Skip to content

Worldwide freezing orders against third parties

Related people
Edwards Amy
Amy Edwards

Senior PSL - Litigation

London

View profile →

30 January 2012

Parbulk II AS v PT Humpuss Intermoda [2011] EWHC 3143, 30 November 2011

This important decision by Gloster J throws some doubt on the recent Court of Appeal decision in Linsen International Ltd & ors v Humpuss Sea Transport plc Ltd & ors concerning the granting of worldwide freezing orders (WFO) against foreign third parties with no assets in England.

In Parbulk II AS v PT Humpuss Intermoda [2011] EWHC 3143, 30 November 2011 Gloster J refused a WFO against a Singapore company, related to a judgment debtor, even though there was clear evidence that, via intra-group loans, assets had been transferred to that Singapore company in order to make the judgment debtor “judgment proof”.

A recalcitrant judgment debtor, owing vast sums, may seek to make itself judgment proof by the use of complex intra-group transfers to overseas group companies, in jurisdictions where it is difficult to reach assets. The claimant suggested that the defendants in this case had engaged in this activity. The third defendant, Heritage (a Panamanian special purpose vehicle – Heritage) owed USD 28 million to the claimant under an unpaid arbitration award relating to a charterparty dispute. However, by various intra-group transfers and loans, it had effectively transferred its assets to the second defendant, its Singapore parent company (HSTPE) in order, it was suspected, to become “judgment proof”.

In order to try to enforce the arbitration award, the claimant sought worldwide freezing orders from the English court against the third defendant, HSTPE, and also HSTPE’s Indonesian parent company (HIT) (which had guaranteed the charterparty, and against whom the claimant had an English judgment, again unpaid).

This Review article focuses on the application for a WFO against HSTPE. Note that the claimant had no cause of action against HSTPE, the “debt” (ie the debt owed by HSTPE to Heritage by virtue of the intragroup loan) was situated in Singapore, and HSTPE had no assets in England. The issue for Gloster J was this: does the English Court have jurisdiction to make a WFO in these circumstances, and if the answer is yes, should it exercise this jurisdiction?

An unusual feature of Gloster J’s judgment is that these questions are initially both answered in the affirmative, and then, following further submissions from the parties after the Court of Appeal issued its decision in a related matter Linsen International Ltd & ors v Humpuss Sea Transport plc Ltd & ors [2011] EWHC 3143 (Comm), 30 November 2011, Gloster J’s views change. The judgment highlights a lack of clarity in the law in this area.

Gloster J’s judgment pre-Linsen

Gloster J stated that in every case where a worldwide freezing order is sought against a third party who is not a judgment debtor, or potential judgment debtor, the court has to look very carefully at the particular facts upon the basis of which it is being asked to exercise its jurisdiction and discretion to make such an order. Gloster J was satisfied that the evidence demonstrated that HSPTE was involved with assisting Heritage to become judgment proof.

Gloster J stated she would have been minded to grant the WFO against HSTPE, prior to the Court of Appeal’s judgment in Linsen being issued. In her view, in circumstances where a defendant/judgment debtor (ie a cause of action defendant (CAD)), against whom it is appropriate to make a freezing order at the suit of a claimant, has a debt, or other receivable owing to it by a third party (a non-cause of action defendant (NCAD)), or a claim, against a third party NCAD, the English court has jurisdiction to grant a freezing order against the third party NCAD, in appropriate circumstances, to restrain the NCAD from dissipating its assets up to the amount of its debt to, or the claim by, the CAD or judgment debtor.

Whether the court grants such an order against the third party will, stated Gloster J, be a matter for the exercise of its discretion, depending on the particular circumstances of the case. Normally, if there is no reason to doubt the propriety of the third party, it may well be sufficient, for example, to injunct the defendant from collecting the receivable, and instruct the third party to pay it into a designated account. In other circumstances, it may be appropriate, at an interlocutory stage, to appoint a receiver over the receivable/claim against the third party in order to enable the receiver to collect it and pay it into court, or an escrow account, or otherwise preserve the receivable/claim from dissipation by the defendant/judgment debtor. But if, for example, the circumstances show collusion, or impropriety, or some participation, on the part of the third party, in attempts by the defendant/judgment debtor to render itself judgment proof, then it may be appropriate for a freezing order to be granted against the third party itself.

Gloster J derived this statement of the law from an analysis of both English and Australian case law which, in her view, confirmed that it is not necessary for the assets in the hands of the third party to be even arguably beneficially owned by the judgment debtor (which would engage the classic “Chabra” jurisdiction, as set out in TSB Private Bank International SA v Chabra [1992] 1 WLR 213).

Gloster J’s judgment post-Linsen

After having been referred to the Court of Appeal judgment in Linsen (which was handed down when Gloster J was preparing her judgment), Gloster J decided that the WFO should not be granted against HSTPE.

The Court of Appeal in Linsen held that the English court has no jurisdiction to order service out of the jurisdiction of a claim for a WFO against a NCAD where, not only its assets, but also the debt it owes the CAD, are situated out of the jurisdiction.

Gloster J noted that HSTPE’s debt to Heritage was situated in Singapore, and HSTPE’s assets were also situated out of the jurisdiction.

Gloster J, however, was concerned that the Court of Appeal had not been referred to Aiken J’s decision in C v L [2001] EWHC 550, and a differently constituted Court of Appeal in Tasarruf Fonu v Dermirel [2007] EWCA 799, both of which supported the opposite conclusion.

Gloster J however deftly managed to avoid having to decide which Court of Appeal decision to follow, by concluding that, even if the court did have jurisdiction to order a WFO, as a matter of discretion the jurisdiction should not be exercised because there was in this case an insufficient connection with England to justify making the WFO:

  • there were no substantial grounds for serving HSTPE out of the jurisdiction, ie none of the jurisdictional gateways in Practice Direction 6B were satisfied;
  • there was no evidence of any direct claim between the claimant and HSTPE;
  • even if a third party is subject to the in personam jurisdiction of the English court, there are still subject matter jurisdiction concerns if the court seeks to impose obligations on persons in relation to acts done abroad regarding property outside the jurisdiction;
  • the connection between HSTPE and the English court was “minimal” arising only as a result of the WFO proceedings; and there was no realistic prospect of the court being able to monitor HSPTE’s business activities and payments in Singapore.

Although declining to order a WFO, Gloster J did order the continuation of a freezing injunction against HSTPE limited to assets within the jurisdiction (in the hope that there may be some in the future), and up to the amount of its indebtedness to the first defendant and HIT.

Comment: Uncertainty remains whether the English court has jurisdiction to grant a WFO over a third party NCAD in circumstances where the third party has no assets in England and there is no other real connection with this jurisdiction. Separate from the jurisdictional question is whether the English court would exercise its discretion anyway. Whilst obviously unsure about the Court of Appeal’s decision in Linsen, Gloster J seems to have used the factors relied on by the Court of Appeal in that decision as the justification for not exercising the court’s discretion in the present case.

The decision is useful for its analysis of the Chabra type jurisdiction, and highlights the potential to go beyond this to pursue assets in the hands of a third party which, whilst not beneficially owned by the judgment debtor, are still the subject of a potential cause of action by the judgment debtor against the third party.

Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.