MATERIAL NON-DISCLOSURE ON WITHOUT NOTICE APPLICATIONS: A SALUTARY REMINDER
The previous post on the Evans’ case highlights the duty of full and frank disclosure on an ex parte application. In the Evans case it would have been impossible for the claimant to argue material non-disclosure (if indeed there was any) since the evidence in support, key parts of the skeleton argument and the grounds of the order itself was never disclosed to her. The onerous duty of the duty to disclose was reviewed in a judgment yesterday by Mr Justice Roth in Anglo Financial SA -v- Goldberg  EWCH 3192 (Ch).
The claimant had obtained an ex-parte freezing order, alleging a potential risk of the dissipating of assets. The judge was considering the question of whether that injunction should be continued,.
CLAIMANT’S LATE EVIDENCE
Before looking at the issue of the duty owed it is worthwhile looking at the paragraph in relation to service of evidence.
- The return date of the original injunction was 21 August 2014, when the matter came back before Peter Smith J. Both sides were then represented and it was agreed that a full day’s hearing was required, with further time for evidence. The Judge therefore continued the injunction to an adjourned hearing to be held between 18-23 September, and directed that Mr Goldberg file and serve his evidence by 4pm on 3 September and the Claimants file and serve any evidence in reply by 4pm on 11 September.
- Mr Goldberg asked for an extension from the Claimants of 24 hours and served his evidence at about 5pm on 4 September. The Claimants had adopted in correspondence the position that in return for that extension they required an extension of 72 hours. However, they sought to serve an additional witness statement only on 16 September, followed by the exhibit on 17 September, the day before the hearing. Mr Littman, who appeared for the Claimants on this application as he had at the original without notice hearing, frankly accepted that no good excuse could be put forward for the late service, for which he could only apologise. But if that late evidence were admitted, it would mean that Mr Goldberg would not have an opportunity to file any evidence in response to the quite serious allegations being made. I regard it as wholly unsatisfactory that a claimant who has obtained a freezing order from the Court on a without notice application, which of its nature places a defendant under considerable pressure, should then conduct itself in that way. The timetable set out in Peter Smith J’s order was clearly designed to enable both sides to take full account of each other’s evidence. With the agreement of Mr Freedman QC, appearing for Mr Goldberg, I admitted that evidence de bene esse, on the basis that Mr Freedman could respond on instructions to the new factual material being put forward.
SETTING ASIDE THE WITHOUT NOTICE ORDER: FULL DISCLOSURE
The judge found a number of grounds to set aside the without notice order. However we are concerned about the duty of disclosure.
- The importance of an applicant for a freezing order on a without notice application making full and frank disclosure has been repeatedly emphasised by the courts. In an oft-cited passage in Siporex Trade v Comdel  2 Lloyd’s Rep 428 at 437, Bingham J stated:
“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 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 matters he has omitted to state.”
- In Brink’s Mat Ltd v Elcombe  1 WLR 1350, Ralph Gibson LJ, in a judgment with which Slade and Balcombe LJJ agreed, set out at 1356-1357 the following principles that should apply in deciding whether there had been relevant non-disclosure:
“(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 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.  F.S.R. 289, 295.
(3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour  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.
(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  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  F.S.R. 87, 92-93.”
- Here, Mr Freedman relies strongly on the failure properly to disclose the repayment by Mr Goldberg of the Cotto loan. That fact was buried away in Mr Kestenbaum’s lengthy affirmation made in the 2009 action against Mr Linde that was also placed before the Judge here on the without notice application, and it was not drawn to the Judge’s attention at all. Mr Littman sought to persuade me that it was simply not material. He submitted that a claimant seeking a freezing injunction is not obliged to show that the defendant is not trustworthy in all aspects of his dealings. As a general statement, that is no doubt correct. But this was an instance of a defendant dealing with the same claimant, regarding a transaction that was very similar to the transactions sued upon, at almost the same time as the alleged liability that is the subject of the present action, and paying a substantial sum of money. As I have stated above, I regard it as highly material to the question of a risk of dissipation and I would have thought it self-evident that Mr Goldberg would seek to rely on it in resisting a freezing order. I have no doubt that it should have been brought to the attention of the Judge.
- Secondly, the Court was given a false picture regarding the sale of 103 Bridge Lane to Mr Goldberg’s son when it is now acknowledged that it was sold to his nephew. I have made clear my reasons for regarding that distinction as material. I accept that this was not a deliberate error. But Mr Kestenbaum has sought to emphasise how good friends he was with Mr Goldberg and his attendance at family occasions. That such a mistake was made is, in my view, an example of the somewhat cavalier way in which the Claimants put together their evidence.
- Next, the Claimants wholly failed to point out to the Judge that Mr Goldberg was likely to rely on the years of delay and the fact that if Mr Kestenbaum believed that Mr Goldberg was dishonest and the sort of defendant who is likely to dissipate his assets to avoid his liability, it might be said that the Claimants would have sought a freezing order some years before when Mr Kestenbaum began to press their claims. I recognise that the skeleton argument placed before the Judge does refer to the delay but it fails to indicate the argument which it could be expected Mr Goldberg would wish to put forward as a result.
- Further, the Claimants did not point out to the Judge the possible defence to the Anglo claim that there remained no recoverable loss, for reasons I have set out, and put forward a calculation of interest that over-stated the claim. Again, I do not suggest that the mis-calculation of interest was deliberate. But as I have observed, it is an elementary error made by a company well experienced in financial transactions and doubtless familiar with the way interest is to be calculated.
- The Claimants also failed to point out a possible defence to Fortis’ claim, namely that Mr Goldberg would say that he was no longer under any legal obligation to assist the company in making a recovery from Mr Hirsch or Hirsch & Cie in respect of a fraud in which Mr Goldberg himself had played no part. Indeed, the way the matter was put to the Judge in counsel’s skeleton argument regarding this claim is, in my view, disturbing. That written argument states, at paragraph 17:
“[Mr Goldberg] was in possession of knowledge to the effect that the loan to Hirsch & Cie was fraudulent and owed Fortis a fiduciary duty to disclose it. He did not disclose it until too late.”
And then it proceeds, at paragraph 18:
“Quite clearly, had Fortis known that the money was to be used to pay a liability to Mr Blank the loan would not have been made.”
The clear impression created by those assertions is that Mr Goldberg was aware of the original fraud at the time it was being practised upon Fortis. However, that is not the case at all, and, indeed, Mr Kestenbaum’s evidence does not make that suggestion.
- Having regard to all of the above factors, I have no doubt that there was material non-disclosure in this case, for much of which there is no good explanation.
- Material non-disclosure will not necessarily lead to the discharge of a freezing order, and in this case the order will in any event elapse on determination of the present hearing. However, when it does justify discharge, it may, but will not necessarily, be the basis on which the Court refuses to grant a further injunction. In Millhouse UK Ltd v Sibir Energy PLC  EWHC 2614 (Ch), Christopher Clarke J made the following observations, which I respectfully adopt:
“104. The Court will look back at what has happened and examine whether, and if so, to what extent, it was not fully informed, and why, in order to decide what sanction to impose in consequence. The obligation of full disclosure, an obligation owed to the Court itself, exists in order to secure the integrity of the Court’s process and to protect the interests of those potentially affected by whatever order the Court is invited to make. The Court’s ability to set its order aside, and to refuse to renew it, is the sanction by which that obligation is enforced and others are deterred from breaking it. Such is the importance of the duty that, in the event of any substantial breach, the Court strongly inclines towards setting its order aside and not renewing it, so as to deprive the defaulting party of any advantage that the order may have given him. This is particularly so in the case of freezing and seizure orders.
105. As to the future, the Court may well be faced with a situation in which, in the light of all the material to hand after the non-disclosure has become apparent, there remains a case, possibly a strong case, for continuing or re-granting the relief sought. Whilst a strong case can never justify non-disclosure, the Court will not be blind to the fact that a refusal to continue or renew an order may work a real injustice, which it may wish to avoid.
106. As with all discretionary considerations, much depends on the facts. The more serious or culpable the non-disclosure, the more likely the Court is to set its order aside and not renew it, however prejudicial the consequences. The stronger the case for the order sought and the less serious or culpable the non-disclosure, the more likely it is that the Court may be persuaded to continue or re-grant the order originally obtained. In complicated cases it may be just to allow some margin of error. It is often easier to spot what should have been disclosed in retrospect, and after argument from those alleging non-disclosure, than it was at the time when the question of disclosure first arose.”
- Here, I regard the non-disclosure as both serious and significant, in a case where the grounds for granting a freezing order were never strong. The issue of non-disclosure, as Mr Freedman submitted, is here bound up with the risk of dissipation, since the assessment of that risk is very different once the material facts are correctly before the Court. Thus, the material non-disclosure is a reinforcing ground for refusing the Claimants’ application for a further injunction.
Just and convenient to grant leave
- In the light of the above, it is unnecessary to prolong this judgment by further consideration of this as a distinct condition. I will simply observe that I regard as fundamentally misconceived the Claimants’ submission that this is a question of balancing the prejudice to Mr Goldberg of granting a freezing order as against the potential prejudice to the Claimants of refusing one if a subsequent judgment in their favour should be unsatisfied. This is not a question of a balance of convenience, as applies under the American Cyanamid test for an interim injunction. In many cases, where a sufficient allowance is provided for living expenses and legal fees, an individual defendant may not suffer hardship as a result of a freezing order. That does not, in itself, make it just and convenient for such an order to be made.
- The Claimants’ application to renew the freezing order is accordingly dismissed. Since the existing order lapses under its terms, it is unnecessary to make any order on Mr Goldberg’s cross-application.