Pre-Judgment Asset Freezes
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As any experienced litigator knows, obtaining a large judgment against a defendant is only one step along the path toward actually recovering damages in a lawsuit. If that defendant has had the foresight to engage in timely, effective asset protection planning, then the path to ultimate recovery can be a long and rocky one. Many asset protection strategies involve the use of one or more offshore jurisdictions. Encountering asset protection strategies with offshore components can be particularly frustrating for creditors who have already invested substantial time and money to obtain a judgment. Certain offshore jurisdictions, especially those known as offshore financial centers, lend themselves readily to use in asset protection strategies due to their short statutes of limitations, complex local procedural rules, and refusal to honor foreign judgments. However, while the use of certain offshore jurisdictions provides judgment debtors with the opportunity to retain their assets (or at least to negotiate more favorable settlements with their creditors), some of the same jurisdictions also provide creditors with powerful offensive tools which may assist them in recovering assets. The tools discussed below were designed to assist creditors in the recovery of assets by curtailing the ability of defendants to transfer their assets prior to the entry of a judgment when the circumstances surrounding the litigation suggest that the defendants are likely to attempt to move their assets outside of their creditors’ reach. A potential defendant’s history of asset protection planning or the existence of certain asset protection vehicles could be enough to warrant the use of these tools in certain offshore jurisdictions. The Quiet Revolution Twenty-five years ago, a revolution began in England which eventually altered the legal landscape in much of the world as it pertained to debtor-creditor relationships. No gun was raised, no shot fired; but the face of the common law was changed and the spirit of the revolution continues to spread to this day. The revolution was begun by one man, Lord Denning MR, with the following words: We are told that an injunction of this kind has never been done before. It has never been the practice of the English Courts to seize assets of a defendant in advance of judgment or to restrain the disposal of them … It seems to me that the time has come when we should revise our practice.1 The type of injunction imposed by Lord Denning is now commonly known as the Mareva injunction. The Mareva injunction and its progeny, including the creditor’s tactical nuclear weapon - the Anton Piller order, allow creditors to obtain disclosures of information and to seize assets in ways never before possible in common law jurisdictions. The revolution spread widely, but its expansion did not sap its strength. In Australia, the Mareva injunction was applied for the first time on a world-wide scale. Closer to home, American courts have experimented with similar types of relief with mixed results. But what are the new weapons offered to creditors by this revolution and where did they come from? Stated simply, Mareva injunctions permit courts in certain circumstances to take appropriate steps to ensure that judgments are not rendered valueless or meaningless through a debtor’s pre-judgment dissipation or concealment of assets. Such injunction typically freeze a debtor’s assets before the entry of a judgment and, in extreme cases, prior to the commencement of a case. Similarly, courts impose Anton Piller orders when there is a substantial likelihood that the legal process may be subverted through the wilful destruction of evidence. Such orders allow law enforcement officials acting on a creditor’s behalf to use force and surprise to gain access to documents or other evidence which a court has been convinced (on an ex parte, i.e., no-notice, basis) may otherwise be destroyed. A Brief History of Mareva Injunctions and Anton Piller Orders The Mareva injunction was introduced in the 1975 case of Nippon Yusen Kaisha v. Karageorgis.2 The facts of that case were straightforward. The Greek charterers for the hire of a ship owed lease payments to a Japanese shipowner, the plaintiff NYK. The whereabouts of the Greeks was unknown; their offices in Piraeus were closed. They did, however, have funds on deposit in a London bank. NYK reasonably feared that the funds would disappear before judgment. When the High Court trial judge refused to act on an ex parte injunction application, NYK sought immediate review on an ex parte basis from the Court of Appeal, which granted an injunction to stop any transfer of the funds. The bank holding the funds was notified, the funds were frozen, and ultimately the shipowners were paid. A few weeks later, a similar emergency arose with respect to an Italian ship, the Mareva. The Court of Appeal again acted to freeze the London bank account of the charterer. Mareva Compania Naviera SA v. International Bulkcarriers SA.3 This second prejudgment seizure case gave a convenient name to the new common law remedy against what Lord Chief Justice Denning has described as “shifty customers and delaying or defaulting debtors.” |