If a restrictive covenant covers what it needs to and what was contemplated by the parties, but also unintentionally covers areas which are “fantastical” and were not contemplated, can it still be valid?
Yes, held the Court of Appeal in Boydell v NZP Pharma Limited.
Dr Boydell worked for NZP, a specialist pharmaceutical business. His contract of employment included a non-competition covenant preventing him from working in any capacity for any competing businesses of either NZP or any of its group companies.
The High Court granted an interim injunction enforcing the covenant. In doing so, the Judge severed certain parts of the clause, including removing the reference to other group companies. This decision was appealed by NZP who argued that the Judge could not use severance to significantly change the effect of the restraints.
The Court of Appeal disagreed and held that if a clause covers what it needs to and what was contemplated but also unintentionally covers areas which are “fantastical” (Home Counties Dairies Ltd v Skilton) then it may still be valid. If there are two realistic constructions then the court should rely on the one which would result in a valid clause. This meant that, by severing the references to group companies (which were “fantastical”), the Judge had not significantly changed the overall effect of the clause.
Comments