Injunction obtained with misleading evidence is discharged

In the recent case of Valbonne Estates Limited v (1) Cityvalue Estates Limited (2) United Homes Limited [2021] EWHC 544 (Ch), Mrs Justice Bacon discharged a pre-action injunction that had been obtained on a without notice basis, on grounds that the injunction had been obtained with misleading evidence.

Summary

  • It is well established that in an application for a without notice injunction the applicant is subject to a duty of full and frank disclosure
  • This requires the applicant to disclose all matters that are material (whether facts or law) to the court in deciding whether to grant the order and, if so, on what terms
  • This duty is ongoing, meaning that the disclosure obligation continues until the first hearing on notice
  • Failure to comply with the duty of full and frank disclosure may result in the order being set aside and costs consequences may follow
  • However, even where there is proof of material non-disclosure justifying immediate discharge of the order, the court retains a discretion to continue it or make a new order on terms

Facts

The matter arises out of the failed transfer of a leasehold interest in a property from Cityvalue Estates Limited (“Cityvalue”) to Valbonne Estates Limited (“Valbonne”) in 2015. Both companies are owned by members of the ultra-orthodox Jewish community in North London. The sale was not completed as a result of difficulties in obtaining consent from the owner of the freehold, the London Borough of Newham. There followed a dispute as to whether the contract had been rescinded. In 2018, having failed to resolve the dispute, it was agreed that it would be subject to arbitration before the Beth Din of the Union of Orthodox Hebrew Congregations consisting of three Jewish halachic judges.

Separately, in 2017, Cityvalue entered into an option agreement with United Homes Limited (“UHL”) (a non-Jewish buyer) giving the latter an option to purchase the property for a far higher sum. This was not discovered by Valbonne until 2019 as part of the arbitration process.

On 1 October 2020, the Beth Din concluded the arbitration with a written decision finding that Valbonne was entitled to complete on the purchase; that it had to provide the completion funds within 28 days; and that Cityvalue was then to transfer the property to Valbonne (the “First Award”). For various reasons, the funds were not transferred by Valbonne within the deadline and on 19 November 2020 there was a further hearing of the Beth Din. An oral decision was given providing that Valbonne should pay £500,000 to the Beth Din by way of completion funds, following which Cityvalue would provide Valbonne with a TR1 (the “Second Award”). The completion funds were transferred to the Beth Din on 23 November 2020, however, no TR1 was forthcoming. On 30 November 2020, Valbonne requested the return of the completion funds from the Beth Din. The funds were duly returned to Valbonne on 1 December 2020.

A further written decision was issued by the Beth Din on 3 December 2020 which stated that Cityvalue had informed it that a TR1 had been signed in favour of a non-Jewish buyer, and that the Beth Din therefore did not have any power to enforce anything in the matter (the “Third Award”).

Injunction

On 10 December 2020, Valbonne filed an application for (and was awarded) an injunction restraining Cityvalue from selling, disposing of, encumbering or otherwise dealing with the property, restraining UHL from acquiring any interest in the property, and restraining both respondents from registering at the Land Registry any dealing with the property that had already taken place.

In respect of this application, Valbonne submitted a witness statement of Mr Halpert (a director of Valbonne) exhibiting a certified translation of the Beth Din arbitration agreement which had been obtained on 8 December. However, the exhibit failed to include a copy of the First Award, nor did the witness statement disclose the existence of either the Second or Third Award. Furthermore, Mr Halpert confirmed that to the best of Valbonne’s knowledge the sale of the property to UHL had not yet occurred, when in fact he had been told that the property had already been sold to UHL.

In a further attempt to mislead the court, Valbonne instructed its Counsel at the hearing that the completion funds had been submitted to the Beth Din, despite the fact that the funds had actually been returned to Valbonne.

In addition, a further witness statement requested by the Court and provided by Valbonne’s solicitor setting out the terms of the Second Award exhibited a document which purported to be a translation of the Second Award dated 30 November 2020 but was actually a fabrication given that the Second Award was delivered orally by the Beth Din on 19 November 2020. Furthermore, the terms of the Second Award were in dispute between the parties, and this fact was not divulged in the witness statement.

Decision to discharge the injunction

Mrs Justice Bacon reached the “inescapable conclusion” that the Court was “seriously misled in what it was told about the Second Award”. Mrs Justice Bacon went on to explain that “this matter cannot be said to be immaterial”. It was stated that the terms of the Second Award were critical to Valbonne’s application, as if it had not met the 28-day deadline imposed by the First Award, then prima facie it had no basis for a claim to enforce the purchase agreement through the present proceedings.

Mrs Justice Bacon stated that she could not accept that the inaccuracy of the information provided to the Court could have been inadvertent or accidental. The fact that the Second Award did not comprise a formal written decision was expressly referenced in correspondence between the parties, and it was also clear from such correspondence that the terms of the Second Award were in dispute.  Furthermore, there was no attempt to immediately correct, explain or apologise for any inaccuracies.

Mrs Justice Bacon went on to examine “whether there is such a compelling case of injustice to Valbonne, if the injunction is discharged, that the court should exercise its discretion to continue or re-grant the injunction notwithstanding the serious breaches of the duty of full and frank disclosure that occurred in this case.” On the basis that the sale of the property to UHL had already taken effect it was concluded that the continuation or re-grant of the injunction would be of no practical effect. In addition, there was an absence of a satisfactory, clearly articulated proprietary claim against UHL.

Consequently, the injunction was discharged and Mrs Justice Bacon declined to re-grant the injunction.

Comment

The duty of full and frank disclosure is a serious and onerous obligation which has to be fulfilled to its fullest extent. If the duty is not complied with properly, then any gains made in a successful interim application may quickly be lost leaving the applicant facing serious costs consequences.

It is essential that there is an assessment whether it is feasible to make an application for an injunction on ‘short-notice’ to a respondent as that reduces risks around not having provided full and frank disclosure given the likely attendance of the respondent at a hearing.   Naturally, that decision has to be weighed against the risk of dissipation by a defendant or disposal of confidential information if they are given advance notice of the injunction application.

Should you require any advice relating to this or other related matters, please do not hesitate to get in touch at hello@tenetlaw.co.uk

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