Quinlan v Edgeworth Capital (Luxenbourg) SARL

On an application for an interim injunction, the court must identify whether there is a serious issue to be tried and then assess the balance of convenience, including whether refusal would cause harm that could not adequately be compensated by damages. Where a bankruptcy petition has already been presented, the court may consider whether separate proceedings would provide any real procedural or practical advantage. The bankruptcy court’s case-management powers and its statutory discretion to dismiss the petition may be relevant. If the same arguments remain available in the bankruptcy proceedings, and the petitioner’s presentation has already caused the principal detriment relied upon, refusal of an injunction may be appropriate.

The claimant sought an interim injunction restraining the defendant from serving a bankruptcy petition presented in February 2019. The claimant alleged that presentation breached a covenant in a 2011 deed, while the defendant alleged breaches of the claimant’s obligations which released it from the covenant.

The court considered whether those issues should be tried separately before service of the petition, or dealt with within the bankruptcy proceedings. The central questions were whether there was a serious issue to be tried and whether refusal of interim relief would cause irreparable or inadequately compensable prejudice.

1. Serious issue to be tried. The competing interpretations of the deed and the factual allegations of breach were properly arguable. The threshold under the American Cyanamid approach was therefore satisfied.
2. Prejudice and procedural advantage. Refusing the injunction would not materially restrict the claimant’s ability to argue that presentation of the petition breached the covenant or that the petition should be dismissed. Those arguments could be raised in the bankruptcy proceedings. The defendant accepted that the bankruptcy court should approach them in principle in the same way as a court determining them in separate proceedings.
3. The greater scope of bankruptcy proceedings was a matter for case management. The bankruptcy court could determine a preliminary issue first, if appropriate, and avoid addressing further bankruptcy issues if the claimant succeeded.
4. The principal reputational detriment had already resulted from presentation and registration of the petition. Any additional publicity from listing was relatively minor. The claimant’s complaint that it would be placed in a more precarious position in the bankruptcy proceedings was also rejected.
5. The fact that presentation had occurred made it generally preferable for the petition to be progressed rather than left in limbo. The bankruptcy court would also be able to consider jurisdictional issues concerning residence, domicile and business connections, together with the interests of the creditor and other creditors.
6. Under s.266(3) of the Insolvency Act 1986, the bankruptcy court had a wide discretion to dismiss the petition where the interests of justice required. If the claimant ultimately established breach of covenant, he would not suffer loss incapable of compensation by damages merely because service was not restrained. Final injunctive relief and damages could remain available if necessary and appropriate.
7. The interim injunction was refused.