Mareva injunction applicant must prove defendant's intention to avoid damages

Val O'Mahony (applicant/respondent) v John Horgan, Jim Horgan and Peter Horgan (respondents/ appellants).

Company - Directors - Mareva injunction - Criteria to be established before injunction granted, Affidavit - Evidence of intention to dissipate assets - Whether court may impose limit on undertaking as to damages - Companies Act 1963 (No 33), sections 297, 297A, 298(2) - Companies Act 1990 (No 33), sections 13,9, 202(10), 204 - Companies (Amendment) Act 1990 (No 27), section 138.

The Supreme Court (the Chief Justice Mr Justice Hamilton: Mr Justice O'Flaherty and Mr Justice Blayney); judgment delivered 7 November 1995.

IN an application for a Mareva injunction, the plaintiff must satisfy the court that he has an arguable case that he will succeed in the action, and that the anticipated disposal of a defendant's assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.

There was no evidence before the court that there was a likelihood of a dissipation of assets. Further, there should be no limit placed on the undertaking as to damages which the applicant must give.

The Supreme Court so held in allowing the respondents' appeal.

Hugh O'Neill SC and Frank Callanan BL for the applicant/ respondent, Paul Sreenan SC and Denis McDonald BL for the respondents/ appellants.

THE CHIEF JUSTICE in outlining the facts, said that the applicant/ respondent (the liquidator) was the liquidator of John Horgan Livestock Ltd (the company). The respondents were the directors of the company, which operated as an importer and exporter and dealer in animals. The company was wound up in 1991 on foot of a petition brought by the Revenue Commissioners, and the liquidator was appointed. A statement of affairs was filed in the High Court in March 1992 showing an estimated deficiency of £11,653,992.00.

The liquidator caused to be issued a notice of motion against the respondents seeking, inter alia, against each of them an order pursuant to section 298(2) of the Companies Act 1963 a declaration that the respondents as directors of the company were in breach of section 202(10) of the Companies Act 1990 and were personally liable without limitation of liability for all or part of the debts and liabilities of the company, and were personally responsible for the extra liabilities of the company.

The application was grounded upon the affidavit of the liquidator and the documents and correspondence exhibited therein.

The Chief Justice said that the liquidator issued a notice of motion claiming an interlocutory injunction restraining the second named respondent from collecting or receiving the sum of £71,000 which represented monies payable under a policy of insurance and the subject matter of other proceedings, and in the alternative, an interlocutory injunction restraining the second named respondent from disposing of or dissipating or charging the said sum of £71,000 with accrued interest thereon.

This application was grounded on the proceedings, the affidavit of the liquidator and an affidavit of one Tom Tobin. On 28 June 1993, a Mareva injunction was granted by the High Court by Mr Justice Murphy.

The Chief Justice said that in his judgment, Mr Justice Murphy set forth the criteria to be taken into account in considering whether a Mareva injunction should be granted. These were as follows:

(1) The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.

(2) The plaintiff should give particulars of his claims against the defendant, stating the grounds of his claims and the amount thereof and fairly stating the points made against it by the defendant

(3) The plaintiff should give some grounds for believing that the defendant had assets within the jurisdiction. The existence of a bank account is normally sufficient.

(4) The plaintiff should give some grounds for believing that there is a risk of the assets being removed or dissipated.

(5) The plaintiff must give an undertaking in damages, in case he fails.

The Chief Justice said that it appeared from the judgment that the trial judge was satisfied that the criteria set forth at (1), (2) and (3) had been met by the liquidator. The trial judge held that the plaintiff had only said that he was apprehensive that there was a risk of dissipation of the assets which was a far cry from evidence of conscious abuse.

In relation to the undertaking as to damages, the trial judge indicated that the undertaking should be limited to £25,000.

The directors of the company appealed to the Supreme Court.

The Chief Justice said that traditionally, the common law expressed the principle that the plaintiff is not entitled to require from the defendant in advance of judgment, security to guarantee satisfaction of a judgment that the plaintiff may eventually obtain. He went on to say that the position was altered in the United Kingdom in two cases, namely Nippon Yusen Kaisha v Karageroigis [1975] 1 WLR 1093, and Mareva Compania Naviera SA v Internation Bulkcarriers SA [1975] 2 Lloyd's Reports 509. These cases involved claims for damages arising from shipping contracts brought against foreign defendants. In both, the plaintiffs obtained orders ex parte rest raining the defendants from removing their funds out of the jurisdiction pending the adjudication of the actions.

The Chief Justice said that injunctions of this type became known as Mareva injunctions. A Mareva injunction is an ad personam order, restraining the defendant from dealing with assets in which the plaintiff claims no right whatsoever. A Mareva order does not give the plaintiff any precedence over other creditors with respect to the frozen assets.

He went on to say that because of the draconian nature of such orders, in Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645, Lord Denning MR laid down the five criteria to be established before such injunctions are granted.

The Chief Justice referred to the cases of Z Ltd v AZ [1982] 1 QB 558, Fleming v Ranks [1982] ILRM 541 and Polly Peck International plc v Nadir (1992)142 NLJ 671, and said that a Mareva injunction will only be granted if there is a combination of two circumstances: that the plaintiff has an arguable case that he will succeed in the action, and that the anticipated disposal of a defendant's assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.

The Chief Justice said that the liquidator's apprehension that monies would not be available to meet a decree which might he made in favour of the company in liquidation might well have been justified, but he did not state or allege that the appellant would dissipate the assets with the intention of frustrating any order of the court that might be made.

He held that no intention was established in this case. Consequently, the appeal must be allowed on this ground. He went on to say that it was not necessary for him to consider whether the learned trial judge was entitled to place a limit of £25,000 on the undertaking required to be given by the liquidator.

MR JUSTICE O'FLAHERTY said that he agreed with the judgment of the Chief Justice that the order of the High Court should be reversed and the appeal allowed.

He said that twenty years ago or so the absence of any remedy for a creditor against a debtor who was prepared to depart the country or dissipate his assets in defiance of the creditor's rights was a serious defect in our law. He said that the Mareva injunction in its original manifestation was used in clear cases where a debt was established and the debtor was about to abscond or to dissipate his assets.

Mr Justice O'Flaherty said that it needed to be emphasised that the Mareva injunction was a very powerful remedy which if improperly invoked, would bring about an injustice, something that it was designed to prevent.

He said that on the facts of this case, the remedy was neither appropriate nor relevant. The amount that it was sought to freeze was a tiny fraction of the millions of pounds it was said was involved in the main action. It had to be reiterated that the Mareva remedy was to protect assets that might be dissipated, and it was not appropriate to enforce a claim to the assets themselves.

In relation to the undertaking as to damages, Mr Justice O'Flaherty said that he knew of no case where a limit had been put on the amount that might be required to be paid, if it was held that the injunction was improperly obtained nor did he think it right in principle that such a limit should be placed in view of the far reaching implications involved in any restraint that is imposed on a party by reason of such an injunction prior to judgment.

MR JUSTICE BLAYNEY agreed with the judgments of the Chief Justice and Mr Justice O'Flaherty.

Solicitors: Conway Kelleher Tobin (Cork) for the applicant/ respondent; P. J. O'Driscoll & Sons (Cork) for the respondents/ appellants.