Restraining the Breach of a Negative Covenant

It is common knowledge that an injunction is granted only if the applicant satisfies the court on the three-pronged test of prima facie case, irreparable injury and balance of convenience. While there is controversy over the scope of some of these elements, notably prima facie case, and over the relationship between these elements, there are also circumstances in which an applicant may be able to obtain an injunction without satisfying the three-pronged test. The recent judgment of the Court of Appeal in Araci v Fallon contains a clear exposition of this point.

The case arose out of rather unusual circumstances. As is well-known, the 2011 edition of the Epsom Derby, one of the most prestigious horse races in Britain (“the Derby”) took place on 4 June, 2011. The claimant, Mr Araci, was the owner of one of the favourites (“Native Khan”) which he expected would be ridden by Mr Fallon, a highly regarded jockey. Mr Araci and Mr Fallon had entered into a Rider Retainer Agreement (“RRA”) on 1 April 2011, under which Mr Fallon received £10,000 for undertaking two important obligations: first, to ride Mr Araci’s horse whenever requested by him to do so, and secondly, to not ride a rival horse in any race in which he has been requested by Mr Araci to ride the latter’s horse. In other words, the RRA contained a positive as well as a negative covenant. Invoking these provisions, Mr Araci asked Mr Fallon to ride Native Khan at the Derby. Mr Fallon communicated his refusal to do so on 30 May 2011, and indicated that he intended to ride “Recital”, owned by a rival and also a favourite. Mr Araci promptly sought an injunction to restrain him from acting in breach of the negative covenant.

The judge at first instance dismissed the application, finding that there was an adequate remedy in damages, and that it was unjust in all the circumstances to grant the equitable relief sought. The Court of Appeal, in an instructive judgment, reversed. Jackson LJ began by noticing that the practice of considering the strength of a party’s case on the merits and the balance of convenience is rarely appropriate when an injunction is sought to restrain a clear breach of a negative covenant. This principle goes back to Lord Cairns LC’s classic, albeit obiter, observations in Doherty v Allman:

If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a court of equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done … It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury – it is the specific performance, by the court, of that negative bargain which the parties have made, with their eyes open, between themselves

The clear rationale that emerges from this passage is that it is inappropriate to require the applicant to demonstrate that the balance of convenience favours the grant of an injunction when the defendant has contractually agreed to refrain from doing the very thing in respect of which the injunction is sought. However, Doherty was a perpetual injunction case and it was not clear whether the same approach would prevail so far as interim injunctions are concerned. In granting an injunction restraining the defendant from playing a musical instrument in breach of a negative covenant, Megarry J. confirmed that it does, because there is “…no reason for allowing a covenantor who stands in clear breach of an express prohibition to have a holiday from the enforcement of his obligations until the trial” [Hampstead and Suburban Properties Limited v Diomedous (1969) 1 Ch 248].

Thus the rule is that an injunction will be granted to restrain a clear breach of a negative covenant unless there are “special circumstances”. In this case, Jackson LJ concluded that Mr Araci did not have an adequate remedy in damages, and Elias LJ made the additional point that it was not even necessary to decide that question, because adequacy of damages is not relevant when an applicant seeks to merely hold the respondent to his negative covenant. Nor did there exist special circumstances making it oppressive to grant the relief sought. Mr Fallon suggested that granting an injunction would adversely affect the public, because some may have made bets on the assumption that Mr Fallon would ride, while for others it would detract from the quality of a major national event. Jackson LJ rejected the first point because a member of the betting public runs the risk of an unexpected change in sporting variables, and the second because there was no risk that the Derby would not take place, although Mr Fallon himself could not participate. Mr Fallon’s loss was disregarded because he had “brought this predicament upon himself by his own deliberate and cynical disregard of a contract.” It was accepted that the position would have been different if the injunction could have affected the event itself.