Introduction
Facts
Strike-out application
Decision
Comment
Injunctions are regarded as one of the most powerful weapons in a litigator's armoury. They can be granted (initially at least) without notice to the defendant. This deviation from the fundamental rule of natural justice – that all parties should be heard – carries with it the safeguard of 'full and frank disclosure'. This duty requires applicants to disclose to the court all matters relevant to the exercise of the court's discretion, including all material facts of which the court should be aware, thereby giving a fair account of the case for and against the granting of the injunction and raising points and defences that would have been available to the defendant had it been present.
Crucially, the duty of disclosure is ongoing. Where the applicant becomes aware of information that renders its original court statements incorrect, it must return to court to inform it of that change, or at the very least inform the defendant.
The High Court decision in Speedier Logistics v Aardvark Digital(1) highlights both the extent of that duty and the potential consequences of failing to comply with it. It also serves as a useful reminder of the continuing nature of the obligation, which survives even the contested on-notice hearing.
The general principle is that where a party has derived a benefit from the exercise of the court's discretion on a particular basis and that basis no longer exists, the party must either obtain consent from the other party for the continuation of the injunction or return the matter to the court for it to decide whether the injunction should continue and, if so, on what terms.
The decision arose from an application both for a freezing injunction (originally granted on February 14 2008 and subsequently replaced by a second order) and to strike out the claim (together with certain applications relating to disclosure). Aardvark Digital (which traded as Proactive Fitness, selling fitness equipment online) successfully applied to discharge an injunction prohibiting it from diminishing the value of a consignment of goods released to it by Speedier Logistics Company Limited.
In 2007 Speedier (a Taiwanese freight forwarder) had been engaged by a Chinese supplier, Ningbo Trends Fitness Equipment Company Limited, to transport Aardvark's order to England. The cargo landed in Felixstowe around January 17 2008. The consignment of three containers was mistakenly released to Aardvark on arrival, before Aardvark had paid Ningbo for it. Speedier alleged that Aardvark did not respond to notices to surrender the cargo. Speedier feared that Ningbo would sue it for negligence and/or breach of contract – Ningbo having said that it had not been paid by Aardvark for all or part of the goods – and wanted to preserve its right to ship them back to China.
Speedier was granted an injunction prohibiting Aardvark from disposing of the goods, diminishing their value or moving them from specified premises. In its application for that injunction, Speedier contended that the balance of convenience fell in support of the granting of the relief sought, as Ningbo might issue proceedings against Speedier for breach of contract and liability for the loss of the cargo.
The substantive section of the original order comprised two parts. In effect, the first part operated to preclude Aardvark from moving the cargo from its location or dealing with or diminishing the value of the cargo. The second part was a freezing injunction, prohibiting Aardvark from removing its assets within the jurisdiction (up to the value of $94,675) or in any way disposing of, dealing with or diminishing the value of such assets (up to the same sum), whether within or outside the jurisdiction.
The matter came back before the court in an inter partes hearing on February 28 2008. At that hearing Speedier accepted that the general freezing injunction part of the original order should be discharged. Aardvark accepted that Speedier had an arguable case on its claim and that it should be required to retain ownership of the cargo pending resolution of that claim. The judge ordered that the asset-freezing injunction be discharged by consent, but the first part – which concerned the prohibition on dealing with the cargo – should remain in force until judgment or further order.
Proceedings were then stayed by agreement to allow Aardvark to negotiate with Ningbo. Thereafter, Ningbo brought proceedings against Speedier in China (as had been anticipated by Speedier). Ningbo's claim in China failed at first instance in 2008 and on appeal on September 11 2009. Aardvark was unaware of the Chinese proceedings until mid-2012.
Between October 2 2009 and July 2 2012 there was no communication between Speedier and Aardvark, until Speedier's solicitors received a letter from Aardvark asking Speedier to discharge the freezing injunction and discontinue the claim. In the course of further correspondence, Aardvark became aware of the Chinese proceedings. Shortly after this revelation, Aardvark issued the application in question.
Aardvark(2) applied to the court for discharge of the injunction, contending that Speedier had been under a continuing duty of disclosure in respect of the Chinese proceedings and had acted in breach of that duty. In addition, it sought to strike out Speedier's claim for the return of the consignment.
The court considered three main issues:
- What is a claimant's duty in circumstances where events occur after the date of the injunction which render information previously given to the court no longer correct?
- Was that duty (whatever that duty might be) complied with?
- What are the consequences of failure to comply with that duty for interim relief granted by the court?
The court approached the issues as a matter of principle. It regarded the original application as one inviting the court to exercise its discretion under Section 37 of the Senior Courts Act 1981. Where the court exercises its discretion, certainly on an ex parte basis, the information given to the court must be full and frank. Counsel for Speedier suggested that once there had been an inter partes hearing, there was no longer any obligation on the part of a claimant to revert to the court, even in circumstances where the basis of the information given to the court had subsequently changed. This was not an argument that the court found at all attractive.
Aardvark had also applied to strike out Speedier's claim for return of the consignment. Ultimately, the application was fatally undermined by the fact that it had always been open to Aardvark to bring the matter back to court to advise of the difficulties (both in terms of dealing with evidence much later than might otherwise have been the case and financial prejudice in relation to ongoing costs, and with regard to the effect on the business of the injunction) and to pursue an early determination of the proceedings.
Injunction
There had been no reason for Speedier not to inform Aardvark or revert to the court once the Chinese proceedings had concluded, which resulted in a substantial change in the information on which it had previously relied. The crucial reason why it should have brought the matter back before the court was that the exercise of the court's discretion in granting the injunction had been on a specific basis, and it was therefore a matter of principle that the court should have been informed of the material change to that basis. By failing to inform Aardvark or the court for three years, Speedier did not comply with its duty to disclose the information within a reasonable time, and it was proper for the injunction to be discharged.
The court mentioned in passing that in relation to both freezing injunctions and injunctions generally, in circumstances where a party had derived a benefit from the exercise of the court's discretion on a certain basis and that basis no longer exists, it is imperative that the party either obtain the consent for the continuation of the injunction from the other party or return the matter to the court for it to decide whether and how the injunction should continue.
Strike-out application
Aardvark sought to strike out the claim on the basis of abuse of process, estoppel and want of prosecution. It relied on the fact that after the Chinese proceedings had concluded, Speedier had done nothing to bring the matter back before the court or pursue the claim. It was further submitted that the delay from September 2009 to July 2012 had caused Aardvark substantial prejudice.
The court was not persuaded by this argument and did not consider that it warranted the draconian conclusion of striking out the proceedings. It had been open, at all times, to Aardvark to bring the matter back before the court and thereby to continue the proceedings.
The court further held that there was no basis for an estoppel argument. The case did not depend on any third party or any potential liability to a third party.
The court also found it difficult to imagine that the injunction had had the substantial impact that Aardvark claimed. Even if it had, it had always been open to Aardvark to bring the matter back to court to advise of the difficulties.
This case provides a salutary lesson to any successful applicant for injunctive relief: it should not leave the court believing that it has closed the door on its duty of full and frank disclosure. On the contrary, that duty merely begins on the application to court for the injunction, and the applicant that does not recognise its continuing hold is liable to lose its relief.
The judge could not have put it more starkly than when he stated:
"I cannot see any reason in principle, in circumstances where the claimant becomes aware of information which renders what that claimant told the court originally incorrect, not being under a duty to go back before the court to inform the court that there has been that relevant change, or, at the very least, to inform the defendant of those new circumstances."
However, the court was not prepared to take the far more draconian step of striking out the claim. To do so would have punished Speedier twice for its failure to notify the court of the new circumstances in relation to the Chinese proceedings.
For further information on this topic please contact Adam Forster at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).
Endnotes
(2) Aardvark was represented at the hearing by an employee who was neither a barrister nor a solicitor. The judge permitted this highly unusual approach, but not before he had considered the position in some detail and made clear that in so doing, it was "absolutely plain that that permission I granted was an exceptional exercise of discretion. It forms no precedent whatsoever, either in this case or in any other case".
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