The Arena Corporation Ltd v Schroeder

An applicant seeking a freezing order without notice must make full, fair and accurate disclosure of every material fact. It must make proper inquiries, identify likely defences and present disclosed facts fairly.

Material breach generally requires discharge of the order and refusal of renewed relief. The court retains a discretion to continue or re-grant the order, but exercises it sparingly. It considers culpability, the importance of the omitted or misstated material, the merits, the administration of justice and proportionality. The fact that the order might otherwise have been granted carries little weight where serious breaches affected central parts of the application.

Arena, acting through its provisional liquidator, applied to continue a worldwide freezing order against its alleged de facto director. It alleged that he had orchestrated an excise diversion fraud involving consignments of duty-suspended alcohol and had thereby exposed Arena to substantial excise duty and VAT liabilities.

The defendant disputed the fraud and alleged that the original without-notice application contained material non-disclosures and misrepresentations. The court had to decide whether Arena had a good arguable case and had shown a risk of dissipation, and whether defects in the without-notice evidence nevertheless required discharge and refusal of renewed relief.

1. Application refused and freezing order discharged. Arena established a good arguable case that the disputed consignments had not reached their stated destinations and that the defendant had committed the alleged fraud. His account of dealings with unidentified intermediaries, large cash payments and inconsistent transactional documents strained credulity. The organisation of his affairs, the alleged fraudulent activity and the unsatisfactory evidence also established a sufficient risk of dissipation.

2. An applicant for without-notice relief must give full, fair and accurate disclosure. It must make proper inquiries, disclose material matters and likely defences, and present the facts fairly. The court depends wholly on the applicant because the affected party is absent. This duty is particularly exacting for a freezing order, which may have drastic and continuing consequences.

3. Where material non-disclosure or misrepresentation is established, the general rule is that the order should be discharged and not renewed. The court nevertheless has a single discretion to continue or re-grant relief. That discretion is exercised sparingly, with regard to all the circumstances. Relevant matters include culpability, the significance of the undisclosed material, the merits, the public interest in maintaining the integrity of without-notice procedure, the avoidance of injustice and proportionality.

4. The original affidavit seriously misrepresented alleged criminal conduct, alleged forgery of warehouse and customs stamps, and failed to disclose the Danish raid, the seizure of documents, offers to be interviewed and intended foreign proceedings. Although the deponent had not deliberately misled the court, the errors were central rather than peripheral. They resulted from seriously blameworthy preparation and failures of communication within HMCE.

5. The strong fraud case and competing public interest in revenue enforcement did not justify renewed relief. A simple balance between the merits and the disclosure failures would undermine the disclosure rule. Refusing continuation was proportionate to the nature, scale and central importance of the breaches. The order was to remain temporarily in force until argument on the form of order and costs had concluded.

• High Court, Peter Smith J: On 5 December 2002, granted without notice a worldwide freezing order, asset-disclosure relief and delivery-up relief against the defendant.
• High Court, Lindsay J: On 16 December 2002, declined to discharge the order without evidence from the defendant, directed the filing of evidence and continued the order pending the full inter partes hearing.
• High Court, Chancery Division: On the full inter partes application, refused continuation and directed discharge, subject to the order remaining temporarily in force until argument on its form and costs.