Significant Privy Council decision expands availability of freezing injunctions
The recent Privy Council decision in the BVI case of Broad Idea International Limited v Convoy Collateral Ltd and Cho Kwai Chee  UKPC 24 has significantly developed the law regarding freezing injunctions. This important decision potentially heralds a more expansive and permissive approach to the granting of freezing injunctions in the future.
In this case, Convoy Collateral had brought proceedings in Hong Kong against Dr Cho (a Hong Kong resident). In support of those proceedings, Convoy Collateral applied to the BVI courts for a freezing order preventing Dr Cho disposing of his assets, and preventing asset disposal by Broad Idea, a third-party BVI company which was controlled by Dr Cho.
The application against Dr Cho was unsuccessful both at the BVI court of first instance (CFI) and at the BVI Court of Appeal (CoA), on the basis that BVI court rules do not permit service out of the jurisdiction in respect of a claim solely for a freezing injunction. In contrast, the CFI granted an injunction against Broad Idea. However, the CoA overturned that decision on the bases that (i) it was not permissible for the BVI courts to grant an injunction to facilitate enforcement of a foreign judgment and (ii) on the facts, there was not sufficient connection between Dr Cho and ultimate target assets. This decision was reached by the CoA despite the existence of the landmark 2010 Black Swan BVI judgment which permitted the BVI courts to grant freezing injunctions in support of foreign proceedings.
Convoy Collateral appealed to the Privy Council.
The Privy Council held that, in line with previous authority, the BVI court rules did not permit service out of the jurisdiction for a claim solely for a freezing injunction. It held that it was permissible to grant a freezing injunction in support of a foreign judgment. It upheld, however, the CoA’s refusal to grant the freezing injunction on the basis of the factual matrix in this particular case.
The Privy Council analysed the judicial foundations of the granting of injunctions generally. The Privy Council split 4:3 in favour of abandoning the traditional analysis of that foundation as dependent on the presence of a pre-existing cause of action justiciable before a court (local or otherwise). In so doing, the majority distinguished or overturned several Privy Council, House of Lords and English Court of Appeal decisions and expressed wide judicial latitude for the granting of injunctions generally, stating “there is no principle or practice which prevents an injunction from being granted in appropriate circumstances against an entirely innocent party even when no substantive proceedings against anyone are taking place elsewhere” (at para. 82).
Lord Leggatt, who gave the majority judgment, confirmed that the “enforcement principle” was the basis for the court granting freezing injunctions. He summarised a new three-stage test for the granting of such injunctions:
- “The applicant has been granted or has a good arguable case for being granted a judgment that is or will be enforceable through the process of the court.
- The respondent holds assets (or is liable to take steps to reduce the value of assets outside the ordinary course of business) against which a judgment could be enforced.
- There is a real risk that, without the injunction, the respondent will deal with the assets (or reduce their value) outside the ordinary course of business, which would impair the availability or value of assets so that the judgment would be left unsatisfied.”
While acknowledging that this was not an exhaustive list of factors, Lord Leggatt stated that there are no other relevant restrictions on the availability in principle of the remedy. There was no requirement that the judgment must be a judgment of the domestic court, as the principles applied equally to a foreign judgment “or other award capable of enforcement in the same way as a judgment of the domestic court using the court’s enforcement powers.” This would include applications for freezing injunctions in support of foreign arbitral awards. There was also no requirement for the judgment in question to be “a judgment against the respondent”, though this would be the usual course of events. This would permit applications preventing asset disposal by third parties, so-called Chabra defendants, against whom there was no right of action.
In addition, it was not necessary for the proceedings in which the relevant judgment was sought to be on foot at the time of the application for the judgment and not even a requirement for the right to bring the relevant litigation to have arisen. In this context “it is enough that the court can be satisfied with a sufficient degree of certainty that a right to bring proceedings will arise and that proceedings will be brought (whether in the domestic court or before another court or tribunal).”
A minority of the Privy Council (Lords Reed and Hodge and Sir Geoffrey Vos MR) dissented, stating that as the appeal had been dismissed by unanimous agreement, Lord Legatt’s broad development of the law in this area was unnecessary.
The judgment in this case is highly significant for several reasons. The judgment reverses a decision that could have turned back the clock on the ability of applicants to obtain freezing injunctions in the BVI in support of foreign proceedings and provides authority for obtaining such injunctions in other jurisdictions bound by the Privy Council. It has long been possible to obtain such injunctions from the English courts pursuant to s25 of the UK Civil Jurisdiction and Judgments Act 1982 and recent BVI statute now also confirms this right.
More broadly, Lord Leggatt’s summation of the law in this decision will be the standard point of departure for future freezing injunction applications. The Privy Council’s confirmation that no cause of action need be accrued for a freezing order to be granted is novel both from the BVI law and English law perspective and means there is wider scope for the granting of injunctions before litigation has commenced and before there is a cause of action in the conventional sense. Moreover, the judgment also arguably lays the groundwork for a more expansive approach to the granting of freezing injunctions against third party Chabra defendants.