Napier Proteins Ltd : Enforceability Of Restraint Of Trade Provision

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Memorandum

To: Diane Westwood.
From: 8701100.
Re: Napier Proteins Ltd – Enforceability of Restraint of Trade Provision.
Date: 1st May 2017.

Napier Proteins Ltd, our client, wants to stop the operation of Wanganui Byproducts Ltd. You have asked me to review a restraint of trade provision in John’s employment agreement with Napier Proteins Ltd (Proteins) and the ability to enforce it against Wanganui Byproducts Ltd (Byproducts). The issues relating to the use of confidential information will not discuss.

I Issues

A. The overarching issue is whether Proteins could justify piercing the corporate veil and stop the operation of Byproducts by enforcing restrictive covenant under John’s employment agreement.

B. Does the restrictive
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John’s brothers Alan and Rex are the directors and shareholders. Alan is the CEO and is working in the business on a day to day basis.

John has no official role at Byproducts but is providing technical knowledge and advice on a contracting basis.

IV Discussion

A. Piercing the corporate veil

1. Legal Principles

The common law treats piercing the corporate veil as an exception to the Salomon’s principle of the separate juristic personality of a body corporate [1]. One of these occasions is the restraint of trade under an employment agreement [2].

Prest v Petrodel Resources Ltd [2013] [3] is an example where piercing the veil was usually a last resort, and that remedies outside of piercing the veil, particularly in equity, or law of tort, could results on the facts of each case. [4] Mrs Prest issued claim against Mr Prest based on companies owned by Mr Prest when their marriage breakdown. Mr Presr denied that he owned these companies relying on principle of company’s separate entity. The Supreme Court unanimously agreed that the companies should be ordered to transfer the properties but not to pierce the veil. [5] The court reasoning is that the legal interest in the properties is vested in the companies and not in the husband. [6]

If Proteins relying on enforcing the restraint covenant to pierce the veil must satisfy the tests set up by the UK Court of Appeal in Gilford

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