Mareva relief in Jersey in aid of foreign litigation23 Jul 2012
The purpose of this briefing is to set out how and when the Jersey courts will grant Mareva relief to assist litigants in foreign jurisdictions.
Asset-freezing orders and Mareva relief
The inherent jurisdiction of the Royal Court in Jersey to grant asset-freezing orders has long been recognised and, indeed, pre-dates the English case from which Mareva relief takes its name.
In simple terms, a Mareva injunction restrains a defendant from removing its assets from the jurisdiction (or in any way disposing of or dealing with or diminishing the value of its assets) where there is a real risk that, without such an injunction, a judgment or award in the plaintiff's favour may not be satisfied.
Often, the defendant's assets will be held by a third party, usually a bank, who is named as a "party cited" and also bound by the injunction.
The existence of foreign proceedings gives rise to two questions:
- Can the Royal Court grant Mareva relief in support of foreign proceedings, even where that is the only relief being sought in Jersey?
- Can the Royal Court order service of its process out of the jurisdiction on a defendant where an injunction alone is sought and there is no other connection with the jurisdiction save for the existence of assets here?
The answer to both questions is yes.
Free-standing Mareva relief
The Jersey Court of Appeal held in Solvalub Limited v Match Investments Limited  JLR 361 that the Royal Court has the power to grant a Mareva injunction in aid of foreign proceedings, even though no other form of relief is sought in the Jersey proceedings. Sir Godfray Le Quesne Q.C. stated:
"In my judgment it is within the power of the Royal Court to grant a Mareva injunction in aid of proceedings in a foreign court and to do that in proceedings here in which no relief other than the grant of the Mareva injunction is sought."
The court noted that this power was entirely appropriate in a financial centre such as Jersey. It stated:
"If the Royal Court were to adopt the position that it was not willing to lend its aid to courts of other countries by temporarily freezing the assets of defendants sued in those other countries, that in my judgment would amount to a serious breach of the duty of comity which courts in different jurisdictions owe to each other. Not only so, but the consequence of such an attitude would be that Jersey would quickly become known as a safe haven for persons wishing to evade liabilities imposed on them by the courts to which they are subject. This is exactly the reputation which any financial centre strives to avoid and Jersey so far has avoided with success."
No question arose as to the validity of service, nor whether the court ought to grant leave to serve a defendant outside the jurisdiction in such cases. The only question that fell to be decided was whether the Royal Court has the power to issue a Mareva injunction in aid of a claim being pursued in a foreign court. In deciding that the Royal Court did have such a power, the Court of Appeal followed the views of Lord Nicholls in his dissenting judgment in the Privy Council case Mercedes Benz AG v Leiduck  AC 284, albeit that the majority of the Privy Council did not express a view on this particular issue (having already found service to be invalid in that case). The Court of Appeal concluded that, to the extent it had been applied in Jersey in the past, the English line of cases following the House of Lords decision in The Siskina  AC 210 ought no longer to be treated as authoritative in Jersey.
Leave to serve out of the jurisdiction
Shortly afterwards, the Royal Court considered its territorial jurisdiction and the issue of service in Krohn GmbH v Varna Shipyard  JLR 194. It held that, under Rule 7(b) of the Service of Process (Jersey) Rules 1994, it has the power to order service of its process on a defendant outside Jersey where an injunction is sought and the injunction orders the defendant to do or refrain from doing anything within the jurisdiction. Rule 7(b) was to be given its natural meaning.
The Royal Court rejected the defendant's submission that it was for the Rules Committee or the legislature to decide the extent of the territorial jurisdiction of the Royal Court. It followed the dissenting judgment of Lord Nicholls in Mercedes Benz. However, unlike the Court of Appeal in Solvalub, it did so in the face of the contrary decision by the majority in the Privy Council on this very issue.
The Royal Court did, however, state that caution should be exercised when using this power:
"We have held that the Court does have the territorial jurisdiction under Rule 7(b) of the 1994 rules to order service of process upon a Defendant out of the jurisdiction where the only relief sought is a Mareva injunction. We wish however to underline the caution to be exercised before any such injunction is granted. The discretion is clearly to be exercised in accordance with well-established principle, that is to say only where it is just or convenient to do so. But it is well to bear in mind that the general rule is that the jurisdiction of the Jersey court over persons is territorial. The jurisdiction claimed by the 1994 Rules is an exception to the general rule. A judge should therefore be cautious before exercising his discretion to invoke that jurisdiction by granting a Mareva injunction against a Defendant outside the territory of Jersey."
Challenges to Krohn were rejected by the Royal Court in Yachia v Levi (26 March 1998, unreported) and in State of Qatar v Al-Thani  JLR 118.
In Yachia, the Deputy Bailiff stated that:
"It may well be in the light of these judgments that if a judge in this jurisdiction has exercised his discretion to grant a Mareva injunction then the Service out Order should in general follow."
In State of Qatar, the defendant sought to set aside an order granting leave to serve the proceedings on him out of the jurisdiction on the basis that the majority decision of the Privy Council in Mercedes Benz was binding in Jersey. The Royal Court held that the English doctrine of precedent was not applied in such a rigid manner in Jersey. The Royal Court will be bound generally by decisions of the Jersey Court of Appeal and of the Privy Council sitting on appeal from Jersey courts unless there is subsequent legislation or some such compelling change of circumstance. However, judgments of the Privy Council on appeal from other jurisdictions and House of Lords judgments, although of great persuasive authority, are not binding on the Royal Court. The Royal Court held that there were social and policy considerations particular to Jersey which supported the Royal Court in Krohn applying Lord Nicholls' minority decision in Mercedes Benz.
The Court of Appeal had suggested in Solvalub that consideration ought to be given to amending Rule 7(b) of the Service of Process (Jersey) Rules 1994 as it was capable of leading to injustice, and it needed to be extended to permit service outside the jurisdiction in cases such as these. In the light of the subsequent authorities, it seems that the Jersey courts have decided that they can tackle such injustice head on without the need to wait for legislative amendments to be made.
An application for Mareva relief must be supported by affidavit evidence. As the application is usually made ex parte (i.e., without notice to the defendant), the plaintiff has an obligation to provide full and frank disclosure to the court.
In summary, the plaintiff must demonstrate that:
- It has a good arguable case.
- Absent the injunction being granted, there is a real risk that the defendant will dissipate its assets rendering a judgment or award in the plaintiff's favour unsatisfied.
- That it is just and convenient for the court to grant the injunction. When considering the balance of convenience, the court will consider many factors, including whether an award of damages would be an adequate remedy for the plaintiff instead of the injunction sought and, in contrast, whether the undertaking the plaintiff must give in favour of the defendant (discussed below) is sufficient to protect the defendant if an injunction is granted ex parte but later set aside.
The Royal Court has laid down a standard form of Mareva injunction to which it expects plaintiffs to adhere, save to the extent the judge (the Bailiff or Deputy Bailiff) considers there is a good reason to depart from it. Any variations from the standard form should be clearly identified to the judge.
The plaintiff is required to provide undertakings to the court, including an undertaking that it will comply with any order the court may make as to damages if the court later finds that the injunction has caused loss to the defendant and decides that the defendant should be compensated for that loss by the plaintiff. The plaintiff may also be required to fortify that undertaking by providing security.
The injunction will prohibit the defendant from removing from Jersey, or disposing of, dealing with or diminishing his assets in Jersey below a certain value. As the plaintiff has no proprietary claim over the assets themselves, the defendant is usually permitted to continue to use his assets to meet ordinary living expenses and legal fees, and to deal with his assets in the ordinary course of business.
The injunction is also usually coupled with a disclosure order requiring the defendant to disclose the whereabouts of all his assets in the jurisdiction. If the plaintiff already knows where some of the defendant's assets are being held, at a bank for example, the injunction will also be served on the bank (usually before it is served on the defendant) and the assets will be frozen in the bank's hands.
The application itself is usually dealt with on paper, i.e. without a hearing. Provided all the relevant information is available and the case is one suitable for the award of an injunction, it is often possible to prepare the documents and obtain an injunction ex parte within 48 hours of the receipt of instructions.
A return date for the full inter partes hearing will be endorsed on the injunction, at which hearing the defendant and any party cited may apply for the injunction to be varied or set aside.
If the defendant is located abroad, the plaintiff will apply for leave to serve the defendant outside the jurisdiction and/or substituted service. The return date will allow sufficient time for the defendant to be served and to appoint Jersey lawyers.
Proprietary claims and matrimonial claims
The Jersey courts draw a distinction between a Mareva injunction and Mareva-type relief granted in support of proprietary or matrimonial claims. Amongst other things, the distinction affects the test applied by the court when deciding whether to grant the relief sought, and the defendant's ability to use the frozen assets to meet its expenses and liabilities. In summary:
- The plaintiff who seeks a Mareva injunction does not claim a proprietary right to the assets, or a preference over the defendant's other creditors. Once frozen, therefore, the assets may be used by the defendant to pay legal fees and living expenses, and to settle bona fide obligations.
- In a proprietary claim, however, the plaintiff alleges that the assets subject to the injunction belong to him. The defendant is therefore entitled to use those assets to fund his defence only if he can show that he has no other available funds.
- An injunction in a matrimonial claim (including in support of foreign matrimonial proceedings) is distinct from a Mareva injunction as it preserves assets which, if the claim for ancillary relief is successful, will be awarded to the petitioner. Moreover, the standard of proof of the risk of dissipation required to justify the injunction is lower, as it preserves only those assets over which both parties have some proprietary claim. The court will apply a "balance of justice" rather than "balance of convenience" test. However, the injunction is closer to a Mareva injunction than to a proprietary claim, as the respondent's share of the petitioner's assets will be calculated after allowing for payment of bona fide liabilities. In deciding whether to allow funds subject to an injunction in matrimonial proceedings to be used to pay bona fide liabilities and expenses, the court will consider the circumstances of the particular case, including the proportion of the respondent's assets injuncted.
The Royal Court can grant free-standing Mareva relief against a foreign defendant in support of foreign proceedings. The speed and simplicity with which such injunctions can be obtained makes the Mareva injunction a useful weapon in a foreign litigant's armoury.
 Mareva Compania Naviera SA v International Bulk Carriers SA (The Mareva)  1 All ER 213
 "Service out of the jurisdiction of a summons may be allowed by the Court whenever: … (b) 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 the doing of or failure to do that thing)."
 Trasco International AG v RM Marketing Ltd [1985-86] JLR N-15
 Ninemia Maritime Corp v Trave GmbH (The Neidersachsen)  1 WLR 1412. In non-Mareva cases, the plaintiff must show there is a "serious question to be tried" – American Cyanamid Co v Ethicon  AC 396
 The test is an objective one. A plaintiff is not required to show that the defendant intends to deal with his assets with the purpose of ensuring any judgment will not be met.
 Practice Direction RC05/24, para 2
 P v P  JLR N-18
 Armco Inc v Donohue  JLR N-2; United Capital Corporation v Bender  JLR N-10
 Matthews v Matthews  JLR 671