In the recent case of
Prophet plc v Huggett, the Court of Appeal overturned the High Court’s decision
to read words into a non-compete covenant in order to bring it in line with
common sense, and thus reaffirmed what has always been the traditional approach
to the interpretation of restrictive covenants.
Prophet was a software
company, selling software to the fresh produce industry. A restrictive covenant
prevented Mr Huggett from selling Prophet’s software after he left. He joined a
competitor which sold competing software but which was not, technically,
Prophet software. Read literally, the restrictive covenant provided no
protection to Prophet as nobody else sold their software.
The High Court held that
the clause should be rewritten to give effect to the intention of the parties
i.e. to prevent Mr Huggett from selling software which was similar to Prophet
software.
The Court of Appeal
disagreed. Whilst courts should be willing to interpret an ambiguous covenant
in such a way as to provide a commercially sensible solution, rather than
absurd one, this particular covenant was not ambiguous, it was just badly
drafted. There was no basis upon which the High Court judge was entitled to
re-cast the parties’ bargain as he did.
This case is a reminder
that restrictive covenants must be carefully thought through and worded with
serious consideration given to the underlying intention of the clause. A court
will not rewrite a poorly drafted covenant and remedy an employer’s bad
bargain.
Camilla Beamish