Privy Council restatement of the law on freezing and other interim injunctions

In a recent judgment, the Privy Council has delivered a "ground-breaking exposition of the law of injunctions" (in the words of the Master of the Rolls), including a restatement of the test for freezing injunctions.  Although the analysis is technically obiter dicta, it will be highly influential on any English or other common law court exercising a general power to grant injunctions on the basis of what is just and convenient: Broad Idea International v Convoy Collateral Ltd and others; Convoy Collateral Ltd v Cho Kwai Chee [2021] UKPC 24.

Although the issues were examined in the context of British Virgin Islands (BVI) law, the analysis and conclusions in the majority judgment apply much more broadly, amounting to what the minority described as "a juridical foundation for the entire law of freezing and interlocutory injunctions".

Importantly, the Privy Council concludes that the general equitable injunctive power includes a power to make a freezing order (against a party over whom the court has personal jurisdiction) where there are no relevant domestic proceedings in prospect and the sole purpose of the order is to aid enforcement in foreign proceedings. In doing so, it firmly rejected the contrary position which has long been treated as established by the House of Lords’ decision in Siskina v Distos Cia Naviera SA [1979] AC 210 (The Siskina): "The shades of The Siskina have haunted this area of the law for far too long and they should now finally be laid to rest".

Further, the Privy Council considered that a freezing order may be made even where the judgment it is intended to support (foreign or domestic) will not be against the respondent to the order, and where proceedings to obtain the judgment have not yet been commenced, and even where no cause of action has yet crystallised.

The decision does however confirm the established position that a claim for a freezing injunction cannot be served out of the jurisdiction under a procedural gateway permitting service out of claims for 'injunctions' generally. It remains the case that any such permission will need to be based on a specific gateway for freezing orders or some other ground in the relevant jurisdiction.

Implications

In England, a power to grant injunctive relief in support of foreign proceedings already exists under statute (s.25 Civil Jurisdiction and Judgments Act 1982), supported by a specific gateway for service of such claims out of the jurisdiction (CPR PD 6B 3.1(5)). Accordingly, the Privy Council's recognition that there is such a power at common law will not alter the availability of such relief in the English courts in principle (although its wider restatement of the test for freezing orders generally could expand the circumstances in which the English courts are prepared to make such orders).

However, such recognition could have a greater impact in other common law jurisdictions where there is currently no statutory power to grant injunctive relief in support of foreign proceedings. In the context of cross-border litigation, it could potentially open up new opportunities for litigants worldwide to apply directly to the courts in such jurisdictions to secure assets held there (either by a defendant who is resident there or a related company incorporated there). Indeed, the Privy Council specifically cited the use of offshore companies (for which it noted the BVI is a popular location) as part of the modern commercial context in which the law on freezing injunctions needed to be considered.

More broadly, the Privy Council's judgment may facilitate a future expansion of the scope of freezing and other injunctive relief in both England and other common law jurisdictions.  The majority judgment emphasises the need for the law in this area to be able to adapt to meet changing commercial practices. In particular, its exposition of the rationale underlying freezing orders and other enforcement-focused injunctions is intended to provide a foundation for the future development of such remedies as required, unshackled from principles developed in the different context of traditional 'orthodox' interim injunctions. It is not difficult to envisage it being relied upon in a number of areas where the law is currently being asked to respond to fundamental changes in commercial and financial practices, such as cryptocurrency and blockchain commerce.

How that development will unfold is difficult to predict – as Sir Geoffrey Vos (in the minority) observed, the fact that the majority's fundamental restatement of the law will have only powerful obiter status may result in a lack of clarity as to its consequences: "I fear that it may take more litigation to sort out the ramifications of the majority’s decision". That may be particularly the case if future courts considering it share some of the minority's concerns that the restatement went beyond the issues that arose and were fully argued in this case and was "an unsatisfactory way to change the law in such an important area".

Background

Convoy Collateral Ltd (Convoy) was pursuing its former director Dr Cho (a resident of Hong Kong) in Hong Kong proceedings, claiming substantial damages in connection with allegedly inappropriate investments.

It applied in the BVI for a freezing injunction against Dr Cho, including permission to serve the claim on him out of the jurisdiction. It also sought a freezing injunction against Broad Idea International Ltd, a BVI-incorporated company in which Dr Cho owned a majority shareholding and which Convoy claimed he used as a "money-box". Broad Idea was not a party to the Hong Kong proceedings.

The Court of Appeal of the Eastern Caribbean Supreme Court (EC Court of Appeal) held that:

• there was no jurisdictional gateway permitting service of the claim for a freezing order out of the jurisdiction on Dr Cho; and
• there was no power to grant a freezing order against Broad Idea because the BVI courts' general powers (to grant injunctions where such orders were "just and convenient") only permitted such orders as ancillary to proceedings for substantive relief brought in the BVI. The EC Court of Appeal acknowledged that this might be seen as undesirable in modern day international commerce, but considered it necessary on the authority of The Siskina in the absence of legislation (such as in England) conferring a broader power.

Decision

Given the importance of the issues, the Privy Council appeal was expedited and heard by an enlarged Board of seven Privy Council justices – comprising Lords Reed, Hodge, Briggs, Sales, Hamblen and Leggatt, and Sir Geoffrey Vos (Master of the Rolls).

The Board upheld the Court of Appeal's ultimate ruling on both issues – ie refusing permission to serve Dr Cho out of the jurisdiction and refusing a freezing order against Broad Idea. However, on the latter issue, the majority disagreed with the reasoning of the Court of Appeal.

The issues before the Privy Council were, in essence:

• whether a procedural gateway allowing a claim to be served out of the jurisdiction if “a claim is made … for an injunction ordering the defendant to do or refrain from doing some act within the jurisdiction” (as in Part 7.3(2)(b) of the Eastern Caribbean Supreme Court CPR 2000 (“EC CPR”)) permits service out where the only claim made is for a freezing injunction ("the service out issue”); and
• whether a court has the power at common law to grant a freezing injunction against a defendant when no substantive claim is made against that defendant in proceedings before the domestic court ("the power issue”).

The majority judgment was given by Lord Leggatt (with whom Lord Briggs, Lord Sales and Lord Hamblen agreed).  A minority judgment was given by Sir Geoffrey Vos (with whom Lords Reed and Hodge agreed).

The service out issue

The EC Court of Appeal's finding that the BVI general gateway for "injunction" claims did not extend to freezing orders was based on the interpretation to that effect of materially identical procedural rules (in England and Hong Kong respectively) by the House of Lords in The Siskina and the Privy Council in Mercedes Benz AG v Leiduck [1996] AC 284.

The Privy Council here was unanimous in the view that it should not depart from that interpretation of a procedural rule, which had been considered twice at the highest level. In Lord Leggatt's words, "The common law does not operate on a principle of third time lucky". If that left a lacuna in procedural rules it should be remedied by the relevant rule committee rather than by judicial reinterpretation, particularly where such reinterpretation would have implications for other common law jurisdictions with similar rules.

The power issue

However, the majority considered that it was necessary and important on this appeal "to confront and decide the power issue". Specifically, they considered it important to "dispel the residual uncertainty emanating from The Siskina" – in particular, statements by Lord Diplock in that decision suggesting that a court's power to grant an injunction was dependent on the existence of an action claiming substantive relief which the court had jurisdiction to grant.

Lord Leggatt undertook a detailed review of key authorities in the development of both "orthodox" interim injunctive relief and the more recent phenomena of injunctions to aid enforcement. He noted that the latter had developed far beyond the confines of the original form of order (known as a 'Mareva' injunction) and also highlighted the development of remedies such as Norwich Pharmacal and Bankers Trust orders, and more recently website blocking orders against internet service providers - none of which are based on a cause of action against the respondent.

He observed that those developments could only be understood by appreciating the distinction between the power to grant an injunction and the principles and practice governing whether a court should exercise that power.  He regarded it as settled law that, where a court has a general power to grant an injunction on the basis of what is "just and convenient", that power is effectively unlimited (subject to any relevant statutory restrictions). However, the power will only be exercised where to do so accords with equitable principles and practice. As the historical development of freezing and other orders illustrated, courts with equitable powers can and do modify existing practice where to do so accords with principle and is necessary to provide an effective remedy. The legal developments had been forged, often explicitly, in response to fundamental changes in commercial and financial practices, driven in large part by the revolution in information technology. "Such flexibility is essential if the law and procedure is to keep abreast of changes in society".

Lord Leggatt concluded that the constraints on the power to grant freezing orders suggested in The Siskina "are not merely undesirable in modern day international commerce but legally unsound". They did not in fact form part of the binding ratio of that decision and, in any case, do not reflect the position that has developed since The Siskina was decided in 1977, when the concept of freezing injunctions was still in its nascent stage.

The EC Court of Appeal had therefore been wrong to hold that the common law equitable injunctive power does not include a power to grant relief solely in the aid of foreign proceedings.

Restatement of the test for freezing injunctions

Drawing together the above analysis, Lord Leggatt went on summarise the current test for a freezing injunction as follows: A court with equitable and/or statutory jurisdiction to grant injunctions where it is just and convenient to do so has power - and it accords with principle and good practice - to grant a freezing injunction against a respondent over whom the court has personal jurisdiction provided that:

i) the applicant has been granted or has a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the process of the court;

ii) the respondent holds assets (or, potentially, may take steps that would reduce the value of assets) against which such a judgment could be enforced; and

iii) there is a real risk that, unless the injunction is granted, the respondent will deal with such assets (or take steps that make them less valuable) other than in the ordinary course of business with the result that the availability or value of the assets is impaired and the judgment is left unsatisfied.

Importantly, although other factors are potentially relevant to the discretion whether to grant a freezing injunction, there are no other relevant restrictions on the availability in principle of the remedy. In particular:

i) The principle applies equally to a foreign judgment or other award capable of enforcement in the same way as a judgment of the domestic court

ii) There is no requirement that the relevant judgment should be a judgment against the respondent

iii) There is no requirement that proceedings in which the judgment is sought should have been commenced, nor that a right to bring such proceedings should yet have arisen. It is enough that the court has a sufficient degree of certainty that a right to bring proceedings will arise and that proceedings will be brought.

Having concluded that there was no jurisdictional or legal impediment to the grant of a freezing order against Broad Idea, the majority did however go on to find that the facts in this case did not support such an order.

The minority's concerns

Giving the minority judgment, Sir Geoffrey Vos noted that there was no disagreement on the ultimate outcome of the appeals, given a unanimous view on the service out issue and that a freezing order against Broad Idea was not appropriate on the facts.

However, the minority strongly disagreed that it was necessary or appropriate for the Board to decide in this appeal the legal question arising under the power issue (ie the availability of a freezing order solely in aid of foreign proceedings). It considered the majority's conclusion on that issue a deviation from the doctrine that a court should only depart from previous decisions of equal status where it is essential to do so to decide the case before it.

Further, it noted that the majority had gone further than simply confirming that the relevant statements in The Siskina were no longer good law. Rather, it had sought to provide "a juridical foundation for the entire law of freezing and interlocutory injunctions", when the argument had been limited (at most) to freezing injunctions in general and the circumstances of this case in particular. In the minority's view, providing such "ground-breaking exposition of the law of injunctions" in the form of only obiter dicta was "an unsatisfactory way to change the law in such an important area and could result in a lack of clarity in many jurisdictions as to the consequences of such obiter dicta".