Tillman v Egon Zehnder Ltd

Restrictive covenants must be construed according to the language used and conventional usage. The preference for an enforceable construction applies only where there is genuine ambiguity; it cannot justify a tortuous interpretation. The words interested in a competing business ordinarily include holding shares in that business, however small the holding. A covenant covering shareholdings is therefore unreasonably wide unless valid severance is possible. Deleting words from a single covenant cannot save it where the remaining wording also covers shareholdings. Severance is confined to distinct covenants and must not require rewriting the agreement or change its essential character.

Mary Caroline Tillman appealed from a decision of Mann J in the High Court, Queen’s Bench Division, Commercial Court. The judge construed a post-termination non-compete covenant as not preventing Ms Tillman from holding shares in a competing business. He held the covenant enforceable and granted an injunction restraining her from working for a competitor for six months.

The appeal concerned the meaning of the words interested in and whether, if they covered shareholdings, those words could be severed from the covenant. The central issue was whether the covenant was an unreasonable restraint of trade.

1. Disposition. The appeal was allowed. The injunction was set aside and Egon Zehnder’s application was dismissed.
2. Construction. The principle of preferring an enforceable construction cannot be used to select any plausible alternative meaning. There must first be genuine ambiguity. The court must begin with the language used by the parties and conventional usage. The approach in Turner v Commonwealth and British Minerals Ltd [2000] IRLR 114 did not justify dispensing with that requirement. The observation in BCCI v Ali [2002] 1 AC 251 supported the primacy of the parties’ language.
3. The natural and conventional meaning of interested in a business includes holding shares in the company carrying on that business. That conclusion was supported by William Cory & Son Ltd v C W Harrison [1906] AC 274, Scully UK Ltd v Lee [1998] IRLR 261 and CEF Holdings Ltd v Munday [2012] IRLR 912. The contrary decision in Traditional Financial Services Ltd v Gamberoni [2017] EWHC 768 (QB) was left aside because its circumstances were arguably different.
4. Deleting or interested would not cure the covenant. A shareholding could also amount to being indirectly concerned in the competing business. Further, clause 13.2.3 was a single covenant and could not be severed. The rule in Attwood v Lamont [1920] 3 KB 571, reaffirmed in Beckett Investment Management Group Ltd v Hall [2007] ICR 1539, confined severance to distinct covenants capable of removal without adding or altering words. The threefold test approved in Sadler v Imperial Life Assurance Company of Canada [1988] IRLR 388 did not permit the court to create a new valid covenant from the one imposed.
5. The public policy underlying restraint-of-trade doctrine meant that the merits of the individual case could not overcome the covenant’s excessive width.

1. Court of Appeal (Civil Division): The appeal was allowed, the injunction was set aside and Egon Zehnder’s application was dismissed: [2017] EWCA Civ 1054.
2. High Court, Queen’s Bench Division, Commercial Court: Mann J held that the covenant did not prevent shareholdings in a competitor, upheld its enforceability and granted a six-month injunction.