Bank Of China v NBM LLC & Ors

Factual and Procedural Background

The Plaintiff, Bank of China, obtained a world wide freezing order under section 25 of the Civil Jurisdiction and Judgments Act 1982 in aid of proceedings in New York against companies and individuals associated with two defendants alleged to have defrauded the Plaintiff in the United States. The claim involves US$34 million plus interest, punitive damages, and costs. None of the defendants are incorporated or resident in England and Wales, and none complied with the disclosure requirements of the freezing order.

The freezing order was originally made by Tomlinson J in March 2001 in a standard form. UBS, a Swiss bank with an English subsidiary and London branch, was served with the order and requested a variation to include a proviso (“the Baltic proviso”) allowing it and its subsidiaries to comply with obligations under the laws of the country where the assets are located or under the proper law of the relevant contract. The Plaintiff opposed this broader variation, consenting only to compliance with criminal law obligations abroad. The court below (David Steel J) allowed the variation, and the Plaintiff appealed that decision.

Legal Issues Presented

1. Whether the Baltic proviso, which permits third parties such as banks to comply with their reasonable obligations under foreign laws and contracts relating to assets outside England and Wales, should be included in a world wide freezing order.
2. Whether the standard form of world wide freezing order should be varied to include the Baltic proviso as a matter of practice and principle.
3. The extent to which the English court’s freezing order can impose obligations on third parties in respect of assets held abroad without offending principles of territorial jurisdiction and comity.

Arguments of the Parties

Appellant's Arguments (Plaintiff)

• The Baltic proviso is unnecessary and gives excessive protection to third parties, effectively reverting to the position before the Derby and Weldon proviso which required third parties to prevent breaches if able to do so.
• There have been no reported problems with the Derby and Weldon proviso, which strikes a proper balance between claimant protection and avoiding double jeopardy for third parties.
• The Baltic proviso allows third parties to decide unilaterally what their obligations are under foreign law, which is inappropriate.
• The English court’s jurisdiction over third parties is based on their presence in England, and the Derby and Weldon proviso is not an exorbitant extension of jurisdiction, especially in fraud cases.
• The undertaking in damages provided by the claimant adequately protects third parties against loss arising from compliance with the freezing order.
• Third parties unwilling to breach contractual obligations can seek relief from foreign courts, thus avoiding contempt of the English court.

Respondent's Arguments (UBS and Supporting Position)

• UBS routinely requests the Baltic proviso in world wide freezing orders to avoid conflicts between English freezing orders and foreign legal obligations.
• The Baltic proviso protects third parties from being forced into breach of civil obligations under foreign law by requiring only that they comply with what they reasonably believe to be their obligations.
• The Derby and Weldon proviso is unclear and can place third parties in impossible positions, especially where foreign law does not recognise the English order or imposes conflicting duties.
• The undertaking in damages is insufficient protection for third parties, who may suffer reputational damage, regulatory consequences, or litigation abroad.
• Including the Baltic proviso promotes comity and avoids unwarranted extraterritorial jurisdiction by the English courts.

Table of Precedents Cited

Court's Reasoning and Analysis

The court recognised the evolving nature of the law concerning world wide freezing orders and the need to balance the territorial limits of English jurisdiction with the protection of third parties subject to that jurisdiction. It acknowledged that freezing orders affecting assets abroad are exceptional and should normally only be effective to the extent recognised by local courts, respecting comity and avoiding exorbitant extraterritorial claims.

The court analysed the ambiguity and practical difficulties arising from the Derby and Weldon proviso, particularly its unclear requirement that third parties prevent breaches if able, without compelling them to breach foreign criminal law or court orders. The court agreed that third parties should not be required to breach their contractual obligations under foreign law, as these could be enforced by local courts.

The court found that the undertaking in damages is insufficient protection for third parties, who may face reputational damage, regulatory risks, or litigation abroad. It noted evidence that banks commonly request the Baltic proviso to avoid these problems and that claimants usually consent to its inclusion.

Balancing these considerations, the court concluded that the Baltic proviso, which allows third parties to comply with obligations they reasonably believe they have under foreign laws and contracts, provides the necessary reasonable protection and clarity. The court endorsed including the Baltic proviso in the standard form world wide freezing order unless specific facts make it inappropriate.

Holding and Implications

The court DISMISSED the Plaintiff’s appeal against the inclusion of the Baltic proviso in the world wide freezing order.

The court ordered that the Baltic proviso should generally be included in the standard form of world wide freezing orders to provide reasonable protection to third parties and to respect principles of territorial jurisdiction and comity. The court invited the Rules Committee and the Commercial Court to consider revising the prescribed standard form accordingly.

This decision clarifies the scope and application of world wide freezing orders concerning third parties holding assets abroad, but it does not establish a new precedent beyond endorsing an existing practice. It directly affects the parties by upholding the variation allowing UBS and similar entities to comply with their reasonable foreign obligations without breaching the freezing order.