Madoff Securities International Ltd v Raven & Ors

Article 6(1) of the Judgments Regulation does not permit a claimant with no claim against an English-domiciled anchor defendant to found jurisdiction over a non-domiciled defendant merely because a different claimant has such a claim. The jurisdictional exception must be construed restrictively.

Unanimous shareholder approval does not necessarily ratify directors’ conduct where the transaction was dishonest, not bona fide or contrary to the company’s interests. A serious issue on that exception can sustain proprietary and freezing relief.

An arguable proprietary claim may justify preservation and disclosure relief without proof of dissipation. A freezing injunction requires a good arguable case and a real risk that dissipation or dealings with assets will leave a judgment unsatisfied or harder to enforce.

MSIL alleged that its directors had made disguised and illegitimate payments to companies associated with Mrs Kohn, in breach of fiduciary duty. It sought restitutionary and proprietary relief on the basis of knowing receipt, constructive trust and tracing. The second claimant, trustee of the BLMIS liquidation, advanced a distinct claim under New York law arising from direct payments to the Kohn defendants.

Mrs Kohn, who was domiciled in Austria, challenged the English court’s jurisdiction over the BLMIS claim. MSIL also applied for proprietary and freezing injunctions, with ancillary asset-disclosure relief, against Mrs Kohn and the thirteenth defendant.

The central jurisdictional question was whether Article 6(1) of the Judgments Regulation could be invoked by a claimant which had no claim against the English-domiciled anchor defendants.

1. Jurisdiction application granted. The court had no jurisdiction under Article 6(1) of the Judgments Regulation over the BLMIS claim. Article 6(1) is a restrictive derogation from the domicile rule in Article 2. It applies where the claimant seeking to invoke it has claims against both the anchor defendant and the non-domiciled defendant. It cannot be used to attach a separate claimant’s claim to another claimant’s anchor claim.

2. The court considered, although it was unnecessary to decide the point, that different governing laws do not of themselves prevent judgments from being irreconcilable. The inquiry remains fact-sensitive and requires a broad, common-sense assessment of the legal and factual connection between the claims.

3. There was a serious issue to be tried that MSIL’s directors had breached fiduciary duties. Although unanimous shareholders may generally authorise or ratify directors’ acts, the court held that there was an arguable wider exception where the transaction was dishonest, not bona fide or not in the company’s interests. That exception was not confined to transactions prejudicing creditors.

4. Proprietary injunction granted in principle. Applying American Cyanamid v Ethicon [1975] AC 396, MSIL had shown a serious issue on its proprietary constructive-trust and tracing claim. The balance of convenience and the requirement that relief be just and convenient favoured an injunction and asset disclosure. A proprietary injunction did not require proof of dissipation.

5. Freezing injunction granted. MSIL had a good arguable case. Delay and an inter partes hearing did not remove the objectively assessed risk of dissipation. The alleged long-running dishonest conduct, opaque corporate arrangements, questionable transfers and failure to disclose assets established a real risk that assets would be dissipated or enforcement made more difficult. The precise terms, amount and ancillary relief were reserved for further submissions.

not stated in the judgment.