In tough times, the last thing many companies want to do is get involved in legal proceedings. However, sometimes it’s the only way to protect yourself and your business. In this article we will tell you about the key points in getting an injunction and, more importantly, keeping it.
As readers will know, an injunction is an emergency, protective remedy which the courts grant to stop someone from taking certain, specified steps. It is a serious remedy, not least because breaching an injunction is, in effect, a contempt of court and so can have semi-criminal consequences. For that reason, injunctions are not granted lightly by the courts.
When will I get an injunction?
To get an injunction, you must persuade the court that you have a good arguable case in relation to the rights which you say need to be protected and that an injunction is the only effective way to protect your interests. If you satisfy the court on these points, the next hurdle is to persuade the court that you should be granted this exceptional remedy, based on an assessment of what is termed the ‘balance of convenience’. What this really means is that the court will consider whether- if you succeed in your claims – an award of monetary compensation (damages) would be adequate compensation for the loss which you might suffer if the injunction is not granted as an interim measure.
If, for example, there is a real concern that funds will disappear forever unless an injunction is granted, this would be a good reason for an injunction. However, if the court is considering taking the serious step of imposing an injunction, it will want to be satisfied that there are safeguards in place for the person who is subjected to the injunction. Such safeguards are likely to include formal undertakings from you to cover any loss which the other person might incur as a result of the injunction being in place, if it is eventually found that the injunction should not have been granted in the first place.
If you find yourself in a situation where you think you might need to obtain the protection of an emergency injunction, it is important to seek legal advice as soon as possible. If the court thinks you have delayed in seeking the remedy, this can count against you.
Equally important is the need to ensure that you don’t have an injunction malfunction by failing to comply with the duties imposed on you when you apply for an interim injunction. These duties stem from the fact that interim injunctions are serious remedies, with serious consequences. As readers may know, most interim injunctions are granted on what is called an ‘ex parte’ basis – in other words, on the application of one party, without the other party being given the chance to come to court to argue against the application. For this reason, an ex parte application should only be made where there is a pressing and serious threat to your rights and where notifying the other person would jeopardise your rights.
However, due to the fact that the other party is not represented, the court expects you to be candid about your case. You are obliged to give full and frank disclosure of all material facts which might impact on the way the court decides the application, including facts which may not be favourable to you. In particular, you have a duty to investigate and disclose all material facts and not to misrepresent these in any way.
A recent case in the English High Court emphasises the importance of candid disclosure. In Sita UK Group Holdings Ltd and Another v Serruys and Others,  EWHC 698 (QB), the defendants had sold a scrap metal business to the claimants for an effective price of £91 million. Various warranties were given by the defendants under the sale documentation as to the state of the business and the accuracy of information in the due diligence information disclosed by the defendants prior to the sale. Unfortunately, according to the claimants the sale agreement wasn’t worth the scrap of paper it was written on…
The claimant alleged that the defendants had engaged in various dishonest practices, including skimming, cash payments and undeclared payments to employees, coupled with a sophisticated black cash accounting system. The claimant persuaded the court to grant an interim injunction on the basis that there had been fraudulent misrepresentations and to make various disclosure orders against defendants.
These allegations were vigorously disputed by the defendants who claimed that, not only were the allegations unfounded, but that the claimants had also failed to give full and frank disclosure. The defendants asked the Court to exercise its disciplinary powers by overturning the interim injunction which had been granted without notice to them and also argued that the claimants had delayed in coming to Court.
For their part, the claimant accepted that some facts had not been disclosed but asked the Court to forgive this non-disclosure and find that it had a good arguable case which should be allowed to continue to trial and that they should not be deprived of the protection of the interim injunction.
The court found that the claimant had deliberately not disclosed certain facts. This was a serious and culpable non-disclosure. However, the non-disclosure did not involve a calculated attempt to mislead the Court, for example in the hope that this would stop the Court from granting the interim injunction. In all the circumstances, the Court found that the interim injunction should be continued because it was appropriate in the interests of justice in the case, not least because of the risk of dissipation of assets if the interim injunction was removed.
In so finding, the Court found itself in a difficult situation. On the one hand, it had disciplinary powers in relation to the non-disclosure and on the other a duty to ensure that it did justice in each case. The Court also recognised that it had power to deprive the claimant of the advantage of the interim injunction which it had obtained through improper means, but acknowledged that it had a discretion as to whether or not it should penalise the claimant by discharging the order. The Court set out its views as follows:
- The Court had to have regard to all the circumstances in deciding whether or not to discharge the original interim injunction.
- The Court should consider the nature of the nondisclosures, how material these were and the way the non-disclosures had come about.
- The Court should also consider the prejudice which an innocent party has suffered as a result of the original order being made.
In deciding to continue the interim injunction, one fact which weighed on the Court’s mind was the fact that the claimant had behaved reasonably towards the defendant after the order had been granted. For example, the claimant had agreed to the defendant’s request for release of funds required from time to time. The Court made it clear that, if the claimant’s conduct towards the defendants had been unreasonable, this would have influenced its decision. However, given the ongoing risk of assets being dissipated, the Court decided to maintain the interim injunction but discipline the claimant for its non-disclosure by finding it liable for the costs of the defendant’s application to overturn the interim injunction on an indemnity basis.
Whilst the Guernsey courts are not bound to follow the High Court’s decision, nonetheless it is likely to be persuasive. Certainly, where there has been nondisclosure in the past, the Guernsey courts have marked their displeasure with this by imposing sanctions such as the overturning of interim injunctions and cost orders.
Lessons to learn
It isn’t rocket science – if you ask the courts to help you by granting this serious remedy, you’d better come to court with ‘clean hands’ and make sure you’ve disclosed everything relevant. Deliberate non-disclosure which is designed to manipulate the Court into granting an ex parte order will almost always prejudice the order obtained. Indeed, it will, in all likelihood, result in a costs order against the person who failed to disclose and the risk of an award of damages, if the defendant has suffered a loss as a result.
Dangerous disclosures can cost you. You have been warned….