Freezing orders – cross undertakings and duty of disclosure

Hunt applied for freezing orders to be made against the partners, and gave a restricted cross-undertaking in damages: "[…] limited to the amount of monies and the net realizable value of the unpledged assets of Black Capital (in provisional liquidation) taken into the custody or under the control of the applicant in the course of the liquidation less the costs, expenses or other disbursements of the liquidation."

Ubhi, who claimed not to have been a partner in Black Capital, appealed the freezing order. In circumstances where Hunt had no claim against Ubhi (other than as a partner of Black Capital), the Court of Appeal considered the following issues in detail:

1. Was the judge wrong to accept a limited cross-undertaking from Mr Hunt? [Issue 1]
2. Should the judge have set aside the freezing order and refused further relief on account of breaches of the duty of full and frank disclosure? [Issue 2]

Issue 1: the cross-undertaking

When applying for the freezing order, it was incumbent on Hunt to show why it was appropriate to depart from the "default position" (ie, an unlimited cross-undertaking in damages). The Court of Appeal found that whilst Hunt was acting in the interests of all creditors, this was insufficient reason to depart from the default position. Hunt also failed to consider the availability of a freezing order to the petitioners, the true value of the cross-undertaking, or other funding options available to a provisional liquidator, including insurance or a further indemnity from the petitioners.

Given the dearth of evidence to support a departure from the default position, the Court of Appeal allowed the appeal and set aside the freezing order as against Ubhi.

Hunt, who had not filed notice seeking to sustain the judge's order on an alternative basis, was not given the opportunity to offer an improved cross-undertaking.

Issue 2: The duty of full and frank disclosure

The Court of Appeal found that what was said at first instance about the proposed cross-undertaking was not adequate and was, in fact, misleading because it was suggested that it was "usual" for an undertaking required of a provisional liquidator to be limited to the assets in the estate. The Court of Appeal was not, however, persuaded that there were any other breaches of the duty of disclosure. The breach of full and frank disclosure was not, in this instance, sufficient of itself to discharge the freezing order.

The Court of Appeal noted that nothing in the judgment should be taken to cast any doubt upon the ability of an office holder to apply for a freezing order or other injunctive relief. However, it is a reminder that an office holder must pay full attention to the scope of their powers and the precise nature of the relief which they intend to seek.

Stephen Hunt (as Provisional Liquidator of Black Capital) v Ravneet Ubhi [2022] EWHC 3228 (Ch)