Finurba Corporate Finance Ltd v Sipp SA & Anor

A company cannot be sued merely because it is said to hold assets for, or be controlled by, a shareholder. A viable claim requires pleaded special facts supporting a recognised basis for treating the company’s assets as belonging beneficially to another person or for piercing the corporate veil. A freezing order requires both a properly arguable claim and a real risk of dissipation or concealment. The court must also assess proportionality and the practical value of the applicant’s cross-undertaking in damages. In fraud cases, technical objections should be approached robustly and realistically, but the serious effects of a freezing order require careful scrutiny. Failure to disclose departures from the standard form of order at an ex parte hearing may weigh against continuation of the injunction.

Finurba, as assignee of the assets and property rights of a trustee in bankruptcy and a company liquidator, sued twenty-two defendants following fraud by Mr Azevedo. It alleged that Sipp SA and Imaved Investimentos Imobiliarios SA were connected with, or held assets for, Mr and Mrs Azevedo, and sought both substantive relief and freezing orders.

Mr James Goudie QC, sitting as a Deputy Judge of the Queen’s Bench Division, struck out the claims against the companies and discharged the freezing orders. Finurba applied for permission to appeal. The central questions were whether the pleaded case disclosed a cause of action against the companies and whether the injunctions should continue.

Application for permission and striking out. Lord Neuberger MR, giving the principal judgment with which Lady Justice Smith and Lord Justice Elias agreed, held that the claims as pleaded, including the proposed amended pleading before the Deputy Judge, were unmaintainable. Once the companies were treated as separate legal entities, no claim lay against them merely because the Azevedos were alleged to own or control shares in companies within the ownership chain. Special facts supporting the alleged beneficial ownership or piercing of the corporate veil had to be pleaded.

The evidence could potentially support a properly pleaded case. The apparent links between the Azevedos and the companies, the ownership structure, the family’s connection with Imaved, and the history of asset concealment justified allowing a final opportunity to amend. The court should not formulate a party’s case for it, but a defendant is entitled to be freed from defending an inadequately pleaded claim. Finurba was given 21 days, or such other period as the court might direct, to amend. If the amendment was not made or was rejected, the claims would remain struck out.

Freezing orders. The court endorsed a robust and realistic approach to technical objections in fraud cases where there was good reason to believe that companies or other entities had been used to mask fraud or assets. That approach did not remove the ordinary safeguards. The applicant had to show a properly arguable claim, a risk of dissipation or concealment, and a proportionate order. The court should be particularly cautious where the cross-undertaking in damages appeared to have little value and was unsupported by security.

Here, the claim remained speculative, the evidence of dissipation was weak, the cross-undertaking appeared practically valueless, and no specific security had been offered. The ex parte order also appeared not to permit ordinary trading, and the departure from the standard form had not been properly drawn to the judge’s attention or recorded. That omission was a factor against continuing the injunction. The freezing orders were therefore discharged. The application for permission to appeal was dismissed, subject to the variation giving Finurba its final opportunity to amend.

1. Court of Appeal (Civil Division) — On Finurba’s application for permission to appeal, the court dismissed the application, subject to varying the order to allow a final amendment of the claim against the companies.
2. High Court of Justice, Queen’s Bench Division — Mr James Goudie QC, sitting as a Deputy Judge, struck out the claims against Sipp SA and Imaved Investimentos Imobiliarios SA and discharged the freezing orders against them: [2010] EWHC 1946 (QB).