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Court refuses to continue ex parte freezing order for material non-disclosure

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

04-02-2018

Roman Frenkel v Arkadiy Lyampert & La Micro Group (UK) Limited [2017] EWHC 3121 (Ch)

 

Facts of the case

 

– the claimant (“C”) brought proceedings against the defendants (“D1” and “D2”) and others in both the US and UK

– by the time the UK proceedings were heard, C had been successful at first instance in the US proceedings and obtained a freezing order against D1. This expired on 22 June 2017. C applied for a further such order and a hearing of that application was set down for 1 August 2017

– in UK proceedings, on 17 July 2017, C obtained a freezing order on an ex parte basis in support of (i) enforcement of the earlier US judgment (in respect of which C undertook to issue proceedings to enforce) and (ii) the substantive UK proceedings (in respect of which judgment was awaited)

– in September 2017, C’s substantive UK claim was dismissed

– this hearing was the return date for the UK freezing injunction

The decision

– C had breached his duty to provide full and frank disclosure at the ex parte hearing on the basis that:

– C incorrectly told the court that the application for the US freezing order had not been served. The fact that it had been went to the issue of whether, objectively, there was a real risk of dissipation

– C failed to make proper inquiries into the US proceedings. Had they done so (a) the issue in (1) above would not have arisen and (b) it would have been disclosed to the court, inter alia, that the US court had dismissed anex parte application by C for an attachment order against D1 because there was insufficient evidence of irreparable harm

– C had provided insufficient information on D2’s intention to issue shares to key staff. This information would have enabled the judge to ascertain the true impact of a freezing injunction on D2

– C’s modifications to the standard form freezing injunction were not drawn to the judge’s attention

– C did not serve his application for a continuation of the UK freezing injunction as soon as practicable after the exparte hearing

– such failures were “serious and significant”and that there was no new evidence to justify continuing the order. Further, it would not be “just and convenient in all circumstances” since continuation of the freezing order would prevent D2 from structuring its shareholding in the manner it wished

Analysis and practical advice

– as is well known, an ex parte applicant is under a duty of full and frank disclosure of the material facts. In deciding what is/is not material, applicants would be advised to err on the side of caution since the question of materiality is one which falls to the court to determine and it may not always have been clear to the applicant the particular significance of particular facts

– applicants should also be mindful that the duty of full and frank disclosure is not limited to the material facts known to the applicant. It also extends to any additional facts which he would have known if he had made proper inquiries. The extent of such inquiries will depend on all the circumstances, including the nature of the case which the applicant is making and the order which is sought and its probable effect on the respondent

– where an ex parte applicant has substantially breached the duty of full and frank disclosure, the court will typically discharge the order and not renew it until trial. However, the court has jurisdiction, albeit one which it exercises sparingly, to continue an order, or to replace an order that it discharges with a new order to similar effect, where justice requires it. In making its decision, the court will weigh all relevant considerations including:

– the culpability of the applicant and his advisers with regards to the breach, inparticular the extent of the breach and whether it was deliberate

– the significance to the outcome of the application of the matters not disclosed to the court

– the merits of the applicant’s case

– the nature of the order obtained ex parte