Hong Kong High Court considers the difference between mareva injunctions and proprietary injunctions

In the recent case of Zimmer Sweden AB v KPN Hong Kong Ltd and Brand Trading Limited HCA2264/2013, the Hong Kong High Court upheld two injunctions granted in favour of a company which was the alleged victim of fraud perpetrated in Sweden. In doing so, the Court provided a welcome analysis of the distinction between asset freezing injunctions (commonly known as Mareva injunctions) and proprietary injunctions.

Background

The Plaintiff, Zimmer Sweden AB ("Zimmer"), was the victim of an alleged fraud perpetrated in Sweden, which resulted in losses of EUR 487,000. Part of these sums were allegedly paid into the bank accounts of KPN Hong Kong Ltd and Brand Trading Limited (the "Defendants"). The Defendants claimed that the monies transferred to their respective accounts were ordinary trade proceeds between two related business entities and not the product or result of fraud.

Zimmer commenced proceedings against the Defendants seeking to recover the money it had lost and obtained separate ex-parte temporary injunctions against each of the Defendants to prevent them from dealing with monies in their bank accounts (the "Injunctions").

Zimmer then applied to the High Court for continuation of the Injunctions. The Defendants made an application for, amongst other things, discharge of the Injunctions on the ground of material non-disclosure.

Decision

On the basis of the evidence, the Court found that there had been no material non-disclosure by Zimmer which would justify discharge of the Injunctions.

The Judge then went on to consider whether the Injunctions should be continued. He held that, although the parties were prepared to argue on the basis that the Injunctions sought were Mareva injunctions, Zimmer was actually asserting a proprietary claim to the money in the Defendants' accounts. The Judge cited in particular Falcon Private Bank Ltd v Borry Bernard Edouard Charles Limited, unreported, HCA 1934/2011, to highlight the different applicable tests: "A Mareva injunction is designed to protect the claimant against the dissipation of assets against which he might otherwise execute judgment whether immediately or in the future… So long as the claimant has a claim against the defendant and that the defendant has assets which may be used to satisfy judgment, a claimant may apply for a Mareva injunction to restrain the defendant from dissipating his assets. A claimant’s right to a proprietary injunction is different. It is issued to preserve assets which a claimant has a proprietary claim [sic] so that they can be turned over to the claimant if he is successful in the action. A proprietary injunction is easier to obtain and not subject to the usual liberties inserted into Mareva relief and there is no need to prove risk of dissipation."

In the present case, once "stripped of legal niceties", the bone of contention was the veracity of the alleged transactions by which the Defendants had obtained the money and, on the evidence, Zimmer had a good arguable case to show that there was no genuine trading. It was therefore just and convenient to continue the Injunctions.

Comment

This decision provides a useful restatement of the distinction between Mareva and proprietary injunctions and the factors which the Courts will take into account when deciding whether an injunction should be continued. Parties to litigation should bear this in mind when seeking injunctive relief, and should proactively consider whether it is appropriate to apply for a Mareva injunction or proprietary injunction, or both.

If you wish to discuss, please contact Gareth Thomas, Dominic Geiser or Emily Soothill of our Hong Kong Dispute Resolution team.