The Importance Of 'Clean Hands' In Applications For Injunctive Relief

In a recent decision of the Cayman Islands Court of Appeal (which can be found here), the central importance of a party having clean hands when seeking interim injunctive relief was discussed and reaffirmed.

The judgment was made following an appeal by Al Jomaih Power Limited and Denham Investment Ltd, minority shareholders in KES Power Limited (the largest stakeholder in K-Electric, Pakistan's largest energy company), against a decision of the Grand Court (Asif J) refusing to grant interim injunctive relief (a summary of that decision and the background to the dispute can be found here. That relief sought, amongst other things, to prevent changes being made on the Board of K-Electric by IGCF SPV 21 Limited (the majority shareholder of KES Power) in accordance with its contractual rights under a shareholders' agreement.

In its decision, the Grand Court had stated unequivocally that

• "a contract breaker cannot at the same time seek an injunction to enforce performance of the contract by his counterparty – that is the antithesis of doing equity".
• "[t]he Plaintiffs are deliberate contract breakers" and came to the court "with unclean hands, disentitling them to the equitable relief that they seek".
• The English decision of Chappell v. Times Newspapers Ltd¹, whereby a party's unclean hands in seeking injunctive relief to enforce a contract it has itself broken is alone a basis for dismissing an injunction application, should be followed in Cayman.

Along with a finding of unclean hands, the Grand Court also dismissed the application for an injunction on the basis that: (i) there was no serious issue to be tried that the applicants will obtain a permanent injunction at trial; (ii) it appeared very unlikely that the applicants will suffer any damage if an injunction is refused and, even if they do, it should be easy to quantify; and (iii) whilst insufficient on its own to justify refusing an injunction, the applicants were guilty of significant and unjustified delay in seeking injunctive relief which, in the overall balancing exercise, weighed in favour of refusing to grant the relief.

As part of their three primary grounds of appeal, Al Jomaih and Denham submitted that there was no proper foundation for the Judge's conclusion in relation to the issue of clean hands.

Interestingly, the Court of Appeal chose to focus squarely on the issue, giving it 'priority treatment' in their judgment.

The appellants' position was, in summary, as follows:

1. Contrary to the Judge's view, the facts of this case were not analogous to the facts in Chapell. In that case, the applicants sought specific performance of a contract while being in breach of the same contract. By contrast, in this case, the Court of Appeal had effectively permitted the continuation of the Pakistan Proceedings (where the appellants had improperly obtained ex parte injunctive relief in October 2022 which they sought to, in effect, substitute in Cayman through their latest proceedings) by virtue of the stay of the anti-suit injunction.
2. The Judge's conclusion that the appellants came with unclean hands could not be justified in circumstances where the Court of Appeal had previously granted a stay of the anti-suit injunction (successfully obtained by SPV 21 following a breach of contract) for five months in order to enable the appellants to obtain an order from the Grand Court in similar terms to the Pakistan injunction concerning the appointment of directors to K-Electric.
3. The fact that the appellants commenced the Pakistan Proceedings in breach of contract should not bar them for all time from seeking equitable relief; to so hold would mean that in any case where a party started in the wrong jurisdiction and an anti-suit injunction was granted, that party would be barred from obtaining any equitable remedy in the proper court.

The Court of Appeal, rejecting the appellants' arguments, described the Judge's decision on this aspect as "par excellence an exercise of discretionary judgment". When considering application of the 'clean hands' equitable maxim, a judge had to assess the nature and gravity of any lack of clean hands on the part of an applicant and decide whether the applicant's conduct is sufficient to deny equitable relief which would otherwise be granted to him. It was "a classic example" of where an appellate court had to bear in mind the need for restraint when approaching a discretionary decision of a judge at first instance:

"A decision as to whether to grant an interim injunction and the associated issue of whether any hands are sufficiently unclean to deny relief are quintessential discretionary decisions on which judges may reasonably reach different conclusions."

The Court of Appeal was satisfied that Asif J's decision was "well within the band of reasonable decisions" for the following reasons:

• The appellants consciously considered whether they should comply with a jurisdiction clause in the shareholder's agreement and bring proceedings in Cayman or England and Wales and made a deliberate decision not to, and to sue in Pakistan instead. This was therefore not an inadvertent or innocent breach; it was a deliberate and conscious breach of contract. Despite this, they contested the existence of any breach of contract on their part in both the Grand Court and the Court of Appeal despite the clear wording of the clause. They could at any stage have accepted that they were in breach and begun proceedings in the Cayman Islands, but they chose not to until in effect forced to do so.
• It was perfectly open to the Judge to conclude that the fact that the Cayman courts have granted a stay of the anti-suit injunction does not excuse the appellants' failure to withdraw the Pakistan Proceedings - "The grant of a stay simply means that there is no order in force to the effect that the Appellants must discontinue the Pakistan Proceedings...there has been nothing to prevent the appellants from withdrawing the Pakistan Proceedings (and thereby bringing their breach of contract to an end) at any time since October 2022." The appellants wished to hold onto the "fruits of their breach of contract for as long as possible" and the Court of Appeal's previous grant of a stay was not an approval or blessing of the breach.
• The appellants had unclean hands as they were seeking an equitable remedy to prevent an alleged breach of the shareholder's agreement contract whilst themselves having committed, and maintained, a breach of the same contract.

The Court of Appeal concluded that as Asif J had made clear that his decision on this issue was a standalone ground for dismissing the appellants' application for an interim injunction, it followed that the decision to uphold the Judge on this issue meant that the appeal must be dismissed regardless of the outcome of the two other grounds of appeal.

Footnote

1. [1975] 1 W.L.R. 482

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