Eco Quest Plc v GFI Consultants Ltd & Ors

On an application for interim relief, a claim need only show a good arguable case for a freezing injunction and a serious issue to be tried for an ordinary injunction. A fraud claim may be sufficiently arguable where the pleaded facts support implied representations, even though the pleading should be clarified.

A freezing injunction may exceptionally continue after liquidation or bankruptcy where its purpose is to preserve assets for the creditors as a whole. The order must protect the insolvency office-holder’s ability to perform statutory functions.

A breach of the duty of full and fair disclosure does not automatically require discharge. The court must assess materiality, gravity, prejudice, explanation, proportionality and the interests of justice.

Eco Quest Plc sought continuation of an injunction and worldwide freezing injunction obtained without notice against GFI Consultants Ltd and its directors, Andrew Skeene and Junie Conrad Omari Bowers. Skeene and Bowers applied to set the orders aside for material non-disclosure.

GFI was in liquidation and Skeene and Bowers were bankrupt. Eco Quest alleged fraudulent misrepresentations concerning investments in Brazilian teak plantations, together with trust and tracing claims. The non-disclosure allegations concerned commission arrangements, another investor’s lack of complaint, and the criminal charges faced by an important witness.

The central issues were whether the non-disclosure warranted discharge, whether Eco Quest had an arguable case, and whether injunctions could properly continue despite the defendants’ insolvency.

1. Non-disclosure. The commission arrangements and the involvement of Green Retirement Plan did not require further disclosure. They did not bear directly on the issues or the court’s discretion, and an without-notice application requires a full and fair presentation rather than an exhaustive account. The approach in Brinks Mat Ltd v Elcombe [1988] 1 WLR 1350 was applied.
2. The failure to disclose that Mr Whale faced contested fraud charges was a breach because his evidence and the Para Sky Report were material. It was, however, not grave. The charges were denied, the report was produced by a team, and crucial matters were supported by exhibits. Applying the proportionality approach identified in Sidhu v Memory Corp plc [2000] 1 WLR 1443, discharge was not in the interests of justice.
3. Arguable case. Although the pleading concerning the first two sets of representations was deficient, it sufficiently identified an arguable case that Skeene and Bowers impliedly represented, at each investment, that they honestly believed on reasonable grounds that Maos Seguras had registered legal title. Reliance and other factual matters should be determined at trial. The trust claim also raised a serious issue to be tried.
4. Insolvency and freezing relief. The jurisdiction under Senior Courts Act 1981 s 37(1) is unfettered. A freezing injunction may remain after liquidation or bankruptcy where it preserves assets held by or for the defendant for creditors generally, as recognised in Re Claybridge Shipping SA [1997] 1 BCLC 813 and Mercantile Group (Europe) AG v Aiyela [1993] FSR 745. The trust claim, the fraud exception to bankruptcy discharge, and possible dealings with assets justified continuation.
5. The injunction and freezing injunction were continued until trial or further order, subject to provisos enabling the Trustee in Bankruptcy to give statutory notices and seek or enforce income payments orders. The defendants’ application to set aside the orders was dismissed.