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Chan, Alison --- "LED Builders v Eagle Homes - Continuing the Development of Mareva Relief in Australia" [1998] SydLawRw 21; (1998) 20 (3) Sydney Law Review 487

LED Builders v Eagle Homes — Continuing the Development of Mareva Relief in Australia


1. Introduction

In LED Builders Pty Ltd v Eagle Homes Pty Ltd,[1] the Full Court of the Federal Court of Australia accepted for the first time a plaintiff's claim for injunctions against third parties to the proceedings. Relief was granted on the basis that there was culpable behaviour by the third parties which gave the plaintiff an entitlement to seek recourse from them if the defendant was unable to meet the terms of the judgment.

Although third parties have long risked contempt for knowingly interfering with the administration of justice by helping defendants dispose of their property in breach of an injunction, new concerns about the rights of third parties must be raised now that the third parties face direct orders. The concerns canvassed in this piece are primarily the appropriateness of this development in light of the jurisdictional basis of Mareva relief and the principles governing its development. As the range of situations where a plaintiff is able to claim Mareva relief grows, it is vital that courts ensure that the jurisdictional basis of the injunction is not exceeded.

It is argued that courts have broad powers to grant Mareva relief under statutory provisions such as section 23 Federal Court of Australia Act 1976 (Cth) and their inherent power to prevent abuse of their processes which allow them to expand the jurisdiction as justice demands. Prior developments are shown to support the extension of jurisdiction to third parties and through an examination of relevant authority, the precise elements which should henceforth be required to establish jurisdiction to grant a Mareva injunction against a third party are also discussed.

It is submitted that authority supports the proposition that courts have jurisdiction to grant Mareva relief against a third party where:

a) The affairs of the third party and the defendant are closely intermingled, for example,
(i) the defendant and its assets are effectively controlled by the third party, or
(ii) the third party controls the defendant, or
(iii) the defendant and third party are under common control, and
b) The plaintiff, although having no vested or accrued cause of action against the third party, may become entitled to have recourse to the third party or its assets to meet their claim, and
c) There is a danger that the third party will dispose of the assets. The implications of such a rule are then critically examined. Particular attention is paid to the risk of abuse by plaintiffs and the “Siskina” principle.[2] It is concluded that the risk of abuse is so low that a rigid rule against imposing Mareva injunctions against third parties is unnecessary because the courts have imposed many safeguards. It is further concluded that the principle set out in LED can be reconciled with the Siskina principle that Mareva relief should only be granted against a party against whom the plaintiff has a cause of action. Finally, the low likelihood of Mareva relief being granted against innocent third parties is explained.

2. Facts of LED Builders v Eagle Homes

LED Builders Pty Ltd (“LED”) and Eagle Homes Pty Ltd (“Eagle Homes”) were both project home building corporations. Following successful proceedings for breach of copyright, the plaintiff elected to receive an account of profits from the defendant. Pending the proceeding for the taking of accounts, the plaintiff made two separate Mareva applications. The first was against the defendant corporation, Eagle Homes, and the second was against Ultra Modern Developments Pty Ltd (“Ultra Modern”) and Paul and Lucy Cardile. The parties against whom the second application was made were referred to by Emmett J as the “Prospective Respondents”.

The second application was founded on evidence that Mr and Mrs Cardile were the only shareholders of Eagle Homes and Mr Cardile was the only director. There was further evidence that Ultra Modern was a wholly owned subsidiary of Eagle Developments Australia Pty Ltd which Emmett J was prepared to infer was controlled by the Cardiles.[3]

LED argued that Mr and Mrs Cardile in their capacity as controllers of Eagle Homes, were of a disposition to take steps to deprive LED of access to assets which would satisfy the forthcoming judgment against Eagle Homes in the breach of copyright action. LED argued that Eagle Homes was being denuded by the Prospective Respondents in two ways. Firstly, dividends totalling over $1 million were declared and paid by Eagle Homes since the primary action began. Secondly, it was shown that, Eagle Homes as a going concern was being wound down and its business was being directed to Ultra Modern.

3. Proceedings before Emmett J in the Federal Court

At first instance, Emmett J acknowledged that the Mareva order is discretionary but that as a general rule a plaintiff will need to show “first, a prima facie cause of action against the defendant and, secondly, a danger that, by reason of the defendant’s absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied.”[4]

In the case of the application against Eagle Homes, the first limb was found to be satisfied by Davies J’s declaration in the breach of copyright proceedings. Emmett J also concluded that the dividends were paid in order to ensure that assets of Eagle Homes were not available to meet a judgment in favour of LED and that “the decision to incorporate Ultra Modern and to ensure that all future business in relation to new designs be channelled through Ultra Modern was undertaken so that future profits would not be available to satisfy any judgment in favour of LED.”[5] Therefore, the Mareva injunction against Eagle Homes was ordered.

However, with regard to the second application, Emmett J had two reasons for refusing Mareva relief. Firstly, his Honour found that although LED might be able to bring proceedings in the future for breach of director’s duties or under section 37A of the Conveyancing Act 1919 (NSW) or Division 2 of Part 5.7B of the Corporations Law 1989 (Cth), at that time no independent cause of action was asserted against the Prospective Respondents.[6]

His Honour recognised that the prospective causes of action might be rendered futile or worthless unless the Prospective Respondents were prevented from dealing with their assets by a Mareva injunction. He also conceded that the Cardiles had exhibited a propensity to transfer assets to protect them from claims by the plaintiff. Nonetheless, he was not satisfied that the prospective claims, if they existed at all, were in jeopardy.[7] On this basis Mareva relief was denied.

Secondly, while Emmett J did acknowledge that there was authority supporting the grant of Mareva relief against third parties, he held that it only applied when the third party held assets in which the defendant had a “proprietary interest”.[8] In applying the decisions in Coxton v Milne[9] and Winter v Marac (Aust) Ltd.10 Emmett J considered the test of jurisdiction to grant Mareva relief against a third party to be “whether Eagle Homes [had] control over or access to the assets of Ultra Modern or Mr and Mrs Cardile such that the proceeds of the sale of those assets could be applied in discharge of any judgment against Eagle Homes.” However, his Honour thought that this question could not be answered because the proceedings for Mareva relief before him were an inappropriate forum for determining the rights of the defendant and the third parties in respect of the assets in question.[11] Since no control or access or “proprietary interest” was shown, no Mareva relief could be granted.

4. The Proceedings before the Full Federal Court

LED appealed to the Full Federal Court on the issue of whether Mareva relief could be obtained against the Prospective Respondents. All three judges disagreed with both of Emmett J’s reasons for refusing relief. They collectively held that there was an appreciable risk that the prospective respondents would dispose of the assets to put them beyond the reach of the LED and that Mareva relief could be granted to protect property in the hands of non-innocent third parties even if the defendant did not have a proprietary interest in the assets.[12] The Court expressly supported the grant of injunctive relief against third parties where the defendant and the third parties are under common control and the third parties had been involved in the removal of assets for which a claim or action could be brought setting aside the transaction by which the assets were removed.

In a joint judgment, Beaumont and Branson JJ expressly supported[13] what Kiefel J had said in Tomlinson v Cut Price Deli Pty Limited.[14] In that case, her Honour examined the state of authority and concluded that it was open to her to grant a Mareva injunction against a third party “where the third party has become mixed up in the transaction ... and where the third party has actively participated in the deliberate removal of assets”. Her Honour stated that in the case before her, granting the injunction recognised that the defendant controlled the third party and made it clear that they were not to act through that third party to endanger the assets.[15]

Beaumont and Branson JJ agreed that it is sufficient for the assets to be “mixed up” and “controlled” by the defendant or for the third party to have actively participated in the removal of assets.[16] Their Honours enunciated that the “only real questions” to be answered in determining whether to grant interlocutory Mareva relief against a defendant or a third party are first, whether there is a serious question to be tried as to whether assets presently under the control of the third parties could be available to satisfy a judgment against the defendant in favour of the plaintiff, and secondly, whether there is a danger of such assets being dealt with by the defendant or the third parties so that the court’s process would be frustrated.[17] In their view, this test was satisfied and Mareva relief should have been granted against the third parties.

Tamberlin J came to the same conclusion by analysing the principles applicable to the grant of Mareva relief against third parties in Australia. He reasoned that the principles set out in Jackson v Sterling Industries[18] should be extended to enable Mareva relief to be granted to “to preserve funds in the hands of non-innocent third parties in circumstances where there is a significant prospect of an action to set aside the alienation of property from the respondent to those third parties.”[19] His Honour asserted that:

there is no reason in principle ... why it is necessary to impose a limitation on the grant of Mareva relief against a third party to the effect that a [plaintiff] must have a proprietary ‘interest’ in the divested assets. The power is purposive. Its aim is to prevent frustration of the Court’s process.20

Despite the difference in form, the two approaches in LED taken to deciding whether an injunction ought to be issued against a third party are substantially the same. Beaumont and Branson JJ’s test of ‘third party control leading to the availability of their assets to the plaintiff’ bears the same hallmarks as Tamberlin J’s ‘non-innocent third party plus significant prospect of an action to set aside the transaction’ test. Both tests demand that there be some culpable behaviour by the third party which gives the plaintiff an entitlement to seek recourse from them if the defendant is unable to meet the terms of the judgment. It is submitted that a plaintiff able to make out these elements will have satisfied both formulations of the test and therefore will have established that the court has jurisdiction to grant an injunction against the third party.

5. The Development of Mareva Relief

The Mareva injunction is a relatively recent development but its expansion has been incredibly dynamic. It has been described as “one of the most imaginative, important, and, on the whole, most beneficent [innovations] of modern times”.[21] Before the development of the Mareva doctrine,[22] the court had no power to restrain defendants from disposing of their assets before judgment was entered against them.[23] Understandably, this created a gap in the law giving devious defendants ample opportunity to thwart the plaintiff’s recovery by dealing with their assets in a manner which could deprive them of recovery in a pending trial. Mareva injunctions are an equitable remedy aimed at protecting the interests of plaintiffs by preventing opportunistic defendants from escaping liability. However, the continued ability of the Mareva injunction to achieve this result depends on its ability to accommodate a wide range of circumstances, including cases where assets are moved into the hands of third parties.

Courts argue that by granting Mareva relief they are protecting their own process from abuse by ensuring that they are able to enforce the orders they make.[24] Furthermore, they claim that public confidence in courts is undermined if persons “can be seen to easily divest assets so as to effectively place them beyond the reach of a successful [plaintiff], thereby converting the determination of the court to a hollow exercise.”[25] Therefore Mareva relief is viewed by the court as a means to secure both the interests of justice and the plaintiff.

This altruistic rationale is given effect by a broad interpretation of the court’s power to grant such relief. The High Court in Jackson found that jurisdiction to grant Mareva injunctions derived from both statutory provisions[26] and the inherent power of the court to grant relief such as is “just and convenient” or “appropriate” to prevent abuses of its process.[27] Their Honours made no distinction between the inherent power and the statutory power, to “make orders of such kinds, including interlocutory orders ... as the court thinks appropriate”, observing only that the statutory power “confirms the inherent power without increasing it.”

In CSR Ltd v Cigna Insurance Australia Ltd,[28] six members of the High Court noted that “[the Court’s] inherent power ... is not to be restricted to defined and closed categories.” Furthermore, the recent decision of Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [No 3][29] indicates that the High Court will not shy away from applications to extend interlocutory relief, especially Mareva relief. In that case, it was argued that the orders made by North J in the Federal Court were exercised beyond the discretionary power conferred by section 23 of the Federal Court of Australia Act 1976 (Cth) and as such should be reversed. However, a broad interpretation of section 23 was endorsed and this submission was rejected by the Court. The majority of the Court found that the Mareva injunction “is the paradigm example of an order to prevent the frustration of a court’s process”[30] and that the power to grant relief “as the court thinks appropriate” empowers the court to “make such orders, at least against the parties to the proceeding against whom final relief might be granted, as are needed to ensure the effective exercise of the jurisdiction invoked.”[31]

Interestingly, the Court left open the question of whether there is power to grant injunctive relief against a third party under the inherent power or its statutory equivalents alone. The Court carefully explained that the orders made against third parties in Patrick were permitted by the operation of section 298U(e) of the Workplace Relations Act 1996 (Cth). It was because of this section that the Court had jurisdiction to grant relief against the third parties and therefore section 23 could come into play.[32] For this reason, the Court did not need to consider whether jurisdiction over the defendant is enough to found jurisdiction over third parties.

However, history has shown that courts are prepared to extend the availability of Mareva relief to new categories of cases. Indeed, Brennan J noted in Jackson that the power to grant a Mareva injunction “may be exercised according to the exigencies of the case and, the schemes which a debtor may devise for divesting himself of assets being legion, novelty of form is no objection to the validity of such an order.”[33] Glass JA asserted in Ballabil Holdings Pty Ltd v Hospital Products Ltd that Mareva relief should be developed according to the dictates of logic and commercial reality[34] and Tamberlin J has agreed that while development must be cautious, it should not be unduly restricted.[35] Therefore, despite a lack of High Court authority on point, there is still room for the development of the principle set out in LED. Indeed, in Patrick, the majority of the High Court conceded that “[i]f the power of the Federal Court to prevent the frustration of its process was to be effective, extraordinary orders were needed”.[36]

This has been a guiding principle since Mareva relief was first granted and is one of the main reasons for its success. Courts have ensured that Mareva relief is capable of doing justice in individual cases by avoiding closed categories of applicability, by imposing threshold tests as safeguards and having faith in the discretion of judges. In this way courts have been able to expand the realms of Mareva jurisdiction without causing widespread oppression.

The decisions relating to assets held by third parties follow the line of cases initiated in New South Wales by Vereker v Choi.[37] In that case, Clarke J in the Supreme Court held that although generally a plaintiff should establish a cause of action against the person who holds the assets over which a Mareva injunction is sought, there may be exceptions. He identified cases where the assets are held in the name of a defendant’s relative but are in truth “family assets” in which the defendant arguably has an interest as one such exception. The courts were not slow to disclose other exceptions to the general rule against burdening third parties.

The cases demonstrate three classes of claims for injunctive relief against third parties. The first class recognised by the courts was where the defendant controlled the third party. The courts recognised the defendant’s use of the third party as an alter ego and condemned the practice. As outlined above, in Vereker v Choi the assets in dispute were held by the defendant’s wife but were found to be in truth “family assets.” Clarke J granted the injunction against Mrs Choi because he thought that if the plaintiff succeeded in obtaining a verdict against Mr Choi, he would be likely to lay his hands on the “family assets.”[38] Conversely, in Winter v Marac (Aust) Ltd, injunctions granted against the defendant’s mother and his sister on the basis that the defendant was able to persuade them in their dealings with the assets were set aside. The defendant’s mere ability to persuade his relatives was insufficient to justify relief against the third parties.[39] Hope, Samuels and Mahoney JJA in the New South Wales Court of Appeal held that where a Mareva injunction against a third party is sought:

it must be shown that the person against whom judgment may be obtained [the defendant] has some right in respect of or control over or other access, direct or indirect to the relevant assets so that they ... could be required to be applied in discharge of the judgment debt.[40]

The second category contains cases in which the third party controls the defendant. Notably, this was the case in respect of Mr and Mrs Cardile in LED Builders v Eagle Homes. Under similar circumstances in Coxton v Milne, an injunction was granted against the person found to be in effective control of the corporate defendant. Hope JA with the concurrence of Glass and Priestley JJA held that where the defendant’s assets are “effectively controlled, de jure or de facto, by the third party” and the defendant’s assets are insufficient to meet the judgment debt, the plaintiff may be entitled to relief against the third party despite the absence of an accrued cause of action against them as long as there is a danger that the third party will dispose of the defendant’s assets.[41]

The final category was created in New South Wales by the decision of Earthline Constructions Pty Ltd v State Rail Authority (NSW)[42] and followed by the Federal Court of Australia in Tomlinson v Cut Price Deli[43] and it contains cases where the defendant and the third party are under common control but neither has any direct influence over the other.[44] In LED Builders v Eagle Homes this was the relationship between Eagle Homes, the defendant, and Ultra Modern, the third party. Both were under the control of the Cardiles. LED contended that where the defendant and the third party are under the same “control” and they mix up their affairs such that a real probability arises that a liquidator will have a claim to set aside the transaction, there is jurisdiction to grant Mareva relief if there is a danger of dissipation or disposal by the third party.[45]

This test was described by Tamberlin J as “substantially broader” than the one used at trial by Emmett J because it did not limit the power to “circumstances where the [plaintiff] has any “interest” in or “accrued right” in relation to the assets of the third party.”[46] However, it is submitted that there is no substantive difference between the “proprietary interest” test advocated by Emmett J at the trial level and the “control or mixed up test” that the plaintiff argued and the Court adopted. Both tests are really asking whether the assets are in truth the defendant’s assets and not the third party’s, such that relief against the third party is incidental to and justified by the claim against the defendant.

It therefore appears that the court will be prepared to lift the corporate veil where it is being used to disguise a defendant’s dissipation of assets. This will be the case in situations where the defendant controls the third party, where the third party controls the defendant and where the two are under common control. It is the wrongful conduct of the third party in assisting in the defendant’s disposal of assets which justifies a rare departure from the well established principle of separate legal personality.

Although the courts have not endorsed the foregoing categorisation of the case law relating to Mareva relief against third parties, it is instructive in two respects. Firstly, it gives some structure to the seemingly ad hoc development of the jurisdiction, and secondly, it exposes the disunity of the authority. The straddling of categories within LED highlights the need for a universal test capable of application in all three situations. There are quite simply too many formulations being applied and this is creating uncertainty.

It is submitted that despite variations in form, the criteria that have been used in the past have common threads which could easily be woven together to form one comprehensive formula. The test emerging from the cases appears to be based on a danger of non-innocent participation in disposal of the assets by the third party against whom relief is sought. It has been strongly influenced by early New South Wales authority showing a history of courts making orders against third parties only where the assets in truth belonged to the defendant rather than the third party. For example in Winter v Marac[47] and Vereker v Choi,[48] the tests included conditions to the effect that if the plaintiff succeeded against the defendant they would have some recourse to the assets held by the third party.

That right to recourse is best made out by showing that the assets are beneficially owned by the defendant, even if legally held by a third party. In recognition of the need to protect innocent third parties, a court may order a trial on the preliminary issue of ownership of the assets or order that the issue await the outcome of the main action depending on what is just and convenient.[49] The Supreme Court of New South Wales took this approach in Commissioner of Taxation v Goldspink.[50] With this in mind, it is submitted that Emmett J's assertion in LED Builders v Eagle Homes, that the trial before him was an inappropriate forum to decide the ownership of the assets,[51] was thus incorrect. His Honour ought to have confronted the issue of ownership of the assets rather than using the uncertainty as an excuse to refuse relief.

Following a determination of the beneficial ownership of the assets in dispute, it has already been argued that authority supports the proposition that courts have jurisdiction to grant Mareva relief against a third party where:

a) The affairs of the third party and the defendant are closely intermingled, for example

(i) the defendant and its assets are effectively controlled by the third party, or

(ii) the third party controls the defendant, or

(iii) the defendant and third party are under common control, and

b) The plaintiff, although having no vested or accrued cause of action against the third party, may become entitled to have recourse to the third party or its assets to meet their claim, and

c) There is a danger that the third party will dispose of the assets.

6. Justifications for Further Development

Such a wide and discretionary jurisdiction to grant relief against third parties raises concerns about the scope for abuse by unscrupulous plaintiffs. Although the injunctions act in personam and hence do not confer any proprietary rights in the assets to the plaintiff, Mareva injunctions have been criticised as potentially oppressive or open to abuse since they have the capability to effectively tie up a defendant’s assets for an extended period.[52] Furthermore, because they are interlocutory and often made ex parte, the defendant is burdened even before they are found liable and possibly without being heard.

Despite this shroud of criticism the Mareva injunction has flourished in Australia as the conditions precedent to the grant of the relief have been eroded.[53] Of course, the possibility that some plaintiffs may abuse a remedy or that it may cause hardship in some cases is no reason to abandon it,[54] but it is cause to ensure that there are safeguards in place. Therefore, each innovation in the careful expansion of jurisdiction has been gilded with qualifications and opportunities for judicial discretion. Jackson v Sterling Industries Ltd,[55] the leading High Court decision on Mareva injunctions provides a prime example of this.

Although the inherent jurisdiction of the court was identified as the juridical basis for Mareva relief and this gave the court a wide discretion, the power conferred was not purely discretionary. The exercise of discretion must be within the confines of a carefully phrased threshold test:

[A] Mareva injunction can be granted ... if the circumstances are such that there is a danger of [the defendant’s] absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgement, will not be able to get it satisfied.[56]

In Patterson v BTR Engineering (Aust) Ltd,[57] Gleeson CJ and Meagher JA converted this statement into a two stage test for determining whether a Mareva injunction should be granted. First, it was said, the plaintiff must establish a prima facie cause of action against the defendant and secondly, a danger or real risk that any judgement obtained will not be satisfied. Both of these limbs offer protection to defendants from unscrupulous plaintiffs by demanding that plaintiffs show that they seek Mareva relief for the legitimate reason for which it was created and not some commercial expedient.

While these two preconditions provide the greatest protection from vexatious applications by plaintiffs, the cases also provide other safeguards for defendants and third parties alike. For example, if third parties feel that an injunction issued against them is oppressive or overly burdensome, they may make applications for variations to the order to allow for living expenses, business costs and legal expenses. Furthermore, as with all equitable relief, Mareva injunctions are only issued after an examination of the balance of convenience and other discretionary considerations.[58] The High Court in Patrick was at pains to emphasise that the interests of third parties are relevant to this determination and their interests would be given weight according to the circumstances of the case.[59] From this it can be inferred that the rights of innocent third parties will be more highly regarded than those of third party accomplices. The majority would agree with Gaudron J that “ordinarily, an interlocutory injunction will not issue if its effect would be to interfere with the rights of innocent third parties”[60] and also with Callinan J, citing Gibbs J in Ascot Investments Pty Ltd v Harper[61] that:

[t]he position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations .... Sham transactions may always be disregarded.[62]

Beaumont and Branson JJ in LED carefully considered the position of innocent third parties[63] and approved what Kerr LJ had said in Galaxia Maritime SA v Mineralimportexport (The “Eleftherios”):

A plaintiff seeking to secure an alleged debt or damages due from the defendant ... cannot possibly be entitled to obtain the advantage of such an order for himself at the expense of ... an innocent third party... . [I]t is crucial to bear in mind not only the balance of convenience and justice as between plaintiffs and defendants, but above all also as between plaintiffs and third parties.64

From this it is clear that Courts have been ardent about not imposing undue burdens on innocent third parties. For this reason, even if the High Court endorses the practice of granting Mareva relief against third parties, it is unlikely that Mareva relief will be extended to enable relief against all dealings involving third parties. Such a rule would hinder the innocent third party’s right to freely deal with property which is traditionally regarded as sacrosanct. Furthermore, the courts have implemented safeguards to ensure that justice can be served without undue hardship to third parties. Therefore there is no need for a rigid rule against all injunctive relief against third parties.

A further criticism of the decision in LED, common to all suggestions of relief against third parties, is a perceived infringement of the Siskina[65] principle. On its face, The Siskina advocates a narrow view of the Mareva injunction. It suggests that a plaintiff needs to have a primary cause of action against a third party in order to obtain Mareva relief against them because “[a] right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the [person against whom relief is sought].”[66]

However, Mareva relief was in its infancy when the Siskina was decided[67] and since then it has evolved to meet many new situations threatening the plaintiff’s recovery. For this reason the doctrine has been significantly watered down. In Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd,[68] the House of Lords held that:

the doctrine of the Siskina, put at its highest, is that the right to an interlocutory injunction cannot exist in isolation, but is always incidental to and dependant on the enforcement of a substantive right, which usually though not invariably takes the shape of a cause of action.[69]

The English Court of Appeal has subsequently held that there is no requirement that the plaintiff have a substantive cause of action against a third party against whom they seek injunctive relief.[70] However, this is not to say that the principle is otiose. Interlocutory injunctions are still incidental to, and dependent on, the enforcement of a substantive right. Jurisdiction against the third party in England is seen as incidental to the enforcement of the plaintiff’s substantive right against the defendant.

The New South Wales Court of Appeal foreshadowed that a vested cause of action against the person from whom relief is sought may not have been essential in Riley McKay Pty Ltd v McKay.[71] It has since been accepted in Australia that the plaintiff need not have an accrued cause of action against the third party because relief against the third party is ancillary. Kiefel J indicated in Tomlinson v Cut Price Deli Pty Limited that it did not matter whether the injunction against the third party was viewed as incidental to the cause of action against the defendant or the injunction against them.[72]

This exception to the general proposition that a plaintiff should have an accrued cause of action against the person they seek to restrain has been criticised as “severe” and in danger of making the Mareva injunction “too unwieldy to serve the purpose for which it is designed.”[73] Tamberlin J addressed this difficulty and quickly dismissed concern by arguing that the power is purposive and hence should not be constrained by the absence of a fully formed cause of action against the third party. He concluded that there is “no necessity to import the Siskina principles, or indeed any other rigid limitations” into the broad power conferred on courts to grant Mareva relief.[74] It is submitted that the purpose of Mareva relief gives the court a limited mandate to do whatever it can to do justice in the individual case. While this exception to the Siskina principle should be developed with caution, it rightly recognises that not having a fully formed, direct action against a third party at the time of application is different from having no action at all and no reasonable prospect of establishing one.

Peter Devonshire has commented that the status of a third party in relation to the principal action raises fundamental questions as to the juridical basis of injunctive relief. However, he concludes that as long as the courts are taking into account the third party’s status as a “neutral or interested party,”[75] and providing relief only against interested third parties, the relief is justified and conforms with the rationale of Mareva relief.[76]

While the third party’s status is a question of “fact and degree”, courts are well equipped to decide the issue and have demonstrated the ability to take a commonsense approach.[77] In line with the view that “at the core of the development of the Mareva principles are ... logic and commercial reality”,[78] courts have been inclined to take account of the defendant’s personal and financial interests in the third party and in doing so have even been seen to lift the corporate veil.[79] Indeed, a common feature of the English and Australian cases in which Mareva injunctions have been granted against third parties is a relationship between the defendant and the third party justifying such relief. In some cases, the assets have been effectively controlled or beneficially owned by the defendant.[80] In others, it has been blatantly obvious to the court that the two parties were conspiring to defeat the plaintiff’s claim. Injunctive relief against third parties is justified where the third party is as morally culpable as the defendant. Despite being based on sound principles and affording multiple protections from abuse, further development of the jurisdiction to grant Mareva relief against third parties must still be carefully worded and reasoned. Indeed, the greatest criticism that can be made of the decision in LED is not that the decision accepted the notion that Mareva relief can be granted against third parties, but the manner in which that proposition was expounded. The judgment is relatively imprecise in setting out a paradigm for relief against third parties and this weakness has caused uncertainty and even confusion.

Because LED was too broadly reasoned, subsequent courts have grappled with the principle. Even Tamberlin J, who sat on the bench in LED, has found a clear principle difficult to extract. In Australian Competition & Consumer Commission v Top Snack Foods Pty Ltd,[81] Tamberlin J seemed to endorse the view that because injunctive relief against the third party is incidental to the power to prevent abuses of the court’s process in the primary proceedings against the defendant, the court has jurisdiction to grant Mareva relief against a third party wherever it would have power to grant such relief against the defendant. His Honour regarded the test as simply “whether there is first: a prima facie cause of action, and second: a danger that ... the [plaintiff] would not be able to have the judgment satisfied.”[82] Therefore the element of control or non-innocence which had previously entitled the plaintiff to recourse to the third party’s assets was omitted, leaving only the same two requirements for establishing jurisdiction to grant Mareva relief against a defendant - a prima facie cause of action and a danger of disposal of the assets.

This unfortunate decision highlights the dangers of LED being adopted in its present form and makes even more pressing the need to clarify and standardise the test as soon as an opportunity arises. Without any requirement of culpability by the third party or even an association with the defendant, the relief will be freely available but its credibility will be undermined. As Kerr LJ warned in Z Ltd v A–Z and AA–LL, “the great value of this jurisdiction must not be debased by allowing it to become something which is invoked simply to obtain security for a judgment in advance, and still less as a means of pressurising defendants into settlement.”[83]

7. Conclusion

The cases have disclosed a need for plaintiffs to have some protection against the underhanded practice of defendants transferring their assets to third parties to deprive them of a remedy. The principle of extending Mareva relief to third parties to defeat such cunning endeavours has been shown to be sound and in line with the rationale of its development. As a species of equitable relief, the Mareva injunction must be flexible and responsive.

It has also been demonstrated that it is unnecessary to impose a rigid rule against granting relief against third parties because there are safeguards in place to minimise the risk of abuse by plaintiffs and the risk of unfairly burdening third parties. However, the particular formulation of the test for determining whether the court has jurisdiction to grant Mareva relief against a third party outlined in LED is inadequate. This is evident from the subsequent decision in Australian Competition & Consumer Commission v Top Snack Foods.[84] It has therefore been argued that the test should be reformulated. In doing this the court should examine the relevant authority and develop a standardised test bringing the three identified categories of cases in to line. It has been suggested that a test acknowledging the difference between innocent and interested third parties (by requiring elements of intermingling of affairs, an entitlement to have recourse to the third party’s assets and a danger of disposal) is supported by authority. This test would satisfactorily protect the court’s process from abuse by plaintiffs seeking to secure their judgment.

[*] Final Year Student 1998. I am grateful to Dr Patricia Loughlan for her helpful comments in the preparation of this case note (All errors and omission are mine).
[1] (1997) 148 ALR 247 (hereinafter LED).
[2] Siskina (Owners of cargo lately laden on board) v Distos Compania Naviera SA [1979] AC 210.
[3] Unreported Federal Court Judgment BC9702679 of 25/6/97 at 2.
[4] Id at 3.
[5] Id at 6.
[6] Id at 4 and 9.
[7] Id at 12.
[8] Id at 13.
[9] Unreported New South Wales Court of Appeal Judgment of 20/12/85.
[10] (1986) 6 NSWLR 11.
[11] Above n3 at 13–14.
[12] Above n1 at 258 and 265–6.
[13] Id at 257–58.
[14] Unreported Federal Court Judgment No 425/1995 of 23/6/95.
[15] Id at 10–11.
[16] Above n1 at 258.
[17] Id at 259.
[18] [1987] HCA 23; (1987) 162 CLR 612 (hereinafter Jackson).
[19] Above n1 at 265–6.
[20] Ibid.
[21] Deutsche Schachtbau v Shell International Petroleum [1990] 1 AC 295 at 317.
[22] Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509.
[23] Lister v Stubbs [1890] UKLawRpCh 73; (1890) 45 Ch D 1.
[24] Above n18.
[25] Above n1 at 266.
[26] For example, s23 Federal Court of Australia Act 1976 (Cth), s 23 Supreme Court Act 1970 (NSW).
[27] Above n18.
[28] (1997) 146 ALR 402 at 433.
[29] (1998) 72 ALJR 873 (hereinafter Patrick).
[30] Id at 885.
[31] Id at 886.
[32] Id at 883, 893.
[33] Above n18 at 621.
[34] (1985) 1 NSWLR 155 at 164.
[35] Above n1 at 266.
[36] Above n29 at 886.
[37] (1985) 4 NSWLR 277.
[38] Id at 284.
[39] Above n10 at 12.
[40] Ibid.
[41] Above n9 at 13.
[42] Unreported decision of the NSW Court of Appeal 26/10/1992.
[43] Above n14.
[44] It had previously been accepted in England in Aiglon Ltd v Gau Shan Co Ltd [1993] 1 Lloyd’s Rep 164.
[45] Above n1 at 263.
[46] Id at 264.
[47] Above n10.
[48] Above n37.
[49] Kunc, F, “Mareva Injunctions”, in Parkinson, P (ed), Principles of Equity (1996) at 684–5.
[50] (1985) 82 FLR 21 at 29.
[51] Above n3 at 13–14.
[52] Willoughby, T, and Connal, S, “The Mareva Injunction: A Cruel Tyranny?” [1997] 8 EIPR 479; Tyree, A, “Mareva Injunctions: The Third Party Problem” (1982) 10 ABLR 375 at 385–6; Zuckerman, A, “Mareva and Interlocutory Injunctions Disentangled” (1992) 108 LQR 559.
[53] For example, the requirement that the assets be within jurisdiction and the requirement that there be a threat of removal of assets from the jurisdiction; Tyree, above n52 at 376.
[54] Collins, L, Essays in International Litigation and the Conflict of Laws (1994) at 196.
[55] Above, n18.
[56] Above n18 at 623 per Deane J quoting with approval Rahman (Prince Abdul) v Abu-Taha [1980] 1 WLR 1268 at 1273 as Street CJ had in Ballabil Holdings Pty Ltd v Hospital Products Ltd above n34 at 160.
[57] (1989) 18 NSWLR 319 at 321–2 and 326–7.
[58] For example the effect on innocent third parties and the need for constant court supervision.
[59] Above n29 at 891, 903.
[60] Id at 903.
[61] (1981) 148 CLR 337 at 354–5.
[62] Above n29 at 917.
[63] Above n1 at 256–57.
[64] [1982] 1 WLR 539 at 542.
[65] Above n2.
[66] Id at 256–7.
[67] Mercedes-Benz A G v Lieduck [1995] UKPC 31; [1995] 3 WLR 718 at 736.
[68] [1993] AC 334.
[69] Id at 362.
[70] TSB Private Bank International SA v Chabra [1992] 1 WLR 231 at 242; Mercantile Group (Europe) AG v Aiyela [1994] QB 366 at 377.
[71] [1982] 1 NSWLR 264 at 277.
[72] Above n14 at 10–1.
[73] Tyree, above n52 at 376.
[74] Above n1 at 268.
[75] Devonshire, P, “The Implications of Third Parties Holding Assets Subject to a Mareva Injunction” [1996] LMCLQ 268 at 277.
[76] Id at 268 and 285.
[77] Id at 278–9.
[78] Above n9 at 13.
[79] Above n75 at 277–8.
[80] Id at 274–276 for a discussion of the English authority.
[81] Unreported Federal Court Judgment No 782/1997 of 7/11/97.
[82] Id at 4.
[83] [1982] QB 558 at 586.
[84] Above n81.

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