Mareva Injunction

Asset Freezing is a legal process to prevent a defendant to  dissipate  his assets beyond jurisdiction of a court to frustrate a potential judgment in favour of the claimant. Such a legal order freezes  assets of the defendant and has wide effect to restrain breaches of the process of a court. But it is neither a security nor a means to pressure a judgment debtor nor even a type of asset forfeiture. It does not confer upon anyone else a proprietary interest in the defendant’s assets.

If it appears that the debt is due and owing, and there is a danger that the debtor may dispose of his assets so as to defeat his claim before he has established his right by getting judgment of a court for it, the court has jurisdiction in a proper case to grant an interlocutory injunction so as to prevent him from disposing of those assets. This process is beneficial to a creditor who has a right to be paid the debt owing to him.

lawzmagazine.comThus it is an Injunction in advance of a judgment, restraining disposition of defendant’s assets within jurisdiction of the court. It is often granted at pre-trial stage in ex parte hearings but only where claimant has a good arguable case and it appears that he will succeed in his claim and that its refusal  may place him at the risk that a judgment or award in his favour would remain unsatisfied. Fact remains that it can be disastrous for a defendant as its cumulative effect can destroy the whole of his business by freezing most of his  assets and revealing important information to his competitors. Similar relief is now available in  rest of Europe since 2004.

Hereunder is the case which established it.

Plaintiffs ship owners of ship ‘Mareva’ let it to defendants on time charter for a trip to the East and back. Ship was delivered to charterers on  May 12 1975 at Rotterdam. Hire was payable half monthly in advance at $ 3,850 a day. Charterers sub-chartered Mareva on a voyage charter to India. 90% freight was payable against documents and 10% later.

Ship was loaded with fertilizer at Bordeaux on May 29 1975 and Indian High Commission, paid Pounds 174000 being 90% of freight to a bank in London to the credit of charterers. Out of this, charterers paid to ship owners, first two instalments of half monthly hire. Third was due on June 12 1975, but charterers failed to pay it. Telexes exchanged made it plain that charterers were unable to pay.

Shipowners treated charterers’ conduct as repudiation of Time charter and issued a writ on June 20 claiming $30800/- being unpaid hire plus damages for repudiation. They believed that there was grave danger that moneys of charterers in the London bank will disappear.

Claim against  charterers  International Bulkcarriers SA, was for unpaid hire and damages for repudiation of charterparty.

On an ex parte application Donaldson J granted a temporary injunction until 17.00 hours on June 23 restraining charterers from removing or disposing out of the jurisdiction, moneys standing to the credit of their account at a London bank. But the Judge refused to extend the injunction beyond 17.00 hours on 23 June.

Claimants appealed. Here under is a summary of what was said in the Court of appeal.

This principle applies to a creditor who has a right to be paid the debt owing to him, even before he has established his right by getting judgment for it. If it appears that the debt is due and owing, and there is a danger that the debtor may dispose off his assets so as to defeat it before the judgment, the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him from disposing of those assets. The case before us seems to be a proper case for the exercise of this jurisdiction. There is money in a bank in London which stands in the name of these charterers. The charterers have control of it. They may at any time dispose of it or remove it out of this country. If they do so, ship owners may never get their charter hire. The ship is now on the high seas on the way to India where cargo will be discharged. And the shipowners may not get their charter hire at all. The court ought to grant an injunction to restrain charterers from disposing off these moneys now in the bank in London until the trial or judgment in this action. If charterers have any grievance about it when they hear of it, they can apply to discharge it. But meanwhile ship owners should be protected.

It seems reasonably clear that this court has jurisdiction to continue this injunction. On facts of this case, there are good reasons for granting this injunction. This ship was on time charter which provided for a daily rate of hire payable half-monthly in advance and only the first two half-monthly instalments have been paid. Evidence is that charterers have already received £174,000 from voyage charterers. There has been a plain and un excusable  default in payment of the third half-monthly instalment which fell due when the ship was under voyage charter.

But charterers telexed shipowners that their efforts to raise further financial support have been fruitless and that they have no alternative but to stop trading. It is apparent that ship owners will suffer grave injustice which this court has the power to help avoid while charterers will be able to dissipate that £174,000. It is at least arguable that the court should interfere to protect the ship owners’ rights which arise under clause 18 of the time charter which reads: “That the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts due under this Charter….” We have not heard any argument from the other side because it is an ex parte application. It is open to charterers to apply to discharge the injunction or to apply for a stay under the arbitration clause at any time if they are so advised.

Court of Appeal allowed the injunction to continue.

Capt. A K Bansal,

L.L.B. (Hons) London,

Master Mariner, Bar at Law

 

One thought on “Mareva Injunction”

  1. Yogita says:

    Good article

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