PARASTATE LABS, INC. v WANG LI

Facts

Parastate Labs Inc invested US$5 million in the cryptocurrency Tether in a fund run by the Babel Finance group. In June 2022 it asked to withdraw and was told that Babel Finance was in financial difficulty after a cryptocurrency exchange had cross-liquidated its sub-accounts. Parastate sued in HC/OC 130/2022, claiming US$5 million from, among others, Mr Wang Li, a co-founder and at the time the sole director of the Babel company it had contracted with. It alleged that he dishonestly assisted breaches of fiduciary and trust duties.

Parastate applied for a worldwide Mareva injunction freezing Mr Wang's assets up to the full claim. The High Court judge found a good arguable case and a real risk that assets would be dissipated, but limited the injunction to US$2.5 million and ordered Parastate to fortify its undertaking as to damages by paying S$50,000 into court. He did so because Parastate had not stated what assets it had to meet its undertaking, as the Supreme Court Practice Directions 2021 require, even after being directed to address this, and had left two prescribed undertakings out of its draft order without explanation. Parastate appealed in Civil Appeal No 16 of 2023.

Issues

1. Whether the judge's decision to halve the Mareva injunction for a single, indivisible claim was a principled exercise of discretion.
2. Whether Parastate's procedural failures were material non-disclosures of the kind that justify cutting down or discharging a Mareva injunction.
3. What the right response was to doubts about whether Parastate could honour its undertaking as to damages.

Holding

The Court of Appeal allowed the appeal. It ordered that the injunction cover Mr Wang's assets up to the full US$5 million, and that Parastate provide further fortification bringing the total security to US$100,000. Mr Wang was ordered to pay costs of $15,000, and both parties were given liberty to apply.

Reasoning

Because a Mareva injunction is such a powerful remedy, the applicant must give an undertaking to compensate the defendant if the injunction turns out to be unjustified, and that undertaking must not be illusory. A failure to make full and frank disclosure can lead to an injunction being discharged. But in the cases where that happened, the applicant had suppressed facts bearing on the merits or on its ability to pay, such as heavy debts or pending fraud charges. And the usual result was discharge, not a partial reduction. Counsel for Mr Wang accepted that no authority supported reducing an injunction over an indivisible claim once the requirements were met for the whole amount.

Parastate's lapses were not of that kind. The missing undertakings concerned proceedings abroad and were added to the order anyway. The failure to state its assets was unacceptable but hid nothing that bore on the grounds for the injunction or on its ability to pay. Halving the injunction meant that half of any judgment Parastate obtained could be frustrated; it had no principled basis and looked arbitrary or even punitive.

The proportionate response to uncertainty about an applicant's undertaking is to require adequate security, not to cut the injunction. There was no evidence of what loss Mr Wang might suffer, but to make sure the undertaking had real value given Parastate's unexplained non-compliance, the court raised the fortification to US$100,000.

From the judgment