The Enforcement Of Negative Covenants: An Easy Ride?

Published in Dechert's Commercial Matters March 2012

Clauses which purport to allow parties to seek injunctions or similar equitable remedies when damages would prove inadequate are regularly included in agreements. But should those seeking an injunction, particularly to enforce a negative covenant, expect an easy ride?

Despite a recent Court of Appeal case (the first of its kind) which granted an interim injunction to enforce a negative covenant, there are a number of hurdles which must be cleared before an injunction to enforce a negative covenant will be granted.

Vefa Ibrahim Araci v Kieren Fallon

Jockey Kieren Fallon entered into an agreement with a racehorse owner, Araci, which placed him under both a positive obligation to ride that owner's horse when requested, and a negative obligation not to ride a rival horse at such time. A week before the 2011 Epsom Derby, Fallon informed Araci he would not ride the designated horse, but would instead be riding a rival's.

The Court of Appeal over-turned the first instance decision and granted Araci an interim injunction restraining Fallon from riding in the Derby. The Court held that it was settled law that breaches of negative stipulations could be restrained by injunction. They also held that the injunction would not be oppressive or unjust to Fallon and that there were no special circumstances warranting its refusal.

Although an injunction was granted in this case, it is important to bear in mind the following points, which the court will take into account when deciding whether to exercise its discretion.

Equitable doctrines Injunctions are equitable remedies and, as such, in deciding whether to exercise its discretion the court will apply certain equitable doctrines. These include:

those who come to equity must come with "clean hands" — the court will consider whether the applicant has upheld, and is willing to uphold, their side of the contract; and delay — claims must be brought in a timely manner, and any delay must not result in an unfair outcome. Adequacy of Damages As with all equitable remedies, the enforcement of negative covenants will not be available where damages are an adequate remedy. This was discussed in Araci, where it was held that damages would not be adequate, due in part to the unique circumstances of the case and the difficulty therefore in quantifying damages. The court acknowledged that, although not impossible, it would be difficult to speculate how different horses...