C assisted its clients in obtaining photocopying equipment. C put forward R as the preferred supplier for its clients. C was concerned not to get cut out of its relationship with its clients by those clients dealing directly with R. The parties therefore entered into a confidentiality agreement which prohibited R and other relevant people (including R's other 150 group companies) from approaching any employee, client or supplier of C as long as they possessed any confidential information of C.
R tendered alone for a possible contract, and C clubbed together with another supplier. C went into liquidation and its rights were taken by J. R won the tender. J claimed that R had breached the prohibitions in its agreement with C and that if it had been unable to do what it did, then it would have had to bid with C (now J) and they could have won the bid together. R claimed that the prohibition was an unenforceable restraint of trade and breached Article 101 of the Treaty on the Functioning of the European Union (formerly Article 81 of the EC Treaty).
The High Court ruled that the restriction was unenforceable under EU competition law and granted R summary judgment on the issue. The wide scope of the restrictions and the people affected as well as what was covered by C's 'confidential information' meant that if R had information relating to C or its business practices, finances, dealings and clients received from C, it would breach the contract if any group company made contact with C's existing or prospective clients. It was very wide in time and unlimited in geography. It went further than could reasonably be required to protect C's confidential information. This breached Article 101, as it amounted to an agreement that had the object or effect of distorting competition and which could affect trade between Member States of the EU. Since the parties were not operating at a different level of supply – as C was not purchasing or supplying to R but merely assisting clients with obtaining supplies – a possible block exemption for vertical agreements under Article 101(3) did not apply to exempt the arrangement.
Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: 'This case should act as a warning to commercial entities that want to agree non-compete provisions. If they are too wide in scope, they could infringe EU competition law. That in turn could entail large fines, unenforceable agreements and third parties suing for damages.'
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