Claims "made in tort" | considering the tort jurisdictional gateway under English law

In the recent case of Marex Financial Limited v Carlos Sevilleja Garcia, it was arguable that a company director who stripped the company of its assets in order to render it unable to meet a judgment debt was committing the tort of knowingly inducing and procuring another to act in violation of rights under a judgment.

The case raises a number of important issues on the proper construction of the tort jurisdictional gateway and what constitutes claims “made in tort” within the meaning of CPR PD 6B para.3.1. The case also considers the scope of the tort of causing loss by unlawful means and the rule against reflective loss applying to creditors not just shareholders.

In disputes about service out, the court would not normally decide exceptionally difficult issues of law going to jurisdiction. Indeed, the facts were not suitable for a final decision at a hearing on jurisdiction, so the jurisdictional challenge was dismissed and the case will go ahead. This court did not have to decide whether Marex’s claims amounted to torts, but simply whether Marex had the better of the argument that they did.

It remains to be decided in future cases whether the tort jurisdictional gateway requires the liability alleged simply to be shown to be tortious in nature or whether it is necessary to show a completed cause of action in tort.

What was the dispute about?

In July 2013, Marex obtained judgment against two companies, Creative Finance Limited and Cosmorex Limited, for $5 million on a claim for sums due under a contract. When it then obtained a freezing order, in August 2013, the companies disclosed that they had virtually no assets. Thereafter, they went into liquidation in the British Virgin Islands.

Marex alleged that, between the date of the judgment and the freezing order, the defendant, who Marex claimed was the controller and shadow director of the two companies, had stripped the companies of their assets, transferring some $9.5 million to himself. Because the defendant was not resident in England and Wales, Marex sought to serve out of the jurisdiction.

The issues

Marex claimed that the defendant was liable in tort either for knowingly inducing and procuring the companies to act in wrongful violation of its rights under the judgment, or for intentionally causing loss to it by unlawful means.

The defendant challenged jurisdiction on the basis that the claims were not “made in tort” within the meaning of CPR PD 6B para.3.1. He claimed that:

• there was no such tort as knowingly inducing and procuring another to act in violation of rights under a judgment;
• the unlawful means alleged by Marex did not count for the purposes of the tort of interference by unlawful means; and
• the rule against reflective loss meant that there was no completed cause of action in tort.

The judgment

Knowles J dismissed the defendant’s jurisdiction challenge. He held that Marex had the better argument: (i) on the existence of the tort of procuring a violation of rights under a judgment; (ii) that the unlawful means relied upon by Marex are, in law, unlawful means for the purposes of the tort of causing loss by unlawful means; and (iii) that the rule against reflective loss does not bar Marex’s claim based on those two torts.

The judge found that:

• It was not necessary to decide for the purposes of jurisdiction whether in fact the defendant had committed a tort. It was sufficient for dismissing the jurisdictional challenge that the claimant had the better of the argument that its claims amounted to torts.
• The unlawful means the claimant alleged counted as unlawful means for the purposes of the tort. The defendant’s aim in breaching his fiduciary duties to the companies by stripping them of their assets was to deprive them of the freedom to meet their obligations to the claimant.
• The claimant also had the better argument that the “no reflective loss” principle did not apply to the causes of action upon which it relied. The reflective loss principle provides that where a company suffers loss, the shareholders of that company cannot sue for the diminution of value of their shareholding. The defendant had argued that, by extension, a company’s creditors should not be able to bring a claim based on harm caused to the company. The judge strongly rejected this proposition, which would have meant that the defendant was answerable in law only to the companies that the claimant had obtained judgment against and not to the claimant itself – whose rights had been violated.

Practice points

• This decision has the potential to change the basis on which freezing orders are granted and how parties deal with their assets before a freezing injunction is granted, insofar as it is wrongful for a third party to procure breach of judgment rights.