Restrictive covenant against director 'too restrictive to enforce'

The High Court ruled restrictive covenants barring former director Vanessa Webb from competing with Literacy Capital’s subsidiaries for up to 10 years were unenforceable due to excessive scope and duration. The judgment underscores the need for reasonableness in non-compete agreements, especially in scope, geography, and length.

The High Court has dismissed a company’s bid to enforce restrictive covenants against a former director. The ruling determined that the covenants, which sought to prevent the director from competing for up to 10 years, were unenforceable due to their excessive scope and duration. The case involved Literacy Capital plc, an investment firm, which sought an interim injunction to prevent Vanessa Webb, a former director of Mountain Healthcare Limited, from competing with its subsidiary companies.

The case revolved around restrictive covenants included in a 2021 Investment Agreement and Loan Note Agreement signed by Webb when she sold her shares in Mountain Healthcare to Literacy Capital. Webb, a qualified nurse and doctor, played a pivotal role in transforming Mountain Healthcare into a provider of medical services to sexual assault referral centres (SARCs). In 2018, she sold her shares in the company to Literacy Capital for approximately £4.7 million and continued as a director. She later resigned in 2021 and signed agreements that included restrictive covenants preventing her from competing with Mountain Healthcare and other subsidiaries of Literacy Capital.

In 2024, Webb co-founded Nurture Health and Care Limited, a company that began offering SARC services and won a contract with South Wales Police. Literacy Capital argued that this constituted a breach of the restrictive covenants and sought an injunction to prevent further competitive activities by Webb. The court rejected the application, ruling that the restrictive covenants were excessively broad and long-lasting.

The covenants aimed to restrict Webb from engaging in any business similar to those operated by Literacy Capital's subsidiaries for a period of up to 10 years across the UK and Channel Islands. In his judgment, Mr Justice Ritchie emphasised that the covenants extended far beyond what was necessary to protect the interests of Literacy Capital. He noted that while such covenants are enforceable in some circumstances, they must be reasonable in scope, duration, and geographical reach. He added: "The restrictive covenants seek to ban the Defendant from working in her chosen field of expertise, and many other fields, for a huge duration until her retirement age of 65."

The judge found no justification for the covenants' extensive restrictions, which covered multiple businesses unrelated to Mountain Healthcare and spanned an unreasonably long period. The covenants were deemed to be unenforceable under common law due to their restraint of trade.

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