The Agency for Policy Coordination on State Property of Mongolia and others v Batbold Sukhbaatar and others [2021] SGHC 91

Introduction

When a government official or a corporate controller or officer makes secret profits from contracts let by that government or corporation, there are likely to be efforts to conceal what is being done. Such efforts may well involve others, whose degree of complicity and knowledge will vary. The effective interdiction of such a fraudulent scheme necessarily requires proceedings not only against the principal wrongdoer but also against those who have assisted in the scheme and who may continue to hold assets or funds into which the defrauded organisation may seek to trace. Funds may well flow across borders, so as to be better concealed. For this reason, proceedings brought by that organisation are likely to happen in more than one jurisdiction, and against multiple persons. The causes of action invoked in a common law jurisdiction would typically include breach of fiduciary duty, dishonest assistance in those breaches and knowing receipt of the proceeds of such breaches, as well as the tort of unlawful means conspiracy.

When freezing orders are sought in Singapore in support of proceedings which are brought elsewhere, additional parties may be added. The court must scrutinise whether there exists a good arguable case against such additional parties, or alternatively whether they are properly joined as entities holding assets of the alleged wrongdoer into which the plaintiff seeks to trace. While a plaintiff may consider it necessary to cast the net wide, the court must guard against hapless bycatch. The effect of a freezing order is potentially crippling, with rippling reputational impact.

On 26 February 2021, in The Agency for Policy Coordination on State Property of Mongolia and others v Batbold Sukhbaatar and others [2021] SGHC 50, I ruled that the solicitors on record for the plaintiffs had authority to act. Thus, the summons filed on 18 December 2020 by the fifth and sixth defendants for discharge of the freezing order granted against them on 27 November 2020 proceeded for hearing before me on 3 March 2020.

At the hearing, the main argument pressed by counsel for the fifth and sixth defendants was that no good arguable case had been established against the fifth defendant, and so the injunction should be discharged against both him and the company in which he holds shares, the sixth defendant. In addition, in his written submissions, he challenged the claim that there was any real risk of dissipation and asserted that there had been material non-disclosure that tainted the original grant of the freezing order. He also contended that the net had been cast so as to include his clients only in order to construct jurisdiction over the other defendants. He argued that this was a collateral purpose that rendered the proceedings against the fifth and sixth defendants an abuse of process. Lastly, he contended that the undertaking as to damages was illusory.

Brief procedural history

The first plaintiff is an agency of the Government of Mongolia, the Agency for Policy Coordination on State Property (the “Agency”). The Agency owns 100% of Erdenet Mining Corporation LLC (“Erdenet Mining”), a company incorporated in Mongolia, which is the second plaintiff. The second plaintiff holds the Mongolian State’s interest in the Erdenet copper mine. The third plaintiff, Erdenes Oyu Tolgoi LLC, is also owned by the Government of Mongolia. It holds the Mongolian State’s interest in a copper and gold mine, known as Oyu Tolgoi.

The Metropolitan Prosecutor’s Office of Mongolia (“MPOM”) filed a civil case on behalf of the plaintiffs against the first defendant and others before the Bayanzurkh District Civil Court of First Instance in Mongolia, initiated on 14 October 2020, with the case being opened on 28 October 2020 by Judicial Decree No. 101/SHZ2020/20219 (the “Mongolian Claim”). This has been followed by proceedings elsewhere, including in New York and Hong Kong on behalf of and in the name of the plaintiffs.

MPOM’s core complaint alleges that the first defendant, who was Prime Minister of Mongolia from October 2009 to August 2012, has made substantial secret profits from contracts awarded in relation to each of the Erdenet and Oyu Tolgoi mines. On 27 November 2020 the plaintiffs obtained a freezing order in these proceedings in support of the Mongolian Claim against the defendants. The fifth defendant, one Eoin Barry Saadien, is a director and one-third shareholder of the sixth defendant, Everest VC Pte Ltd, a company incorporated in Singapore. The remainder of the shareholding in the sixth defendant was owned by the second defendant until 20 February 2020, when he was replaced by another alleged proxy of the first defendant. Neither of the fifth and sixth defendants is a defendant to the Mongolian Claim.

These proceedings have been stayed by consent against the first, second, third and seventh defendants with the freezing order to remain in force against them until further order. This is because the merits of the claims against those defendants will be determined in the Mongolian Claim. In relation to the fifth and sixth defendants, however, the merits of the claim against them will be determined in these proceedings.

The case against the fifth and sixth defendants

The case against the fifth defendant arises from his involvement with the fourth defendant, Cliveden Trading AG (“Cliveden”), as well as his relationship with the second and third defendants. The pleaded case against the fifth defendant is for damages or equitable compensation to be assessed by reference to the secret profits said to have been earned by the first defendant from contracts between Cliveden and Erdenet Mining, or the loss of opportunity allegedly resulting from the Agency and Erdenet Mining having been deprived of the right to sell on the open market. The causes of action are in unlawful means conspiracy and dishonest assistance.

The fifth defendant only became a director of Cliveden on 14 February 2013. He was appointed a day after the third defendant resigned as its director. He served as a director until 28 June 2018. He has also been a director of a Hong Kong company called Ever Global Trading Limited (“Ever Global”) since 1 January 2013. The third defendant is the sole shareholder of Ever Global, and has been since 13 December 2011. On 26 January 2012, Ever Global purchased 56% of the shares in Cliveden. At some point in 2016, Ever Global divested those shares.

During the time that the fifth defendant was a director of Cliveden, Erdenet Mining delivered just under US$50 million in copper concentrates to Cliveden. He was a director of Cliveden when the second contract between Cliveden and Erdenet Mining was made.

In addition, the plaintiffs produced evidence that the fifth defendant’s email addresses had been in contact with those of the first defendant, the first defendant’s son, the second defendant and the third defendant. The method of analysis adopted does not pinpoint dates or contents of email communications.

The plaintiffs do not assert a substantive cause of action against the sixth defendant. Instead, it is joined on the ground that it is a corporate vehicle used to conceal or disguise the proceeds of the fraudulent scheme, and that the assets in its name are held for and on behalf of one or more of the first to fifth defendants.

The fifth defendant’s response

The fifth defendant has made two affidavits in support of his and the sixth defendant’s applications to discharge. They are suffused with considerable indignation at having been drawn into these proceedings, and, in addition to responding to the specific allegations of his involvement as an alleged proxy of the first defendant, they also paint a picture of his good standing in the community, his respectable career as a banker, his status as a family man and his having put down roots in Singapore. He asserts that he “had absolutely no involvement in the ‘Cliveden Contracts’ other than by reason of being a director” [emphasis in original]. He describes the second defendant as a business partner and friend, whom he first met sometime in 2009 in Mongolia, and their business relationship as limited to his directorship in Ever Global and Cliveden, and the formation of the sixth defendant. In relation to the formation of the sixth defendant he notes that it was originally set up for a bona fide business in emerging stem cell therapies initially involving a third shareholder and director who subsequently divested. He says that since then, there has been no business activity, and it has not been struck off only because he and the second defendant thought that they might consider other business opportunities using it. He admits to a cordial, arm’s-length relationship with the eldest son of the first defendant and to having met the first defendant once.

To put it simply, everything the fifth defendant says is potentially consistent with his just being in the wrong place at the wrong time. At the same time, it is equally clear that he has played certain roles at the request of the second defendant that make it plausible that his involvement is not merely as an innocent bystander.

The test of a good arguable case

A good arguable case has to be “more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success”: Ninemia Maritime Corporation v Trave Schiffahrtgesellschaft mbH und Co KG (The Niedersachsen) [1983] 2 Lloyd’s Rep 600 at 605 per Mustill J, cited by Menon CJ in Bouvier, Yves Charles Edgar and another v Accent Delight International Ltd and another and another appeal [2015] 5 SLR 558 (“Bouvier”), at [36].

In assessing whether there is a good arguable case, the characteristics of the cause of action invoked are important. It is in the nature of some claims, such as those in conspiracy, that they will ultimately be proved by circumstantial rather than direct evidence. The Court of Appeal in Asian Corporate Services (SEA) Pte Ltd v Eastwest Management Ltd (Singapore Branch) [2006] 1 SLR(R) 901, at [19], noted:

Whether there is a good arguable case is to be determined at the initial application for the freezing order and again at the hearing of the discharge application. By the time of the latter, the defendant will have had an opportunity to file explanatory or rebuttal evidence. While the burden remains on the plaintiff to establish that there is a good arguable case, the quality and completeness of the defendant’s explanation is important. A failure to explain or rebut some aspect of the plaintiff’s evidence may strengthen the inference to be drawn against the defendant.

Assessment of good arguable case

The plaintiffs contend that there is a good arguable case because circumstantial evidence points to the fifth defendant’s involvement in the Erdenet Mine Scheme as a proxy of the first defendant. They rely on a pattern of conduct involving three companies linked to the second and third defendants that were allegedly set up for the purpose of entering into contracts with Erdenet Mining as a means to divert profits from Erdenet Mining. Only one of the three involved the fifth defendant, but the plaintiffs say that the apparent overall pattern strengthens the inferences against the fifth defendant.

The other defendants have consented, without admission of liability, to the continuance of the freezing orders against them. Thus, at this stage, they have chosen not to contest that there is a good arguable case against them. I have reviewed the evidence showing the pattern of conduct involving the three companies trading with Erdenet Mining, and accept that there is much to answer and explain. However, if the first defendant is allegedly at the centre of the conspiracy, and the second and third defendants in his inner circle, the fifth defendant is only in an outer circle of potential responsibility.

Nonetheless, there is sufficient evidence implicating the fifth defendant to establish a good arguable case. It may indeed turn out that his involvement has been entirely innocent, but at this stage of proceedings the plaintiffs have crossed the threshold of a case that is more than barely capable of serious argument.

The sixth defendant is in a different position. It appears to be dormant, having initially been set up for what appears to have been an unrelated and bona fide business purpose. There is no evidence of its having been used to hold or conceal assets deriving from the Erdenet Mine Scheme. There is insufficient evidence to find a good arguable case that it is a proxy of the second and fifth defendants in connection with the claim of secret profits against the first defendant.

Real risk of dissipation

The plaintiffs essentially rely on the existence of a good arguable case that the fifth defendant is involved in the Erdenet Mine Scheme, and so potentially liable in conspiracy or dishonest assistance. They refer to the Court of Appeal decision in Bouvier for the proposition that one may legitimately infer a real risk of dissipation from a good arguable case of dishonesty on the merits where the alleged dishonesty is of such a nature that it has a real and material bearing on the risk of dissipation. The plaintiffs do not appear to have any evidence other than the inference one might draw from the alleged dishonesty.

The Court of Appeal in Bouvier gave guidance at [94] concerning the relationship between an allegation of dishonesty and the existence of a real risk of dissipation:

It is therefore critical to assess what inferences should be drawn from the nature and extent of the dishonest conduct alleged against the fifth defendant. In addition, the strength of the case against him must also be assessed. I start with the nature and extent of his alleged dishonesty. While it is true that the scheme considered as a whole appears elaborate, with multiple companies incorporated in numerous jurisdictions for the purpose of concealment, the fifth defendant’s role has been simple and limited. He is not at the core of the alleged conspiracy but at its periphery. It is not his identity that has been concealed through the use of corporate vehicles. There is also no evidence that the alleged secret profits passed through either the fifth or sixth defendants.

Turning to the strength of the case against him, I would assess it at this stage as meeting the test of a good arguable case and not much more than that.

Given the limited role of the fifth defendant, and the moderate strength of the case against him, the fact that the causes of action, if successful, entail dishonesty on his part does not in itself compel an inference that there is a real risk of dissipation of assets by him, if the injunction does not continue against him.

There is another factor to consider, which is the behaviour of a defendant upon becoming subject to a freezing order. As explained in Bouvier at [104], it is only in limited circumstances that arguments concerning the adequacy of the information provided under the ancillary disclosure orders will strengthen the inference of a real risk of dissipation. On the other side of the coin, candour and cooperation may help dispel concerns about a defendant’s future conduct. In this case, the fifth defendant appears to have been candid and thorough in his disclosures, both for himself and for the sixth defendant. This swells the court’s confidence that no real risk of dissipation should be inferred.

It is also important to bring into consideration the evidence given by the fifth defendant of his ties and roots in Singapore. This evidence was not substantively challenged by the plaintiffs. There is no suggestion that he will uproot from Singapore. Overall, the overwhelming likelihood is that he plans to stand his ground and contest the case against him. The court should be circumspect before continuing the strong restrictions of a freezing order.

As for the sixth defendant, there is likewise no evidence of risk of dissipation beyond the alleged dishonesty of the fifth defendant. While the sixth defendant is owned by both the second and the fifth defendant, there is no evidence of its having held or concealed assets traceable to the Erdenet Mine Scheme. Indeed, it currently seems to have very little money in its bank account.

In all the circumstances, I decline to hold that there is a real risk of dissipation on the part of the fifth and sixth defendants. Accordingly, I will discharge the freezing orders made against them.

Other matters raised

For completeness, I add that I do not accept that there was any material non-disclosure on the part of the plaintiffs in obtaining the initial freezing order ex parte. There were three principal non-disclosures relied upon. The first concerned the nature and signatories of the contracts between Cliveden and Erdenet Mining. I accept that these were matters of emphasis and characterisation, rather than instances of culpable non-disclosure. Nor were they truly material. The details were in the documents exhibited but not brought to the attention of the court during the ex parte hearing. The second concerned developments in the New York proceedings after the ex parte hearing. While in principle, post-hearing developments that undermine the basis on which an ex parte order is given should be drawn to the court’s attention, at least while the proceedings remain on an ex parte basis, I do not accept that the developments in the New York proceedings were sufficiently material or unequivocal so as to necessitate their being raised to the court. In my view, they have no bearing on whether the freezing order should be continued in Singapore. Thirdly, the fifth defendant contended that the plaintiffs had misleadingly labelled the fifth defendant as a proxy of the first defendant and a “key conspirator” for the purpose of the ex parte hearing, without sufficiently drawing to the court’s attention that the fifth defendant was not even mentioned in pleadings for the Hong Kong proceedings or in the Mongolian Claim. Again, this does not rise to the level of a culpable or material non-disclosure.

I also do not accept that the plaintiffs have acted in abuse of process. The fifth defendant has contended that he and the sixth defendant were sued for the collateral purpose of founding jurisdiction against the non-Singapore entities, by virtue of their being necessary and proper parties. There was no direct evidence of any such collateral purpose, and the argument depended on drawing an inference from the asserted weakness of the claim against the fifth defendant. Given my finding that the plaintiffs do have a good arguable case against the fifth defendant, I would not draw any such inference. The plaintiffs were entitled in good faith to commence proceedings against the fifth defendant in Singapore; there was no abuse of process.

Lastly, had I not decided as I have on the question of risk of dissipation, I would have ordered fortification of the undertaking in the sum sought. This would have been for two cumulative reasons. First, the plaintiffs do not appear to have assets within the jurisdiction. Secondly, enforcing a judgment in respect of the undertaking on damages might not be straightforward in Mongolia.

Conclusion

I therefore discharge the freezing order as against the fifth and sixth defendants only.