In modern warfare, the function and destructive power of pulse bombs are beyond doubt. They can instantly paralyze an enemy’s electronic systems and deprive the enemy of its combat capability. In common law jurisdictions, the Mareva Injunction serves a function strikingly similar to that of a pulse bomb, because in essence it is an asset-freezing order.
The Nature of a Mareva Injunction
The name “Mareva Injunction” originates from the English case Mareva Compania Naviera SA v International Bulkcarriers SA decided in 1975. Since then, it has been widely recognized and adopted by courts in all common law jurisdictions, such as the United Kingdom, the United States, Canada, Australia, New Zealand, Hong Kong, and Singapore. This type of injunction has several key characteristics:
First, it is an interim remedy that is ancillary to substantive proceedings. Its purpose is to prevent one party to the litigation (usually the defendant) from dissipating assets before judgment so as to evade liability, making it similar to asset preservation measures in mainland China.
Second, at the initial stage, the application is made on an ex parte basis, meaning the court hears only the applicant’s submissions. The defendant has no right to attend the hearing and only becomes aware of the injunction after it has been granted and served. This mechanism is designed to prevent the defendant from transferring assets immediately upon learning of the application. To balance the defendant’s rights, the injunction provides that the defendant may apply to discharge it after 28 days. This mechanism—freezing assets first and allowing the defendant to challenge the order only after 28 days—gives the injunction considerable deterrent effect and a strong element of surprise.
Third, the injunction operates in personam rather than against specific property. Therefore, if the defendant breaches the injunction by transferring assets, the transfer may not necessarily be invalid, but the defendant will be in contempt of court and may be fined or imprisoned.
Fourth, the injunction may extend to third parties who are not parties to the litigation, such as banks or share registrars of listed companies, provided that those third parties have been notified of the terms of the injunction.
Fifth, the injunction may cover not only assets located within the court’s jurisdiction but also assets held by the defendant worldwide. Such an order is known as a global Mareva injunction.
Conditions for Granting a Mareva Injunction
Because this type of injunction is particularly onerous for defendants, courts impose relatively stringent requirements to balance and protect their interests:
- The plaintiff must demonstrate a good arguable case in the substantive proceedings. This does not mean that the plaintiff must prove it will inevitably succeed.
- There must be a real risk of dissipation of assets by the defendant.
- The harm to the plaintiff if the injunction is not granted must outweigh the inconvenience to the defendant if it is granted.
- Because the application is made ex parte, the plaintiff must make full and frank disclosure to the court of all material facts, including those unfavorable to its case, and must not withhold adverse information.
In addition, before granting the injunction, the court will generally require the plaintiff to give an undertaking in damages, promising to compensate the defendant or third parties if it is later determined that the injunction caused loss. In some cases, the court may even require the plaintiff to provide a bank guarantee.
A Significant Development in Cross-Border China–Hong Kong Litigation
In the context of cross-border commercial litigation between mainland China and Hong Kong, a particularly significant development in recent years is that, following the 2009 reform of Hong Kong’s civil procedure, a Mareva injunction no longer has to be ancillary to proceedings commenced in Hong Kong. Instead, it may constitute an independent action to support proceedings taking place outside Hong Kong, including proceedings in mainland China.
For example, where a plaintiff is pursuing contractual damages against a defendant in a mainland Chinese court, but discovers that the defendant holds shares in a Hong Kong–listed company and may transfer those shares before the mainland court delivers its judgment in order to evade enforcement, the plaintiff may apply to the Hong Kong court for a Mareva injunction.
Since Hong Kong’s return to China, cross-border trade between Hong Kong and the mainland has become increasingly frequent and integrated. However, for various reasons, civil litigation is often not suitable to be conducted in Hong Kong, while defendants may nonetheless hold substantial liquid assets in Hong Kong that could be transferred at any time before judgment. This new procedural development therefore provides additional protection for the fair resolution of cross-border commercial disputes between Hong Kong and the mainland.
Case Law
In discussing this new development, one cannot avoid mentioning the interesting and important decision of the Hong Kong Court of Final Appeal in Compania Sud Americana De Vapores S.A. v Hin-Pro International Logistics Ltd (FACV 1/2016, 14 November 2016).
This case involved courts in the United Kingdom, mainland China, and Hong Kong. The plaintiff was a Chilean shipping company that entered into a contract of carriage with the defendant, a freight forwarding company incorporated in Hong Kong, to transport goods from Nanjing to Venezuela. The relevant bill of lading stipulated that the courts of England had exclusive jurisdiction.
However, the defendant commenced proceedings against the plaintiff in courts in various provinces in mainland China and succeeded at first instance. The plaintiff responded by bringing proceedings in the English courts to claim monetary damages equal to the amount claimed by the defendant in the mainland proceedings, and applied for an injunction restraining the defendant from continuing the mainland litigation on the basis of the English courts’ exclusive jurisdiction. The English court agreed that it had exclusive jurisdiction under the bill of lading and granted the injunction.
It was apparent that there was a significant divergence between the English courts and the mainland Chinese courts in their interpretation of the bill of lading, particularly on the question of whether the English courts had exclusive jurisdiction. The defendant ignored the English injunction, possibly on the basis that it could not restrain proceedings in mainland China.
To increase pressure on the defendant, and given that the defendant was a company incorporated in Hong Kong, the plaintiff applied to the Hong Kong courts for a Mareva injunction to freeze the defendant’s assets in Hong Kong in support of the English proceedings. The Hong Kong Court of Appeal initially ruled against the plaintiff. However, on further appeal, the Court of Final Appeal overturned that decision and laid down guiding principles for Mareva injunctions in support of foreign proceedings.
The Court of Final Appeal held that, in deciding whether to grant such an injunction, the Hong Kong court should first consider whether the future judgment of the foreign court would be enforceable in Hong Kong. Second, when assessing whether the plaintiff has a good arguable case in the foreign proceedings, the Hong Kong court should apply the foreign law, rather than Hong Kong law.
Conclusion
The importance of Mareva injunctions is not confined to China alone. As Chinese enterprises continue their outward expansion, and as most major advanced Western economies operate under common law systems, an understanding of the operation and applicability of Mareva injunctions is of particular importance for protecting the overseas assets and economic achievements of Chinese enterprises.
