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Judgments - Fourie (Appellant) v. Le Roux and others (Respondents)

HOUSE OF LORDS

SESSION 2006-07

[2007] UKHL 1

on appeal from: [2005] EWCA Civ 204

 

 

OPINIONS

OF THE LORDS OF APPEAL

for judgment IN THE CAUSE

 

Fourie (Appellant)

v.

Le Roux and others (Respondents)

 

 

Appellate Committee

 

Lord Bingham of Cornhill

Lord Hope of Craighead

Lord Scott of Foscote

Lord Rodger of Earlsferry

Lord Carswell

 

Counsel

Appellants:

Leon Kuschke

Sam Neaman

(Instructed by CMS Cameron McKenna LLP)

Respondents:

Stuart Isaacs QC

Tom Smith

(Instructed by Rawlinson Butler LLP)

 

Hearing dates:

13 and 14 november 2006

 

 

 

on

WEDNESDAY 24 JANUARY 2007

 

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Fourie (Appellant) v. Le Roux and others (Respondents)

[2007] UKHL 1

LORD BINGHAM OF CORNHILL

My Lords,

    1.  I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Scott of Foscote. For the reasons he gives I would dismiss the appeal and make the orders which he proposes.

    2.  Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domestic or foreign: see Steven Gee, Commercial Injunctions, 5th ed (2004), pp 77-83.

    3.  In recognition of the severe effect which such an injunction may have on a defendant, the procedure for seeking and making Mareva injunctions has over the last three decades become closely regulated. I regard that regulation as beneficial and would not wish to weaken it in any way. The procedure incorporates important safeguards for the defendant. One of those safeguards, by no means the least important, is that the claimant should identify the prospective judgment whose enforcement the defendant is not to be permitted, by dissipating his assets, to frustrate. The claimant cannot of course guarantee that he will recover judgment, nor what the terms of the judgment will be. But he must at least point to proceedings already brought, or proceedings about to be brought, so as to show where and on what basis he expects to recover judgment against the defendant.

    4.  On his application to Park J, Mr Fourie failed to do this. It follows that the judge was wrong to make the order he did. It also follows, in my opinion, that Mr Jarvis QC, the deputy judge, was right to discharge it. There had been a clear neglect of the correct procedure, and the court should not absolve the defaulting party from the consequences of its neglect by maintaining the order in force: Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyd's Rep 428, 436. That, I think, is so whether or not the deputy judge foresaw that Mr Fourie might, in the immediate future, re-apply successfully in accordance with the recognised practice.

LORD HOPE OF CRAIGHEAD

My Lords,

    5.  I have had the advantage of reading in draft the speech of my noble and learned friend Lord Scott of Foscote. I agree with him, for the reasons that he gives, that the appeal on the main issue should be dismissed. I would however set aside the order for indemnity costs.

    6.  On the main issue I also agree with the observations of my noble and learned friends Lord Bingham of Cornhill and Lord Rodger of Earlsferry. The importance of maintaining safeguards against misuse of such injunctions has recently been emphasised by the Court of Session in two cases dealing with the analogous procedure that is available in Scotland. It has pointed out that the maintenance of these safeguards is necessary if the use of the procedure is not to be held to be incompatible with article 1 of the First Protocol to the European Convention on Human Rights: Karl Construction Ltd v Palisade Properties plc 2002 SC 270; Advocate General for Scotland v Taylor 2003 SLT 1340.

    7.  Those cases were concerned primarily with issues of Scots procedure which do not arise in this case. But Lord Drummond Young said in para 54 of his opinion in Karl Construction Ltd v Palisade Properties plc, which was approved by the Inner House in Advocate General for Scotland v Taylor, that among the requirements that would have to be met if the order was to conform to that article was that the pursuer must establish that he has a prima facie case on the merits of the action in connection with which he is seeking the protective remedy. As he pointed out in para 55, nearly all of the other legal systems in which a protective security is available insist that a test which is broadly of this nature should be satisfied. I agree that the test will not be met if the claimant is unable to identify the claim which he is seeking to protect when he is seeking the remedy.

    8.  On the indemnity costs issue I share the concerns which have been expressed by Lord Rodger and by my noble and learned friend Lord Carswell as to whether an order for costs on the higher scale was appropriate. But I would, with respect, go further and hold that an order for indemnity costs was not justified in this case and that an order for costs on the standard basis should be substituted.

    9.  I recognise, of course, that there are limits on the extent which this House can properly interfere with orders of this kind. I accept too that the Civil Procedure Rules contain a new procedural code, the object of which is to enable the court to deal with cases justly, and that it is no longer necessary to show that there has to be some sort of moral lack of probity or conduct deserving moral condemnation on the part of the paying party: Reid Minty v Taylor [2001] EWCA Civ 1723; [2002] 1 WLR 2800, para 27, per May LJ.

    10.  But, as the judgments that were given in that case show, the award of costs on this basis will not be justified unless the conduct of the paying party can be said in some respect to have been unreasonable: see May LJ at para 32, Kay LJ at para 37. For example, as Kay LJ said in para 37, if one party has made a real effort to find a reasonable solution to the proceedings and the other party has resisted that sensible approach, then the latter puts himself at risk that the order for costs may be on an indemnity basis. I do not think that the appellant was guilty of conduct of that kind.

    11.  It is true that Park J was persuaded to make an order that he ought not to have made because, on the information that was laid before him, the making of a freezing order could not yet be justified. But litigants do from time to time persuade judges to make orders in their favour ex parte which on more mature reflection have no sound basis in law and must be set aside. That in itself, without more, does not justify a departure from the ordinary rule that the costs that are awarded to the other party are assessed on the standard basis in such circumstances. I do not detect anything in the appellant's conduct that was unreasonable in the sense referred to in Reid Minty v Taylor. I bear in mind also that the making of a freezing order albeit for a lesser amount was within a matter of hours substituted for that made by Park J.

LORD SCOTT OF FOSCOTE

My Lords,

The Issues

    12.  On 9 July 2004 Park J, on a without notice application made by the appellant, Mr Fourie, made a freezing order (commonly called a Mareva injunction) against two individuals and a number of companies of whom only two are still actively involved in the proceedings. They are Mr Le Roux and Fintrade Investments Ltd. ("Fintrade"), the respondents to this appeal. The order froze the assets in England and Wales of each respondent up to a value of £3.4 million. Mr Fourie had made the application for the order in his capacity as liquidator of two South African companies, Herlan Edmunds Engineering (Pty) Ltd ("HEE") and its parent company, Herlan Edmunds Investment Holdings Ltd ("HEI"). Mr Le Roux was the majority shareholder of HEI and, until HEE and HEI went into liquidation in South Africa, had been in control of the two companies. Fintrade is an English company owned and controlled by Mr Le Roux.

    13.  HEI and HEE went into liquidation in South Africa in June 2004 on a creditor's petition and Mr Fourie was appointed liquidator of both companies. He formed the view that Mr Le Roux and Fintrade had by fraud and deception (some details of which I will refer to later) stripped HEE of its assets and removed those assets, or their proceeds, to England. Hence his application to Park J for the freezing order.

    14.  By an application dated 28 July 2004 Mr Le Roux, and others of those against whom the freezing order had been made (it is not clear which of them, but Fintrade must have been one) applied for the freezing order to be set aside. The main ground of the application was that "there was no jurisdiction to make the order" because, at the time the order was made, there had been no subsisting proceedings to which the freezing order could be ancillary and no undertaking to commence any such proceedings had been offered by Mr Fourie. The application came before Mr Jarvis QC, sitting as a deputy judge of the High Court, on 30 September 2004. On the jurisdiction point the deputy judge said that in order to support the grant of a freezing order the applicant needed proceedings to enforce an existing cause of action that had either already been instituted or that would, pursuant to an undertaking given to the court, be instituted within a short timeframe. He pointed out that, when the matter was before Park J, not only had no proceedings for substantive relief been commenced but no such proceedings had yet been formulated. In paragraph 60 of his judgment he said this:

    "In my judgment, the court had no jurisdiction to grant a freezing order in circumstances where the applicant had no intention of issuing proceedings immediately or almost immediately. I do not regard this as a simple procedural irregularity which can be cured by issuing proceedings now. I do not regard it as akin to material non-disclosure which, in certain circumstances, the court may overlook and allow an injunction to be continued. In my judgment, this goes to the root of the jurisdiction."

So he discharged the freezing order, made an order for Mr Fourie to pay costs on an indemnity basis and gave directions for the immediate enforcement of the cross-undertaking in damages that Mr Fourie had given.

    15.  Mr Fourie appealed to the Court of Appeal. On 7 March 2005 the Vice-Chancellor (as he then was) gave a judgment, concurred in by Mance LJ and Jonathan Parker LJ, dismissing the appeal. He said he agreed with counsel for the respondents that

    "… jurisdiction to make an interim order depends on its activation by the commencement of substantive proceedings or an undertaking to do so" (paras 37 and 38)

and went on, in paragraph 38, as follows:

    "There was no suggestion of substantive claims being made in England before Park J … There had been no activation of the jurisdiction whether by the issue of substantive proceedings in England or an undertaking to do so. Without either, the jurisdiction to grant any form of interim relief in support of the relevant cause of action under English law simply does not exist. … In my view the deputy judge was right."

The Vice-Chancellor also dismissed Mr Fourie's appeal against the indemnity costs order that the deputy judge had made. Mr Fourie has appealed to this House.

    16.  The background facts are much more complex than the previous paragraphs might suggest, and I shall have to refer to some of them later, but the main issue for your Lordships is, as expressed by the parties in their statement of Facts and Issues, whether Park J had had jurisdiction to make the freezing order. In my opinion, however, this issue cannot be confined to the issue of jurisdiction in its strict sense. Even if Park J did have power to make the freezing order, the question remains whether, in the absence of any proceedings for substantive relief or any undertaking to commence such proceedings, it was proper for him to have made the order.

    17.  There is also an issue about the propriety of the indemnity costs order and an issue as to whether the directions for the enforcement of the cross-undertaking were premature both of which your Lordships must deal with. Next, however, I must say rather more about the background facts and the litigation history than I have yet done.

The Background Facts

    18.  HEE had carried on business in South Africa but in July 2003 had ceased trading and the story really starts with an ex parte order obtained by Mr Le Roux and Fintrade in November 2003 from the Germiston Magistrate's Court in South Africa (the Germiston Order) for the seizure and handing over of HEE's plant and machinery pursuant to alleged debts owed to them by HEE. Pursuant to the Germiston Order Mr Le Roux took possession of HEE's assets. Some were sold. When Mr Fourie became, in June 2004, liquidator of HEE and began an investigation of its affairs he took the view that Mr Le Roux and Fintrade had obtained the Germiston Order by fraud and deception and, assisted by the Germiston Order, had stripped HEE of its assets and had exported some of these assets to England. He therefore commenced proceedings in the Transvaal Provincial Division of the High Court of South Africa and on 2 July 2004 Preller J made an order nisi requiring Mr Le Roux and other respondents to show cause why an order setting aside the Germiston Order should not be made. Fintrade was not one of the respondents to the proceedings. Your Lordships were told that South Africa does not have a procedure that would have enabled Fintrade, an English company with no presence in South Africa, to be served outside South Africa. At the same time Preller J made an order authorising Mr Fourie to institute in England such proceedings as might be necessary, including proceedings for injunctive relief, for the purpose of recovering HEE's assets. Preller J also ordered that

    "… letters of request be issued requesting the appropriate Division of the High Court of the United Kingdom to act in aid of the High Court of South Africa (Transvaal Provincial Division) for the purposes of recognising the appointment of [Mr Fourie], the applicant, as the duly appointed provisional liquidator of [HEE] and [HEI] …"

    19.  Preller J's order nisi came before Bosielo J who, in a judgment delivered on 8 September 2004, confirmed the order. Leave to appeal against Bosielo J's judgment was refused at first instance and again in the Supreme Court of Appeal of South Africa. A subsequent application for leave to appeal made by Mr Le Roux and others to the South African Constitutional Court was dismissed with costs. It is convenient to record some of the remarks made by Bosielo J in his judgment. He referred, at p15, to allegations made against Mr Le Roux as constituting

    "… eloquent and irrefutable evidence of serious fraud which was used to deliberately mislead the magistrate in the Germiston proceedings to grant the order …"

and expressed his agreement with Mr Fourie's counsel that

    "… the proceedings in the Germiston Magistrate's Court were a shameless sham by the parties to hoodwink the Magistrate into granting an order, the sole purpose and effect whereof was to grant the parties, in particular [Mr Le Roux], the right to strip HEE of all its assets."

Bosielo J commented also that the respondents before him had based their resistance to confirmation of the order nisi on, in effect, technicalities. He said, at p18,

    "What I find disturbing is that notwithstanding the fact that the replying affidavit contained damning and damaging allegations, the respondents elected to ignore it."

In the meantime, and before the order nisi had been confirmed, Mr Fourie had applied to Park J for the freezing order.

    20.  Another event in South Africa that deserves mention is that on 20 July 2004 an order was made in the Transvaal Provincial Division, on Mr Fourie's application, for an examination under section 417 of the South African Companies Act (No.61 of 1973 as amended). Section 417, similar to section 236(2) of the Insolvency Act 1986, enables directors and ex-directors, among others, of an insolvent company which is being wound-up to be brought before the court to answer questions about the company's assets and affairs. Your Lordships were not given any details about the institution or progress of any examination conducted under this order. Its relevance is that it constitutes a potential vehicle for the examination of Mr Le Roux.

The litigation history

    21.  At the hearing before Park J various references were made to the proceedings in aid of which the freezing order was being sought. Park J was told by Mr Selwyn Bloch QC, counsel for Mr Fourie, that

    "The liquidator is intending to proceed in South Africa in terms of statutory enquiries and within the existence of that various claims would be formulated …"

    (Appendix page 12)

The reference to "statutory enquiries" was, presumably, a reference to proceedings under section 417 of the South African Companies Act. The transcript of the hearing records, also, Park J asking about the effect of the freezing order he was being asked to make. Both his question and Mr Bloch's answer (Appendix page 39) deserve attention:

Mr Justice Park:   … What is going to happen in the end about any assets that are frozen in this way? Who is advancing a claim for those assets and in what proceedings? We are here today in an application which is ancillary to the insolvency jurisdiction of the South African court. What is before me is not a case in which Mr Fourie is seeking some sort of order from the English court that the money be paid over [to] him. The English court can freeze the money, but then, if some sort of order for the recovery of it is going to be sought, how is that going to be done?

Mr Bloch:  My Lord has put his finger on a point that has exercised me to some extent. That is what is the formal proceeding leading up to some final form of final relief to which this attaches."

Mr Bloch (pages 39-40) then answered the question he had posed by referring, first, to a possible claim in respect of torts committed in England and, secondly, to possible proceedings under section 426 of the Insolvency Act 1986 as a result of which, he appears to have thought, the court might give directions dealing with "pleadings and discovery and the usual procedural points" (Appendix page 40) and eventually "adjudicate on the merits of whether these assets are, for example, traceable." (Appendix pages 40-41). Later Mr Bloch again referred to the possibility of a proprietary claim being made. He said

    "Using the English procedure [presumably a reference to section 236 of the 1986 Act], an enquiry would be sought at which the defendants would be interviewed or cross-examined … Depending upon that, if the claimant or the applicant concluded that these assets were, in fact, owned by the companies in South Africa, it would invoke the South African solvency procedures as part of section 426 in order to recover those assets here." (Appendix pages 41,42)

These exchanges appear to me to demonstrate a muddle as to the purpose and nature of the freezing order that was being sought. The judge seems to have had in mind that the purpose, or perhaps one of the purposes, of the freezing order would be to preserve assets to which a proprietary claim would or might be brought by or on behalf of HEE (see his reference to an order for the "recovery" by Mr Fourie of the frozen money). Mr Bloch's references to assets being "traceable" or "owned by the South African companies" points in the same direction. But Mr Bloch's reference to the possibility of the eventual claim being a tort claim suggests that the purpose of the freezing order would be the "Mareva" purpose, namely, to prevent the proposed defendants from making themselves judgment-proof by disposing of their assets against which a damages judgment might be enforced. But whatever the judge and Mr Bloch had in mind the freezing order as granted was unquestionably of the "Mareva" type. Its terms were wholly inconsistent with an intention to preserve assets to which a proprietary claim by, or on behalf of, HEE might eventually be brought. The order being sought by Mr Bloch and granted by the judge was an order under CPR 25.1(f), not an order under CPR 25.1(c)(i). It is clear, however, that at the time of the hearing before Park J the nature of the proceedings in aid of which the freezing order was being sought was unformulated and inchoate. The judge knew that the proceedings, whatever they might turn out to be, would result from and be based upon the alleged fraud and breach of fiduciary duty of Mr Le Roux. Everything else about the proceedings was in the air.

 
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