These covenants are only enforceable in so far as they are reasonable and the English courts adopt a strict view as to the interpretation of these clauses. Set out below was the particular clause under consideration:-
‘23.1 For a period of 12 Months following termination of this Agreement for whatever reason, or the assignment of the Franchisee’s rights under this Agreement, the Franchisee will not:
(a) without Chipsaway’s prior written consent, be engaged in any capacity in any business which competes with the Business (as carried on at the date of termination or assignment) within the Territory;’
The franchisee argued that the reference to ‘Business’ meant his franchise business operating as Chipsaway and that since that business had stopped on termination of his franchise agreement, then his new business could not be competitive. The franchise agreement itself contained a definition of the Business as a Chipsaway franchise business. The High Court agreed with the franchisee and refused to uphold the clause. This decision is an example of the ‘literal’ approach that the English Courts take to interpretation of contractual clauses and highlights the need to take extreme care when drafting English law contractual clauses.
John Pratt, IDI franchising Country Expert for UK.