Interim Injunctions in property cases: American Cyanamid revisited
It is now 36 years since Lord Diplock laid down his guidelines as to the courts' approach to the granting of interim injunctions (pending a trial on the merits) in the well known and leading case American Cyanamid [1975] AC 396. Despite its vintage, American Cyanamid is the case to which practitioners will need to turn in order to decide whether or not a court is likely to grant an interim injunction to restrain a potential defendant from the matters his client is complaining of. This article will look at the application of the American Cyanamid principles in property cases.
Firstly, a reminder the of the limbs of the American Cyanamid guidelines which the court will apply systemically:
1. Is there a serious issue to be tried? The claimant does not need to show a prima facie case, in the sense of convincing the court that, on the evidence before it, he is more likely than not to obtain a final injunction at trial. As Lord Diplock held at 406G-407G:
"The evidence available to the court at the hearing of the application for an interim injunction is incomplete. It is given on affidavit and has not been tested by oral cross-examination. The purpose sought to be achieved by giving to the court discretion to grant such injunctions would be stultified if the discretion were clogged by a technical rule forbidding its exercise if on that incomplete untested evidence the court evaluated the chances of the claimant's ultimate success in the action at 50% or less, but permitting its exercise if the court evaluated his chances at more than 50%........there is no such rule.....the court no doubt must be satisfied that.....there is a serious question to be tried...."
This "serious issue to be tried" preliminary hurdle is often the easiest of the American Cyanamid guidelines for a claimant to satisfy.
2. Adequacy of damages to either party: would the claimant be adequately compensated by an award of damages at trial? The next question, if the court considers that there is a serious issue to be tried, is this: if the claimant were to succeed at trial in establishing his right to a permanent injunction, would he be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. As Lord Diplock held at 408B-C:
"If damages....would be an adequate remedy and the defendant would be in a financial position to pay them, no interim injunction should normally be granted, however strong the claimant's claim appeared to be at that stage"
This is a very powerful tool in the hands of a defendant to an interim injunction application; and is probably the prime reason for the failure of interim injunction applications. If the defendant can demonstrate that the nature of the matters complained of by the claimant are in the nature of pure financial losses (so compensatable in damages) then an injunction will normally be refused, however strong the claimant's case.
However, if damages would not adequately compensate the claimant for the temporary damage, and the claimant is in a financial position to give a satisfactory undertaking in damages, and an award of damages pursuant to that undertaking would adequately compensate the defendant in the event of the defendant succeeding at trial, an interim injunction may be granted.
3. Is there a doubt as to the adequacy of damages? As Lord Diplock held at 408E:
"It is where there is a doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of the balance of convenience arises".
By definition, once the investigation has reached this third stage, the decision of the court, whether in favour of or against an injunction, will inevitably involve some disadvantage to one or the other side which damages cannot compensate. The extent of this "uncompensatable disadvantage" either way is often a significant factor in determining the "balance of convenience".
4. Status Quo: Lord Diplock held at 408F:
"Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo"
These words illustrate how essential it is for a claimant to move quickly if applying for an interim injunction. In many cases prompt action may mean that the preservation of the status quo favours the claimant as the defendant's activities are still at a preliminary stage.
The application of the American Cyanamid principles were illustrated recently in Loughman v. Network Rail (3rd August 2011, Ch D, unreported).
Loughman, a construction company, was a commercial tenant of storage premises in east London. Loughman possessed a number of storage premises in and around London. Network Rail was Loughman's landlord under a 15 year lease. In January 2011, Loughman served notice to terminate its lease by service of a 6 month break notice under a break clause in its lease. Loughman, however, failed to stipulate a termination date in its break notice. Network Rail, who wished to develop the premises themselves, was pleased to receive the break notice (as it fitted in with its own development plans). Network Rail therefore accepted the termination of the lease, and set a termination date of 13th July 2011. Loughman then learned that the premises had development potential, so changed its mind, and contested the validity of its own break notice on the basis that, in the absence of its break notice stipulating a break (termination) date, it was impossible for either party to know when the lease terminated. Leaving aside any estoppel arguments preventing Loughman from challenging its own notice, the consequence of this argument was that Loughman argued (rather unusually) that its own notice was invalid and it was entitled to remain in possession. Network Rail did not accept Loughman's arguments and, on 14th July 2011 in the early hours of the morning, it changed the locks to the premises, thereby excluding Loughman. Loughman then applied for an interim injunction requiring Network Rail to allow Loughman back into the premises pending a trial of the determinative issue of the validity of the break notice.
Addressing the American Cyanamid guidelines, Network Rail accepted that the issue of whether or not Loughman's break notice was invalid was a "serious issue to be tried". Thus, Loughman had surpassed the first hurdle in American Cyanamid.
However, Network Rail argued that damages were an "adequate remedy" for Loughman so an interim injunction should be refused. The court (Mr Justice Roth) agreed for essentially two reasons. Firstly, Loughman had other storage premises in London which it had been operating from since 14th July 2011, and although it would be more expensive for Loughman to continue to operate from those alternative premises pending trial, that was a financial loss for which damages would be an adequate remedy at trial. The other losses that Loughman would be exposed to, such as the costs of moving equipment back the premises in the event it succeeded at trial, were also financial losses that would be compensatable by Network Rail as damages at trial. If damages were an adequate remedy then, as Lord Diplock held in American Cyanamid, it does not matter how strong a claimant's case is in such circumstances, an interim injunction will be refused. As a secondary reason, the court noted that Loughman had been a little slow to apply for an interim injunction, waiting 3 weeks. This illustrates that, if you are to apply for an interim injunction, you must apply to the court as soon as possible. In most cases, this will mean applying to the court within a week of the alleged infringement of the claimant's rights. A potential claimant who is dilatory runs the risk that the court will infer that the claimant can cope with an interim remedy and refuse relief.
What are the lessons from Loughman? Firstly, as indicated above, a claimant must not delay in making its application. Time is of the essence in such applications. Secondly, the claimant must ensure that it will not be defeated by the defendant's likely "damages are an adequate remedy" argument. For example, if the facts had been that the premises in Loughman were its only, and central, operational premises, to which attached its customer goodwill, Loughman may have had a stronger case for an injunction on the basis that these specific premises were crucial to its business. As matters stood, the premises were only one of a number of satellite storage premises that it used. It could not be argued that these premises were pivotal to Loughman. Thus, any losses could be compensated in damages.
In what other factual situations in a property dispute is an interim injunction likely to be considered? The following are common examples:
(a) to restrain trespass to land by a persons or structures; or to compel the removal of overhanging structures; or to order the removal of a tree whose roots are causing damage to a wall (Elliott v. Islington LBC [1991] 10 EG 145);
(b) to exclude a defendant from his home so as to stop a serious nuisance committed against a neighbour (Liburd v. Cork [1981] CLY 1999; and more recently injunctions against anti-social behabiour (Housing Act 1996, s.152);
(c) to restrain an infringement of a right to light; and to compel the removal of structures so built (Pugh v..Howells (1984) 48 P&CR 298);
(d) to protect a licence to occupy premises;
(e) to restrain the sale of land to a third party when the vendor has already agreed to sell it to the claimant;
(f) to enforce a local authority's right to buy (Dance v. Welwyn Hatfield DC [1990] 1 WLR 1097).
(g) an application by a landlord to restrain subletting or assignment in breach of the terms of a lease;
(h) an application by a tenant to restrain harassment; and to compel the landlord to allow peaceful re-entry;
(i) an application by a tenant to enforce the landlord's liability to repair under the Defective Premises Act 1972 (Barrett v. Lounova Ltd [1989] 1 All ER 351).
In conclusion, therefore, a potential claimant considering applying for an interim injunction should carefully weigh in a systematic way the American Cyanamid guidelines in coming to a decision as to whether the application is justified. Just do not delay in arriving at that decision.
For further information about Chambers or any of its barristers, please Contact our Senior Clerk, Greg Piner.