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    10:24 PM Ronald JJ Wong (Associate, Rajah & Tann Singapore LLP)

    Court of Appeal sets aside Mareva injunctions and ancillary disclosure orders in Bouvier, Yves Charles Edgar and another v Accent Delight International Ltd and another and another appeal [2015] SGCA 45

        

    The case of Bouvier, Yves Charles Edgar and another v Accent Delight International Ltd and another and another appeal [2015] SGCA 45 involves multi-million dollar transactions in the opaque world of private acquisitions of rare artworks including works by Leonardo da Vinci, Pablo Picasso, Vincent van Gogh, Amedeo Modigliani and Mark Rothko. The Court of Appeal in Bouvier, for which Sundaresh Menon CJ delivered the written judgment, overturned the High Court Judge’s decision to grant Mareva injunctions (or freezing orders) and ancillary disclosure orders on an ex parte basis. The Court’s decision helpfully elaborated on how various principles regarding the grant of Mareva relief should be applied. As the decision is a lengthy one, this note only analyses these principles and their application in respect of the main litigants. This note does not discuss the court’s discussion on the appeal relating to the secondary litigant and the grant of interlocutory proprietary injunctions.

    Facts

    To simplify the narrative, the respondents and appellants may be referred to with reference to two respective individuals. The respondents by Dmitry Rybolovlev, is a Russian billionaire who made various purchases of expensive artworks for his private collection. And the appellants by Yves Charles Edgar Bouvier, who runs an art-related transport and storage business, including the Singapore Freeport.

    Between 2003 and 2014, Bouvier would source for artworks for Rybolovlev to purchase. These acquisitions were generally for sums in excess of US$100m. In 2014, Rybolovlev purportedly discovered that Bouvier had been inflating the prices of the artworks, keeping the substantial difference for himself. The total excess payments are alleged to amount to about US$1 billion.

    The dispute between the parties turns on the characterisation of their relationship. Rybolovlev alleges that Bouvier was his agent and had breached his fiduciary duties. Rybolovlev thus brought a Singapore action against Bouvier for breach of fiduciary duties, dishonest assistance, conspiracy and alternatively a claim for a proprietary interest in the excess payments and their traceable proceeds. Bouvier denies this, arguing that Bouvier was merely the seller in a “willing buyer-willing seller” transaction vis-à-vis Rybolovlev.

    Rybolovlev commenced the Singapore action and simultaneously applied ex parte to the High Court for, inter alia, worldwide Mareva injunctions and ancillary disclosure orders against the appellants. The Judge granted the reliefs sought. At the inter partes hearing, the Judge did not set aside these reliefs but attenuated them by increasing the ordinary expenses entitled to the appellants and allowing payment of legal fees as exceptions to the Mareva injunction. The scope of the ancillary disclosure orders were also pared down; confidentiality conditions were placed on the information disclosed under the disclosure orders.

    The Court of Appeal’s Analysis

    Applying the well-established requirements for the grant of Mareva relief, viz (1) a good arguable case on the merits of the plaintiff’s claim; (2) real risk that the defendant will dissipate assets to frustrate the enforcement of an anticipated judgment, the Court of Appeal held that the Mareva and ancillary reliefs should be set aside.

    Dishonesty and Operating through International Companies

    The Court accepted (at [41]) that there was a good arguable case of Bouvier’s dishonesty but held that this was not sufficient to ground an inference of a real risk of dissipation. Instead, one must inquire into the nature of the dishonesty.

    Significantly, the Court disagreed with Chan Seng Onn J’s view in Spectramed Pte Ltd v Lek Puay Puay [2010] SGHC 112 at [19] that a real risk of dissipation can be sufficiently inferred from a good arguable case that the defendant has acted fraudulently, dishonestly or unconscionably. The Court opined (at [65]) that this Spectramed proviso went “too far”.

    First, the proviso fails to distinguish between different types of dishonest conduct (at [65]). Some types more readily support inference of real risk of dissipation than others.

    Second, at an interlocutory stage, allegations of dishonesty are unproven and may be refuted at trial (at [66]). The existence of a real risk of dissipation must be assessed independently from the prospect of successfully establishing allegations of dishonesty (following European Grain & Shipping Ltd v Compania Naviera Euro-Asia SA and others (CN Jaya SA, intervener) [1989] 2 SLR(R) 445 (HC)).

    Third, the proviso is not supported by case law or wider jurisprudence (at [67]). The Court found the Singapore, English and Australian authorities surveyed to be inconsistent on this proposition.

    The only principle borne out from the authorities is that “the alleged dishonesty must be of such a nature that it has a real and material bearing on the risk of dissipation” (at [93]). The two issues of good arguable case on merits and real risk of dissipation are to be determined separately even though the evidence relied on may be the same. The court must examine the precise nature of the alleged dishonesty and the strength of the evidence with regard to that (at [94]).

    On the facts, the Court held (at [95]-[97]) that the allegations of dishonesty against Bouvier do not have a “real and material bearing on the risk of dissipation”. Bouvier did not attempt to conceal his identity or connection with the transactions through a complex web of companies, but dealt in person acting through his company. Payments made to Bouvier were made to the same bank accounts held over about a decade. The Court also opined that being well-advised, sophisticated and having knowledge of international financial transactions and corporate structures alone should not be evidence of risk of dissipation.

    Asset Disclosures

    Rybolovlev also argued that real risk of dissipation could be inferred from alleged doubts as to the veracity of Bouvier’s asset disclosure pursuant to the ancillary disclosure orders. The Court however was not persuaded by this argument.

    It explained (at [101]) that the purpose of an ancillary disclosure order was to give the plaintiff a picture of the defendant’s assets at the time of disclosure to enable the plaintiff to police the injunction and ensure the defendant’s assets were kept at a steady state. Asset disclosure pursuant to such orders do not provide a “longitudinal view” of the defendant’s assets; they do not show a systematic and unexplained attrition of defendant’s assets which could give rise to inference of risk of dissipation; they are often also “rough and ready”. Further it was unfair to justify granting a Mareva injunction on the basis of material which was not before the court at the time it was granted (at [102]).

    Nevertheless, the Court opined (at [104]) that ancillary disclosure orders may be relevant to risk of dissipation in two narrow situations: where the defendant refuses to provide any disclosure at all; and where the assets disclosed are so glaringly inadequate or suspicious that the deficiencies cannot be attributed to the urgency with which the disclosures were made or other accounting or valuation inaccuracies.

    On the other hand, the Court also rejected (at [106]) the argument that there was no risk of dissipation simply because Bouvier had complied with the disclosure orders. Compliance with court orders is expected of litigants and this by itself would not diminish the risk of dissipation.

    On the facts, the Court held (at [105]) that Bouvier’s disclosure was not suspicious but was timeous and detailed.

    Abuse of Process

    The Court further held (at [108]) that Rybolovlev’s application for Mareva relief against Bouvier was an abuse of the court’s process and thus should be discharged. It was obtained as an instrument of oppression to inflict commercial prejudice.

    First, the Court found that the lack of urgency in the application suggested that Rybolovlev did not believe there was a real risk of dissipation. Generally, the length of delay and explanations for it should be considered against all the circumstances of the case (at [109]). In this case, the delay was about four months. The Court found that it appeared the Mareva application was only taken in response to Bouvier’s unanticipated release on bail in the Monaco proceedings (at [114]).

    Second, the Court frowned upon Rybolovlev’s failure to comply with the Supreme Court Practice Directions and the established practice of giving notice of the Mareva application to the respondent in the application, and failing which, the giving of explanation in the supporting affidavit for such failure (at [115]-[121]). Based on pre-litigation events up to the time of Rybolovlev’s Mareva application, the Court found that there was no extreme urgency or imminent risk that would excuse the giving of prior notice.

    Third, the Court found that the Mareva injunction was unnecessarily and unjustifiably broad; it disregarded the separate legal personality of 14 companies which Bouvier was shareholder of (at [122]-[125]). While the court may include in a court order assets belonging to a third party on the basis that the assets are in truth the assets of the defendant, there was no evidence that this was the case here.

    Fourth, Rybolovlev circulated the Mareva injunction more widely than necessary and disseminated information in a misleading manner (at [126]). For instance, the Mareva injunction was circulated to the Financial Times to be published publicly. Also, a letter was sent to Sotheby about the Mareva injunction including its purported effect on Bouvier’s 14 companies, when these companies had already been removed from the order after the conclusion of the inter partes hearing. The Court cautioned that “the gravity of the consequences of a Mareva injunction, especially one that extends worldwide, mandates that close and careful consideration be given to details such as its proper scope and the parties who will be affected”.

    The Court further observed that Rybolovlev did not undertake to the court (as it is ordinarily done) that he shall not, without the court’s leave, enforce the injunction or seek an order of a similar nature in any jurisdiction outside Singapore (at [131]).

    Finally, the Court emphasised (at [130]) that it was the totality of all the factors, as opposed to any one single factor, that led to its conclusion..

    Commentary

    Dishonesty and Real Risk of Dissipation

    In light of the drastic consequences of a worldwide Mareva injunction, the Court’s clarification on the Spectramed proviso and the relationship between allegations of dishonesty against the defendant on one hand and real risk of dissipation on the other hand is to be welcomed. The critical issue is whether the alleged dishonesty—its nature and the strength of evidence in support of the allegations—has a “real and material bearing on the risk of dissipation”. The court would consider the circumstances of each case, and relevant factors include:

    (i)           whether the alleged dishonesty was perpetuated through some complex or elaborate scheme;

    (ii)         whether the alleged dishonesty involved the defendant’s concealment of identity or involvement in the matter;

    (iii)       whether the defendant had taken steps to conceal its assets despite having ample opportunity to do so (European Grain & Shipping Ltd v Compania Naviera Euro-Asia SA and others (CN Jaya SA, intervener) [1989] 2 SLR(R) 445 (HC) at [24]);

    (iv)       whether the modus operandi of the alleged dishonesty were the sort of methods that could be used to put the defendant’s assets beyond the reach of a judgment creditor (at [87], citing VTB Capital plc v Nutritek International Corporation and others [2012] 2 Lloyd’s Rep 313 (CA));

    (v)         whether the nature of the alleged dishonesty leads to a reasonable inference that the defendant was not the sort of person who would, unless restrained, preserve his assets to make them available for a judgment creditor (at [88]-[91], citing Patterson v BTR Engineering (Aust) Ltd and others (1989) 18 NSWLR 319, per Gleeson CJ at 325E-326A).

    Yet, it remains that no bright lines can be drawn in respect of such analyses. To illustrate this, two Singapore cases can be contrasted. In Amixco Asia Pte Ltd v Bank Negara Indonesia 1946 [1991] 2 SLR(R) 713 (CA) (“Amixco Asia”) at [27]-[29], the court found “overwhelming objective evidence of prima facie dishonest conduct” on the part of the managing directors of the defendant company. They used false documents to obtain certain goods once they knew that there were discrepancies in the shipping documents, resulting in the seller of the goods to be unable to recover possession of the goods.

    In PT Sariwiguna Binasentosa v Sindo Damai Shipping Ltd and others [2015] SGHC 195, Choo Han Teck J found that the defendant had been dishonest in sending a certain parcel to Thailand without the plaintiff’s knowledge when the parcel was supposed to be in Singapore, and had kept the plaintiff from discovering that the parcel was no longer in Singapore. The defendant had, similarly to those in Amixco Asia, toyed with duplicative shipping documents to commit this dishonesty: at [14]. However, Choo J found that this was insufficient for a finding of real risk of dissipation. He opined at [18] that “being dishonest in contract dealings is one thing, showing an inclination to dissipate assets is another”.

    This comparison reveals the difficulties of making judgment calls at an interlocutory stage on the basis of untested affidavit evidence as regards the character of the defendant. Often in practice, if the defendant was truly evasive and dishonest with regard to his assets, the plaintiff would likely be unable to obtain even decent circumstantial evidence to show risk of dissipation. If the defendant was well-heeled and well-advised, his assets would likely have already been swiftly disposed of and well hidden, e.g. held under complex structures of offshore trusts and companies. Forensic private investigators are sometimes unable to trace and obtain sufficient evidence to prove even a remote connection between the defendant and these structures. For this reason, evidence of dishonest conduct becomes a surrogate for evidence of dissipation. Showing a person’s propensity for dishonest dealings and evasiveness generally would thus show a risk that he would also be inclined to be dishonest with regard to his assets. Hence, the court in Amixco Asia found that the evidence of dishonest conduct gave rise to an inference that the defendant “could hardly be said to be ... a person who would be willing to preserve his assets to meet a potential judgment for well over US$3m”: see [29]. Similarly, in Multi-Code Electronics Industries (M) Bhd and another v Toh Chun Toh Gordon and others [2009] 1 SLR(R) 1000 (HC) (“Multi-Code Electronics”), which decision the Court of Appeal in Bouvier did not disagree with, Chan Seng Onn J refused to discharge the Mareva because he found that the defendants had used false documents to defraud the plaintiffs of various sums of money.

    This discussion highlights the issue of what types of defendants the Mareva injunction is meant to restrain. The Mareva relief is meant to prevent the frustration of the enforcement of an anticipated judgment. But it cannot be intended for a defendant who had, prior to or at the time of dealing with the plaintiff, already legally structured his assets in a way to limit his potential exposure. This is because—caveat emptor—the plaintiff ought to have determined and satisfied himself as to the risks of entering that transaction in the first place. This leaves the defendant who, after entering into the transaction with the plaintiff or on the first sign of trouble, disposes of his assets. Even so, why should the court grant such a draconian freezing order pre-judgment? Ordinarily, after judgment has been obtained, the plaintiff enforces his judgment and if the defendant is unable to satisfy judgment, the plaintiff can make a bankruptcy or winding up application. Unravelling historical transactions for undue preference or undervalue would be available to the trustee-in-bankruptcy or liquidator. So if there had been any unlawful dispositions of assets by the defendant prior to judgment meant to frustrate the enforcement of judgment, these could be undone post-judgment. How then could a pre-judgment Mareva be justified in such a context? (Post-judgment Marevas accordingly bear different considerations.) This is particularly given that the plaintiff only needs to show a good arguable case pre-trial. This is also bearing in mind that a Mareva could suffocate the legitimate business of a going concern. It appears then that a pre-judgment Mareva is justifiable where it can be shown that the defendant is the type of person who would be able to dispose off his assets in a manner that post-judgment claw-back enforcement measures would be toothless. This goes back to making a judgment call about the character of the defendant and perhaps the character of his dealings with his assets. For the plaintiff, there is inherent uncertainty as to the prospects of successfully preserving the defendant’s assets for enforcing his judgment. For the judge, this would be a case of “I know it when I see it” (attributable to Justice Potter Stewart in Jacobellis v Ohio 378 U.S. 184 (1964) on the test for what constitutes obscenity).

    Procedural propriety, reasonable conduct and abuse of process

    Another important lesson to be drawn from Bouvier is that procedural propriety and reasonable conduct are critical to obtaining (and discharging) a Mareva injunction. While these factors do not and should not independently ground a finding of abuse of process, litigants should be careful not to trip up on any of these aspects and unwittingly give their opponents a basis to paint a false picture of abuse of process. Another possible ground for an inference of an applicant’s abuse of process is that the applicant’s real motive in applying for Mareva relief was to obtain security for costs to which the applicant is not entitled (Choy Chee Keen Collin v Public Utilities Board [1996] 3 SLR(R) 812 (CA) at [23]-[25]).

    Further, unreasonable conduct on the part of the applicant after successfully obtaining Mareva relief could give rise to an inference of oppressive conduct and accordingly, abuse of process. In Bouvier, the relevant conduct was disseminating the Mareva injunction to an unnecessarily wide circulation list and misrepresenting the scope of the Mareva. Another example would be where the applicant refuses to agree to allow for variation of the terms of the Mareva despite clear evidence by the defendant of the necessity of paying certain debts and liabilities to defend the suit or to carry on its business (European Grain & Shipping Ltd v Compania Naviera Euro-Asia SA and others (CN Jaya SA, intervener) [1989] 2 SLR(R) 445 (HC) at [26]).

    As a matter of principle, it may appear strange that an applicant’s subsequent conduct should affect the question of whether the grant of Mareva relief was justifiable in the first place. If there is a real risk that the defendant would dissipate his assets to frustrate enforcement of judgment, should the unreasonable or even oppressive conduct of the plaintiff justify discharging the Mareva injunction, assuming that the plaintiff does have a good arguable case on the merits of his claim?

    On one view, it should require severe and egregious conduct on the part of the plaintiff to justify a discharge of the Mareva injunction. An example is found in Multi-Code Electronics, where Chan Seng Onn J found the plaintiffs’ conduct to be deplorable in relation to material non-disclosure and distortion of important facts. Nonetheless, he decided to maintain the Mareva on the “special facts” of the case so as to prevent the fraudster defendants from further dissipating their ill-gotten gains: [152]. The facts there were indeed exceptional. It was not disputed by parties’ counsel that the defendants had inter alia used fraudulent documents to siphon from the plaintiffs substantial sums of monies. It appears that because, on balance, Chan J found the defendants’ conduct was even more egregious than the plaintiffs’, the Mareva was not lifted.

    However, on another view, the plaintiff’s abuse of process per se would strongly justify discharging the Mareva injunction. Apart from the principle that the court should not condone abuse of its process to the benefit of the abuser, another consideration would be that the plaintiff is not totally without recourse. As mentioned above, in theory at least, the successful plaintiff nevertheless has claw-back options available for him to enforce his judgment. All in all, the plaintiff who desires to enjoy the benefit of a Mareva injunction should be unscrupulous in the manner by which he obtains, utilises and enforces the Mareva injunction.

    In the final analysis, the court’s jurisdiction to grant Mareva and ancillary reliefs is one which is highly discretionary. It may be said then that the most helpful guideline for litigants are the fundamental purposes of the Mareva and ancillary disclosure reliefs. These purposes guide the grounds and manner of application for, and the enforcement of, these “nuclear weapons” of civil litigation.

    * This blog entry may be cited as Ronald JJ Wong, “Court of Appeal sets aside Mareva injunctions and ancillary disclosure orders in Bouvier, Yves Charles Edgar and another v Accent Delight International Ltd and another and another appeal [2015] SGCA 45”, Singapore Law Blog (7 September 2015) (http://www.singaporelawblog.sg/blog/article/133)

    ** A PDF version of this entry may be downloaded here

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