THE MAREVA INJUNCTION

Naveen Kumar Juggi,
Advocate, Delhi High Court

In May 1975, Japanese ship-owners issued a writ against Greek charterers, claiming various sums of hire owing for three ships that had been chartered by the defendants. The plaintiffs feared that the charterers would take steps to remove their funds from the jurisdiction of the English courts, and so effectively negate any judgment eventually entered against them. Accordingly, four days after issue of the writ, the ship-owners applied ex parte to the High Court for an interim injunction restraining the defendants from removing outside those of their assets within the jurisdiction. The purpose behind this application was, of course, to ensure that some funds would remain available, against which execution could be made of the judgment the plaintiffs were almost certain to obtain. The circumstances of the case were such that the money was clearly owing, and there was little question of an arguable defence, so that summary judgment was likely. From a practical point of view, therefore, the plaintiffs wanted to preserve the status quo until the mechanics of enforcement could recover some, if not all, of the judgment debt.

Unfortunately, it had not previously been the practice of the English courts to grant an injunction in circumstances where the order was sought to restrain a defendant from disposing of his own property on the grounds of a likelihood that the plaintiff would recover judgment against him. Consequently, following on this established practice, Donaldson J (as he then was) refused the ship-owner's application.

No previous plaintiff had appealed against such a refusal, whether because the sums claimed did not warrant challenging what many practitioners considered too rigid a rule to be changed without statutory intervention, or for other valid reasons, but in this case there was an immediate appeal, which came before the Court of Appeal for judgment on 22 nd May, 1975 . No cases were cited in argument, and the hearing was again ex parte. After a sufficient, but brief review of the facts, the appeal was allowed, and an injunction was granted restraining the defendant charterers from disposing of their assets in England outside the jurisdiction on the basis of section 45(1) of the Supreme Court of Judicature (Consolidation) Act, 1925, which provided:

“The High Court may grant a mandamus or an injunction or appoint a receiver, by an interlocutory order in all cases in which it appears to the court to be just and convenient so to do.”

Uppermost as a consideration was the fear that if some restraint were not imposed, the funds would be sent overseas and be difficult to recover, if not irrecoverable. Consequently, in the words of Lord Denning MR:

“There is no reason why the High Court or this court should not make an order such as is asked for here … There is a strong prima facie case that the hire is owing and unpaid. If an injunction is not granted, these monies may be removed out of the jurisdiction and the
ship- owners will have the greatest difficulty in reco-vering anything.”

Geoffrey Lane , LJ. was of the same opinion:

“In the circumstances which exist in this case there is no reason why the court should not assist a litigant who is in danger of losing money to which he is admittedly entitled.”

Thus began the practice, which is now undoubtedly one of the most useful to a party faced with an opponent who is likely to so arrange his affairs as to frustrate a court judgment or arbitral award against him. Nevertheless, the departure from established practice raises certain questions, not least the reason why it had previously been thought that there was no power to make such an interlocutory order, and why it was opportune for the courts to change their practice in the economic and social climate of the 1970s.

A month later, almost before full realization of the Court of Appeal judgment had alerted commercial practitioners generally to the chances of success on any future application for a similar injunction, the question was again considered by the Court of Appeal, in the case which gave its name to this particular type of order i.e., Mareva Compania Naviera SA v. International Buckcarriers SA, (1975) 2 Lyod's Rep. 509, CA June 1975, Lord Denning MR, Roskill and Ormod CJI.

The facts were similar to the earlier Nippon Yusen Kaisha case, and involved ship-owners and charterers. The ship-owners had let the vessel Mareva on a time charter-party for a trip to the Far East . The charters had sub-chartered her on a voyage charter-party to the President of India, and by the terms of that sub-charter 90 per cent, of the freight was payable against documents issued by the ship, with the remaining 10 per cent, payable later. The vessel loaded fertilizer at Bordeaux on 29 th May, 1975 for carriage to India, and the Indian High Commission paid the freight then due (£ 174,000) to the charterers in London. The
ship-owners were paid two instalments of the half-monthly hire, but were not paid the third instalment due on 12 th June, 1975., Further, the charterers said that they were unable to pay, despite having the funds from the Indian g overnment, and were about to cease trading. The ship-owners therefore issued a writ on 20 th June, claiming the unpaid hire (US $30,800) and damages for repudiation.

Here too, the ship-owners feared that the charterers would dispose of their funds before execution of the judgment likely to be given against them, and an application was made ex parte for an injunction restraining the defendants. This was heard by Donaldson, J., as he then was, to whom the Japanese ship-owners in Nippon Yusen Kaisha had applied. On consideration of Lister & Co v. Stubbs, the injunction was granted only until 17:00 hours on 23 rd June, 1975 , out of deference to the Court of Appeal decision in the previous case, so that the court could be able to consider itself the view of Donaldson, J. that he had no jurisdiction to grant the order.

The appeal was also ex parte. Lord Denning MR stated his view as clearly as before (despite the reservations of the court in Lister & Co. v. Stubbs ) again based on section 45 of the Supreme Court of Judicature (Consolidation) Act, 1925:

“If it appears that the debt is due and owing– and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment – the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets.”

Roskill, LJ., put his views equally strongly:

“On the evidence the defendant time charterers have already received £174,000 from the voyage charterers. Yet they have sent a telex to the plaintiff ship-owners in London on June 17 stating that their efforts to raise further financial support have been fruitless and that they have no alternative but to stop trading. If therefore this court does not interfere by injunction, it is apparent that the plaintiffs will suffer a grave injustice which this court has power to help avoid – the injustice being that the ship will have to continue on her voyage to India and perhaps - as is not unknown in Indian ports - wait a long time there for discharge without remune-ration while the defendant will be able to dissipate that £ 174,000.”

Thus, the course of the Mareva injunction was corrected to accord with the cases referred to by the Court of Appeal, and although no inter partes hearing had yet explored the wide range of possible arguments, the opportunity to institute a radical change in the law, provided for initially by the Nippon Yusen Kaisha case, was well set to provide plaintiffs in a wide range of actions with a means to prevent actual and intended defendants making themselves judgment-proof.

It must be noted, though, that the Mareva was still an exceptional remedy, based on discretion. In the first inter partes hearing in the Court of Appeal, in MBPXL Corporation v. Intercontinental Banking Corporation, where there was a claim for US $597,000, with interest, against an Anguillan-registered corporation, an appeal against the refusal of Milmo, J. to restrain the defendants was dismissed, because the plaintiffs had not shown that the defendants had any assets within the jurisdiction. Stephenson, LJ. emphasized that the Mareva was an exceptional remedy, and Scarman, LJ. (as he then was) pointed out: “It is an injunction which can have the most inhibitory and restraining effect upon defendants, and therefore should only be issued if justice and convenience require it.”