Stephen Hunt v Ravneet Ubhi

An applicant for a freezing injunction must ordinarily give an unlimited cross-undertaking in damages. A provisional liquidator may in an appropriate case depart from that position, but bears the burden of showing why. The court must consider such matters as creditor indemnities, third-party funding and insurance. The absence of evidence that the respondent will suffer particular loss does not justify dispensing with an adequate undertaking, since the requirement is founded on fairness.

An applicant seeking relief without notice must present the governing legal position fairly. A misleading presentation concerning the cross-undertaking can breach that duty, but an innocent and confined breach does not invariably require discharge where justice would otherwise support continuation of the injunction.

Investors petitioned to wind up an alleged partnership, Black Capital, and obtained the appointment of Mr Hunt as provisional liquidator. Mr Hunt then obtained without-notice freezing orders against Ravneet Ubhi and another alleged partner. His cross-undertaking in damages was limited to unpledged assets brought under his control in the provisional liquidation.

A Deputy High Court Judge continued the order against Mr Ubhi despite that limitation: [2022] EWHC 3228 (Ch). Earlier, a Deputy Insolvency and Companies Court Judge had dismissed the winding-up petition and the bankruptcy petition against Mr Ubhi, finding a substantial dispute as to whether he was a partner, although the dismissal of the winding-up petition was stayed pending a proposed appeal.

Mr Ubhi appealed the continuation of the freezing order. The central issues concerned the adequacy of the cross-undertaking, fair presentation on the without-notice application, and whether there was a good arguable cause of action.

1. Appeal allowed. The freezing order against Mr Ubhi was set aside. Mr Hunt had not discharged the burden of justifying a departure from the default requirement for an unlimited cross-undertaking in damages.

2. The judge below lost sight of the principle explained in Pugachev, [2015] EWCA Civ 139, that an interim injunction ordinarily requires an unlimited undertaking. A liquidator’s representative capacity is highly relevant, but it does not itself justify a cap. The court had to consider whether substantial creditors could provide an indemnity, whether the liquidator had creditor funding, and whether insurance had been investigated.

3. Those matters had not been properly established. The petitioners had a substantial financial stake, appeared able to support an indemnity, and had funded Mr Hunt. There was no adequate evidence about third-party funding, insurance or the cost of investigating insurance. The restricted undertaking was also potentially of little or no value if the alleged partnership did not exist. The lack of evidence of a particular anticipated loss to Mr Ubhi could not excuse the deficiency: fairness, rather than likelihood of loss, underlies the undertaking.

4. The without-notice presentation breached the duty of full and frank disclosure in relation to the undertaking. Counsel’s statement that it was usual for a provisional liquidator’s undertaking to be limited to the estate was misleading because it omitted the default position and the need to justify any exception. The presentation was otherwise fair as to the asserted cause of action and risk of dissipation. The breach was not deliberate and, standing alone, would not have required discharge of the order.

5. Issue (3), concerning a good arguable case, was unnecessary to decide. Newey LJ also observed, without deciding the point, that a court may be slower to grant freezing relief to a provisional liquidator who brings no separate claim, particularly where the order appointing the liquidator may not authorise relief directed to a prospective call under the Insolvency Act 1986. Males LJ agreed and added that strong reasons are required where creditors can themselves seek relief supported by an unlimited undertaking. Snowden LJ identified further unresolved insolvency and jurisdictional questions for a future case.

• Court of Appeal (Civil Division): Allowed Mr Ubhi’s appeal and set aside the freezing order: [2023] EWCA Civ 417.

• High Court, Insolvency and Companies List (ChD): Continued the freezing order against Mr Ubhi despite the limited cross-undertaking: [2022] EWHC 3228 (Ch).

• Insolvency and Companies Court: Dismissed the winding-up petition and bankruptcy petition against Mr Ubhi and set aside the statutory demand, holding that there was a substantial dispute as to whether he was a partner. The dismissal of the winding-up petition was later stayed pending an appeal by the petitioners.