In the recent case of Cavendish Square Holdings BV and another v El Makdessi, the High Court held (perhaps surprisingly) that a restrictive covenant spanning potentially more than 8½ years was not unreasonable.
The Court’s reasoning included the fact that there was a significant amount of goodwill in the business which the restriction was designed to protect; the purchaser had paid a significant amount for the business; and the clause had been negotiated
by the parties’ respective advisers on behalf of parties who had quite similar bargaining strengths.
The Court offered some helpful guidance on clauses which provide that a buyer will not be obliged to pay deferred consideration in the event of a breach of such a restriction. The Court held that such a clause would not necessarily constitute
a penalty; it regarded such a clause as having a genuine commercial justification (that justification being a price adjustment based on a loss of goodwill in the event of a breach) and that the main purpose of such a clause was to deter the seller from breaching
in the first place.
To discuss how we can provide further advice in connection with these issues, please contact Keith Kennedy, a Partner in our Corporate Team, by email to
email@example.com or alternatively you can call Keith on 0161 833 9211.
The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice. No responsibility for this article’s accuracy or correctness is assumed by Berg or any
of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.