Drafting omission could not have been what was intended

30 April 2014

In the recent case of Prophet Plc v Huggett 2014, the High Court recognised that a drafting omission in a non-compete clause which had the effect of, when read literally, preventing an ex-employee only from developing and supplying the Claimant's software products, could not have been what was intended.

In this case, the reality was that the Claimant employer was the only supplier of its own products and therefore the situation where the Respondent breached his non-compete clause would never arise. The Claimant therefore submitted that the clause was intended to be wider than that drafted and was supposed to include products similar to those of the Claimant. The Court (applying a purposive interpretation) decided that the clause was intended to prohibit the Respondent from competing in the fresh produce sector with the same or similar products to those developed by the Claimant. The Court implied the word "or similar" into the clause and justified this as necessary to produce a commercially sensible result. The Court also acknowledged that this was the likely intention of the parties by reference to other restrictive covenants in the agreement which already include the same or similar phrasing.

The Court then had to decide if the slightly re-worded clause was reasonable and enforceable in line with established principles of contract law. In this context , the Court had to decide if the clause was reasonably necessary to protect the Claimant's business interests. It held that that the clause was reasonable and necessary because there was a chance that the Respondent's new employer would compete for deals within the same pool of clients, noting that there was every opportunity for the Respondent to use confidential information of the Claimant to his (and ultimately the new employer's) advantage. The Court also confirmed that a 12 month non-compete covenant to protect such interests was within the bounds of reasonableness.

Finally, the Court went on to consider if it was appropriate to exercise its discretion to grant an injunction. As is typical in this type of case, the employer will seek to enforce the restriction through an injunction. This issue is decided in accordance with the well-known principles of American Cyanamid and includes consideration of the damage and risk to the Claimant, the adequacy of damages as a remedy, the circumstances of the termination and any hardship which the exiting employee may face by the imposition of an injunction. The Court believed that there was a "real and not fanciful risk", but such risk did not "greatly exceed that low threshold". He also criticised the Claimant for its "over-alarmist" account of damage and risk and the "bad faith" displayed by allowing the Respondent to leave employment earlier than entitled, then backtracking to restrain him from doing so. On balance, the Court saw a need to impose an injunction to prevent the exiting employee working on competitive products in his new employment for a period of 12 months.

This case provides a further example of a trend for the Courts to show willingness to apply a purposive interpretation to create a commercially sensible and workable result. Although this case ended positively for the Claimant, employers should take note of the criticisms levied at the Claimant in relation to its conduct in exaggerating its risk and changing its mind in relation to the termination date.


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