Preventing Breaches of Negative Covenants

JTJB Legal Update November 2017

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The Singapore Court of Appeal recently had the opportunity to examine whether an injunction should be granted as of right when a party has breached a negative covenant, which is a promise made by a party to a contract to not do a particular act.

In a landmark decision in RGA Holdings International Inc v Loh Choon Phing Robin and another [2017] SGCA 55 (“RGA Holdings”), the Singapore Court of Appeal held that an interim prohibitory injunction will readily be granted where the defendant is about to breach or has already breached a negative covenant in a contract. The Court of Appeal also clarified that an interim prohibitory injunction in such circumstances will only be refused if the defendant is able to show hardship over and above that which may result from having to observe the contract.

In RGA Holdings, RGA Holdings International (the Appellant) had agreed to purchase shares held by Mr Loh Choon Phing Robin and Mr Loh Yin Kuan (the Respondents). The parties entered into a Share Sale Agreement where the Respondents further undertook not to sell their respective properties.

Subsequently, various disputes arose between the parties and the Appellant commenced legal proceedings against the Respondents, claiming that the Respondents had breached the Share Sale Agreement. Unknown to the Appellant, the Respondents proceeded to sell one of the two properties caught by the undertaking in the Share Sale Agreement. Upon the discovery of the sale, the Appellant applied for an interim prohibitory injunction against the Respondents to restrain the Respondents from selling the remaining property.

The application was dismissed at first instance by the Singapore High Court. On appeal, the Singapore Court of Appeal noted that there was little direct local authority on this point and, after examining various Commonwealth authorities, granted the Appellant’s application for a prohibitory injunction.

The Court of Appeal agreed with the Appellant that an interim prohibitory injunction to restrain the breach of a negative covenant should be granted as a matter of course. The usual principles relating to interim injunctions, such as the balance of convenience test and whether damages would be an adequate remedy need not even be considered.

This decision has a great deal of commercial importance as, given the increasing sophistication of modern day commercial contracts, it can be important for parties to preserve the status quo and prevent future or further breaches pending trial.

The Appellant was represented by K Murali Pany and Ng Lip Kai of Joseph Tan Jude Benny LLP.

Contributed by:K Murali Pany / Ng Lip Kai Managing Partner / Associate murali@jtjb.com / nglipkai@jtjb.com