Beckett Investment Management Group v Hall (Court of Appeal 28th June) is a significant case for all employers/employees who may have, or want, restrictive covenants. It is particularly relevant to the Financial Services sector.
The Court of Appeal Judgment contains 4 key messages:
1. Clauses should be construed with reference to their objective.
A narrow interpretation of the drafting of a covenant which deprives the covenant of all practical utility in circumstances where all the parties are familiar with the background to and the aim of the clause is not sensible construction and covenants should be construed without a purist approach to corporate personality.
2. A restriction of 12 months may be enforceable.
The Court of Appeal did not consider that a 12 month restriction was arbitrary. It concluded that with specific regard to the employees' seniority and importance, to the evidence about business patterns, to the logistics of replacing them and to the uncontradicted evidence of an industry standard of 12 months, 12 months was a reasonable period for a non dealing clause both between the parties and in the interests of the public.
3. Be precise about definitions and try not to complicate them with "extended" definitions.
In this case an extended definition was deemed unclear and to some extent otiose.
4. The severance of unreasonable provisions in restrictive covenants is possible provided the test applied in Sadler v Imperial Life Assurance Company of Canada Ltd [1988] IRLR 388 is adopted.
This states that a contract which contains an unenforceable provision nevertheless remains effective after the removal or severance of that provision if the following conditions are satisfied:
- the unenforceable provision is capable of being removed without the necessity of adding to or modifying the wording of what remains;
- the remaining terms continue to be supported by adequate consideration;
- the removal of the unenforceable provision does not so change the character of the contract that it becomes ‘not the sort of contract that the parties entered into at all’.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 05/07/2007.
