FREEZING ORDERS IN AID OF FOREIGN PROCEEDINGS

Ian Geering QC and Matthew Parker, 3 Verulam Buildings.

In Motorola Credit Corp v Uzan (No 2) [2003] All ER (D) 150 (Jun), the Court of Appeal considered the circumstances in which the court will grant a freezing injunction in aid of foreign proceedings under s 25 of the Civil Jurisdiction and Judgments Act 1982. Such relief is available unless ‘the fact that the court has no jurisdiction apart from this section … makes it inexpedient for the court to grant it.’

The claimant had commenced proceedings in the United States, alleging fraud and conspiracy. On 22 July 2002, Steel J refused the defendants’ applications to discharge worldwide freezing injunctions, limited to $US200m, made in aid of the US proceedings. The defendants had also been ordered to give disclosure of their assets worldwide, and were subsequently ordered to attend court for cross-examination. They were held in contempt of court for failing to do so and were sentenced to imprisonment.

The Court of Appeal exercised its discretion to hear the defendants’ appeals, notwithstanding their contempt. The court should only refuse to hear a contemnor when the contempt impedes the course of justice and there is no other means of securing his compliance (see Hadkinson v Hadkinson [1952] 2 All ER 567 at 574). In this case, the appeals were against the very orders the breach of which had placed the defendants in contempt and it was ‘necessary to satisfy considerations of fairness’ to hear them. It was also relevant that the issues raised in the case were likely to have wider application and that the appeals were essentially defensive in nature. However, the court indicated (at [56]-[58]) that, contrary to the suggestions of Laddie J in Re Swaptronics Ltd [1998] All ER (D) 407, it would not necessarily be a breach of art 6 of the European Convention on Human Rights to deprive a contemnor of his right to be heard.

In reliance on arguments which she had not deployed in the US court, the fourth defendant contended on appeal that there was no arguable case against her. The Court of Appeal, referring to Johnson v Gore Wood & Co [2001] 1 All ER 481, rejected (at [98]) ‘any general proposition that the scope and ingredients of the doctrine of abuse of process are trammelled by the technicalities of issue estoppel’. However, the fourth defendant would not be prevented from relying upon arguments which she had earlier failed to raise where the earlier proceedings were an application for a preliminary injunction, and not a final decision on the merits. In any event, where an injunction is sought under s 25 of the 1982 Act, the court must ‘make a separate exercise of judgment rather than a simple acceptance of the decision of the foreign court in interlocutory proceedings’. The Court of Appeal accepted, however, that Steel J had done precisely that and the appeal on this point was dismissed.

In relation to the second and third defendants, they had made it clear that they would not comply with any order of the English court and they were not resident in the jurisdiction and had no assets here. It was therefore unlikely that the court would be able to enforce compliance with any order made. Furthermore, they had obtained anti-suit injunctions in Turkey preventing the claimant from pursuing the US and UK proceedings. Steel J had failed to give sufficient weight to these factors. He had also erred in treating the defendants collectively and justifying relief against all of them on the basis that the first and fourth defendants had substantial assets in this jurisdiction and that the fourth defendant was also resident here.

In the Court of Appeal’s view, the circumstances before the judge rendered it ‘inexpedient’ to grant the relief claimed against the second and third defendants and it therefore discharged the freezing orders against them. In Crédit Suisse Fides Trust SA v Cuoghi [1997] 3 All ER 724, the court granted worldwide relief against a defendant domiciled in England in aid of Swiss proceedings. Millett LJ noted, however, that it would have been ‘a very different matter’ if relief had been sought against another defendant domiciled in Switzerland. In those circumstances, the English court would have had no effective means of enforcing its order, which was a good reason for not granting relief (see Derby & Co Ltd v Weldon (No 2) [1989] 1 All ER 1002 at 1010. Although the defendant in Republic of Haiti v Duvalier [1989] 1 All ER 456 was not resident in England and there was no evidence that he had assets here, he had used a firm of English solicitors to facilitate the concealment of his assets which was sufficient to justify the relief sought.

The anti-suit injunctions obtained by the defendants in Turkey were a further powerful factor making it ‘inexpedient’ to grant the relief sought. In Cuoghi, Lord Bingham CJ had noted that the relief was granted ‘on terms which obviated any risk of conflict with any order made by any other court … It gave rise to no jurisdictional disharmony or confusion.’ Potter LJ agreed in Refco Inc v Eastern Trading Co [1999] 1 Lloyds Rep 159 that such matters ‘would obviously weigh heavily and probably conclusively against the grant of interim relief’.

What was the significance of the fact that, following Grupo Mexicano de Desarrollo SA v Alliance Bond Fund Inc 527 US 308 (1999), the US court had no jurisdiction to grant worldwide relief? In Refco, Millett LJ (dissenting) had held that the English court should be ‘very slow to grant relief’ which the primary court would not have granted even against persons present in its own jurisdiction. In Motorola, the Court of Appeal identified (at [115]) as an important factor ‘whether it is the policy in the primary jurisdiction not itself to make worldwide freezing/disclosure orders’. It suggested, however, that Millett LJ had had in mind the position ‘where the primary court has the jurisdiction to grant relief but would refuse to exercise it on the merits or for other substantial reasons … and not the position where the foreign court simply lacks the jurisdiction’ (at [119]). This was therefore not a factor making it ‘inexpedient’ to grant the relief in this case.

The defendants had also argued that the English court had been wrong to require them to attend for cross-examination where they had disclosed assets worth at least $US200m (the limit of the freezing injunctions). That was rejected by the Court of Appeal. A defendant should normally be required to disclose all his assets above a certain value. If he were allowed to chose which assets to disclose he was ‘likely to choose those which are the least available or accessible to the claimant for the purposes of execution’ (at [146]).

Although the second and third defendants’ appeal was allowed, they had been in contempt of court for failing to comply with orders which had been made within the court’s jurisdiction, albeit that those orders had been overturned on appeal. The findings of contempt were therefore upheld, although the court set aside the terms of imprisonment for further consideration.