Neutral Citation Number: [1996] EWCA Civ 1357
Case No: LTA 96/6107/B 
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(MR JUSTICE MORISON)

Royal Courts of Justice
Strand
London WC2

Date: Wednesday 22 May 1996

B e f o r e:

THE MASTER OF THE ROLLS
(SIR THOMAS BINGHAM)
LORD JUSTICE ALDOUS
LORD JUSTICE PHILLIPS

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CAMDEX INTERNATIONAL LIMITED
Plaintiff/Respondent

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BANK OF ZAMBIA
Defendant/Appellant
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(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 0171 831 3183
Official Shorthand Writers to the Court)
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MR M BRINDLE QC and MR R HANDYSIDE (Instructed by Lovell White Durrant, London EC1A 2DY) appeared on behalf of the Appellant

MR T CHARLTON QC (Instructed by Baker & McKenzie, London EC4V 6JA) appeared on behalf of the Respondent
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J U D G M E N T
THE MASTER OF THE ROLLS:  This is an application by the defendant for leave to appeal and, should leave be granted, an appeal against a decision of Morison J given in the Commercial Court on 17 May 1996.  

The plaintiff in these proceedings is a judgment creditor and the defendant is the Central Bank of Zambia.  The detailed background to the proceedings is not relevant for present purposes.  It is apparent from the documents before us that there were financing agreements made between the Central Bank of Kuwait and the defendant under which considerable sums of money were payable by the defendant to the Central Bank of Kuwait.  
	
In due course there was an assignment of the benefit of a number of claims by the Central Bank of Kuwait to the plaintiff, a Bahamian company, which issued proceedings against the defendant.  In those proceedings the plaintiff obtained summary judgment in its favour on 18 September 1995 for the sum of £80 million which has now increased, with the addition of interest to some £120 million.  

The defendant appealed against that judgment to the Court of Appeal but its appeal was dismissed on 3 April 1996.  Although the defendant is seeking leave to appeal to the House of Lords, there is currently no stay in existence.  However, there is an undertaking by the plaintiff to preserve the fruits of any execution it may succeed in levying within the jurisdiction until the proceedings in the House of Lords have come to an end, whether by refusal of leave or by determination of an appeal.  It is accepted that the plaintiff is to be treated as a judgment creditor with an unsatisfied judgment debt.  

Immediately following the dismissal of the appeal on 4 April 1996, Sir John Wood, sitting in chambers, granted the plaintiff a worldwide Mareva injunction against the defendant.  The defendant applied to Newman J to set aside that injunction, and achieved partial success in as much as the territorial scope of the injunction was narrowed down to this jurisdiction.  Newman J, however, rejected a submission made by the defendant that it should be free to dispose of its assets in the ordinary course of business.  The judge distinguished the position of a judgment creditor from that of an ordinary claimant who has yet to establish his claim, and the decision of Newman J is not subject to appeal.  Indeed, it is accepted on behalf of the defendant that it was correct and that a judgment debtor is not free, as a defendant may be, to dispose of its assets in the ordinary course of business.  

The defendant has not satisfied the judgment debt or any part of it.  The reason for that is quite clear from the evidence before us, which is that it lacks the funds to do so.  The defendant has debts which we are told amount externally to some US$7 billion, and it has assets of some US$115 million of which less than half are unencumbered.  It has substantial obligations to international institutions such as the International Monetary Fund and the World Bank.  It is quite plain that the economic predicament of the country would be even more severe were it to default on its repayment obligations.  As is apparent from the figures I have given, it has other creditors besides the plaintiff and it is quite plain that the Zambian economy is in a far from healthy condition.  

The defendant, the Central Bank, is responsible for managing and issuing currency in Zambia.  The local medium of exchange is the Kwacha.  The evidence shows that as a result of inflation very much greater denominations of Kwacha are needed in order to conduct business and the country finds itself with too many notes in low denominations of which, accordingly, citizens need very large numbers in order to do business.  It has not quite reached the position such as existed in pre‑war Germany, as one gathers from the evidence, but, nonetheless, the picture that is painted is that the volume of bank notes which it is necessary to handle in order to do business has become so great as to act as a shackle on the efficient conduct of economic life.  

Against that background, the defendant wished to obtain, and issue, a very large quantity of high value Kwacha notes for issue in Zambia in replacement, or partial replacement, of lower denomination notes.  To that end it placed an order with De La Rue Plc, the well‑known security printers, for the production of bank notes.  Those notes have been printed and are available in this country, but they have not yet been delivered to the defendant and are not yet, as we understand, the defendant's property, although they have been paid for.  

The defendant accepts that these bank notes are bound by the Mareva or, in any event, will be the moment they become the property of the defendant.  It was this situation which led to the application before the judge.  The defendant applied to Morison J that the bank notes should be exempted from the Mareva injunction.  The bedrock of the defendant's case was that the issue of these notes by the defendant in Zambia was of great importance to the Zambian economy and that accordingly the notes should be freed for that purpose. 
 
The point was made that only the defendant as the Central Bank could issue the notes and also that they were of negligible value save to the defendant.  Therefore, it was argued that they should be released since the function of a Mareva injunction is to safeguard the value of assets and not to act as a means of enhancing the value of those assets.  The plaintiff on the other hand, in argument before the judge, stressed, as Mr Charlton has cogently done today, that the issue should be seen as an essentially simple one.  The plaintiff is a judgment creditor.  It is entitled to payment.  It faces a debtor who has no intention to pay and, furthermore, the plaintiff says, it faces a debtor who will do what it can to evade payment.  The plaintiff submitted to the judge that the relaxation of the Mareva which the defendant was seeking would be of no benefit to the defendant since the bank notes would still be liable to execution and the defendant, for whatever reason, had made no application to stay execution.  

The plaintiff further took issue with the suggestion that the bank notes were of no value, save to the defendant, pointing out that their value to the defendant gave them a value since the defendant would be willing to pay what was judged to be a considerable sum to obtain possession of them, even if they were not saleable to a third party.  The plaintiff, however, did not accept that they were not necessarily saleable to any third party and drew attention to a letter which was before the judge from Zambia Consolidated Copper Mines Limited, through its solicitors, in which the receipt of Kwacha was discussed.
  
The plaintiff submitted to the judge that the defendant had no right to pick and choose among its creditors to decide which it would pay or which assets it should expose to execution.  These bank notes were, it was submitted, an asset and were therefore subject to execution like any other asset.  The defendant's response to this submission was to suggest that, in effect, it was being held to ransom.  The plaintiff, it was said, was saying, "We have control of your asset, it may be of no value to us but it is of great value to you, therefore we shall hold it until you pay us off".  

For the defendant there was also an appeal to the general equitable discretion of the court to grant or withhold injunctions.  It was urged upon the judge that in all the present circumstances it would be inappropriate to refuse relaxation of the injunction to the extent sought. 
 
It is plain from his judgment, of which we have a transcript, that the judge attached importance to the fact that there was before him no application for a stay.  He accepted a submission made by Mr Charlton, on behalf of the plaintiff, that this application was an empty one since, even if the injunction was varied, the bank notes still remained liable to the process of execution.  He also rejected the defendant's argument that it was being held to ransom.  He said at page 10, line 12 of his judgment: 

	"It seems to me that the Mareva injunction is not being used to exert any kind of improper pressure on the Bank or to hold it to ransom, which is the description used by Mr Brindle.  It simply preserves within this jurisdiction assets, including the bank notes, upon which Camdex may execute.  Those notes, in my judgment, have a real value because the Bank will be likely to wish to repurchase them from Camdex for a considerable price if the contents of their affidavit evidence is true."

The judge further rejected Mr Brindle's appeal to the general equitable discretion of the court.  At page 11, line 13 of his judgment he said: 

	"The Mareva injunction is being used properly in aid of execution and, in any event, in the light of the Bank's attitude towards the court's judgment I am not inclined to exercise my discretion in their favour unless and until they show an intention of honouring their obligations pursuant to the judgment.  That being so, I shall give the Bank liberty to re-apply, if it has demonstrated an intention of honouring the court's orders which have been made and making an application under Order 47 as Newman J indicated that they might wish to do."

Before this court both parties have essentially repeated their submissions made to the judge.  Mr Brindle has repeated both his arguments, although he has somewhat modified his first argument in order to meet the contention that this is an empty application.  As the defendant understands the position, it is not free to renegotiate the De La Rue contract so long as the Mareva injunction is in force, but contends that if the Mareva injunction were varied and the relaxation were granted to the extent sought, then it would be able, and would certainly seek, to renegotiate the contract with De La Rue so as to ensure that the property in the bank notes did not pass to the defendant while the bank notes were still within the jurisdiction.  In that manner there would be no risk of execution.  In this way he submits that the defendant could achieve its essential objective.  

Mr Charlton again submits that the defendant is in effect seeking to obtain the benefit of a stay without applying, as it should, under Order 47 and suggests that the defendant has to some extent changed its grounds.  His submission is that if the defendant wanted a stay it should apply for it, and that the reason why it did not apply for it was because it knew that such an application, if made, would be unsuccessful.
  
This application arises in what is certainly, in my experience, a novel situation, where the enforcement of a claim is said to threaten, or certainly jeopardise, the economic survival of a state. In such a situation, one would expect to find a claim made for sovereign immunity. It is, however, plain that in the agreement between the Central Bank of Kuwait and the defendant there was an express and irrevocable waiver of any right to plead sovereign immunity and so that issue does not arise.  
	
It seems to me that in a situation such as this, it is important to go back to first principles.  A Mareva injunction is granted to prevent the dissipation of assets by a prospective judgment debtor, or a judgment debtor, with the object or effect of denying a claimant or judgment creditor satisfaction of his claim or judgment debt.  Here, it is plain that the defendant wants to transfer these bank notes to Zambia.  In doing so it would not, as it seems to me, dissipate any asset available to satisfy the judgment debt because the asset has, in the open market, no value.  It is not an asset of value to the plaintiff or other creditors of the defendant if it were put up on the market and sold.  It is true that the denial of this asset to the defendant would put the defendant in a position of such extreme difficulty that the defendant would seek to pay a price beyond the market value of the asset in order to recover it, but that is, as it would seem to me, what would in ordinary parlance be described as holding someone to ransom.  I do not for my part consider that this is an empty application.  The relaxation of the injunction to permit removal of the bank notes would, in my judgment, improve the position of the defendant.  This court is not at this stage immediately concerned with any question of execution.  It is enough to note that the defendant could, if so advised, make an application for a stay of execution if this relaxation of the injunction were granted.  It might be that the need for such an application would be obviated by a variation of the agreement with De La Rue.  

This court is not concerned with that issue which is not immediately before it, but is concerned as to whether the injunction should stand without variation.  In response to Mr Brindle's first argument, I would hold that it should not.  I would add that I would also accede to Mr Brindle's argument based on more general equitable grounds.  I remind myself that this is the judge's discretion and not an original discretion in this court, and the judge's exercise of his discretion is not to be lightly displaced.  On the other hand, I feel driven to conclude that the judge did give inadequate weight to the quite extraordinary circumstances affecting the exercise of the equitable jurisdiction in this case.  At page 10 of his judgment at line 3, he said that he did have misgivings about a private institution acquiring a Central Bank's rights and advancing those interests in preference to those of other international governmental or quasi-governmental organisations.  However, he went on to say that he was faced with a judgment debtor who had decided to make enforcement as difficult as possible, and who was seeking to remove from the jurisdiction an asset which was of considerable value to itself and which it might be willing to purchase from the judgment creditor once execution had been levied upon it.  
	
Of course one agrees with the judge, without qualification, that a judgment debt should, in the ordinary way and in any ordinary situation, be paid.  It is, however, relevant that the defendant is a body to whom the ordinary procedures of bankruptcy and winding-up are not available.  The situation is one in which, on the evidence, severe national hardship to the people of Zambia would follow if the state defaulted in its international obligations.  

It would seem to me that the defendant, grievously short of funds as it plainly is, cannot be at fault if it seeks to pay its creditors on a pro-rata basis, even if that means that each of them recover very little.  It must be a legitimate concern of the defendant to try and ensure that the repayments due to the World Bank and the International Monetary Fund are not the subject of default.  This seems to me a setting so unlike that in which the ordinary Mareva jurisdiction falls to be exercised, that the learned judge did fall into error in failing to recognise this new dimension of the problem with which he was confronted.  

I would, for my part, grant leave to appeal and would allow the appeal directing that there be a variation of the existing Mareva injunction so as to exclude from its scope the bank notes currently held by De La Rue Plc.

LORD JUSTICE ALDOUS:  I agree with the judgment that has just been given by the Master of the Rolls and would only add a few words which I believe are in support.  The purpose of Mareva relief is, and always has been, to prevent a defendant from removing from the jurisdiction his assets or dissipating them.  It is not, and never has been, an aid to obtaining preference for repayment from an insolvent party.  

In this case the plaintiffs seek to resist the defendant's application to remove the bank notes from the ambit of the Mareva injunction.  They have no market value, but the plaintiff believes that the defendant would, or ought, to pay for them if they were seized upon a writ of fi fa.  They say that maintenance of the injunction in the form that it is, does not amount to a ransom.  That is a view which does not reflect reality.  The notes have no value, but the defendants want them so that they can be issued in Zambia.  What the plaintiffs are saying is, "If you do not pay your debt which you owe to us, we will not release the bank notes from the injunction.  How much will you pay to avoid the damage and inconvenience caused?"  That is no doubt a commercial attitude, but it is not one for which a Mareva injunction should be properly granted.  The bank notes have at the moment no value and to remove them from the jurisdiction cannot amount to dissipation of assets.  The view taken by the judge that they were assets was wrong.  They only had a market value when issued in Zambia.  

I, like The Master of the Rolls, also believe that the injunction should be modified as a matter of discretion.  The evidence to which we were directed in the affidavit of Mr Holland, sworn on 16 May 1996, is, I believe, relevant. In paragraphs 11 to 21 of that affidavit, he sets out in detail the consequences that would happen if the injunction was not modified.  In paragraph 11 he refers to the fact that the Zambian currency has devalued to such an extent that the notes presently in circulation are of denominations that are too low for practical day to day use.  As a result, a very large number of notes must be carried by persons in Zambia.  He goes on to say that he has been informed by the Deputy Governor of the Bank, Dr Situmbeko Musokotwane, that the bank has engaged in an extensive advertising and publicity campaign in Zambia with a view to bringing the fact that new high denomination notes are to be introduced into the country.  Those efforts have made the population aware of the design of the notes so as to reassure them of their value.  He says that he has been informed by the Deputy Governor that some of the new notes have already been sent to Zambia.  They have not as yet been issued, but the process of delivering them to commercial banks in Zambia has started; to continue that process is critical to maintaining monetary and economic stability.  Further the notes were to be issued at the end of May and that has been widely publicised.  He goes on to draw attention to the fact that Mareva had the effect of freezing the notes in the hands of De La Rue with the result that the bank is very concerned that it cannot even issue the notes that have already been sent to Zambia and if the Mareva is maintained, it will not be able to issue the ones that are the subject of this dispute.  Mr Holland draws attention to the difficulties that that will have on the money supply in Zambia.  He says that, in theory, notices could be given in Zambia to the effect that new notes are not, and will not, be treated as being legal tender, but says that this potentially has difficult and could have catastrophic consequences on the Zambian economy.  Mr Holland also gave evidence that many of the notes in circulation in Zambia were damaged and unusable.  If those notes were not replaced, there was likely to be an inadequate money supply with consequential loss.  

In my view, that evidence establishes the very substantial damage which residents of Zambia will suffer if the injunction is not modified.  In this case the evidence is, I believe, overwhelming in establishing that the court should not extend the injunction to cover the bank notes.  

I, therefore, have come to the same conclusion as that reached by the Master of the Rolls.  

LORD JUSTICE PHILLIPS:   A Mareva injunction granted after judgment is a comparatively rare form of such relief.  In Deutsche Schachtbau-Und Tiefbohr-Gesellschaft MBH v Shell International Petroleum Company Limited [1990] 1 AC 295 at page 317, the Master of the Rolls, Sir John Donaldson, said: 

	"The Mareva innovation, which time has shown to be one of the most imaginative, important and, on the whole, most beneficient of modern times, lay in giving a plaintiff some degree of protection before he became a judgment creditor and in anticipation that he would become one.  Judgment creditors had little need of new protection since they were usually adequately protected by their right to levy execution by a writ of fi fa, attachment of debts or the appointment of a receiver."

A Mareva can properly be granted after judgment in circumstances, which must be rare, where this is necessary to prevent the removal or dissipation of an asset before the process of execution can realise the value of that asset for the benefit of the judgment creditor.  That is not this case.  The reality here is that the unissued bank notes, which are the subject matter of the application, are not assets which would be of any interest or benefit to a sheriff executing a writ of fi fa.  

Mr Charlton urged us to find that there was a third party who was a potential purchaser of these notes for value.  That third party is a governmental organisation ZCCM, the state owned copper mining organisation against whom garnishee proceedings are currently taking place.  Mr Charlton made the same submission before the learned judge, and this is what he said in relation to it: 

	"I was shown a letter from a firm of solicitors called Eversheds who act on behalf of ZCCM and reference is made to the potentiality of ZCCM making payments to Camdex against the equivalent amount of Kwacha in exchange.  I do not intend to go into the dispute which is involved in applications between Camdex and ZCCM by way of garnishee proceedings, but it seems to me, on a reading of this letter, that it is obvious that Eversheds are referring to Kwacha which has been issued in the way described in the affidavit filed on behalf of the Bank in this case, and not to notes which Camdex have seized under a writ of fi fa in this jurisdiction and then handed over to ZCCM."

Mr Charlton has shown us that letter and I have reached precisely the same conclusion as the learned judge.  The letter does not suggest to me that ZCCM would constitute a purchaser to whom the sheriff could properly sell these unissued bank notes for value.  

The reality is that these bank notes have no market value whatsoever.  They are a worthless and potentially embarrassing quantity of scrap paper of some 19 tons in weight.  They are, however, of great practical significance to the defendant as they are needed by the defendant to fulfil its role as central banker in Zambia.  Because of this, if they are detained, the consequences will be such as to result in the defendant being prepared to pay a significant sum to buy their release.  In these circumstances, it seems to me, that the Mareva is being used in relation to these bank notes not for the purpose of preserving an asset that will be of value in the process of execution, but in an attempt to pressurise the defendant into discharging part of its liability under the judgment.  That is not a legitimate use of the Mareva injunction.  

For this reason, and for the wider reasons of policy given by my Lords, The Master of the Rolls and Lord Justice Aldous, I agree that leave to appeal should be granted, that this appeal should be allowed and the Mareva injunction varied as my Lord, The Master of the Rolls has indicated. 

THE MASTER OF THE ROLLS:  I had intended to mention ZCCM.  I agree with Phillips LJ and would wish to associate myself with what he has said about that.  

Order:  Appeal allowed. The form of variation in the notice of appeal is that the bank notes be released from the injunction so as to allow the defendant to remove them from the jurisdiction.  Defendant/Appellant to have the costs of the appeal in this court.  No order as to costs in the court below. Application for leave to appeal to House of Lords refused and for a stay of this order refused.