A bet-the-farm litigation is any type of litigation that threatens the existence of the company. Either it is a claim which is so large that it would put the company out of business or the loss of crucial part of the company’s business or, for instance, a situation where a prime supplier for the company is threatening with cutting off the supply of materials to the company which they can not operate without. To defend themselves against such attacks, the company should use all the tools available. One of the very useful solutions which is often underestimated is court injunction.
Injunctions are an important part of the commercial litigation. In the first instance, they’re normally used to protect the status quo. Injunctions could be used either in favour of the claimant or in favour of the defendant – depending on a situation. If the business relationship is threatened, if disclosure of a trade secret is about to happen in a case, if the prime supplier for the company is threatening to cut off the supplies or if the company is not able to execute its remuneration for the construction works from the investor, these are cases in which injunctions can be used.
In most cases, injunctions are only temporary in nature, so the injunction needs to be put in place in order to get through the litigation so that the court can determine what the rights of the parties are with regard to the issue that is at stake in the litigation.
A special type of the injunction is a freezing order which “freezes” defendant’s assets. A freezing order is typically obtained by a claimant or potential claimant who wishes to ensure that defendant’s assets remain available pending the enforcement of a court judgment. It puts the claimant in a very favourable position throughout the entire trial because the claimant knows that at the end of the process, if only he wins the case, there is a certainty of successful execution against the debtor.
To obtain a freezing order:
- the claimant must prove that his case is credible; and
- there must be a real risk of dissipation of assets.
How can a claimant convince the court that there is a ‘real risk’ of dissipation? The claimant needs to adduce solid evidence that, without a freezing injunction, the defendant will place assets out of reach of enforcement. Mere unsupported statements or expressions of concern will carry little weight. In preparing its evidence a claimant should consider:
- the financial standing of the defendant and the relative value of the claim against his assets;
- the defendant’s behaviour - evidence of prior credit or judgment default, threats to liquidate, evasion and refusing to cooperate with reasonable requests for disclosure or for settlement discussion may help to establish a real risk of dissipation.
In other cases, obtaining a permanent injunction may be the whole point of the litigation. A trade secret case is a perfect example. If an employee who’s leaving threatens to take a trade secret with him and divulge that to a competitor you may want to get a temporary injunction and then get a permanent injunction, and that may be the whole point of litigation. So it can either be a temporary thing just to keep the status quo until the court can make a determination of the parties’ rights, or it can be the whole basis of the lawsuit to get that issue permanently resolved.