Global warming not affecting freezing injunctions

News
10 Nov 2021

Thomas Mitty and Emily Betts consider the significance of Convoy Collateral v Broad Idea International Ltd [2021] UKPC 24, which widens the court’s power to grant freezing injunctions at common law.

Background

The Applicant, Convoy Collateral Ltd, sought a freezing injunction against two respondents. The Second Respondent, Cho Kwai Chee, was already the subject of substantive proceedings by Convoy Collateral in Hong Kong. However, the First Respondent, Broad Idea International Ltd, was not. It was incorporated in the BVI. The reason that Convoy Collateral was seeking a freezing injunction against it was because 50.1% of its shares were held by the Second Respondent.

The ‘service out’ issue

In relation to the Second Respondent, the hurdle facing the Applicant was to identify a rule by which permission could be given to serve a claim form outside of the territory where the only relief sought was a freezing injunction.

This was the same problem facing the applicants in The Siskina [1979] AC 210, and Mercedes-Benz AG v Leiduck [1995] 3 All ER 929.

In The Siskina, a claim in damages was pursued against a ship owner in a foreign court following the sinking of a ship in Greek waters. However, as a consequence of the sinking, the only assets of the shipowner (namely the insurance moneys payable by London underwriters) were in England.

It was therefore necessary for the applicants to find a ground on which the jurisdiction of the English Court could be established by the service of a writ.

The relevant rule was RSC Order 11, rule 1(1)(i), which stated that service out was permitted:

“If in the action begun by the writ an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of that a failure to do or the doing of that thing).”

However, the House of Lords unanimously interpreted this as allowing service out only in a case in which the applicant was seeking a final injunction as part of its substantive relief; as opposed to an interlocutory injunction which is ancillary to a case of action.

In Mercedes Benz, the Privy Council considered the Hong Kong rules of court, which were identical to RSC Order 11, rule 1(1)(i). The Privy Council again interpreted the court’s power to serve a writ out of the jurisdiction in applications for freezing injunctions as applying only to final and not interim injunctions.

In the instant case, the relevant rule was Eastern Caribbean Supreme Court Civil Procedure Rules 2000 (“EC CPR”)  Rule 7.3(1)(b). As the language of that rule was stated in materially similar terms to the English rules of court which had prevented service out of the jurisdiction in The Siskina, and the Hong Kong rules in Mercedes Benz, the board denied relief to the applicant in this case.

The majority’s reasoning was that the law was now too settled to be overturned. Not only had the decisions in The Siskina and Mercedes Benz formed the backdrop to the EC CPR, which were introduced in 2000, but similar language was found in the court rules of other jurisdictions for which the Privy Council is or was the final court of appeal.

The majority of the board therefore decided that there was no personal jurisdiction over the Second Respondent as there was no permission to serve out of the jurisdiction.

The ‘power’ issue

By contrast, the First Respondent was located in the BVI, and the court therefore did have personal jurisdiction over it.

The issue was whether to grant a freezing injunction in support of a claim pursued in a foreign court.

In inviting the court to grant the injunction, the appellant was relying on the jurisdiction outlined in Black Swan Investment ISA v Harvest View Ltd ((BVIHCV 2009/399) (unreported) 23 March 2010). In that case, Bannister J granted an injunction against BVI companies which the applicant claimed were controlled by an individual who was subject to proceedings in South Africa.

In doing so, he noted the policy reasons why the courts of offshore financial centres should be able to grant freezing injunctions in aid of foreign proceedings. In particular, claimants in potential foreign proceedings seeking to freeze assets in the BVI would be forced to bring proceedings within the BVI, and may then not be able to obtain permission to serve out.

(The Black Swan jurisdiction has an equivalent in the Cayman Islands (VTB Capital plc v Universal Telecom Management [2013] 2 CILR 94).

In the instant case however, the EC Court of Appeal decided that Black Swan was wrongly decided for two reasons. The Board of the Privy Council reversing the decision on appeal, disagreed with both reasons.

(i) Statutory interpretation – width of the power to grant injunctions

They held, first, that they had no power to grant freezing injunctions in aid of foreign proceedings. The applicable rule is s24(1) of the Eastern Caribbean Supreme Court (Virgin Islands) Act Cap 80. That section gives power to grant an injunction by ‘an interlocutory order… in all cases in which it appears to the court or judge to be just or convenient that the order should be made’.

The EC Court of Appeal had been persuaded that in the absence of an explicit statement giving power to grant freezing injunctions in respect of foreign proceedings, as can be found in the comparable s25 of the Civil Jurisdiction and Judgments Act 1982 in England and Wales, this power only applied to cases in which substantive relief is being sought in the BVI.

However, the majority of the Board found this to be the wrong way around. They held that the power to grant an interlocutory order ‘in all cases’ is cast in wide terms, and so the starting point should be whether the act excludes the power to grant an injunction where there is no cause of action within the jurisdiction.

(ii) A non-cause of action defendant

Secondly, the Court of Appeal distinguished cases like Channel Tunnel Group v Balfour Beatty Ltd [1993] AC 334, in which an injunction was granted in aid of foreign proceedings against a defendant over whom the court did have personal jurisdiction. This was different from the instant case, in which an injunction was sought against a non-cause of action defendant. However, Lord Leggatt reasoned that since it is possible to grant an interlocutory injunction ‘(i) where substantive proceedings are taking place abroad and (ii) against a “non-cause of action defendant”’ there is no reason why it shouldn’t be granted when both circumstances obtain.

Therefore the Black Swan jurisdiction was reinstated by the Board.

However, it did not follow from this that the assets of the First Respondent should be preserved. Broad Idea’s sole known asset within the jurisdiction was its shareholding in Town Health International Medical Group Ltd. The applicant was not able to establish on the facts that the First Respondent, through the Second Respondent which was his vehicle, beneficially owned the relevant asset.

The majority’s comments on the juridical basis of freezing injunctions

The majority set this conclusion and its reasoning against the contextual backdrop of the development of freezing injunctions:

  • Firstly, freezing injunctions were a nascent concept at the time that The Siskina was decided. Since then, the jurisprudence has evolved.
  • Secondly, new types of injunctions which are not necessarily contingent on a legal or equitable right have emerged. These include Norwich Pharmacal orders, Bankers Trust orders, and website blocking orders.
  • Thirdly, the circumstances facing courts have changed. We live in a more interconnected world, allowing assets to be transferred internationally quickly and easily. Globalisation has led to an increased in the amount of dispute resolution taking place across borders and the growth of offshore financial centres.

Crucially, Lord Leggatt felt that this context did not merely require him to reach the above conclusions on the points in issue; but to go further. The primary significance of the majority judgment lies in their discussion of the juridical basis of freezing injunctions.

The majority confirmed the divorce of the power to grant a freezing injunction from any underlying cause of action.

At [83]: ‘a freezing injunction is not, on a true analysis, ancillary to a cause of action, in the sense of a claim for substantive relief, at all.

Instead, at [85]: ‘the essential purpose of a freezing injunction is to facilitate the enforcement of a judgment or order for the payment of a sum of money by preventing assets against which such a judgment could potentially be enforced from being dealt with in such a way that insufficient assets are available to meet the judgment.’

Freezing injunctions are therefore governed by the enforcement principle: the idea that justice may, in certain circumstances, demand the preservation of assets so that any potential or actual judgments can later be enforced.

In Lord Leggatt’s view, this analysis helps to explain several things. First, it explains the existence of freezing injunctions against non-cause of action defendants (i.e. the Chabra jurisdiction). Secondly, it explains why freezing injunctions can be granted post-judgment, despite the doctrine of merger.

A consequence is that there is no requirement to show a cause of action against the respondent – although it remains useful for showing that the applicant has a good arguable case.

Domestic and foreign judgments

In Lord Leggatt’s view, where a foreign judgment could be enforced in the BVI on registration, it follows from the enforcement principle that there is just as compelling a reason for the granting of a freezing injunction as if the original claim was brought domestically.

The same is true even in the case of jurisdictions where no reciprocal legislation exists (e.g. Hong Kong), where an action on the judgment could be brought, and a potential judgment requiring assets against which it can be enforced through a process of the BVI court could therefore be obtained.

Accordingly, Lord Leggatt stated at [95]: ‘There is no difference in principle between a case where a freezing injunction is sought in anticipation of (i) a future judgment of a BVI court in substantive proceedings brought in the BVI, (ii) a future judgment of a foreign court enforceable by the BVI court on registration in the BVI, and (iii) a future judgment of a BVI court obtained in an action brought to enforce a foreign judgment’.

 The restated test

At paragraph 101, Lord Leggatt provided a summary of current practice in light of this exposition. This is useful for its outline of the test for the imposition of a freezing injunction as altered by enforcement principle (emphasis added):

In summary, a court with equitable and/or statutory jurisdiction to grant injunctions where it is just and convenient to do so has power – and it accords with principle and good practice – to grant a freezing injunction against a party (the respondent) over whom the court has personal jurisdiction provided that:

the applicant has already been granted or has a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the process of the court;

the respondent holds assets (or, as discussed below, is liable to take steps other than in the ordinary course of business which will reduce the value of assets) against which such a judgment could be enforced; and

there is a real risk that, unless the injunction is granted, the respondent will deal with such assets (or take steps which make them less valuable) other than in the ordinary course of business with the result that the availability or value of the assets is impaired and the judgment is left unsatisfied.

 The minority’s three concerns

However, an impressive trio comprising the Master of the Rolls, the President and the Deputy President of the Supreme Court, found that majority had no grounds for going beyond deciding the issues in the case. They disagreed with the majority’s adumbration of the juridical basis of freezing injunctions for three reasons.

  • First, the board did not hear arguments on the basis of freezing injunctions, they heard arguments on the circumstances of the case before them. To alter the law in this way was not the common law approach, and was likely to lead to future litigation.
  • Secondly, the minority concluded that this was going to have unknown ramifications in jurisdictions which had enacted legislative workarounds to reflect the position in The Siskina and Mercedes Benz.
  • Thirdly, the majority’s exposition of the enforcement principle was strictly obiter, and an inadequate way to alter doctrine on such an important issue.

Practical impact

In the BVI

First, the Board reinstated the Black Swan jurisdiction, allowing for the grant of freezing injunctions in aid of foreign proceedings.

The second practical impact for BVI litigators is the insertion of section 24A into the Eastern Caribbean Supreme Court Act 1969, which occurred following the EC Court of Appeal’s decision. That provision gives a broad statutory power to grant freezing injunctions in aid of foreign proceedings, whether extant or about to be, comparable to s25 of the 1982 Act in England and Wales.

Internationally

The analysis of the court’s power to grant injunctions at common law applies internationally to all jurisdictions where ‘courts have inherited the equitable powers of the former Court of Chancery’ (at [3]).

Although discussion of them is strictly obiter, the common law power to grant freezing injunctions is stated in wider terms than before. It is now framed by the enforcement principle.

In particular, this means (at [102]):

  1. the judgment the applicant is seeking to enforce could be foreign;
  2. the judgment the applicant is seeking to enforce could be against someone other than the Respondent; and
  3. the proceedings in which judgment is sought do not need to have commenced.

However, it should be noted that many jurisdictions (including the UK) will also have their own statutory regimes.

Looking to the future, what remains to be seen is whether jurisdictions (such as Hong Kong) which do not yet have the power to grant freezing injunctions in aid of foreign proceedings pinned on a sure statutory footing follow suit to clarify the position What is certain is that the new, wider, common law power to grant freezing injunctions outlined above is likely to spawn future litigation, in light of a powerful minority dissent.

 

Thomas Mitty
Emily Betts
November 2021

 

Related barristers

Thomas Mitty

Call: 2021

Emily Betts

Call: 2009