Mareva Injunction – Pulse Bombs in Civil Litigation in Hong Kong
In the modern military, the role and power of pulse bombs is beyond doubt. It can instantly paralyse an enemy’s electronic equipment and render them incapable of combat. In common law jurisdictions, a Mareva Injunction is similar to a Pulse Bomb in that it is in fact an Asset Freezing Order.
Nature of Asset Freezing Order
The name Mareva injunction originated from the English case of Mareva Compania Naviera SA v International Bulkcarriers SA in 1975 and has since been widely recognized and adopted by the courts in all common law jurisdictions, such as the UK, USA, Canada, Australia, New Zealand, Hong Kong and Singapore. This type of injunction has several features:
Firstly, it is a kind of temporary interim relief subordinate to the main litigation, and its role is to prevent a party to the litigation (usually the defendant) in the judgement before the transfer of assets, in order to avoid the responsibility of the judgement, so similar to the domestic litigation preservation;
Secondly, at the outset, the application is ex parte, that is, the Court only hears the applicant’s submissions, and the defendant is not entitled to attend the hearing. The defendant does not know about the existence of the injunction until it is issued and served on him, and the mechanism is to prevent the defendant from transferring his assets as soon as he learns of the plaintiff’s application for an injunction. In order to strike a balance between the rights of the defendant, the injunction order therefore provides that the defendant has the right to apply to the Court for its discharge 28 days after the injunction order is made. Therefore, this mechanism of freezing assets for 28 days before the defendant applies for release has a very strong deterrent effect on the defendant and is very aggressive.
Thirdly, such injunctions are directed against individuals rather than property, so if the defendant transfers assets in breach of the injunction, the transfer of the assets may not be invalidated but the defendant will be guilty of contempt of court and liable to a fine or imprisonment.
Fourthly, an injunction order may cover third parties other than the parties to the proceedings, such as a bank or the registrar of a listed company, provided that the third party is informed of the contents of the injunction order.
Fifthly, the injunction can cover not only the assets of the defendant at the seat of the court, but also the assets of the defendant worldwide, which is known as global Mareva injunction.
Conditions for applying for a Mareva Injunction
As this type of injunction order is very harsh on the defendant, the Court has set relatively stringent conditions for granting the order in order to strike a balance and safeguard the defendant’s rights and interests:
(1) The plaintiff must prove that he has a good arguable case in the main action, but this does not mean that the plaintiff needs to prove that he will definitely win in the main action;
(2) The likelihood of the defendant’s dissipation of assets is relatively high;
(3) The harm to the plaintiff if an injunction is not granted outweighs the inconvenience to the defendant if an injunction is granted;
(4) As the application for an injunction is ex parte at the outset, the plaintiff is required to make full and frank disclosure of the facts of the case to the Court and not to conceal material unfavourable to the plaintiff. At the same time, the Court will normally require the plaintiff to give an undertaking before granting the injunction that the plaintiff will make compensation if the Court later determines that the injunction has caused damages to the defendant or a third party and the plaintiff is required to make compensation. Sometimes, the Court may even require the plaintiff to provide a bank guarantee.
In cross-border commercial litigation between Hong Kong and the Mainland, a particularly significant development in the evolution and application of such injunctions in recent years is that, following the Hong Kong Civil Procedure Reform in 2009, such injunctions do not necessarily need to be dependent on litigation in Hong Kong, but can be self-contained as an independent action in support of litigation outside Hong Kong, which, of course, includes litigation in the Mainland. For example, where a plaintiff seeks to recover damages for breach of contract from a defendant in a mainland court, but discovers that the defendant holds shares in a Hong Kong listed company and is likely to transfer those shares to avoid judgement in the domestic court before judgement is given in the domestic action, he may apply for such an injunction in a Hong Kong court. This new provision provides an additional safeguard for the fair resolution of commercial disputes between Hong Kong and the PRC, as the PRC and Hong Kong have become increasingly integrated since the handover of Hong Kong. However, there are often times when civil litigation is not suitable to be conducted in Hong Kong due to a variety of reasons, but the Defendant owns large liquid assets in Hong Kong which he may transfer at any time before judgement is given.
Mareva Injunction Cases
An interesting and important Hong Kong Court of Final Appeal case is Compania Sud Americana De Vapores S.A. v Hin-Pro International Logistics Ltd (FACV 1/2016, 14 November 2016) in relation to this new provision. The case involved the courts of England, Mainland China and Hong Kong, where the plaintiff, a Chilean shipper, entered into a contract of carriage of goods from Nanjing to Venezuela with the defendant freight forwarder, a company incorporated in Hong Kong. The relevant bill of lading stipulated that the English courts had exclusive jurisdiction. However, the defendant sued the plaintiff in the courts of different provinces in China and won at first instance. Not to be outdone, the plaintiff recovered monetary damages from the defendant in the English court (in an amount equivalent to that recovered from the defendant in the domestic court) and applied for an injunction to restrain the defendant from litigating in Mainland China on the ground that the English court had exclusive jurisdiction. The English court agreed that she had exclusive jurisdiction on the basis of the bill of lading and therefore granted the injunction. It was clear that there was a significant difference in interpretation of the bill of lading (i.e. whether the English court had exclusive jurisdiction) between the English court and the Chinese court. However, the defendant ignored the English court’s injunction, probably because the defendant felt that the English court’s injunction could not restrain her from litigating in Mainland China. In order to increase the pressure on the Defendant and in view of the fact that the Defendant was incorporated in Hong Kong, the Plaintiff applied to the Hong Kong court for a Mareva injunction to freeze the Defendant’s assets in Hong Kong to assist in the litigation in the UK.
The Court of Appeal in Hong Kong initially ruled against the plaintiff, but when the case went to the Court of Final Appeal (CFA), the CFA reversed the CFA’s judgement and laid down the guiding principles for the granting of such injunctions in aid of offshore litigation. The Court of Final Appeal held that the granting of such injunctions should be based, firstly, on whether the judgement of the foreign court could be enforced in Hong Kong in the future; and, secondly, that the Hong Kong courts should rely on the law of the foreign country, rather than the law of Hong Kong, when considering whether the plaintiff had a strong cause of action in the foreign action.
Conclusion
The importance of the Mareva injunction is not limited to China. With Chinese companies going global, and with most of the major advanced western economies practising common law, it is important to understand the operation and applicability of this type of injunction to protect the overseas assets and economic success of Chinese companies.
（Author, Mr. Edward Tai, born and educated in Hong Kong, he is a solicitor admitted in Hong Kong, Australia (NSW & SA) and England & Wales. He started off his legal career by practicing as a commercial litigator in Hong Kong. After that, he went in-house in different roles of counsel, head of legal and/or company secretary etc. In the last 10 years, he has been mainly focused in the law and commercial practice relating to cross-border M&A, corporate finance and listing compliance. All rights reserved by author, Edward Tai)