Isle of Man: Injunctive Relief Against Third Parties: The Chabra Jurisdiction

Last Updated: 30 April 2015
Article by Giles Hill

In the recent Isle of Man case of Cruz City v Unitech Limited & Otrs (CHP 2013/66), the principal question for His Honour Deemster Doyle (the Island's Chief Justice) was whether the Chabra jurisdiction - granting an asset freezing injunction against a third party i.e. a person other than a defendant against whom a claimant has a substantive cause of action - exists in Manx law and if so, whether the Court had the jurisdiction to apply it.To put it simply, it does! The Court found that it had such jurisdiction and that the relief sought by the claimant would be an appropriate development of the common law on the Island, and therefore granted the freezing injunction and disclosure order against a third party.

Facts

Cruz City 1 Mauritius Holdings ("the Claimant") made an application to join Unitech Overseas Limited ("UOL"), a company registered in the Isle of Man, as a third party to the proceedings and for an interim freezing injunction against UOL as a supplement to an existing freezing order against Unitech Limited ("the First Defendant"). The Claimant sought an Order that the First Defendant shall not exercise its rights or powers whether as a direct or indirect shareholder in UOL, or by virtue of any agreement for the purpose of UOL not removing from the Isle of Man any assets which are in the Isle of Man up to the value of c. £240 million. The Claimant also sought to restrain UOL from disposing of, dealing with, or diminishing the value of the assets in any way whether inside or outside of the Isle of Man up to the same value, or make any payment to, transfer, or move any assets to India or to the control of an Indian incorporated entity. The Claimant further sought an order requiring UOL to disclose to the Claimant information in respect of its assets.

The application was brought without notice on the basis that if notice were given there would be a real risk of dissipation of the assets.

The Claimant sought relief pursuant to the jurisdiction first established in England & Wales in the case of TSB Private Bank International SA v Chabra [1992] 1 WLR 231 where the Court held that it had jurisdiction to grant freezing orders against not only defendants to a cause of action, but also third party companies where there is good reason to suppose that their assets may in truth be the assets of the defendant against whom the cause of action is asserted.

Popplewell J in Chabra stated that the Chabra jurisdiction may be exercised where there is good reason to suppose that assets held in the name of the defendant against whom the claimant asserts no cause of action would be amenable to some process ultimately enforceable by the Courts, by which the assets would be available to satisfy the judgment against a defendant who the claimant asserts to be liable upon his substantive claim.

The test of "good reason to suppose" is to be equated with a good arguable case which is more than barely capable of serious argument but not necessarily one which the Judge believes to have a better than a 50% chance of success.

The jurisdiction will also be exercised where it is just and convenient to do so; it is exceptional and should be exercised with caution, taking care not to operate oppressively against innocent third parties who are not defendants and who have not acted to frustrate the administration of justice.

A common example of the Chabra jurisdiction is where there is good reason to suppose the assets in the name of the third party are in truth the assets of the defendant against whom the cause of action is asserted. These assets will be treated as the defendant's if they are held as nominee or trustee for the defendant as the ultimate beneficial owner.

Substantial control by the defendant over the assets in the name of the third party was held to be a consideration but not the test for the existence and exercise of the Chabra jurisdiction. The fact that the defendant exercises substantial control over the assets may be evidence from which the court will infer that the assets are held as nominee or trustee for the defendant as ultimate beneficial owner; and such evidence may establish that there is a real risk of dissipation of the assets in the absence of a freezing order.

The ultimate test is always whether there is good reason to suppose that the assets would be amenable to execution of a judgment obtained against the defendant.

The issue before the Isle of Man Court was whether it had jurisdiction under the English Chabra line of authorities. Deemster Doyle was satisfied he had jurisdiction under section 42 of the High Court Act 1991 and under the Manx common law, and it was appropriate to exercise it as UOL is a company incorporated in the Isle of Man .

Decision

Deemster Doyle was content on the legal argument and law put before the Court at the urgent without notice hearing to follow Chabra and declare its extension to Manx common law; however he was open to persuasion should anyone wish to seek to persuade him otherwise with the benefit of full legal argument at a with notice hearing.

His Honour was satisfied that there was good reason to suppose that there is or may be available to the Claimant, a process ultimately enforceable by the Courts, by which UOL may be obliged to transfer or otherwise contribute to the funds or property of the First Defendant to help satisfy the amounts due to the Claimant. He further agreed that it was seriously arguable that the requirements were satisfied since UOL's assets appeared in truth to be the First Defendant's assets as evidenced by the control which the First Defendant appeared to exert over them

Deemster Doyle accepted that the Chabra jurisdiction is exceptional and must be exercised with caution. He was satisfied that the Orders sought would not operate oppressively against UOL and he had good reason to suppose that - absent the appropriate relief against UOL - there was a real risk that the assets would be dissipated or otherwise dealt with in such a way as to make enforcement of the Claimant's awards, judgments and orders more difficult. 

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