Rashpal Soomal and Kate Poole set out everything a developer needs to know about injunctions.
Injunctions are a business-critical issue for developers as well as highly complex issues of property law. Having a basic understanding of the different types of injunction, the practical steps available that developers can take, and – perhaps most importantly of all – how damages and so-called “ransoms” can operate can make all the difference. So how do injunctions work? What are the tests to be applied? And what constitutes good developer conduct?
Test for granting an injunction?
The classic test was the “Shelfer test” (Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287) and was the conventional way of assessing whether an injunction would be granted, for over a century.
It posed a series of questions:
- Is the injury small?
- Is it capable of being estimated in money?
- Can it be adequately compensated by a small money payment?
- Would it be oppressive to grant an injunction?
All questions had to be answered “yes” before the injunction was refused and so it presented a very high threshold.
We then had Lawrence and another v Coventry (t/a RDC Promotions) and others (No 2) [2014] UKSC 46; [2014] 3 EGLR 71 which stated that the Shelfer test was outdated and should not be applied mechanically. This case emphasised that the injunction remedy is always discretionary. It is not awarded automatically. So even if the claimant has rights that are clearly being infringed, an injunction is not guaranteed as the court can consider a range of factors.
However, Lawrence has not led to more flexibility in practice. Judges and tribunals are conventional and old habits die hard. The current position appears to be that an injunction is probably still the primary remedy, but it is no longer inevitable.
How can a developer avoid an injunction?
Each case turns on its own facts. However, one factor that is relevant to every case is “good developer conduct”. This means that a developer should identify any injury, proactively engage, seek to flush out a neighbour’s concerns, and where possible make concessions and offer to adapt a scheme. The existence of “bad” conduct (for example, accelerating the build programme in an attempt to present the court with a fait accompli of a completed building at the final hearing) will certainly make the injunction risk more acute.
Are there any practical tips for developers?
Think carefully about what is being said and done.
Much of the contemporaneous evidence of the developer’s decision making – while commercially sensitive – is not legally privileged and will therefore be disclosable in litigation. In a classic rights of light case, for example, the initial surveyor’s report – with the classification of injuries and budgets – will be disclosable.
In Beaumont Business Centres Ltd v Florala Properties Ltd [2020] EWHC 550 (Ch); [2020] EGLR 20, there were some unfortunate communications where the developer stated in writing that it would go ahead in the face of objections as there was plenty of money to be made from the scheme.
When is an injunction claim too early or too late?
A claimant can apply for a quia timet injunction even before offending works have started. However, the court will not entertain speculative claims, so the works need to be imminent. In CIP Property (AIPT) Ltd v Transport for London and others [2012] EWHC 259 (Ch); [2013] PLSCS 42, the claimant brought a claim against TfL and others to injunct the oversite development above the proposed Crossrail scheme at Tottenham Court Road because of anticipated loss of light. The injunction was refused as the claim was premature. There was no planning permission, and the defendant did not even own the site and instead had a conditional option to acquire it which would not be exercisable for at least another five years. A claimant cannot therefore apply too early.
Equally, an impacted owner needs to ensure that it does not leave it too late either. But in this context, all the impacted owner really needs to do is complain on an open basis in good time. He does not actually need to spend money and litigate. In HXRUK II (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch); [2010] 3 EGLR 15, for example, the injured neighbour complained about the loss of light in open correspondence, but did not actually sue. The developer proceeded with the build anyway, and on practical completion found that the space was difficult to let because of the unresolved claim, so issued proceedings itself seeking a declaration that the neighbour was not entitled to an injunction. Instead, the court granted a mandatory injunction requiring the developer to cut back.
What is the difference between a final and an interim (emergency) injunction?
The practical consequences for a developer will vary depending on the type of injunction claimed:
• A final injunction is a final order which normally takes around 12-18 months from the moment proceedings are issued to the final court hearing. During that period, no injunction is in place, so the developer can carry on building. But it does so at its own risk as, if the injunction is granted, the building will need to be cut back.
• An interim injunction is an emergency measure to stop work immediately and maintain the status quo on an interim basis until the final hearing in a few months’ time, when the court decides whether to make the injunction permanent or discharge it. An interim injunction can be obtained swiftly, often in a matter of hours. Because the court grants the injunction without the opportunity to hear all the evidence, the court requires a cross undertaking in damages from the claimant. This is an undertaking to the court (not the developer) to compensate the developer for any losses caused by the interim injunction, if the court decides it should not have been granted in the first place and discharge it.
In reality, giving a cross undertaking in damages is quite a big risk for a claimant and we have not seen any interim injunctions to protect rights of light.
What is the likely financial exposure for a developer facing an injunction?
Most claimants do not actually want an injunction. They will threaten one to get the largest pay out. There are two main concepts to bear in mind:
• Damages in lieu. If the injunction is avoided and the court grants damages in lieu, then those damages are traditionally assessed on the basis of “hypothetical negotiating damages”. The court envisages a hypothetical negotiation between developer and claimant where each party is willing to do a deal. The hypothetical negotiation is deemed to take place at a reasonable point, so usually post-planning (so there is certainty about the scheme coming forward) but pre-start on site. The parties would probably discuss some element of a profit share, and the cases in this area have awarded anything from 5% to 50% of the additional profit derived by the developer from infringing the neighbour’s rights. Arguably, a share of no more than around 15% seems about right to take into account developer risk. There is then a final sense check to ensure that the number “feels right”.
• Ransom. The “damages in lieu” number is calculated on a reasoned basis, based on methodology endorsed by a court. There is another number which is the amount that a developer would be willing in fact to pay in order to avoid having to comply with an injunction that a neighbour has secured. This is what may be called a “ransom”. This number will vary depending on the stage the development is at when the injunction is granted, but if we take a case where the developer has proceeded to build and has in fact reached practical completion at the point the final injunction is granted, then the number may look considerably more than, say, a circa 15% profit share. At this point a successful claimant is likely to look for more of the profit, because if the developer has to comply with the injunction, it will not only forgo all of the profit, but would also incur additional costs, such as cutback costs, further planning and professional fees, not to mention loss of rent or claims from disrupted tenants.
Different types of injunctions
- Prohibitory – A prohibitory injunction prevents something from happening, ie it stops a building going up.
- Mandatory – A mandatory injunction orders something to happen, ie it means a building has to be demolished if it is already up.
- Quia timet – A quia timet (Latin for “because he fears”) injunction can be obtained in anticipation, ie even before offending works have started.
Beaumont Business Centres Ltd v Florala Properties Ltd [2020] EWHC 550 (Ch); [2020] EGLR 20
In this case an injunction was awarded post practical completion to protect the light to serviced offices. The injunction was awarded even though the developer’s conduct was not unreasonable, eg:
- The impacted owner had completed its own development a few years previously and had not approached the predecessor of the current developer for a release. The court said there was no equivalence and ignored this.
- The developer was advised by its lawyers not to approach the impacted owner as an historic deed entered into on the sale of the impacted property stated that any rights of light compensation was to be shared between seller and buyer, arguably demonstrating that this was about money rather than an injunction.
Rashpal Soomal and Kate Poole are partners at Eversheds Sutherland
