- Enforceability of restrictive covenants in a shareholders’ agreement and the assessment of damages for breach (Score Draw v PNH International)
- What are the practical implications of this case?
- What was the background?
- What did the court decide?
- Case Details
Commercial analysis: A restrictive covenant in a shareholders’ agreement is akin to a restrictive covenant between the seller and buyer of a business and will benefit from the more liberal approach to enforcement that such agreements attract. That more liberal approach, which is based on the respect that the courts generally show to contract terms freely negotiated by commercial parties of more or less equal bargaining power, permits the protection of a wider range of legitimate interests than is the case with a restrictive covenant in an employment relationship, but even so, the restrictive covenant will be struck down if it goes further than is reasonably necessary to protect the legitimate business interests of the covenantee. The decision also serves as a reminder that the assessment of loss to the covenantee flowing from a breach by a covenantor of a restrictive covenant will often involve a consideration of the hypothetical actions of third parties—what would the customer/contact/client have done if they had not been solicited by the covenantee, such that the claim will properly be framed as a loss of a chance? Written by David Fisher, barrister, and an associate member of New Square Chambers.
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