Cross‐border asset protection: an offshore perspective

DOIhttps://doi.org/10.1108/13590790310808817
Publication Date01 Jul 2003
Pages229-245
AuthorPépin Aslett
SubjectAccounting & finance
Cross-Border Asset Protection:
An Oshore Perspective
Pe
Âpin Aslett
This paper considers the ability of an applicant to
reach assets in oshore jurisdictions. Through a
look at both the inherent nature of the oshore
world and the development of the law in such coun-
tries, it is shown that there is a disparity between the
oshore world and the rest of the world. After an
examination of the law as it has developed in England
and Wales, Australia and Canada, there is an analysis
of how an applicant may seek assistance from an
oshore court in aid of proceedings abroad, the
availability of extra-territorial or worldwide orders
reaching assets located oshore, and territorial en-
forcement orders ordering assets to be removed
from an oshore state.
It is shown that the majority of the `traditional' o-
shore states are covered by the precedent and author-
ity of the Privy Council and are seriously out of date
due to legislative developments in England. There is a
real discord even between such oshore jurisdictions
as to how to proceed with con¯icting decisions at all
levels. There is a need for an international treaty
system to set out how to deal with the issues which
face courts in oshore states, yet very few juris-
dictions are entering international dialogue to resolve
the issues.
INTRODUCTION
The feared skulduggery of a defendant who may
evaporate his assets either before or after judgment
has always plagued both domestic and international
litigation. Transactions are increasingly conducted
on an international playing ®eld, and contractual
obligations created at the click of a button. As the
electronic age unfurls, the corollary to the shrinking
of the global community is that money can be
hidden out of sight virtually anywhere in the world
within a very short period of time.
1
Dispute resolu-
tion methods do not work at the same tempo.
Quite apart from the time it takes to obtain a deter-
mination of the merits between the parties, the
cross-border preservation of assets and enforcement
of eventual judgment takes time and can leave a
claimant at the behest of jurisdictions with less
developed commercial litigation procedures.
Just as much as the claimant to litigation can go
`forum shopping' for the best jurisdiction prior to
issuing her process, so too can persons with question-
able scruples shop around for a land in which it can be
made extremely challenging for a claimant to reach
assets. Other tactics which a `debt dodger'
2
may
attempt in seeking to become invincible to an order
or judgment may include destroying assets, transfer-
ring them to a third party or concealing their
existence or ownership.
For such dicult defendants, one class of jurisdic-
tion holds particular appeal: the oshore ®nancial
centre. Such countries strive to promote trust and
stability in providing bene®cial legal, ®nancial and
political environments within which to conduct
business. There are further advantages of con®denti-
ality, the convenience of conducting business interna-
tionally, tax avoidance or reduction, advantageous
regulatory and administrative frameworks and the
ability to insulate assets from creditors. The inter-
national community has sought to pigeon hole the
oshore ®nancial centres in a bid to reduce harmful
tax practices and harmonise regulation, but for
these states which hold immense cross-border assets,
3
de®nitive labels are challenging.
4
While these jurisdictions are immensely attractive
to those wishing to hide assets and their bene®cial
ownership secretly, such centres are ®nding that
they must draw their own balance when it comes
to the maintenance of con®dence in their systems as
a whole. Antagonism exists. The need to attract the
genuine individual or corporation with legitimate
commercial interests desirous of locating assets o-
shore clashes with the fact that oshore states will
want to be concerned not to provide a cloak of pro-
tection to those who use and abuse by concealing
assets from creditors with proper legal entitlement.
Antithetically, an over-willingness to lend assistance
to outsiders may compromise the very essence of
the oshore world's attributes.
From the claimant's perspective, proceedings may
of course be commenced in the oshore state itself,
but more often than not it is the case that the oshore
court is not seized with determining the merits of the
substantive dispute, yet is petitioned to grant to a
Page 229
Journal of Financial Crime Ð Vol. 10 No. 3
Journal of Financial Crime
Vol.10,No. 3,2003,pp. 229 ±245
#HenryStewart Publications
ISSN 1359-0790
foreigner an equitable right aecting assets located
there. Alternatively, an order is made abroad,
which directly or indirectly aects oshore assets
and third parties located there. Let us assume for a
moment that the merits of the substantive dispute
between the parties are or will be litigated in Eng-
land, and that the defendant has assets in the notional
oshore territory of `Sunland'. The claimant may:
seek a sanction of the court in Sunland restrain-
ing the defendant from dealing with the identi-
®ed assets within Sunland (a freezing order in
aid of foreign proceedings where the substantive
cause of action will be determined);
seek a sanction of the court in England, restrain-
ing the defendant from dealing with the
identi®ed assets within Sunland (an extra-
territorial freezing order as part of substantive
proceedings);
seek a sanction of the court in England, ordering
the defendant to bring identi®ed assets from
Sunland to within the jurisdiction of the English
court for the purposes of enforcement (a
territorial enforcement order).
This paper seeks to examine the above three options
in the oshore context. It will be seen that the law
in England has matured considerably from an initial
reluctance to aid proceedings abroad, to the enact-
ment of speci®c legislation granting interim freezing
orders where no substantive proceedings are in
England. The extra-territorial, or worldwide freez-
ing order is another recognition of the need for inter-
national aid. Oshore fora have recently handed
down a number of con¯icting decisions, and judicial
development in the oshore world has served to
reveal stresses and strains on the international
system of comity and reciprocity, as well as demon-
strating that there is an underlying political ethos in
such countries to protect their eminence.
THE HISTORY OF THE MAREVA
5
INJUNCTION
6
While other jurisdictions possessed such protective
remedies in more recent times,
7
it was not until
1975 that equitable injunctive relief to freeze the
domestic assets of a defendant was ®rst granted in
England. In Nippon Yusen Kaisha v Karageorgis,
8
the
Court of Appeal readily restrained two individuals
from disposing of assets which they held in England.
The Court of Appeal had reason to be troubled again
in Mareva Compania Naviera SA v International Bulk
Carriers SA, as counsel was anxious that the court
consider the comments of Cotton LJ in Lister & Co.
v Stubbs,
9
where it was stated that security is not
normally `established before judgment or decree'.
10
Lord Denning MR in considering that dictum did
not feel constrained, as statute provided
11
that an
injunction could be granted where it was `just and
convenient' to protect a creditor before judgment,
and therefore:
`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.
12
To this was to be added the quali®cation that author-
ity clearly showed
13
that `the court will not grant an
injunction to protect a person who has no legal or
equitable right whatever'.
14
The jurisdiction was
further con®rmed after fuller argument,
15
and statu-
tory endorsement was given in England with the
which retained the court's `just and convenient'
discretion, and went further to formally recognise
the Mareva jurisdiction.
16
Assets had to be within
the jurisdiction of the High Court, but the defendant
need not be.
17
As with any interlocutory injunction, `equity acts
in personam' and any order of any court must prop-
erly attach to the person and not to any tangible
property or assets.
18
The order does not create a
priority for the applicant
19
and does not mean the
defendant is to be placed in the same position as a
defendant in enforcement proceedings.
20
However,
the relief does possess similar elements to in rem
relief, such as the binding of third parties,
21
and
taking eect immediately upon the judge's ink
drying. The ultimate sanction for breach of the
order cannot aect the assets, but rather places the
defendant in contempt.
22
The right of the applicant to have assets protected
pending her case being considered must be contrasted
with the justi®able right of the defendant to freely
move his assets wherever he pleases in the absence
of a judgment.
23
Hence, the ex parte application
calls for the claimant to meet strict conditions in rela-
tion to disclosure and the necessity of the order,
24
and
Page 230
Aslett

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