06 Aug Restraint of Trade and Injunctions

Litigation is generally not the first step when enforcing a restraint of trade. Parties generally seek to come to a resolution first. However, the parties are not always successful.

Depending on the circumstances, the first litigious step in a restraint of trade matter includes the plaintiff seeking interlocutory injunctive relief.

General Principles: Granting an Injunction for a Restraint of Trade

To be entitled to an interlocutory injunction in a restraint of trade matter, the plaintiff in the matter bears the onus of establishing:

1. there is a serious question to be tried for final relief;
2. damages would not be an adequate remedy; and
3. the balance of convenience favours the granting of an injunction.

These points are inter-related and may tip the balance one way or the other.

Serious Question to Be Tried in a Restraint of Trade

If there is a serious question to be tried in a restraint of trade matter depends on whether there is a prima facie case that:

1. there is a valid contractual restraint;
2. there is a breach, or apprehended breach, of the contractual restraint; and
3. the Court would, as a matter of discretion, grant injunctive relief for the breach.

The reasonableness of a restraint of trade may be questioned. Where this is the case, in the interlocutory matter it will usually be necessary for the Court to form a view about the prospects of the plaintiff establishing the restraint will be upheld.

The recent case of KPW Law Pty Ltd v Patel [2023] NSWSC 617 (Patel) is a good example. Where assessing the seriousness of the question to be tried, the Court interpreted the restraint the plaintiff was seeking to enforce and considered the issues related to the reasonableness of the restraint.

In Patel, Justice Richmond found there was a serious question to be tried. However, there were a number of issues about the contractual restraint of trade that the plaintiff would need to deal with at the final hearing in order to succeed and its case for an injunction was not strong.

Further information about the reasonableness of restraints of trade can be found on our article Restraint Of Trade And Post-Employment Restraints.

The Balance of Convenience and Damages as an Adequate Remedy

In assessing the balance of convenience on an interlocutory application for a restraint of trade, a Court looks to the practical consequences of making or refusing the order.

This requires considering what course is best calculated to achieve justice between the parties, bearing in mind the consequences to the defendant of granting the injunction, which the plaintiff might not ultimately obtain, and the consequences to the plaintiff of refusing the injunction, which it might ultimately be held to be entitled.

Relevant matters to be taken into account include: whether damages are an adequate remedy; the defendant’s right to a livelihood; any delay; the impact on third parties; whether the defendant was warned and went into the position with “eyes wide open”; whether any hardship that would be visited on the defendant has come about because they are the author of their own misfortune; the strength of the plaintiff’s case; and, any undertakings that have been given.

Courts have provided that damages are rarely an adequate remedy for breach of a negative contractual stipulation. Damages may be inadequate because once client relationships are severed, they may be difficult to repair and an award of damages, although possible, may not be the most suitable remedy.

In another recent case of Cushman & Wakefield Agency (NSW) Pty Ltd v Hudson [2023] NSWSC 218 (Hudson), Justice Richmond assessed the factors above. His Honoure found the balance of convenience favoured interlocutory relief. In the decision, among other things, His Honour referred to:

1. The role of the defendant within the business of the plaintiff provided a risk that damages will not be an adequate remedy. The role included access to significant confidential information.
2. The defendant was warned by the plaintiff and went into the situation of being employed by a competitor of the plaintiff with their eyes wide open.
3. The was not any material delay by the plaintiff.
4. The plaintiff’s case was not weak.
5. The plaintiff had given an undertaking to continue to pay the defendant’s salary and commission entitlements during a specified period relevant to the injunction and provided the usual undertaking as to damages should it fail to obtain final relief.

The Court found in Hudson that the balance of convenience favoured the granting of interlocutory relief.

Crawford de Carne have a keen interest and significant experience in litigation, and drafting of, restraints clauses. Our lawyers have acted to enforce and defend enforcement of employment restraints.

If you need advice or assistance, feel free to call Marc de Carne or Angus Macpherson on (02) 9189 5905 or email [email protected].

GENERAL AND CONTACT INFORMATION

The article, the content and references made are intended to keep an audience updated with information. It is not intended that the article or part of it should be relied upon as advice. Information provided may not apply to in all circumstances or in particular situations. If you do want particular advice or you have any questions, we welcome you to contact us on (02) 9189 5905 at [email protected]