Bank of China v NBM LLC

Freezing orders affecting assets held abroad by third parties should normally derive their effectiveness from recognition and enforcement by local courts, reflecting territorial limits and comity. Third parties subject to English jurisdiction must receive reasonable protection. An order requiring a bank to act abroad is exceptional and does not ordinarily require it to breach contractual or other local-law duties. The Baltic proviso, protecting compliance with obligations reasonably believed to arise under foreign law or the proper law of the account, should usually be included unless inappropriate on the particular facts. The appeal was therefore dismissed and the proviso retained in the standard form.

Bank of China obtained a worldwide freezing order under section 25 of the Civil Jurisdiction and Judgments Act 1982 in aid of proceedings in New York. UBS, a Swiss bank with an English subsidiary and London branch, sought to vary the order so that it could comply with obligations concerning assets outside England and Wales under foreign law, the proper law of the relevant account, or foreign court orders. The High Court, Commercial Court, granted the variation. Bank of China appealed, arguing that protection should extend only to foreign criminal-law obligations. The central issue was whether the contractual and other obligations covered by the Baltic proviso should be included in the worldwide freezing order and the standard form.

1. The appeal was dismissed unanimously. The Court of Appeal upheld the inclusion of the Baltic proviso. The formal order made no order as to costs, refused permission to appeal to the House of Lords, and granted a stay pending a petition within 14 days.
2. The order had been obtained under section 25 of the Civil Jurisdiction and Judgments Act 1982, but the appeal concerned the proper form of protection for third parties rather than the construction of section 25.
3. Tuckey LJ identified two general principles from the authorities. Territorial limits and comity normally require the effectiveness of a freezing order against third parties holding assets abroad to derive from recognition and enforcement by the local courts. Third parties amenable to the English jurisdiction should also receive all reasonable protection. The earlier approach in Babanaft International Co v Bassatne [1990] 1 Ch 13 and the territorial principle discussed in Mackinnon v Donaldson Lufkin and Jenrette Corp [1986] 1 Ch 482 supported those conclusions.
4. An English order requiring a third party to act or refrain from acting abroad is exceptional. The requirement in the Derby v Weldon [1990] 1 Ch 65 proviso that a person be able to prevent a breach does not require disobedience to local criminal law, a local court order, or contractual or other local-law obligations. The claimant should seek relief from the local court. An undertaking in damages does not provide sufficient protection against reputational damage, regulatory consequences, foreign litigation, or disputes about recoverable loss.
5. Those considerations generally entitled an affected third party to have the Baltic proviso added to a worldwide freezing order, unless the particular facts made it inappropriate. Its inclusion protected a bank's reasonable assessment of its foreign obligations and avoided difficult inquiries into foreign law. The proviso should therefore ordinarily appear in the standard form, particularly because third parties are not represented when the order is first made.
6. The facts did not justify an exception. The claimant did not know where the defendants' assets were, the defendants were not resident in England, and there was no evidence that UBS held their assets here. The court attached little weight to the statement in SIB v Pantell SA [1990] 1 Ch 426, which had been made ex parte without consideration of the issue.

1. Court of Appeal (Civil Division) — In Bank of China v NBM LLC [2001] EWCA Civ 1933, the appeal was dismissed and the variation including the Baltic proviso was upheld.
2. High Court of Justice, Queen's Bench Division, Commercial Court — David Steel J included the proviso in a worldwide freezing order at UBS's request. That order was appealed.