Injunction Sans Frontiéres

31 March 2014

A primer on “worldwide injunctions” by Leong Wai Hong and Eyza Farizan Mokhtar.

The worldwide Mareva injunction probably owes its fame in this region to the case of Bolkiah (HRH Prince Jefri) & Ors v State of Brunei Darussalam and Brunei Investment Agency (No 2) and other appeals [2001] 2 LRC 134 wherein the Government of Brunei and the Brunei Investment Agency (BIA) sued, among others, the youngest brother of the Sultan of Brunei for allegedly misappropriating the funds belonging to the state and the BIA in his capacity as Minister of Finance for Brunei Darussalam and Chairman of the BIA.
 
In conjunction with the suit, the plaintiffs obtained a worldwide Mareva injunction in Brunei against the defendants and later on the same day, obtained an order from the High Court of England and Wales to freeze the assets of the defendants in those jurisdictions.
 
THE EVOLUTION OF THE MAREVA IN ENGLAND
 
The English courts had up to 1995 been reluctant to issue a pre-trial injunction to restrain a foreign defendant from disposing of his assets pending trial. A change in judicial attitude occurred in 1975 when the English Court of Appeal granted injunctions in two cases, namely Nippon Yusen v Karageorgis & Anor [1975] 1 WLR 1093 and Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213 to prohibit foreign defendants from removing their assets from the jurisdiction.
 
Although the decisions of the English Court of Appeal in Karageorgis and Mareva appeared to be novel developments in English law, Lord Denning MR in Rasu Maritima SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) & Anor 1978 QB 644 highlighted that the seizure of a defendant’s assets before judgment was not a new procedure in England as a process of “foreign attachment” had existed in market towns like London, Bristol and Lancaster since the eighteenth century. According to the learned Master of the Rolls, this process enabled a plaintiff to attach the assets of a defendant which are located within the jurisdiction of the court if the defendant is outside the jurisdiction when legal proceedings are commenced against him.
 
Since 1975, the English courts have gradually extended the Mareva jurisdiction laid down in Karageorgis and Mareva. The evolution of the Mareva jurisdiction was neatly traced by Millet LJ in Crédit Suisse Fides Trust SA v Cuoghi [1997] 3 All ER 724, 727:
 
“The Mareva jurisdiction was established in 1975 as an exceptional remedy to prevent a foreign defendant from defeating any ultimate judgment by removing his assets from the jurisdiction. It was progressively extended, in 1979 to English defendants, in 1982 by restraining defendants from dissipating their assets within the jurisdiction as well as removing them from the jurisdiction, and finally in 1990 by restraining defendants from dealing with their assets both inside and outside the jurisdiction. This last step was taken in Babanaft International Co SA v Bassatne [1989] 1 All ER 433, [1990] Ch 13 …”
 
TRANSCENDING BORDERS
 
In Babanaft, the plaintiffs obtained judgment against two Lebanese nationals who lived mainly outside the United Kingdom. When the defendants failed to satisfy the judgment, the plaintiffs obtained an injunction which restrained the defendants from dealing with their assets outside the jurisdiction without giving notice to the plaintiffs of their intention to do so.
 
The Court of Appeal recognised that the English courts had the jurisdiction to grant an injunction over the defendants’ foreign assets but was wary not to make an order which though purporting to restrain the actions of defendants who were subject to its jurisdiction, may be understood to impose obligations upon persons resident abroad who are not subject to its jurisdiction. To address this concern, the Court required such an injunction to be qualified by a proviso which made it clear that the injunction did not affect the rights of third parties. This proviso has come to be known as the Babanaft proviso.
 
Although Babanaft concerned a post-judgment worldwide injunction, Kerr LJ, one of the appeal judges, expressed per obiter that the same principles would apply to a pre-trial worldwide injunction.
 
Babanaft was followed barely a month later by another decision of the Court of Appeal in Republic of Haiti v Duvalier [1989] 1 All ER 456. In this case, the Republic of Haiti commenced proceedings in France to recover from a former president of the republic and his family and associates about US$120 million which was alleged to have been embezzled by the president while he was in power. A writ was issued in England and on the same day, the plaintiff obtained, ex parte, a Mareva injunction restraining the defendants from dealing with their assets, wherever situate. The defendants, after failing to set aside the order, appealed to the Court of Appeal.
 
The Court of Appeal dismissed the defendants’ appeal. Staughton LJ (with whom Strocker and Fox LJJ concurred) stated that he would have agreed with the view expressed by Kerr LJ in Babanaft that the court had the jurisdiction to grant a Mareva injunction pending trial, over assets worldwide, if counsel for the defendants had not already conceded that the court had the jurisdiction to do so.
 
The learned Judge then held that the Babanaft proviso should be modified so that it affords protection to third parties except to the extent that the order was enforced by the courts of the states in which the defendants’ assets were situate and that the proviso should only apply to assets and acts done outside England and Wales and not to individuals resident in England and Wales.
 
The court’s jurisdiction to grant a Mareva injunction was challenged in the Court of Appeal on an interesting ground in Derby & Co Ltd v Weldon (No 2) [1989] 1 All ER 1002. The 4th defendant contended that it was a precondition for granting of a Mareva injunction that the defendant had some assets within the jurisdiction of the court. As the 4th defendant did not have assets in England, it submitted that the court had no jurisdiction to grant the worldwide injunction.
 
The Court of Appeal rejected the 4th defendant’s arguments and held that the court had jurisdiction to grant a pre-judgment Mareva injunction over a defendant’s foreign assets, notwithstanding that he had no assets within the jurisdiction, if such an order was necessary to prevent the defendant from taking action to frustrate subsequent orders of the court. To protect the position of third parties outside the jurisdiction, the Court of Appeal ordered the Mareva injunction to be modified to include a proviso along similar lines as ordered by the court in Duvalier.
 
THE MALAYSIAN POSITION
 
The Malaysian courts have taken the view that they have the jurisdiction to grant worldwide Mareva injunctions. This can be seen in the following three cases.
 
In Metrowangsa Asset Management Sdn Bhd & Anor v Ahmad b Hj Hassan & Ors [2005] 1 MLJ 654, the High Court granted an injunction to the plaintiffs to restrain several defendants from dealing with their assets, both within and outside Malaysia, on the premise that the defendants had allegedly embezzled a sum of approximately RM125 million belonging to the plaintiffs’ clients. In making the order, Abdul Malik Ishak J stated:
 
“I even venture to say that a ‘worldwide’ Mareva injunction may even be granted where the assets which are to be frozen are wholly located abroad or where some of the assets are within the jurisdiction and some are abroad.”
 
In Khidmas Capital Sdn Bhd & Anor v NRB Holdings Ltd and other appeals [2006] 4 MLJ 194, the Court of Appeal upheld a worldwide Mareva injunction granted by the High Court in favour of the respondent, a South African, to freeze the appellant’s assets worldwide as there were sufficient grounds for the respondent to fear that the appellant would dissipate the assets it owns across the globe to frustrate any judgment that the respondent may obtain.
 
In Securities Commission v Lee Kee Sien, Albert & Ors (Kuala Lumpur High Court Civil Suit No. D7-22-805 of 2007 (unreported)), the Securities Commission obtained an injunction, inter alia, to restrain the defendants from acting as an unlicensed fund manager and/or an unlicensed investment adviser, whether through “Swiss Mutual Fund” or “Swisscash” or otherwise. At the same time, the Commission obtained a worldwide Mareva injunction to restrain the defendants from disposing of, or dealing with, any of their assets (including monies held in bank accounts), whether in or outside Malaysia to the extent of US$83 million. The proceedings taken by the regulator resulted in a settlement with a sum of RM32.7 million being recovered for the investors who had been duped into investing in the schemes operated by the defendants.
 
THE PROCEDURE
 
To obtain a Worldwide Mareva Injunction
 
The grant of a worldwide Mareva injunction follows the same principles as that of a conventional Mareva injunction. According to Iain S. Goldrein, Commercial Litigation: Pre-Emptive Remedies (International Edition), Sweet & Maxwell, 2005, the applicant must first satisfy the court as to the following:
 

1. The existence of a legal and equitable right;
2. The court must have jurisdiction in relation to that right;
3. The applicant has a good arguable case for a certain or approximate sum;
4. The respondent has assets (which need not necessarily be within the jurisdiction);
5. Risk of dissipation, i.e. that a refusal of an injunction would involve a real risk that a judgment or award in the applicant’s favour would remain unsatisfied; and
6. The applicant’s consent to an undertaking as to damages save in very exceptional circumstances.

 
In addition to the above, the applicant must show that the respondent’s assets within the jurisdiction are insufficient to meet the applicant’s claim.
 
Before granting a Mareva injunction, whether conventional or worldwide, the Court must weigh all the evidence before it and be satisfied that it is just and convenient to grant the injunction.
 
To enforce a Worldwide Mareva Injunction
 
A worldwide Mareva injunction is enforceable against the defendant. However, it cannot be enforced against a person outside the jurisdiction who holds an asset which is frozen under the injunction unless a court in the foreign jurisdiction registers that injunction under available legislation or issues an injunction on similar terms against that person.
 
For example, if a worldwide injunction is issued by a Malaysian court to restrain a defendant from disposing of his moneys in a bank in Thailand, the defendant may be subject to contempt proceedings in Malaysia for breach of the injunction if he disposes of his money in the Thai bank. However, the Thai bank cannot be cited for contempt proceedings in the Malaysian court notwithstanding that it permits the money to be withdrawn by the defendant.
 
CONCLUSION
 
In a world where commercial activities and the flow of money are becoming increasingly borderless, the worldwide Mareva injunction is an important pre-trial tool which can be utilised by a plaintiff to prevent a defendant from defeating any ultimate judgment by dissipating his assets which are located within and outside the jurisdiction of the Court where legal proceedings have been commenced.
 
The courts have, understandably, set a high bar for the grant of a worldwide Mareva injunction. In particular, the plaintiff must show that the defendant does not have sufficient assets within the jurisdiction to satisfy the plaintiff’s claim and that there is a real risk that the defendant would dissipate his assets with a view of negating the effect of a judgment that may be obtained against him.