The FINANCIAL -- Injunction is an important part of a civil process because it secures the claim and makes judgment enforceable. However, inconsistent practice and lengthy litigation turns this procedural tool into a weapon against respondents, causing tremendous financial and other problems to the companies and private individuals.
It is lawyers’ job to help clients achieve their goals. In a litigation, winning the case is important, but what follows is of equal, if not of superior significance. The judgment rendered in client’s favor must be enforced, meaning, the respondent shall perform the action order by the court. Judgment-proof respondent is as bad as losing the case. In a world of civil procedure, one of the most important mechanisms that secures enforcement of a court decision is called injunction. In this Law Report we will write about injunctions with the one eye on issues related to injunction and the other eye on suggested practical solutions to them.
Injunctions are primarily designed to enable and ensure future enforcement of court decision – judges grant injunctions in order to avoid impossibility or material complication of judgment enforcement. To get an injunction party, usually the claimant, applies to the court and asks the judge to impose certain restrictions on the respondent, third party or a property, in order to preserve the status quo until the issue is ultimately decided.
It comes as no surprise that with restrictions various problems befall. Part of those problems are caused by improper application of injunctive measures by the courts and the other part is a result of lengthy court proceedings. Companies, as well as individuals face severe financial difficulties and sometimes even go bankrupt as a result of injunctions imposed upon them.
Courts usually put an injunction on immovable property (land plot, flat, house), restricting their alienation, use as a collateral and sometimes even renting out. Also, courts freeze the bank accounts. In practice, it often happens that the injunction is issued against property that values disproportionately higher than the claim itself. This puts an unreasonable and undue restrictions on respondent’s property rights. Respondents with their assets frozen are no longer able to sell the property or pledge it for a credit. In a construction/real estate development related disputes for example, sometimes the courts puts an injunction on a flat or a commercial premise, rendering it impossible to register the whole floor in a Public Registry. Unfortunately, courts are also reluctant to make exceptions from the overarching, general type injunctions.
More difficult are the cases where the courts freeze respondent’s bank account. Such an injunction makes it impossible for the respondent to dispose the funds deposited on the bank account, pay salaries and finance day-to-day business transactions. Given the average trajectory of dispute longevity, this may last for months, even years. Courts have been mindful of this damaging practice and in recent times freezing the bank accounts are used in only rare occasions.
Parties encounter problems in other specific instances as well. In one case for example, Tbilisi City Court used an injunction against the company and a commercial bank restricting encashment of bank guarantee. Injunction took effect amonth before the term of the guarantee was due to expire. Not only was this materially wrong, but also constituted a serious misuse of judge’s discretion.
Just recently partners of the company filed a lawsuit against director requesting certain company-related documents which the director refused to supply. The partners also asked the court to apply the injunction and prohibit the director from destroying the requested documents. Civil Procedure Code explicitly states that one of the injunctive measures can be restricting the respondent or any third person to perform certain acts. Court’s refusal to use the injunction may incentivize the director to destroy the evidence against him.
In other cases judges refuse to freeze the company’s and/or individual’s bank accounts even though the claimant makes sufficient showing of actual fraud or misrepresentation. Refusal to freeze the account enables the respondent to siphon the funds and make it impossible to enforce the decision.
Respondents have number of tools to counter injunctions. First of all, if the injunction is placed on an immovable property with the market value significantly higher than the claim, a respondent is entitled to make an offer of alternative property in lieu of frozen asset. The court will make a substitute as long as the proposed property is of a market value reasonably close to the claim. But sometimes the respondent does not have an alternative property. In this case Civil Procedure Code contains special provisions for a couner-guaratnee. Counter-guarantee is a mechanism that allows the claimant to request the other party to deposit certain amount as a guarantee for losses potentially caused by injunction. This mechanism is especially difficult in a property related cases where the calculation of damages might not be easy to make. Additionally, if the claim is not successful the Civil Procedure Code allows the respondent to claim damages sustained as a result of injunction. However, the clause is rarely used in practice.
Injunction is an important part of a civil process because it secures the claim and makes judgment enforceable. However, inconsistent practice and lengthy litigation turns this procedural tool into a weapon against respondents, causing tremendous financial and other problems to the companies and private individuals. It has long been recognized that the provisions of injunction must be amended and modernized. Unfortunately, so far the legislator failed to act.