FWJ successfully defended liquidators in a £14m fraud case, securing the continuation of injunctions and limiting cross undertakings.
Judgment was handed down on 4 October 2024, in the matter of Smith & Partner Limited (in Liquidation) [2024] EWHC 2518 (Ch), confirming the continuation of injunctions obtained by Liquidators on an ex-parte basis. The Judgment rejected the defendants’ wide-ranging attack on the Liquidators’ alleged failure to give full and frank disclosure.
Smith & Partner operated a fraudulent art investment scheme, for a number of years, before it was placed into liquidation in July 2023. The Liquidators obtained without notice freezing and proprietary injunctions against three defendants in January 2024. The Liquidators obtained ATE insurance prior to issuing their application for Injunctions and were successful in persuading the Court that the appropriate cross undertaking in damages, to support the injunctions, was one limited to £250,000 and not an unlimited cross undertaking in damages. This was despite the claims being for in excess of £14,000,000. The Court was satisfied, having regard to the quotes we obtained for cross undertaking in damages insurance, that it was appropriate to depart from the normal “unlimited cross undertaking in damages”.
The injunctions were challenged by the defendants on various grounds and the matter was listed for a three day contested hearing in July 2024, before the Chancellor of the High Court. The injunctions continued until the judgment in the contested hearing.
The defendants’ denied that the liquidators could show a good arguable case against them or a risk of dissipation. Further they alleged that the liquidators had breached the duty of full and frank disclosure and the duty to make reasonable enquiries.
Noting that the three-day hearing had become a “mini trial” with 20 lever-arch files of evidence and the defendants seeking to argue every point and pursue issues which could only be resolved at trial, the Chancellor found the defendants had showed “no sign of proportion or restraint” and had adopted “the scatter-gun approach deprecated by the authorities” with many of the points not even being full and frank disclosure points at all. The criticisms of the Liquidators at the without notice hearing were said to be “unwarranted” and the Court rejected the arguments made in full. The defendants primarily argued that the Liquidators had failed to make reasonable enquiries prior to the without notice hearing. This argument was rejected with the Chancellor confirming that whilst an applicant should make “all proper, that is reasonable enquiries before making an application, that does not require exhaustive enquiries as if the applicants were preparing the case for trial”. In finding that there was a good arguable case that the defendants had perpetrated a “substantial fraud on investors”, the Chancellor ordered the proprietary and freezing injunctions to continue on the grounds that it was “clearly required to protect the investors”.
This case will clearly provide some comfort to insolvency practitioners who are faced with the need to seek freezing or proprietary injunctions in that the Court has made it clear that:
a) it will limit the necessary cross undertaking in damages in appropriate cases;
b) insolvency practitioners are not expected to have made all possible enquiries before making an application; simply those that are reasonable;
c) that defendants who contest an injunction on a “unrestrained basis” will be exposed to a cost order.
The judgment can be read here: https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2024/2518.html
Maria Koureas-Jones and Sima Sinai were instructing solicitors and Clara Johnson was instructed as Counsel on behalf of the Liquidators.
