Duty of full and frank disclosure in worldwide freezing orders and service out applications - Order of priority for payment by a judgment debtor hinges on when enforcement agent receives writ of control - Service on nominated agent was valid, despite agent's resignation - Privilege – no iniquity exception


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Duty of full and frank disclosure in worldwide freezing order and service out applications

Tugushev v Orlov (No. 2)

Background

The case involved two former Russian business partners, Mr Tugushev (T) and Mr Orlov (O). Initially, T had sought and obtained a without notice Worldwide Freezing Order (WFO) and a without notice order permitting service of a claim form on O out of the jurisdiction. T owed a duty of full and frank disclosure to the court in respect of both applications as they were made without notice to T. 

O applied to have the both the WFO and Service Out Order set aside on the grounds that T had failed to comply with the duty of full and frank disclosure. In particular, O alleged that T's key failures to disclose related to declarations of financial interests in Russia together with his conviction for fraud and abuse of public office. Other, ancillary, failures to disclose were also alleged.  

Decision 

The judge held that T's disclosure of the ancillary matters had been sufficient, and that any lack of full of frank disclosure was unlikely to be material. However, there had been a material failure to disclosure his conviction and prison sentence. 

Significantly, in commenting on the scope of the duty of full and frank disclosure the judge stated "there is no suggestion that the same principles do not apply to a without notice application for permission to serve out as they do on a without notice application for a freezing order".  

Comment 

The judge's remarks about the scope of the duty contrast with the decision in MRG Japan, where the judge noted that freezing injunctions are draconian in nature, and as such "it is a jurisdiction which requires great caution and a wide range of factors may have a bearing on the court's decision." Further, that "an application for permission to serve out of the jurisdiction is of a totally different nature." The approach in Tugushev v Orlov to the duty of full and frank disclosure suggests that there is a common standard for WFOs and service out applications, whereas MRG Japan suggested that the scope may vary depending on the nature of the application. 

If O appeals, the Court of Appeal may take the opportunity to reconcile the differences in case law. For the time being, it will be prudent for parties applying for without notice WFOs and/or for service out of the jurisdiction, to apply a high standard of full and frank disclosure so as to ensure they comply with their obligations to the court.

James Byrne

Order of priority for payment by a judgment debtor

365 Business Finance Ltd v Bellagio Hospitality WB Ltd and another; Court Enforcement Services Ltd v Burlington Credit Ltd [2019] EWHC 1920 (QB), [2019] All ER (D) 120 (Jul)

This judgment clarifies who will be paid first where there are multiple judgment creditors seeking payment from a judgment debtor. Creditors seeking to enforce judgments need to apply quickly for a writ of control after judgment is given in order to commence the process of enforcement. This will increase the chances of recovering the full amount owed to them by the judgment debtor in priority over other judgment creditors. 

Background

Two creditors obtained judgement in the County Court against the same debtor. Each creditor separately applied to the High Court to issue a writ of control. The High Court Enforcement Officer then passed the writ on to a certified enforcement agent whose role it was to effect the enforcement of the debt by taking possession of the debtor's property. The first creditor's enforcement agent received the writ on 12 June 2018 whilst the second creditor's writ was not received until 16 June 2018. The first enforcement agent attended the debtor's premises, took control of the contents pursuant to the writ, but agreed to defer the payment in accordance with an agreed payment plan which would be received by them in instalments. Before the first enforcement agent was due to receive its first instalment the second agent attended the debtor's premises and obtained full payment from the debtor. The first enforcement agent successfully applied to the court for the second enforcement agent to pay over the money on the grounds that pursuant CPR 84.3 they had received a writ of control first and therefore had priority over the property.

The second enforcement agent applied to have this decision overturned.

Decision

The judge, upholding the first instance judgment, held that a debtors' property is bound from the time when a writ of control is received by the person under a duty to enforce it. The writ of control received first in time therefore has priority over the proceeds of the goods, with any surplus paid under the second writ.

Sarah Jackson-Koufie

Service on nominated agent was valid, despite agent's resignation

Piraeus Bank v Grand Anemi Limited and others) [2018] EWHC 974 (Comm)

Background

This claim concerned a breach of the terms of a loan agreement between a Cypriot bank, M, a ship owning company, Grand Anemi, and its subsidiary, Grandunion Inc. In the course of the proceedings, permission was sought to serve the third defendant to the claim, a Greek national, who had provided a personal guarantee and indemnity, outside of the jurisdiction. The agreement and corporate guarantee between the parties contained a provision irrevocably appointing a London service agent to act as the defendants' agent to receive and accept any documents in relation to English proceedings.

Following service of the claim form the nominated agent in London resigned from its appointment. The claimant subsequently applied for declarations as to valid service on the defendants.

Decision

The court held that all documents had been validly served pursuant to CPR 6.11: the parties had contractually agreed a method of service for the claim form by including the process agent clause. Furthermore, any court documents going forward could also be validly served on the service agent by virtue of its irrevocable appointment, notwithstanding the agent's purported resignation; the resignation had no effect on the claimant's rights under the contract. 

Comment

This decision confirms that where a nominated service agent has been appointed irrevocably, that appointment is unaffected by any attempted resignation by the agent or revocation by a party to the contract. It shows the importance of ensuring that the appointment is expressly stated to be "irrevocable". 

If there is a No Deal Brexit, English process agent clauses are likely to be increasingly relied upon by parties to cross border contracts, given that both the Brussels (Recast) Jurisdiction Regulation 2012, that deals with jurisdiction as between EU states, and the Brussels Service Regulation, that deals with methods of service of proceedings as between EU states, will no longer apply in the UK, resulting in a more complex process for service of English proceedings in the EU.

Tiffany Morgan

Privilege – no iniquity exception

Hotel Portfolio II UK Ltd (in liquidation) v SMA Investment Holdings Ltd (a company incorporated in the Marshall Islands) and others [2019] EWHC 1754 (Comm), [2019] All ER (D) 66 (Jul)

Background

A company ('X') entered liquidation and, following insolvency proceedings brought by its liquidator, acquired documents including emails and attachments that had passed between a law firm and its clients, the company that owned X ('Y') and two individuals. X made an application for a declaration that it was entitled to subsequently disclose these documents in proceedings brought by the Serious Fraud Office.

Despite privilege over some of the documents having been waived, the application relied on the iniquity exception as a basis for overriding privilege. The iniquity relied on was alleged theft via coercion and bribery.

Decision

The court ruled that the applicant had failed to prove iniquity on the part of the defendant.  It had not made the alleged iniquity clear, nor did the evidence itself establish a prima facie instance of fraud or iniquity. In addition, the documents relied upon showed that the lawyers accused of iniquity were actually providing bona fide services to their clients that were fundamental to the terms of their engagement. 

Comment

The decision demonstrates that reliance on the iniquity exception necessitates careful consideration of the evidence and whether it is sufficient. Two elements are essential to proving the exception:

  • An accusation of fraud must be stated explicitly by the applicant and there must be evidence to support it.
  • If fraud is alleged it must also be shown that the actions of the lawyer effectively fell outside the realms of normal professional engagement. This is a vital element of the exception.

Failure to satisfy the court of both elements is likely to mean the application will fail.

Alexander Clarke

Key contact

Kate Menin

Kate Menin

Principal Knowledge Lawyer, Dispute Resolution
London

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