Introduction
Pending the determination of a dispute, a party may worry that the opposing party will dissipate the relevant assets in dispute before the conclusion of the legal action. What options are available to ensure these relevant assets are preserved?
One recourse is to seek an order to effectively freeze the assets of the party pending the outcome of legal action. Such an order is commonly known as a “Mareva injunction”.
Given the severity of such an injunction, it should come as no surprise that certain thresholds must be met in order to qualify for it. In Malaysia the three qualifying elements are:
- a good arguable case (element one);
- that the assets are within the jurisdiction (element two); and
- a real risk of dissipation of assets before the judgment (element three).
In a recent decision,(1) the Federal Court dismissed an appeal which had overruled a High Court’s decision to grant a Mareva injunction between the parties.(2) The appeal before the Federal Court was whether the Court of Appeal had erred in disturbing the High Court’s findings regarding element three.(3)
First, what is a “real risk of dissipation”? Certainly, it cannot be disputed that the burden to show this risk is upon the applicant seeking a Mareva injunction. The real question is what is the standard of proof?
Haddon-Cave LJ in the UK Court of Appeal case Lakatamia Shipping Company Ltd v Morimoto(4) held that the standard of proof to show risk of dissipation is the “good arguable case” standard. The Malaysia High Court applied the Lakatamia decision in case SRC International Sdn Bhd v Dato’ Sri Mohd Najib Hj Abd Razak(5) where Mohd Arief Emran Arifin JC held that the defendant’s failure to rebut serious allegations of dishonestly and provide reasonable explanations indicated that there were “sufficient reasons to believe” that there was a “real risk of dissipation”.
The High Court in Homa Engineering (M) Sdn Bhd v Chew Kok Choon(6) described the test for element three as “whether a sensible commercial man could infer a danger that payment would not forthcoming if assets are dissipated”.
In this case, the Federal Court did not disturb the Court of Appeal’s reliance on the UK Court of Appeal case of Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG; The Nidersachsen,(7) which said there are only two ways to satisfy element three – namely, that there is:
- direct evidence of the real risk of dissipation; or
- dishonesty, lack of probity or misconduct that has material bearing on an inference of a real risk of dissipation (or is of a nature that can justify real risk of dissipation).
The Federal Court’s affirmation of the Court of Appeal’s decision raises the question of whether an unduly heavy burden had been placed on parties seeking a Mareva injunction. If the burden is to prove “solid evidence”, what would satisfy this requirement?
Transfer of funds
The Court of Appeal in The Customs & Tax Administration of the Kingdom of Denmark v Saling Capital Ltd(8) found that, among other things, the actual transfer of funds to bank accounts controlled by the defendants constituted evidence of risk of dissipation. Similarly, the High Court in Jasa Keramat Sdn Bhd v Monatech (M) Sdn Bhd(9) held that transfers of assets are evidence of risk of dissipation.
Meanwhile, the High Court in Alami Vegetable Oil Products Sdn Bhd v Mohammed Radwan Alami(10) found that the unauthorised withdrawal of company funds as evidence of risk of dissipation. The diversion of company funds to a bank account was also found to be evidence of risk of dissipation in the Malaysia High Court case of Pelorus Holding Sdn Bhd v Jaffa Roger Dawkins.(11)
Falsification of accounting records
In other jurisdictions, such as the United Kingdom and Singapore, it has been shown that falsifying accounting or company records would suffice as “solid evidence” of a risk of dissipation.
Future of Mareva injunctions
Certainly, the consequences and impact of a Mareva injunction cannot be simply brushed off. For that same reason, the evidence to support such an injunction should not be taken lightly. How then should “solid evidence” to suggest a real risk of dissipation be obtained?
Such evidence may require an “Anton Piller” injunction before a Mareva injunction is carried out. However, with the advancement and sophistication of technology, could the evidence sought to be obtained be deleted with the touch of a single button before either of the injunctions could be issued? This remains to be seen and the future of Mareva injunctions should be watched closely.
For further information on this topic please contact Lee Xin Div or Tasha Lim Yi Chien at Gan Partnership by telephone (+603 7931 7060) or email (xindiv@ganlaw.my or tasha@ganlaw.my). The Gan Partnership website can be accessed at www.ganlaw.my.
Endnotes
(1) Civil Appeal No. 02(i)-29-04/2022(J) (Federal Court, Malaysia).
(2) Lee Yee Wuen v Lee Kai Wuen & Ors [2020] 1 LNS 1676.
(3) Lee Kai Wuen & Anor v Lee Yee Wuen [2022] 7 CLJ 505.
(4) [2020] 2 All ER (Comm) 359 (Court of Appeal, UK).
(5) [2022] 10 MLJ 95 (High Court, Malaysia).
(6) [2020] 1 LNS 1747 (High Court, Malaysia).
(7) [1984] 1 All ER 398 (Court of Appeal, UK).
(8) [2022] 1 MLJ 316 (Court of Appeal, Malaysia).
(9) [1999] 4 MLJ 217 (High Court, Malaysia).