Interim Interdicts and Company Directors

One good example of this in practice is restrictive covenants in the contracts of company directors which prevent the director working elsewhere on him leaving the business, prevent the director soliciting business or employees and prevent him from dealing with confidential information of the company. These covenants are often negotiated in good faith between the parties but they are, in reality, restrictions on trade and the enforceability of such provisions will be carefully scrutinised by the courts.

The basic test is that "reasonableness" is key and what in assessing what is reasonable the courts will weigh the interests of the company against the interests of the leaving director. McBryde on Contract summarises the law in nine propositions:

1. What is reasonable alters with the changing nature of commerce and society
2. There is a difference between what is reasonable in a contract of service and other contracts
3. The character of the business must be looked at when determining reasonableness
4. There is a doubt about which party has the onus of showing that the restraint is reasonable
5. The time for ascertaining reasonableness is at the time of the making of the contract
6. The court will not invalidate a clause because it could apply to improbable circumstances
7. A valid restraint can be severed from an invalid one
8. A restraint may apply to parties associated with the contracting parties
9. Where interim interdict is sought the pursuer must show a prima facie case and balance of convenience must justify an interim order.

As can be seen from the ninth principle, in an application for interim interdict seeking to prevent a director from continuing the behaviour complained of, the usual test applies and it is for the company to persuade a court that the clause is reasonable enough to pass the test. Difficult issues arise in such applications. On the one hand the court has a clear contractual provision in favour of the company which has a legitimate interest to protect. On the other the court has the director simply wanting to continue to work in his field of choice and exercise his right to freely compete - a right which is protected by the competition rules.

In deciding whether to make such an application a company needs to act quickly and get good legal advice. Equally, where the client is the company director, they need to ensure that they receive the best possible advice so as to extricate them from a potentially difficult and costly dispute. Our employment and commercial litigation teams work hand-in-hand to ensure the best result. If you have any queries about interim interdicts generally or specifically in relation to this field, please do not hesitate to contact Richard McMeeken or another member of the commercial litigation team.