Ensure restrictive covenants in a sale agreement are enforceable (as the courts won’t do it for you)

The Court of Appeal has recently overturned a decision of the High Court in which the judge read words into a restrictive covenant clause to reflect what he determined the parties had in mind at the time of drafting. The Court of Appeal decision underlines the importance of ensuring that any non-compete restriction in a sale agreement is clear and fully reflects the intention of the parties. The court generally will not correct poor draughtsmanship, which makes the clause ineffective.

The case of Prophet plc v Huggett [2014] EWCA Civ 1013 concerned a restrictive covenant that attempted to restrict Mr Huggett from competing with software manufacturer Prophet when he left the business ‘in connection with any products… which he was involved whilst employed’. As he would only have been involved in working with Prophet’s proprietary software during his employment, the restrictive covenant — when read literally — provided no protection for Prophet. Once Mr Huggett began working for a competitor, he would no longer be dealing with Prophet’s software but with that of the competitor…

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