How Full or Frank does a party have to be to avoid material non-disclosure?

The Magomedov and others v TPG Group Holdings (SBS) LP and others litigation has been of great interest in the legal press over the last year and the recent decision of Mr Justice Jacobs should be of similar interest to fraud practitioners.

The decision is interesting and covers a number of topics which we will be discussing in a 3-part series. The first aspect of this judgment which we are going to cover is material non-disclosure, and the approach Mr Justice Jacobs took when considering the parties’ arguments about the same.

This firm has published articles on various aspects of material non-disclosure, most recently Sophie Evans looked at this in our privacy and transparency series, available here, in which she discusses this issue from an Applicant’s perspective. The recent judgment in Magomedov offers guidance to a Respondent.  

The duty to give full and frank disclosure

By way of reminder, on an application made without notice, the Applicant is under a duty to “make full, fair and accurate disclosure of material information to the court and to draw the court’s attention to significant factual, legal and procedural aspects of the case.” This is also known as the duty to give full and frank disclosure. The basis of this duty is to ensure a fair hearing in circumstances where the Respondent to the application is not present at the hearing and will not be made aware of the process until the order (if granted) is served upon them.

If an Applicant fails in their duty to give full and frank disclosure, by failing to disclose something that is material to the application the order may be discharged, may not be re-granted and the Applicant is likely to have to pay the Respondent’s costs.

 

Brief background of the applications before Jacobs J

The Applicants (the Claimants in the Magomedov action) issued without notice applications for (i) permission to serve an application for Norwich Pharmacal relief out of the jurisdiction and (ii) permission to serve that Norwich Pharmacal application by alternative means (the “Service Applications”). The Respondents to the Service Applications were two companies providing advisory services based in Liechtenstein and the DIFC. A third UK company was also a Respondent to the Norwich Pharmacal application.

The Service Applications were granted (without notice to the Respondents) (“the Service Order”) and the Norwich Pharmacal application was served by email on lawyers acting for the Respondents in Liechtenstein and the DIFC, as well as by post to the registered address of the UK Respondent.

The Norwich Pharmacal application was made to try to discover the identity of a person who had made an alleged enquiry to the Liechtenstein Respondent. The enquiry purportedly related to the potential opening of a bank account in order to receive a large sum of money. Whilst even on the Applicant's case the bank account was never opened, the Applicants claimed that the prospective transfer represented an attempted bribe which was connected to an alleged conspiracy to harm the Claimants, which formed part of the claim in the Magomedov action. 

 

The Outcome of the applications

The UK Respondent had not been incorporated at the time of the alleged enquiry. Jacobs J therefore rejected the Norwich Pharmacal application because he did not consider that there was a “good arguable case” that it was “mixed up” in the alleged wrongdoing as it is not likely to have the information sought.

In relation to the DIFC Respondent, Jacobs J came to a similar conclusion. As this company had also not been incorporated at the time of the alleged enquiry it could not be said to be “mixed up” in the wrongdoing.

Jacobs J therefore did not need to consider arguments in relation to material non-disclosure raised by the DIFC Respondent as there was no good arguable case, and set the Service Order aside against the DIFC Respondent.

In relation to Liechtenstein Respondent, the application for Norwich Pharmacal relief also failed because expert evidence demonstrated that it would contravene Liechtenstein law to provide the information sought by the application. We will consider this in more detail later in this series, however for the remainder of this article we consider the approach that the Court encouraged the parties to take in relation to complaints about failures of full and frank disclosure.

 

Complaints about material non-disclosure

The Liechtenstein Respondent argued that there were serious and culpable material non-disclosures such that the Service Order should be set aside and not re-granted.

At the outset, the Liechtenstein Respondent set out 8 breaches, but reduced that number before the hearing, in order to focus on the 4 most egregious failures.

Jacobs J explained that the ‘shopping list’ of alleged breaches initially presented by the Respondents was high, and approved the subsequent paring down:

“In a case of this complexity, heard during the vacation with three separate parties, it is in my view incumbent on parties to pare down a long shopping list well in advance of the hearing, not least so that the judge does not have to spend considerable time trying to understand points which are then not pursued.”

Jacobs J referred to the recent case of Mex Group Worldwide Ltd v Stewart Owen Ford which encouraged Respondents to exercise “a degree of restraint and sense of proportion” when seeking to set aside without notice applications on the basis of failure to give full and frank disclosure. In Mex Group, at first instance, the Respondents complained of 18 instances of such failures by the Applicants. At the appeal stage, a further 14 alleged failures were added. The Court found that this was not sensible or proportionate. In the judgment, Coulson LJ explained:

“[I]f the ‘big ticket’ allegations of failure are not established, or are established but found to be immaterial, then the less significant failures will not bridge the gap. It is the law of diminishing returns.”

The Court advised parties to focus on those failures which are most important: “quality not quantity should be the watchword.”

In Magomedov, Jacobs J prefaced the issue of material non-disclosure in his judgment, explaining that even if he were to conclude that the failures complained of had substance and accordingly set aside the order granting permission for alternative service, the effect of this would be that the Applicants would re-serve their application using a different method and the Norwich Pharmacal application would come back for determination at a later date. As the Judge explained, “there is, in terms of judicial economy and efficiency, very little if anything to be said in favour of this course.”

Jacobs J accepted there had been one material non-disclosure, which was the Applicants’ failure to ensure the Court had foreign law evidence in relation to the legality of alternative service in Liechtenstein. Whilst, he noted that this alone did not justify the setting aside of the Service Order on the basis of a failure of full and frank disclosure, it did justify him setting aside that part of the Service Order which allowed alternative service against the Liechtenstein Respondent. The issue of costs has been reserved for a later hearing.

 

A new approach for practitioners?

The judgments in Magomedov and Mex Group seem to represent a shift in the way the Court will approach complaints about failures of full and frank disclosure. In particular, the Court has emphasised the importance of ensuring arguments in relation to material non-disclosure are proportionate and limited only to those failures which are significant and material.

This potentially clashes with judgments in earlier cases such as Border Timbers Ltd v Republic of Zimbabwe which emphasised that it is not for an Applicant to assess whether points are material in without notice applications, but for the court to decide. This would suggest that the court needs to be cognisant of all aspects of a case in order to properly assess the materiality of any failure of full and frank disclosure, which would encourage a more comprehensive approach to complaints of non-disclosure.

As a result, it appears there is a balance to be struck by practitioners in their approach to alleging material non-disclosure. The most recent authorities indicate a preference for only those “big ticket” breaches on which a party is relying on being presented to the court. However, where a party wishes to demonstrate a course of conduct, it may be beneficial to present a greater number of breaches, but expressed in order of priority with a focus on those ‘big ticket’ allegations.

 

Further information

If you have any questions regarding this blog, please contact Laurence Clarke or Phoebe Alexander in our Dispute Resolution team.

 

About the author

Laurence Clarke is a senior associate in the Dispute Resolution Team. He has broad experience as a general commercial litigator with a focus on complex large scale civil fraud and financial disputes. He often works as part of a team of global professional advisors on matters with multi-jurisdictional elements.

Phoebe Alexander is an Associate in the Dispute Resolution team. She has experience acting for both corporate and individual clients on a broad range of disputes, including complex multi-jurisdictional litigation involving allegations of fraud and conspiracy, general commercial and contractual matters, and media-related disputes involving reputation and privacy issues.