Freezing Injunction Obtained on Incomplete Evidence

The test for a freezing injunction:

1. a good arguable case on the merits - a case with a much better argument than merely arguable;
2. a real risk, objectively established on the evidence, that the defendant will dissipate or dispose of assets to frustrate enforcement of a judgment - not merely that the defendant is foreign, or rich, or unwilling to pay;
3. that it is just and convenient to grant the order;
4. a cross-undertaking in damages from the applicant, fortified if necessary;
5. on a without-notice application, full and frank disclosure of all material facts, including those that damage the applicant's own case.

Applying it. Element 1 is satisfied - the shipping documents and the diversion allegations meet the threshold. Element 2 is supported by the $1.9m transfer three days after the letter of claim, and by the director's relocation to a state where enforcement is difficult. But the omitted facts cut into both elements and into the balance of convenience:

• The seven-month delay is inconsistent with the urgency that a genuine fear of dissipation implies, and a defendant can fairly say that assets which stayed put for seven months were not about to disappear.
• The offer of a bank guarantee for $1.2m shows a defendant willing to protect the claimant, which reduces the necessity for a coercive order.
• The $700,000 insurance payment means Meridian has already been reimbursed that part of the claim and faces no risk of loss on it, so the injunction should not have covered it. The correct cap was about $1.7m.

On full disclosure the court would probably still have granted a limited injunction, capped at roughly $1.7m, on terms requiring the cross-undertaking to be fortified - but it might well have declined, particularly given the delay.

The duty. A without-notice applicant must present the case fairly, drawing the court's attention to defences, to weaknesses, and to any facts that might lead the court to refuse the order or to grant it on different terms. The duty is heightened where the order is intrusive and made in the defendant's absence. It continues until the return date: if something material emerges in the meantime, the applicant must correct the record immediately.

The consequences. Material non-disclosure, even if innocent, entitles the court to discharge the order. The court retains a discretion. Relevant considerations include whether the omitted fact was material in the sense that it might have affected the decision; whether the omission was deliberate, careless or understandable; whether the applicant corrected it promptly and candidly; and whether the defendant has suffered prejudice. The usual order is discharge with costs on an indemnity basis, because the sanction protects the integrity of without-notice applications rather than compensating loss. The court may nonetheless re-grant the injunction on proper terms if the interests of justice require, and may order fortification of the cross-undertaking.

What Meridian should do:

• Do not defend the indefensible. Acknowledge the omissions at once, explaining how each arose rather than offering excuses.
• Produce a corrected affidavit that sets out the seven-month delay, the bank guarantee offer, the insurance payment, and anything else material.
• Offer to reduce the cap to about $1.7m and to give a fortified undertaking, or to accept a bank guarantee instead.
• Offer the costs of the return date on an indemnity basis.
• Be prepared for discharge: have a fresh application ready, properly evidenced and on notice, so that if the order falls away the position can be restored within days rather than losing the asset altogether.

Two stages: a threshold condition, then discretion.

Threshold. Security can be ordered where one of the listed conditions is met. The most likely here is that the claimant is a body corporate or entity incorporated or resident outside the jurisdiction, or that there is reason to believe it will be unable to pay the defendant's costs if ordered to do so. Meridian is a limited partnership registered abroad with no assets in the forum, so a condition is satisfied. The court will expect evidence, not assertion - the partnership's registration, its asset position, and the basis on which it is funded.

Discretion. Even where a condition is met, the court must ask whether it is just to order security. Relevant factors:

• the merits of the claim and of the counterclaim, on the material then available;
• whether the application is being used oppressively to stifle a genuine claim;
• whether Meridian can show that it would be unable to provide security and would therefore be forced to abandon a meritorious claim, and whether its backers could fund it;
• delay in bringing the application, and whether the costs have already been incurred;
• proportionality: the amount should be a realistic estimate of the defendant's likely recoverable costs up to trial, often staged and reduced for the counterclaim element.

Interaction with the freezing injunction. An order for security is not security over assets in the ordinary sense, and Meridian's cross-undertaking does not satisfy it. Conversely, the fact that Meridian has obtained a freezing order over Vantage's assets does not make it just for Vantage to demand security as of right. The court should also consider a bank guarantee as an alternative to a payment into court, given the dispute about the injunction itself.