| Return to Contents Shorter Articles And Notes Still no back holes: Krohn GmbH v Varna Shipyard Paul Matthews In the last issue of the Review apperticle on the Court of Appeal’s decision in Solvalub Ltd v Match Investments Ltd [1],concerning the so-called "power" jurisdiction of the court to grant a Mareva injunction in aid of litigation outside the jurisdiction. Hard on the heels of publication came the decision of the R in Krohn GmbH v Varna Shipyard [2], this time concerned with "territorial" jurisdiction, and, in particular, the construction of rule 7(b) of the Service of Process (Jersey) Rules 1994. The present note deals with that decision.
Facts A dispute arose between the parties as to whether the (Bulgarian) defendant shipyard (i) had made a binding agreement to build two ships for the (Austrian) plaintiff shipowner, and (ii) had breached that agreement. The dispute was referred to arbitration in London, and the arbitrators found for the plaintiff on liability, with damages to be assessed. In December 1996 a court in Hamburg, on the application of the plaintiff, "arrested" a sum of money due from a German third party to the defendant, by way of security for the plaintiff’s claim for damages. The plaintiff subsequently alleged that the defendant had taken advantage of a technical defect in the Hamburg court order to obtain control of the sum of money and to transfer it to a bank account in Jersey. In March 1997 the plaintiff applied for, and obtained, ex parte interim injunctions against the defendant and its English solicitors, restraining them from disposing of the sum and ordering them to give discovery relevant to "policing" the injunctions. The defendant (and its solicitors) had no connection with Jersey save for the bank account. The plaintiff did not claim any proprietary interest in the monies concerned; the injunctions were of the Mareva kind. In April 1997 the Deputy Judicial Greffier gave leave to the plaintiff to serve the proceedings on the defendant and its solicitors out of Jersey, under the Service of Process (Jersey) Rules 1994. The solicitors applied to set aside such leave, and on 11th June 1997 the Royal Court made the order sought, holding (i) that the solicitors were not defendants (and so did not fall within rule 7(b): injunction restraining a defendant), (ii) that they were not necessary and proper parties (and so did not fall within rule 7(c)), and (iii) that the claim was not brought to "enforce" any arbitral award (and so did not fall within rule 7(m)). Subsequently, the defendant also applied to set aside leave to serve out of Jersey upon it: on 24th July 1997 the Royal Court delivered judgment refusing that application. Arguments The defendant argued that the Royal Court had no "territorial" jurisdiction over itself, as it was incorporated in Bulgaria and had no other connection with Jersey than the presence of a bank account here. Secondly, the defendant argued that, even if the Royal Court had such jurisdiction, as a matter of discretion it should not have exercised it in the present case. The plaintiff argued that the Royal Court did have territorial jurisdiction, because a claim for a Mareva injunction, and nothing more, in support of proceedings outside Jersey, fell within rule 7(b) of the 1994 Rules (injunction restraining a defendant "from doing anything within the jurisdiction"). It further argued that doubts as to the financial standing of the defendant and as to the strength of the Bulgarian economy made this a proper case for the exercise of such discretionary jurisdiction. Decision The Royal Court held, first, that rule 7(b) did, as a matter of construction, confer "territorial" jurisdiction to impose a Mareva injunction on a non-Jersey defendant in relation to Jersey assets, and second, that this was an appropriate case for the exercise of that jurisdiction. To take the second point first, the court found decisive the action of the defendant in transferring the sum of money from Germany to Jersey: "this was and is sufficient to justify the conclusion that there is a risk of dissipation." The second point will not be further considered in this note. More significant is the decision on the extent of rule 7(b). To justify its conclusion that a claim to Mareva relief in relation to local assets, without more, was within rule 7(b), the court relied on the judgment of Lord Nicholls in Mercedes-Benz eiduck [3], which was followed by the Jersey Court of Appeal in Solvalub. Comment At first sight this decision is surprising. It seems to be based on a case (Solvalub) which was not in point. Two matters were argued in Leiduck. First, does the court have power to make orders relating to a person outside its territory ("territorial" jurisdiction)? Second, does the court have power to grant a Mareva injunction against a defendant when there is no other substantive cause of action within the jurisdiction ("power" jurisdiction)? In Leiduck four of the five judges held that the answer to the first question, following the earlier decision of th of Lords in The Siskina [4], was No, and therefore they did not answer the second. Lord Nicholls held that the answer to both questions was Yes. So he dissented on the first question, and was the only judge to answer the second. In Solvalub the Court of Appeal dealt only with the second question ("power" jurisdiction), and held that they should follow Lord Nicholls. In Varna Shipyard the Royal Court noted the Court of Appeal’s view, and hence considered that it could rely on Lord Nicholls’ judgment. But Varna Shipyard was a case concerning the first question ("territorial" jurisdiction). And on that question Solvalub was not in point (and hence not binding), and Lord Nicholls was in a minority of 4-1. The majority in Leiduck held that the Hong Kong equivalent of rule 7(b) did not extend to Mareva injunctions on their own, just as the House of Lords had decided in The Siskina in relation to the English equivalent. So, why did the Royal Court consider that it was entitled, in a "territorial" jurisdiction case, to rely on Lord Nicholls’ dissent in preference to the majority view in Leiduck and the decision of the House of Lords in The Siskina? After all, as the Privy Council pointed out in De Lasala e Lasala [5], where the statutory rules in a jurisdiction having a final appeal to the Privy Council are deliberately framed so as to mirror the English rules, and a question of interpretation arises which has been decided for England by the House of Lords, the common membership of the House of Lords and the Privy Council means that: "looked at realistically its decisions on such a question will have the same practical effect as if they were strictly binding, and courts in [the dependent territory] would be well advised to treat them as being so." The answer to this question appears to lie in the structure and terms of Lord Nicholls’ approach to Leiduck. Alone of the five judges, he addressed the second question - "power" jurisdiction. In fact, he addressed it first, not second. He held that the court did have such jurisdiction. But he then went on to the other question - "territorial" jurisdiction. He reasoned that, if proceedings seeking Mareva relief and nothing more could be served on a defendant present within the territory ("power" jurisdiction), then "in principle" such a claim should be within rule 7(b). Of course, the decision in The Siskina stood in the way. But, according to him, the existence of "power" "undermines the basis on which clusion was reached in The Siskina that sub-para (b) of Ord 11 r 1(1) is inapplicable to Mareva injunctions. [6] " The Royal Court considered that, since the Court of Appeal in Solvalub had established that the Jersey courts enjoyed "power" jurisdiction, the rule in The Siskina had (on the authority of Lord Nicholls) lost its basis for applying in Jersey. Lord Nicholls’ But, reliance on the reasoning of Lord Nicholls is not immune from attack. First, at the level of authority, there is this to say. The majority in Leiduck considered that the two questions of "territorial" and "power" jurisdiction were distinct. Lord Nicholls considered that they were linked, and that the existence of the second had profound effects on the first. Indeed, he thought it destroyed the basis for The Siskina. Now, the majority must have disagreed with this, or they could not have reached their own conclusion. Hence, as a matter of authority, Lord Nicholls’ proposition, that power jurisdiction entailed consequences for territorial jurisdiction, is a minority view, and must be rejected. Accordingly, it is submitted that the Royal Court (being in practice bound by the majority view in Leiduck) was not entitled to rely on that proposition to justify its decision. Second, even if Lord Nicholls were right, and "power" jurisdiction and "territorial" jurisdiction were linked in this way, that would not mean that the substantive answers to the two questions should be as he put them. Indeed, Lord Nicholls himself recognised this. He said that the basis of the decision in The Siskina: "disappears if the answer I have given to the [power jurisdiction] question is correct." But what if we start at the other end? The majority in Leiduck confirmed the correctness of The Siskina on the question of "territorial" jurisdiction. Assume that that is right, and there is accordingly no such jurisdiction in our case. If Lord Nicholls is right, and the one kind of jurisdiction entails consequences for the other, then as a matter of authority there can be no power jurisdiction either. So, the Royal Court must choose. Either Lord Nicholls is right in his "entailing" proposition, and then because there is no territorial jurisdiction there cannot be power jurisdiction (and Solvalub is wrong). Or, Lord Nicholls is wrong, and the fact that there is no territorial jurisdiction does not mean that there is no power jurisdiction (and Solvalub is still good law in Jersey in the limited cases in which there is territorial jurisdiction). On this view, the choice is between Lord Nicholls’ proposition and Solvalub: they cannot both be right. The only way in which both could be right would be if both the House of Lords in The Siskina and the majority in Leiduck were wrong on territorial jurisdiction. Yet De Lasala v De Lasala tells us that it is not open to the courts of Jersey, who have adopted the same statutory rules on this point as both England and Hong Kong, to ignore those decisions. There is a third point. Is Lord Nicholls right (and the majority in Leiduck wrong) to say that "power" jurisdiction and "territorial" jurisdiction are linked in this way? Does it inexorably follow that, if there is "power" jurisdiction, there must also be territorial jurisdiction under rule 7(b)? Lord Nicholls says that an aor Mareva relief alone, in aid of substantive proceedings elsewhere, is a claim for a substantive remedy [7] . Hence, "in principle", it should fall within rule 7(b). But, most lawyers would accept that, if the substantive proceedings were in the same jurisdiction, and Mareva relief were sought in aid of those proceedings, the claim to Mareva relief would be ancillary, not substantive, just like any other measure designed to preserve or protect the position pending the ultimate adjudication of substantive legal rights. The Mareva relief claimed would be identical whether the other proceedings, in aid of which it is sought, were being carried on inside or outside the jurisdiction concerned. Yet, on Lord Nicholls’ view, the claim to a Mareva injunction would be ancillary in the former case, but substantive in the latter. That seems a surprising distinction, and it is odd to use it as the basis for applying different rules. And it is unnecessary. It is perfectly possible - indeed, sensible - to have a system in which there is "power" jn without extending "territorial" jurisdiction. The fact is, as Lord Nicholls himself recognised [8] the argument is circular, and depends on where you start. And in the end it is just a question of policy: What ought the rules to be? The trouble is that decisions of the House of Lords and the Privy Council were supposed to have settled that question. Now it seems, despite De Lasala v De Lasala, that they have not. Conclusion It is understood that there is to be no appeal in Varna Shipyard. This is a pity, as it would have afforded the Jersey Court of Appeal the opportunity to extricate Jersey law from the thorny thicket in which it has now embedded itself. In the absence of further litigation raising the point, it may be that the best solution would be for the relevant rules authority to consider the matter afresh, and, having reached the conclusion as to what the rules ought to be, to implement that decision by such changes to the present rules as may be necessary. Paul Matthews is a solicitor of the Supreme Court of England and Wales and a consultant with the firm of Withers, 12, Gough Square, London EC4A 3DE |