| Return to Contents The Concept Of Black Holes - Krohn Revisited William Bailhache Following his very persuasive analysis of the Royal Cougment in Krohn GmbH v Varna Shipyards [1] Paul Matthews’ conclusion that the relevant rules authority should consider the Service of Process Rules afresh appeare in vain. He must surely be correct when he wrote ([1997] 1 JL Review 240) that the Royal Court as a matter of authority was not entitled to rely on the judgment of Lord Nicholls in Mercedes Benz AG v Leiduck [2] to justify its decision because the majority of the Privy Council construed the same wording as is found in Rule 7(b) of the Service of Process (Jersey) Rules 1994 to mean that the courts did not have territorial jurisdiction when the only basis for an order for service out was the claim in the Order of Justice for an injunction. Why is the analysis onclusion in vain? First of all, the Royal Court has not amended the Service of Process Rules. This is of interest. The Court of Appeal in Solvalub [3] ended its judgment with the suggestion that "it would be useful for the Royal Court, in the exercise of its rule making power, to consider this rule and to consider whether it ought to be amended and extended in the sense discussed in the majority judgment [emphasis added] of the Privy Council in the Mercedes case. If that is done now, it may be considered appropriate to amend the rule without waiting for the question to be raised by a case in which injustice may have been caused by the narrow terms of rule as it stands". That majority judgment in the Mercedes case contained this analysis "It may well be that in some future case where there is undoubted personal jurisdiction over the defendant but no substantive proceedings are brought against him in the Court .…possessing such jurisdiction, an attempt will be made to obtain Mareva relief in support of a claim pursued in a foreign court. If the considerations fully explored in the dissenting judgment of Lord Nicholls of Birkenhead were then to prevail, a situation would exist in which the availability of relief otherwise considered permissible and expedient would depend upon the susceptibility of the defendant to personal service". In passing let us note that as a matter of authority that was precisely the position in Jersey after Solvalub and before Krohn. The Royal Court’s decision in Krohn to disregard the majority judgment in the Mercedes case was indeed surprising. The majority judgement continued "Their Lordships believe that it would merit the close attention of the rule making body to consider whether by an enlargement of [Rule 7] a result could be achieved which for the reasons already stated is not open on the present form of the rule". So the Privy Council held that the equivalent of our Rule 7(b) did not confer territorial jurisdiction when the only application was for a Mareva injunction and suggested the matter receive the attention of the relevant rule making body. Our Court of Appeal in Solvalub suggested consideration be given to amending the rule to avoid injustice by the narrowness of its terms. These observations of the Privy Council and the Court of Appeal recognise that there are policy considerations in the amendment of rules of court which made it undesirable that such amendments be made by judicial decision in any particular case. It is submitted there are a number of factors which may be material to a rule amendment some of which are set out later in this article. The second reason why Paul Matthews’ a appears to be in vain is that the Royal Court had the opportunity in Yachia v Levi & another [4] to reconsider the same point, but turned down the opportunity as it felt constrained by the decision of the Court when differently constituted in Krohn notwithstanding the majority decision of the Privy Council in Mercedes. The effect of these decisions is that orders for service out based on Rule 7(b) will continue to be made until either a defendant has the assets and determination to take an appeal to the Court of Appeal (which seems hard on the unlucky plaintiff who is taken there with a seemingly unavoidable costs penalty) or the Service of Process Rules are amended. Of course in England the equivalent rule (Order 11 r.1 of the Rules of the Supreme Court) was amended in 1997. One question is whether Jersey should do the same. To this, it is suggested that there are a number of factors which bear consideration. -
In England the legislative process had already gone some way towards extending the territorial jurisdiction of the High Court prior to 1997. By section 25 of the Civil Jurisdiction and Judgments Act 1982, the High Court was permitted to grant interim relief in aid of proings in Brussels and later Lugano Convention States, and it is clear in England from Crédit Suisse Fides Trust v Cuoghi [5] that "each contracting state should be willing to assist the courts of another contracting state by providing such interim relief be available if its own courts were seized of the substantive proceedings" [6] . This principle was later extended in 1997 to cover proceedings in any jurisdiction. A step along the road is very much easier once the road has been built; and of course political considerations, including most importantly the concept of reciprocity, affected the Brussels and Lugano Conventions. On the other hand, the UK rules now contemplate that a service out order may be made even in support of proceedings in a jurisdiction where no such reciprocity would be available. There is a philosophical divide here between those who offer help on the basis that it is the right thing to do and those who offer help only to those prepared to help them.
Of course it is easy to postulate a factual black hole of which the fraudster may take advantage if Jersey gives no help by facilitating service of process abroad, which may be perceived to dent the squeaky clean reputation Jersey likes to promote abroad. In the necessary achievement of that aim, however, the legal and judicial approach should recognise that such cases are probably in a very small minority, and a balance must be struck when recognition is taken of what a powerful weapon of injustice the Mareva injunction can be. -
There is a curiosity about a process which permits a Mareva in support of proceedings abroad in the absence of any evidence that the foreign court would impose a Mareva itself. In Krohn there had been a freezing order imposed by the German court; but in Yachia, while there had once been temporary restraining orders imposed by the Texan court, no such injunctions existed at the time when the Royal Court imposed injunctions in Jersey. In at least one other case in Jersey, injunctions have been imposed where there had been no application at all for an injunction in the proceedings in support of which the Jersey proceedings were allegedly issued. It is suggested that this is an unusual form of comity. In Krohn the Royal Court said:
"Having developed a remedy which is available to prevent litigants in Jersey from evading justice by moving their assets beyond the reach of the law, it would be a curious state of affairs if that were to be denied to foreign litigants."
It is to be observed that it is an equally curious state of affairs if a foreign litigant can obtain interim relief in Jersey which he could not obtain at home, even were the Jersey defendant resident in the foreign jurisdiction or otherwise amenable to its courts. -
One answer to this objection would be to frame a rule which permitted service of an injunction in support of foreign proceedings when the foreign court itself was prepared to grant an injunction, or for as long only as was necessary to enable the applicant to apply for the injunction abroad. The Royal Court should of course retain its own discretion as to whether the injunctions should be imposed - but to require some guidance from the court where the substantive proceedings were being fought is only to recognise that a Mareva is in reality ancillary to the main claim wherever that may be heard. Practical guidance from the foreign court which is in control of its proceedings would be helpful to the Royal Court so that, to use the words of the majority in Mercedes, it could better "frame an order which on the one hand protects the claimant against the manipulations of a defendant who may prove to be unscrupulous without strangling the working capital of a defendant at the instance of a claimant who may prove to be unscrupulous". Whether this principle (of having regard to the existence or potentiality of a foreign injunction), if considered appropriate, is better applied by the use of judicial discretion as to the grant of the injunction at all, or taken as a basis for a rule governing the occasions when service out of the jurisdication should be ordered, might be a subject for debate. -
To have regard to orders in the foreign court would also be to avoid a potential minefield. In many cases where Marevas are obtained the alleged facts are hotly disputed. Somehow or other on the balance of convenience and sometimes taking into account the appropriate strengths and weaknesses of the underlying case, the Royal Court may have to resolve whether it thinks sufficient facts are established to warrant the grant of the Mareva. The concern is not that a decision of the Royal Court in such matters is liable to misinterpretation or abuse in the foreign court, although that is not unlikely. The real concern is that Jersey (whilst not the natural or appropriate forum - because the only connection with the Island may be the presence of a bank account here) becomes a jurisdiction in which major factual disputes are heard without adequate discovery and without all the evidence necessary to determine on an interlocutory application whether injunctions should remain. This problem is all the more acute because the Royal Court is not in control of the proceedings in support of which the injunction is ostensibly imposed and therefore not able to take into account easily the procedural developments and balances which the trial court would know about. -
As against these factors, the Royal Court’s targets in Krohn of international co-operation and the support of moral principle are self evidently worthwhile aims. Whether the targets are achieved by the decisions in Krohn and Yachia is possibly a matter on which different views might be expressed, which makes it all the more desirable than the question be debated by the Superior Number of the Royal Court, with input from the Rules Committee and other interested parties, as was envisaged by the Court of Appeal in Solvalub. William Bailhache is an advocate of the Royal Court and the senior litigation partner in Bailhache Labesse, 14/16 Hill Street, St Helier Jersey. |