26 July 2018

JTrust Asia Pte Ltd v Group Lease Holdings Pte Ltd [2018] SGCA 27

In JTrust Asia Pte Ltd v Group Lease Holdings Pte Ltd (“JTrust Asia”), the Singapore Court of Appeal held that an applicant seeking Mareva relief for a collateral purpose may be denied injunctive relief, even if he has satisfied the two requirements, namely, establishing a good arguable case on his claim, and a real risk that the respondent will dissipate his assets to frustrate an eventual judgment. 

Although it is apparent from the judgment that it is not easy for a respondent to establish a collateral purpose on the part of the applicant, this decision sheds some light on the Court of Appeal’s approach towards an applicant’s conduct, and should be of relevance to how parties conduct their affairs.

Facts

From March 2015 to September 2017, the appellant, JTrust Asia Pte Ltd (“JTrust”), a Singapore-incorporated company, invested in Group Lease Public Company Limited (“Group Lease Thailand”), a Thai public company, by subscribing to Group Lease Thailand’s convertible debentures.

On 16 October 2017, the Securities and Exchange Commission of Thailand (“Commission”) issued a press release stating that the chairman of Group Lease Thailand (“Chairman”) had directed the first respondent, Group Lease Holdings Pte Ltd (“Group Lease Singapore”), a Singapore-incorporated subsidiary of Group Lease Thailand, to issue sham loans to borrowers (“Borrowers”) including a Singapore company, Cougar Pacific Pte Ltd (“Cougar”). The Borrowers were all controlled and beneficially owned by the Chairman. The Commission found that the principal in the loans had been used by the Borrowers to repay the interest on those loans to Group Lease Singapore. That interest was recorded as income in Group Lease Singapore’s 2016 financial statements, artificially inflating Group Lease Thailand’s operating results.

After negotiations to integrate JTrust and Group Lease Thailand’s parent company broke down, JTrust launched an investigation into the Commission’s claims, and an expert report commissioned by JTrust confirmed that Group Lease Singapore’s loans to the Borrowers was a round-tripping scheme instituted to mislead JTrust into investing in Group Lease Thailand.

JTrust commenced proceedings in the Singapore High Court in the tort of conspiracy against Group Lease Singapore, the Chairman and the Borrowers (“Conspiracy Action”). The claim was that these parties, together with Group Lease Thailand, had conspired to defraud JTrust of its investment in Group Lease Thailand. Pursuant to this action, JTrust applied for ex parte and obtained domestic Mareva injunctions against Group Lease Singapore, the Chairman and Cougar (collectively, “Respondents”).

However, the Mareva injunctions obtained in Singapore were set aside before the Singapore High Court upon the Respondents’ application. JTrust appealed this decision to the Court of Appeal.

Decision of the Court of Appeal

The Court of Appeal reinstated the domestic Mareva injunctions granted against all three Respondents, and expanded the injunctions against Group Lease Singapore and Cougar on a worldwide basis.

As the Court of Appeal found that JTrust had established the two requirements of having a good arguable case and real risk of the Respondents dissipating their assets, JTrust appeared to be entitled to Mareva relief. However, the Court of Appeal expressly recognised that Mareva relief can nonetheless be refused if, amongst other things, the plaintiff commits an abuse of process.

Although it was ultimately held that there was no abuse of process which warranted a refusal of the Mareva in this case, the Court of Appeal’s analysis is nonetheless instructive.

Abuse of process on account of plaintiff’s collateral purpose

One of the Respondents’ submissions was that the Conspiracy Action was brought for the sole purpose of crippling the Group Lease group of companies in order to force a merger between JTrust’s parent company and Group Lease Thailand’s parent company in Japan (“Collateral Purpose”), and that JTrust by the present proceedings was therefore abusing the court’s process.

A Mareva relief seeks to protect against the injustice perpetrated by a defendant who dissipates his assets so as to frustrate execution under proceedings brought, or to be brought by the plaintiff.

Given the intent behind Mareva relief, the Court of Appeal recognised its inherent jurisdiction to refuse such relief to a plaintiff seeking it for a collateral purpose which is predominant. For instance, the predominant purpose of oppressing the defendant’s financial interests would constitute a collateral or ulterior purpose which may, on its own, justify a refusal of his application, even if the other requirements for a Mareva are met. This allows the court to prevent a plaintiff from misusing the draconian effects of its Mareva jurisdiction to achieve that which was intended only to prevent the defendant from frustrating the execution of an existing or anticipated judgment. In this regard, the court must consider whether the plaintiff truly has no genuine interest in obtaining a legal remedy through the underlying action, and decide whether his predominant purpose is to be regarded as collateral or ulterior.

However, the Court of Appeal struck a cautionary tone by suggesting that a defendant must adduce unequivocal evidence from which an inference of a collateral purpose may be drawn. First, the court stated that where the two requirements for Mareva relief have been satisfied, this would clothe the plaintiff’s action with a reasonable semblance of legitimacy. Second, the court opined that the injunction’s inevitable financial impact does not necessarily mean that the plaintiff has a predominant collateral purpose to cause that impact. It recommended paying close attention to the circumstantial evidence to decide whether it can be inferred that the plaintiff has such a purpose, for it will not be explicit in most cases.

Applying the forgoing principles, the Court of Appeal held that there was insufficient evidence to support the Respondents’ view that the Conspiracy Action was brought for the Collateral Purpose in the present case.

Comment

The Court of Appeal’s judgment in JTrust Asia has provided some clarity for parties seeking Mareva relief from the court.

First, it is clear that applicants who apply for Mareva relief must adhere, strictly, to the original intent of the interlocutory injunction, or expose themselves to the risk of being refused relief under the grounds of abuse of process. Applicants should also be cognisant of the other grounds of refusing injunctive relief canvassed in JTrust Asia, and the need to come to the court with clean hands when seeking equitable relief like the Mareva injunction.

Most significantly, the Court of Appeal has recognised that even if an applicant for Mareva relief satisfies the two requirements of having a good arguable case and establishing a real risk of the defendant dissipating his assets, his application may be defeated if the respondent succeeds in proving that he acted for a predominant collateral purpose.

On the flip side, the Court of Appeal has intimated that any abuse of process submission by a defendant will be scrutinised with “care and rigour”, as such allegations can be easily made.

Ultimately, parties should pay heed to the Court of Appeal’s enjoinment for subsequent courts to “assess the cogency of the evidence adduced to support the allegation and the substance of the purpose that is said to be collateral or ulterior”.

 

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