Injunction Orders: To continue or not?

An Injunction Order is the third most serious category of directive that an English Civil Court may make.  The first is committal to prison for contempt; the second is the sequestration (that is, seizure) of a person’s assets to satisfy a Judgment debt; and the third is the Injunction Order.

The purpose of such is to maintain the status quo or prohibit undesirable consequences which might render empty and valueless the outcome of a trial.  For instance, a Court may order that the subject matter of a dispute should be preserved until its true ownership can be decided.  A Court may direct that one party cease some troublesome actions or conduct pending resolution of the dispute at trial.

An Injunction may either be mandatory in character (directing a party to do something – for instance delivering up a valuable item into the custody of a third party to be held until the dispute is resolved) or prohibitory (preventing undue interference or conduct which may lead to irremediable consequences).

These matters fell to be considered within the case of Valbonne Estates Limited (VEL) v. Cityvalue Estates Limited (CEL) and United Homes Limited (UHL) [2021] EWHC 544(Ch).

  1. The Facts

The brief facts were these.  On 10th December 2020 the Court granted VEL pre-action injunction.  It was prohibitory.  It restrained CEL from selling or otherwise dealing with property in East London known as The Beckton Arms (“the Property”).

The Injunction also restrained UHL from acquiring any interest in the Property.

Both CEL and UHL were prohibited from seeking to register any dealings in the Property at HM Land Registry – and thus frustrating VEL’s claims.

The hearing on 20th ?? for the Court was to decide whether or not the injunction granted in favour of VEL should be continued until trial.

CEL and UHL argued that it should be set aside because VEL had failed to make full and frank disclosure to the Court when asking for the injunction to be granted.

CEL and UHL also argued that were the injunction continued it would be ineffective; this was because a sale by CEL to UHL had been completed before the grant of the injunction; that UHL had not been joined as a party and VEL’s case did not disclose any legitimate proprietary interest in the Property.

VEL and CEL were both companies owned by members of the ultra-orthodox Jewish Community in North London.  The leasehold value in the Property was disputed. 

2.         The kernel of VEL’s case

In January 2015 VEL and CEL had exchanged contracts for the purchase of the Property.  The price agreed was £495,000.  Completion had been set for 27th February 2015.  One of the conditions for completion was that permission to sell (ie assign) the lease, the remainder of the lease should be obtained from the freehold, the London Borough of Newham.  There were difficulties in getting Newham’s consent.

This in turn led to a dispute between VEL and CEL.  VEL, in an attempt to protect their interests, registered a Special Restriction against the title to the Property (a Unilateral Notice) which effectively put any third party buyer on notice of the contract for sale between VEL and CEL. 

In 2018, without having resolved their differences, VEL and CEL agreed that the dispute should go to arbitration before the Beth Din (a Rabbinical Court of Judaism).

3.         Option Agreement : CEL/UHL

Before the Beth Din had decided the arbitration it emerged that in 2017 CEL had made an Option Agreement with UHL (a non-Jewish buyer) giving the latter an option to buy the Property for the appreciably higher sum of £2,000,000.  VEL learned of this during the Beth Din arbitration process.

4.         The Beth Din decision

On 1st October 2020 the Beth Din found that VEL was entitled to complete its purchase and had to provide completion funds within 28 days.  CEL were then to transfer the Property to VEL.  This was the First Award.

5.         Funds

For various reasons the funds were not transferred by VEL to CEL within 28 days.  There followed a further hearing before the Beth Din.  They made a Second Award which directed that VEL should pay to the Beth Din £500,000 (by way of completion funds) after the which CEL was required to provide VEL with the requisite form enabling VEL to become the leasehold owner (TR1).

6.         Third Award

There was a Third Award: this recorded that CEL had notified the Beth Din that the TR1 had been signed in favour of a non-Jewish buyer and that accordingly the Rabbinical Court had no power to enforce “anything in this matter”.  On that footing the Beth Din stated that VEL could bring proceedings against both UHL and CEL in the secular courts, but that any claim for damages against C had to be pursued in the Beth Din.

7.         Non-disclosure by CEL

At the hearing on 19th November 2020 CEL failed to inform the Beth Din that it had already signed a Transfer form (TR1) on 4th November 2020 purporting to transfer the ownership of the Property to UHL.

8.         The Injunction Application

By reason of these events, VEL applied for an Injunction Order against both CEL and UHL to restrain any dealings with the Property.  In support they produced evidence of the arbitration agreement but failed to disclose the existence of either the Second or indeed Third Award.

9.         VEL’s arguments

At the hearing VEL argued that the proposed sale of the Property (from CEL to UHL) could take place at any time; that VEL was unable to put material before the Court as might disclose an arguable basis on which CEL could resist its claims; that the Property was owned by CEL (not VEL or UHL) and that CEL were unaware of any counter-argument that might be raised by either CEL or UHL to contradict this assertion.

10.        Contents of the Injunction Order

This effectively prohibited both CEL and UHL from having any dealings in the Property.

11.        Questions for the Court

There were essentially two questions for the Court to decide:

  • Whether VEL had committed material breach of its obligation to make full and frank disclosure when applying to the Court for its Injunction Order;
  • If VEL was in breach, whether the Court should in any event employ its discretion to continue the Order or (if discharged) re-impose the Injunction immediately thereafter.

11.        Duty of full and frank disclosure : the Law

It is well established that when applying for a ‘without notice’ Injunction the duty of full and frank disclosure requires the Applicant to draw the Court’s attention to

“Significant factual legal and procedural aspects of the case”.

The authority for this proposition is Tugushev v. Orlov [2019] EWHC 2013 (Com).

It follows that where there has been a material and significant failure by the Applicant to give full and frank disclosure, the general rule is that an injunction obtained on that basis should be discharged and without renewal.  There are two sound policy reasons for this approach: the first is to deprive the wrongdoer of an advantage improperly obtained; the second is to serve as a deterrent to others.

12.        Residual discretion

The Court retains a residual discretion nonetheless.  It may decide to continue the Order or to grant a fresh one – notwithstanding a failure to disclose.  However, that discretion should be exercised sparingly but with the overriding consideration that the interests of justice are paramount.

13.        Material breaches : the present case

The Court found as follows:-

  • It was said that the Second Award constitutes a written decision handed down by the Beth Din on 30th November 2020.  This assertion was comprehensively inaccurate.  The Second Award was given on 19th November 2020.  It was a purely oral decision.  It was never committed to writing (whether in Hebrew or English).  Moreover – as VEL knew when applying for the Injunction – the terms of that oral Second Award were disputed.
  • There were additional allegations in which it was asserted that there was never a formal Second Award; where it was denied that the Second Award was to replace the First. 
  • The Court found that the Court had been seriously misled into what it had been told about the Second Award.  The terms of the Second Award were critical to VEL’s application.  If VEL had failed to comply with the 28-day time limit imposed by the First Award, then prima facia it had no basis to bring a claim to enforce the Purchase Agreement.
  • VEL’s substantive claim against CEL only got off the ground if the 28-day time limit in the First Award had been formally and validly extended.
  • On applying for the Injunction, the Court had been told that VEL had funds available to complete its intended purchase.  In fact it was said that VEL had deposited the requisite sum of £500,000 with the Beth Din in compliance with the Second Award.  No mention was made of the fact that this amount had been returned to VEL (at VEL’s request) 8 days later.
  • VEL had also failed to mention that it had been told (on 29th November 2020) that the Property had in fact already been sold to UHL.  This was a highly material fact: as VEL knew CEL’s assertion that the Property had already been sold to UHL was the express basis for the Third Award – permitting VEL to bring its civil claim.  The very premise of the application for the injunction was the contention by CEL that a transfer to VEL could no longer take place.

14.        Summary

The Court decided that the non-disclosures and inaccurate representations comprising:-

  • The nature and content of the Second Award;
  • The fact that completion funds for the Property had been returned by the Beth Din to VEL;
  • The fact that VEL had been told that the sale to UHL had already completed; and
  • The failure to disclose alleged connections between CEL and UHL and UHL and a potential further buyer (“BDL”)

Were all substantial matters, the more so when taken together.  The Court decided that the breaches of duty of full and frank disclosure were neither inadvertent nor accidental, and that the starting point must be the discharge of the Injunction Order.

15.        Continue or re-grant of Injunction

The Court decided that it should not exercise its discretion to continue or re-grant the Injunction, even allowing for the serious breaches have occurred.  VEL had failed to demonstrate that injustice would result.

On the facts, the sale CEL – UHL (prohibited by the Injunction Order) had completed on 4th November 2020 and had been registered at HM Land Registry on 10th December 2020.  Accordingly, the sale which the injunction sought to prohibit had already taken place.

The case for re-grant or renewal was fatally undermined by the fact that VEL was unable to establish any proprietary claims against the Property.

Accordingly the court decided that the injunction should be discharged and would not be re-granted.

16.        General

This case if at all emphasises the strict and onerous duty of providing to the Court at the outset all information which may be of importance or informing the Court’s deliberations on the question as to whether an Injunction is to be granted or not.