Top Glove Corporation Bhd & Ors v Low Chin Guan & 3 Ors
Civil Suit No : WA-22NCC-255-06/2018
Originating Summons No.: WA-24NCC(ARB)-32-08/2018
Judge : Wong Chee Lin JC
Fraudulent misrepresentations – Conspiracy to defraud – Mareva Injunction – Good arguable case – Quantum of damages – Prove of Damages – Risk of dissipation of assets
Salient background facts
The Plaintiffs and the Defendants had entered into a Sale and Purchase Agreement (“SPA”) to purchase the shares in Aspion Sdn Bhd (“Aspion”). Subsequent to entering into the SPA, the Plaintiffs alleged that they discovered the Defendants had made fraudulent misrepresentations to them, and had conspired with each other to defraud them.
An application for Mareva Injunction and ancillary disclosure orders was filed by the Plaintiffs which was subsequently dismissed by the High Court. The Court held that there was no proper case of fraud even though there was a good arguable case that there were misrepresentations made to them. Further, the Plaintiffs were also precluded from making claims against the Defendants in view of numerous disclaimer clauses and non-reliance clauses in the SPA. As such, the Plaintiffs were estopped by the doctrine of contractual estoppel.
The Court also found that there was no causal link between the alleged conspiracy to defraud and the Plaintiffs’ claim. Further, there was no real risk of dissipation of assets.
Thereafter, the Plaintiffs filed a second application for Mareva Injunction and ancillary disclosure orders premised on newly discovered evidence (internal documents and WhatsApp messages), which only surfaced after decision was given for the earlier application (“new additional evidence”).
Issues:
- Whether the Plaintiffs have met the threshold in filing the second application for Mareva Injunction?
- Whether the Plaintiffs are estopped by the doctrine of contractual estoppel from claiming that there were other representations made to them which were not in the SPA?
- Whether the Plaintiffs had established that:-
- they have a good arguable case against the Defendants;
- the Defendants have assets within the jurisdiction; and
- there is a real risk of the Defendants will remove their assets from the jurisdiction before the judgment is satisfied.
Findings of the High Court
First and Second Issues
- The High Court found that the Plaintiffs were allowed to apply for the second application for Mareva Injunction as the new additional evidence was only discovered after the decision of the earlier application was delivered.
- The new additional evidence is material to show that the Defendants were aware that the representations made by them were false.
- In addition, the Court held that contractual estoppel will not work where the allegation is of fraudulent misrepresentation or deliberate concealment. In the circumstances, the Plaintiffs were not estopped by the doctrine of contractual estoppel.
Third Issue
- Good arguable case against the Defendants
- The Plaintiffs alleged that the Defendants had 5 counts of false representations.
- With regard to the 1st alleged misrepresentation, the Plaintiffs adduced evidence to show that the Aspion’s financial statements had been manipulated (profits and inventory artificially inflated) by recognising fictitious inventory since FY 16.
The Court found that the Plaintiffs had shown a good arguable case of misrepresentation on the part of the Defendants that they were entitled to write back the RM32.1 million or at least RM24.5 million representing the apparently non-existent goods.
- With regard to the 2nd alleged misrepresentation, the Plaintiffs had uncovered a spreadsheet which showed Aspion’s inventory aging as at 30.4.3017, and that the amount of raw gloves aged more than 12 months to be RM33.79 million instead of the figure of RM5.79 million as represented to the Plaintiffs.
There was no explanation from the Defendants as to why the real amount of raw gloves aged more than 12 months ought to be RM5.79 million instead of RM33.69 million. Therefore, the Plaintiffs contended that the decision to reapportion the raw gloves aged more than 12 months was clearly arbitrary and done to deceive potential purchasers of Aspion, including the Plaintiffs.
On these points, the Court found that there was some basis to the Plaintiffs’ contention.
- In relation to the 3rd alleged misrepresentation, the Plaintiffs submitted that according to the internal spreadsheets that they had discovered after the first application for Mareva Injunction, the amount of inventory aged more than 12 months as at 30.9.2017 was not RM17.75 million as represented but ranged from at least RM36.04 million to RM52.02 million. The Plaintiffs also submitted that evidence obtained from internal management documents are cogent for the very reason that they are internal document and thus, would show the true position.
On this issue, the Court also found that there was some basis to the Plaintiffs’ contention.
- In relation to the 4th alleged misrepresentation, out of the RM13.8 million write-off, at least RM7.89 million worth of inventory was not in fact written off or were written off and then written back in or adjusted. The WhatsApp messages discovered by the Plaintiffs showed that the reason for adding back the write-off of RM13.8 million was false.
Again, the Court found that the Plaintiffs had a good arguable case of misrepresentation.
- Finally, with regard to the 5th alleged misrepresentation, the WhatsApp messages adduced by the Plaintiffs showed that the Defendants were aware that Aspion had a non-existent inventory.
On this point, the Court found that the Plaintiffs had also shown a good arguable case of misrepresentation.
Having established that there was a good arguable case, the Court then considered the damages claimed by the Plaintiffs.
The Court refused to accept the Plaintiffs’ calculation of damages based on the industry norm as opposed to the practice of Aspion as that was merely an assumption without substantial basis. Therefore, the Court found no causal link between the fraudulent misrepresentations and the alleged damages suffered by the Plaintiffs.
As such, the Court found that the Plaintiffs have not shown a good arguable case that warrants the court to grant them the relief sought, i.e. Mareva Injunction for the sum of RM633.4 million.
Nevertheless, the Court went on to decide the test of risk of dissipation of assets assuming that she was wrong in finding that the Plaintiffs have not shown a good arguable case for the reliefs sought.
(B) Assets within jurisdiction
It is not disputed that the Defendants have assets within the jurisdiction.
(C) Risk of dissipation of assets
The Court can infer a real risk of dissipation from a good arguable case of dishonesty. Such alleged dishonesty must be of a nature that it has a real and material bearing on the risk of dissipation.
As mentioned above, the Court was convinced that this was a good arguable case that the false representations were made knowingly.
However, the Court opined that this was not sufficient to show a real risk of dissipation of assets on a balance of probability that the Defendants made false representations knowing that they were false. This is because there was no concealment by the Defendants in terms of “cooking” the books and records of the company nor any sophisticated, ingenious or intricate scheme to defraud the Plaintiffs.
Further, it did not appear that there was any direct evidence of dissipation of assets on the part of the Defendants. The Plaintiffs are relying on the cause of action of fraudulent misrepresentations and the dishonesty in making the false representations to infer a risk of dissipation. There was however no allegation of any misuse of the funds of Aspion by the Plaintiffs against the Defendants.
In all circumstances, the Court dismissed the second application on the grounds that the Plaintiffs have failed to prove the quantum of damages as the methodology relied by the Plaintiff in computing the quantum of damages did not satisfy her.
Comments:
A Plaintiff is entitled to make a second application for Mareva Injunction if there is new evidence which was discovered or could only be discovered after the decision of the earlier application.
In the present case, despite the Court having found that the Plaintiff had a good arguable case of fraudulent misrepresentation or conspiracy to defraud, the Court dismissed the application for Mareva Injunction as the Plaintiffs failed to substantiate the quantum of damages.
Therefore, one is reminded therefore that in order to succeed in an application for Mareva Injunction, it is crucial that the said party is able to establish a good arguable case AND to also prove the quantum of damages claimed.
Written by TEOH YEN YEE & CHAN JIA YING
For further enquiries, please contact:
HAROLD TAN (harold@hlplawyers.com)
TEOH YEN YEE (yenyee@hlplawyers.com)
CHAN JIA YING (jiaying@hlplawyers.com)
