Stephen Hunt v Ravneet Ubhi

The Court of Appeal allowed an appeal against the continuation of a without-notice freezing order obtained by the provisional liquidator of an alleged insolvent partnership. The court held that the provisional liquidator had not discharged the burden of justifying a departure from the default rule that an applicant for an interim injunction must give an unlimited cross-undertaking in damages (see JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev). The judge below had wrongly accepted a very limited cross-undertaking without adequate evidence that creditors could not or would not indemnify the provisional liquidator, or that insurance or third-party funding was not available.

The Court also found that there had been an imperfect presentation to the ex parte judge about the nature and adequacy of the cross-undertaking so that Mellor J was misinformed in that respect, although that defective disclosure, limited to the cross-undertaking, did not by itself require discharge of the order. Because the appeal succeeded on the cross-undertaking point, the court did not decide the substantive question whether there was a good arguable cause of action against Mr Ubhi or other detailed issues about the scope of a provisional liquidator's powers in partnership winding-up proceedings.

Background and parties. The appeal concerned a freezing order obtained ex parte by Mr Stephen Hunt (appointed provisional liquidator of an alleged partnership trading as "Black Capital") against Mr Ravneet Ubhi. The winding-up petition and attendant applications were presented on the basis that Black Capital was a partnership between Mr Ubhi and Mr Sarju Patel and followed extensive allegations (including that Black Capital operated a Ponzi scheme) and large investor losses.

Procedural history. On 14 September 2022 Mellor J appointed a provisional liquidator and granted without-notice freezing orders (maximum sum specified). The petitioners obtained a limited cross-undertaking in damages in respect of the appointment; Mr Hunt (the provisional liquidator) offered a highly limited cross-undertaking in respect of the freezing order. Deputy ICC Judge Raquel Agnello later dismissed the winding-up petition in respect of Mr Ubhi on the ground that there was a substantial dispute as to whether he was a partner, and consequential matters were adjourned. The continuation of the freezing order was determined by the judge below (Robin Vos, sitting as a Deputy High Court Judge) and continued; Mr Ubhi appealed to the Court of Appeal.

Relief sought. Continuation of an interim freezing injunction against Mr Ubhi in aid of the provisional liquidator's investigations and any future enforcement against him as a potential contributory.

Issues before the Court of Appeal.

• Whether it was proper for the judge below to accept a limited cross-undertaking from the provisional liquidator rather than the usual unlimited cross-undertaking (the burden lay on the applicant to justify departure from the default position established in Pugachev).
• Whether there had been a breach of the duty of full and frank disclosure on the without-notice application such as to require discharge of the freezing order.
• Whether there was a "good arguable case" (a relevant cause of action) against Mr Ubhi justifying a freezing order.

Court's reasoning and conclusions.

• The court emphasised the Pugachev principles: the default position is an unlimited cross-undertaking, the burden is on the applicant to justify any cap, and factors such as creditor indemnities, third-party funding and insurance are relevant.
• The provisional liquidator produced little or no evidence to justify the capped undertaking. The petitioners had significant means and had in fact funded aspects of the proceedings; no evidence was produced to show they could not or would not indemnify the provisional liquidator. There was no adequate inquiry or evidence about the availability of insurance or third-party funding.
• The transcript and materials put before Mellor J overstated that it was "usual" for a liquidator's cross-undertaking to be limited, which was misleading given Pugachev. That amounted to defective presentation of the cross-undertaking at the ex parte stage, but the court concluded that the defective disclosure related only to the cross-undertaking and was not deliberate. On balance and in light of the other failings, the defective disclosure did not independently require discharge of the order.
• Because the provisional liquidator failed to justify departure from the default requirement of an unlimited cross-undertaking, the Court of Appeal exercised the discretion afresh and allowed the appeal, setting aside the freezing order against Mr Ubhi. The court did not decide the merits issue whether there was a good arguable case against Mr Ubhi or the unresolved statutory issues about a provisional liquidator's power to seek such relief in the partnership context.

Wider comments. The court noted the relative rarity and particular difficulties that arise when a provisional liquidator seeks freezing relief within winding-up proceedings of a partnership and observed unresolved questions about the scope of a provisional liquidator's powers and the position where a partner may be a contributory (including interplay with Article 8 of the Insolvent Partnerships Order 1994 and section 221(7) of the Insolvency Act 1986). These matters were left for a future appropriate case.

The appeal is allowed. The Court held that the provisional liquidator had not discharged the burden of justifying a departure from the default requirement of an unlimited cross-undertaking in damages (see Pugachev). The judge below therefore erred in continuing the freezing order on the basis of the very limited undertaking offered. Although there was imperfect presentation to the ex parte judge about the adequacy of the cross-undertaking, that defect (limited to the undertaking) did not by itself require discharge; nonetheless the inadequacy of the undertaking justified setting the freezing order aside. The Court did not decide the substantive question whether there was a good arguable cause of action against Mr Ubhi or other unresolved points about a provisional liquidator's powers in partnership winding-up proceedings.

Appeal to the Court of Appeal from the High Court (Chancery Division, Insolvency and Companies List). The freezing order and continuation decision were made in the High Court after initial ex parte orders by Mellor J and subsequent hearings before Deputy Insolvency and Companies Court Judge Raquel Agnello (who dismissed aspects of the winding-up petition in respect of Mr Ubhi). The decision under appeal was given by Robin Vos (sitting as a Deputy High Court Judge) ([2022] EWHC 3228 (Ch)). This Court allowed the appeal on 19 April 2023 ([2023] EWCA Civ 417).