Mareva Injunctions and Third Parties: Exposing the Subtext
| Date | 01 July 1999 |
| Published date | 01 July 1999 |
| Author | Peter Devonshire |
| DOI | http://doi.org/10.1111/1468-2230.00222 |
Mareva Injunctions and Third Parties: Exposing the
Subtext
Peter Devonshire*
The efficacy of an injunction may be dependent not only upon the defendant’s
conduct but also the compliance of those who are strangers to the proceedings.
This is particularly evident in the context of Mareva injunctions, where the
defendant’s property is commonly held by a third party. The plaintiff’s ability to
prevent the dissipation of assets or their removal from the jurisdiction prior to
judgment may be pivotal to the viability of an action. An injunction directed to the
defendant alone should theoretically achieve that end. However, the defendant may
be in a position to subvert the order by indirect means, typically through a
controlling interest in a company, or the complicity of close family members. Such
conduct is not only prejudicial to the plaintiff, but also an affront to the
administration of justice.
This article will assess the role of injunctive relief against transferees who may
in all other respects have no connection with the substantive proceedings.1Case
law has not forged any pronounced distinctions between various defendant-third
party dealings. However by examining the dynamics of certain relationships and
the basis on which property is held, some common categories and unifying
principles emerge. In turn it becomes possible to identify the defining features of
Mareva relief and the imperatives that underlie the ad hoc extension of this
jurisdiction. This, then, is the subtext to be exposed.
The status of assets held by a third party: six permutations
It is axiomatic that one of the perils of litigation is the risk of an unsatisfied
judgment. Mareva injunctions are directed to parties who may endeavour to place
assets beyond the reach of a prospective judgment creditor. If the assets in question
are held by the defendant then the plaintiff’s position is protected if the order is
obtained prior to any disposition. If property has already changed hands, it is
necessary to restrain alienation by the transferee. Whether it is feasible to do so
depends on a precise characterisation of the parties’ interests and the effect of their
dealings. Money – the usual target of a Mareva application – is usually held on
deposit by a bank. Chattels may be stored in a warehouse or loaned to a third party.
Such arrangements are neither extraordinary nor improper. Conversely the
ßThe Modern Law Review Limited 1999 (MLR 62:4, July). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA. 539
* Faculty of Law, University of Auckland.
I am grateful to David Hayton, Charles Rickett and Peter Watts for helpful discussions on this subject.
English civil procedure has consigned the term ‘Mareva injunction’ to legal history. The order is described
as a ‘freezing injunction’ in the Civil Procedure Rules, which took effect 26 April 1999.
1 The procedural implications are beyond the scope of this article. Suffice it to say that certain principles
potentially inhibit the extension of injunctions to third parties. These include the requirement,
classically expressed in Siskina (owners of cargo lately laden on board) vDistos Compania Naviera SA
[1979] AC 210, that an interlocutory injunction must be founded upon a cause of action against the
party enjoined. The analogous principle that an injunction must be directed to a party to the
proceedings, must similarly be reconciled with the fact that disputed assets are commonly held by
persons who are not involved in the action and seemingly lack status to be joined as a defendant.
defendant may notionally divest assets to an associate whilst informally retaining a
proprietary interest and control. In the first situation the third party is a legitimate
custodian of the defendant’s property. In the second, the transferee may be privy to
a scheme of evasion. The latter must necessarily be distinguished from bona fide
transactions where property passes unconditionally with the intent of severing the
transferor’s interest. Thus third parties enter the picture at different levels and in
different guises. The dynamics of their relationship with the defendant may prove a
difficult skein to unravel. Understandably the case law has developed in a
piecemeal fashion. Yet despite a seeming lack of synthesis, some general
principles can be discerned. These can be identified in the form of common
categories. The task of this paper is to bring them to light.
Assets held by an independent third party claiming absolute
ownership
If property is held by an independent third party claiming beneficial ownership to
the exclusion of the defendant, then by definition a Mareva injunction against the
defendant’s assets can have no application. In the normal course, title is the most
obvious indicium of ownership and therefore it is not incumbent on third parties to
establish a beneficial interest in property they presumptively own. It follows that
the onus lies on the plaintiff to establish that the disputed assets should be
attributed to the defendant.2In what has become a leading decision in this area,
SCF Finance Co Ltd vMasri,3the Court of Appeal stated:
Where a plaintiff invites the court to include within the scope of a Mareva injunction assets
which appear on their face to belong to a third party . .. the court should not accede to the
invitation without good reason for supposing that the assets are in truth the assets of the
defendant.
At the same time there is a reluctance to hamper judicial discretion by inflexible
formulae and much will depend on the circumstances of each case. For instance,
the court may be particularly receptive to the plaintiff’s position if a third party is
embroiled in the defendant’s affairs and there is uncertainty as to the basis on
which property has been transferred. In this event there may be a tendency to err on
the side of caution by granting interlocutory relief to preserve the status quo
pending further enquiry. Such was the case in Shaw vNarain,4where the plaintiff
alleged that her husband had disposed of matrimonial property under circum-
stances amounting to an attempt to defeat her claims under the Matrimonial
Property Act.5The parties had formerly lived in a spiritual commune and the
plaintiff asserted that her husband had sold matrimonial property and given the
proceeds to a third party, N, the spiritual leader of the commune. It was further
claimed that N had in turn used these funds to acquire land which was ultimately
sold to his son. Against this background, N, his wife and son, were joined as
2 This will be the case even where the third party stands in a close relationship to the defendant, for
example, a spouse. The law still proceeds from the premise that such persons enjoy distinct juridical
status. See ‘Assets held by a third party who is prone to follow the defendant’s interests or directions’
below.
manifested in Allied Arab Bank Ltd vHajjar,The Times, 18 January 1988. The Court of Appeal
declined to grant a Mareva injunction against two bank accounts held by the defendant’s wife, despite
the fact that her husband had authority to draw.
4 [1992] 2 NZLR 544.
5 Matrimonial Property Act 1976 (NZ).
The Modern Law Review [Vol. 62
540 ßThe Modern Law Review Limited 1999
To continue reading
Request your trial