Personnel Hygiene Services Ltd v Mitchell

Restrictive covenants given on a share sale and those contained in an employment or service contract arise in different commercial contexts and may operate concurrently. A compromise agreement terminating employment and replacing service-contract restrictions does not, without clear wording, supersede separate share-sale covenants. An entire agreement clause in the compromise agreement must be construed according to its scope and cannot be treated as extinguishing the whole share purchase agreement merely because both agreements contain restrictive covenants.

The appellant sought an interim injunction to enforce restrictive covenants given by the respondent in a share purchase agreement. The respondent had later entered into a compromise agreement terminating his employment, containing replacement restrictive covenants and an entire agreement clause.

His Honour Judge Seymour QC held that the compromise agreement covenants had superseded those in the share purchase agreement. The appeal concerned whether that construction was correct. The Court of Appeal also considered the significance of the respondent’s service agreement, which had not been before the judge.

Appeal allowed. The compromise agreement did not affect the restrictive covenants in the share purchase agreement. The question whether an interlocutory injunction should be granted was remitted to the High Court judge.

1. The agreements had to be construed in their proper contexts. The service agreement contained restrictions justified by the employment relationship. The share purchase agreement contained restrictions given on the sale of shares and a business. Those were distinct relationships, and there was no reason why the two sets of covenants could not continue alongside each other.
2. The compromise agreement was expressly directed to the respondent’s employment relationship. Clause 10.1.1 stated that the restrictions in the service agreement were no longer applicable. Its wording showed that the compromise agreement replaced the service-contract restrictions, but did not extend to the separate share-sale restrictions.
3. The entire agreement clause could not produce a different result. It applied, if at all, in general terms and could not reasonably be construed as superseding only the restrictive covenants in the share purchase agreement. Treating it as doing so would effectively require the whole share purchase agreement to have been superseded, although provisions concerning the completion statement and confidential information were accepted to remain binding.
4. Keene LJ agreed with Waller LJ’s reasoning and order. Elias LJ agreed with both judgments.

1. Court of Appeal (Civil Division): Appeal from the decision of His Honour Judge Seymour QC allowed. The court directed that the compromise agreement had not affected the restrictive covenants in the share purchase agreement.
2. Queen’s Bench Division: His Honour Judge Seymour QC held that the compromise agreement restrictive covenants had superseded those in the share purchase agreement and refused the interim injunction application on that preliminary construction issue.