Sparta Global Limited & Anor v Ben Hayes & Anor

On an interim application to enforce post-termination restraints, the court must apply the statutory standard of what is just and convenient. Where trial will occur after the restraint has substantially expired, the court may make some preliminary assessment of the claimant’s prospects, while avoiding a mini-trial.

Restrictive covenants are prima facie void unless shown to be no wider than reasonably necessary to protect a legitimate business interest. The court must assess the true nature of the arrangement, bargaining strength, negotiation, duration, scope and practical protection available through narrower restraints. A complete prohibition on work for a competitor is unlikely to be justified where the proposed role is ringfenced, non-competing and non-client-facing.

Sparta sought interim relief against its former Sales Director, Ben Hayes, after he agreed to work for competitor Kubrick Group Limited. The principal application concerned non-compete and non-solicitation covenants in an investment agreement, which lasted 12 months and extended to work for a competitor in any capacity. The employment contract contained narrower six-month restrictions, and Mr Hayes offered undertakings corresponding to them.

The court was also asked to join Condor Topco Limited as a claimant and Kubrick as a defendant. The central issues were whether the investment-agreement covenants raised a serious issue to be tried, whether damages were adequate, and where the balance of convenience lay pending an expedited trial.

1. Interim approach. The application was governed by the familiar questions identified in American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504: serious issue, adequacy of damages and balance of convenience. Because the trial would occur after much of the restraint period, the court was required to make some assessment of the prospects of success, applying Lansing Linde Ltd v Kerr [1991] 1 WLR 251. That assessment was a factor, not the sole consideration.
2. The enforceability issue was plainly arguable. Damages would not adequately compensate either party: Sparta’s loss of clients and repeat business could be difficult to quantify, while restraint could affect Mr Hayes’s employment prospects and standing in a specialist market.
3. Reasonableness. The applicable test was whether Sparta had a legitimate business interest requiring protection, what the covenant meant, and whether its restrictions were no wider than reasonably necessary: TFS Derivatives Ltd v Morgan [2005] IRLR 246. Post-termination restraints are prima facie void and require justification: Herbert Morris Ltd v Saxelby [1916] 1 AC 688.
4. The investment agreement was provisionally assessed as more akin to an employment arrangement than an independently negotiated commercial shareholder agreement. Relevant factors included the alleged inequality of bargaining power, absence of meaningful negotiation, presentation as a fait accompli, lack of evidence that Mr Hayes received or signed the agreement, his probationary status, the small shareholding and the limited compensation attached to it. The court did not finally determine those matters.
5. The covenants extended beyond competing activity, beyond Mr Hayes’s previous work and beyond clients with whom he had dealt. They also lasted twice as long as the employment restrictions and contained no carve-out for non-competing work. The court provisionally considered it more likely than not that the investment-agreement restraints would be held unreasonable and unenforceable at trial.
6. The balance of convenience decisively favoured Mr Hayes. There was no evidence of misuse of confidential information. His proposed role at Kubrick was non-competing, non-client-facing and ringfenced from relevant systems and meetings. The narrower employment covenants and his undertakings provided sufficient protection to Sparta.
7. The application to enforce the investment-agreement covenants was dismissed. Condor was joined as second claimant and Kubrick as second defendant. Costs were reserved.