[From Singapore Office] Injunctions in Singapore – Key Takeaways from a Recent Case

Context and background on injunctions

An injunction is a legal remedy to order a party not to do an act, or to do an act.

At times, claimants apply for “interim” (or “interlocutory”, which at times is the preferred term) injunctions at the start of or during legal proceedings to temporarily prevent irreparable harm from being inflicted on them pending final resolution of the case. At the conclusion of the matter, the final decision and relief may entail (i) the interim injunction being made final/permanent, (ii) a variation of the interim injunction, or (iii) a full withdrawal of it.

There are generally 3 recognised categories of injunctions:

Type 1: The injunction has a direct relationship with an existing cause of action (e.g. the injunction is to stop the defendant from carrying out existing acts that infringe the claimant’s trademark). This is probably the most common type of injunction.

Type 2: The injunction may have a direct relationship with a potential cause of action (e.g. the injunction is to prevent the defendant from carrying out acts that, if committed, would infringe the claimant’s trademark) – this is known as a “quia timet” or “precautionary” injunction.

Type 3: The injunction has an indirect relationship with the existing cause of action (e.g. freezing order on the defendant’s assets to prevent their dissipation).

Because the very nature of the injunctive remedy (whether interim or permanent) is onerous in that it compels a party to do or refrain from doing something, as opposed to the more common commercial remedy of monetary compensation, the requirements for injunctions are strict.

Key Facts of Gazelle Ventures

In the case of Gazelle Ventures, the claimant investor sought, among others, a precautionary injunction against the defendant shareholders of the subject company (“Company”) from taking steps to pass certain resolutions at a shareholder meeting.

As part of the investment arrangement, the claimant entered into 2 agreements with the Company to provide financing of up to SGD5 million to the company. One of the agreements (“Implementation Agreement”), contained key conditions including (i) a shareholder meeting to be convened for certain resolutions to be passed and (ii) the defendant shareholders were to provide undertakings to vote in favour of those resolutions. The defendants then executed deeds containing those undertakings in favour of the Company (“Deeds”), and the intended shareholder meeting was later convened (“Initial Shareholder Meeting”) and the resolutions passed thereat (“Initial Resolutions”).

Subsequently, disagreements arose between the investor and the shareholders, resulting in one of the shareholders commencing arbitration against the Company for wrongful termination of related agreements entered into with the shareholder.

On top of that, the shareholder requisitioned a shareholders meeting to pass resolutions to, amongst others, (i) remove the investor-nominated directors of the company and (ii) annul the Initial Resolutions (“Intended Resolutions”).

In response, the investor applied to the High Court for a precautionary injunction to restrain the defendants from passing the Intended Resolutions.

Case analysis

The Court dismissed the investor’s application in its entirety.

The test for a precautionary injunction is a 2-stage one, as set out in the recent case of Bhavin Rashmi Mehta v Chetan Mehta and others [2022] SGHC 173:

Stage 1: Whether there is a “strong probability” that, unless restrained by injunction, the defendant will act in breach of the claimant’s rights.

Stage 2: If so, whether the resultant harm would be so grave and irreparable that even if an injunction is immediately granted at the time of actual breach, a remedy of damages (i.e. monetary compensation) would be inadequate.

The Court held that both stages were not satisfied for the following reasons.

Stage 1: strong probability that defendant will breach claimant’s rights

First, the investor had no cause of action against the defendant shareholders. While the investor argued that the shareholders would be in breach of the Deeds if the Intended Resolutions were passed, the Court disagreed because (i) the investor had no standing to enforce the undertakings in the Deeds as the Deeds were executed in favour of the Company and not the investor, and (ii) according to the plain wording of the Deeds, the shareholders’ obligations thereunder had been duly performed when the Initial Resolutions were passed and came to an end at the close of the Initial Shareholder Meeting.

Second, the Court also found that the torts of (i) causing loss by unlawful means and (ii) conspiracy by unlawful means had not been made out against the shareholders. According to the court, the investor failed to establish key common ingredients of the torts such as an unlawful act, intention to injure, and damage. In short: there was no actionable “unlawful act” as the shareholders did not breach the Deeds as against the investor and they also did not breach their duty of good faith to the Company by exercising their vote in the manner they did as the investor was not a shareholder of the Company; there was no intention by the shareholders to injure the investor by passing the Intended Resolutions; and the passing of the Intended Resolution would not itself result in damage to the investor.

Stage 2: the resultant harm will be grave and irreparable if injunction is not granted

The Court also briefly addressed the Stage 2 inquiry for completeness. The Court concluded it was unlikely that the investor would suffer grave and irreparable harm if a precautionary injunction was not granted because it was uncertain that the Implementation Agreement would be completed even if the injunction was granted as there were other independent circumstances that could derail completion.

As such, at best the investor’s case was that it would lose a chance of completing the Implementation Agreement if the injunction was not granted. Further, there was no identifiable loss that the investor would suffer if the injunction was not granted. As such, the Court could not conclude that such loss was irreparable and not compensable in damages.

Conclusion

A key takeaway from Gazelle Ventures is that it is to be expected that the Singapore courts will apply a high level of scrutiny to the facts to satisfy themselves as to whether the case for a precautionary injunction has been made out given its severe and premature nature.

As such, parties to potential joint ventures or other investment transactions would be well-advised to consider (i) formulating and drafting their business structures and documentation carefully with potential disputes in mind and (ii) maintaining and preserving material evidence at each step of communications with their counterparts in an organised manner, particularly when unlawful torts can be a basis for a future claim and recourse. This can be achieved with the assistance of experienced legal counsel as early as the inception of an intended business venture.

Had the application in this case been successful, a resulting precautionary injunction would have been an effective remedy for the investor in the sense that it would have put the Intended Resolutions on hold and possibly put the shareholders back to the negotiation table. As complex corporate disputes like this are also often observed in the context of international joint ventures, it is vital for foreign investors including Japanese ones who partner with a local or other foreign partner under Singapore law to keep up with cases like Gazelle Ventures to learn practical tips regarding injunctions to preserve its rights, minimize its risks and secure a better position in negotiations.