Thursday, January 9, 2014

Barton v PCS and the Undertaking as to Damages by Greg

In commercial or employment disputes, some parties may be tempted to treat an initial assessment of injunctive relief as a more important battleground than the merits of the case - as immediate concerns about competition or disclosure of information trump the longer-term view. But Barton v Potash Corporation of Saskatchewan Inc, 2013 SKCA 141 offers both some noteworthy analysis as to the "constructive contract" created by the undertaking as to damages normally required as a term of an injunctive order, and a reminder that the party which seeks interim injunctive relief may face severe consequences if it fails to follow through on the underlying action.

In Barton, the defendant had been a Vice-President and General Counsel for the plaintiff potash producer. After his acrimonious departure, he elected to pursue employment with a law firm seeking to build anti-trust cases against the plaintiff and other comparably-positioned producers. A B.C. court granted broad injunctive relief prohibiting "contact or any way related to potash", and the defendant consented to a similar injunction being issued in Saskatchewan in 1993.

Once the injunction was in place, the plaintiff did nothing to advance its claim, but fought the defendant's attempts to have the action dismissed or the injunction lifted. As a result, the defendant argued that he was shut out of any work in a reasonably-chosen field: potash vendors would not hire him in light of the circumstances of his departure from the plaintiff, while he was prevented by court order from so much as communicating with purchasers. The injunction remained in place until 2003, and the plaintiff eventually discontinued its action in 2009. (The plaintiff expressly argued before the Court of Appeal that once it received the injunction, it saw the rest of the action as moot: para. 92.)

The defendant brought a motion for assessment of damages arising out of the injunction. After a previous set of applications addressing whether the defendant was disqualified from seeking such an assessment, Keene J. held in the court below (2011 SKQB 477) that the defendant had failed to demonstrate any loss of income arising out of the injunction.

The Court of Appeal majority allowed the defendant's appeal. Jackson J.A. recognized some controversy as to the appropriate standard required of a defendant in proving damages (para. 22-25), but held that even on the standard argued for by the plaintiff, the defendant had established that his near-total loss of income was caused by the injunction. The majority thus concluded that the defendant was entitled to damages to replace his lost income, effectively ordering at para. 85 that he be paid the equivalent of his previous annual income for an eight-year period (with deductions for amounts earned in mitigation) - resulting in an award of approximately $680,000 plus interest. 

Ottenbreit J.A. dissented on the issue of lost income. However, the majority decision in Barton offers two important reminders for parties considering their options in pursuing interim injunctive relief - even in cases where the facts may not be quite so colourful.

First, an injunction should be carefully tailored to its actual purpose. While expansive language prohibiting the defendant from so much as communicating with any party in his industry may have been understandable to protect the plaintiff's interests at the outset, it also intruded heavily into the defendant's ability to earn a living. And some willingness to set more reasonable limits (particularly after the risk of antitrust litigation evaporated on the facts) might have gone a long way toward limiting the plaintiff's liability.

Second, interim relief pending proof of a claim does not constitute proof of that claim on the merits. While a plaintiff may otherwise have had little incentive to disturb the status quo after receiving an interim injunction, it remains fully responsible for the damage caused by the interim order. And in Barton, the plaintiff's choice to rely on interim relief for upwards of a decade while fighting any progress in the action proper - wrongly considering the matter moot while continuing to impose burdens on the defendant - resulted in it becoming liable for significant damages which might never have been payable if it had duly proceeded with its action.

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