A party will be in contempt of court where it deliberately breaches a court order; sanctions can include imprisonment and fines. Where a company is ordered not to do certain acts under an injunction, and a director of that company is aware of the order, that director is under a duty to take reasonable steps to ensure that the order is obeyed.
In Templeton Insurance Ltd v Motorcare Warranties Ltd and others (2012), the claimant obtained a freezing injunction which ordered the defendant not to remove from the jurisdiction or in any way dispose of, deal with or diminish the value of, other than by payment to the claimant, any of its assets in England and Wales. This injunction was granted early in the proceedings pending trial.
The injunction also contained a standard penal notice in the following form:
"It is a contempt of court for any person notified of this order knowingly to assist in or permit a breach of this order. Any person doing so may be sent to prison, fined or have his assets seized."
Shortly after the injunction was granted, the defendant informally transferred its business to a new company called Motorcare Elite 2008 Ltd, which was set up by a director and a shareholder of the defendant. There was no documentation, but the new company took over the defendant’s premises, its staff, its telephone numbers, its website and its product documentation.
The new business was held out to the world as “Motorcare”, which had previously been the trading style of the defendant. Further, the new company worked with the same agents and car dealers who had previously traded with the defendant.
The claimant succeeded at trial on its claim and a substantial award in damages was granted against the defendant, who promptly went into liquidation, frustrating the claimant’s efforts to enforce its judgment. However, the “Motorcare” business continued with the same principals, sheltered inside the new company. The claimant, realising what had happened, sought committal against the director and the shareholder on the basis that they had knowingly assisted or permitted the defendant to breach the freezing injunction.
Contempt of court
The judge found that the director and the shareholder were both in contempt of court in that:
- Their actions constituted a wilful interference with the administration of justice, in particular the freezing injunction.
- These acts permitted or assisted in the breach of the freezing injunction.
- The acts were done with the intention to interfere with or impede the administration of justice.
The judge accepted that the defendant’s goodwill was within the scope of the freezing injunction which included "the property and assets of [the defendant’s] business". Goodwill included lists of customers and established connections with them which were an important and valuable asset of the defendant. The director and shareholder would have appreciated this fact, and that the defendant’s goodwill fell within the scope of the injunction.
The director and shareholder said that they had not understood the effect of the freezing injunction, believing that it simply prevented the defendant from trading. While the judge gave these claims short shrift, to the extent that they were true, the case is a reminder of the importance of obtaining legal advice on the effect of court orders. This is particularly the case where the order contains a penal notice as it may be enforced by committal proceedings leading to fines and imprisonment.