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Financial Services Law Alert - March 2017
Submitted by // K Bowers, Partner / Solicitor Advocate
14 March 2017


Worldwide Mareva Injunctions: The Law's Nuclear Weapon

Background

Under Hong Kong's legal regime, the Courts may restrain a defendant from dealing with or removing any of its assets pending a prospective judgment. Such an order by the Courts is known as a Mareva Injunction and serves to prevent a defendant from dissipating its assets with the intention or effect of frustrating enforcement of a prospective judgment. The Hong Kong Courts' discretion to grant this formidable interim relief can be exercised in respect of litigation and arbitration proceedings brought in Hong Kong or overseas. A Mareva Injunction may also be domestic or granted on a worldwide-basis. Whilst a domestic Mareva Injunction restrains the defendant from disposing of its Hong Kong assets, a worldwide Mareva Injunction aims to prevent the defendant from disposing of its assets which are located outside of Hong Kong. The recent case of CSSC Huangpu Wenchong Shipbuilding Co Ltd v Dry Bulk Services Ltd [2016] HKCU 3097 ("Huangpu v Dry Bulk Services") sets out the approach taken by Hong Kong Courts in assessing an application for a worldwide Mareva Injunction in aid of foreign proceedings.

In Huangpu v Dry Bulk Services, there was a dispute over two guarantees issued by the defendant (a Hong Kong company) to the plaintiff (a PRC state-owned enterprise). When the principal creditor defaulted on payment, the plaintiff issued a demand to the defendant requiring it to honour its guarantees. In response, the defendant denied liability to pay under the guarantees. Subsequently, the plaintiff referred the disputes to arbitration in London pursuant to the arbitration clauses in the two guarantees. The plaintiff then applied to the Hong Kong Court of First Instance for a worldwide Mareva Injunction to freeze the assets of the defendant. Upon hearing the application, the Hong Kong Court granted the worldwide Mareva Injunction over the assets of the defendant, in aid of the London arbitrations.

When will Hong Kong Courts freeze a defendant's worldwide assets in aid of foreign proceedings?

In arriving at this decision, the Hong Kong Court first considered whether the plaintiff had shown that: (i) there is a good arguable case against the defendant; (ii) the defendant has no or insufficient assets in Hong Kong to satisfy the claim; and (iii) the refusal of the Mareva Injunction would involve a real risk of dissipation of the defendant's assets in such a way that a judgement in favour of the plaintiff would go unsatisfied. Having established these questions in the affirmative on the facts of the case, the Hong Kong Court then went on to consider whether it was just and convenient to grant the Mareva Injunction. The defendant argued that it was neither just nor convenient to grant the Mareva Injunction because the plaintiff's application for the injunction short-circuits the procedural protections available at the London arbitrations. The Hong Kong Court however found to the contrary and determined that an injunction would not contain an element of short-circuiting. The defendant further argued that the injunction should not be granted without the permission of the London arbitral tribunals or the consent of both parties unless the application was one of urgency. To this end, the Hong Kong Court held that the plaintiff's application was urgent and therefore concluded that neither the consent of the London arbitral tribunals nor the agreement of the defendant was required.

Not a punitive measure

It should be noted that the defendant was not prohibited from using some of the 'frozen' assets towards its ordinary and proper business expenses (in this case, it was allowed to spend a maximum of HK$25,000 per week) and to satisfy its legal expenses in relation to the London arbitrations. This goes to show that Mareva Injunctions, whilst a high-stakes exercise (and thus referred to as the law's "nuclear weapon"), are not intended to be a punitive measure against the defendant. Rather, Mareva Injunctions are granted to protect the efficacy of litigation or arbitration proceedings. In essence, the goal of a Mareva Injunction is to preserve the defendant's assets, so that it will be able to satisfy a judgment that may later be made against it.


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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.