25th July 2014

Restrictive Covenants - The Devil is in the Detail

In Prophet plc v Huggett, the Court of Appeal has overruled a finding of the High Court whereby the court inserted additional words to give meaning to an otherwise useless restrictive covenant.  The case concerned a sales manager at a computer software company.  His contract of employment contained a 12 month restriction against competition after he left employment.  The clause was worded so that the restriction would only operate to prevent Mr Huggett from working “in any area and in connection with any products in which he was involved whilst employed”.

The difficulty with the clause was that the products with which he was involved whilst employed were specific to Prophet.  The products were named ‘Pr3’.  On a literal interpretation of the clause it was useless because of course no competitor would be selling the Pr3 product as this was specific to Prophet.  The High Court judge formed the view that something had gone wrong with the drafting of the clause as it did not reflect what the parties had intended. 

The judge required to ascertain what a reasonable person would have understood the parties to have meant by the chosen wording.  To that end, he inserted the words “or similar thereto” at the end of the clause.  The judge regarded this change as being the minimum required to achieve a commercially sensible meaning to the clause. 

The Court of Appeal disagreed with this approach and overturned the injunction (the English equivalent of what is known as an interdict in Scotland) which prevented Mr Huggett from competing.  The Court of Appeal formed the view that there was no basis for the judge to recast the original bargain as he did.  The employer had received specialist advice on the clause and the draftsmen had chosen his words with “specific and deliberate care”.  The conclusion was that the employer had “made its clause 19 bed and must now lie upon it”.

This decision emphasises the need not only for precise drafting of restrictive covenants, but also for careful consideration of the matters which an employer is seeking to protect against before putting pen to paper.

Jack Boyle
Senior Solicitor - Employment Law

 

 

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