Beckett Investment Management Group Ltd v Hall: [2007] EWCA Civ 613

CA: Sir Anthony Clarke MR, Carnwath and Maurice Kay LJJ: 28 June 2007

The first and second defendants were independent financial advisers employed by the first claimant company, B Ltd, which was the holding company of a corporate group. B Ltd did not itself provide financial services but those services were provided by its subsidiaries within the group. Under covenants entered into with B Ltd the defendants were restrained, for 12 months after the termination of their contracts of employment, from supplying advice to any "client" of "the company" of a type provided by "the company" in the ordinary course of business. The definition of "client" purported to include not only those persons, firms, companies or organisations with whom the defendants had dealt in the course of their employment for a specified period, but also any individuals acting in a representative capacity on behalf of a firm, company or organisation with whom they had so dealt. After the defendants' employment had ended B Ltd and other group companies brought claims against them for breach of the restrictive covenants. The judge, dismissing the claims, held that "the company" was to be narrowly construed meaning as B Ltd rather than the corporate group; that the non-dealing restriction was of no practical utility to B Ltd since it did not provide advice; that therefore the restrictive covenants were not enforceable; and that, in any event, there had been no breach of the covenants because the defendants had not supplied advice of a type provided by B Ltd.

B Ltd appealed.

The Court of Appeal held:
The defendants were well aware of the respective roles of B Ltd and its subsidiaries and for that reason, among others, it was appropriate to construe the covenant as applying to advice of the kind in fact provided by the subsidiaries. The fact, therefore, that the clients dealt with subsidiaries rather than B Ltd was not fatal to the claim, provided that the covenants were otherwise enforceable. In the circumstances B Ltd had a legitimate interest to protect by a restrictive covenant, and a 12 months' non-dealing clause was reasonable between the parties and reasonable in the interests of the public, having regard to the defendants' seniority and importance, to the logistics of replacing them and to the uncontradicted evidence of an industry standard of 12 months. The covenants were, however, unreasonable and unenforceable to the extent that they deemed to be B Ltd's clients those individuals who had only dealt with the defendants in a representative capacity on behalf of firms, companies or organisations. The unreasonable part of the covenants could be severed from the remainder if (i) the unenforceable provision was capable of being removed without the necessity of adding to or modifying the remaining wording, (ii) the remaining terms continued to be supported by adequate consideration, and (iii) the removal of the unenforceable provision did not so change the character of the contract that it became a different sort of contract from that which the parties had entered into. Applying that threefold test, the unreasonable part could properly be severed from the otherwise valid and enforceable restrictions.

The appeal was allowed.

Appearances: Christopher Lundie (Gateley Wareing LLP, Leicester) for B Ltd; Peter Oldham (Bradshaw Hollingsworth, Leicester) for the defendants.