In brief - Recent rejection of Greensill Capital's urgent application is a reminder for businesses that courts expect parties to act swiftly if they want interlocutory relief 

Recent headlines have documented Greensill Capital's last-ditch efforts to avoid insolvency. 

For those who have missed the stories so far, Greensill has been one of the leading providers of supply-chain finance through its Australian, British and German entities. Until March 2021, Greensill held two trade credit insurance policies for around US $4.6 billion. 

As early as July 2020, Greensill was aware that the insurer was not intending to renew the policies. Formal notification that the policies were not going to be renewed was given by the insurer on 1 September 2020. 

On 1 March 2021, the last day before the policies expired, Greensill's lawyers in Sydney asked the NSW Supreme Court to grant an interlocutory mandatory injunction requiring the insurer to continue to provide cover, pending final determination of whether the insurer was required to offer Greensill new policy terms.

The Court's refusal illustrates the time-honoured lesson that a party must act swiftly if it intends to seek interim interlocutory relief. 

Balance of convenience test

There are a number of factors that a party must demonstrate to convince a Court to grant an interlocutory injunction. 

In summary, an applicant needs to show that:

  1. there is a serious question to be tried; 

  2. damages would not be a sufficient remedy for the applicant; and 

  3. the balance of convenience and justice favours the grant of an interim injunction.

The deciding factor in Greensill's application on 1 March was the balance of convenience. 

The basis of Greensill's application was that the insurer's formal notice had not been provided within the time frame required by the policies. As a result, Greensill argued the insurer was required to provide terms for the renewal of the policies. In considering whether this constituted a serious question to be tried, the Court found that there was at least an arguable case. However, the Court did not think the case was strong. The apparent strength of the claim is likely to have affected the Court's assessment of the balance of convenience.

Likely harm 

The balance of convenience test requires the Court to consider a range of factors, including the detriment the plaintiff is likely to suffer if the injunction is not granted, against the detriment the defendant would suffer if the Court did grant the injunction (see: NWL Ltd v Woods [1979] 3 ALL ER 614, 625).

In its application, Greensill argued that there would be "catastrophic" consequences if the injunction was not granted and the policies were not renewed. Specifically, Greensill argued that it would no longer be able to provide working capital funding to its clients, which could result in those clients becoming insolvent and putting 50,000 jobs around the world and Australia at risk. There was also evidence given that alternative cover was not available.

Ordinarily, the scale and gravity of this potential outcome, in particular where innocent third parties are involved, would tip the balance of convenience in favour of the party applying for an injunction. However, for the reasons set out below, this was not the case and Greensill's application was refused. 

Balancing interests

In this case, the Court considered that two factors outweighed the consequences of the injunction not being granted.

  1. The insurer had not obtained reinsurance cover past the expiration of the policies. In circumstances where the policies had expired, the requested injunction would clearly not operate to "preserve the status quo", but rather would place the insurer in a prejudicial position - possibly exposing it to the full US$4.6 billion value of the policies if a claim was made. 

  2. Greensill's apparent lack of urgency in bringing their application. Even though Greensill had been made aware of the insurer's intentions to not renew the policies from as early as July 2020, they had only brought the matter before the Court on the day before the policies expired. 

In dealing with the issue of delay, Greensill argued that the parties had been corresponding in an attempt to negotiate a solution. However, they were not able to present evidence of the extent to which these negotiations had occurred, as the discussions had been on a "without prejudice" basis. 

In the absence of sufficient evidence to the contrary, the Court considered that Greensill had been aware of the insurer's position for eight months, but had delayed bringing the matter before the Court. In combination with the prejudice the insurers would suffer if the injunction was granted, the balance of convenience was tipped against Greensill and their application was refused. 

Lessons for businesses - acting early and quickly when seeking advice, identifying risk of harm to the business, and preparing and filing an application to the Court

It is difficult to convince a Court to grant an urgent interlocutory injunction prior to having heard the substantive claim. Delay in bringing such an application will add an additional hurdle. 

Where an applicant delays in bringing its application, there is a presumption that the applicant's possible harm may not give rise to the required level of "seriousness". Delay may also expose other parties to unnecessary loss; a strong factor against granting an injunction. 

A dismissal for lack of urgency not only fails to achieve the required results, but will likely expose the applicant to pay the respondent's costs (as well as being saddled with its own legal fees). 

In order to avoid the risk of inadvertently losing the option to seek an urgent interim injunction, parties should ensure they obtain advice at the earliest possible opportunity.

The question of when a business should seek advice comes down to management having a proper understanding of the detriment to which the business is likely to be exposed. Because of this, it is critical that management be in a position to quickly identify situations that may give rise to a possibility of serious harm to the business. 

Once the business is aware of the potential harm (and it has been properly advised as to the urgency in taking steps to prevent that harm from materialising), it is fundamental that immediate steps are taken to prepare and file an application to the Court. This process should be undertaken as quickly as practicable as the timing of the steps taken by the business will be required to be communicated to the Court to demonstrate the swiftness of the business's actions after learning of the harm.

(For more information about Greensill's application for an interlocutory injunction, see: Greensill Capital Pty Ltd & Ors v BCC Trade Credit Pty Ltd & Ors [2021] NSWSC 167).

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2021.

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