Drachs Investment No 3 Ltd v Brightsea UK Ltd

For an interim mandatory injunction, the court must assess the adequacy of damages for each party and the balance of convenience. A positive order which changes the position carries a greater risk of injustice than a prohibitory order preserving the status quo. Where the court cannot reach a high degree of assurance that the applicant will establish its rights at trial, it may refuse the positive order but grant protective relief preserving relevant funds pending trial. Such relief may be ordered against a contractual party requiring it to procure preservation by companies against which the applicant has no direct claim.

The claimant had sold companies to the defendant under a sale and purchase agreement accompanied by a tax deed. Following HMRC enquiries, a tax repayment became available. The claimant contended that the defendant was required to procure amended group relief claims and the surrender of tax losses to companies associated with the claimant.

The claimant sought mandatory orders requiring those steps and, alternatively, requiring any repayment to be preserved pending trial. The defendant accepted that there was a sufficiently good arguable case on construction for interim purposes, but disputed the appropriateness of mandatory relief and relied on the risks of irreversible tax consequences and possible dissipation.

1. Interim mandatory order refused. The court declined to require the defendant to procure the relevant companies to sign and submit amended group relief forms. Damages were not an adequate remedy for either side. If the order were wrongly made, the tax position might become irreversible, HMRC might reject a further amendment, and losses suffered by the companies or through damaged HMRC relations might be difficult to quantify.
2. Balance of convenience. Applying the principles concerning mandatory orders in Nottingham Building Society v Euro Dynamics Systems [1993] FSR 468, a positive order carried a greater risk of injustice than an order preserving the status quo. Given the limited review of the merits, the court lacked a high degree of assurance that the claimant would establish its rights at trial.
3. Preservation order granted. The court considered damages adequate for the defendant and relevant companies in respect of the temporary loss of use of any HMRC repayment, because that loss was more readily quantifiable. The defendant was therefore required to procure that any repayment, up to £473,865, was paid into its solicitors’ client account and was not withdrawn or otherwise dealt with pending trial.
4. The order was characterised principally as prohibitory relief. Even if treated as a freezing order, the evidence demonstrated a sufficient risk of dissipation, including the defendant group’s conduct in pursuing repayment while denying any liability to preserve the funds. The undertaking in damages was intended to extend to the relevant recipient companies. A joint deposit account was unnecessary.