Creative Furnishing Sdn Bhd

- vs -

Wong

Judgment

Mohamed Azmi SCJ

(delivering the judgment of the court)

1. We allowed the appeal on 9 January 1989 and now give our reasons. The respondent (plaintiff) sued the appellant (first defendant) jointly and severally with Classy Homes Sdn Bhd (second defendant) for an alleged partnership debt of $82,062.68 for materials supplied and work done in respect of millworks on two floors of the Shangrila Inn, Penang, under the terms of a subcontract. On 29 June 1987, the date of the issue of the writ, the respondent obtained by way of ex parte summons-in-chambers a Mareva injunction against both the defendants to restrain them until further order from disposing of or otherwise dealing with moneys or assets belonging to both or either of them not exceeding $95,000, and from disposing of or otherwise dealing with the said assets or moneys due to them from the main contractor, Sumitomo Construction Co Ltd, to the extent of $95,000. By notice of motion dated 6 July 1987, the appellant applied to set aside the ex parte Mareva injunction and other consequential orders. The motion was heard on 4 January 1988 and was eventually dismissed on February. Being dissatisfied, the appellant appealed with leave against the whole of the decision of the learned judge.

2. The principal issue before us was whether the discretionary power to issue the ex parte Mareva injunction had been properly exercised by the learned judge. 

3. Two grounds were canvassed on behalf of the appellant.

4. Firstly, it was argued that the respondent’s claim had nothing to do with the appellant but concerned only Classy Homes Sdn Bhd (second defendant). In its statement of defence dated 7 July 1987, the appellant denied that the respondent was its sub-contractor or its employee. It was averred that the appellant and the second defendant did jointly tender for the project at the hotel which was required by the main contractor to be done under one parcel, but the appellant separately carried out only the design part of the project. The appellant denied that it was at any time a partner of Classy Homes Sdn Bhd and therefore denied liability for the sum owed by the second defendant to the respondent. It was contended that in fact the second defendant still owed the appellant the sum of $14,386.46 which the second defendant had received from the main contractor. Clearly, the appellant’s defence would be principally on the basis that the alleged debt due to the respondent was not a partnership debt but was incurred solely by the second defendant on the ground that the appellant was never a partner of the second defendant and as such it could not be held jointly and severally liable. There appeared to be no dispute to the appellant’s contention that all moneys payable under the sub-contract were paid by the main contractor to the second defendant, and nor was there any challenge to the appellant’s averment that money due to it already paid by the main contractor to the second defendant had not been paid. The issue on the existence of the alleged partnership between the appellant and the second defendant must of course be finally determined at the trial. But on the pleadings and affidavit evidence, it could not be said that the learned judge was wrong in law or in fact in his findings that the respondent had established, in his own words, ‘a good arguable claim’ and that the appellant had assets within the jurisdiction.

5. Secondly, it was argued that the learned judge erred in law and in fact in holding that there was a sufficient risk of the appellant’s assets being dissipated before judgment. In the affidavit of Mr. Wong Koi sworn on 29 June 1987 in support of the ex parte application for a Mareva injunction, he deposed in para 12 that:

   My solicitors have carried out a search at the Registrar of Companies on 26 June 1987 and have ascertained that the first defendant has only a paid-up capital of $60,000 and the second defendant has a paid-up capital of $50,000. The results of the search made are now shown to me and exhibited hereto marked ‘WK–8’. Both companies do not appear to own any immovable properties.

6. It was not seriously disputed that the facts deposed in para 12, as far as the appellant was concerned, were untrue. The disclosure of these facts in the affidavit was obviously to prove not only that the appellant had insufficient fund or assets to meet the respondent’s claim but also that in the circumstances there was a real risk that the said paid-up capital might be dissipated or removed before judgment. In response to these allegations, Mr. Chew Teik Chye, the managing director of the appellant, in his affidavit-in-reply dated 17 July 1987, deposed in para 9 that:

   The plaintiff has misled the court. The fast defendant’s paid-up capital is $300,000. A copy of the statement is enclosed herewith marked as exhibit ‘C–4’.

7. The learned judge dealt with this point on the basis that the matter complained of by the appellant was not a material fact but a mere misstatement. It was clear to us that whatever search or investigation carried out by the respondent’s solicitors to ascertain the financial standing of the appellant was not done thoroughly or conscientiously. We were unable to agree with the learned judge that the attempt to depress the paid-up capital of the appellant from $300,000 to a mere $60,000 was not relevant or material in an ex parte application for a Mareva injunction. In our view, it must of necessity constitute a material misrepresentation of facts in that it purported to support the existence of a risk of the appellant’s meagre assets of $60,000 being dissipated in the face of the anticipated judgment sum of $82,062.68.

8. The latest available consolidated balance sheet of the appellant as contained in exh C-4 clearly showed that it had been financially sound. It had a total current asset of $1.21m as compared to its total current liabilities of $870,845. The appellant’s share capital was indeed $300,000.

9. The only other evidence available before the learned judge to arrive at a conclusion that there was a risk of dissipation of the appellant’s assets was the fact that both the appellant and the second defendant had refused to settle the debt, and also the fact that in October 1986 a director of the second defendant had given the respondent a personal cheque of $3,000 towards part payment of the debt which cheque was dishonoured not apparently because of shortage of fund but for reason of payment being stopped.

10. In Aspatra Sdn Bhd v Bank Bumiputra Malaysia Bhd [1988] 1 MLJ 97 at p 100, this court by a majority had referred to the importance of the relief by way of a Mareva injunction for the purpose of preserving assets and preventing a defendant from dissipating his assets within jurisdiction before judgment. But the remedy is not of unlimited application. On the facts of the appeal before us, the respondent must satisfy the court

    • firstly, that he had a good arguable case;

    • secondly, that the appellant had assets within jurisdiction, and

    • thirdly, that there was a real risk of the assets being dissipated or removed before judgment in that there must be solid evidence to establish the risk.

    In our opinion, mere refusal to pay a disputed debt and issuing of a dishonoured personal cheque by a director of the second defendant (who was not a party in this appeal), as presented before the learned judge, fell far too short of the necessary evidence to establish real risk of dissipation of assets of the appellant before judgment.

11. Further, in presenting affidavit evidence to establish the necessary ingredients for an ex parte order for a Mareva injunction, it is incumbent on the applicant to make frank and full disclosures of all material facts. Every material representation must not be misleading, and there must not be any suppression of material facts. Further to do so at the crucial time of making the ex parte application would invariably be fatal. On this particular point we approve the judgment of VC George J in KSM Credit & Leasing Sdn Bhd v Data Mante (M) Sdn Bhd [1986] 1 CLJ 500 on the applicability of the principle of frank and full disclosures in all ex parte applications for Mareva injunctions.

12. It is of utmost importance that the remedy of a Mareva injunction should not be abused. The caution for the benefit of the solicitors for the City of London given by Lord Denning MR. in Third Chandris Shipping Corp v Unimarine SA [1979] 2 All ER 972 (at p 985) had been quoted with approval in Aspatra’s case at p 104, and we wish, with respect, to adopt the same caution for the benefit of the solicitors in this country.

13. In this appeal we were satisfied that the material misrepresentation made by the respondent was sufficiently grave to prevent the learned judge from exercising his discretion in the respondent’s favour. The remaining representations made in support of the application were manifestly inadequate for the court to hold that there was a real risk of the appellant’s assets being dissipated or removed before judgment. For these reasons we allowed the appeal with costs, and dissolved the Mareva injunction granted on 29 June 1987 as prayed for in the appellant’s notice of motion.

Cases

Aspatra Sdn v Bank Bumiputra Malaysia Bhd[1988] 1 MLJ 97; KSM Credit and Leasing Sdn Bhd v Data Mante (M) Sdn Bhd [1986] 1 CLJ 500; Third Chandris Shipping Corp v Unimarine SA [1979] 2 All ER 972

Representations

Darshan Singh Khaira for the appellant.

Balasundaram for the respondent.