ARTICLE
Recent developments in Cayman Islands law
relating to freestanding Mareva injunctions
FEBRUARY 2012
This was first published in the New Law
Journal, 3 February 2012.
The English High Court has an inherent
jurisdiction to grant injunctions against parties
that are properly before it. This jurisdiction is
confirmed by, but does not derive from, s 37 of
the Senior Courts Act 1981.
Since Mareva Cia Naviera SA v International
Bulkcarriers SA (The Mareva) 1980] 1 All
ER 213, [1975] 2 Lloyd's Rep 509, the courts
have utilised this jurisdiction to grant
Mareva injunctions (also known as "freezing
injunctions"). They are in personam orders,
restraining defendants from dissipating or
otherwise dealing with their assets. They are
most commonly sought by plaintiffs who
are pursuing substantive claims, to prevent
the defendants to those claims (substantive
defendants) from rendering themselves
judgment-proof by spending or hiding their
assets. Following TSB v Chabra [1992] 2 All
ER 245, [1992] 1 WLR 231, the courts have also
granted Mareva injunctions over the assets
of people that are not defendants to the
substantive cause of action (noncause- ofaction-defendants (NCADs)), in situations
where, for example, they may be holding
assets that are beneficially owned by the
substantive defendants.
One controversial issue in offshore
jurisdictions (but not in England, following
the enactment of the Civil Jurisdiction and
Judgments Act 1982), is the extent of the
courts' powers to grant Mareva injunctions
in support of foreign proceedings. It has long
been recognised that there are strong policy
grounds for the courts of offshore centres to
grant such relief, so that they cannot be used
as a safe haven by persons wishing to evade
liabilities in other countries.
In 2011 there were three major decisions in
the Cayman Islands that considered this area,
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This article is only
intended to give a
summary and general
overview of the subject
matter. It is not intended
to be comprehensive and
does not constitute, and
should not be taken to
be, legal advice. If you
would like legal advice or
further information on any
issue raised by this article,
please contact one of your
normal Mourant Ozannes
contacts.
Contact:
Nicholas Fox
Senior Associate, Cayman
Islands
For contact details, please
see the end of this article.
mourantozannes.com namely the Grand Court decisions in Smith
v Smith (unreported, 10 May 2011), and VTB
Capital (unreported, 28 September 2011),
along with the Court of Appeal decision in
Deloitte v Felderhof (unreported, 12 July 2011).
This article explores their likely effects on
Cayman Island law.
Jurisdiction of Cayman Islands courts to
grant Mareva injunctions
In order to be able to grant Mareva relief,
courts require two different types of
jurisdiction. They require the power to grant
that type of injunction itself, as well as personal
(territorial) jurisdiction over the defendant in
question.
In the Cayman Islands, the courts' power
to grant injunctions is derived from s 11 of
the Grand Court Law, which gives them the
equivalent jurisdiction within the Cayman
Islands as that which is vested in the English
High Court at common law. The law does not
import the effect of English statutes.
The Grand Court Rules delineate the
circumstances in which the courts may permit
service of proceedings outside the Cayman
Islands (a necessary step to assert personal
jurisdiction over a foreign defendant). Order
11, rule 1(1)(b) permits such service, 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
(whether or not damages are also claimed
in respect of a failure to do or the doing
of that thing) provided that a claim for an
interlocutory injunction shall not of itself be
a sufficient ground for service of a writ of the
jurisdiction" [emphasis added].
The highlighted words did not appear in the
equivalent English rules (which have since
been changed), on which the Cayman Islands
rule was originally based.
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mourantozannes.com Traditional position in the Cayman Islands
For much of the last decade, the principal
Cayman Islands authorities relating to Mareva
relief were the Grand Court's decision in Bass v
Bass [2001 CILR 317] and the Court of Appeal's
decision in Telesystem [2002 CILR Note 22].
Prior to these cases, it had been tolerably
clear that the court could grant Mareva relief
provided that:
• the defendant was properly before it; and
• the plaintiff seeking the injunction was
also pursuing a substantive cause of action
against that defendant within the Cayman
Islands.
These cases confirmed that the court did not
have the power to grant Mareva relief against a
defendant in the absence of a substantive claim
against him in the Cayman Islands. They also
confirmed that if a substantive claim was brought
against a defendant in the Cayman Islands, but
then stayed, the court would have power to
make and continue a Mareva injunction against
him.
i. In the intervening period, as the
common law jurisprudence developed
overseas, a number of questions arose
for reconsideration, including: whether it
remained the case that a cause of action,
justiciable within the Cayman Islands itself,
was a necessary prerequisite to the granting
of a Mareva injunction;
ii. if so, how this affected the courts' ability to
grant Mareva relief over NCADs, against
whom there could be no such cause of
action; and
iii. if not, and the plaintiff was entitled to
seek freestanding Mareva relief, whether
the courts had the power to order such
proceedings to be served on a defendant
out of the jurisdiction.
Developments in 2011
Smith involved Canadian divorce proceedings
where the Canadian court had granted a Mareva
injunction over the husband's assets. The wife
applied in the Cayman Islands for a freestanding
Mareva injunction in support of the Canadian
proceedings, with permission to serve the
husband abroad.
The court considered several recent overseas
authorities and arrived at the clear view that
it was in the public interest for freestanding
Mareva relief to be available in these types of
cases. It then went on to hold that it had the
jurisdiction to grant such relief and also to permit
service of the action out of the jurisdiction.
The court's reasoning was that the wife was
pursuing a justiciable cause of action in the
Cayman Islands, namely a claim to give
effect to the Canadian court's injunction.
The court also held that such a Mareva
injunction was final, not interlocutory in nature,
and therefore that it did have jurisdiction under
order 11, rule 1(1)(b) to permit service abroad.
While the result of this case was broadly
welcomed, several commentators queried the
analytical basis upon which the decision had
been reached. The injunction was never argued
on an inter partes basis and therefore the court
did not have the benefit of full submissions on
these issues.
In Felderhof, substantive claims had been
pursued in the Cayman Islands and overseas
against a geologist, after the collapse of a gold
mining company. The Cayman Island claims had
been stayed 12 years previously and Mareva relief
had been granted against both the geologist and
his wife, an NCAD (both of whom were subject
to the court's personal jurisdiction).
The Court of Appeal confirmed that, despite
the length of the stay, it still had jurisdiction
to continue the Mareva relief. It went on to
comment, on an obiter basis, that in future cases
determining the courts' jurisdiction to grant
freestanding Mareva injunctions, the question
should not be whether the foreign cause of
action was justiciable in the Cayman Islands, but
whether a judgment against the defendant in the
foreign proceedings could be enforced against
him in the Cayman Islands.
In relation to the NCAD wife, the court held
that it did have the power to grant Mareva relief
against her, despite the lack of a justiciable claim
against her. Approving earlier authority in the
Cayman Islands and in particular, the Australian
High Court decision in Cardile v Led Builders
[1999] HCA 18, the court also confirmed that
the Chabra jurisdiction is not limited to assets
held by her for the benefit of the substantive
defendant, but also to assets to which she
was beneficially entitled, but which also might
become available to satisfy a judgment against
her husband.
VTB involved another ex parte application
for a freestanding Mareva injunction against
a defendant to foreign proceedings resident
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FEBRUARY 2012
ARTICLE
abroad and two NCADs located within the
Cayman Islands. Although the plaintiff only
sought a freestanding injunction in the Cayman
Islands, it appears that the foreign causes of
action were justiciable in the Cayman Islands.
Contact:
Nicholas Fox, Senior Associate, Cayman Islands
+1 345 815 1268
nicholas.fox@mourantozannes.com
The court declined to follow the approach taken
in Smith, finding instead that it was bound by
precedent to hold that a freestanding Mareva
injunction is an interlocutory injunction (the
more orthodox view) and therefore it had no
power under order 11, rule 1(1)(b) to order service
out.
However, in respect of the NCADs, against
whom no order for service was required, the
court held, with some hesitation, that it could
grant Mareva relief over them, notwithstanding
its lack of personal jurisdiction over the first
defendant. This decision was also not tested
inter partes.
Conclusion
In light of the above, it appears that freestanding
Mareva injunctions are likely to be available
in the Cayman Islands in support of foreign
proceedings, as long as the defendants are
amenable to the courts' personal jurisdiction.
This is consistent with the position in the British
Virgin Islands, whereas the courts of Jersey have
held that service out is permissible under their
procedural rules and the Isle of Man has enacted
enabling legislation to allow this.
The courts' focus now appears to be firmly
fixed upon whether a plaintiff seeking an
injunction is likely to obtain a judgment that will
be enforceable in the Cayman Islands, instead
of whether that plaintiff possesses (or has
commenced) a justiciable cause of action in the
Cayman Islands.
However, it will not be possible to obtain a
freestanding Mareva injunction against a foreign
defendant, until such time as legislation is
enacted and the procedural rules are amended
to permit service out of the jurisdiction of
proceedings claiming this relief. The courts have
invited the legislature to consider changing
this position. In early January, during his speech
at the court's annual opening, the Attorney
General confirmed that the government is
actively looking into this issue. One hopes that
these changes will be made as soon as possible,
to remedy this remaining gap in the law.
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