Civil Restraints Agreement Explained
A civil restraint agreement, also referred to as a ‘civil restraint’ or even a ‘civil restraint consent order’, is an effective technique utilized by a court to prevent an unmeritorious litigant from abusing the courts. Such an agreement is regular in the Court of Appeal, Technology and Construction Court (TCC), Family Court and High Court, amongst others. These agreements are often used to manage vexatious litigants and vexatious claims. The most common types of agreements are as follows:
(i) A consent for the claimant to commence proceedings
(ii) A merger of the above with the claimant giving an undertaking to abide by the rules
o For example, the claimant can only commence proceedings with permission from the court
(iii) Consent to issue a without notice injunction
(iv) A merger of the above with an undertaking to inform all parties that a without notice injunction has been obtained and regulalry update them on the status of the injunction
(v) A merger of the above which not only requires the claimant to give an undertaking but also ,
o restricts the claimant from petitioning for asylum and
o to inform the representative international bodies.
(vi) An undertaking(s) not to expect ‘state indemnity’ (which is a Defence as the Home Office is responsible to indemnify the court)
(vii) A merger of the above with an undertaking not to seek state indemnity or costs.
The court is entitled to impose a civil restraint if, after investigating the nature of the claim, it is of the view that there has been abuse and if such abuse is repeated. The court may make a civil restraint either of its own accord, or it may do so following an application by the Defendant. As stated in The Attorney General v Barker Ltd [2017] 1 WLR 4021, "the court is obliged to investigate as to whether a collateral attack by way of appeal or other originating process is made" – i.e. the court must look into the matter of whether there has been unmeritorious litigation.
Components of a Civil Restraint Agreement
A Civil Restraints Agreement typically consists of several integral clauses that bind the Defendant, a mechanism for the Plaintiff to receive funds from the Defendant in the event that a breach occurs, and various other terms. These clauses and terms generally relate to the manner in which the Defendant will behave personally, including in relation to public issued relating to the dispute, pending or upcoming litigation in favor of the Plaintiff, the use of any real estate or bank accounts the Defendant may have, any second mortgage or credit account with outstanding funds, as well as any mail the Defendant receives.
One of the key elements of a Civil Restraints Agreement is language around whether the Defendant is immediately bound by the terms of the agreement once it is signed or if the agreement is contingent on a stay order being lifted or otherwise set aside. This unique feature of a Civil Restraints Agreement can make it different from other forms of discovery agreements, such as Attorneys’ Eyes Only agreements, which may only be contingent and not binding on the parties until the Court has made a determination relating to the underlying litigation.
Illustrative Civil Restraints Agreement
A sample Civil Restraints Agreement is provided below as an example of the types of terms that may be included in one of these contracts. This example agreement is intended only as a guide, and is not necessarily complete or comprehensive.
CIVIL RESTRAINTS AGREEMENT
This CIVIL RESTRAINTS AGREEMENT (this "Agreement") is entered into as of this ___ day of _____________, 20____ by and between ___________ (the "Restrainted Party") and ___________________________ (the "Resrainting Party")
Preliminary Statement:
This Agreement sets forth the understanding of the parties with respect to the terms of the Restraint imposed on the Restrainted Party pursuant to the Order (as defined herein) [(each individually a "Party" and collectively the "Parties").]
1. Recitals and Definitions.
(a) The Resrainting Party has filed a complaint against the Restrainted Party in the Court captioned _________________________ (the "Court") in the State of _______________, Docket No. ______________ ("the Complaint").
(b) The Court issued a Temporary Restraint Order on the ___ day of _______________, 20___ (the "Order") against the Restrainted Party enjoining the Restrainted Party from, inter alia, and specifically: This agreement shall not be admissible as evidence.
(c) The Restrainted Party and the Resrainting Party (collectively the "Parties") have agreed to enter into this Agreement to comply with and conform to the Order, or any amendment or superseding order, by the Court.
(d) Capitalized terms used herein but not defined have the meaning given to such terms in the Order and the Complaint.
2. Rights of the Parties.
3. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed and enforced under the laws of the State of _________________, without reference to its choice of law rules.
(b) Modification. No modification hereof shall be effective unless in writing and signed by both Parties.
(c) Assignment. Neither Party hereto may assign its rights or obligations under this Agreement.
(d) Notices. Any notice given under this Agreement shall be deemed given when it is sent by first-class, registered or certified mail, to the appropriate address of the Parties as identified in Section 2.1.
(e) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed delivered at the time of its receipt.
(f) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the Parties and supersedes all prior agreements, either written or oral, relating to the subject matter hereof. No representation, inducement, promise or agreement, oral or otherwise, has been made by any Party hereto which is not contained in this Agreement and upon which any other Party hereto has relied in executing and delivering this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year first above written.
Signed this _______ day of ______________, 20___.
Parties:
_____________________ (the "Restrainted Party")
_____________________ (the "Resrainting Party")
Enforceability and the Law
A Civil Restraints Agreement is a legallybinding contract, which when signed by a Defendant, has implications which a Defendantmust consider. If a case is being pursued through the Courts then entering into the Agreement is likely to be a bail for a shorter time than a Court imposed restraining order. Also a Civil Restraint Order is harsher than an Agreement because it subjects the Defendant to the Courts scrutiny for seven years despite petitioning the Court for its removal after 1 or 4 years.
The Civil Restraint Scheme was started in 1999 to allow the Courts to deal with litigants who abuse the judicial system by bringing abusive (disproportionate or groundless) claims. A Judicial Beak can make a Civil Restraints Order against a litigant if they consider that the litigant has brought or taken part in a number of Claims or Defences which are without merit. In the event that multiple claims or defences are made, the Court can only impose one Civil Restraint Order. The Court can either make a Civil Restraint Order in the form of an Order which is effective indefinitely, or alternatively a short term order, which is also known as a Trial Period. The latter will often be extended indefinitely if the litigant continues to act unreasonably. Importantly, a Civil Restraint Order must not be used as a form of punishment, rather it should be used as a means to restrict unmeritorious access to the Courts. It should only be used to prevent prejudice to the Defendant. Equally, the Civil Restraint Order, when it relates to defence of the claim or Counterclaim brought by the Defendant, is only likely to be imposed if the neighbouring claim has already been issued.
The main feature of a Civil Restraint Order is that the litigant will not be allowed to commence a claim or bring a defence or Counterclaim which is a similarly abusive nature without seeking permission from the Courts beforehand. Should permission from the Court be sought and denied, the claim or defence will not be permitted. There are three types of Civil Restraint Orders (which vary in severity), which are referred to as the ‘Three Strikes Rule’. The following is an explanation of the types of Civil Restraint Orders: A Penal Notice will be attached to the Civil Restraint Order, informing it’s recipient that they face penal consequences if they do not abide by the Order. Essentially, if a Defendant enters into a Civil Restraint Agreement, the benefits of a short term trial period outweigh the effect that these Orders will have in the future. When entering into a Civil Restraint Agreement, a Defendant has the opportunity to prevent serious repercussions in the future. If a Civil Restraint Order is made the right of access to the Courts for that Defendant will be severely restricted. In turn, if a Defendant is unreasonable, the Courts will take steps to prevent them for abusing the system in future. Additionally, a Defendant cannot commence a new action without permission of the Court. In this way, it is likely that a Civil Restraint Order is significantly more restrictive to a Defendant than a Civil Restraint Agreement. A Defendant should therefore consider that entering into a Civil Restraint Agreement may prevent further detriment to them and their reputation, whereas a Civil Restraint Order may be more damaging long-term. In the circumstances, the Defendant will have a choice to make and that choice should be considered carefully, in order to discover the best legal position.
Creating a Civil Restraint Agreement
When drafting a Civil Restraints Agreement, the parties should ensure that clause clearly sets out the scope of the restraint. The wording should be simple and unambiguous; otherwise, the court can find an apparent ambiguity in the wording and either refuse to grant the consent order at all or rectify it to remove the ambiguity. It is better that the clause is clear on its face and specifies exactly what activities are prohibited (thereby avoiding any argument that the court should read in something not expressly in the document) than to include a broad restraint without being entirely clear if it should be read narrowly.
It is helpful if the agreement provides explanations for the clauses. For example, a clause could provide an explanation as to why the parties agree a particular clause is reasonable. This might include an explanation of its purpose and the specific harm that the clause is designed to protect against.
Parties must also ensure they are enforcing rights under the correct clause. For example, where one party simply wants to rely on the confidentiality obligations in the agreement, they must be careful not to say their ex-employee is in breach of the restriction on working with competitors. This highlights what is often an overlooked step when drafting these agreements, which is to set out the restrictions with separate, clearly defined clauses for each category of restriction: for example, clauses on confidentiality, non-solicitation, and non-compete . In addition, to avoid any disputes over interpretation, it is advisable that the context and reason for the clause is included in an explanation. This can be done in a separate clause or as a footnote of the clause (so that it is not included in the order signed by the court). It is always advisable for each clause to start with "each of the below restrictions should be served independent of each other."
Where a party does want to rely on more than one clause, they should be mindful that each clause should be expressed as a separate clause. A common pitfall of these agreements is to try to rely on several restrictions where there is only a single restriction in the agreement. There is no harm in applying for the order to include all of the restrictions, even where you only want to rely on one, since these orders are consent orders and will not be enforced by the court.
The restrictions should also be clear and distinct from each other. For example, it is bad drafting to say "each party agrees not to make any disclosure of confidential information to a competitor, consistent with any obligations in their employment agreement" because that does not create a new obligation and may be seen as a mere reference back to the confidentiality obligations in the employment agreement. If a party wants to undo their employment agreement confidentiality restrictions, this should always be stated expressly and the parties should execute a settlement agreement to terminate the prior agreement in relation to such restrictions.
Caveats in Drafting Civil Restraints Agreements
Common mistakes in Civil Restraints Agreements include provisions purporting to limit the scope of restraint provisions to specific (usually current or recent) clients. A typical provision might read: "The restraint periods set our in this undertaking, whether as to the Respondent Attorney or any member or employee of a firm of solicitors of which he was a member or employee at the date of the undertaking shall end at such time as all such clients shall have ceased to be referred to the Respondent Attorney or such firm." Any such provision will not be enforceable as a Court Order.
Another common mistake which runs along similar lines is the failure to make proper provision for activities relating to those clients outside the restraint period and/or territory. For instance, an incorrect assumption may be made that pre-resignation or pre-engagement activities are not restrained. Such a trap can be avoided by carefully considering the intended scope of the restraint. This will involve thinking through what conduct you do not want the relevant person to do, then drafting a catch-all prohibition against such conduct.
Other mistakes include drafting the restraint too narrowly or too broadly. A restraint drafted too narrowly will not be effective to ensure that the restraint operates to the intended degree. A restraint too broadly, such as the "all client" example above, is unlikely to pass the strict scrutiny required of such measures.
When to Consult an Attorney
While this Cheat Sheet stylised post has been created to provide an overview of what a typical Civil Restraints Agreement looks like, it is not a substitute for professional and/or legal advice. When dealing with a new Civil Restraints Agreement it is advised that you seek legal advice. This is particularly so if you suffer from mental or physical health issues – your defence may be complicated by such problems. It is important that you obtain legal advice as to your health issues and how they may impact on your interests in relation to the case and on your ability to deal with the powers of the Civil Restraints Agreement. It is also important to take legal advice in relation to the charges or allegations being made – there may be a serious issue of fact which it is crucial to deal with in your response. A solicitor will be able to advise you in relation to an initial reaction in relation to such circumstances. For many, obtaining legal advice will not be possible and they will be forced to respond by way of completing the Form and responding on the basis of their oral defence and additional material (if any) without professional assistance and legal guidance. To do so effectively it will be necessary to get your head around the case against you and the main defence points (and any supporting evidence and witnesses) quickly. You should also bear in mind the limits on making further witness statements and obtaining further evidence who you can call as a witness which are set out in sections 5 and 6 of the Civil Restraints Procedure Rules.
Case Studies
In the case of Fage Dairy Products Corp. v. Certain Underwriters at Lloyd’s., Fage, the Greek yogurt company, issued a civil restraint agreement after a customs dispute with the United States International Trade Commission and the Department of Homeland Security. The company had been importing Greek-style yogurt with a 6-ounce cup size, which the U.S. held violated their intellectual property rights rules. As such, the ITC ordered that they cease such trade and payment that American retailers had made to them. The company almost went out of business and applied for bankruptcy before they entered into a new settlement agreement with the 100 retailers affected. Thanks to the civil restraint agreement, they received about $12 million.
Another company, Brickyard Vending, entered into a sales agreement with a foreign manufacturer that was later reported by a different party to the Office of Foreign Assets Control (OFAC). When the company’s owner then went to open her own store a year later, she was barred from opening any bank accounts financed with cash or personal funds. She sought the legal representation of an attorney who lodged an application for an OFAC license on her behalf. After the government did not respond with a decision , the attorney contacted them to receive a response. The attorney received a response from the OFAC which disregarded his inquiry and stated they would not respond again as the matter was closed. The attorney appealed the OFAC’s decision to deny the license.
In re Peterson, Soos v. National City Corp., was a case where two homeowners were sold second mortgages at a time when the lender was aware that the primary mortgage loan balance was in default. During this time frame, when the homeowners attempted to make their required payments, they were told they could make those payments with the second lender. However, the lender withheld information regarding the first mortgage being in default, which they knew about when the second mortgage was made. Only when they tried to refinance the properties, were these homeowners made aware of the first mortgage issue. They filed suit under the Ohio Consumer Sales Practices Act, but the appeals court dismissed their case as a "wild goose chase." The plaintiffs were not allowed to inform the jury of the defendant’s conduct.
