Restrictive Covenants and IFAs

Restraint of Trade - Construing Restrictive Covenants

Beckett Investment Management Group Ltd v Hall: [2007] EWCA Civ 613
CA
28 June 2007
Weekly Law Notes Summary

The unreasonable part of the covenants could be severed from the remainder if (i) the unenforceable provision was capable of being removed without the necessity of adding to or modifying the remaining wording, (ii) the remaining terms continued to be supported by adequate consideration, and (iii) the removal of the unenforceable provision did not so change the character of the contract that it became a different sort of contract from that which the parties had entered into. Applying that threefold test, the unreasonable part could properly be severed from the otherwise valid and enforceable restrictions.  So some winners and some losers yet again.

Here is Daniel Barnett's summary:
Restrictive Covenants

The Court of Appeal has delivered a useful judgment covering various aspects concerning the enforceability of post-termination restrictive covenants (a 12-month non-dealing clause in the financial services sector). Points covered include:

• rejecting the literal interpretation that words referring to protection of 'the company' do not include protecting clients of subsidiary companies in a large group. Maurice Kay LJ confirms that the law will recognise the reality of big business and not take a "purist approach to corporate personality" which leads to a "futile result" (para. 18)
  
  
• the mere fact a period is arbitrary (such as a 12-month period) does not prevent the clause being enforceable, since any fixed duration bears an element of arbitariness (para. 29)
  
  
• useful comments on determining the reasonableness of the duration of the clause appear at para 29

Restrictive covenant cases crop up so infrequently in the Court of Appeal that it's always worth reading them if you practice in this area. And this judgment is particularly well written and easy to read - well worth the 15 minute investment.
BAILII  Report

Daniel Barnett is a barrister who specialises in Employment Law.  Go to his website at:
http://www.danielbarnett.co.uk/
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