Restrictive Covenant Seminar

On Tuesday 24 November 2015, James Wibberley, Barrister, of Guildhall Chambers attended our Exeter office to deliver a joint training seminar alongside Andrew Perkins and Liam Tolen in our Litigation Team.

The Seminar was entitled: "Restrictive Covenants - A Litigator''s Insight for Transactional Lawyers" and was aimed at Ashfords'' Lawyers who regularly draft commercial agreements or contracts of employment containing restrictions of the other contracting party from undertaking certain types of action (usually in competition) at the end of the commercial relationship between the parties.

Restrictive Covenants are a helpful way to protect things such as: a business model, the stability of a workforce, an established customer base, confidential information or can in some cases be used to prevent an unjustified advantage being exploited following the conclusion of the contractual relationship. For example, a Franchisor, in supplying a business model, territory and customer base to a new franchisee may run the risk of effectively creating a competitor when the franchise agreement comes to an end if there are no restrictions in place.

Nevertheless, the Courts are naturally sceptical of any contractual restriction which restrains one party from trading and will only enforce such restrictions if there is a legitimate business interest to protect and the means of restriction go no further than necessary to protect that interest. Lawyers drafting contracts therefore have to carefully balance protecting their client''s interests without going too far and rendering the restrictions unenforceable which could potentially leave no protection at all.

In tackling what is a complex and ever evolving area of law, Andrew Perkins, Partner in Ashfords Commercial Litigation Team introduced the seminar with an overview of where such restrictions typically arise and the broad spectrum of the type and nature of such restrictions.  Liam Tolen, solicitor in the Commercial Litigation Team, then followed addressing the topic of how  restrictive covenants are typically enforced in practice if there is evidence of breach including through seeking an injunction preventing further breach.

James then comprehensively set out the factors which typically influence the Court''s likelihood of enforcing such restrictions and how the careful drafting of such clauses can avoid the common pitfalls and serve to strengthen the restrictions. The seminar concluded with a real life example of how the Courts are likely to test the reasonableness Restrictive Covenants in an exercise in which James crossed examined a Partner in our Corporate Team, on the relevant factors. Jane is very experienced in drafting restrictive covenants in a variety of commercial contracts including Shareholder Agreements, Joint Venture Agreements and Sale and Purchase Agreements. Jane stood up well to cross examination justifying the provisions of the restriction but it stood as a useful reminder of thorough balancing exercise and fact finding investigations a lawyer must undertake when drafting a contract which incorporates restrictive covenants.