Ruling a reminder of the duty of disclosure applicants for 'without notice' injunctions face, says expert

The High Court discharged a freezing injunction that had been granted to a businessman against his former business partner after determining that he had failed to make relevant disclosures to the court when he had applied for, and was granted, the 'without notice' injunction earlier this year. A freezing injunction is a court order which prevents a party from disposing of or dealing with its assets.

Roman Frenkel was granted the freezing injunction against Arkadiy Lyampert in July in relation to Lyampert's shareholding and retained dividends in a UK company called La Micro Group.

However, Miss Amanda Tipples QC said that Frenkel was responsible for "numerous breaches of duties" as an applicant for the injunction in proceedings which Lyampert was not party to. She said she regarded the non-disclosure as "serious and significant", according to the judgment.

The non-disclosure concerned information pertaining to parallel litigation Frenkel had lodged against Lyampert before the courts in California.

The judge said that if Frenkel had provided the July judge with "all the facts" relating to his application for an injunction against Lyampert in California then that judge "would not have granted the freezing injunction" Frenkel had applied for 'without notice' in the UK. She rejected Frenkel's application for a further injunction against Lyampert.

An application for an injunction is usually made by giving the other party notice of the application, but it can be made to the courts without notice if there is a real emergency or need. Any order made in this way will only take effect for a few days until a return hearing, at which the court will hear arguments and evidence from both sides.

Where an urgent injunction is sought without notice to the other party, the court places a great deal of trust in the applicant to tell the full story, not just the facts that support its case. That person or company must be extremely careful to avoid misleading the court whether by action or omission, and to disclose all the relevant facts whether these are helpful or harmful to the application.

The duty of disclosure applies to facts actually known to the applicant and to any additional facts which should have been known if proper enquiries had been made. The person or company seeking the injunction has a duty to correct any misinformation or omissions as soon as these become apparent, and to notify the court of any changes in circumstances which become apparent before the hearing. If an application is made without giving notice to the other party, then any facts that are harmful to the application must also be disclosed. The duty of disclosure is ongoing.

The consequence of failing to disclose a material fact may be that the injunction, if granted, will be set aside and the applicant could have to pay any costs incurred by the respondent together with any loss suffered as a result of the injunction. This may be the case even if the omitted fact would not have affected the court's view of the merits of the application.

If an injunction is obtained or contested with the help of untrue evidence, then an applicant who provided sworn testimony could be charged with the criminal offence of perjury.

"Without notice freezing injunctions have long been extremely powerful weapons to use in English proceedings and, when used properly, are one of the most effective methods of recovering assets," said civil fraud and asset recovery specialist Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com. "The benefits are significant to the applicant if a freezing injunction is awarded in its favour – it should therefore come as no surprise that the obligations of an applicant making a freezing injunction without notice are stringent and should not be underestimated."

"This judgment is a cautionary tale in how crucial it is that all information at the applicant’s disposal is presented to the court. Of particular importance here was that the applicant was seeking similar relief in the US. The High Court made it clear that it needs to be told if the applicant is involved in similar proceedings in other jurisdictions," he said.

Sheeley said that it is important that companies seeking to apply for a without notice injunction liaise with civil fraud solicitors who are experts in this area to "ensure they are properly advised of their strict obligations" when making such an application.

"Civil fraud lawyers will also provide advice as to whether the risks and urgency of the situation merit a without notice application in the first place," Sheeley said.