If a judgment creditor goes to an offshore financial center to file a new lawsuit (because the U.S. judgment is unenforceable there), he will slip into town under cover of darkness with a black patch over one eye and all his evidence under one arm, and go straight to a judge for a Mareva injunction. A Mareva injunction is one issued without advance notice to either you or the trustee, and in which the trustee is ordered to freeze all trust income and assets world-wide.

The matter proceeds a few weeks later to a hearing on the creditor's request for a preliminary injunction extending the asset freeze until the court holds a trial on the merits of the underlying claim; it also provides for access to the trustee's files by the claimant. Unless the trustee succeeds in causing dismissal of the creditor's action (usually on the ground that it is time-barred by the applicable statute of limitations, or the absence of a law recognizing the legal theory on which the claim is based), the request may be granted. The creditor reads the trustee's files and, based thereon, is able to edit the complaint to state all applicable causes of action. In that situation, the trustee making asset transfers under the flee clause faces contempt of court charges and is personally exposed for fraudulent transfer.

Use of Mareva injunctions is widening. In a series of cases involving money damages, the First, Second, Third and Ninth federal Circuit Courts of Appeal have now split from Fifth and Eleventh Circuits in approving the use of Mareva injunctions to freeze the foreign assets of defendants found guilty of making fraudulent transfers. I saw one in December 2000 from a District Court in the 9th Circuit.

In 1994, this general equitable power was used to restrain Ferdinand and Imelda Marcos from transferring New York real estate pending a determination of the rights of the Philippine government to those properties.

The English courts developed this remedy in the late 1970s, naming the "Mareva Injunction" after the leading case of Mareva Compania Naviera S.A. vs International Bulk Carriers S.A. It was based on the same fundamental principle as fraudulent transfer law, that no court should allow a defendant to transfer assets with intent to keep them beyond the reach of his creditors.

Originally, Mareva injunctions were limited to assets in the jurisdiction. England then began in the 1980s to issue them worldwide. The body of case law that has since developed adds to its utility, requiring only personal jurisdiction over the debtor.

The U.S. Second Circuit weighed in on this issue with Alliance Bond Fund Inc. vs Grupo Mexicano de Desarrollo, in full support of the court's jurisdiction to impose Mareva injunctions on worldwide assets. The Fifth and Eleventh Circuits had earlier deduced the rule of De Beers Consolidated Mines Ltd. vs U.S., to the effect that the district court lacks jurisdiction to reach a defendant's assets unrelated to the underlying litigation and freeze them for the benefit of a claimant who has not reduced the claim to judgment. The First, Third and Ninth Circuits, rejected this view of De Beers. There are some open questions. For example, the injunction may affect the rights of third persons over whom the U.S. court has no personal jurisdiction. The injunction is viewed as being non-offensive to principles of international comity because it merely affects the defendant personally, and is not a purported attachment of foreign assets. In the real world, this line is rarely so clear.

Usually, special provisions are included in the injunction aimed at protecting the rights of those third parties. For example, the court may provide that the order "has no extraterritorial effect" on third parties unless declared enforceable by a foreign court.

The Mareva injunction is developing in Europe and Australia, as well. Within the European Union, preliminary injunctions issued by a court of a member state may be recognized and enforced by the courts of other member states under the Brussels Convention.

As you may have noticed, these U.S. cases are all federal rulings. Some state courts have long followed a rule prohibiting injunctions in civil claims for damages only. Given that some of those law are a century old, we may anticipate that changes will come about at the state level as well.

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