Top Glove Corporation Bhd & 1 Lg v Low Chin Guan & 3 Lg (WA-22NCC-255-06/2018)

Content

1 IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR (COMMERCIAL DIVISION) SUIT NO.: WA-22NCC-255-06/2018

Preamble

Pursuant to recommendations by Credit Suisse (which had been appointed by Adventa Capital to advise on and assist in the potential sale of Aspion or Adventa Capital’s Glove Business) Adventa Capital decided to undertake a bidding process for the sale of all the shares in the capital of Aspion. Rahmat Lim & Partners (“RL&P”) was engaged as Adventa Capital’s legal advisors and the bidding process for the Aspion sale was launched in or about the end of June 2017.

Schedule

Schedule 3 provides for adjustment of the consideration in the event of any shortfall of the PAT from the 2018 Target Core PAT of RM80.9 million and the 2019 Target Core PAT of RM108.3 million subject to a cap of RM100 million. In the event of fraud, the cap shall not be applicable. 14 23.

Schedule

Schedule 8 of the SPA sets out the limitation of liability under the SPA: (a) Paragraph 1: Disclosures Adventa Capital shall not be liable in respect of any claim made against it under this SPA to the extent that the fact, matter or circumstance giving rise to the relevant claim has been disclosed. (b) Paragraph 6: Conduct of Claims by the Purchaser This paragraph sets out how Top Glove must conduct its claims under the SPA. This includes notice requirements that Top Glove must abide by. (c) Paragraph 8: Maximum Liability Paragraph 8(b): Adventa Capital’s aggregate liability in respect of all claims including for breaches of the Seller’s Warranties (other than the fundamental warranties) under this SPA shall not exceed an amount equal to RM50 million. 15 (d) Paragraph 13: Fraud Nothing in Schedule 8 shall apply to any claim under the SPA which arises or is increased, or to the extent to which it arises or is increased, as the consequence of (or delay in discover of which is in consequence) any fraud, willful misconduct or willful concealment by Adventa Capital, any officer, employee, or former officer, employee of Adventa Capital. 24. Top Glove performed an inventory count of all 3 of Aspion’s factories on 29.3.2018 and 30.3.2018 and did not raise any concerns regarding the inventory of Aspion to Adventa Capital or Wong or Low prior to completion of the SPA on 4.4.2018. 25. On completion of the SPA: (a) Top Care paid a total of RM1.233 billion to Adventa Capital: (i) RM1.1607 billion to Adventa Capital’s bank account no. 0117792005 held at Citibank Berhad; and 16 (ii) RM72.3 million to ACPL’s bank account no. 20340010183508 held at Alliance Bank Malaysia Berhad. (b) Top Glove allotted the Consideration Shares (i.e. 20,505,000 shares in Top Glove) at RM6.6813 per share to Adventa Capital which was subsequently listed on the Main Market of Bursa Securities on 5.4.2018. (c) In exchange, Adventa Capital provided Top Care with the Escrow Sum Undertaking and Tax Escrow Sum Undertaking. 26. On the same day, Low was appointed as an executive director of Top Glove. 27. Subsequent to completion of the SPA, Top Glove claims that it discovered that Low and Wong and Adventa Capital had made fraudulent misrepresentations to Top Glove and Top Care about the financial position and inventory of Aspion and had conspired with each other to defraud them. Accordingly, Top Glove and Top Care filed a writ action against Low and Wong and ACPL for fraudulent 17 misrepresentation and an Originating Summons against Adventa Capital for ancillary relief in aid of arbitration pending the arbitration proceedings with Adventa Capital in Singapore. The disputes between the parties to the SPA are subject to an arbitration clause. 28. Top Glove and Top Care (collectively “the Plaintiffs”) applied for mareva injunctions in the writ action and an Originating Summons. I dismissed the said applications. In my grounds, I held inter alia that the Plaintiffs had not pleaded a proper case of fraud even though they have shown a good, arguable case that there were misrepresentations made to them. I held that the Plaintiffs were precluded from making a claim against the Defendants in view of the numerous disclaimer clauses, the non-reliance clauses and the provision that no representation or warranty is made to them other than what is expressly stated in the SPA. As for the cause of action in conspiracy to defraud, I held that there is no causal link between the alleged conspiracy to defraud and the claim of RM640.47 million. I also held that there was no real risk of dissipation of assets. 29. The Plaintiffs did not appeal against my decision. 18 30. Instead, the Plaintiffs have filed a second application for mareva injunctions and ancillary disclosure orders allegedly based on new evidence which they could not have obtained at the time of the first hearing. Summary Of The Plaintiffs’ Case 31. The Plaintiffs have since the first hearing amended their Statement of Claim to plead fraud against the Defendants. In particular, the Plaintiffs submitted that the following fraudulent and false misrepresentations were made with the knowledge of Low, Wong and another director of Aspion who has been added as Defendant, Kwek ( no mareve injunction is sought against Kwek): i) Out of the RM32.1 million inventory write-off in FY 16, RM24.5 million related primarily from product obsolescence of Aspion’s radiation gloves (or x ray gloves) and a portion was driven by a system error which had mis-recorded a portion of the value of the gloves. The RM32.1 million inventory write-off was thus a non-recurring write-off and should be added back to the PAT for FY 16 to make an 19 adjusted PAT of RM67.8 million. The PAT for FY 16 without the addition of the write-off was only RM31.6 million. ii) That, as at 30.4.2017, RM5.79 million out of RM126.07 million of finished goods and raw gloves (WIP) was more than 12 months old. iii) That, as at 30.9.2017, RM17.75 million out of the RM125.96 million of the total inventory was more than 12 months old. iv) That RM13.8 million worth of inventory had been written off by 11M2017. The RM13.8 million inventory write-off was non-recurring in nature or one –off (and thus was added back to the 11M17 PAT to arrive at the adjusted 11M17 PAT). The 11M17 adjusted PAT was RM52.2 million. 32. Representations were made as to the inventory for FY 14 to FY 17, as to PAT for FY 14 to 2017 and Net Profit Margins for FY 14 to 2017. 33. The Plaintiffs’ case is that all those representations were false and Low and Wong as directors of Aspion knew that they were false. 20 34. The Plaintiffs submitted that there was a scheme by the Defendants to defraud them by inter alia manipulating the financial statements for the years 2014 onwards. The Plaintiffs submitted that the shortfall between the inventory recorded in Aspion’s books and records and those verified as being in existence as at May 2018 amounted to 116 million gloves. This amount of shortfall translates to about 33 40 – footer containers or 13 to 15 badminton courts of missing gloves. The Plaintiffs alleged that Adventa Capital, Wong, Low and Kwek had knowingly placed documents with false information in the Virtual Data Room for potential purchasers, including the Plaintiffs. 35. As a consequence of the fraudulent misrepresentations, the Plaintiffs were led to believe that the figure of RM80.9 million as PAT for FY 18 was achievable when in fact it was not. Based on the Illustrative Path/Profit Bridge and the historical figures, after having adjusted them to take into consideration the misrepresentations, the Plaintiffs say that the average revised profit margin was only 5.8%. By multiplying 5.8% with the forecasted revenue of RM750.8 million for FY 18, the Plaintiffs obtained a revised PAT for FY 18 of 43.5 million. 21 36. Applying the PE multiple formula that the Plaintiffs had used to acquire Aspion, the acquisition price ought to be RM736.2 million (16.93 x RM43.5 million). Therefore the difference between the price the Plaintiffs had paid and the revised price is RM633.4 million and this was the amount of damages sought by the Plaintiffs and the Plaintiffs seek to restrain the Defendants from dealing with their assets up to this sum of RM633.4 million. 37. It should be noted here that for purposes of this application, the Plaintiffs have used a totally different methodology to arrive at its damages from its first application. Notwithstanding that, the final figure of RM633.4 million is very close to the RM640.7 million claimed previously. Summary Of Wong’s Case 38. Wong, the 2nd Defendant, submitted that the Court should not entertain this repeat application for mareva injunctions. He said that the existence of new evidence per se does not warrant the Court entertaining a second application for the same relief. The evidence must be material and he submitted that the additional evidence adduced by 22 the Plaintiffs, mainly consisting of whatsapp messages between Low and/or Wong and/or Kwek and internal documents, was not sufficiently material to pass the threshold test. 39. Wong also emphasised on the basis upon which the parties to the SPA had proceeded and had agreed that apart from the representations and warranties expressly contained in the SPA, no other representations or warranties were given. The Plaintiffs had agreed that they did not rely on any representations other than those given expressly in the SPA and they should be estopped from going back on their agreement. In fact, the Plaintiffs are in breach of the SPA in bringing this action. Wong relied on the doctrine of contractual estoppel and the cases of E A Grimstead & Son Ltd v McGarrigan [1999] EWCA civ 3029 and Peekay Intermark Ltd & Anor v Australia and New Zealand Banking Group Ltd [2006] EWCA civ 386, amongst others. 40. The 2nd Defendant also submitted that when a pre-contractual representation has become a term of the contract, the remedy of the innocent party is to sue for breach of contract so, in the sense that the Plaintiffs are alleging that the financial statements of Aspion are not true or accurate (and there are representations in the SPA as to the truth and accuracy of the financial statement for FY 16 and the management 23 account for 11M17), the Plaintiffs should have sued for breach of contract which they did not. 41. Essentially, the 2nd Defendant submitted that there is no basis for the Court to come to a different decision from that in respect of the first application filed by the Plaintiffs. 42. When queried by the Court as to whether the doctrine of contractual estoppel will still apply in the presence of fraud, the Court was referred to the case of Campbell v Hamill [1925] 4 DLR 958 wherein the court was made aware of the decision in Pearson & Son v Dublin Corp [1907] AC 351 wherein Loreburn LC said “Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them.” 43. In Campbell, the court said this: “In so far as the clause contains an agreement by the defendant to rely on his own judgment and not to rely on any representations that may have been made, it is, in my opinion, no answer to the allegation of fraud, for the fraudulent representations which induced him to sign the contract would 24 operate to induce his agreement to rely on his judgment alone. But in so far as the clause is an admission as to the existence of a certain fact, the existence or non-existence of which is completely within the knowledge of the defendant, I do not see how any fraudulent representation as to the character or qualify of the plaintiffs’ land could operate on the defendant’s mind as an inducing cause of his making the admission. It is admitted that the defendant is an intelligent business man, and it is not disputed that he read over the agreement, including the above clause, before he signed it. That being so, how could any fraudulent representation affect his mind? When he read that part of the clause, he knew of his own knowledge whether the fact there stated was true or not; and knowing the fact, he asserted that no representation had been made. In my opinion, the trial Judge was entitled to take that admission into consideration in determining which of the parties he would believe…” 44. The 2nd Defendant therefore submitted that the Plaintiffs should be held to their admission that other than the express representations in the SPA, no representation or warranty is made to the Plaintiffs. In this case, both parties are dealing with each other on an equal bargaining position and advised by financial and legal experts and the Plaintiffs carried out a due diligence exercise and a stock take before completion. 45. The 2nd Defendant relied on section 19(2) of the Contracts Act 1950 which provided that a party to a contract, whose consent was 25 caused by fraud or misrepresentation may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true. 46. The 2nd Defendant submitted that in this case, since the Plaintiffs had affirmed the SPA, the measure of damages which the Plaintiffs could claim would be based on section 19(2) and the Plaintiffs cannot bring a claim in tort. The 2nd Defendant relied on the 2018 decision of the Delhi High Court in the case of Daiichi Sankyo Company Limited v Malvinder Mohan Singh & Ors [unreported, 31 January 2018] which referred to the 1928 decision of the Bombay High Court in the case of Sorabashah Pestonji & Ors v Secretary of State AIR 1928 Bom 17, the 1932 decision of the Najpur High Court in the case of Premchand v Ram Sahat [2014] EWHC 3103 and the 2017 decision of the Delhi High Court in the case of Gaurav Monga v Permier Inn India Pvt Ltd & Ors [unreported, 6, January 2017]. 47. The 2nd Defendant submitted that there was no evidence adduced which should persuade me to differ from my earlier decision in dismissing the applications for mareva injunctions. 26 Summary Of Case For Adventa Capital And ACPL 48. Adventa Capital and ACPL shall, for convenience, be referred to as “the 3rd Defendant.” 49. The 3rd Defendant submitted that if at all there was any misrepresentation, because the Plaintiffs have affirmed the SPA instead of rescinding it, its measure of damages is as set out in section 19(2) of the Contracts Act 1950 which provides that a party to a contract, whose consent was caused by fraud or misrepresentation, may, if he think fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representation made had been true. The 3rd Defendant submitted that the Plaintiffs were wrong in proceeding on the basis of claiming damages as if the alleged fraudulent misrepresentations had never been made. 50. The reason why the sums of RM32.1 million and RM13.8 million were added back to the PAT FY 16 and PAT FY 17 respectively was to show that the PAT FY 18 of RM80.9 million is achievable. Since the Plaintiff had affirmed the contract, their measure of damages was that of the contractual nature and there are already provisions in the SPA as to 27 what will happen in the event the PAT FY 18 and PAT FY 19 were not achieved. Originally the Plaintiff had wanted the compensation to be the shortfall multiplied by the PE Multiple of 16.93 but after negotiations, the Plaintiffs agreed to be paid just the shortfall, subject to a cap of RM100 million, which cap shall not be applicable in the event of fraud. That should be the recourse of the Plaintiffs, instead of seeking to re-write the purchase price. 51. In any event, the PAT FY 18 of RM80.9 million was not computed based on the net profit margins of the past years and has nothing to do with the PAT for FY 17 either. Despite the alleged fraudulent misrepresentations, the Plaintiffs have not shown how the PAT FY 18 is not achievable using the actual elements which go towards the computation of that figure. There is no basis for the Plaintiffs to claim such an exorbitant amount of damages in the circumstances. 52. The 3rd Defendant submitted that the threshold for a real risk of dissipation is on a balance of probabilities and not a good arguable case. There must be a real connection between the alleged dishonesty and the risk of dissipation. In the present case, the allegations only concern account adjustments; there is no allegation that the Defendants committed breach of trust or misused assets of the company. On the 28 alleged scheme, the 3rd Defendant submitted that Low and Wong never resigned from Aspion. They were removed. Low continues to run a public company Adventa Berhad and Adventa Capital had since put forward a Counterclaim in the Singapore arbitration proceedings for RM650 million for the loss of Finessis, amongst other relief. It has paid over S$ 400,000.00 in deposit to the Singapore International Arbitration Centre. Such conduct is not consonant with a party intending to indulge in wrongfully dissipating assets. There is no scheme. The evidence is that the Plaintiffs approached Adventa Capital in May 2017 before any information had been given and unilaterally quantified the shares to be worth RM1.225 billion. The PE Ratio used then was 14.67. If the Defendants had hatched this plot in 2014 all the time knowing the shares were worth no more than RM600 million, come May 2017, they would have grabbed the offer of RM1.225 billion yet the Plaintiffs are saying that the Defendants suffered the uncertainty of the next few months to get RM1.37 billion. 53. The Defendants are not disputing that the RM32.1 million and RM13.8 million were not there. They had been written off from the accounts so they are not reflected in the accounts. They were written back because the Defendants said it reflected more correctly the financial position of the company. That is a matter of opinion. The 29 Plaintiffs say that RM24.5 million of the RM32.1 million was non-existent goods. The 3rd Defendants say even if the goods were missing the RM24.5 million can be written back. They informed the Plaintiffs that part of the RM13.8 million written off in FY17 was due to missing goods and they should be written back and the Defendants did not say anything to that. 54. Lack of concealment meant that there was no scheme to defraud. The accounts were correct and true. What was alleged to be false was only what was represented to the Plaintiffs. There was no attempt to conceal anything such as an attempt to “cook” the books and records of the company. There was no dissipation of assets in terms of an elaborate scheme of fraud. Nothing had changed to persuade the court to alter its previous decision that there is no real risk of dissipation. 55. The 3rd Defendant submitted that there should be no contention that the Plaintiffs were not allowed to do a proper stock take. They were advised by their due diligence advisors KPMG to do a physical stock take but they did not do so. No inventory audit was carried out even when they raised the issue of inventory in the October meeting, not even when they knew in November 2017 that inventory had been written off on account of missing goods. The Plaintiffs proceeded to execute the 30 SPA in January 2018. They, according to them, did not do a proper stock take even after they signed the SPA notwithstanding they referred to the exercise themselves as the March stock take. Such conduct was consistent with a purchaser buying a company for its strategic value and not for its balance sheet which includes inventory. Summary Of Case Of The 1st Defendant Low 56. The 1st Defendant adopted the submissions of the other Defendants and submitted, based on the case of Perumahan Farlim (Pg) Sdn Bhd & Ors v Cheng Hang Guan & Ors [1989] 3 MLJ 223 that for repeat applications for interlocutory injunctions such as this one is, the applicant must show “altered circumstances.” It is not in dispute that there are no altered circumstances in this case. 57. The 1st Defendant then submitted that even if one were to look at the fresh evidence in the form of the whatsapp messages and the effect of the messages as set out in paragraph 77A of the Amended Statement of Claim, one must start from the basis that the earlier decision of the court is the correct ruling. The Plaintiffs cannot start from scratch. Even if they rely on the whatsapp messages, the earlier ruling on the non-existence of a good arguable case and of no real risk of dissipation must 31 still stand, particularly paragraphs 78 and 79 of my earlier grounds of judgment wherein it was held that the Defendants did not make any representation that the targets are achievable. Findings Of The Court 58. On the threshold issue whether I should even entertain this second application for mareva injunctions on the part of the Plaintiffs, the Plaintiffs submitted that since they have amended the Statement of Claim to plead fraud and they have adduced additional evidence (in the form of internal documents and whatsapp conversations between the directors of Aspion) which was only available after the date of the earlier hearing to show inter alia that the Defendants had known that the misrepresentations made by them were false, they are not barred from filing a second mareva injunction. 59. In Woodhouse v Consignia plc [2002] 2 All ER 737, the Court of Appeal held that “...although the policy that underpins the rule in Henderson v Henderson has relevance as regards successive pre-trial applications for the same relief, it should be applied less strictly than in relation to a final decision of the court, at any rate where the earlier pre-trial application has been dismissed”. 32 60. In Chanel Ltd v FW Woolworth & Co [1981] 1 All ER 745 at 751, the Court of Appeal held “even in interlocutory matters a party cannot fight over again a battle which has already been fought unless there has been significant change of circumstances or the party has become aware of facts which he could not reasonably have known, or found out in time for the first encounter”. 61. Hence in Laemthong International Line Co Ltd v Artis and others [2004] 2 All ER (Comm) 797 at 804 Colman J held that there is no bar to an applicant filing for a second application for an interlocutory injunction so long as the judge is satisfied at the threshold level that there are new evidence or other matters which had not been before the court on the first application and which were substantially material to the exercise of the court’s discretion in favour of the claimant. 62. The position is similar in Australia. In Wentworth v Wenworth (unreported), the learned judge held that a second application can be heard provided that there must be material change in circumstances or the discovery of further evidence which could not reasonably have been put before the Court at the previous hearing. The learned judge applied 33 the decision of Brimaud v Honeysett Instant Print Pty Ltd 217 ALR 44 at 46, 57. 63. I am satisfied that the Plaintiffs have met the threshold requirements for them to make a second mareva injunction based on the new evidence which they only discovered after the decision on the earlier application. The Plaintiffs submitted that they only discovered the whatsapp messages and the internal documents in August 2018 which was after I had delivered my decision in the first application. And it is submitted that the new additional would be material as they show that the Defendants were aware that the representations made were false. 64. On the doctrine of contractual estoppel, the submission of the Defendants is that the parties have contracted on the basis that the only warranties and representations made are those set out expressly in the SPA and it would be a breach of contract on the part of the Plaintiffs to allege that there are other representations made to them. In other words, the Plaintiffs are estopped by the doctrine of contractual estoppel from saying that there are other representations made to them which are not in the SPA. 34 65. I am in agreement with the submission of the Plaintiffs that fraud will arguably unravel everything including the doctrine of contractual estoppel. In other words, contractual estoppel will not work where the allegation is of fraudulent misrepresentation or deliberate concealment (see Raiffeseisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm) [2011]; 1 Lloyd’s Rep 123 at [325].) 66. The Defendants relied on the case of Aquila WSA Aviation Opportunities II Ltd v Onur Air Tasimacilik AS [2018] EWHC 519 (Comm) where the was a review of the effects of contractual estoppel on the actionability of mis-statements with the net result that the element of inducement is held to be negated (consequently precluding actionable misrepresentation) even it was a case of fraudulent misrepresentation. This is what the court there said: “However, I do not see how this affects the position on inducement. Even if one ignores the portion of clause 5 which records the parties’ agreement that there are no representations made, that does not delete the remainder of the parties’ contractual bargain. What this means is that the effect of the remainder of clause 5 and the Acceptance Certificate on any such representations is to prevent Onur saying that they were induced by any such misrepresentations. 35 And again Onur’s problems on inducement based on their own evidence are unaffected. I would therefore if necessary find that the misrepresentation case, even to the extent that it is a proper fraud case, would fail on this head.” 67. It could well be that at the trial the Plaintiffs would fail in their claim based on contractual estoppel. However, for purposes of this application, I do not think it is appropriate for me to exclude the Plaintiffs’ claim on this basis. They only have to satisfy me that they have a good arguable case. 68. All the parties are agreed that in order to obtain a mareva injunction against a defendant, the Plaintiffs are required to establish that: (i) They have a good arguable case against the defendant; (ii) The defendant has assets within the jurisdiction; and (iii) There is a real risk of the defendant removing his assets from the jurisdiction before the judgment is satisfied. 36 69. A good arguable case is one which is more than barely capable of serious argument but not necessarily one which the judge considers would have a better than 50% chance of success. (see Ninemia Maritime Corporation v Trave Schiffahrtgesellschaft mbH and Co KG ( The Niedersachsen) [1984] 1 ALL E R 398.) 70. In this case, the Plaintiffs submitted that their claims are for fraudulent misrepresentation and conspiracy to defraud. 71. It is not in dispute that the necessary elements of an action in deceit which is the same as the tort of fraudulent misrepresentation, the following facts must be pleaded and proved, namely: (i) There must be a representation of fact made by words or by conduct and mere silence is not enough; (ii) The representation must be made with knowledge that it is false i.e. it must be willfully false or at least made in the absence of any genuine belief that it is true or recklessly i.e. without caring whether his representation is true or false (Derry v Peek [1889] 14 App Cas 337); 37 (iii) The representation must be made with the intention that it should be acted upon by the claimant, or by a class of persons which will include the claimant, in the manner which resulted in damage to him; (iv) It must be proved that the claimant acted upon the false statements; and (v) It must be proved that the claimant has sustained damage by so doing (see Bradford Third Equitable Benefit Building Society v Borders [1941] 2 ALL E R 205 at 211, per Viscount Maugham) 72. I have previously set out the alleged false representations made by the Defendants Low and Wong and Adventa Capital. 73. As regards the 1st alleged misrepresentation, the Plaintiffs adduced evidence to show that the x-ray gloves in question were not obsolete as they were still being purchased after FY 16 and one of the purchasers is a subsidiary of Advanta Berhad of which Low is a director and shareholder, and that Low was still purchasing the main ingredient 38 in manufacturing the x ray gloves after FY 16. The Plaintiffs also adduced evidence to show that there was no system error and that RM24.5 million worth of gloves actually did not exist. It appears that Aspion’s financial statements have been manipulated (profits and inventory artificially inflated) by recognising fictitious inventory since FY 16. Accordingly, the Plaintiffs submitted that the PAT for FY 16 ought not to have been adjusted by adding back the write-off of RM32.1 million. The Defendants do not seem to have put up a strong case to dispute that the x-ray gloves are still being sold after FY 16. I am therefore satisfied that the Plaintiffs have 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. 74. As regards the 2nd alleged misrepresentation, the Plaintiffs had uncovered a spreadsheet from Kwek’s laptop which showed Aspion’s inventory aging as at 30.4.3017 and which showed 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. 75. The Defendants’ explanation was that the amount of raw gloves more than 12 months discovered from the spreadsheet was 39 “suspiciously high” and Kwek, having been informed of a possible issue with the Kluang site accountant’s methodology and accounting practice, was “of the view that the figure of RM33.79 million had to be adjusted to reflect a more accurate depiction of Aspion’s inventory position.” 76. The Plaintiffs’ reply is that Kwek did not explain why she and Ley, another officer, thought that the real amount of raw gloves aged more than 12 months ought to be RM5.79 million instead of RM33.69 million. Why not RM3 million or RM6 million? The Plaintiffs submitted that their (Kwek and Ley’s) 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, that Aspion had more current inventory than it actually had. 77. I am of the view that there is some basis to the Plaintiffs’ contentions. 78. As regards the 3rd alleged misrepresentation, the Plaintiffs submitted that according to internal spreadsheets which they discovered after the first hearing of the 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 40 million to RM52.02 million. The Plaintiffs submitted that evidence obtained from internal management documents are cogent for the very reason that they are internal document so must show the true position. I am of the view that there is some basis to this contention of the Plaintiffs. 79. As regards the 4th alleged misrepresentation, the Plaintiffs submitted that they had earlier shown that, 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 Defendants had never really responded credibly to this allegation. Now the Plaintiffs have discovered whatsapp conversations between Low and Kwek and Wong and Kwek which seem to show that the reason for adding back the write-off of RM13.8 million was false. 80. It was discovered that after the 2nd Kulim meeting on 28.10.2017 when the Plaintiffs enquired as to the reason for the write off of RM13.8 million in 11M 2017, Wong communicated with Kwek and Kwek communicated with Low. 81. In the 28.10.2017 whatsapp conversations: 41 a) At 6.47 p.m., Wong asked Kwek: “Ms Kwek. Can u message me a few bullet points to explain 2017 inventory write off. Must be non recurring in nature. 2016 is x-ray glove. 2017 has to be different explanation. And best it if is the real story lah”. “Kluang errors, Kulim ramp up etc” b) At 6.55 p.m., Kwek forwarded Wong’s earlier message to Low: “Ms Kwek. Can u message me a few bullet points to explain 2017 inventory write off. Must be non recurring in nature. 2016 is x-ray glove. 2017 has to be different explanation. And best it if is the real story lah”. From Chin Toh” c) At 7.09 p.m., Kwek proposed to Low the following answers: “The write off is due to gloves already sold but not scan out from system. It’s the exercise to tally the system with actual physical inventory after stock check”. 42 And some aged gloves devalue to net realizable value. “Can I answer this way?” d) At 11.05 p.m., Low replied Kwek: “No say that the inventory was inaccurate due to the old practice of booking and classifications. We downgraded glove that are of higher defectives ... etc. Don’t say phantom stocks again after X-ray”. e) At 11.12 p.m., Kwek messaged Wong: “Chin Toh, sorry I think we cannot say the inventory inaccuracy in system”. “Should be downgraded gloves”. f) At 11.54 p.m., Wong replied Kwek: “LCG needs our advice. From a CFO perspective, what are acceptable non recurring reasons?” g) At 11.58 p.m., Kwek replied Wong: 43 “Chin Toh, whatever we say will present to outsider that it’s inefficiency in some where either it’s operational system. We can put the blame to accounting error, wrong valuation but again this would put question mark on the integrity of our accounting ability and accuracy of our accounts”. h) On 29.10.2017, at 12.04 a.m., Wong replied Kwek: “I agree. But saying nothing is not an option unfortunately. So we have to choose which excuse to use... And we should choose the one which is most defensible as on recurring / one off. As long as they accept it’s non recurring, the damage is minimized”. i) On 29.10.2017, at 10.45 a.m., Kwek sent Wong a spreadsheet to show the performance of Aspion at each plant after the RM13.8 million inventory write-off which Low had approved. j) On 29.10.2017, at 10.57 a.m., i) Wong asked Kwek – “What about write off by plant so we can reconcile from 38 PAT to 51?” 44 ii) To which Kwek replied “Want to add back?” iii) And Wong said “Add back in a separate line so we can show both 38 and 51 and where the write offs come from” iv) Kwek then sent Wong another spreadsheet. 82. The Plaintiffs stated that the above conversations between Kwek and Low as well as Kwek and Wong confirm the following: a) the reasons given by Wong and Low for the inventory write-off in FY2017 were false in that the real reason for the write-off in FY2017 was not “non-recurring or one-off”; b) Wong and Low had sold the story to the Plaintiffs that the write-offs were “non-recurring or one-off” so that they had a reason to adjust the PAT by adding back the write-offs to the Pat so as to show the true performance of the Aspion Group; and 45 c) the reasons given by Wong and Low for the inventory write-off in FY2017 were false and made recklessly without caring whether the reasons were true or not. They were fraudulent misrepresentations. 83. I am of the view that there is some basis to this allegation of the Plaintiffs, although the evidence here is a bit confused because on the one hand, the Plaintiffs are saying that RM7.89 million had not in fact been written off and on the other hand saying that the write-off of RM13.8 million was not due to a non-recurring reason. However, the Plaintiff only has to show a good arguable case. The Defendants’ case, that they wanted to give a reason for the write-off that will be acceptable to the Plaintiffs who had to give an explanation to their shareholders, gives rise to the inference that the Defendants are not really concerned with the real reason for the write-off; rather they wanted, at all events, to show a write-off that was non-recurring and the real reason was not of importance. There is therefore an arguable case that the reason given was not the correct reason and the Defendants were reckless as to its veracity. 46 84. As regards the 5th alleged misrepresentation, the Plaintiffs submitted that the shortfall between the inventory recorded in Aspion’s books and records and those verified as being in existence as at May 2018 amounted to approximately 116 million gloves which translates into around 33 40-footer containers or about 13 to 15 badminton courts of non-existent gloves. This is a fact known only to the Plaintiffs who are in control of Aspion. The Defendants really can put up very little resistance to it because they are not in control of the company. 85. Further, In a 7.4.2018 whatsapp conversation between Kwek and Low, it appears that Kwek and Low discussed whether further inventory write-offs in Aspion should be captured in Aspion’s books before completion (as opposed to after completion). In the course of this conversation: a) Kwek said to Low: “You call CG (from the Plaintiff) today about inventory to WO. Hit the book of March is better if I were him. As its Pre-completion but this will also impact our ‘honesty’.” 47 b) Low replied: “OK.” c) Kwek then said to Low: “Not sure if Tan Sri (from the Plaintiff) saw it how he feel.” “Right after acquisition this result.” “FY17 already wo RM 17.8.” “We told the less because don’t want to scare them away at that time.” d) To which Low replied to Kwek: “We will manage that. Its reducing values rather than write off. We put lower values into old stocks.” “We can put up a full case.” e) Amongst others, Kwek later said to Low the following: “Inventory to be WO numbers total RM27m.” “KB accumulates WIP stock in system, physical is not there.” 48 … My suggestion is may be RM 24m for WO, do not take into acc the FG portion. Considering there might be some value for the FG and at EBeam there not yet taken into acc.” 86. This suggests that the Defendants knew that Aspion had non-existent inventory. The Defendants’ explanation is that when they refer to stocks not being physically there, they meant inventory which is not recorded in the books of the company but still lying somewhere in the factory. They are not really missing goods. 87. I am of the view that there is a good arguable case to support the Plaintiffs’ contention that the Defendants knew there were missing inventory, or rather that inventory recorded in the books are not physically there. 88. The words “We told them less because don’t want to scare them away at that time” also suggest that the Defendants had knowingly given lower figures for the inventory aged more than 12 months to the Plaintiffs. 49 89. Insofar as the financial statements up until FY 16 had already been audited by Ernst & Young, the auditors of Aspion, it is difficult to believe the Plaintiff’s story that there was a scheme by the Defendants to manipulate their financial statements from FY 14 onwards in order to deceive the Plaintiff as a potential purchaser. At that time, Adventa Capital had no intention of selling Aspion and it should be remembered that it was the Plaintiffs who approached Adventa Capital again and again to purchase Aspion and it was not Adventa Capital who wanted to sell Aspion to the Plaintiff or anyone else. 90. However, in summary, I am of the view that the Plaintiff has shown a good arguable case that the amount of aged raw gloves more than 12 months old had been understated in the inventory aging lists as at 30.4.2017 and 30.9.2017 given to the Plaintiff and that there were questions regarding the propriety of writing back the RM32.1 million (or at least RM24.5 million because the Plaintiffs’ allegation is that RM24.5 million of x ray gloves were non-existent) and the RM13.8 million in the FY 16 and FY 17 respectively. 91. As to whether Low and Wong had known of the falsity of the representations, the additional documents and whatsapp conversations 50 suggested that, as regards the write-off of RM13.8 million in FY 17, they were reckless as to the truth of the reason for the write-off. What they wanted was a reason for the write-off that will show it as non-recurring and they were not interested in the real reason why the inventory had to be written off. Then as regards the level of the inventory as at 30.4.2017 and 30.9.2017, the internal documents were probably within the knowledge of Low and Wong as directors of Aspion and/or Adventa Capital so it could probably be inferred that Low and Wong knew or ought to have known that at least some of the representations made to the Plaintiffs were false or untrue. This is also supported by the contents of the whatsapp messages referred to above. For instance, the reference to the x-ray gloves being phantom stocks in the whatsapp message conversation also suggested that Low and Wong probably knew that the gloves were non-existent. 92. Now we come to the damages part of the Plaintiffs’ claim. Essentially, the Plaintiffs proceeded on the basis that it is the norm in glove companies such as Aspion to write off inventory aged more than 12 months so the Plaintiffs’ expert BDO wrote off all inventory aged more than 12 months, deducted the RM32.1 million from the adjusted PAT for FY 16 and deducted the sum of RM13.8 million from the 51 adjusted PAT for FY17 and recalculated the PATs and profit margins of Aspion for the years from FY 14 to FY 17. 93. As earlier stated, the average revised profit margin (which was the average of the net profit margins of FY 14 o FY 17) was 5.8%. The revised NPAT for FY 18 based on the revised average net profit margin was arrived at by multiplying 5.8% with the forecasted revenue of RM750.8 million for FY 18 which amounted to RM43.5 million. 94. Applying the PE Multiple formula that the Plaintiffs had used to acquire Aspion, the acquisition price ought to be RM736.2 million (16.93 x RM43.5 million). Therefore, the difference between the price the Plaintiffs had paid and the revised price was RM633.4 million and this is the amount of damages the Plaintiffs are seeking. 95. This is where, in my view, the Plaintiffs’ case falls. The Plaintiffs had assumed that it is the industry norm and therefore it should be the case for Aspion that all inventories over 12 months must be written off but that is not the practice of Aspion. The Defendants have contended and this was not rebutted by the Plaintiffs that Aspion’s gloves have a shelf life of 5 years and it is not the policy of Aspion to write off gloves 52 more than 12 months. Accordingly, this assumption that all inventory more than 12 months must be written off is without substantial basis. 96. Secondly, the Plaintiffs have only shown that RM24.5 million of the inventories of RM32.1 million written off were non-existent. Even if inventories being non-existent is not a reason for saying that it is non-recurring which the Plaintiffs have not proved (and it must be noted that in respect of the RM 13.8 million write-off in FY 17, part of the write-off was said to be due to missing goods and the Plaintiffs did not object to the Defendants writing back the write-off into the adjusted PAT FY 17) there is no basis to reduce the PAT FY 16 by the whole of the RM32.1 million instead of just RM24.5 million. 97. Thirdly, the assumption shown in the Illustrative Path/Profit Bridge relied on by the Plaintiffs themselves show that there should be a 1% increase in the profit margin between FY 17 and FY 18 so, on the Plaintiffs’ own computation, the revenue for FY 18 should have been multiplied by 6.8% instead of 5.8% to get the adjusted PAT FY 18. 98. Most importantly, however, the projected PAT FY 18 was not actually computed on the basis used by the Plaintiffs. 53 99. Adventa Capital’s computation can be found at slide 7 of the Commentary on Historical and Forecast Financials, which was uploaded onto the VDR on 28.7.2017. 100. This shows that the forecast FY2018 PAT of RM80.9 million was derived by Adventa Capital using the following formula: A-(B+C+D+E+F+G) Where, A – represents the projected revenue for 2018 of RM750.3 million This figure was arrived at by multiplying the projected total volume of sales of surgical gloves and examination gloves with their respective projected average selling prices (“ASP”) as follows: Surgical Gloves Examination Gloves Projected volume sold 511.58 million pairs 3,878.45 million pieces Projected ASP RM0.81968 per pair RM0.08534 per piece Total RM419,335,929 RM330,987,824 Grand Total RM750,323,753 54 B – represents the estimated FY2018 cost of sales of RM575.4 million This figure is made up of the following estimated costs: Chemicals & Latex RM296.3 million Packaging RM63.6 million Direct Labours RM64.1 million Utilities Electricity, Water & Energy RM96.8 million Factory Overheads RM54.7 million C – represents the estimated FY2018 administrative expenses of RM18.2 million (comprising of general expenses of RM2.1 million and remuneration expenses of RM16.1 million) D – represents the estimated FY2018 selling and marketing expenses of RM17.6 million (comprising sales & distribution expenses of RM16.0 million motor vehicle expenses of RM1.6 million). 55 E – represents the estimated FY2018 other operating expenses of RM22.4 million (comprising research & development expenses of RM18.6 million and other expenses and depreciation (indirect) of RM3.8 million. F – represents the estimated FY2018 financing costs of RM10.3 million G – represents the estimated FY2018 income tax expense of RM25.5 million calculated on the basis of an effective tax rate of 24.0%. 101. From the summary above, it is apparent that the computation of the FY2018 PAT has nothing to do with any FY 2017 figures nor for that matter, Aspion’s inventory figures. 102. BDO’s assumption that the forecast FY2018 PAT of RM80.9 million was computed from assumptions and projections to the FY2017 PAT is therefore clearly without any basis. 56 103. There is also no evidence to support BDO’s assumption that the 80.9 million projections for FY2018 PAT were based on a calculation involving the Net Profit (“NP”) Margin. a) at page 2 of the 3rd BDO Report, BDO claims that as regards Adventa Capital’s Profit Margin Calculations, the FY2018 NP Margin is based on the average Historical Margin + 1% projected increase in profitability. They say this resulted in Adventa Capital applying a NP Margin of 10.8% to its projected revenue of RM750.8 million in arriving at its projected PAT for FY2018 of RM80.9 million. b) at page 6 of the 3rd BDO Report, BDO states in its own computation methodology that the FY2018 PAT was recomputed based on the average NP Margin (i.e BDO” revised average NP Margin of FY2014 to FY2017). 104. However, as can be seen from Advental Capital’s calculation of the forecast FY2018 PAT above, the concept of NP Margin was never used in Adventa Capital’s calculation of the FY2018 Pat. BDO’s claims as to what Adventa Capital purportedly did are entirely without any basis. 57 105. Accordingly, it is clear that the alleged fraudulent misrepresentations would not have affected the computation of FY 2018 or the purchase price. There is no causal link between the fraudulent misrepresentations and the alleged damages suffered by the Plaintiffs. 106. In Columbia Asia Healthcare Sdn Bhd v Hong Hin Kit and another and another appeal [2015] 2 SLR 395, the Court of Appeal in Singapore upheld the decision of the High Court (Columbia Asia Healthcare Sdn Bhd v Hong Hin Kit Edward and another and another appeal [2015] 2 SLR 395. The Court of Appeal held that: i) if the sale and purchase agreement does not provide the contractual machinery as to how the parties valued the shares, then the court will have to determine the appropriate way to value the shares. ii) the valuation exercise is fact-centric. The evidential starting point is how the actual purchaser had actually valued the shares. 58 iii) the expert evidence on the appropriate valuation method must be consistent with how the purchaser actually valued the shares. 107. The Court of Appeal concurred with the High Court’s findings that PTNM’s 2007 EBITDA with the appropriate multiplier was not Columbia’s sole basis for deriving the purchase price. Hence, Columbia had not discharged its burden of proving that the loss it suffered was the inflation of the EBITDA multiplied by an appropriate multiplier. 108. In the course of the judgment, the Singapore Court of Appeal referred to the English Court of Appeal decision of Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd [1999] 2 Lloyd’s Rep 423. It is pertinent to highlight that the English Court of Appeal held that if the original price was calculated solely by way of one methodology, then the same methodology (e.g. PAT x P/E Multiplier) would be used. If there were many factors which affected the purchase price, then the method of calculation of damages may be rejected. 109. In the present case, although there is nothing to show that Adventa Capital agreed with the manner in which the Plaintiffs had arrived at the 59 purchase price (the purchase price in the SPA is stated to be a fixed sum of RM1.37 billion and certain payments based on the Finessis product which are computed based on a formula), there is evidence that the Plaintiffs arrived at the purchase price by multiplying the PAT FY18 of RM80.9 million with the PE Multiple of 16.93. Therefore, the Plaintiffs must use the same formula for computing its damages. The Plaintiffs must accept the way in which PAT FY 18 was actually computed and not use another methodology which has nothing to do with how PAT FY 18 was in fact arrived at. The Plaintiffs have to show how the fraudulent misrepresentations would have impacted on the PAT FY 18 using the factors which were actually used to compute PAT FY 18. The Plaintiffs were unable to do so. 110. As such, I find that the Plaintiffs have not shown a good arguable cause to warrant the court to grant them the relief sought, ie mareva injunctions for the sum of RM633.4 million. At this juncture, I must say that in their reply submission, the Plaintiffs have put forward further computations of their claim for damages and this includes the worst case for the Plaintiffs, as they say, In this computation , which has arrived at a claim of RM219.7 million, the Plaintiffs have not written off all inventory aged more than 12 months, only added back the sum of RM24.5 million (and not RM32.1 million) to PAT FY 16 and added 1% profit margin to 60 that of the adjusted PATFY17 to arrive at the PATFY 18. This effectively dealt with the all the concerns I had regarding the damages claim except for the final and most important one, that the PAT for FY18 was not in fact computed based on the previous years’ PAT but on the formula set out in paragraph 100 above. After all, the Plaintiffs have still not satisfied me that their claim for damages had been proved, even on a good arguable case. The Plaintiffs might have suffered some loss as a result of the fraudulent misrepresentations but the loss is not the sum of RM633.4 million or RM219.7 million. If the Plaintiffs are saying that it means that the target of PAT FY 18 of RM80.9 million is not achievable, the remedy lies in the profit guarantee given by Adventa Capital which will be the shortfall in the PAT. The case essentially comes down to the achievability of the PAT FY 18. Previously, the Plaintiffs, when negotiating with Adventa Capital on the profit guarantee, wanted the damages payable to be the shortfall in profit multiplied by the PE Multiple of 16.93 but what was agreed eventually was that the Plaintiffs will just be paid the shortfall without taking into consideration the multiplier. Now in a case where the Plaintiffs are essentially saying that the realistic PAT for FY18 is lower than RM80.9 million, the Plaintiffs are asking for damages based on the shortfall multiplied by 16.93. I do not think the Plaintiffs are entitled to have that, just because they have framed their case in fraudulent misrepresentation instead of for a 61 shortfall in the guaranteed profit. What the parties have agreed is that where there is fraud, the cap imposed on the quantum of damages recoverable will not apply. The Plaintiffs can still seek for the profit shortfall, just not a reduction of the purchase price. 111. In view of my findings on the issue of damages, there is no necessity for me to decide on the correct measure of damages (i.e whether the Plaintiffs can only claim for damages on the basis that the representations made were true or and whether the Plaintiffs can claim damages on the basis of a tortious claim). Although the Defendants’ submission that the Plaintiffs are only entitled to claim such damages as they would have obtained if the representations made were true (which will be that the PAT for FY 2018 of RM 80.9 million is achievable) seem persuasive, I must not forget that the Plaintiffs have also framed a cause of action in the tort of conspiracy to defraud and the issue is whether they are entitled to maintain that cause of action in the face of Section 19(2) of the Contracts Act 1950. Those are all issues for trial and I do not have to decide them in this application. 112. Also, in view of my findings on the issue of damages, there is no need for me to deal with the Plaintiffs’ other cause of action in conspiracy to defraud as there will similarly be a lack of a causal link 62 between the fraud and the amount of damages that the Plaintiffs are claiming. 113. In the event I am wrong in finding that the Plaintiffs have not shown a good arguable case for the relief that they are claiming, I shall deal with the likelihood of risk of dissipation of assets. As was the case in the previous application, it does not seem to be disputed that the Defendants have assets within the jurisdiction. 114. In the previous application, I relied on the Singapore Court of Appeal case of Bouvier and another v Accent Delight International and another ; and another appeal [2016] 1 LRC 60. That case is still relevant for the purpose of these applications. In Bouvier the Singapore Court of Appeal said this: “[93] It is time to round off this extended review of the authorities with some observations, and we begin with the last of the cases we have reviewed, namely, Media World. In our judgment, if there is a unifying principle that can adequately rationalize and explain the circumstances in which a court may legitimately infer a real risk of dissipation from nothing more than a good arguable case of dishonesty, it is this - the alleged dishonesty must be of such a nature that it has a real and material bearing on the risk of dissipation. It will be evident from our analysis of the cases that it is in such circumstances that 63 the courts have been willing to draw the necessary inference. This is sensible because whether or not such an inference may be drawn is ultimately a question of fact. In assessing whether the inference is warranted as a matter of fact, it is appropriate, in our judgment, for the court to segregate the two questions (ie, whether there is a good arguable case on the merits of the plaintiff's claim and whether it has been shown that there is a real risk of dissipation) and answer them separately. We accept that the evidence relied on to answer the first question may be the same as that relied on to answer the second. But, once the inquiries are segregated, it will be clear that whether the evidence pertinent to the first stage of the inquiry is sufficient also for the purposes of the second stage is an assessment that cannot - and emphatically must not - be made mechanistically; and in that context, if an allegation of dishonesty is all that is relied on, that allegation must be such as to say enough about a real risk of dissipation in the circumstances. [94] In our judgment, a well-substantiated allegation that a defendant has acted dishonestly can and often will, as we have said, be relevant to whether there is a real risk that the defendant may dissipate his assets. But, we reiterate that in each case, it is incumbent on the court to examine the precise nature of the dishonesty that is alleged and the strength of the evidence relied on in support of the allegation, keeping fully in mind that the proceedings are only at an interlocutory stage and assessing, in that light, whether there is sufficient basis to find a real risk of dissipation. That alone is the justification which lies at the heart of the court's jurisdiction to grant Mareva injunctions. An allegation of dishonesty does not in itself form a substitute for an 64 examination of the degree of risk of dissipation unless, as we have said, that allegation is of a nature or characteristic that sufficiently bears upon the risk of dissipation. In this regard, we endorse the views of Choo Han Teck J in PT Sariwiguna Binasentosa v Sindo Damai Shipping Ltd and others [2015] SGHC 195 where he made observations to a similar effect at [10]-[14]. That judgment was handed down shortly after we heard the oral arguments in these appeals. [95] On the facts before us, we do not consider that the allegations of dishonesty levelled at Mr Bouvier have a real and material bearing upon the risk of dissipation. This is not a case where Mr Bouvier misappropriated the respondents' assets through a series of fictitious or illusory transactions. Nor is this case akin to Patterson v BTR Engineering, where a former senior employee of the plaintiff company exploited his position to procure the plaintiff to purchase equipment from him at a mark-up by interposing an entity that he was thought to indirectly control, thus enabling him to make a secret profit by the "diversion of money from its proper channels". In the present case, the respondents, which are controlled by Mr Rybolovlev, are independent entities that received what they bargained for and at the price they were willing to pay. They knew that they were dealing with Mr Bouvier, and that he was sourcing the artworks concerned from others. The real issue is as to the legal nature of the respondents' relationship with Mr Bouvier. [96] The fraud or dishonesty that is alleged in this case is not in the nature of a complex machination or an elaborate scheme. The ploy in this case, if 65 proved, was deceptively simple: Mr Bouvier exploited the asymmetries of information inherent in an opaque market to turn a profit. As we have already observed, the ultimate outcome in this case turns on the true characterization of the relationship between Mr Bouvier and the respondents. On one view, there will be no fraud at all: Mr Bouvier can be seen as a wily businessman who employed a questionable (and perhaps barely legal), although ultimately profitable, approach to business. On another, Mr Bouvier can be seen as an errant agent who is liable to the respondents for fraudulent misrepresentation or breach of fiduciary duties. [97] We also consider it significant that there was, in this case, no use of a complex web of companies to conceal the dealings in question. Mr Bouvier made no attempt to conceal his identity or mask his connection with the transactions through which the 38 artworks were acquired by the respondents. He always dealt in person, acting through MEI Invest. The payments from the respondents were made over the course of a decade or so into the same bank accounts held by MEI Invest at the Geneva branches of Banque SCS Alliance and Compagnie Bancaire Helvétique. Mr Bouvier may be wealthy, well-advised and sophisticated; he may also be experienced in international financial transactions and corporate structures. But, to infer a real risk of dissipation from these factors alone would be to penalize him for what some may say are no more than the ordinary concomitants of his good fortune or his success in plying his craft. In Art Trend Ltd v Blue Dolphin (Pte) Ltd and others [1981-1982] SLR® 633 ("Art Trend"), Lai Kew Chai J frowned on a similar argument, stating at [37] that experience or "knowledge of the 66 practice of international finance and transfers of funds is not evidence of a predisposition to remove assets to frustrate any judgment". His decision was upheld on appeal: Art Trend Ltd v Blue Dolphin (Pte) Ltd and others [1983- 1984] SLR(R) 105. In our view, Mr Bouvier has not misused his international financial expertise in the commission or furtherance of the allegedly deceitful behavior, nor is there any solid evidence which suggests a real risk of dissipation on his part.” 115. In the previous applications I was of the view that the nature of the claims against the Defendants did not show that there was a real risk of dissipation of assets on their part. Like in the Bouvier case, the fraud or dishonesty that was alleged was not in the nature of a complex machination or an elaborate scheme. There was no use of a complex web of companies to conceal the dealings in question. 116. The court in Bouvier held that at most, Mr Bouvier can be seen as an errant agent who is liable to the respondents for fraudulent misrepresentation or breach of fiduciary duties and the court in that case did not find there to be a real risk of dissipation of assets. 117. In the previous applications, I had held that the case before me was somewhat similar to the case of Media World Communications Ltd (Administrator Appointed) v Clark [2004] FCA 1609. The plaintiffs 67 in that case had, in a series of transactions, purchased what was referred to as “the AP Technology” from the first defendant Adam Clark, and his associated companies, which were the corporate defendants. The plaintiffs’ suspicions were subsequently aroused and confirmed when they discovered that the AP Technology was sub-optimal and did not perform as represented. The plaintiffs argued that there was a strong case of serious dishonesty and fraud against Mr Clark and the corporate defendants. Mr Clark had made representations to the plaintiffs about the performance of the AP Technology knowing that those representations were false. The plaintiffs argued that the court could infer a risk of dissipation from the nature of the cause of action raised against the defendants. 118. What we have here is a case where the Defendants have arguably knowingly made false representations to the Plaintiffs concerning the profitability of Aspion and the inventory level to induce the Plaintiffs into thinking that the PAT for FY 18 of RM80.9 million is achievable when the true facts will probably show that the PAT FY 18 of RM80.9 million was exaggerated and probably not achievable. There is a good arguable case that the false representations were made knowingly. 68 119. This can also be seen in Wong’s whatsapp conversation with Kwek on 5.3.2018. a) Kwek to Wong: “Chin Toh, Will TF (from the Plaintiff) cancel the deal?” b) Wong’s reply to Kwek: “Very unlikely. But we must keep them comfortable. So far we come across very evasive and secretive because we are not answering questions and providing info. We did that for as long as we can. But now they are getting very uncomfortable.” “Our performance is not on track for RM 80 m. That’s another major issue.” 120. Is it sufficient to show a real risk of dissipation on a balance of probabilities that the Defendants made false representations knowing that they were false? Based on the case of Bouvier and Media World it is probably not sufficient. There is no concealment in the sense that the Defendants did not “cook” the books and records of the company and 69 there is no sophisticated, ingenious or intricate scheme to defraud the Plaintiffs. 121. However, the Plaintiffs also relied on the fact that the Defendants had told lies in their Affidavits and, in relation to the March stock take, the court had been induced by what the Defendants said in discharging or setting aside the ex parte mareva injunctions. 122. The Plaintiffs alleged that the Defendants had lied in 4 instances. The first instance is when the Defendants exhibited invoices showing the sale of allegedly 2nd grade gloves with the product type SLPE which the Plaintiffs say are really 1st grade gloves. In short, the Defendants are supposed to have represented 1st grade gloves as 2nd grade gloves in order to mislead the Court. The Defendants’ response is that the product type SLPE encompasses 1st grade, 2nd grade and 3rd grade gloves and it is not true to say that all SLPE gloves are 1st grade gloves. There was an allegation that Low had induced an employee Suhaila to change the product code from “SLPE” to “SE_SLPE” by giving her a sum of RM30,000.00. I am of the view that the Plaintiffs have not made good this allegation against the Defendants. It could be the case that the product code SLPE encompasses 1st grade as well as 2nd grade goods and the subsequent change of the product code by Suhaila has 70 nothing to do with this issue. There is also nothing sinister in the payment by Low to Suhaila as he has paid more than 300 employees of Aspion various sums of money out of a dividend he received, in appreciation of their services to Aspion. 123. Another purported lie that the Plaintiffs alleged the Defendants made in their Affidavits is when the Defendants affirmed that despite the KPMG Issues raised on or about 22/8/2017, the Plaintiffs did not raise any further queries or initiate discussions on inventories at that time. It was only on or around 25.10.2017 that CG Lim emailed Wong extracts of KPMG’s Final DDR on the inventory aging list as at 30.4.2017. The Plaintiffs said this averment was false because the Plaintiffs had, on 16.8.2017, asked Adventa Capital about Aspion’s inventories after having sighted the inventory aging list as at 30.4.2017. The Plaintiff asked about inventory on 16.8.2017. What the Defendants affirmed was that after the KPMG issues raised on or about 22.8.2017, the Plaintiffs did not ask further about inventory. That statement by the Defendants is not an incorrect statement. 124. The Plaintiff further complained that the Defendants had misled the Court by giving the impression that the Plaintiffs had conducted a “comprehensive” stock take in March 2018 when it was not a proper 71 stock take that the Plaintiffs could conduct. The Plaintiffs averred that the March stock take was only undertaken to understand Aspion’s inventory system and process. The Plaintiffs also alleged that the statement by the Defendants that the Plaintiffs were given access to Aspion’s inventory e system was a lie because the inventory e system was only given on 16.4.2018 after completion of the SPA on 4.4.2018. The stock lists were only given on 3.4.2018 and latest evidence by Kwek confirmed that no Work In Progress (“WIP”) and/or Finished Goods (“FG”) lists were given during the March stock take. 125. Wong, Low, Kwek, and the officers Kent Dee and Ley had taken steps to hamper the Plaintiffs’ March stock take so that the Plaintiffs would not find out the truth about Aspion’s inventory before the completion of the SPA on 4.4.2018. This was allegedly done to conceal material information from the Plaintiffs during the March stock take. This appeared to be confirmed by the whatsapp conversation between Kwek and Low and the Consul Account Group Chat. Of note are the following: a) Kwek: “What you said is right. Their stock take is not 100% how to base on 29th for closing when there are still movements.” 72 “If we give list they will ask why on 29th cannot give the list.” Ley: “Current FG listing in intranet ald hv SCR” “Our closing stock report also hv the SCR no” Kent Dee: “Ha. Our report to tg filter that off d. Hence Jeremy on hand listing can’t see.” 126. I am of the view that the Defendants had made attempts to hamper the March stock take conducted by the Plaintiffs and did not facilitate the stock take as they affirmed in their Affidavit. In this respect, I am of the view that the Defendants had misled the Court into thinking that the March stock take was a comprehensive stock take and this was one of the factors which led me to discharge the ex parte injunctions. 127. I will deal with the cases relied upon by the Plaintiffs. The Plaintiffs relied on the case of Republic of Angola and another v Perfectbit Ltd and others [2018] EWNC 965 for the following passage: “…involvement in the creation or use of false documents ( if established) at trial as well as willingness to make false representations, carries with it the very real risk that such individuals will unjustifiably dissipate assets.” 73 128. In the Republic of Angola, the claimants (Republic of Angola and BNA, Angola’s national bank) alleged that they were victims of a substantial fraud-having been induced to pay over USD 500m to certain of the defendants. 129. The relevant defendants were 1) Mais Financial Services MA (“Mais”), a holding company of Mais Seguros (an insurance company which is not yet trading) and 2) Dr Pontes, the controlling owner of Mais. There were other companies and individuals involved as well. 130. The claimants alleged the defendants made a series of representations to the effect that they were setting up an investment fund for the benefit of Angola, in conjunction with a syndicate of reputable international banks-which the claimants alleged did not exist. They also alleged a conspiracy to defraud the claimants. 131. The claimants alleged that Dr Pontes approached the President of Angola about an economic investment plan involving Mais and other companies. 74 132. Throughout their contact, several presentations were made to, and several letters from renowned financial institutions were issued to the claimants. These were found to be false. 133. The claimants eventually contracted with the defendants and on the basis of two contracts, transferred USD 500 m to one of the defendants. 134. The defendants followed up with a letter detailing their intended plans moving forward. This letter appended documents like Letters of Guarantees and Bank Confirmation letters from other renowned institutions which were also found to be false. 135. The Court [at para 175] found that “it was entirely apt to characterise Mais and Dr Pontes (i.e. the Defendants) as being implicated in an ingenious scheme for the misappropriation of funds belonging to the claimant.” 136. The false documents created by the defendants in Republic of Angola were documents which allegedly came from renowned financial institutions which were part of their alleged syndicate of banks for the 75 scheme they were offering to Angola. The sham documents from the defendants contained representations from renowned institutions representing facts such as the following : 1) that the institutions had partnerships with the defendant companies; 2) that they had a variety of services or products for Angola to consider; 3) bank statements of one of the defendant companies showing the value of its securities; 4) letters of guarantee; and 5) willingness of a bank to transfer money after receiving the relevant monies from the claimants. 137. It is evident that the false documents referred to by the Court in that case were created in the context of the defendants’ attempt to misappropriate funds. 138. In the present case, the alleged sham documents were not referable to any misappropriation of funds and, hence, not referable to any risk of dissipation of assets. 139. Further in Republic of Angola, there was direct evidence of dissipation via transactions for which the defendants in that case did not have good explanations for. Both Mais and Dr Pontes provided their asset disclosure late and there was evidence in support of the claimants’ contention that there has been material dissipation of assets in breach of 76 freezing injunctions. On the day Dr Pontes was made aware of the mareva order, Mais made a payment of EUR 1 m to a company which Dr Pontes was a director of, Concera. There were 2 subsequent payments thereafter. About 1 month later, Concera paid away approximately EUR 400,000. Dr Pontes made substantial payments (more than GBP 560,000) from various bank accounts including payment for luxury goods. 140. In the present case, the Plaintiffs do not say that there is any direct evidence of dissipation of assets on the part of the Defendants. They are relying on the cause of action of fraudulent misrepresentations and the dishonesty in making the false representations to infer a risk of dissipation. Bouvier and Media World show that one cannot simply infer from a good arguable case of fraudulent misrepresentation and conspiracy to defraud to imply a risk of dissipation. The nature of the fraud must be relevant to the risk of dissipation. However, one must not forget that in this case, I have found that the Defendants had misled the Court by lying in their Affidavits about the March stock take. That is direct evidence of lack of probity which I can take into consideration in deciding on the real risk of dissipation. 77 141. The Plaintiffs also relied on the case of Jarvis Field Press Ltd v Chelton and others [2003] EWHC 2674 (Ch). In that case, the court held inter alia as follows: “If this case is established at trial…then she will have systematically defrauded the claimant company in a dishonest and secretive way, and in a way that has every indication of being relatively sophisticated.” “…there is an appreciable risk in the case of somebody who appears to be guilty, not merely of dishonesty, but dishonesty in financial dealings I relation to the use or misuse of assets, that she will take steps to put some of those assets… out of reach.” 142. However, the court in Jarvis Field itself recognised that “a mere unfocused finding of dishonesty is not, in itself, sufficient to ground an application for a freezing order. It is necessary to have regard to the particular Respondents to the application and to ask oneself whether, in light of the dishonest conduct asserted against them there is a real risk of dissipation.” 143. The 1st defendant in that case was a director of the claimant and in charge of finance. The dishonest conduct related to a significant number of payments out of the assets of the claimant company to a 78 company called Glenwise Ltd which was wholly owned by the 1st defendant as well as an allegation that the 1st defendant procured the grant of a loan to a company called CSM Group Ltd as a result of deception. As recognised by the court in that case, the dishonest conduct complained of directly related to the use or misuse of assets. It was dishonest conduct of such a nature that led the Court to find that there was an appreciable risk of dissipation. 144. In the present case, there is no allegation of any misuse of the funds of Aspion by the Plaintiffs against the Defendants. Jarvis Field is therefore inapplicable to the facts of the present case. 145. In Madoff Securities International Ltd and another v Raven and others [2011] EWHC 3102 (Comm) (“MSIL”), the 1st claimant was an English registered company. One Mr Bernie Madoff was the 99% shareholder. Madoff used MSIL to launder stolen money and as a vehicle for making payment of stolen money. He ran fraudulent investment fund schemes. 146. The relevant defendants are one Mrs Sonja Kohn as well as two of her corporate vehicles through which she conducted her affairs internationally (“Kohn Defendants”). 79 147. In return for effecting introductions to Madoff’s “investment schemes”, the relevant defendants received tens of millions in USD over the years from MSIL and other companies related to Madoff. 148. However, the payments were never described as commissions in the invoices issued by the Kohn Defendants. Instead, they were for other services like “market research” and “strategic consulting”. 149. The claimants’ pleaded case was that the relevant defendants knew that the payments were illegitimate payments amounting to kickbacks to Mrs Kohn for introducing money into Madoff’s scheme. The “services rendered” was some sort of sham to disguise the true nature of the payments. The claim against the Kohn Defendants was constructive trust and knowing receipt. 150. The court held, of MSIL, that over a period of 15 years, the Kohn Defendants had issued a whole raft of sham invoices and disguised the true nature of the payments received in circumstances where the Kohn Defendants knew that the payments were made in breach of fiduciary duty by the directors and that the payments were illegitimate payments. 80 151. The court also held that the false description on the invoices over many years cries out for a proper explanation which has not been provided by the evidence she has put before the court. “It seems to me what emerges is a sufficiently arguable case of deliberate wrongdoing, the issuing of sham invoices and the disguising of the true nature of the payment of millions of dollars made to the Kohn Defendants over many years.” 152. In MSIL, the allegation was that the defendants knew that the payments received were made in breach of fiduciary duty and that the payments were illegitimate payments so there was knowing receipt. The sham documents in question formed the basis for the unjustified payment coming from the claimant. 153. The defendants in MSIL used sham documents in the form of a whole raft of sham invoices to disguise the true nature of the payments received. Payments were made pursuant to those fake invoices. This went on for 15 years, involving many fake invoices and the pretence of rendering services. 154. In the present case, the alleged sham documents ( the inventory aging lists for 30.4.2017 and 30.9.2017) do not relate to attempts to 81 request for funds from Aspion at all. They do not relate to any misappropriation of funds and, hence, were not referable to any risk of dissipation. There is also no allegation of knowing receipt in the present case, unlike MSIL. 155. It should also be noted that in MSIL, there were other reasons apart from the sham invoices to justify an inference of risk of dissipation of assets. This case is similar in that there was evidence of the Defendants misleading the Court about the comprehensiveness of the March stock take. 156. In Grupo Torras SA and Another v Sheikh Fahad Mohammed Al-Sabah and Others [1997] Lexis Citation 2082, the claimants were a Spanish company and its wholly owned subsidiary. They were alleging 4 main fraudulent transactions. Although the claimant’s allegations against the relevant defendant involved only 1 transaction, it was the largest of the frauds said to have been practised. 157. The claimants alleged the transaction in question was a fraudulent device designed to look like a genuine loan of USD 300 million but it was never intended to be repaid to the claimants. 82 158. The claimants say Mr Dawson (the defendant in question) was the person responsible for arranging payments in and out of several bank accounts into which the USD 300 million was deposited. 159. Mr Dawson received about USD 2 million from this USD 30 million. He also received further sums from two Panamanian companies which had received some of the USD 300 million. 160. The claimants say that this was payment for his involvement, and that Mr Dawson had conspired with other defendants (in particular Sheikh Khaled) to defraud the claimants. 161. The claimants also brought actions in dishonest assistance and knowing receipt against Mr Dawson. 162. The court of appeal said this at page 5 of the Judgment: “Since it is part of Mr Dawson’s own case that he was expert in the sort of intricate, sophisticated and international financial transactions which feature in this case, and since the plaintiffs had established a good arguable case that Mr Dawson had used his expertise for dishonest purposes, I am not in the 83 least surprised that the judge reached the conclusion he did. In short I remain wholly unpersuaded that the judge so erred in his assessment of the risk of dissipation that it would be right for this court to interfere.” 163. In that case the court found there were intricate, sophisticated and international financial transactions and Mr Dawson was involved in them due to his expertise. These elements are not present in this case. The Defendants did not dissipate the assets of Aspion and did not move monies around. This case is therefore distinguishable. 164. In Liberty Sky Investments Ltd v Goh Seng Heng [2017] SGHC 182, the claimant commenced action against the defendants (one of whom was Goh) for fraudulent misrepresentation, and, in the alternative, negligent misrepresentations allegedly causing the claimant to purchase shares of Aesthetic Medical Partners (AMP) under the Sale and Purchase (SPA). The 3 representations were that 1) AMP would be listed through an IPO by a target completion date, 2) a trade sale of all the shares in AMP was imminent, and 3) there were minority shareholders in AMP who could stifle a trade sale or IPO, thereby necessitating quick action to buy out the minority shareholders. 165. The court said the following at paragraph 21: 84 “In the present case, the cause of action is fraudulent misrepresentation. One of the elements in proving this cause of action is dishonesty on the part of Dr Goh-he must be shown to have made the representation despite knowing it to be false. The alleged dishonest conduct is at the heart of the claim against Dr Goh. He is alleged to have represented facts he knew to be false or had no reasonable basis for believing were true in order to persuade the plaintiff to invest in the company. The stories Dr Goh alleged told are not the sort that stemmed from naivety or an abundance of optimism. The alleged misrepresentations, if proven to be true, were likely carefully crafted in order to obtain funds from the plaintiff in the shortest possible time-by combining the promise of a golden opportunity with the need to secure it urgently. I found these allegations of fraud to have been made out to the standard required of a good arguable case. This finding went towards my assessment of whether there is a real risk that Dr Goh will dissipate his assets to avoid enforcement of a judgment that may be obtained by the plaintiff.” 166. The above passage relied upon by the Plaintiffs say no more than the accepted proposition that an arguable case of dishonesty will be a relevant factor in considering whether there is a real risk of dissipation. In Liberty Sky, in respect of which an appeal was by consent allowed, the court found that matters most relevant to the issue of whether fraud or dishonesty indicated a risk of dissipation of assets were matters that related to the use or misuse of funds. 85 167. Goh was systematically extracting funds from AMP to the detriment of the shareholders and creditors of AMP through the use of licence agreements. Shareholders were kept in the dark about the royalties Goh was receiving. Corporate governance measures were imposed on AMP which required 2 signatories when cheques greater than SGD 100,000 had to be signed. There were emails showing Goh trying to devise a “smaller cheque mechanism” with other employees to avoid the corporate governance measures. 168. No board approval was sought for contracts for professional services (Goh contracting as a locum). The contract was signed by a party aligned with Goh. The terms of the contract were not very beneficial for AMP. Goh was already obliged to work for AMP and did not need the contract for professional services. Goh used the small cheque mechanism pursuant to the contract for professional services. 10 small cheques amounting to SGD 816,000 plus were issued only 2 days after the contract was entered into. There was round tripping of funds involving related companies and related persons. 169. In contrast, in the present case, the Plaintiffs have not alleged anything to suggest that the Defendants were extracting funds from Aspion for their own purposes. 86 170. Further, in Liberty Sky, there was actual proof of risk of dissipation that emerged after the mareva injunction was first granted. Goh used funds received from the claimant pursuant to the SPA to purchase properties in his children’s name and some yachts the day after the SPA. Family money amounting to SGD 18 million was given to his son. There was a good arguable case that Goh had done this to shield it from the claimant’s reach. 171. In the present case, there is no direct evidence of dissipation of assets against any of the Defendants. 172. In all the circumstances of the case, I would not have found that there was a real risk of dissipation on the part of the Defendants except for the fact that the Defendants appeared to have misled the Court about the March stock take. The Defendants had taken steps to hamper the Plaintiffs in carrying out the stock take but misrepresented to the Court that the Plaintiffs had conducted a stock take and had been given access to Aspion’s inventory e system when the inventory e system was only given on 16.4.2018, after completion of the SPA. I am of the view that this shows a lack of probity on the part of the Defendants and this would have tilted the balance and I would have found the existence of a real risk of dissipation. 87 173. In the circumstances, I am of the view that if the Plaintiffs have shown a good arguable case of fraudulent misrepresentation or conspiracy to defraud, (which is not the case here, as I am not satisfied on the methodology the Plaintiffs have relied on in computing the quantum of damages) I would have granted the mareva injunctions in favour of the Plaintiffs for the reduced sum of RM219.7 million. However, since I am not satisfied that the Plaintiffs have proved their quantum of damages, I am compelled to dismiss the application. 174. In the premises, I dismissed the Plaintiffs’ application with costs of RM15,000.00 each to Low and Wong. Adventa Capital and ACPL will be awarded only one set of costs of RM15,000.00 as they are represented by the same firm of solicitors. All costs are subject to allocator. Wong Chee Lin Judicial Commissioner Kuala Lumpur High Court Commercial Division Dated: 7th November, 2018 88 Solicitors for the Plaintiff Datuk Seri Gopal Sri Ram, Datuk Wong Rhen Yen, Emily Wong, Elizabeth Lau, David Yii & Saw Wei Siang Messrs Ranjit Singh & Yeoh Advocates & Solicitors D3-U5-12 Solaris Dutamas No. 1 Jalan Dutamas 1 50480 Kuala Lumpur Tel : 03-6205 4128 Fax: 03-6205 4109 Solicitors for the 1st Defendant Robert Lazar, Toi Tee Toen, Lam Michelle & Aik Yin Chien Messrs Shearn Delamore & Co Advocates & Solicitors 7th Floor, Wisma Hamzah Kwong-Hing No. 1, Leboh Ampang 50100 Kuala Lumpur Tel : 03-2027 2727 Fax: 03-2078 5625 89 Solicitors for the 2nd Defendant Logan Sabapathy, Ariel Francis & Vivian Oh Messrs Logan Sabapathy & Co Advocates & Solicitors Suite 2002, 20th Floor, Wisma Hamzah Kwong-Hing No. 1 Leboh Ampang 50100 Kuala Lumpur Tel : 03-2031 9780 Fax: 03-2031 9781 Solicitors for the 3rd Defendant Chong Boon Leong, Allen Choong, Saw Li Lian & Yap Mei Yan (Pdk) & Isaac Chee (Pdk) Messrs Rahmat Lim & Partners Advocates & Solicitors Suite 33.01, Level 33, The Gardens North Tower Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur Tel : 03-2299 3888 Fax: 03-2287 1278