Introduction
It is every successful party’s expectation to receive the arbitration award sum and/or cost at the end of the proceeding. However, it is not uncommon for a situation to arise, either before the arbitration or during the arbitration proceeding, whereby there may be a risk that one of the parties in an arbitration may not be able to pay at the end of the day. Sections 11 and/or 19 of the Arbitration Act 2005 provide some protection or avenue for parties in an arbitration to protect the rights of the parties in such predicament. After the amendments made to the AA 2005 in 2018[1], both these provisions were amended to include a more comprehensive and clearer framework in dealing with the High Court and Arbitral Tribunal’s respective powers to grant interim measures.
One of the options available is for a party to make an application to the court or arbitral tribunal for an order to preserve the assets of the other party so as to ensure that the other party has sufficient assets in its possession pending the conclusion of the arbitration proceedings.
This injunctive relief to preserve assets pursuant to Section 11 or 19 of the AA 2005 is commonly referred to as a “Mareva Injunction”, “asset preservation order” or “freezing order” in other jurisdictions, which derives its name from the landmark case of Mareva Compania Naviera SA v. International Bulk Carriers SA [1980] 1 All ER 213. It is a form of preventive relief granted to restrain the defendant (who has assets within the jurisdiction of the court) from dissipating or disposing of those assets out of the jurisdiction before any judgment is obtained by the Plaintiff which would ultimately render a litigation or arbitration process a futile exercise.
This application is very often combined with an Anton Piller order in the application and the cumulative effect of these orders can be seen to be catastrophic to the whole of the business of the unfortunate defendant by freezing most of its assets and revealing important information to its competitors. These two orders have been described by Lord Donaldson as being the law’s “nuclear weapons”.[2] In this regard, a Mareva Injunction is not always readily granted by courts, unless the Plaintiff can clearly satisfy each limb of the specified legal test.
Legal Test
In LKL Advance Metaltech Sdn Bhd v Crecom Burj Gloves Sdn Bhd [2021] MLJU 778, the High Court has recently applied and laid out the test to be applied for a Mareva Injunction pursuant to Section 11 of the AA 2005:
“[14] Similarly, in the case of Bumi Armada (supra), the Court there held as follows:-
(3) The court may grant a Mareva injunction before or during arbitral proceedings under s. 11(1)(f) AA. in deciding whether to grant a Mareva injunction under s. 11(1)(f), (g) and (h) AA before or after during arbitral proceedings, the following tests are to be applied: (a) the plaintiff should have a ‘good arguable case’; (b) the defendant has assets within the jurisdiction; (c) there is a risk of dissipation of the defendant’s assets; and (d) the balance of convenience should be in favour of granting the Mareva injunction. Paragraphs (c), (g) and(h) of s. 11(1) AA empower the court to give mandatory disclosure orders, (paras 56, 58 & 61).”
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Good Arguable Case
A good arguable case is not necessarily one which the judge considers would have a better than 50% chance of success, but the plaintiff must establish that it has a good arguable case which is more than barely capable of serious argument. (see Top Glove Corp Bhd & Anor v Low Chin Guan & Ors [2018] MLJU 1179)
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Defendant Has Assets Within The Jurisdiction
To be able to satisfy this limb of the legal test, it is important for the plaintiff to provide evidence on the relevant information in relation to the defendant’s assets which are the subject matter of the application. For example, if the asset to be preserved is a land owned by the defendant, it would be prudent for the plaintiff to exhibit a land search conducted against the land, to demonstrate that the land is within the jurisdiction. Essentially, it may be sufficient to produce credible evidence to show the existence of the Defendant’s assets within the jurisdiction.
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There Is A Risk Of Dissipation Of The Defendant’s Assets
It is often the case the plaintiff may find difficulty in establishing and satisfying this limb in the injunction test. In deciding on this limb, the court has to consider the facts of the matter in the perspective of a prudent sensible man and to see if it could be properly inferred that the Defendant would deal with its assets in such manner that would result in them having no assets within the jurisdiction to satisfied any judgment debt.[3] On this vein, in the case of Robert Doran & Ors v Kuan Pek Seng & Ors [2010] 6 CLJ 105, K. Anantham JC (as he then was) has succinctly explained and stated as follows:
“[11] As in most cases, the most difficult area relates to the examination of the available evidence to ascertain whether there is a risk that the assets would be dissipated so as to justify the granting of the Mareva injunction. The difficulty arises because invariably a dishonest defendant will cover his/her tracks, making it difficult for the plaintiff to produce the necessary relevant evidence. It is for this reason that the courts have over a period of time pronounced that when determining the risk of dissipation, the court is entitled to draw inferences from the defendant’s previous action which show that his probity is not to be relied upon or that the corporate structure of the defendant is not to be relied upon. Of course, in considering the probity of the defendant or the lack of it, the court should also examine closely the evidence raised by way of rebuttal by the defendant.”
Further, based on previous court decisions, evidence to show prima facie dishonest conduct on the part of the Defendant, once established, could constitute a very strong factor to satisfy this limb of the legal test.[4]
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Balance Of Convenience
The Court considers the balance of convenience by weighing all matters against the harm the Mareva injunction is likely to cause to the defendant. Thus, it is important to demonstrate to the court that in all the circumstances, the case is one in which it appears to the Court ‘to be just and convenient’ to grant the injunction. On whether it is just and convenient to do so, courts will look and consider based on the circumstances of the case.
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Undertaking
In addition, as the relief sought is a form of an interlocutory injunction, the general rule is such that the party applying for it is required to give a meaningful undertaking as to damages to the Court in the event the court subsequently rules that the interlocutory injunction should not have been granted. Hence, parties applying for a Mareva Injunction pursuant to Section 11 or Section 19 of AA 2005 should bear in mind to provide such an undertaking in the affidavit. Due to such a requirement, a Mareva Injunction is regarded as a high stakes exercise as if the order sought is drafted too broadly, it may expose the Plaintiff to a wide range of damages.
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Dissipation Of Assets After The Filing Of A Mareva Injunction Application
Another important point to note is that once an application for a Mareva Injunction is filed and pending in court, the defendant is no longer allowed to deal with its assets in a way which would render the pending application in court nugatory.
This issue was considered before the Federal Court in the case of Monatech (M) Sdn Bhd v Jasa Keramat Sdn Bhd [2002] 4 MLJ 241, where the court has held that the appellant in this appeal is be found to have been guilty of being in contempt of court by interfering with the due administration of justice for his conduct in disposing off his assets, to frustrate the Mareva injunction proceedings then pending and any judgment that might be obtained later by the appellant in the arbitration proceeding. Thus, their intention clearly is to interfere with the due administration of justice or in the course of justice.
Conclusion
In the upshot, as shown above, Mareva Injunction can be extremely useful to preserve the status quo of the parties pending the conclusion of the arbitration proceedings. However, a party should exercise prudence and only invoke the law’s “nuclear weapon” in justified circumstances as an abuse of usage of a Mareva Injunction will expose a party to risk of having to compensate damages to the other party, and consequently cause greater harm than good.
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[1] Arbitration (Amendment) (No. 2) Act 2018
[2] Heng Chew Lang & Ors v Heng Choon Wah & Ors [2021] MLJU 2776
[3] Jasa Keramat Sdn Bhd v Monatech (Malaysia) Sdn Bhd [1999] 4 CLJ 30
[4] Bumi Armada Navigation Sdn Bhd v Mirza Marine Sdn Bhd [2015] MLJU 953
This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.
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About the Author
Serene Hiew Mun Yi
Partner
Harold & Lam Partnership
serene@hlplawyers.com
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Lim Ren Wei
Associate
Harold & Lam Partnership
renwei@hlplawyers.com
