Can I get an interlocutory injunction to uphold a restraint of trade clause?

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Table of Contents

• What about an Injunction?
• Restraint of Trade
• Case law example
• Conclusion

If you’re an employer and your former employee is taking action in breach of a restraint of trade clause, or if you’ve just sold a business and the vendor has set up in competition, you usually want to take steps to stop them. And fast.

What about an Injunction?

This is where an injunction comes into play. It is commonplace in breach of restraint claims for the Court to order injunctions (i.e. an order that a party stop doing a particular thing) and damages. In general, damages are calculated on the basis of the lost income or profit suffered by the breached party as a result of the actions found to be in breach of the restraint, i.e. if a particular client was poached, the profit that would have likely been derived from that client. Loss of opportunity and other bases of damages calculations may also apply.

Usually, injunctions are first sought on an urgent and interlocutory (i.e. interim, or until the Court makes a final determination) basis.

When determining whether to award an injunction, the issue the court will examine is “whether there is a serious question to be tried” and, in determining same, they will look at such factors as the enforceability of the restraint, evidence of breach and whether damages would be an adequate remedy.

Restraint of Trade

Restraints are included in employment contracts to protect an employer’s trade secrets, confidential information, customer connections and staff connections by restricting an employee’s activities after they have left employment.

These clauses will be enforceable to the extent that they are reasonably necessary to protect the legitimate business interests of the employer. Whether a clause is reasonably necessary will turn on the particular clause and facts of the case.

Case law example

In the recent case of Idameneo (No. 123) Pty Ltd v Deady [2013] VSC 727, it was determined that there was, after consideration of these points, indeed a ‘serious question to be tried’ at hearing. In seeking a grant of injunctive relief, the plaintiff demonstrated that, on the balance of convenience, restraining a defendant by way of an injunction from acting in a particular way would ensure that irreversible damage would be avoided.

While in the past it was common for the Court to award an undertaking as to damages, i.e. where the defendant undertakes to meet an award of damages if the restraint is upheld and found to have been breached at final hearing, here the Court went one step further and ordered the injunction sought, stating:

While the fact that there is a “liquidated damages” provision arguably removes one factor which would otherwise tell in favour of the inadequacy of damages – namely, difficulty of calculation – it does not make it any more just that Mr Purcell should be able to escape from his contractual obligations at the price of paying damages. Equity holds parties to their agreements, rather than allowing them to escape from them at the price of damages.

Conclusion

Accordingly, based on such authorities, it is possible to get an interlocutory injunction, however a number of factors will be relevant in determining whether to grant one or not. A commercial lawyer will be able to assist you to understand how such an injunction is sought and the strength of your case in favour of one being awarded.