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Mareva Mechanics

The original, abridged article, was published in STEP Journal, Vol. 21, Issue 5, published June 2013.

Andrew Rogerson provides a practical guide to successfully obtaining worldwide freezing orders

Generalist litigators in onshore jurisdictions are more often being called upon to obtain Mareva injunctions to freeze assets in overseas jurisdictions. The scenarios are endless, but often involve estranged spouses, where one has control over assets either taken offshore, or left behind when the parties immigrated. The client’s fear is that the estranged spouse will dissipate assets to defeat the remaining spouse’s entitlement in family court proceedings.

For the non litigators who may find this of interest, Mareva injunctions (1) are court orders restraining defendants, who fear they may lose a court proceeding, from dissipating their assets  overseas, or a least out of the jurisdiction. The orders are typically binding on third parties, such as banks, on whom they are served.

Infrastructure

In order to be able to respond urgently to a client’s  request to stop the other party from, for example, transferring the contents of his / joint bank account to an offshore jurisdiction or getting on a  plane that night with a substantial amount in diamonds or gold, precedents will need to ready to go. The forms required will vary from jurisdiction to jurisdiction, but will, in essence, be the same as for any domestic injunction (likely issuing of a writ, with or without a statement of claim, together with an application/notice of motion and supporting affidavit material; together with a draft order and possibly a skeleton argument/factum). Some courts require, or request, relevant documents on a disc or USB stick. It is helpful to provide at least the draft order and factum on disc, so the judge is able to modify the terms of the draft order and utilise part of the legal arguments advanced in his reasons for decision/endorsement.

In some jurisdictions, the format of the order is prescribed and modification is almost akin to ‘ticking the box’. In others, there are recommended formats, published by groups such as the equivalent of the Commercial Court Users Committee. Depending on the entrenched nature of the precedent in your jurisdiction, it can be a good idea to show, by means of black lining, how your draft order differs from the precedent, so the judge can easily and quickly follow. ‘Quickly’ is the operative word here. In all probability, the judge will have been called away from other duties to assist you or, as frequently occurs, agrees to hear your matter in his Chambers, before commencing  a scheduled trial (often in a few minutes). Speed must not detract from accuracy, as mistakes made in the rushed ex parte chambers application, will come back to bite counsel and judge.

Interviewing clients

Although clients will likely be rushed and anxious, it is advisable to spend as much time as the case allows getting to grips with the issues. This is particularly so with weaknesses in their case. The duty of full and frank disclosure dictates that you bring such weaknesses to the court’s attention. This should preferably be in an affidavit. This avoids criticism of counsel, that may lead to counsel being called as a witness and, therefore, removed from the case. You should warn your client that failure to provide this disclosure can lead to the injunction being set aside ex debito justitiae, even though it was granted on meritorious grounds.

Another important point is that the Mareva injunction, although popularly regarded as worldwide in impact, is only able to affect third parties within the jurisdiction and the individual respondent, for acts done outside the jurisdiction, if he ever returns to be dealt with. In most cases, the domestic Mareva has to be supplemented by one in the offshore jurisdiction. This considerably impacts on costs. The client needs to be made aware that he will have to make provision for two or more sets of costs.

The client needs to know that the order has to be served so he can advise the names and location of relevant banks and other repositories of wealth. This will need to be communicated to the offshore law firm you elect to work with.

Before court

It goes without saying that you will need to be prepared with the law relating to the jurisdiction to issue such injunctions. It is unlikely you will be asked to explain trite law, but, for example, on the balance of convenience element, you will need to fashion your submission on the facts around the framework set out in the cases. Ever since Lord Denning and his fellow judges granted the very first Mareva, adopting an expansive approach to the powers of the court to remedy or prevent injustice, many subsequent decisions have attempted to narrow the jurisdiction and shackle future judges. It is always worthwhile preparing material that may persuade the judge to sidestep restrictive cases. Lord Denning’s dicta in the initial Mareva is a good starting point as is comparative jurisprudence from other jurisdictions.

The offshore law firm will have to be selected in the early stages. It is advisable to send draft affidavits, for use in the domestic court, to the offshore law firm for their input, before they are finalised. It is important that the version of events related to the onshore and offshore judges is the same. There may be some issues that the offshore jurisdiction judges place weight on, that will need to be added. Any difference in wording is likely to be seized upon by responding party when they are served with relevant documents from both jurisdictions.

The form of orders issued by the offshore court need to be discussed with offshore counsel and an explanation of difference obtained.  In completely innocent circumstances, opposing counsel have been  known to try to focus the court’s attention on the fact that the offshore jurisdiction acting in aid of the mainland court, has issued a different form of order – perhaps more restrictive – and ask the court to draw negative inferences from this.  This area is fertile fruit for comment by opposing counsel, who has little else to go on. To stop this in its tracks, it is important to know why the overseas jurisdiction issued an order in different terms and, if need be, have affidavit material before the mainland court to explain why.

It is wise to seek advice on the local legislation and case law as early as possible.  Most offshore jurisdictions will have particular legislation and case law that will need to be considered in the context of enforcement. A good example of this is offshore ‘firewall legislation’ or  trusts legislation, creating firewalls, that will be relevant to any attempt to enforce a judgment, or bring a claim concerning trust assets to which a spouse may have a claim. Familiarity with such legislation at the outset will be important.

The hearing

Ensure sufficient colleagues are on hand to help, so you can concentrate on your submissions. Moreover it is never wise to go into the judge’s chambers alone.  As the first hearing is ex parte, there may be questions raised later, as to what you submitted. In many, if not most cases, there will be no court reporter present and therefore no transcript to prove what was said. The commendable practice has evolved in several jurisdictions, to have a junior lawyer make, as near verbatim as possible, note of everything said by counsel and judge and have it typed up and served with the Mareva.

With regard to full and frank disclosure, this is best set out in your client’s supporting affidavit. One must avoid at all costs, the situation of counsel’s actions and words being called in to question. Having another lawyer present, making detailed notes and who can swear an affidavit if need be, should also be prove to be a strong defence against a respondent who elects to attack the actions of plaintiff’s counsel, rather than deal with the substantive issues.

One particular point that is relevant in mainland jurisdictions is the possibility of appearing before generalist judges (i.e. not from a Chancery Division, or stand alone Commercial Court) and having to explain the intricacies of such things as nominee shareholders and directors. In urgent cases, a judge with prior personal injury or custody dispute background may be marshalled. The judge cannot be changed in these cases so, if time permits, diagrams or other aides memoire could prove helpful to explain such concepts as nominee shareholders and directors. The forbidden line between presenting one’s case and giving expert evidence will obviously loom. It is preferable to cause an explanation to be given, if required, without being the direct source. The problem may also arise at the inter partes hearing in a busy family division with a crowded docket.

First return date

The initial Mareva will be issued for a limited period, to enable respondents to obtain counsel and a full hearing of the issues to take place, with arguments from both sides. In courts with busy dockets, the matter may not be reached for a full hearing on the first return date. If so, prior to adjournment, an order that the Mareva continue until the delivery of judgment on the adjourned hearing will need to be obtained.

It may be that the matter comes before the same judge who granted the injunction.  No one likes to feel they have been misled, particularly a judge who has granted an ex parte injunction and is now reviewing the matter inter partes.  Such a judge is more minded, if not likely, to discharge the injunction, compared to one who comes to the matter fresh. Accordingly, opposing counsel will likely carefully scrutinise points, in order to argue that the first instance judge was in fact misled.  On balance, counsel is likely to get a smoother ride before a judge who is a stranger to the matter, with no potential for negative feelings as to being misled, rather than the judge who granted the Order. Not that counsel will normally have any say in the choice of judge, but rather these points are made to enable counsel to modify his advocacy, if need be: ‘know your tribunal’.

Most judges are unwilling to set aside an ex parte order unless the arguments in favour of doing so are overwhelming. Normally, the safest course for most judges is to allow the injunction to remain in force, pending trial, perhaps with modifications to enable limited funds to be withdrawn, or to facilitate sales in the ordinary course of business. Since the order is likely to be modified, it is important to have the client in court to provide immediate instructions, or at least be readily available by telephone. Having the lay client in court can also aid impromptu settlement discussion on the whole matter. Remember, a Mareva injunction is not an end in itself, but a means to hold the line, pending trial or settlement.  Usually the incentive to negotiate is strong when assets are frozen.

Benefits of competency   Very large disputes are frequently settled by a short ex parte hearing that leads to the granting of a Mareva injunction. The ability to confidently appear on such an application, at very short notice, is an invaluable tool in the armory of any litigator.

Andrew Rogerson TEP is a Toronto barrister.

The writer records his grateful thanks to Rachael Reynolds of the Bar of England and Wales and Partner in Ogier, Cayman, for kindly proof reading this article and making helpful suggestions.

  1.     Named after Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509;
  2.       Also see  the author’s article “Cayman Joins the Club”: STEP Journal, August 2011

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Posted in Cross Border Litigation