Summary
For a freezing injunction, the claimant must show a good arguable case, relevant assets, substantial grounds for a real risk of dissipation and that the order is just and convenient. A proprietary injunction engages the ordinary American Cyanamid principles: a serious issue to be tried, inadequacy of damages and a balance of convenience or justice favouring relief. The court should not resolve disputed evidence or difficult law prematurely. The reflective loss principle can defeat a shareholder’s claim at the interlocutory stage where the company has a corresponding cause of action. A proprietary claim arising from fiduciary wrongdoing is not subject to a higher threshold merely because the proprietary interest arose through that wrongdoing.
Factual background
The claimants sought continuation of proprietary and worldwide freezing injunctions granted ex parte on 15 May 2013. Their claims concerned alleged diversion of investment-management fees and a payment made by Telnic to Blue Pearl. They alleged that the first and second defendants owed them fiduciary duties arising from an informal joint venture and de facto control of companies within the structure.
The defendants disputed the facts and denied any fiduciary obligations. They also relied on the no reflective loss principle, delay and the absence of a sufficient risk of dissipation. The central issues were whether the claimants met the applicable interlocutory thresholds, whether their claims were barred by reflective loss, and how the competing proprietary claims to the Telnic payment should be managed.
Held
- Applicable tests. A freezing injunction required a good arguable case, relevant assets, substantial grounds for concluding that there was a real risk of dissipation and that relief was just and convenient. A proprietary injunction required a serious issue to be tried, inadequacy of damages and a balance of convenience or justice favouring relief. The good arguable case threshold was more onerous.
- Interlocutory assessment. The court should not resolve conflicts in affidavit evidence or difficult legal questions dependent on disputed facts. The claimants’ evidence established a good arguable factual case that the first and second defendants exercised de facto management powers and acted for the individual participants. The pleaded arrangement therefore gave rise to a good arguable case that they owed fiduciary duties.
- Parts I and II. The claims for shares of fees diverted from HIA were reflective of HIA’s loss. On the pleaded case, HIA had potentially viable claims in deceit, conspiracy and breach of fiduciary duty. The fact that HIA might have abandoned or affirmed a cause of action did not mean that it had never possessed one. The claimants therefore lacked a good arguable case and had, at most, a borderline serious issue to be tried. The freezing injunctions were refused and the proprietary injunctions were not justified.
- Telnic payment. There was a good arguable case that the first and second defendants owed fiduciary duties to Hadar Fund Ltd and that the $4.4 million payment was a secret commission held for that company. The claimants’ own claim to half the sum could not finally be determined before Hadar Fund Ltd’s proposed application. Injunctions were continued over $2.2 million pending that application, with the position to be reconsidered thereafter.
- Risk and procedure. Serious allegations of dishonesty and concealment could support a real risk of dissipation, although previous delay and the defendants’ conduct were relevant. The seventh defendant was joined. The claimants’ non-disclosure argument did not independently require discharge of the injunctions.
The court’s approach to earlier authorities
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Appeal route
- This judgment [2013] EWHC 1993 (Ch) High Court (Chancery Division)
- Appealed to[2014] EWCA Civ 399Outcomeappeal allowed unanimously; application to set aside permission to adduce fresh evidence refused
Key cases cited
18 authorities cited.
- American Cyanamid Co v Ethicon Ltd [1975] AC 396
- FHR European Ventures LLP v Mankarious & Ors [2013] EWCA Civ 17
- VTB Capital Plc v Nutritek International Corp & Ors [2012] EWCA Civ 808
- Webster v Sandersons Solicitors (A Firm) [2009] EWCA Civ 830
- Gardner v Parker [2004] EWCA Civ 781
- Bhullar v Bhullar [2003] 2 BCLC 241
- Shaker v Al-Bedrawi (Shaker v Masry, Shaker v Steggles Palmer) [2002] EWCA Civ 1452
- Day v Cook [2002] 1 BCLC 1
- McKillen v Misland (Cyprus) Investments Ltd & Ors [2012] EWHC 521 (Ch)
- Ross River Ltd & Anor v Waveley Commercial Ltd & Ors [2012] EWHC 81 (Ch)
- Madof Securities International Ltd v Raven [2012] 2 All ER (Comm) 634
- Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch)
- Murad v Al-Saraj [2004] EWHC 1235 (Ch)
- Perry v Day [2004] EWHC 1398 (Ch)
- Barings plc v Coopers & Lybrand (No. 1) [2002] 2 BCLC 364
- Polly Peck International plc (No 2) [1992] 4 All ER 769
- Derby & Co Ltd v Weldon [1990] Ch 48
- Lister & Co v Stubbs
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Cases citing this case
2 later cases · 2 positive
Most senior citing decisions:
- Evgeny Korchevtsev v Martin Severa & Ors. [2022] EWHC 2324 (Ch) followed
- Kazakhstan Kagazy Plc & Ors v Zhunus & Ors [2013] EWHC 3618 (Comm) approved
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