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Freezing injunction duty of disclosure 'should not be taken lightly'

The High Court has discharged a $3 billion worldwide freezing order (WFO) granted in favour of the sovereign wealth fund of Angola due to "serious and substantial" breaches of its duty to provide full and frank disclosure of all material facts in the case.30 Aug 2018

Mr Justice Popplewell said that the breaches "go to one or more of [the] central elements" of a dishonest conspiracy case brought by Fundo Soberano de Angola (FSDEA). Proper disclosure "would have put a very different complexion on the application", the judge said.

"Occasional errors in preparing the material in a case of this size and complexity can perhaps be understood," the judge said. "But the unfair presentation in this case in the respects I have identified goes far beyond the odd accidental slip, and goes to the central elements of the case alleging dishonesty in support of a US$3 billion freezing order and proprietary order."

"Given the size of the freezing order sought, and the allegations of dishonesty being made, it was incumbent on the claimants and their legal advisers to make the fullest inquiry into the central elements of their case if they were to proceed without notice," he said.

The judgment shows that a good arguable case on the dishonesty of those to whom a freezing order will apply is not enough and an alleged risk of dissipation of assets, unsupported by solid evidence, will not be sufficient to maintain a freezing injunction, according to commercial dispute and asset recovery experts at Pinsent Masons, the law firm behind Out-Law.com.

FSDEA and seven of its subsidiaries were granted a WFO against 20 individuals and companies, including its former chairman, in April 2018. The dispute relates to a claim by FSDEA of a dishonest conspiracy between the former chairman, José Filomeno dos Santos, and his friend and business partner, Jean-Claude Bastos de Morais, who is the 95% beneficial owner of the Quantum group of companies, which include the rest of the defendants.

The defendants sought to have the WFO set aside on jurisdictional grounds. It also argued that FSDEA had not established a good arguable case in respect of some of the causes of action or established a sufficient risk of dissipation, as well as the breach of the duty of full and frank disclosure.

In his judgment Mr Justice Popplewell re-stated the principles surrounding the duty of full and frank disclosure, as summarised by Lord Justice Gibson in the 1998 decision of Brink's Mat Ltd v Elcombe. He noted that the duty was the "necessary corollary of the court being prepared to depart from the principle that it will hear both sides before reaching a decision", which underpins the right to a fair trial set out at article 6 of the European Convention on Human Rights.

The judge ultimately found eight counts of "non-disclosure and an unfair presentation" which undermined FSDEA's case for the WFO. He then had to consider what the consequences of this should be, based on the interests of justice. Here, the court must take into account the importance of the matters which were not disclosed, the nature and degree of culpability and the adverse consequences to the claimant of losing protection against the risk of dissipation of assets, as well as what he described as "the penal element of the sanction".

In this case, the breaches were serious and there was a "high degree of culpability in the failures", even if neither FSDEA nor its legal team had deliberately set out to abuse the court's process. There was also no solid evidence that there was enough of a risk of dissipation of assets to justify a freezing order. For these reasons, this was not a case in which there were "any strong reasons for departing from the usual sanction for serious and culpable non-disclosure", the judge said.

"I should make clear, however, that I would reach the same conclusion even if satisfied of a risk of dissipation," the judge said. "The breaches of duty are sufficiently serious and culpable to warrant discharging the WFO and not granting fresh relief, irrespective of the other grounds of challenge."

"The judgment emphasises that the duty of disclosure is an onerous one, and should not be taken lightly," said asset recovery expert Bill Geiringer of Pinsent Masons.

"When hearing without notice applications, the court requires full and frank disclosure to ensure fair process under article 6 of the ECHR. Judges will be relying on the summary of facts provided to them by the applicant and it is therefore imperative that the information is 'fair in all material respects' and is presented in a way which is not misleading or one-sided," he said.

Commercial disputes expert Michael Fenn of Pinsent Masons added that the duty was one which ultimately bound the applicant, and was not confined to its legal advisers.

"Although it is for solicitors to ensure that this duty is explained to their clients, it is the client who is ultimately aware of all material facts, and therefore the burden is on them to discharge that duty," he said. "In this case, the judge found that the applicants had breached this duty in multiple instances, and so the freezing order was discharged."

"As we have seen from this case, and from the judgment handed down by Mr Justice Males on 24 August 2018 in Galagaeva & Others v Ananyev & Others, the courts will not be minded to show discretion to those who fall short of their disclosure obligations. Therefore, it is prudent to obtain legal advice from the start of the process to ensure that this duty is not inadvertently breached," he said.