Summary

Historically, springboard injunctions – orders under which an applicant seeks to deprive a respondent of the benefit of an ongoing unfair competitive advantage obtained as a result of earlier unlawful conduct – have been granted in cases concerning a breach of confidence.[i] Over recent years, that doctrine has expanded to include other breaches, typically a breach of the implied duty of fidelity [ii] or a fiduciary duty in team move cases [iii].

The extension of the springboard doctrine has recently been furthered in Create Financial Management LLP v. Lee and Scott [2020] EWHC 1933 (QB); [2020] WLR(D) 486 in which John Mehrzad QC appeared for the successful applicants, as instructed by Nick Ashcroft, Partner at Addleshaw Goddard LLP.

In that case, the High Court (Morris J.) granted an interim springboard injunction pending a speedy trial preventing the respondent former consultants from soliciting certain listed clients due to a purported failure to comply with express contractual obligations on the former consultants to: (i) hand over clients to the new owners of the business; and (ii) delete contact details from their professional and social media networks (LinkedIn and Facebook) before the end of their consultancies.

Notably, the order was granted despite the parties having previously contractually agreed that express restrictive covenants would no longer apply.

The Facts

The former consultants had transferred their interest in the claimant independent financial advisory business to new owners in consideration for approximately £10 million. The written transfer agreement included, amongst other clauses, express non-competition, non-solicitation and non-deal restrictive covenants for a period of 5 years. At the same time, the former owners also agreed to enter into written consultancy agreements with the claimant for 2 years under which they agreed to handover their existing client books to the claimant and, upon the termination of their consultancies, to delete client contact details on their professional and social media networks.

In essence, the commercial purpose of the purchase by the new owners was for it to secure the financial benefit of the claimant’s client connections in return for the former owners, and then consultants, being paid sizeable consideration.

A dispute then arose over consideration due under the transfer agreement, resulting in a written settlement agreement which provided that, if the outstanding consideration was not paid by a set date, the restrictive covenants would fall away immediately but, in any event, the respondents were to ensure a “thorough handover” of clients by the end of their consultancies. Further, the requirement in their consultancy agreements that they delete their business contacts upon termination remained unchanged.

However, the outstanding consideration remained unpaid by the set date, so the restrictive covenants fell away with immediate effect.

Upon the termination of the consultancies a few months later, many of the claimant’s clients followed the respondents to their new competitor business.

The Application

Having initially sought undertakings but been rebuffed by the respondents, the claimant then applied for interim springboard relief on the basis that the respondents had failed to handover thoroughly their clients or delete client contact details from their professional and social media networks upon the termination of their consultancies.

It was further alleged that, by doing so, the respondents had gained an unlawful head start for their new competitor business.

In short, the claimant contended that the respondents sought to divert away from the claimant the very clients they were obliged to hand over thoroughly in the first place and had been paid millions of pounds to do so.

Having heard competing arguments over two full days (with a judgment and consequential matters running into a third day) about the applicable test and taking into account the principles in QBE Management Services (UK) Ltd v. Dymoke [2012] IRLR 458 (QB) [at 51], Morris J. chose to adopt the well-known test set out in American Cyanamid [at 52-65], finding there to be a serious question to be tried, damages not to be a sufficient remedy and therefore the issue of “the significance of the gap” between the application and a speedy trial (which could be listed within 2 months) in Lansing Linde v. Kerr [1991] 1 WLR 251 (CA) as developed by Forse v. Secarma Ltd [2019] EWCA Civ 215 did not arise [at 107], and the respondents’ contentions on a lack of “clean hands” were not made out [at 107-115]. Accordingly, the claimant’s application for an interim injunction succeeded and Morris J. made an interim injunction until conclusion of the speedy trial [at 116].

Key take-aways

In terms of key take-aways from this case:

  • First, if express restrictions do not or no longer exist, springboard relief remains available if former employees or consultants have gained an unlawful head start by failing to comply with express positive obligations in their contracts. This point may be of particular use in sale and purchase scenarios under which, like in instance case, the former owners were positively obliged to hand over and not retain valuable goodwill.
  • Secondly, in appropriate cases, the court may apply American Cyanamid principles – a lower threshold – rather than the higher test set out in Lansing Linde for an interim springboard relief application. That may be particularly the case when a speedy trial can be listed quickly, as is nowadays often possible in the Queen’s Bench Division. This renders this form of interim relief potentially easier to obtain for applicants.
  • Thirdly, the court will still scrutinise closely the alleged head start, its duration and the nexus between those matters and the alleged breach relied upon. It is those matters that are key in terms of witness evidence tendered in support for such an application. Springboard injunctions are a powerful remedy which include penal notices, but – in the face of often flagrant wrongdoing – there can be a temptation for applicants to overreach with the form of their draft order. Even if the wrongdoing is egregious, if the form of relief sought does not prevent an ongoing unfair competitive advantage but is instead punitive in nature, the application will likely be rejected. In the instance case, whilst there was also evidence that the respondents had taken steps to set up a competitor business during their consultancies, they could have done so legitimately in any event within days of the end of those consultancies. In that particular regard, any such “springboard” was ephemeral and was deliberately not pursued as the basis for the interim application. However, in contrast, the failure to handover clients was an obligation throughout the respondents’ consultancies, there was evidence that such client-connections lasted years and, as such, springboard relief pending a speedy trial was an equitable interim remedy – which the court duly granted.