Tensator Group Ltd. & Anor v Falzon & Ors

On an interlocutory application to enforce employee restrictive covenants, the court must determine whether there is a serious question to be tried, whether damages are an adequate remedy, and where the balance of convenience lies. The court should avoid deciding the likely outcome at trial where the evidence is substantially disputed and the issues cannot usefully be resolved without cross-examination. Short-term restraints may be refused where delay, including lack of court time, means that enforcement would effectively close an established competing business for most of the remaining restraint period. The clean-hands principle requires misconduct to have an immediate and necessary relation to the equity claimed; wrongdoing against the claimant company by one of its officers does not ordinarily disqualify the company from enforcing its own rights.

The claimants sought interim relief against four former employees, alleging that they were bound by confidentiality and restrictive covenants and had become involved in a competing business, Xtracs Limited. The existence of the covenants was disputed for two defendants, and their reasonableness was disputed for all relevant defendants. The defendants also relied on clean hands, alleged non-disclosure, abuse of process and delay.

The court considered whether further injunctions should be granted beyond undertakings already given concerning confidential information and limited competition-related conduct. The central issues were whether the American Cyanamid requirements were met and whether the practical effect of granting short-term restraints, after procedural and court-related delay, would produce a fair balance between the parties.

1. Serious question to be tried. The evidence raised a serious issue as to whether Mr Falzon and Mr Yule had signed the restrictive covenants. The court could not resolve that evidential dispute summarily. The reasonableness of the covenants also raised serious issues, particularly as to the breadth of the non-competition and non-dealing provisions. The application therefore passed the first American Cyanamid threshold (paras 13–18, 29–30).
2. Adequacy of damages. Damages were not clearly an adequate remedy for Tensator because lost business and longer-term competitive effects would be difficult to quantify. Compensation under the cross-undertaking would likewise be difficult to assess if an injunction wrongly closed or seriously disrupted Xtracs. Tensator was, however, financially capable of meeting such compensation as could be calculated (paras 30–32).
3. Balance of convenience. The court declined to grant the wider restraints. By the hearing, Xtracs had traded for about four months, and the remaining contractual periods were short and staggered. Granting the injunctions would probably remove the business’s key personnel and impose a stop-start disruption. The delay resulted partly from Tensator’s leisurely investigations and partly from the unavailability of court time, and was not attributable to the defendants. The court assessed the case as it stood at the hearing rather than treating Xtracs as a newly commenced business (paras 33–43).
4. The existing undertakings gave significant protection against the use of confidential customer information. That protection, although incomplete, supported the conclusion that further interim enforcement of the covenants was inappropriate. The court declined to determine the likely result at trial because the disputed contractual evidence and the separate reasonableness issues could not usefully be resolved on the interim material (paras 42–44).
5. The clean-hands objection failed. The alleged improper payments by an officer of Tensator did not have the immediate and necessary relation to the equitable relief sought. Any wrong was perpetrated on the claimant company, which was itself seeking to enforce its rights. The non-disclosure and abuse-of-process objections also failed (paras 19–29, 45).
6. Order. No further relief was granted on the application. The undertakings already given were to remain in force until trial or further order (para 47).