Legal Briefing

Springboard injunctions to take off in the DIFC courts?

The In-House Lawyer Logo

Disputes | 15 October 2019

pdf-download-button

With the continued influx of businesses and service providers into Dubai, competition between financial and professional services firms has never been higher. Those seeking an instant ‘beachhead’ in the jurisdiction by recruiting existing teams and professionals with inflated sign-on bonuses may find themselves instead on the end of a very costly springboard injunction. Such forms of injunctive relief have developed in the English courts to protect companies who have invested time and resources into establishing themselves only to see their highest performers leave for a newcomer to the market.

Background

Many readers will be familiar with the free zone concept in the UAE, but may not know that the Dubai International Financial Centre (DIFC) free zone has its own jurisdiction, laws and, in the form of the DIFC courts, an independent English language common law judiciary. The DIFC courts present a unique opportunity for claimants to seek common law remedies in what is predominantly a civil law region.

One such common law remedy is the springboard injunction, which seeks to prevent an employee, or competitor, from gaining an unfair advantage by either exploiting the employer’s confidential information or breaching their fiduciary duties. The application of this injunctive device is not limited to an employee – a competitor too can be (and usually is) prevented from gaining an unfair advantage. In other words, a springboard injunction is a means of preventing a departing employee, or a competitor, from gaining a head-start by misusing the confidential information of the former employer.

Such injunction is only to remain in place for as long as it is reasonable to remove the competitive advantage gained from the conduct. A springboard injunction places a party ‘under a special disability in the field of competition in order to ensure that he does not get an unfair start’ (Terrapin v Builders’ Supply Co (Hayes) [1967]) and can now be used to prevent a competitor and the departing employee from using the confidential information to:

  • Solicit business from the employer’s clients.
  • Hire further staff from the employer.
  • Obtain further competitive advantages which would result in damage to the employer. (See UBS Wealth Management (UK) & anor v Vestra Wealth & ors [2008], in which the court found springboard injunctions were a competent remedy not only in relation to the misuse of confidential information but also where a former employee had gained an unfair advantage through encouraging other former employees to breach their employment contracts. In that case there had been a ‘mass defection’ of employees to a competitor.)

As to whether we will see an influx of what is described by some as a draconian remedy in the DIFC, it is worth tracking its development and application in England and Wales – a jurisdiction that the DIFC courts bear a close connection to.

The position in England

Springboard injunctions are long established as a remedy in England, initially limited to cases involving the misuse of confidential information but eventually found wider application and became ‘available to prevent any future or further serious economic loss to a previous employer caused by former staff members taking… an “unfair start”… or if they are acting in concert with others…’. In the same judgment, the judge clarified that the ‘unfair advantage must still exist at the time that the injunction is sought… [the] injunctions are to protect against and to prevent future and further losses and must not be used merely to punish past breaches of contract’. (UBS Wealth Management v Vestra Wealth LLP)

As jurisprudence around springboard injunctions increased, they became associated with the concept of wholesale team moves and the unlawful recruitment of senior and high-performing individuals.

Potential for springboard injunctions in the DIFC

Given the increasing frequency of springboard injunctions in England, one would expect the DIFC courts to have followed suit, particularly given the increase in senior individual and team moves in an increasingly sophisticated market.

The first DIFC springboard injunction was sought in the case of ED&F Man Capital v Sayyed Hussain & ors [2018]. The injunction did not progress beyond the application stage as protective undertakings were agreed by parties following the application (a common compromise to avoid the need for the injunction).

But the legal structure is certainly in place and restrictive covenants and confidentiality provisions will be upheld by the DIFC courts. If litigating in the DIFC courts, you will also likely find yourself on the wrong side of a specific disclosure order covering all communications that have taken place between the parties.

Conversely, in the Civil Law ‘onshore’ UAE courts, restrictive covenants are generally difficult to uphold and there is no injunctive relief available. Nor is there any system of disclosure or discovery and so it is extremely difficult to prove any such breaches have taken place.

As such, springboard injunctions and other related remedies would only be available in the UAE in the DIFC or the Abu Dhabi Global Market (ADGM – Abu Dhabi’s equivalent of the DIFC).

The ADGM continues to grow rapidly. In January of this year, the DIFC announced an expansion plan aimed at cementing its position as a key economic and commercial hub in the region. This development is widely expected to further increase competition. This in turn means that with new businesses wishing to ‘hit the ground running’ when they enter the DIFC market there will be a trend of employers seeking to hire whole teams from competitors in potential breach of those employees’ restrictive covenants.

As such, one may expect an increase in the frequency of such cases before either common law court.

Conclusion

It should also be kept in mind how difficult it is to recruit senior individuals or teams without either the employees being in breach of their obligations to their employer or the ‘raiding’ party being liable for procuring said breach. In some cases, employees will even have a positive obligation to inform their employer the moment they are even approached by a competitor.

Damages can also potentially be very high if the claimant can demonstrate the extent to which a competitor’s unlawful raid has caused significant losses to the company, for example, if it no longer has the personnel to complete a project.

The area of restrictive covenants and the remedies, damages and losses flowing out of them is complex. What may appear a quick and cost-effective way of establishing a business in the UAE through strategic hires may end up paralysing your business and costing you in terms of legal fees and damages.

Leave a Reply