CHS CPO GmbH (in bankruptcy) and Another v Vikas Goel and Others

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JC
• Judgment Date: 26 April 2005
• Neutral Citation: [2005] SGHC 74
• Date: 26 April 2005
• Subject Matter: Interim orders,Civil Procedure,Plaintiffs obtaining and executing Mareva injunction and Anton Piller order against defendants,Applicable principles governing undertakings as to damages in respect of Mareva injunction and Anton Piller order,Defendants asking court to order plaintiffs to fortify undertakings as to damages payable to them for alleged losses arising from injunction and order
• Docket Number: Suit No 636 of 2004 (Summonses in Chambers Nos 4292 and 4590 of 2004)
• Published date: 09 May 2005
• Defendant Counsel: Samuel Chacko and Lim Shack Keong (Colin Ng and Partners),Chan Kia Pheng and Shaun Koh (Khattar Wong and Partners)
• Court: High Court (Singapore)
• Plaintiff Counsel: Francis Xavier, Sangeeta Subrahmanyam and Julian Soong (Rajah and Tann)

26 April 2005

Andrew Phang Boon Leong JC:

Introduction

The application for fortification of the plaintiffs’ undertakings to the court

1 The present proceedings stem from the grant of a Mareva injunction as well as an Anton Piller order to the first and second plaintiffs on 30 July 2004. However, they do not concern an attempt to set aside the injunction on its merits as such. The sole issue in these proceedings concerned, rather, an application for an order that the plaintiffs fortify their undertakings to the court with regard to damages payable to the defendants for possible loss that has allegedly resulted, and/or might result, from the grant of the said Mareva injunction and Anton Piller order.[1] Hence, there was no need to determine any factual issues or the merits with regard to the main action as such.

2 Only the first and third defendants are parties to the present application (they are, respectively, Vikas Goel and Esys Distribution Pte Ltd).

3 When the application came before me, the defendants did not argue that the Mareva injunction and Anton Piller order should be set aside – a point in fact stressed by counsel for the plaintiffs, Mr Xavier. The defendants were content merely to press on with the case for fortification of damages. As will be seen, the amounts involved in the defendants’ claim with respect to fortification were “impressive” by any standard. Not surprisingly, the plaintiffs, in resisting the application, took the view that the claimed amount was contrived and was a patent attempt to put undue pressure on them and, by implication at least, to stymie the claim in the main action by placing an impossible financial burden on them. This is by no means an irrelevant or fanciful consideration, for as Knox J put it in the English High Court decision of Bhimji v Chatwani [1992] BCLC 387 at 403:

Indeed, in my judgment the very size of that figure [claimed with respect to fortification by the defendants in that case] lends some weight to the view that the claim is being put forward, at least in part, to put pressure on the plaintiffs rather than to provide against a known and ascertained contingent liability upon the defendants.

The heads of claim

4 In so far as the alleged heads of likely loss were concerned, counsel for the third defendant, Mr Chacko, relied, in the main, on the expert report prepared by Mr Andrew Grimmet (of Deloitte & Touche Financial Advisory Services Pte Ltd) and all references hereafter to figures relating to such alleged loss will (unless stated otherwise) be to that particular report.[2] It must also be borne in mind that this was the only expert report tendered, and by the third defendant at that. The report itself raised many very broad as well as, on occasion, moot points that were not tested by cross-examination. I note, further, that even assuming that the contents of this report were impeccable (which I do not), they were nevertheless still subject to the applicable principles of law.

5 In summary, the third defendant argued that the plaintiffs be required to fortify their undertakings by paying the following sums:[3]

(a) $11,841,777, being the estimated direct losses up to the end of November 2004 (and constituted by all the separate heads I consider in more detail below, but for the last, which related to the potential impact of delay in the initial public offering (“IPO”) process with regard to the shares of the third defendant).

(b) $37.1m, being the lower-end estimate of the potential impact of delay in the IPO process as well as the depreciation in the value of the proceeds that the third defendant is likely to obtain in a public listing of its shares on the Singapore Stock Exchange.

6 In so far as the first defendant was concerned, as his counsel, Mr Chan, argued, the likely damage suffered as a result of the Mareva injunction and the Anton Piller order was based essentially on the damage suffered by the third defendant.[4] In particular, it was argued that the loss suffered with regard to the first defendant was threefold, as follows:

(a) The alleged loss suffered with respect to the first defendant’s realisable proceeds through the IPO of the third defendant.

(b) The alleged loss suffered as a result of deprivation of the realisable proceeds through the IPO of the third defendant.

(c) The alleged loss suffered as a result of the fall in value of the first defendant’s shareholding in the third defendant.

7 The alleged quantum of likely loss claimed by the first defendant was, taken in toto, “impressive”.[5] However, for the reasons set out below (see generally at [116]–[120] and especially at [120]), there was no likely loss to the first defendant in the first instance and, hence, consideration of the alleged quantum of likely loss was rendered unnecessary.

8 Although the application by the defendants (or, more specifically, by the third defendant) for fortification of the plaintiffs’ undertakings to the court as to damages was allowed in the sum of $315,646, the third defendant was dissatisfied with the quantum of fortification ordered and has appealed. As I made no order with regard to the application by the first defendant for fortification of the plaintiffs’ undertakings to the court as to damages, he, too, has appealed. I now give my reasons for my decision.

A factual overview

9 It is important to reiterate at the outset that the merits of the main action fall outside the purview of the present proceedings (see also [1] above).

10 Simply put, this action related to a claim by the plaintiffs, both of whom were foreign companies. The first plaintiff is a Swiss company (which was recently declared bankrupt). It is involved in the business of distributing computer components and related products. The first plaintiff is, in turn, wholly owned by the second plaintiff, a company incorporated in Luxembourg. The second plaintiff is a wholly-owned subsidiary of a Dutch company (CHS Logistics Services BV), which is (in turn) wholly owned by a company incorporated in the US, CHC Electronics Inc.

11 The first plaintiff had in fact incorporated a branch office, Distribution Karma (“DK”), in Dubai. The first plaintiff, through DK, later incorporated the fourth defendant in Singapore. DK later became converted into a different type of corporate entity and became known as Karma ME FZE.

12 The third defendant is a major distributor of computer components and related products, whilst the first defendant was the promoter and is the principal shareholder of the third defendant. The first defendant owns virtually all of the shares in the third defendant, whilst the third defendant owns all but one of the shares in the fourth defendant. The second defendant holds one share each in the third and fourth defendants. The first and second defendants are also directors of the third and fourth defendants.

13 Without entering into the precise details (which are in fact unnecessary for the purposes of the present proceedings), the gist of the plaintiffs’ claims centres around the argument that they had been defrauded of their interest and holdings in Karma ME FZE. As already alluded to above, the alleged events (in particular, the alleged elaborate schemes effected by the defendants) upon which the plaintiffs’ claims are based are complex and have yet to be fully ascertained. It suffices for our present purposes to note that the plaintiffs allege that the defendants are liable to account to them for all profits and assets misappropriated and that the defendants are also liable as constructive trustees. Alternatively, the plaintiffs allege that the defendants were guilty of a conspiracy to defraud the plaintiffs of the said profits and assets.

14 Not surprisingly, the defendants totally deny the plaintiffs’ claims and put them to strict proof thereof.

The issues before the court

15 The task of the court in the present proceedings is, however, placed within a much briefer compass. It is to ascertain whether there is a sufficient risk of loss to the defendants as a result of the execution of the Mareva injunction and Anton Piller order by the plaintiffs and, if so, how much fortification of damages ought in the circumstances to be ordered.

16 In this regard, it should be reiterated that only the first and third defendants are involved in the present proceedings. More importantly, it should be reiterated that the risk of loss arising with respect to the main action are, for the reason just stated, not germane to the resolution of the present proceedings for fortification.

The legal principles applicable

Introduction

17 Counsel for both the plaintiffs as well as the defendants were agreed on the legal principles applicable to the present case. Indeed, there was – not surprisingly perhaps – a great deal of overlap in the authorities that they helpfully cited to me. The crux of the present appeal relates, therefore, to the application of these principles.

Preliminary points

18 I am here concerned with fortification of an existing undertaking as to damages by the plaintiffs. The undertaking itself is indeed a standard requirement that accompanies the court’s grant of an injunction almost as a matter of course (see, for example, the English Court of Appeal decisions of Graham v Campbell (1878) 7 Ch D 490; Griffith v Blake (1884) 27 Ch D 474; and Cheltenham & Gloucester Building Society v Ricketts [1993] 1 WLR 1545; as well as the House of Lords decision of F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 (“the Hoffmann-La Roche case”)). This was not always the case. But that is now legal history. A succinct and illuminating account of the historical development can be found in the judgment of Jessel MR in Smith v Day (1882) 21 Ch D 421 at 424–425 and that of Lord Diplock in the Hoffmann-La Roche case, at 360. The reasons for such undertakings are grounded in both common sense and justice and ensure that where it is necessary,...