David Victor Garofalo v David Crisp & Ors

The court considered an interim application ancillary to an unfair prejudice petition under Companies Act 2006 s.994 and granted continuation of without-notice injunctive relief removing the first respondent from day-to-day management and maintaining the change-of-management order until trial. The decision turned principally on evidence that the first respondent had caused the companies to sell luxury perfume into Russia in circumstances which, on the evidence, gave rise to a strong prima facie case and a high degree of assurance that the sales were in breach of the Russia (Sanctions) (EU Exit) Regulations 2019 (in particular reg.46B and the anti-circumvention provision reg.55) and in breach of the parties' Relationship Agreement and fiduciary duties.

The judge held that without-notice relief had been justified because notice risked destruction or concealment of evidence and the first respondent might have absented himself from the jurisdiction; ancillary preservation orders (imaging and delivery-up) were executed and will be considered at trial. The balance of convenience favoured continuation of the injunctions pending a final hearing and the court required consideration of fortifying the petitioner’s cross-undertaking as to damages.

Background and nature of the application:

• The petitioner brought an unfair prejudice petition under s.994 Companies Act 2006 and sought interim, without-notice relief including removal of the first respondent as director, appointment of new directors chosen by the petitioner, imaging and delivery-up of electronic records and a passport order. The relief had been granted ex parte by a Deputy Judge and was the subject of this de novo hearing.

Key facts:

• The respondent companies trade in luxury perfume under the Boadicea the Victorious brand. The petitioner and the first respondent had been equal partners under a Relationship Agreement which reserved certain director matters.
• The petition arose after investigations suggested the companies were continuing to supply perfume to Russia after an alleged agreement to cease such trade following the invasion of Ukraine. Evidence included a recorded conversation in the United States in which the first respondent stated the business "ignore[d] government edicts", documentary material found in company premises showing invoices and consignment documents to Russian recipients, and covert test purchases in Russia.
• The prosecution authorities (HMRC) had carried out an arrest and seizure related to the matter; imaging and delivery-up orders were executed and material has been preserved by the supervising solicitor.

Issues framed by the court:

1. Whether the evidence disclosed a serious issue to be tried and, given the exceptional and intrusive nature of the relief, whether there was a higher threshold (a strong prima facie case or a high degree of assurance of success at trial) to justify the change-of-management order.
2. Whether without-notice relief was justified.
3. Whether continuation of the injunctions was justified on the balance of convenience pending trial and what ancillary orders (imaging, delivery-up, passport) should remain in force.

Legal provisions engaged: Companies Act 2006 s.994 and s.996; Senior Courts Act 1981 s.37 (interim relief); Russia (Sanctions) (EU Exit) Regulations 2019 (notably reg.46B, reg.55, reg.21 and reg.56 and Schedule 3A); principles from American Cyanamid and related authorities on interlocutory relief and the risk of injustice.

Court reasoning and disposition:

• The judge conducted a de novo review of the evidence (which had developed since the ex parte decision) and concluded there was, on the evidence, a strong prima facie case and a high degree of assurance that the first respondent had knowingly caused the companies to trade in breach of the sanctions regulations and in breach of the Relationship Agreement and fiduciary duties. Particular weight was given to the recorded conversation and documentary material.
• Given the seriousness of the alleged wrongdoing and the risk of reputational and commercial destruction to the business, the judge found it was just and convenient to continue the change-of-management order and associated negative injunctions until trial. The judge also found that the without-notice application had been justified because giving notice risked tipping off the respondent and thereby frustrating the preservation of evidence and the remedial plan for the business.
• The imaging and delivery-up orders had been executed and, subject to the supervising solicitor holding the records, will be addressed at trial; the passport order was executed and the passports returned in accordance with the orders. The court ordered further consideration of fortifying the petitioner’s cross-undertaking as to damages.

Wider context: The judge acknowledged the exceptional and intrusive nature of a change-of-management order on a without-notice basis and applied a heightened evaluative approach beyond the ordinary American Cyanamid test because of the potential injustice of an erroneous intrusive interim order.

The court continued and confirmed the without-notice change-of-management order and associated injunctive relief until trial. The judge gave detailed reasons: (i) there is a strong prima facie case and a high degree of assurance that the first respondent knowingly caused sales to Russia in breach of sanctions (Russia (Sanctions) (EU Exit) Regulations 2019) and in breach of the Relationship Agreement and fiduciary duties; (ii) without-notice relief was justified because notice risked destruction or concealment of evidence and the respondent absconding; (iii) the balance of convenience favoured continuation because the risk of irreparable reputational and commercial damage to the companies was substantial. Ancillary preservation orders had been executed and will be considered at trial; the petitioner must consider fortifying his cross-undertaking as to damages.