Ong Doen Xian examines the Interactive Brokers Case on section 11 of the Arbitration Act 2005.

On 13 October 2014, the Court of Appeal upheld a Mareva or freezing injunction granted in aid of foreign arbitration proceedings in Singapore. The injunction was granted earlier in the year by the High Court, and is reported in Interactive Brokers LLC v Neo Kim Hock & Ors [2014] 8 CLJ 747. This is the first reported decision where section 11 of the Arbitration Act 2005 has been used to assist in arbitration proceedings where the seat is outside of Malaysia.
 
BACKGROUND
 
The facts of this case are connected to last year’s spectacular collapse of the shares of Blumont Group Ltd (“Blumont”), Asiasons Capital Ltd (“Asiasons”) and LionGold Corp Ltd (“LionGold”), three companies listed on the Stock Exchange of Singapore (“SGX”). These companies became the subject of regulatory scrutiny by the SGX and the Monetary Authority of Singapore, and attracted wide coverage by the international media, when the value of the companies’ shares hit meteoric highs in the first nine months of 2013 but crashed almost immediately after the SGX issued an official query on 1 October 2013 as to the reasons for the impressive values achieved by the companies’ shares.
 
Barely three days later and within the first hour of trading on 4 October 2013, the shares of all three companies plunged dramatically in value, causing approximately SGD8 billion in market value to be erased. This sequence of events prompted the SGX to immediately suspend trading in the shares of those companies.
 
MAREVA INJUNCTION
 
The targets of the Mareva injunction were six Malaysian individuals and two companies (collectively “respondents”), most of whom either had direct or indirect interests in Blumont, Asiasons and LionGold.
 
All of the respondents had opened trading accounts with Interactive Brokers LLC (“IB”), a US-regulated, online securities and commodities broker, and had purchased substantial positions in the Blumont, Asiasons and LionGold shares on margin, using funds borrowed from IB.
 
As it turned out, the collapse of the Blumont, Asiasons and LionGold shares caused the respondents’ trading margins to fall below the requisite minimum. The respondents were unable to resolve the shortfalls in their accounts, and IB took remedial action by liquidating the securities held in the respondents’ trading accounts. IB then commenced arbitration proceedings in Singapore to recover the remainder of the respondents’ debts, amounting to approximately SGD79 million.
 
To preserve any likely award that would be made in the arbitration proceedings, IB sought and obtained a Mareva injunction before the Singapore High Court on 11 November 2013. IB subsequently sought a Mareva injunction from the Kuala Lumpur High Court on similar terms, not least because the respondents had assets within the jurisdiction, but also because of problems with the enforcement of the Mareva injunction granted by the Singapore High Court in Malaysia.
 
The provision which IB relied on to obtain the Mareva injunction was section 11 of the Arbitration Act 2005. This provision enables a court to grant interim measures for, amongst others, the preservation, interim custody or sale of any property that is the subject matter of the arbitral proceedings, or to ensure that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party.
 
It was IB’s position in the Mareva proceedings that the respondents were insiders and related parties of Blumont, Asiasons and LionGold and appeared to have been engaged in some sort of concerted trading scheme in the shares through their accounts with IB. In support of a grant of a Mareva injunction, IB submitted that there was a real risk of the respondents dissipating their assets, taking into consideration various factors, including the following:
 
(1)     The circumstances surrounding the entire saga which led to the crash of the Blumont, Asiasons and LionGold share prices;
 
(2)     The suspicious trading patterns adopted by the respondents as well as the complex and opaque manner in which the respondents had sought to conceal their relationship with each other and with the three companies;
 
(3)     The evasive manner in which the respondents approached their obligations towards IB and the dispute resolution process; and
 
(4)     The huge financial strain which the respondents were under.
 
The High Court recognised that it was indeed empowered to grant the Mareva injunction sought by IB pursuant to section 11 of the Arbitration Act 2005. In granting the Mareva injunction, the court also found that IB had satisfied the conditions for the grant of the order as IB had shown that it had “a good arguable case” in the arbitration, and had also shown that there was a real risk of dissipation of assets by the respondents.
 
APPELLATE PROCEEDINGS
 
The subsequent appeal by the respondents against the High Court’s decision was dismissed by the Court of Appeal on 13 October 2014. The Court of Appeal agreed with the findings of the High Court and further added in its brief grounds (which were delivered orally), that a Malaysian court should adopt a purposive approach to section 11 of the Arbitration Act 2005 as a way to aid parties to arbitration.
 
CONCLUSION
The decision of the Court of Appeal has been reported in various local newspapers and is for all intents final, as the time frame for escalating an appeal to the Federal Court has lapsed.
 
It is not known if the Court of Appeal will provide any written grounds. 
 
Apart from being the first reported decision where section 11 of the Arbitration Act 2005 has been applied in aid of arbitration proceedings where the seat is outside of Malaysia, this case continues to underscore a positive judicial outlook towards arbitration.