Court Injunctions

Court injunctions are a powerful court order. They can force, prevent, or halt actions. Therefore, the courts have adopted a strict test. If the criterion is not met, then the application may fail. The threat of an injunction is powerful to many but to be meaningful the chances of success and risks do need to be worked out. Based on past experience we can tell you what is reasonable, achievable and practical. If your chances of success are slim it is better to find out sooner rather than later.

Please do call us to discuss your case.

Obtaining an injunction – working out the chances of success

To obtain an injunction you will need to show loss, or the potential for immediate loss, i.e. the threat of loss is imminent. For example, loss can be the diversion of revenue to a competitor. Damage to reputation can be a loss.

There is no automatic right to an injunction. Instead injunctions are issued at the discretion of the court. In exercising its discretion to grant an injunction, the court will look at a number of factors, such as:

  1. Is there a serious issue in dispute? For example loss of business.
  2. Could the claimant be compensated with damages? If yes, then the court will consider if the injunction is necessary and may refuse to grant an injunction.
  3. If the injunction is granted, will the defendant be unreasonably restricted? If yes, then the application for any injunction may fail.

The court adopts a balancing exercise.

Essential information to know if facing an injunction

Based on past experience we find that what you need to know and hence what we will tell you is:

  • Are your reasons for wanting an injunction good enough;
  • What is the other side likely to do;
  • Will damages be payable;
  • How are the legal fees likely to be if you win or lose; and
  • Ways to mitigate the risks with injunctions.

 

Ex parte injunctions

Injunctions can be made on an “ex parte” basis. The benefit of this being that the court will hear the application immediately, often on the same day. The defendant is not given notice.  If the court grants an injunction the defendant will have to apply to have it set aside if he disagrees with the restriction on activities.

Injunction – full and frank disclosure

Injunction applications made without notice to the defendant require full and frank disclosure of all relevant documents.  This includes documents that could be damaging to your case.

Defending an injunction seeking to restrict activities

Our first job is to work out the strength of the case and evaluate the evidence.

Common defences to injunctions seeking to restrict activities

Of course, the defence will depend upon the precise claim.  But we explain some of the more commonly used defences. When acting for defendants, the trick is to use practical arguments to persuade the court to refuse the injunction.

Public policy

There is a public policy that individuals must be free to earn a living. Even if there is an agreed restrictive covenant it must be reasonable. If it is unreasonable the agreement will be void for being an unfair restraint of trade. Reasonable means no more than is necessary to protect the business.

Collateral reasons

There could be a defence if the injunction is sought for a collateral purpose, e.g. to diminish the value of the business.

Failure to disclose relevant facts

Considering whether the person seeking the injunction has disclosed all material facts, whether or not the facts are in their favour? If not, then the application is procedurally flawed. This is a route of attack.

Activities are outside the scope of any agreement

Care should be paid to the wording of any restrictive covenant. It may be that the offending party’s actions are outside the scope of the wording, so the applying party’s arguments fail. If there is no written contract then a court is unlikely to imply restrictions which do not exist. We interpret restrictive covenants and advise on enforceability.

Defending ex-parte injunctions

If no notice was given to the defendant of the injunction application and the application was successful then the defendant will have to apply to have the injunction set aside. The court will fix the date at the ex parte hearing.

We handle applications for set aside. If set aside, then the claimant will be required to satisfy its duty to compensate the defendant for loss during the period in which the injunction was in force.

Evidential burden

To apply for an injunction or to defend an injunction, the court will want to see the evidence upon which you rely. Suspicion is insufficient.

The evidence can be hidden away. For example:

  • In the employment contracts or shareholders’ agreement. If there has been a transaction often the sale and purchase agreement will contain restrictions.
  • A review of the IT system to include deleted emails is often very revealing.
  • Injunctions can be obtained to force disclosure of evidence or prohibit destruction.

Extent of the obligation 

The courts distinguish between obligations placed on:

  • Employees, and
  • Obligations placed on shareholders, former shareholders or companies.

The general rule is that restrictions on shareholders, former shareholders, or companies, can be more onerous than restrictions on employees. The court considers the seniority of the employee and will usually uphold tighter restrictions on senior employees or directors.  If the restrictive covenant is weak in the first place, then the injunction application may fail.

Lack of written agreement

You can seek an injunction to restrict activities without having a written agreement. However, the case will be more difficult.  Employers who do not have adequate provisions in their employment agreements will be in particular difficulty.

Injunctions – costs awarded by court

The general rule is, if you win, the loser will pay your costs plus his own.

The problem is often the loser does not have the funds to settle the other side’s legal costs. The winner will then have to take enforcement action to recover its costs. Even if that is successful, the loser may not have assets to satisfy the costs award.

The result is, even if you win, there is the risk of costs. For that reason, alternatives to injunctions should be considered seriously no matter how frivolous the injunction application.

Injunction alternatives – quicker and cheaper solutions

It does not matter whether you are in the right or wrong – you still have an obligation to seek alternatives to court action.

Offer an undertaking

A defendant can offer an undertaking. An undertaking is an alternative to an injunction. An undertaking means the offending party “promises” the applicant and the court either:

  • Not to breach the restriction for an agreed period; or
  • Cease breaching the restriction.

An undertaking carries the same weight as an injunction.

Other alternatives to an injunction restraining activities

There are other cost effective alternatives depending upon the facts of the case. For example, apologies can be agreed. Intellectual property created as a result of infringement can be destroyed. The list is extensive.

Examples of injunction applications

To help you understand how the courts work we have explained some examples for you.

Example 1 – Good chance of securing an injunction to restrict activities – misuse of intellectual property

An employment agreement includes provisions designed to protect intellectual property. The provisions state that all intellectual property created during the course of the employee’s engagement vests in the employing company. The employer terminates the employee’s employment, and on day 2, the employee launches a new software model created outside working hours.

Here:

  • It is likely that an injunction restraining activities and ordering the return of intellectual property would be achieved.
  • The company does not know what monetary value the intellectual property has so damages are not appropriate.

Example 2 – Good chance of securing restraining injunctions – unfair competition

The restrictions apply whilst the individual is a shareholder, and for two years thereafter. The shareholder exits, and takes clients and customers.   Here, it is difficult to quantify the monetary loss. But, there is a  shareholders’ agreement which includes restrictive covenants. Those restrictive covenants prevent shareholders stealing company clients or customers.

Here:

  • Since the loss cannot be readily quantified, the court would likely award the injunction. The injunction would compel the shareholder to cease the infringing behaviour. Damage to reputation is worth stressing.
  • There would be a damages claim dealt with at a second hearing where the company would have to show the past revenues from such clients; and estimate future expected revenues from such clients.

Example 3 – case that could go either way – damage to property

The owner of a high value software company outsources development work. The work is completed, and is not up to standard. The software has malfunction issues and does not operate as intended. The owner of the company had intended to licence the software for a fixed fee. As a result, licensees will not accept the software for the fixed fee suggested. A reduced fee is agreed. The software company could apply for a mandatory injunction forcing the developer to remedy the defects. However, the developer could compensate the company for the reduced licence fee.

Here:

  • Damages could be appropriate, but it would depend on the company’s use of the software. If it had a material affect on the company’s future performance, then an injunction to force the developer to remedy the defects could be awarded. A case analysis would provide the full picture.

  • We received a court injunction application. We met with Alex the same day, who helped bring the matter to a halt.

  • The focus and commerciality of the advice I received from Gannons was well worth the money.