Interlocutory injunctions and undertakings as to damages

An interlocutory injunction is an order made by the Court prior to trial either preventing or requiring some undertaking to be taken by one or more parties.  The Courts acknowledge that the imposition of such an interlocutory injunction on a party is not necessarily final and is subject to change.  As such, an undertaking as to damages is usually required by the party seeking an interlocutory injunction (Applicant).  This article discusses the established principles the Court will use to discern whether an Applicant has an adequate case for granting an interlocutory injunction.

When will an interlocutory injunction be granted?

The Federal Court has jurisdiction pursuant to section 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) to make interlocutory orders of such kinds as they think appropriate.  Before granting an injunction, the Court will consider that the purpose of granting interlocutory relief is to:

“…ensure the effective exercise of the jurisdiction invoked’ and ‘to prevent frustration of its processes.”[1]  

In the context of trade mark or patent infringement, an interlocutory injunction is usually seeking the same relief as would be sought at trial.  That is, an injunction preventing the defendant from using the trade marked or patented property.  Such an order would typically have serious and enduring effects upon the party it restrains.

The case of American Cynamid Co (No 1) v Ethicon Ltd [1975] AC 396 (American Cynamid) is an early decision recognising the impact an interlocutory injunction may have on a defendant (Defendant).  From this decision, two (2) key principles were established for the Court to consider before granting an application for an interlocutory injunction:

  • whether the applicant has a strong or merely arguable case (Strong Prima Facie Case);[2] and
  • the adequacy of damages, or an undertaking as to damages, as a remedy (Adequacy of the Undertaking as to Damages).

The two (2) other principles stated in Samsung Electronics Company Ltd v Apple Inc [2011] FCAFC 156 (Samsung) in considering whether to grant an interlocutory injunction are not to be considered in isolation from each other:

  • whether the Applicant has made out a prima facie case;
  • whether the balance of convenience and justice favours the grant of an injunction are related inquiries.

Strong Prima Facie Case

It needs to be observed on the evidence available at a pre-trial hearing that the Applicant seeking an interlocutory injunction has a strong action for infringement of the respective IP rights.  English Courts have held it necessary to show ‘a probability that the plaintiff is entitled to relief’,[3] of ‘a [S]trong [P]rima [F]acie [C]ase that the right which is sought to protect in fact exists.’[4]

This requirement is simple and straightforward and will be assessed in light of the relevant provisions in the circumstances.  That is, in an action for infringement of trade mark a Strong Prima Facie Case must be determined by looking to the provisions of the Trade Mark Act 1995 (Cth).

Adequacy of the Undertakings as to Damages

The proposition established in American Cynamid is echoed in The Federal Court of Australia Practice Note “Usual Undertaking as to Damages Practice Note  (GPN-UNDR) which describes the conditions that must be satisfied by an Applicant regarding the usual undertaking as to damages.  The relevant provisions are:

“2.1 Before the Court will grant an interlocutory injunction, the party seeking the order will almost always offer or be required to give to the Court the “usual undertaking as to damages” (set out below).

 2.2 The “usual undertaking as to damages” if given to the Court in relation to any interlocutory order made by it or any interlocutory undertaking given to it, is an undertaking:

(a)      to submit to such order (if any) as the Court may consider to be just for the payment of compensation, (to be assessed by the Court or as it may direct), to any person, (whether or not that person is a party), affected by the operation of the order or undertaking or any continuation (with or without variation) of the order or undertaking; and

(b)      to pay the compensation referred to in (a) to the person affected by the operation of the order or undertaking.”

 In the matter of Cambridge Credit Corporation Ltd (Receiver Appointed) v Surfers’ Paradise Forests Ltd  [1977] Qd R 261, Dunn J considered an undertaking as to damages by an impecunious plaintiff, holding at 264:

“The lack of worth in the undertaking is therefore in my opinion a potent factor to take into account when deciding whether to make an order which must be based upon a provisional opinion concerning the questions of fact and law argued before me.  … In my opinion an undertaking may be illusory for reasons other than the shadowy nature of the claim.  It may be illusory if it is and is known to be words without substance, in which case it is difficult to my mind to see how it be given in good conscience.

Justice Dunn went on to acknowledge that an undertaking as to damages provided by an impecunious Plaintiff/Applicant may have some merit if the plaintiff owns property, but in circumstances where they do not such undertaking is without value.

It was held to be the duty of the Court to protect the Defendant/Respondent in such circumstances.  Further, there have been a variety of cases which establish a requirement that the Plaintiff/Applicant adduce evidence of its financial capacity to meet the undertaking,[5] and that its financial resources are relevant to the Court’s discretion to make an interlocutory injunction.[6]  Despite these cases, the Court may overlook an inability of a plaintiff to provide the appropriate undertakings where the consequences of being denied an interlocutory injunction are serious.[7]  In other words each case turns on its own facts.

Takeaways to consider in interlocutory injunctions

The Courts have observed they have a duty to protect defendants throughout interlocutory proceedings and will not be quick to grant an injunction where an Applicant cannot provide an adequate undertaking as to damages.  In circumstances where an Applicant has provided an undertaking, they must also show that the have a Strong Prima Facie Case.

Links and further references

Related articles

Injunctions an introduction Australia

Interlocutory injunctions in patent disputes.

What is an injunction?

Legislation

Federal Court of Australia Act 1976 (Cth).

The Federal Court of Australia Practice Note “Usual Undertaking as to Damages Practice Note.

Trade Mark Act 1995 (Cth).

Cases

American Cynamid Co (No 1) v Ethicon Ltd [1975] AC 396

Blue Seas Investments Pty Ltd v Mitchell (1999) 25 Fam LR 65

Bunn v British Broadcasting Corporation [1998] 3 All ER 552

Corporate Transport Services v Toll (2005) 214 ALR 644

Donnelly v Amalgamated Television Services Pty Ltd (1998) 45 NSWLR 570

Jones v Papaya Rubber and Produce Co Ltd [1911] 1 KB 445

O’Kane v ANZ Banking Group (NZ) Ltd (1992) NZ ConvC 91

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1.

Smith v. Grigg Limited [1924] 1 K.B. 655, 659

Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg (1986) 11 ACLR 337

United Pacific Industries Pty Ltd v Madison Sports Pty Ltd (1998) 41 IPR 546

Further information

If you need advice on managing, defending or preparing for an interlocutory injunction, contact us for a confidential and obligation free discussion:

Malcolm BurrowsMalcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013 (Preferred)
Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au

Disclaimer

This article contains general commentary only.   You should not rely on the commentary as legal advice.   Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1.

[2] See also Smith v. Grigg Limited [1924] 1 K.B. 655, 659 (Atkin LJ).

[3] Smith v Grigg Ltd [1924] 1 KB, 659.

[4] Jones v Papaya Rubber and Produce Co Ltd [1911] 1 KB 445, 457.

[5] United Pacific Industries Pty Ltd v Madison Sports Pty Ltd (1998) 41 IPR 546, 557.

[6] Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg (1986) 11 ACLR 337 at 34`-343; Bunn v British Broadcasting Corporation [1998] 3 All ER 552, 558; Donnelly v Amalgamated Television Services Pty Ltd (1998) 45 NSWLR 570, 575-576; Blue Seas Investments Pty Ltd v Mitchell (1999) 25 Fam LR 65, 75; Corporate Transport Services v Toll (2005) 214 ALR 644, [44].

[7] O’Kane v ANZ Banking Group (NZ) Ltd (1992) NZ ConvC 91, 234.

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