Injunctive relief in support of foreign proceedings: don't fall at the first hurdle

Following RPC Commercial Litigation Blog post "Granting interim relief in support of foreign proceedings: the expediency test revisited",...

… the recent case of Royal Westminster Investments SA and others -v- Manmohan Varma¹ provides a timely reminder of the important first hurdle that applicants must clear if they are to obtain in the English courts interim relief in support of foreign proceedings under section 25 of the Civil Jurisdiction and Judgments Act 1982 (the "1982 Act").

Background

The court adopts a two stage approach when considering whether to grant interim relief under section 25 of the 1982 Act: in Refco -v- Eastern Trading the court set out that it considers "first if the facts would warrant the relief sought if the substantive proceedings were brought in England. If the answer to that question is in the affirmative then the second question arises, whether, in the terms of s.25(2), the fact that the Court has no jurisdiction apart from the section makes it inexpedient to grant the interim relief sought."²

In Royal Westminster, the court found that the applicants had not cleared the first hurdle – i.e. the facts would not warrant the relief sought if the substantive proceedings had been brought in England. However the court still went on briefly to consider the second hurdle (the expediency test), which it considered the applicants would not in any event clear. (For a summary of the expediency test, click here for the previous RPC Commercial Litigation Blog post referenced above.)

Facts

The applicants had brought a claim in the BVI against (a) the respondent, Mr Varma, and (b) a BVI company, Nilon Limited ("Nilon"), in relation to a rice venture in Nigeria that the applicants and Mr Varma had agreed to pursue. Nilon was a joint venture company set up to pursue the rice venture.

Amongst other things, the applicants alleged in the BVI proceedings that they orally agreed with Mr Varma that 57.5% of the issued share capital in Nilon would be issued to them. In apparent breach of this oral agreement, no shares were issued to the applicants and accordingly they claimed for specific performance of the agreement, rectification of Nilon's register of members, and damages.

Subsequently, the applicants brought these English proceedings, in which they alleged that Mr Varma (who resided in England) had caused Nilon improperly to incur substantial expenditure in the BVI proceedings. Therefore the applicants sought interim relief in the English courts to (a) restrain Mr Varma from procuring or permitting expenditure by Nilon in connection with the BVI proceedings, (b) require Mr Varma to disclose information as to the quantum of expenditure by Nilon to date in the BVI proceedings, and (c) compel Mr Varma to repay to Nilon any sums wrongfully expended. The principle basis on which the applicants contended that these orders were appropriate was that the claim in the BVI in essence was a dispute between shareholders and as such the company's money should not be applied towards it.

Decision

The court dismissed the application on a number of grounds. The key parts of the court's reasoning in relation to section 25 of the 1982 Act was as follows:

(i) Stage one: substantive relief in England

The court acknowledged the general principle that a company should not spend money on disputes between shareholders. However, it considered that any claim seeking to restrain such expenditure (or indeed seeking information relating to, or repayment of, such expenditure) would be a breach of duty claim against the company's directors (in this case Mr Varma as sole director). Such a claim could be vested only in the company, Nilon; the company's shareholders would not have standing to pursue such a claim for themselves. Furthermore, the court also noted that the applicants were not in any event registered shareholders in Nilon and could "be in no better position".

The court then noted that the weight of authority provided that an interim injunction should only normally be granted in aid of an enforceable right. In this case, the applicants had no such right against Mr Varma. The court concluded that relief would not have been granted if the substantive proceedings had been in England. The court also considered that, in line with the principles relating to the granting of injunctions derived from American Cyanamid Co -v- Ethicon Ltd³, the evidence suggested that damages would, in any event, be an adequate remedy for the applicants if no injunction were granted.

(ii) Stage two: the expediency test

Given the above, strictly the court need not have considered the expediency test under section 25 of the 1982 Act because the application fell at the first hurdle. Despite this the court did briefly turn to the expediency test and considered whether approving the application and making the requested orders would "interfere with the management of the case in the primary court"⁴.

In answer to this point, the court noted that the order sought would not conflict with any order that the BVI courts had already made. However, it considered that there was "a real risk that acceding to the application ... would 'obstruct or hamper the management of the case by the court seized of the substantive proceedings' ... The orders claimed would mean that Nilon was unable to play any significant part in the BVI proceedings; it could not even apply to the BVI Courts for guidance as to what steps it should take in the proceedings." Accordingly, the court held that this "represents an additional objection to the making of the orders sought."

Conclusion

This case provides a useful reminder that applicants seeking relief under section 25 of the 1982 Act must, before they reach the not insubstantial hurdle of the expediency test, demonstrate to the court that the facts would warrant the relief sought if the substantive proceedings had been brought in England. In doing so it also demonstrates that, whilst relief under section 25 of the 1982 Act provides a potent tool in any claimant's armoury, obtaining such relief is by no means a mere formality.

Link to HTML version of judgment.

¹ [2012] EWHC 3439 (Ch)

² Refco Inc. -v- Eastern Trading Co. [1999] 1 Lloyd's Rep. 159, per Morritt LJ (paras 170-171)

³ [1975] AC 396

⁴ A key factor in determining the question of expediency: Motorola Credit Corp. -v- Uzan (No 2) [2003] EWCA Civ 752, per Potter LJ (para 115)