Mareva Mechanics

Saturday, 01 June 2013
Andrew Rogerson provides a practical guide to obtaining worldwide freezing orders.

Mareva injunctions1 are court orders restraining defendants who fear they may lose a court proceeding from dissipating their assets overseas, or outside their jurisdiction. The orders are typically binding on third parties, such as banks, on whom they are served.

Generalist litigators in onshore jurisdictions are more often being called on to obtain Mareva injunctions to freeze assets in overseas jurisdictions. The scenarios are endless, but often involve estranged spouses, where one has control over assets either taken offshore or left behind when the parties immigrated.

The client’s fear is that the estranged spouse will dissipate assets to defeat the remaining spouse’s entitlement in family court proceedings.

Infrastructure

To be able to respond urgently to a client request to stop the other party from, for example, transferring the contents of a joint bank account to an offshore jurisdiction, precedents will need to be ready to go. The forms required will vary between jurisdictions, but will, in essence, be the same as for any domestic injunction (likely the issuing of a writ, with or without a statement of claim, together with an application or notice of motion and supporting affidavit material, together with a draft order and possibly a skeleton argument). Some courts require, or request, relevant documents on a disc or USB stick. It is helpful to provide at least the draft order and skeleton argument on disc, so the judge can modify the draft order and use part of the legal arguments advanced in their reasons for their decision or endorsement.

A Mareva injunction is not an end in itself, but a means to hold the line. Usually the incentive to negotiate is strong when assets are frozen

In some jurisdictions, the format of the order is prescribed and modification is almost akin to ticking a box. In others, there are recommended formats, published by groups such as the Commercial List Users’ Committee. Depending on the entrenched nature of the precedent in your jurisdiction, it can be a good idea to show, by means of blacklining, how your draft order differs from the precedent, so the judge can easily and quickly follow. ‘Quickly’ is the operative word here. In all probability, the judge will have been called away from other duties to assist you, or, as frequently occurs, they will agree to hear your matter in their chambers before beginning a scheduled trial. Speed must not detract from accuracy, as mistakes made in the rushed ex parte chambers application will come back to bite counsel and judge.

Interviewing clients

Although clients are likely to be rushed and anxious, it is advisable to spend as much time as the case allows getting to grips with the issues. This is particularly so with weaknesses in their case. The duty of full and frank disclosure dictates that you bring weaknesses to the court’s attention. This should preferably be in an affidavit. This avoids criticism of counsel that may lead to them being called as a witness and therefore removed from the case. You should warn your client that failure to provide this disclosure can lead to the injunction being set aside ex debito justitiae, even though it was granted on meritorious grounds.

The Mareva injunction, although popularly regarded as worldwide in impact, can affect only third parties in the jurisdiction and the individual respondent for actions outside the jurisdiction. The domestic Mareva usually has to be supplemented by one in the offshore jurisdiction. This increases costs and the client needs to be made aware of this.

The client needs to know that the order has to be served so they can provide the names and location of relevant banks and other repositories of wealth. This will need to be communicated to the offshore law firm you elect to work with.

Before court

You will need to know the law that provides the jurisdiction in order to issue such injunctions. You will not be asked to explain trite law, but you will need to fashion your submission on the facts around the legal framework (for example ‘balance of convenience’). Ever since Lord Denning and his fellow judges granted the first Mareva, adopting an expansive approach to the powers of the court to remedy or prevent injustice, many subsequent decisions have attempted to narrow the jurisdiction and shackle future judges. It is always worth preparing material that may persuade the judge to sidestep restrictive cases. Lord Denning ’s dictum in the initial Mareva is a good starting point, as is comparative jurisprudence from other jurisdictions.2

The offshore law firm will have to be selected in the early stages. It is advisable to send draft affidavits, for use in the domestic court, to the offshore law firm, for its input, before they are finalised. It is important that the same version of events is related to the onshore and offshore judges. There may be some issues that the offshore jurisdiction judges place weight on that will need to be added. Any difference in wording is likely to be seized on by the responding party when they are served with relevant documents from both jurisdictions.

The form of orders issued by the offshore court needs to be discussed with offshore counsel and an explanation of difference obtained. In innocent circumstances, opposing counsel have been known to try to focus the court’s attention on the fact that the offshore jurisdiction has issued a different form of order and ask the court to draw negative inferences from this. To stop this, it is important to know why the overseas jurisdiction issued an order in different terms and, if need be, have affidavit material before the mainland court to explain why. Orders should be drafted clearly, to prevent any argument on impossibility of compliance.

Seek advice on the local legislation and case law as early as possible. A good example of this is offshore firewall legislation that may prevent the tracing of assets and will be relevant to any attempt to enforce a judgment or bring a spouse’s claim concerning trust assets.

The hearing

Ensure sufficient colleagues are on hand to help, so you can concentrate on your submissions. It is never wise to go into a judge’s chambers alone. As the first hearing is ex parte, questions may later be raised about what you submitted. In most cases, there will be no court reporter present and therefore no transcript. In several jurisdictions, the commendable practice has evolved of having a junior lawyer make a note of everything said by counsel and judge and serving this with the Mareva.

Full and frank disclosure is best done in the supporting affidavit. It avoids the sideshow of the respondent who attacks the actions of plaintiff ’s counsel, rather than dealing with the substantive issues.

In mainland jurisdictions you may have to appear before a generalist judge. Since the judge cannot be changed, diagrams or other aides memoire could prove helpful to explain such concepts as nominee shareholders and directors. It is preferable to cause an explanation to be given, without counsel being the direct source, to avoid counsel becoming a witness.

First return date

The initial Mareva will be issued for a limited period, to enable respondents to obtain counsel and to allow a full hearing of the issues to take place. In courts with busy dockets, the matter may not be reached or concluded. If so, it is essential to obtain an order that the Mareva continue until the delivery of judgment on the adjourned hearing.

Opposing counsel are likely to scrutinise points in order to argue that the first-instance judge was misled.

On balance, counsel is likely to get a smoother ride before a judge who is a stranger to the matter, with no potential for negative feelings about being misled, than before the judge who granted the order. Not that counsel will normally have any say in the choice of judge, but these points enable counsel to modify their advocacy: know your tribunal.

Most judges are unwilling to set aside an ex parte order unless the arguments in favour of doing so are overwhelming. Normally the injunction will remain in force, pending trial, with modifications to enable limited funds to be withdrawn, or to facilitate sales in the ordinary course of business. Since the order is likely to be modified, it is important to have the client in court to provide immediate instructions, or at least be readily available by telephone. Having your client in court can also aid impromptu settlement discussions on the whole matter. A Mareva injunction is not an end in itself, but a means to hold the line, pending trial or settlement. Usually the incentive to negotiate is strong when assets are frozen.

Benefits of competency

Large disputes are frequently settled by a short ex parte hearing that leads to the granting of a Mareva injunction. The ability to confidently appear on such an application, at short notice, is an invaluable tool for any litigator. 

With thanks to Rachael Reynolds of the England and Wales Bar, a Partner at Ogier, Cayman, for proofreading this article and making suggestions.

  • 1. Named after Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509
  • 2. See ‘Cayman  Joins the Club’ by Andrew Rogerson in the STEP Journal, August 2011
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Andrew Rogerson

Andrew Rogerson TEP is a Toronto Barrister.

Section
STEP Journal
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England and Wales

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