Restrictive Covenants

Restrictive Covenants

Where a restrictive covenant has not been drafted as it should be to accurately reflect the parties’ intentions, should the courts give preference to the actual wording used or to the intended meaning? The Court of Appeal in the case of  Prophet Plc v Huggett EWCA Civ 1013 has decided that it is the actual words used that should be applied, firmly reinstating the old orthodoxy that restrictive covenants will be strictly interpreted, after a period in which some judges were adopting a more liberal approach.

Prophet Plc included a restrictive covenant in their contract of employment preventing Mr Huggett from “being … engaged, employed, concerned or interested in any area and in connection with any products in, or on, which he was involved whilst employed hereunder.”

The Court of Appeal held that the natural meaning of the italicised words was that they referred simply to those products with which Mr Huggett was involved whilst employed at Prophet, namely Prophet products. Since only Prophet sold Prophet products, the covenant was useless to prevent Mr Huggett dealing in the similar products sold by a competitor.

It was decided that the Court only has the opportunity to amend the construction of the clause to achieve a common sense result when the language of the clause itself was ambiguous. In these circumstances, the clause was not ambiguous; just poorly drafted so as to offer no protection. The clause could not be reworded and Prophet Plc had no protection.

This decision serves as a warning to all employers that your restrictive covenants must be drafted with the utmost care and attention.  The courts will not step in to save a badly drafted clause so make sure they afford you sufficient protection. If you are an EW client, your adviser can assist you.

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James Tamm

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