A Case for Extending the Mareva Jurisdiction in the Bermuda Courts

Andrew A. Martin · October 6^th, 2006

Grupo Torras SA v Meespierson (Bahamas) Limited et al

Supreme Court of Commonwealth of Bahamas (March 1998) Sawyer CJ Court of Appeal of Commonwealth of Bahamas (April 1999) Gonzales-Sabola P Hall JA

A Mareva injunction is one of the most well known types of interlocutory order. It is almost always obtained ex parte and often in a great hurry. Many times the order is obtained on the basis of a generally endorsed writ (or a draft and an undertaking to file it).

Under English law, there are a number of requirements which need to be fulfilled before the court will grant the injunction to restrain disposal or removal of assets from the jurisdiction (very often monies in a bank account). There must be evidence of a real risk of dissipation or disposal of available assets prior to enforcement of a judgment. The principles relating to the grant of Mareva injunctions are well known. The leading local case is Locobail International Finance Ltd v Manios (1988) in the Court of Appeal which adopted and applied all the English principles.

It is usually said that the cardinal rule in Mareva applications is that there must be a cause of action over which the court has jurisdiction, because a Mareva injunction is not a cause of action in itself. The Mareva injunction is a remedy which is ancillary to the main cause of action. It is granted to prevent an unscrupulous or cynical defendant frustrating the legal process by removing all available assets from the jurisdiction so that by the time judgment is obtained there is nothing left against which the successful plaintiff can enforce.

Whether an independent cause of action is an essential requirement before the court has jurisdiction to grant a Mareva injunction was considered by the Privy Council in Mercedes Benz v Leiduck [1996] AC 284 on appeal from Hong Kong. Mercedes Benz alleged that the second defendant had received in Hong Kong part of moneys misappropriated by the first defendant. Mercedes Benz applied in Hong Kong for a worldwide Mareva order against the first defendant, abandoning any claim against the second defendant. The Privy Council held that that the statutory enlargement of the court’s territorial jurisdiction under Order 11 was limited to actions designed to ascertain substantive rights, and Mareva relief was not of such a character applying the well known principle in Siskina (Cargo Owners) v Diskos Compania Naviersa SA [1979] AC210 HL. The Privy Council set aside the order giving leave to serve out, and the Mareva order fell away.

The Privy Council decision in Mercedes Benz has been followed in at least one Bermuda case Berliner Bank AG v Karageorgis et al (Meerabux J) 1997.

The Privy Council decision in Mercedes Benz was, however, a majority decision with a strong dissenting opinion by Lord Nicholls who expressed the view that

"...Mareva relief is not granted in aid of the cause of action asserted in the proceedings, at any rate in the ordinary sense. It is not so much relief appurtenant to a money claim as relief appurtenant to a prospective money judgment. It is relief granted to facilitate the process of execution or enforcement which will arise when, but only when, the judgment for payment of an amount of money has been obtained. The court is looking ahead to that stage, and taking steps designed to ensure that the defendant cannot defeat the purpose of the judgment by thwarting in advance the efficacy of the process by which the court will enforce compliance"

And later,

"Once it is borne in mind that a Mareva injunction is a protective measure in respect of a prospective enforcement process, then it can be seen there is a strong case of Mareva relief from the Hong Kong court being as much available in respect of an anticipated judgment of the Hong Kong court itself. Courts of many countries recognise and enforce judgments regularly obtained in other countries. The English court has done so for centuries...if the Hong Kong court will make its enforcement process available in respect of a foreign judgment, then in principle that must surely encompass Mareva relief as well. In other words...Mareva relief should be available in all cases where the Hong Kong court will make its enforcement process available, whether the judgment being enforced is that of the Hong Kong court or a foreign court or for that matter, an arbitration award."

He concluded by holding that it would have been competent for the plaintiff to have issued a writ claiming Mareva relief alone provided that the prospective judgment in the foreign court would be recognised by the Hong Kong court.

As a result of Lord Nicholls' dissenting opinion the English legislature amended the law by passing the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997. This provides in effect that the English court may grant interim relief even though there is no substantive cause of action which can be brought in England, but where assets are located in England even though the defendant is not resident there.

Grupo Torras SA

In the case under review the plaintiff sought a Mareva injunction and disclosure orders against the defendants which were all resident within the jurisdiction. It was conceded that there was no cause of action against the defendants within the jurisdiction (not even tracing) and no cause of action against the main target of the litigation, namely Sheikh Khaled, in respect of alleged frauds carried out elsewhere.

Section 21 of the Bahamas Supreme Court Act 1996 provides:

1. The court may by order...grant an injunction...in all cases in which it appears to the court to be just and convenient to do so...
2. Any such order may be made either unconditionally or on such conditions as the court thinks fit.
3. If whether before or at or after the hearing of any cause or matter an application is made for an injunction to prevent any threatened or apprehended waste or trespass, the injunction may be granted, if the court thinks fit, whether the person against whom the injunction is sought is or is not in possession under claim of title or otherwise or (if out of possession) does or does not claim a right to do the act...and whether the estates claimed by both...are legal or equitable.

The defendants’ argument was that as there was no cause of action over which the Bahamas court had jurisdiction so there could be no jurisdiction to order an interim injunction over assets in the Bahamas in the hands of defendants against whom no substantive relief was sought. The Chief Justice however applied the reasoning of Lord Nicholls’ dissenting opinion in Mercedes Benz and concluded that it was at least arguable that the Bahamas court could grant “free standing” Mareva relief in respect of causes of action pending before another court and particularly where the defendants against whom the relief was sought were resident within the jurisdiction.

In reaching this conclusion the Bahamas court in Grupo Torras relied heavily on the decision of the Jersey Court of Appeal in Solvalub Limited v Match Investments Ltd (1997) 1 OFLR 152 in which the President (Sir Godfrey Le Quesne) held:

"...it is within the power of the Royal Court to grant a Mareva injunction in aid of proceedings in a foreign court and to do that in proceedings here in which no relief other than that of the grant of a Mareva injunction is sought".

The President in that case took a broad interpretation of the Service of Process (Jersey) Rules which allow an application to restrain a party from doing anything within the jurisdiction. He also referred to the importance of public policy interests of protecting the reputation of Jersey as a financial centre in giving assistance to the administration of justice in other countries.

On appeal the Bahamas Court of Appeal reversed the Supreme Court’s decision. The Court of Appeal followed the majority opinion of the Privy Council in Mercedes Benz. However the Court of Appeal was strongly attracted by the reasoning of Lord Nicholls and recognised the desirability of having the jurisdiction to make such orders in aid of foreign process and commented favourably upon the public policy and reputational issues referred to in the Solvalub case.

While the President expressed concern about the floodgates and an "open sesame to fearful claimants to immobilise the assets of persons not sued before the courts" Carey JA said: "The views of Lord Nicholls it must be said, are not only attractive, but are very appropriate to this jurisdiction which is an important off-shore banking country, but those views do not represent the law as I understand it to be at the present time." And Hall JA said: "While I confess to a strong inclination to follow Lord Nicholls in Mercedes were I faced with the same facts, and embracing the views of LeQuesne P in Solvalub, which I see to be identical to the policy pronouncements of the Executive branch of the government of the Bahamas of preserving the integrity of the Bahamas as a clean financial centre... to hold that Mareva relief... could attach to the defendants... would be for the courts to over reach and assume powers which are properly within the province of the legislature... "

The Court of Appeal of the Bahamas reluctantly concluded legislative intervention would be required to achieve the result contended for by the plaintiff. The case was expected to go to the Privy Council, but did not, so the Privy Council did not get the opportunity to revisit the question raised, which is of considerable practical importance to all off shore jurisdictions.

Implications for Bermuda

1. The jurisdiction of the Bermuda court to grant Mareva injunctions is contained in s 19 (d) of our Supreme Court Act 1905. It is in almost identical terms to section 21 of the Bahamas Supreme Court Act 1996.
2. It may be that the conventional interpretation of the ambit of the Bermuda section can be revisited in the light of the Grupo Torras and Solvalub decisions. (These were decided after Meerabux J’s decision in the Berliner Bank case.)
3. Strictly speaking the Mercedes Benz decision was confined to the issue of territorial jurisdiction and the majority opinion of the Privy Council declined to rule expressly on whether the court had power to grant a Mareva injunction against a resident defendant in the absence of a substantive cause of action. In Grupo Torras the issue of power to do so will be before them. The English statutory law has been amended since the Mercedes Benz decision.
4. Grupo Torras illustrates the need for Bermuda to keep up with the trends in international judicial thinking in respect of comity and cooperation. A simple amendment to the Supreme Court Act might be made to expressly confer jurisdiction to grant “free-standing” Mareva injunctions where the cause of action will result in a judgment recognisable in Bermuda. The international climate in the Bahamas, Jersey, and The Isle of Man all recognise the significance of international comity and we should not be seen to lag behind.

Sir Godfrey LeQuesne said in Solvalub

"Jersey is an important financial centre ... For practical and especially for financial purposes it is very close to many countries all over the world. There are dozens of funds which are constantly encouraging people who have money to place it here. Every now and then a figure is quoted, ever rising, as the total quantity of funds which are deposited in Jersey. The figure is enormous. If this Royal Court were to adopt the position that it is not willing to lend its aid to courts of other countries by temporarily freezing the assets of defendants sued in those other countries, that in my judgment would amount to a serious breach of the duty of comity which courts in different jurisdictions owe to each other. Not only so, but the consequence of such an attitude would be that Jersey would quickly become known as a safe haven for persons wishing to evade liabilities imposed on them by the courts to which they are subject. This is exactly the reputation which any financial centre strives to avoid and Jersey has so far avoided with success."

These words apply with equal force to Bermuda.

Since the decision in the Berliner Bank AG case, the Bermuda Supreme Court recognized that Mareva relief in a post judgment context is available to support the cause of action of enforcing a foreign judgment (Mubarak v Mubarak 2002 unreported). The apparent inconsistency in the drawing of a distinction of this type between pre-judgment and post-judgment relief underlines the need for Bermuda to reform its approach to the grant of Mareva type relief as a matter of priority.