Fraud Insights: The Importance of the Duty of Full and Frank Disclosure Emphasised Once Again

The recent decision in Banca Turco Romana SA (in liquidation) v Kamuran Cortuk and others [2018] EWHC 662 (Comm) emphasises the importance of the duty of full and frank disclosure in the context of freezing injunctions. In this case, the claimant, a Romanian bank acting through its liquidator, had sought the continuation of freezing injunctions which had been granted on a without notice basis. The bank had obtained a freezing injunction against the defendant and four non-cause of action defendants closely associated with the defendant (the “NCADs“). Three of the NCADs were Turkish citizens living in Turkey. It was argued that the NCADs hold or control or manage a significant proportion of the defendant’s assets at his direction or for his benefit. There were also other proceedings in Romania, US and Switzerland.

Three of the NCADs successfully applied to set aside the injunctions on the basis of the claimant’s material non-disclosure. The Court considered that the claimant had failed to present accurately the status of foreign proceedings against the defendant in the US and that this was deliberate, which justified the setting aside of the orders. One of the reasons identified by the Court for concluding this was that the allegations of non-disclosure were advanced by the NCADs in correspondence, giving the claimant an opportunity to explain how the conduct complained of had come about. The claimant failed to provide a witness statement explaining its position, despite having had sufficient time to do so before the return date hearing.

Annabel Thomas, a Partner in the Fraud Defence team at Mishcon de Reya says:

As emphasised by the judge in this case, the duty of full and frank disclosure owed to the Court exists in order to ensure the integrity of the Court’s process. A party making an application on a without notice basis must present all the evidence and argument in a fair and even-handed manner. The Court will consider the breaches cumulatively, and irrespective of the merits of a claimant’s claim. Cases like this demonstrate the severe consequences of getting it wrong.”  

Mehmet Karagoz, a Managing Associate in the Fraud Defence team at Mishcon de Reya says:

Freezing injunctions have previously been described as one of the law’s “nuclear weapons”. It allows an applicant to restrict an individual or business from disposing of or dealing with its assets, often on a worldwide basis. Where the application is made without notice to the respondent, as it often is in order to avoid assets being dissipated, the applicant is under an obligation of full and frank disclosure. This requires the applicant to inform the Court of all matters that are material to the Court in deciding whether to grant the order which includes matters that are unhelpful to the applicant, or helpful to the respondent. Whilst this case focussed on matters which the Claimant was already aware of, it is important to note that the duty also extends to facts that would have been known had proper enquiries been made. It is vital that a thorough review of all the evidence is undertaken when applying for, or responding to, a freezing injunction.