Freezing injunctions: the Convoy Collateral revolution

(A) Overview:

On 4 October 2021, the Privy Council handed down its much-anticipated judgment in the British Virgin Islands (“BVI”) case of Convoy Collateral Ltd v Broad Idea International Ltd [2021] UKPC 24. The judgment principally dealt with the question of whether the BVI courts have a free-standing jurisdiction at common law (i.e. without statutory provision to that effect) to grant a freezing injunction against a defendant in the absence of substantive proceedings before the BVI courts. The Privy Council split 4:3 on this issue, having sat with an enlarged panel of 7 Justices. The majority judgment was given by Lord Leggatt, with whom Lord Briggs, Lord Sales and Lord Hamblen agreed. The minority judgment was given by Sir Geoffrey Vos, with whom Lord Reed and Lord Hodge agreed.

This article focuses on the majority judgment and its implications for practitioners specialising in civil fraud and other cross-border commercial disputes. While a decision on BVI law, the judgment treats English and BVI law alike as far as the common law is concerned.

By way of brief overview, the majority judgment establishes that:

1. It is not necessary for there to be substantive proceedings within the jurisdiction (whether extant or prospective) in order to obtain a freezing injunction. In short, the judgment recognises that at common law the court has jurisdiction to grant a freezing injunction in aid of foreign proceedings. Influential dicta by Lord Diplock in the House of Lords in The Siskina [1979] AC 210 were departed from.
2. The key restriction identified by the majority was what it called the “enforcement principle”. In short, whether the respondent to the freezing injunction has assets which are or would be available to satisfy a judgment through some process of enforcement.
3. This is in addition to the usual requirements of:
   1. a good arguable case on the merits (now extending also to foreign proceedings, but viewed through the prism of sufficient likelihood of enforceability of a foreign judgment);
   2. a real risk of dissipation; and
   3. the general discretion which applies in all injunctive relief applications.
4. Such applications can even be brought against Chabra defendants (i.e. non-cause of action defendants), provided the applicable test summarised in Lakatamia Shipping Co Ltd v Su [2014] EWCA Civ 636; [2015] 1 WLR 291 at [32] is satisfied.
5. This reasoning applies irrespective of the existence of statutory provisions achieving the same aim, most notably section 25 of the Civil Jurisdiction and Judgments Act 1982 (“s.25 CJJA 1982”) in England and also recently.

The remainder of this comment analyses the reasoning of the majority in detail. Interestingly, the success on the jurisdictional issue on appeal did not ultimate lead to the freezing injunction being reinstated by the Privy Council. This was because the Board agreed with the Eastern Caribbean Court of Appeal (“ECCA”) that there was insufficient evidence to establish the Chabra status of Broad Idea International Ltd (see [103]-[113]). It also agreed with the ECCA that the other target of the freezing injunction, a Dr Cho, could not be served under BVI law. There was therefore no personal jurisdiction over him, precluding a freezing injunction (see [64]-[70]). This is a useful reminder of the prior need for a service “gateway” irrespective of the expansion of the common law jurisdiction in Convoy Collateral.

The summary of restated practice by the Privy Council majority at paragraphs [101]-[102] is a must-read for every practitioner dealing with freezing injunctions. To reiterate, it is not limited to BVI law. The relevance to cross-border disputes involving England, the BVI and other key jurisdictions is explored below.

(B) The majority’s judgment:

• The Siskina and s.25 CJJA 1982:

The point of focus for the Privy Council majority was the following passage, per Lord Diplock in The Siskina:

“That subsection, speaking as it does of interlocutory orders, presupposes the existence of an action, actual or potential, claiming substantive relief which the High Court has jurisdiction to grant and to which the interlocutory orders referred to are but ancillary.” (Emphasis added.)

As the majority judgment makes clear, this was one of the early cases following the introduction of the Mareva (freezing injunction) jurisdiction in the mid-1970s. The jurisdiction was initially developed in the international shipping context, but had significantly developed and expanded in subsequent years and decades. The judgment provides a helpful survey of the main innovations seen in the English courts (by and large mirrored in other Commonwealth jurisdictions).

Apart from highlighting the obiter nature of Lord Diplock’s remarks and the time at which they were made, the majority also stressed the practical difficulties which have arisen from the divergence between the statutory position in England, as a result of s.25 CJJA 1982, and other common law jurisdictions (including the BVI and Hong Kong) where such specific legislative provision has not come about. To recap, the s.25 jurisdiction in England was initially introduced to allow an English court to aid proceedings in the court of another Member State of the European Union (then the European Economic Community) and expanded in 1997 to cover proceedings commenced or to be commenced (i.e. extant or prospective) anywhere in the world. The majority rightly emphasised that this power is “of enormous breadth”, noting that it has even been exercised to grant a worldwide freezing injunction in connection with foreign proceedings against a foreign defendant with no known assets in England and Wales (see [18]).[1]

The lack of a statutory equivalent of s.25 in Hong Kong, coupled with the legacy of The Siskina, had led to the judgment in Mercedes Benz AG v Leiduck [1996] AC 284 (a Hong Kong appeal to the Privy Council) that there was no common law jurisdiction to the same effect.

• Major developments since The Siskina:

The majority then surveyed a number of further developments in this area, including:

1. The accepted theoretical foundation of freezing injunctions becoming recognised as being “to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment”.[2]
2. The ability to obtain anti-suit and anti-arbitration injunctions in England, not only on the basis of an English jurisdiction or English arbitration clause, but also on grounds of oppression and vexation (see [47]).
3. The development of third party disclosure orders, specifically Norwich Pharmacal and Bankers Trust orders, not requiring any wrongdoing by the respondent (see [48]-[49]).
4. Importantly, three major changes of circumstances since the 1970s: (i) “the transformation in the ease and speed with which money and other financial assets can be moved around the world”, (ii) “the globalisation of commerce and economic activity and consequent growth of litigation and arbitration with international dimensions” and (iii) “the growth in the use of offshore companies” (especially in the BVI) (see [60]).

• The “enforcement principle”:

The Privy Council majority ultimately considered that at the heart of the freezing injunction jurisdiction lay what it termed the “enforcement principle”. It stated at [85]:

“…the essential purpose of a freezing injunction is to facilitate the enforcement of a judgment or order for the payment of a sum of money by preventing assets against which such a judgment could potentially be enforced from being dealt with in such a way that insufficient assets are available to meet the judgment.”

It made clear that the enforcement principle was central to the freezing injunction jurisdiction both as to cause of action defendants and non-cause of action (i.e. Chabra) defendants. At [88], it stressed that “[i]n each case the key question is whether the assets are or would be available to satisfy a judgment through some process of enforcement”. It added at [89] that:

“A freezing injunction protects this right [to enforcement of judgment] to the extent that it is possible to do so without giving the claimant security for its claim or interfering with the respondent’s right to use its assets for ordinary business purposes.” (Emphasis added.)

This reiterates the established understanding of freezing injunctions operating in personam and thereby differing from proprietary freezing injunctions which require proof of an arguable case that the applicant has a proprietary interest in specific assets and satisfaction of the balance of convenience test in favour of the applicant.

It also reiterates the standard exception in freezing injunctions for (to the use the CPR standard form) “dealing with or disposing of any of his assets in the ordinary and proper course of business.” Of course, in practice, policing this part of an order can cause significant disruption to a respondent irrespective of the non-proprietary nature of the freezing order. Especially when dealing with banks who are normally wary of the risk of inadvertently assisting in the breach of a freezing order granted by the English courts.

The majority of the Board then went on to conclude (at [90]) that, accordingly, “there is no reason in principle to link the grant of such an injunction to the existence of a cause of action.”

The judgment then considers the relevance of the well-established good arguable case requirement for freezing injunctions. The short conclusion (at [92]) was that “[w]hat in principle matters is that the applicant has a good arguable case for being granted substantive relief in the form of a judgment that will be enforceable by the court from which a freezing injunction is sought.” Again, the centrality of the enforcement principle is evident.

• Differences between domestic and foreign proceedings?

Significantly, the Privy Council majority made clear that it did not see any material distinction between (i) a future judgment obtained in substantive BVI proceedings and a future judgment either (ii) of a foreign court or (iii) of a BVI court enforcing a foreign judgment. It held (at [95]) that:

“In each case the question is whether there is a sufficient likelihood that a judgment enforceable through the process of the BVI court will be obtained, and a sufficient risk that without a freezing injunction execution of the judgment will be thwarted, to justify the grant of relief.” (Emphasis added.)

To summarise, what matters is not where one sues but the prospects of enforcing a judgment in the court in which the applicant seeks a freezing injunction (be it the BVI or England). The key considerations appear to be:

1. having a good arguable case on the merits in the jurisdiction of the substantive proceedings; and
2. the nature of enforcement regimes between the injuncting court and the court in which the substantive proceedings are or will be afoot (a point clarified at [102](iii)).
3. Real risk of dissipation and the court’s general equitable discretion are further hurdles as in all freezing injunction applications (see [101]-[102]).

(C) Practical impact for practitioners and litigants:

The obvious question, especially when dealing with freezing injunction applications made to the English rather than BVI courts, is to what extent is Convoy Collateral relevant in practice beyond the theoretical restatement provided by the majority?

The majority engaged with this to an extent at paragraph [118] of the judgment. There, It dealt directly with the relationship between the common law position and s.25 CCJA 1982 in England (and equivalent statutory provisions in certain other Commonwealth jurisdictions, such as section 11A to the Grand Court Law enacted in the Cayman Islands in 2015). These rules have allowed the English (and Cayman) courts to aid foreign proceedings (both extant and prospective). The majority concluded at [118] that “[t]he existence of an overlap between statutory powers is not an uncommon occurrence and there is no reason why it should generate uncertainty.”

As a provisional view, I suggest that if the English courts are the only jurisdiction in which a freezing injunction is likely to be sought, the decision in Convoy Collateral to recognise substantially the same remedial tool at common law is unlikely to make any real difference. The reason for this is that it may in fact be more difficult to satisfy the Convoy Collateral test for a “common law” freezing injunction in England in aid of foreign proceedings than the wide discretion that the English courts enjoy under s.25 CJJA 1982, focussing less closely on the merits of foreign proceedings than their existence or (if prospective) imminent existence and bona fides. S.25 applications are also not limited to freezing relief. For example, it is possible to seek disclosure alone under s.25.

The decision is more significant in respect of  cross-border disputes where freezing injunctions in England as well as other “offshore” jurisdictions, including the BVI, which do not have statutory mechanisms akin to s.25 in place are expedient. What Convoy Collateral facilitates is a concerted campaign of freezing injunctions obtained in England and other key jurisdictions. This can apply considerable extra pressure on defendants, particularly because contempt proceedings will be available in those further jurisdictions and not just in England. The BVI joining the list of jurisdictions in which such recourse is available is a notable development given the high volume of offshore companies incorporated there. The judgment also levels the playing field between the BVI and the Cayman Islands (which had emerged post-2015).

It is also possible that the recognition of standalone “common law” injunctions against Chabra respondents in Convoy Collateral will provide a useful additional tool in freezing injunction applications before the English courts, perhaps shifting the focus away from the imminence or scope of foreign proceedings (on a s.25 application) to the prospects of enforcement (on a common law application).

Lastly, if nothing more, the summary of restated practice at paragraphs [101]-[102] will be a useful point of reference for all practitioners moving forward, in England and beyond.