Bermuda: Mareva Revisited

The Enforcement of Asset-Freezing Orders Abroad
Last Updated: 11 August 2006
Article by Appleby  

The English Court of Appeal has delivered a judgment in the case of Dadourian Group International Inc. v Simms, in which it has for the first time set out comprehensive guidelines in relation to an application for leave to enforce abroad a worldwide asset-freezing order granted by a local court. These guidelines will come to be known as the "Dadourian Guidelines".

This decision has profound ramifications for the grant and enforcement of worldwide asset-freezing injunctions in offshore jurisdictions (where they are still known as ‘Mareva’ injunctions), and for the preparation and presentation of applications for such orders.

It has been accepted since 1990 that a court can grant a freezing order in respect of assets outside its jurisdiction. However, the standard form of order contains an undertaking by the claimant not to seek to enforce the order in another jurisdiction without the court’s leave. This restriction is designed to protect a defendant from the risk of oppression through multiple actions, and works on the theory that a defendant should have an opportunity to demonstrate compliance with the order before further steps are taken against his assets worldwide.

Non-compliance and/or the discovery of particular assets in foreign jurisdictions are the typical reasons for seeking leave to enforce the order elsewhere, but there has been little or no judicial discussion of the relevant factors to be considered on such an application since this undertaking was first volunteered and accepted by the English Court. In the Dadourian case, the Court of Appeal took the opportunity to lay down extensive guidelines about the exercise of discretion to grant leave to enforce a worldwide asset-freezing injunction.

The eight guidelines, and the accompanying commentary on each of them, occupy some 25 paragraphs in the judgment. They may be summarized as follows:

  1. The grant of leave to enforce a worldwide freezing order ("WFO") should be just and convenient for the purpose of ensuring the effectiveness of the WFO, and in addition should not be oppressive to other parties (through the proliferation of proceedings in multiple jurisdictions). A primary reason for granting leave is to safeguard the position of a claimant in relation to assets which exist or are thought to exist in the relevant foreign jurisdiction.
  2. Consideration should be given to the proportionality of the steps proposed to be taken abroad, and to whether relief should be granted on terms.
  3. The interests of the claimant should be balanced against the interests of the other parties to the proceedings and any new party likely to be joined to the foreign proceedings.
  4. Leave should not normally be given where that would enable the claimant to obtain relief in the foreign jurisdiction which is superior to the relief granted by the WFO.
  5. The application for leave should include evidence as to applicable law and practice in the foreign court, the nature of the proposed proceedings, the assets believed to be located in the foreign jurisdiction and the names of parties by whom such assets are held.
  6. The claimant must show a real prospect that assets are located within the jurisdiction of the foreign court.
  7. There must be risk of dissipation of those assets in the foreign jurisdiction.
  8. The application should normally be made on notice to the defendant, although permission may be given without notice to the party against whom relief will be sought in the foreign court, in cases of urgency and where it is just to do so; even in that case, however, the party should have the earliest practicable opportunity to have the matter reconsidered at an inter-partes hearing.

The courts in jurisdictions such as Bermuda, BVI and the Cayman Islands frequently entertain WFO applications from onshore claimants. These include (but of course are not limited to) the following common scenarios:

  1. Where the defendant is incorporated and has a registered office offshore, but trades elsewhere and is not expected to have much if anything by way of assets here: the offshore jurisdiction may be the most convenient forum in which to commence and effect service of proceedings against the defendant, but merely as a first step in multi-jurisdictional proceedings to be brought against the defendant. In such cases, an application for leave to enforce the WFO in other jurisdictions is almost inevitable: if the defendant is known to have assets in a particular foreign jurisdiction, consideration should be given to seeking leave to enforce abroad at the same time as seeking the original WFO.
  2. Where little is known about the defendant’s assets, which may or may not be located in the offshore jurisdiction: via ancillary discovery orders or inspection of the defendant’s company records within the jurisdiction (through enforcement of such order), a claimant may gain some insight into the location of assets elsewhere.
  3. Where assets are believed to have passed through, but may not necessarily remain in, the offshore jurisdiction: again through ancillary discovery orders or inspection of local banking records, the claimant may establish a paper trail leading to the location of assets in other jurisdictions.

In these types of cases, any claimant’s attorneys should give advance consideration to the Dadourian guidelines as part of an overall multi-jurisdictional strategy to locate and preserve the defendant’s assets, before they institute the first proceedings and seek their first WFO: otherwise they may find themselves hamstrung when attempting to commence subsequent proceedings. By way of example, Guideline 4 may represent a particular challenge for claimants who are contemplating sequential proceedings in both offshore common law and onshore civil code countries. In some of the latter jurisdictions, in personam injunctions to restrain the disposal of assets are not recognized, and instead resort is had to preliminary attachments (e.g. the ‘saisie conservatoire’): such orders could be regarded by the offshore courts as providing "superior relief" than that available through a WFO, such that leave to enforce a WFO in such jurisdictions may be denied. This would militate against commencing proceedings in the offshore jurisdiction first.

The Court of Appeal’s decision is not binding as such on the offshore courts of Bermuda, BVI or Cayman, but is of persuasive authority. The decision has not yet been the subject of judicial comment in these jurisdictions, but the Dadourian guidelines are likely to be welcomed and applied by their courts as they deal with WFOs as part of their regular diet of commercial litigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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