United States Securities & Exchange Commission v Manterfield

A freezing injunction may be granted where the claimant shows a good arguable case, a real risk of dissipation and that the relief is just, convenient and expedient. The hearing is not a mini-trial, although the apparent strength of the defence may be relevant to discretion.

A public regulatory body may in a suitable case obtain dispensation from the usual cross-undertaking in damages. That dispensation does not confer a substantive right contrary to Article 6 of the Convention.

A freezing order preserving assets for possible compensation or disgorgement by a foreign court is conservatory. It does not enforce the foreign state’s penal law, particularly where the underlying relief is compensatory rather than punitive.

The United States Securities and Exchange Commission sought continuation of a freezing order made against the defendant, who was resident in England. The order supported civil proceedings in the United States concerning alleged fraud on investors in a hedge fund.

The application raised whether the SEC had a good arguable case, whether there was a real risk of dissipation, whether the usual cross-undertaking in damages could be dispensed with, and whether the relief would indirectly enforce the penal law of a foreign state.

1. The freezing order was continued. The SEC had established a good arguable case. That standard required more than a case barely capable of serious argument, but did not require a better than 50 per cent prospect of success. The court could not determine disputed and complex facts finally on an interlocutory application.

2. There was a real or solid risk that assets would be dissipated. The relevant question was whether the defendant might use assets otherwise than for normal and proper purposes. The evidence, including the defendant’s conduct in breach of an order and failure to repatriate assets as directed by the United States court, satisfied that test.

3. The usual cross-undertaking in damages could be dispensed with. The dispensation rule applied in appropriate law-enforcement proceedings brought by public or regulatory bodies. Its application did not infringe Article 6 because Article 6 protects procedural rights and access to adjudication, not a substantive right to an undertaking in damages.

4. The court rejected the submission that the SEC should be refused relief because it was a foreign public body, the alleged fraud occurred abroad and the investors were not United Kingdom citizens. Combating international fraud required international co-operation, and those considerations were not a reason to refuse relief.

5. The relevant disgorgement remedy was not penal under English law. Its purpose was to recover ill-gotten gains for distribution to investors, rather than to punish the defendant. The fact that the legislation also authorised civil penalties did not make the distinct disgorgement remedy penal.

6. The freezing order did not directly or indirectly enforce United States law. It was a conservatory measure designed to preserve assets in England pending determination of the United States proceedings and any eventual disgorgement order.

7. Although the jurisdiction had to be exercised with considerable caution, the conditions for relief were satisfied and no sufficient discretionary reason existed to refuse the order. The defendant could apply for release of frozen assets if necessary to fund his defence.

First-instance decision. The judgment records that Openshaw J. had made the freezing order on 29 March 2008, which was continued by this court.