The United States Securities and Exchange Commission v Manterfield

The rule against enforcing a foreign penal or public law depends on the substance of the relief whose enforcement is sought. A compensatory order requiring the disgorgement of alleged fraud proceeds for distribution to injured investors does not become penal merely because the foreign proceedings also seek a civil monetary penalty.

An interim injunction normally requires a cross-undertaking in damages. The court may dispense with that protection where a public regulator seeks relief, including a freezing order, selflessly in the performance of a law-enforcement function. That discretion is not confined to domestic regulators or misconduct affecting United Kingdom citizens.

The United States Securities and Exchange Commission brought proceedings in Massachusetts alleging that the appellant and others had induced investors to invest in a fund through fraudulent representations and had misappropriated substantial sums. The Commission sought disgorgement, distribution of recovered funds to injured investors and a civil monetary penalty.

After an English restraint order was discharged, the Commission obtained a worldwide freezing order under section 25(1) of the Civil Jurisdiction and Judgments Act 1982. Sir Charles Gray continued that order in [2008] EWHC 1349 (QB).

The appeal concerned whether the application indirectly enforced a foreign penal or public law and whether the judge could dispense with a cross-undertaking in damages.

1. Appeal dismissed. The Commission’s application did not seek direct or indirect enforcement of a foreign penal or public law. The character of the foreign law was a matter of English law. The exclusionary rule was founded on preventing an unwarranted extension of one state’s sovereign power into another state’s territory.

2. The court had to examine the substance of the relief to be enforced. The disgorgement claim sought recovery of alleged fraud proceeds for distribution to injured investors. That was compensatory in substance and represented a normal consequence of civil law. It did not become penal merely because the Massachusetts proceedings also included a claim for a civil monetary penalty. The Commission had undertaken not to enforce any penalties judgment in England. A judgment could also be considered by reference to the particular part for which enforcement was sought.

3. The ordinary starting point was that an interim injunction would not be granted without a cross-undertaking in damages. Where no effective undertaking was available, however, the judge properly considered whether to dispense with it and continue the freezing order or to refuse dispensation, with the consequence that the order would lapse.

4. A freezing order may constitute law enforcement even though it is draconian and does not itself restrain continued unlawful conduct. A cross-undertaking may be dispensed with where a statutory regulator acts selflessly for the public or for persons harmed by an alleged infringement. Savings and Investment Board v Lloyd-Wright was rightly decided and was not confined to cases where a freezing order accompanied other regulatory injunctions.

5. The discretion was not confined to domestic public bodies, domestically funded proceedings or misconduct affecting United Kingdom citizens. International fraud required international regulatory co-operation. The judge committed no error of principle, and his conclusion fell within the permissible bounds of judicial discretion.

1. Court of Appeal (Civil Division): The court dismissed the appeal unanimously and affirmed the continuation of the worldwide freezing order: [2009] EWCA Civ 27.

2. High Court, Queen’s Bench Division: Sir Charles Gray, sitting as a Deputy High Court Judge, continued the worldwide freezing order and dispensed with a cross-undertaking in damages: [2008] EWHC 1349 (QB).

3. High Court, Queen’s Bench Division: Openshaw J had granted the initial worldwide freezing order on 29 February 2008.