In the recent case of Boydell -v- NZP Ltd and others [2023] EWCA Civ 373 the Court of Appeal considered the principle of severance in non-compete clauses and whether the decision to sever certain words from the clause went beyond existing legal principles. Severance is a legal concept which allows a Judge to delete / strike through (or sever) parts of a contract which would otherwise render it unenforceable.
Dr Boydell worked as Head of Commercial – Speciality Products for the appellant company (NZP Limited) which is a niche area of the pharmaceutical industry relating to bile products. Following his resignation, Dr Boydell ended his employment in January 2023 and stated his intention to join competitor Zellbios GmbH to head their bile business.
NZP issued a claim and sought to enforce two sets of restrictive covenants (commonly known as post-termination restrictions). One relating to a non-compete clause in Dr Boydell’s employment contract and the second relating to a shareholder agreement. The High Court refused to enforce the covenant relating to the shareholder agreement but granted an interim injunction enforcing the covenant relating to a non-compete clause in his employment contract.
As part of the enforcement the High Court severed part of the non-compete clause which referenced Dr Boydell being involved in ‘any activity for the benefit of any third party that carried out business which would compete with other company group’.
Dr Boydell appealed the decision on the basis that the clause was too wide and prevented him from working in the general pharmaceutical industry and such restraints were therefore unrelated to the Claimant’s business interests at large. He also argued that the severance was not only impermissible and illegitimate, but also that the totality of the Judge’s approach to severance effectively meant that the Judge had impermissibly re-written the whole contract.
In general terms, the leading case in this area stipulates that a Judge can sever / strike through offending words in a contract provided that the words can be deleted without the need to add to or modify the remaining words of the contract. It also should not create a major change in the overall effect of the relevant provision within the contract.
If the original text had not been struck through to remove various words that made the restriction too wide, then the original text would not be enforceable. The Court of Appeal was content that the deletion of words by the Judge was in line with the existing law on severance. Mr Boydell’s appeal was therefore dismissed.
The Court of Appeal did however specify that decisions in this field are highly fact-specific. In Dr Boydell’s case it was clear that the removal of certain words did not re-write the clause, but instead showed the true meaning of an otherwise unenforceable covenant.
The takeaway from this decision is that contracting parties looking to benefit from post-termination restrictions must ensure that any covenant in commercial contracts are not too wide as to be wholly unenforceable. Whilst the severance of words can in some instances rescue a party from its own overly wide drafting, it is best to ensure consideration is given to the effect of the wording to ensure the restrictions are limited to what is necessary to protect the legitimate business interests of a party and not include anything beyond this.
For more information, please contact Liam Tolen and Ruby Holland.
