THE ROLE OF DISHONESTY IN MAREVA INJUNCTION APPLICATIONS
by Chan Kheng Hoe, Head of Construction Law, Chong + Kheng Hoe
What is a Mareva Injunction
A Mareva injunction is granted to restrain someone from disposing or concealing his assets in order to defeat an anticipated judgement against him. For example, if an employer owes a substantial sum to the main contractor, and the main contractor has a reasonable fear that the employer may be dissipating its assets so that any eventual judgement or arbitration award would be meaningless, then the main contractor may attempt to apply for a Mareva injunction against the employer compelling the employer to:
- disclose the whereabouts of its assets; and
- refrain from utilising the assets up to a stipulated amount, subject to such amounts necessary for ordinary business use.
Principles for a Mareva Injunction
In deciding whether to grant Mareva Injunction, the following limbs must be considered: –
- Whether there is a good arguable case?
- Whether there are assets within the jurisdiction?
- Whether there is a real risk of dissipation of those assets?
How to show real risk of dissipation of assets?
Of the three limbs set out above, the most difficult limb to establish is the real risk of dissipation of assets. After all, every company will deny that they are trying to dissipate their assets to avoid a potential judgement.
The Bumi Armada Case
Background facts
Bumi Armada Navigation Sdn Bhd (“Bumi Armada”) and Mirza Marine Sdn Bhd (“Mirza Marine”) entered into a charter party agreement for a vessel whereby Mirza Marine is to pay Bumi Armada various fees in instalments. Mirza Marine defaulted in payment, and Bumi Armada sued. In defence, Mirza Marine counterclaimed for losses suffered due to the vessel being allegedly faulty. There was clearly a good arguable case and assets within the jurisdiction.
Risk of dissipation
Among the facts which surfaced in the course of the case were that:
- Mirza Marine sub-hired the vessel to another party and received payment for the same;
- Mirza Marine never once mentioned that the vessel was faulty prior to the suit;
- There were checklists, official certificates and reports showing that the vessel was in good shape.
These facts, in the mind of the learned Judicial Commissioner (“JC”) (as he then was), pointed to dishonesty on the part of Mirza Marine. The learned JC then proceeded to find that the dishonest conduct of Mirza Marine highlighted the real risk of dissipation of assets. In other words, once a litigant is dishonest, then the risk of dissipation of assets is presumed to exist.
Potential Issues
Regrettably, most litigants are not entirely 100% honest. For example, if a main contractor refuses to pay a sub-contractor a certified sum and raises issues of defects, would the main contractor be considered dishonest if those defects were proven to be untrue? Would then the main contractor immediately be deemed to be at risk of dissipating its assets? Such far-reaching implications does not seem to have been considered by the learned JC, with due respect, in Bumi Armada.
The Bouvier case
Background facts
This is a Singaporean case where Accent Delight International Ltd and Xitrans Finance Ltd (“Accent/Xitrans”) obtained a Mareva Injunction and ancillary disclosure Orders against Yves Charles Edgar Bouvier (“Bouvier”) and MEI Invest Limited.
Bouvier was an agent for Accent/Xitrans who negotiated for the purchase of artwork. The allegation against Bouvier was that he dishonestly made secret profits through the sale of 38 pieces of artwork to the sum of US$1.1 billion.
Interestingly, Bouvier had already been subject to criminal investigations in other jurisdictions, and therefore he fits to a tee the description of a “dishonest” litigant.
Proving the Existence of a Risk of Dissipation of Assets
The learned Sundarash Menon, Chief Justice (“CJ”) of Singapore, surveyed Singaporean, English and Australian decisions on the topic of risk of dissipation of assets. Specifically, the learned CJ considered the risk of dissipation of assets in light of allegations of dishonesty.
The conclusion reached was that the courts must examine the “precise nature of the dishonesty”. The issue was whether the dishonest conduct goes towards a “good and arguable case” or a “risk of dissipation of assets”.
Put in another way, a main contractor who alleges non-existent defects to deny a payment claim may have been dishonest, but such dishonesty only goes towards the case against it. The dishonesty does not go towards the risk of dissipation of assets. A dishonest litigant may nevertheless still not be one who would easily dissipate assets to frustrate a judgement.
A More Realistic Approach
Clearly the Bouvier decision demonstrates a more realistic approach. After all, who among us has not sinned? To expect a litigant to be 100% honest would be expecting a tad too much. It is simply not a realistic expectation.
Dishonesty, to a certain degree, does not mean that there is a risk of dissipation of assets. To conclude that dishonest conduct would mean a risk of dissipation of assets would render almost every litigant to be demonstrating such a risk. It therefore makes sense to only penalise those whose dishonesty demonstrate their propensity to dissipate assets, and not those whose dishonesty merely show that they have no good case to defend.
Conclusion
Though the legal test for a grant of Mareva Injunction is largely the same for Singapore and Malaysia, the court’s discretion on dealing with dishonesty affects the assessment of “risk of dissipation of assets”. The judgement in the Bouvier case is important as it clarifies the position on how dishonesty is relevant when proving real risk of dissipation of assets.
On the other hand, in the Bumi Armada case, the court was of the view that there is a real risk of dissipation of property so long as there is evidence of dishonesty on the part of defendant. This is a lower threshold than that of Singapore, and with due respect, may be a threshold that is too low for a draconian remedy such as a Mareva injunction.
It is hoped that the Bouvier case may be applied in future to clarify the role of dishonest conduct in a Mareva injunction application.