Kieran Gallahue & Ors v Akhilesh Shailendra Tripathi & Anor

For a freezing injunction, the merits threshold described in The Niedersachsen remains applicable: the claim must be more than barely capable of serious argument, although it need not appear more likely than not to succeed. That threshold is distinct from the relative test used for jurisdictional gateways.

In deceit, direct loss requires the claimant to show that the fraudulent representation induced the transaction in question. Consequential loss requires a causal link between the earlier fraudulently induced transaction and the later loss. A later investment is not sufficiently connected merely because the claimant would have acted differently had the fraud been known.

The claimants sought continuation of an ex parte worldwide freezing order and proprietary injunction made against the first defendant. The order froze assets up to £14,318,731.36 and was continued pending an inter partes hearing.

The only substantive issue was whether the frozen amount should be increased by the sterling equivalent of US$1 million invested by a trust in the company’s Series E fundraising in 2023. The claimants alleged that earlier representations made in connection with share purchases in 2020 and 2021 constituted deceit and caused the later investment loss. The central issues were the applicable good arguable case threshold and whether the Series E investment was recoverable as direct or consequential loss.

1. The First Defendant’s adjournment application was refused. The issue had been identified on service of the continuation application, the evidential and pleaded position had not changed, and the issue was principally one of law. A further adjournment would have been inconsistent with the overriding objective.

2. On the merits threshold for a freezing injunction, the court followed the formulation in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (The ‘Niedersachsen’): the claim must be more than barely capable of serious argument, but need not have a better than 50 per cent chance of success. The three-limb relative test applicable to jurisdictional gateways was distinct. The court considered Harrington & Charles Trading Co. Ltd v Mehta and Chowgule and Co Private Ltd v Shirke wrongly decided insofar as they applied that three-limb test to freezing-order merits. It followed Magomedov v TPG Group Holdings (SBS) LP and Unitel SA v Unitel International Holdings BV on that issue.

3. Under Smith New Court Securities Ltd v Citibank NA, deceit damages include loss directly flowing from the induced transaction and consequential loss caused by it. For direct loss, the relevant transaction must have been induced by the fraudulent representation. The pleaded case identified the 2020 and 2021 share purchases, not the 2023 Series E investment, as induced transactions.

4. The Series E investment was not shown to be consequential loss on the evidence. Although the claimants did not need to establish that the earlier transactions were the sole cause, the evidence did not show that those transactions led to the later investment. The investment was plausibly explained by the claimant’s board position, existing shareholding, prior funding participation and the investor consortium’s matching-investment condition.

5. The freezing order continued until further order. The application to increase the frozen amount was dismissed.