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Judge refuses to lift a worldwide freezing order. No lack of full and frank disclosure

Author: Nicola Sharp  21 February 2024
3 min read

Mr Justice Bright refused to lift a worldwide freezing order (WFO) in a recent application, Trafigura Ptd Ltd & Anor v Prateek Gupta & Ors [2023] EWHC 3184 (Comm).

The defendants alleged that the duty of full and frank disclosure had not been properly adhered to during the application to grant the WFO in February 2023. The Judge disagreed and found there had been ‘no failure to disclose’ and kept the injunction in place.

Background Facts

Trafigura Pte Ltd (Trafigura) is a major industrial metals and oil trader. It filed a claim against Prateek Gupta (Mr Gupta), alleging that it had been a victim of a $600 million fraud, orchestrated by Mr Gupta and in which Mr Gupta and his companies participated.

The underlying dispute is over the purchase of nickel, which Trafigura said it contracted with seven companies to provide. Trafigura paid for the nickel, in accordance with the contract. But it turned out that the material which was shipped was a less valuable metal. Some of the metal was nickel alloy, and other material contained no significant nickel content at all.

Trafigura alleges that there was a systematic fraud afoot, to replace the nickel with lower-value material. The allegations of fraud are denied by the defendants.

In February 2023, the High Court granted a worldwide freezing order to freeze $625 million of Mr Gupta’s assets, and the assets of his companies, located in Britain, Malaysia, Singapore and Switzerland.

Full and frank disclosure: What the applicant needs to show

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

The applicant must include any matters which are adverse to their application, because the respondent is prejudiced by not being present to give their side of the story. The applicant must present the application in a fair and balanced way.

The principles for deciding whether or not to grant a WFO, without giving notice to the other side are set out by Ralph Gibson LJ in Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 (paras 1356F – 1357G). Subsequent caselaw has emphasised (i) how important these principles are, and (ii) that sensible limits have to be drawn.

How Trafigura addressed the duty of full and frank disclosure

Trafigura identified a number of points which the defendants could take against their case in the submissions for the WFO in February. They surmised that the respondents might have said that:

  • The fact that the cargoes in question did not contain nickel is somebody else’s fault.
  • Trafigura’s responses showed that it was indifferent to the content of the cargoes. It did not rely on representations as to the content of the cargoes.
  • Trafigura was aware that nickel was not being shipped.

All of these arguments would be disputed by Trafigura.

 

Why the defendants says this was insufficient

What is interesting about this case is that the defendants accept that many or all of the containers in question did not contain nickel. They also accept that they were aware of this fact.

The defendants’ argument is that senior employees at Trafigura, in particular Mr Oikonomou and Mr Bhatia, knew about this. They go one step further to allege 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.

 

The evidence did not cast suspicion on the employees

Trafigura did flag the possibility that Mr Bhatia may have known about the alleged fraud during the course of the application in February. Relevant evidence was presented to the court at the initial hearing.

However, it was not possible to question the individuals before the February hearing, to protect against the risk that the defendants would be tipped off, before the WFO was in place.

At the hearing in December, the Mr Justice Bright found that 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. Any such individuals would have been acting contrary to Trafigura’s interest, so their knowledge could not be attributable to Trafigura. This too was disclosed at the hearing in February.

This led Mr Judge 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. He said;

“If relevant, I would say the same about Mr Bhatia and the traders working under him, but it is apparent that enough was said to Foxton J [the judge in the February hearing] that he was in any event well aware of the possibility that it might be said that Mr Bhatia knew about the Arrangement. Accordingly, there was no failure to disclose. The presentation made to Foxton J was fair, in all the circumstances.”

 

Analysis

If the applicant fails to observe the duty of full and frank disclosure, the respondent has grounds to lift the injunction. But 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.

Nicola Sharp C 09983

Nicola Sharp

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nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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