Veterinary ordered to pay liquidated damages after breach of competition clause

Date 25 aug. 2008
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11 December 2008, the Danish Western High Court reached a verdict in a case where a veterinary (hereinafter referred to as the Veterinary), after resigning from a veterinary partnership, could not be employed elsewhere within the radius agreed upon by the veterinaries in the competition clause.  

 

 

The case in brief

In connection with the business activities of a veterinary partnership, four veterinaries had entered into a partnership agreement. From clause 22 of this agreement, it appears that in the case a partner surrenders his shares in the partnership; the parties are obligated to abstain from carrying on a private practice or having any economic interest in such within an area of 25 kilometres within the first 15 years.  It further appeared from the agreement that the party resigning his share to the other partners could not provide services to former customers with a certain turnover outside the 25 kilometre border. Any breach of the competition clause would result in a payment of DKK 100,000 in liquidated damages.

 

The Veterinary resigned his share to the other veterinaries and was employed by a veterinary within a 25 kilometre radius, claiming that employment was not subject to the competition clause.

 

The veterinaries had further agreed that the Veterinary was obligated to pay a compensation of five per cent of the total goodwill value of the practice. When the Veterinary resigned, the parties disagreed on how the goodwill value should be calculated.

 

The goodwill dispute concerned whether the calculation should be based on the goodwill principles defined by the Danish Veterinary Association, which based its calculation on 4.5 fulltime veterinaries. The reason was that plaintiff’s counsel claimed that, in accordance with the goodwill principles, a fulltime veterinary, being a partner in the company, should have a value of 1.125, as it must be assumed that a partner’s working hours exceed those of a fulltime veterinary who is not a partner.

 

 

The Court’s statement

The Danish Western Court stated that though it clearly appeared from clause 22 of the agreement that the prohibition in the competition clause also included employment as veterinary assistant within a 25 kilometre radius, which must be viewed as a clear condition, as the customers of the resigning veterinary could only be expected to choose him over the veterinary partnership.

 

The High Court further emphasised that the purpose of the agreement was to protect the remaining veterinaries, which is why employment with a newly established practice, in which the Veterinary had no opportunity to service former customers of the new employer, must be considered subject to the competition clause. In this connection, the High Court further emphasised that the Veterinary’s employer was a private limited company owned by a veterinary student in Copenhagen, and that the Veterinary was the only veterinary employed in the practice.

 

Thus, the High Court found that the Veterinary had acted against the competition clause.

 

The High Court further declared that there were no grounds for disregarding the competition clause in its entirety pursuant to section 36 or 38 of the Contracts Act, however, the 15-year time limit must be considered unreasonable. With the character of the agreement in mind, the High Court reduced the time limit from 15 to 10 years.

 

The High Court further declared that the same goodwill calculation must be applied when the Veterinary resigned as had been applied nine months earlier in connection with another partner. Thus, the High Court recognised that the partners estimated a partner’s additional earnings to 1.125 fulltime veterinary at the goodwill calculation, thereby applying the term ”fulltime veterinaries” instead of the veterinary amount.

 

 

If you have questions regarding the above or require additional information on issues related to employment law, please contact attorney Dan Moalem (dmo@mwblaw.dk) or attorney Christina Lund (clu@mwblaw.dk).

 

The above does not constitute legal counselling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weite-meyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.