Z Ltd v A-Z and AA-LL

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE EVELEIGH,LORD JUSTICE KERR
Judgment Date16 Dec 1981
Judgment citation (vLex)[1981] EWCA Civ J1216-2
Docket Number81/0514

[1981] EWCA Civ J1216-2

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

(MR. JUSTICE WEBSTER)

Royal Courts of Justice.

Before:

The Master of the Rolls

(Lord Denning)

Lord Justice Eveleigh

and

Lord Justice Kerr

81/0514

1981 No. 1434

Z Limited
(Plaintiff) Respondent
and
A-Z and AA-LL
(Defendants) Appellants

MR. R.M. SLOWE and MR. P.A. SHEPHERD (instructed by Messrs. Slowes) appeared on behalf of the Respondent.

MR. GEORGE NEWMAN, Q.C. and MR. AUSTIN ALLISON (instructed by Messrs. Coward Chance) appeared on behalf of the 31st-36th Defendants/Appellants.

THE MASTER OF THE ROLLS
1

In the cause list this case was concealed by letters of the alphabet. I will adopt a different device.

2

Ruritania is an imaginary country. The name was invented by Anthony Hope in his novel "The Prisoner of Zenda". I will use it so as to conceal the identity of a real country and its people. There was a large company with its head office in Ruritania: and a London office here. It had its main banking account with a bank in Hentzau. Then some conspirators got to work to defraud the Ruritanian company. Telexes and cables were sent purporting to come from the company's head office in Ruritania. These authorised huge sums to be transferred from the company's bankers in Hentzau to London, and paid to suppliers of goods. The telexes and cables were forged. No goods had been supplied. The moneys went into the hands of the conspirators. The Ruritanian company was defrauded of £2,000,000. The moneys were believed to have been paid into divers accounts at various banks in London, and used to buy motor cars and other things. When the fraud was discovered, the Ruritanian company was anxious to trace the moneys into the various banking accounts, and also the goods. It was important that any dealings should be stopped before the conspirators knew that the fraud had been discovered. It was so urgent that, before issuing a writ, the Ruritanian company made application to the commercial judge seeking orders against any of those who might possibly have had a part in the fraud, and against any of the estate agents and solicitors who might, quite innocently, have taken part in the transfers, and against the banks who might still be holding any of the money. They went before the commercial judge, Mr. Justice Bingham, and got a Mareva injunction to stop any dealings with the assets, save in so far as they exceeded £2,000,000. This was followed immediately by a writ in which the Ruritanian company claimed damages against 17 defendants for conspiracy to defraud and against 19 defendants (including the five great clearing banks) for "specific discovery, interrogatories and injunctions all to preserve the subject-matter of the action herein". The Ruritanian company got Anton Piller orders, and also orders for interrogatories. They also got Mareva injunctions against the first 17 defendants. By these means the Ruritanian company succeeded in recovering £1,000,000 out of the £2,000,000. Since then a settlement has been made by which the Ruritanian company has recovered, we are told, a good deal of the balance. But the action has been kept alive because the five clearing banks desire the law to be elucidated. They want to know what is the position of innocent third parties, like themselves, when served with notice of a Mareva injunction. This has never been investigated before: and we are grateful to counsel for the assistance they have given.

3

AS AGAINST THE DEFENDANT

4

The Mareva injunction is now an established feature of English law. The principles applicable to it—as against the defendant—have been stated in numerous cases from 1975 to 1981. They have been given statutory force by section 37(2) of the Supreme Court Act 1981, which says:

5

"The power of the High Court…to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within the jurisdiction shall be exercisable in cases when the party is, as well as in cases when he is not, domiciled, resident or present within the jurisdiction".

6

Those words "otherwise deal with" are in my opinion to be given a wide meaning. They are not to be construed as ejusdem generis with "remove out of the jurisdiction". They can be found in the parallel jurisdiction under section 32(1) of the Matrimonial Causes Act 1965, now section 37(2) of the Matrimonial Causes Act 1973. Giving them this wide meaning, they bear out what I said in Rahman Abu Tu (1980) 1 Weekly Law Reports at page 1273:

7

"I would hold that a Mareva injunction can be granted against a man even though he is based in this country if the circumstances are such that there is a danger of his absconding, or a danger of the assets being removed out of the jurisdiction, or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied".

8

Three weeks later in Kirby v. Banks (1978 K. No. 976—unreported 1st July, 1980) we applied that dictum in a case when a defendant was within the jurisdiction and there was a danger that he would dispose of £60,000—within the jurisdiction—in such a way as to be beyond the reach of the plaintiffs. I append hereto a note of that case.

9

In view of that extension, it seems to me that the observations of Lord Justice Ackner in Bekhor & Co. Ltd. v. Bilton (1981) 2 Weekly Law Reports at page 616 are too restrictive. The Mareva jurisdiction extends to cases where there is a danger that the assets will be dissipated in this country as well as by removal out of the jurisdiction.

10

Hitherto the cases and the statutes have been concerned primarily with the injunction against the defendant. Now we have to consider the position of the banks or other innocent third parties who hold the assets.

11

THE NATURE OF THE PROBLEM

12

To show the nature of the problem I will take the type of case which first came before the courts. A shipowner is owed £10,000 by a foreign company. He knows that that company has an account at a London bank. He is fearful that the foreign company will remove its money and not pay him. He issues a writ against the foreign company claiming the money, but he cannot serve it because it is out of the jurisdiction and it will take a long time. He goes to the court and gets a Mareva injunction against the foreign company restraining it from disposing of its assets. He notifies the bank. The bank, on receiving that notification, freezes the foreign company's bank account. It remains frozen until the foreign company pays up—or the action is tried.

13

What is the justification of the bank for freezing the bank account? The bank is not a party to the action. No order has been made by the court upon the bank, see Marengo v. Daily Sketch (1948) 1 All England 406. No authority was given by the customer for his account to be frozen. What right has the bank to freeze it? On what principle is the bank justified in freezing their customer's bank account?

14

A SIMPLE TYPE OF CASE

15

Take a case where the Mareva injunction is served on the defendant restraining him from disposing of his assets in his account at a named bank. The plaintiff notifies the bank of the injunction. But the defendant, then in breach of the injunction, draws a cheque in favour of a tradesman. The defendant is clearly guilty of a contempt of court. If the bank should honour the cheque, it would be guilty of aiding and abetting the contempt of the defendant, see Seaward v. Peterson (1897) 1 Chancery 545: and Acrow Ltd. v. Rex Chainbelt Inc. (1971) 1 Weekly Law Reports at page 1682.

16

A USUAL TYPE OF CASE

17

Next take a case—a very usual case—where the Mareva injunction is not served on the defendant at the outset. He may be out of the jurisdiction or away from home, or simply not available. So the plaintiff simply gives notice to the bank of the injunction. Sometimes the plaintiff deliberately delays serving the defendant: because the defendant, on being served himself, would whisk the money away before the bank had notice of it. In such cases the defendant, not having been served, is not guilty of a contempt himself. So the bank cannot be guilty of aiding and abetting.

18

What then is the principle? It seems to me to be this: As soon as the judge makes his order for a Mareva injunction restraining the defendant from disposing of his assets, the order takes effect at the very moment that it is pronounced, see order 42, rule 3, and Holtby v. Hodgson (1889) 24 Queen's Bench Division at page 107. Even though the order has not then been drawn up—even though it has not then been served on the defendant—it has immediate effect on every asset of the defendant covered by the injunction. Every person who has knowledge of it must do what he reasonably can to preserve the asset. He must not assist in any way in the disposal of it. Otherwise he is guilty of a contempt of court.

19

OPERATION IN REM

20

The reason is because a Mareva injunction is a method of attaching the asset itself. It operates in rem just as the arrest of a ship does. Just as a debtor gets the ship released on giving security, so does the debtor get an aircraft released, see Allen v. Jambo Ltd. (1980) 1 Weekly Law Reports at page 1256, or any other asset. This concept of the Mareva—as operating in rem—is in full accord with the historical and comparative survey which I described in The Pertamina, Rasu Maritima S.A. v. Perusahan (1978) 1 Queen's Bench at pages 657/8. It operates just as the process of foreign attachment used to do in the City of London, and...

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