Guide to injunctions and commercial disputes

Guide to injunctions and commercial disputes

What is an injunction?

In their simplest form, injunctions are court orders. They may either be mandatory, which require a party to undertake a specific action, or prohibitory, which require a party to refrain from or cease taking a specific action.  Breach of injunction is contempt of court which is punishable by fine, seizure of assets or imprisonment in the most serious of cases. Therefore, injunctions are the most powerful civil remedy available to litigants and subject to very close scrutiny by the Courts.

Why do I need an injunction?

The High Court may grant injunctions whenever it appears to be just and convenient for them to do so. Also, any third party with notice of an injunction must comply with its terms under threat of acting in contempt of court. This combination provides the Court with incredibly broad and versatile powers to make or break a commercial dispute. 

In this context, injunctions are most commonly required to: search for, seize or freeze assets; protect intellectual property rights; secure confidential information or trade secrets; prevent employees from poaching staff, clients or working in competition; prevent the publication of defamatory material that would cause damage to your reputation; govern the conduct of a business in crisis; or prevent parallel legal proceedings being issued in another jurisdiction.

When would I seek an injunction?

These types of injunctions are sought in support of an underlying claim for breach of a legal obligation or duty (contractual, tortious, statutory or fiduciary).  As it may take many months to negotiate settlement or more than a year to reach trial, an emergency injunction is often obtained on short notice, and without initial notice to your opponent, to preserve a particular position, or allow your business to operate unimpeded, until the underlying claim is concluded.

Therefore, an injunction can’t be obtained without having first issued Court proceedings, or undertaken to the Court to do so. This requires

(a) a good understanding of the underlying legal claim and

(b) taking the financial, commercial and reputational risks of being locked into the litigation process for an indefinite period of time. 

Injunctions may be granted at any point during legal proceedings, are kept under review throughout the proceedings and may also form part of the Court’s final judgement.

The practical reality is that seeking legal advice in relation to injunctive relief is usually reserved to resolve business critical problems, or on the assumption (which is not always borne out) that the draconian nature of an injunction is sufficiently invasive to force an opponent into a sensible settlement dialogue.

How do to obtain an injunction?

As set out above, you must be prepared to issue legal proceedings in relation to your underlying claim and embark on the litigation process until the earlier of settlement or trial. This initially entails preparation of a Claim Form with detailed Particulars of Claim and paying a Court fee (capped at £10,000). However, you need to also consider how the remaining phases of a legal case can be funded and resourced including: reviewing and responding to the Defence; a costs and case management conference (CCMC); disclosure including e-disclosure; witness statements; expert reports (if necessary); pre-trial review; dealing with any interim applications; trial preparation; trial itself; appeals; enforcement; and alternative dispute resolution (ADR). The usual “loser pays” principle applies to the recovery of legal costs, subject to any costs management and discretion of Courts.

A separate application to Court must also be made to determine whether it is appropriate to grant an interim injunction. The application for an injunction must be accompanied by the Court proceedings that have been (or are about to be) issued, a witness statement explaining the chronology of events, an exhibit of the relevant evidence and a draft of the Court Order being sought.

Importantly, when preparing the supporting witness statement and evidence, an applicant must bring to the attention of the Court all relevant facts and evidence which both support and adversely affect the underlying claim and the application. This is known as the duty of full and frank disclosure.

In addition, and return for obtaining an injunction, you have to undertake to the Court to pay your opponent or third parties damages in the event that requiring your opponent to do or not to do something causes them financial losses and the underlying claim is ultimately unsuccessful, or the injunction is discharged at a later date, following a more detailed review of all of the evidence and legal arguments as the case unfolds. This is called a cross-undertaking in damages.

The Court will often want to ensure that you have the liquidity to cover these potential damages, meaning they will need proof of liquid assets, accompanied by an undertaking not to sell these assets during the course of proceedings. This makes an injunction a potentially costly route to take, which ties up the applicant’s assets until the dispute is resolved. Therefore, an applicant must fortify the cross-undertaking in damages.

Finally, if all of the above hurdles can be overcome, the Court must also be satisfied by the test laid out in American Cynamid Co (No 1) v Ethicon Ltd that there is a serious question to be tried, damages would not be an adequate remedy, where the balance of convenience lies and any other special factors (for example, such as the conduct of the parties).

Is an injunction worth it?

Injunctions are a powerful tool of the Court which bind third parties and have considerable persuasive effect – being backed by fines or imprisonment for those who breach them. However, the Courts are very careful to go through the sequence of steps set out above and also, to consider the wording of an injunction; there’s no room for ambiguity. An injunction should always let the respondent know in exact terms what they are required to do or not do.

Clients and legal advisors are equally careful to weigh up the merits of the underlying claim, how “mission critical” that problem is, how much time and cost can be committed to the litigation process, other priorities for the deployment of working capital, the likelihood of brokering a settlement and the creditworthiness of an opponent. 

For more information about commercial disputes or injunctions please contact Jonathan Kitchin, Partner and Head of the Commercial and Regulatory Disputes team at Michelmores. We also provide complimentary advice and expertise in relation to the disciplinary process for employees, insurance coverage, data privacy, financial crime and regulatory compliance for firms authorised by the Financial Conduct Authority.