POLLY PECK INTERNATIONAL PLC v ASIL NADIR SAFIYE NADIR MENTESH AZIZ CENTRAL BANK OF THE TURKISH REPUBLIC OF NORTHERN CYPRUS KIBRIS ENDUSTRISI BANKASI LTD. IMPEXBANK - TURKIYE ITHALAT VE ITHRACAT BANKASI A.S. UNIPAC PACKAGING INDUSTRIES LTD. [1992] EWCA Civ 3

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
[1992] EWCA Civ 3Case No Case No.Venue Royal Courts of Justice
Between
POLLY PECK INTERNATIONAL PLCASIL NADIR SAFIYE NADIR MENTESH AZIZ CENTRAL BANK OF THE TURKISH REPUBLIC OF NORTHERN CYPRUS KIBRIS ENDUSTRISI BANKASI LTD. IMPEXBANK - TURKIYE ITHALAT VE ITHRACAT BANKASI A.S. UNIPAC PACKAGING INDUSTRIES LTD.
Before
The Master of the RollsLord DonaldsonLord Justice StockerLord Justice ScottMR PHILIP HESLOP Q.C. and MR RICHARD MILLETT (instructed by Messrs Theodore Goddard) appeared for the Appellants (Fourth Defendants).MR ROBIN POTTS Q.C. and MR LESLIE KOSMIN (instructed by Messrs Alsop Wilkinson) appeared for the Respondents (Plaintiffs).Date 19 March 1992

LORD JUSTICE STOCKER :

[1]I have had the benefit of reading in draft the judgments of my Lords. I agree with their conclusions, for the reasons explained by each of them. Accordingly, I agree that the Mareva injunction should be discharged. MASTER OF THE ROLLS: From the earliest days of the Mareva injunction banks have been involved as innocent third parties burdened with giving effect to those injunctions by freezing the defendants' assets held by them. Apart from Establissement Esefka International Anstalt v. Central Bank of Nigeria [1979] 1 Lloyd's Rep. 445 this is, however, the first case in my experience in which it has been sought to subject a bank to such an injunction in the capacity of a defendant. The principles involved are no different in the case of banks from that of any other defendant, but their application may produce rather different results. I therefore turn to the principles underlying the jurisdiction. These are: 1. So far as it lies in their power, the courts will not permit the course of justice to be frustrated by a defendant taking action, the purpose of which is to render nugatory or less effective any judgment or order which the plaintiff may thereafter obtain. 2. It is not the purpose of a Mareva injunction to prevent a defendant acting as he would have acted in the absence of a claim against him. Whilst a defendant who is a natural person can and should be enjoined from indulging in a spending spree undertaken with the intention of dissipating or reducing his assets before the day of judgment, he cannot be required to reduce his ordinary standard of living with a view to putting by sums to satisfy a judgment which may or may not be given in the future. Equally no defendant, whether a natural or a juridical person, can be enjoined in terms which will prevent him from carrying on his business in the ordinary way or from meeting his debts or other obligations as they come due prior to judgment being given in the action. 3. Justice requires that defendants be free to incur and discharge obligations in respect of professional advice and assistance in resisting the plaintiff's claims. 4. It is not the purpose of a Mareva injunction to render the plaintiff a secured creditor, although this may be the result if the defendant offers a third party guarantee or bond in order to avoid such an injunction being imposed. 5. The approach called for by the decision in American Cyanamid Co. v. Ethicon Ltd . [1975] AC 396 has, as such, no application to the grant or refusal of Mareva injunctions which proceed on principles which are quite different from those applicable to other interlocutory injunctions. The special problem which arises in the case of a bank is rooted in the fact that its stock in trade is money borrowed from depositors. In the case of a trading company there is no difficulty in leaving it free to trade on the footing that, in so far as it sells its stock, it will be required either to preserve the proceeds of sale or to use them to buy other stock to which the injunction will apply. In the case of a bank, in so far as it is called upon to repay its depositors, there will be no "proceeds of sale" and its assets, although not its net assets, will thereby be reduced. This reduction will, however, be in the ordinary course of its business and it would be contrary to the principles set out above to seek to prevent it. There is a further problem which is special to banks. This lies in the extent to which all banking business is fundamentally dependent upon the maintenance of confidence on the part of its customers that it can and will meet its obligations to them as and when they arise. Banking business is only viable if withdrawals are to a greater or lesser extent balanced by fresh deposits. Any order which could produce a situation in which there is a "run on the bank" - withdrawals not being replaced by deposits - would be inimical to the purposes for which the Mareva jurisdiction exists. When the matter came before this court on 30th October 1991, we were only concerned to consider how the injunction could be varied to secure that the Central Bank could carry on its business in the ordinary course for the next few days pending an inter partes hearing before Millett J. We were not at that time concerned to consider whether the injunction should be discharged. Although the injunction as varied has in the event not created any run on the bank, I am satisfied that a bank such as the defendant, which is de facto the Central or Reserve Bank for the territory, cannot continue to fulfil its proper functions under local law if it is subject to any injunction as to the way in which it transacts its business. Subject to the fact that under local law other banks are required to maintain certain levels of deposit with it - a requirement which clearly could be altered by local legislation - I see no reason why other banks should continue to make deposits with it if by so doing they risk becoming competing creditors with the plaintiffs in a foreign jurisdiction. Furthermore, I consider that it would be in the ordinary course of the Central Bank's business in depositing funds to take account not only of competing interest rates, but also of whether depositing funds in one country rather than another would be more likely to retain the confidence of its depositors. An injunction which inhibited the bank from taking account of such considerations would, I think, be contrary to principle. In expressing this view I am not to be taken as saying that a Mareva injunction can never be granted against a bank, but the circumstances would have to be unusual. If, for example, it was clear on the facts that the bank was well able to meet any judgment in favour of the plaintiffs, but was likely to take action to avoid having to do so, the imposition of an injunction should not affect the confidence of its depositors unless they thought that the bank would adopt the same stance in relation to their claims. That is not however this case. Accordingly, in agreement with Scott L.J. and for the fuller reasons which he has so clearly expressed, I would discharge the injunction in so far as it is based upon the Mareva jurisdiction. That does not dispose of the matter, because in this court it has been sought to maintain the injunction, albeit for a reduced amount, on the footing that it will be possible to trace £8.9 million remaining in the hands of the Central Bank as being in equity the property of the plaintiffs. This is a wholly different basis for an injunction, namely an application under R.S.C. Order 29, rule 2 for an order for the interim preservation of property which is the subject matter of the cause or matter. If at the trial the plaintiffs can make good their tracing claim, they will be in the position of secured creditors to the extent, but very probably only to the extent, that the C8.9 million has not meanwhile been removed from the jurisdiction. In this context, unlike that of a Mareva injunction, American Cyanamid Co . principles do apply. Applying those principles I agree with the order proposed by Scott L.J. for the reasons which he has given.[2]PPI is a public limited company incorporated in England which carried on business, and to some extent still does, as the holding company of a group of over 200 subsidiaries, including 80 trading subsidiaries. A substantial part of the trading interests were concentrated on Northern Cyprus and Turkey.[3]PPI has an issued share capital of over 436 million £l ordinary shares. The ordinary shares were at all material times listed on the International Stock Exchange, London. PPI is now insolvent. The statement of affairs prepared for the purpose of the application for the administration order estimated the total deficiency as regards creditors of PPI to be in excess of £550 million. If the issued share capital is taken into account the deficiency is in the region of fl billion.[4]The first defendant in the action is Mr. Asil Nadir who acquired a controlling interest in PPI in about 1980 and has at all material times since then been Chief Executive of PPI. it is said in the statement of claim that Mr. Nadir was a signatory of all the branch bank accounts of PPI and was in a position to control and direct the movement of funds of PPI to and from the various subsidiaries of the group.[5]The fifth defendant in the action is Kibris Endustri Bankasi Limited (which I will refer to as "IBK"). IBK was incorporated in Northern Cyprus in 1982 and has at all material times carried on business as a bank. Its head office is in Lefkosa, Northern Cyprus. It is pleaded in the statement of claim that 399,100 of the 400,000 issued shares of IBK stood in the name of Mr. Nadir. It is, I understand, not in dispute that Mr. Nadir controlled IBK and that IBK provided bank services in Northern Cyprus for the PPI group and had few, if any, customers other than members of the group and members of Mr. Nadir's family.[6]Northern Cyprus is not recognised by Her Majesty's Government but nonetheless has had de facto control over its territory since about 1974. The Central Bank was incorporated in Northern Cyprus in 1983 and since its incorporation has acted as central bank for Northern Cyprus with the supervisory and regulatory role and powers that would be expected to be enjoyed by a central bank of a sovereign state.[7]Under the law of Northern Cyprus, every bank operating within the territory must be authorised to carry on business by the Central Bank and, to ensure its liquidity, must hold at least 20 per cent of its foreign currency reserves with the Central Bank. Accordingly, IBK has at all material times maintained a bank account with the Central Bank in Lefkosa, Northern Cyprus.[8]Neither the Central Bank nor IBK had a branch office in England. But both Central Bank and IBK maintained sterling accounts at Midland Bank International plc's Cannon Street branch.[9]In the action PPI has made claims against Mr. Nadir in respect of misapplication of the funds of PPI amounting in total to the sum of £378 million and against IBK in respect of misapplication of funds of PPI of £142 million or thereabouts.[10]The basis of the claim against IBK is that over the period 1st September 1987 to 25th September 1990 funds of PPI, totalling the £142 million odd, were transferred to the account of IBK at Midland Bank International from whence the funds were transferred or paid out or applied otherwise than for the proper purposes of PPI.[11]The claim against the Central Bank relates to £44,987 million of the £142 million. Over the period September 1987 to October 1990, IBK transferred a total sum of £44,987 million from its own account at Midland Bank International to the Central Bank's account at Midland Bank International in exchange for a corresponding sum in Turkish lira or, in nine instances, in sterling being credited to IBK's account with the Central Bank in Lefkosa, Northern Cyprus. This was done by a series of transactions whereby, save in the nine cases I have mentioned, IBK purchased Turkish lira from the Central Bank and paid in sterling. In the period 1st September 1987 to the end of that year, there were five transactions varying in amount from £150,000 to £300,000 and totalling £1,250,000. In 1988 there were 15 transactions varying in amount from £150,000 to £400,000 and totalling £3,597,000. In 1989 there were 53 transactions, varying from £100,000 to £800,000 and totalling £17,584,000. In 1990 there were 44 transactions, varying from £100,000 to £1,000,000 and totalling £22,561,000. In the books of IBK in Northern Cyprus the transferred sums were, in the main, credited to one or other of PPI's local subsidiary companies, in two instances, one in 1987, the other in 1988, the transferred sum was credited in IBK's books to Mr. Nadir. There are also 21 credits in favour of IBK itself. These include, in particular, the last five transactions totalling £l,100,000 which took place in September and October 1990.[12]It is not clear from the evidence what finally became of the sums that were placed to the credit of IBK in its Central Bank account in Lefkosa. I will refer later in this judgment to such evidence as there is.[13]The administrators contend that the scheme whereby PPI's funds in London were transferred via IBK to Northern Cyprus was, at best, in breach of fiduciary duties owed by Mr. Nadir to PPI and, at worse, a dishonest means of diverting PPI's funds to improper purposes. For the purposes of the application before Millett J. and of this appeal, that contention is accepted. It is common ground that the Central Bank assisted in the scheme to the extent that it received the funds transferred to it by IBK in London and made the funds, mainly in Turkish lira but partly in sterling, available to IBK in Northern Cyprus. The administrators contend that the Central Bank either had actual knowledge that the funds in question derived from PPI and were being improperly diverted away from PPI purposes or that the circumstances of the case put the Central Bank on inquiry that that was so. It is common ground that the Central Bank in fact made no inquiries but simply accepted and acted upon IBK's instructions for the purchase of the Turkish lira and for the crediting of the sums to IBK's account in Northern Cyprus.[14]The critical pleading of the claims against the Central Bank is to be found in paragraphs 24.11 to 24.14 of PPI's statement of claim.[15]Paragraph 21.11 is in these terms:
"In the premises the Central Bank received the said sums to the Central Bank's Midland Account with actual knowledge that the transfer of the same had been procured by Mr. Nadir in breach of his fiduciary and/or contractual duties to PPI and/or in breach of trust, alternatively, the Central Bank received such sums wilfully shutting its eyes to the source of the said funds and/or wilfully and recklessly failing to make such enquiries as an honest and reasonable banker would have made on receipt of funds of such magnitude and such regularity in that ..."
There then follow a number of sub-paragraphs detailing what it was that the Central Bank "well knew".[16]In paragraph 24.12 it is alleged that Central Bank "knowingly dealt with PPI funds in a manner inconsistent with the purposes of PPI ..."[17]In paragraph 24.13(ii) it is alleged that Central Bank "wilfully shut its eyes to the source of the said transfers into [its] Midland Bank Account and/or wilfully and recklessly failed to make such enquiries as an honest and reasonable banker would have made as to the source of such funds."[18]And in paragraph 24.14 it is pleaded that "In the premises the Central Bank is liable as a constructive trustee in the sum of £44,987,000 and is liable to compensate PPI in equity accordingly."[19]The pleaded case against the Central Bank is, therefore, one of constructive trust.[20]I must now refer to the history of the litigation. The writ was issued on 22nd October 1991. On the previous day an ex parte application was made to Millett J. He granted world wide Mareva injunctions against ( inter alios ) Mr. Nadir and IBK. The injunction against Mr. Nadir was limited to £378 million. That against IBK was limited to £141,778,969. In addition Millett J. granted a Mareva injunction in respect of the assets of the Central Bank in this jurisdiction limited to £38,943,707. The matter came back before the court, inter partes , on 29th October 1991. The governor of the Central Bank had sworn an affidavit, evidently and understandably prepared in haste, on the same day. The injunctions were continued over an effective inter partes hearing arranged to commence on 5th November. On 30th October 1991 the Central Bank applied to this court by way of appeal against the order continuing the injunctions over the 5th November hearing. This court declined to entertain an application to have the injunction set aside but, instead, made an order intended temporarily to alleviate the effect of the injunction, pending an inter partes hearing at first instance. A paragraph was added to the ex parte order enabling the Central Bank to make payments in the ordinary course of its banking business from the funds in London of up to £6 million in tranches of CI million each with a proviso for the administrators to give retrospective consent to each drawing of £1 million. The amendment was designed to enable the Central Bank to carry on its banking business in the normal way while at the same time preserving for PPI, pending the inter partes hearing, the main benefit of the Mareva injunction.[21]The order made by Millett J. that is now under appeal was made on the inter partes hearing. Millett J. concluded that PPI had shown an arguable case against the Central Bank of liability as constructive trustee in respect of the £44 million, that there was a real risk that, in the absence of an injunction, the Central Bank might remove its funds from the jurisdiction and that, accordingly, a Mareva injunction ought to be granted. The proviso regarding the £6 million that had been added by the Court of Appeal was retained and, in addition, a proviso was added allowing the Central Bank to open new accounts within the jurisdiction and to operate them in the ordinary course of its banking business without regard to the restrictions imposed by the Mareva injunction. The Central Bank has not availed itself of this facility, mainly from the fear that the new accounts might in the future themselves be the subject of Mareva injunctions.[22]In January 1992 the Central Bank applied for an increase in the C6 million proviso. It had, by 10th January 1992, withdrawn 25,838,416 from the jurisdiction pursuant to the proviso. On 14th January 1992 Harman J. dismissed the application. On 3rd February 1992 this court dismissed the Central Bank's appeal against that dismissal.[23]PPI's statement of claim, to which I have already made reference, was served on 12th December 1991. On 7th February 1992 PPI obtained judgment in default of defence against the seventh defendant, Unipac Packaging Industries Limited, a wholly owned subsidiary of PPI incorporated in Northern Cyprus, in the sum of £439 million odd and against IBK in the sum of £142 million odd.[24]The Central Bank is disputing the jurisdiction and has a pending application under Order 12, rule 8 due to be heard on 26th March 1992. The ground relied on is the absence of a sufficiently good arguable case against the Central Bank.[25]For the purposes of this appeal, both sides have filed additional evidence fairly steadily over the period since Millett J.'s judgment. Neither side has raised any objection to this course and nor has this court. It must, nonetheless, be stressed that in this case, as in any other, the question whether an interlocutory injunction should be granted or continued is not the occasion for the trial of the action.[26]However, I, for my part, have found some of the material contained in the recently sworn affidavits very helpful and have also found helpful the material supplied to us by Mr. Heslop, counsel for the Central Bank, by way of part response to the affidavit sworn by Mr. Morris, one of the administrators, last Saturday. This was Mr. Morris's tenth affidavit.[27]On this appeal three matters are important; first, the nature and strength of PPI's case against the Central Bank; second, the potential effect on the Central Bank of maintaining in force, pending trial, the Mareva injunction; third, the potential effect on PPI if the injunction is discharged. I must consider each of these matters in turn. But, in their bearing on the result of this appeal, they are not independent of one another. A Mareva injunction could not ever be justified unless at least a fair arguable case for liability could be shown. But the strength of the case sufficient to support the grant of a Mareva injunction is dependent to some extent on the consequences to the defendant of the injunction, as well, of course, as on the consequences to the plaintiff if an injunction is not granted. Also to be borne in mind is that the decision of the learned judge below to continue the Mareva injunction until trial was an exercise by him of his discretion that this court would not ordinarily interfere with, absent some misdirection. This last aspect of the appeal does not, however, in view of the volume of additional material filed on both sides, loom very large. Both sides have supported their respective contentions by reference to the state of the evidence as it now stands, and we must, I think, come to our conclusions on that basis. It is no longer relevant for us to ask ourselves how the matter would have stood had the evidence been confined to that which was before Millett J. The nature and strength of PPI's case[28]PPI's main case is the constructive trust case that has been pleaded. In the ninth and tenth affidavits of Mr. Morris, sworn respectively on 4th March and 7th March, a supplementary tracing case is put forward. It is said that, if equitable tracing rules are applied to the £44 million odd transferred from the IBK account to the Central Bank account with Midland Bank, a sum of E8.9 million or thereabouts still stands to the credit of the Central Bank. It is, of course, common ground that the Central Bank did not receive any part of the f44 million as volunteer. It received the money (bar the funds comprised in the nine sterling transfers) for the purpose of foreign exchange transactions. It was crediting IBK with Turkish lira in Northern Cyprus in exchange for sterling in London. Receipt of trust money by a bona fide purchaser for value without notice of the breach of trust bars any equitable tracing remedy. Mr. Potts, counsel for PPI, accepts that that is so. It follows that actual or constructive knowledge on the part of Central Bank of the trust character of the funds received from IBK and of the impropriety of the transfers is as much a requirement of the tracing claim as of the constructive trust claim. There is, however, an important difference. Equitable tracing leads to a claim of a proprietary character. A fund is identified that, in equity, is regarded as a fund belonging to the claimant. The constructive trust claim, in this action at least, is not a claim to any fund in specie . It is a claim to monetary compensation. The only relevant interlocutory protection that can be sought in aid of a money claim is a Mareva injunction, restraining the defendant from dissipating or secreting away his assets in order to make himself judgment proof. But if identifiable assets are being claimed, the interlocutory relief sought will not be a Mareva injunction but relief for the purpose of preserving intact the assets in question until their true ownership can be determined. Quite different considerations arise from those which apply to Mareva injunctions. It is accepted for present purposes that(i) the transfers of the £44 million from PPI to IBK's Midland Bank account and from there to the Central Bank's Midland Bank account and the corresponding Turkish lira and sterling credits made to IBK's Central Bank account in Northern Cyprus were transactions procured by Mr. Nadir;(ii) the transactions were not effected for the proper purposes of PPI and represented breaches of the fiduciary duty owed by Mr. Nadir to PPI; and(iii) the breaches of fiduciary duty were dishonest ones. The critical question is whether the Central Bank knew or must be treated as having known that the funds being transferred were PPI funds and were being misapplied.[29]In the statement of claim actual knowledge on the part of the Central Bank is alleged. Alternatively constructive knowledge is relied on. The mental states that will suffice to fix a defendant with liability as a constructive trustee are not always easy to identify. A number of learned judgments have illuminated the problem (see e.g. Aqip (Africa) Limited v . Jackson [1990] Ch. 265 and, on appeal, [1991] Ch 547 , the Baden Delvaux case [1983] B.C.L.C. 325, Eagle Trust v. S.B.C Securities [1991] B.C.L.C. 438 and Cowan de Groot Properties Limited v. Eagle Trust [1991] B.C.L.C. 1045. There is a general consensus of opinion that, if liability as constructive trustee is sought to be imposed, not on the basis that the defendant has received and dealt in some way with trust property ("knowing receipt") but on the basis that the defendant has assisted in the misapplication of trust property ("knowing assistance"), "something amounting to dishonesty or want of probity on the part of the defendant must be shown" (Vinelott J. in Eagle Trust v. S.B.C. Securities at page 449). Vinelott J. described as "settled law" the proposition that "a stranger cannot be made liable for knowing assistance in a fraudulent breach of trust unless knowledge of the fraudulent design can be imputed to him ..." (page 450). I respectfully agree.[31]Millett J., in the judgment below, treated the present case as one of "knowing assistance" rather than "knowing receipt". In respect of the nine sterling transfers I think that is right. The Central Bank received the funds transferred not in its own right but as banker, and, as banker, credited the funds to IBK in Northern Cyprus. But in respect of the bulk of the transfers the case is, in my opinion, one of "receipt" rather than "assistance". The Central Bank was exchanging Turkish lira for sterling and became entitled to the sterling not as banker for IBK but in its own right. IBK became entitled to the Turkish lira. Liability as constructive trustee in a "knowing receipt" case does not require that the misapplication of the trust funds should be fraudulent. It does require that the defendant should have knowledge that the funds were trust funds and that they were being misapplied. Actual knowledge obviously will suffice. Mr. Potts has submitted that it will suffice if the defendant can be shown to have had knowledge of facts which would have put an honest and reasonable man on inquiry, or, at least, if the defendant can be shown to have wilfully and recklessly failed to make such inquiries as an honest and reasonable man would have made (see categories (iii) and (v) of the categories of mental state identified by Peter Gibson J. in the Baden Delvaux case). I do not think there is any doubt that, if the latter of the two criteria can be established against the Central Bank, that will suffice. I have some doubts about the sufficiency of the former criterion but do not think that the present appeal is the right occasion for settling the issue. The various categories of mental state identified in the Baden Delvaux case are not rigid categories with clear and precise boundaries. One category may merge imperceptibly into another.[32]If this case goes to trial, the trial judge, after considering all the evidence, will have to decide whether the Central Bank's knowledge of primary facts was or was not sufficient to subject it to liability as a constructive trustee. He may or may not have to decide whether by the standards of the "honest and reasonable banker", the Central Bank should have made inquiries about the purpose and propriety of the transfers being received from IBK and whether the failure to make those inquiries fixes the Central Bank with liability. For the purposes of the present appeal I am content to examine the facts placed before the court by the parties and ask myself whether a fair arguable case has been shown that the Central Bank must have realised that the funds were PPI's funds and must have been suspicious that the funds were being misapplied.[33]I do not, for my part, find it difficult to accept that the Central Bank must have known that the funds IBK were transferring to the Central Bank's Midland Bank account were likely to be mainly funds belonging to PPI or to one or other of its group companies. The Central Bank knew that IBK was owned and controlled by Mr. Nadir. It knew that PPI was the flagship of the group. It knew that the scale of business transacted by PPI and its group companies was very substantial. Funds of the size of those being transferred could hardly have been other than, in the main, funds of the group. There is, however, no reason to infer that the Central Bank must have realised that the funds all belonged to PPI, as opposed to belonging to one or other of the group companies, or, indeed, to Mr. Nadir personally. There is evidence that PPI acted to some extent as banker for the group. It certainly made very large advances to corporate members of the group. So, although the Central Bank must have known that the £44 million was group money or Nadir money, I do not see any basis on which it could be inferred that the Central Bank knew or ought to have known that the money was specifically PPI money.[34]The real question, however, is whether the circumstances in which the transfers were made should have made the Central Bank suspicious of the propriety of what was being done. Millett J. thought so. He thought so because of "the sheer scale of the payments". A variety of different analyses of the payments has been made for the purpose of demonstrating and underlining the "sheer scale" point that impressed the judge.[35]The 1987 payments represented 17.1% of the receipts into the Central Bank's Midland Bank account for the comparable period. The 1989 payments represented 59.7% and the 1990 payments 66% of the receipts into the Central Bank's account for the comparable periods.[36]One of the most important of PPI's trading subsidiaries in Northern Cyprus was a company called Sunzest Trading Ltd. Sunzest carried on a citrus export business. A possible explanation put forward by the governor of the Central Bank for the transfer of funds to Northern Cyprus was the need to pay the producers of the citrus fruit. However the funds transferred in 1988 and 1990 were more than would have sufficed to purchase the whole of Northern Cyprus' citrus crop.[37]Despite these statistics I find myself unimpressed by the "sheer scale" argument in so far as it is put forward as a ground for contending that the Central Bank ought to have suspected impropriety. Millett J. commented that "these payments were on a scale which was completely unjustified by any legitimate business requirement which Polly Peck or its trading subsidiaries in Northern Cyprus could possibly have had". With the greatest respect to the learned judge I do not think this conclusion is a fair one so far as the Central Bank is concerned. PPI and Mr. Nadir were major players with fabulous funds at their disposal. The annual turnover of the group was £380 million in 1987, £967 million in 1988, £1162 million in 1989 and £880 million for the first six months of 1990. The profit before tax for these periods was £84 million, £144 million, £160 million and £128 million. The £44 million odd transferred to Northern Cyprus via the Central Bank over the period September 1987 to October 1990 may have been out of scale when compared with the existing trading ventures of the PPI group in Northern Cyprus but I do not follow how it can be said, or why the Central Bank should have concluded, otherwise than with the unjustified wisdom of hindsight, that the transfers were "completely unjustified by any legitimate business requirement which Polly Peck ... could possibly have had". It is fair to summise that someone or other in the Central Bank might have noticed the scale of the transfers, might have raised his or her eyebrows and might have wondered what Mr. Nadir's purpose was in transferring such large sums from a hard currency, sterling, into a soft currency, Turkish lira. But the constructive trust test, the "honest and reasonable banker" being put on inquiry (if that is indeed the test), postulates inquiry as to whether or not impropriety is being committed. The test is not satisfied by the inference of no more than curiosity. It is important in this regard to bear in mind that it is common ground, for present purposes at least, that at the relevant time Mr. Nadir was a man of unblemished commercial reputation and integrity. He had achieved quite staggering commercial success over a relatively short period. He loomed, in Northern Cyprus, like a colossus over the local economy and over the commercial prospects and fortune of the country. Why should the Central Bank have suspected impropriety because of the scale of the funds being transferred into Northern Cyprus? It seems to me that the answers to this critical question given by Mr. Potts in his submissions and by the learned judge in his judgment fail to take account of the status and reputation of Mr. Nadir at the time. There is a constant refrain which proceeds on these lines:
"The Bank could not have honestly believed that funds on this scale were required for the legitimate requirements of the PPI group"
. Attempts to suggest reasons which might have justified such honest belief are then analysed and ridiculed. But all of this, in my judgment, begs the real question. The question whether the Bank did or did not have an honest belief only arises after the Bank has become, or ought to have become, suspicious of possible impropriety. Unless ground had been given for suspicion, no one in the Central Bank would have any relevant belief at all. They would not address their minds to impropriety or to the legitimacy of the purpose for which the funds were being moved.[38]In considering PPl's constructive trust case, there are two stages of the transfers of funds to which attention should be given. First there are the payments in London to the Central Bank's Midland Bank account in exchange for corresponding credits to IBK's account with the Central Bank in Lefkosa. Second, there are the withdrawals by IBK from the Lefkosa account. I think the second stage to be much the more important. The first stage involved no more than a shifting of funds, standing in the name of IBK but, no doubt, known to be PPI/Nadir funds, from England to Northern Cyprus. The funds remained in the name of IBK and available to PPI and its subsidiaries. Despite the scale of the transfers I cannot see any reason why the Central Bank's suspicions should have been aroused. The second stage, however, involved withdrawals from the IBK account.[39]Details of the withdrawals in 1989 are contained in an exhibit to the affidavit sworn on 29th October 1991 by the Governor of the Central Bank, Mr. Demihiran Sayiner. Mr. Morris's tenth affidavit contains details of the withdrawals from the account for the whole of the period under review, i.e. from September 1987 to October 1990. Over this period there were 35 withdrawals of cash designated as "cheque drawn self". There were 98 withdrawals for the purpose of IBK's clearing house obligations. And there were 30 transfers made by IBK in favour of Turkish Bank Ltd. The transfers in favour of Turkish Bank Ltd. were far greater in total amount than the cash transfers and the clearing house transfers.[40]Mr. Morris has asserted that these withdrawals were "unrelated to the proper purposes of the PPI Group" (paragraph 6) and that the Central Bank "must ... have been aware that they were unrelated to the proper purposes of the PPI Group". In my opinion, neither of these assertions is warranted by any evidence that has yet been adduced.[41]The purpose of the cash withdrawals would not have been stated in the documentation retained by the Central Bank and the actual use made of the cash withdrawals is not known. But the amounts of the respective cash withdrawals do not appear to be obviously inconsistent with the money having been required for IBK's banking purposes. Mr. Morris refers to one withdrawal of £300,000, and suggests that "it is inconceivable that the Central Bank as paying Bank, would not have enquired as to the purpose for such cash withdrawals" (paragraph 10). I simply do not follow the force of this. It does not seem to me in the least inconceivable. IBK had its own branches in Northern Cyprus from which PPI group banking business was transacted. Cash would have from time to time been needed at these branches. There might have been cash requirements arising out of the normal business activities of the PPI group. Mr. Potts described the cash withdrawals in terms that suggested some individual carrying banknotes away in a suitcase. But no doubt security vans were not unknown in Northern Cyprus and there is no evidence nor, in my opinion, any obvious reason why the Central Bank should have supposed that these cash withdrawals were not made in the ordinary course of IBK's banking business.[42]As to the withdrawals in respect of clearing house obligations, the amount of the individual withdrawals is consistent with that character and nothing has been put forward to support the bald assertion that they were "unrelated to the proper purposes of the PPI group".[43]Finally, there are the withdrawals in favour of Turkish Bank Ltd. It is only these withdrawals that give rise to any "sheer scale" point. Mr. Potts has submitted and Mr. Morris has asserted that these large withdrawals should have caused the Central Bank to suspect some impropriety. I do not see why. It is known that PPI and Mr. Nadir had extensive business interests in southern Turkey as well as in Northern Cyprus. The administration report dated 25th October 1990 prepared for the purposes of the application for the administration order referred to interests in Turkey in electronics, leisure, pharmaceuticals and construction. The affidavit in support of the application referred to the recent construction of a 405 bedroom luxury hotel at Antalya and that the group owned the Pizza Hut franchise in Turkey. Given this background, I do not see any reason why substantial transfers of PPI group money to a Turkish bank should have been viewed by the Central Bank with any suspicion.[44]I feel bound to say that, in my opinion, Mr. Morris's comments in his tenth affidavit on the implications to be drawn from the nature of the withdrawals from IBK's Central Bank account are tendentious and unfair. Looked at overall, without the benefit of hindsight, the knowledge by the Central Bank that the PPI group was, via IBK, exchanging substantial sums of sterling in London for Turkish lira in Northern Cyprus was not, to my mind, calculated to give the Central Bank cause to suspect improprieties and did not put them on inquiry as to whether or not there were improprieties.[45]In addition to the reliance on the "sheer scale" of the movement of funds, PPI relies on the supervisory and regulatory role of the Central Bank under the laws of Northern Cyprus. It is pointed out that the transfers of sterling to the Central Bank in exchange for Turkish lira in Northern Cyprus represented a very substantial proportion of the foreign exchange obtained by Northern Cyprus in the periods in question. The Central Bank must, it is suggested, have wanted to know how long this source of hard currency was likely to continue. It must surely have addressed questions about this to IBK or to Mr. Nadir. I can see the force of this suggestion. But the expectation that enquiries would have been made is not attributable to grounds for suspicion of impropriety but, rather, to the prudent need of the Central Bank to plan ahead for its future foreign currency requirements. I do not follow how the likelihood that inquiries of this sort would be made by a prudent banker assists PPI in fixing the Central Bank with knowledge or constructive knowledge of improprieties. And the Central Bank's failure to exercise its supervisory or regulatory powers over IBK so as to enquire into the circumstances surrounding the currency transfers that were taking place does not suggest anything more than a confidence in Mr. Nadir that was, as subsequent disclosures revealed, unjustified. It is, in my opinion, simply not fair to the Central Bank to categorise that failure as a failure to make inquiries that "an honest and reasonable banker" would have made (see paragraph 24.13(ii) of the statement of claim).[46]This is not, of course, the trial of the action. It is possible that discovery may bring to light documents which do suggest some knowledge, or at least provide the basis for suspicion, by the Central Bank of impropriety attending the currency transfers. It may be that, at trial, cross-examination of witnesses will produce evidence from which knowledge or suspicion that ought to have prompted inquiries can be inferred. It is a fair point that, if any incriminating or damaging documents are held by the Central Bank, the administrators of PPI are hardly in a position, at this stage in the litigation, to know about them.[47]Millett J. came to the conclusion "that the Administrators have shown as much as they could reasonably be expected to show at this stage of the litigation to demonstrate that their claim that the Bank either knew, or, at the very least, was put upon inquiry as to the propriety of these payments is likely to succeed in the absence of some further explanation by the Bank". I do not wholly dissent from this conclusion. The administrators cannot be expected, in advance of discovery and cross-examination, to do more than rest PPI's case on the "sheer scale" of the payments, coupled both with the importance to the Central Bank of the foreign currency receipts being obtained from IBK and with the supervisory and regulatory powers that would have enabled the Central Bank, if it had seen fit to do so, to have investigated IBK. But I do not regard the case thus rested as "likely to succeed in the absence of further explanation from the Bank". I think the reverse is the case.[48]The case shown by the evidence as it now stands is, in my opinion, speculative and depends for its success upon something emerging that casts suspicion on the Central Bank and its bona fides.[49]I now turn to the tracing claim. This, as I have said, is a claim by PPI to be entitled in specie to the £8.9 million that is still held by the Central Bank out of the funds received from IBK. The f8.9 million, like the rest of the C44 million was received in exchange for currency made available to IBK in Northern Cyprus. So the Central Bank holds as purchaser. But is it a bona fide purchaser without notice? Mr. Potts submitted that, in order to defeat PPI's claim, the Central Bank must discharge the onus of proving that it received the funds without notice of PPI's equitable interest. I disagree. The Central Bank is the legal owner of the money. It is for PPI to raise a case that places the mantle of constructive trustee on the Central Bank's shoulders. Nothing, however, for present interlocutory purposes turns on onus.[50]The question, for the purposes of the tracing remedy, is whether the Central Bank had notice or constructive notice of PPI's equitable interest. "Notice" and "constructive notice", as Sir Robert Megarry V.C. pointed out in Montagu's Settlement Trusts [1987] Ch. 264, are not synonyms for "knowledge" and "constructive knowledge" (see page 277). Vinelott J. in Eagle Trust v. S.B.C. Securities commented at page 447 that "... notice is often used in a sense or in contexts where the facts do not support the inference of knowledge. A man may have actual notice of a fact and yet not know it. He may have been supplied ... with a document and so have actual notice of its content, but he may not in fact have read it; or he may have read it sometime ago and have forgotten its content".[51]The present case, however, does not concern land, or some valuable chattel, the title to which can be traced, but concerns money paid to the Central Bank on a foreign currency exchange transaction. In my judgment, for the purposes of the proprietary tracing claim, as for the in personam constructive trust claim, PPI must prove knowledge on the part of the Central Bank, actual or constructive as the case may be. I think this is the type of case to which Lindley L.J.'s remarks in Manchester Trust v. Furness [1895] 2 QB 539 at 545, cited also by Vinelott J. in Eagle Trust v. S.B.C. Securities at page 458 are applicable. Lindley L.J. said this:
"... as regards the extension of the equitable doctrines of constructive notice to commercial transactions, the Courts have always set their face resolutely against it. The equitable doctrines of constructive notice are common enough in dealing with land and estates, with which the Court is familiar; but there have been repeated protests against the introduction into commercial transactions of anything like an extension of those doctrines, and the protest is founded on perfect good sense. In dealing with estates in land title is everything, and it can be leisurely investigated; in commercial transactions possession is everything and there is not time to investigate title; and if we were to extend the doctrine of constructive notice to commercial transactions we should be doing infinite mischief and paralyzing the trade of the country."
[53]In the Eagle Trust case Vinelott J., after citing the above passage, went on to observe that "The courts have been particularly reluctant to extend the doctrine of constructive notice to cases where monies are paid in the ordinary course of business ..." (page 459). I respectfully agree with these comments. In the present case the degree of knowledge on the part of the Central Bank that PPI must establish for the purposes of its constructive trust case is, in my judgment, requisite also for the purposes of its equitable tracing claim. It follows that the conclusions I have expressed on the constructive trust claim apply also to the tracing claim. Should there be interlocutory relief ?[54]It is now necessary to consider whether PPI's case, as I have described it, ought to be supported by the protection of an interlocutory injunction. Different considerations apply to the question whether an injunction should remain in order to protect the fund in respect of which PPI makes its proprietary tracing claim than apply to the question whether the Mareva injunction in support of PPI's monetary compensation claim should remain.[55]I will deal first with the Mareva injunction.[56]As a general principle, a Mareva injunction ought not to interfere with the ordinary course of business of the defendant. It is not intended to give the plaintiff security in advance of judgment but merely to prevent the defendant from defeating the plaintiff's chances of recovery by dissipating or secreting away assets. This principle makes the grant of a Mareva injunction against a bank, at any rate a bank carrying on a normal banking business, very difficult. A Mareva injunction ought never to prevent a defendant from paying his creditors their due debts. A bank must repay its depositors in accordance with the terms on which the deposits are held. In the present case, the Central Bank has no customers other than the authorised banks of Northern Cyprus and it has a few private customers. The authorised banks are required to keep 20% of their foreign currency holdings in their respective accounts with the Central Bank. We were told that, in fact, many of the authorised banks keep foreign currency with the Central Bank in excess of the minimum 20%. The purpose of the 20% is to ensure the foreign currency liquidity of the authorised banks. The authorised banks also keep reserves of Turkish lira with the Central Bank.[57]On 25th October 1991 the Central Bank's total foreign currency deposits, held in banks in London, Frankfurt and Turkey, amounted to £39,820,215 in various currencies. Roughly 60% of the deposits were held in London and were accordingly frozen by the Mareva injunction. Following the proviso added to the order by the Court of Appeal in November, the Central Bank reduced the foreign currency deposits held in London by about £6 million. This £6 million represented, according to paragraph 18 of Mr. Sayiner's fourth affidavit, about one-third of the Central Bank's foreign currency requirements over the period November 1991 to January 1992.[58]On 27th January 1992 the Central Bank's foreign currency reserves consisted of £23.638 million in London (frozen by the Mareva injunction), £97,000 in Frankfurt, £6.84 million held in Turkey and £5.96 million held in Northern Cyprus (paragraphs 19 and 20 of Mr. Sayiner's fourth affidavit). These figures show that the Central Bank's foreign currency liquidity has been very seriously affected by the Mareva injunction.[59]In paragraph 11 of his second affidavit, sworn on 21 st January 1992, Mr. Sayiner said that "In the circumstances in which the Central Bank is now placed, I must preserve the cash in the Central Bank and the money in Turkey as liquidity under the Central Bank's control to meet any demands for withdrawals by the banks and depositors. Even this amount will be insufficient if the banks and depositors demand their money. The Central Bank has never been in a position where it had so little liquidity; it is impossible for the Central Bank to remain in this position."[60]And in paragraph 21 of his fourth affidavit he said that "The Bank's position is desperate; it has negligible liquidity; it cannot function ..."[61]In view of the figures and details we have been given I find this cri de coeur understandable and cogent.[62]It is relevant also to notice the Central Bank's net asset position. As at 31st December 1991 its net assets, expressed in sterling, were £8,723,000 odd. As at 31st March 1991 the net assets figure had been £8,173,000 odd. The relatively small capital value of the Central Bank will make it particularly vulnerable to a run of withdrawals caused by a loss of confidence.[63]In my opinion, the evidence before this court impels the conclusion that the Mareva injunction granted on 7th November 1991 has already seriously interfered with the Central Bank's normal manner of carrying on its banking business. A trial in such a mammoth and complex action as the present must be a long way ahead. To maintain the Mareva injunction in the meantime would, in my opinion, be likely to inflict irreparable harm on the Central Bank.[64]The other side of the coin must also be taken into account.[65]If the injunction is lifted, is it likely that any funds will be left in England against which judgment can be executed if, in the event, the action against the Central Bank succeeds? In paragraph 54 of his affidavit sworn on 21st January 1992 Mr. Sayiner said that "If the injunction is lifted, it will be my policy to continue to keep substantial funds in London ... London is still the natural and preferred location for our funds".[66]While it would be wrong of me to doubt the genuineness of Mr. Sayiner's intentions, I must, I think, be sceptical. If PPI's action against the Central Bank succeeds to the extent of the full £44 million that is claimed, the Central Bank would be hopelessly insolvent. Well before judgment, if there were any likelihood of its being an adverse one, I think it likely that the Central Bank would have looked for a safer place than London for its foreign currency reserves.[67]In these circumstances I think the Administrators are entitled to be of the opinion that there may not be much in the way of funds left in England when they come to execute their judgment. It does not follow, however, that the absence of funds in England will necessarily prevent PPI from enforcing its judgment (if it obtains one) against the Central Bank. The Central Bank must keep its foreign currency funds somewhere. Funds kept in any of the Brussels Convention countries will be vulnerable to enforcement procedure by PPI.[68]In summary, therefore, it comes to this. PPI has a claim against the Central Bank that, though a possible one, is at present based on little more than speculation. A Mareva injunction will, inevitably, seriously interfere with the Central Bank's normal course of business and will, quite possibly, destroy the Central Bank; if the Mareva injunction is lifted, it is possible that a judgment obtained by PPI will be worthless.[69]In my judgment, for two reasons the balance comes down against the continuance of the Mareva injunction.[70]First, I regard PPI's present case against the Central Bank as no more than speculative. Second, it is, in my opinion, wrong in principle to grant a Mareva injunction so as, before any liability has been established, to interfere with the normal course of business of the defendant. To impose a Mareva injunction that will have that effect in order to protect a cause of action that is no more than speculative is not simply wrong in principle but positively unfair.[71]I now come to the question whether a limited injunction preserving, pending trial, the £8.9 million should be granted. This would not be a Mareva injunction. It would not be subject to provisos enabling the use of the money for normal business purposes, or for the payment of legal fees, or the like. There is, in general, no reason why a defendant should be permitted to use money belonging to another in order to pay his legal costs or other expenses. The objection in principle to the grant of the Mareva injunction to which I have referred does not apply to an injunction to preserve a fund that, in the contention of PPI, belongs to PPI.[72]In deciding whether or not an interlocutory injunction to protect the £8.9 million should be granted, the approach prescribed by American Cyanamid Co. v. Ethicon Ltd . [1975] AC 396 should be followed. First, PPI must show an arguable case. If an arguable case is shown then the balance of convenience should be applied. If the scale appears very evenly balanced it is then legitimate to take into account the strength or weakness of PPI's case.[74]This is a case in which the balance of convenience does seem to be to be very evenly balanced. An order freezing E8.9 million of the Central Bank's foreign currency reserves will, although not as devastating in its effect as an order freezing f23 million odd, nonetheless be likely to be damaging to the Central Bank's credibility as a bank. It is a sum sufficiently large to put the Central Bank in difficulties if a run were to develop. On the other hand, if an injunction is not granted, the £8.9 million may disappear as a traceable fund, leaving PPI merely with its claim for monetary compensation. One of the problems about PPI's tracing claim is that it has emerged in a recognisable form only at a late stage. The statement of claim does not plead facts from which a tracing claim can be recognised. The affidavits which were before Millett J. did not attempt to substantiate a proprietary tracing remedy. The tracing claim has only emerged in any clear form in Mr. Morris's ninth and tenth affidavits. The Central Bank has not had time to respond properly to these affidavits.[75]In view of the present weakness of PPI's case of knowledge and in view of the late stage at which the tracing claim has been put forward, I would not be prepared to grant an injunction restraining the Central Bank from making any use of the £8.9m. fund. I would, however, be prepared, in principle, to grant relief on these lines.[76]The Central Bank should be required, first, to earmark the £8.9m. in a separate account and, second, should be restrained from dealing with the earmarked fund otherwise than in the normal course of business and unless and to the extent that there are no other funds in England available to be used. The Central Bank should be required to inform PPI's solicitors in advance of any use proposed to be made of the £8.9m. and, at the same time, to give details of all foreign currency reserves for the time being held in this country.[77]Save as aforesaid I would allow the appeal and discharge the Mareva injunction. LORD JUSTICE STOCKER : I have had the benefit of reading in draft the judgments of my Lords.[78]I agree with their conclusions, for the reasons explained by each of them. Accordingly, I agree that the Mareva injunction should be discharged.[79]MASTER OF THE ROLLS: From the earliest days of the Mareva injunction banks have been involved as innocent third parties burdened with giving effect to those injunctions by freezing the defendants' assets held by them. Apart from Establissement Esefka International Anstalt v. Central Bank of Nigeria [1979] 1 Lloyd's Rep. 445 this is, however, the first case in my experience in which it has been sought to subject a bank to such an injunction in the capacity of a defendant. The principles involved are no different in the case of banks from that of any other defendant, but their application may produce rather different results.[80]I therefore turn to the principles underlying the jurisdiction. These are: 1. So far as it lies in their power, the courts will not permit the course of justice to be frustrated by a defendant taking action, the purpose of which is to render nugatory or less effective any judgment or order which the plaintiff may thereafter obtain. 2. It is not the purpose of a Mareva injunction to prevent a defendant acting as he would have acted in the absence of a claim against him. Whilst a defendant who is a natural person can and should be enjoined from indulging in a spending spree undertaken with the intention of dissipating or reducing his assets before the day of judgment, he cannot be required to reduce his ordinary standard of living with a view to putting by sums to satisfy a judgment which may or may not be given in the future. Equally no defendant, whether a natural or a juridical person, can be enjoined in terms which will prevent him from carrying on his business in the ordinary way or from meeting his debts or other obligations as they come due prior to judgment being given in the action. 3. Justice requires that defendants be free to incur and discharge obligations in respect of professional advice and assistance in resisting the plaintiff's claims. 4. It is not the purpose of a Mareva injunction to render the plaintiff a secured creditor, although this may be the result if the defendant offers a third party guarantee or bond in order to avoid such an injunction being imposed. 5. The approach called for by the decision in American Cyanamid Co. v. Ethicon Ltd . [1975] AC 396 has, as such, no application to the grant or refusal of Mareva injunctions which proceed on principles which are quite different from those applicable to other interlocutory injunctions.[82]The special problem which arises in the case of a bank is rooted in the fact that its stock in trade is money borrowed from depositors. In the case of a trading company there is no difficulty in leaving it free to trade on the footing that, in so far as it sells its stock, it will be required either to preserve the proceeds of sale or to use them to buy other stock to which the injunction will apply. In the case of a bank, in so far as it is called upon to repay its depositors, there will be no "proceeds of sale" and its assets, although not its net assets, will thereby be reduced. This reduction will, however, be in the ordinary course of its business and it would be contrary to the principles set out above to seek to prevent it. There is a further problem which is special to banks. This lies in the extent to which all banking business is fundamentally dependent upon the maintenance of confidence on the part of its customers that it can and will meet its obligations to them as and when they arise. Banking business is only viable if withdrawals are to a greater or lesser extent balanced by fresh deposits. Any order which could produce a situation in which there is a "run on the bank" - withdrawals not being replaced by deposits - would be inimical to the purposes for which the Mareva jurisdiction exists.[83]When the matter came before this court on 30th October 1991, we were only concerned to consider how the injunction could be varied to secure that the Central Bank could carry on its business in the ordinary course for the next few days pending an inter partes hearing before Millett J. We were not at that time concerned to consider whether the injunction should be discharged.[84]Although the injunction as varied has in the event not created any run on the bank, I am satisfied that a bank such as the defendant, which is de facto the Central or Reserve Bank for the territory, cannot continue to fulfil its proper functions under local law if it is subject to any injunction as to the way in which it transacts its business. Subject to the fact that under local law other banks are required to maintain certain levels of deposit with it - a requirement which clearly could be altered by local legislation - I see no reason why other banks should continue to make deposits with it if by so doing they risk becoming competing creditors with the plaintiffs in a foreign jurisdiction. Furthermore, I consider that it would be in the ordinary course of the Central Bank's business in depositing funds to take account not only of competing interest rates, but also of whether depositing funds in one country rather than another would be more likely to retain the confidence of its depositors. An injunction which inhibited the bank from taking account of such considerations would, I think, be contrary to principle.[85]In expressing this view I am not to be taken as saying that a Mareva injunction can never be granted against a bank, but the circumstances would have to be unusual. If, for example, it was clear on the facts that the bank was well able to meet any judgment in favour of the plaintiffs, but was likely to take action to avoid having to do so, the imposition of an injunction should not affect the confidence of its depositors unless they thought that the bank would adopt the same stance in relation to their claims. That is not however this case.[86]Accordingly, in agreement with Scott L.J. and for the fuller reasons which he has so clearly expressed, I would discharge the injunction in so far as it is based upon the Mareva jurisdiction. That does not dispose of the matter, because in this court it has been sought to maintain the injunction, albeit for a reduced amount, on the footing that it will be possible to trace £8.9 million remaining in the hands of the Central Bank as being in equity the property of the plaintiffs.[87]This is a wholly different basis for an injunction, namely an application under R.S.C. Order 29, rule 2 for an order for the interim preservation of property which is the subject matter of the cause or matter. If at the trial the plaintiffs can make good their tracing claim, they will be in the position of secured creditors to the extent, but very probably only to the extent, that the C8.9 million has not meanwhile been removed from the jurisdiction. In this context, unlike that of a Mareva injunction, American Cyanamid Co . principles do apply. Applying those principles I agree with the order proposed by Scott L.J. for the reasons which he has given.

Order

Appeal allowed to the extent indicated in the judgment; Appellants' costs here and below in any event on the standard basis; liberty to all parties to apply; counsel to hand in an agreed minute of order; injunction continued until Wednesday 25th March. LORD JUSTICE SCOTT : This is an appeal against the grant by Millett 7 on 7th November 1991 of a Mareva injunction against the fourth defendant, Central Bank of the Turkish Republic of Northern Cyprus. I shall in this judgment refer to the fourth defendant as "the Central Bank" and to the Republic as "Northern Cyprus". The plaintiff in the action is Polly Peck International plc ("PPI"). On 25th October 1990 an administration order was made in respect of PPI. Three eminent chartered accountants were appointed joint administrators. The action is being prosecuted at their direction. Order: Appeal allowed to the extent indicated in the judgment; Appellants' costs here and below in any event on the standard basis; liberty to all parties to apply; counsel to hand in an agreed minute of order; injunction continued until Wednesday 25th March.

Cited in 13 later judgments

and 4 more of the most senior