Araci v Fallon

Where a defendant proposes to commit a clear breach of an express negative covenant, the court will ordinarily restrain the breach by injunction. Special circumstances, such as an unlawful restraint of trade, oppression or a conflict with public policy, are required to justify withholding relief. At the interlocutory stage, a defendant with no realistic defence does not obtain a temporary release from the covenant through a balance-of-convenience assessment.

Damages may be inadequate where causation and loss would depend on highly speculative counterfactual events, the claimant risks losing an irreplaceable benefit, or the defendant may be unable to satisfy the judgment. A liquidated damages clause addressing one contractual obligation does not necessarily make damages adequate for breach of a distinct negative obligation.

A racehorse owner retained a jockey to ride Native Khan when requested and not to ride a rival horse in the same race. Shortly before the Epsom Derby, the jockey announced that he would instead ride Recital, a competing horse. The owner obtained a substitute jockey and sought an interim injunction restraining the jockey from riding any horse other than Native Khan.

MacDuff J found the jockey's factual defence fanciful and accepted that riding Recital would breach the negative covenant. He nevertheless dismissed the application because he regarded damages as adequate and considered that the injunction's effects on the jockey, third parties, bettors and the public interest justified withholding relief.

The owner appealed. The central questions were whether damages provided an adequate remedy and whether the judge had exercised his equitable discretion according to established principles.

1. Appeal allowed unanimously and interim injunction granted. Jackson LJ, with whom Elias LJ agreed, held that a clear negative covenant will ordinarily be enforced by injunction. Where a person proposes to do precisely what they promised not to do, special circumstances are required before the court may withhold relief. Those circumstances may include an unlawful restraint of trade, oppression or a conflict with public policy. The principle in Doherty v Allman (1878) 3 App Cas 709, as applied in Hampstead and Suburban Properties Ltd v Diomedous [1969] 1 Ch 248 and Attorney General v Barker [1990] 3 All ER 257, applies at the interlocutory stage where the breach is clear and the defence has no realistic prospect of success.

2. The practical question concerning damages was whether it was just to confine the claimant to that remedy. Damages were inadequate. Assessing what would have happened had different jockeys ridden the two horses would require speculative counterfactual findings about causation and loss. Financial compensation would not adequately replace the prestige of owning a Derby winner. There was also a real risk that the defendant could not satisfy a substantial award and costs.

3. Clause 8.3 did not establish that damages were adequate for every breach. It assisted in valuing a refusal to ride Native Khan, but did not address the separate negative obligation not to ride a competing horse.

4. The considerations relied upon below could not justify refusing relief. Restraint of trade was not relevant on these facts. The possible difficulty of finding a replacement jockey, the possibility of regulatory refusal, the expectations of bettors and the public interest in the Derby did not outweigh enforcement of the covenant. The injunction neither prevented Recital from running nor prevented the Derby from taking place. The hardship to the defendant was self-induced and was not oppressive.

5. Applying Hadmor Productions v Hamilton [1983] 1 AC 191, appellate intervention was justified. The judge had erred in treating damages as adequate, and the other factors were incapable of supporting refusal in this clear case.

• Court of Appeal (Civil Division): Allowed the claimant's appeal unanimously and granted the interim injunction restraining the defendant from riding any horse other than Native Khan in the Epsom Derby.
• High Court, Queen's Bench Division: MacDuff J found that the proposed ride would breach the negative covenant and that the defendant's factual defence was fanciful, but dismissed the application for an interim injunction.