Stephen Hunt v Sarju Patel & Anor

A freezing order may continue where the applicant has a good arguable case, a real risk of unjustified dissipation and relief is just and convenient. The risk must be assessed separately against each respondent and supported by solid evidence, but wrongdoing relevant to dissipation may powerfully support the inference without requiring proof of actual personal dissipation.

The relevant wrongdoing need not be an ingredient of the cause of action, provided there is a sufficient connection between the wrongdoing and the claim. A limited cross-undertaking by a liquidator may be acceptable where the liquidation estate is unlikely to contain substantial assets and there is no creditor able to underwrite the undertaking. Full and frank disclosure is assessed by asking whether the presentation, taken as a whole, was materially misleading or unfair.

The applicant, Stephen Hunt, was appointed provisional liquidator of an alleged partnership, Black Capital, and obtained without-notice freezing orders against Sarju Patel and Ravneet Ubhi. Investors had paid substantial sums into the business, which appeared to have operated a Ponzi scheme and transferred money between associated entities.

The respondents challenged continuation of the orders. Mr Ubhi argued that the without-notice application involved material non-disclosure, that there was no good arguable case or real risk of dissipation, and that the limited cross-undertaking in damages was inadequate. The court also considered the effect of the dismissal of the winding-up petition and the separate circumstances of each respondent.

1. Full and frank disclosure. The application had not been materially misleading or unfairly one-sided. Although the presentation could have been fuller, the judge at the original hearing had sufficient information about the applicable principles, the separate positions of the respondents, the evidence concerning trading and the relevant chronology. The duty is assessed by considering the evidence and argument as a whole.
2. Cause of action and good arguable case. The cause of action was not the winding-up petition. It was the alleged partners’ obligation to contribute to a shortfall in the partnership assets. The dismissal of the petition therefore did not remove the basis for the freezing orders. There was a good arguable case that Mr Ubhi was a partner, despite substantial grounds for disputing that issue.
3. Risk of dissipation. The risk had to be established separately against each respondent. It could be inferred from solid evidence of wrongdoing relevant to dissipation. The court did not conduct a mini-trial or find that Mr Ubhi had in fact committed wrongdoing, but there was a good arguable case that he was involved in the business activities that caused the loss of investor funds. That provided a sufficient connection with the claim and supported a real risk of dissipation.
4. Balance of convenience and cross-undertaking. The limited cross-undertaking, confined to the liquidation estate, did not outweigh the serious risk to investors. The circumstances were materially different from a case involving a single dominant creditor who could be expected to provide an indemnity. It was disproportionate to require investigation of insurance where the identifiable assets were minimal.
5. The freezing orders were continued against both respondents until further order, subject to the agreed amendments concerning Mr Ubhi’s living expenses and sale of the Lamborghini. Mr Ubhi’s application to enlarge the cross-undertaking and impose personal liability on Mr Hunt was dismissed.