Case No: 02003642
Neutral Citation Number: [2003] EWHC 1089 (Ch)
IN THE HIGH COURT OF JUSTICE

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday 15 May 2003

Before:
ALAN BOYLE QC sitting as a deputy judge of the Chancery Division
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Between:

THE ARENA CORPORATION LIMITED
(in provisional liquidation) 
Claimant
- and -

PETER SCHROEDER
(also known as Peter James Schroeder and James Schroeder) 
Defendant
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Paul Girolami QC (instructed by Moon Beaver) for the Claimant
A G Bompas QC and Andrew de Mestre (instructed by Berg & Co) for Defendant

Hearing dates: 12, 13, 14 and 17 March 2003

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JUDGMENT

Mr Alan Boyle QC:

INTRODUCTION

1.	This is an application to continue freezing orders made against the Defendant without notice by Peter Smith J on 5 December 2002. The orders were continued on notice by Lindsay J on 16 December 2002 until after judgment on the application. The Claimant now applies to continue the orders until judgment at trial or further order in the meantime.

2.	The proceedings arise out of an alleged fraud on Her Majesty’s Customs & Excise (“HMCE”). Briefly, it is alleged that the Claimant, The Arena Corporation Limited (“Arena”), under the direction of its de facto director the Defendant (“Mr Schroeder”) committed what is known to HMCE as an “excise diversion fraud”. In this type of fraud, a company buys dutiable alcoholic drinks “in bond”, and purports to sell and transport them on a “duty-suspended” basis to European warehouses, when in fact the goods are sold on the black market in the UK without payment of VAT and Excise Duty. The sale usually takes place at a price somewhere between the duty free price and the price at which they would be sold if VAT and Excise Duty had been paid. The proceeds are pocketed in cash and the public purse suffers a major loss. 

3.	It is alleged in this case that Mr Schroeder orchestrated such a fraud through Arena, a company incorporated in the Isle of Man. It is alleged that 18 consignments of alcohol owned by Arena were sent from bonded warehouses in England destined for a bonded warehouse in Belgium known as Transport International Nieuwport (“TIN”), but that those consignments did not reach TIN. It is further alleged that a single consignment was sent to a bonded warehouse in Italy called SERIO Import Export di Gualandris Egenio (“SERIO”) but that this consignment did not arrive either. HMCE alleges that Arena bought the drink in the UK and then sold it illegally in the UK for about £800,000 received in cash in Southend. HMCE also alleges that the purported buyers did not exist, and that Mr Schroeder raised false invoices and other documents to “prove” the existence of sales which were not genuine. Finally, it is alleged that he procured false documents to be sent to the warehouse of despatch purporting to prove, contrary to fact, that the goods had arrived at TIN and SERIO. The amount of unpaid excise duty and VAT has been assessed by HMCE at £1.8 million.

4.	Arena is a company incorporated in the Isle of Man. Its directors belong to a corporate services firm in the Isle of Man. Until recently, Mr Schroeder was not a de jure director of Arena. However, HMCE alleges that he was a de facto director and the controlling influence in its affairs. Mr Schroeder is a Canadian national living in Denmark. 

5.	Having investigated the facts for several months, HMCE took action without notice to Arena or Mr Schroeder. On 5 December 2002, HMCE presented a winding-up petition in respect of Arena and immediately applied without notice for the appointment of a provisional liquidator over Arena. The application was made to Peter Smith J, supported by an affidavit of Ms Helen Marston, an officer in the Civil Asset Recovery Team of HMCE, sworn on 4 December 2002. The affidavit was a substantial document containing 61 numbered paragraphs and an exhibit of 320 pages. I will have to examine this affidavit in detail later. Peter Smith J made the order sought.

6.	Immediately following her appointment, the provisional liquidator, Ms Louise Brittain, a licensed insolvency practitioner, and a partner in Baker Tilley, by the same team as represented HMCE, caused Arena to apply for a without notice freezing order and other relief against Mr Schroeder. The evidence relied on was the same, i.e. the affidavit of Ms Marston. Peter Smith J made that order also. The main part of the order was a freezing injunction preventing Mr Schroeder from disposing of his assets worldwide save to the extent that they exceeded £1.9 million. Mr Schroeder was also ordered to provide information about his assets worldwide, giving the value, location and details of all such assets, and to deliver to Arena’s solicitors all books papers records and other documents of Arena which were within his possession or control. The basis for the claim against Mr Schroeder was that by his actions he had wrongfully procured Arena to be exposed to a liability to HMCE for the duty on the relevant consignments.

7.	In accordance with the directions contained in the freezing order, the proceedings were then served on Mr Schroeder, and the matter came before Lindsay J on notice on 16 December 2002. At that hearing, Mr Schroeder, represented by Mr Bompas QC, contended that the freezing order had been obtained against him on the basis of insufficient and unsubstantiated evidence and that there was material non-disclosure of important facts going to the heart of the applicant’s case. He also contended that such evidence as was before the court was substantially misleading or incorrect and did not justify the grant of the injunction. This case was set out in an 8 page skeleton argument submitted to the court before the hearing on 16 December 2002, and a note handed in at the hearing containing a further 18 points.

8.	By the date of the hearing before Lindsay J, Mr Schroeder had not filed evidence in answer to that relied on by the provisional liquidator of Arena. Mr Bompas QC’s submission was that the defective nature of the evidence was such as to justify the immediate discharge of the without notice order without evidence from his client. It is clear on the authorities that the court has power in an appropriate case to take that step. For his part, Mr Girolami QC, who appeared for Arena, submitted that the matter should be adjourned for a full inter partes hearing with evidence from Mr Schroeder and evidence in reply to that evidence.

9.	Lindsay J. heard argument and in a short judgment held that without evidence from Mr Schroeder it would not be right to set aside the freezing order. He accordingly adjourned the application for a continuation of the freezing order until trial, gave directions for the filing of evidence and continued the freezing order in the meantime. By the date of the hearing before Lindsey J, paragraphs 9 and 10 of Peter Smith J’s order (the disclosure orders) had not been complied with by Mr Schroeder. Lindsey J held that these paragraphs should not be interfered with, and the result was that Mr Schroeder was obliged to comply with them. Accordingly on 20 December 2002, Mr Schroeder swore an affidavit providing the information directed by those paragraphs.

10.	On 16 January 2003, Mr Schroeder filed a 25 page witness statement setting out his detailed answer to the case against him. This was accompanied by 3 exhibits totalling 257 pages. It gave Mr Schroeder’s account of the facts relating to the disputed consignments and criticised Ms Marston’s affidavit for making untrue and unsubstantiated allegations of criminal conduct against him. That evidence was then answered by Arena in a statement of the provisional liquidator Ms Louise Brittain of 7 February 2003, together with a further 817 pages of exhibits. Arena also relied on a statement of Ms Claire Davies dated 6 February 2003. This evidence was then supplemented by a further statement from Ms Brittain of 7 March 2003. No further evidence from Ms Marston herself was filed at that stage explaining the basis on which she had made the statements contained in her original affidavit. In the result, when the matter came before me on 12 March 2003, the evidence and exhibits filled 6 lever arch files. I was very much assisted in my examination of this large amount of material by the written skeleton arguments of both counsel and by their clear and concise oral argument. I should add that Mr Schroeder filed a further witness statement at 1 pm on 12 March 2003 answering various points in Ms Brittain’s witness statement of 7 March 2003.

THE ISSUES ON THE APPLICATION

11.	There are two main issues which I have to decide:

(1)   Whether Arena demonstrates, on the totality of the material now before the court, that this is an appropriate case for the continuation of the freezing order until trial. This turns on whether Arena has shown a good arguable case that Mr Schroeder practised the alleged fraud, and whether Arena has shown a risk that in the absence of the order sought Mr Schroeder would dissipate his assets rendering a later money judgment nugatory.

(2)   Whether there was a material non-disclosure, or a material misrepresentation, of relevant facts on the without notice application on 5 December 2002 such as to disentitle Arena to relief on this application.

12.	I should say at once that I am satisfied that, in the absence of the complaints about non-disclosure and misrepresentation on the without notice application, this would be an appropriate case for the continuation of the freezing order until trial or further order. I am also satisfied that the terms of Ms Marston’s affidavit were such that there was material non-disclosure and misrepresentation of relevant facts on the without notice application. To my mind the real point of difficulty in this case is to determine whether the non-disclosure and misrepresentation which occurred is in all the circumstances of such a nature that Arena should now be penalised by being denied an injunction which would otherwise be granted. Crucial to this determination is an analysis of the principles on which the court acts in such cases, an identification of the various factors which the court can and should take into account in the exercise of its discretion, and an assessment of the weight to be attached to those factors in the circumstances of this case. This is essentially a matter of judgment.

13.	Mr Girolami QC submitted that the right approach was to determine issue (1) first, without reference to the question of non-disclosure or misrepresentation. If having done so the court concluded that there was no case for an injunction on the merits, that would be an end of the matter. If the court concluded that there was a case for an injunction, it would then have to go on to consider whether there was any material non-disclosure or misrepresentation, and if there was, to decide whether in all the circumstances such non-disclosure or misrepresentation was such as to justify the penalty of depriving Arena of an injunction which would otherwise be granted. This approach appears to me to be correct and has the merit of being approved by the Court of Appeal in Kuwait Oil Tanker Company and another v Al Bader and others, unreported, 27 November 1995.

14.	For the purposes of presentation, however, I propose to examine the issues in the following sequence:

(1)   Whether there was material non-disclosure or misrepresentation on the without notice application, and the extent and seriousness of it in the context of the case as it was then presented. This question essentially turns on an examination of the materials placed before the court on 5 December 2002 and an assessment (informed by all the material now available) of whether there was culpable non-disclosure and misrepresentation.

(2)   Whether on all the evidence now available, and absent any non-disclosure and misrepresentation, there is a case for a freezing order. This question essentially turns on whether Arena has now established a good arguable case on the merits and a risk of dissipation of assets. 

(3)   To state the relevant legal principles which the court should apply in deciding whether to grant an injunction until trial in circumstances where there has been non-disclosure or misrepresentation at the without notice stage.

(4)   To identify and assess the weight of the various factors which in the circumstances of this case need to be taken into account in deciding whether now to grant an injunction until trial.

15.	My reason for adopting this course is that I think I am more likely to arrive at a correct understanding and assessment of the factors which should influence me in the exercise of my discretion if I take the issues in the order in which I have stated them. I also consider that my judgment, and the reasons for my final conclusions, are more likely to be intelligible to the reader if I take the course I have outlined. However, before turning to the first main issue I need to say some more about the alleged fraud, and about the events which preceded the without notice application.

THE ALLEGED FRAUD

16.	Excise duty is a tax levied on alcohol the collection of which is prescribed by the European Commission at rates set by the Member States. According to Ms Marston, the duty on a typical lorry load of spirits is approximately £100,000. In addition, VAT is due on the duty inclusive price of the product. On a typical consignment of spirits, the VAT would amount to approximately £25,000. The cost price of the product may be as little as £20,000. The potential illicit profit on the sale of goods on which excise duty and VAT have not been paid is therefore considerable. On a typical consignment of spirits the illicit profit is in the region of at least £50,000.

17.	In the usual type of excise diversion fraud, a duty suspended consignment leaves the despatching bonded warehouse but never arrives at the recipient bonded warehouse. Instead the lorry is taken somewhere where the load can be split into smaller sub-consignments, which are then distributed for home consumption by an informal network of contacts in pubs, clubs and off-licence traders. The sale of the sub-consignments and further sub-sales are typically for cash at prices which are below the usual duty paid price. The profit on the transactions is derived from HMCE’s lost revenues. These sales undermine the collection of revenue to the detriment of the taxpayer, and damage the trade of legitimate businesses. It is clearly in the public interest that this type of activity should be detected and punished and that those who profit from it should be made to yield up their gains.

18.	In order to permit the movement of excise goods within the European Union without duty being payable, a system of registered warehouses has been devised. Movements of alcohol can only occur between bonded warehouses, and each bonded warehouse has a registered warehousekeeper. When alcoholic drinks are manufactured in the UK, duty is suspended until such time as the goods are made available for consumption. The premises of the brewers and distillers are approved by HMCE as “approved warehouses” and goods held there are not liable to duty. Other warehouses approved by HMCE may be also be used for storing or moving goods under duty suspension arrangements. The goods in such approved warehouses in the UK are said to be “in bond”.

19.	For movements of duty-suspended goods within the European Union, a commercial document called an Accompanying Administrative Document (“AAD”) must be raised by the warehouse of despatch. The information to be included on this document is prescribed by the European Commission, and it consists of 4 parts or copies. Copy 1 is retained by the warehouse of despatch. Copies 2, 3 and 4 travel with the goods to the destination warehouse. Copy 2 is retained by the latter warehouse. Copy 3 is returned by the destination warehouse to the despatching warehouse as proof that the destination warehouse has received the goods. Copy 4 is for the use of the tax authorities of the Member State of destination.

20.	In Belgium and Italy, which are the relevant countries in this case, it is a requirement that copy 3 be stamped by the tax authorities with their official stamp prior to return of that copy to the warehouse of despatch. Copy 3 has to be returned to the warehouse of despatch by the 15th day of the month following the month of receipt of the goods at the destination warehouse. If copy 3 of the AAD is not so received, the warehouse of despatch must report this to HMCE. If proof that the goods arrived at their destination is not then furnished within 4 months, the warehouse of despatch becomes liable for the duty on the goods covered by that document.

21.	To practise diversion fraud undetected, therefore, it is necessary for those involved in the fraud to ensure that the warehouse of despatch receives a document which is or appears to be proof that the goods duly arrived at the destination warehouse. To be effective as a cover up of the fraud, such proof would at least require a copy 3 AAD apparently stamped by the destination warehouse. It might also require, in the case of goods apparently consigned to Belgium or Italy, that the copy 3 AAD be stamped by the tax authorities of the destination country. The evidence establishes that those countries require that copy 3 be so stamped, but whether a warehouse of despatch in the UK requires such a stamp before it will regard itself as in possession of proof of arrival of the consignment at the destination warehouse is less clear.

22.	The first of the consignments in issue in this case apparently took place on 23 October 2001, and was the consignment to SERIO. The purported buyer of that consignment, according to the AAD, was Euronet SRL. HMCE contends that the buyer did not exist, and the transaction recorded in the AAD was bogus.

23.	The remaining consignments in issue all took place between 25 January and 2002 and 20 February 2002. There were 17 such consignments. In each case, the destination warehouse was TIN, and the purported buyer was a Maltese company called Celers. HMCE contends that Celers did not exist and that the transactions recorded in the AADs were bogus. In 13 of these cases, the warehouse of despatch in the UK was London Bridge Vaults (“LBV”). In the other 4, the warehouse of despatch was Rangefield. The transport was provided by either Shelley Transport or Seabrook & Smith. 16 of the TIN consignments are shown on a schedule called “Worswick A1” at p 160-3 of the exhibit to Ms Marston’s affidavit (numbers 1-9 and 11-17). The remaining consignment is number 15 on an HMCE schedule at p 126 of that exhibit.

EVENTS PRIOR TO THE COMMENCEMENT OF PROCEEDINGS

24.	HMCE began to investigate Arena’s various consignments to TIN at least before 2 May 2002. On that date, Mr Kevin Davies, an officer of the law enforcement division of HMCE, visited an official of the Customs and Excise Control in Belgium called Mr Norbert Roothaert. Mr Davies had with him schedule Worswick A1 and the original AADs referred to on that schedule. Presumably, these were the copy 3 AADs obtained from the warehouse of despatch, either LBV or Rangefield. According to a statement later made by Mr Roothaert, he checked the AADs held at the TIN bond, and all of the AADs held at the local customs office in Nieuwpoort. He could find only 3 of the 20 AADs on the schedule (numbers 10, 18 and 19), and he provided Mr Davies with copies of these, together with the documents recording the onward movement of these goods. He also identified from the records at the customs office at Nieuwpoort 2 further AADs for goods delivered to TIN on behalf of Arena which were not listed on schedule Worswick A1.

25.	On 29 May 2002, Mr Roothaert signed a “Proces-verbaal van bevinding” (which has been translated as “official report of findings”) recording what happened on 2 May 2002, and the results of the investigations which he made on that date. This document was one of the main pieces evidence relied on by HMCE and the provisional liquidator at the without notice hearing on 5 December 2002. It remains the central plank of Arena’s case that the goods in question did not arrive at TIN.

26.	Mr Roothaert also signed a version of the Proces-verbaal van bevinding in English, which was included in the exhibit to Ms Marston’s affidavit (pp 197 and 196, the pages being reversed in the exhibit). Mr Roothaert began by saying that he had 31 years’ experience as a customs officer for the Customs and Excise Administration in Belgium, and that he was the manager of a team who controlled a number of bonded warehouses in the local area. He said that his office made regular checks on the activities of the warehouses and examined all their paperwork. At least once a year, they undertook a physical stock check of the goods held in each bonded warehouse.

27.	As regards the TIN warehouse itself, Mr Roothaert said that regular checks were made at the premises from the date it started trading, namely 11 November 2001, and that he had personally visited the warehouse on a number of occasions. He went on:

“We have maintained regular control over the warehouse and we have a file containing all of the AADs and AGD’s provided to Customs and Excise which relate to the movement of excise suspended goods to and from this warehouse.”

28.	Mr Roothaert further says:

“I can state that from examination of the copy AADs held at the Nieuwpoort Customs office, and the records held at the bond, these five AADs are the only AADs relating to goods that arrived at the TIN bonded warehouse in Nieuwpoort for Arena. The other AADs that were shown to me by Kevin Davies, supposed to represent shipments by Arena to TIN, are false. This means that all of the AADs except the five noted above as ROOTHAERT 0002, 4, 6, 8, & 10, and  which are for goods that did not arrive at the TIN bonded warehouse. 

I have obtained an imprint of the stamp used in the TIN bond to authenticate AADs, found on the premises at the TIN bond when I visited on 2nd May 2002. I have presented Keven Davies with a copy of this imprint, identified as ‘N ROOTHAERT 0024.’

On Wednesday 8th May 2002, following a report prepared by myself the TIN bonded warehouse had its licence to trade removed. The principal reason for this was that the bond owners had failed to keep proper records and, in particular, failed to keep a stock book. This record is for recording every movement of goods into and out of the bond and is a requirement under Belgian law.”

29.	It will be noted that the basis for Mr Roothaert’s conclusion that the goods had not arrived at TIN was his examination of the records at TIN and the records at Nieuwpoort customs office. It was not based on a comparison of the TIN stamps on the AADs brought by Mr Davies with the imprint of the Stamp made by Mr Roothaert on his visit to TIN on 2 May 2002, although he records that he furnished Mr Davies with that imprint. It will also be noted that Mr Roothaert records that TIN’s licence to trade was revoked on the basis of a report which he himself had prepared for failure to keep proper records. Mr Roothaert evidently did not regard this fact as undermining his conclusion that the goods in question did not arrive at TIN.

30.	The three AADs which Mr Roothaert said he had found were those numbered 10, 18 and 19 on Worswick A1. The two additional AADs for goods consigned by Arena to TIN mentioned by Mr Roothaert were not on Worswick A1. There was a further AAD on Worswick A1, number 20, which HMCE later accepted had arrived at TIN, after evidence to that effect was furnished by Mr Schroeder.

31.	As regards SERIO, on 9 July 2002 HMCE obtained evidence before the public prosecutor in Bergamo from Mr Angelini Giuseppe, the director of the Bergamo Ufficio Tecnico di Finanza (“UTF”) which is the office of the customs agency which checks the storage and transportation of products subject to excise duty. Mr Giuseppe deposed that SERIO had operated a licensed bonded warehouse from 13 September 2000. However, an inspection had taken place on 22 June 2001, when it was found that the warehouse was closed. The owner of the premises was questioned, and it was ascertained that the premises had not been available to SERIO for an unspecified time prior to that date. This led to the revocation of SERIO’s licence on 29 June 2001. The significance of this was that the SERIO consignment in issue was shown as leaving LBV on 23 October 2001 and as arriving at SERIO on 26 October 2001. HMCE relied on the obvious fact that the consignment could not have arrived at a warehouse which had closed at least 4 months earlier.

32.	After making various further inquiries, HMCE raised two assessments for excise duty and served these on Arena on 14 August 2002 (Marston exhibit, pp 124-128 and pp 130-137). The first assessment was for £1,458,213 and related to the TIN consignments. HMCE contended that the goods had not arrived at their destination and that this constituted what is termed an “excise duty point” under the Excise Duty Points (Duty Suspended Movement of Excise Goods) Regulations 2001, of which they had learned on 2 May 2002. This was clearly a reference to the visit of Mr Davies to Mr Roothaert in Nieuwpoort, Belgium. The letter attached a “schedule of duty suspended movements not received at Transport International Nieuwpoort”, which listed 20 consignments. These correspond to numbers 1-9, 11-17 and 20 on Worswick A1. The 20 consignments so listed included 3 items which were listed as a single consignment on Worswick A1, so that the true total of the consignments on the assessment schedule was 18 rather than 20. These 18 were later reduced to 17 when evidence was produced that item 20 on Worswick A1 related to a consignment that had arrived at its destination. 

33.	The second assessment was for £101,340 and related to the SERIO consignment. This stated that HMCE had established that the consignment was unlawfully removed from LBV since the destination warehouse (SERIO Import Export) was not authorised by the Italian fiscal authorities to receive duty suspended excise product.

34.	At the same as the excise duty assessments, a demand for VAT in the sum of £327,135 was made.

35.	Following service of the assessments, Mr Schroeder instructed David Hanman, a solicitor in Manchester, to represent him and Arena. On 5 September 2002, Mr Hanman spoke to Mr Braham of HMCE, confirming the conversation in a letter of the same date (p 194 of PJS 2). Mr Braham told Mr Hanman that he was not prepared to indicate what were the intentions of HMCE. Mr Hanman stated that if HMCE suspected that Mr Schroeder had been involved in any kind of criminal activity then they should say so. He went on:

“It may well be he will instruct me that he would be willing to come to the UK to discuss with you any concerns you have. I just don’t know at the moment. Until the Crown make their intentions clear and you have indicated you will make those intentions clear in the fullness of time there is very little I can do.”

36.	In fact, HMCE took further action soon afterwards. This took the form of a request to the Danish police to raid Mr Schroeder’s home in Denmark and seize all papers relating to him and Arena. The raid took place on 1 October 2002, and the police seized, and made available to HMCE, some 60 lever arch files of documents.

37.	The raid was followed on 2 October 2002 by a further letter from Mr Hanman on behalf of Mr Schroeder asking inter alia whether the Danish judiciary had been told that he had been in correspondence with HMCE with a view to arranging Mr Schroeder’s voluntary attendance with HMCE, and whether the correspondence had been put before the Danish judiciary. Mr Hanman wrote again on 7 October 2002, stating that he understood that Mr Braham was going to Denmark to view the documents and saying “this would be an ideal opportunity to put any questions you wish to Mr Schroeder”. This offer was not taken up, and Mr Hanman repeated the suggestion of an interview in Denmark in a fax dated 5 November 2002. Ms Wantstall of HMCE wrote on 21 November 2002 to Mr Hanman saying that officers were in Copenhagen for an examination of the property uplifted by the Danish police from Mr Schroeder, and that pre-interview disclosure would include matters arising from that examination. She said that once the pre-interview disclosure document had been updated she would forward it so that he could be aware of the matters about which HMCE would wish to question Mr Schroeder.

38.	On 14 November 2002, Mr Hanman launched appeals against the assessments, writing on that date to the VAT and Duties Tribunals, and asking for the matter to be listed for immediate hearing. He sent a copy of his letter and enclosure to Miss Wanstall at HMCE. The notice of appeal itself stated that the ground of the appeal was: “duty not payable by Arena”. Ms Wanstall responded on 19 November 2002 confirming receipt of the appeal documents. The officer of the VAT and Duties Tribunals acknowledged receipt on 15 November 2002.

THE WITHOUT-NOTICE APPLICATION

39.	HMCE now prepared to make the without notice applications in the present proceedings. For this purpose, an affidavit was prepared by Ms Marston. That affidavit, which was sworn on 4 December 2002, constitutes the main material relied on by Mr Schroeder for saying that HMCE was guilty of non-disclosure and misrepresentation of material facts. The affidavit contained a summary of the case (paragraph 3), a description of excise duty (paragraphs 4 - 10), a description of the regime of approved warehouses (paragraphs 11 - 23), an account of the activities of Arena (paragraphs 24 - 29), a summary of the evidence relating to the goods purportedly consigned to TIN (paragraphs 30 -36), a summary of the evidence relating to the goods purportedly consigned to SERIO (paragraphs 37-40), a section relating to the assessments (paragraphs 41- 44), a description of the current position (paragraphs 45-46), a section on the risk of dissipation of assets (paragraphs 47-50), and sections on service, the undertaking in damages, Mr Schroeder’s assets, rule 4.25 of the insolvency rules 1986, arguments which might be raised against the application, and conclusion.

40.	The basic case asserted in Ms Marston’s affidavit was that Mr Schroeder through Arena had instigated an excise diversion fraud in respect of the TIN and SERIO consignments, that Mr Schroeder was not a man to be trusted, and that it was accordingly appropriate to grant a without notice freezing order and disclosure order. In the case of the TIN consignments, this case was supported by the evidence of Mr Roothaert, which was not only exhibited, but summarised in paragraphs 34 and 35 of the affidavit. In the case of the SERIO consignment, the case was supported by the evidence of Mr Giuseppe, which was summarised in paragraphs 37 - 40.

41.	However, that basic case was embellished by a number of additional allegations which were incorrect, and failures to disclose significant facts. Of the numerous complaints made by Mr Bompas QC about Ms Marston’s affidavit, the most significant were in summary as follows:

(1)   Ms Marston alleged that Mr Schroeder was involved in various other criminal activities for which he was known to various authorities and which, in one case, he had actually admitted. Some of these allegations were incorrect, and unsupported by any material on the basis of which they could properly be made. Other allegations were supported by some material, which was not identified. Linked to these allegations was a statement that Mr Schroeder had used three different names, implying that he was someone who resorted to the use of aliases.

(2)   Ms Marston alleged that the TIN stamps on the copy 3 AADs returned to the warehouse of despatch were forgeries procured by Mr Schroeder. In fact, analysis during the hearing before me showed that the TIN stamps alleged by Ms Marston to be forgeries were in all probability genuine, in the sense that the stamps on the copy 3 AADs had been made by the stamp with which Mr Roothaert had made an impression on 2 May 2002. The material which showed this was in the possession of HMCE at the time Ms Marston swore her affidavit.

(3)   Ms Marston alleged that Arena had been involved in the creation of false AADs and the stamping on them of forged customs stamps. In fact, the copy 3 AADs in respect of the TIN consignments had no Belgian customs stamps at all.

(4)   Ms Marston made no reference to the fact that HMCE had procured the Danish police to raid Mr Schroeder’s home in Denmark nor to the fact that they had uplifted 60 lever arch files of documents. She herself was unaware of that raid at the time she swore her affidavit. However, she deposed to a belief that Arena would destroy or conceal relevant books and records as a ground for the relief sought, which included orders for the delivery up of all books papers records or other documents of Arena which were within his possession or control.

(5)   Ms Marston failed to refer to or exhibit the correspondence which showed that Mr Schroeder was willing to be interviewed by HMCE in Denmark.

(6)   Ms Marston failed to inform the court that it was HMCE’s intention to commence bankruptcy proceedings against Mr Schroeder in Denmark and to take action against him in Gibraltar.

42.	Mr Bompas QC relied on various further matters which he said constituted material non-disclosure or misrepresentation. I will examine these after dealing with the matters which appear to me to be of most significance.

(1) MR SCHROEDER’S ALLEGED CRIMINAL ACTIVITIES
Alleged involvement in money laundering, cigarette smuggling and diversion fraud

43.	In paragraph 3 of her affidavit, Ms Marston said this:

“Summary

[Arena] is a company incorporated in the Isle of Man but which has no business or assets there. It is owned and controlled by Mr Schroeder, who is or appears to be resident in Denmark, and who is known to the authorities in Northern Ireland, Belgium, Denmark and the Isle of Man as well as here. It is believed that he is involved in money laundering, serious cigarette smuggling and, as here, diversion fraud. He is believed to reside at Valbo Alle 4 2665 Vallenbank Stand, Denmark and his registration at that address was confirmed last week by our solicitors’ Danish colleagues who checked the telephone listing. Mr Schroeder is listed variously as Peter Schroeder, Peter James Schroeder . and James Schroeder; with the same telephone and mobile numbers.” [Emphasis added].

44.	In paragraph 47, she said this:

“Risk of dissipation

I consider that, by his conduct in relation to the affairs of TAC, and because of what is known about him, Peter Schroeder has shown himself to be a person who cannot be trusted. I believe that this is clearly evidenced by the steps which TAC have been taken [sic] to obtain false AADs. HMCE is gravely concerned about the fact that Peter Schroeder has provided false information to HMCE. He has admitted money laundering in the context of another matter involving cigarette smuggling There are however no criminal proceedings pending against him in this jurisdiction ...” [Emphasis added].

45.	It is clear from paragraph 3 that the context in which it was alleged that Mr Schroeder was “known to the authorities” was involvement in money laundering, serious cigarette smuggling and diversion fraud, and that as regards money laundering reliance was based on an alleged admission by Mr Schroeder of his involvement in a case of cigarette smuggling. It is also clear that these alleged facts were relied on for the purpose of showing that Mr Schroeder was not a person who could be trusted, hence the reference to “what is known about him” in the opening sentence of paragraph 47. However, Ms Marston provided no grounds for the alleged belief nor any evidence about the alleged admission.

46.	Ms Marston did not even depose that it was her own belief that Mr Schroeder was involved in money laundering, serious cigarette smuggling and diversion fraud. The expression “it is believed” is a wholly inappropriate expression to use in evidence of this nature, especially when the allegations are of criminal activity. However, by swearing the affidavit in this form, Ms Marston was necessarily representing to the court that grounds for the belief to which she referred genuinely existed and were such as to support the generalised allegations of criminal activity relied on.

47.	Peter Smith J clearly had these passages in the affidavit in mind when the matter came before him on 5 December 2002. According to the note of the hearing, he indicated that he had read the affidavit but not the exhibits. The note goes on:

“The Judge said that, although it appeared Mr Schroeder was well known to the Excise authorities here and in other jurisdictions, the evidence of Mrs Marston was something of a summary of a fraud which Customs believed had occurred and that he was being asked to take a lot on trust.”

This must be or include a reference to paragraph 3 of the affidavit.

48.	Mr Bompas QC complained about these unfounded allegations being made against his client at the hearing before Lindsay J on 16 December 2002 (paragraph 8.6 and 8.8 of his skeleton and paragraphs 12 and 13 of his note) and Mr Schroeder denied them in his witness statement of 16 January 2003 (paragraph 64). A response was provided by Ms Brittain in her witness statement of 7 February 2003. However it was not until the last day of the hearing before me that a statement of Ms Marston herself was put in providing her explanation of how she came to make the original allegations.

Northern Ireland

49.	As regards Northern Ireland, the effect of the evidence now before the court is that the authorities believe that a carousel fraud was practised there in which money was laundered through an unregistered bureau de change, whose owner had already been convicted of money laundering. Arena had received a bank draft from a Mr Silvio Buttigieg through the unregistered bureau, and Mr Buttigieg and others are due to stand trial shortly in Northern Ireland. No charges have been brought against Mr Schroeder himself and he has provided a statement to the prosecution. It was these facts which Ms Marston now says formed the basis for the statement in her original affidavit that Mr Schroeder was known to the authorities in Northern Ireland. She says that her information came from law enforcement officers at HMCE, apparently from Mr Nick Eatough and Mr Dan Aldrich. She amended her draft affidavit as she gained information from these officers, but kept no separate note of what she was told and when. She admits that the statement that Mr Schroeder had admitted money laundering was wrong and apologises. However, she says that this was her genuine belief and understanding at the time she swore her affidavit.

50.	In my judgment, the statements made by Ms Marston that Mr Schroeder was believed to be involved in money laundering and that he had admitted money laundering were highly prejudicial and such as to convey a misleading impression to the court. They were clearly inserted in the affidavit in order to create the impression that Mr Schroeder himself was involved in money laundering not in the sense that he was innocently caught up in money laundering activity but in the sense that he was believed to be an active participant. If all that Ms Marston intended to convey was that he was an innocent participant this should have been clearly stated, or the statement not made at all. The grounds for the belief to which she deposed should have been clearly stated, and the source of the information identified, so that the court could assess what weight to give to the evidence. Had these essential disciplines been observed, it would have become clear that there were in fact no grounds on which the objectionable statements could be made, and they would not have been made. In this connection I note that paragraph 1 of the affidavit includes the following: “The matters described in this Affidavit are within my own knowledge and are true, save where expressly stated, in which case I state the source of my information and believe the same to be true”. The prejudicial statements in question were not within Ms Marston’s knowledge, and the source of her information was not stated.

51.	I do not hold that Ms Marston deliberately included these statements in her affidavit knowing them to be false: but it is clear from her own evidence that she did not in fact have in her possession any proper grounds on which they could be put before the court.

Belgium

52.	In paragraph 3 of her affidavit, Ms Marston also said that Mr Schroeder was known to the authorities in Belgium. The grounds for this were not stated. According to Ms Brittain’s later witness statement, Mr Schroeder’s name is known to the cigarette smuggling task force in the EC Commission in Brussels. A member of that task force, Mr Gordillo, says that Mr Schroeder has carried out thousands of transactions in cigarettes in the last three to four years and that the sheer volume of his turnover in cigarettes is suspicious. Ms Marston says that this confirms reports of conversations which officers in the law enforcement branch of HMCE had with other authorities which they reported to her prior to 5 December 2002.

53.	Clearly, if the statement that Mr Schroeder was known to the authorities in Belgium was to be included in the original affidavit, Ms Marston should have stated that Mr Etough and Mr Aldrich had spoken to Mr Gordillo and have stated the information provided by Mr Gordillo to them, and by them to her. The court would then have been aware both of the multiple hearsay nature of the evidence and its tenuous character, and would probably have attached little weight to it. However, in this case there were at least some grounds, albeit unstated, on the basis of which the statement was made.

Denmark

54.	Ms Marston also said that Mr Schroeder was known to the authorities in Denmark. The grounds for this were not stated either. In fact, the only reason that Mr Schroeder was known to the authorities in Denmark was that HMCE had sought the assistance of those authorities in connection with the alleged fraud which is the subject matter of these proceedings, and had raided his home for documents. No evidence of any separate activity on the part of Mr Schroeder in Denmark has been identified in the evidence as activity for which he is known to the Danish authorities, and which formed the basis for Ms Marston’s statement.

55.	Ms Marston, however, was unaware that officers in the law enforcement department of HMCE had procured the raid, or that it had taken place. The first she knew of those events was 17 December 2002, when she received by e mail a copy of Ms Wanstell’s letter of 21 November 2002 to Mr Hanman (paragraph 7 of her 17 March 2003 statement). It must follow that she included her reference to Denmark on the basis of some generalised statement made to her by officers in the law enforcement department of HMCE without checking the basis for that statement. Had she made the inquiries which were needed before putting in any reference to Denmark, she would have learned the relevant facts and would have ensured that her affidavit conveyed those facts accurately. As it was, the reference to Denmark was in my judgment such as to convey a misleading, impression, albeit not deliberately.

Isle of Man

56.	Finally, Ms Marston said that Mr Schroeder was known to the authorities in the Isle of Man. Again, the grounds for this were not stated. According to Ms Brittain’s later witness statement, Mr Simon Kirby, an officer of the Manx Customs, was examining the VAT position of Arena, and in the course of doing so recognised his name from previous criminal investigations in the United Kingdom. According to Mr Kirby, a Mr Golden was convicted of diversion fraud involving the supply of cigarettes, and the supplier of the cigarettes was Mr Schroeder. Mr Schroeder was not resident in the United Kingdom and was not prosecuted. Ms Marston says that this confirms reports of conversations which officers in the law enforcement branch of HMCE had which they reported to her prior to 5 December 2002.

57.	Clearly, if the statement that Mr Schroeder was known to the authorities in the Isle of Man was to be included in the original affidavit, Ms Marston should have stated that Mr Etough and Mr Aldrich had spoken to Mr Kirby and have given the information provided by Mr Kirby to them, and by them to her. Once again, the court would then have been aware both of the multiple hearsay nature of the evidence and its tenuous character, and would probably have attached little weight to it. However, in this case there were at least some grounds, albeit unstated, on the basis of which the statement was made.

Mr Schroeder’s alleged aliases

58.	The proceedings have been brought against “Peter Schroeder (also known as Peter James Schroeder and James Schroeder)”. The basis for this was the last sentence of paragraph 3 of Ms Marston’s affidavit, quoted in paragraph 43 above. Mr Schroeder’s complaint is that the evidence was framed in this way in order to convey to the court that Mr Schroeder was an unreliable or shifty person who resorted to the use of aliases. The matter was also referred to in the section of Ms Marston’s affidavit dealing with the risk of dissipation, and HMCE’s case that Mr Schroeder was not to be trusted (see paragraphs 47 and 50) Ms Marston says:

“Enquiries in Denmark show Peter Schroeder lives at Valbo Alle 4, 2665 Vallenbank Stand, Denmark. Enquiries by our Danish lawyers show him registered at that address as ‘Peter Schroeder’, ‘Peter James Schroeder’ and ‘James Schroeder’.”

59.	That this was the impression intended to be conveyed is reinforced by Moon Beaver’s letter of 18 December 2002 on this topic, in which they justified the way in which the facts had been presented to Peter Smith J by saying this:

“In relation to his name, he is variously registered in Denmark as Peter Schroeder, Peter James Schroeder and James Schroeder at Valbo Alle 4, with the same ‘phone numbers. For the purposes of identifying your client for service, it was wholly appropriate to specify the various names under which he has chosen to register his residence.”

Ms Brittain makes the same point in paragraph 7 of her witness statement.

60.	The evidence on which Ms Marston based herself derived from an internet search carried out by Mr Ole Borch on 22 November 2002 at a site called www.krak.dk. This search threw up 4 hits: Schroeder, James; Schroeder, Peter; and Schroeder, Peter James (twice). Mr Borch concluded in his e mail:

Mr Schroeder has registered himself under peter S, James S and Peter James S. And registered 4 different phone numbers, 3 mobile phones and 1 ordinary line.”

It is clear that the information obtained was the result of the way in which the database was organised and had nothing to do with any action on the part of Mr Schroeder himself, who had not “registered himself’ in different ways. Mr Borch made an error which was then carried into Ms Marston’s affidavit.

61.	Although the error should clearly not have been made, it is at least clear in this instance how it came to be made. The incident appears to me to be of little materiality on its own, although it is a matter to take into account in an overall assessment of the nature and quality of the evidence placed before Peter Smith J.

(2) ALLEGED FORGERY OF THE TIN STAMPS

62.	Ms Marston alleged in her affidavit that the TIN stamps on the copy 3 AADs returned to the warehouse of despatch were forgeries procured by Mr Schroeder, She refers to this point in a number of paragraphs. At paragraph 3.1, which forms part of the summary, she says:

“... In order to create the impression that goods were being sold and moved to bonded warehouses in the EU, [Arena] has been involved in the creation of false documents. In particular, in order for a movement of goods to qualify for duty-suspended treatment the relevant regulations require the use of ‘accompanying administrative documents’ (AADs) which evidence and justify the relevant duty suspended movement. [Arena] had been involved in the creation of false AADs in and the stamping on them of forged customs stamps.”

At paragraph 22, she describes the method used in the usual type of diversion fraud:

“From my experience, I can say that AADs in respect of Duty suspended goods unlawfully diverted onto the UK home market (without payment of UK Duty and VAT), are normally returned to the [warehouse of despatch] bearing false stamps and signatures. This is to avoid official attention being drawn to these removals.”

At paragraph 28, she says:

“From the records which relate to goods owned by [Arena], it appears that the 18 TIN consignments were declared as being exported to TIN in Belgium between the 24th January 2002 and the 11th April 2002. HMCE believe that the 18 Consignments were bogus and that the relevant AADs were fraudulently created ...”

At paragraph 31 she says:

“Part C of the AAD [page 168] is endorsed with a stamp which purports to be that of TIN …”

At paragraph 36 she says:

“Mr Roothaert has obtained a print from the stamp used at the TIN warehouse to stamp the AAD documents on arrival. This print is produced to his statement and shown at page 166a of my exhibit. It can be seen that there are significant differences between the true stamp and the one that appears on AADO2/0012 at page 167.”

At paragraph 40, she says:

“It is quite clear that none the product covered by the AADs (save AAD 004/43) have been received at their intended destinations and the AADs have been discharged by false stamps.”

At paragraph 43, she says:

“In respect of the relevant Consignments which have been the subject of investigation to date, it has been determined that approximately £1,823,605.10 of Duty and VAT net of AAD 004/03, has been fraudulently evaded using forged documentation.”

At paragraph 47, she says:

“I consider that, by his conduct in relation to the affairs of [Arena] ... Peter Schroeder has shown himself to be a person who cannot be trusted. I believe that this is clearly evidenced by the steps which [Arena] have been taken [sic] to obtain false AADs. HMCE is gravely concerned about the fact that Peter Schroeder had provided false information to HMCE ...”

63.	These passages taken together clearly show that it was the case of HMCE that the AADs bore false stamps, which did not correspond to the stamp in use at TIN at the relevant time; that this evidence served to support the case that a diversion fraud occurred in this case; and that Mr Schroeder must have procured the forgery as part of the fraud. Part of the basis for these allegations was the comparison which Ms Marston said she had done between the print taken by Mr Roothaert at TIN on 2 May 2002 and the stamp on one of the AADs (AAD 02/0012 at page 167) and the significant differences which she claimed to have identified between the true stamp and the one on that AAD.

64.	The copy of the impression made by the TIN stamp which Ms Marston exhibited to her affidavit, and on which she relied in making the foregoing comparison, was a copy of a fax of the original document transmitted to her on 3 December 2002. In a letter dated 23 December 2002, Mr Schroeder’s solicitors challenged Ms Marston’s assertion that there were differences between that faxed copy and the AAD and asked to see the original prior to its transmission by fax. This request was not complied with notwithstanding no less than 4 reminders in correspondence. The position at the outset of the hearing before me remained that the only evidence before the court was the copy of the fax. Mr Bompas QC explained these points to me in his submissions on 13 March 2003.

65.	On 14 March 2003, which was the third day of the hearing, Mr Girolami QC told me that he had now obtained and had in court the originals of the AADs in issue, together with the original of the impression made by Mr Roothaert of the TIN stamp on 2 May 2002. It was immediately apparent, and Mr Girolami QC accepted, that the faxed copy relied on by Ms Marston was not a reliable representation of the original impression of the stamp, and that the correspondence between the original AAD stamps and the impression made by Mr Roothaert was extremely close. Moreover, the original impression made by Mr Roothaert was itself held by the law enforcement department of HMCE.

66.	The effect of this was to destroy the case that comparison of the TIN stamp with AAD 02/00 12 showed significant differences and was evidence of forgery. The analysis performed by Mr Girolami QC showed that of the 17 TIN AADs in issue, 9 bore a stamp which corresponded to the stamp of which Mr Roothaert made an impression on 2 May 2002. The remaining 7 AADs bore a blue stamp which was plainly different from the one found by Mr Roothaert. All of these facts could and should have been ascertained by Ms Marston before she swore her original affidavit. If that affidavit was to contain specific allegations that the TIN stamps on the 17 AADs in issue did not correspond to the TIN stamp seen by Mr Roothaert, and that Mr Schroeder procured the forgery of the TIN stamp on those AADs, she should have checked all of the stamps against the best available copy of the impression made by Mr Roothaert. It would then have been clear to her, as it was to Mr Girolami QC and the court on 14 March 2003, that the point she took in paragraph 36 was false. Whether she could have made a similar case in respect of the 7 AADs with the blue stamp is doubtful in the absence of further evidence showing that TIN did not have two different stamps, a point not covered in Mr Roothaert’s statement.

67.	On 17 March 2003, which was the last day of the hearing, Ms Marston put in an additional statement. This confirmed the matters explained by Mr Girolami QC on 14 March 2003. In reference to the faxed copy of the Roothaert impression, she says:

“When I looked at the document which I received (exhibited at 166a) and compared it with the stamps on the copy AADs which I had, it did look different and I remember having the belief that the stamps were forged although I cannot now the source [sic] of the belief and whether it was an LE Officer and if so whom. The fact that the faxed stamp did look different added to that belief.”

68.	There is no evidence from any law enforcement officer at HMCE as to whether anyone in that department performed a comparison between the original impression made by Mr Roothaert and the AADs, or whether any such officer concluded that they were different and that this was indicative of forgery, or whether any such officer communicated any such belief to Ms Marston. Notwithstanding the last sentence of the passage quoted above, it appears to me that Ms Marston formed her belief simply on the basis of a comparison of the faxed version of the Roothaert impression and one of the copy AADs.

69.	In my judgment, Ms Marston made a serious error in presenting the evidence on this point in the way in which she did. The result was that the court was told that there was specific evidence of forgery in the form of a discrepancy between the original stamp and one of the stamped AADs when a proper analysis would have shown that there was no such evidence. The relevant material comprised the original Roothaert impression and the original AADs, all of which were in the possession of HMCE but none of which were examined by Ms Marston before she swore her affidavit. Nor, apparently, was that material examined by anyone else at HMCE before the evidence on this point came to be put before the court. This is an unacceptable state of affairs, given the seriousness of the allegations, and the time (several months) during which Ms Marston was involved in the investigation of Arena’s activities (see paragraph 24 of her affidavit).

70.	I do not intend to indicate that the fact that apparently genuine TIN stamps appear on 9 of the 17 AADs in issue (and may depending on further evidence yet to be obtained appear on the remaining 7 AADs) demonstrates that there was no diversion fraud. The case that there was a diversion fraud rests first and foremost on the fact that the goods did not arrive, a conclusion for which there is evidence in the form of Mr Roothaert’s statement. It is clearly possible that actual impressions of the TIN stamp, or both TIN stamps if there were two of them, were obtained on these AADs by illicit means, without the goods having arrived at TIN. But I am concerned for present purposes not with the case which might have been presented to Peter Smith J, but with the case which was actually presented. That case included an unfounded assertion of a discrepancy between the true TIN stamp and the stamp on one of the AADs as evidence of forgery, and this assertion formed part of the evidence on the basis of which the court was asked to conclude that there was a prima facie case of diversion fraud.

(3) ALLEGED FORGERY OF CUSTOMS STAMPS

71.	At paragraph 3.1, already quoted more fully above, Ms Marston says:

[Arena] had been involved in the creation of false AADs in [sic] stamping on them of forged customs stamps.” [Emphasis added]

At paragraph 17, she pointed out that Belgium had adopted the provision for the tax authorities of a Member State to stamp the copy 3 with their official stamp prior to return of the AAD to the warehouse of despatch.

At paragraph 22, she says:

“... AADs in respect of Duty suspended goods unlawfully diverted onto the UK market (without payment of UK Duty and VAT) are normally returned to the [warehouse of despatch] bearing false stamps ...”

At paragraph 26, she says:

“Information supplied to HMCE by the Ministry of Finance at Customs and Excise Control in Poperinge, Belgium confirms that the goods did not arrive at the TIN tax warehouse and that the AADs documents representing consignments from [Arena] were false.”

At paragraph 28, she says:

“HMCE believe that the 18 Consignments were bogus and that the relevant AADs were fraudulently created.”

At paragraph 31, she says:

“The Court will note from the AAD that the details of the consignment, the haulier and the [destination warehouse’s] excise number (BE/AC/G1/1233) are marked upon the AAD. Part C of the AAD [page 168] is endorsed with a stamp which purports to be that of TIN. Furthermore the AAD purports to show that it has been presented to the Belgian Tax Authorities, but it bears no official Customs stamps.” [Emphasis added].

72.	There was debate before me about the effect of the italicised passage in the above quotation. Mr Bompas QC submitted that it suggested that the document bore a forged indication that it had been produced to the customs office in Belgium, and that this was said in order to support the case explicitly made in paragraph 3.1 that forged customs stamps had been placed on the AADs. Mr Girolami QC submitted that the passage in paragraph 31 is saying no more than that the AADs do not bear Belgian customs stamps, and that when read with paragraph 17, which explains the system of presentation to tax authorities locally, it is not an allegation that the TIN AADs bore forged customs stamps.

73.	In my judgment, the case being made was that Arena had been involved in the creation of false AADs and the stamping on them of forged customs stamps, because this allegation is explicitly made by Ms Marston in paragraph 3.1, as part of her summary. Paragraph 31, which relates to only one of the AADs in issue, has to be read in that context. By using the words “purports” and “official”, Ms Marston was to my mind conveying that that AAD contained some false indication that it had been presented to customs in Belgium, but did not have an official Belgian customs stamp on it.

74.	The facts were that of the Belgian AADs in issue, 4 were from Rangefield and 13 from LBV. The Rangefield AADs were printed forms which contained space at the end for the receiving warehouse to sign for the goods, by completing the name of signatory, the name of the company, the place and date and actual signature. Beneath that, the form contains further spaces for the name and address of the fiscal authority or customs office to be completed, and for the endorsement by the fiscal authority or customs office. The AAD referred to by Ms. Marston in paragraph 31 of her affidavit was a Rangefield AAD. The spaces for the fiscal authority or customs office to fill in are simply left blank. There is no Belgian customs stamp, forged or otherwise, on the document, nor on any of the other 3 Rangefield AADs. There is nothing on the document to convey the impression that it had been presented to Belgian customs.

75.	The LBV AADs were computer generated forms which contained a space for the receiving warehouse to certify receipt. Those AADs contained no specific indication of a place where the customs of the country of receipt would signify production of the AAD to them. None of the LBV AADs bear any Belgian customs stamp, forged or otherwise, and there is nothing in these documents either to convey the impression that they had been presented to Belgian customs.

76.	The SERIO AAD (C/167) does bear what appear to be stamps of the Italian customs, UTF. However, no reference to these stamps was made in the deposition of Mr Giuseppe taken on 9 July 2002, and Ms Marston made no comment on this point in her affidavit

77.	Ms Marston’s evidence on this issue was unsatisfactory. The clear statement in paragraph 3.1 of her affidavit that Arena was involved in the stamping of forged customs stamps on the AADs was not supported by any evidence contained later in the affidavit or by the documents themselves. Paragraph 31 was worded so as to convey the impression that efforts had been made to make it appear as though that particular AAD had been presented to the Belgian customs. Although the relevant documents were exhibited, their effect was not properly reflected in the language of the affidavit. Before swearing that customs stamps had been forged, which on any view is a serious allegation to make, Ms Marston should have checked whether there was evidence on the basis of which that allegation could properly be made. Had she done so, she would have realised that it could not be made and should not be included as part of HMCE’s case. The same applies to the statement in paragraph 31.

(4) FAILURE TO INFORM THE COURT OF THE RAID IN DENMARK

78.	Ms Marston made no reference in her affidavit to the fact that HMCE had procured the Danish police to raid Mr Schroeder’s home in Denmark nor to the fact that they had uplifted 60 lever arch files of documents. She herself was unaware of that raid at the time she swore her affidavit (paragraph 7 of her witness statement of 17 March 2003). I was told that none of those who appeared in court on 5 December 2002 were aware of it.

79.	The relief sought included orders for the delivery up of all books papers records or other documents of Arena which were within Mr Schroeder’s possession or control, and in paragraph 49 of her affidavit Ms Marston said this:

“I am concerned that if [Arena] and its officers were to be aware of the full nature of HMCE’s investigations at this stage, then it is entirely possible that [Arena] books and relevant records would be destroyed or concealed”.

This statement would obviously not have been made if Ms Marston had been aware of the raid and that 60 lever arch files of documents had been uplifted from Mr Schroeder’s home. Although Ms Marston had no intention to mislead, the affidavit was in the event seriously misleading. The fact that the raid had taken place was self-evidently relevant to whether it was appropriate to make an order for delivery up by Mr Schroeder of Arena’s documents. No attempt has been made to explain how it was that Ms Marston, the officer of HMCE in the Civil Asset Recovery Team with responsibility for this case, was not told by the law enforcement department of the raid in Denmark. The result of this failure was that relief was sought and obtained from the court without disclosure of an event of obvious materiality.

80.	Mr Girolami QC accepted that the raid was undoubtedly material. He said, and of course I accept, that if those in court had known about it, it would have been mentioned. He accepted that it was regrettable that an application was made for delivery up of documents on the basis of an affidavit expressing concern that the documents were in jeopardy when it was well known elsewhere within HMCE that the documents had been safeguarded by the Danish police, and access to them provided to HMCE. But he also submitted that the point had been raised before Lindsay J at a time when the order had not yet been complied with, that Linsday J nevertheless declined to lift the order, and that the order did then result in the production of further documents from Mr Schroeder. The point was therefore only of relevance to a part of the order which had been complied with only after the order had been confirmed by the court after hearing both sides and with knowledge of the true facts.

81.	Whilst it is true that Lindsay J did not discharge the order, and that the order has now been complied with and so is spent, it is in my judgment necessary to examine the various criticisms of Ms Marston’s affidavit as a whole in order to form a judgment about the overall seriousness of the non-disclosures and misrepresentations in the context of the application before the court. The failure to disclose the raid is not the only error in the affidavit and the court needs to form a judgment about the cumulative effect of all the errors

(5) FAILURE TO REFER TO MR SCHROEDER’S OFFER TO BE INTERVIEWED

82.	It is clear that the correspondence between Mr Hanman and HMCE was not disclosed in Ms Marston’s affidavit. As appears from paragraphs 35-38 above, that correspondence included reference to the possibility that Mr Schroeder would voluntarily submit himself to interview with HMCE. In my judgment, this correspondence was material and should have been referred to by Ms Marston in her affidavit and the correspondence exhibited. The letter of 5 September 2002 did not in fact make an offer of interview in the United Kingdom: it merely raised that as a possibility and stated in that connection: “I just don’t know at the moment.” However, the two offers to be interviewed in Denmark in the letters of 7 October and 5 November 2002 were more important. Here, the evidence is that Mr Schroeder could not be interviewed by HMCE in Denmark under caution, because it is outside the jurisdiction of HMCE, and he could not be interviewed unless cautioned because there is an outstanding arrest warrant against him (paragraph 9 of Ms Brittain’s witness statement).

83.	To my mind the relevance of the offer to be interviewed was that it tended to show that Mr Schroeder was willing to cooperate with HMCE’s inquiries, and was therefore relevant to the case being advanced by HMCE that he was not a man to be trusted. It is for this reason that I consider that the correspondence should have been disclosed. The fact that he could not in the circumstances be interviewed in Denmark does not meet this point: it was the willingness to be interviewed in Denmark which was of significance, not the reason why such an interview did not occur. On the other hand, the correspondence did not advance any particular facts which would be relevant to a defence on the part of Mr Schroeder to the allegation of illegal diversion of the relevant consignments. The notice of assessment sent to Arena on 14 August 2002 (Ms Marston exhibit, p 124) attached a detailed schedule of the movements of goods which formed the basis of the assessment, and stated in each case that the goods did not arrive at the destination warehouse. If Mr Schroeder had put forward information which tended to undermine that case, this would have been of obvious materiality and would have required disclosure. Any factual matter put forward by the defendant in pre-action correspondence which raises matters going to a potential defence ought generally to be disclosed. However, the non-disclosure which in fact occurred does not appear to me to fail into this category. In the result, I conclude that there was a material non-disclosure here.

(6) FAILURE TO REFER TO INTENDED PROCEEDINGS IN DENMARK AND GIBRALTAR

84.	In paragraph 47 of her affidavit, Ms Marston stated that it was the intention to take proceedings forthwith to enforce the freezing order, if one were granted, in all those countries in which he was listed as having assets. In paragraph 52, she set out a list of assets, which included assets in Denmark, Belgium, Jersey, Gibraltar and Spain. The court was therefore aware that immediate proceedings would be taken in those countries to enforce the freezing order.

85.	Mr Bompas QC’s complaint was that in paragraph 47, Ms Marston did not mention that it was the intention to take bankruptcy proceedings in Denmark, which are plainly not proceedings for enforcement of the freezing order, nor that it was the intention to take substantive proceedings in Gibraltar which duplicated the English proceedings. Mr Girolami QC’s answer was that it was never the intention of HMCE to do anything other than preserve the fruits of this action and that the bankruptcy proceedings had been compromised on that basis. As to the proceedings in Gibraltar, he submitted that it was never the intention to have multiple proceedings causing problems for Mr Schroeder, and that the proceedings there had only been launched for the purpose of making the freezing order effective in Gibraltar.

86.	I consider that the intention to launch bankruptcy proceedings in Denmark ought to have been referred to, because this action went beyond proceedings for the purpose of making the freezing order effective in Denmark. The fact that the bankruptcy proceedings were later compromised does not appear to me to affect this. The position in the Gibraltar proceedings is less clear cut. They do appear to duplicate the English proceedings, but whether this was necessary in order to make the freezing order effective is not clear to me on the evidence. I consider that there was a material non-disclosure in relation to the intended bankruptcy proceedings, and that the need to launch substantive Gibraltar proceedings duplicating the English proceedings should also have been explained to the court in Ms Marston’s affidavit.

OTHER MATTERS RELIED ON BY MR BOMPAS QC

87.	Mr Bompas QC made various further complaints of non-disclosure and misrepresentation. I take first those which relate to the alleged criminality of Mr Schroeder.

Kirby report of conversation with Byrne

88.	In paragraph 25 of her affidavit, Ms Marston said this:

“I am aware from my enquiries that the 3 directors of [Arena] (one of whom is the Secretary) are all from a corporate services firm in the Isle of Man called ‘Chesterfields’. It appears that Mr Schroeder is the only person beneficially interested in the company and that he directs its affairs. Simon Kirby of Manx Customs tells me (and I believe) that Mr Byrne informed him that a) Peter Schroeder had told him the company was dormant and b) when the assessment was served Peter Schroeder asked him to just put all post in a drawer and ignore it ...”

89.	Mr Byrne was the director and secretary of Arena, and HMCE had obtained a witness statement from him on 15 August 2002. Neither of the statements which Mr Byrne is stated to have made to Mr Kirby in paragraph 25 of Ms Marston’s affidavit was contained in Mr Byrne’s witness statement. However, as Mr Girolami QC pointed out in his submissions, Ms Marston did not represent in her affidavit that the statement from Mr Byrne contained a comprehensive statement of all matters emanating from Mr Byrne. Ms Marston makes clear in paragraph 25 that the source of her belief is double hearsay, comprising a report by Mr Kirby to her of what Mr Byrne had supposedly told Mr Kirby. Given the nature of the allegations, and particularly that Mr Schroeder supposedly told Mr Byrne to put the assessments in a drawer and ignore them, and given the fact that HMCE had already interviewed Mr Byrne and obtained a witness statement from him, it would have been better, and the evidence would have carried more weight, if Ms Marston had contacted Mr Byrne direct for confirmation or otherwise of the report which she had received from Mr Kirby. But this failure does not to my mind demonstrate that there was material non-disclosure or misrepresentation of the facts or evidence. If, as now appears, Mr Byrne has denied telling Mr Kirby the matters reported by Ms Marston in paragraph 25 of her affidavit, this simply serves to undermine the weight to be attached to this piece of evidence: it is not proof of nondisclosure or misrepresentation.

90.	There were two other versions of the allegation contained in paragraph 25 of Ms Marston’s affidavit. First, there was an application for a freezing order in Gibraltar, where HMCE believed that Mr Schroeder might have assets. That application was supported by an affidavit of Ms Coulson, a partner in Moon Beaver, sworn on 5 December 2002, and it closely followed that sworn by Ms Marston. In particular, paragraph 25 was in the same terms, save that the information from Mr Kirby as to what Mr Byrne told him is now stated to have been given to Ms Coulson. I have no reason to suppose that Ms Coulson did not herself receive a report from Mr Kirby for the purpose of swearing that affidavit, and I was assured that she had in fact done so. I do not think that this point assists Mr Schroeder’s case on this application.

91.	Secondly, HMCE made an application in Denmark to make Mr Schroeder bankrupt. That application was heard on 11 December 2002 and Mr Schroeder received the papers in relation to it on 10 December 2002. The documents served included a draft of Ms Marston’s affidavit in the English proceedings. In the draft, paragraph 25 was in significantly different terms. The relevant passage read:

“Simon Kirby of Manx Customs tell me (and I believe) that Mr Byrne informed him that a) Peter Schroeder had told him the company was dormant and b) when the assessment was served Peter Schroeder asked him to shred the file on TAC maintained by Chesterfields which Mr Byrne refused to do.”

92.	This was not the form in which the affidavit had actually been sworn on 4 December 2002, 6 days before a draft in different terms was provided to Mr Schroeder in connection with the bankruptcy proceedings in Denmark. Clearly, HMCE ought to have ensured that the documents provided to Mr Schroeder and placed before the court in Denmark on 11 December 2002 were those which had in fact been used in the course of application on 5 December 2002, including the form in which Ms Marston’s affidavit had actually been sworn and shown to the court in England. However, it does not seem to me that these facts demonstrate that there was material non-disclosure or misrepresentation in connection with the without notice application in England.

Position of appeals

93.	As already noted, Mr Hanman launched appeals against the assessments on 14 November 2002. The appeal documents were sent to the VAT and Duties Tribunal, and copies sent to HMCE and the solicitors’ office of the VAT and Duties Tribunal. Ms Wanstall confirmed receipt of the appeal documents on 19 November 2002. The appeals were entered in the list of appeals on 15 November 2002.

94.	In paragraph 45 of her affidavit, Ms Marston said this:

“The Company’s appeal(s) have apparently been lodged but not yet received by our internal Solicitor’ [sic] office in Manchester who would deal with tribunal issues. I am also advised by Simon Kirby (& I believe) that Mr Byrne informed him, that the registered officers of the Company have not given any instructions for the lodgement of any appeal or action or retaining of solicitors.”

95.	Ms Marston did not exhibit or refer to Mr Hanman’s letter of 14 November 2002 to Ms Wanstall at HMCE, nor the enclosed copy letter to the VAT and Duties Tribunal, nor the notice of appeal itself (which had also been sent to Ms Wanstall), nor Ms Wanstall’s reply dated 19 November 2002.

96.	The question of the appeals was raised by Peter Smith J at the without notice hearing on 5 December 2002. According to the note of that hearing:

“The Judge referred to the appeals and questioned whether there might not be a bona fide defence. Mr Girolami said the assessments have apparently been appealed although the appeals have not been received. The Judge asked whether there were not time limits; and Mr Girolami said that there were, but that those in Court did not know whether the appeals had been lodged in time, whether there had been an extension or whether appeals were now being made out of time. 

The Judge then said so the appeal is not a genuine appeal, but a time delaying exercise? Mr Girolami said, yes, if we are right and there is fraud going on.”

97.	Mr Bompas QC complained that it was being suggested to the court in Ms Marston’s affidavit that the appeals had not been formally received and might be out of time, a position reinforced by the statements made to the judge as recorded in the note. He contended that HMCE in fact knew, as demonstrated by the correspondence not exhibited or referred to by Ms Marston, that the appeals had been formally received and were in time. In particular, the notice of appeal which was provided to Ms Wanstall on 15 November 2002 expressly stated that it was in time, because it had been lodged within 30 days of the review decision.

98.	I do not accept that there was material non-disclosure in relation to the appeals. I agree that it would have been better to have exhibited the relevant correspondence and to have referred to it. However, on a fair reading, I do not think that Ms Marston was intending to indicate that the appeals were out of time, or that there was any irregularity in relation to them. She was merely indicating that although the appeals had been lodged, the relevant solicitor who would deal with them had not yet received the documents. As to the discussion in front of Peter Smith J, he was told that those in court did not know whether the appeals had been lodged in time. No doubt this was true, but it cannot in my view be read as an assertion that the appeals were or may have been out of time. Mr Girolami QC was entitled to respond to the judge’s question in the way that he did, since it is clear that it is HMCE’s position that a fraud had been practised and that the appeals were not for that reason genuine appeals.

Results of further inquiries

99.	In paragraph 44 of her affidavit, Ms Marston said this:

“The results of the enquiries made to date demonstrate the modus operandi of the fraudulent activity being carried out by [Arena] through the actions of the officers and associates. HMCE’s enquiries are continuing in respect of Duty suspended consignments of excise product to other Member States. Early indications are that the AADs in relation to these consignments also bear false stamps and signatures, thus creating a further Duty and VAT liability. Mutual Assistance requests have been lodged with the relevant Authorities, requesting that HMCE’s Officers be allowed to visit these other Member States to obtain evidence that further suspicious [Arena] consignments were not received by the respective [warehouse of destination].”

100.	Mr Bompas QC complained that no particulars were given of these further investigations and pointed out that no further clarification or explanation of these matters had been provided. I do not accept that this constituted material non-disclosure or misrepresentation. All that Ms Marston was saying in this passage was that preliminary inquiries suggested that there were other cases in which consignments bore false stamps and signatures and that inquiries were continuing. I have no reason to suppose that this was not true. The fact that further instances have not so far apparently come to light does not demonstrate either that the original statement in Ms Marston’s affidavit was incorrect or that it should not have been made. HMCE was clearly not making a case of fraud in relation to anything other than the consignments in issue.

Insufficient description of the alleged impropriety of Arena and Mr Schroeder

101.	Mr Bompas QC complained that in the case presented on the without notice application, there was no sufficient explanation of what it was that Arena was supposed to have done to procure the diversion of the goods onto the UK market and evade excise duty. He submitted that the material put before the court did not really address the question of how Mr Schroeder, who was in Denmark, was supposed to have caused the goods to be removed from bond and sold on the black market. Ms Marston had failed to say, for example, that drivers in the transport firms concerned must have been involved in a fraudulent scheme. HMCE had details of all the transport firms involved and could have obtained evidence from them as to the particular drivers who must have been involved. Further, the judge had not been told that Arena and Mr Schroeder would not ordinarily have had access to the AADs, which pass from the warehouse of despatch to the destination warehouse and back again. Mr Schroeder was not directly involved in dealing with the AADs at all. This was why at the hearing Mr Girolami QC had stated that Mr Schroeder was “almost certainly in cahoots with the hauliers and perhaps also the warehouses”.

102.	I do not accept this submission. The case made was that on the evidence in particular of Mr Roothaert the consignments in issue did not arrive at the TIN warehouse in Belgium. As I have indicated, that case was supported by some unsatisfactory evidence relating to forgery of the TIN stamp which I have dealt with separately above. The fact that HMCE did not present evidence from the transport firms involved simply goes to the weight to be attached to the evidence which was before the court. The system of AADs was clearly explained in Ms Marston’s affidavit, and no attempt was made to suggest that in the ordinary way Mr Schroeder would have dealt with those documents himself In essence, the case presented was that the goods had not arrived, and this, together with other facts, was sufficient to establish a prima facie case of diversion fraud. The points identified by Mr Bompas QC are points which go to the merits of the application, rather than non-disclosure or misrepresentation.

Points relating to the SERIO consignment

103.	The stated ground for the assessment in respect of the SERIO consignment was that the destination warehouse was not authorised by the relevant fiscal authorities to receive duty suspended’ excise product (Marston exhibit, p 130). The basis for the assessment was different from the TIN consignments, which stated that the goods did not arrive. Moreover there was and is a system for checking whether any particular warehouse is authorised to receive consignments of dutiable products in bond. This is called the SEED system, which stands for system for the exchange of excise data. The SEED system enables a despatching warehouse to check whether the receiving warehouse is authorised to receive goods in bond. Indeed, the despatching warehouse has a responsibility to verify this before the goods are despatched. At the time of the relevant consignment to SERIO, SERIO was still registered on SEED as an authorised warehouse.

104.	Mr Bompas QC submitted that these facts should have been included in Ms Marston’s affidavit. He also pointed out that in response to a request from LBV, HMCE had itself stated on 24 October 2001 that SERIO was authorised to receive goods in bond (PJS 1, p 164) albeit that this was followed on 29 October 2001 by a letter to LBV stating that SERIO was not authorised to accept goods (PJS 1, p 165). The AAD in respect of the SERIO consignment states that the goods were released for delivery to SERIO on 23 October 2001.

105.	Mr Girolami QC submitted that this was a red herring, because the case made by HMCE before Peter Smith J did not turn either on the fact that the SERIO warehouse was or was not authorised, or on whether SERIO was or was not on the SEED system at the material time. The case made was simply that the goods did not arrive at SERIO, and this was sufficiently established for the purposes of an interlocutory application by the evidence of Mr Giuseppe.

106.	In my judgment, the case presented to the court, as set out in Ms Marston’s affidavit, was based on the simple proposition that the warehouse at SERIO had closed for business prior to 29 June 2001, and this case was fairly presented to the court. Given the way in which HMCE chose to present its case, I do not consider that it was incumbent on it to explain in addition that SERIO remained on the SEED system at that time or draw attention to the documents referred to.

Matters relating to Mr Roothaert’s evidence

107.	Mr Bompas QC relied on three matters relating to Mr Roothaert’s evidence. First, paragraph 35 of Ms Marston’s affidavit read as follows:

“Mr Roothaert was shown a number of AADs for consignments which the Company alleges were exported to TIN. Mr Roothaert states that none of the AAD documents appearing on the list, under which the goods referred to on the same list were despatched to TIN on the account of [Arena], were found either in the records at the local customs office at Nieuwpoort or in the records kept by TIN. Mr Roothaert states that this means that all the AAD documents shown to him which purported to represent consignments from [Arena] destined for TIN, are false and that the goods referred to in these documents the 18 consignments never arrived at the TIN tax warehouse”. [Emphasis added].

108.	In fact, Mr Roothaert found that of the AADs on the schedule which he was shown (Worswick A1), there were three which were genuine (Marston exhibit, p 196). It was therefore incorrect for Ms Marston to summarise the evidence in the way that she did, since Mr Roothaert had not found that all the AADs shown to him were false. He had also found two further genuine AADs not on Worswick A1.

109.	I therefore conclude that the affidavit did indeed misrepresent the exhibited evidence to some extent. However, it does not appear to me that this was material, since it was not part of HMCE’s case that the consignments for which the three genuine AADs had been found had not arrived. Whilst it would obviously have been better to have provided a completely accurate summary, the failure to do so does not in my judgment give rise to such a culpable error as to bring into play the need for the court to consider penalising Arena.

110.	Secondly, Mr Bompas QC submitted that one of the AADs which Mr Roothaert found to be false later turned out to be genuine, in the sense that proof satisfactory to HMCE was produced that the goods had indeed arrived in Belgium. This particular consignment was to Schenker, and evidence showing that it had arrived at TIN was later provided (Marston exhibit, p 233). The AAD relating to this consignment had been stamped by Belgian customs, a fact known to Ms Marston because she exhibited the relevant page of that AAD to her affidavit (Marston exhibit, p 230). However, Mr Roothaert had not found that AAD amongst the records maintained by Belgian customs, and it was therefore one of the consignments which Mr Roothaert alleged did not arrive. The submission was that these facts should have been pointed out, since they tended to undermine Mr Roothaert’s evidence.

111.	However, it was clear on the face of Ms Marston’s affidavit that HMCE had assessed Arena for 19 consignments but now accepted that they were wrong in relation to the Schenker consignment. I do not therefore consider that the affidavit read as a whole was misleading. I can see that it would have been better to have drawn attention to the fact that Mr Roothaert had stated that this AAD was false, given the importance of Mr Roothaert’s evidence to HMCE’s case, but on balance I do not consider that this was a material and culpable non-disclosure.

112.	Thirdly, Mr Bompas QC submitted that Ms Marston should have pointed out that TIN had been closed down for poor record keeping. This was said to undermine Mr Roothaert’s evidence, since that evidence was based on an examination of the records at TIN. As to this, it seems to me that Mr Roothaert himself must have taken this into account in expressing the views which he did in his evidence. If he had thought that poor record keeping at TIN affected his conclusions as to the non-arrival of the disputed consignments he would surely have said so. Again, therefore, on balance I do not consider that there was here a material and culpable non-disclosure.

RELEVANT LEGAL PRINCIPLES – FULL AND FAIR DISCLOSURE

113.	The starting point in all such cases is now the judgment of the Court of Appeal in Brink’s Mat Ltd v Elcombe [1988] 1 W.L.R 1350. Ralph Gibson LJ said this at p 1356:

“In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me in to include the following. 

(1)   The duty of the applicant is to make “a full and fair disclosure of all the material facts”: see Rex v Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 515 per Scrutton L.J.

(2)   The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at p. 504, citing Dalglish v. Jarvie (1859) 2 Mac. & G. 231, 238 and Browne-Wilkinson J. in Thermax v. Schott Industrial Glass Ltd. [1981] F.S.R. 289, 295.

(3)   The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] F.S.R. 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4)   The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson [1987] Ch 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 92-93.

(5)   If material non-disclosure is established the court will be “astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage  he may have derived by that breach of duty:” see per Donaldson L.J. in Bank Mellat v. Nikpour, at p. 91 citing Warrington L.J. in the Kensington Income Tax Commissioners’ case [1917] 1 K.B. 486, 509.

(6)   Whether the fact not disclosed is of sufficient, materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.

(7)   Finally, it “is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded”. per Lord Denning M.R. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms

“When the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant ... a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed” per Glidewell L.J. in Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, pp. 1343H-1344A.”

114.	The primary duty is to make full and fair disclosure of the material facts. This duty was explained by Lord Denning M.R. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 89 in the following terms:

“I would like to repeat what has been said on many occasions. When an ex parte application is made for a Mareva injunction, it is of the first important that the plaintiff should make full and frank disclosure of all material facts. He ought to state the nature of the case and his cause of action. Equally, in fairness to the defendant, the plaintiff ought to disclose, so far as he is able, any defence which the defendant has indicated in correspondence or elsewhere. It is only if such information is put fairly before the court that a Mareva injunction can properly be granted.”

In the same case Donaldson J. said this (at p 90):

“This principle that no injunction obtained ex parte shall stand if it had been obtained in circumstance s in which there was a breach of the duty to make the fullest and frankest disclosure is of great antiquity. Indeed, it is so well enshrined in the law that it is difficult to find authority for the proposition; we all know it; it is trite law. But happily we have been referred to a dictum of Warrington L.J. in R. v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486 at 509. He said:

‘It is perfectly well settled that a person who makes an ex parte application to the court - that is to say, in the absence of the person who will be affected by that which the court is asked to do - is under an obligation to make the fullest possible disclosure of all material facts within his knowledge, and if he does not make that fullest possible disclosure, then he cannot obtain any advantage from the proceedings, and he will be deprived of any advantage he may have already obtained by means of the order which has thus wrongly been obtained by him. That is perfectly plain and requires no authority to justify it.’”

Slade L.J. said this (at p 92):

“I think it is of the utmost importance that on any ex parte application for an interim injunction the applicant should recognise his responsibility to present his case fully and fairly to the court and that he should support it by evidence showing the principal material facts upon which he relies. Most particularly, I think that this duty falls on an applicant seeking a Mareva injunction which, if granted, may have drastic consequences for a defendant, by freezing assets in this country which are not necessarily even the subject matter of the action.”

115.	In Siporex Trade S. A. v. Comdel Commodities Ltd [1986] 2 Lloyd’s Rep. 428, 437, Bingham J. said this:

“The scope of the duty of disclosure of a party applying ex parte for injunctive relief is, in broad terms, agreed between the parties. Such an applicant must show the utmost good faith and disclose his case fully and fairly. He must, for the protection and information of the defendant, summarize his case and the evidence in support of it by an affidavit or affidavits sworn before or immediately after the application. He must identify the crucial points for and against the application, and not rely on general statements and the mere exhibiting of numerous documents. He must investigate the nature of the cause of action asserted and the facts relied on before applying and identify any likely defences. He must disclose all facts which reasonably could or would be taken into account by the Judge in deciding whether to grant the application. It is no excuse for the applicant to say that he was not aware of the importance of matters he has omitted to state. If the duty of full and fair disclosure is not observed the Court may discharge the injunction even if after full enquiry the view is taken that the order made was just and convenient and would probably have been made even if there had been full disclosure...”

116.	In Memory Corporation Plc v Sidhu (No. 2) [2000] 1 W.L.R 1443, 1459, Mummery L.J. said this:

“It cannot be emphasized too strongly that at an urgent without notice hearing for a freezing order, as well as for a search order or any other form of interim injunction, there is a high 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.”

117.	These and other similar passages in other cases show that the essential requirement is full and fair disclosure to the court. The reason for this requirement is obvious: the court is being asked to grant relief in the absence of the defendant and is wholly reliant on the information provided by the claimant. Moreover, it is not only the duty of the claimant to disclose material facts: he must also present fairly the facts which he does disclose.

118.	In my judgment this duty was broken in each of the six respects set out in paragraphs 4 186 above. It will be apparent from what I have already said that I regard some at least of these breaches as of a serious nature, and such as to require careful consideration of whether their occurrence justifies the sanction of denying Arena a continuation of the freezing order until trial. However, before turning to that issue, I must examine the case which Arena now presents through its provisional liquidator for a continuation of the freezing order. This is based on additional materials which were not available before Peter Smith J, including Mr Schroeder’s own account of the relevant events.

THE CASE FOR A FREEZING ORDER - GOOD ARGUABLE CASE

119.	In my judgment, on the materials now before the court, a strong case exists for the grant of a freezing order until trial or further order for the reasons set out in the succeeding paragraphs of this judgment.

120.	There is strong prima facie evidence before the court that the consignments in issue did not arrive at their destination. In the case of SERIO, the evidence is that the warehouse had been closed down by the date of despatch from Rangefield (23 October 2001). In the case of TIN, the evidence of Mr Roothaert, a customs officer with 31 years’ experience, based on his examination of the relevant records at Belgian customs and at TIN, is that the goods did not arrive and that the relevant AADs were false. His conclusion to that effect was not based on any suggestion that the TIN stamps on the AADs shown to him had been forged. I do not consider that the fact that the Schenker AAD was not found by Mr Roothaert means that his evidence cannot be relied on for the purpose of founding a good arguable case that the other consignments did not arrive.

121.	As regards TIN, the evidence to the contrary is contained in paragraph 55 of Mr Schroeder’s witness statement. He says that his solicitor has been in touch with Mr Simmons, a senior customs officer in Bruges, who stated that the Nieuwpoort area of Belgium was renowned for problems with record keeping and invalid or incomplete AADs. He also says that his solicitor has spoken to Mr Ovyn, a customs officer at Nieuwpoort, who says that Jean van Houdt, a French-speaking Belgian at TIN who did the administration and paperwork at TIN, has disappeared and that Belgian customs are looking for him.

122.	This evidence was answered in paragraph 12(9) of Ms Brittain’s witness statement. In further conversations, Mr Roothaert has stated that Nieuwpoort is a fairly compliant area and that Mr Simmons is not an officer with experience of the Nieuwpoort area and could not comment on the position. The Nieuwpoort customs did have concerns over the TIN warehouse, which led to them conducting very regular checks without warning. A stock check had been carried out which showed that the stock in the warehouse matched the paperwork. The reason the warehouse was closed down was that although TIN presented AADs for stamping by Belgian customs, the TIN internal AAD register had not been completed properly.

123.	On this application, the court cannot resolve which evidence is to be preferred, but there is in my judgment a good arguable case that Mr Roothaert is right and that the goods did not arrive.

124.	Mr Schroeder has produced no evidence from either of the consignees Celers and Euronet or the recipient warehouses themselves to the effect that the goods did arrive there. This is in contrast to the Schenker consignment, in relation to which Mr Schroeder was able shortly after HMCE served the assessments to produce evidence from Schenker that it had collected the goods from TIN. There is no corresponding material from Celers or Euronet or the TIN warehouse in relation to the consignments in issue.

125.	Indeed, there is little or no evidence indicating that Celers and Euronet are real entities which did indeed place genuine orders for the goods in question. Mr Schroeder’s evidence on this point is unconvincing. Celers is said to be a Maltese company, about which Mr Schroeder knew nothing, yet transacted business with it amounting to some £800,000 paid in cash. Mr Schroeder’s account is that Arena had an existing customer who introduced him to a person called Tony. No surname is given for Tony, nor does Mr Schroeder say that he ever even met him. Mr Schroeder had Tony’s mobile phone number and knew that he lived in Birmingham, but apparently had no other information about him. Tony himself was not the client, but said that he had clients who wanted to buy spirits under bond and they were good for payment. According to Mr Schroeder, this led to some transactions with Euronet, one of which, the SERIO consignment, is in issue in these proceedings.

126.	Later, again according to Mr Schroeder, Tony told him that he had a new client called Celers which wanted to purchase alcoholic goods in bond from the TIN warehouse where they had an account. This led to the further transactions in issue in these proceedings. The first order was placed by Tony by telephone on behalf of Celers, as were all subsequent orders. The goods were paid for in cash by an unnamed Indian gentleman (identified only by the fact that he wore a turban) to a Mr Judd in Southend, who then paid the money into an account in the name of companies of his called Ampleaward Limited, trading as Award Drinks. No receipt was requested by the Indian gentleman or provided by Mr Judd for the very large sums of cash which he received in this way. Over a period of one month, £800,000 changed hands. The only contact which on his own account Mr Schroeder ever had with Celers was the receipt of a fax dated 23 January 2002 from a Mr Grima at an address in Malta asking for prices, which Mr Schroeder says he discussed on the telephone with Mr Grima shortly thereafter. Thereafter, all his dealings were with Tony.

127.	Mr Schroeder provides no explanation in his evidence as to why the payments were made in cash in the way described above, other than to make a passing reference to the growth of the cash and carry business in Calais. This appears to me to have little if any relevance to the way in which one would reasonably expect payment to be made for transactions between a Maltese company dealing with a Canadian national resident in Denmark representing a Manx company selling goods in bond ex UK destined for Belgium. Nor does Mr Schroeder state who asked for the goods to be paid for in cash, or what reason was given.

128.	The obvious way of paying for these consignments was to Arena’s bank account. Indeed, Arena held accounts at the relevant time at Artesia Bank in Antwerp, Belgium. Since the goods were to be handed over in Belgium, the obviously convenient way for a genuine customer to pay for the goods was directly to that account. Indeed, this is what Mr Schroeder appears to have contemplated. He says that he himself typed standard invoices on Arena stationery for use in the intended transactions with Celers. He says he did this with a typewriter rather than a word processor, and that the consignment details, dates and invoice numbers would be added in afterwards. Examples of these documents without the details filled in are at pp 27 - 32 of exhibit LMB 2 to the statement of Ms Brittain.

129.	If Mr Schroeder’s account is correct, he prepared these documents sometime in January 2002 in anticipation of orders from Celers following the telephone conversations with Tony. The documents which he prepared in this way contained towards the bottom the legend: “New banking, Artesia Bank NV, Meir 85, 2000 Antwerpen, Belgium, acc: 552 8695600 83, Swift: ARTEBEBB, EC Article 28 simplification invoice.” Presumably therefore it was Mr Schroeder’s intention at the time he prepared these documents for use in connection with the transactions with Celers that the price should be paid by Swift transfer to the nominated bank account of Arena in Antwerp. Mr Schroeder confirmed in his disclosure affidavit that Arena did indeed have accounts with Artesia Bank in Antwerp (albeit that he says that such accounts were closed 4 to 5 months earlier). Mr Schroeder has offered no explanation as to why initially he indicated that payment should be made in this way and then later switched to payment in cash without the provision of any receipt or other documentation. All the invoices in evidence for the consignments in issue had this piece of text on them.

130.	The procedure which Mr Schroeder says was followed for the dealings with Celers is set out by him in paragraph 29 of his witness statement. There are 9 stages to that procedure:

(1)   He would instruct the warehouse to despatch the goods to TIN, by phone or fax.

(2)   The warehouse would confirm the date of despatch to him by phone. 

(3)   He would let Tony know by phone that the goods would arrive at TIN that day or the following day, depending on the time.

(4)   He would confirm with John at TIN by phone that the goods had arrived around the time that he expected them to arrive.

(5)   He would confirm to Tony that the goods had arrived and that he should arrange payment.

(6)   Payment for consignments would be made in sterling cash in the UK “by a smart looking Indian gentleman wearing a turban” to Mr Judd “who I had telephoned to let him know a payment was expected”.

(7)   Mr Judd would check the amount and confirm receipt to Mr Schroeder of the correct amount.

(8)   Mr Schroeder would then send a fax to John at TIN instructing him to release the goods. After a number of transactions, this release instruction would be made by phone.

(9)   Mr Judd would pay the sums into his company account in the UK and then remit them to Arena’s account in Belgium, or for payment of amounts outstanding from Arena to suppliers in the UK. If Arena owed money to Ampleaward Limited/Award Drinks, Mr Schroeder would authorise payment of these sums from the monies received by Mr Judd.

131.	Mr Schroeder was at pains to point out, both in paragraph 29 and paragraph 48 of his witness statement, that he would not authorise release of the goods from TIN until such time as he was satisfied that payment had been received in cash by Mr Judd in Southend. On his account, receipt of the cash before release of the goods was clearly essential, given that he was dealing with a Maltese company about which he knew nothing, introduced to him by a man called Tony whom he had never met, whose surname and address he apparently did not know, and who was known to him only by his mobile telephone number. However, this essential feature of the arrangements described by Mr Schroeder is difficult to square with the documents which Mr Schroeder says contemporaneously recorded the transactions in question.

The first order

132.	According to Mr Schroeder, Tony placed the first order by telephone (paragraph 27 of his affidavit). It was for 1664 cases of Grants Vodka. He says that having received this order, he gave written instructions to Kevin at LBV to transport these goods to TIN, and identifies a document signed by him on 22 January 2002 as evidencing those instructions (PJS 1, p 60). According to the documents exhibited by Mr Schroeder, the goods were despatched from LBV on 24 January 2002 (see the CMR at PJS 1, p 59). On Mr Schroeder’s account, LBV would have confirmed this date to him by telephone (paragraph 29.2 of his affidavit), and he in turn telephoned John at TIN to let him know that the goods would arrive on 24 January 2002 or the following day (paragraph 29.3 of his affidavit).

133.	On Mr Schroeder’s account, the goods must have arrived at TIN on 24 January 2002, since the release instruction which he says he gave to John at TIN bears that date. One must therefore suppose that the goods arrived at TIN late on the afternoon of 24 January 2002. When this had happened, John confirmed to Mr Schroeder that they had arrived, and Mr Schroeder then confirmed this to Tony and that he should arrange payment (paragraph 29.5 of Mr Schroeder’s affidavit).

134.	At this point it is necessary to fill in some details, but somehow arrangements were made between Mr Schroeder and Tony that an unnamed Indian gentleman wearing a turban would meet Mr Judd in Southend and hand him £15,392 in cash without asking for or getting a receipt. Mr Judd then counted out the cash to make sure that payment had been made in full, and having satisfied himself of this telephoned Mr Schroeder in Denmark to tell him that payment had been made (paragraph 29.7 of Mr Schroeder’s affidavit). Mr Judd apparently provided no written confirmation to Mr Schroeder that this payment had been made. At this point, still on Mr Schroeder’s account, he prepared a written instruction to TIN, also dated 24 January 2002, marked for the attention of John, instructing him to release the goods to Celers (PJS 1, p 62).

135.	Moreover, still on Mr Schroeder’s account, he also prepared an invoice for Celers on 24 January 2002 (paragraph 35 of his affidavit, and PJS 1, p 61) For this purpose, he took one of the pre-prepared invoices which he had recently typed out using a typewriter rather than a word processor He typed in the invoice number, the date, as well as the quantity, description, unit price and total price of the goods, and “issued” this to Celers, in what manner he does not say Mr Schroeder does not explain why he thought it appropriate to use one of the pre-prepared invoices which requested payment to Arena’s account with Artesia Bank, notwithstanding that payment was now to be arranged in cash. He did not apparently write or otherwise communicate to Celers that the invoice did not need to be paid because payment had now already been received in cash in Southend.

136.	Mr Girolami QC submitted, and I accept, that this account fits uncomfortably with the generic description of these transactions given by Mr Schroeder in paragraph 29 of his affidavit.

The second order

137.	According to Mr Schroeder, Tony placed this order by telephone (paragraph 28 of his affidavit). It was for 1625 cases of Bacardi, 600 cases of Smirnoff and 897 cases of Teachers. He says that having received this order, he gave written instructions to Kevin at LBV to transport these goods to TIN, and identifies a document signed by him on 23 January 2002 as evidencing those instructions (PJS 1, p 66). According to the documents exhibited by Mr Schroeder, the goods were despatched from LBV on 25 January 2002 (see both the ADD at PJS 1, p 63, box 16, and the CMR at PJS 1, p 65).

138.	However, Mr Schroeder exhibits a document (PJS 1, p 68) which he says was his instruction to John at TIN to release the goods to Celers (paragraph 37 of his affidavit). That document is dated 24 January 2002, which was before the goods had even left England. This is difficult to square with the sequence of events which Mr Schroeder himself says was followed in relation to all of the relevant orders, as set out in paragraph 29 of his affidavit and summarised above. According to that sequence, it would only be after the goods had arrived in Belgium that he would contact Tony to make arrangements for payment, and only after payment had been made that Mr Schroeder would send the release instruction to TIN.

139.	Mr Schroeder also says that he prepared an invoice in relation to the second order (PJS 1, p 67). This was in the total sum of £55,791. As with the first order, this was dated 24 January 2002, and contained the details of Arena’s bank account. Mr Schroeder says that this invoice was rendered to Celers and “reflects the amount received which resulted in my instruction to Jon at TIN to release the goods to Celers (PJS 1 p. 68)” (see paragraph 37 of his affidavit). If that is true, the payment in cash must have been made on 24 January 2002, which was while the goods were still at the LBV warehouse in England, and the sequence of events described by Mr Schroeder in paragraph 29 of his affidavit could not have been followed.

140.	Mr Girolami QC also relied on the fact that the AAD in relation to the second order (PJS 1, p 63) gives the date of the invoice as 25 January 2002, whereas the date of the invoice relied on by Mr Schroeder was 24 January 2002. For reasons advanced by Mr Bompas QC, I am not satisfied that the AAD prepared by LBV would have reflected the date of the actual invoice, rather than LBV’s own assumption as to what that date would be. However, it does not appear to me that this point meets the difficulty that the release instruction to TIN pre-dates the date of despatch of the goods from England.

The amount and timing of the cash payments made to Mr Judd

141.	The total sum of the amounts for the first two orders was £71,183. On Mr Schroeder’s account, one would have expected that amount to have been paid in cash to Mr Judd in Southend on 24 January 2002, since the two instructions to TIN to release those goods to Celers are both dated that date. This naturally focussed attention at the hearing on the timing and amount of the cash payments to Mr Judd.

142.	In his opening submissions on 12 March 2003, Mr Girolami QC pointed out that documents obtained from Mr Judd showed a sum of £70,000 as having been paid on 28 January 2002. Not only was this £1,183 short of the total due in respect of the first two orders, but it was also apparently paid 4 days after the date upon which, on Mr Schroeder’s account, the cash would have had to have been paid in order to justify the issuing of instructions to TIN to release the good to Celers. The basis for the submission that the cash was paid on 28 January 2002 comprised documents produced by Mr Judd himself (LMB 1 pp 100 - 113), p 103 of which showed the cash paid on 28 January 2002.

143.	Mr Girolami QC also referred in this connection to a schedule prepared in the 
provisional liquidator’s office which attempted to reconcile the amount of the invoices with the cash payments received by Mr Judd as recorded in his ledgers (LMB 1, p 99A), and to the witness statement submitted by Mr Schroeder on 4 March 2002 in opposition to the petition to wind up Arena. In paragraph 134 of that witness statement, Mr Schroeder purported to reconcile the amount of the invoices for all consignments sent during the period in which the assessed consignments were sold with the amounts of cash received by Mr Judd on behalf of Arena. Mr Schroeder produced a schedule (Schedule A) setting out the invoice numbers, invoiced amounts and cash payments, which showed a total invoiced amount of £803,240 and total cash payments of £803,240. Schedule A shows the invoiced amounts and cash coming in to Mr Judd in round sums which do not correspond to the amounts of the individual invoices. Mr Girolami QC further submitted that Mr Schroeder in this witness statement represented a complete change of position from that adopted in his witness statement of 5 January 2003.

144.	In his submissions in reply on 13 March 2003, Mr Bompas QC pointed out that Mr Schroeder’s witness statement in opposition to the winding-up petition was answering a contention by Ms Brittain that Arena was receiving cash substantially in excess of the bond price of the goods. The purpose of the schedule was to meet that case, by showing that Arena received in cash what it was supposed to have got by reference to Arena’s invoices. As regards the timing of the payment of £70,000, he pointed out that the only evidence before the court comprised Mr Judd’s records. Although he accepted that it was possible that the money was banked and recorded in Mr Judd’s records as having been banked on 28 January 2002, it did not follow that the cash was not received on 24 January 2002. He submitted that it was possible that the cash was received on 24 January 2002 and not banked by Mr Judd until 28 January 2002. In further submissions on 14 March 2002, Mr Bompas QC submitted that once it was accepted that the £70,000 was paid on 24 January 2002 the other documents fitted into place. However, this submission begged the question as to whether the £70,000 was in fact paid on 24 January 2002. As to that the only evidence then before the court was Mr Judd’s documents referred to above, which showed the date 28 January, and against that “PAID”. Mr Bompas QC did not offer an explanation as to why the payment was short by £1,183 of the amount due in respect of the first and second orders shown on invoices 4016 and 4017 (PJS 1, pp 61 and 67).

145.	In view of the submissions made by Mr Bompas QC, Ms Brittain checked the position with Mr Judd on Friday 14 March 2003, and recorded that conversation in a further statement of that date. This was handed to me by Mr Girolami QC at the start of the hearing on Monday 17 March 2003. Mr Judd told Ms Brittain that cash received was banked on the same day as it was received in the normal trading bank account of his company, there being no separate bank account maintained for the dealings with Arena. The date entered in his ledger was the date that the cash was actually banked. This would have been the day of receipt unless the cash was received after about 3 pm, when the banking would have to wait until the following day. It was never left longer than this. According to Ms Brittain, he was adamant that the dates shown in his ledgers were the dates cash was received and banked or at worst the day after receipt.

146.	Mr Bompas QC objected to the reception of this evidence on the last day of the hearing, but I allowed it to be adduced on the basis that if Mr Bompas QC wished to answer it he could, and that if so requested I would sit again to hear further argument. This led to supplemental submissions in writing from Mr Bompas QC dated 21 March 2003, together with a witness statement from Mr Fulda of Berg & Co of 19 March 2003. Mr Bompas QC indicated in those submissions that he did not request a further oral hearing, but asked that the court should take into account Mr Fulda’s statement and his additional submissions. That material was answered by additional written submissions from Mr Girolami QC on 24 March 2003. 

147.	Mr Fulda’s statement largely confirmed the accuracy both of what Ms Brittain had recorded that Mr Judd had told her, and of the underlying facts. There were two main qualifications. The first was that, although the date entered into the ledger was normally the date of actual banking of the cash, there would be occasions when the courier arrived late in the day after banking hours but still in time for cash to be lodged with the bank Where this occurred, the bank would reflect the receipt in its statements as a payment made on the following banking day. The second qualification was that the books were written up from the bank statements and reflect the date given in the bank statements as the date of payment. On the basis of this evidence, Mr Bompas QC submitted (1) that the date on the bank statement could be after the date of payment into the bank if the monies were paid in after a certain time of day and (2) that the date of payment could be after the date of receipt.

148.	In his written submissions of 24 March 2003, Mr Girolami QC argued that the further evidence of Mr Fulda does not undermine the basic point which he had made in his oral submissions. On the evidence of Mr Judd, if the £70,000 was indeed paid on 24 January 2002, it would have been banked on that day unless, which was not usually the case, the courier arrived late. If the cash could have been banked on that day, it would have been. But if the bank had closed, it would have been banked on the following day, Friday 25 January 2002. In that eventuality, it would have been recorded in the bank statements as deposited on that day, and that would have been the date carried into Mr Judd’s ledger. On no view does Mr Judd’s evidence, as set out by both Ms Brittain and Mr Fulda, explain how cash which had in fact been received on Thursday 24 January 2002 would not have been shown in Mr Judd’s ledger as having been received either on that day, or at the latest, on the following day. It would have been contrary to Mr Judd’s practice for cash received on Thursday 24 January 2002 to have been retained and not banked until Monday 28 January 2002.

149.	The matter did not however rest there. On 7 April 2003, when this judgment was already in an advanced state of preparation, Mr Bompas QC wrote to me enclosing copies of correspondence which had passed between Berg & Co and Moon Beaver. In a letter dated 3 April 2003, Berg & Co told Moon Beaver that they had recently received a number of Barclays Bank paying in slips from Mr Judd, which he had stated had also been provided to Moon Beaver. Berg & Co contended in their letter that the paying-in slips related to the sum of £70,000, and that they had been date stamped 24 January 2002 by Barclays Bank. They further contended that this cast doubt on Mr Girolami QC’s submission that the monies must have been received by Mr Judd on 28 January 2002.

150.	Mr Bompas QC enclosed with his letter copies of the paying in slips in question. The slips apparently record cash payments of £600, £4,540, £14,000, £25,000 and £25,000, which total £69,140. The purpose of submitting this material was to demonstrate that Mr Judd paid £69,140 to Barclays on 24 January 2002, and that this must be the origin of the £70,000 entry in Mr Judd’s ledger for 28 January 2002, thereby supporting Mr Schroeder’s contention in his affidavit that the cash payments were made before he gave instructions to TIN on 24 January 2002 for the first two orders to be released to Celers. 

151.	Mr Girolami QC answered this further material in a letter dated 16 April 2003. He was unable to do so before that date, because he was awaiting some of the copy bank statements relating to the account of Mr Judd’s company Ampleaward Limited with Barclays Bank from Mr Judd. In his letter, he points out that there is nothing on the face of the paying in slips to indicate that they relate to the relevant £70,000 cash payment on behalf of Arena, as opposed to money received by Ampleaward on its own account. He also points out that if these sums represent the alleged cash payments for the first two orders, the sum paid should have been £71,183, not £69,140 or £70,000. If the Indian gentleman in the turban had indeed paid Mr Judd £71,183 or £69,140 or £70,000, it is difficult to see why this should have been banked in 5 different amounts of £600, £4,540, £14,000, £25,000 and £25,000. It is also difficult to believe that the Indian gentleman visited 5 times. Moreover, although the paying in slips appear to bear a Barclays Bank date stamp dated 24 January 2002, the slips themselves have been completed with the date 28 January 2002, and that is the date upon which they are shown in the bank statements as have been credited to the account of Ampleaward Limited. The bank’s receipt stamps do not have the cashier’s initials or squiggle through them.

152.	It is not possible or appropriate on this interlocutory application to reach conclusions of fact as to what payments in cash were made by Mr Judd into the Barclays account and what these payments represented. There is no evidence from Barclays as to the absence of initials or a squiggle on the stamp on the slips, no explanation as to the discrepancy between the date of the stamp and the date on the slip, the counterfoils for the paying in slips presumably retained by the person who actually paid the money into the bank account have not been produced, there is no direct evidence from Mr Judd, there is no evidence from the person who actually deposited the cash, not all the bank statements have been produced, and no reconciliation of Mr Judd’s ledgers to the bank statements (on which according to Mr Fulda Mr Judd says they were based) has been performed.

153.	However, I am left in considerable doubt as to whether it can be right that, as now contended on behalf of Mr Schroeder, payment for the first and second orders was made in cash on 24 January 2002 and banked on that date. According to the bank statements, the only sum credited to the bank account on that date was £10,000 deposited in Pudsey, Yorkshire. No reference is made in Mr Judd’s ledgers to a payment of cash in that amount received on behalf of Arena on that date. 7 credits were made to the account on 25 January 2002, but again, there is nothing in Mr Judd’s ledgers to link those credits to the Arena account. The statements do show 5 credits made on 28 January 2002 in the sums of £600, £4,540, £14,000, £25,000 and £25,000, and Mr Judd’s ledger shows £70,000 as having been paid in cash in respect of Arena on that date. It is difficult to see why Barclays would have credited these sums to the account on 28 January 2002 if they had in fact been deposited on 24 January 2002.

154.	The difficulties with Mr Schroeder’s account do not stop there. It is very difficult to reconcile the cash payments to the invoices which he says he was rendering to Celers for the goods. On his account, the cash sums received by Mr Judd should have corresponded to the amounts of the invoices, but they do not. According to Mr Judd’s ledgers, there were 8 (or possibly 9) cash payments between 28 January and 26 February, in the sums of £70,000, £121,390, £34,950, £97,000, £149,000, £110,100, £110,000, £90,000 and £20,800. None of these amounts corresponds to the amounts shown on the invoices to which Mr Schroeder refers in Schedule A to the witness statement of 4 March 2003. That schedule refers to 10 invoices bearing dates between 24 January 2002 and 27 February 2002. The dates and amounts of the invoices relied on by Mr Schroeder, and the cash payments shown in Mr Judd’s ledgers, are as follows:

	Date	Invoice Value £	Cash £	Invoice	Ref	
1	24/1/02	15,392		4016	PJS1/61	
 1	28/1/02		70,000		PJS4/16	
2	24/1/02	55,791		4017	PJS1/67	
3	29/1/02	48,384		4022	PJS1/72	
4	30/1/02	60,696		4011	PJS1/123	
5	30/1/02	15,444		4016	PJS1/75	
 2	5/2/02		121,390		PJS4/16	
6	5/2/02	244,560		4015	PJS1/96	
 3	7/2/02		34,950		PJS4/16	
7 	5/2/02	32,823		4044	PJS1/102	
 4	12/2/02		97,000		PJS4/16	
8	13/2/02	106,500		4071	PJS1/108	
 5	15/2/02		149,000		PJS4/16	
9	18/2/02	182,472		4081	PJS1/121	
 6	18/2/02		110,000		PJS4/16	
 7	22/2/02		110,000		PJS4/16	
10 	25/2/02	41,2361		4080	LMB2/33	
 8	26/2/02 		90,000		PJS4/16	
 9	22/3/02		20,800		LMB1/107	

1Mr Schroeder says that invoice 4080 included a consignment of Bacardi costing £72,240 which was not sent to TIN, but remained at LBV/Seabrooks: see paragraph 8.6 of his witness statement of 12 March 2003. His schedule accordingly only refers to 2 of the 3 orders referred to in that invoice.”

155.	I have included payment 9, because it is relied on by Mr Schroeder in his Schedule A. He explains in paragraph 13.3.3 of his witness statement of 4 March 2003 that this was a balancing payment, stating that by this time there was an “ongoing relationship” between Arena and Celers and that he was not concerned to allow the account to be conducted on a running basis with this limited balance outstanding. This appears to me to be an acceptance by him that by the date of that payment he had not been insisting on payment in full of the amount of Arena’s invoices before releasing the goods to Celers, and to contradict the general effect of his witness statement of 16 January 2003.

156.	Inspection of the above table shows that the cumulative value of the invoices at no point corresponds to the cumulative value of the cash payments. For example, according to the ledger, the next cash payment after the £70,000 dated 24 January 2002 was £121,390 paid on 30 January 2002. It is difficult to see how the receipt of that sum squares with Mr Schroeder’s account. With that sum, the cumulative cash received was £191,390, whereas the total of the first three invoices was £119,567. The fourth invoice was in the sum of £60,696, bringing the cumulative total of the invoices to £180,263. There is no cash payment corresponding to the amount of the fourth invoice, and the cumulative total of the first four invoices does not correspond to the cumulative cash total after the first two cash payments.

157.	A further factor undermining Mr Schroeder’s account is the numbering of the invoices. He says that he pre-prepared the Celers invoices, and it must follow that he inserted the date, invoice number and other details at or about the time that the invoices were rendered to Celers. However, the numbering of the invoices is not consecutive. The dates and numbers of the invoices appear from the above table. One would have expected that after invoice 4017, invoices 4018-4021 would have been rendered relating to other customers, followed by invoice 4022 on 29 January 2002. But then why does the next invoice go back to 4011? Moreover, one of the two invoices dated 30 January 2002 has the same number (4016) as the first Celers invoice of 24 January 2002. Mr Schroeder has provided no explanation as to why he did not number the invoices in ascending sequence, and simply describes the fact that two different invoices were rendered to the same customer as “an error” (paragraph 8.3 of his witness statement dated 12 March 2003).

158.	The overall pattern which emerges is that of a company which under Mr Schroeder’s immediate direction is moving large consignments of alcohol out of bond, followed by the delivery of large amounts of cash in round sums to Mr Judd which do not correspond to the invoice values of the goods being sold. These activities all take place in England. Tony is in Birmingham, Mr Judd is in Southend, and there is evidence that the relevant consignments never arrived in Belgium.

159.	It is not possible for the court to make findings of fact on an interlocutory application in which the evidence is given in written form and untested by cross-examination. However, in my judgment the account which Mr Schroeder gives is such as to strain credulity, and when it is coupled with the evidence of Mr Roothaert that the goods in question did not arrive at the TIN warehouse, is such to lead to the conclusion that HMCE has demonstrated the existence of a good arguable case that the Mr Schroeder did indeed commit the alleged fraud.

THE CASE FOR A FREEZING ORDER – RISK OF DISSIPATION OF ASSETS

160.	I need say little about this issue. In my judgment, the way in which Mr Schroeder organises his affairs, the nature of his activities if Arena’s case is correct (as to which I have held that there is a good arguable case) and the unsatisfactory state of Mr Schroeder’s evidence, provide ample justification for a freezing order to prevent him from taking steps to make his assets unavailable for the purposes of satisfying Arena’s claim. 

161.	In the result, I conclude that on all the evidence now available, and absent any non-disclosure and misrepresentation, this is a case in which the freezing order should be continued until trial or further order.

RELEVANT LEGAL PRINCIPLES – EXERCISE OF DISCRETION

162.	I have already cited the key passage from the judgment Ralph Gibson L.J. in Brink’s Mat Ltd v Elcombe [1988] 1 W.L.R 1350, 1356. Proposition (5) was in the following terms:

“(5)   If material non-disclosure is established the court will be astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure is deprived of any advantage he may have derived by that breach of duty:” see per Donaldson L.J. in Bank Mellat v. Nikpour, at p. 91 citing Warrington L.J. in the Kensington Income Tax Commissioners’ case [1917] 1 K.B. 486, 509.”

163.	This was based on the following passage from the judgment of Warrington L.J. in Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 509:

“It is perfectly well settled that a person who makes an ex parte application to the court – that is to say, in the absence of the person who will be affected by that which the court is asked to do – is under an obligation to the court to make the fullest possible disclosure of all material facts within his knowledge, and if he does not make that fullest possible disclosure, then he cannot obtain any advantage from the proceedings, and he will be deprived of any advantage he may have already obtained by means of the order which has thus wrongly been obtained by him. That is perfectly plain and requires no authority to justify it.”

164.	This passage makes clear that the consequence of a breach of the obligation of full and fair disclosure is that the court will generally deprive the defaulting party of the advantage which he has gained by means of the breach. The advantage obtained will depend on the nature of the order, but the general rule is clear. Where the order obtained is a without notice freezing order, this principle means that, at the subsequent inter partes hearing, the court may both discharge the original without notice order, and refuse to grant a new order, if it is satisfied that at the without notice stage there had not been full and proper disclosure of the facts by the claimant. That this is so was clearly laid down in Bank Mellat v Nikpour [1985] F.S.R. 87. In that case the claimant bank obtained an ex parte Mareva injunction on the basis of an affidavit which alleged that the former manager of its London branch had been credited at that branch with large sums of the money which were not due to him. As appears from the judgments of both Donaldson J. and Slade L.J., the bank was aware at the time it made the application that the defendant would rely on the defence that the former manager had provided perfectly good consideration for the sums in question, but this fact was not revealed to the judge when he granted the original ex parte order. Robert Goff J held that there had not been full and proper disclosure, and discharged the injunction. He also refused to grant a fresh injunction, save that he continued it pending appeal.

165.	The Court of Appeal upheld Robert Goff J’s decision. All three judges emphasised the importance of upholding the requirement for full and fair disclosure. I have already cited from the judgments in connection with the meaning of that requirement. For the bank, it was submitted that the nondisclosure was innocent; that there was no fraud or deception; and that the true rule was that non-disclosure was not a ground for discharging an injunction unless the non-disclosure was deliberate, or the non-disclosure, if corrected at the time when the application for relief was made, would have led to that relief being denied. That submission was rejected and Robert Goff J’s decision upheld. Donaldson J. said this at p 92:

“So for my part I would reject Mr. Rattee’s submission. The rule requiring full disclosure seems to me to be one of the most fundamental importance, particularly in the context of the draconian remedy of the Mareva injunction. It is in effect, together with the Anton Piller order, one of the law’s two ‘nuclear’ weapons. If access to such a weapon is obtained without the fullest and frankest disclosure, I have no doubt at all that it should be revoked. In this particular case a cause of action was never put forward initially; then a wrong cause of action was put forward. Finally, a third cause of action was put forward which might perhaps have supported the grant of an injunction if put forward initially.

The defence was known to the plaintiffs at the time when they originally applied, but they never told the court what it was.”

166.	Lord Denning M.R. said this at p 90:

“I would accept Mr. Rattee’s argument to this extent: There may sometimes be a slip or mistake – in the application for a Mareva injunction – which can be rectified later. It is not for every omission that the injunction will automatically be discharged. A locus poenitentiae may sometimes be afforded: but not in this particular case. It is quite clear that the plaintiffs themselves had the greatest difficulty in showing what their cause of action was. At first they did not show any cause of action. Next they claimed that the moneys had been loaned to Mr. Nikpour. Finally they said against Mr. Nikpour that he had wrongly credited the sums to his account. It seems to me that, in all the circumstances, the judge was quite entitled to say that the injunction was not properly obtained: and that this is not a case where the plaintiffs should be given any locus poenitentiae to come in.”

167.	This case establishes that a failure to observe the obligation of full and fair disclosure in a without notice application for a freezing order will generally lead to both the discharge of the original order and a refusal to renew the order until trial. The case also establishes that it is not the law that the non-disclosure has to be deliberate before the court will discharge the original order. However, the court recognised that, in an appropriate case, it would have the power to grant a fresh order as a matter of discretion, depending on the particular circumstances. The circumstances in which it might be appropriate to exercise that discretion were not explored in the judgments. On the facts of that particular case, the claimant was aware of a defence which he knew the defendant proposed to run, but failed to alert the court to that defence on the without notice application. This was regarded as a serious breach justifying both the discharge of the original order, and the refusal of further relief.

168.	In Siporex Trade S. A. v. Comdel Commodities Ltd [1986] 2 Lloyd’s Rep. 428, a passage from which I have already cited, Bingham J. was dealing with an application to discharge a Mareva injunction obtained ex parte by Comdel. The judge held that Comdel had put before the court a misleading account of existing arbitration proceedings between the parties. Although he held that there was no intention to mislead, Bingham J. was satisfied that the judge had been given an altogether too rosy view of Comdel’s position in the arbitration, and there was in the circumstances a significant failure to disclose fully and fairly how matters stood according to a reasonably detached appreciation by Comdel and their advisers. Bank Mellat v. Nikpour [1985] F.S.R. 87 was cited and relied on by the judge in support of his general statement of principle, which included this observation.

“If the duty of full and fair disclosure is not observed the Court may discharge the injunction even if after full enquiry the view is taken that the order made was just and convenient and would probably have been made even if there had been full disclosure.”

Clearly, the judge accepted that it could be appropriate to discharge an ex parte injunction even where there was no intention to mislead.

169.	Three important cases came before the Court of Appeal in 1987. In the first of these to be decided, Lloyds Bowmaker Ltd v. Britannia Arrow Holdings [1988] 1 W.L.R 1337, defendants to proceedings for arrears of rental due under leases of telecommunications equipment launched third party proceedings against an expert upon whose advice they claimed to have relied in entering into the leases. The defendants applied ex parte for a Mareva injunction against the third party, but in their affidavit failed to disclose that the contracts were made with the third party’s company and wrongly stated that the third party had given no explanation for the amounts charged for hiring the equipment. The injunction was granted, but two years later the third party applied for it to be discharged on grounds of material non-disclosure. The application was dismissed by Sir Neil Lawson, but the Court of Appeal (Dillon and Glidewell LJJ) reversed that decision.

170.	Glidewell L.J., after citing Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, Bank Mellat v. Nikpour [1985] F.S.R. 87, Yardley & Co Ltd v. Higson [1984] F.S.R. 304 and Eastglen International Corporation v. Monpare S.A. (1987) 137 N.L.J Rep. 56, held at p. 1343H that those cases supported the submissions of Mr. Burke of counsel for the applicant. The submissions so accepted were to the following effect (p. 1341F):

“A party who seeks relief ex parte is under a duty to the court to make the fullest disclosure of all material facts. He must disclose any defence he has reason to anticipate may be advanced. If he does not comply, he will be deprived of the fruits of his order without consideration of the merits and irrespective of whether, had he made such disclosure, he would or would not have obtained the order. It matters not whether the non-disclosure is deliberate or innocent. The court may allow a limited latitude for a slip, but only where the party seeking relief has corrected the error quickly.”

171.	However, Glidewell L.J. also accepted the submission of Mr. Twigg for the respondent expressed as follows (p. 1341H):

“Alternatively, he submits that, even if an injunction initially granted is discharged, the court should be ready to consider a further application for an injunction based upon the facts as they appear at the time of the application to discharge the first injunction.”

172.	Glidewell L.J. continued:

“In my view these authorities support the propositions of law advanced by Mr. Burke as set out above. However, Mr. Twigg’s last submission is also correct in my view, i.e., even though a first injunction is discharged because of material non-disclosure, the court has a discretion whether to grant a second Mareva injunction at a stage when the whole of the facts, including that of the original non-disclosure, are before it, and may well grant such a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed.”

This passage has been cited with approval in a number of subsequent cases, in particular in support of proposition (7) in Ralph Gibson L.J.’s list in Brink’s Mat v Elcombe [1988] 1 W.L.R 1350.

173.	Dillon L.J. said this (p. 1347):

“As I said in a judgment given in this court only last week, I would endorse as emphatically as I can the views expressed by Lord Denning M.R. and Donaldson L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87, that the making of an application for a Mareva injunction requires the fullest and frankest disclosure to the court on the part of the applicant. If an injunction is obtained and there has been material non-disclosure by the applicant, then prima facie the injunction ought to be discharged.

This is an instance – of particular importance because of the draconian nature of a Mareva injunction – of the general rule as to ex parte applications which is very clearly set out in the judgments of this court in Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1987] 1 K.B. 486 to which Glidewell L.J. has referred. That must, I apprehend, as a matter of jurisdiction be a rule of practice rather than a rule of law, and, in so far as the judgments in the Polignac case show that the rule is derived from the practice of the old Court of Chancery in relation to the grant of injunctions, there must, I apprehend, be an element of discretion which, despite nondisclosure, might allow an injunction to stand in an exceptional case, as in effect was done in Eastglen International Corporation v. Monpare S.A. (1987) 137 N.L.J. Rep. 56. That does not, however, arise in the present case.”

174.	The Court of Appeal upheld two of the complaints of material non-disclosure and discharged the injunction, relying in particular on Bank Mellat v. Nikpour [1985] F.S.R. 87. The Court considered the possibility of granting a fresh injunction, or remitting the matter to the High Court for that purpose, but decided that in view of the defendant’s delay in prosecuting the third party proceedings this would not be an appropriate course.

175.	In dealing with the allegations of non-disclosure, Dillon L.J. explained that in the affidavit in support, the defendant had “sought to put in maximum prejudice against the third party.” After referring to the relevant passages in the affidavit, he said that these statements were calculated to prejudice the third party, and were thus highly material to the application for the Mareva injunction. Dillon L.J. continued:

“The judge seems to have thought that non-disclosure is only material as a basis for discharging the injunction if it affects some point which it is necessary for the applicant for the injunction to establish if he is to succeed in his claim. Therefore he said that the failure to disclose that the defendants knew about the company was not material, because it would have been no defence for the third party to say in answer to the charge of fraud: ‘It was not I, it was my tame company who did it.’

With all respect, I do not agree with the judge that the duty of disclosure is so limited. The applicant owes a duty of fullest and frankest disclosure: if he puts in matters of prejudice he must put them in as fully as is necessary to be fair. He cannot pile on the prejudice and then when it is pointed out that he has told only half of the story and has left out matters which give a quite different complexion, say ‘Oh, well, it is not material. It is only prejudice, and so, on a strict analysis of the pleadings, does not have to be regarded.’

…

In my judgment, therefore, the defendants were guilty of serious and material non-disclosure on that application to Kennedy J. for the Mareva injunction.”

176.	I draw attention to these passages, because they appear to me to be relevant to the approach to be taken on this application to the prejudicial statements made by Ms Marston in her affidavit about Mr Schroeder’s alleged criminal conduct, whilst recognising that Dillon L.J.’s remarks were directed to the question whether the duty applies to such prejudicial statements, rather than to the question of the assessment of their seriousness for the purposes of the exercise of the court’s discretion.

177.	The second of the three cases decided in 1987 was Brink’s Mat v Elcombe [1988] 1 W.L.R 1350 itself. In that case, the plaintiffs obtained from Roch J an ex parte Mareva injunction against, inter alia, the ninth and tenth defendants. An application to discharge that injunction on the grounds of material non-disclosure was refused by Judge White. However, the ninth and tenth defendants then made a further application to Alliott J which was allowed on the ground that there had been innocent but material non-disclosure of facts in the information the plaintiffs had put before Roch J and that new material had falsified the basis on which the plaintiffs had sought to show a ground of claim against the ninth and tenth defendants. The Court of Appeal held that although the plaintiffs had failed to disclose material facts to Roch J, on the evidence before Judge White, it would have been right for him to continue the injunction, and that the additional information before Alliott J did not establish any further material non-disclosure.

178.	I have already cited the principles enunciated by Ralph Gibson L.J. However, the other Lords Justices also had important observations to make about the exercise of the court’s discretion. Balcombe L.J. said this at p. 1358:

“The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a two-fold purpose. It will deprive the wrongdoer of an advantage improperly obtained: see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1987] 1 K.B. 486, 509. But it also serves as a deterrent to ensure that persons who make ex parte applications realise that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained: see in general Bank Mellat v. Nikpour [1985] F.S.R. 87, 90 and Lloyds Bowmaker Ltd v Britannia Arrow Holdings Plc, ante, p. 1337, a recent decision of this court in which the authorities are fully reviewed. I make two comments on the exercise of this discretion. (1) Whilst, having regard to the purpose of the rule, the discretion is one to be exercised sparingly, I would not wish to define or limit the circumstances in which it may be exercised. (2) I agree with the views of Dillon L.J. in the Lloyds Bowmaker case, at p. 1349C-D, that, if there is jurisdiction to grant a fresh injunction, then there must also be a discretion to refuse, in an appropriate case, to discharge the original injunction.”

	179.	Slade L.J. said this at p. 1359:

“The principle is, I think, a thoroughly healthy one. It serves the important purposes of encouraging persons who are making ex parte applications to the court diligently to observe their duty to make full disclosure of all material facts and to deter them from any failure to observe this duty, whether through deliberate lack of candour or innocent lack of care.

Nevertheless, the nature of the principle, as I see it, is essentially penal and in its application the practical realities of any case before the court cannot be overlooked. By their very nature, ex parte applications usually necessitate the giving and taking of instructions and the preparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths. In one or two other recent cases coming before this court, I have suspected the signs of a growing tendency on the part of some litigants against whom ex parte injunctions have been granted, or of their legal advisers, to rush to the Rex v. Kensington Income Tax Commissioners [1917] 1 K.B. 486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience. 

Though in the present case I agree that there was some material, albeit innocent, non-disclosure on the application to Roch J., I am quite satisfied that the punishment would be out of all proportion to the offence, and indeed would cause a serious potential injustice if this court were, on account of such non-disclosure, to refuse to continue the injunction granted by Roch J. on 9 December 1986.”

180.	In summary, the relevant points which I derive from Brink’s Mat Ltd. v. Elcombe [1988] 1 W.L.R. 1350 are as follows:

(1)   The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the without notice order, nevertheless to continue the order, or to make a new order on terms (Ralph Gibson L.J.’s proposition (7)).

(2)   The rule that injunctions obtained in breach of the duty should be discharged should not be allowed to become an instrument of injustice (Balcombe L.J. at p. 1358; Slade L.J. at p. 1359).

(3)   It is relevant to the exercise of this discretion that the original nondisclosure was innocent (Ralph Gibson L.J.’s proposition (7) and the Lloyds Bowmaker case).

(4)   It is also relevant to the exercise of this discretion that an injunction could properly have been granted even had the relevant facts been disclosed (ditto).

(5)   The purpose of discharging an injunction obtained in breach of the rule is to ensure compliance with the duty of full and fair disclosure (Balcombe L.J. at p. 1358).

(6)   Whilst the discretion is one to be exercised sparingly, the courts decline to define or limit the circumstances in which it may be exercised (ibid).

(7)   The principle should not be carried to extreme lengths, especially in cases where the claimant has had to act with haste, or in heavy commercial cases (Slade L.J. p. 1359). 

(8)   The jurisdiction is penal in nature, and the court should therefore have regard to the proportionality between the punishment and the offence (ibid).

181.	The third case in 1987 was Behbehani v Salem, reported at [1989] 1 W.L.R. 723 as a note to Ali and Fahd Shobokshi Group Ltd v Moneim [1989] 1 W.L.R. 710. In Behbehani v Salem, the plaintiffs alleged that they had been induced by the first defendant to make substantial property investments in various countries and that the first defendant had made substantial secret profits in regard to those investments. The allegation was that the first defendant would inform the first plaintiff of the purchase price of the property which was substantially in excess of the actual price, but that he paid the inflated price, the first defendant keeping the difference. The Court of Appeal (Nourse and Woolf L.JJ.) accepted that there was a strong prima facie case of fraud against the first and fourth defendants involving large sums of money.

182.	Rougier J. discharged the Mareva injunction granted by Roch J. but in the exercise of his discretion granted a fresh injunction in similar terms. That decision was reversed by the Court of Appeal. It was not disputed that material matters which should have been disclosed to Roch J. were not so disclosed. These included: (1) the fact that the first plaintiff had brought proceedings against the defendant in Spain; (2) the fact that the first plaintiff had obtained the equivalent of a Mareva injunction in Spain; (3) the fact that the Spanish proceedings duplicated to some extent the proceedings in England; (4) the fact that the first defendant had himself brought proceedings in Spain; and (5) the fact that the first defendant had written claiming £500,000 in compensation in consequence of the sale of one of the properties in issue. Such was the extent of the non-disclosures that the plaintiffs had conceded before Rougier J. that the ex parte injunction should be discharged, and the only issue was whether it was appropriate for a fresh injunction to be granted as a matter of discretion.

183.	The first judgment was given by Woolf LJ. He cited extensively from all three judgments in Brink’s Mat v. Elcombe [1988] 1 W.L.R. 1350. At p. 729, he said this:

“… I regard the Eastglen International case, 17 September 1986, as being very much an exceptional case, and one which should not be regarded as having application in respect of the different facts and in the different circumstances which exist here. Indeed I regard it as undesirable to apply hard and fast rules. It is preferable, in my view, for each case to be considered on its own merits taking into account the public interest which exists in protecting the administration of justice from the harm that will be caused if applicants for the draconian relief of Mareva and Anton Piller orders do not, on an ex parte application, make disclosure of all the material facts, whether or not the non-disclosure is innocent. I recognise the strain placed on legal advisers and the pressure under which they have to work, especially in large commercial actions, where prompt steps sometimes have to be taken in order to protect their clients’ interests. However, if the court does not approach the question of the non-disclosure of material matters in the way that has been indicated in earlier decisions, there will be little hope of solicitors who are subjected to such pressures appreciating the importance of making full disclosure and, more important, bringing home to the clients the serious consequences of non-disclosure.

In deciding in a case where there has undoubtedly been non-disclosure whether or not there should be a discharge of an existing injunction and a re-grant of fresh injunctions, it is most important that the court assesses the degree and extent of the culpability with regard to the non-disclosure, and the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court.

In this connection Mr. Brodie at one stage of his argument submitted that the acid test was whether or not the original judge who granted the injunction ex parte would have been likely to have arrived at a different decision if the material matters had been before him. I do not regard that as being the acid test. Indeed, although I regard it as a relevant matter when considering the question of discharge and re-grant of injunctions, I do not regard it as a matter of great significance unless the facts which were not disclosed would have resulted in the refusal of an injunction.”

184.	I derive the following important principles from this passage:

(1)   In the exercise of its discretion, the court should have regard to all the circumstances of the case and should not apply hard and fast rules.

(2)   The court should take account of the need to protect the administration of justice and uphold the requirement of full and fair disclosure.

(3)   The court should assess the degree and extent of the culpability with regard to the non-disclosure. 

(4)   The court should assess the importance and significance to the outcome of the application for an injunction of the  matters which were not disclosed to the court. 

(5)   For the purposes of (4), the court does not have to reach the conclusion that the judge would have reached a different decision if the relevant facts had been disclosed. The court can properly reach the conclusion that the nondisclosure was important and significant even where the judge would still have granted the injunction.

185.	Proposition (5) is based on the last paragraph of the cited passage from the judgment of Woolf L.J. I have expressed it in that way because it appears to me that Woolf L.J. could not have been intending to qualify, still less dissent from, Ralph Gibson L.J.’s proposition (7) in Brink’s Mat v. Elcombe [1988] 1 W.L.R 1350, or the dictum of Glidewell L.J. in Lloyds Bowmaker Ltd. v Britannia Arrow Holdings Plc. at p. 1343, cited by Ralph Gibson L.J., given that this was the only case to which Woolf L.J thought it necessary to refer. Glidewell L.J. stated that one matter for the court to take into account in considering whether to grant a second injunction was whether an injunction “could properly be granted even had the facts been disclosed”. In the context in which those words were used, I think Glidewell L.J. must have been intending to refer to the position as it would have been at the time that the ex parte application was originally made, and to be asking whether, if the facts which were not disclosed had been disclosed at that time, the judge could properly have granted the injunction.

186.	This also appears to be the way in which Nourse L.J. viewed the matter, for he said this at p 736:

“I agree that in order to get at the principles of discretion on which the court acts in a case of this kind we do not now look further than the decision of this court in Brink’s Mat v. Elcombe [1988] 1 W.L.R 1350, where they are summarised in the passage in the judgment of Ralph Gibson L.J. which Woolf L.J. has read. In paragraph (7) of that summary, at p. 1357, we find that:

‘The court has a discretion, notwithstanding proof of material non-disclosure which justified or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms. “When the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant ... a second injunction if the original nondisclosure was innocent and if an injunction could properly be granted even had the facts been disclosed”: per Glidewell L.J. in Lloyds Bowmaker Ltd. v Britannia Arrow Holdings Plc. [1988] 1 W.L.R. 1337, 1343H-1344A”. 

Although it would not be correct to treat Glidewell L.J.’s statement of the circumstances in which the court may exercise its discretion as being exhaustive, it is, I think, likely to have relevance in many of these cases, and it is certainly a useful starting point in this I should add that in the Brink s Matt case all three members of this court defined an innocent non-disclosure as one where there was no intention to omit or withhold information which was thought to be material see ante, p 728E-F, [1988] 1 W.L.R. 1350, 1358G and 1360H).

Since it is accepted both that the non-disclosure justified or required the immediate discharge of the ex parte order and that the whole of the facts are now before the court, the questions to which we should start by addressing ourselves are, first, whether it was innocent, and, secondly, whether an injunction could properly have been granted if full disclosure had been made to Roch J.”

187.	In the last paragraph of this passage, Nourse L J was directly addressing the two matters identified by Glidewell L J as being potentially relevant to the exercise of the court’s discretion. He appears to be accepting, as held by Ralph Gibson L J, that it is relevant for that purpose to consider whether if full disclosure had been made to the judge who granted the ex parte injunction, he could properly have granted the injunction in any event. However, Nourse L J also said this at p. 738:

“The fact that at the end of the day Roch J. might nevertheless have made the orders sought, which I am perfectly prepared to assume that he would, is, as Woolf L.J. has said, entirely beside the point. This is not a consideration which can relieve an ex parte applicant of the duty of dislosure.”

188.	Clearly, Nourse L.J. was here agreeing with the passage in Woolf L.J.’s judgment at p 736E-F. But he could not thereby have been intending to qualify or dissent from Glidewell L.J.’s dictum, because he (Nourse L.J.) had previously identified as being a potentially relevant question for the court to consider in the exercise of its discretion whether the injunction could properly have been granted if full disclosure had been made to Roch J.

189.	In Behbehani, the Court of Appeal considered that Rougier J had failed to give sufficient weight to the culpable nature of the plaintiffs’ failure to disclose the Spanish proceedings, the injunction granted in those proceedings, and the defendant’s own Spanish proceedings. It was clear from the evidence before the court that the failure to disclose the Spanish proceedings and the injunction was the result of a deliberate decision, taken out of a desire not to alert the defendant to the existence of those proceedings before they had been served in Spain. Woolf L J took a much less charitable view of this decision than had Rougier J, commenting that he did not regard it as “understandable” that the view should have been taken that those proceedings should not be disclosed.

190.	Woolf L J continued (at p 734F):

“He concludes by approaching the matter as being one of balance, and he puts in the scales on one side the strength of the plaintiffs’ claim, and on the other side he puts the matters which were not disclosed. It is in the performance of that balancing exercise where the judge has gone wrong to a critical extent, and come to a conclusion which I can only regard as being wholly wrong.

I sought to indicate earlier that in my view there is a considerable public interest in the court ensuring that full disclosure is made on ex parte applications of this sort. If it is to be sufficient to outweigh that public interest to point to the harm that could befall plaintiffs if an injunction is not re-granted, then the whole policy which has been adopted by the court in this field in my view would be undermined. Injunctions in the nature of Mareva and Anton Piller orders should not be granted unless the plaintiff can show a substantial case for saying that unless they are granted they will be under serious risk that assets which might otherwise be available to meet the judgment being dissipated or evidence which might otherwise be available disappearing. In my view it cannot be sufficient to carry out a balancing exercise in the way it was carried out by the judge. It would seem to me that if that approach were adopted, a judge would inevitably come to the conclusion that the injunction must be re-granted.

…

When one looks at this case, with regard to the Spanish proceedings there was a remarkable failure to make disclosure to this court in respect of the first plaintiff’s proceedings. In my view there was also a serious failure, both in regard to the first defendant’s proceedings and in relation to the settlement. If the right approach is one which requires the court to measure the materiality of the non-disclosure looked at cumulatively, then it cannot be right just to sweep that aside on the basis of the strength of the plaintiffs’ case against the defendants. In my view it is important that this court should uphold the policy which I detect indicated by the cases to which I have made reference, and the cases in particular which were cited by this court in the Brink’s Mat case [1988] 1 W.L.R 1350, and not approach the matter in the way which was indicated by the judge. It is for that reason that I would allow this appeal.”

	191.	To the same effect, Nourse L.J. said this (p. 738G):

“While I take full account of all the points which Mr Brodie has made to us, including his submissions on the depth and scale of the defendants’ iniquity, as it was seen by the judge, particularly perhaps in Canada and France, and also the requirement that the rule of policy should not become an instrument of injustice, I am in the end satisfied that Rougier J’s decision cannot be sustained. I certainly do not say that a judge’s view of the general merits of the plaintiff’s case is a consideration which cannot be weighed in the balance, although my clear impression of the cases is that it has never played the same part on an application for discharge as it does on the initial ex parte application. Indeed, I do not see how it could play such a part if the rule of policy is to be maintained, as it is essential that it should be. Be that as it may, I am entirely satisfied that, on the facts of this case and on the material before him, the judge was in error in allowing that consideration to outweigh the rule of policy. Whether it is more correct to say that he erred in applying established principles of discretion on which the court acts or that he failed to take into account important matters which he ought to have taken into account or that his decision was plainly wrong may not matter very much.”

192.	From these passages I derive the following further principles, additional to those already identified

(1)   There is a considerable public interest in the court ensuring that full disclosure is made on ex parte applications, which the court should uphold.

(2)   That policy should not be undermined by pointing to the harm which would be suffered by the plaintiffs if an injunction were not re-granted.

(3)   Although the court can weigh the merits of the plaintiffs’ claim in the balance, it should not carry out a simple balancing exercise in the way it was carried out by the judge.

193.	In Dubai Bank v Galadari [1990] 1 Lloyds Rep. 120, the Court of Appeal was concerned with a further case in which an ex parte Mareva injunction had been obtained in circumstances where there had been material non-disclosure of important facts. The plaintiff bank had been under the control of the Galadaris between 1970 and 1985, when it was taken over by the Government of Dubai. The bank complained that large amounts of interest on certain deposits had been unlawfully diverted into their own pockets. The bank obtained an ex parte Mareva injunction and ancillary orders for disclosure of assets, but this was later discharged by Morritt J. on the grounds that important facts known to the Government of Dubai had not been disclosed. The Court of Appeal refused to interfere with his exercise of his discretion. It was submitted on behalf of the bank that even where there had been non-disclosure on an ex parte application, the court should only discharge an injunction or refuse to continue an injunction if the court was satisfied that the non-disclosure was a deliberate attempt to mislead the court or a wilful failure to inquire as to the obvious. Dillon L.J. pointed out at p. 126 that this was not the ratio of the various decisions of the Court of Appeal considered earlier in this-judgment. He went on:

“It is now accepted in this Court that, even if there has been material non-disclosure, the Court has a discretion whether or not to discharge an order obtained ex parte and a discretion whether or not to grant fresh injunctive relief Discharge of the order is not automatic on any non-disclosure being established of any fact known to the applicant which is found by the Court to have been material.”

194.	Having considered the various grounds of non-disclosure upheld by Morritt J, he held that the judge was entitled to take the view that the non-disclosure was material and serious, whether or not deliberate, and had left open the possibility that it was deliberate

195.	Staughton L.J. observed that there was no doubt that the bank had put forward a good arguable case, and a prima facie likelihood of dissipation. He went on:

“In any event there was also non-disclosure to be considered before the injunction was continued. The authorities show plainly that non-disclosure will, in an appropriate case, not only be a ground for discharging an ex parte order, but also a ground for refusing to make a fresh order inter partes. At least in one respect there was here non-disclosure which was in my view both serious and culpable. The Galadaris had specified what they said was their defence to the claim, and there can scarcely be any more important topic of disclosure than that. As to culpability, it is said the Dubai Bank did not know the facts, and that those whom they consulted in the Government of Dubai had forgotten them. But the letters were still in the Government’s possession.

…

Once serious and culpable non-disclosure was established, the Judge had a balancing task to perform. On the one hand if justice required that a fresh injunction should be granted (which in the Judge’s view it did not, but the contrary was arguable), it might be thought unjust to refuse one on the grounds of non-disclosure. On the other hand the Courts must uphold and enforce the duty of disclosure, as a deterrent to others, if they are not to be deceived on ex parte applications. The conflict between those principles is well illustrated in a passage from the judgment of Lord Justice Woolf in the Behbehani case.”

He then cites the passage already set out above.

196.	Staughton L.J. evidently considered that there is a real conflict between the need to uphold and enforce the duty of disclosure in a case in which justice required the grant of a fresh injunction.

197.	In Lagenes Limited v It’s at (UK) Limited [1991] F.S.R. 492, the plaintiff obtained an ex parte injunction restraining the sale of dresses alleged to infringe the plaintiff’s copyright. The draft affidavit in support of the application gave an inaccurate account of the plaintiff’s financial position for the purposes of the cross-undertaking in damages. A later affidavit corrected the earlier statements and offered a bond from the plaintiff’s bank. Ferris J. refused the defendant’s application to discharge the injunctions on the ground of incomplete disclosure. He held that the judge-made rule that an ex parte injunction obtained without full disclosure could not be allowed to become an instrument of injustice, and that there was jurisdiction, which was to be sparingly exercised, to continue the injunction or grant a fresh injunction in its place.

198.	In the course of his judgment, Ferris J. considered (a) whether the non-disclosure complained of was innocent, and (b) whether the injunction could properly have been granted if full disclosure had been made. In doing so, he clearly based himself on the dictum of Glidewell L.J. in Lloyds Bowmaker Ltd. v Britannia Arrow Holdings Plc. [1988] 1 W.L.R. 1337 and Ralph. Gibson L.J.’s proposition (7) in Brink’s Mat v. Elcombe [1988] 1 W.L.R 1350. However, he made clear (explaining Al and Fahd Shobokshi Group Ltd. v Moneim [1989] 1 W.L.R 1268, a decision of Mervyn Davies J.) that even though either or both of the questions might be answered in the negative, he still had a discretion in the matter (see p. 503). He answered question (a) in the negative on the basis that the deponent must have been aware of at least some of the most important facts which made the affidavit substantially inaccurate. He answered question (b) in the affirmative, holding that the case was one where the court could undoubtedly have made the order which it did in fact make.

199.	Ferris J. continued at p. 506:

“As I have already indicated, I reject the suggestion that a negative answer to either of the questions means that I must automatically discharge the order and decline to entertain the application for a continuance of injunctive relief against the defendants. In my view, I have a discretion in the matter. The Behbehani case shows, however, that it would be wrong to exercise that discretion by attempting to balance the gravity of the plaintiff’s misrepresentation against the strength of the plaintiff’s case against the defendants. I must bear in mind throughout that on the view which I have formed, the plaintiff was in breach of a fundamental duty and what I have to decide is what should be the consequences of that breach.

If the plaintiff had not provided the bond which it has in fact provided I have no real doubt that the right answer would have been to discharge the ex parte injunctions and probably also to decline to entertain the plaintiff’s present motions. But the fact that a bond has been provided and that this was done in effect as soon as attention was drawn to the misrepresentation makes what is to my mind a fundamental difference ...”

In the circumstances of that case, he held that the advantage which the plaintiff had obtained by its misrepresentation was very slight and that it was right the injunctions should be continued.

200.	In Kuwait Oil Tanker Company SAK and another v Al Bader and others, unreported, 27 November 1995, the plaintiff alleged that the defendants had defrauded them of a sum in excess of US$75 million over the period 1986 to 1992 by siphoning off money from the plaintiffs to companies set up by one or more of the defendants. On 24 July 1994, the plaintiffs applied  ex parte  to Cresswell J. for worldwide Mareva relief, which was granted. In February 1995, the first and second defendants applied to Judge Diamond to discharge the ex parte injunctions both on the grounds that a sufficiently strong case to justify them had not been made, and that the plaintiffs had been guilty of material non-disclosure at the time of the ex parte applications. Judge Diamond dismissed all the applications and refused leave to appeal. He upheld three of complaints of material non-disclosure, whilst indicating that the affidavit in support of the applications, viewed as a whole, was a careful and conscientious affidavit which gave a fair description of the claims, and the evidence on which they were based, and included a section dealing with possible defences. However, the affidavit wrongly stated that the whereabouts of the first defendant had only recently become known to the plaintiffs. The judge held that this was material because it tended to demonstrate that the deponent was not justified in saying that the plaintiffs had only recently discovered that the first and second defendants had assets within the jurisdiction. He also held that had this and other matters been disclosed it was “not at all likely” that Cresswell J. would have refused to grant the injunction.

201.	The Court of Appeal (Beldam, Hobhouse and Aldous L.JJ.) dismissed the appeal, holding that there were no grounds on which to interfere with Judge Diamond’s exercise of his discretion. Hobhouse L.J. said this:

“Where an ex parte order has been made a party aggrieved by that order may apply inter partes to have the order set aside. He can make that application simply on the material that was before the court on the ex parte application. The court on the inter partes hearing has to consider the matters afresh and may arrive at a different conclusion. Alternatively, application to set aside may be made with the support of additional evidence or material placed before the court on the inter partes hearing. Here again, if the court concludes, having considered all the material including the new material and all the arguments placed before it, that the order should not be made, the order will be discharged. Thus far, what happened on the inter partes hearing was the decision on the merit of the application for the relevant order. If the order is not one which should, on the merits, be made then it will be set aside. 

If however the result of the inter partes hearing, and the consideration of the totality of the material before the court is that the order is the appropriate one on the merits the party aggrieved may be able to make an application that the order be set aside on the grounds of non-disclosure. This is an application of a different character which relates to the need to preserve the integrity of judicial procedure …

Where there, has been some material non-disclosure, which ex hypothesi is not sufficient to justify setting aside the original order on its merits, the judge has a discretion which he must exercise in accordance with the guidance given in the authorities whether or not to set aside the original order on the grounds of non-disclosure. It is a discretion and the established principles for the review of such a discretion on an appeal to this Court apply.”

202.	Later, after citing Dubai Bank v Galadari [1990] 1 Lloyds 120 and National Bank of Sharjah v Dellborg [1993] 2 Bank LR 109, Hobhouse L.J. said this:

“Judge Diamond summarised the relevant legal principles and made appropriate quotations from the two leading decisions of the Court of Appeal which have also been cited before us, Brink’s Mat v. Elcombe [1988] 1 W.L.R 1350, and Behbehani v Salem [1989] 1 W.L.R. 723. Each case stresses the importance of full and frank disclosure in the making of ex parte applications for Mareva injunctions and Anton Piller orders. This importance does not need to be re-stated or re-emphasised. The duty goes beyond that which is present on any ex parte application. The nature of the order that is being applied for may have irremediable consequences for those it affects. Those making the application must take care to make proper enquiries beforehand so that the relevant facts can be presented to the Court with appropriate completeness and accuracy. It is accepted in the present case as found by Judge Diamond, that the Plaintiffs and those representing them did not fully discharge their duty. It is not suggested that if the full facts had been accurately placed before Cresswell J. he would have made a materially different order. This is not a case where it can be said the Plaintiffs have benefited in any way by their breach of duty. Nor is it a case where it is said that they acted in any way in bad faith, although it is asserted and now accepted that they were culpable.”

203.	Hobhouse L.J. then cited from the judgments of Balcombe L.J. and Slade L.J. in Brink’s Mat v. Elcombe [1988] 1 WLR 1350 and continued:

“The present case falls within these principles. Whilst it was more than regrettable that Mr. Croft should have sworn to the statements that the whereabouts of Mr Al Bader were unknown and that it had only recently been discovered that he had assets in London, these points were peripheral. Mr Brodie rightly pointed out that to say of someone that he had in effect disappeared was very prejudicial. But the weight of the Plaintiffs’ case for a Mareva injunction against Mr Al Bader arose not from such nuances but from the strength of the Plaintiffs’ case that he had been engaging in systematic fraud so as to remove very substantial funds into the hand of specially created offshore companies and anonymous bank accounts. Their case for a Mareva injunction in no way depended on the ability to track down Mr Al Bader to a confirmed place of residence although that would be material to the ability to serve proceedings. Similarly, the stage at which it was first learnt that Mr Al Bader had bank accounts in London was of marginal relevance. It was again peripheral. It did not relate directly to the commission of any of the alleged fraudulent acts. It was only relevant to the necessary deposition that he was believed to have assets within the jurisdiction, as was in fact the case.

Mis-statements were made in the affidavit. They should not have been made. Although Judge Diamond properly concluded that they were material, it would be disproportionate to treat them as a reason, or even a substantial part of the reason, of discharging the injunction.”

204.	The case of Kuwait Oil Tanker Company SAK and another v Al Bader and others was an application of established principles to the particular facts of that case, and the exercise of the discretion in that case cannot provide a guide to how it should be exercised on different facts, However the case is a useful illustration of the sorts of factors which the court has to assess in the exercise of its discretion. In particular, it demonstrates the importance of making an assessment of the degree and extent of the culpability with regard to non-disclosure and the importance and significance to the outcome of the application of the matters which were not disclosed, as well as the need to have regard to the proportionality between the gravity or otherwise of the mis-statements and the possible punishment in the form of discharge of the injunction.

205.	In OMV Supply & Trading AG v Clarke, unreported, 14 January 1999, Jacob J reviewed the principles on which the court acts in the exercise of its discretion. He cited from an unreported judgment of his own in the case of Alliance Resources Plc v O’Brien given on 8 December 1999, in which he said this:

“It was Donaldson L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87 who described the Anton Piller and the Mareva orders as the ‘nuclear weapons of the law’. Of the two nuclear weapons it is the Mareva which is thermo-nuclear. The atomic bomb of the Piller involves a severe intrusion of privacy but, once executed, it is by and large over. Its execution may even exonerate a defendant if, notwithstanding all the indications in the evidence, the Piller yields nothing. Formally a Mareva has the ongoing effect of judicial claims on a defendant’s financial affairs and, with Mareva discovery, an invasion of privacy which can be ongoing, particularly where a defendant is required to account regularly for such expenditure as is allowed by the order.

But the devastation caused by the hydrogen bomb of a Mareva is far wider than the strict legal effect. A defendant’s credit is likely to have been destroyed or severely damaged. An individual subject to such an order, if he is in work, may lose his job or if he is not in work will be unlikely to find any. A company will often be destroyed. In truth a Mareva is not only the beginning of the case; it is often the end, whether the order is justified or not.

In this rough world the two orders are a necessary part of the court’s powers. There are cases where they are wholly justified and the consequences for a defendant well deserved. But these orders give plaintiffs an enormous initial advantage in litigation, putting the defendant under tremendous pressure. So plaintiffs are keen to get them wherever they can. Experience has shown that not all lawyers fully consider, on an objective basis, whether an application for one of these weapons is justified. Once an order has been obtained, it is not all lawyers who execute or conduct them fairly. There is a temptation, which not all lawyers can resist, to be over-zealous in pursuit of their client’s case. So the courts must be vigilant in ensuring that they are only granted when necessary and are executed in a fair manner.”

206.	Jacob J. then went on to set out the principles enunciated by Ralph Gibson L.J. in Brink’s Mat v. Elcombe [1988] 1 WLR 1350, as well as referring to the “powerful caveat” on those principles expressed by Balcombe L.J. and Slade L.J. in the same case. He continued:

“A material consideration as to whether there should be discharge when there has been material non-disclosure, or breach of duty, or one of the other matters referred to by Ralph Gibson L.J., is whether or not there has been injustice to the defendant (see for example Hoffman J. in Lock International Plc v. Beswick [1989] 1 W.L.R.) or whether the plaintiff has gained any advantage by his failure of duty.

Finally in considering the general principles of law I think it is valuable to consider the recent judgment of the Court of Appeal in Kuwait Oil Tanker Company v Albania, an unreported case of 27 November 1995.”

Jacob J. then quotes passages from the judgment of Hobhouse L.J. in that case which have already been set out above.

207.	In March Rich & Co Holding v Krasner, unreported, 15 January 1999, the plaintiff brought proceedings alleging a fraudulent conspiracy to cream off profits made on commodity trading, and they applied to Lloyd J for a wide ranging worldwide Mareva injunction, an Anton Piller order and Bankers’ Trust orders. This was followed by an application to Carnwath J. to discharge the injunctions. The judge held that on the evidence there was a prima facie case against the defendants of fraud and breach of fiduciary duty. He also held that the plaintiff had failed to comply with its obligation on an ex parte application to make full enquiry and full and frank disclosure of all relevant circumstances in 6 material respects. He considered that a balance had to be drawn between applying the golden rule that required remedies obtained through non-disclosure to be withheld and allowing the victim of a prima facie fraud to go unprotected. In striking that balance he considered that the worldwide Mareva injunction should be granted against two of the defendants but in the reduced sum of £2m.

208.	On appeal, it was submitted that the judge applied the wrong test in law. In dealing with that submission, Lord Morritt cited the passage from Siporex Trade S. A. v. Comdel Commodities Ltd [1986] 2 Lloyd’s Rep. 428 set out above, as well as Bank Mellat v. Nikpour [1985] F.S.R. 87, Lloyds Bowmaker Ltd. v Britannia Arrow Holdings Plc. [1988] 1 W.L.R. 1337, Brink’s Mat v. Elcombe [1988] 1 WLR 1350, Behbehani v Salem [1989] 1 W.L.R. 723, and Dubai Bank v Galadari [1990] 1 Lloyds 120. He went on:

“The earlier cases to which I have referred indicated in varying terms that, prima facie, order obtained without proper disclosure should be discharged, that the jurisdiction to continue or re-grant them should be exercised sparingly and that the purpose of the prima facie rule, namely the protection of defendants and the court’s own procedure generally, was a relevant consideration in deciding whether or not to exercise the court’s discretion to grant or re-grant the order. See in particular Behbehani v Salem [1989] 1 W.L.R. 723 at pages 734-735. If the failure to disclose is deliberate, in the sense of the intentional omission of information thought to be material, then it is unlikely that the court will continue or re-grant the order but the failure may be culpable, that is to say blameworthy, even though not deliberate. The judge did not conclude that any of the instances of non-disclosure relied on before him was deliberate in the sense in which I have explained it.”

209.	After reviewing the judge’s judgment, Morritt L.J. continued:

“In my view, it is quite plain that the judge correctly considered the importance of the golden rule and the public interest in its enforcement. It is also clear that he appreciated that the prima facie result of this application would be to discharge and refuse to re-grant the orders obtained by its breach. But he correctly recognised that notwithstanding these considerations he was entitled to continue the relief obtained on the ex parte application. On the facts of the case he decided to do so. I can see nothing wrong with the test the judge applied and would reject this objection.”

210.	Staughton L.J. said this:

“Carnwath J said that the court faced an unenviable task in this case. I would prefer to say that the task of the judge was to reconcile the irreconcilable. Those who are guilty of non-disclosure must be deprived of the remedy they seek in order to encourage the others in future cases to display greater frankness and diligence. But in Cropper v Smith [184] 26 Ch. 700 at 710 Bowen LJ said: 

‘Courts of law do not exist for the sake of discipline but for the sake of deciding matters in controversy.’

That principle is in general still the law today, although I am not sure whether it will remain wholly intact when the new rules come into force. It is already modified in the special case of ex parte proceedings. Carnwath J had to reconcile the need for disciplinary action where there is significant non-disclosure in proceedings which require the presence of one party only with the general duty to do justice. I am satisfied that the conclusion which he reached was well within the range of a reasonable answer to the problem.”

211.	In Memory Corporation Plc. v. Siddhu [2000] 1 W.L.R. 1443, an application for an ex parte freezing and search orders was made by counsel who incorrectly told the judge that the draft orders placed before the court were in standard form. A subsequent application to discharge the orders was dismissed by the same judge. The case raised the question of the inter-relationship between the litigant’s duty of full disclosure of material facts, and the advocate’s duty to assist the court by reference to relevant authorities, statutory provisions and practice directions. In the Court of Appeal, Robert Walker L.J. referred to Bank Mellat v. Nikpour [1985] F.S.R. 87, Siporex Trade S. A. v. Comdel Commodities Ltd [1986] 2. Lloyd’s Rep. 428, Tate Access Floors Inc v. Boswell [1991] Ch. 512, Marc Rich & Co Holding v. Krasner (unreported), 18 December 1998, Carnwath J (the decision of the Court of Appeal in that case was handed down after the argument in Memory Corporation Plc v. Sidhu had concluded), Behbehani v Salem [1989] 1 W.L.R. 723 and Hytec Information Systems Ltd. v. Coventry City Council [1997] 1 W.L.R. 1666. He then said this, at p. 1455:

“The correct view, it seems to me, is that the advocate’s individual duty to the court, and the collective duty to the court, on a without notice application, of the plaintiff and his team of legal advisers are duties which often overlap. Where they do overlap it will usually be unnecessary, and unprofitable, to insist on one categorisation to the exclusion of the other. It will however always be necessary for the court, in deciding what should be the consequences of any breach of duty, to take account of all the relevant circumstances, including the gravity of the breach, the excuse or explanation offered, and the severity and duration of the prejudice occasioned to the defendant (which will include the question whether the consequences of the breach are remediable and have been remedied). Above all the court must bear in mind the overriding objective and the need for proportionality. As Balcombe L.J. said in Brink’s Mat v. Elcombe [1988] 1 WLR 1350, 1358, this judge-made rule cannot itself be allowed to become an instrument of injustice. The relative degrees of culpability of the client and of his lawyers are not irrelevant but will seldom if ever be determinative.”

212.	In St Merryn Meat Ltd and others v. Hawkins and others [2001] C.P. Rep. 116, the claimants obtained two interim freezing and search orders without notice. The defendants admitted involvement in significant frauds perpetrated on the claimants, but argued that in obtaining the interim order the claimants had deliberately misled the court. Geoffrey Vos QC sitting as a deputy judge of the High Court held that telephone conversations relied on by the claimant had been recorded on equipment installed at the defendant’s home, and that the failure to disclose this fact on the application for the freezing and search orders was a material and deliberate non-disclosure which had been compounded by the claimants’ subsequent reliance on false affidavits. Although the claimant had a good arguable case and there was evidence that the defendants might dissipate their assets, the judge held that where bad faith had been established and where a deliberately false and dishonest claim had been maintained, it was necessary to demonstrate the gravity of the duty of disclosure to the claimants and other applicants. He accordingly discharged the interim freezing and search orders.

SUMMARY

213.	On the basis of the foregoing review of the authorities, I would summarise the main principles which should guide the court in the exercise of its discretion as follows:

(1)   If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial. 

(2)   Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order. 

(3)   That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(4)   The court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction. 

(5)   The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.

(6)   The court can weigh the merits of the plaintiff’s claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff’s case is allowed to undermine the policy objective of the principle.

(7)   The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice. 

(8)   The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence. 

(9)   There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.

214.	This summary is set out here as a convenient reminder of the main points set out in the authorities, and is not intended to be a definitive statement of the applicable legal principles. The court has a single discretion, which is to be exercised in accordance with all the circumstances of the case, taking account of and giving such weight to the various factors identified in the cases as it considers appropriate.

APPLICATION OF THE LEGAL PRINCIPLES TO THE FACTS OF THIS CASE

General approach to exercise of discretion

215.	I have held that there were six material breaches of the principle requiring full and fair disclosure on a without notice application. I have already set out in detail my findings in respect of those breaches. It follows that, prima facie, I should discharge the order by which they were obtained and refuse to grant a fresh order. Whilst I have jurisdiction to grant a fresh order, this should be sparingly exercised and I must be astute not to undermine the policy importance of the rule.

Seriousness

216.	The breaches were in my judgment serious. On the without notice application, the errors in Ms Marston’s affidavit were such that the court was seriously misled about the alleged criminal conduct on the part of Mr Schroeder, the alleged forgery of the TIN stamps, and the alleged forgery of the customs stamps. Ms Marston has stated, and I have made it clear that I accept, that she did not deliberately mislead the court. However, a breach can be serious without being deliberate. Much depends on the significance of the breach to the case being presented. Here, Arena accused Mr Schroeder of orchestrating a major fraud, and applied for a without notice freezing order. This required Arena to demonstrate a good arguable case that Mr Schroeder had committed the fraud and a risk that he would dissipate his assets in the absence of an order. It is evident that the objectionable parts of Ms Marston’s affidavit were included for the purpose of inducing the court to accept that both these necessary elements of Arena’s case were made out. They were central to the case being advanced by Arena, not peripheral.

217.	It is a serious thing to accuse a defendant of criminal conduct, especially when he is not before the court. Money laundering, cigarette smuggling and diversion fraud are serious crimes. Any claimant who wishes to allege that the defendant has been involved in such activity has to be vigilant to ensure that a fair account of the material said to justify these allegations is provided in the evidence placed before the court. This fundamental requirement was not met in this case. The result was that the court was given an account of the facts which can only be described as seriously misleading. It goes without saying that the fact that Arena alleges diversion fraud against Mr Schroeder in respect of the specific consignments at issue, a case which is yet to be proved, cannot justify departure from the well-established disciplines which apply to the preparation of evidence of this nature.

218.	Mr Girolami QC submitted that the central thrust of the case against Mr Schroeder before Peter Smith J. and before this court was that Mr Schroeder was involved in an excise diversion fraud and was not a man to be trusted, and that nothing had changed about the core case between 5 December 2002 and now. This was not therefore a case in which the without notice order was originally obtained on one basis and it was now sought to uphold it on some wholly different basis from that originally proffered. I accept that the essential thrust of the case has not changed. However, the difficulty is that HMCE, and Arena’s provisional liquidator, chose to present evidence of criminal conduct in support of their case that Mr Schroeder was involved in the alleged fraud and was not be to be trusted. That evidence was highly prejudicial and, as I have held, presented in a manner which contravened the golden rule.

219.	Mr Girolami QC also submitted that, with the benefit of hindsight, it could be seen that if HMCE and Arena’s provisional liquidator had presented the case properly to Peter Smith J they would have been able to obtain the order which in fact they did obtain. Even if the objectionable matter were eliminated from the affidavit, there would still have been enough to justify the grant of the order which was obtained. The thrust of this submission was that while the non-disclosure might be material, it should not be regarded as of major importance. In the light of the authorities to which I have referred, I cannot accept this approach to an assessment of the importance of the non-disclosure. HMCE and Arena chose to rely on allegations of criminal conduct in support of their case, and having taken that approach it was incumbent on them to present the evidence fairly. On a fair reading of Ms Marston’s affidavit, the allegations were put forward as an important ingredient in the case against Mr Schroeder.

220.	As regards the alleged forgery of the TIN stamps, it is obvious that this was of central importance to the case being advanced. The thrust of Ms Marston’s affidavit was that it was necessary to cover up the fraud by producing evidence to the warehouse of despatch that the goods had arrived at the destination warehouse. She accused Mr Schroeder of creating or procuring the creation of fraudulent AADs for this purpose. An important part of the evidence upon which she relied was the alleged discrepancy between the impression of the TIN stamp made by Mr Roothaert and that on AAD02/0012. There was in fact no such discrepancy, and the materials which showed this were all in the possession of HMCE at the time she swore her affidavit.

221.	It is of course true that HMCE could have presented its case on the basis that the TIN stamps were genuine but had been illicitly obtained. That was the case presented before me. But the fact is that HMCE did not choose to present that case on the without notice application. The errors in the evidence put before the court were in my judgment of central importance to the case that was presented.

222.	The same considerations apply to the alleged forgery of the Belgian customs stamps. Ms Marston alleged that these had been forged by or at the behest of Mr Schroeder. She also alleged that efforts had been made to make it appear that one of the AADs had been presented to the Belgian customs. There was no evidence to support this case. The allegations were central to the case of fraudulent diversion presented to the court in Ms Marston’s affidavit, because it was of the essence of the alleged fraud, as explained by Ms Marston, that efforts would be made to cover up the diversion by creating false documents for presentation to the warehouse of despatch.

223.	Ms Marston’s failure to refer to the raid in Denmark or to the extensive documentation uplifted from Mr Schroeder in that raid was a clear breach of the golden rule. This was accepted by Mr Girolami QC. In my judgment, the breach was a serious one. It went to the heart of an important part of the relief sought on the application, namely the order for delivery up of Arena’s documents. It also affected other parts of the case presented, in particular Ms Marston’s statement that Mr Schroeder was “known to the authorities” in Denmark. Had Ms Marston known about the raid, she would not have made the statement she did in paragraph 3 about Mr Schroeder being known to the authorities in Denmark without also explaining why it was that he was so known. The failure to refer to the raid was also linked to the failure to refer to Mr Schroeder’s offer to be interviewed in Denmark, for HMCE’s intended inspection of the uplifted documents in Denmark formed the context in which the offer of an interview was made.

224.	In my judgment, I can and should take into account the failure to refer to the raid in the exercise of my discretion whether to continue the freezing order until trial. I do not accept that the matter ceased to have significance following Lindsey J’s judgment that no part of the without notice order should be lifted until a full inter partes hearing and the filing of evidence by each side. I have to form a judgment about the overall importance to the case presented on the without notice application of the breaches which occurred. I do not have to examine the situation which would have arisen if this particular breach had stood alone, although I can see that if that had been the case it might well not have been right to refuse to continue the freezing order in those circumstances.

225.	The failure to refer to Mr Schroeder’s offer to be interviewed is also a matter which falls to be taken into account in the overall judgment which I have to make as to the seriousness of the breaches. The fact that Mr Schroeder was willing to be interviewed in Denmark suggested that he was willing to explain the transactions which formed the basis of the assessments to HMCE. Although the correspondence which was not disclosed itself contained no such explanation, the very fact of the willingness to be interviewed tended to undermine the case for a freezing order and the other relief. The basis on which the without notice application was made was that if Mr Schroeder were given notice of it he would put his assets beyond reach of Arena’s provisional liquidators. It was material to that case for the court to know that Mr Schroeder had instructed a solicitor in England who had on his behalf offered that Mr Schroeder would answer questions from HMCE in Denmark. The breach therefore related to a central part of Arena’s case, albeit that the breach itself, viewed on its own, is not in my judgment serious in comparison with other breaches which occurred in this case. Although I do not have to consider this, I doubt whether if this breach had stood alone it would have justified a refusal to continue the freezing order until trial.

226.	Taking all six breaches together, I have reached the clear conclusion that the breaches were serious and of central importance to the case presented to the court on the without notice application.

Culpability

227.	Ms Marston did not deliberately mislead the court. However, the breaches, taken together, in my view constitute far more than a mere slip which the court can excuse as being a regrettable but essentially innocent lapse. HMCE’s investigation began before 2 May 2002. Ms Marston had been involved in the investigation for several months before she swore her affidavit. HMCE assembled the information necessary to instigate the raid in Denmark, and then assimilated the results of that raid. There was ample time in which to prepare the without notice application making proper and fair use of all the material information thus gathered. Had the proper disciplines been observed in the preparation of the evidence to support that application, none of the errors which I have identified would have been made. The scale and extent of the errors are themselves indicative of the lack of care which went into the preparation of the evidence. From the evidence I have seen, it appears probable that there was a failure of communication between those parts of HMCE responsible for the criminal investigation and those parts responsible for taking civil proceedings. If that is the explanation, it is lamentable. Whatever the explanation, the conduct of HMCE can only be described as seriously blameworthy and such to attract censure.

Proportionality

228.	The jurisdiction has been recognised to be essentially penal in nature and therefore it is important that I should examine whether a refusal to continue the without notice freezing order would be proportionate to the seriousness of the breaches and the culpability of HMCE in the preparation of the evidence. In my judgment such a refusal is proportionate. Indeed, it appears to me that the nature, scale and extent of the breaches are such that if I nevertheless continue the freezing order I would not properly be upholding the policy importance of the golden rule.

229.	Mr Girolami QC submitted that there was an alternative course of action open to me, falling short of a refusal to continue the freezing order. He invited me to consider (1) formally discharging the without notice order, (2) expressing displeasure in this judgment about the way in which the evidence in support of the without notice application was prepared, (3) penalising Arena in costs but (4) as a matter of discretion in all the present circumstances granting a fresh injunction until trial. He submitted that this course would both reflect the upholding of the golden rule, by imposing penalties, whilst ensuring that justice was done in the particular circumstances.

230.	In my judgment, the course proposed by Mr Girolami QC would not represent a sufficient response to the breaches which occurred. In substance, the result would be that Arena would have the benefit of a freezing order continuously in place from 5 December 2002 until trial, notwithstanding the breaches. The costs would no doubt be paid from the public purse, and HMCE, through Arena, would take the benefit of the order, whilst being left to take such steps as it thought appropriate to improve its internal procedures. I do not regard such a result as being in conformity with the principles laid down in the cases to which I have referred. In the circumstances which exist here, those principles appear to me to require that the court should send a clear signal both to those responsible for directing HMCE’s enforcement activities and to other litigants that the golden rule has to be observed, and that serious breaches are unlikely to be excused. To give litigants reason to believe that even serious breaches may be excused with a costs penalty would be to water down the basic rule to an extent which is not in accordance with the principles laid down by the Court of Appeal in the various cases which I have cited. In none of the cases to which I have referred was this course taken.

231.	Mr Girolami QC also submitted that the only advantage which Arena had obtained which should not have been obtained was the production of documents pursuant to the mandatory order. I do not accept this. A freezing order is a major weapon in the hands of a claimant and as was forcibly pointed out by Jacob J in Alliance Resources Plc v. O’Brien, 8 December 1999, unreported, involves chaining the defendant’s financial affairs and invading his privacy in the form of discovery orders, with ongoing effect so far as his continuing expenditure is concerned. Arena improperly obtained the enormous initial advantage of such an order by means of evidence which was seriously faulty. 

232.	There is of course a competing public interest here. The effective enforcement of the excise and VAT laws requires not only that those who commit offences should be prosecuted but that the injury to the public purse should be mitigated by determined and effective efforts to secure compensation from those responsible in the civil courts. HMCE is charged with that responsibility as well as the responsibility for criminal enforcement. It is frankly unpalatable to take a course which involves discharging a freezing order in circumstances where to do so may allow a person against whom a prima facie case of fraud has been established to evade a later order that he compensate the company in whose name the fraud was committed, thereby yielding a recovery for the main creditor, HMCE itself. Indeed, Mr Girolami QC submitted that to refuse to continue the freezing order would in substance involve the loss of Arena’s claim.

233.	There is no easy answer to this dilemma. In the end, however, I have reached the clear conclusion that the proportionate and ultimately just response to the circumstances which obtain here is to uphold the golden rule and deprive Arena of the continuation of the freezing order until trial. If Mr Schroeder did indeed commit the alleged fraud, and if he does manage to evade paying compensation as a result of discharge of the freezing order, the result stems from HMCE’s own conduct in failing to prepare the evidence in support of the without notice application in a proper manner.

234.	Although the way in which the discretion was exercised in one case cannot be a guide to the way in which it was exercised in another, I can at least take some comfort from the fact that in two of the reported cases, breach of the golden rule led to the discharge of freezing orders in circumstances where the court considered that the claimant had established a prima facie case of fraud against the defendant (see Behbehani v Salem [1989] 1 W.L.R. 713, Dubai Bank v Galadari [1990] 1 Lloyds Rep 120).

235.	I will hear counsel on the form of order and costs, and direct that the freezing order will remain in place at least until after argument on those matters has been concluded.