US Attorneys Office for the Western District of Washington v Private International Development Bank of American Samoa [2000] WSSC 35 (6 October 2000)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN

US ATTORNEY’S OFFICE FOR
THE WESTERN DISTRICT OF WASHINGTON.
Plaintiff

AND

PRIVATE INTERNATIONAL DEVELOPMENT BANC
OF AMERICAN SAMOA,
a company duly incorporated in the Territory of American Samoa.
First Defendant

AND

ANZ BANK (SAMOA) LIMITED
a duly incorporated company having its registered office at Apia.
Second Defendant

Counsel: H. Schuster for plaintiff
S. K. Ainuu for first defendant
Second defendant was not required to appear

Hearing: 20 September 2000
Judgment: 6 October 2000

JUDGMENT OF SAPOLU CJ

Introduction

The present ex parte motion by the plaintiff is for a mareva injunction to restrain the first defendant from withdrawing or otherwise dealing with funds in account number 2303876 under its name with the second defendant bank and to restrain the second defendant bank from releasing the said funds until further order of the Court. The present motion was heard separately but immediately following the hearing of an application by the first defendant against the Attorney-General for the release of the said funds which had been seized pursuant to a search warrant issued by Wilson J in this Court on 25 May 2000 and the hearing of a motion by the Attorney-General under the Money Laundering Prevention Act 2000 for an order to freeze the same funds which are in the possession or under the control of the present second defendant. I have dealt in separate judgments with the first defendant’s application to release the aforesaid funds and the Attorney-General’s motion for an order to freeze the same funds. In this judgment I will deal only with the motion for a mareva injunction. As this is a separate judgment, it is necessary to set out again the relevant factual background.

Factual background

In the affidavit of David Rubincam, a special agent of the Federal Bureau of Investigations (FBI) in Seattle, Washington, sworn on 30 August 2000 and filed in support of the motion for a mareva injunction, he says he is currently conducting a criminal investigation into certain individuals, namely, Zider, Matthews and Phillips in connection with an investment scheme in which those individuals and others are suspected of various kinds of fraudulent activities. He also says in his affidavit that the United States Securities and Exchange Commission (SEC) which is responsible for the civil enforcement of the securities laws of the United States has also been conducting an investigation into the same investment scheme. The SEC, as a result of its investigations, has filed a lawsuit and obtained a preliminary injunction from the United States District Court for the Western District of Washington against the aforesaid individuals and one Mr Cravens. The injunction is said to require, inter alia, that the aforesaid individuals and Mr Cravens repatriate the funds at issue to the United States and deposit the same with the Court that issued the injunction. For clarity, the reference here to “Washington” is to the state of Washington whose capital city is Seattle, and not Washington DC which is the federal capital of the United States.

Essentially, what is alleged in the affidavit of David Rubincam is that Zidar, Matthews and Phillips set up in the United States an investment scheme comprising of three investment funds. They promoted this investment scheme within the United States and invited people to invest in it. Investors in the scheme were told that there was no risk to their funds which will be traded offshore and they were promised 120% returns, on their investments at the end of the year. However, there was no offshore trading with the investors funds.

What is said in Rubincam’s affidavit to have happened was that the vast majority of investors funds was used by the promoters for their own benefit and purposes such as payment of substantial salaries and commissions to themselves and the purchase of expensive cars and two expensive residential houses in Arizona. A very large amount of the investors funds was transferred to overseas bank accounts making recovery of the funds difficult. In the end the 120% returns promised by the promoters were not realised and many investors lost the entire amounts of their investments.

How this investment scheme became connected to Samoa was that investor funds worth many millions of dollars were initially deposited into a bank account in Washington controlled by the promoters. The investor funds in that account were then transferred overseas and one of the principal places to which the funds were transferred was to bank accounts in the ANZ (Samoa) Bank Ltd in Apia which is the second defendant in these proceedings. These bank accounts are held under the names of two companies. Gravens is said to have played the principal role in the establishment of those two companies and their accounts in the ANZ (Samoa) Bank Ltd. Cravens is also said to be technically the beneficial owner of these two bank accounts even though they are really controlled by the promoters of the investment scheme in the United States. The particular bank account in issue in these proceedings is the one under the name of Private International Development Banc of American Samoa which is based in American Samoa and is the first defendant in these proceedings. The president of that company is Cravens. In fairness to the ANZ Bank (Samoa) Ltd, I must say there is no evidence that it had any knowledge that the funds in the aforesaid account were the proceeds of any fraudulent investment scheme alleged to have been carried out in the United States.

From this narrative, it is clear that as of 30 August 2000, which is the date on which the affidavit by Rubincam was sworn, a criminal investigation was being conducted in the United States into the promoters of this investment scheme.

In the motion and his written submissions, counsel for the United States Attorney’s Office for the Western District of Washington, the plaintiff in these proceedings, says that the promoters of the investment scheme have been “indicted” in the United States. I take this to mean that the promoters have been charged with criminal offences in the United States. However, the supporting affidavit of Rubincam speaks only of an FBI criminal investigation. Perhaps counsel for the plaintiff has another source for his information that the promoters have been indicted. But whether or not criminal charges have been filed against the promoters would not be decisive of the outcome of these proceedings on the motion for a mareva injunction.

Motion

The plaintiff’s motion is really for a domestic mareva injunction to be granted by this Court in aid of a criminal investigation and criminal prosecution (assuming criminal charges have been filed) in the United States. The objective of the motion is to injunct the bank account held in the name of the first defendant in the second defendant bank. The SEC, which is said to have filed a civil lawsuit in Washington and has obtained from the United States District Court for the Western District of Washington an interim injunction against the promoters of the investment scheme and Cravens ordering them, inter alia, to repatriate all investor funds to the United States and deposit them with the Court, is not seeking a mareva injunction from this Court. The SEC is therefore not a party to present proceedings.

I should also mention that none of the investors who had invested funds in the alleged fraudulent investment scheme is seeking a mareva injunction from this Court in aid of any civil claim he may have filed in the United States against anyone connected to the investment scheme. There is also no evidence of any such civil claim being filed by any of the investors.

Hearing of motion

The Court would, as a matter of practice, grant a mareva injunction ex parte on an ex parte motion by a plaintiff. There are several reasons why that was not done in this case. When the plaintiff’s motion was filed, the Court on 8 September 2000 ordered that an undertaking as to damages should accompany the motion. On 19 September when the application by the first defendant to discharge a search warrant issued by Wilson J in May this year which seized the funds in the first defendant’s bank account with the second defendant, and to release those funds, the plaintiff had still not filed an undertaking as to damages but counsel for the plaintiff appeared and, in the presence of counsel for the first defendant, asked about the plaintiff’s motion for a mareva injunction which had already been filed. Apparently counsel for the plaintiff was concerned in case the first defendant’s application to release the funds was successful before something was done about the plaintiff’s motion for a mareva injunction in respect of which the Court was still awaiting an undertaking as to damages from the plaintiff. The effect of this was to make counsel for the first defendant aware of the plaintiff’s motion for a mareva injunction. The Court therefore decided to hear both the motion by the plaintiff and the application by the first defendant on the following day, 20 September. The other reason for taking this procedure was that the funds in the first defendant’s bank account which the plaintiff wants to be injuncted were still being seized pursuant to the search warrant the first defendant was applying to discharge. So there was no risk of those funds being removed out of the jurisdiction or disposed of within the jurisdiction while the Court was hearing the plaintiff’s motion for a mareva injunction. All this might not have happened if an undertaking as to damages had been filed by the plaintiff before the application by the first defendant was called for hearing. The Court might have then granted the plaintiff’s motion ex parte. However, the plaintiff has still not filed such an undertaking as to damages.

Finally, on this part of my judgment, it was not considered necessary to require the presence of the second defendant as the plaintiff’s motion was ex parte and would have been decided ex parte if not for the circumstances already referred to.

Difficulties with motion

As I see it, there are a number of difficulties with the plaintiff’s motion. The first is that the motion seeks a domestic mareva injunction to hold funds in a bank in Samoa in aid of a criminal investigation and criminal prosecution in the United States and not in aid of any civil proceedings. The law on mareva injunction is a novel development and it is still at its early stages of infancy in this country. It has been the subject of judicial developments in the United Kingdom in the last 20 years and I have not been able to find any case in that jurisdiction where the Courts have granted a mareva injunction to prevent the removal of assets from the jurisdiction or the disposal of assets within the jurisdiction in aid of a criminal investigation or prosecution in a foreign country. Where a mareva injunction has been sought from the English Courts in aid of proceedings in a foreign country, it has always been in relation to civil proceedings.

An interlocutory injunction, whether of a mareva nature or of the common kind, is an equitable remedy. Traditionally, it provides a form of interim relief in aid of an action in civil proceedings. Speaking of the English rules of Court in relation to interlocutory injunctions in Siskina (Owners of cargo lately laden on board) v Distos Compania Naviera SA [1977] 3 All E R 803, a case concerned with a mareva injunction application, Lord Diplock said at p. 824.

“A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent on there being a pre-existing cause of action against the defendants arising out of an invasion, actual or threatened, by him of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the Court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action.”

This passage clearly suggests that an interlocutory injunction is a remedy in civil proceedings. It presupposes that a plaintiff who is seeking an interlocutory injunction against a defendant has a pre-existing civil cause of action. The granting of an interlocutory injunction in relation to a criminal investigation or prosecution is not something that is contemplated.

In our own Supreme Court (Civil Procedure) Rules 1980, Rule 193 relates to the power of the Supreme Court to issue an injunction and Rule 196 requires that any motion for an extraordinary remedy, which includes an injunction, must be accompanied by a statement of claim and a supporting affidavit. The requirement for a statement of claim clearly presupposes the existence of a cause of action, which must mean a civil cause of action, before an injunction may be granted.

Given this state of the law, it will not be appropriate to grant an injunction, including a mareva injunction, in aid of a criminal investigation or prosecution which is what is being sought by the plaintiff. The SEC which has filed a civil lawsuit and obtained an interim injunction from the District Court for the Western District of Washington is not a party to these proceedings and is not seeking a mareva injunction in these proceedings. Only the plaintiff, the United States Attorney’s Office for the Western District of Washington, is moving for a mareva injunction from this Court.

The second difficulty with the plaintiff’s motion for a mareva injunction is the important question of jurisdiction. The mareva injunction was recently introduced into the common law by the English Courts starting with Lord Denning MR in Mareva Cia Naviera SA v International Bulk Carriers SA [1975] 2 Lloyd’s Rep 509; [1980] 1 All ER 213. The English Courts have continued to be in the vanguard in developing this new remedy in the common law world and it would therefore be wise and prudent to look to English law for the basis of the English Courts jurisdiction to grant a mareva injunction in aid of civil proceedings in a foreign country in order to provide some guidance to the jurisdictional approach our Courts should take. This means the kind of situation where a plaintiff is seeking a mareva injunction from an English Court to freeze assets located in England which belong to the defendant in aid of civil litigation pending between the plaintiff and the defendant in a foreign country.

Thet and possibly the mthe most important source of jurisdiction for the English Courts is section 25 of the Civil Jurisdiction and Judgments Act 1982 (UK) which gives jurisdiction to an English to grant a mareva injunctiunction in England in aid of proceedings which have been or are to be commenced in another EEC country which is a Contracting State to two Conventions, namely, the Brussels Convention and the Lugano Convention. This means a plaintiff may obtain a mareva injunction from an English Court to freeze the defendant’s assets in England pending substantive proceedings between the plaintiff and the defendant in another EEC country which is a Convention State: see Cheshire and North Private International Law (1992) 12^th ed pp 192 – 193; Dicey and Morris Conflict of Laws (1993) 12^th ed, vol 1, pp 194 – 196. For an English case where an English Court founded its jurisdiction on section 25 of the Civil Jurisdiction and Judgments Act 1982 (UK) and granted a mareva injunction in aid of substantive proceedings pending before the Courts in France which is a Convention State: see Republic of Haiti v Duvalier [1990] 1 QB 203 and what was said by Lord Donaldson MR about that case in Rosseel NV v. Oriental Commercial and Shipping (UK) Ltd [1990] 3 All ER 545 at p. 546. Reference should also be made to the judgment of Kerr LJ in Babanaft International Co. SA v Bassatne [1990] Ch 13 at p.36.

In respect of a non-Convention State, like the United States of America, the English Courts will have jurisdiction to grant a mareva injunction in aid of substantive proceedings pending before a Court of such a State country provided section 25 of the Civil Jurisdiction and Judgments Act 1982 (UK) has been extended by Order in Council to such a State: see Cheshire and North Private International Law (supra) and Dicey and Morris Conflict of Laws (supra).

Apart from section 25 of the 1982 Act, the second source of jurisdiction for an English Court to grant an interim injunction in aid of substantive proceedings in a foreign country is section 37 of the Supreme Court Act 1981 (UK). This is clear from Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664 where the English Courts were concerned with a motion for an interim injunction in aid of arbitration proceedings in Brussels.

I have referred to the sources of the English Courts’ jurisdiction to grant a plaintiff a mareva injunction to freeze a defendant’s assets in England pending substantive proceedings between the plaintiff and the defendant in a foreign country to show that the foundation of such jurisdiction is statutory. Samoa does not have similar statutory provisions as they have in England. And it was not suggested that our Courts have a common law jurisdiction in the matter. In the absence of any argument on the important question of jurisdiction, I am not prepared to hold that this Court has jurisdiction to entertain the plaintiff’s motion for a mareva injunction in aid of proceedings in the United States which is a foreign country. We are here in the area of private international law and conflict of laws and questions of international reciprocity, inter-relationships between foreign states and international comity are considerations that may also be relevant. Without arguments on the question of jurisdiction, I prefer to leave the matter open for another case.

The final difficulties with the plaintiff’s for a mareva injunction is that it was not accompanied by a statement of claim as required by Rule 196 of the Supreme Court (Civil Procedure) Rules 1980. The purpose of this requirement is to show whether the plaintiff has a pre-existing civil cause of action. From the supporting affidavit of David Rubincam, the plaintiff does not appear to have a civil cause of action against the first and second defendants. What the plaintiff seems to be concerned with is the enforcement of the criminal law in the state of Washington. There is also still no undertaking as to damages from the plaintiff as required by the Court on 8 September 2000 even though at the hearing on 20 September counsel for the plaintiff produced a letter from the plaintiff which shows that steps were being taken to prepare such an undertaking.

Conclusion

For all the foregoing reasons, the plaintiff’s motion is dismissed.

CHIEF HIEF JUSTICE

Solicitors:
Fepuleai and Schuster Law Firm for plaintiff
S. K. Ainuu for first defendant