High Court decides not to trim restrictive covenants (Rush Hair Ltd v Hayley Gibson-Forbes, S.J. Forbes Ltd)

High Court decides not to trim restrictive covenants (Rush Hair Ltd v Hayley Gibson-Forbes, S.J. Forbes Ltd)
Corporate analysis: In the context of the sale of a hairdressing business, the High Court recently considered the case law dealing with the interpretation and enforceability of restrictive covenants.

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Original news

Rush Hair Limited v Hayley Gibson-Forbes and S.J. Forbes Limited [2016] EWHC 2589 (QB).

In this case, the court considered how restrictive covenants in a share purchase agreement should be construed, including the circumstances in which the court will pierce the corporate veil where the alleged breaches are carried out by a company controlled by the seller.

What was the background to the case?

In 2008, the claimant, Rush Hair Ltd (Rush) entered into a franchise agreement with Hair (Windsor) Ltd (Hair Windsor), a company owned by Hayley Ms Gibson-Forbes (the First Defendant) to operate a Rush hairdressing salon woman-morning-bathrobe-bathroomin Windsor, Berkshire.The franchise operated successfully, but between November 2014 and March 2015, the First Defendant entered into discussions with Rush with a view to selling her shares in Hair Windsor and another franchisee company, Hair Maidenhead Ltd. These discussions resulted in Rush agreeing to buy all the shares in these two companies in 2015.What restrictive covenants were provided?

 

The case centred on two restrictive covenants contained in the share purchase agreement relating to the sale.

The first covenant (the Employee Covenant) was a covenant from the First Defendant not at any time during the period of two years from completion of the sale, to canvass, solicit, entice or employ certain key employees.

The second covenant (the Non-compete Covenant) was a covenant from the First Defendant not to directly or indirectly be engaged, concerned, employed or interested in any competing business within a defined territory for a period of two years from completion.

What is the key case law on the interpretation of restrictive covenants?

The High Court upheld the restrictive covenants and provided a helpful summary of the case law in this area.

Assessing reasonableness

Citing Cox J in TFS Derivatives Ltd v Morgan [2005] IRLR 246, at para [37], the High Court said that in assessing the reasonableness of restrictive covenants the court should consider:

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