REUTERS | Mike Segar

What happens abroad… disclosing foreign proceedings

How much does an applicant for a freezing order need to tell the English court about other claims it is conducting abroad? This is a significant question for any lawyer involved in cross-border litigation, and was the main issue at stake in the High Court decision in Banca Turco Romana v Kamuran Cortuk and others.

The judge set aside freezing orders obtained by the claimant ex parte against the third to fifth defendants, for non-disclosures which he described as substantial, serious and deliberate.

The judgment is important because it highlights that it is not enough for an applicant simply to refer to the existence of foreign proceedings. They must give a full and frank account of those proceedings, drawing attention to anything which an English court might think material. Otherwise, they run the risk of their applications being discharged further down the line.

Factual background

The claimant was a Romanian bank acting through its liquidators. The bank was ultimately controlled by the first defendant, Mr Cortuk, who was the main target of the bank’s claim.

Mr Cortuk had evaded arrest and was the subject of an Interpol red notice, having been sentenced to over ten years in prison for his part in defrauding the bank of over USD 100 million. The bank sought to recover some of those funds from him.

Mr Cortuk maintained his innocence from his residence in New Jersey, USA. The bank was also suing him and his daughter in the New Jersey civil courts. It was the incomplete picture which the bank gave the English court about this New Jersey claim, which was soon to take on great significance.

The other defendants were relatives, friends or colleagues of Mr Cortuk; the bank had sued them exclusively to obtain interlocutory relief against them. The third defendant was Mr Cortuk’s daughter. She lived in Turkey, but the bank said that the English court had sufficient jurisdiction over her because she was the ultimate owner of shares in a UK company called Westpoint UK. The freezing order prohibited her from dealing with those shares.

Full and frank disclosure of related proceedings in other jurisdictions

The principles relating to the duty of full and frank disclosure are well known, with judges rarely citing any authority beyond the Court of Appeal’s judgment in Brink’s Mat v Elcombe.

On an ex parte application, the applicant must make a full and fair disclosure of all the facts which are material to that application. What is “material” is a question for the court, not the applicant.

The need to disclose related proceedings in other jurisdictions is an important aspect of this duty. It will plainly be relevant to a court that the parties are involved in litigation abroad. It is equally important that a court is given a proper picture of any foreign proceedings.

The consequences of failing to disclose the existence or extent of foreign proceedings can vary. If what was omitted is minor and would not have changed the original outcome, a court may simply continue the order. If, however, the non-disclosure was deliberate and significant, it is very likely that the order will be discharged.

Inadequate disclosure of foreign proceedings

In the ex parte application in this case, the bank had told the English court that it had jurisdiction over Mr Cortuk’s daughter because of her ownership of the UK company, Westpoint UK.

The bank also told the English court that it was suing Mr Cortuk and his daughter in New Jersey. It said that this foreign claim related only to the sale of a specific property in New Jersey.

In fact, the New Jersey proceedings were much broader than this. There, the bank was arguing that Westpoint UK was not genuinely owned by Mr Cortuk’s daughter, but was a sham and a façade, and all its assets were in truth those of Mr Cortuk. In short, the bank argued that Westpoint UK and Mr Cortuk should be treated as one and the same.

This was directly inconsistent with what the bank had said in the English courts, where it had not challenged the legitimacy of Westpoint UK, and had positively asserted that the shares in Westpoint UK were ultimately owned by Mr Cortuk’s daughter.

This was significant in two respects:

  • It seriously undermined the basis for seeking relief in England.
  • It was also highly relevant to whether the English court should grant ancillary relief against the shares in Westpoint UK, because they were already the subject of a claim in the New Jersey courts.

Popplewell J decided that this mischaracterisation of the New Jersey proceedings was seriously misleading (paragraph 31). He also decided that the conduct was deliberate, because it could not have been overlooked by accident and no explanation for the non-disclosure had ever been offered by the bank (paragraph 34). This non-disclosure, along with other non-disclosures by the bank, was sufficiently grave to require discharging the freezing orders.

Significance of the decision

It can be very challenging for practitioners to get a full picture of all foreign proceedings being conducted by their client. They will be focused on how best to obtain relief in England, rather than considering how the client is trying to obtain relief abroad.

Even if they do make appropriate enquiries, the foreign claims are likely to be conducted by separate legal teams, running on different timetables and with different aims and agendas. The foreign proceedings may also be being conducted in a language other than English, or involve causes of action which have no clear analogues in English law.

However, practitioners should stress to their clients that they must give full and frank disclosure of any foreign proceedings which might have an impact on the decision of an English court whether to grant relief. Their failure to do so can be highly significant, as this decision makes clear.

Fountain Court Chambers Max Evans

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