Conflict of laws - Challenge to jurisdiction - Pre-trial or post-judgment relief - Freezing order

Madoff Securities International Ltd and another v Raven and others: QBD (Comm) (Mr Justice Flaux): 25 November 2011

The matter originated from an extremely large-scale fraud perpetrated by M, to which he had confessed in December 2008. M had controlled, among other things, two companies, MSIL (the first claimant) and BLMIS. M had used MSIL, among other things, to launder money.

The second claimant was the liquidator of BLMIS. The ninth defendant, K, was domiciled in Austria and had conducted her affairs internationally through corporate vehicles including the 11th and 13th defendants (together, the K defendants). She had met M in the 1980s and had begun to introduce investors to him. During the 20-year period when the fraud had been in operation, the K defendants had received tens of millions of dollars through MSIL and BLMIS. In April 2009, K was interviewed by the Austrian state prosecutor. In January 2011, the claimants’ solicitors declared their intention to apply for a freezing injunction against K. K had not given any voluntary disclosure of her assets. Two applications were before the court in the instant proceedings. The first was made by K and the 13th defendant to set aside the proceedings initiated by BLMIS against them on the grounds of want of jurisdiction. The second application was made by MSIL for a freezing injunction and/or a proprietary injunction against K and the 13th defendant. Although it was not alleged that she had been complicit in M’s fraud, the claimants’ case was that payments had been made to K amounting to secret payments for introducing money to M’s scheme, and that K had known what the real reason for the payments had been.

The question of whether the claim could proceed against the K defendants was governed by Council Regulation (EC) 44/2001 (the regulation). The K defendants accepted that in the MSIL claim the English court had jurisdiction over them. However, they disputed jurisdiction regarding the BLMIS claim. They submitted that since the payments made to K in the BLMIS claim had been made directly to her in Austria, the claim had to be heard in the Austrian courts (or alternatively in the Swiss courts, as K spent much time in Switzerland). They submitted that therefore none of the grounds for special jurisdiction in article 5 of the regulation would apply, and since BLMIS had no claim against the English domiciled defendants, who were directors of MSIL, article 6(1) of the regulation would not apply either.

The K defendants submitted that they should be sued in the contracting state where they were domiciled, under article 2 of the regulation. The second claimant contended that the English court had jurisdiction by virtue of article 6(1), in that because there was a claim before the court against a number of defendants domiciled in the UK (namely the claim by MSIL against the first to fifth defendants, all directors of MSIL), K was one of a number of defendants under article 6(1), one or more of whom was domiciled in the UK. The K defendants contended that article 6(1) had no application in the instant case, because it would apply only where the defendants domiciled in the jurisdiction were being sued by the same claimant as was suing the defendant domiciled elsewhere.

The court ruled: (1) Article 6(1) applied only where the defendant or defendants domiciled in the jurisdiction were being sued by the same claimant or claimants as were suing the defendant domiciled elsewhere. Therefore, article 6(1) gave the court jurisdiction over the claim by MSIL against K, because MSIL was suing the English domiciled ‘anchor’ defendants, but it could not confer jurisdiction over the claim by the second claimant on behalf of BLMIS, because that claimant was not bringing any claim at all against any of those English domiciled defendants. The fact that claims had been brought by different claimants would not preclude a conclusion that it was expedient to hear them together to avoid the risk of irreconcilable judgments if they were pursued in different jurisdictions. Since article 6(1) did not apply where the relevant claimant (in the instant circumstances, the second claimant) was not making a claim against the anchor defendants (in the instant circumstances, the English directors of MSIL), it followed that the court had no jurisdiction over the BLMIS claim (see [76]-[81], [184] of the judgment).

(2) It was essentially common ground that for a proprietary injunction to be granted, the claimant needed to show: (i) that there was a serious issue to be tried on the merits; (ii) that the balance of convenience was in favour of granting an injunction; and (iii) that it was just and convenient to grant the injunction (see [127] of the judgment).

On the facts, the balance of convenience favoured the granting of an injunction. The claimants had clearly shown that there was an important issue to be tried. In the circumstances, the instant case was one where it would be appropriate to exercise ­discretion in favour of MSIL. It was both just and convenient to grant an injunction (see [129], [141]-[142] of the judgment). It would be appropriate in principle to grant a proprietary injunction to MSIL (see [184] of the judgment).

(3) Regarding the application for a freezing injunction, it was necessary to consider three issues: (i) whether MSIL had shown a sufficiently arguable case for an injunction to be granted; (ii) the delay in bringing the application and the extent to which that would ­preclude MSIL from bringing an ­application at the instant time; and (iii) whether MSIL had shown sufficient risk of dissipation of assets if the injunction was not granted (see [144] of the judgment).

On the facts, there could be no doubt that a serious issue existed to be tried. With regard to delay, the mere fact that there had been delay did not mean that there was no risk of dissipation. That was only one factor to be weighed in the balance when considering the grant of the application. It would be inappropriate to allow the delay to prejudice the bringing of the application in any way. Although K had co-operated with the authorities up to a point, the evidence suggested that her answers to several questions had been evasive.

Since K had not made voluntary disclosure of her assets, despite ample opportunity to do so, the court simply could not tell whether she had dissipated her assets or not. On the evidence, what emerged was a sufficiently arguable case of deliberate wrongdoing, the issuing of sham invoices and the disguising of the true nature of the payments of millions of dollars to K and related defendants over many years. That in itself demonstrated a serious risk of dissipation. Further, there was no good reason for K not to disclose her assets if she had nothing to hide. In the absence of disclosure, the risk of dissipation had to exist (see [156], [157], [168], [169] of the judgment).

In the circumstances, it would be appropriate to grant a freezing injunction (see [184] of the judgment).

Pushpinder Saini QC, Shaheed Fatima, Robert Weekes and Tom Richards (instructed by Taylor Wessing) for the claimants; Terence Mowschenson QC and Sebastian Allen (instructed by Olswang) for the ninth and 13th defendants.