Interactive Technology Corporation Ltd v Ferster & Ors

This interlocutory appeal concerned the duty of full and frank disclosure when obtaining ex parte freezing, property preservation and search and seizure orders. The Court of Appeal upheld the judge’s factual finding that there had been no material non-disclosure to Birss J. The appellants relied on three narrow grounds: (1) an alleged implied misrepresentation in an affirmation and a board meeting exchange about whether the applicant brothers believed the respondent would destroy documents; (2) non‑revelation of a statement by ITC’s auditor that income had been paid to ITC; and (3) failure to draw attention to a solicitors’ letter of 28 October 2014 about access to corporate documents.

The court rejected each ground. On the first, the judge permissibly accepted the contextual explanation that the remark related to lost payments and to the risk of deletion of electronic material, not to a general belief that nothing could be destroyed. On the second, the auditor’s remark was not material to the central allegation of unauthorised transfer of the business and unauthorised remuneration. On the third, the letter formed part of a wider correspondence and was not a matter which ITC was obliged specifically to highlight, particularly as it was written when DAC Beachcroft acted for the brothers rather than for ITC. The judge’s assessment was within reasonable bounds and the appeal was dismissed.

Background and parties: ITC was a company owned equally by three brothers, Jonathan, Warren and Stuart Ferster. Jonathan managed the business and was alleged by Warren and Stuart to have secretly diverted ITC’s principal assets and business to a company called World Online Software NV (WOS) and to have caused ITC to pay him some £3.8m by way of unauthorised remuneration. A board minute had been fabricated and, after confrontation, about £1.25m was transferred from ITC to a company beneficially owned by Jonathan. The substantive dispute was to proceed at a multi‑day trial in the Chancery Division and Jonathan also presented a petition under section 994 of the Companies Act 2006.

Procedural posture and relief sought: On 21 November 2014 ITC applied without notice to Birss J for a freezing order, property preservation order and a search and seizure order; the search and seizure order was executed on 24 November 2014. On the return date Asplin J considered whether the orders should continue and whether they should be set aside for material non‑disclosure. The defendants appealed only against Asplin J’s conclusion that there had been no material non‑disclosure (permission to appeal was granted).

Issues framed: The Court of Appeal was asked to determine whether Asplin J was wrong to find the absence of material non‑disclosure. The appeal focused on three points: (i) whether Warren’s recorded comment at a 13 January 2015 board meeting undermined the affirmations supporting the ex parte orders by showing the applicants did not genuinely fear destruction of evidence; (ii) whether ITC failed to draw Birss J’s attention to a statement by ITC’s auditor that income had been paid to ITC and, if material, whether non‑disclosure of that statement vitiated the orders; and (iii) whether a solicitors’ letter of 28 October 2014 about access to documents should have been highlighted and was material to the application.

Reasoning and subsidiary findings: The court emphasised the well‑known duty of full and frank disclosure on ex parte applications but noted this appeal raised no new principle and concerned only a factual assessment. On ground 1 the court accepted Asplin J’s conclusion that Warren’s remark, made in a heated meeting, was context‑specific and did not contradict his broader concern that Jonathan might destroy or delete relevant material; the judge could reasonably prefer Warren’s untested but not inherently implausible explanation. On ground 2 the court held that the auditor’s statement about income being paid to ITC was not material to the core allegation of an unauthorised diversion of business and unauthorised remuneration; even if payments flowed through ITC, the alleged transfer and control by WOS could still be fraudulent and give rise to the risk the orders addressed. On ground 3 the court held the letter formed part of a wider flow of correspondence, was written at a time when DAC Beachcroft acted only for Warren and Stuart, and was not something ITC was obliged specially to highlight. The court noted Asplin J had found a good arguable case of dishonest breach of fiduciary duty and that a real risk of destruction of evidence could be inferred from the wider facts.

Disposition: The Court of Appeal dismissed the appeal, concluding that Asplin J’s factual and discretionary conclusions were within the range of reasonable decision‑making and that there had been no material non‑disclosure warranting discharge of the orders.

This was an interlocutory appeal which was dismissed. The Court of Appeal held that the judge’s factual assessment that there had been no material non‑disclosure when the ex parte freezing, property preservation and search orders were obtained was reasonable. The three specified grounds of non‑disclosure failed: (1) the board meeting remark was context‑specific and did not undermine the applicants’ fear of destruction or deletion of evidence; (2) the auditor’s statement that income had been paid to ITC was not material to the core allegations of unauthorised transfer and remuneration; and (3) the solicitors’ letter of 28 October 2014 was not a matter ITC was obliged to single out for Birss J. Accordingly the discretionary decision to continue the orders was not disturbed.

Interlocutory appeal to the Court of Appeal (Civil Division) from the High Court of Justice, Chancery Division (Asplin J) reported at 2015 EWHC 393 (Ch); the ex parte application for freezing, property preservation and search orders had been made to Birss J on 21 November 2014 and executed 24 November 2014. Permission to appeal on the narrow issue of alleged material non‑disclosure was granted; the Court of Appeal dismissed the appeal ([2016] EWCA Civ 614).