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, For more briefings visit mourantozannes.com 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. BVI | CAYMAN ISLANDS | GUERNSEY | HONG KONG | JERSEY | LONDON ARTICLE 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 BVI | CAYMAN ISLANDS | GUERNSEY | HONG KONG | JERSEY | LONDON 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. mourantozannes.com BVI | CAYMAN ISLANDS | GUERNSEY | HONG KONG | JERSEY | LONDON FEBRUARY 2012