Worldwide Freezing – Preserving Assets in Cross-Border Fraud
In this alert, Lisa Yong, a Senior Associate and Ahmad Amin Musyrif, a pupil with the firm’s Dispute Resolution practice discuss the recent High Court judgment of SRC International Sdn Bhd & Anor v Dato’ Sri Mohd Najib bin Hj Abd Razak [2022] 10 MLJ 95 in allowing a Mareva Injunction Application for a quantum of RM42m against Malaysia's former Prime Minister, Dato' Sri Mohd Najib bin Haji Abd Razak.
The 1MBD/SRC scandal has cemented itself to be the bane of modern Malaysia’s existence. The United States’ Department of Justice in its official press statement has dubbed the 1MDB/SRC scandal to be the “largest kleptocracy case to date”.[1] More than six years have passed since the release of the press statement and yet, the dust never seemed to settle given the continuous revelations and/or disclosures brought to light.
In some cases, the filing of an injunction application is imminent to maintain the status quo of parties and to ensure that interests of the litigants are properly safeguarded pending the outcome of the suits. In this regard, in the case of SRC International Sdn Bhd (SRC) & Anor v Dato’ Sri Mohd Najib bin Hj Abd Razak[2] (Defendant), our Partners, Nagarajah Muttiah and Syafinaz Vani, assisted by Senior Associates, Clament Tay and Lisa Yong, had successfully obtained a worldwide Mareva injunction order against the Defendant.
Background Facts
The 1st Plaintiff, SRC, a wholly owned subsidiary of the Minister of Finance (Incorporated) was conceptualised by 1Malaysia Development Berhad (1MDB) as a special vehicle with the primary object of investing and/or engaging in strategic investments or projects associated with conventional and renewable energy resources, natural resources, and minerals. The 2nd Plaintiff, Gandingan Mentari Sdn Bhd (GMSB) is a wholly owned subsidiary of SRC. At the material time, the Defendant was the then Prime Minister and Minister of Finance of Malaysia.
It is the Plaintiffs’ case that between December 2014 and February 2015, a total sum of RM42 million was fraudulently paid to the accounts of the Defendant from SRC and/or GMSB through a company known as Ihsan Perdana Sdn Bhd (IPSB). IPSB was appointed as SRC’s corporate social responsibility partner, wherein a grant of RM250 million was approved, intended to benefit all Malaysians.
On 7.5.2021, SRC and GMSB initiated an action against the Defendant to recover the sum of RM42 million. The Defendant had not filed his defence as he filed an application to stay the proceedings pending the outcome of his criminal appeal.
On 9.2.2022, the Plaintiffs filed an application for a worldwide Mareva injunction order to prevent the Defendant from removing, disposing of and/or to diminishing the value of any of his assets in or outside of Malaysia, up to the value of RM42 million pending the final determination of the action.
The Law on Mareva Injunction
There are three pre-requisites to satisfy before a court may issue a Mareva injunction order:
a) The applicant must show that it has a good arguable case.
b) The respondent has assets within the jurisdiction.
c) There is a real risk of the assets being removed before judgment could be satisfied.
Good Arguable Case
The crux of the Defendant’s argument is that the court cannot find a good arguable case “without the benefit of the Defendant’s defence” as the evidence of the Defendant must be considered as well. Thus, the court should wait until the Defendant filed his defence before any determination is made as to whether there is a good arguable case.
The court found the Defendant’s proposition to be misplaced as a court of first instance hearing an application for Mareva injunction is duty-bound to consider not only the evidence of the Plaintiffs but also the evidence presented by the Defendant in opposing the said application. A good arguable case means “one which is more than barely capable of serious argument but not necessarily one which has to be better than 50% chance of success” and need not be “so strong as to warrant summary judgment nor even a strong prima facie case”.[3]
The evidence adduced by the Plaintiffs show that the monies from SRC and GMSB were transferred through the accounts of IPSB and eventually went into the accounts of the Defendant. However, the Defendant did not adduce any evidence and chose not to rebut the unauthorised transfer of monies.
Relying on the authorities together with the silence by the Defendant in respect of the allegations raised by the Plaintiffs and his decision not to file his defence, the court found that the pleadings and evidence presented are sufficient to indicate that there is a good arguable case against the Defendant.
Assets Within Jurisdiction
Based on the Defendant’s affidavit in reply and written submission, this issue was not disputed and/or raised as one of the grounds in opposing the Plaintiffs’ Mareva injunction application. In fact, the Defendant himself indicated in his affidavit in reply that he has assets within the jurisdiction. Therefore, the court ruled that the Plaintiffs have shown that the Defendant has assets within the jurisdiction.
Real Risk of Dissipation
Whether there is a real risk that the Defendant may remove his assets before judgment could be satisfied is an issue that has to be determined based on the facts and evidence before the court. In construing this element, the court would need to approach this element on a bespoke basis, giving heed to the complexity and features of each and every case that it presides over. The risk of dissipation must be real rather than theoretical, fanciful, or insignificant.
The court found that the Plaintiffs have shown a good arguable case against the Defendant for those alleged wrongs. However, although the risk can be inferenced through the fulfilment of the good arguable case test, the inference nevertheless needs to be done with care and should not be done automatically. There needs to be a solid basis in concluding the existence of such risk, and that it can only be done by looking at the circumstances holistically.
Based on the above, the court ruled that the Plaintiffs have shown to the court’s satisfaction that there is a real risk of the assets being removed or dissipated before judgment is satisfied.
Other Issues Raised by The Defendant
The court also rejected several other issues raised by the Defendant, amongst others:
a) The Plaintiffs’ application is late, grave and the delay is unexplained by the litigant.
b) Balance of convenience does not lie in favour of the Plaintiffs.
c) Damages are adequate.
d) There must be undertaking as to damages by the Plaintiffs.
The court found that the Defendant’s arguments on delay did not hold water. The delay, if any, is not inordinate and does not create any real prejudice against the Defendant. Based on the explanation given by the Plaintiffs in the affidavits filed and the need to gather information and records as being credible, “it would be folly for the Plaintiffs to rush into litigation without undertaking an adequate audit of its affairs and the discovery of documents for the purposes of this suit”.
Insofar as the issues of damages and balance of convenience are concerned, the court was of the view that the Defendant’s contentions again do not justify the refusal of the Plaintiffs’ application. Having considered the seriousness of the complaints and the allegations levelled against the Defendant and the evidence put forward in the affidavits that remain unrebutted, the court found that balance of convenience does not lie with the Defendant.
Additionally, the issue of adequacy of damages does not arise in a claim for Mareva injunction as the intention of the order sought is to ensure that the assets are sufficiently retained within the jurisdiction to satisfy any judgment that may be subsequently entered against the Defendant.
Finally, the usual undertaking was already given by the Plaintiffs as contained in their affidavit in support. Considering all the above, the court allowed the Plaintiffs’ Mareva injunction application, and the Defendant was ordered amongst others, not to dispose of any of his assets within or outside of Malaysia, up to the value of RM42 million.
Commentary
In a world full of evolving trickeries and advanced fraudulent tactics, a Mareva injunction order serves to be a guidepost in which judgments are not to be reduced into a stack of papers.
Though the implication that this injunction brings forthwith is draconian in its application, the guidelines as followed by the court in the present case established a rather careful and informed decision, as the procedures embarked upon aids to eliminate any irrelevant considerations for the purpose of granting the said injunction order sought by the Plaintiffs.
Without any doubt, it can be said that the significance of this judgment is multiplied given that public funds and interests are at stake. Ultimately, it is crucial to appreciate that a Mareva Injunction serves as a bar for judgments to not be reduced into a stack of papers by preserving the status quo of litigants.
Authored by Lisa Yong, a Senior Associate and Ahmad Amin Musyrif, a pupil with the firm’s Dispute Resolution practice.
8 August 2022