him not to continue business with the old firm, but to transfer it to him, that this was not a fair and reasonable thing to do after he had sold the goodwill. He accordingly granted an injunction to restrain the defendant, his partners, servants, or agents, from applying to any person who was a customer of the old firm prior to the date of the sale, privately, by letter, personally, or by a traveller, asking such customer to continue to deal with the

TREGO v. HUNT, H.L.

defendant, and not to deal with the plaintiffs. In the case of Ginesi v. Cooper (5), Sir George Jessel, Master of the Rolls, followed the decision in Labouchere v. Dawson (1), and expressed in very strong terms his concurrence with it. He granted an injunction restraining the defendants, their clerks, servants, agents, workmen, or others, from soliciting, or in any way endeavouring to obtain, the custom of, or orders for, goods similar in character to those dealt in by the old firm from such of the customers as were customers of the old firm, or from attempting to take away any portion of the business bought by the plaintiff. This was all the plaintiff in that case asked for; but the learned Judge went further, and expressed a strong opinion that a man who sold the goodwill of his business must not only refrain from soliciting the old customers to deal with him, but must not deal with them. It was not, he said, necessary to decide it on that occasion, but he stated it because he thought what the meaning of selling the goodwill of a trade or business is should be thoroughly understood. In the case of Leggott v. Barrett (7), which came before the same learned Judge shortly afterwards, he acted upon the same view, and extended the injunction to restrain the defendant from dealing with the customers of the old firm. From this judgment there was an appeal; but the appellant confined his appeal to that part of the order which restrained him from dealing with the customers of the old firm. He made no objection to the injunction so far as it restrained him from canvassing those customers. The Court of Appeal dissolved that part of the injunction of which the appellant complained. They thought they could not on any just principle prevent the defendant from supplying a man with goods if he applied to him; that there was no implied obligation upon him, either legal or moral, to shut his door against a customer who came to him of his own free will; that a sale of goodwill did not involve an implied contract not to deal with any customers of the old business the goodwill of which was sold. The case is chiefly important for present purposes in

so far as it discloses the view taken by the learned Judges who on that occasion constituted the Court of Appeal on the point now under consideration. In the case of Pearson v. Pearson (10), to which I shall have occasion to refer immediately, Lord Justice Cotton stated that the decision in Labouchere v. Dawson (1) was doubted in Leggott v. Barrett (7) by Lord Justice James and himself. This is no doubt correct so far as Lord Justice Cotton is concerned; but I am unable to find any very clear indication that this was the view of Lord Justice James. It is quite true that in an early part of his judgment he said: "I do not like going much into the case, because what I should say might perhaps be considered to mean that the injunction which is submitted to is too wide." But in a later part of the judgment he says: "At first it did appear to me that we might, from the equity view of the case, say that the defendant should be prevented from dealing with any customer or customers whom he had so solicited; but it appears to me that was too vague and too wide." He pointed out that a man might give the order afterwards without any reference to previous solicitation. Further on, when discussing the effect of the agreement, and shewing that there was no implied obligation not to deal with the customer, he says, "It means that you are not to solicit customers." The impression produced upon my mind by the whole of the judgment is that the learned Judge had not arrived at the conclusion that Labouchere v. Dawson (1) was wrong. Lord Justice Brett expressed a decided approval of that decision. He was of opinion that on the sale of a goodwill for a valuable consideration there was an implied contract that the vendor would not solicit former customers, who were really the people who formed the goodwill.

The next case in which the matter was brought under consideration of the Court of Appeal was that of Walker v. Mottram (8). In that case the goodwill of the business carried on by a bankrupt had been sold by his trustees in bankruptcy. It was sought afterwards to restrain the bankrupt from soliciting the customers of

TREGO v. HUNT, H.L.

that business. Sir George Jessel, Master of the Rolls, refused to grant an injunction, on the ground that the doctrine laid down in Labouchere v. Dawson (1) did not apply to the case of a bankrupt whose business had been sold by his trustees. This judgment was affirmed by the Court of Appeal. Of the Lords Justices who then constituted the Court, Lord Justice Baggallay expressed a strong doubt as to the correctness of the decision in Labouchere v. Dawson (1). He said that it appeared to him, as at present advised, that it went far beyond what any of the previous decisions would have sanctioned. Lord Justice Lush and Lord Justice Lindley, the other members of the Court, said that the rule laid down in Labouchere v. Dawson (1) had, it was believed, been recognised and acted upon in practice, and, whatever else might be said of it, the rule was in accordance with the general opinion of what was fair and right, and was easily applied in practice. In the case of Pearson v. Pearson (10) the question came again before the Court of Appeal. The facts were there less favourable to the plaintiff than in the case of Labouchere v. Dawson (1); and Lord Justice Baggallay and Lord Justice Lindley both considered that, even if Labouchere v. Dawson (1) was rightly decided, the case then before them was not governed by it. Lord Justice Baggallay and Lord Justice Cotton, however, distinctly rested their judgments on the ground that the decision in Labouchere v. Dawson (1) was wrong, and ought to be overruled. Lord Justice Lindley, on the other hand, was of opinion that it was rightly decided. The reason of Lord Justice Baggallay for dissenting from Labouchere v. Dawson (1), so far as it is disclosed by the report of his judgment, appears to be that it went beyond a number of decisions of a higher Court, and, as he thought, without sufficient reason. Even assuming that the decision in Labouchere v. Dawson (1) went beyond previous decisions, this does not seem to me to afford any indication that it was wrong, unless it can be shewn that it was in conflict with the principles involved in those earlier decisions. Lord Justice Cotton examined

the earlier decisions, and arrived at the conclusion that Lord Eldon was against the notion that the vendor of the goodwill of a business was, in the absence of express contract, to be restrained from carrying on a similar business in the way in which he might lawfully carry it on if there had been no sale of the goodwill. The learned Lord Justice pointed out that Lord Romilly rested his decision in Labouchere v. Dawson (1) on the principle that a man could not derogate from his grant. "But," he said, "it is admitted that a person who has sold the goodwill of his business may set up a similar business next door, and say that he is the person who carried on the old business; yet such proceedings manifestly tend to prevent the old customer from going to the old place. I cannot see where to draw the line. If he may, by his acts, invite the old customers to deal with him and not with the purchaser, why may he not apply to them and ask them to do so? I think it would be wrong to put such a meaning on 'goodwill' as would give a right to such an injunction as has been granted in the present case." I propose now to examine the older authorities. I may state at once, however, that I can find nothing in them inconsistent with the decision in Labouchere v. Dawson (1). It no doubt went beyond them, inasmuch as it dealt with a question not determined by them, but this seems to me to be no demerit, nor to afford any indication that it was wrong. The earliest case which has any bearing upon the point is that of Cruttwell v. Lye (3), before Lord Eldon. The business of a bankrupt, who was a carrier between Bristol and London, had been sold by his assignees in bankruptcy. He afterwards commenced carrying on the trade of a carrier between Bristol, Bath, and London, but though the termini were the same the route employed was different. He addressed direct solicitation to the public for the carriage of their goods, stating that he had been reinstated in his business; and there was further, in the opinion of the Lord Chancellor, so much probability of direct solicitation to the customers of the old concern, in some few instances, that the fact might fairly be

TREGO v. HUNT, H.L.

assumed. Under these circumstances, the purchaser of the bankrupt's business applied for an injunction. The case was therefore the same as Walker v. Mottram (8), where Sir George Jessel, than whom no one has more strongly insisted upon the propriety of the decision in Labouchere v. Dawson (1), was of opinion that no injunction should be granted.

The bankrupt was no party to the contract of sale; there could, therefore, be no implied contract on his part to be derived from it. It is most material also to observe what was the nature of the injunction then in question. It was whether the bankrupt was to be restrained from carrying on the trade which he was pursuing of carrying goods between Bristol, Bath, and London. The Lord Chancellor held that he could not be so restrained, and I think it must now be taken as settled that the sale of the goodwill of a business, even when the vendor himself is a party to the contract, does not impose upon him any obligation to refrain from carrying on a trade of the same nature as before. But Lord Eldon certainly did not decide that such a vendor was entitled to solicit the customers of the old firm. He was not asked for an injunction to restrain the defendant from so doing. It was sufficient for the decision of that case that in the opinion of the Lord Chancellor there was no principle arising out of the provisions of the bankruptcy law upon which the Court could hold that the bankrupt ought not to engage in the same trade and by the same road as before, though I think that, so far, the opinion of the Lord Chancellor would have been the same if the sale of the business had been effected by the bankrupt himself, and not by his assignees.

The importance of the case consists in the definition which Lord Eldon gave of the goodwill there sold. He said, "The goodwill which has been the subject of the sale is nothing more than the probability that the old customers will resort to the old place. Fraud would form a different consideration; but if that effect was prevented by no other means than those which belong to the fair course of improving a trade in which it was lawful to

engage, I should, in imposing it, carry the effect of my injunction to a much greater length than any decision has authorised or imagination ever suggested." These observations were much relied on by Lord Justice Cotton in Pearson v. Pearson (10). If the language of Lord Eldon is to be taken as a definition of good will of general application, I think it is far too narrow, and I am not satisfied that it was intended by Lord Eldon as an exhaustive definition. "Goodwill,' I apprehend," said ViceChancellor Wood, in Churton v. Douglas (6), "must mean every advantage, every possible advantage, if I may so express it, as contrasted with the negative advantage of the late partner not carrying on the business himself, that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on, or with the name of the late firm, or with any other matter carrying with it the benefit of the business." The learned Vice-Chancellor pointed out in this connection that it would be absurd to say that when a large wholesale business is conducted, the public are mindful whether it is carried on in Fleet Street or in the Strand. The question, what is meant by "goodwill," is, no doubt, a critical one. Sir George Jessel, discussing in Ginesi v. Cooper (5) the language of Vice-Chancellor Wood which I have just quoted, said, "Attracting customers to the business is a matter connected with the carrying on of it. It is the formation of that connection which has made the value of the thing that the late firm sold, and they really had nothing else to sell in the shape of goodwill." He pointed out that, in the case before him, the connection had been formed by years of work. The members of the firm knew where to sell the stone; and he asks, “Is it to be supposed that they did not sell that personal connection when they sold the trade or business and the goodwill thereof?" The present Master of the Rolls took much the same view as to what constitutes the goodwill of a business. I cannot myself doubt that they were right. It is the connection thus formed, together with the circumstances, whether of habit

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