Memory Corpn Plc v Sidhu (No 2)

On a without-notice application for a freezing, search or other interim order, the claimant and its legal advisers owe an overlapping duty of full, fair and accurate disclosure. That duty extends beyond past facts to material legal, procedural and practice matters. A serious breach does not invariably require discharge. The court must exercise a proportionate discretion by considering the gravity and explanation of the breach, the prejudice caused, and whether it has been remedied.

The court should not formulate a general rule requiring disclosure of every possibility that evidence was unlawfully obtained. The significance of the evidence and the applicant’s knowledge or grounds for inquiry are material.

The claimants obtained without-notice worldwide freezing orders and a search order against Mr Sidhu in proceedings alleging that, while acting as managing director of the second claimant, he had improperly benefited companies in which he had interests.

Hart J later refused Mr Sidhu’s application to discharge the original orders for material non-disclosure. By the return date, Jacob J had removed most of the unusual and oppressive provisions from the freezing order. Mr Sidhu appealed against Hart J’s refusal to discharge the original orders.

The principal issues were whether counsel’s incorrect representation that non-standard provisions were standard-form provisions required discharge, and whether the claimants should have disclosed a possible unlawful method of obtaining bank-account information.

1. Appeal dismissed unanimously. Lord Justice Robert Walker held, with whom Lord Justice Mummery and Mr Justice Alliott agreed, that the original without-notice application involved a serious lapse. Counsel had incorrectly represented that unusual and oppressive provisions in the freezing order were in standard form. That failure contributed to Hart J making an order which he would not otherwise have made.

2. The judge was wrong to draw a sharp distinction between the claimant’s duty of full disclosure and counsel’s duty concerning law and practice. On a without-notice application, those duties often overlap. Full disclosure may include material legal, procedural and practice matters as well as facts. A litigant will ordinarily bear the consequences of its advisers’ failures. The court approved the significance of the Court of Appeal’s considered view in Den Norske Bank v Antonatos, [1999] QB 271, concerning the inadequate protection given by requiring allegedly self-incriminating material to be delivered to a supervising solicitor.

3. Discharge is nevertheless discretionary. The court must consider the gravity of the breach, its explanation, the severity and duration of prejudice to the defendant, whether the consequences can be and have been remedied, and proportionality. The rule requiring disclosure must not itself become an instrument of injustice. Although Hart J had approached the discretion too narrowly, the Court of Appeal would reach the same result: the error was not deliberate, affected the form rather than the availability of relief, was corrected within three working days, was apologised for, and discharge would seriously prejudice claimants pursuing substantial fraud allegations.

4. The claimants and their advisers were not shown to have known that the bank-account information was wrong or to have been put on inquiry as to unlawful procurement. The information was peripheral to the grant of the freezing order. The court declined to lay down a general rule about evidence obtained by questionable means, while stressing that illegality should not be condoned and that the weight of such evidence remains for the court.

5. Lord Justice Mummery added important practical observations. Where counsel’s conduct on an absent-party hearing becomes contentious, counsel should promptly make a written account of events, subject to privilege. Urgent applications require a personally settled draft order and ordinarily a written skeleton argument lodged before the hearing; complex orders should not be treated as routine paperwork.

• Court of Appeal (Civil Division): Appeal dismissed. The court upheld Hart J’s refusal to discharge the original without-notice orders, while confirming that most unusual provisions had already been removed by Jacob J on the return date.
• High Court, Chancery Division (Hart J): Refused Mr Sidhu’s application to discharge the original freezing and search orders for alleged material non-disclosure.