1. ) NIRO CERAMIC SALES & SERVICES (M) SDN BHD 2. ) FOSHAN NIRO CERAMIC BUILDING MATERIALS TRADING CO LTD v 1. ) GUOCERA SDN BHD 2. ) CHENG LI YONG

Case Significance

Instructive on the purpose and limits of fortification of an undertaking as to damages, holding that a protective remedy must remain protective and cannot be ordered as a burden once the underlying injunction has been discharged.

This High Court decision at Shah Alam concerns an application for fortification of an undertaking as to damages, made in the course of an interlocutory injunction dispute between two ceramic-business plaintiffs and two defendants, one a company and the other an individual. The underlying suit alleged unlawful interference with trade and conspiracy connected with the alleged solicitation of employees and a risk of disclosure of confidential information. The application in question was the first defendant's application, brought under Order 92 rule 4 of the Rules of Court 2012, that the plaintiffs fortify their undertaking as to damages given in respect of an ad interim injunction, by deposit into court, an unconditional on-demand bank guarantee, or another suitable form, failing which the injunction should be discharged. The court, per Anita binti Harun JC, was careful to distinguish this application from an application for security for costs under Order 23 rule 1 or section 580A of the Companies Act 2016; fortification of an undertaking as to damages is a different thing, directed at protecting a party against loss caused by an injunction. The decisive circumstance was that, by the time the fortification application was heard, the plaintiffs' application for an interim injunction had already been dismissed and the ad interim injunction previously granted had been discharged and set aside, with no stay in force. The court reasoned that in interlocutory proceedings a protective remedy must remain protective in character, so that a shield must not become a sword: fortification is meant to protect against loss flowing from an injunction, not to impose a further burden once no injunction remains in force. Finding that an order for fortification would in these circumstances operate as an unnecessary burden rather than a necessary safeguard, and that no sufficient case for fortification had been shown, the court dismissed the application, with costs of RM4,000 forming part of the global costs awarded for the applications heard together, and made clear that the merits of the parties' claims and defences remained for trial. The judgment is instructive on the purpose and limits of fortification of an undertaking as to damages once the underlying injunction has been discharged.