Refining the law in relation to WFOs

Freezing orders were first devised in the 1970s, under the original name of a ‘Mareva’ injunction. Since then, the principles that apply to freezing orders have been in constant development and now the jurisprudence represents an ‘extraordinarily sophisticated and far-reaching body of judge-made law.’ They also now cover worldwide freezing orders (WFOs).

As freezing orders are usually sought ‘without notice’, the applicant is under a duty of ‘full and frank disclosure’ to lay before the court all the relevant information that the respondent may have raised.

What passes as ‘full and frank disclosure’ was considered in a recent application to lift a WFO in Trafigura Ptd Ltd & Anor v Prateek Gupta & Ors [2023] EWHC 3184 (Comm).

The benchmark for this is one of materiality. Did the applicant place before the court all matters which are, or might be, materially relevant to the application?

At the original hearing, Trafigura identified a number of points which the defendants could take against their case. However, the defendants argued that these points were insufficient to pass the threshold of full and frank disclosure.

The defendants said that senior employees at Trafigura, in particular Mr Oikonomou and Mr Bhatia, knew that the containers in question did not contain nickel. They alleged that the arrangement had been set up at the request and instigation of these employees.

The basis of the application to lift the WFO was that Trafigura had not brought this important fact to the attention of the court in February.

At the hearing in December 2023, the Mr Justice Bright found the new evidence presented to the court did not cast suspicion on Mr Oikonomou.

In any event, if Mr Oikonomou, or anyone else at Trafigura, had known about the alleged fraud, this could not provide the defendants with a defence. Such individuals would have been acting contrary to Trafigura’s interest, so their knowledge could not be attributable to Trafigura.

This led Mr Justice Bright to the conclusion that said that he was not satisfied that the materials shown to him should have put Trafigura on notice that there was a real possibility that Mr Oikonomou was involved in or knew anything about the alleged fraud.

Real risk of dissipation

A real risk of dissipation means that a future judgment would likely not be met because of an unjustified dissipation of assets. That might mean putting assets out of reach of a judgment by concealment or transfer.

This is balanced with the recognition that businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets.

This was one of the issues considered in the recent application for the discharge of an WFO in Madison Pacific Trust Limited v Srguy Mykolayovch Groza & Anor [2024] EWHC 267 (Comm)

While the defendants argued there was no real risk of dissipation of assets, the claimants pointed to a number of issues that suggested otherwise. This included:

• Actual and attempted transfer of assets
• The disappearance of substantial quantities of stocks of wheat, corn and barley, worth around US$ 100m.
• Requests for Mr Denic (CFO of a relevant company) to take the necessary steps to perfect the pledge over relevant shares.

When considering the actual and attempted transfer of assets, the timing is significant. The transfers took place in the immediate aftermath of the enforcement measures that commenced on 20 December 2022.

The counter argument is that the transfers were part of an orderly reorganisation. Or in other words, it falls within the realms of the legitimate ways that businesses deal with their assets. The transfers were not concealed and they had consent from the banks.

Ultimately, the judge held that the defendants’ argument was not a satisfactory response to the case that this was a classic act of dissipation. This is largely because there was no documentary evidence that the claimant’s consent was sought for the transfer.

In terms of the duty of full and frank disclosure, the Trafigura hearing shows that the duty does not extend to each and every possible detail that the applicant might have disclosed. It must be a material point, the omission of which would render the original application unfair to the respondent, and might have resulted in the refusal of the WFO.