Bermuda: Supreme Court Of Bermuda Revisits Seldom-Relied Upon Quia Timet Jurisdiction Of The Old Courts Of Chancery

In what proved to be a late Christmas present for the board of International Investments Enterprises Ltd (IIEL), Harneys Bermuda successfully invoked the now seldom relied upon quia timet, "because he fears" jurisdiction of the Supreme Court of Bermuda.

A quia timet injunction prevents a threatened wrong from being committed before it actually occurs. The classic formulation of the principle is set out by Pearson J in his much-quoted statement in Fletcher v Bealey (1885) 28 Ch D 688, 698: 

"I do not think, therefore, that I shall be very far wrong if I lay it down that there are at least two necessary ingredients for a quia timet action. There must, if no actual damage is proved, be proof of imminent danger, and there must also be proof that the apprehended damage will, if it comes, be very substantial. I should almost say it must be proved that it will be irreparable, because, if the danger is not proved to be so imminent that no one can doubt that, if the remedy is delayed, the damage will be suffered, I think it must be shewn that, if the damage does occur at any time, it will come in such a way and under such circumstances that it will be impossible for the Plaintiff to protect himself against it if relief is denied to him in a quia timet action".

Once described by Sir George Jessel as the most commonly sought form of injunctive relief, applications for quia timet relief have made few appearances in the Bermuda courts over recent years. The unreported decision of the Supreme Court of Bermuda in International Investments Enterprises Limited v Australia China Holdings Limited (30 December 2015, 2015/507, Helman J), however, confirms both the availability of such pre-emptive relief in the jurisdiction and the Court's willingness to award it in appropriate cases.

The facts

The facts of the case were somewhat curious. IIEL, a BVI domiciled company, held 23.9 per cent of the total voting shares in Australia China Holdings Limited (ACHL), a Bermuda domiciled company listed on the Australian Stock Exchange. G was the sole registered director of IIEL. ACHL's AGM was scheduled to take place on 31 December 2015. For the AGM, ACHL proposed various motions, two of which could only be passed by special resolution of the members. G intended to cause IIEL to vote its shares, which equated to a near veto power, against the proposed motions.

Approximately one month prior to the AGM however, a dispute arose as to whether G was and remained a validly appointed director of IELL. Given the dispute, ACHL refused to acknowledge G's authority, as sole registered director of IELL, to vote IIEL's shares at the AGM. Before acknowledging G's status as a director, ACHL required G to first obtain an order from the Court confirming her status. 

The time frame in which the dispute arose was such that it did not allow for a declaratory court order to be obtained in the BVI before the AGM was held. As it stood, IIEL was facing a situation in which the AGM would be held without it being able to exercise its near veto power. To exacerbate matters, the proposed resolutions that IIEL intended to vote against were such in nature that once passed, they could not easily be reversed.

With insufficient time to obtain declaratory relief in the BVI courts, and with ACHL steadfastly refusing to acknowledge G's status as a director of IIEL, an urgent application was made to the Supreme Court of Bermuda to compel ACHL to recognise G's status and her entitlement to vote the shares held by IIEL. Given the AGM had not yet been held, the basis of G's claim was a threatened wrong under quia timet principles.

The decision

It was argued before the Supreme Court that the present situation satisfied both the American Cyanamid principles applicable to injunctions generally and the requirement of 'imminent threat' specific to quia timet injunctions.

Hellman J firstly considered the American Cyanamid principles, namely that there was a serious issue to be tried, that damages were an inadequate remedy and that the balance of convenience favoured granting the injunction. In relation to these matters, it was held that: i) on the facts, there was a serious issue to be tried; ii) due to the nature of the motions for the AGM, damages would be an inadequate remedy for either party should the injunction be wrongly refused; and, iii) the balance of convenience favoured the preservation of the status quo in allowing G to vote IIEL's shares.

The Court then went on to consider whether the threat of harm was sufficiently imminent to justify the granting of relief in a pre-emptive quia timet manner. Hellman J determined this issue with relative ease on the basis that ACHL had confirmed by letter a mere two days before the AGM that they still would not allow G to vote IIEL's shares absent a Court order. Accordingly, there was little debate that the threat was sufficiently imminent and an interim injunction was granted.

In granting the injunction however, the Court acted sparingly and Hellman J restricted the ambit of IIEL's relief to the threat of harm that was immediately imminent by limiting the scope of the injunction to the specific AGM in question. Further, the injunction was made conditional upon G promptly making application in the BVI for appropriate declaratory relief concerning her directorship given that IIEL was a BVI domiciled company.

Commentary

All injunction applications, especially those proceeding on an ex parte basis, need to be approached by the courts cautiously. This is particularly so with quia timet injunctions where numerous English judges have considered that the jurisdiction should be used sparingly, especially where the injunction sought to be imposed casts a mandatory obligation on a defendant.

Despite having little practical familiarity with the quia timet jurisdiction, however, the Supreme Court of Bermuda did not seek in any way to shy away from the task at hand and tackled the relevant legal and factual issues zealously – the result being a measured and sensible outcome for both G and IIEL, and for ACHL. By way of postscript, the BVI courts quickly granted the declaratory relief sought by G confirming her as a lawful director of IIEL, thereby validating in hindsight the decision of Hellman J.

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