Queen’s Bench Division, Commercial Court

 

C Inc plc v L and another

 

Reported as: [2001] All ER (D) 376 (Mar)

 

COUNSEL: Julia Dias (instructed by Eversheds) for the claimant.

William Wood QC and Nigel Meeson (instructed by D J Freeman) for Mr L.

No appearance by or on behalf of Mrs L.

James Wilson Barrister (NZ).

 

JUDGE: Aikens J

 

DATE: 16 March 2001

 

Practice – Pre trial or post-judgment relief – Freezing order – Third party interests – Claimant obtaining judgment against wife – Claimant alleging wife trustee of husband’s assets – Husband and wife resident overseas – Claimant applying for freezing order against husband’s assets – Whether jurisdiction to make order – Civil Procedure Rules 1998, 19.2.

 

CPLC was a company incorporated to enable members of Lloyd’s to exchange their unlimited liability as names for a limited liability as share and stockholders of CPLC. In July 1997 the claimant company acquired the entire issued share and loan stock capital of CPLC. The defendants, Mr and Mrs L, were resident in Guernsey. In 1996 Mrs L was a name at Lloyd's. She applied for and obtained 18,200 ordinary shares in CPLC and also for 364,000 of ‘nil-paid’ convertible loan stock in CPLC, which was subsequently transferred to the claimant. In 1999, Mrs L was called upon to pay the full amount of her loan stock in cash. She failed to pay and the claimant issued a claim form in July 2000. Mrs L’s solicitors stated that she had no assets but ‘substantial liabilities', and advised her not to defend the proceedings. Judgment was entered in default and was not satisfied. In November 2000, the claimants obtained, without notice, a freezing order against the assets of Mrs L, in aid of execution of the default judgment. The order covered, inter alia, specific assets in Guernsey. It also required her to swear an affidavit as to her assets, both in and outside the jurisdiction. Mrs L’s affidavit stated that she had no money or assets of her own and she was entirely dependent on her husband. The claimant then sought, inter alia, a freezing order over the assets of Mr L, together with permission to join him as a party to the proceedings and to serve the proceedings and orders out of the jurisdiction. It was contended that the effect of Mrs L’s disclosure affidavit was that she was acting as the trustee or agent of her husband in entering into the share and loan stock agreement in the claimant; therefore the loan stock was held on trust for Mr L; if so, then as trustee or agent Mrs L had to have a right of indemnity against Mr L; and thus the freezing order should be extended to all assets held on trust for Mr L. In support of the freezing order sought against Mr L, it was contended that the business affairs of Mr and Mrs L were ‘intermingled’ and that he should be joined to the proceedings pursuant to CPR 19.2 to resolve all matters in dispute between the claimant and the two defendants. On 21 December 2000, the judge varied the freezing order against Mrs L so as to extend it to include assets held on trust by Mrs L for her husband, and her right of indemnity against Mr L. He also stood over the application for the appointment of a receiver, granted a freezing order against Mr L, and gave permission to join Mr L to the existing proceedings. Mr L applied to set aside the orders made and the proceedings against him, on the grounds, inter alia, that the court had no jurisdiction to make the freezing order. He also submitted that the court had no jurisdiction to join him to the current action under CPR 19.2(2) because there were no ‘proceedings’ for the purposes of CPR 19.2, and no ‘matters in dispute', as judgment in default had already been given against Mrs L. He submitted further that the court should not grant leave to serve him out of the jurisdiction, since the case did not fall within any relevant head of CPR 6.20. For the purposes of the applications, it was assumed that Mrs L had no appreciable assets of her own; that there was a valid default judgment against her, but no claim in English or other proceedings against Mr L for substantial relief; that Mrs L was acting as the agent and trustee of Mr L in entering into the contract; it was arguable that Mrs L had a right to claim an indemnity from Mr L personally; and that s 25 of the Civil Jurisdiction and Judgments Act 1982 had no application to the present case.

 

The court ruled:

 

(1) The court had power to grant a freezing order against the assets of C when A had a substantive right against B and the assets of C were not, even arguably, beneficially owned by B; but, in those circumstances, the right of A to a freezing order against C was dependent upon A’s right against B itself giving rise to a right that B could exercise against C and its assets. Therefore the freezing order sought by A against C was ‘incidental to’ A’s substantive right against B and it was also ‘dependent upon’ that right. In the instant case, the claimant had a substantive right against Mrs L (the default judgment), and because of that right, indeed because of the antecedent liability of Mrs L to the claimant, Mrs L had, arguably, a right to an indemnity from Mr L. That could either be enforced by her, or if she would not do so, by a receiver appointed by the court. That receiver would have the right to claim against Mr L and to satisfy any judgment out of his assets. Accordingly, the court did have the legal power to grant a freezing order against Mr L (see para 75); Cardile v LED Builders Pty Ltd [1999] HCA 18 adopted.

 

(2) The court had power to join a new party when judgment had already been obtained against the only existing party. The word ‘proceedings’ in CPR 19 should be given a broad interpretation encompassing all stages of an action from the time it had been started until it became finally complete or moribund. There were ‘matters in dispute’ in the instant case because judgment had not been satisfied (see paras 82-88).

 

(3) In the instant case, the court had territorial jurisdiction over Mr L and so could grant permission to serve the application notice on him out of the jurisdiction under CPR 6.20 and 6.30(2): there was an issue between the claimant and Mrs L on whether a receiver should be appointed; Mr L was a proper party to the application of the claimant against Mrs L for the appointment of a receiver; and the relief against Mr L was incidental to the application to appoint a receiver as well as being incidental to and dependent upon the substantive right that the claimant had against Mrs L (see para 94).

 

 

Judgment

 

QUEEN’s BENCH DIVISION

 

COMMERCIAL COURT

 

16 MARCH 2001

 

Mr Justice Aikens

 

I direct pursuant to CPR Part 39 P.D.6.1. that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.

 

1. Outline of the case

 

This case raises an interesting question on the scope of the court’s power to grant a freezing order over the assets of a person who is resident out of the jurisdiction and against whom no substantive claim has been brought by the Claimant. Mrs L, the First Defendant, lives with her husband, the Second Defendant, in Guernsey. The Claimant obtained a judgment in default against Mrs L for a debt on a share and stock purchase contract. The judgment was not satisfied. A freezing order in aid of execution was made against Mrs L. She then swore an affidavit of assets, saying that she had virtually none. She said that all the family assets were in her husband’s name. She also said. that she had held the shares in the Claimant company, which had been issued pursuant to the share and stock purchase agreement sued upon, as the trustee or agent of her husband. The Claimant (without notice) then sought and obtained from Moore – Bick J a freezing order against Mr L’s assets and an extended freezing order against the assets of Mrs L. The Judge also granted permission to join Mr L to the proceedings and to serve those proceedings and the freezing order on him in Guernsey. Mr L has applied to set those orders aside. The principal ground advanced is that the court has no power or territorial jurisdiction to make them. The Claimant wishes to maintain the orders; but if it cannot do so, then it seeks alternative remedies.

 

2. The Parties: the Claimant

 

In September 1996 C PLC (“CPLC”) was incorporated to enable members of Lloyd’s to exchange their unlimited liability as Names for a limited liability as share and stockholders of CPLC. In May 1997 a restructuring took place and the Claimant company was incorporated on 21 May 1997. On 11 July 1997 the Claimant acquired the entire issued share and loan stock capital of CPLC.

 

3. The Defendants

 

Mr and Mrs L are resident in Guernsey. In 1996 Mrs L was a Name at Lloyd's. For some years Mrs L had been underwriting at Lloyd’s at a premium income level of over 3 million. That is a high level of underwriting. Mrs L has sworn affidavit evidence as to her assets.1 She stated that: (i) her financial interest in the family home in Guernsey is nil; (ii) her underwriting at Lloyd’s was secured by a bank guarantee which was itself secured upon assets provided by Mr L; (iii) this underwriting was done as trustee on behalf of her husband and she had no beneficial interest in her underwriting at Lloyd’s nor the facilities that supported it; (iv) the shares that she came to hold in the Claimant (see below) are held by her as trustee for Mr L; (v) she owns personal property worth about 5000.

 

4. It is not in dispute that Mr L is an experienced businessman who is the chairman of four companies, two of which are PLCs. He also owns substantial properties in Guernsey. On Mrs L’s admission she acts as his trustee and agent in conducting various business transactions, including the one that has led to the current proceedings.

 

5. The Share and Loan Purchase Contract and the action against Mrs L

 

By an application form dated 31 October 1996 Mrs L applied for 18,200 ordinary shares in CPLC and also for 364,000 of “nil – paid” convertible loan stock in CPLC. In due course she was allocated 18,200 shares and 364,000 nil – paid” stock. By a Share and Loan Stock Exchange Agreement dated 11 July 1997 between Mrs L, CPLC and the Claimant (as well as the other share and loanstock holders of CPLC), Mrs L agreed to transfer her shares and loan stock in CPLC to the Claimant. In exchange the Claimant agreed to issue an equivalent number of shares and quantity of loan stock to Mrs L. Mrs L made an application dated 11 July 1997 to the directors of the Claimant for the issue of 18,200 shares and 364,000 nil – paid loan stock 1999 in exchange for the transfer of her existing holdings in CPLC, which she duly transferred to the Claimant. The application was accepted. There was nothing in Mrs L’s application to suggest that Mrs L was acting as trustee or agent for her husband.

 

6. The shares and loan stock were duly issued by the Claimant to Mrs L. By letter dated 20 August 1999, Mrs L was called upon to pay the full amount of her loan stock in cash, in accordance with the terms of the agreement with the Claimant. Mrs L failed to pay.

 

7. The Claimant issued a Claim Form on 14 July 2000, in which it claimed from Mrs L 364,000 as a debt owing to the Claimant. Interest was also claimed. Permission to serve the Claim Form and Particulars of Claim on Mrs L in Guernsey was granted by David Steel J on 11 July 2000.

 

8. On 8 August 2000 DJ Freeman, who said that they were acting for Mrs L, wrote to Eversheds, acting for the Claimant. DJ Freeman stated that Mrs L had no assets but “substantial liabilities DJ Freeman had therefore advised her not to defend the proceedings.

 

9. On 15 September 2000 Eversheds entered judgment in default against Mrs L. The total judgment sum was calculated as 386,973.40. This judgment has remained unsatisfied.

 

10. The Freezing Orders against Mrs L and the subsequent proceedings against Mr L

 

On 3 November 2000 Eversheds applied to Moore – Bick J, without notice, for a freezing order against the assets of Mrs L, in aid of execution of the default judgment that had been obtained. The Judge granted an order restraining Mrs L from (i) removing or dealing with any of her assets in England and Wales up to the value of 395,000; (ii) disposing or dealing with any of her assets outside England and Wales, including particular assets in Guernsey that were identified. The usual ancillary orders were also made, including an order that Mrs L must swear an affidavit as to her assets, both in and outside England and Wales.

 

11. Mrs L swore an affidavit on 24 November 2000. This had appended to it a schedule of assets. I have summarised its contents in paragraph three above. This led to correspondence between the two firms of solicitors, because Eversheds were not satisfied that full disclosure had been made by Mrs L. DJ Freeman made it clear (and this is not disputed for the purpose of these proceedings) that Mrs L had no money or assets of her own and she was entirely dependent on her husband for any funds.

 

12. Having received this information, Eversheds applied, (without notice), for three further orders. These applications were made to Moore – Bick J on 21 December 2000. First, the Claimant sought two further orders against Mrs L. These were: (i) a variation of the freezing order of 3 November 2000; and (ii) an order to appoint a Receiver by way of equitable execution over the assets of Mrs L, including any assets situated in Guernsey. Secondly, the Claimant sought a freezing order over the assets of W L, including his assets in Guernsey, together with permission to join him as a party to the proceedings and to serve the proceedings and the orders on him out of the jurisdiction in Guernsey. In support of these applications two affidavits were sworn by Mr Simon David Brooks, a partner in Eversheds.

 

13. In support of the first order sought against Mrs L it was contended in Mr Brooks’ affidavit2 that the effect of Mrs L’s disclosure affidavit and schedule of assets was as follows: (i) that she was acting as the trustee or agent of her husband in entering into the Agreement for the purchase of the shares and loan stock in the Claimant in July 1997; (ii) therefore the loan stock, as well as the shares in the Claimant, that were held in her name were held on trust for her husband; (iii) if so, then as a matter of both English and Guernsey law, Mrs L, as trustee or agent, must have a right of indemnity against her husband, as beneficiary or principal, in, respect of all liabilities incurred by her in connection with the trust property or her acts as agent on behalf of Mr L as principal; (iv) in the circumstances it would be just to extend the existing freezing order against Mrs L to cover all the assets that Mrs L held on trust for Mr L including the shares in the Claimant and her other underwriting interests. It was assumed that the alleged right of indemnity in respect of her liability to the Claimant would be covered by the existing order against Mrs L, but clarification of this was sought.

 

14. In support of the freezing order sought against Mr L, it was contended in Mr Brooks’ affidavit3 that: (i) the business affairs of Mr and Mrs L were “intermingled”; (ii) Mrs L had a right to indemnity from Mr L in respect of her liability to the Claimant, which had now been transformed into a judgment; (iii) Mrs L also had the right to require Mr L to apply his assets to discharge the judgment debt in favour of the Claimant; (iv) there was a danger of dissipation of the assets of Mr L, so a freezing order should be made against him; (v) he should be joined to the proceedings in order to resolve all matters in dispute between the Claimant and the two defendants and as between the two defendants; (vi) the Court had jurisdiction to grant permission to serve the proceedings on Mr L out of the jurisdiction under CPR Part 6.20 (2) or (3) or (9).

 

15. Moore – Bick J made the following orders on 21 December 2000:

 

• (1) he varied the freezing order made against Mrs L on 3 November 2000, so as to extend it to include assets held on trust by Mrs L for her husband and Mrs L’s “right of indemnity against [Mr] L in respect of the subject matter o this action and/or the judgment debt herein”;4

 

• (2) he stood over the application for the appointment of a Receiver over Mrs L’s assets, which would be dealt with at a hearing on notice;

 

• (3), he granted a freezing order against Mr L, which extended to his assets in England and Wales and elsewhere. The particular assets identified in the order included any assets that were held in his wife’s name to which he was beneficially entitled;

 

• (4) he granted permission to join Mr L to the existing proceedings and to serve the Amended Claim Form and all the orders made on him in Guernsey.

 

16. The Ensuing Applications of Mr L

 

After Mr L had been served with the orders, an Application Notice dated 3 January 2001 was issued on his behalf. By this Notice Mr L applied to set aside the orders made by Moore – Bick J and the proceedings against him. The three grounds that are now particularly relied on are: (1) that the Court has no power to grant a freezing order against Mr L, or alternatively that it ought not to have done so. (2) That the case does not fall within any relevant head of CPR Part 6.20, so that the Court has no jurisdiction over Mr L who is resident out of the jurisdiction. Alternatively England is not the appropriate place for any proceedings against Mr L, which ought to be brought in Guernsey. Accordingly the Court should declare (under CPR Part 11) that it has no jurisdiction over Mr L. (3) That the Court has no power to join Mr L under CPR Part 19; alternatively that it ought not to have exercised any power to join him.

 

17. The riposte of the Claimant

 

The Application Notice of Mr L resulted in a further Application being made by the Claimant in its Application Notice dated 10 January 2001. This asked that: (1) the judgment in default obtained against Mrs L on 15 September 2000 be set aside under CM Part 13.3. (2) That the Claimant have permission under CPR Part 19.4 to add Mr L as Second Defendant to the action. (3) That the Claimant have permission under CPR Part 17.1 to amend the Claim Form and Particulars of Claim so as to make the claim for the contract debt against Mr L. (4) That the Claimant have permission under CPR Part 6.20 (3) and/or (5) to serve Mr L out of the jurisdiction (in Guernsey) with the Amended Claim Form and the Application Notice dated 10 January 2001. (5) That a freezing order be made against Mr L (as Second Defendant in the reconstituted action) in respect of his assets both in and outside England and Wales; and (6) the freezing order against Mrs L, as extended by the order of 21 December 2000, be continued until judgment or further order.

 

18. The grounds for these applications were stated to be (in summary) that: (i) contrary to the belief of the Claimant at the time proceedings were instituted and when the default judgment was obtained, Mrs L “had in fact entered into the contract on which the Claimant sues as an agent for [Mr] L as undisclosed principal”, 5 (ii) Mrs L claims to have insufficient assets to satisfy the judgment obtained against her; 6 (iii) there has been no determination of Mrs L’s liability on the merits; (iv) therefore it is just and reasonable to set aside the default judgment and join Mr L to the proceedings “as the party primarily responsible for the contract debt”7 (iv) “there is a real risk that any judgment obtained by the Claimant will remain unsatisfied unless such orders are made” 8

 

19. The Applications before the Court

 

The hearing of the various applications took place before me on 23 and 24 January 2001.9 The Applications before the Court were:

 

• (1) Mr L’s Application to set aside the orders made against Mr L by Moore – Bick J on 21 December 2000.10 (“Mr L’s Application”);

 

• (2) the Claimant’s Application to confirm the orders of Moore – Bick J against Mr L made on 21 December 2000. (“The Claimant’s First Application”);

 

• (3) the Claimant’s alternative Applications. made in the Notice dated 10 January 2001, against Mr L.11 (“The Claimant’s Second Application”).

 

The Claimant’s Application for the appointment of a Receiver over the assets of Mrs L was adjourned. It was agreed that the relevance of that application would depend on the outcome of the present three applications before the Court. Therefore the Claimant could decide whether to pursue the application once the decision on the current applications was given.

 

20. At the hearing Miss Julia Dias represented the Claimant and Mr William Wood QC (with Mr Nigel Meeson) represented Mr L. Mrs L was neither present nor represented at the hearing. I am very grateful for the most helpful written and oral submissions of Miss Dias and Mr Wood.

 

21. The agreed or assumed factual and legal background

 

For the purposes of the hearing of these applications only, it was agreed by Miss Dias and Mr Wood that certain facts and principles of law could be taken as agreed or assumed. These can be summarised as follows:

 

• (1) Mrs L has no appreciable assets of her own with which to satisfy the judgment debt against her. All the assets of Mr and Mrs L are, effectively, in the name of Mr L, who is resident out of the jurisdiction in Guernsey. Mr L has substantial assets in Guernsey. It is arguable that he also has assets within the jurisdiction. The law of Guernsey does not recognise the concept of beneficial ownership, at least so far as realty is concerned. 12

 

• (2) At present there is a valid default judgment against Mrs L. But there is no claim in English or other proceedings for any substantive relief against Mr L.

 

• (3) Although Mrs L is the only person named as the purchaser in the Share and Loan Stock Purchase Agreement, she was acting as the agent and trustee of her husband in entering into this contract.

 

• (4) As a matter of both English and Guernsey law, it is arguable that Mrs L, as trustee, has a right to claim an indemnity from Mr L personally, as the beneficiary, for any liability that she has incurred in connection with the transaction in which she acted as a trustee. 13

 

• (5) If Mrs L was acting as the agent of Mr L as an undisclosed principal in entering into the Share and Loan Stock Agreement, then she has a right, as agent, to be indemnified by her principal for the liability that she has incurred in respect of the purchase of the loan stock. 14

 

• (6) The right to claim an indemnity accrues as soon as the liability is proved to exist. The trustee or agent does not have to prove a prior payment. 15

 

• (7) The right to claim an indemnity is a “thing in action”. -As a matter of fact Mrs L would not herself enforce her right to indemnity against her husband.

 

• (8) The English court has jurisdiction (under section 37(1) of tile Supreme Court Act 1981) to appoint a Receiver where it is just and equitable to do so. The Court has jurisdiction to appoint a Receiver in aid of equitable execution where the processes of legal execution cannot be used. This jurisdiction extends to a case where the judgment debtor has the right to claim an indemnity from a third party but in practice the judgment debtor would not exercise that right. This jurisdiction exists because the right to claim an indemnity is not susceptible of any process of legal execution, particularly if it is only enforcable out of the jurisdiction.16

 

• (9) Guernsey law does not provide for the appointment of a Receiver over assets in Guernsey.17

 

• (10) However the English Courts have jurisdiction to appoint a Receiver over property situated out of the jurisdiction. This jurisdiction can be exercised when the only property involved is out of the jurisdiction.18 But the Receiver appointed by the English Court must invoke the laws and procedures of the courts in the jurisdiction where the assets are situated to get in those assets.19

 

• (11) The right to an indemnity would be enforceable by a Receiver by action in the Guernsey Courts, as opposed to the English Courts.

 

• (12) The English Court has jurisdiction to grant an injunction to restrain the judgment debtor from dealing with the assets over which a Receiver is to be appointed. An injunction can be granted in advance of the appointment of a Receiver where it is shown that there is a danger of the property being made away with by the judgment debtor.20

 

• (13) Mr Wood accepted that there was an arguable case of a risk of dissipation of assets by Mr and Mrs L, whilst not conceding the point if it became relevant hereafter.

 

• (14) Both parties accepted that section 25 of the Civil Jurisdiction and Judgments Act 1982 (“the CJJA”)21 had no application to the present case.

 

22. At present the order made by Moore – Bick J on 21 December 2000 against Mrs L is not challenged. Thus she is bound not to do anything to dissipate her (alleged) right to claim an indemnity against Mr L in respect of her liability for the judgment debt against her. The object of the application of the Claimant against Mr L is to ensure that he does not dissipate his assets so that if a Receiver is appointed by the English Court and he enforces Mrs L’s right of indemnity against Mr L, there will be assets available in Guernsey or elsewhere with which to make good the indemnity. In that way (the Claimant says) the judgment against Mrs L would ultimately be satisfied.

 

23. (A) The First Application of the Claimant and the Application of Mr L

 

In these circumstances it seems to me that the issues that have to be decided on the first applications of the Claimant and the applications of Mr L are as follows:

 

• (1) whether the English Court has the power to grant a freezing order against Mr L in circumstances where: (i) there is no substantive cause of action against him; (ii) it is not suggested that he holds assets (as trustee or otherwise) that are in fact the assets of the judgment debtor, Mrs L;22 (iii) the judgment debtor has an arguable cause of action against Mr L (ie. the right of indemnity) but has no proprietary claim on his assets;23 (iv) Mr L is resident out of the jurisdiction and the freezing order is intended to cover assets that are both within24 and outside the jurisdiction.

 

• (2) If the Court does have the power to grant a freezing order in this case, should it order that Mr L be joined to the existing action in circumstances where a judgment has already been obtained against Mrs L?

 

• (3) Has the court jurisdiction, under CPR Part 6.30; 6.20 or otherwise, to grant permission to serve the amended Claim Form and Particulars of Claim and the freezing order on Mr L out of the jurisdiction? If it has, then should it exercise that jurisdiction in all the circumstances of this case'?

 

24. All these issues overlap to some extent. But they are, logically at least, separate questions.

 

25. Issue One: The “legal power”25 of the Court to grant freezing orders: the arguments of the parties

 

Miss Dias submitted that the jurisdiction of the Court to make freezing orders, founded on sections 37(1) and (3) of the Supreme Court Act 1981, is a flexible one, which is intended to be adaptable to meet new situations as and when they arise.26 She submitted that this power extended to a case, such as the present, where (i) the affairs of the defendant (Mrs L) and those of the third party (Mr L) were “intermingled”; (ii) there is a judgment debt against Mrs L, but her assets are insufficient to meet the judgment debt against her; (iii) Mrs L, (as judgment debtor), has some legal or equitable right (the right of indemnity) which enables her to require the third party (Mr L) to apply his assets in discharge of the judgment debt; (iv) there is a danger that the third party will dissipate his assets to avoid having to meet the rights of Mrs L. Miss Dias accepted that the English Courts had not so far made a freezing order in circumstances such as the present case, particularly where both the respondent and some of his assets are out of the jurisdiction and there is no direct cause of action against him. But Miss Dias submitted that there is no reason in principle why such an order should not be made. She relied particularly on the decision of the High Court of Australia in Cardile v LED Builders Pty Ltd,27 which she submitted had applied well established English law principles, but had not extended them.

 

26. Mr Wood QC submitted that the Court has no power to grant a freezing order against Mr L. That was for two reasons, he said. First, there is no substantive claim against Mr L. Therefore on the authority of Siskina v Distos Compania Naviera SA28 and Mercedes Benz AG v Leiduck 29 the court lacks any “legal power” and hence any jurisdiction to make a freezing order over the assets of Mr L. Secondly, even if it is accepted that the Claimant might have an indirect right of action against Mr L (through the appointment of a Receiver) to enforce Mrs L’s right to an indemnity, that is only a future and contingent right. At present it does not exist. The court has no legal power to grant a freezing order where the Claimant has only a future and contingent right: Veracruz Transportation Inc v VC Shipping Co Inc “The Veracruz”,30 Department of Social Security v Butler.31

 

27. The “legal power” of the Court to grant a freezing order: analysis

 

Miss Dias and Mr Wood both accepted that, so far as they have been able to research the point, an application such as the present has not come before the English Court before. To summarise: the application is for a freezing order that is; (i) against a non – party who is resident out of the jurisdiction; (ii) against whom the Claimant itself does not assert a direct claim for substantive relief; (iii) in respect of assets that are situated both within and outside the jurisdiction; and (iv) is sought when a default judgment has already been obtained against the existing defendant but that judgment has not been met and it appears that the defendant has no assets to satisfy the judgment.

 

28. It may help to consider the point in general terms first of all. For this I will assume that there are no complications over the territorial jurisdiction of the English Court. Imagine A has a claim in debt against B. A obtains judgment against B. But B has no assets to satisfy the judgment. However in the transaction giving rise to the debt B was acting as the agent of C as an undisclosed principal. Therefore, under agency law, B has a right to be indemnified by C for B’s liability to A. Assume that the only way that A can satisfy the judgment debt against B is by utilising the liability of C to indemnify B. But B does not wish to sue C for an indemnity. Moreover C does not wish to have to indemnify B and so wishes to remove his assets from the jurisdiction. Can A obtain a freezing order against the assets of C? A argues that he will invite the court to appoint a receiver over the assets of B (including the right of indemnity against C), so he wishes to preserve the assets of C that the receiver can get at in realising the assets of B. Adopting Lord Nicholls’ phrase in his dissenting advice in Mercedes Benz AG v Leiduck32 “justice and convenience suggest that the answer to the question is yes”, ie. A could obtain a freezing order against C. This is because there is a causal link between the liability of B to A; A obtaining judgment 33 against B and the right of B to be indemnified by C and paid that indemnity out of the funds of C.

 

29. The power of the Court to grant freezing orders is based on section 37(1) of the Supreme Court Act 1981. That enables the Court to grant an interlocutory injunction (which the cases say includes a freezing order) “in all cases in which it appears to the court to be just and convenient to do so “. The question is whether the cases, in defining the scope of the Courts’ power to grant a freezing order pursuant to section 37, have limited the scope of when it is “Just and convenient” to make such an order.

 

30. In considering the cases, I think it is helpful to analyse four particular aspects that have emerged since the advent of what used to be called “the Mareva” jurisdiction 26 years ago. These aspects are: (i) how have the Courts characterised the purpose of a freezing order; (ii) over whose assets can it be granted; (iii) to what extent does the grant of a freezing order depend on whether the English Court itself is being asked to decide some “substantive” claim against the respondent to the order; (iv) at what point in the legal process can the order be made; in particular, does it make a difference to the Court’s approach if the application for a freezing order ‘is made after a judgment has been obtained against the principal defendant?

 

31. (1) The purpose of a freezing order

 

In Mercedes Benz AG v Leiduck, Lord Mustill commented that although it may be possible to see what a freezing order does, it is less easy to see “how, juristically speaking, it does it”.34 As he pointed out, “amidst all the burdensome practicalities, theory has been left behind”.35 However it is possible to discern from the cases the purpose of a freezing order. In Siskina (Owners) v Distos SA36 Lord Diplock expressed its purpose as being:

 

• “to ensure that there will be a fund available within the jurisdiction to meet an judgment obtained by a Plaintiff in the High Court against a defendant who does not reside within the jurisdiction and has no place of business here”.

 

Subsequent cases have widened the circumstances in which a freezing order can be made. Thus it can now also be made against someone who is resident or domiciled in the jurisdiction: section 37(3) of the SCA 1981. In appropriate circumstances the order can be made in respect of assets that are outside the jurisdiction: Babanaft International Co SA v Bassatne.37 However the principal object of a freezing order made under section 37 (1) of the SCA 1981 38 remains the protection of assets so as to provide a fund to meet a judgment obtained by the Claimant in the English Courts.

 

32. Ultimately, therefore, the object of a freezing order is so that the Court can “ensure the effective enforcement of its orders”; per Sir Thomas Bingham MR in Mercantile Group (Europe) AG v Aiyela.39 In a case where (as in that case) a judgment has already been obtained, the “order” in question must be the judgment. In a case where a judgment has yet to be obtained, the “order” must mean the judgment that the Claimant seeks on the substantive claim made against the Defendant. Viewed in this light, the object of freezing orders is to ensure that there is no abuse of the Court’s process which is leading or has led to a judgment on a substantive claim by the Claimant against the defendant.

 

33. But in making the freezing order so as to avoid abuse, the Court does not attach the assets; nor does it give the Claimant any proprietary rights in the assets or any advantage over other creditors of the defendant: see: Mercedes Benz AG v Leiduck at page 300 D-E per Lord Mustill, where he refers to the relevant cases. Furthermore a freezing order is, by its nature, an interim form of relief. No order is ever granted which permanently freezes the assets of a defendant.

 

34. Whether the object of the freezing order is limited to safeguarding the English Court’s process was the subject of the dissenting advice of Lord Nicholls of Birkenhead in the Mercedes Benz case40 He concluded that the English (and therefore Hong Kong) Court has the legal power to grant a freezing order to ensure that there was a fund available in the jurisdiction to meet a “prospective foreign judgment”,41 provided that the cause of action giving rise to the judgment was one that could have been brought in the English Courts or the judgment was one that would be recognised and enforceable in the English Courts.42

 

35. Miss Dias submits that I do not need to consider that debate in this case because, she submits, the claim for the freezing order against Mr L is not in order to provide funds for a judgment to be obtained in Guernsey. She submits that the Claimant’s case falls within the traditional object of a freezing order, as extended by the Babanaft case. The object here, she says, is to provide a fund to meet the judgment that has been obtained against Mrs L in the English Court. So the question is whether the link between the English judgment that has been obtained and the assets of Mr L has to be direct, as it would be in most cases, or it can be more indirect, as it would be in this case. Mr Wood submits that the point cannot be side tracked quite so easily. I will consider it further under the third of the four aspects I have identified.

 

36. (2) Over whose assets can the freezing order be granted?

 

Generally the freezing order will be made in respect of the assets beneficially owned by the Defendant to the action. The standard wording of a freezing order will not cover assets that are held by the defendant as the trustee of a third party who is not involved in the action at all. See generally: Federal Bank of the Middle East Ltd v Hadkinson.43 However if there is a case that the trust procedure is being followed “merely as a device to avoid the effect of the freezing order”, then an extended freezing order over those assets might be made and there could be an investigation into the true beneficial ownership of the assets to be frozen.44 This case might assist an application of Mrs L to discharge the freezing order against “her” assets that she says are held on trust for the benefit of her husband. But Mrs L herself must own beneficially the right to be indemnified by her husband, so the Hadkinson case could not apply to that asset of hers. And the Hadkinson case was not dealing with the current facts, that is where the Claimant wishes to freeze the assets of a third party to ensure there is a fund to satisfy a potential claim on the third party, which arises as a result of the liability of and the judgment against the defendant.

 

37. The Court will also grant a freezing order over assets that are held in the name of a third party, against whom no claim for substantive relief is made, if it is satisfied that there is an arguable case that the assets are, in fact, those of the Defendant to the claim. See: SCF v Masri;45 TSB Private Bank International SA v Chabra;46 Mercantile Group (Europe) AG v Aiyela;47 Yukong Line Ltd v Rendsberg Investments Corp and others.48 This type of order has been made in. a pending action,49 and also where a judgment has been obtained against the principal defendant.50 The rationale for what has been called the “Chabra type of jurisdiction”51 I was explained by Mummery J in the Chabra case: pages 241 – 2. The action is against the principal defendant; the objective of the freezing order is to preserve his assets to ensure that there is a fund to meet the judgment against the principal defendant if it is obtained; if the Court is satisfied that the third party holds assets that are arguably those of the principal defendant, then the freezing order is “ancillary and incidental-to the main cause of action against the principal defendant.

 

38. That reasoning was approved by the Court of Appeal in the Aiyela case.52 In that case, as Hoffmann LJ pointed out, the Claimant had more than a substantive claim against the principal defendant, Mr Aiyela. It had a “substantive right” in the form of a judgment debt owed by Mr Aiyela. The freezing order was made against his wife because there was an arguable case that assets in her name were those of Mr Aiyela.

 

39. In the very recent Yukong, case, 53 Potter LJ stated that the “Chabra type of jurisdiction” could be exercised even where the assets of the principal defendant in the hands of the third party could not be specifically identified. The Court could make an order over the third party’s general assets “up to the amount of the principal defendant’s assets of which he appears to have possession and control”.

 

40. But there are no English cases to which Miss Dias can point in which the English Court has granted a freezing order over assets of a third party, where the defendant to the action (against whom there is a judgment) claims to hold assets but only as trustee or agent of that third party. That, of course, is the converse of the situation in the Chabra case and the Aiyela case. At this point Miss Dias relies on the decision of the High Court of Australia in Cardile v LED Builders Pty Limited (“the Cardile case”).54 The case is the lynch pin of her argument on this part of the case, so I must consider it in more detail.

 

41. The Cardile case: the facts

 

Eagle Homes Pty (“Eagle”) was a housing construction company. Its only shareholders were Mr and Mrs Cardile. In July 1992 the company declared a dividend and paid A $ 400,000 to the shareholders. In October 1992 LED Builders Pty Ltd (“LED”) brought an action (in the Australian Federal Court) against Eagle for infringement of copyright on building plans owned by LED. In 1996 a further dividend of A $ 800,000 was declared by Eagle. The majority of this sum was paid to Mr and Mrs Cardile. Subsequently LED obtained declaratory and injunctive judgment against Eagle. But the damages and account of profits claims were not determined, so the liability of Eagle in money terms remained to be quantified. At no stage was there any substantive claim against Mr and Mrs Cardile.

 

42. LED next sought a freezing order against Eagle, Mr and Mrs Cardile and an associated company of Eagle, called Ultra Modem Developments Pty Ltd (“Ultra”), which was also controlled by the Cardiles. The judge did not grant a freezing order against the Cardiles, although he found that the dividends had been prompted by a desire to remove assets from Eagle which would otherwise have been available to satisfy a judgment in favour of LED.55 The decision of the judge was reversed on appeal to the Full Court of the Federal Court. The matter was then remitted to the judge and he made an order against the Cardiles preventing them from “disposing of or dealing with any of their money, property or other assets”, except for certain, identified, purposes. A similar order was made against Ultra.

 

43. The case in the High Court of Australia

 

The Cardiles and Ultra appealed to the High Court of Australia. The principal ground of appeal was that the Court did not have jurisdiction to make a freezing order against the Cardiles or Ultra where (i) there was no cause of action against any of them; (ii) the judgment debtor (Eagle) had no proprietary interest in any of the assets of the Cardiles or Ultra; and (iii) their property was not available to satisfy any future judgment against Eagle. The High Court accepted that, with one exception, the Cardiles and Ultra had not been shown to have come into possession of any of Eagle’s property; nor was there any evidence that they were about to do so.56

 

44. The decision of the High Court of Australia

 

The High Court considered the Australian and English authorities on freezing orders, which are now referred to in Australian jurisprudence as “Mareva orders “ or “asset preservation orders”. The Court’s principal conclusions were: (1) that the Mareva order was a doctrine or remedy which the courts had developed “to protect the integrity of its processes once set in motion”.57 (2) The general principle behind the exercise of the power to grant interlocutory relief is that the court may make such orders, “….at least against the parties to the proceedings against whom final relief might be granted, as are needed to ensure the effective exercise of the jurisdiction invoked”.58 (3) But that situation should be contrasted with the current case, where LED sought a “Mareva order” against the assets of third parties (ie. the Cardiles and Ultra) in order to satisfy LED’s prospective money judgment against Eagle. There were “significant differences “ between an order protecting the assets of a party to the action and an order “extending to the property of persons who are not parties and who cannot be shown to have frustrated, actually or prospectively, the administration of Justice”.59 (4) The seriousness of an order against such third parties is emphasised by the fact that, although a ‘Mareva order “ did not confer any proprietary rights over the assets the subject of the order, nor did it create any attachment, the order did, in practice, operate as a “very tight “negative pledge” species of security over property, to which the contempt sanction is attached”. This meant that the court had to act very cautiously before making such an order.60 (5) The grant of “Mareva relief” against a third party is not limited to circumstances where the third party “holds or is about to hold or dissipate or further dissipate property beneficially owned by the defendant in the substantive proceedings”.61(6) There are two principles to guide the courts in determining whether to grant ‘Mareva relief’ in a case where the activities of third parties are the object sought to be restrained. They are that an order may be made in circumstances in which:

 

• “(i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of assets, including “claims and expectancies” 62 of the judgment debtor or potential judgement debtor; or

 

• (ii)some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor”. 63

 

45. The High Court then applied those principles to the facts of the case. For present purposes it is the application of the principles to the Cardiles that is important. The High Court concluded that the payment of the dividends by Eagle was a non – commercial exercise. The High Court agreed with the judge at first instance that the object of the dividend was to limit the funds of Eagle available to meet a judgment in favour of LED.64 At the time of the payment of those dividends, Eagle appeared to have insufficient funds to meet the likely judgment debt to LED. A liquidator, “probably appointed on the initiative of LED, but acting on behalf of all creditors, would be entitled to pursue and recover those funds” – ie. the dividends.65 Therefore an order should be made requiring the Cardiles to keep unencumbered assets up to a value which is reasonable in all the circumstances.66 That was the order that was proposed and made.67

 

46. Kirby J gave a separate judgment. It followed the analysis of the joint judgment. He concluded that, in the law of Australia at least, there was no universal rule that:

 

• “asset preservation orders of the Mareva type may not, or will not, be made against non – parties in the absence of proof that the party seeking such relief has a subsisting cause of action against that party (or that the judgment debtor has a proprietary or beneficial interest in the property held by the non – party) … Judicial dicta which propose such strict rules are too broadly stated. At least this is so where such rules are intended to suggest a categorical requirement”.68

 

47. Kirby J decided that the jurisdiction to grant an “asset preservation order” against a third party extended to cases where:

 

• “the actual or potential judgment creditor has a vested or accrued cause of action against the non – party or may otherwise become entitled to have recourse to the non-party, its property and assets to meet the claim”.69

 

48. That statement appears to me to be very similar in effect to the one made in paragraph 57 of the joint judgment. Kirby J agreed that an order should be made against the Cardiles restraining them from disposing of their assets up to a certain amount.

 

49. Miss Dias submitted that the Cardile case has not extended the principles relating to freezing orders that have been laid down in the English cases. Mr Wood submitted that the case clearly went beyond English law as it now stands. In particular he argued that the Siskina case, followed in the Aiyela case, required that there must be a “Siskina cause of action”70 available against any person on whom a freezing order was to be made. He submitted that when the English courts exercised the “Chabra type of jurisdiction” then, effectively the assets frozen were treated as being those of the principal defendant. Therefore there was always a “Siskina cause of action” against a relevant defendant. Mr Wood also pointed out that, on the facts, the Cardile case was a clear example of “asset stripping” to avoid having to pay a judgment debt.

 

50. It seems to me that the High Court of Australia has stated that, in Australia, the assets of a third party can be frozen in aid of enforcing a pending or actual judgment, even where those assets are not beneficially owned by the actual or potential judgment debtor.71 The necessary precondition for power to make a freezing order over the third party’s assets is that the actual or potential judgment creditor should have some legal right to get at the third party’s funds. However, on my reading of the judgments, particularly paragraphs 57 and 121, the High Court of Australia is stating that there must be some causal link between the fact that the Claimant has obtained a judgment against the principal defendant and thus has a legal right, as a consequence of the liability giving rise to the judgment, to go against the assets of the third party. I will delay deciding whether English law permits the exercise of the freezing order jurisdiction where there is such a causal link until I have considered the remaining two factors I have identified.

 

51. (3) To what extent does the grant of a freezing order depend on whether the English Court is itself being asked to decide some “substantive” claim against the respondent to the order?

 

This was dubbed “the Siskina point in argument. Mr Wood’s submission was that as there was no substantive claim against Mr L, the Court had no power to grant a freezing order against him. Miss Dias said that the effect of the Siskina case, taken with later cases, was not as restrictive as that. In my view the answer on this point depends on an analysis of four principal cases: the Siskina case itself; the Channel Tunnel case; the Aiyela case; and the Mercedes Benz case.

 

52. The Siskina case72

 

The Claimants were cargo owners, whose cargo had been arrested in Cyprus for alleged non payment of freight. The cargo had been carried on board the Siskina under “freight pre – paid” bills of lading which provided for the exclusive jurisdiction of the Genoa courts. The vessel sank on a subsequent voyage. She was insured for hull and machinery risks on the London market. The cargo owners brought proceedings in the English Court for: (i) damages for breach of contract and duty in the carriage of the cargo; and (5) an injunction to restrain the shipowners from removing from the jurisdiction any of the proceeds of the insurance on the hull of the ship. Mocatta J granted the cargo owners leave to serve the writ out of the jurisdiction, on the basis that the writ claimed an injunction and so fell within RSC Order 11 Rule 1(1)(i)-73 He also granted the cargo owners a “Mareva” injunction, in particular over the insurance proceeds. Kerr J set aside the leave to serve out of the jurisdiction, but he maintained the injunction pending appeal. The Court of Appeal, by a majority,74 allowed the appeal. The House of Lords restored the order of Kerr J and set aside the order for a “Mareva” injunction.

 

53. Lord Diplock, having identified the purpose of a freezing order,75 referred to section 45(1) of the Supreme Court of Judicature (Consolidation) Act 1925, which is in similar terms to section 37(1) of the SCA 1981. He pointed out that when section 45(1) referred to “interlocutory orders”:

 

• “…it presupposed the existence of an action, actual or potential, claiming substantial relief which the High Court has jurisdiction to grant and to which the interlocutory order referred to are but ancillary “.76

 

54. Lord Diplock then considered the basis for the territorial jurisdiction of the English Courts. He pointed out it was solely statutory and embodied in the Rules of Court, particularly RSC Order 11. He held that RSC Order 11 Rule 1(1) (i) (relating to injunctions) did not apply to interlocutory injunctions, as they were not a cause of action. He held that a right to an interlocutory in unction could not stand on its own. It was:

 

• “dependent upon there being a pre – existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff or the enforcement of which the defendant is amenable to the jurisdiction of the court The right to an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action”.77

 

Lord Diplock went on to hold that the High Court had no power to grant an interlocutory injunction except “in protection or assertion of some legal or equitable right which it has jurisdiction to enforce by final judgment”. 78 He concluded that the cargo owners had no legal or equitable right or interest in the hull and machinery insurance proceeds payable to the shipowners after the ship was lost, let alone one that could be enforced by a judgment of the English Courts. The only cause of action they had was one for compensation for detention of their cargo and that was the subject of the exclusive jurisdiction clauses in the bills of lading. He said that to argue that if that claim were justiciable in England it would give rise to a right to a “Mareva” injunction was “an attempt to pull oneself up by one’s own bootstraps”79

 

55. When Lord Diplock gave his famous speech in this case, the “Mareva” jurisdiction was only just over two years old.80 Section 37(3) of the SCA 198181, had not been passed. “Mareva” injunctions (as such) had not yet been developed as an aid to execution after a judgment had been obtained against the defendant.82 The “Chabra type jurisdiction”, established in SCF v Masri83 had not been developed. Nor had the concept of the “worldwide Mareva”.84 In the Siskina case itself the claim was against one defendant only and there could be no suggestion of any possible link between the cause of action of the cargo owners against the shipowner and the right of the shipowner to recover on his hull and machinery insurance.

 

56. It seems fair to remark that Lord Diplock was principally concerned with the issue of the territorial jurisdiction of the English Court. Effectively he held that no interlocutory injunction could be granted against a defendant over whom the English Court could not and did not exercise its territorial jurisdiction in respect of a substantive cause of action.

 

57. The Channel Tunnel case

 

This litigation arose out of the contract to build the channel tunnel. Disputes were to be resolved by an arbitral tribunal sitting in Brussels. A dispute arose and the builders (the defendants) threatened to stop work. The Claimant employers sought an interlocutory injunction (under section 37(1) of the SCA 1981) to restrain the builders from stopping work whilst the underlying dispute was referred to the Brussels arbitration. The House of Lords held (reversing the Court of Appeal) that the Court had jurisdiction to grant such an interlocutory injunction, although it upheld the Court of Appeal on the exercise of its discretion not to grant an injunction. It was argued in the House of Lords that because the underlying disputes between the parties had (by contract) to be referred to a foreign arbitration, then, on the authority of the Siskina case, the English Court did not have jurisdiction to grant an interlocutory injunction. Both the speeches of Lord Browne – Wilkinson and Lord Mustill considered this question and analysed the effect of the speech of Lord Diplock in the Siskina case.

 

58. Lord Browne – Wilkinson analysed all the passages of Lord Diplock’s speech in the Siskina case to which I have already referred. Lord Browne-Wilkinson considered that, taken together, the passages in Lord Diplock’s speech indicated that “the relevant question is whether the English court has power to grant the substantive relief, not whether it will in fact do so”.85 Later, having considered various possible cases where the English Courts might or might not in fact exercise jurisdiction in respect of a substantive claim, Lord Browne – Wilkinson asked rhetorically:

 

• “… is the English court not to grant interlocutory relief against a defendant duly served86 and based on a good cause of action just because the English proceedings may subsequently be stayed on the ground of forum non conveniens?”87

 

59. That passage indicates that Lord Browne – Wilkinson accepted that the respondent to the injunction must be amenable to the territorial jurisdiction of the English Court. He went on to hold that the Siskina case did not impose a requirement that the interlocutory injunction must be ancillary to a claim for substantive relief that would actually be granted in England, by an order of the English Court. He concluded by saying:

 

• “Even applying the test laid down by the Siskina the court has power to grant interlocutor relief based on a cause of action recognised by English law against a defendant duly served where such relief is ancillary to a final order whether to be granted by the English court or by some other court or arbitral body”. 88

 

60. On that basis, the grant of an interlocutory injunction will depend upon three tests being fulfilled:89 (i) does the English court recognise the cause of action that is to be the subject of the final order (wherever that is made); (ii) can the respondent to the interlocutory injunction be “duly served” with the English Court proceedings for an interlocutory injunction; and (iii) is the injunction “ancillary” to the final order sought (or- presumably – already obtained) in the English Court or elsewhere. Lord Browne – Wilkinson did not attempt to define “ancillary”.

 

61. Under the heading “Power to grant an injunction”, Lord Mustill considered the Siskina case and subsequent House of Lords cases that had analysed the power of the English Courts to grant interlocutory injunctions, particularly injunctions to prevent a person bringing an action in a foreign court.90 He held that those cases did not support the proposition that the English court had no jurisdiction to grant an interlocutory injunction in support of a cause of action which the parties had agreed would be the subject of a non – English arbitration, or even where the English Court had stayed court proceedings in favour of an arbitration abroad.91 Lord Mustill continued:92

 

• “For present purposes it is sufficient to say that the doctrine of the Siskina, put at its highest, is that the right to an interlocutory injunction cannot exist in isolation, but is always incidental to and dependent on the enforcement of a substantive right, which usually although not invariably takes the form of a cause of action. If the underlying right itself is not subject to the jurisdiction of the English Court, then that court should never exercise its power under section 37(1) by way of ,interim relief'.

 

62. Lord Mustill then considered various hypothetical examples of arbitration proceedings so as to demonstrate that in each case the English court would have jurisdiction over the cause of action giving rise to the dispute between the parties. He emphasised that if the arbitration be outside England, then problems of founding territorial jurisdiction over the parties in respect of the underlying cause of action might preclude the grant of an injunction. But if the territorial jurisdiction question could be resolved, then the English court would have jurisdiction over the underlying dispute and hence could grant an interlocutory injunction.93

 

63. Three points on Lord Mustill’s speech should be noted. First, he was concerned with a two party case. A sought an injunction against B where A claimed to have an underlying cause of action against B. Secondly Lord Mustill did not attempt to define how close the relationship between the “substantive right” and the claim for an injunction had to be. He said only that the injunction had to be “incidental to and dependent on the enforcement of the substantive right “. Lastly Lord Mustill emphasised that the claimant for an interlocutory injunction had to found territorial jurisdiction against the respondent to the injunction before the English Court could exercise its powers under section 3 7(1) of the SCA 1981.

 

64. The Aiyela case

 

In this case claims had originally been made against both Mr and Mrs Aiyela and other defendants. By agreement judgment was entered against Mr Aiyela alone and the Claimant abandoned all causes of action against Mrs Aiyela. Hobhouse J had upheld the grant (without notice) of a post – judgment freezing order against Mrs Aiyela. He did so on the basis that it was arguable that bank accounts in her name were actually assets of Mr Aiyela. The Court of Appeal upheld Hobhouse Js decision.

 

65. In the Court of Appeal it was argued for Mrs Aiyela that, as there could be no claim for substantive relief against her, the Court had no jurisdiction to make a freezing order over her assets.94 Hoffmann LJ gave the first judgment. He referred to the statement of Lord Mustill in the Channel Tunnel case 95.. quoted at paragraph 61 above. Hoffmann LJ said that the claimant had a substantive right in the form of the judgment debt against Mr Aiyela. Therefore there did not need to be a further “substantive right” against Mrs Aiyela. The freezing order against Mrs Aiyela was “incidental and in aid of the enforcement of that right”.96 Hoffmann LJ pointed out that, historically, the Courts had been prepared to grant injunctions to restrain the dissipation of assets of a judgment debtor long before the advent of the “Mareva” jurisdiction. He referred in particular to Bullus v Bullus.97

 

66. In Bullus v Bullus Mrs Bullus had obtained a costs order against Mr Bullus in relation to separation proceedings. He had not paid them and he had fled abroad. He was due to obtain a legacy under a will. Mrs Bullus applied for an injunction against the trustees of the will to prevent them paying him the legacy and also against Mr Bullus, to prevent him receiving it. In that case the underlying “substantive right” must have been Mrs Bullus’ right to be paid the costs in accordance with the court order. But there could be no suggestion that there was any underlying substantive right against the trustees, who would only be doing their duty if they had paid Mr Bullus the legacy due to him under the will. Yet an injunction was granted against them. This case therefore adds further support for the proposition that, provided that there is a substantive right against one defendant, there does not have to be a substantive right against another person to give the court the power to order an injunction against that other person.

 

67. In the Aiyela case Steyn LJ agreed with Hoffmann LJ. He said that the freezing order against Mrs Aiyela was “ancillary to the plaintiffs judgment against Mr Aiyela”.98 In agreeing that the Court had jurisdiction to make a freezing order against Mrs Aiyela, Sir Thomas Bingham MR stated that “it would be surprising if the court lacked power to control wilful evasion of its orders by a judgment debtor acting through even innocent third parties”.99

 

68. Three points arise from this case. First it was accepted that it was arguable that the assets in the name of Mrs Aiyela were, in fact, those of the judgment debtor. That is the converse of the factual situation in this case. Secondly the Court of Appeal accepted that freezing orders against a person against whom

 

there could not be a direct claim for “substantive relief’ by the claimant, could nevertheless be “ancillary” to the substantive relief against the judgment debtor. Thirdly, if, as Bingham MR said, the Court should have power to control the wilful evasion of its orders by a judgment debtor acting through “innocent third parties” then, surely, the Court must have jurisdiction to control a wilful evasion of its orders by a judgment debtor where the transaction giving rise to the judgment debt was at the specific behest of the third party.

 

69. The Mercedes Benz case100

 

Mercedes Benz AG advanced $20 million to Mr Leiduck (a German national) and his Monegasque company to finance the sale of 10,000 vehicles in the Russian Federation. The advance was secured by a promissory note of the Monagasque company to which Mr Leiduck had added his aval. The sale did not proceed and the advance was not recovered. Mercedes Benz brought proceedings against Mr Leiduck in Monaco to recover the advance. The Monegasque court made a freezing order against Mr Leiduck’s assets but it refused to extend the order to his shares in a Hong Kong company. Thereupon Mercedes Benz applied without notice to the Hong Kong court for a world wide freezing order against the assets of Mr Leiduck (including his shares in the Hong Kong company) and the assets of that company. It was alleged that a part of the $20 million advance had in fact been applied for the benefit of the Hong Kong company. The writ issued by Mercedes Benz in Hong Kong made claims for substantive relief against Mr Leiduck101 for the return of the advance. No injunctive relief was sought in the writ.

 

70. The deputy judge gave leave to serve the writ on Mr Leiduck in Monaco. It was served. Mr Leiduck took no part in the Hong Kong proceedings until judgment had been signed against him. Mr Leiduck then successfully applied to have the judgment and the proceedings set aside. including the freezing order. On appeal to the Hong Kong Court of Appeal Mercedes Benz did not attempt to persuade the Court that there should be leave to serve the proceedings on Mr Leiduck in Monaco for substantive relief against him. But it did argue that the Court should order service of the proceedings for a freezing order only. The Court of Appeal rejected that argument. So did the Privy Council.

 

71. The advice of the majority of the Judicial Committee was given by Lord Mustill. He identified two. questions for consideration. First whether the Hong Kong court had the legal power to grant a freezing order on Mr Leiduck. Secondly whether the Hong Kong court had territorial jurisdiction over him, given that he was resident in Monaco and that there was no claim for any substantive relief against him (or any other entity) in the Hong Kong action. Lord Mustill dealt with the second of those issues first. He concluded that there was no territorial jurisdiction so that the first issue did not need to be decided.

 

72. Lord Nicholls gave a dissenting opinion. He dealt with the “legal powers” point first and concluded that the Hong Kong court had the power to grant a freezing order against the assets of Mr Leiduck in Hong Kong, in aid of the prospective judgment in the proceedings against him in Monaco.102 Lord Nicholls also held that, on his view of the correct interpretation of the Hong Kong rules of court, they permitted service of proceedings out of the jurisdiction on a defendant when the only claim was for an injunction in aid of prospective judgment in a foreign jurisdiction.103

 

73. I think the important points to note from the Mercedes Benz case are these: first, Lord Mustill’s advice concentrated on the territorial jurisdiction issue. He said that he (and the remainder of the majority of the Judicial Committee) preferred not to pass comment on the “legal powers” issue, although Lord Mustill acknowledged that Lord Nicholls had ‘fully explored” that point.104 Secondly Lord Mustill emphasised that the general principles on which the English Courts exercised its injunctive powers remained those laid down in the Siskina case as explained and qualified in subsequent cases in the House of Lords.105 Thirdly, Lord Nicholls, in his dissenting advice, reemphasised that the purpose of a freezing order is to assist in the enforcement of a judgment.

 

74. (4) The time in the proceedings at which a freezing order can be made

 

The cases establish that a freezing order can be made where there is a pending action against a defendant or a judgment has already been obtained against the defendant. But a freezing order cannot obtained where there is no accrued cause of action at the time the application is made: see Veracruz Transportation Inc v VC Shipping Co Inc and Den Norske Bank AS.106 That case was concerned only with a dispute between the claimant purchaser of a ship and one defendant seller. It was thus different from the situation in the present case and the Masri; Chabra and Aiyela cases. In each of those three cases there is either an accrued cause of action against the principal defendant or a judgment has been obtained against that defendant. In the present case here is an existing “substantive right” of the Claimant against Mrs L. Further, on the assumption that Mrs L was acting as the trustee or agent of Mr L, then as soon as she incurred a liability to the Claimant, she had an accrued right to an indemnity from Mr L.107

 

75. Conclusions on the Court’s Legal Power to grant freezing orders over the assets of a non – party against whom there is no claim for substantive relief

 

I think that the following conclusions can be drawn:

 

• (1) The purpose of a freezing order is to ensure that the orders of the Court are effectively enforced.

 

• (2) A freezing order will usually be granted against a defendant against whom there is a claim for substantive relief. The order will cover assets of which he is the beneficial owner. But the Court has the power to grant freezing orders against third parties.

 

• (3) Unless it is a case under section 25 of the CJJA 1982, a freezing order cannot be entirely “free – standing”. It has always to be incidental to and dependent upon a claim to enforce a substantive right. That substantive right has to be one that the English Court will recognise. But the claim to enforce that right does not have to be made in the English Court.

 

• (4) If the claim for substantive relief is not made in the English Court, then the English Court will only have the power to grant a freezing order if the respondent to the order can be made subject to the territorial jurisdiction of the English Court.

 

• (5) If there is a claim for substantive relief by A against B (whether or not in the English Court), or A has obtained a judgment against B (in the English Court), then the English Court can grant a freezing order against the assets of C. But, generally, it must be arguable that those assets, even if in C’s name, are, in fact, beneficially owned by B.

 

• (6) The crucial question is whether the Court can go one stage further. Does it have the power to grant a freezing order against the assets of C when: (i) A has a substantive right against B (eg. in the form of a judgment); (ii) the assets of C are not, even arguably, beneficially owned by B. The answer, to my mind, depends on how one interprets the phrases “ancillary” and “incidental to and dependent upon” used by Lords Browne – Wilkinson and Mustill in the Channel Tunnel case.108 In the Cardile case the High Court of Australia has, effectively, given those phrases a broad interpretation. But, critically, the High Court of Australia held that the right of A to a freezing order against C is dependent upon A having a right against B and that right itself giving rise to a right that B can exercise against C and its assets. Therefore the freezing order sought by A against C is “incidental to” A’s substantive right against B and it is also “dependent upon” that right.

 

76. In this case the Claimant has a substantive right against Mrs L; it has the default judgment. Because of that right, indeed because of the antecedent liability of Mrs L to the Claimant, Mrs L has (arguably) a right to an indemnity from Mr L. That can either be enforced by her, or if she will not do so, by a Receiver appointed by the Court. That receiver would have the right to claim against Mr L and to satisfy any judgment out of his assets.

 

77. I have concluded that, upon analysis, the English Court can and should adopt the same approach as the Australian High Court. Therefore the Court does have the legal power to grant a freezing order against Mr L. Such an order is “incidental to “ the substantive right that the Claimant has against Mrs L. The order is also “dependent upon “ the substantive right that the Claimant has against Mrs L.

 

78. Mr Wood pointed out that in Qingdao Ocean Shippint Co v Grace Shipping Establishment (“The Xing Su Hai”)109 Rix J had stated that the English Courts were cautious about making orders that affected assets out of the jurisdiction. That is so, but I think that this point goes to the next two issues that I have to consider. The English Court is not going to make any order affecting foreign assets unless it can make the owner of the assets amenable to the English Court’s jurisdiction. That involves the issues of (i) whether the Court can and should join the asset owner to the existing proceedings; and (ii) whether the Court can and should exercise its territorial jurisdiction over the asset owner who is out of the jurisdiction.

 

79. Issue Two: has the Court power to join Mr L to the proceedings?

 

Miss Dias submits that the Court has power to join Mr L under CPR Part 19.2. That provides:

 

• “(1) This rule applies where a party is to be added or substituted except where the case falls within rule 19.5….

 

• (2) The Court may order a person to be added as a new party if-

 

• (a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or

 

• (b) there is an issue involving the new party and an existing party which is connected to the matter in dispute in the proceedings and it is desirable to add the new party so that the court can resolve that issue”.

 

80. Miss Dias submits that it is desirable to add Mr L as a party because there may well be a dispute on whether the Court should appoint a Receiver to enforce the right of indemnity that the Claimant says Mrs L has against Mr L and his assets. As it would be the English Court that would appoint a Receiver, then this issue ought to be resolved in the context of the current case. Alternatively Miss Dias submits that there is an issue involving Mr L and Mrs L (her right to an indemnity from him) that is connected to the existing subject matter of the case, ie. the judgment that has been obtained against Mrs L.

 

81. Mr Wood submits that the Court has no jurisdiction to join Mr L to the current action under CPR Part 19.2 (2) because there cannot now be any “matters in dispute in the proceedings” as judgment in default has already been given against Mrs L. Therefore there cannot be any issue involving the potential new party (Mr L) in respect of which it is “desirable to add the new party so that the court can resolve all matters in dispute in the proceedings”110 Nor can there be any “issue involving the new party and an existing party “ that is “connected to the matters in dispute in the proceedings”111 This is because there are no longer any matters in dispute in the proceedings to which an issue involving the new party (Mr L) and an existing party (Mrs L) could be connected. Mr Wood relied on two cases. The first was Att – Gen v Corporation of Birmingham,112 in which the Court of Appeal had refused permission to substitute the successor corporation for the defendant some five years after judgment had been obtained for a perpetual injunction. The second case was Munster v Cox 113 in which the House of Lords had refused permission to change the name of the defendant in a judgment so that execution could be issued against another partner of the firm of which the defendant was also a partner.

 

82. It seems to me that the sole issue on joinder is: has the Court power to join a new party when judgment has been obtained against the only existing party? Mr Wood’s first argument turns on the proper meaning of the word “proceedings “ in CPR Part 19.4 (2). “Proceedings” is not defined as a term in CPR Part 2.3 (“Interpretation”). Nor is it referred to in the “Glossary” that is appended to the CPR. I think that cases on the Rules of Court extant prior to 1883114 are not much help. But in any event the two cases on which Mr Wood relied were instances of the Claimant wishing to pursue the existing judgment against a new party. That is not the position in the present case.

 

83. In my view the word “proceedings” should be given a broad interpretation in CPR Part 19.4. It should embrace all stages of an action from the time it has been started until it becomes finally complete or moribund. There are many “proceedings” in which a judgment is obtained but it is not satisfied. At that stage further action may be needed in order to enforce the judgment. The “proceedings” have not finished at that point. A Claimant may wish to appoint a Receiver by way of equitable execution to get in the assets of the defendant to satisfy the judgment. Or he may wish to obtain a freezing order in aid of execution. The “proceedings” must still be continuing in those instances. In my view the “proceedings” against Mrs L are still continuing.

 

84. So Mr Wood’s next argument has to be considered, which concerns CPR Part 19.4 (2)(a). Are there “matters in dispute” in the proceedings? He says that there cannot be because a judgment has been obtained against Mrs L. In my view that interpretation of the wording is too narrow. The whole point about that Rule is that it contemplates there being matters in dispute in the proceedings which affect the putative new party. The Rule does not say that the matter in dispute has only to be between the existing Claimant and the existing defendant. As I read the wording the matter in dispute can be between any existing party and the new party. In this case the matter in dispute is whether the Claimant can obtain a freezing order over the assets of Mr L in aid of execution of the unsatisfied judgment against Mrs L.

 

85. Even if that is too broad an interpretation of CPR Part 19.4 (2)(a), paragraph (b) has to be considered. Mr Wood submits that even if it is accepted that there is an issue between the Claimant and Mr L (the “new party”), it cannot be said that this is “connected to the matters in dispute in the proceedings” because there is no dispute in the current proceedings, as judgment has been obtained. In my view that argument places too narrow an interpretation on the words “matters in dispute in the proceedings”. The Claimant may have obtained a judgment against Mrs L, so there can be no dispute as to her liability to the Claimant. But there is still a dispute between the Claimant and Mrs L as to how that judgment is to be satisfied. Mrs L has not paid the debt found owing by her. She says she has no assets and will not pay it. Her refusal or inability to pay is disputed by the Claimant which is trying to use the Court’s procedures to get payment. So in my view there are matters in dispute in the proceedings.

 

86. If Mr Wood’s arguments were correct it would mean that the Court would never have the power to add a new party after a judgment in order to make a freezing order against that party in aid of execution. In all such cases there can be no “dispute” that the existing defendant is liable to the Claimant. But it seems obvious that there are matters still in dispute if the judgment remains unsatisfied; so the Court should have power to add a new party to deal with issues such as freezing orders in aid of execution.

 

87. Mr Wood accepted that if I concluded that the Court had jurisdiction to join Mr L, then there were no discretion arguments against joinder other than those that could be made on the territorial jurisdiction issue.

 

88. Conclusion on Joinder of Mr L

 

I have concluded that the Court has power to join Mr L to the current proceedings, notwithstanding that judgment has been entered against Mrs L. But joinder would be futile unless he can be served out of the jurisdiction. So I must deal with the remaining issue, which is: can the Court exercise its territorial jurisdiction against Mr L when he is resident out of the jurisdiction and there is no substantive claim against him?

 

89. Issue Three: has the Court territorial jurisdiction over Mr L?

 

Miss Dias’s principal argument is as follows: (i) as there is no claim for substantive relief against Mr L, but only a claim for interim relief, it is inappropriate to issue and serve on him an originating process, ie. a Claim Form. This is the effect of the remarks of Lord Mustill in the Mercedes Benz case:115 at pages 206 – 7 and 208G. (ii) CPR Part 6.20 is concerned with permission to serve originating process out of the jurisdiction. So the Court is not concerned directly with CPR Part 6.20. (iii) The proper procedure is for the Claimant to issue an Application Notice against Mr L, who (it is presumed) would become a party to the existing proceedings against Mrs L. The issue of whether there should be permission to serve the Application Notice on Mr L out of the jurisdiction is governed by CPR Part 6.30. That deals with service of documents other than Claim Forms. (v) It is accepted that Mr L must be served with any Application Notice and that CPR Part 6.30(2) would apply. That provides that:

 

• “….. where the permission of the court is required for a claim form to be served out of the jurisdiction the permission of the court must also be obtained for service out of the jurisdiction of any other document to be served in the proceedings”.

 

(vi) That means that the relevant paragraphs of CPR Part 6.20 have to be considered by reference to the Application Notice and the relief sought in it, not the original Claim Form issued against Mrs L. That is consistent with CPR Part 6.18 (it) and (i), which state that “claim form” includes application form and that “claim” includes application. (vii) Therefore the Court has jurisdiction to grant permission to serve the application notice on Mr L under CPR Part 6.20 (3), because: (a) an application has been made against Mrs L (for the appointment of a Receiver) which has been served on her; (b) there is a “real issue” between the Claimant and Mrs L on whether a Receiver should be appointed because she has not consented to that and so the issue still has to be resolved; (c) the claimant wishes to serve “the application notice”116 on another person, Mr L, who is a necessary or proper party to the application made against Mrs L.

 

90. CPR Parts 6.20 (3) and 6.30 provide as follows, substituting “application notice “ and “application for “claim “ and “claim form”:117

 

• (1) Part 6.20 (3): …. an application notice may be served out of the jurisdiction with the permission of the court if – (3) an application is made against someone on whom the application has been or will be served and -

 

• (a) there is between the claimant and that person a real issue which it is reasonable for the court to try; and

 

• (b) the claimant wishes to serve the application notice on another person who is a necessary or proper party to that application “.

 

• (2) Part 6.30: “(1) Where an application notice is to be served out of the jurisdiction under this Section of this Part – (2) where the permission of the court is required for a claim form to be served out of the jurisdiction the permission of the court must also be obtained for service out of the jurisdiction of any other document to be served in the proceedings “.

 

91. Miss Dias faces one immediate problem with her argument. As I read CPR Part 6.20 (3), it contemplates one claim form or one application form that has been or will be served on one defendant and it is the same application notice that is sought to be served on the proposed second defendant. But in this case there are two different application notices: the first is against Mrs L for the appointment of a Receiver; the second is against Mr L for a freezing order. But I see no problem in substituting one omnibus application notice in which both applications are made together. Then the issue arises: does the case fall within CPR Part 6.20(3), and if so, should the court exercise its discretion under CPR Part 6.21 (2A) ?118

 

92. Mr Wood submits that the answer to both questions is: “No He says that Miss Dias is engaging in impermissible verbal manipulation of CPR Part 6.20 (3) by substituting “application notice “ and “application “ throughout in place of “claims “ and “claim form “. But even if the verbal manipulation is permitted, Mr L cannot be a “proper “ party for two reasons. First because there is no substantive claim against him in the English Courts; secondly because the application for a freezing order is only indirectly connected with the appointment of a Receiver. This is because the asset that the Receiver has to get in is Mrs L’s right to an indemnity from her husband. Once that asset is gathered in, the right must be exercised in the Guernsey Courts (as Miss Dias accepts); it is only if that claim succeeds that Mr L’s assets become relevant. He cannot be a “proper party “ if the link between the application for a Receiver and the freezing order is so indirect.

 

93. Mr Wood further submits that even if he is wrong so far, the court should not exercise its discretion under CPR Part 6.21 (2A). This is because the practical effect of the freezing order is to catch assets to satisfy a claim for an indemnity that must be made in the Guernsey court. It has no connection with the English Court. So any such order should only be made by the Guernsey court.119

 

94. Conclusion on the territorial jurisdiction issue

 

I have concluded that the Court does have territorial jurisdiction over Mr L, based on CPR Part 6.30(2) and Part 6.20(3). I have also concluded that it should exercise its discretion to give permission to serve the Application Notice on him. My reasons are as follows:

 

• (1) As there is not and cannot be any claim for substantive relief against Mr L, it is inappropriate to issue and serve a Claim Form against him. The proper procedure is to issue and serve an Application Notice in the existing action, as Lord Mustill stated in the Mercedes Benz case.120 It is accepted that CPR Part 6.30(2) applies in that case. In my view, on the proper construction of that provision, the Claimant/Applicant has to satisfy the Court that there is a ground within CPR Part 6.20 which gives the Court jurisdiction to grant permission to serve the Application Notice on the proposed defendant out of the jurisdiction.

 

• (2) So in this case the Court has to consider whether CPR Part 6.20(3) applies to the Application Notice that the Claimant wishes to serve out of the jurisdiction on Mr L.

 

• (3) It is not disputed that there has been an “application against “someone “ ie. Mrs L (for the appointment of a Receiver) and the application has been or will be served on her. In my view unless Mrs L has agreed to the appointment of a Receiver – and she has not – then there is a “real issue which it is reasonable for the court to try”. The issue is whether the English Court should appoint a Receiver to get in an asset, Mrs L’s alleged right to an indemnity from her husband, in aid of the execution of the judgment debt against her.

 

• (4) The Claimant does wish to serve the Application Notice121 on “another person”. ie. Mr L.

 

• (5) He is a “proper party” to “that claim “ ie. the claim against Mrs L for the appointment of a Receiver. This is because ultimately the Receiver will be making the claim for an indemnity against Mr L. He therefore may have arguments to make on why the Receiver should not be appointed by the English Court. Furthermore, it is Mr L’s assets that would be used to satisfy the claim for an indemnity that the Receiver is to pursue. It is accepted for present purposes that there is a risk of dissipation of those assets. Therefore it is proper for an Application Notice claiming a freezing order to be served on him out of the jurisdiction.

 

• (6) The Court should exercise its discretion to permit the service of the Application Notice because: (i) it is accepted that the Guernsey Court cannot appoint a receiver over the assets of Mrs L, even those in Guernsey. So if any steps are to be taken to enforce the right of indemnity in aid of execution of the existing judgment debt, it could only be done by a Receiver appointed by the English Court. (ii) Although the indemnity proceedings must be in Guernsey, if they are to be effective, the Receiver appointed by the English Court must take steps to satisfy that judgment against Mr L by executing on his assets. (iii) Those assets may be either in England and Wales or in Guernsey. (iv) Therefore as the application against Mr L relates to the proposed actions of a Receiver appointed by the English Court, England is the proper place in which to make the application for a freezing order against Mr L.

 

95. This conclusion means that, strictly, I do not have to rule on two further arguments that Miss Dias advanced. For the record they were:

 

• (1) The Court has an inherent jurisdiction to give permission to serve the Application Notice on Mr L out of the jurisdiction, by analogy with the power of the court to permit service of an application for costs against a non – party under section 51 of the Supreme Court Act 1981. Miss Dias relied upon the decision of the Court of Appeal in National Justice Compania Naviera SA v Prudential Insurance Co Ltd (“The Ikarian Reefer”)(No 2)122 It is true that the old RSC Order 11 did not have a paragraph dealing with a case where a claimant wished to serve a non-party with proceedings under section 51 of the SCA 1981. It is obvious that in circumstances where the court finds that the non – party has a substantial connection with the existing case, so that the Court’s powers under section 51 could be exercised, then it had to find a way to exercise those powers over a person who was resident out of the jurisdiction. But it does not follow that there is an inherent jurisdiction to permit service on a person out of the jurisdiction in other cases which are actually covered by rules of court. For the reasons I have given, in my view the present circumstances are covered by the CPR. So in my view there is no room to invoke the inherent jurisdiction of the court as a last resort.123

 

• (2) the whole question of permission to join Mr L and permission to serve an Application Notice on him is irrelevant as a result of the decision of the Court of Appeal in Khreino v Khreino (No 2).124 In that case the Court of Appeal upheld a freezing order made against an ex – husband, his brother and a British Virgin Island company and also the grant of permission to join the brother and the company to the proceedings and serve the order on them out of the jurisdiction. However, as the Court of Appeal emphasised, the order was made by a judge of the Family Division, exercising a particular jurisdiction to protect matrimonial assets. It has no application in a commercial context such as the present case.

 

96. Overall Conclusions on Mr L’s Application to set aside the orders made against him by Moore – Bick J on 21 December 2000 and the Claimant’s First Application

 

My conclusions are:

 

• (1) That the Court has the legal power to grant a freezing order against Mr L. This is despite the fact that there is no claim for substantive relief against him by the Claimant. The Court has the power to make the order because: (i) the Claimant has an existing “substantive right” against the existing defendant, Mrs L, in the form of a judgment debt that remains unsatisfied; (ii) the liability of Mrs L to the Claimant which gave rise to that judgment debt meant that Mrs L (arguably) had a right to claim an indemnity from her husband, Mr L, in respect of that liability and the judgment debt; (iii) that gave her the right to sue him and to pursue his assets, in respect of that right; (iv) as she was unlikely to exercise that right, the English Court would have to appoint a receiver as an aid to equitable execution to pursue that right; (v) there is a risk of dissipation. of the assets of Mr L; (vi) a freezing order over the assets of Mr L (in and outside the jurisdiction), would prevent such dissipation; (vii) therefore the freezing order is both incidental to and dependent upon the enforcement of the substantive right that the Claimant has against the first defendant, Mrs L.

 

• (2) The Court has the power to join Mr L as a party to the existing proceedings under CPR Part 19.2(a) and (b).

 

• (3) The Court has territorial jurisdiction over 11r L and so can grant permission to serve the Application Notice on him out of the jurisdiction under CPR Part 6.30(2) and CPR Part 6.20(3). This is because: (i) there is an issue between the Claimant and Mrs L on whether a receiver should be appointed; (ii) Mr L is a proper party to the application of the Claimant against Mrs L for the appointment of a receiver; and (iii) the relief against Mr L is incidental to the application to appoint a receiver as well as being incidental to and dependent upon the substantive right that the Claimant has against Mrs L.

 

97. At the hearing there was no particular discussion on the form of the Order that should be made against Mr L. If there are issues on this then I will hear argument on them once this judgment has been considered by the parties.

 

98. (B) The Second Application of the Claimant to set aside the judgment against Mrs L and to issue and serve an amended claim form against Mr L out of the jurisdiction

 

My conclusion on Mr L’s application and the Claimant’s First Application makes it unnecessary to consider the Second Application of the Claimants. That claims to set aside the judgment against Mrs L and for permission to issue and serve an amended Claim Form against Mr L in Guernsey. I should record, briefly, my views on those issues.

 

99. The Application to set aside the default judgment against Mrs L and to amend the Claim Form to sue Mr L

 

Miss Dias submits that judgment against Mrs L can be set aside because the case falls within CPR Part 13.3. The judgment against Mrs L had been obtained in default of defence. The Court therefore has an unfettered discretion to set it aside “if it appears to the Court that there is some other good reason why … the judgment should be set aside”.125 Miss Dias submitted that there were good reasons in this case. These were: (i) when judgment in default was entered on 15 September 2000, the Claimant did not know that Mrs L was acting as the trustee or the agent of her husband in concluding the share and stock purchase agreement. If it had known it could have considered whether to pursue Mr or Mrs L; (ii) the Ls had stood by and permitted a judgment against a person who acted as the trustee or agent in the knowledge that the trustee/agent had no assets to meet the judgment, whereas the beneficiary/principal had ample assets, but wished to evade liability; (iii) therefore there was a deliberate ploy by the Ls to engineer a situation where the judgment debt would not be satisfied; (iv) there had not been a judgment on the merits; (v) there had been no delay in the application to set the judgment aside.126 Once the judgment against Mrs L has been set aside then the Claim Form can be amended to sue Mr L.

 

100. Mr Wood accepts that if the judgment can be set aside and a claim could be pursued against Mr L, then Mr L could be added to the proceedings and a claim pursued against him. He also accepts that there is a good arguable case for a freezing order against Mr L in that circumstance. But he submits that there are two reasons why a claim cannot now be pursued against Mr L. First the original cause of action that might have existed against Mr L, as the undisclosed principal on the transaction, has merged in the judgment against Mrs L, who has been sued as his trustee/agent. So there is no cause of action remaining against Mr L. Secondly the Claimant, in suing Mrs L to judgment, as the trustee/agent of Mr L, has made an irrevocable election. It is too late to reverse that now.

 

101. So the effect of Mr Wood’s submissions is that even if the judgment against Mrs L were set aside, Mr L would still have a good defence to any action against him. Therefore the Court should not exercise its power under CPR Part 13.3 as it would be a pointless exercise.

 

102. Dealing first with the argument on merger, it seems to me that if the Court did exercise its discretion to set aside a judgment in default, then the effect of that must be to “demerge” the cause of action from the judgment, which would, obviously, no longer exist. Therefore even if the effect of a judgment against Mrs L had been to merge any cause of action against Mr L (as the beneficiary/principal) with the judgment against Mrs L (as the trustee/agent), once that judgment was set aside, any merger there had been must be undone.

 

103. Mr Wood relied on four cases to counter that conclusion and in support of the submission that, as against Mr L, there could still be no cause of action by the Claimant. The first was Partington v Hawthorne.127 In that case a claim had been made against a person who turned out to be the agent. When it was discovered who the principal was a further action was brought against the principal for the debt due. Then the judgment against the agent was set aside. On a summary judgment application against the principal, it was argued on behalf of the principal that no action could be maintained against him, even though the judgment against the agent had been set aside. This argument was rejected by Pollock B and Manisty J. Both concluded that the original action ‘against the agent was obviously “a mistaken proceeding”. They held that once the judgment against the agent was set aside, the position was as if no judgment existed at all and there was nothing to prevent the principal being pursued. So I think that case supports my analysis and does not help Mr Wood.

 

104. The next case was Hammond v Schofield.128 A judgment by consent was obtained against the defendant. The claimant then discovered that the defendant had a business partner. The defendant consented to the judgment against him being set aside. The partner objected to a new action against him being pursued. Wills and Vaughan Williams M agreed that this action would be an abuse. As I read the judgments, both judges held that the merger of the cause of action against all joint contractors in the judgment against one of them could not be undone by an agreement to set aside that judgment by consent. Wills J gave additional opinions, although he said that they were not necessary to the decision in hand.129 He thought that where a regular judgment was set aside and subsequently the original defendant was ultimately found not liable, then the regular judgment could be properly treated as a nullity as far as the rights of other persons were concerned. But the opposite would be the case where a regular judgment was set aside and the original defendant was ultimately found liable. Those views would not support Mr Wood’s submission in the present case. That is because the presumption must be that ultimately Mrs L would be found not liable, but Mr L (as the principal) would be. Wills J did not discuss the possible effect of the Rules of Court, nor was Partington v Hawthorne referred to in his judgment. Wills J’s view was not specifically adopted by Vaughan Williams J. Therefore in my view this case dos not help Mr Wood.

 

105. Next Mr Wood relied on Cross & Co v Matthews and Wallace.130 In that case the claimant sued both the principal and agent for goods supplied. Default judgment was entered against the agent, Matthews, in the County Court. That judgment was then set aside by consent. The County Court judge subsequently gave judgment (after a contested hearing) against the principal, Wallace. Wallace’s appeal to the Divisional Court was allowed. Lord Alverstone CJ stated that if a valid default judgment against the agent was set aside by consent, that could not revive the right of action against the principal. He went on to say that the County Court judge should have found for the defendant principal on the ground that the claimant had “conclusively elected to enforce “ its remedy against the agent, Wallace. I think that this case does not support Mr Wood’s argument on merger. First, unlike the present case, the agent agreed to permit the valid judgment against him to be set aside by consent. Secondly the Court appeared to base its reasoning on election, not the doctrine of merger.

 

106. The last case relied on for the “merger” argument is Parr v Snell. 131 In that case the Claimant had obtained a final judgment against two out of three joint contractors. He then attempted to sue the third. The Court of Appeal said that he could not do so because of the rule that a judgment against one joint contractor extinguishes the right to sue any other. The case was not concerned with the position where a judgment against an agent or trustee has been set aside and there is then an attempt to sue the principal or beneficiary.

 

107. Therefore there is nothing in the cases that would mean that even if the judgment were set aside under CPR Part 13.3, the doctrine of merger would prevent the Claimants from suing Mr L. So I would have rejected the argument that it would be wrong to set aside the judgment because it would not affect the position of Mr L by virtue of the doctrine of merger.

 

108. The next argument that Mr Wood raised was that the Claimant had elected to sue Mrs L and that the election, once made, could not be revoked. Mr Wood accepted that there would only be an election if (in this case) the Claimant decided to continue with the action against Mrs L having full knowledge of the relevant facts and the right to elect: Peyman v Lanjani.132 But, he submitted, it was possible for a person to elect to sue the agent to judgment and, if so, the principal cannot be sued thereafter, even if judgment against the agent is set aside: Cross &Co v Matthews and Wallace. 133

 

109. Miss Dias accepts that if judgment is entered against an agent or trustee, that can be evidence of election, thus preventing an action being pursued against the principal or beneficiary. But she submits that on the facts of this case there could be no election at the time the default judgment was entered, because the full facts and the right to set aside the judgment were not actually appreciated by the Claimant at that stage.

 

110. Mr Wood ripostes that even if that is accepted, the Claimant must have realised the factual position and also that it had a right to set aside the judgment by the time that the application to Moore – Bick J was made on 21 December 2000. That was the application was for a freezing order against Mr L in aid of the existing default judgment against Mrs L. Therefore (he submits), there was an election by the Claimant at that point, at the latest.

 

111. It is clear from the judgments of all three members of the Court of Appeal in Peyman v Lanjani 134 that there will only be an election if the person said to have elected had actual knowledge of his right to do, so. The actual or presumed knowledge of a legal advisor will not be imputed to the client. In this case there is no evidence that the Claimant actually knew of its right to elect to continue with attempts to enforce the judgment against Mrs L as trustee/agent. Here, whether or not the Claimant’s solicitors, Eversheds, could or should have appreciated the existence of the right to elect, there is no evidence of any advice on the right to elect being given by Eversheds to the Claimant. Mr Wood does not suggest that such advice was given.

 

112. Therefore I would have concluded that the Claimant did not elect to pursue execution of the judgment against Mrs L by making the application to Moore -Bick J on 21 December 2000. There was no other action after the 21 December that could have amounted to an election with full knowledge of the right to elect.

 

113. Having concluded that neither merger nor election should prevent the default judgment against Mrs L being set aside, I have to consider whether, in all the remaining circumstances, there is “good reason “ to set it aside. In particular I have to consider whether the application was made promptly.

 

114. In my view the reasons given by Miss Dias in argument135 demonstrate that there are good reasons to set the default judgment aside. The only factor which concerns me is delay. The affidavit of assets was sworn by Mrs L on 24 November 2000. There was a delay of about 7 weeks before the application to set aside the judgment was made on 10 January 2001. That application was only prompted by Mr L’s Application to set aside the orders made against him by Moore – Bick J on 21 December 2000. Even allowing for the Christmas and New Year holidays, there was some delay. However I would have concluded (if necessary) that this delay caused no prejudice to Mr L. Therefore it would not have outweighed the other good reasons why the judgment should be set aside.

 

115. Conclusions on the Claimant’s Second Application

 

I would have concluded that:

 

• (1) The effect of setting aside a judgment against Mrs L, pursuant to CPR Part 13.3 would be to enable the Claimant to pursue a claim under the share and stock purchase agreement against Mr L. Mr L would not have been able to rely on the doctrine of merger as a defence to a claim against him on that contract.

 

• (2) On the facts the Claimant had not elected to pursue the enforcement of the judgment against Mrs L by the time that the application to set aside the judgment against Mrs L was made. Even if the Claimant was aware of all the relevant facts giving rise to the right to elect to pursue Mrs L, it is not proved that the Claimant had actual knowledge of its right to elect. Therefore the doctrine of election would not be a defence to any action against Mr L if the judgment against Mrs L was set aside.

 

• (3) In all the circumstances of the case, including the fact that there was some delay in applying to do so, there are good reasons to set aside the default judgment against Mrs L pursuant to CPR Part 13.3.

 

115. However, given my conclusions on the Claimant’s First Application and Mr L’s Application, I will make no order in relation to the Claimant’s Second Application.

 

116. Once again I am very grateful for the most helpful and interesting written and oral submissions of Miss Dias and Mr Wood.

 

1 Affidavit sworn on 24 November 2000 and schedule thereto. This was sworn in response to the freezing order of Moore – Bick J dated 3 November 2000, which was directed solely against the assets of Mrs L.

 

2 This was Mr Brooks’ Second Affidavit, sworn on 18 December 2000.

 

3 This was Mr Brooks’ Third Affidavit, also sworn on 18 December 2000.

 

4 See the wording of paragraph 1, which identifies the particular assets to which the freezing order is to apply

 

5 Ground one of the Claimant’s Application Notice dated 10 January 2001.

 

6 Ground two of the same Application Notice.

 

7 Ground four of the same Application Notice.

 

8 Ground five of the same Application Notice.

 

9 After the bearing was concluded the parties made further written submissions on points that I raised with them.

 

10 See paragraph 5 above.

 

11 See paragraph 6 above.

 

12 See the letter of 10 August 2000 from Babbe, Le Pelley Tostevin, the Guernsey lawyers for the Claimant to Eversheds, referred to in paragraph 13.1 of Mr Brooks’ first affidavit of 20 October 2000 in support of the original freezing order against Mrs L.

 

13 As to English law, see eg: Underhill & Hayton: Law of Trusts and Trustees (15 Ed) at page 799, Hardoon v Belilos [1901] AC 118 at 123-124 per Lord Lindley. As to Guernsey law, a letter from Babbe, Le Pelley Tostevin dated 12 December 2000 was put in evidence by the Claimant. It said that if the issue of a right to indemnity had to be decided by Guernsey law then English law principles and cases on this topic would be followed by the Guernsey courts.

 

14 As to English law, see Bowstead on Agency (16 Ed) at 7- 056: Art 64. This principle applies even where the agency is not contractual. The basis of the right to recovery is then either restitutionary, or, if the assistance of equity can be invoked, eg. where the agent was a trustee, then the right is equitable: see comment at 7- 059. An attendance note of Mr Davenport of Eversheds (on Mr Andrew Laws of Babbe Le Pelley Tostevin) states that Guernsey law generally followed English law principles of agency as set out in Bowstead. No relevant exceptions were identified in this case.

 

15. See the discussion of the principles in the speech of Lord Goff of Chieveley in Firma C -Trade SA v Newcastle M Association [1991] 2 AC 1 at 35 – 36 and also in the speech of Lord Jauncey of Tullichettle at pages 40 – 42. It was not suggested that Guernsey law differed on this point.

 

16 Mclaine Watson & Co Ltd v International Tin Council [1987] 3 All ER 787 at 792 – 794 per Millett J

 

17 See the Babbe, Le Pelley Tostevin letter of 12 December 2000.

 

18 See: In re Maudslay, Sons & Field [1900] 1 Ch 602 at 611 per Cozens – Hardy J

 

19 Ibid.

 

20 See: Lloyd’s Bank Ltd v Medway Upper Navigation Co [1905] 2 KB 359 (CA)

 

21 This section gives the court jurisdiction to grant interim relief when proceedings have been or are to be started in a Brussels or Lugano Convention state.

 

22 Compare the factual situation in SCF v Masri [1985] 1 WLR 876; TSB Bank International v Chabra [1992] 1 WLR 231; and Mercantile Group (Europe) AG v Aiyela [1992] QB 366. In each of those cases the freezing order was made against the assets of a person who (at least arguably) held assets on behalf of the defendant against whom a claim had been brought or a judgment obtained.

 

23 Compare A v C [1981] QB 256 (Note)

 

24 Miss Dias pointed out that if Mrs L was acting as trustee or agent for her husband, then the shares in the Claimant and the loan stock and any proceeds from her underwriting at Lloyd’s would be assets within the jurisdiction to which Mr L was beneficially entitled.

 

25 This was the phrase used by Lord Nicholls of Birkenhead in his dissenting advice in Mercedes Benz AG v Leiduck [1996] 1 AC 284 at 305E. With respect, it accurately characterises the issue at this stage, although there was disagreement in that case on whether the ‘legal power” issue or the “territorial jurisdiction” issue should be considered first.

 

26 Miss Dias relied in particular on SCF v Masri (supra) at 880 F per Lloyd LJ; TSB Bank International v Chabra (supra) at 241D per Mummery J

 

27 [1999] HCA 18, in particular the statement of principle of Gaudron, McHugh, Gummow and Callinan JJ at para 57 of their joint judgment.

 

28 [1979] AC 210

 

29 [1996] 1 AC 284. Mr Wood also relied on the decision of Rix J in The “XING SU HAI” [1995] 2 Lloyd’s Rep 15 at 24 – 25

 

30 [1992] 1 Lloyd’s Rep 353

 

31 [1995] 1 WLR 1528 at 1536H per Evans LJ; 1540C per Morritt LJ; 1542A per Simon Brown LJ

 

32 [1996] 1 AC 284 at 305G

 

33 Of course the right to an indemnity in this circumstance would arise upon B becoming liable to A for the debt; it would not have to wait until A had obtained judgment against B: see tire Firma – C Trade case (supra)

 

34 [1996] 2 AC 284 at 299F

 

35 page 299H

 

36 [1978] AC 211 at 253D

 

37 [1990] 1 Ch 13

 

38 As opposed to an order made pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982. Both sides accepted that this provision was irrelevant to the present case.

 

39 [1994] QB 366 at 377E

 

40 [1996] 1 AC at pages 305 to 312 Lord Mustill, in giving the advice of the majority of the Privy Council, stated that the majority did not wish to express any conclusion on the “legal power” issue dealt with by Lord Nicholls: see page 304G

 

41 At page 310A

 

42 At pages 309-310.

 

43 [2000] 2 All-ER 394.

 

44 Ibid. at page 414 per Pill LJ The process is that contemplated by Lloyd LJ in SCF v Masri [1985] 1 WLR 876 at 881

 

45 [1985] 1 WLR 876

 

46 [1992] 1 WLR 231

 

47 [1994] QB 366

 

48 New Law Online judgment 2001223203, particularly para 44 per Potter LJ

 

49 The Chabra case [1992] 1 WLR 231

 

50 The Aiyela case [1994] QB 366

 

51 See the Yukong case at para 44.

 

52 See particularly per Hoffmann LJ at page 376C-D

 

53 Yukong Line Ltd v Rendshurg Investments Corp and officers: New Law Online Case 20001223203: para 44

 

54 [1999] HCA 18

 

55 The judge was not satisfied that there was a risk of dissipation of assets.

 

56 Para 18 of the joint judgment of Gaudron, McHugh, Gummow and Callinan JJ. Kirby J gave a separate but concurring judgment.

 

57 Para 40 of the joint judgment

 

58 This is a quotation from the joint judgment of Brennan CJ, McHugh, Gummow, Kirby and Heyne JJ of the High Court of Australia in Patrick Stevedores Operations No 2 Ply v Maritime Union of Australia (No 3) (1998) ALR 643 at 658 – 9, which the Court approved at Para 42 in the Cardile case as a “correct statement of principle”, subject to two matters. They were (a) that the Patrick Stevedores case was concerned particularly with injunctions against defendants, rather than third parties; and (b) the High Court preferred to refer to “Mareva orders” as opposed to “Mareva injunctions”.

 

59 Para 50 of the joint judgment

 

60 Paras 50 and 51 of the joint judgment

 

61 Para 54 of the joint judgment

 

62 Identified as a phrase used by Deane J in Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625

 

63 Para 57 of the joint judgment

 

64 Para 64 in the joint judgment

 

65 Para 69 in the joint judgment

 

66 Para 70 in the joint judgment

 

67 Para 75 in the joint judgment

 

68 Para 120 in the judgment of Kirby J. In a footnote (No 18 9) one of the ‘Judicial dicta” referred to is statement of Lord Diplock in the Siskina case at pages 254 – 6

 

69 Para 121 in the judgment, per Kirby J

 

70 The phrase is that of Hoffmann LJ in Aiyela: see page 376D

 

71 Paragraph 57(ii) of the joint judgment and paragraphs 120 and 121 of Kirby J’s judgment

 

72 [1979] AC 211, particularly at 253 – 257 per Lord Diplock, with whom Lords Hailsham, Simon, Russell and Keith agreed

 

73 That provided: “(1) …. service of a writ … out of the jurisdiction is permissible with the leave of the court …. (i) 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….”

 

74 Lord Denning MR and Lawton LJ; Bridge LJ dissented

 

75 See para 31 above

 

76 See page 254E

 

77 See page 356D-E

 

78 See page 356F. Lord Diplock referred to and approved the “classic” judgment of Cotton LJ in North London Railway Co v Great Northern Railway Co (1883) 11 QBD 30 at 39 – 40

 

79 See page 257B

 

80 The judgment of the House of Lords was given on 26 October 1977; the Mareva case had been heard and decided on 23 June 1975: [1975] 2 Lloyd’s Rep 509

 

81 This confirmed the freezing order jurisdiction against a party who was within the jurisdiction, as well as one who was outside it.

 

82 The first reported case was a decision of Robert Goff J in: Stewart Chartering Ltd v C&O Managements SA [1980] 1 WLR 460 (Note). But injunctions in aid of execution were well established long before: Bullus v Bullus (1910) 102 LT 399

 

83 [1985] 1 WLR 8 76

 

84 See the Babanaft case [1990] 1 Ch 13

 

85 See page 342H

 

86 My emphasis

 

87 See page 343B

 

88 See page 343C-D

 

89 This assumes all other necessary tests for the grant of an interlocutory injunction are fulfilled

 

90 The cases were: Castanko v Brown & root (UK) Ltd [1981] AC 557; British Airways Board v Laker Airways Ltd [1985] AC 58; South Carolina Insurance Co v Assurantie Maarschappij “De Zeven Provincient” NV [1987] AC 24

 

91 See page 362A-B

 

92 See page 362C-D

 

93 See page 363C-D

 

94 Reliance was placed on the Siskina case.

 

95 At [1993] AC 334 at 362C – D

 

96 That is the one against Mr Aiyela: [1994] QB 366 at 374H

 

97 (1910) 102 LT 399

 

98 At page 376G

 

99 At page 377E

 

100 [1996] 1 A C 284

 

101 Originally there were also claims against the Hong Kong company but those were discontinued

 

102 See page 310A

 

103 See page 314A

 

104 See page 304G

 

105 Lord Mustill did not refer specifically to the Channel Tunnel case in his advice, but that is clearly a part of the series of such cases.

 

106 [1992] 1 Lloyd’s Rep 353

 

107 See the Firma – C Trade case, referred to at footnote 15 above

 

108 [1993] AC 334 at 343C-D and 362C-D respectively

 

109 [1995] 2 Lloyds Rep 15 at 23 – 24

 

110 The wording of CPR Pare 19.4 (2)(a)

 

111 The wording of CPR Part 19.4 (2)(b)

 

112 (1880) 15 Ch D 423

 

113 (1885) 10 App Cas 680

 

114 Considered by the House of Lords in Cox v Munster (supra) and the Court of Appeal in A-G v Corporation of Birmingham (supra)

 

115 [1996] 1 AC 284

 

116 My emphasis on “the”

 

117 This can be done because CPR Part 6.18 (it) and (i) define “claim form” and “claim” respectively as including “application notice “ and “application” respectively

 

118 That provides: “The court will not give permission unless satisfied that England and Wales is the proper place to bring the claim”, or in this case, the application against Mr L.

 

119 Mr Wood relied on the comments of Lord Donaldson MR in Rosseel NV v Oriental Commercial Shipping Ltd [1990] 1 WLR 1387 at 1389C – D

 

120 [1996] 1 AC 284 at 298G

 

121 I assume that there will be a substitute omnibus application notice

 

122 [2000] 1 All ER 36

 

123 In any case CPR Part 6.20(17) now deals specifically with permission to serve a claim for a costs order under section 51 of the SCA 1981 out of the jurisdiction.

 

124 [2000] 1 FCR 80

 

125 CPR Part 13.3 (1) (b) (i).

 

126 CPR Part 13.3(2) states that the issue of whether there was a prompt application to set aside the judgment must be specifically considered by the Court in deciding whether to exercise its power

 

127 (1888) JP 807

 

128 [1891] 1 QB 453

 

129 At page 455

 

130 (1904) 91 L T 500 (Div Court)

 

131 [1923] 1 KB 1 (CA)

 

132 [1985] 1 Ch 457 (CA)

 

133 (1904) 91 LT 500 (Div Court)

 

134 [1985] 1 Ch 457 at page 483 – 488 and 492 per Stephenson LJ, page 494 per May LJ, page 500-501 per Slade LJ

 

135 Set out at para 99 above