UNDERTAKING AS TO DAMAGES FOR MAREVA INJUNCTIONS
This week’s blog covers Parastate Labs Inc v Wang Li [2023] SGCA 27, a Court of Appeal case which discusses whether a failure to provide sufficient undertaking as to damages justifies the dismissal or a reduction in quantum of a Mareva injunction.
Facts. This is an appeal from the decision of the judge below for a worldwide Mareva injunction made in the main action by the appellant, Parastate Labs Inc (“Parastate”) against the respondent Mr Wang Li (“Wang”) and three other defendants ([5]). Parastate sought the injunction for the full value of its claim in the main action, which was US$5 million, as against Wang ([5]).
Procedural History. The judge below granted the injunction but limited it to a quantum of US$2.5 million and required that Parastate fortify its undertaking as to damages by paying S$50,000 into court because Parastate committed “two material non-disclosures … in relation to its ability to meet its undertaking as to damages, and in deliberately omitting prescribed undertakings” ([5], [11] – [15]).
What were those two material non-disclosures?
The first was what the Court of Appeal termed as the “Failure to State Available Assets”.
In gist, judge below found that Parastate breached Paragraph 73(1)(f) of the Supreme Court Practice Directions by failing to include an undertaking as to damages and the assets available to meet the said undertaking. The judge also found that even during the inter partes hearing, Parastate continued to fail to furnish sufficient evidence on its ability to meet its undertaking as to damages, only mentioning that it had raised US$11.8 million in funding without giving any financial statements or bank statements (see [13]).
The second was what the Court of Appeal termed as the “Failure to Include Prescribed Undertakings”.
In gist, the judge found that Parastate had failed to include prescribed undertakings 9 and 10 provided in form 25 of the Supreme Court Practice Directions 2021 in its application for the injunction and had omitted to bring those omissions to the judge’s attention. (see [14]).
Due to these two “material non-disclosures”, the judge held that the lower quantum injuncted (of US$2.5 million) was appropriate (see [15]) as striking the balance between the effects of an injunction on Mr Wang, and the “unsatisfactory evidence” from Parastate (see [15]).
The judge also required Parastate to fortify its undertaking by paying S$50,000, though this was not disputed on appeal.
Discretion to reduce quantum injuncted. Hence, the only issue on appeal was whether the judge’s exercise of discretion to reduce the quantum of the Mareva injunction from US$5 million to US$2.5 million was based on principled grounds.
What was undisputed. The Court of Appeal (“CA”) noted that there was no dispute that Parastate had established the two requirements for a Mareva injunction: (a) that there was a good and arguable case; and (b) a real risk of dissipation of assets ([17]).
It was also undisputed that Parastate’s claim was for a single indivisible sum of US$5 million ([17]).
This was important because, as set out at [23], a Mareva injunction obtained ex parte may be set aside due to a failure of the applicant to make full and frank disclosure.
But as set out in [24], based on the authorities, material non-disclosures justifying a discharge of the injunction would have a bearing on either the requirements for the grant of a Mareva injunction, or the applicant’s ability to honour its undertaking as to damages.
Additionally, as the CA observed at [24], material non-disclosure typically resulted in the injunction being discharged, and not merely a reduction in the quantum of the injunction.
No material non-disclosure. The CA then found that neither the Failure to State Available Assets or the Failure to Include Prescribed Undertakings were material non-disclosures, as neither had an impact on the judge’s finding of the merits of the Mareva injunction i.e., that there was a good arguable case and a real risk of dissipation of assets and Parastate’s ability to honour its undertaking to damages (see [25] – [27]).
To summarise:
For the Failure to Include Prescribed Undertakings, the CA found that these undertakings do not relate to the requirements for the grant of a Mareva inunction or Parastate’s ability to honour its undertaking as to damages, and were, in any event, ultimately include in the Mareva injunction ordered (see [26]).
For the Failure to State Available Assets, while the CA state that it was “unacceptable for its non-compliance” with the Supreme Court Practice Directions, it was also not a material non-disclosure that related to the requirements for the grant of a Mareva inunction or Parastate’s ability to honour its undertaking as to damages (see [28]).
The CA distinguished the present case from the cases of Block and another v Nicholson (trading as Limascue Stud) [1987] CLY 3064 and North American Holdings Company Ltd v Androcles Limited [2015] JMSC Civ 151, where the non-disclosures pertained to facts that casted serious doubts on the applicant’s ability to honour their undertaking as to damages (see [28]).
How to address Parastate’s non-compliance? What, then, of Parastate’s non-compliance with the Supreme Court Practice Directions?
While the Mareva injunction was granted (and not reversed by the CA), the CA observed at [29] that there was “uncertainty as to whether Parastate was good for its undertaking as to damages created by its non-compliance”.
The CA then held that a proportionate and principled response is to order adequate fortification rather than to limit the quantum of the injunction (at [29] – [30]).
In particular, the CA emphasized at [30] that “there was no principled basis for a reduction by half of the quantum of an injunction for an otherwise indivisible claim, when the non-compliance had no impact on the underlying cause of action or the undertaking as to damage” (at [30]).
Appropriate fortification? As for the appropriate fortification to be ordered, the CA found that there was no material before either the judge or the CA as to the amount of damages that Mr Wang might suffer, and the respondent did not disagree with the range proposed by Parastate (see [31] – [32]).
Nonetheless, the CA held that to ensure that the undertaking as to damages “was not merely illusory”, and as it was not appropriate to “ignore Parastate’s unexplained non-compliance with the SCPD 2021”, the CA ordered an increase in fortification from $50,000 to $100,000.
This is important. Parastate had offered a range for fortification for damages, with the maximum being $50,000. Mr Wang had accepted that there was no submission that the sum would be inadequate. The judge ordered $50,000. But on appeal, this sum was doubled because of Parastate’s non-compliances with the Supreme Court Practice Directions.
Significance. We had previously discussed the High Court decision in a prior blog post at https://www.chanceryllc.com/news/2023/5/31/mareva-injunction-and-material-non-disclosure, where we observed that the High Court decision serves as an important reminder on the importance of making full and frank disclosures, and to comply with the relevant Practice Directions.
The CA’s decision makes this even clearer. As set out above, the issue of fortification was not in dispute on appeal. However, Parastate’s non-compliances with the Supreme Court Practice Directions led to the CA doubling the amount of fortification, even though it was not submitted that the prior quantum of fortification was inadequate.
In this regard, it is important to note that Parastate’s non-compliance had created “uncertainty” over Parastate’s ability to meet its undertaking as to damages. This suggests that in an appropriate case, such “uncertainty” may result in the Mareva injunction being discharged, such as, for instance, where a respondent has mustered some evidence casting doubts on the applicant’s ability to honour its undertaking as to damages.
It is also important to note that the CA was clear that for claims that were “indivisible” in nature, the quantum injuncted should not be reduced without a principled basis where the undertaking had no impact on the underlying cause of action or undertaking as to damages. In doing so, the CA departed from the High Court.
In short, as the CA observed, the Mareva injunction is one of the law’s “nuclear” weapons. And when it comes to nuclear weapons, it should not be surprising that there are stringent requirements that must be met before the weapon can be utilized, and that the Court would be careful to ensure that the use of this nuclear option is not abused.
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