The recent High Court decision of CJ Motorsport Consulting Ltd v Bird & Anor provides guidance on the established principles of restraint of trade and under what circumstances restraint of trade can be found to be enforceable within commercial contracts.

Background

The defendant, Sam Bird, a professional motor racing driver, who since 2006 (when he was 19 years old) had been engaged in management contracts with the Claimant, CJ Motorsport Consulting Limited. As Murray J commented during the judgment, investments from third parties in the motorsport industry are “common ground” due to “the need for significant financial investment … once parental resources have been exhausted”. It was agreed that during the course of the contractual relationship CJ Motorsport had provided over €3.25 million investment to Mr Bird.

The original contract in 2006 was superseded by six further contracts and, finally, the contract which was in dispute signed in 2016 (“the Contract”). The key terms of the Contract were:

  • Mr Bird agreed to pay CJ Motorsport 32% of his earnings from his professional motorsport activities in exchange for CJ Motorsport’s services;
  • The contract term was to continue until 31 December 2034 and, in certain circumstances, could be automatically extended for three year periods at the end of each subsequent term; and
  • CJ Motorsport had the right to terminate the Contract with no less than one month’s notice, however (importantly) Mr Bird had no such right to terminate the Contract.

In June 2018, Mr Bird’s solicitors wrote to CJ Motorsport alleging that the Contract was “an unfair and unreasonable restraint of trade” and that Mr Bird “no longer regards [the Contract] as being valid and binding upon him”. In response, CJ Motorsport’s solicitors stated that unless Mr Bird confirmed within 14 days that he had withdrew his repudiation of the contract, CJ Motorsport would elect to treat the Contract as repudiated and, therefore, discharged. CJ Motorsport subsequently issued a claim for the repudiation; Mr Bird filed a defence and counterclaim. Further, Mr Bird filed an application for the claim to be struck out or summary judgment issued. 

Legal principle

In short, the legal principle surrounding lawful restraint of trade is an overlapping two-stage test:

  1. first, whether the Contract is a contract in restraint of trade and, if so,
  2. whether it is unenforceable on the basis that the restraint is unreasonable (Proactive Sports Management Ltd v Rooney [2011] EWCA Civ 1444).

Decision

Murray J found in favour of Mr Bird and ruled that the claim for damages as a result of Mr Bird’s repudiation be dismissed. Murray J concluded that whilst CJ Motorsport had a legitimate interest in protecting their investment in Mr Bird, the Contract amounted to restraint of trade and such a restraint was not reasonable in the circumstances. The key points, on the facts, that Murray J drew on in reaching his decision were:

  1. although it was conceded it was mutually beneficial for Mr Bird to work, the Contract still demonstrated complete control over Mr Bird and, therefore, any other involvement from another person would be advisory at most;
  2. despite the total control over Mr Bird, there were little to no performance obligations placed on CJ Motorsport in return; and
  3. whilst CJ Motorsport’s representations included that the duration and control of the Contract was normal in the motor sport industry, this did not amount to justification for the contractual term being lawful. Murray J gave short shrift to this argument, in particular.

Learning points

This case provides a reminder of the restraint of trade principles and, whilst it may be justified in limited circumstances, there is still a significant hurdle which the benefitting party has to pass before being able to rely on the terms.

As demonstrated here the reliance on industry ‘norms’ is not sufficient to establish justification for a restraint on trade. Parties have to apply their minds to what they hope to achieve by a possible restraint of trade and consider whether the proposed measures do not go beyond what would be reasonable in the circumstances.

It is of particular interest that even when it is to the benefit of both parties for the affected party to continue trading (in this case, Mr Bird continuing with his motorsport career being of mutual financial benefit), that is not sufficient to discharge a term being a (potential) restraint of trade. Therefore caution should be exercised as to what obligations can be placed on parties and, in the event the provisions amount to a restraint of trade, they must be reasonable in order to be enforceable.