CHERN & CO. successfully applies for Worlwide Mareva Injunction

CHERN & CO. was recently appointed to act for a Hong Kong-based investment and project management consulting firm (“our Client”) to apply for a Mareva Injunction before the High Court of Shah Alam, pending the outcome of arbitration at the Hong Kong International Arbitration Centre (“HKIAC”).

BRIEF FACTS

On June 2021, our Client had entered into a Sales and Purchase Agreement (“SPA”) with the Defendant to procure medical gloves for a contract sum equivalent to USD21,500,000.00. Consequently, our Client paid the deposit sum of USD430,000.00 to the Defendant, and it became apparent that the Defendant never had the intention to fulfil their obligations.

It is to be noted that before entering into the SPA, the Defendant had given express representations to our Client that the whole 10,000,000 boxes of medical gloves were ready for sale. The most significant revelation was that the Defendant had vide a local law firm issued a Letter of Guarantee to our Client’s sourcing party, giving written attestation that “the Defendant has the goods ready for sale” and that “the goods are currently kept in a bonded warehouse”. 

Nonetheless, one of the main conditions of SPA dictates that a Letter of Guarantee be furnished to our Client within 4 days from the date of SPA. The Defendant’s bank later informed our Client that they could not process such Letter of Guarantee due to insufficient funds. Further, the production of relevant SGS Inspection and Reports was another primary SPA condition which the Defendant has failed to produce. The subsequent events also became highly suspicious when the Defendant informed our Client that additional deposits were needed to be paid for the supplier to fulfil our Client’s Order, when such deposits were never envisaged in the SPA in the first place. 

The Defendant’s repeated failures to fulfil their obligations under the SPA ultimately resulted in the inevitable collapse of the SPA that leaves our Client with no other alternatives but to issue a Notice of Arbitration to Defendant under the terms of the SPA; which is to refer the dispute to Hong Kong International Arbitration Centre (“HKIAC“). The Defendant then tried to impede the arbitral process to frustrate the speedy disposal of this dispute. 

Mareva Injunction Application

Given the Defendant’s previous conduct, our Client with the legitimate concern that they may dissipate their assets if the arbitral tribunal ruled against the Defendant. Our Client then filed this action and simultaneously applied for an obtained ex parte order for a Mareva Injunction, which was granted to our Client.

High Court’s Verdict

Subsequently, after hearing oral submission from both Our Ms Carly Yap and Mr Jonathan K and the Defendant’s counsel, the High Court ruled that as the Mareva injunction is to preserve the status quo pending determination of the Parties’ dispute via arbitral proceedings, our Client’s application is allowed with costs. The Court then ordered the parties to commence arbitral proceedings within 14 days from the date of the Order.

It is to be noted that the Defendant’s application for Security for Costs was also dismissed, in which the Court was in agreement with us that the fact that our Client is a foreign company could not be a decisive factor in awarding security for costs, as the Court is also duty-bound to consider all the circumstances of this case.

In addition to the above, the Court also made the following orders against the Defendant, among others, that the Defendant is to provide full disclosure of all of their assets within Malaysia or overseas within 7 days from the date of the Order, and such disclosure must be affirmed on oath in an Affidavit. The Defendant was further ordered not to dissipate and/or reduce its assets, whether owned solely or jointly, amounting to USD430,000.00.

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