Prophet Plc v Huggett

A post-termination restraint is enforceable only so far as it is reasonably necessary to protect a legitimate interest, such as confidential information, rather than competition itself. Construction and reasonableness are interrelated: where drafting has gone wrong, the court may adopt a clear, commercially sensible correction falling within the language used. Reasonableness is assessed prospectively when the contract is made. The duration must reflect the nature and likely useful life of the information to which the employee may obtain access. Whether to grant an injunction is a flexible discretionary exercise. The Shelfer conditions are a working rule, not a mechanical or exhaustive test. A real, even modest, risk of misuse of confidential information, combined with the inadequacy of damages, justified an injunction.

The claimant developed and supplied software for businesses in the fresh produce industry. The defendant was employed as its sales manager under a contract containing a 12-month non-compete covenant, together with confidentiality, non-solicitation and non-dealing covenants.

After resigning, the defendant intended to join K3 Business Solutions Ltd, which marketed competing enterprise resource planning software to the fresh produce sector. The claimant released him early from employment but then sought an injunction enforcing the non-compete covenant. The defendant contended that the covenant was meaningless on its natural wording, went beyond what was reasonably necessary, and was unnecessary because the other covenants provided adequate protection.

The central issues were the proper construction of the covenant, its reasonableness, and whether injunctive relief should be granted in the circumstances.

1. Construction. Clause 19, read literally, was pointless because it referred to businesses providing software systems in which the defendant had been involved. The court could correct the drafting only if the necessary correction was clear. The claimant’s proposed formulation, preventing direct involvement in providing business-process software designed for the fresh produce industry, was within the word “similar” and was a credible construction. A simple addition of “or similar thereto” would have been the more persuasive minimum correction, but the claimant’s formulation was permissible.
2. Legitimate interest and reasonableness. A non-compete covenant is not enforceable merely to protect the employer against competition. It may be justified by the protection of confidential information. That question is assessed prospectively at the date of the contract. The defendant’s role gave him access to confidential information about existing and prospective customers and sales leads. The confidentiality and non-solicitation covenants did not provide equivalent protection, particularly for prospective customers and information retained in memory. A 12-month period was not excessive, having regard to annual renewals and the continuing value of information about potential customers.
3. Discretion. Following Coventry v Lawrence [2014] UKSC 13, the court rejected a mechanical application of the four Shelfer conditions and the requirement that an injunction be refused only in exceptional cases involving hardship. Those factors remained relevant, but were neither exhaustive nor conclusive. The same flexible approach applied to a voluntarily assumed negative covenant.
4. Application. There remained a real, though modest, risk that the defendant would use remembered confidential information to secure business for K3. The potential losses would be sporadic and difficult to quantify, making damages an inadequate remedy. The claimant’s conduct in releasing the defendant early and then seeking enforcement was relevant but did not bar relief. The defendant’s hardship carried limited weight because exclusion from the sector was an assumed consequence of the covenant.
5. Order. The court exercised its discretion to enforce the restriction and granted an injunction in terms reflecting the claimant’s proposed formula.