Recently, a number of sources have reported the Cayman Islands decision of Quin J in Gillies-Smith v Smith’1 in May of this year. In that case (which was heard on an ex-parte basis) Quin J was requested to grant a free-standing freezing injunction relief in the Cayman Islands in support of proceedings in Ontario. Quin J granted the relief sought and in doing so appeared to follow the tread of other offshore jurisdictions such as Jersey, Guernsey and the Isle of Man. Quin J referred, as the Royal Court of Jersey did in Solvalub Ltd v Match Investments Ltd2, to Lord Nicholls’ dissenting judgment in the Privy Council case of Mercedes-Benz AG v Leiduck3. In his dissenting judgment Lord Nicholls had said:
“The court habitually grants injunctions in respect of certain types of conduct. But that does not mean that the situations in which injunctions may be granted are now set in stone for all time. The grant of Mareva injunctions itself gives the lie to this. As circumstances in the world change, so must the situations in which the courts may properly exercise their jurisdiction to grant injunctions. The exercise of the jurisdiction must be principled, but the criterion is injustice. Injustice is to be viewed and decided in the light of today’s conditions and standards, not those of yester-year.”4
The effect of Gillies-Smith has been largely tempered by the recent decision given by the Honourable Mr Justice Cresswell sitting as Judge at the Grand Court of the Cayman Islands in VTB Capital Plc v Malofeev and Others5. In this case, which although heard on an ex-parte basis took place over two days and involved detailed argument and an extensive review of the authorities, the Court was asked to grant a worldwide free-standing freezing injunction against three Defendants in support of proceedings in the Chancery Division of the High Court in England. No substantive relief was sought in the Cayman Islands. The First Defendant was a Russian citizen with controlling interests in companies in a large number of offshore jurisdictions. The Second and Third Defendants were companies incorporated in the Cayman Islands, in which, the Claimant alleged, the First Defendant had significant shareholdings.
No permission to serve out
The First Defendant was not within the jurisdiction and it was therefore necessary for the Claimant to obtain permission to serve its claim against him out of the jurisdiction (but not of course against the Second and Third Defendants who were incorporated in the Cayman Islands). The relevant provision of the rules of the Grand Court of Cayman by which permission was sought was Order 11 Rule 1(1)(b) which provides that permission may be given when:
“an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to so or the doing of that thing) provided that a claim for an interlocutory injunction shall not of itself be a sufficient ground for service of a writ out of the jurisdiction.”
The difficulty was that in Mercedes-Benz AG v Leiduck, the Privy Council had considered the interpretation of a provision of the rules of the Supreme Court of Hong Kong which were almost identical save that they excluded the words “provided that a claim for an interlocutory injunction shall not of itself be a sufficient ground for service of a writ out of the jurisdiction”. The Privy Council had confirmed that proceedings for a freezing injunction in aid of proceedings before a foreign court are interlocutory. For that reason, Cresswell J held that Order 11 Rule 1(1)(b) did not provide a basis for permission to be given to serve a freezing order out of the jurisdiction. In doing so, Cresswell J declined to follow the decision in Gillies-Smith in which permission to serve out had been granted (Cresswell J commented that it was possible a proprietary claim had been asserted in Gillies-Smith).
It is, however, worth noting that Cresswell J did nothing to disturb the decision of the Cayman Islands Court of Appeal in Deloitte and Touche Inc v John B Felderhof & Ors 6 when the Court upheld a decision to grant a freezing injunction in aid of foreign proceedings against defendants who had been validly served in the Cayman Islands, notwithstanding the parties had no intention to litigate the substance of their dispute there but intended it to be determined instead of the courts of Ontario (and in fact had stayed the proceedings in Cayman Islands).
Free-standing freezing relief against Cayman defendants
It is also worth noting that the claim for freezing injunction against the Second and Third Defendants succeeded. Cresswell J relied upon a BVI decision of Bannister J in Black Swan Investment I.S.A v Harvest View Limited and Sablewood Real Estate 7 (as subsequently explained by the same judge in Yukos CIS Investment Ltd and Wincanton Holdings BV v Yukos Hydrocarbons Investments Limited 8 et al). Bannister J had said in Yukos that:
“Black Swan rests upon the willingness of the Court, in a case where the Defendant of foreign proceedings has assets within its jurisdiction, to act in aid of a claimant’s prospective entitlement to a money judgement if successful in the foreign proceedings. It depends upon the assumption that the foreign money judgment will be enforceable, by registration of otherwise, in the court within whose jurisdiction the assets are situated.”
Accordingly, Cresswell J said that he was persuaded although “not without considerable hesitation” that he should grant freezing injunctions against the Second and Third Defendants on this footing (albeit for a limited time and to allow the point to be fully agreed on an inter-partes basis). This was on the basis of the principle in TSB Private Bank International v Chabra9 that where a party holds assets that may ultimately be available for enforcement to satisfy a judgment against another party, a freezing injunction can be obtained even though there is no cause of action against the party holding the assets.
Paradoxically, the Second and Third Defendants were not parties to the English litigation. Hence the Cayman Court had declined to grant a freezing injunction against a defendant who faced a substantive claim because he could not be served with proceedings outside of the jurisdiction but permitted freezing relief against two Defendants who are not party to the substantive proceedings on the footing that they did not need to be.
The position therefore appears to be that freezing injunctions are available in the Cayman Islands against a defendant within the jurisdiction, or against whom a substantive claim has been served outside the jurisdiction, but not otherwise.
The judge concluded his judgment by strongly suggesting that the Rules Committee of the Cayman Court should consider whether rules enabling service of a freezing injunction outside the jurisdiction should be introduced as there were good public policy reasons why free-standing freezing of this nature should be available to Claimants. Further developments in this area are therefore possible which would be a welcome move for claimants in fraud actions.