What you need to know about Injunctions in Civil Fraud
Injunctions are the “nuclear weapons” in the armoury of the court. They can be effective weapons in civil fraud claims, or indeed in any claim where parties are in dispute and where asset preservation is a serious concern. This note aims to provide a brief overview of what injunctions are and when they might be used.
What is an injunction?
Broadly, an injunction is an order of the court that requires a party to do something (known as a “mandatory injunction”), or refrain from doing something (known as a “prohibitory injunction”).
Injunctions can be made on an “interim” basis (meaning they are intended to last until a point in time, usually the “return date” of the application and/or trial), or on a “final” basis (meaning they are intended to last permanently). Different considerations apply in each case, which are considered further below.
There are many reasons why someone might seek an injunction – such as to prevent someone from causing you financial or reputational harm, or to negate the benefit of a prior wrongdoing. Some common types of injunctions include the following:
- Freezing orders – this is where someone is prohibited from disposing of their assets (usually to ensure that assets are not dissipated either by spending them or by attempting to hide them).
- Search orders – this is usually intended to locate and protect evidence or property that may be the subject of an action.
- Orders for delivery-up – this is where someone is compelled to pass over documents or material (for example, confidential documents wrongfully taken from an employer).
When will an injunction be granted?
An injunction is a “discretionary” remedy, meaning it is at the discretion of the court whether or not to grant the injunction.
The process of obtaining an injunction varies depending on the type of injunction sought, and in particular, whether it is an interim or final injunction being sought.
An interim injunction is either granted before commencing court proceedings, or during proceedings, and is typically used to maintain a particular state of affairs prior to trial taking place (often called “holding the ring”). Such injunctions can be either “domestic” (applying only within the jurisdiction of England and Wales), or “worldwide” (applying in a global context).
The principal considerations for the court in granting a domestic injunction are:
- Would it be “just and convenient” to do so? Here, the court will look at a variety of factors, including maintaining a fair balance between the rights of the parties, all the underlying facts of the case, and the need to maintain flexibility in the remedy of an injunction.
- Is there a serious issue to be tried? Essentially, the question is whether there is an issue for which there is some supporting material and an outcome that is uncertain, OR in the alternative, whether there is a case that would pass the test for summary judgment. If the answer is “yes”, then the court goes on to consider the “balance of convenience”.
- Where does the balance of convenience lie between the parties? This is often the determining factor. Here, the court considers whether damages would be an adequate remedy for the person applying for the injunction (i.e. the “Applicant”) if they later succeed at trial – if “yes” then an injunction will probably not be granted. The court will also take into account the Applicant’s “cross-undertaking for damages” (which is where they undertake to compensate the other party in the event the injunction later proves to be wrongly granted). If the cross-undertaking is unlikely to be adequate compensation to the person against whom the injunction is sought (the “Respondent”) then, once again, an injunction will probably not be granted.
- Where the special considerations are evenly balanced, the court will usually look to preserve the status quo, which is often the position as between the parties immediately prior to the alleged wrongdoing.
When looking at whether to grant a “worldwide” injunction, there are additional considerations for the court to take into account. In relation to freezing orders, these might include whether there are already sufficient assets within the jurisdiction (such that a domestic order might suffice). In relation to injunctions to support foreign proceedings, these will also typically include (a) whether the relief sought would be warranted if the court proceedings had been brought in the UK; and (b) whether it would be inexpedient to grant an injunction in such circumstances.
A final injunction is typically granted following a trial, and is intended to be permanent, thereby effectively acting as a final remedy.
A final injunction will only be granted in circumstances where it is equitable to do so. Such an injunction is unlikely to be granted where damages would be an adequate remedy, where it would require constant supervision by the court to enforce it, and/or where it would be equivalent to a remedy of specific performance for personal services.
The process of obtaining an injunction
The process for obtaining an injunction will necessarily depend on the type of injunction sought. Final injunctions aside (which follow a judgement, and therefore do not require an application process to be actively followed), the process for obtaining an interim injunction is set out below.
In a domestic context, applications for interim injunctive relief will require an application notice, a draft order and evidence in support. The evidence will need to be persuasive and address the considerations referred to above. The ultimate question of whether an injunction should be granted will then be decided at a court hearing.
An important question when seeking an interim injunction is whether or not to give notice of the application to Respondent, and if so, how much. If there is a risk of a Respondent disposing of assets before an injunction is made, then it might be appropriate for the injunction to be sought “without notice”. If, however, an injunction is made without notice, then the Applicant will have a “full and frank” duty of disclosure to the court (meaning that the Applicant will need to set out all relevant facts that support, but also weigh against, the making of an injunction by the court). Where an injunction has been made without notice, the court will usually set a “return date” for the injunction application, at which all parties will typically be present and the court will decide whether the injunction should continue.
Where notice of an application is given (i.e. the application is made “on notice”), interim injunction applications should typically be served at least 3 clear days before the court hearing. Once served, there are often benefits in early correspondence with the Respondent and his/her solicitors (which, for example, might result in the Respondent giving undertakings as an alternative to an injunction being made).
The giving of undertakings by a Respondent can be used to avoid a contested hearing and/or an interim injunction order being made. Because these undertakings would be given by the Respondent to the court, and supported by an order of the court, the Respondent would be liable for contempt of court in the event of breach, in the same way he/she would be liable for breach of an injunction. From the Applicant’s point of view, there is accordingly no practical disadvantage in undertakings being given instead. From the Respondent’s point of view, the giving of undertakings can be an effective way of taking the “sting” out of an injunction application, avoiding unnecessary costs, and the potentially serious financial and reputational issues for a Respondent if a hearing proceeds in open court and/or an injunction order is made.
Whether you are an Applicant or Respondent it is imperative that proper consideration is given to any injunction application, and that early legal advice is sought. Our firm has vast experience in this area and is happy to assist you.