United States Securities and Exchange Commission v Manterfield
| Jurisdiction | England & Wales |
| Judge | Moses,Waller,Hallett L JJ |
| Judgment Date | 28 January 2009 |
| Neutral Citation | [2009] EWCA Civ 27 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2008/1313 |
| Date | 28 January 2009 |
[2009] EWCA Civ 27
Lord Justice Waller
Vice President of the Court of Appeal, Civil Division
Lord Justice Moses and
lady Justice Hallett
Case No: A2/2008/1313
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Sir Charles Gray, sitting as a Deputy High Court Judge
David Wolfson and Michael Clark(instructed by Messrs Nabarro LLP) for the Respondent
Jonathan Fisher QC (instructed by Messrs Rahman Ravelli Solicitors) for the Appellant
Hearing date : 26 th November 2008
Lord Justice Waller :
This is an appeal from the decision of Sir Charles Gray sitting as a Deputy High Court Judge given on 16 th May 2008 by which he continued a worldwide freezing order granted by Openshaw J on 29 th February 2008. That order had been obtained by the respondents the United States Securities and Exchange Commission (SEC) over the assets of the Appellant. Before Sir Charles Gray a number of points arose, including the question whether there was a good arguable case, but on the appeal only two points were argued (1) as to whether the SEC are seeking to enforce a foreign penal law and whether the English court should thus decline jurisdiction; and (2) whether the judge was right to dispense with a cross-undertaking in damages.
Those being the only points it is possible to set out the background relatively briefly. On 12 th April 2007 the SEC commenced proceedings in the United States District Court of Massachusetts against three defendants, Lydia Capital LLC and, as the original complaint alleged, “its two principals, …Glenn Manterfield (“Manterfield”) and Evan Anderson (“Anderson”)”. The original complaint alleged that the defendants were involved in an on-going fraudulent investment scheme involving sales to investors in Taiwan of “limited partnership interests” in an unregistered fund, Lydia Capital Investment Fund LP (“the Fund”). The complaint alleged that the defendants “are offering and selling hedge fund interests to investors and potential investors and not disclosing material facts … including, but not limited to the fact, that the Fund's principal underlying assets—i.e. life insurance policies—may be either worthless or virtually worthless”. The complaint was later amended to provide greater detail of the alleged fraud. Putting it broadly, (and making it clear that any fraud is strenuously denied by those charged), the allegation is that during the period June 2006 through to April 2007 Manterfield and Anderson, through Lydia Capital LLC, fraudulently induced over 60 investors, all of whom were Taiwanese, to invest approximately $34 million in the fund. It is alleged that the two men misappropriated millions of dollars, withdrawing $8 million of which it is alleged Manterfield received $2.35 million.
In the District Court of Massachusetts the SEC obtained interim injunctions including interim freezing orders. Such freezing orders, although on their face covering assets in England, would not (it is common ground) be enforceable in relation to those assets.
Manterfield's assets in England were for a period the subject of a restraint order imposed by His Honour Judge Keen QC at the Sheffield Crown Court on 1 st February 2007 in relation to criminal proceedings at that stage contemplated in the English courts. However, on 26 th February 2008 Manterfield was informed that no charges would be brought and the restraint order was discharged on 29 th February 2008. On the same day the SEC made its application to the English court for interim freezing orders in support of their proceedings in Massachusetts, relying on Section 25(1) of the Civil Jurisdiction and Judgments Act 1982.
Section 25(1) originally gave the English court the power to grant interim relief only where the foreign litigation was in a country which was party to the Brussels and Lugano Conventions and where the litigation related to a civil or commercial matter. But those limitations were removed by the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 and thus it is accepted by Mr Fisher QC for Manterfield that as a general rule interim relief may be granted by the English court in relation to proceedings commenced or to be commenced anywhere in the world. But what Mr Fisher emphasised is that the 1997 Order did not abolish what he describes as the “fundamental rule of private international law … that the English courts will not assist any action by a foreign state in civil proceedings to enforce a foreign penal or revenue law”. Mr Wolfson for the SEC did not, as I understood his arguments, suggest that it did.
The first point taken by Mr Fisher can thus be articulated in this way. He cited Rule 3 from Dicey Morris & Collins The Conflict of Laws 14 th Edition Vol 1 (“Dicey”) page 100 which is in the following terms:—
“English courts have no jurisdiction to entertain an action:
(1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign state; or
(2) founded upon an act of state.”
He argued, as he argued before the Judge, that the SEC's action in Massachusetts was seeking to enforce a “penal law” and that thus any judgment obtained in Massachusetts would be unenforceable in England. On that basis he argued no freezing order should be made at the interim stage which had as its object the enforcement of the penal law of a foreign state.
The second point on the appeal relates to the judge's decision to dispense with a cross-undertaking in damages. Mr Wolfson informed the judge, as indeed he informed us, that the SEC had no power to offer an unlimited cross-undertaking in damages. Furthermore, he explained that although there were circumstances in which a limited undertaking could be given if the Commission authorised the same, no authority had been given and if it were given the limit of any such undertaking would be very low. His argument was that the case was one in which an undertaking should be dispensed with as he suggested it would be if an English regulatory body were pursuing a similar claim in England and he relied on SIB v Lloyd-Wright [1994] 4 All ER 210.
Before the judge Mr Fisher did not contest Mr Wolfson's explanation as to the SEC's power to provide a cross-undertaking. Furthermore he did not seek to obtain some limited undertaking by providing some form of assessment as to the losses that his client might suffer. His case before the judge was that the court only dispensed with a cross-undertaking in very limited circumstances and, whatever difficulties the SEC might have in giving a cross-undertaking, these were not the circumstances, even if SEC was a domestic regulatory body dealing with a domestic situation. In addition he submitted the fact that the SEC was a foreign body and the action was not concerned with a domestic situation and, since the damage his client might suffer if a freezing order was continued could be very serious, this was even more clearly not a case for dispensing with a cross-undertaking.
The judge was persuaded to dispense with any cross-undertaking in damages. That decision was an exercise of discretion by the judge and thus the question on appeal is whether the judge erred in principle or made a decision with which this court not only disagrees but which is outside the boundaries where reasonable disagreement is possible; [see Lord Fraser in G v G [1985] 1 WLR 647 at 652].
Is the SEC by its application under section 25 seeking to enforce either directly or indirectly a penal or other public law of a foreign state?
Certain points are common ground. The best explanation as to the basis for Rule 3 in Dicey rests upon the principle that enforcement of such claims would amount to an unwarranted extension of the sovereign power which imposed the tax or penal offence by one state within the territory of another [see paragraph 5.020 of Dicey and the authorities there referred to]. Whether the foreign law constitutes a penal law which the English courts will not enforce is a matter of English law, and thus whether the foreign law regards the law in question as a penal law or a public law is irrelevant [see the same paragraph in Dicey and the authorities there cited].
Mr Fisher took us to the complaint as filed in the District Court of Massachusetts as amended and in particular the prayer for relief which contains the following two paragraphs:—
“C. Require Defendants to disgorge their ill-gotten gains and unjust enrichment, plus pre-judgment interest, with said monies to be distributed in accordance with a plan of distribution to be ordered by the Court;
D. Order Defendants to pay an appropriate civil monetary penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. para 78u(d)(3)], and Section 209(e) of the Advisers Act [15 U.S.C. para 80b-9(e)];”
He then took us as an example of the provisions referred to in D above to the Securities Exchange Act of 1934 section 21(d)(3) which commences in these terms:—
“(A) AUTHORITY OF COMMISSION – Whenever it shall appear to the Commission that any person has violated any provision of this title, the rules or regulations thereunder, or a cease-and-desist order entered into by the Commission pursuant to section 21C of this title, other than by committing a violation subject to a penalty pursuant to section 21A, the Commission may bring an action in a United States district court to seek, and...
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