Matthew Thompson, Timothy Le Cocq and Kerry Lawrence on how Jersey is dealing with attempts to hide assets. Matthew Thompson and Timothy Le Cocq are partners and Kerry Lawrence is a barrister at Jersey law firm Ogier & Le Masurier.
A recent chain of decisions in Jersey relating to Mareva injunctions illustrates how the Jersey courts are not willing to allow the island to be used as a hiding place for the assets of defendants being pursued elsewhere.
Jersey law relating to injunctions has developed in parallel with English law. In England this area of law was considered by the House of Lords in The Siskina (1979).
The Lords found that it had no power to grant an injunction where there were no substantive proceedings in England, and that even if the court had such a power, it had no jurisdiction to grant service of that injunction on a defendant resident outside England.
The resulting difficulties and potential injustice was highlighted in the dissenting speech of Lord Nicholls in Mercedes-Benz v Leiduck (1996). He said: “The defendant's argument comes to this: his assets are in Hong Kong, so the Monaco court cannot reach them; he is in Monaco, so the Hong Kong Court cannot reach him. That cannot be right… A person operating internationally cannot so easily defeat judicial process. There is not a black hole into which the defendant can escape out of sight and become unreachable…”
If The Siskina and the majority approach in Mercedes were applied in Jersey, then, providing the defendant was not resident in Jersey, he could deposit his money in the island in the knowledge that it was untouchable by the plaintiff until the latter obtained a final judgment.
Whether Jersey could be used in such a manner was considered by the Jersey courts in three unique decisions. In the first case, Solvalub v Match Investments (1996), judgment dealt with the “power” limb of the decision in The Siskina, namely the court's lack of power to grant an interlocutory injunction except in protecting or asserting some legal or equitable right.
The Jersey Court of Appeal, having reviewed the local authorities, held that the Royal Court (the Court of first instance in Jersey) did have the power to grant a Mareva injunction in aid of foreign proceedings where no other relief was sought in Jersey.
It justified its approach by stating that for Jersey to withhold the giving of such assistance to foreign courts would amount to a serious breach of the duty of comity which courts in different jurisdictions owe to each other. The court also placed weight on Lord Nicholls' speech in Mercedes.
The second limb of The Siskina, the subsequent service out of the Mareva injunction on the defendant, was dealt with in two hearings in the case of Krohn v Varna Shipyard (1997).
The substantive proceedings of the case occurred in England. While the dispute was ongoing, monies were moved to Jersey. The plaintiff obtained a Mareva injunction freezing those monies pending the outcome of the English proceedings.
The first application to set aside the injunction was made by an English law firm whose account in Jersey had been frozen.
The Royal Court confirmed Solvalub to be binding on it and confirmed it to have jurisdiction in the sense of power to grant a Mareva injunction in aid of foreign proceedings. The injunction on the law firm was lifted because no ground existed for serving it outside Jersey.
The second application to set aside the injunction was made by the defendant and addressed the court's jurisdiction to authorise service out on the defendant of a Mareva injunction granted in aid of a foreign action.
For the defendant it was argued that, in relation to the interpretation of the service-out rules, The Siskina remained binding and any change or extension to those rules should be made by the Rules Committee or legislature, not by the Royal Court.
These arguments were rejected. As the Court of Appeal had held that the Royal Court had “power” to grant an injunction in Jersey where no other relief was sought, and as the Royal Court in the first Krohn v Varna hearing regarded this decision as binding on it, the Royal Court on the second application chose to adopt Lord Nicholls' reasoning and conclusions in Mercedes relating to the territorial issue.
The Royal Court also said that the effect of the adoption by the Court of Appeal in Solvalub of Lord Nicholls' view on the power issue meant the Royal Court could see no logical reason for considering itself bound by the authority of The Siskina on territorial jurisdiction. Accordingly, it held itself to have the power to order service of process on a defendant outside Jersey.
The practical effect of this series of decisions is that Jersey is a jurisdiction where injunctive relief can be obtained to freeze assets placed in the island by a party seeking to frustrate the effect of a claim before some other court or tribunal. So lawyers in other countries conducting litigation should be aware that any attempt to hide assets in Jersey can be prevented.
Jersey, to adopt the word of Lord Nicholls', is not a “black hole”, and is open to scrutiny by a frustrated claimant.