Non-competition clauses that go too far in limiting the types of activities the ex-shareholder may engage in or the place or period during which the former shareholder may create a competing business should not be maintained. The courts are very concerned not to allow unjustified restrictions on trade, and the agreements that have this effect are applied very strictly and narrowly. The issue of competition prohibitions was recently considered by the Court of Appeal in Guest Services Worldwide Ltd/Shelmerdine  EWCA Civ 85. In this case, it was the proper construction of restrictive agreements in a shareholder pact and the duration of those restrictions. A goodwill restriction is a restriction contained in a bargaining agreement (e.g.B. business purchase agreement, share purchase agreement, shareholder contract or franchise agreement). Courts are more likely to impose restrictions on goodwill because, as a general rule, the reluctant person has received some form of payment or other consideration for withholding and there is generally no unequal bargaining power. When preparing a non-compete clause in the shareholders` pact, it is important to clearly and narrowly specify which activities are considered competitive. The creation of a new business and the supply of the same goods or services would clearly compete in nature. Alternative goods or services may be less clear, unless they are explicitly and unambiguously defined. The shareholders` pact should also clearly state the nature of the company`s activity, so that competing activities are easily identifiable. The advisory agreement between GSW and Mr Shelmerdine was denounced in February 2019 and GSW`s statutes obliged Mr Shelmerdine to propose the sale of his GSW stake to other shareholders.
Despite this, Mr. Shelmerdine remained a shareholder at the time of the December 2019 hearing. On the question of duration, the starting point of the Court of Appeal was the assumption that not all commercial restrictions are applicable in common law, unless they are reasonable, although the court will probably be less vigilant about this if such agreements are included in a shareholders` pact in relation to an employment contract.