Civil Liability and Commercial Fraud Interim Remedies Freezing Orders and Search Orders ADAM ROBB

Transcription

1 Civil Liability and Commercial Fraud Interim Remedies Freezing Orders and Search Orders ADAM ROBB

2 INTRODUCTION 1. In many fraud cases, there will be a real risk that the alleged fraudster will dissipate assets or destroy documents and thereby render proceedings futile. In these circumstances, the innocent party will need to take urgent steps to prevent the dissipation of assets or the destruction of documents and apply to the Court for a freezing order and/or a search order. In this paper I will set out a summary of the key principles involved in such applications and refer to a number of recent cases with which to illustrate particular issues. 2. In Bank Mellat v Nikpour 1, Donaldson LJ described the freezing order, formerly known as the Mareva injunction, as one of the law s two nuclear weapons. The other nuclear weapon was the Anton Piller order, now known as the search order. For this reason, as set out is set out in greater detail below, this has led the Courts to put in place a number of procedural safeguards for respondents in relation to these orders. FREEZING ORDERS Introduction 3. Where a claimant seeks to recover property, the court, in exercising its equitable jurisdiction has power to grant an interlocutory injunction restraining the disposal of property over which the claimant asserts a proprietary claim. In some fraud cases, such as those involving breach of fiduciary duty, such an application and order may be appropriate. However, until the emergence of the Mareva jurisdiction 2 in 1975, the Courts had held that an unsecured creditor (i.e. one with no proprietary claim) could not obtain an injunction restraining a potential 1 [1985] FSR 87 at In fact, the Mareva injunction was first granted in Nippon Yusen Kaisha v Karageorgis [1975] 1 WLR That case was followed by Mareva Companies Naviera SA v International Bulkcarriers Ltd [1975] 2 Lloyd s Rep

3 defendant from removing his property from the jurisdiction or from otherwise disposing of or dealing with his property. 4. Under the CPR, the Mareva order has been rename the freezing order or freezing injunction. 5. The key feature of the freezing order jurisdiction is that it enables the Court to grant an interlocutory injunction restraining the defendant from dealing with or disposing of assets over which the claimant asserts no proprietary claim but which after judgment may be attached to satisfy a money judgment. 6. Freezing injunctions can be and are granted in cases where no fraud is alleged. A number of the reported cases referred to below did not involve an underlying cause of action in fraud. Nevertheless, freezing orders are a particularly important in cases where fraud is alleged because in nearly all such cases the innocent party will at least want to consider whether an application for a freezing order should be made. On the basis of experience, it seems likely that claims in fraud make up a large proportion of the freezing orders applied for and granted. However, in terms of reported inter partes hearings, many cases do not involve fraud. The explanation may well be that in fraud cases the respondent is brought to the table and settles once the freezing order is obtained. That will not always be the case but it highlights the importance of obtaining the freezing order where that is possible. 7. For the practitioner it means that it is necessary to determine what lessons can be learned from non-fraud freezing order cases and applied to cases involving fraud. 8. A freezing order does not provide a claimant with pre-trial security. It does not give the claimant any interest in the property which is the subject matter of the order. It acts strictly in personam. It is not predicated on and does not give any proprietary rights or any advantage over other creditors. It should therefore be distinguished from an order which a claimant asserts a proprietary right to 3

4 particular assets and the court orders that such assets be preserved pending judgment. The Court s jurisdiction to make freezing orders 9. The jurisdiction for the Court to make freezing orders derives from the pre- Supreme Court of Judicature Act 1873 ( the 1873 Act ) powers of the Chancery courts and other courts, to grant injunctions: see section 16 of the 1873 Act and section 19(2)(b) of the Supreme Court Act 1981 ( the 1981 Act ) and is confirmed by section 37 of the 1981 Act. 10. Sections 19 of the 1981 Act provides: 19. (1) The High Court shall be a superior court of record. (2) Subject to the provisions of this Act, there shall be exercisable by the High Court - (a) all such jurisdiction (whether civil or criminal) as is conferred on it by this or any other Act; and (b) all such other jurisdiction (whether civil or criminal) as was exercisable by it immediately before the commencement of this Act (including jurisdiction conferred on a judge by the High Court by any statutory provision). 11. Section 37 of the 1981 Act provides: 37. (1) The High Court may by order (whether interlocutory or final) grant an injunction in all cases in which it appears to the court to be just and convenient to do so. 4

5 (2) Any such order shall be made either unconditionally or on such terms and conditions as the court thinks just. (3) The power of the High Court under subsection (1) to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction. 12. By section 16 of the Judicature Act 1873, the High Court of Justice was created as a superior court of record and the jurisdiction which, at the commencement of that Act, was vested in or capable of being exercised by, certain courts of common law and equity, and certain other courts, was transferred to and vested in the High Court. The jurisdiction of the High Court was co-extensive with the aggregate of jurisdictions of the courts from which jurisdiction was transferred, subject to legislative changes made by the 1873 Act itself and subsequent legislation: see Re Mill s Estate Section 25 of the Civil Jurisdiction and Judgments Act 1982 provides jurisdiction to grant interim relief in respect of proceedings which have been (or will be) commenced other than in the United Kingdom: 25. (1) The High Court in England and Wales or Northern Ireland shall have power to grant interim relief where (a) proceedings have been or are to be commenced in a Contracting State other than the United Kingdom or in a part of the United Kingdom other than that in which the High Court in question exercises jurisdiction; and 3 (1886) 34 Ch D 24 at 33, per Cotton LJ. 5

6 (b) there are or will be proceedings whose subject-matter is within the scope of the 1968 Convention as determined by Article 1 (whether or not the Convention as the effect in relation to the proceedings). (2) On an application for any interim relief under subsection (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings in question makes it inexpedient for the court to grant it. (3) Her Majesty may be Order in Council extend the power to grant interim relief conferred by subsection (1) so as to make it exercisable in relation to proceedings of any of the following descriptions, namely (a) proceedings commenced or to be commenced otherwise than in a Brussels or Lugano Contracting State or Regulation State; (b) proceedings whose subject matter is not within the scope of the Regulation as determined by Article 1 of the Regulation 4 ; An application for a freezing injunction is made under CPR Part 25.1(1)(f). An ancillary order directing a party to provide information about the location of relevant property or assets or to provide information about relevant property or assets which are or may be the subject of an application of an application for a freezing order may be made under CPR Part 25(1)(g). This provision is dealt with in greater detail below. 15. The relevant rules of Court are found in CPR Part 25.1 which provides: (1) The court may grant the following interim remedies 4 The Regulation is Council Regulation (EC) 44/2001 which has replaced the Brussels Convention. 6

7 . (f) an order (referred to as a freezing injunction) - (i) restraining a party from removing from the jurisdiction assets located there; or (ii) restraining a part from dealing with any assets whether located in the jurisdiction or not; (g) an order directing a party to provide information about the location of relevant property or assets or to provide information about relevant property or assets or to provide information about relevant property or assets which are or may be the subject of an application for a freezing injunction. 16. In the recent case of Fourie v Le Roux 5 (in which the applicant alleged that the respondents had acted in a dishonest and fraudulent manner), the House of Lords considered the nature of the power and the scope of the jurisdiction to grant freezing orders. 17. Lord Bingham stated: 2. Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domestic or foreign. 5 [2007] UKHL 1, [2007] 1 WLR

8 18. In relation to the jurisdiction of the Court to grant a freezing order, the House of Lords in Fourie v Le Roux held as follows. Care is required when using the term jurisdiction. It can have one of two meanings in this context. First, it can be used in the strict sense so that if one says that the court has no jurisdiction it means that it has no power to deal with and decide the dispute as to the subject matter before it, no matter in what form or by whom it was raised. The alternative meaning is that although the court has power to decide the question it will not according to its settled practice do so except in a certain way and under certain circumstances. 19. In terms of strict sense of jurisdiction, the House of Lords held that in that case the Court had the power to grant the injunction because the defendants were within the territorial jurisdiction of the court at the time the freezing order was made and both were served with the appropriate originating summons. 20. Consequently, the jurisdiction (in the narrow sense) of the Courts to grant freezing injunctions is very wide. However, it appears that in order for the Court to have jurisdiction, even in the narrow sense, there must be an existing underlying cause of action: The Siskina 6 ; Veracruz Transportation Inc (The Veracruz 1) 7. The suggestion by Lord Denning MR in Chief Constable of Kent v V 8 that it was not essential for an injunction to be ancillary to an action claiming a legal or equitable right has been disapproved. In A v B 9, Saville J accepted that an injunction could be granted in a conditional form, such that it would take effect once the cause of action actually accrued. This has also been disapproved: The Vercruz But the cause of action need not be one which can or will be adjudicated upon in the courts of England and Wales. The effect of section 25 of the Civil Jurisdiction and Judgments Act 1982, as extended by the Civil Jurisdiction and Judgments Act 6 [1979] AC [1992] 1 Lloyd s Rep [1983] QB [1989] 2 Lloyd s Rep

9 1982 (Interim Relief) Order is to enable the High Court to grant interim relief in relation to proceedings that have been or are about to be commenced in a foreign state. The cause of action can be one which will be determined in arbitration proceedings which will be conducted abroad: Channel Tunnel Group Ltd v Balfour Beatty Construction Limited However, where the cause of action is not one which will be adjudicated upon in England and Wales, careful attention must be paid to the basis upon which it is said that the court has jurisdiction. For example, in Banco Nacioncal de Comercio Exterior SNC v Empresa de Telecommunicaciones de Cuba SA 12, the Court of Appeal held that the English courts did not have jurisdiction under Article 47(1) of the Regulation to grant a worldwide freezing order in respect of a judgment obtained in another Contracting State (in this case, Italy), even if that judgment had not been registered. Further, the Court held that the principles applicable under section 25 of the Civil Jurisdiction and Judgment Act 1982 made it inexpedient to grant a worldwide order. Assets held in England and Wales would be protected by a domestic order. There would be no connecting link between the territorial jurisdiction of the Court and assets held outside England and Wales. 23. The real question is whether the court should exercise its power. Since the jurisdiction to grant freezing orders was confirmed in 1975, the Courts have developed a number of principles to guide the exercise of the Court s discretion in determining whether a freezing order should be granted in any particular case. However, given the terms of section 37, the namely that an injunction will only be granted if it is just and convenient to do so, the Courts have repeatedly emphasised that the they retain flexibility and that the principles evolve to meet changing needs. 24. The Courts regard freezing orders as being draconian and therefore insist on safeguards for the respondent. As Lord Bingham said in Fourie v Roux: 10 SI 1997/ [1993] AC [2007] EWCA Civ 662 [2007] 2 Lloyd s Rep

10 3. In recognition of the severe effect which such an injunction may have on a defendant, the procedure for seeking and making Mareva injunctions has over the last three decades become closely regulated. I regard that regulation as beneficial and would not wish to weaken it in any way. The procedure incorporates important safeguards for the defendant. One of those safeguards, by no means the least important, is that the claimant should identify the prospective judgment whose enforcement the defendant is not to be permitted, by dissipating his assets, to frustrate. The claimant cannot of course guarantee that he will recover judgment, nor what the terms of the judgment will be. But he must at least point to proceedings already brought, or proceedings about to be brought, so as to show where and on what basis he expects to recover judgment against the defendant. 25. There are two key issues which the applicant will have to show in order to obtain the freezing order: that he has a good arguable case in respect of the underlying and existing cause of action; that there is a sufficient risk of dissipation of assets by the respondent to justify the making of the order. Good arguable case 26. There a number of issues which arise under the rubric of good arguable case : in respect of what type of claims can the applicant make an application for a freezing order; what evidential test does the applicant have to satisfy? 27. First, in what type of cases can a freezing order be made? 10

11 28. Although freezing orders are often associated with fraud or similar claims, they can be made in respect of any claim where there is an existing cause of action. For example in the recent case of Mobil Cerro Negro Limited v Petroleos de Venezuela 13 (where the dispute was in essence between Exxon Mobil and the Bolivarian Republic of Venezuela), the underlying cause of action was a claim on a guarantee. 29. Second, in relation to the evidential test that the applicant has to satisfy, the first hurdle is that the applicant must properly formulate and present his cause of action at the without notice hearing. That may appear to be a relatively straightforward step, but it proved the downfall of the applicant in the recent case of Fourie v Roux which found its way to the House of Lords. 30. In that case, the liquidator of two South African companies applied to the High Court in London without notice for a freezing order to be made against two individuals and a number of companies. He had formed the view that two of the respondents had by fraud and deception stripped one of the companies of its assets and removed them, or their proceeds, to England. At the without notice hearing, the liquidator, through counsel, stated that he was intending to proceed in South Africa in terms of statutory inquiries and various claims would be formulated. The High Court granted the application and the freezing order was made. At the respondents application for the order to be set aside, the Court pointed out that when the without notice hearing was held no proceedings for substantive relief had been commenced or formulated and held that the court had no jurisdiction to grant a freezing order in circumstances where the applicant had not intention of issuing proceedings immediately or almost immediately. 31. The House of Lords held that it would be difficult to visualise a case where the grant of a freezing order made without notice, could be said to be properly made in 13 [2008] EWHC

12 the absence of any formulation of the case for substantive relief that the applicant for the order intended to institute. 32. So the claim has been properly formulated, what is the standard of proof that the applicant must achieve? 33. In The Niedersachsen 14, Mustill J held that that good arguable case was one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better then 50% chance of success. This statement of principle was endorsed by the Court of Appeal in the same case. 34. However, it must be borne in mind that the good arguable case test is a threshold test, so that if it is not satisfied it is very unlikely that the Court would grant the application. However, given that the overriding test is whether it is just and convenient to grant the injunction even if this minimum threshold requirement is satisfied, the strength or otherwise of the applicant s case will be a relevant factor in the exercise of the court s discretion. Dissipation of assets 35. In order to obtain a freezing order, the applicant must satisfy the Court that there is and objective risk of dissipation. In The Niedersachsen, the Court of Appeal held: In our view the test is whether, on the assumption that the plaintiffs have shown at least "a good arguable case, the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied. 36. In The Niedersachsen at first instance, Mustill LJ held that the applicant must present solid evidence of the risk of dissipation. Generally, unsubstantiated assertion by the applicant will not be sufficient. 14 [1983] 2 Lloyd s Rep

13 37. First, the fundamental principle is that freezing orders are not granted in order to provide security for a claim. By obtaining the order that assets are frozen, an applicant is not but in a better position than any other creditor. The mere fact that a defendant s creditworthiness is in doubt does not justify the making of the order. 38. Second, it is not necessary for the claimant to prove that the purpose of the defendant s actual or feared conduct is to frustrate the enforcement of any judgment which is obtained, provided, objectively, that would be its effect. 39. Third, the mere fact that the actual or feared conduct would risk impairing the claimant s ability to enforce a judgment or award does not in every case mean that a freezing order should be granted. The conduct in question must be unjustifiable: Ketchum International v Group Public Relations Holdings 15, per Stuart Smith LJ. As the Court of Appeal in Mediterranean Feeders v Berndt Meyering Schiffarts 16 stated: there must be risk that it [the asset] will be used otherwise than for normal and proper commercial purposes 40. If the applicant can adduce solid evidence that the respondent has acted dishonestly, then there may be no need for any other specific evidence that the respondent intends to dissipate his assets. However, in this respect a note of caution should be sounded. In Thane Investments Limited v Tomlinson & Others 17 the Court of Appeal stated 18 : [Counsel for the applicants] submitted that it has now become the practice for parties to bring ex parte applications seeking a freezing order by pointing to some dishonesty, and that, he says, is sufficient to enable this court to make a freezing order. I have to say that, if that has become the practice, then the practice should 15 [1997] 1 WLR 4 at (June 1997, unreported). 17 [2003] EWCA Civ Paragraph

14 be reconsidered. It is appropriate in each case for the court to scrutinise with care whether what is alleged to have been dishonesty of the person against whom the order is sought in itself really justifies the inference that that person has assets which he is likely to dissipate unless restricted. 41. The sort of factors which will be relevant when assessing whether there is a real risk of dissipation of assets are: The nature of the assets the more easily disposed of, the easier it is to establish that there is a risk they may be dissipated; The nature and financial standing of the defendant s business; The length of time the defendant has been in business; The domicile or residence of the defendant; The defendant s past or existing credit record Any intentions expressed by the defendant about future dealings with his English assets, or assets outside the jurisdiction; Any connections which the defendant may have with other companies which have defaulted on arbitration awards or judgments. 42. The respondent s behaviour in relation to the claimant s claim: a pattern of evasiveness, or unwillingness to participate in the litigation or arbitration, or raising thin defences after admitting liability, or total silence, may be factors which assist the applicant. 14

15 43. The applicant is not required to show on the balance of probabilities that assets will be dissipated. He is only required to show that there is a real (as opposed to an insignificant or a fanciful) risk that this will occur. Documentation 44. In practical terms, what documentation is required to make an application for a freezing order? 45. Where it is possible to do so, the applicant must produce: An Application Notice A draft Order. This must be based upon the model draft order which is annexed to the Practice Direction to CPR Part 25; An affidavit (or affidavits) in support. Witness statements will not suffice. Those affidavits must set out the applicant s case and make full and fair disclosure including: (1) the reasons for making the application without notice; (2) a properly formulated claim, including identifying the relevant causes of action, so that the Court can properly conclude that the applicant has a good arguable case in respect of the underlying cause of action; (3) a proper identification of sources of information and belief (see CPR part 32). Broad references to documents in my possession or inquiries made will not be good enough. This is very important and can be a key issue in relation to material non-disclosure; 15

16 (4) material upon which the Court can properly conclude that there is a real risk of dissipation of assets by the respondent; (5) full and fair disclosure of all facts and arguments relevant to the exercise of discretion by the Court; the Claim Form or draft Claim Form; The Skeleton Argument. In any application of any complexity, it is essential to serve a Skeleton Argument. As is discussed below, the obligation to make full and fair disclosure is onerous and the Skeleton Argument is the applicant s best opportunity to ensure that there can be no doubt that all material matters were brought to the attention of the judge at the without notice hearing. 46. Where urgency means that it is not possible to provide this documentation, then an applicant will be required to provide an undertaking that the relevant documents will be filed and served within a short period. Procedure 47. The procedure is set out in CPR Part 25 Practice Direction and it is essential that the Practice Direction is studied carefully prior to preparing and making the application. The key points include: the application hearing and the hearing on the return date must be before to a judge, not a master; applications for freezing orders must be supported by affidavit evidence (CPR Part 25 PD, paragraph 3.1). Witness statements are not sufficient for those applications although they are for applications for other interim injunctions; 16

17 47.3. that evidence must contain: (1) all the facts on which the applicant relies for the claim against the respondent; (2) all the material facts which the applicant is required to disclose to the Court pursuant to its obligations of full and frank disclosure; (3) an explanation of why the application is being made without notice the Practice Direction sets out different requirements for applications made before the issue of the Claim Form and those made after the issue of the Claim Form. It is important that the correct procedure is followed; in cases of extreme emergency, telephone applications can be made but only when the applicant is represented by solicitors or counsel. The draft order should usually be faxed to the judge. Papers will have to be filed the same or next working day or as ordered (CPR Part 25 PD para 4.5). 48. There are a number of mandatory provisions in relation to orders for injunctions. These must be included unless the court otherwise orders: an undertaking by the applicant to the court to pay any damages which the respondent sustains which the court considers the applicant should pay; if made without notice to any other party, an undertaking by the applicant to the court to serve on the respondent the application notice, evidence in support and any order made as soon as practicable; if made without notice to any other party, a return date for a further hearing at which the other party can be present; 17

18 48.4. if made before filing the application notice, an undertaking to file and pay the appropriate fee on the same or next working day; and if made before issue of the claim form: (1) an undertaking to issue and pay the appropriate fee on the same or next working day; or (2) directions for the commencement of the claim. 49. It must be pointed out to the judge if the applicant is seeking an order which differs from the model identified in the Practice Direction: Memory Corporation v Sidhu (No 2) 19. This is an incident of the obligation to make full and fair disclosure and to present the application fairly. 50. The applicant must make a full note of the without notice hearing and provide it to the respondent as soon as possible, even if not asked for. From the applicant s point of view this is a very good discipline. A full and contemporaneous note should assist in reducing or eliminating disputes as to what the judge was in fact told at the without notice hearing. The without notice application 51. It is a general and fundamental principle that an order should not be made against a party without that party being given a proper opportunity to be heard. That principle is reflected in CPR Part 23. But CPR Part 25.3 provides that the Court may grant an interim remedy on an application made without notice if it appears that there are good reasons for not giving notice. 52. Of course, the purpose of making applications for freezing orders would often be thwarted if notice was given to the respondent. 19 [2000] 1 WLR

19 53. The good reason which is usually applicable to applications for freezing orders: if notice of the application were to be given, the defendant or others would take action which would defeat the purpose before that order could be made; and any damage which may be caused by the order could be compensated under the cross-undertaking in damages or the risk of uncompensatable damage is outweighed by the risk of injustice to the applicant if the order is not made without notice. 54. These requirements will often be satisfied in cases of alleged fraud because of the risk that the defendant will dissipate assets. But if they are not satisfied, then the court should not grant the application without notice. In Thane Investments Ltd v Tomlinson 20, the Court of Appeal emphasised that the applicant must comply with the requirement in CPR Part 25 3(3) and provide evidence as to why no notice has been given to the respondent. In that case, the applicant had not provided any such evidence and the order was set aside. Duty to make full and frank disclosure and fair presentation 55. The applicant is under a duty of the utmost good faith to disclose all matters to the court which are material to be taken into account by the court in deciding whether or not to grant relief without notice and if so on what terms. Although this duty will be present whenever an applicant makes an application without notice to the respondent, the Court takes this duty particularly seriously where the applicant is seeking a freezing order (and a search order). In Siporex Trade SA v Comdel Commodities Ltd 21, Bingham J held: 20 [2003] EWCA Civ [1986] 2 Lloyd s Rep 428,

20 Such an applicant must show the utmost good faith and disclose his case fully and fairly. He must, for the protection and information of the defendant, summarize his case and the evidence in support of it by an affidavit or affidavits sworn before or immediately after the application. He must identify the crucial points for and against the application, and not rely on general statements and the mere exhibiting of numerous documents. He must investigate the nature of the cause of action asserted and the facts relied on before applying and identify any likely defences. He must also disclose all facts which reasonably could or would be taken into account by the Judge in deciding whether to grant the application. It is no excuse for an applicant to say that he was not aware of the importance of the matters he has omitted to state. If the duty of full and fair disclosure is not observed the Court may discharge the injunction even if after a full enquiry the view is taken that the order made was just and convenient and would probably have been made even if there had been full disclosure. 56. Similarly in Bank Mellat v Nikpour, Donaldson LJ held: The rule requiring full disclosure seems to me to be one of the most fundamental importance, particularly in the context of the Draconian remedy of the Mareva Injunction. It is in effect, together with the Anton Piller order, one of the law s two nuclear weapons. If access to such a weapon is obtained without the fullest and frankest disclosure, I have no doubt at all that it should be revoked. 57. It will be no answer to a complaint of material non-disclosure that the decision made at the without notice hearing would have been the same even if the matter had been disclosed. 58. The Court applies an objective test to determine whether something was material, not a subjective test. Consequently it is not relevant to the issue of whether there has been material non-disclosure that the applicant genuinely did not consider the matter to be relevant. However, that issue may be relevant in relation to consequences of any material non-disclosure. 20

21 59. The applicant must disclose all matters which are or might be adverse to the applicant and which may assist the respondent. This includes matters of which applicant would have been aware if he had made reasonable enquiries: Brink s Mat Ltd v Elcombe 22. This emphasises the fact that a freezing order is not to be sought lightly. The applicant must take reasonable steps to place the whole story before the court. This will include, for example, asking witnesses whether they have produced all documents. Of course, what is reasonable will depend upon all the circumstances and in particular the urgency of the situation and consequently the time available before making the application. 60. Further, it is unlikely to be sufficient simply to say that the matter was referred to somewhere in the material before the judge. The evidence and other documentation that is put before the judge will often be voluminous and the judge may well have limited time to consider that material. The applicant must bring those matters to the attention of the judge. The most obvious way of doing so is by use of the Skeleton Argument, although it is very likely that the matter will have to be referred to orally, or at the very least, the advocate should ensure that the judge has in fact considered the relevant passages of the Skeleton Argument. Again, this is another reason why it is so important that a full note is taken of the hearing so that there can be no dispute as to what the judge was in fact told about. 61. As part of the requirement of full and fair disclosure, the applicant must not only properly formulate his case, but must also properly formulate possible defences to the underlying claim, and bring those to the attention of the judge. 62. It is almost certain that the applicant will be required to give a cross-undertaking in damages. Clearly the question of whether the applicant is going to be good for that cross undertaking will be a relevant factor in the exercise of the Court s discretion. It should be dealt with expressly in the application and evidence. If no reference then assumption that applicant good for the money. 22 [1988] 1 WLR

22 63. Evidence which has been obtained illegally is still admissible. However, the fact that it has been obtained illegally may be something which should reasonably be known to the applicant and which is material to the application, and so must be disclosed to the Court. For example, in the recent case of Franses v Assad & Others 23, where a freezing order in respect of the proceeds of sale of a property in London had been obtained, Henderson J held that it must have been obvious to the applicant and his advisers that certain information in relation to ownership of the asset which it was alleged belonged to the respondent and information in relation to the respondent s alleged intention in relation to the proceeds of sale must have been obtained by unlawful means, such as fraudulent pretext calls and/or breaches of date protection legislation. Consequently, although counsel at the without notice hearing had referred to the role of enquiry agents, that was not sufficient to discharge the duty of full and fair disclosure because he did not draw to the judge s attention that there were grounds for supposing that the evidence in question to have been unlawfully obtained. 64. It should be noted that in this regard Henderson J acknowledged that he was taking a different view to that expressed by Robert Walker LJ in Memory Corporation Plc v Sidhu, where he pointed out, among other things, that the gathering of evidence by illegal means has not in general led to its exclusion under the English law of evidence and said it was far from obvious that concerns of this nature should be added to the heavy responsibilities already undertaken by lawyers who are making a without notice application, except perhaps in circumstances where the evidence in question is of central importance to the application. He went on to say that even when the evidence is of central importance, for example, evidence relation to the sale of contraband goods in a case of piracy of intellectual property rights, trap orders and other conduct involving impersonation or deception have been common place in the Chancery Division for a century or more, and do not seem to have attracted censure. 23 [2007] EWHC 2442 (Ch). 22

23 65. The applicant must also explain to the judge the position of non-parties who may be affected by the application. The impact on non-parties is a matter which will be relevant to the exercise of discretion so must be dealt with. Consequences of material non-disclosure 66. What happens if the applicant is found guilty of material non-disclosure. The applicable principles were set out by the Court of Appeal in Brink s Mat Ltd v Elcombe 24 : In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following. (1) The duty of the applicant is to make a full and fair disclosure of all the material facts: see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 514, per Scrutton L.J. (2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at p. 504, citing Dalglish v. Jarvie (1850) 2 Mac. & G. 231, 238, and Browne-Wilkinson J. in Thermax Ltd. v. Schott Industrial Glass Ltd. [1981] F.S.R. 289, 295. (3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] F.S.R. 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries. 24 [1988] 1 WLR 1350 at

24 (4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson [1987] Ch 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87, (5) If material non-disclosure is established the court will be "astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure... is deprived of any advantage he may have derived by that breach of duty:" see per Donaldson L.J. in Bank Mellat v. Nikpour, at p. 91, citing Warrington L.J. in the Kensington Income Tax Commissioners case [1917] 1 K.B. 486, 509. (6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the nondisclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented. (7) Finally, it "is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded:" per Lord Denning M.R. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms. 24

25 when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant... a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed: per Glidewell L.J. in Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, pp. 1343H A. 67. In the same case Balcombe LJ stated: The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a two-fold purpose. It will deprive the wrongdoer of an advantage improperly obtained: see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 509. But it also serves as a deterrent to ensure that persons who make ex parte applications realise that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained: see in general Bank Mellat v. Nikpour [1985] F.S.R. 87, 90 and Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, p. 1337, a recent decision of this court in which the authorities are fully reviewed. I make two comments on the exercise of this discretion. (1) Whilst, having regard to the purpose of the rule, the discretion is one to be exercised sparingly, I would not wish to define or limit the circumstances in which it may be exercised. (2) I agree with the views of Dillon L.J. in the Lloyds Bowmaker case, at p. 1349C-D, that, if there is jurisdiction to grant a fresh injunction, then there must also be a discretion to refuse, in an appropriate case, to discharge the original injunction. 25

26 Worldwide freezing orders 68. The same principles apply to applications for worldwide freezing orders as apply to those in which the applicant is only seeking to freeze assets within England and Wales. No specific separate tests or criteria have been applied. However, a number of the considerations which are relevant in relation to applications for purely domestic freezing orders. 69. For example: the grant of a worldwide freezing order is likely to lead to both parties incurring significant legal costs; a worldwide freezing order may impact upon third parties who have no connection with England and Wales. 70. So, how have the courts dealt with these issues? 71. First, generally, if it appears that there are sufficient assets within the jurisdiction to satisfy any judgment in favour of the applicant in the actual or contemplated substantive proceedings, the court will probably decline, as a matter of discretion, to order a worldwide freezing order: Derby & Co Ltd v Weldon (Nos 3 and 4) Second, the model order annexed to the Practice Direction to CPR Part 25 makes special provision in respect of third parties who may be affected and are outside the jurisdiction and assets which are located outside of the jurisdiction. 25 [1990] Ch 65 at

27 Applications under CPR Part 25.1(1)(g) 73. There have been relatively few reported judgments in respect of applications made under CPR Part 25.1(1)(g). In the recent case of Lichter & Schwartz v Rubin 26, Henderson J set out guiding principles for such applications. Generally, if an application for a freezing order is made, the applicant will seek an order that the respondent provide information as to assets. Clearly, CPR Part 25.1(1)(g) is intended to provide for situations where the applicant cannot properly make an application for a freezing order itself, because, perhaps, it cannot at this stage state that it believes that the respondent has been guilty of wrongdoing with sufficient certainty but has suspicions. 74. Henderson J agreed with the judgment of Mr Gabriel Moss QC in Parker v CS Structured Credit Fund Limited The purpose of the provision is to deal with the situation where either an application for a freezing injunction is on foot or where it is at least likely that there will be such an application. The likelihood is not one that has to be demonstrated to any very high degree and certainly does not amount to a likelihood on the balance of probabilities. A reasonable possibility based, based on credible evidence, should be sufficient to found the jurisdictional requirement of 25.1(1)(g). Henderson J also stated that this jurisdictional hurdle was not a high one, but even when crossed, the court retained a discretion in determining whether it was just and convenient in all the circumstances to make the order sought. An application which only just overcame the jurisdictional threshold may be refused as a matter of discretion. 26 [2008] EWHC 450 (Ch). 27 [2003] EWHC 391 (Ch) [2003] 1 WLR

28 SEARCH ORDERS Introduction 76. Although search orders are most often seen in cases involving intellectual property disputes they are a tool which should be considered in fraud cases. Jurisdiction in relation to searching orders 77. The jurisdiction of the High Court to grant search orders is found in section 7 of the Civil Procedure Act In particular section 7(1) provides: The court may make an order under this section for the purpose of securing, in the case of any existing or proposed proceedings in the court (a) the preservation of evidence which is or may be relevant, or (b) the preservation of property which is or maybe the subject-matter of the proceedings or as to which any question arises or may arise in the proceedings. The principles 78. Three essential pre-conditions for the grant of a search order were established by the Court of Appeal in Anton Piller KG v Manufacturing Processes Ltd 28 : The applicant must show an extremely strong prima facie case 29 ; The potential or actual damage must be very serious for the applicant; 28 [1976] Ch This requirement should be viewed in the context of the information available to the applicant, the time available to the applicant and the nature of the claim. 28

29 78.3. There must be clear evidence that the respondents have in their possession incriminating documents or things and that there is a real possibility that the defendants may destroy such material before any application can be made inter partes. 79. A fourth pre-condition was recommended by the Staughton Committee in its report in The Staughton Committee was set up following concern in relation to the Anton Piller jurisdiction. It recommended that there be a further pre-condition, namely: The harm likely to be caused by the execution of the Anton Piller order to the respondent must not be excessive or out of proportion to the legitimate object of the order. 80. In this regard, the Staughton Committee was following the judgment of Hoffmann J in Lock International Plc v Beswick The Staughton Committee went on to state that even if each of the four preconditions was met then the order would not necessarily be made. The court was still required to weigh in the balance the applicant s need for the order against the injustice to the respondent of making the order on a without notice basis. 82. Search orders may risk breaching the human rights of respondents (in particular Article 8) and so courts should scrutinise applications for particular care. Relevant factors will include whether the premises which are the subject of the search order are domestic or business, the risk of harm if the order is granted in terms of breach of human rights, the risk of harm if the order is not granted and whether a less intrusive order will be sufficient. 30 [1989] 1 WLR

30 The procedure 83. The relevant provision of the CPR is CPR Part 25.1(1)(h) which provides: The court may grant the following interim remedies (h) an order (referred to as a search order ) under section 7 of the Civil Procedure Act 1997 (order requiring a party to admit another party to premises for the purposes of preserving evidence etc); 84. As with freezing orders, search orders are usually made without notice to the respondent, with similar consequences for the duties of the applicant in terms of full and fair disclosure and presentation. Indeed, if anything, the duty of full and fair disclosure and presentation is more onerous in relation to applications for search orders than it is in relation to freezing orders. With a freezing order, the respondent may well be able to obtain a discharge of the order before any significant damage is done and any damage that is done is likely to be compensable in monetary terms. By contrast, under a search order, the search is usually done before the respondent has any real opportunity to return to the court to have the order set aside. In essence, substantial damage, in terms of breach of human rights, may well occur before the respondent has had his say. Further, the damage caused, for example, intrusion into the home, may not be properly compensable in monetary terms. 85. Just as with freezing orders, the Practice Direction to CPR Part 25 contains a model draft search order and as part of the duty of full and fair disclosure requires the applicant to explain how and why the draft order actually proposed differs from the model order annexed to the Practice Direction. 30

31 86. Obviously, the precise content of the duty of full and fair disclosure and presentation will depend upon the facts of the particular case. However, it will include full and fair disclosure of: all matters relevant to the undertakings contained in the draft order; the standing and experience of the solicitor who is to execute the order (e.g. is that solicitor a partner in the firm). For example, in The Gadget Shop v Bug.Com Limited & Others 31, the draft order only referred to solicitors and did not require a partner to attend. The model order referred to a partner and the applicant was criticised for not bringing this change to the attention of the judge hearing the without notice application; the standing and experience of the Supervising Solicitor. Paragraph 7.2 of the Practice Direction to CPR Part 25 provides that the Supervising Solicitor must be experienced in the operation of search orders. In The Gadget Shop case, the applicant was criticised for not presenting a full and fair picture of the experience of the Supervising Solicitor in respect of search orders. The judge held that before proposing supervising solicitors the applicant should have ascertained that they had material recent experience of the execution of search orders under the supervision of a supervising solicitor, although it was not necessary for them to have acted as supervising solicitors themselves; the address at which the search is to be carried out, whether it is a private or business address, and all the circumstances relevant to whether a search order for that address should be made. The requirement to specify whether it is a private or a business address is set out in paragraph 7.3(1) of the Practice Direction; 31 [2001] FSR