Swift Technical Group Holdings Ltd & Ors v Mulcahy

Restrictive covenants must be construed in their contractual and factual context. Covenants directed to executive managers will not ordinarily be extended to a non-executive director whose appointment and contractual relationship are materially different. A covenant in restraint of trade is prima facie unlawful and is enforceable only so far as reasonably necessary to protect a legitimate business interest. At the interim stage, the court must weigh the risks of harm, the adequacy of damages and the losses that an injunction may cause. Where a broad non-compete is unavailable or plainly excessive, a narrower confidentiality injunction may provide proportionate protection.

The claimants operated an international specialist recruitment business. The defendant had been an executive director, shareholder and investor, but became a non-executive director under a December 2006 contract for services. Companies in which he retained an interest later opened a London office and competed with the claimants. The claimants sought interim relief restraining his involvement in those businesses and relied principally on restrictive covenants in a June 2006 Investment Agreement. The defendant argued that those covenants were not applicable to his non-executive role and, alternatively, were unreasonable. The central issues were the proper construction and continuing effect of the covenants, and the appropriate balance of convenience.

1. Construction of the Investment Agreement. The Investment Agreement was intended to apply to managers with an executive role. The requirement in clause 7.2 to devote the whole of the manager’s time and attention to the group was inappropriate to a non-executive director required to spend only one day a month on the business. In this context, “employment” did not include the defendant’s non-executive directorship under a contract for services.
2. The distinction between “Group Companies” and “Restricted Companies” was deliberate. Bennett Investment Management Group v Hall [2007] IRLR 793 was distinguishable because the covenant there would otherwise have had no practical effect. The covenant here retained effect for executive employees and therefore did not require the wider construction sought by the claimants.
3. From 14 December 2006 the defendant was subject only to the Non-Executive Directorship Agreement, together, until December 2007, with the surviving restriction in clause 7.3.1 of the Investment Agreement. The Non-Executive Directorship Agreement contained no post-termination non-compete restriction. There was therefore no existing non-compete covenant capable of enforcement.
4. Alternatively, if the Investment Agreement applied as contended, the restriction would plainly be too wide and unreasonable as against a non-executive director. Covenants in restraint of trade are prima facie unlawful. The party seeking enforcement must show that the covenant goes no further than reasonably necessary to protect a legitimate interest, as illustrated by Scully UK Limited v Lee [1998] 1 ICR 259.
5. The risk of deliberate harm was remote and the proposed injunction could cause significant, unquantifiable loss to the defendant and the Kazakh companies. Confidential information presented a real risk of disclosure, however, and the court considered that risk capable of being addressed by a narrower order. The parties were directed to agree terms restraining use or disclosure of confidential information and involvement in the Kazakh companies’ UK interest.

First-instance decision. No lower-court decision or appeal is stated in the judgment.