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17 Jul 2019

Rogachev v Goryainov: A reminder of the dangers of non-disclosure in without notice applications

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The English Court will generally only grant freezing orders if you can show that your opponent will try to dissipate their assets, so as to evade enforcement of any later judgment. For that reason, they are almost always obtained "without notice". This means that only the claimant appears at the hearing, without giving the defendant(s) notice of the hearing, or even the proceedings. They usually then serve the freezing order on the defendant's banks (and sometimes business partners), before notifying the defendant. This means that the banks will normally freeze any monies in the defendant's account, before the defendant can take steps to dissipate the money (for example, by moving it abroad).

As the defendant has no chance to tell the Court their side of the story at a without notice hearing, the Claimant has a significant duty of "full and frank disclosure". The criteria for what constitutes full and frank disclosure are well established, but there continue to be judgments where the Courts find that claimants have not complied with it. The recent case of Rogachev v Goryainov, is a useful reminder of how strictly the English courts will police this duty. It also clarifies how fine the line is between presenting a persuasive case and a "fair" one.

Background

Mr Rogachev (the Claimant and Applicant) ("Rogachev"), and Mr Goryainov (the Defendant and Respondent) ("Goryainov") are Russian businessmen; Rogachev operates in the retail and Goryainov in the real estate sector. In 2013, they agreed to enter into a joint venture to develop and operate a series of 'Farmers' Markets' in Moscow. A dispute arose between them over the rights to a particular property (and its proceeds of sale).   Despite attempts to resolve this by mediation and arbitration, ultimately Rogachev applied for and obtained a Worldwide Freezing Order (the "WFO") against Goryainov at a without notice hearing in December 2018.

Analysis

Recently, the WFO was overturned and the court declined to grant a further proprietary injunction sought by Rogachev. In discharging the WFO, the court highlighted the following points:

  • It is a well-established principle that claimants do not comply with the duty of full and frank disclosure by including a document in an exhibit. The Court reiterated that relevant documents and / or information have to be adequately drawn to the judge's attention. Here, a relevant document was exhibited to an affidavit ("in the middle of the 16 pages of the 28th exhibit") but was not drawn to the judge's attention. In many cases, exhibits run to far more than 16 pages, and this is a reminder that any important document should be shown to the judge at the hearing for a freezing order application.
  • It is also a well-established principle that full and frank disclosure obliges the claimant to investigate facts fully. Here, one issue of relevance was an advert on a Russian property website. The court accepted there was no evidence to suggest Rogachev knew about it. However, he could have discovered it, if he had made more careful inquiries. The fact that he did not do so meant that Rogachev was in breach of the duty of full and frank disclosure.
  • If the Judge is operating under a misunderstanding, then failure to correct this is a serious breach of the duty of full and frank disclosure. At the without notice hearing, the Judge had been concerned because he thought Rogachev had learned about the sale of the property and then delayed 5 weeks in applying for the WFO. In fact, on Rogachev's own case, the delay was at least 11 weeks, but his lawyers did not correct the Judge's misunderstanding. Judges dealing with freezing order applications often have very little time to read the papers – the claimant must always assist them to ensure they properly understand the case.
  • Failure to provide relevant background information can result in the court not having a full picture of any likely defence to a claim and / or can create a false impression of a heightened risk of dissipation.

Conclusion

In this case, a lot of relevant information was before the court (in documents), but the WFO was still discharged because it was not properly drawn to the court's attention. In one instance, the court found that Rogachev breached his duty of full and frank disclosure even though the information was both in his affidavit and in his counsel's skeleton argument. Additionally, the court concluded Rogachev had committed a further breach because he had not made sufficient enquiries.

Whilst you will not be granted a WFO unless you can prove there is a good arguable case and a real risk of dissipation of assets, winning at a without notice hearing is only half the battle. If the defendant can point to a sufficiently serious failure to fairly present the case, there is a risk the WFO will be discharged. If that happens, the claimant will almost inevitably have to pay the defendant's legal costs (which can be very significant), and they may also have to pay for any losses the defendant suffered as a result of the order (for example, if they have not proceeded with a commercial deal due to the existence of the order). The claimant will usually be in a far worse position than if they had never obtained the order.

Freezing orders often have to be obtained urgently, and complying with the duty of full and frank disclosure in such circumstances requires intensive work by claimants and their solicitors. In our experience, Judges rarely refuse to grant freezing orders because of things claimants disclose as part of full and frank disclosure, so long as they have a proper explanation for the issue. On the other hand, it is becoming more common for judges to discharge freezing orders because of things that have not been disclosed, in breach of the duty of full and frank disclosure.

There can be no question that there is only one safe course for those seeking freezing orders:  if in doubt, disclose any issues and bring them to the Judge's attention. For more information, contact Stephenson Harwood LLP's fraud and asset tracing team.

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Ros Prince

Ros Prince
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Harriet Campbell
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