It is common for commercial agreements to provide that the breach of non-competition and non-solicitation provisions will cause irreparable harm to the party in whose favour such covenants have been given and for these agreements to provide for injunctive relief. While the general consensus has been that there is no harm in including such a provision, there has been some question as to their true value, given that Canadian courts typically impose a higher standard than the mere existence of such a provision before granting injunctive relief. A recent case of the Ontario Superior Court of Justice (Canpages Inc. v. Quebecor Media Inc.) provides some helpful comments about the usefulness of this type of clause and suggests that it may be a good idea to include it after all.
The contract in this case expressly stated that a breach of the non-solicitation and non-competition obligations would give rise to irreparable damage and injury. An interim injunction prevented the defendants from competing for and soliciting the plaintiff’s customers in certain geographic locations within Ontario. The plaintiff applied for an interlocutory injunction on similar terms. In granting an interlocutory injunction, the court noted:
An interlocutory injunction proceeding is a hearing de novo. Findings on an interim injunction application are made for purely temporary purposes. There were serious issues to be tried despite the absence of a clear breach of a negative covenant. Despite the express clause in the agreement, the plaintiff must tender evidence of irreparable harm that is not founded upon mere speculation. While not binding, clauses such as that included in the agreement raise, at the very least, a presumption of irreparable harm not easily compensable in damages should one of the parties act contrary to the agreement. (emphasis added)
The court found that the plaintiff would suffer not only loss of profits and goodwill but also loss of reputation. Such harm was recognized as being irreparable because it would be difficult, if not impossible, for a plaintiff to establish the extent to which customers were lost by the plaintiff, or gained by the defendant, because of such harm. As such, the balance of convenience favoured protecting the status quo and the interlocutory injunction was granted.
While this decision confirms that irreparable harm continues to be a requirement for entitlement to injunctive relief, the decision also enforces the benefits of including a provision which creates a presumption of irreparable harm in the event of a breach. A copy of this decision is available on the Canada Law Book website.