Court of appeal denies freezing order, finding Chief Justice Misapplied Mareva Injunction Principles

Over thirty years after the Barbados High Court granted its first Mareva injunction, the Court of Appeal has finally pronounced on the principles applicable to a grant of a freezing order in Barbados in Parris et al v CLICO International Life Insurance (Civil Appeal No. 8 of 2016). The Court of Appeal unanimously declined to uphold the freezing order granted by the Chief Justice sitting at first instance.

Summary:

This caseconcerned appeals from the decision of Gibson CJ, sitting as a High Court judge. The First Appellant, Leroy Parris (“Mr. Parris”),and the Second Appellant, Branlee Consulting Services Inc. (“Branlee”) appealed Gibson CJ’s decision dismissing their application to discharge the freezing order (Mareva injunction) granted against them. CLICO International Life Insurance (under judicial management) (“CLICO Life”) filed a cross-appeal challenging Gibson CJ’s order to strike out the action brought by CLICO Life against the Third Appellant, the Estate of David Thompson (represented by its Personal Representative Marie-Josephine Mara Thompson) (the “Thompson Estate”). The Court allowed the Parris/Branlee appeal ordering that the freezing order be discharged. Regarding the cross-appeal, the Court found that the Chief Justice fell into fundamental error in exercising his discretion to strike out, set aside the order striking out the case filed by CLICO Life against the Thompson Estate and reinstated that action.

 Digest:

1. Relevant Facts

The underlying claim had been brought by CLICO Life against Mr. Parris, its former CEO, for breach of his fiduciary duties owed to it and against Branlee (Mr. Parris’ management company) and the Thompson Estate for knowing receipt and/or knowing assistance in Mr. Parris’ breach of trust.

Based on the findings of two forensic audits and several extensive tracing exercises, CLICO Life believed that Mr. Parris had wrongfully procured funds paid, upon Mr. Parris’ authorisation, by CLICO Life to Thompson & Associates – purportedly for legal fees/retainers. CLICO Life’s without notice application seeking a freezing order restraining Mr. Parris and his company, Branlee, from, inter alia, removing their assets in Barbados up to BDS $4,500,000.00, was granted.  Mr. Parris and Branlee subsequently sought an order discharging the freezing injunction. Separately, the Thompson Estate sought an order for summary judgment against CLICO Life or, alternatively, an order striking out CLICO Life’s claim against it. Gibson CJ dismissed the application filed by Mr. Parris and Branlee and, without hearing argument from any parties to the application, granted the Thompson Estate’s application to strike out the case filed against it.

2. The Court’s function in an appeal against a Freezing Order (paras 67 – 73)

The Court’s power to grant a Mareva injunction, derived from CPR 17.1(1)(e), is discretionary. Therefore, to interfere with the exercise of Gibson CJ’s discretion, the Court would need to be satisfied that he acted on a misunderstanding or misapplication of the law or evidence.

3. The principles of law governing the grant/discharge of a Mareva injunction (paras 74 – 85)

In determining whether to exercise its discretion, the Court found that it should take into account the following:

• the claimant must have a “good arguable case”, which is “…not necessarily one which the judge considers would have better than 50% chance of success” (Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG, the Neidersachsen [1984] 1 All ER 398, 403);
• the “good arguable case” must be in respect of an underlying claim for in personam, and not proprietary, relief;
• there must be dissipation or a fear/risk of dissipation; and
• the dissipation or fear/risk of dissipation must be based on facts disclosed by persuasive affidavit evidence.

The overarching consideration in deciding whether to grant a Mareva injunction is whether it would be just and equitable in all the circumstances of the case. In certain circumstances, a claimant’s duty in without notice applications to fully state the points made against his claim and the requirement that a claimant give an undertaking in damages, will also be relevant.

The Court held that Gibson CJ used the appropriate general principles regarding the discharge of the Mareva injunction.

4. The trial judge’s application of the “Mareva principles” (paras 86 – 114)

(a) Good, arguable case

The Court agreed with Gibson CJ that the affidavit evidence established a good arguable case for personal actions in equity, first, against Mr. Parris, being satisfied in evidence that Mr. Parris – as a director of CLICO Life – authorised the payment and thus acted in his own interests, and also in relation to the allegation of Branlee’s and the Thompson Estate’s knowing receipt and/or knowing assistance in the above.

(b) Evidence of dissipation/risk of dissipation

The Court found that Gibson CJ fundamentally erred in finding persuasive evidence of dissipation since:

• the assets of Mr. Parris and Branlee exceeded the amount claimed by CLICO Life and necessitated a major divestment project to avoid a judgment for the amount claimed, of which there was no evidence;
• there was evidence that Mr. Parris and Branlee made every effort to ensure that their cash assets were deposited in reputable banking institutions and deployed substantial legal effort to forestall attempts by said institutions to terminate their banking relationships;
• Gibson CJ’s consideration that Mr. Parris’s “receipt of the funds and subsequent moving of the funds through various bank accounts” was found to be a mischaracterisation of the facts; and
• Gibson CJ’s reliance on findings that Mr. Parris failed to address the issue of his approval of a false invoice and had not denied knowledge of the fact that the invoice was false was misplaced, as these could not reasonably justify an inference of dissipation or risk of dissipation.

While the Court agreed that an undertaking in damages was unnecessary, it found that CLICO Life was under a duty to fully disclose Mr. Parris’s and Branlee’s claims against it on its without notice application – which it had not done. Ultimately, the Court found that the balance of justice and equity required the discharge of the freezing order.   

5. The Striking Out Order (paras 115 – 131)

The Court noted that where a striking out order affects a party’s rights materially, it can be set aside where it offends audi alteram partem principles. The application to strike out the case against the Thompson Estate was determined during Mr. Parris and Branlee’s application for the discharge of the Mareva injunction, despite it having been fixed for hearing on a separate date. Further, none of the parties addressed the Court on the application. The Court of Appeal found that Gibson CJ breached the audi alteram partem principles in the exercise of his discretion to strike out.

The Court also found that the discretion was exercised on plainly incorrect legal principles. First, CPR 29.9(1) which allows a defendant to apply for a claim to be struck out where a claimant dies and their personal representative failed to apply for an order to be substituted as claimant, did not apply.

Secondly, in exercising the strike out discretion under CPR 26.3(1), the Court must apply the authoritative non-exhaustive guidelines in Barbados Rediffusion Services Limited v Asha Mirchandani et al (CCJ Appeal No. CV 1 of 2005) (“Barbados Rediffusion”). These include that the judge’s discretion should be exercised “as justice requires”; strike out orders should be made either when necessary to achieve fairness or when necessary to maintain respect for the court’s order.

The Court found that Gibson CJ did not regard Barbados Rediffusion and that fairness could have been achieved by an amendment to the title of the action, clarifying that the claim was against the personal representative (and not the Estate) of David Thompson. Thus, striking out CLICO Life’s claim against the Thompson Estate was not necessary to achieve fairness and would be overturned.

For further information, please contact Tammi C. Pilgrim, Partner, Taylor Laurayne, Associate, or your usual Lex Caribbean contact.