P14 Medical Ltd v Mahon

Where an interim injunction will substantially determine a claim because the restraint period will expire before judgment, the court should assess the claimant’s prospects of success and take them into account at the balance-of-convenience stage. That assessment does not replace the serious-issue threshold and is not an absolute requirement that success be shown on the balance of probabilities.

On a business transfer, whether Transfer of Undertakings (Protection of Employment) Regulations 2006 apply depends on substance rather than formalities. Restrictive covenants transfer with the employment contract. Six-month non-solicitation, non-competition and non-supply covenants may protect customer connections and confidential information, but an indefinite clause covering ordinary confidential information is too wide to enforce as a post-termination restraint.

The claimant sought interim injunctions against its former Sales Director after he resigned and began working for the former supplier whose products the claimant had distributed. The claimant relied on restrictive covenants and contractual, equitable and fiduciary duties concerning confidential information.

The defendant disputed the existence and enforceability of the covenants. The claimant said that the defendant’s employment contract had transferred when the claimant took over the business of Platform 14, alternatively that he had accepted equivalent terms by his conduct. The principal issues were the applicable interim-injunction approach, the transfer and enforceability of the covenants, protection of trade secrets, adequacy of damages and the balance of convenience.

1. Interim-injunction approach. The ordinary American Cyanamid v Ethicon Limited approach remained applicable. However, where the restraint period would substantially expire before final judgment, the court had to make some assessment of the claimant’s likely prospects of success and take that assessment into account when considering the balance of convenience. Likelihood of success was not a new threshold replacing the serious-issue test, nor was clear proof on the balance of probabilities invariably required. The court should avoid a mini-trial.
2. Transfer of employment terms. The business had transferred from Platform 14 to the claimant as a going concern. The same directors, employees, suppliers, customers and business operations continued. Under regulations 3 and 4 of the Transfer of Undertakings (Protection of Employment) Regulations 2006, the contracts and their terms, including restrictive covenants, transferred automatically. The absence of formal TUPE documentation or consultation did not prevent a transfer; substance prevailed over form.
3. Alternatively, the defendant had accepted employment by the claimant on the same terms through his conduct, including continuing as Sales Director and receiving the same remuneration and benefits. The disputed 2018 service agreement therefore did not need to be resolved at the interim stage.
4. Restrictive covenants. The six-month non-solicitation, non-competition and non-supply clauses were likely enforceable. They protected legitimate interests in customer connections and confidential information, were limited by time and by the definitions of Restricted Customer and Restricted Business, and were no wider than reasonably necessary on the evidence. A non-competition clause could be a practical means of protecting confidential information. Any shareholding element could potentially be deleted under Egon Zehnder v Tillman.
5. Confidential information. The express confidentiality clause was probably too wide because it extended indefinitely to ordinary confidential information as well as trade secrets. Severance could not save it because limiting the clause to trade secrets would materially change the overall effect of the post-employment restraints. The implied obligation nevertheless protected trade secrets and equivalent information, including customer data, pricing strategy and customer contracts.
6. Damages were inadequate for both parties. The claimant’s loss from breach would be difficult to quantify, while an injunction could adversely affect the defendant’s employment and Avanos. The claimant’s strong prospects, the preservation of the status quo, the short remaining period and the fortified cross-undertaking meant that the balance of convenience favoured relief. The injunctions were granted.