Poorly drafted restrictive covenants will not be rewritten by Courts

31 July, 2014

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.