Freezing injunctions in Bermuda, the British Virgin Islands and the Cayman Islands

Bermuda

Test for the grant of freezing injunctions

The Bermuda Supreme Court has power to grant a freezing injunction and/or an specific order for the detention, custody or preservation of any property which is the subject of a proprietary claim pursuant to section 19(c) of the Supreme Court Act 1905, which provides that “an injunction may be granted in all cases in which it appears to the Court to be just or convenient that such order should be made.”

A freezing injunction is not a free standing remedy, but must be brought in aid of execution of an actual or prospective judgment in proceedings that have been or are about to be brought.

The Bermuda Supreme Court can issue a freezing injunction in proceedings brought in Bermuda (whether issued or contemplated), or in relation to proceedings which have been or are to be commenced in a foreign Court, which are capable of giving rise to a judgment that may be enforced in Bermuda (under section 19(c) of the Supreme Court Act 1905).

The applicant must show a good arguable case against the defendant and that there is a real risk that unless the injunction is granted judgment will go unsatisfied. It is not necessary for the plaintiff to show nefarious intent on the part of the defendant, though in circumstances where it can be shown the Court will be more disposed to grant freezing relief than in other cases.

The applicant must also satisfy the Court that the injunction should be granted on the balance of convenience and that it would be just and convenient to grant the injunction, which includes consideration of the factors discussed above in relation to the Cayman Islands.

The onus is on the applicant to justify the making of an order under section 19(c) of the Supreme Court Act 1905, whether it is an order for a freezing injunction or preservation of property in support of a proprietary claim. The applicant has a duty of full and frank disclosure to inform the Court of all pertinent facts in relation to the application. On the return date, the onus remains on the applicant to justify the continuation of the injunction.

Where the jurisdiction to grant relief in aid of foreign proceedings exists on the principles set out above, there remains a residual discretion to decide whether the relief would properly serve to assist the foreign court. In ERG Resources LLC v Nabors Global Holdings II Ltd [2012] Bda LR 30, the Bermuda Supreme Court held that the central question for the exercise of this residual discretion is whether it is consistent with modern notions of judicial cooperation and respect for foreign courts to grant the interim relief sought. In determining that question the Bermuda Supreme Court will consider:

• whether an application has been made to the foreign court so its position on interim relief can be ascertained;
• if an application has been refused by the foreign court, whether it was refused on merits grounds or merely because it lacked the jurisdiction to grant such relief; and
• in general terms whether the grant of interim relief by the ‘ancillary’ court would be justified with a view to assisting the foreign court in its adjudication of the substantive dispute.

Applications against unknown defendants

There is no reported case in which the Bermuda Court has made an injunction against persons unknown. While the Rules of the Supreme Court 1985 prescribe a form of writ that has to be addressed to a named defendant or defendants, it is likely that the Bermuda Court would be prepared to make an order against unknown defendants in an appropriate case based on the strength of recent authority in England and other commonwealth jurisdictions including X v Persons Unknown [2007] EMLR 10 and the Cayman Islands judgment in Ernst & Young Limited & Others v Department of Immigration, Tibbetts and Persons Unknown [2015] (1) CILR 151.

Fortifying cross-undertakings in damages

There are limited examples of the Bermuda Court ordering an applicant to fortify its undertaking in damages. In lieu of any local authority as to the principles to be applied, the Bermuda Court is likely to adopt the English principles most recently described by the English Court of Appeal in Energy Ventures Partners Ltd v Malabu Oil & Gas Ltd [2014] EWCA Civ 1295 that an order for fortification requires: (i) an intelligent estimate of the loss likely to be suffered by reason of the making of the interim order; (ii) an assessment of whether there was a sufficient level of risk of loss to require fortification; and (iii) a determination that the loss had been, or was likely to be, caused by the grant of the interlocutory order.

As pointed out in OAO “CT-Mobile” v IPOC International Growth Fund Ltd [2006] Bda L.R. 53, the only potential source of derivation from the English Law position set out above arises from the fact that the Bermuda Court will also be required to have regard to section 12 of the Bermuda Constitution, which prohibits the enactment or application of laws in a way which discriminates on the grounds of place of origin, and section 6(8) of the Bermuda Constitution which guarantees the right of access to the Court as a part of the right to a fair hearing. While both provisions are derived from the European Convention on Human Rights, they are not identical in operation and there is accordingly the possibility that in certain factual scenarios, the Bermuda Court will reach a different result in an application for fortification from that which might be reached by an English Court under the Human Rights Act 1998.

Applications for the preservation of assets

It was formerly the case that the Court would only grant a freezing injunction if the defendant had assets in the jurisdiction; however, that is no longer the case. In Utilicorp United Inc and Another v Renfro and Others [1994] Bda LR 79, SC at 26, Ground J (as he then was) acknowledged that in appropriate cases the Bermuda Court had jurisdiction to make worldwide freezing injunctions.

The Court may in an appropriate case make a freezing injunction against a co-defendant against whom the plaintiff has no cause of action where such injunction is ancillary and incidental to the claim against the “main” defendant. For example, where there is evidence that assets vested in the co-defendant may in fact belong to the main defendant.

The Bermuda Supreme Court has jurisdiction to appoint a receiver for the purposes of preserving the assets of a defendant subject to a freezing order. The statutory jurisdiction arises under section 19(c) of the Supreme Court Act 1905 and will be exercised where it is just and convenient to do so. It is a particularly effective means for securing assets in the hands of third parties which are beneficially owned or due from third parties to the defendant.

There is no requirement to show that the situs of an asset in the form of a debt owed to the judgment debtor is within Bermuda provided that the Court has personal jurisdiction over the judgment debtor (Masri v Consolidated Contractors Int’l Co SAL [2010] Bda L.R. 21).

Under the Bermuda International Conciliation and Arbitration Act 1993 the Bermuda Court will enforce an interim award for the preservation of assets handed down by a tribunal in a New York Convention State, including an interim award restraining the defendant from dealing in its assets in a form substantially the same as a freezing order. The Bermuda Court will also grant a world-wide freezing order in support of a final award granted by a tribunal in a New York Convention State on the same principles that it will grant relief in support of a judgment of the Supreme Court.

The Bermuda Supreme Court has been willing to grant interim injunctive relief in respect of a foreign arbitration, even where the curial law of the arbitration was also foreign, if for practical reasons the application for relief could only sensibly be made in Bermuda. Such circumstances include applications for asset preservation orders made prior to the convening of the tribunal relating to assets within the jurisdiction to which any order of the court in the country where the arbitration is to be seated would not automatically have force. While there is no public reported decision on the point, the Bermuda Court has adopted the approach of the English High Court in U&M Mining Zambia Ltd v Konkola Copper Mines plc [2013] 1 C.L.C. 456 in this regard.

Applications for security for costs

The Bermuda Supreme Court will order security for costs where a plaintiff is ordinarily resident out of the jurisdiction, but only to the extent necessary to mitigate any additional difficulty in enforcement flowing from the plaintiff’s residence abroad. In so doing, the Court can take into account varying degrees of difficulty of enforcement which may objectively arise in deciding at what level security should be fixed. At the lower end of the scale would be jurisdictions where reciprocal enforcement legislation exists (e.g. applicable Commonwealth countries). At the higher end would be jurisdictions where enforcement would be so difficult as to border on impossible. In cases at the higher end, the implications of foreign enforcement might mean that security for the full amount of the defendant’s costs might be required.

There is no statutory provision by which the Court may order security for costs against a company solely on the basis that it is insolvent; however, in all cases where a party is resident abroad, inability to pay any eventual costs order may be taken into account. However, where a plaintiff is so impecunious that requiring security would stifle a claim, security will not be ordered.

In Artha Master Fund LLC v Dufry South America [2011] Bda L.R. 16, the Court suggested that distinctions between the English Human Rights Act 1998 and the Bermuda Constitution Order give rise to the possibility that the English practice of only ordering the additional costs of enforcement on the basis of the English Court of Appeal decision in Nasser v United Bank of Kuwait [2002] 1 WLR 1868 is overly narrow in the Bermuda context and the automatic grant of full security may be permissible under Bermuda law. However, there has not yet been a reported case that has tested this approach.

The British Virgin Islands (“BVI”)

Test for the grant of freezing injunctions

The usual injunctive relief available in the English Courts is also available in the BVI, including freezing injunctions, proprietary injunctions, search orders, prohibitory and mandatory orders. Injunctive relief can be obtained under The Eastern Caribbean Supreme Court Civil Procedure Rules (“EC CPR”) Rule 17.1(1) which gives the Court jurisdiction to grant such interim remedies.

The governing principles for freezing injunctions in the BVI are the same as under the general common law (see Rybolovleva v Rybolovleva (BVIHCV 2008/0403)). To succeed, the applicant needs to demonstrate:

• A good arguable case against the respondent;
• That the refusal of an injunction would involve a real risk that a judgment or award in favour of the plaintiff would remain unsatisfied; and
• That it is just and convenient for the injunction to be granted.

The tests in respect of these three factors are reflective of the English law position.

Under EC CPR Rule 17.2, an interim remedy may be granted after judgment has been given, or before a claim has been made provided that the matter is urgent or it is otherwise necessary to do so in the interest of justice. If the Court grants an interim remedy before a claim has been issued, it must require an undertaking from the plaintiff to issue and serve a claim form by a specified date. A defendant may not apply for any of the interim remedies listed at Rule 17.1(1) until it has filed an acknowledgement of service.

Prior to 2010, freezing injunctions were only available in the BVI as ancillary relief to substantive domestic causes of action. However, this changed with the case of Black Swan Investment ISA v Harvest View Limited (BVIHCV (Com) 2009/399) where the Court held that it has discretion to grant freezing injunctions in support of foreign proceedings, where the respondent was within the in personam jurisdiction of the BVI Courts. This was upheld by the Court of Appeal in Yukos CIS Investments Limited v Yukos Hydrocarbons Investments Limited (HCVAP 2010/028).

However, in a very recent case this year, the BVI Court held that there is no power to grant an injunction in aid of foreign proceedings for service outside the jurisdiction on a person who is not subject to the territorial or in personam jurisdiction of the BVI court (Convoy Collateral Limited v Broad Idea International Limited & Cho Kwai Chee (BVIHC(COM) 2018/0019)). Furthermore, in VTB Capital plc v Nutritek International Corp (BVIHC(COM) 2011/0103), the BVI Court expressly warned against the future use of filing a claim form and an application for a stay where orders are sought in respect of foreign proceedings. This suggests that the Black Swan jurisdiction is a standalone jurisdiction and parties should not file claims in the BVI solely for the purpose of obtaining interim relief where there is no intention to pursue that claim in the jurisdiction.

In Koshigi v Donna Union Foundation (BVIHCMAPP 50/2018) the Court made a clear distinction between the statutory regime provided by the Arbitration Act under which arbitral awards can be enforced and the Black Swan jurisdiction developed at common law which provides for injunctions in support of foreign court proceedings. The case demonstrates the BVI Court’s willingness to act decisively to ensure that assets are preserved to facilitate enforcement of an arbitral award, and that the Court is unwilling to abide or reward poor conduct in seeking to evade liability under those awards.

EC CPR Rule 17.3(2) gives the Court the power to grant an interim application made without notice if it appears to the Court that there are good reasons for not giving notice. Evidence in support of any such application must set out the reasons why notice has not been given. Applicants seeking relief on a without notice basis have a duty to make a fair presentation to the judge of the material facts and the law relevant to the application. In Addari v Addari (BVICVAP 2005/0002) the Court of Appeal adopted the same approach as in the English authority Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 which set out the following principles:

• The duty of the applicant is to make a full and fair disclosure of all the material facts;
• The applicant must make proper inquiries – the duty applies to additional facts which the applicant would have known, had he made such inquiries; and
• The extent of the inquiries depends on all the circumstances of the case, including the nature of the case which the applicant is making, the order, and the probable effect of the order on the defendant.

In respect of injunctions the BVI Courts take a relatively orthodox approach which reflects the English law position.

Applications against unknown defendants

Applications for freezing injunctions against unknown defendants have not been tested in BVI. However, we would expect that the BVI Courts would adopt the English approach, for example the decision in Vastint Leeds BV v Persons Unknown [2018] EWHC 2456 (CH).

Fortifying cross-undertakings in damages

In Anwar Moussa v Boyd, Santos & Dores BVIHC(COM) 2018/0187, the Court held that giving an undertaking is the quid pro quo for obtaining an injunction. The Court cannot compel the applicant to give an undertaking but can refuse the injunction if it does not do so. The Court further held that if losses are reasonably foreseeable the undertaking should be fortified, since by definition fortification is to secure possible future losses. The quantum of fortification should be the amount of loss the defendant is likely to suffer in the event it turns out that the injunction was wrongly granted.

Applications for the preservation of assets

The BVI Courts can grant freezing injunctions over assets held worldwide. However, in Eastern Caribbean Industrial Corporation Berhad v Vela Financial Holdings Limited (BVIHVC 2005/0046), the Court observed that worldwide freezing orders will not be easily granted or maintained as they can be oppressive and expensive to respondents and third parties, and if one is granted, the Court will ensure that there are sufficient safeguards by way of undertakings.

The Courts can order the defendant to provide disclosure of its assets, in order to ensure that the injunction is effective. Recent attempts to vary or suspend disclosure obligations pending challenge have been generally unsuccessful, and the BVI Courts seem to be emphasising that disclosure obligations must be complied with.

The very recent decision from the Privy Council on appeal from the BVI’s Court of Appeal in Emmerson International Corporation v Renova Holding Ltd [2019] UKPC 24 considered freezing injunctions and addressed disclosure orders. The decision confirms that asset disclosure forms an integral part of a freezing injunction and is not merely incidental to it.

In Q v R Corp & ors (unreported), clarification of the BVI Court’s power to grant Norwich Pharmacal disclosure orders in support of foreign proceedings was provided. It was held that the BVI Courts would not follow the English case of Ramilos Trading v Buyanovsky, in which it was held that, inter alia, the Evidence (Proceedings in Other Jurisdictions) Act 1975 excluded the Court’s power to grant a disclosure order to assist with foreign proceedings, because the Ramilos decision construes the jurisdiction too narrowly. The Court also parted from the decision of Colonial Government v Tatham and held that an innocent party does come under a duty to assist before the Court is involved but has the right to seek confirmation from the Court before doing so, especially given that in the BVI the respondent is often a Registered Agent who is under a duty of confidentiality.

In UVW v XYZ (BVIHC(COM) 2016/0108) it was held by the BVI Court that Norwich Pharmacal disclosure relief is available: (i) post-judgment in aid of enforcement, where there is reasonable suspicion for believing that a disclosure defendant is mixed up in the wilful evasion of another defendant’s judgment debt; and (ii) to assist in securing compliance with freezing orders, including such orders made by foreign courts.

The recent case of AAA v TTT (BVIHC(COM) 2019/0066) suggested that applicants should be wary of applying for a Norwich Pharmacal disclosure order on an ex parte basis, however, and that the Courts would prefer the applicant initially to seek a gag order so that the proceedings can be heard in private, and then to determine the application for the disclosure order on an inter partes basis.

If the respondent fails to comply with a disclosure order or the terms of a freezing injunction, it may be held to be in contempt of court. In Lewis v Lewis (BVIHMT 2008/0062) the Court held that there are exceptions to the general rule that no party shall be allowed to take part in active proceedings if in contempt of court. For example a respondent might be heard on an application to purge the contempt, or for the purpose of setting aside the order, breach of which had put him in contempt. The question is whether the interests of justice are best served by hearing or refusing to hear the respondent, always bearing in mind the paramount importance which the Court must attach to the prompt and unquestioning observance of its orders.

The Court can also appoint a receiver to take control of the respondent’s assets if the respondent has breached the terms of the order. The Court of Appeal in Konoshita v J Trust (BVIHCMAPP2018/0047) held that a receiver would “invariably” be appointed where there was a “continuous failure to comply with a disclosure obligation.”

Applications for security for costs

A defendant in any proceedings may apply for an order requiring the plaintiff to give security for costs of the proceedings. The application must be supported by evidence on affidavit and where practical, it should be made at a case management conference or pre-trial review. The amount and nature of the security will be at the discretion of the Court.

In accordance with EC CPR Rule 24.3, an order for security for costs against a plaintiff can only be made if the Court is satisfied, having regard to all the circumstance of the case, that it is just to make the order and that:

• A third party has contributed or agreed to contribute to the plaintiff’s costs in return for a share of any money or property which the plaintiff may recover in the proceedings;
• The plaintiff, with a view to evading the consequences of the litigation: (i) failed to give their address in the claim form; (ii) gave an incorrect address in the claim form; or (iii) has changed their address since the claim was commenced;
• The plaintiff has taken steps with a view to placing its assets beyond the jurisdiction;
• The plaintiff is acting as a nominal plaintiff, other than as a representative plaintiff under CPR Part 21, and there is reason to believe that the plaintiff will be unable to pay the defendant’s costs if ordered to do so;
• The plaintiff is an assignee of the right to claim and the assignment has been made with a view to avoiding the possibility of a costs order against the assignor;
• The plaintiff is an external company; or
• The plaintiff is ordinarily resident out of the jurisdiction.

The principles in respect of the Court’s discretion for security of costs are set out in Garkusha v Yegiazaryan and ors (BVIHCMAO2015/0010) which reflects the English authorities. This was also confirmed in Anwar Moussa v Boyd, Santos & Dores BVIHC(COM) 2018/0187, where the Court ordered that the claim be stayed until security was provided and if not provided by a specified date, the claim should be struck out.

The Cayman Islands

Test for the grant of freezing injunctions

The Cayman Islands Grand Court can issue a freezing injunction:

• In connection with underlying proceedings brought in the Cayman Islands (whether issued or contemplated); or
• In relation to proceedings which have been or are to be commenced in a foreign Court, which are capable of giving rise to a judgment that may be enforced in the Cayman Islands (under section 11A of the Grand Court Law (2015 Revision)).

In order to obtain an injunction the plaintiff must have an arguable case and there must be a serious question to be tried. The plaintiff must also satisfy the Court that the injunction should be granted on the balance of convenience and that it would be just and convenient to grant the injunction, which includes:

• The plaintiff demonstrating that damages would not be an adequate remedy if the injunction is refused and the applicant subsequently succeeded at trial;
• Consideration as to whether any loss caused to the defendant as a result of the injunction being granted would be compensable in damages, and whether any such loss could be protected by the applicant providing an undertaking to compensate the defendant for such damage; and
• The plaintiff satisfying the Court that there is a real, objective risk of the defendant dissipating its assets in an attempt to prevent satisfaction of a future judgment.

Freezing injunctions will typically be granted at an ex parte hearing, at which the plaintiff has a duty of full and frank disclosure to the Court of all material facts, even if they are not in the plaintiff’s favour. The defendant may be able to set aside the injunction if the plaintiff breaches this duty of full and frank disclosure.

Applications against unknown defendants

The Court has jurisdiction to order an injunction against unknown defendants in appropriate circumstances. For example, in Ernst & Young Limited & Others v Department of Immigration, Tibbetts and Persons Unknown [2015 (1) CILR 151], the plaintiffs sought an injunction against, inter alia, an unknown person identifiable only by a pseudonym and an email address to prevent the disclosure and dissemination of confidential information. The Court held that it has jurisdiction to grant an injunction against “persons unknown” when the plaintiff did not currently know the identity of all defendants who were in possession of the information.

Fortifying cross-undertakings in damages

The Court can order the plaintiff to fortify its cross-undertaking in damages by making a payment into Court, to ensure that there will be sufficient assets available to meet any subsequent order requiring the plaintiff to compensate the defendant for any damages suffered as a result of the injunction being granted in the event that the plaintiff is ultimately unsuccessful at trial.

An order for fortification is not automatic. In determining whether to order fortification, the Court will consider whether the plaintiff is resident in the jurisdiction, and whether there are assets within the territorial jurisdiction of the Court which would readily be available to satisfy any liability under the undertaking.

The amount of any fortification payment should be an intelligent estimate of the likely amount of loss which the defendant may suffer as a result of the injunction, and there must be a sufficient level of risk of loss caused by the injunction to require fortification.

Applications for the preservation of assets

The purpose of a freezing injunction is to ensure that the defendant’s assets are not dissipated, as otherwise the plaintiff may be unable to enforce a successful judgment against the defendant at the end of the proceedings and the defendant could frustrate the Court’s orders.

The Court has held that the quantum of the assets subject to the freezing injunction can cover claims for multiple damages in foreign jurisdictions, notwithstanding that multiple damages are not available under Cayman Islands law. For example, in Meridian Trust Company Limited v Eike Batista & Others (unreported, 11 November 2016, FSD 172 of 2016 (IMJ)), the Court granted a freezing injunction over the defendants’ assets that extended to the plaintiff’s claimed underlying basic loss of US$21 million and for treble damages totalling US$63 million under the Florida Civil Remedies for Criminal Practices Act.

The Court also has jurisdiction to appoint a receiver over the defendant’s assets in relation to proceedings in the Cayman Islands, or in relation to foreign proceedings under section 11A of the Grand Court Law (2015 Revision). The receiver will take control of the defendant’s assets and will prevent the assets from being dissipated pending the Court’s final decision in the proceedings. The appointment of a receiver can protect the plaintiff’s position by taking the assets outside of the defendant’s control, if there is a concern that the defendant may dissipate the assets notwithstanding the existence and terms of the freezing injunction.

A plaintiff can also seek an order for disclosure of information relating to the defendant’s assets to enable the applicant and the Court to ensure that the defendant complies with the injunction.

Applications for security for costs

In addition to any fortification of the cross-undertaking in damages provided by the plaintiff, the defendant in appropriate circumstances can seek an order that the plaintiff shall post security for the defendant’s costs of the proceedings. Security for costs can be sought against: (i) a plaintiff that is ordinarily resident out of the jurisdiction; (ii) a nominal plaintiff (other than a representative plaintiff) where there is reason to believe that they will be unable to pay the defendant’s costs; (iii) a plaintiff whose address is not stated or is stated incorrectly in the writ, or who changes address in the course of the proceedings with a view to evading the consequences of the litigation; or (iv) an impecunious company (wherever incorporated), in all cases subject to the Court being satisfied that it is just for the plaintiff to be required to provide security.

If the order for security is sought against a non-resident plaintiff, then the quantum of the security should be limited to the additional costs that the defendant is likely to incur in enforcing a costs order against the plaintiff out of the jurisdiction (unless there are concerns that a costs order would be unenforceable in the plaintiff’s jurisdiction, in which case the Court may order the plaintiff to post security for the full estimate of the defendant’s costs). This is designed to ensure that foreign plaintiffs are not discriminated against, by limiting the security to additional enforcement costs that the defendant may incur as a result of the plaintiff being resident out of the jurisdiction.

A recent Court of Appeal decision in Xie Zhikun v XiO GP Limited (unreported, 14 November 2018, CICA (Civil) 15 and 16 of 2017) held that the security has to be in a form that gives the defendant “real security”, though the precise form is a matter of the Court’s discretion.

If the plaintiff brings an application for the appointment of a receiver over the defendant’s assets, the Court may include directions as it thinks fit for the giving of security by the appointed receiver, in which case security is typically given by way of a guarantee.