Pricewaterhousecoopers LLP v Carmichael

On an application for interim relief to support arbitration, the court should apply the American Cyanamid principles where the dispute can realistically be finally determined before the proposed injunction expires. The threshold is whether there is a serious issue to be tried, not whether the claimant is likely to succeed.

A post-termination restraint in a partnership or members’ agreement is assessed by identifying the legitimate interests requiring protection and asking whether the restraint goes further than adequate protection. Confidential information, goodwill and the business may justify a short non-compete covenant. At the interim stage, difficult questions about construction, duration, confidential information and adequacy of damages ordinarily remain for the final tribunal.

PwC sought an injunction under section 44 of the Arbitration Act 1996 restraining Nicholas Carmichael from joining FTI Consulting in alleged breach of a six-month post-termination non-compete covenant in PwC’s members’ agreement. The parties accepted that the enforceability dispute would be referred to arbitration.

The issue was whether the court should apply the ordinary interim-injunction approach or assess the claimant’s prospects of success because the injunction might determine the practical outcome before the arbitration. The court also had to decide whether PwC showed a serious issue to be tried, whether damages were adequate, and where the balance of convenience lay.

1. Approach to interim relief. The court held that the arbitration could realistically determine the enforceability of the covenant before the proposed injunction expired. It therefore applied the American Cyanamid principles, rather than the approach requiring a more detailed assessment of prospects of success.
2. The claimant had to show only a serious issue to be tried. That was a low threshold: the claim had to be neither frivolous nor vexatious. PwC satisfied it. The enforceability of clause 13.10 raised substantial issues concerning the scope of the covenant, the interests protected, the period of restraint and the meaning of the contractual reference to the management board’s reasonable opinion.
3. Restrictive covenant. The proper interim approach was to identify the legitimate interests capable of protection and then ask whether the restraint went beyond what was adequate for that purpose. The partnership context required particular attention to the nature of the business, the parties’ relationship and the value of goodwill. It was reasonably arguable that PwC could protect confidential information, its business and goodwill through a non-compete covenant. The difficulty of proving misuse of information retained in a person’s mind supported that conclusion.
4. The combination of nine months’ garden leave and a further six-month restraint did not make the claim unarguable. Evidence at the arbitration might show why the periods were chosen and how long the confidential information remained valuable. Nor did the management board mechanism make the covenant impermissibly vague. The word reasonable provided an arguable basis for challenge through the agreed arbitration procedure.
5. On the evidence, damages would not be an adequate remedy for PwC because both breach and loss could be difficult to prove. Carmichael would be adequately protected by PwC’s cross-undertaking in damages. His financial hardship and complaints about PwC’s conduct did not outweigh the case for relief. The injunction was granted, subject to further submissions on drafting and arrangements for an expedited arbitration, with liberty to apply pending appointment of the arbitrator.