Algosaibi Bros v Saad Invs

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Forte and Conteh, JJ.A.)
• Judgment Date: 15 February 2011
• Court: Court of Appeal (Cayman Islands)
• Date: 15 February 2011

Court of Appeal

(Chadwick, P., Forte and Conteh, JJ.A.)

AHMAD HAMAD ALGOSAIBI AND BROTHERS COMPANY

and

SAAD INVESTMENTS COMPANY LIMITED and FORTY THREE OTHERS

L.F.R. Cohen, Q.C. and P.A.J. Hayden for the plaintiff;

S. Phillips, Q.C. and C.P. Lynch for the appellants.

Cases cited:

(1) Akai Holdings Ltd. v. Ho Wing On, [2009] HKEC 1585; [2009] HKCFI 890, not followed.

(2) Basra v. Poole, [2007] EWHC 3528 (Ch), dicta of Warren J. applied.

(3) C Inc. Plc v. L, [2001] 2 All E.R. (Comm.) 446; [2001] 2 Lloyd”s Rep 459, considered.

(4) Cardile v. Led Builders Pty. Ltd.UNK(1999), 198 CLR 380; [1999] HCA 18, applied.

(5) Dadourian Group Intl. Inc. v. Azuri Ltd., [2005] EWHC 1768 (Ch), not followed.

(6) International Credit & Inv. Co. (Overseas) Ltd. v. Adham, [1998] BCC 134, referred to.

(7) Leisure Data v. Bell, English High Ct., November 3rd, 1987, unreported, referred to.

(8) Revenue & Customs Commrs. v. Egleton, [2007] 1 All E.R. 606; [2007] BCC 78; [2006] EWHC 2313 (Ch), considered.

(9) TMSF v. Merrill Lynch Bank & Trust Co. (Cayman) Ltd., 2009 CILR 474, followed.

(10) T.S.B. Private Bank Intl. S.A. v. Chabra, [1992] 1 W.L.R. 231; [1992] 2 All E.R. 245, referred to.

(11) Taggett v. Sexton, [2009] NSWCA 91, referred to.

(12) Yukong Line Ltd. v. Rendsburg Invs. Corp., [2001] 2 Lloyd”s Rep. 113, not followed.

Injunctions-Mareva injunction-potential defendant-no injunction if no reason to suspect defendant holds assets and no prospect of acquiring assets whilst enjoined-must either hold assets at risk of dissipation or have prospect of acquiring such assets in future-not sufficient that injunction will cause no harm to defendant

Injunctions-Mareva injunction-potential defendant-no injunction if defendant not subject of pleaded cause of action unless reason to suppose judgment could be enforced against assets, e.g. if potential judgment debtor beneficial owner or by appointment of liquidator-not sufficient that potential judgment debtor exercises ‘substantial control’ over assets or that defendant ‘mixed up’ in potential judgment debtor”s attempt to become judgment-proof

The plaintiff sought to recover damages for an alleged fraud.

The plaintiff brought an action against Mr. Al Sanea and companies controlled by him. Of the defendant companies, 16 purported to have no or minimal assets (the ‘shell defendants’), one of which (the 22nd defendant) was subject to a third party claim. Further, 18 of the defendants were not the subject of any cause of action pleaded by the plaintiff. Of these, 12 were also shell defendants, 3 would revert to Mr. Al Sanea”s beneficial ownership if he revoked a trust, and 3 were owned by ATCL or Saad Air.

The Grand Court (Henderson, J.) found that Mr. Al Sanea exercised substantial control over the assets of the defendant companies, and that there was a risk of dissipation. It granted Mareva relief, freezing the assets of Mr. Al Sanea and the defendant companies worldwide up to the value of US$9.2bn. The Grand Court (Anderson, Ag. J.) subsequently ordered the continuation of the Mareva relief. 22 of the defendants-all of which were either shell defendants, defendants against which no cause of action was pleaded, or both-appealed.

The shell defendants submitted that (a) since (apart from the 22nd defendant) they did not hold any assets, Mareva relief against them would not serve any purpose; (b) the 22nd defendant did have some minimal

assets, but, given the existence of a third party claim against it, they would not be likely to become available to satisfy a judgment against Mr. Al Sanea; (c) they were unlikely to acquire assets in the future if the Mareva relief were continued, since it was highly unlikely that assets would be transferred to a defendant already subject to a freezing order; and (d) the Grand Court erred in holding that Mareva relief was justified against the shell defendants on the ground that it would cause them no harm.

The defendants against which no cause of action was pleaded submitted that (a) the Grand Court failed to identify any process of enforcement by which Mr. Al Sanea might obtain recourse to their assets; (b) the Grand Court erred in holding that their assets could become available to satisfy a judgment debt merely because he exercised substantial control over them; (c) given that he did not beneficially own them, and there was there no other potential process of enforcement by which their assets could become so available, Mareva relief should not have been granted; (d) the suggestion that they had become ‘mixed up’ in his attempt to make himself judgment-proof, even if true, was not a ground for granting Mareva relief against them; and (e) it was irrelevant that their assets, if any, could become available to satisfy the plaintiff”s claims against ATCL or Saad Air, since the Mareva relief was granted in respect of Mr. Al Sanea.

The plaintiff submitted in reply that (a) there was evidence that the shell defendants might have held assets; (b) since Mr. Al Sanea frequently moved sums between the various defendants, there was a prospect that the shell defendants might in the future acquire assets capable of satisfying a judgment; (c) a Mareva injunction against parties that did not hold assets would cause them no harm; (d) Mareva relief was justified as against the defendants against whom no cause of action was pleaded on the basis that they had become ‘mixed up’ in Mr. Al Sanea”s attempt to make himself judgment-proof; (e) it was further justified on the ground that their assets would be available to satisfy a judgment against Mr. Al Sanea, since he exercised substantial control over them and, in respect of three of them, had the power to revoke a trust such that they reverted to his beneficial ownership; and (f) absent Mareva relief, there was a real risk that the assets would be dissipated or otherwise put beyond the reach of the plaintiff.

The court considered (a) when it would be appropriate to grant Mareva relief against a party, including in particular a party which was not the subject of a pleaded cause of action; and (b) whether Mareva relief was justified on the basis that the assets of the appellants could become available to satisfy a judgment against ATCL or Saad Air.

Held, allowing the appeal:

(1) The Mareva relief would be discontinued as against the shell defendants. The purpose of Mareva relief was to ensure that a successful plaintiff was not thwarted by a defendant, or others acting in concert with it, through the dissipation of assets which would otherwise be available to satisfy a judgment debt. To grant Mareva relief against a party, there

needed to be ‘solid evidence’ to the effect that, without such relief, there was a real risk that a judgment would not be satisfied by some process of enforcement. What amounted to ‘solid evidence’ would depend on each case”s own facts, and, in appropriate cases, it would be possible to infer the risk from evidence of the surrounding circumstances. Moreover, the court was entitled to investigate the underlying merits of any evidence in response. Nonetheless, it needed to be established-in relation to each party against whom Mareva relief was sought-either that (a) there was reason to suppose that the party had some assets at risk of dissipation; or (b) there was a real prospect that the party would acquire assets which could be used to satisfy a judgment but which would be at risk of dissipation (paras. 69–71; para. 104).

(2) There was no reason to suppose that the shell defendants (other than the 22nd defendant) had assets which, without Mareva relief, were at risk of dissipation. The 22nd defendant did have some minimal assets, but, given the existence of a third party claim against it, these would be unlikely to be available to satisfy a judgment against Mr. Al Sanea. Further, there was no prospect that, if Mareva relief were granted, assets would be transferred to the shell defendants. It was highly unlikely that assets would be transferred to a defendant already subject to a freezing order. Since there was no reason to suppose that the shell defendants had obtained or would obtain assets capable of satisfying a judgment against Mr. Al Sanea, there was no justification for continuing the Mareva relief as against them, even if it would not cause them any harm (paras. 86–89; paras. 95–96).

(3) Further, the Mareva relief would be discontinued as against the six remaining appellants, none of which was the subject of a pleaded cause of action. To grant Mareva relief against such a party, the court needed specifically to have good reason to suppose that it held assets belonging to Mr. Al Sanea which would be available to satisfy a judgment against him-it was not the purpose of Mareva relief to give the plaintiff recourse to assets which would not otherwise be available to satisfy a judgment. This would only be the case if either the court would be able to compel Mr. Al Sanea to cause the assets held by the party to be used to satisfy a judgment (e.g. because he was the beneficial owner of the assets), or there was some other process of enforcement by which the plaintiff could obtain recourse to the assets (e.g. appointment of a liquidator or receiver). The Grand Court”s finding that Mr. Al Sanea exercised ‘substantial control’ over the assets held by the remaining appellants, and that he could, if he wished, cause those assets to be used to satisfy a judgment, was not sufficient, as it did not establish that the court could enforce the use of the assets to satisfy a judgment. Nor was it sufficient to find that the party had become ‘mixed up’ in Mr. Al Sanea”s attempts to make himself judgment-proof. Since the Grand Court had failed to apply the correct test, this court would examine whether there were grounds for continuing the Mareva relief (paras. 37–51).

(4) There was no reason to suppose that the assets of the remaining appellants...