Delay not a bar to obtaining freezing injunction

The High Court has granted three insolvent Cayman companies (each in liquidation) a worldwide freezing order in support of proceedings against Mr Terrill, an individual who operated behind the companies' respective corporate directors as their sole director and shareholder.

The court exercised its discretion to grant the injunction despite there being a delay of more than a year between the discovery of suspicious transactions linked to Mr Terrill and a Letter of Request applying for a freezing order being sent by the Cayman court together with the companies' liquidators to the English court.  Whilst delay generally would defeat this type of equitable relief, the court held that there were good reasons for the delay and that in the circumstances of this case the delay did not provide grounds for withholding relief.  The court was also not dissuaded from granting the injunction by the fact that the applicant companies were insolvent (and the resulting weakness of their cross-undertakings in damages).  In this connection, the court observed that Mr Terrill was at least partly responsible for the insolvency.

Facts

Centaur Litigation SPC, Centaur Litigation Limited and Centaur Litigation Unit Series 1 Limited (the Companies) are Cayman companies which carried on business as mutual funds engaged in the funding of litigation.  Between them, the Companies raised around £80 million from some 1,300 individual retail investors.

In 2014, Mr Selinger became involved in the restructuring of the Companies and found their accounts in disarray.  Mr Selinger discovered, in particular, the following three suspicious transactions entered into by the Companies: 

1. On 5 September 2012, Centaur Litigation Limited (CLL) entered into an agreement with Argentum Investment Management Limited (AIM) for the provision of a £6 million revolving credit facility to be made available by CLL to AIM.  All of the funds were drawn down, but were paid to an associated company, Argentum Administration Limited, instead of AIM.   None of the money, nor any interest, had been repaid to CLL.  On 10 July 2013, Mr Terrill signed for and on behalf of CLL to "waive" AIM's repayment of the credit facility.  This "waiver" formed part of the consideration for a share transaction to which CLL was not a party, and there was no other commercial reason why CLL should forego £6 million plus interest.
2. On 10 July 2013, Buttonwood Statutory Limited (Buttonwood), a company owned by Mr Terrill, entered into a share purchase agreement with Mr McGaw.  The agreement related to a proposed sale of shares in AIM for £5 million in cash.  The agreement was unsupported by a valuation and the purchase price was not paid by Buttonwood, the "buyer", but by the Companies instead.
3. Buttonwood entered an agreement on 22 August 2013, this time with Centaur Litigation SPC (CLS), which agreed to buy shares in another company in which Mr Terrill had an interest, Buttonwood Legal Capital Limited (BLC).  The purchase price of £1.2 million was transferred from CLS to BLC, before being transferred directly to Mr Terrill.

Mr Selinger asked Mr Terrill for an explanation of these transaction and the Companies' businesses generally. Mr Terrill tendered a statutory declaration but the answers were found to be lacking, and on 20 June 2014 legal proceedings were commenced against Mr Terrilll in the BVI. 

On 27 June 2014, Mr Selinger appointed provisional liquidators over the Companies, which were subsequently appointed joint official liquidators by the Grand Court of the Cayman Islands.  The liquidators formed the view that Mr Terrill had breached his duties as an officer of the Companies and had misappropriated the Companies' funds. 

The liquidators were initially unable to pursue investigations against Mr Terrill because he failed to answer emails and his physical whereabouts was unknown.   However, on 14 August 2015 Mr Terrill was arrested in England in connection with an unrelated crime.  The liquidators were informed and, together with the Cayman court, sent a Letter of Request to the English court seeking a worldwide freezing order in the sum of £13.25 million against Mr Terrill. 

Decision

The High Court decided to assist the Cayman court and its joint official liquidators pursuant to section 426 of the Insolvency Act 1986, recognising that the liquidators represented the Companies and therefore could seek the relief. 

The court granted the worldwide freezing order.  First, the court held that there was a good arguable case that Mr Terrill was a de facto director of the Companies and had breached his duties as such.  Mr Terrill was found to be part of the corporate governing structure of the Companies, and held himself out as a director of the Companies. 

Secondly, the court held that there were assets on which the injunction could bite, such as bank accounts, a houseboat and several classic cars within the jurisdiction, and further bank accounts in other jurisdictions. 

The court found that the ends of justice were likely to be defeated if the injunction was not granted and, whilst allegations of dishonesty are not of themselves sufficient to warrant the grant of freezing relief (Thane v Tomlinson [2003] EWCA Civ 1272), there was a connection between properly founded allegations of dishonesty and the grant of the relief sought (as per Jarvis Field Press v Chelton [2003] EWHC 2674 (Civ)).  The judge found that Mr Terrill had indicated a willingness to conceal transactions beneficial to himself and that he would be prepared to evade the enforcement of any judgment against him. 

Whilst Mr Selinger had identified the relevant transactions in June 2014, the court held that the delay of over a year did not defeat the equitable injunction.  The judge found that the delay could be justified because Mr Terrill's whereabouts were unknown until he was identified in England, and the joint official liquidators were obliged to seek legal advice, the permission of the creditors' committees, and the assistance of the Cayman court before writing to the English court for assistance. 

Finally, the judge dealt with the question of the strength of the Companies' cross-undertaking in damages in light of their insolvency. Ordinarily with such applications, the applicant must satisfy the court of its ability to provide a cross-undertaking in damages in order to compensate the respondent in the event that it later transpires that the relief ought not to have been granted. On this issue, the judge held that the Companies' insolvency was, in a large part, a consequence of Mr Terrill's activities and so was not dissuaded from granting an injunction by the fact that (despite providing the requisite cross-undertakings in damages) the Companies might not be able to compensate Mr Terrill in the event of the injunction being wrongly awarded.  

Comment

The High Court's decision in this case demonstrates the extent of the court's discretion in the provision of injunctive relief.  Whilst a delay of over a year would be fatal in many freezing order applications, this case serves as a reminder that the courts may still award the remedy if the delay was unavoidable and the relief sought is considered to be the interest of justice.  Furthermore, the court would not allow the insolvency of the applicants (and the corresponding risk to the respondent if the freezing order is wrongly made) to stand in the way of making the order in circumstances where the respondent is in part responsible for that insolvency.  It should be noted, however, that the threshold for a freezing order remains high and applications should be made promptly and with provision for the necessary undertaking for damages in order to have the best chance of success. 

While the judgment does not set out at length the court's assessment of the merits of the underlying claims against the respondent, the perceived culpability of the respondent and nature of the individual retail investors who suffered loss as a result of the transactions in question are likely to have galvanised this robust approach from the Court. We may expect that less leeway will be afforded to applicants in relation to disputes between commercial entities.