Harrington and Charles Trading Company Limited (in liquidation) & Ors. v Jatin Rajnikant Mehta & Ors.

The court resolved rival applications concerning a worldwide freezing order (“WFO”) made on 27 May 2022: (i) applications by the First to Fourth Defendants to discharge the WFO for alleged material non-disclosure and unfair presentation at the without‑notice hearing; and (ii) the Claimants’ application to continue the WFO to trial. The governing law on without‑notice disclosure and fair presentation (derived from authorities such as Tugushev v Orlov) was applied. The judge found one isolated failure of presentation (failure to draw the court’s attention to a substantially revised Kroll report dated 2014), but characterised that failure as inadvertent and not of such significance as to justify discharge of the WFO. The Discharge Applications were dismissed and the Continuation Application was allowed: the WFO will continue to trial.

Key legal issues decided included: the scope and effect of the duty of full and frank disclosure on without‑notice applications; whether presentation defects require discharge of injunctive relief; whether the Claimants had a good arguable case on the merits of their pleaded causes of action (including proprietary claims, breach of fiduciary duty/shadow directorship, claims under the Insolvency Act 1986 ss.212, 213 and 423, dishonest assistance, and unlawful means conspiracy); and whether there was a real risk of dissipation. The judge concluded there was a good arguable case on the major pleaded causes of action and a real risk of dissipation and therefore it was just and convenient to continue the WFO in its existing amount (the dollar sum pleaded and its sterling equivalent).

This was a first instance hearing to determine (i) whether a worldwide freezing order made on 27 May 2022 should be discharged for alleged non‑disclosure and unfair presentation at the without‑notice hearing, and (ii) whether that order should be continued to trial.

Factual background and parties

• The proceedings arise out of an asserted US$1 billion international misappropriation of bullion advanced to two Indian companies (Winsome and Forever Precious). The Claimant Companies (six companies in liquidation, plus the Liquidators) say the proceeds were laundered through multiple layers of companies (Layers 1–5) and largely ended up in entities said to be owned and/or controlled by members of the Mehta family (the First to Fourth Defendants) and their associate (the Fifth Defendant). The Claimants describe this as the “Alleged Fraud”.
• The Claimants obtained a without‑notice WFO and ancillary orders at a May 2022 hearing. The WFO was expressed to secure the dollar sum said to be the proceeds ($932,466,942.36) and its sterling equivalent (the judgment records the sterling equivalent secured by the WFO as £743,176,152.77 as at the date of the May 2022 Order).

Procedural posture and relief sought

• The Claimants applied for continuation of the WFO to trial. The First–Fourth Defendants sought discharge of the WFO and other relief principally on the basis of alleged material non‑disclosure and unfair presentation at the without‑notice hearing. The Defendants also advanced jurisdictional and strike‑out challenges which were directed to be heard separately (the court reserved those questions for a December listing and for separate strike‑out hearings).

Issues for decision

1. Whether there had been material non‑disclosure or unfair presentation at the without‑notice hearing such as to require discharge of the WFO.
2. If not, whether the Claimants have a good arguable case on the merits of the pleaded causes of action (the test for continuation of a freezing order).
3. Whether there is a real risk of dissipation and assets within or outside the jurisdiction to justify the continuation of the WFO, and whether it is just and convenient to continue it.

Court’s reasoning — disclosure/non‑disclosure

• The court applied the established principles for without‑notice disclosure and fair presentation (as summarised in Tugushev). The Defendants advanced numerous discrete complaints grouped around jurisdictional material, the so‑called "Grant Thornton scheme" (a plan recorded in a presentation describing how Grant Thornton and a litigation funder would pursue claims using restorations and liquidations), the non‑participation or limited participation of many Indian banks, the Indian civil and criminal proceedings, the Kroll reports and other reports, and alleged weaknesses of the evidential case.
• The judge found only one shortcoming of fair presentation: the Claimants had failed specifically to draw the court’s attention at the without‑notice hearing to the later Kroll 2014 report which materially excised much of the 2013 Kroll report on which the Claimants had relied. That omission was judged inadvertent/innocent and not of such effect that discharge of the WFO was required: the omission was isolated, not deliberate, and would not have changed the outcome at the May hearing given the other evidence available (EY report, witnesses, funds flow chart and other material).
• All other alleged failures of disclosure or fair presentation advanced by the Defendants were rejected on the grounds that the matters relied upon were either in the material before the court at the May hearing, were matters for trial (factual disputes), or were not sufficiently central to the May decision to require discharge of the WFO.

Court’s reasoning — merits and continuation

• The judge applied the “good arguable case” test for continuation of a freezing order and analysed a broad range of pleaded causes of action. On the evidence adduced at the continuation hearing the judge concluded that there was a good arguable case that a substantial international fraud had occurred and that each of the First–Fourth Defendants was implicated.
• The Claimants had advanced a suite of claims: proprietary remedies (constructive trust and knowing receipt), dishonest assistance, breach of fiduciary duty (shadow directorship), unlawful means conspiracy, and claims under the Insolvency Act 1986 (ss.212, 213, 423). The judge summarised legal and factual disputes but concluded there was a good arguable case on each of the principal heads pleaded (proprietary claims, shadow‑director fiduciary breach, ss.212/213/423 claims, and conspiracy), accepting that many issues would require full trial findings (for example tracing and competing equitable rights).
• On the facts there was, in the judge’s view, a plausible funds‑flow showing the Funds passing from four UAE distributor companies into Layer 2 and then further through layers to entities connected to the Respondents; witness evidence (notably interviews of Amicorp personnel) supported the Claimants’ case that many of the derivative contracts were shams and that transfers were pre‑ordained.

Risk of dissipation, assets and quantum

• The judge accepted there was a real risk of dissipation and that there were assets within and outside the jurisdiction which could be restrained. The Respondents’ disclosed assets (by affidavit ordered by the May 2022 Order) amounted in aggregate to a figure the judge calculated at around US$146 million (as disclosed), so there were assets to be protected.
• The judge refused to reduce the WFO to a figure equivalent to the loss asserted by one particular Consortium Bank on the ground that, if the Claimants’ causes of action succeed, the proper maximum secured amount is the Funds said to have passed through the Claimant Companies ($932,466,942.36 and its sterling equivalent as fixed in the May order). The court therefore continued the WFO in its existing quantum subject to detailed drafting of the continuing order.

Outcome

• The Defendants’ applications to discharge the WFO were dismissed. The Claimants’ application to continue the WFO to trial was allowed. The judge indicated he would approve an order continuing the WFO to trial and invited parties to agree the precise terms and to return on limited points if necessary.

The Discharge Application is dismissed. The Claimants’ Continuation Application is allowed: the worldwide freezing order made on 27 May 2022 is continued to trial. Rationale: although one omission (failure to draw attention to the Kroll 2014 Report) was identified, it was isolated, inadvertent and would not have changed the outcome; the Claimants have shown a good arguable case on the principal pleaded causes of action (including proprietary claims, breach of fiduciary duty/shadow directorship, and claims under the Insolvency Act 1986 ss.212, 213 and 423, and conspiracy), and have shown a real risk of dissipation and assets capable of restraint; in all the circumstances it is just and convenient to continue the WFO in its existing amount.