• At Kemp Little, we are known for our ability to serve the very particular needs of a large but diverse technology client base. Our hands-on industry know-how makes us a good fit with many of the world's biggest technology and digital media businesses, yet means we are equally relevant to companies with a technology bias, in sectors such as professional services, financial services, retail, travel and healthcare.
  • Kemp Little specialises in the technology and digital media sectors and provides a range of legal services that are crucial to fast-moving, innovative businesses.Our blend of sector awareness, technical excellence and responsiveness, means we are regularly ranked as a leading firm by directories such as Legal 500, Chambers and PLC Which Lawyer. Our practice areas cover a wide range of legal issues and advice.
  • Our Commercial Technology team has established itself as one of the strongest in the UK. We are ranked in Legal 500, Chambers & Partners and PLC Which Lawyer, with four of our partners recommended.
  • Our team provides practical and commercial advice founded on years of experience and technical know-how to technology and digital media companies that need to be alert to the rules and regulations of competition law.
  • Our Corporate Practice has a reputation for delivering sound legal advice, backed up with extensive industry experience and credentials, to get the best results from technology and digital media transactions.
  • In the fast-changing world of employment law our clients need practical, commercial and cost-effective advice. They get this from our team of employment law professionals.
  • Our team of leading IP advisors deliver cost-effective, strategic and commercial advice to ensure that your IP assets are protected and leveraged to add real value to your business.
  • Our litigation practice advises on all aspects of dispute resolution, with a particular focus on ownership, exploitation and infringement of intellectual property rights and commercial disputes in the technology sector.
  • We have an industry-leading reputation for our outsourcing expertise. Our professionals deliver credible legal advice to providers and acquirers of IT and business process outsourcing (BPO) services.
  • We work alongside companies, many with disruptive technologies, that seek funding, as well as with the venture capital firms, institutional investors and corporate ventures that want to invest in exciting business opportunities.
  • Our regulatory specialists work alongside Kemp Little’s corporate and commercial professionals to help meet their compliance obligations.
  • With a service that is commercial and responsive to our clients’ needs, you will find our tax advice easy to understand, cost-effective and geared towards maximising your tax benefits.
  • At Kemp Little, we advise clients in diverse sectors where technology is fundamental to the ongoing success of their businesses.They include companies that provide technology as a service and businesses where the use of technology is key to their business model, enabling them to bring their product or service to market.
  • We bring our commercial understanding of digital business models, our legal expertise and our reputation for delivering high quality, cost-effective services to this dynamic sector.
  • Acting for market leaders and market changers within the media industry, we combine in-depth knowledge of the structural technology that underpins content delivery and the impact of digitisation on the rights of producers and consumers.
  • We understand the risks facing this sector and work with our clients to conquer those challenges. Testimony to our success is the continued growth in our team of professionals and the clients we serve.
  • We advise at the forefront of the technological intersection between life sciences and healthcare. We advise leading technology and data analytics providers, healthcare institutions as well as manufacturers of medical devices, pharmaceuticals and biotechnological products.
  • For clients operating in the online sector, our teams are structured to meet their commercial, financing, M&A, competition and regulatory, employment and intellectual property legal needs.
  • Our focus on technology makes us especially well positioned to give advice on the legal aspects of digital marketing. We advise on high-profile, multi-channel, cross-border cases and on highly complex campaigns.
  • The mobile and telecoms sector is fast changing and hugely dependent on technology advances. We help mobile and wireless and fixed telecoms clients to tackle the legal challenges that this evolving sector presents.
  • Whether ERP, Linux or Windows; software or infrastructure as a service in the cloud, in a virtualised environment, or as a mobile or service-oriented architecture, we have the experience to resolve legal issues across the spectrum of commercial computer platforms.
  • Our clients trust us to apply our solutions and know-how to help them make the best use of technology in structuring deals, mitigating key risks to their businesses and in achieving their commercial objectives.
  • We have extensive experience of advising customers and suppliers in the retail sector on technology development, licensing and supply projects, and in advising on all aspects of procurement and online operations.
  • Our legal professionals work alongside social media providers and users in relation to the commercial, privacy, data, advertising, intellectual property, employment and corporate issues that arise in this dynamic sector.
  • Our years of working alongside diverse software clients have given us an in-depth understanding of the dynamics of the software marketplace, market practice and alternative negotiating strategies.
  • Working with direct providers of travel services, including aggregators, facilitators and suppliers of transport and technology, our team has developed a unique specialist knowledge of the sector
  • Your life as an entrepreneur is full of daily challenges as you seek to grow your business. One of the key strengths of our firm is that we understand these challenges.
  • Kemp Little is trusted by some of the world’s leading luxury brands and some of the most innovative e-commerce retailers changing the face of the industry.
  • HR Bytes is an exclusive, comprehensive, online service that will provide you with a wide range of practical, insightful and current employment law information. HR Bytes members get priority booking for events, key insight and a range of employment materials for free.
  • FlightDeck is our portal designed especially with start-up and emerging technology businesses in mind to help you get your business up and running in the right way. We provide a free pack of all the things no-one tells you and things they don’t give away to get you started.

Seller lock in: an 8 year non-compete obligation

View PDF

It is common practice to include restrictive covenants in share purchase agreements.  One of the standard restrictive covenants in such an agreement is a clause restricting the seller of the company from establishing a business in competition with the business of the company being sold, after completion of the sale. However, the starting point is that such a restriction is void at common law as an unlawful restraint of trade unless the person seeking to enforce it can show that the restriction is in the public interest and goes no further than is necessary to protect the buyer’s legitimate business interests.

A recent High Court case has considered whether such a restriction amounted to an unlawful restraint of trade. It also looked at whether certain other provisions relating to the cancellation of the buyer’s obligations to pay future instalments of the purchase price in the event of a breach of the restrictive covenant amounted to a penalty.  As a matter of common law, penalties are not enforceable.   The case was of particular interest given the potential length of the restriction.  

The case (Cavendish Square Holdings BV and another v Talal el Makdessi [2012] EWHC 3582)

A company in the WPP marketing communications group (WPP) held a 12.6% shareholding in TYR, the largest advertising and marketing communications group in the Middle East. In 2008, under a heavily negotiated share purchase agreement, WPP acquired a further 47.4% of TYR's shares, for a significant amount - $34m on completion, a second payment of $31.5m and two further payments referable to operating profits. There were also put options over the remaining 40% of the shares, enforceable by the seller, at a price based on a profit multiple. The total consideration payable was capped at $147.5m, against a net asset value of $69m.

Much of TYR's success had been due to one of the sellers (the defendant), a high profile figure in Lebanese business and society and his personal relationships with TYR’s clients. For this reason, WPP insisted that the share purchase agreement contained extensive restrictive covenants from the sellers. These included a non-compete covenant that ran until 2 years after the date the seller no longer held any shares in TYR or (if earlier) the termination of the seller's employment. This meant the covenant could potentially run for eight-and-a-half years after completion of the share purchase agreement. The share purchase agreement also stated that if the seller breached the restrictive covenants: (i) the buyer would not be obliged to pay any future instalments of the consideration; and (ii) the seller lost his put options. Instead, WPP could acquire the remaining 40% of the shares at a lower price based on net asset value.

Post- completion, the seller competed with the business. WPP sought to enforce the non-compete covenant and sued the seller for breach of the share purchase agreement. The seller challenged the claim on the basis that the covenant and price adjustment clauses were unlawful and unenforceable as: (i) they were too long and an unlawful restraint of trade; and (ii) the price adjustment clause was an unlawful penalty. The court held that the provisions were not an unreasonable restraint of trade and the loss of future payments did not amount to a penalty. The court noted:

  • the share purchase agreement provisions had been fully negotiated "on a level playing field" between experienced lawyers;
  • there was substantial goodwill in the business, for which WPP had paid a substantial premium; and
  • the value of TYR's business depended heavily on the seller's personal connections, a fact acknowledged in the share purchase agreements.

 The duration of the covenants was also acceptable. The judge ruled that the eight-and-a-half year duration was tied to a relevant interest of the buyer and was therefore not an unreasonable protection for WPP.

On the penalty clause issue - although loss of rights to future payments could amount to a penalty, on these facts, the provisions were deemed justified and did not amount a penalty. The court decided that the principal purpose of the clause was not to deter breach of contract or be oppressive. There was commercial justification – it was a reflection of the loss of goodwill that might accrue to WPP from a breach.


The structure of the sale (in particular, the fact that the seller retained shares and had a put option) and the facts of the case are important but the case does show that there is considerable flexibility in certain transactions to have longer non-compete periods and to tie parts of the consideration to compliance with key obligations. In fact, the judge noted that there was no reported English case in which a seller’s restrictive covenant had been held to be unreasonable in an acquisition context solely on grounds of its duration.

However, this does not mean that non-compete covenants of up to eight years will be valid in every case. The covenants need to be structured in light of the underlying transaction and business.  Any non-compete covenant must pass the test of going no further than is necessary for the protection of the buyer's legitimate interests and other considerations apply when considering the legitimacy and enforceability of restrictive covenants, such as: the geographic scope; the nature of the business being protected; as well as the value attributed to the restrictions and the bargaining strengths of the parties.

One further point to note was that the sale involved the acquisition of a business which was not in the European Union therefore the restrictive covenants were not tested against the more stringent UK or EU competition rules governing restraints of trade whose guidance states that generally a non-compete restriction in the context of a share purchase agreement can be justified for a period of up to 3 years where both goodwill and know-how are transferred but only 2 years where only goodwill is involved.

Finally, it is important to distinguish non-compete covenants in share purchase agreements from non-competes in employment contracts. Courts approach the latter on the assumption that there is rarely a 'level playing field' for negotiation between employer and employee. It is therefore much more difficult to show that a lengthy restriction is reasonable and necessary and has been entered into of the employee's free will. A twelve-month non-compete is the longest period we have seen enforced in the English courts and only for the most senior executives with access to extremely sensitive confidential information, which it is not possible to protect by other means (such as clauses preventing the solicitation of customers).

For further information, please contact Charles Claisse, Deborah Angel or Kathryn Dooks.