Worldwide Freezing Orders - UK Court co-operate with the SEC to combat fraud

05/02/2009

This was an appeal of a worldwide freezing order sought by the SEC and granted in February 2008 over assets of the Appellant, Mr Manterfield.

The original complaint alleged Mr Manterfield (together with other defendants), was involved in an on-going fraudulent investment scheme involving sales in Taiwan of 'limited partnership interests' in an unregistered fund.

The defendants were offering and selling hedge fund interests to investors and potential investors and not disclosing material facts (for instance, the principal underlying asset (life insurance policies) might be either worthless or virtually worthless).

The Appellant was thought to have induced over 60 investors (all of whom were Taiwanese) to invest approx $34m in the fund, then he and another misappropriated millions of dollars.

The Appellant's assets in the UK were put under a restraint order in the Crown Court in Feb 2007 pending contemplated criminal proceedings. No proceedings were ever brought against the Appellant in the UK and the restraint order was discharged on 29 February 2008. On the same day, the SEC made its application to the English court for the interim freezing order in support of their proceedings in the United States. The interim freezing order was brought pursuant to section 25(1) of the Civil Jurisdiction and Judgements Act 1982, which empowers the British Courts to grant interim relieve where foreign litigation is commenced in relation to a civil or commercial matter. This interim injunction was granted.

Jurisdiction
The first ground of the appeal was on the basis that the interim injunction obtained over his UK assets was unenforceable, as the English Courts do not have the jurisdiction to entertain the actions as the matter was for the enforcement of a penal, revenue or other public law of a foreign state or founded upon the act of a state, thus infringing on the sovereign power of another territory (Mr Manterfield relied on Rule 3 from Dicey Morris & Collins The Conflict of Laws 14th Edition, Vol 1).

He argued that by implementing such an Order, the court would be in breach of Rule 3 on the basis that a critical part of the SEC's claim in the United States was to seek penalties. The court adopted the principle that a relevant governmental interest will depend "upon the scope, nature and purpose of the provisions being enforced and the substance, rather than form of the proceedings". Thus, the substance which the SEC sought to enforce (if successful) was the preservation of assets, disgorgement and return of the alleged proceeds of fraud back to the investors. Thus, the SEC's actions were in the public interest and constituted public laws without constituting a governmental interest of the relevant kind, therefore falling outside of the fundamental rule of private international law.

Cross Undertaking
The second argument asserted was that the Judge had wrongly dispensed with a cross-undertaking for damages by the SEC (that is, an unlimited undertaking), and without such cross-undertaking, no freezing order ought to have been made. The crux of the argument was that the Court, in its discretion, should have refused the cross-undertaking on the grounds that the case did not fall within that exception area where a cross-undertaking would be dispensed with. The Appellant also argued that the SEC was not funded by the British tax payer and the allegations made in the substantive action did not affect or adversely affect the interests of the citizens of the United Kingdom.

Lord Justices Moses and Hallett entirely agreed with the judgment at first instance that bodies such as the SEC and their comparable institutions exist with the object of combating fraudulent conduct. Furthermore, the allegations of international fraudulent activity require international co-operation. Thus, in such circumstances, it is not relevant that the SEC is not funded by the British taxpayer and that the fraud took place in the Unties states and did not affect UK citizens and as such, there is no reason to refuse the interim injunction on the basis that an unlimited undertaking could not be given by the SEC.

Back to news archive