At a Glance
- Interim injunctions act as temporary court orders to preserve the status quo until a full trial can be heard.
- Applicants must demonstrate a "serious question to be tried" and that the "balance of convenience" favours the order.
- They are frequently used to stop illegal board meetings, prevent the dilution of shareholdings, or protect company intellectual property.
- The “undertaking as to damages” is ordinarily required by the court and carries significant financial risk for the applicant.
- Swift action is often the difference between saving a company’s value and facing total loss.
The Power of the "Judicial Pause Button"
In the context of corporate law under the Corporations Act 2001 (Cth), disputes often move faster than the court system can process them. By the time a matter reaches a final hearing, a rogue director might have already sold the company’s primary assets, or a majority shareholder might have issued new shares to dilute a rival's interest into insignificance.
An interim injunction is an equitable remedy designed to prevent this "fait accompli." It is an urgent order granted by the court to maintain the current state of affairs. In Australia, the power to grant these orders arises from the inherent jurisdiction of the Supreme Courts and the Federal Court and, in corporate matters, is expressly conferred by section 1324 of the Corporations Act (including to restrain actual or proposed contraventions).
The Two-Pronged Legal Test
The Australian courts do not hand out injunctions lightly. To succeed, an applicant must satisfy a well-established two-part test, articulated in Beecham Group Ltd v Bristol Laboratories Pty Ltd and authoritatively restated by the High Court in ABC v O’Neill.
1. A Serious Question to be Tried
The applicant does not need to prove they will win the case at this stage. However, they must show that their claim is not frivolous or vexatious. There must be a sufficient likelihood of success, in the sense explained in Beecham, to justify the court’s intervention in the rights of the other party. In a corporate dispute, this might involve showing evidence of a breached shareholders agreement or a director’s breach of fiduciary duties.
2. The Balance of Convenience
This is where the court acts as a scales-man. The judge asks: "Would the harm caused to the applicant if the injunction is refused outweigh the harm caused to the respondent if the injunction is granted?"
The court considers whether damages would be an adequate remedy, recognising that inadequacy is not a strict requirement but is a highly relevant factor. If the potential damage is the loss of a unique family business or the permanent loss of voting control, money is usually deemed inadequate, making an injunction more likely.
Strategic Applications in Corporate Conflict
Preventing Share Dilution
A common tactic in shareholder oppression claims under the Corporations Act is for the controlling faction to issue new sharesto themselves or associates. This dilutes the minority shareholder’s percentage, often stripping them of the power to block special resolutions. Courts frequently grant interim injunctions to stop these issues until the fairness of the issuance can be examined.
Contested Board Removals
When a board is divided, one faction may attempt to convene a meeting to remove a director without following the proper notice periods or constitutional requirements. An injunction can stop the meeting from proceeding, ensuring that corporate governance remains orderly and legal.
Protecting Proprietary Information
In "internal raids," where a departing director intends to take client lists or trade secrets to a competitor, an interim injunction is the primary tool to "freeze" that information. This is often combined with search orders (formerly known as Anton Piller orders), which are granted only in exceptional circumstances, to preserve evidence before it is deleted.
The "Stinging" Condition: Undertaking as to Damages
One of the most important aspects for any business owner to understand is the "undertaking as to damages." When you ask a court for an interim injunction, the court will almost always require you to promise to pay the defendant for any loss they suffer because of the injunction if it later turns out you were in the wrong.
For example, if you stop a company merger via an interim injunction, but six months later the court finds your claim was groundless, the merger might have collapsed entirely. You may be liable, pursuant to the undertaking as to damages, for losses suffered as a result of the injunction. This requirement ensures that injunctions are used as legitimate shields, not as tactical weapons to sabotage competitors.
Practical Case Example: Re Marsella; Marsella v Wareham
While often cited in the context of trusts, the principles applied in Marsella resonate deeply in corporate disputes involving discretionary powers. In various Australian corporate scenarios, such as Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd, we see the courts willing to intervene when a party uses "legal" powers for an improper "extra-legal" purpose.
In one notable instance, an injunction was sought to prevent the holding of an Annual General Meeting (AGM) where it was alleged that the notice provided was intentionally misleading. The court found that the potential confusion among shareholders constituted a serious question to be tried, and the balance of convenience favoured delaying the meeting by two weeks rather than allowing a potentially tainted vote to occur. This highlights how the court prioritises the integrity of the corporate process over mere administrative convenience.
A Lawyer’s Perspective: The High Price of Delay
In our experience, the biggest enemy of a successful injunction is "laches" (unreasonable delay). If you discover a director is misusing funds on Monday, but you wait three weeks to contact a lawyer and another two weeks to file in court, the judge is likely to ask: "If this was truly an emergency, why did you wait five weeks?"
Equity aids the vigilant, not those who sleep on their rights. An urgent application often requires "affidavit" evidence prepared within hours or days. The speed with which you move sends a powerful signal to the court about the reality of the "irreparable harm" you claim to fear.
Key Takeaways
- Interim injunctions are emergency tools used to freeze a situation before it gets worse.
- You must show a "serious question to be tried"—not a guaranteed win, but a solid case.
- The court will weigh the potential hardship to both sides before granting the order.
- You must be prepared to provide an undertaking as to damages, which carries financial risk.
- Timing is everything: delay can be fatal to your application.
Frequently Asked Questions
How fast can I get an interim injunction?
In extreme emergencies, an ex parte application (where only the applicant is present) can be heard, subject to a strict duty of full and frank disclosure. by a judge within hours, sometimes even over the weekend or after hours.
Does an interim injunction mean I have won the case?
No. It is a temporary measure. You still need to proceed to a final trial where the court will make a permanent decision based on all the evidence.
What happens if the other party ignores the injunction?
Ignoring a court-ordered injunction is "contempt of court." This can lead to heavy fines, seizure of assets, or even imprisonment for the individuals involved.
Can I get an injunction if the company is already in liquidation?
Once a company is in liquidation, statutory restraints apply to the commencement or continuation of proceedings, subject to leave of the court. You generally need the court's permission to start or continue any action, including seeking an injunction.
Is it expensive to apply for an injunction?
Yes. Because they require urgent, high-level legal drafting and immediate court appearances, they are costly. However, the cost of not acting is often much higher, such as the total loss of a business.
How We Can Help
The team at our firm is experienced in navigating the high-pressure environment of urgent corporate litigation. We can assist you by:
- Assessing the merits of your claim within tight timeframes to see if an injunction is viable.
- Preparing urgent affidavit evidence and originating processes for the Supreme or Federal Courts.
- Advising on the risks associated with the "undertaking as to damages."
- Representing your interests in "return date" hearings to ensure interim orders are maintained.
- Negotiating settlements that turn a temporary "freeze" into a permanent commercial resolution.
Proactive legal strategy is the most effective way to protect your corporate interests when a dispute threatens to spiral out of control.
