The Exception To The Rule: Stricter Test Applies Where Granting An Interlocutory Injunction Would Shut Out Trial

Factual Background

Raffles Interior Limited (the Defendant) is listed on the Hong Kong Stock Exchange (HKSE).[1] In July 2025, Ultimate Global Enterprises Ltd sold its 51% shareholding in the Defendant to Han Vision Holdings Limited (Plaintiff) for HK$33.6 million.[2] The Plaintiff is owned by Mr Zheng Nenghuan (70%) and his wife, Ms Tang Judi (30%). Mr Zheng was appointed executive director and chairman of the Defendant in September 2025 and, as a result of the sale, obtained majority control of the company.[3]

In November 2025, relationships between Mr Zheng and the Defendant’s other directors deteriorated when Mr Zheng: (a) signed a share purchase agreement (SPA) committing the Defendant to buying Cronum Assets Ltd for HK$300 million; and (b) issued a trading halt without prior board approval.[4] The SPA was signed on behalf of the Defendant by Mr Zheng and on behalf of the seller by Ms Tang. The other directors considered that the personal connection between Mr Zheng and Ms Tang meant that the acquisition could constitute a related party transaction and could amount to a reverse takeover,[5] both of which require shareholder approval.[6] On 21 November 2025, Mr Zheng requisitioned an extraordinary general meeting (EGM) to remove the existing directors. The board did not convene the EGM within the required 21 days, eventually scheduling it for 20 January 2026.[7] In the meantime, the board convened an independent board committee (IBC) to investigate Mr Zheng’s conduct.[8]

On 9 January 2026, with minimal notice, the Defendant’s board called an urgent meeting to consider:

• the appointment of a new director;
• issuing a warning letter to Mr Zheng for his lack of responses to the IBC; and
• issuing 200 million new shares at an 80% discount to replenish the company’s working capital given that, as noted in the supporting board paper, the Group’s financial position needed reinforcement.[9]

This board paper on the share issuance did not have a figure for the calculated dilution of the Plaintiff’s shareholding but, in effect, it would dilute the shareholding from 51% to 42.5%.[10] Mr Zheng objected to the meeting, complaining that there was not adequate prior notice and that the share issuance was proposed for the “obvious and improper purpose” of diluting his controlling shareholding.[11] The board ultimately approved all 3 agenda items despite Mr Zheng’s objections.[12]

Following the 9 January 2026 meeting (the Board Meeting), the Plaintiff issued an endorsed writ of summons seeking that the Board Meeting, and the subsequent resolutions passed, be declared invalid.[13] The Plaintiff also obtained an ex parte injunction on 10 January 2026 restraining the share issue, with a return date hearing on 4 February 2026.[14]

After being served with the injunction order, on 13 January 2026, the Defendant’s directors scheduled a board meeting for 19 January 2026 to consider postponing the EGM scheduled for 20 January 2026 to 20 March 2026.[15] On 19 January 2026, the defendant’s directors (other than Mr. Zheng) voted to postpone the EGM to 20 March 2026, stating they needed additional time to prepare materials for shareholders.

On 22 January 2026, the Plaintiff’s attorneys wrote to the Defendant requesting undertakings that: (a) the EGM would not be further postponed without court permission; (b) the Plaintiff’s resolutions would be put to a vote; and (c) the Plaintiff’s votes would be counted.[16] The Defendant’s attorneys rejected these requests on 27 January 2026, asserting that the directors had the power under the Articles of Association to postpone the EGM as they had done.[17]

On 3 February 2026, the day before the return date hearing, the Plaintiff circulated a draft amended summons seeking additional relief to restrain the defendant from further postponing the EGM, preventing the Plaintiff from attending or voting at the EGM, and requiring the Plaintiff’s votes to be counted.[18]

The Arguments

The Plaintiff argued the share issue was for the improper purpose of diluting its voting control before the EGM, rather than genuine fundraising.[19] The Plaintiff contended that the American Cyanamid principles applied and, given that there is a serious issue to be tried and the balance of convenience lies with the Plaintiff due to the consequences of the shareholding dilution, the injunction should be continued.[20]

The Defendant contended it had a legitimate need for working capital due to the deteriorating cash position and that the Plaintiff could not demonstrate an overwhelming case on the merits as the Plaintiff could not prove that the share issue was not, at least partly, motivated by a desire to raise working capital.[21] Thus, as the injunction would likely, in practice, determine the matter and shut out any trial, the American Cyanamid approach should not apply and the Court should instead take the exceptional approach contained in cases such as Cayne.

Main Legal Issues

1. Whether the Defendant’s directors acted for a proper purpose in resolving to issue the new shares, or whether their true motive was to dilute the Plaintiff’s majority control ahead of the EGM.
2. Whether the American Cyanamid principles for granting interim injunctions should apply, or whether the court should apply Cayne given the likelihood the injunction would effectively determine the outcome.

American Cyanamid Principles

The usual test for interim injunctions in the Cayman Islands derives from American Cyanamid Co v Ethicon Ltd [1975] A.C. 396, which established that, in deciding whether to grant such relief, the court should consider whether:

• there is a serious issue to be tried which should involve determining that the claim is not merely “frivolous or vexatious” and has a real prospect of success at trial;[22]
• damages would be an adequate remedy for the applicant (in which no injunction should be granted) or, conversely, if the defendant could be adequately compensated by the claimant’s cross-undertaking if the injunction was found to be mistakenly issued;[23]
• there is a ‘balance of convenience’ in which the court should consider which party would suffer greater harm if the injunction were granted or refused;[24]

American Cyanamid Exceptions Considered

The Defendant, in addition to its reliance on Cayne, relied on the principles in Gee on Commercial Injunctions to argue that the American Cyanamid principles should not apply in this case.[25] Gee suggests eight situations in which the principles in American Cyanamid should not apply: (1) where the result of the application will conclude the litigation; (2) where the Rule of Law requires certain merits to be taken into account before an injunction can be granted (s.12(3) of the Human rights Act is used as an example); (3) where the merits of the case are clear but it appears further critical evidence will come to light; (4) where an injunction seeks to restrain the presentation of a winding up petition; (5) where the Attorney General or other public authority seeks to enforce a public good; (6) where a freezing injunction is sought; (7) where the injunction seeks to restrain a bank acting under an irrevocable letter of credit or performance guarantee; and (8) where the injunction seeks to restrain an alleged libel or other a malicious falsehood.[26]

Justice Asif described these exceptions as being consistent with “a coherent and principled approach to the consideration of interim injunctive relief and with the decision in American Cyanamid”.[27] Given the facts of the case, he did not need to further opine as to the application of these principles in the Grand Court. As a result, unlike the reasoning in Cayne which was fully adopted as the basis for his decision in this case,[28] Gee’s exceptions were only described by Justice Asif as being “likely to be accepted by the Grand Court”.[29]

Cayne Principles

In his consideration of Cayne, Justice Asif particularly honed in on the analyses of Lord Justice Eveleigh,[30] Kerr,[31] and May.[32] These justices came to the common view in Cayne that, where the result of the decision would deny the respondent the opportunity to go to trial, more than the American Cyanamid principles is required and regard should be given to all of the circumstances of the case. The court in that case noted that the decision “will produce an injustice on one side or the other” and that it would be “wrong to run the risk of causing an injustice to a defendant who is being denied the right to trial […]”.

Lord Kerr’s analysis in particular was followed by Justice Asif. Lord Kerr deemed that in these circumstances, the plaintiff must demonstrate an “overwhelming case” to justify the interim injunction as the plaintiffs are “in effect asking for summary judgment in their favour”.[33] It was this reasoning which led Justice Asif to treat the application by the Plaintiff to extend the interlocutory injunction as, in effect, being an application for summary judgment.[34]

The Court’s decision

Justice Asif found that there was clearly a serious issue to be tried regarding whether the Defendant’s directors exercised their power to resolve to issue new shares for a proper purpose given several troubling aspects of the directors’ conduct that could support an inference that their real motivation was to dilute the Plaintiff’s shareholding before the upcoming EGM.[35] Accordingly, the potential damage to the Plaintiff of losing its majority stake and ability to influence decision-making would be very difficult to undo or compensate if the Plaintiff succeeds at trial.[36] Additionally, there was no strong evidence of an impending cash crisis requiring urgent new capital and continuing the injunction would not prevent the Defendant from exploring other methods of raising capital if properly shown to be necessary.[37] Furthermore, the Plaintiff’s cross-undertaking as to damages would be secured by its 51% shareholding in the Defendant, which was worth HK$33.6 million just 7 months ago.[38]

Nevertheless, Justice Asif (in weighing up the injustice that could derive from continuing the injunction) sided with the Defendant and concluded that this was indeed an exceptional case where the American Cyanamid principles should not apply, instead ruling that the Court should follow the principles set out in Cayne.[39] If he were to continue the injunction, it was very unlikely there would ever be a trial in this matter as the Plaintiff would be able to remove the existing directors at the upcoming EGM and appoint new ones who would likely abandon the proposed share issue.[40] This would be an injustice as it effectively decides the case in the Plaintiff’s favour without the Defendant having the opportunity to contest the matter at trial. Therefore, the Plaintiff’s case, whilst serious, was not “overwhelming” and did not meet the summary judgment threshold required in these circumstances.[41]

Thus, Justice Asif ultimately decided:

• to adjourn the Plaintiff’s application for additional relief restraining the Defendant’s directors from further postponing the EGM, preventing the Plaintiff from attending, and requiring the directors to count the Plaintiff’s votes; and
• to discharge the Plaintiff’s ex parte injunction dated 11 January 2026.[42]

Key Takeaways

1. American Cyanamid is not a safe default where interim relief would be determinative:

The decision confirms that, in Cayman, the American Cyanamid framework will not be applied mechanistically where granting or continuing an interlocutory injunction would effectively dispose of the dispute. In such cases, the Court will step back and assess whether interim relief would work an injustice by depriving the respondent of a trial.

2. Cayne establishes a materially higher merits threshold:

Where the interlocutory outcome would decide the case, the applicant must meet a standard akin to summary judgment by demonstrating an “overwhelming” case on the merits. Establishing a serious issue to be tried and a favourable balance of convenience will not suffice.

3. The Court will prioritise procedural fairness over tactical advantage:

Even in circumstances where serious concerns exist about directors’ conduct and the claimant faces potentially irreparable harm, the Court will not permit interim relief to be used to secure a decisive outcome without trial. Preventing one party from ever having its case heard will be treated as a powerful factor against injunctive relief.

4. Strategic implications for shareholder and boardroom disputes:

Parties seeking urgent injunctive relief in corporate control disputes must carefully assess whether the relief sought would, in substance, resolve the dispute. If so, they should expect the Court to scrutinise the merits closely and be prepared for the application to be treated as a de facto summary judgment exercise. Equally, respondents may well seek to characterise the interlocutory relief sought as determinative, depriving them of a trial of the underlying dispute.

[1] Han Vision at [3] – [4].

[2] Ibid, at [7].

[3] Ibid, at [8] – [9].

[4] Ibid, at [9.3].

[5] Ibid, at [9.5] – [9.8].

[6] See HKSE Main Board Listing Rules at Chapter 14A for related party transactions and Chapter 14.06B for reverse takeovers.

[7] Han Vision, at [12].

[8] Ibid, at [13] – [14].

[9] Ibid, at [17] – [19].

[10] Ibid, at [19] and [56].

[11] Ibid, at [20].

[12] Ibid, at [21] – [22].

[13] Ibid, at [23.1].

[14] Ibid, at [23.2] – [25] and [1].

[15] Ibid, at [30].

[16] Ibid, at [32].

[17] Ibid, at [33].

[18] Ibid, at [34].

[19] Ibid, at [36].

[20] Ibid, at [42] – [43].

[21] Ibid, at [46].

[22] American Cyanamid at [407g] – [408b].

[23] Ibid, at [408c] – [408e].

[24] Ibid, at [406d] – [406f].

[25] Gee, S. Commercial Injunctions (7th edn, Sweet & Maxwell 2016) at 2-024.

[26] Asif J discusses these eight exceptions at [59] to [60] of Han Visions.

[27] Han Visions at [60].

[28] Ibid, at [63] and [68] – [70].

[29] Ibid, at [60].

[30] Cayne at [232g] – [233g].

[31] Ibid, at [235e] – [236e].

[32] Ibid, at [238e] – [238h].

[33] Ibid, at [233e] – [233f] and [236c] – [236d].

[34] Cayne at [236d] and Han Vision at [68].

[35] Han Vision at [55].

[36] Ibid, at [56].

[37] Ibid, at [56].

[38] Ibid, at [57].

[39] Ibid, at [59] – [63].

[40] Ibid, at [66].

[41] Ibid, at [68] – [70].

[42] Ibid, at [71].

With special thanks to Articled Clerks Emily McIntyre and Jordanne Saunders, for their dedicated research and drafting assistance.