A recent decision has confirmed the importance of ensuring full and frank disclosure when seeking an order from the court on an ex parte basis.(1) The decision also usefully recites the legal principles regarding the consequences of not making full and frank disclosure.
The plaintiff and his two brothers acted in partnership in relation to the purchase of lands and borrowed moneys from the defendant bank to do so. Legal disputes in relation to the lands had implications for the repayment of the loan and, ultimately, the parties entered into a compromise agreement in order to assist the bank in seeking to recover as much as possible of the debt owed to it. That compromise agreement was made on March 13 2013, but defined the effective date in manuscript text initialled by the plaintiff as being three weeks from May 27 2013.
Under the compromise agreement the borrowers, including the plaintiff, assumed numerous obligations towards the bank. By contrast, the bank's obligations under the compromise agreement were twofold.
- It would postpone enforcement of the borrower's debts (specifically, by not pursuing judgment proceedings during the relevant period) to enable steps to be taken by the borrowers under the agreement.
- It would acknowledge full implementation of the agreement as amounting to full and final settlement of the borrowers' debts to it.
The plaintiff borrower issued proceedings against the bank on October 1 2014 on the basis that the bank had not complied with the terms of the compromise agreement and sought various reliefs, including specific performance of the compromise agreement or, alternatively, damages for breach thereof. He also sought various orders restraining the bank from taking steps that were contrary to the provisions of the compromise agreement. The alleged breaches by the bank were threefold.
- The sum of €335,000 was wrongly debited from his account on March 27 2013 in breach of the bank's obligation under the compromise agreement to postpone its rights/remedies.
- A receiver was wrongfully appointed on March 18 2014 over two properties covered by the compromise agreement, whose appointment was not discharged.
- Consent to the sale of the lands to a company whose offer of €1.5 million was accepted by the plaintiff and the other owners on June 13 2014 was wrongfully refused.
Arising from the proceedings and the alleged breaches, the plaintiff applied for and was granted an ex parte interim injunction restraining the bank from taking any steps that were contrary to the compromise agreement from enforcing or recovering the loan liabilities pending the application for an introductory injunction in similar terms. On the same day, and while not having been notified of the interim injunction, the bank appointed receivers to lands that were the subject of the compromise agreement.
On October 7 2012 the bank brought an application to have the interim injunction set aside on the grounds of material non-disclosure. It contended that the plaintiff had failed to make a full and frank disclosure of the following matters.
- Regarding the timing of the debit from the plaintiff's account, the bank submitted that the plaintiff had wrongly failed to disclose that he did not initial his acceptance of the compromise agreement until May 29 2013, such that it was plainly not operative until the effective date recited on its face (ie, three weeks from May 27 2013). In support of the submission that the plaintiff would have been well aware of this, the bank relied on an exchange of emails between the parties' solicitors.
- In relation to the failure to remove the receiver, the bank submitted that the averments to the effect that the receiver "continued to manage the properties" were entirely false. In this regard, the bank exhibited the relevant deed of discharge in respect of the receiver concerned.
- With regard to the refusal to consent to the sale of the lands, the bank contended that the plaintiff had withheld a number of material facts. The bank contended that the relevant heads of agreement document dated June 13 2014 had not been provided to the bank prior to the proceedings and that it was unaware of the alleged offer or agreement. The bank also referred to subsequent correspondence (July 28 2014) from the plaintiff's then solicitors indicating that the plaintiff had at that point found a party which had "expressed an interest in purchasing" the property. The bank pointed out that this was difficult, if not impossible, to reconcile with the plaintiff's contention that an offer to purchase those lands had been accepted on or before June 13 2014.
The court noted that the obligation to make full and frank disclosure in applying for relief on an ex parte basis had been approved by Judge Clarke in Bambrick v Cobley(2) in the same terms as set down by Vice Chancellor Browne Wilkinson in Tate Access Floors Inc v Boswell.(3)
"No rule is better established, and few more important, than the rule (the golden rule) that a plaintiff applying for ex parte relief must disclose to the Court all matters relevant to the exercise of the court's discretion whether or not to grant relief before giving the defendant an opportunity to be heard. If that duty is not observed by the plaintiff, the court will discharge the ex parte order and may, to mark its displeasure, refuse the plaintiff further inter partes relief even though the circumstances would otherwise justify the grant of such relief."
The court indicated that it was satisfied that the plaintiff had failed to disclose some nine particular facts when applying for and obtaining the ex parte injunction. It went on to consider whether the undisclosed facts were material to the application for ex parte relief as made by the plaintiff. In this regard, it noted that the plaintiff would have done well to heed the caution expressed by Lord Chancellor O'Hagan in Atkin v Moran(4) that:
"The party applying is not to make himself the judge whether a particular fact is material are not. If it is such as might in any way affect the mind of the court is its duty to bring it forward."
Here, the court was satisfied that each of the relevant facts was at least capable of affecting the mind of the court and, although not necessary to do so, it went on to say that it was difficult to conceive how those facts would not have affected the mind of the court. In coming to that conclusion, it was mindful of the decision in Bambrick v Cobley that:
"The test by reference to which materiality should be judged is one of whether objectively speaking the facts could reasonably be regarded as material with materiality to be construed in a reasonable and not excessive manner."
Consequently, in this case the court found that there was a significant and material failure to disclose matters which should have been disclosed in the context of the ex parte application.
Consequences of material non-disclosure
The court acknowledged that the consequence of material non-disclosure is not automatic and that the court has discretion, in cases where failure to make full and frank disclosure at the interim stage has been established, to discharge the interim injunction already granted and to refuse to grant any interlocutory injunction then sought.(5) The factors relevant to the exercise of that discretion are as follows.
- the materiality of the facts not disclosed;
- the extent to which it might be said that the plaintiff is culpable in respect of failure to disclose; and
- the overall circumstances of the case which led to the application in the first place.
Taking those factors into account, the court found that the facts not disclosed were directly relevant and reasonably material to the specific allegations made by the plaintiff with regard to the breach of the compromise agreement by the bank. While he would not go so far as to find the non-disclosure to be deliberate, it was satisfied that it involved a culpable failure on the part of the plaintiff. Finally, it concluded that no other aspect of the overall circumstances of the case was directly relevant to the exercise of the discretion at issue. Accordingly, it acceded to the application on the part of the bank to discharge the interim injunction and ruled against the application for interlocutory relief by the plaintiff.
Notwithstanding its ruling with regard to the effects of the material non-disclosure, lest it be wrong in that view, the court then went on to consider whether it would be appropriate to grant an interlocutory injunction in accordance with the relevant Campus Oil guidelines in any event.(6) It accepted that there was a bona fide question to be tried concerning the alleged breach of the compromise agreement. It also accepted that damages would not be an adequate remedy (although it noted that any cross-undertaking from the plaintiff would be of little or no value in any event). Looking at the final limb of the test (the balance of convenience), it felt that the maintenance of the status quo was best preserved. Accordingly, the court would, in any event, have declined the interlocutory application.
Although the decision does not set out new law, it does offer a useful reminder of the obligation on a party seeking an ex parte order to ensure that it fully and frankly puts all material facts before the court. Failure to do so can not only result in the interim order being set aside, but may preclude that party from obtaining the relief sought on an interlocutory basis pending the ultimate trial.
This article first appeared in the International Law Office Litigation newsletter, 23 December 2014.