MAREVA INJUNCTIONS IN MALAYSIA: PREVENTING THE DISSIPATION OF ASSETS AND ENSURING EFFECTIVE ENFORCEMENT OF JUDGMENTS

MAREVA INJUNCTIONS IN MALAYSIA: PREVENTING THE DISSIPATION OF ASSETS AND ENSURING EFFECTIVE ENFORCEMENT OF JUDGMENTS

?

What is a Mareva Injunction?

A Mareva Injunction is a court order which restrains a party to the proceedings from dissipating assets from the jurisdiction of the court, or otherwise dealing with, assets located within the jurisdiction, and in more limited circumstances, from dealing with assets located outside of the jurisdiction. In essence, it is an order to freeze the party’s assets to prevent removal or dissipation. This power of the court is crucial to prevent judgments of the court from being rendered ineffective whether by the removal of assets belonging to the defendant from the jurisdiction or by dissipation. This freezing order also obliges the other party to disclose all of their assets within or outside of Malaysia. In some cases, third parties such as banks may also be obliged to disclose information relating to a party’s assets.

?

In a modernized commercial climate where we are connected seamlessly with one another, the ability to transfer funds from bank to bank can be performed in a blink of an eye. Therein lies the need for a Mareva Injunction as it fulfills an essential function to ensure effective enforcement of a judgments. This is especially true as debtors and defendants are using ingenious methods of concealment and dissipation to defeat judgments which makes litigation outcomes more volatile than ever.

?

Power of Court

Although a Mareva Injunction is a type of Interlocutory Injunction issued by Courts, it is important to note that they serve different purposes and have different requirements. The power to grant Mareva Injunctions in Malaysia is statutory. Section 25 and Schedule Para 6 of the Courts of Judicature Act 1964 (Act 91) read together with Order 29 of the Rules of Court, and Section 50 of the Specific Relief Act 1950 (Act 137) enables the Court to grant injunctions including a Mareva Injunction. The court possesses the jurisdiction to grant a Mareva injunction before or after judgment, and also in respect of foreign assets (Zschimmer & Schwarz GmbH & Co KG Chemische Fabriken v Persons Unknown & Anor [2021] 7 MLJ 178). It should be noted that a Mareva order does not create a preferential right or lien over the seized assets.

?

Mode of Application

?

In Malaysia, the mode of application for a Mareva Injunction is contained under Order 29 of the ROC 2012. The application to apply for the Mareva Injunction is usually by way of ex-parte notice of application, for obvious reasons, as the need for secrecy and urgency is paramount in these circumstances. The application must be supported by an affidavit in compliance with requirements under Order 29 Rule 1 (2A) of the Rules of Court 2012. However, an ex-parte order will only be valid for 21 days from the date the order was granted and a hearing of the application must be scheduled within 14 days from the granting of the ex parte order.

?

???????????There may be instances where a court may insist on hearing the other side or party before granting an ex-parte Mareva injunction, however, this may defeat the interests of justice and contradicts the rationale behind an ex-parte application.

?

Undertaking as to Damages

An applicant who applies for a Mareva would need to give an undertaking to compensate the defendant for any damages that he may suffer as a result of the order, if the inter-partes order is not granted subsequently.

?

Criteria to Grant a Mareva Injunction

?

In the Federal Court case of ZAINAL ABIDIN BIN HAJI ABDUL RAHMAN [1981] 1 MLRA 703, Raja Azlan Shah CJ (as he then was) held that the High Court of Malaysia has the jurisdiction to grant a Mareva Injunction. Here the court held that the pertinent question to be considered was “ has the appellant established the damage he claims that any available assets will be dissipated so as to frustrate eventual satisfaction of the judgment?”

???????????

The Supreme Court case of [CREATIVE FURNISHING SDN. BHD. V. WONG KOI [1989] 1 MLRA 132 held that three criterion that must be satisfied before a Mareva Injunction may be granted by the Court. (i) the Plaintiff must have a good arguable case, (ii) the Defendant’s assets must be within the jurisdiction of the Court, and (iii) there is a real risk of dissipation of the Defendant’s assets so as to render any judgment obtained by the Plaintiff nugatory.

?

When Should Someone Apply for a Mareva Injunction?

???????????

???????????A Mareva injunction is interlocutory and not final. It is not a cause of action on its own that can be pursued distinctly if there isn’t already a pre-existing action against the defendant. In general, the Mareva Injunction is granted secondary to a claim for a debt or damages and the court would be unlikely to grant a Mareva Injunction if the claim is purely for a declaratory relief. In fact, the majority of Mareva injunctions are pursued by creditors who wish to protect their interests to avoid a judgment from being ineffective.

?

???????????When dealing with any debtor, whether local or foreign debtor, a corporation or otherwise,?a claimant must always be aware of the risk that the debtor may attempt to dissipate his or her assets to defeat a possible judgment from the Court. The level of alert should be higher when there is a foreign debtor involved as it is inherently more difficult to enforce judgement against such persons and also where there is a corporation debtor as the identities of those who control it are difficult to ascertain.

Immovable property may take a longer time to dissipate but money in a bank account can be easily dissipated through instantaneous transfer. Monies belonging to a corporation may take slightly more time as there is a need for approvals, signatures of relevant signatories, and obtaining authorizations. Nevertheless, the danger of liquidated funds being dissipated or removed are incredibly high.

?

Real risk of dissipation of the Defendant’s Assets

???????????It may be an arduous task to satisfy the court that there is a real risk of dissipation of the defendant’s assets in any particular case which may defeat a judgement pronounced by the court. Proof or evidence of the defendant dissipating or removing his assets would also be incredibly difficult to obtain as these are generally in the defendant’s exclusive?knowledge.

In the case of Lee Kai Wuen & Anor v Lee Yee Wuen [2022] MLJU 3411 and Dopag Dosiertechnik und Pneumatik AG v. Gamel Nasir Taib & Ors [2017] 5 CLJ 727 the court held that there was a risk of dissipation even without direct evidence. If it can be shown that there was misappropriation, dishonest acts, and lack of probity by the defendant, it may be sufficient grounds to show the court that there is a real risk of dissipation of the defendant’s assets to defeat a judgment by the court. Hence, risk of dissipation can be inferred from the circumstances of the case but it cannot be presumed. Malaysian courts have generally accepted a risk of dissipation of assets can be inferred where always it is established that the defendant either acted without good faith, maintains foreign accounts, or there has been evidence of movement of funds into foreign accounts.

Conclusion

A Mareva injunction may be necessary in order to ensure effective enforcement of a judgment. However, it is difficult to determine if this application ought to be pursued and equally difficult to satisfy to the court that a real risk of dissipation exists. It often takes considerable thought and not quite enough time. An alternative to additional remedy to consider may be a proprietary injunction over an asset. To apply for a proprietary injunction the principles in relation to a prohibitory injunction must be satisfied (see American Cynamid v Ethicon Limited [1975] AC 396 as adopted by the Malaysian courts in the case of Keet Gerald Francis Noel John v Mohd Noor bin Abdullah [1995] 1 MLJ 195).