Privy Council confirms ability of courts to grant freezing injunctions in aid of foreign proceedings – but beware the minority report

The Privy Council has given a landmark judgment on freezing and interim injunctions confirming that at common law, where the court has personal jurisdiction over a party, it has the power to grant a freezing or other interim injunction against that party to assist enforcement of prospective or existing foreign proceedings.

Route to the Privy Council

Convoy Collateral Limited (CCL), a Hong Kong registered company applied to the British Virgin Islands (BVI) Commercial Court for (1) freezing injunctions against Dr Roy Cho (Dr Cho), a Hong Kong resident and businessman and Broad Idea International Ltd (Broad Idea), a BVI registered company in which Dr Cho held a majority shareholding, and (2) permission to serve Dr Cho out of the jurisdiction. CCL made the applications in anticipation of proceedings that were subsequently commenced against Dr Cho in Hong Kong. Broad Idea was not a party to those proceedings and no substantive relief was sought or intimated against it.

Dr Cho successfully applied to have the freezing injunction and order permitting CCL to serve him outside of the BVI jurisdiction set aside on the basis that there was not a gateway in the Eastern Caribbean Civil Procedure Rules (EC CPR) that permitted service outside of the jurisdiction in relation to a freestanding freezing order in support of foreign proceedings. Broad Idea however, as a BVI company, remained bound by the freezing injunction against it. In response, CCL successfully applied in the BVI for an extended freezing order against Broad Idea, and unsuccessfully appealed the decision to set aside the orders against Dr Cho. Broad Idea, who up until which point had complied with the original freezing injunction, appealed the extended freezing injunction.

Upon hearing CCL’s and Broad Idea’s respective appeals, the Court of Appeal of the Eastern Caribbean Supreme Court in the BVI (ECCA) dismissed CCL’s appeal, upholding the decision to set aside the orders against Dr Cho and allowing Broad Idea’s appeal against the extended freezing injunction. In doing so, the ECCA held that Black Swan Investment ISA v Harvest View Ltd (BVIHC 2009/399) (unreported) 23 March 2010 (Black Swan) which established that a freestanding freezing order could be granted in the BVI in aid of foreign proceedings had been wrongly decided and that it should be overruled.

CCL appealed the ECCA’s decisions to the Judicial Committee of the Privy Council, which, recognising the significance of the case, expedited the appeal and assembled a seven-member board including the President and Deputy of the Supreme Court and Master of the Rolls.

Privy Council’s Judgment

The Board had two issues to consider:

Service out of the Jurisdiction

CCL argued that under the injunction gateway in EC CPR 7.3(1)(b), the BVI court had the power to order service out of the jurisdiction of a claim form where the only relief sought was a freezing injunction, thereby asking the Board to depart from both the Siskina (Owners of cargo lately laden on board) v Distos Cia Naviera SA (The Siskina) [1979] AC 210 and Mercedes Benz AG v Leiduck [1996] AC 284 (Mercedes) decisions. In The Siskina judgment, the House of Lords determined that the English rules of court that permitted service out of the jurisdiction only applied to final and not freezing or other interim injunctions. The Mercedes decision affirmed The Siskina, determining that the Hong Kong rules of court (applicable in this case) did not permit service out of the jurisdiction where the only relief claimed was an interim injunction.

Unanimously dismissing this argument, the Board concluded that the EC CPR was enacted five years after the Mercedes decision and would have likely been influenced by the legal principles it established. Additionally, the EC CPR is materially similar to both the English CPR (applicable to The Siskina) and Hong Kong equivalent (applicable to Mercedes) both of which confirm that the relevant courts do not have jurisdiction to order service of a claim form or any other originating process on a defendant outside of the jurisdiction when the only relief claimed is a freezing order in respect of the defendant’s assets within the jurisdiction. Further, CCL had failed to argue a sufficiently compelling reason to justify departing from The Siskina and Mercedes decisions, and it was too late to reverse such landmark rulings in this regard.

Power to grant a freezing injunction

CCL argued that, in accordance with Black Swan, the BVI court has the power to grant a freezing injunction in circumstances where it has personal jurisdiction over the defendant, no substantive proceedings have been brought against the defendant in the BVI court and, the attempt to obtain the freezing injunction is made in support of a claim being pursued in a foreign court.

In respect of this second issue, a 4:3 majority of the Board agreed with CCL’s arguments, concluding that Black Swan had been correctly decided and the ECCA had been wrong to conclude it should be overruled. However, despite this, the Board dismissed CCL’s appeal on the basis that there was no justification for the BVI court to grant a freezing injunction against Broad Idea.

The majority went on to consider the powers of the court to grant freezing or other interim injunctions in aid of foreign proceedings at common law. In doing so, the majority sought to dispel the “residual uncertainty” of The Siskina decision, concluding that a court with equitable and/or statutory jurisdiction to grant injunctions, where it is just and convenient to do so, has power (and it accords with principle and good practice) to grant a freezing injunction against a party over whom the court has personal jurisdiction provided that:

• the applicant has already been granted or has a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the process of the court;
• the respondent holds assets (or is liable to take steps other than in the ordinary course of business which will reduce the value of assets) against which such a judgment could be enforced; and
• there is a real risk that, unless the injunction is granted, the respondent will deal with such assets (or take steps to make them less valuable) other than in the ordinary course of business with the result that the availability or value of the assets is impaired, and the judgment is left unsatisfied.

In reaching this conclusion the majority held that the constraints on the power and exercise of the same to grant freezing injunctions and other interim injunctions, as articulated in The Siskina were undesirable and legally unsound.

Implications

Whilst the effects of the decision and reform of the law with regards to freezing injunctions in aid of foreign proceedings are likely to have far-reaching consequences, in his minority judgment Sir Geoffrey Vos flagged uncertainties that will likely have implications of their own.

The first concern was that as the question concerning the power of the courts at common law regarding freezing injunctions did not strictly arise from the appeals, the majority’s “ground-breaking exposition of the law of injunctions” was obiter dicta and not binding on lower courts, which could lead to a lack of clarity as to the consequences.

Further, in reaching their decision, the majority had not heard detailed arguments on the effect the approach would have in jurisdictions that had drafted their laws on legal principles the decision sought to overrule.

Sir Geoffrey Vos highlighted that the majority had sought to provide a foundation for the entire law of freezing and interim injunctions which could result in uncertainty in the common law, legislation in different jurisdictions having been drafted on newly invalidated legal principles and deviation from the doctrine that the court should only depart from previous decisions where it is essential to do so to decide the case before it.

There may well yet bet further litigation concerning the development of freestanding interim injunction claims in an attempt to dispel uncertainty arising from the Privy Council’s decision. However, the ruling will and is intended to assist parties seeking freezing injunctions in respect of assets, alleged to be beneficially owned by a defendant, who might be able to rely (in relevant jurisdictions) on the court’s power to grant interim relief in aid of foreign proceedings.