Introduction

In Sita UK Group Holdings Ltd v Serruys [2010] EWHC 698 (QB), the English High Court had to consider an ex parte injunction order that had been granted to the Claimant upon what was later revealed to be a material non-disclosure. Faced with deciding whether to discharge the order or to re-grant fresh injunctive relief, the Court held that the overriding concern was what was in the interests of justice.

In balancing the need to observe the disciplinary process in light of non-disclosure with the need to observe justice, the Court leaned towards the latter. On the one hand, it was found that the Claimant’s non-disclosure was deliberate, albeit there was no calculated decision to mislead the Court. On the other hand, the interests of justice lay in favour of re-granting the Claimant’s injunction, because the risk of dissipation of assets outweighed the harm caused by maintaining the injunction. While registering its disapproval of the Claimant’s behaviour in its failure to disclose material facts, the Court nonetheless decided to re-grant the injunction.

The Court also put much emphasis on conduct of the Claimant in carrying out the injunction, finding that it had adequately met the Defendant’s reasonable requests relating to the injunction. Had there been evidence of unreasonable conduct on the part of the Claimant, the Court would have been prepared to refuse to continue the injunctive order. Therefore, parties should take note that such orders must always be conducted in a reasonable manner.

Brief Facts

(1) Serruys (“the Defendant”) entered into an agreement with SITA (“the Claimant”) for the sale of its scrap metal business. However, the relationship eventually failed, and the Claimant brought proceedings against the Defendant.

(2) On the basis of fraudulent misrepresentation, the Claimant applied for and obtained a without notice freezing injunction against the Defendant. The Defendant offered undertakings in lieu (“the Undertakings”), and these were accepted.

(3) It came to light that certain factual maters had not been disclosed by the Claimant in its without notice application for the freezing injunction (“the Application”). The Claimant thus applied for the disclosure of these matters, and for the continuation or re-grant of the injunction.

(4) In turn, the Defendant applied to be released from their Undertakings by reason of the Claimant’s non-disclosure.

Issue

In light of the material non-disclosures at the without notice stage, the Court had to decide whether to discharge the original freezing order or to re-grant fresh injunctive relief.

Holding Of The High Court

It was held that the original freezing order should be continued because it would be in the interests of justice. The risk of dissipation of assets outweighed the harm caused by maintaining the order.

General law

The Court here was faced with two conflicting functions: the need for disciplinary action where there is significant non-disclosure at ex parte proceedings, and the general duty to do justice. Even though the Court recognized that it should deprive the non-disclosing party of any improperly obtained advantage, it also acknowledged that it had a discretion whether or not to discharge the order.

It was determined that “the overriding question for the Court is what is in the interests of justice” (Brink’s Mat Ltd v Elcombe [1998] 1 WLR 1350) [emphasis added]. The following factors were also laid out:

  1. The Court must have regard to all the relevant circumstances in deciding whether to discharge the original order.
  2. In particular, it must consider the nature and materiality of the non-disclosures and how they came about.
  3. It would only be in exceptional circumstances that the Court would not discharge an order where there has been deliberate non-disclosure.
  4. The Court should also consider the prejudice the innocent party has suffered as a result of the order being made.

Application

The Court first determined that the Claimant’s non-disclosure was deliberate. This was on the basis that one of the Claimant’s employees, who was aware of the non-disclosure, was involved in the preparation of the original Application. However, the Claimant’s Board was not aware of the non-disclosure; they were merely lax in the enforcement measures taken.

The Court thus went on to weigh the factors arising in the situation at hand.

  1. The nature of the non-disclosure was taken into account.
    1. The non-disclosure was indeed serious and culpable.
    2. Although the non-disclosure was not accidental, there was also no calculated decision to mislead the Court for fear of losing the relief sought.
    3. The evidence also showed that the Claimant had a good arguable case for injunctive relief.
    4. The delay in bringing the non-disclosure to light was not a weighty factor.
  2. The effects of continuing the order were also considered.
    1. The freezing order was likely to cause harm to the Defendant, as there was a heavy fraud case against it, and a very large claim for damages.
    2. However, the injustice to the Defendant was outweighed by the injustice which would be caused to the Claimant by discharging the order, due to the risk of dissipation of assets.
    3. Furthermore, the Claimant had managed the working of the freezing order in a proper manner, accommodating the Defendant’s reasonable requests. Had there been evidence of unreasonable conduct, the Court would have been prepared to discharge the order.

Based on this assessment, the Court held that it was in the interests of justice to re-grant the freezing injunction. However, to mark its disapproval of the non-disclosure, the Court ordered the Claimants to bear the costs of the applications.

Concluding Words

It is heartening that the Court chose not to focus on the rigid nature of its disciplinary function in deciding whether or not to discharge an ex parte order for material non-disclosure. An automatic discharge may lead to plainly unjust results; giving precedence to the interests of justice thus seems like a natural conclusion. The Court also addressed concerns over potential abuse of this principle by stating that deliberate non-disclosure aimed at manipulating an ex parte order would rarely lead to a continued or re-granted order.

It is also noteworthy that the Court placed much emphasis on the conduct of the non-disclosing party, stating that it would have discharged the freezing order had they acted unreasonably in administering it. This introduces an element of fairness into the process of the Court’s analysis, whereby the Court will exercise its discretion to continue the order only if it is equitable, and where the non-disclosing party has ‘clean hands’.