Court of Appeal rules on severance of covenant in restraint of trade

21 July, 2017

The Court of Appeal has clarified the test for severance in Tillman v Egon Zehnder Ltd [2017] EWCA Civ 1054 which was handed down this morning. The Respondent financial services recruitment agency had obtained an injunction to enforce a non-competition covenant. On appeal the Appellant contended that the covenant caught a shareholding and was therefore an unenforceable restraint of trade. The Respondent argued that the non-competition covenant did not bite on a shareholding, alternatively that that the part of the clause could be severed. The Court allowed the appeal and discharged the injunction. It held that:

(1) the non-competition covenant caught a shareholding and was an unlawful restraint of trade.

(2) the offending part could not be severed since “severance can only be applied to separate covenants and not to parts of a single covenant” (§30-31).

(3) The oft cited 3 fold test set out in Sadler v Imperial Life has not changed the law (as has been suggested in a number of first instance authorities).

The Court of Appeal allowed Ms Tillman’s appeal holding that the non-competition covenant in issue was an unenforceable restraint of trade which could not be saved by severance since it did not contain distinct covenants. It dismissed the claim and directed an assessment of damages under the Respondent’s cross-undertaking.

Daniel Oudkerk QC acted for the Appellant, instructed by Julian Taylor of Simmons & Simmons. Read the judgment in full here.