knowledge 13 April 2021 |

Disputes: Terms of Notification of Worldwide Mareva Injunction Went Too Far

In appropriate circumstances, the Irish courts will grant a worldwide Mareva injunction (or worldwide freezing order (“WFO”)).  This may be subject to certain provisos as regards the extra-territorial effect of the order and in particular the limit of its effect on third parties outside of Ireland.  Here, the Irish courts have accepted the well-established English provisos which began with the Babanaft proviso and which are now incorporated in paragraph 19 of the standard form order used in that jurisdiction.¹  This means that a recent judgment of the English courts is also potentially instructive in an Irish context. 

Notification of the WFO to foreign third parties

In YS GM Marfin II LLC v Lakhani² the claimants obtained a WFO against the defendants and then notified three categories of persons outside of the jurisdiction of its terms.

There were employees resident out of the jurisdiction at foreign companies owned and controlled by the defendants; agents out of the jurisdiction employed by such companies; and various banks and financial institutions which had no presence in England and Wales.

The notification indicated that it was it was “a contempt of Court for any third party knowingly to assist in or to permit a breach of the Injunction, subject to the terms of paragraph 19 regarding persons outside England and Wales.” The notification also referenced a penal notice on the first page of the order which stated that third parties could be held in contempt for its breach.

The said paragraph 19 was in the standard form which indicated that the order did not have extra-territorial effect in relation to third parties unless they were served with it in England and Wales. 

Defendants’ complaint

The defendants complained about the range of persons who received the notification as well as the propriety of its terms, saying that it was an illegitimate and oppressive use of the order

First, they said that there was no legitimate reason to send the order to various third parties outside of the jurisdiction.  The order applied only to the defendants and not to their companies, and “therefore a third party dealing with a company connected to the Defendants is clearly not subject” to the order. 

Secondly, it was misleading to refer to the possibility of contempt of court, or to say that this was reinforced by the penal notice.  Although paragraph 19 of the order was referred to, the message conveyed was that there was a risk of contempt.  A recipient might well not have taken the trouble to analyse paragraph 19 or take advice on it.

The defendants argued that the overall purpose of the notification was to give the order a practical effect beyond its terms and the jurisdiction of the English court, and to intimidate counterparties of companies owned by the defendants in order to cause the maximum possible damage to those defendants.  They argued that on the basis of previous legal authority, the injunction should be discharged as the claimants were seeking to use it in a way that had not been intended. 

Claimants’ response

In response, the claimants denied the allegations and said that when the defendants had objected to the terms of the notification, they had promptly sent clarifying letters to relevant recipients.  The sole aim of sending the notifications had been to make the injunction effective and had nothing to do with oppression or seeking to damage the defendants or their business.  There had never been an intention to mislead anyone as to the jurisdictional reach of the English court, or the non-liability of third parties abroad in contempt proceedings.  However, it was fairly common practice among solicitors’ firms to give notice of a WFO to at least some third parties abroad.  Some would want to know about it and would not want to assist a breach, even if as a matter of law they faced no liability for doing so. 

Decision of the court

Jacobs J said that he did not see why it was improper to notify third parties outside the jurisdiction of a WFO as part of a legitimate aim of trying to make the order effective.  Its purpose was to prevent the unjustifiable dissipation by a defendant of his or her assets.  It did not bind third parties outside the jurisdiction, except as set out in the standard form wording. 

However, a claimant was entitled to take the view that third parties might not wish to assist a defendant to breach a WFO which the English court had granted.  This was a matter on which a notified third party would have to form its own view and if a claimant wished to enforce the order against a foreign third party then it would need to take the appropriate steps in the relevant jurisdiction.

There was nothing improper in a claimant notifying a third party of a WFO, without seeking a further court order, albeit that the claimant would be relying on the “soft power” of the court’s order rather than its coercive effect.  In the present case, there was no reason to conclude that the claimants had had some ulterior and improper purpose but simply sought to make the order effective.

However, Jacobs J went on to say that the effect of the order should not be misrepresented.  The stark reference to contempt and the penal notice here had not been appropriate.  While, there might be circumstances in which these would directly apply to a third party outside the jurisdiction³ that would be unusual and would not justify the language here.  If these were to be referred to, then a clearer explanation of the effect of the order, and the circumstances in which a contempt of court might arise, should be provided.

Nevertheless, the court did not believe that this excess was such as to justify the discharge of the injunction.  There was no deliberate misrepresentation of the terms of the order and specific attention was drawn to paragraph 19.  Any reasonable recipient was therefore directed to the operative and critical paragraph.  The notification also invited third parties to raise any queries and the contact details of the solicitors were provided.  No such queries were raised and corrective letters were promptly sent out when the defendants complained.  Any recipient, who had not yet received a corrective letter, should also get one now.

He also said that it would be unjust to discharge the order given the real risk of dissipation and the fact that the claimants had since successfully obtained summary judgment against the defendants.

Finally, he did not accept that there was any impropriety in notifying third parties who might be dealing with companies owned by the defendants.  Whilst the injunction did not prevent the companies from carrying on their ordinary course of business, there was the potential for unjustified dispositions of assets by the companies – if directed by the defendants themselves – to be in breach of the injunction on the basis that they diminished the value of the defendants’ shareholdings and therefore the assets which they held.

Comment

While the judgment clarifies that there is nothing inappropriate in the notification of third parties outside the jurisdiction such as banks in respect of a freezing or a Mareva injunction, it does emphasise the importance of properly and assiduously representing the proper effect of any court order, and in particular any references made to a possible contempt or penal sanction for non-compliance.  That is particularly so in the context of freezing or Mareva injunctions which are set to have a worldwide effect.