In the recent case of Cruz City 1 Mauritius Holdings v Unitech Ltd and others1 , the Commercial Court considered whether it had jurisdiction to grant a freezing order to assist in the enforcement of an arbitration award against subsidiaries of the first defendant, which were incorporated outside the jurisdiction and had no assets or other presence in England.

An English arbitration tribunal had granted an award in favour of the Claimant (Cruz) against the First Defendant (Unitech), for c. $350m. Cruz obtained permission to join Unitech’s subsidiaries to the proceedings and to serve an amended claim form. The subsidiaries applied for the order for service outside the jurisdiction to be set aside.

Factual Background

Unitech is the parent of a group of companies incorporated in a variety of jurisdictions including the Isle of Man and Cyprus, together with India. Cruz understood that substantial assets of the group were held by subsidiaries outside India. Cruz had obtained an arbitration award against Unitech and the sum due exceeded $350m. However, nothing had been paid at the time of the hearing before the Commercial Court. Cruz had already obtained various orders against Unitech, including a worldwide freezing order, a disclosure order and an order for the appointment of receivers over Unitech’s shareholdings in four subsidiary companies. Cruz’s intention was to seek to reinforce those orders by obtaining a freezing order against the Chabra defendants.

Unitech’s subsidiaries were the fourth, sixth, seventh and eighth defendants in the proceedings before the Commercial Court (collectively referred to in the judgment, together with the fifth defendant, as the “Chabra defendants”).

However, the problems facing Cruz were that the Chabra defendants (1) were all incorporated outside England and Wales, (2) had no assets, officers or other presence within the jurisdiction and (3) did not conduct any business in England. In order to obtain relief against them, Cruz had first to establish that the court had jurisdiction over the Chabra defendants. On 26 August 2014 Cruz obtained permission on paper to join the Chabra defendants to the existing proceedings against Unitech and to serve the amended claim form on them, seeking a worldwide freezing order against them, out of the jurisdiction.

Chabra jurisdiction

In the Chabra case, the claimant initiated proceedings in relation to a guarantee against the defendant, Mr  Chabra. The claimant applied for a freezing order against both Mr Chabra personally and a company owned by him and his wife (although no substantive claim was made against the company). The claimant argued that Mr  Chabra organised his affairs through a complex structure of companies in such a way that all assets within the jurisdiction, were held through companies which acted as his agents or nominees. The court granted the injunction based on the fact that, although there was no cause of action against the company, there was credible evidence that assets that appeared to belong to the company may, in fact, be Mr  Chabra’s assets and therefore available to satisfy a judgment obtained against him. In those circumstances, if an injunction against Mr  Chabra was inadequate to protect the claimant from the risk that assets vested in the company may become unavailable to satisfy the judgment obtained against him personally, an injunction should be made against the company to prevent it from dissipating assets.

Accordingly, a Chabra injunction can be said to be a freezing order aimed at a party against which the claimant does not have a substantive cause of action and which is made in pursuit of the enforcement of a judgment, or anticipated judgment, against a party against which the claimant does have a substantive cause of action. The freezing order may be made against a third party (against which the claimant has no claim) who appears to hold assets on behalf of the defendant, provided there is reason to suppose that the assets which are ostensibly those of the third party are, in truth, those of the defendant against whom the freezing order has been made (TSB Private Bank International SA v Chabra2 ). The jurisdiction to grant such orders is, therefore, referred to as the Chabra jurisdiction.

When considering the appropriateness of Chabra jurisdiction, the court will try to determine whether any such order could be enforced, and, where the relevant defendant has no connection with the jurisdiction and the relevant assets are not located here, whether it will be appropriate for the court to make such an order.

The application of the Chabra jurisdiction is set out in Linsen International Ltd and others v Humpuss Sea Transport Pte and others3 . In that case, the judge declined to exercise the court’s Chabra jurisdiction against defendants residing outside the jurisdiction because the claimants could not demonstrate that they had a good arguable case for service of their claim out of the jurisdiction under one of the gateways in PD 6B.3.1.

Another way of considering the territorial limits of the Chabra jurisdiction can be found Parbulk II AS v PT Humpuss Intermoda Transportasi TBK and others4 , in which it was held that it would be inappropriate to continue an injunction against the third party, as it did not have a sufficient connection with the jurisdiction to justify the order sought.

The Gateways

Cruz’s successful application, made on paper, for permission to serve the Chabra defendants out of the jurisdiction, was founded on three “gateways”:

CPR 62.5(1)(c) (service of “an arbitration claim form” seeking a “remedy … affecting an arbitration (whether started or not), an arbitration agreement or an arbitration award”);

CPR PD 6B, para 3.1(3) (“necessary or proper party”); and

CPR PD 6B, para 3.10 (“claim ... to enforce any judgment or arbitral award”). 

(At the hearing of the Chabra defendants’ application to set aside the Order granting permission to serve them out of the jurisdiction, Cruz abandoned any reliance on CPR PD 6B, para 3.10, although it sought to reserve the right to rely on this gateway in the event of an appeal).

CPR 62.5(1)(c) permits the court to grant permission to serve an arbitration claim form out of the jurisdiction if the claimant “seeks some other remedy or requires a question to be decided ... affecting an arbitration ..., an arbitration agreement or an arbitration award”. PD 6B para 3.1(3) provides a jurisdictional gateway where a claim is made against a party on which the claim form has been served (the anchor defendant), there is a real issue to be tried between the claimant and the anchor defendant, and the claimant wishes to serve the claim form on another person who is a necessary or proper party to the claim.

The approach taken by the court

The Chabra defendants did not serve evidence dealing with the merits of the claim for Chabra relief because they accepted that the claim against them raised a serious issue to be tried (ie a claim which would not be dismissed on an application for summary judgment). However, they contended that the claim does not fall within either of the two remaining gateways for service on which Cruz relies; that this court is not “the proper place in which to bring the claim” within the meaning of CPR 6.37(3) or equivalent discretionary principles applicable to CPR 62.5; and that in the case of the three Cypriot defendants there is no “real connecting link between the subject matter of the measures sought and the territorial jurisdiction” of the English court, as required by European case law concerning Article 31 of the Brussels Regulation.

Setting aside the order for service out on the subsidiaries, the judge held that:

Cruz could not rely on the gateway in CPR 62.5(1)(c), because it does not apply to non-parties to any arbitration agreement or arbitral proceedings; and

The PD 6B para 3.1(3) gateway was not available, because there was no substantive claim against the anchor defendant (Unitech) (the substantive claim having been already decided in the arbitration).

The court was led to consider a plain line of authority, originating with the case of Unicargo v Flotec Maritime S de RL (The Cienvik)5 , which held that service out of the jurisdiction under r.62.5(1)(c) was permissible only against a party to the arbitration agreement or arbitration in question. If there was any doubt about that, the “cardinal principle” that any doubt as to the correct construction of a jurisdictional gateway should be resolved in favour of the foreign defendant would provide the answer. Cruz was, therefore, not entitled to rely on r.62.5(1)(c).

For the second gateway to apply, there had to be a “claim made” against Unitech as the “anchor defendant”. A “claim” here meant a substantive claim. As there was no substantive claim against Unitech in the Commercial Court (that claim having been determined in arbitration), the “necessary or proper party” gateway was not available to Cruz. In any event, in respect of the three Chabra defendants which were based in Cyprus there was, for the purposes of Council Regulation (EC) 44/2001 (on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters), no real connection between the subject of the measures sought and the territorial jurisdiction of the English court. The subject of an application for a freezing order over assets consisted of the assets in question, and it was the Cypriot court which would be able to control those assets. Regulation 44/2001 did not apply to the Chabra defendants, which were based in India and the Isle of Man. However, in the light of the fact that jurisdiction over the three Cypriot Chabra defendants had to be declined for lack of a “real connecting link” as a matter of EU law, jurisdiction over the other defendants was declined as a matter of discretion.

Accordingly, the Commercial Court, in granting the Chabra defendants’ application, held that the English court had no jurisdiction over the subsidiaries. They could not be treated as having agreed to the jurisdiction of the English court simply by reason of their status as subsidiaries.

Summary

Chabra jurisdiction can offer a useful weapon in certain circumstances. However, as was shown in this case, it will only be available if the substantive dispute is subject to the jurisdiction of the English Courts and, it is further worthy of note that Chabra jurisdiction will provide no assistance when that dispute has been determined in the course of an arbitration.