Injunction – Freezing order – Discharge – Claimants bringing proceedings against defendants for breach of director’s duties – No allegation of dishonesty being made – Claimants obtaining freezing order – Defendants applying to discharge order – Defendants admitting claimants had good arguable case on merits – Whether defendants’ admission affecting application to discharge freezing order – Application granted
The claimant companies carried on the business of owning and renting out properties. The first defendant was a company forming part of the same group. The second and third defendants were shareholders in the first claimant. The fourth defendant was a company wholly owned by the third defendant.
The claimants brought proceedings against the defendants alleging: (i) a failure by the first defendant company to account for rents due to the claimants; (ii) breach of duty by the second and third defendants, as directors of the first claimant; and (iii) repayment of certain sums due from the third defendant. There were no allegations of dishonesty.
The claimants obtained a freezing order without notice against the defendants. The defendants applied to discharge the freezing order on grounds, amongst other things, that there was no solid evidence of a risk that they would dissipate their assets. The defendants accepted that the claimants had a good arguable case on the merits of the claim, as it was pleaded. A question arose as to the effect of that admission on the defendants’ application to discharge the freezing order. The claimants contended that the defendants, having accepted that there was a good arguable case on the allegations in the particulars of claim, had also to be taken to have accepted that those allegations provided the necessary solid evidence of propensity to dissipate for the purposes of the freezing order.
Held: The application was granted.
If the proper inference to be drawn from the pleaded facts alone was that the defendants’ breach of duty was dishonest, then that inference was itself capable of providing evidence of a propensity to dissipate. In that sense the pleaded facts were capable of doing double duty, in showing both a good arguable case and a propensity to dissipate assets. However, if the pleaded facts were consistent with a breach of duty which might be either innocent or dishonest then, in order to show a propensity to dissipate, the claimants would need further evidence, which it was open to them to adduce.
Even if the pleaded facts, or the pleaded facts as bolstered by other evidence, were sufficient to support an inference of dishonesty, the court would still look at any other relevant evidence in order to see whether it rebutted that inference. The claimant also had to establish that the defendants’ assets were the kind of assets which were capable of being dissipated. There were two flaws in the claimants’ approach to the defendants’ admission in that it assumed that the pleaded facts were sufficient, not only to establish breach of duty, but also to establish dishonesty and that there were no countervailing considerations which might negative the alleged propensity to dissipate. There was insufficient evidence of a propensity to dissipate assets. Accordingly, the freezing order would be discharged on the ground that there was no serious risk that the defendants would dissipate their assets below the minimum level previously fixed by the court: Lord Chancellor v Blavo [2016] EWHC 126 (QB) considered.
David Peters and Pia Dutton (instructed by Stephenson Harwood LLP) appeared for the defendants; Mark Hubbard (instructed by Howard Kennedy LLP) appeared for the claimants.
Eileen O’Grady, barrister
