Stemming the Tide of Frivolous Injunctions with Enforcement of Undertaking as to Damages

In this article, Efe Etomi and Elvis Asia, discuss the way in which Applicants frivolously obtain interim injunctions in court, which end up doing more harm than good, to economic activities. They believe that there must be consequences for such flippant actions, and therefore, suggest a viable solution to stemming this tide, with the aid of the rules of courts, starting with the Committee which is presently reviewing the Lagos State High Court Rules, hoping they may take a cue from their suggestion

Amajor challenge of resolution of disputes in Nigeria, is the inappropriate use of injunctions. Although the main essence of an interlocutory injunction, is to protect a legal right pending the determination of an action, it is common practice today for applicants to apply for injunctions to ‘steal a march’ on the defendant. These injunctions include Mareva Injunction, which is a worldwide freezing injunction, Anton Piller injunction in intellectual property claims, and other Interim Injunctions. In all such cases, businesses are crippled, funds are frozen, contracts are put on hold, property development is prevented, goods are wasted and economic activities are curtailed. These all happen in most cases, before the defendant is put on notice. By the time the substantive matter is determined or the application is set aside, the defendant would have suffered severe damages.

The writers of this article were involved in a matter, where the petitioner in a winding-up proceedings obtained injunctions against a public company in ‘camera’. The tenor and effect of the injunctions were such that, the company’s activities would cease even before it was served the petition. The Judge refused to deliver ruling on the application to discharge the orders, for almost two years. It took the intervention of the Court of Appeal, to set aside the orders.

Rules of various courts have attempted to reduce the effect of injunctions, by limiting the life span of ex parte orders. The appellate courts, have in many cases, expressly disapproved of undue application and grant of injunctions, because of its effect on the constitutional right to fair hearing. However, these attempts have not stemmed the tide, largely due to the slow movement in dispute resolution in our courts, lack of accountability by Lawyers, and external influences in the judicial process.

Control Mechanism

There is however, an important control mechanism for discouraging the abuse of injunctive reliefs, which is strangely not explored in Nigeria. A condition precedent for the grant of injunctive reliefs, is that the applicant must undertake to compensate the defendant in damages, if it is later determined that, the applicant was not entitled to the relief granted by the court. This requirement, is an equitable safeguard against frivolity in seeking injunctions. The effect is that, where an applicant wrongly applies for an injunctive relief and the orders are subsequently set aside, the applicant is bound to compensate the defendant upon an assessment of loss, made by the court. It is also possible for other persons who were not parties to the action, to claim damages from the applicant, if they were affected by the orders.

The undertaking as to damages and the consequential right of a defendant to apply for assessment of loss, are powerful tools in curbing frivolous injunctive applications. Injunctive reliefs are important in deserving cases, but applicants open themselves to claims in serious damages, when the order is wrongly sought. The damages that a defendant may be entitled to include: General Damages for loss of business, Special Damages, such as damages for loss of profit and future trade, and Aggravated and Exemplary Damages, in cases where an applicant deliberately conceals information from the court, at the time of making the application.

In ideal and advanced jurisdictions where civil procedure rules are express on the issue, an applicant must carry out a serious costbenefit analysis, before seeking an injunctive order. The decision to apply for injunction is tactical, and not a box-ticking exercise as practiced in Nigeria. Lawyers and litigants do not apply for injunctions, unless they are sure of their claims.

Although Nigerian law recognises the right of a party to claim damages upon an undertaking as to damages made by an applicant, it is not a common practice. As with most things, Nigerians prefer to leave things in the ‘hands of God’. This largely explains the frequent and inappropriate resort to application for injunctions. Given the frequency with which applications for injunctions are made, and what many have termed ‘Oluwole’ injunctions in Nigeria, one would expect that claims for damages would be a common practice. Our jurisprudence urgently needs a way, of self-regulating application for injunctions.

Procedure for Claim of Damages

The right of a defendant to apply for damages crystallises when the injunctive orders are set aside, after a finding that the applicant was not entitled to it, or when the substantive suit fails. The circumstances for setting aside of the injunction, is immaterial. It is settled law, that it does not matter whether the grounds for setting aside the injunction was of fact or law. The undertaking to pay damages applies, whether or not the applicant has been guilty of misrepresentation, suppression or other default in obtaining the injunction. The reason for the setting aside of the order, may only be relevant in determining whether aggravated damages can be awarded. This will be in cases where the applicant misrepresents or suppresses facts, to obtain the injunction.

Unlike in other jurisdictions, there are no provisions in our various Rules of Courts, on the procedure for enforcing undertaking. Judicial authorities are however; to the effect that, this can be done by way of application (motion on notice), requesting the court to enquire into the damage suffered, due to the unjustified injunctive reliefs. The application is made to the court, in which the undertaking was given. Upon the grant of the application, the applicant is ordered to establish the damage suffered. Nothing stops a party from filing a fresh action to make the claims, but that approach may take longer considering the demands of a new suit and the delay in the judicial process. It is easier to make an application in the same suit, and when granted, the court may order proof of damage by affidavit evidence to simplify the process.

Assessment of Damages

There has been no Nigerian case law found, where the principles for the assessment of damages has been expressly considered. However, in Onyemelukwe v Attamah (1993) 5 NWLR (Pt.293)350@366; Victory Merchant Bank v

Pelfaco Ltd (1993) 9 NWLR (Pt.317)340@356 and Anike v Emehul (1990) 1NWLR (Pt.128) 603 @ 610, the court decided that the amount of loss cannot be fixed at the time of giving the undertaking, because it is not predicated on damages which is known beforehand. This means that, the court will award any damages that is proven to have been suffered due to the injunction.

Persuasive authorities from the UK, have exhaustively laid down factors that Nigerian courts should take into consideration. Lord Diplock in Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry

[1974] 2 All ER 1128 @ 1150 stated that, the assessment is made on the same basis as damages for breach of contract. The application of contractual principles in assessment of

damages, was recently modified in the UK to introduce a liberal approach in Fiona Trust & Holding Corporation v Privalov and Others [2016]. In this case, the applicant got a freezing injunction with respect to a claim of $577 million. At trial, the applicant’s claim succeeded to a limited extent ($16 million damages). The value of frozen assets, far outweighed the damages awarded to the applicant. The defendant consequently, applied to enforce the undertaking as to damages. The court granted the application, and ordered the applicant to pay more than what it got from the case, in damages to the defendant.

The court held that, it would assess compensation using the contractual basis for assessing damages, by reference to the principles of causation, remoteness and mitigation. The court adopted the principle in Hone and others v Abbey Forwarding Ltd and

another [2014] EWCA Civ 711, to the effect that the court may make "logical and sensible" adjustments to the assessment, to reflect the fact that it is dealing with compensation for loss caused by an injunction that was wrongfully granted, rather than a breach of contract. The court added that, courts should adopt a “liberal assessment” of the defendants’ damage. It however, explained that, this did not mean that a defendant should be treated generously, in the sense of being awarded damages which it had not suffered, but the court had to recognise that the assessment of damages suffered as a result of an order, would often be “inherently imprecise” – for example, if the defendant could not precisely state what it would have done with the funds in that case, but for the freezing order.

It is not clear how the Nigerian courts will interprete and apply these decisions, but it is safe to say that, the strict principles on proof of damages in breach of contract, may be relaxed in claims of this nature. In addition, the conflicting decisions on whether general damages can be awarded for breach of contract, will not be relevant in claims pursuant to an undertaking in damages. The court would recognise the difficulty of establishing loss caused by injunctions, and will be flexible in determining whether damages have been proven in these cases.

Conclusion

A major way of stemming the tide of injunctive applications based on impulse in Nigeria, is for affected parties to insist on claiming damages from the applicants, where the injunctions obtained are eventually determined to be wrongful. Unfortunately, there seems to be lack of awareness by litigants, that it is possible for the party who unduly obtained injunctive orders, to be compelled to pay compensation in damages. Defendants are comfortable, with simply setting aside injunctive orders.

It is opined that, the Rules of Courts should be amended to include an express provision on procedure for claiming damages, where injunctive reliefs wrongfully obtained occasion damages to the defendant and third parties. This will encourage Lawyers and Litigants, to take advantage of this important legal procedure, in curbing undue applications for injunctions. The Lagos State Rules is currently undergoing review, it is hoped that the Review Committee, will consider this issue.

“....AN IMPORTANT CONTROL MECHANISM FOR DISCOURAGING THE ABUSE OF INJUNCTIVE RELIEFS, WHICH IS STRANGELY NOT EXPLORED IN NIGERIA. A CONDITION PRECEDENT FOR THE GRANT OF INJUNCTIVE RELIEFS, IS THAT THE APPLICANT MUST UNDERTAKE TO COMPENSATE THE DEFENDANT IN DAMAGES, IF IT IS LATER DETERMINED THAT, THE APPLICANT WAS NOT ENTITLED TO THE RELIEF GRANTED BY THE COURT”