To enjoin or not to enjoin?

An interlocutory injunction is an order made by a Court before the commencement of a trial to preserve the position of the parties until a final decision is made.  The legal principles of obtaining interlocutory injunctions are often discussed in decisions of the Court however, less commonly discussed are the situations which arise in which one may consider applying for an injunction and the serious implications of obtaining such an order.

Principles relevant to the grant of an interlocutory injunction

In summary, for the Court to exercise its power to grant an interlocutory injunction, it must be able to answer yes to the following two questions:

• whether the plaintiff has made out a sufficiently arguable case?  It is sufficient that the plaintiff shows a sufficient likelihood of success to justify, in the circumstances, the preservation of the current position pending the trial; and
• whether the balance of convenience favours the grant of the injunction? Essentially, this asks whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the defendant would suffer if an injunction was granted.

When should you consider making an application for an interlocutory injunction?

An injunction is an order which will direct a potential party to proceedings to do a specific thing or, more commonly, not to do a specific thing. Injunctions are usually sought on an urgent basis to maintain the ‘status quo’ pending a full hearing of the evidence and the party’s arguments at a trial. The question is, when is the time to consider applying for an injunction?

Interlocutory injunctions, can be used to prevent:

• someone from selling property where ownership is in dispute;
• someone disposing of goods where payment is in dispute;
• a former employee working for a competitor in breach of a restraint of trade clause; or
• the publication or use of confidential information,

until the matter has been determined at a trial.

Repercussions of obtaining an injunction

Less commonly discussed are the repercussions that flow from having an interlocutory injunction granted.  The significant effects of obtaining an interlocutory injunction include:

• the undertaking as to damages; and
• proceedings in the Court have now been commenced.

Undertaking as to damages

Before a Court will grant an interlocutory injunction, the plaintiff will almost always be required to give the usual “undertaking as to damages”.

The aim of an undertaking as to damages is to compensate any party that is harmed by the making of an unfair injunction. Such an undertaking is a commitment by the plaintiff, that it will pay damages to the respondent for any loss sustained by reason of the injunction, if it should be held at the trial that the injunction was incorrectly granted.

The main risks that one should consider prior to making an undertaking as to damages is that, should it be later held that the injunction was ordered incorrectly:

• the plaintiff may need to pay a significant amount of damages; and
• the plaintiff may need to compensate any affected third parties.

In some circumstances it may be near impossible to calculate the extent of any damages that could potentially result from an injunction and prior to seeking an injunction, a sound risk assessment as to the potential costs of such an exercise needs to be made.

Legal proceedings have been commenced

As discussed above, the Court must be satisfied that the plaintiff has a sufficiently arguable case that has a likelihood of success at a trial. Once an application for an injunction has been made, and legal proceedings between the parties has now commenced in the Court and the matter will proceed to a trial for final determination.

It is imperative that prior to making an application for an interlocutory injunction, that the usual considerations of risks of proceeding through litigation have been considered, these include (but are not limited to):

• the element of the unknown, every claim contains an element of the unknown and this is a fundamental element of litigation risk, the outcome of a trial is never guaranteed;
• the costs, traditionally in civil litigation costs follow the event; this means the successful party is usually entitled to recovering their costs of the litigation, by the time the matter has reached trial, this can be in the tens of thousands;
• time; litigation is a time-consuming exercise and matters can take months or years to reach trial; and
• relationships, litigation often results in the breakdown of relationships between the parties and if there is any future prospect of working together, the risk to the relationship should be seriously considered.

Lavan comment

Interlocutory injunctive relief can be a critical tactical tool to protect your position in a dispute pending the resolution of an outcome of all the issues in dispute. Notwithstanding the benefit of obtaining an injunction, there are serious associated risks which need to be considered before such an application is made.

The Litigation and Dispute resolution team at Lavan has substantive experience in making applications for and defending applications for interlocutory injunctions.  If you consider that you may need legal advice relating to an interlocutory injunction, please do not hesitate to contact our team.