CEF Holdings Ltd & Anor v City Electrical Factors Ltd & Ors

An interim injunction enforcing a restraint which will expire before judgment ordinarily requires the claimant to show that it is likely to succeed at trial. A serious question to be tried is insufficient.

An employee restraint must protect a legitimate business interest and extend no further than reasonably necessary. A prohibition on recruiting any employee of a large organisation is unenforceable where those restrained cannot identify much of the protected class and narrower wording would suffice.

Springboard relief requires proved wrongdoing, a continuing unlawful advantage and evidence defining its nature and duration. Mere suspicion does not suffice. An applicant proceeding without proper notice must disclose all material facts and law, including adverse matters. Short-notice representation does not remove that duty except for points which the respondent actually addresses.

The claimants operated a substantial electrical wholesale business. The individual defendants were former employees, some of whom intended to work for competing companies trading as Yesss Electrical. The claimants alleged breaches of post-termination restraints, misuse of confidential information and conspiracy designed to obtain an unlawful competitive head start.

On 20 April 2012 Collins J, following an application made without proper notice, restrained solicitation and misuse of information and ordered delivery up. At the return hearing the defendants sought discharge for material non-disclosure, insufficient notice, procedural defects and lack of jurisdiction over defendants domiciled in Scotland and Northern Ireland.

The central issues were whether the employee-recruitment and non-competition covenants were enforceable, whether springboard relief was available, whether the court had jurisdiction over the non-English defendants, and whether the earlier orders should be discharged.

1. Disposition. The claimants were not entitled to the interim relief sought. The orders made by Collins J were discharged for serious non-disclosure, except that the delivery-up orders remained subject to further submissions. A separate delivery-up application against the corporate defendants was reserved.

2. The restraints would expire before a trial and judgment could realistically be obtained. The court therefore applied the approach in NWL Ltd v Woods [1979] 1 WLR 1294 and Lansing Linde v Kerr [1991] 1 WLR 251. The claimants had to show that they were likely to succeed at trial. The result would have been the same under the American Cyanamid test.

3. The employee-recruitment covenant was unenforceable. Although an employer may protect a stable, trained workforce within reasonable limits, this covenant covered every employee in a workforce of about 3,000. Many were unknown to those restrained. The covenant was therefore insufficiently precise and wider than necessary. Its justification was further undermined by the absence of equivalent restraints on more senior managers, the employees’ one-week notice periods and the availability of narrower wording.

4. The non-competition covenant was also unreasonable. The customer-connection clause already protected the principal interest relied upon. The further restriction covered any interest in a competitor, lacked an appropriate geographical limit, extended beyond relevant activities and was unclear. Less intrusive protection could have addressed confidential information.

5. Springboard relief was refused. There was no clear evidence of conspiracy, misuse of confidential information or other wrongdoing which produced a head start. In any event, the claimants did not prove the precise nature and duration of any continuing unlawful advantage. Any advantage was at most ephemeral, and damages were likely to be adequate.

6. Rule 10(3) of Schedule 4 to the Civil Jurisdiction and Judgments Act 1982 governed claims in which the defendant’s employment status was legally relevant. It was not confined to contractual causes of action. The pleaded conspiracy and confidentiality claims against the non-English defendants arose from their employment relationships. They therefore could be brought only where those defendants were domiciled. Section 25 was unavailable because no substantive proceedings had been commenced or promised elsewhere in the United Kingdom.

7. The duty of full and frank disclosure continued although counsel appeared for the defendants on very short notice. It was displaced only for matters which counsel actually placed before the court. Material omissions concerned jurisdiction, the applicable interim-injunction threshold, the breadth and enforceability of the restraints, the weakness of the conspiracy case and the absence of a demonstrated competitive advantage. The scale and significance of those omissions required discharge.

• High Court, return hearing: The court discharged the interim orders made by Collins J, except that the status of the delivery-up orders was reserved for further submissions.
• High Court, Collins J, 20 April 2012: On an application made without proper notice, the court granted temporary non-solicitation and confidentiality restraints and made preservation, disclosure and delivery-up orders.