Serving up the truth, the whole truth and nothing but the truth?
The Court has reminded us that the duty of full and frank disclosure applies to any application made without notice to the other party. Although this is most typically an issue in applications for injunctions, permission to serve a claim out of the jurisdiction was recently set aside on the grounds of the claimant's failure to disclose to the Court a potential limitation defence to the claim.(1)
The background facts
The Libyan Investment Authority (LIA) brought claims against JP Morgan Markets Limited (JPM), Mr Walid Mohamed Ali Al-Giahmi (a Libyan individual) and Lands Company Limited (his vehicle) in relation to an allegedly corrupt US$200 million derivative transaction concluded between the LIA and Bear Stearns International Limited (which had subsequently been bought by JPM) in November 2007.
The LIA inferred Mr Al-Giahmi's corrupt involvement in the Bear Stearns trade from certain specific acts of bribery and intimidation, which it says it became aware of during previous proceedings brought by the LIA against Société Générale SA in 2014. In the SocGen proceedings, the LIA alleged fraud in relation to US$2.1 billion of different transactions entered into between 2007 and 2010.
The duty of full and frank disclosure in the context of limitation
Full and frank disclosure must be given when applying for injunctive relief, but it applies equally to any without notice application. In this claim, the LIA successfully applied without notice for an order allowing it to serve the claim on Mr Al-Giahmi and Lands out of the jurisdiction. The LIA was subject to the 'golden rule': an applicant for relief without notice must disclose to the Court all matters relevant to the exercise of the Court's discretion. Failure to observe this rule entitles the Court to discharge the order obtained even if the circumstances would otherwise justify the grant of such relief.(2)
The LIA issued the claim in April 2018. The transaction complained of dated from 2007. Consequently, a limitation defence under English law was open to the defendants, since more than 6 years had elapsed since the relevant events. The LIA was aware of this issue and the witness evidence in support of the application did acknowledge that the trade in dispute had been executed in 2007, giving rise to possible limitation defences. However, it dealt exclusively with the Libyan law position, without detailing the position under English law, under which the claim was time barred, subject to the operation of s.32 of the Limitation Act 1980, which extends the limitation period in cases of fraud to six years from the date on which the claimant discovered the fraud or could with reasonable diligence have discovered it.
Mr Al-Giahmi and Lands each challenged jurisdiction, applying to set aside service of the proceedings against them on the basis that the claims of the LIA against each of them stood no real prospect of success as they were time-barred under English law, and on the basis that service should in any event be set aside for a failure on the part of the LIA to comply with its obligation of full and frank disclosure on the without notice paper application for permission to serve out.
Service on Mr Al-Giahmi (in Libya) and Lands (in the Cayman Islands) was set aside and it was found that the claim had no reasonable prospect of success given the time-bar. The judge found that:
- Limitation is not merely a point taken by way of defence: when applying for permission to serve out of the jurisdiction, the LIA knew that limitation was an issue because it had litigated against the same defendant in the SocGen claim, when the defendant had raised a limitation defence. The present claim was brought even later than the SocGen proceedings and so it was obvious that limitation was an issue. The LIA nevertheless did not bring it to the Court's attention and address the likely points of defence.
- However, even had the limitation issue not been as clear-cut, it was undoubtedly a matter which might weigh against the making of the order for permission to serve out of the jurisdiction, as it went to the question of a real prospect of success of the LIA's claims. Thus, had the LIA brought the issue to the Court's attention, it would have weighed heavily on the Court in considering whether to exercise its discretion. The fact it did not amounted to a clear breach of the duty of full and frank disclosure, and of the Commercial Court Guide, and was "a serious failing to provide satisfactory disclosure”.
- The LIA's own assertion as to when it alleged it acquired sufficient knowledge to bring a claim (answering the Libyan law test) was not the benchmark against which limitation was to be judged; and the LIA had not addressed what could have been discovered with the exercise of reasonable diligence. It is not up to a claimant to determine which defences are credible and to put only those before the Court. The purpose of full and frank disclosure is to ensure that the claimant will put before the Court all facts and arguments material to the Court's decision.
- There was accordingly a failure to comply with the Commercial Court Guide, and in light of the previous litigation, it must have been a "conscious decision" not to address the limitation position under English law, and the need for the LIA to rely upon s. 32, and to draw such matters to the attention of the judge. That was held to be a significant aggravating factor.
- The Court also found that whereas interim injunction applications are often made to very tight timescales, the same was not the case in the present claim, which was prepared over some months, and that was a relevant factor to be taken into account in weighing up the adequacy of the full and frank disclosure given.
For the reasons summarised above, the Court set aside service and found that the claims against Lands and Mr Al-Giahmi stood no real prospect of success. Accordingly, the claims against them failed.
The case raises a number of issues for claimants. Applicants must give full and frank disclosure when applying for without notice relief to avoid the wasted costs of fully-contested proceedings after the event. Public policy dictates that defendants, and the courts, should not be burdened with weak cases wrongly brought into the jurisdiction.
Applicants must not 'pick and choose' the issues to highlight to the Court nor rely on defendants to raise matters in their defence when such defences are obvious. This is particularly important in a situation that raises the possibility of a conflict of laws and alternative possibly limitation defences. There was no suggestion in the present case that the applicant's legal representatives set out to, or did, mislead the Court by failing to deal with matters of English law limitation (instead focusing on the Libyan position) but nevertheless the Court set aside service.
(1) Libyan Investment Authority v JP Morgan Markets Ltd, Walid Mohamed Ali Al-Giahmi, Lands Company Limited  EWHC 1452 (Comm)
(2) Knauf UK GmbH v British Gypsum Ltd  1 WLR 1269