Tuesday 4 February 2020

UK: England and Wales: shareholder agreements and restraints of trade

Judgment was given today in Guest Services Worldwide Ltd v Shelmerdine [2020] EWCA Civ 85. The decision is an important one on the operation of restraints of trade contained within shareholder agreements. At issue was whether a restriction in such an agreement continued to apply to an employee shareholder - defined as "any shareholder who is also an employee, agent or director" - if they remained a shareholder but were no longer an employee, agent or director.

At first instance, the trial judge held that the restriction did not apply. The Court of Appeal unanimously disagreed, Lady Justice Asplin observing that "it makes no commercial sense at all (nor would it at the time the Shareholders' Agreement was executed) if the restrictions ... can be avoided altogether and with immediate effect, by terminating one's employment, agency or directorships" (para. [33]).

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