INTERLOCUTORY INJUNCTIONS: PRACTICAL CONSIDERATIONS

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1 INTERLOCUTORY INJUNCTIONS: PRACTICAL CONSIDERATIONS By Steven Mason, McCarthy Tetrault McCarthy Tétrault LLP The right people. The right results.

2 - 2 - Interlocutory Injunctions Practical Considerations 1 Introduction Litigation is often a long and unwieldy process where parties often wait years to enforce their rights. One important exception to this rule is the interlocutory injunction. Because of the speed, timing and nature of this remedy, it can prove to be a powerful tool for the commercial litigator. Win or lose, an injunction can have an enormous impact on the future course of the litigation. A successful injunction will have the immediate effect of preventing the other party from doing what it set out to do (or forcing it to do something it does not want to do). It is a win for your client and a loss for theirs at an early but critical juncture in the litigation. Often it ends the litigation entirely. At a minimum, it can provide a serious advantage in any future settlement negotiations. In effect, the injunction turns the table on the litigation as now it is the defendant who is looking to the trial award in order to change a course of conduct. An injunction can be a big win, but it can also prove to be a significant loss. Injunctions can be expensive to prepare, and an unsuccessful bid can result in a large and immediate award of costs against your client. Even if granted, an injunction can turn out to be costly. Since the moving party must give an undertaking as to damages, if the successful moving party 1 By Steven Mason, Partner, McCarthy Tetrault. Mr. Mason would like to gratefully acknowledge the assistance of David Bross, an articling student at McCarthy Tetrault, in the preparation of these materials.

3 - 3 - ultimately loses at trial, they may be taking out their chequebook and writing a cheque to cover the damages incurred by the other side as a result of the injunction. An injunctions is an extraordinary remedy and is granted sparingly. The test for obtaining one is easy to state but frequently difficult to apply. The secret to success is in understanding whether your case fits the required test, marshalling the evidence needed to prove it, and determining the best method to bring this all before a court. If used properly and effectively, it can provide a powerful remedy for your client at a very early stage. The Test for Interlocutory Injunctions The first and most important practical consideration in determining whether to seek an interlocutory injunction is to determine whether you can win. To do so, you must have confidence that your client s case meets the criteria for granting injunctive relief. Although there are various formulations based on the type of injunctive relief the moving party seeks (see below), the general test in Ontario for an interlocutory injunction is most often cited to R.J.R Macdonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R It established a three-part test for granting an injunction: 1. Is there a serious issue to be tried?; 2. Will the applicant suffer irreparable harm if the injunction is not granted?; and 3. Which party will suffer the greater harm from granting or refusing the remedy pending a decision on the merits? (often called balance of convenience )

4 - 4 - Serious Issue to be Tried With some exceptions, the first branch of the injunction test is a low threshold. As stated by the Supreme Court in R.J.R. : Once satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third tests, even if of the opinion that the plaintiff is unlikely to succeed at trial. 2 Justice Heneghan of the Federal Court explained the review as being on the basis of common sense and a limited review of the case on the merits. 3 It is usually a very brief examination of the facts and law. In certain circumstances, the court will impose a more restrictive standard and require the moving party to demonstrate that it has a strong prima facie case. If the injunction will likely end the dispute between the parties, then the court may hold the plaintiff to this higher standard. Similarly, where the nature of the relief sought is mandatory or when the question is a question of mere law alone, then this higher standard will apply. 4 The courts have also required the higher standard in cases involving employment contracts. 5 Irreparable Harm In most injunction cases, proving irreparable harm will be the most significant and most difficult hurdle to overcome. It is here where most injunctions are won or lost. Accordingly, it is here where it is suggested that you focus most of your time and effort. 2 R.J.R Macdonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R Dole Food Co. v. Nabisco Ltd. (2000), 8 C.P.R. (4 th ) 461 (F.C.T.D.) 4 ibid. 5 Researcho Ltd. Partnership v. Real Estate Search Corp. (2004), 2004 CarswellOnt 4510 (S.C.J.)

5 - 5 - In order to show irreparable harm, the moving party must demonstrate that it is harm that cannot be quantified in monetary terms or which cannot be cured. 6 Harm to third parties will not be considered. It is only irreparable harm to the moving party. But what exactly is irreparable harm? Courts seemingly quantify irreparable harm every day, like the award of damages given to a victim of sexual abuse, or even for pain and suffering from a broken leg. Robert Sharpe, in Injunctions and Specific Performance, states that irreparable harm has not been given a definition of universal application: its meaning takes shape in the context of each particular case. 7 Irreparable harm will be considered on a case by case basis. Whether you are moving or responding, the cases can provide some assistance in gauging whether your client s damages are incalculable, and it is recommended that you thoroughly canvass them to determine whether and to what extent your client s case, or that of your opponent s, meets this part of the test. By way of example, courts have held that irreparable harm includes loss of goodwill or irrevocable damage to reputation, loss of market share (though not necessarily irreparable if the loss is recoverable) and permanent loss of natural resources. If the defendant is unable to pay a damages award, the court may consider this as a factor, though it is not determinative of the issue. 8 6 RJR., supra note 2 7 ibid., Robert Sharpe, Injunctions and Specific Performance, looseleaf, (Aurora, On: Canada Law Book, 1992) p. 2-27

6 - 6 - The Balance of Convenience Here, the courts make a determination as to which party will suffer the greater harm with the outcome of the motion. The factors considered in making this determination will necessarily vary with the facts of each case. It is in this part of the test where the court can consider the harm refusing (or granting) an injunction will have on third parties. If the plaintiff has a strong case on the merits or there is significant irreparable harm, it may influence the balance in favour of granting an injunction. The court will look to maintain the status quo in determining where the balance of convenience lies. Other Factors In assessing the three part test, the courts may also consider various other equitable factors when determining whether to grant injunctive relief, for example whether the moving party has clean hands, the value of the undertaking as to damages, and in some circumstances delay. 9 Although these factors usually permeate into other sections of the test, they often fit most neatly in the analysis of the balance of convenience. Although courts usually apply this three-part test with rigour, there is some fluidity which gives the court room to manoeuvre. The three components are more of a guide rather than water-tight compartments. 10 As Sharpe writes: Canadian judges have tended to eschew general statements of principle when deciding interlocutory applications and emphasis has 9 Christopher Werth, Interlocutory Proceedings, looseleaf, (Aurora, On: Canada Law Book Inc., 2004) p Sharpe, supra note 8, 1615 Regent Ltd. v. Kildonan Crossing Shopping Centre Ltd., [1994] M.J. No. 682 (C.A.)

7 - 7 - been placed on the desirability of a healthy measure of discretion. 11 Each part of the test relates to the other, and strength in one can overcome another s weakness. This healthy measure of discretion can sometimes make it difficult to predict the outcome of an application for injunctive relief. Framing the Injunction Prohibitory, Mandatory and Quia Timet The test for an interlocutory injunction fluctuates depending on the type of relief sought. There are generally three types of injunctive relief: prohibitive, mandatory and quia timet orders. In a prohibitive injunction, the moving party is seeking to prevent the other side from doing something. This is the most common form of interlocutory relief and the type of relief which provides the moving party with the greatest chance for success. The guiding principle behind this type of injunction is maintaining the status quo. For a prohibitive injunction, the law uses the standard three-part test as laid out by R.J.R.. In a mandatory injunction, the moving party is looking to force the other side to undertake some positive action. Because of the nature of this remedy and the court s concern over having to oversee and enforce any order, the courts are also more reluctant to grant this type of injunction. As a result, the plaintiff is required to show a strong prima facie case in order to obtain injunctive relief. Another formulation of the higher standard suggests that the court 11 Sharpe, supra note 8

8 - 8 - needs to have a high degree of assurance that at trial it will appear that the relief was rightly granted. 12 Framing the relief requested is therefore an important consideration when moving for an interlocutory injunction. Because a mandatory injunction requires a higher standard of proof than a prohibitive injunction (not to mention a greater reluctance on the part of the court to order such relief), framing your relief in terms of a negative action will increase the chances of obtaining an injunction if you are the moving party. Conversely, the responding party should argue that the relief will require a positive action on their client s behalf and therefore should be considered mandatory in nature. Quia timet injunctions refer to injunctive relief sought prior to any actual harm occurring. The moving party is anticipating future harm and is taking pre-emptive steps to avoid it. The moving party must demonstrate that there is a high degree of probability that the harm will in fact occur and that the harm is imminent. 13 Timing and Notice Once the decision has been made to proceed with the application for an injunction (i.e., that you can win it), the next important practical consideration is timing and notice. Do you give notice and if so, how much? 12 See Ticketnet v. Air Canada (1987), 21 C.P.C. (2d) 38 (O.H.C.J.), Alltricor Financial Management Inc. v. Romar Group Inc., [2003] O.J. No. 185 (S.C.J.) 13 See Operation Dismantle Inc. v. Canada, [1985] 1 S.C.R. 441 at para. 35, Jagtoo v. 407 ETR Concession Co., [1999] O.J. No (S.C.J.), Fleatcher v. Bealey (1885), 28 Ch. D. 688 (Eng. Ch. Div.)

9 - 9 - Sometimes, the decision will be clear. If the responding party agrees not to take any steps until the issue is determined, the injunction can proceed in the normal course as any significant motion would. Book your date, agree on a schedule, exchange evidence, conduct cross-examinations, brief the argument and attend for the hearing. By contrast, and not infrequently, injunctions require quick reflexes and swift action where little or no notice is possible or even advisable. The notice period you choose to give will determine what you need to prepare and how you need to prepare -- for the rest of the injunctive proceeding. No Notice vs. Short Notice vs. Full Notice Where the relief is not urgent or pressing, or where the other side will agree not to do what is complained of, the optimal choice is to seek an interlocutory injunction with ample notice to the other side. This option is the preferred choice especially when the defendant is not pressing the conduct your client opposes (i.e. they will give you months prior notice of the launch of their infringing product). The infringing action is not going to occur until some time in the future and there is no pressing need to have an injunction in place immediately. Both sides will have time to prepare arguments, conduct cross-examinations on affidavits and prepare for the hearing and the court will have set aside sufficient time for the parties to make full argument. The interlocutory injunction, if granted, will remain in place until trial. Ultimately, this is where the parties will end up but often, this is not how they get there. Rather, litigators are asked or are required to seek urgent injunctive relief. In these circumstances, the amount of notice given is an important tactical, and practical, consideration.

10 There are only limited situations which would justify bringing a motion without notice. Where notice could provoke the very conduct you are trying to prevent, no notice would be justifiable. For example, in a recent case I was involved in, the proposed defendant was threatening to repossess a client s airplane. The evidence filed asserted that if notice was given, there was a significant risk that the defendant would remove the plane from the court s jurisdiction prior to any injunction. In circumstances like these, where giving notice will lead to the conduct you are trying to avoid, it may be advisable to bring an injunction ex parte. There are important considerations to proceeding ex parte. Courts are generally very reluctant to grant any injunctive relief without notice to the other party and will entertain ex parte injunctions on rare occasions. 14 More often, Judges will require the moving party to give some notice to the other side An ex parte injunction is also time limited. Rule of the Ontario Rules of Civil Procedure allows the court to award an interlocutory injunction or mandatory order without notice for a period of up to 10 days. There is also a 10-day limit for ex parte injunctions granted by the Federal Court. Therefore, it does not prevent the necessity for a full argument. Perhaps most importantly, proceeding ex parte requires the moving party to make full and frank disclosure. 15 Failure to do so is itself sufficient grounds for setting aside any order obtained on the motion or application. Therefore, the moving party has a significant burden to go before the court with all the evidence it has in its possession relating to the motion, 14 See Launch! Research & Development Inc. v. Essex Distributing Co., [1977] O.J. No (H.C.J.) 15 Rule 39.06, Rules of Civil Procedure

11 good or bad. The court takes this requirement very seriously. If the court determines that notice ought to have been given, then you will have unnecessarily argued the case for the other side in your own materials. Another option for time-sensitive relief is giving short notice and seeking interim relief pending a full hearing on the merits. The amount of notice you give will depend on the circumstances of your case. It should be commensurate with the urgency of the relief sought. In most situations, short-serving the other side will require them to seek an adjournment in order to prepare responding material. Depending on the amount of notice given, there is usually insufficient time to conduct cross-examinations. Often there is insufficient time for the other side to prepare responding material. The issue for the court will be to determine whether and what terms should be ordered (sometimes referred to as interim, interim relief ). Favourable adjournment terms can have a strong impact on the future course of the injunction application, for it may cast the status quo. The issue for the court to determine on a request for interim relief is whether the moving party will suffer irreparable harm pending a full hearing of the injunction. Once the issue of interim relief is resolved, the parties should arrange, either on consent or by order, to exchange further evidence (as necessary or permitted), conduct cross-examinations, exchange facts, and attend for a full hearing on the merits of the request for an interlocutory injunction. Parties should not wait too long in deciding whether to bring an injunction. In Dole Food Co. v. Nabisco Ltd. (1997) 8 C.P.R. (4 th ) 367 (F.C.T.D.), an interim injunction was refused

12 partly because Nabisco had waited just over two months after discovering Dole was to launch a product which could be confused with its brand to bring the motion. In that time, Dole had entered into contracts and spent money in anticipation of launching its product. The Evidence Marshalling the evidence is probably the most important step in preparing for an interlocutory injunction. Since all the evidence will be likely be paper-based, it is important to ensure the affidavits contain all the relevant information necessary to satisfy the court that an injunction is warranted. The quality and quantity of evidence will vary depending on the nature of the case and the type of injunctive relief you seek. For a prohibitive injunction, the first branch of the test is generally easy to meet. Since the court will only take a cursory look at the merits of the case, you should ensure that all legal steps that need to be proven are addressed although proving them is not necessary. For a mandatory injunction, strong evidence will be necessary. You will need to show the court that success is likely on the merits. You may want to consider adducing expert evidence. Invariably, the most important evidence you will require when preparing materials for an interlocutory injunction is the affidavit evidence proving irreparable harm. No matter how well you have planned for the injunction and no matter how strong your case on the merits, if you cannot prove that the harm is irreparable, you will not get your remedy.

13 There are various considerations when developing your evidence on irreparable harm. First, evidence of irreparable harm must be clear and not speculative. 16 It is absolutely necessary to put evidence before the court of irreparable harm; any actual customers lost, market loss or other irreparable damages. This is usually done by filing an affidavit of a knowledgeable employee of the moving party. More frequently, litigants have been tendering expert affidavits (such as those from forensic accountants or business valuators) to assist in proving irreparable harm. As well, the evidence before the court needs to be more than just a potential for irreparable harm. For example, the Federal Court ruled in a recent case that the evidence tendered, that confusion may lead to various scenarios which would cause a loss of customers, was too speculative. 17 The court found that the confusion did not lead to any loss. It is important to ensure your evidence is not just that general harm will occur but goes specifically to the irreparable nature of the harm. You cannot succeed unless you show evidence to the court that damages are not an adequate remedy. 18 One good example of the necessity to make a case for irreparable harm comes from Dole Food Co. v. Nabisco Ltd. (2000) 8 C.P.R. (4 th ) 461 (F.C.T.D.). Nabisco was seeking an interim injunction against Dole s launch of a new product called Fruit Bowls. In support, Nabisco filed affidavits of its VP of marketing (who provided evidence both for the company and as an expert) and Dr. Dawar, an expert in marketing management, both of who indicated 16 Centre Ice Ltd. v. National Hockey League, (1994), 53 C.P.R. (3d) 34, Kanda Tsushin Kogyo Co. et al v. Coveley et al. (1997), 96 O.A.C. 324 (Ont. Div. Ct.) 17 Boston Pizza International Inc. v. Boston Market Corp. (2003) 26 C.P.R. (4 th ) 78 (F.C.T.D.) 18 See Canada (A.G.) v. Archibald (1984), 79 C.P.R. (2d) 287 (F.C.A.)

14 that if not enjoined, Nabisco would suffer harm to its reputation, goodwill and trade mark. Despite this evidence, the court denied the injunction, saying the evidence was insufficient to meet the evidentiary burden. Citing Justice Rothstein in Effem Foods Ltd. v. H.J. Heinz Co. of Canada Ltd. (1997), 75 C.P.R. (3d) 331 (F.C.T.D.): Sophisticated participants in the market place such as these litigants should be able to provide the Court with an indication of loss based upon historical experience and a mathematical or statistical analysis of the circumstances demonstrating that the loss is not reasonably calculable which would give the Court some degree of confidence that the kind of loss being alleged would indeed occur and cannot be calculated. The court went on to say that Nabisco had not laid the foundation for irreparable harm, even though it was apparent that there was potential for harm to the marketing strategy and market share of Nabisco. Absent some evidence as to actual sales, projected sales and projections as to the impact, the court was not persuaded of irreparable harm. Conclusion Interlocutory injunctions can provide the litigator with a very useful tool. When exercised properly, it has the benefit of speed, flexibility and a powerful result. All this is overridden if you do not think strategically and properly prepare for your motion or application. Unless you have a solid grasp on the concepts, procedure and evidence, you may be blunting the sharpness of the tool