THE MAREVA INJUNCTION
By Navin Kumar Jaggi January 17, 2017
In May 1975, Japanese ship-owners issued a writ against Greek charterers, claiming various sums of hire owing for three ships that had been chartered by the defendants. The plaintiffs feared that the charterers would take steps to remove their funds from the jurisdiction of the English courts, and so effectively negate any judgment eventually entered against them. Accordingly, four days after issue of the writ, the ship-owners applied ex parte to the High Court for an interim injunction restraining the defendants from removing outside those of their assets within the jurisdiction. The purpose behind this application was of course to ensure that some funds would remain available, against which execution could be made of the judgment the plaintiffs were almost certain to obtain. The circumstances of the case were such that the money was clearly owing, and there was little question of an arguable defence, so that summary judgment was likely. From a practical point of view, therefore, the plaintiffs wanted to preserve the status quo until the mechanics of enforcement could recover some, if not all, of the judgment debt.
Unfortunately, it had not previously been the practice of the English courts to grant an injunction in circumstances where the order was sought to restrain a defendant from disposing of his own property on the grounds of a likelihood that the plaintiff would recover judgment against him. Consequently, following on this established practice, Donaldson J (as he then was) refused the ship owner’s application.
No previous plaintiff had appealed against such a refusal, whether because the sums claimed did not warrant challenging what many practitioners considered too rigid a rule to be changed without statutory intervention, or for other valid reasons, but in this case there was an immediate appeal, which came before the Court of Appeal for judgment on 22 May 1975. No cases were cited in argument, and the hearing was again ex parte. After a sufficient, but brief, review of the facts, the appeal was allowed, and an injunction was granted restraining the defendant charterers from disposing of their assets in England outside the jurisdiction on the basis of section 45(1) of the Supreme Court of Judicature (Consolidation) Act 1925, which provided:
“The High Court may grant a mandamus or an injunction or appoint a receiver, by an interlocutory order in all cases in which it appears to the court to be just and convenient so to do.”
Uppermost as a consideration was the fear that if some restraint were not imposed the funds would be sent overseas and be difficult to recover, if not irrecoverable. Consequently, in the words of Lord Denning MR.
“There is no reason why the High Court or this court should not make an order such as is asked for here … There is a strong prima facie case that the hire is owing and unpaid. If an injunction is not granted, these monies may be removed out of the jurisdiction and the ship-owners will have the greatest difficulty in recovering anything.”
Geoffrey Lane LJ was of the same opinion:
“In the circumstances which exist in this case there is no reason why the court should not assist a litigant who is in danger of losing money to which he is admittedly entitled.”
Thus began the practice, which is now undoubtedly one of the most useful to a party faced with an opponent who is likely to so arrange his affairs as to frustrate a court judgment or arbitral award against him. Nevertheless, the departure from established practice raises certain questions, not least the reason why it had previously been thought that there was no power to make such an interlocutory order, and why it was opportune for the courts of change their practice in the economic and social climate of the 1970s.
A month later, almost before full realization of the Court of Appeal judgment had alerted commercial practitioners generally to the chances of success on any future application for a similar injunction, the question was again considered by the Court of Appeal, in the case which gave its name to this particular type of order i.e. Mareva Compania Naviera SA Vs. International Buckcarriers SA (1975) 2 Lyod’s Rep. 509, CA June 1975, Lord Denning MR, Roskill and Ormod CJI.
The facts were similar to the earlier Nippon Yusen Kaisha case, and involved ship-owners and charterers. The ship-owners had let the vessel Mareva on a time charter-party for a trip to the Far East. The charters had subchartered her on a voyage charter-party to the President of India, and by the terms of that subcharter 90 per cent of the freight was payable against documents issued by the ship, with the remaining 10 per cent payable later. The vessel loaded fertilizer at Bordeaux on 29 May 1975 for carriage to India, and the Indian High Commission paid the freight then due (£ 174,000) to the charterers in London. The ship-owners were paid two installments of the half-monthly hire, but were not paid the third installment due on 12 June 1975. Further, the charterers said that they were unable to pay, despite having the funds from the Indian government, and were about to cease trading. The ship-owners therefore issued a writ on 20 June, claiming the unpaid hire (US $30,800) and damages for repudiation.
Here too, the ship-owners feared that the charterers would dispose of their funds before execution of the judgment likely to be given against them, and an application was made ex parte for an injunction restraining the defendants. This was heard by Donaldson J, as he then was, to whom the Japanese ship-owners in Nippon Yusen Kaisha had applied. On consideration of Lister & Co v. Stubbs the injunction was granted only until 17.00 hours on 23 June 1975, out of deference to the Court of Appeal decision in the previous case, so that the court could be able to consider itself the view of Donaldson J that he had no jurisdiction to grant the order.
The appeal was also ex parte. Lord Denning MR stated his view as clearly as before (despite the reservations of the court in Lister & Co. v. Stubbs) again based on section 45 of the Supreme Court of Judicature (Consolidation) Act 1925:
“If it appears that the debt is due and owing-and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment – the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets.”
Roskill LJ put his views equally strongly:
“On the evidence the defendant time charterers have already received £174,000 from the voyage charterers. Yet they have sent a telex to the plaintiff ship-owners in London on June 17 stating that their efforts to raise further financial support have been fruitless and that they have no alternative but to stop trading. If therefore this court does not interfere by injunction, it is apparent that the plaintiffs will suffer a grave injustice which this court has power to help avoid – the injustice being that the ship will have to continue on her voyage to India and perhaps- as is not unknown in Indian ports-wait a long time there for discharge without remuneration while the defendant will be able to dissipate that £ 174,000.”
Thus the course of the Mareva injunction was corrected to accord with the cases referred to by the Court of Appeal, and although no inter partes hearing had yet explored the wide range of possible arguments, the opportunity to institute a radical change in the law, provided for initially by the Nippon Yusen Kaisha case, was well set to provide plaintiffs in a wide range of actions with a means to prevent actual and intended defendants making themselves judgment-proof.
It must be noted, though, that the Mareva was still an exceptional remedy, based on discretion. In the first inter partes hearing in the Court of Appeal, in MBPXL Corporation v. Intercontinental Banking Corporation, where there was a claim for US$597,000, with interest, against an Anguillan-registered corporation, an appeal against the refusal of Milmo J to restrain the defendants was dismissed, because the plaintiffs had not shown that the defendants had any assets within the jurisdiction. Stephenson LJ emphasized that the Mareva was an exceptional remedy, and Scarman LJ (as he then was) pointed out that : “It is an injunction which can have the most inhibitory and restraining effect upon defendants, and therefore should only be issued if justice and convenience require it.”
The next stage in the development of the Mareva was the Court of Appeal judgment in Rasu Maritima SA v. Perusahaan Pertambangan Minyah Dan Gas Bumi Negara. This case, as with MBPXL above, was argued inter partes, and arose out of the expansion of the Indonesian economy in the 1960s, and the placement of huge orders overseas for ships and other capital equipment. The claim was by a Liberian company, against an Indonesian State-owned corporation, for damages of almost £2 million for breach of a charter-party concerning an oil tanker. The writ was issued on 11 August 1976, and on 7 February 1977 Kerr J, as he then was, granted an interim injunction restraining the defendants (Pertamina) from removing certain assets from the Liverpool docks. On 23 February 1977 the interim injunction was discharged, with a stay pending appeal. On 2 March 1977 the appeal hearing began, and a full and comprehensive review of the law took place.
One of the reasons for the discharge of the injunction by Kerr J was that the plaintiffs’ case did not at that stage look strong enough for Order 14 summary judgment. Lord Denning MR stated that the plaintiffs had to show a good arguable case, not that success under Order 14 was certain or likely, and this was a most helpful guideline for future applicants. Further, Kerr J had doubted whether the assets, which were part of a fertilizer plant unconnected with the hire of the oil tanker at the centre of the dispute, could be the subject-matter of restraint, but it was held that the discretionary remedy under section 45 applied to the defendants’ assets generally in the jurisdiction, subject to the test of whether such a restraint was just and convenient. In the circumstances, because the fertilizer plant was worth almost US$12 million to the defendants, but only had a scrap value (its value to the plaintiffs) of approximately US $350,000, and because there was a question as to the true ownership of the equipment, an injunction was refused.
Thus far the Mareva was still in an early stage of development. Its use was increasing, and its application to matters outside shipping and commercial circles was beginning, so that interest in the principles on which it was based was widespread outside the comparatively close commercial world where it had first been welcomed. In one respect, however, the Mareva’s development was hampered by the fact that applications, except in the Chancery Division, were in chambers, and few defendants challenged the order by applying for a variation or discharge on an inter partes hearing. Still fewer took cases to appeal, and there was thus little scope for operational and legal guidelines to be set out in open court, whether at first instance or on appeal. Consequently, the Court of Appeal judgment in Third Chandris Shipping Corporation v. Unimarine SA was the first case in which were stated the general principles for grant of a Mareva injunction, and how those should operate in practice. In essence five points were suggested:
(1) The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.
(2) The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount, and fairly stating the points made against it by the defendant.
(3) The plaintiff should give some grounds for believing that the defendant has assets here.
(4) The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied.
(5) The plaintiff must give an undertaking in damages-in case he fails in his claim or the injunction turns out to be unjustified.
Applying the guidelines to the present case the injunctions were upheld. The order taken as typical of the Mareva from this case is illustrative of the usual wording in use until 1994:
It is ordered and directed that the defendants by their officers, agents or servants or otherwise be restrained and an injunction is hereby granted restraining them from removing from the jurisdiction or otherwise disposing of any of their assets, including and in particular any moneys forming an account in the name of the defendants standing at the Bank of Credit and Commerce International SA, 100, Leadenhall St., London EC3, save in so far as the sum exceeds US $91,087.25.
It follows from the above guidelines that there is a heavy responsibility on the part of a party’s legal advisers to prepare the evidence that will best testify to the claims made, whether on the application for an injunction or on a later application to discharge or vary. It is usual to present this evidence by affidavit, and sufficient exhibits to the affidavit to underline a particular point, especially in relating to credit-worthiness or the usual course of dealings, are vital.