Introduction:
In these changing times when financial assets can be so easily and speedily moved to different parts of the world, with the growth in the use of offshore companies and the growth of international litigation and arbitration, freezing injunctions (or otherwise known as Mareva injunctions) in aid of foreign proceedings become increasingly important to prevent the right of enforcement of judgments from being rendered ineffective by the dissipation of assets against which the judgment could otherwise be enforced.
This article examines Malaysia’s approach to the grant of freezing injunctions in aid of foreign proceedings against the ratio decidendi set down in the recent privy council case of Convoy Collateral Ltd v Broad Idea international Ltd. [2021] UKPC 2 (‘Convoy Collateral’).
Privy Council case of Convoy Collateral:
The case Convoy Collateral Ltd (Appellant or CCL) v Broad Idea (Respondent) (British Virgin Islands) [2021] UKPC 24 sparked debates all around the world for moving away from the previous positions of the House of Lords/Privy Council in the case of The Siskina [1979] AC 210 and Mercedes Benz [1996] AC 284,
The 2 issues which were up for the consideration and deliberation of the Privy Council are as follows: –
a. Whether according to the Eastern Caribbean Supreme Court Civil Procedure Rules 2000 (EC CPR), the court has power to authorise service on a defendant outside the jurisdiction of a claim form in which a freezing injunction is the only relief sought?
b. Whether where the High Court of the British Virgin Islands (‘BVI’) has personal jurisdiction over a party, the court has power to grant a freezing injunction against that party to assist enforcement through the court’s process of a prospective (or existing) foreign judgement?
Crux of the case:
Broad Idea is a company incorporated in the BVI with 50.1% of shares owned by second respondent, Dr. Cho who resides in Hong Kong. The appellant, Convoy Collateral brought an action in Hong Kong to claim damages and other substantive reliefs against Dr. Cho and other defendants. In the BVI, Convoy Collateral applied for freezing injunctions against Dr. Cho and Broad Idea. These appeals were heard at the same time by the Privy Council.
With regards to the appeal against Dr. Cho, the Court held that it does not have personal jurisdiction against Dr. Cho and but only against Broad Idea which is incorporated in the BVI. The Eastern Caribbean Supreme Court Civil Procedure Rules 2000 (‘EC CPR’) confer no power to serve a claim form in which a freezing injunction is the only relief being sought against a foreign defendant. Further, there were no evidence to support a good arguable case that shares in Town Health held by Broad Idea were beneficially owned by Dr. Cho. The only limitation can only be remedied with an amendment to the EC CPR. Thus, Convoy Collateral’s appeal against the Court of Appeal of the Eastern Caribbean Supreme Court’s (‘EC COA’) decision that the BVI Court had no power to permit service of a claim form on Dr. Cho failed.
With regards to the appeal against Broad Idea, the Court held that the EC COA’s view that it is bound to the authority of The Siskina without legislation in the BVI specifically conferring a broader power to be in error as the Privy Council is of the view that the BVI Courts already possessed powers to grant injunctions which have developed in many ways since The Siskina in 1977.
Ratio Decidendi in the case of Convoy Collateral
The Siskina and Mercedez Benz (with Lord Nicholls dissenting) held that a claimant seeking a freezing injunction (or a Mareva injunction as it was then known) against a defendant must be able to show a violation of his or her legal or equitable rights by that defendant.
The majority of the Privy Council in the case of Convoy Collateral (in a split of 4:3) decided in favour of abandoning the traditional analysis of the power of the court to grant injunction as dependent on the presence of a pre-existing cause of action justiciable before the local court. In doing so, the Privy council shared Lord Nicholls’ dissenting view in the Mercedez Benz and went against the ratio in The Siskina. Effectively, the Privy Council overturned or distinguished previous Privy Coucil, House of Lord or Court of Appeal decisions by endorsing the ‘enforcement principle’ to state that a freezing injunction can be sought against the defendant (who may be an entirely innocent party) even when no substantive proceeding against the defendant is taking place in the local courts or elsewhere. The Court only need to be satisfied with a sufficient degree of certainty that a right to bring proceedings will arise and that proceedings will be brought.
Lord Leggatt set down the ratio decidendi in the case of Convoy Collateral and held that provided that it is a ‘court with equitable and/or statutory jurisdiction to grant injunctions where it is just and convenient to do so has power – and it accords with principle and good practice – to grant a freezing injunction against a party over whom the court has personal jurisdiction, the claimant must satisfy the following test: –
- The applicant has already been granted or has a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the process of the court;
- The respondent holds assets (or, as discussed below, is liable to take steps other than in the ordinary course of business which will reduce the value of assets) against which such a judgment could be enforced; and
- There is a real risk that, unless the injunction is granted, the respondent will deal with such assets (or take steps which make them less valuable) other than in the ordinary course of business with the result that the availability or value of the assets is impaired and the judgment is left unsatisfied.
Malaysia Approach:
Pre-Convoy Collateral :
Section 51 of the Specific Relief Act 1950 and section 25(2) of the Courts of Judicature Act 1964, Schedule para 6 provides the Courts with powers to grantMareva Injunction to restrain a resident inside or outside the jurisdiction, which assets are within the court’s jurisdiction, before it disappears or clandestinely hidden.
Order 11 rule 1(1) of the Rules of Court 2012 (ROC) provides that the Courts have powers to grant freezing injunctions against assets outside the court’s jurisdiction in actions brought within the jurisdiction. However, there is an additional Order within the ROC which is aligned with the Convoy Collateral case.
In the case of Letrik Vista (M) Sdn Bhd lwn Lian Fah Engineering Sdn Bhd [2002] 3 MLJ 381, the Court held that the plaintiff was successful in proving that if Mareva Injunction was not granted, there was possibility that the defendant could remove their assets (within jurisdiction) to evade court judgement or award.
There are three cases that we may observe;
Previously, an old decision in Malaysia in Bank Bumiputra Malaysia Bhd & Anor v Lorraine Esme Osman [1990] 3 MLJ 481, involving foreign proceedings with his assets in Malaysia while he was prosecuted in the UK. He needed his Malaysian monies to support his European Commission of Human Rights trial and its future judgement. He wanted to dissolve the mareva injunction against him, as he had no other assets in the world, except for Malaysia.
The court held that mareva injunctions is a draconian remedy and that there needs to be the actual trial or action as soon as there is against the defendant. If no action for trial is taken and solely relied on injunction only, court has power to dissolve the injunction.
Fast forward recently in Digital Tempo Sdn Bhd v Pengangkutan Awam Putrajaya Travel & Tours Sdn Bhd [2021] 8 MLJ 55, the Malaysian uncertainty and controversy in connection with the interpretation of The Siskina principle has been resolved decisively by the express provisions of Order 29 Rule 1(1) of our ROC which provides that an interlocutory injunction can be granted whether or not an injunction is prayed for in the main suit.
Hence, Malaysia has a different approach when it comes to injunction as compared to The Siskina as quoted in the Malaysian case, “it is erroneous to suggest that a plaintiff must have a cause of action in permanent injunction before he can be granted an interlocutory injunction, and it is even more erroneous to suggest that a plaintiff in an action based on contract must have a cause of action in declaration plus specific performance before he can be granted an interlocutory injunction.”
Additionally, in Zschimmer & Schwarz GmbH & Co KG Chemische Fabriken v Persons Unknown & Anor [2021] 7 MLJ 178 citing Mohamed Azmi SCJ in the Supreme Court case of Aspatra Sdn Bhd & 21 Others v Bank Bumiputra Malaysia Bhd & Anor [1988] 1 MLJ 97, our courts also established three elements for the grant of a Mareva freezing injunction, similar to Lord Legatt in Convoy Collateral:
- The applicant must show that it has a good arguable case;
- That the defendants have assets within jurisdiction; and
- That there is a risk of the assets being removed before judgment could be satisfied
Conclusion – Post-Convoy Collateral
While the Privy Council decision in the case of Convoy Collateral focuses on the intent behind freezing injunction, it is of more general application. The judgment would certainly be further debated, explored and developed in the future but the shift is generally welcomed by parties based in the BVI and other jurisdictions bound by the Privy Council decision seeking to preserve assets in these jurisdictions in support of proceedings commenced and judgment obtained elsewhere.
Malaysia ROC Order 11 rule 1(1) is identically worded with the ROC referred to in the case of The Siskina under the RSC Order 11, rule 1(1)(i) and Mercedez Benz which is relying on the Hong Kong RSC Order 11, rule 1(1)(i), which is incidentally identical to the English law. Thus, the same problem found in the case of The Siskina and Mercedez Benz would also arise in Malaysia. However, considering the Court’s approach with freezing injunctions as developed over the years particularly as seen in the case of Zschimmer and amongst others ROC Order 29 Rule 1(1), we are of the considered view thatthe ratio decidendi held in the case of Convoy Collateral would be welcomed in Malaysia.
Writer: Muhammad Amanullah bin Mohd Rashidi
Editor: Cynthia Lee Mei Fei