BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Strand, London, WC2A 2LL
B e f o r e :
|Tetronics (International) Limited
- and –
|HSBC Bank Plc
- and –
|BlueOak Arkansas LLC
Paul Downes QC (only on 20 February and 19 March 2018) together with Nicola Allsop (instructed by Eversheds Sutherland (International) LLP) for the Defendant
Michael Lazarus (instructed by Stewarts) for the Intervener
Hearing dates: 31 January 2018, 20 February 2018 and 19 March 2018
Crown Copyright ©
Mr Justice Fraser :
II. The facts leading to the grant of the injunction on 18 January 2018
"…. UNDER THE [SUPPLY CONTRACT] … YOU ARE TO MAKE ADVANCE PAYMENTS TO THE SELLER AND IN TURN, UNDER THE PROVISION OF CLAUSE 10A (SCHEDULE 3) OF THE CONDITIONS OF VARIATION AGREEMENT 02, THE SELLER WILL DEPOSIT WITH THE PURCHASER A BANK GUARANTEE TO WARRANT ITS PROPER AND FAITHFUL PERFORMANCE.
…..IN CONSIDERATION OF THE PAYMENTS MADE BY THE PURCHASER, WE HSBC BANK PLC, GTRF SERVICES, LEVEL 28, 8 CANADA SQUARE, LONDON E14 5HQ UNITED KINGDOM, HEREBY GIVE YOU OUR GUARANTEE AND UNDERTAKE TO PAY YOU ANY AMOUNT OR AMOUNTS NOT EXCEEDING IN TOTAL A MAXIMUM OF GBP3,080,000.00 (POUNDS STERLING THREE MILLION AND EIGHTY THOUSAND) ON RECEIPT OF YOUR FIRST DEMAND IN WRITING OVER ORIGINAL HANDWRITTEN SIGNATURE(S) ACCOMPANIED BY YOUR SIGNED STATEMENT CERTIFYING THAT THE SELLER IS IN BREACH OF ITS OBLIGATIONS UNDER THE UNDERLYING CONTRACT, AND THE RESPECT IN WHICH THE SELLER IS IN BREACH. ANY CLAIMS MUST BEAR THE CONFIRMATION OF YOUR BANKERS THAT THE SIGNATURE(S) THEREON ARE AUTHENTIC.
FOR THE AVOIDANCE OF DOUBT, ANY DOCUMENT(S) RECEIVED BY WAY OF FACSIMILE OR SIMILAR ELECTRONIC MEANS, IS/ARE NOT ACCEPTABLE FOR ANY PURPOSE(S) UNDER THIS GUARANTEE.
THIS GUARANTEE IS VALID FOR WRITTEN DEMANDS RECEIVED BY US ON OR BEFORE 19 JANUARY 2018 AFTER WHICH DATE OUR LIABILITY TO YOU UNDER THIS GUARANTEE WILL CEASE AND THIS GUARANTEE WILL BE OF NO FURTHER EFFECT."
17.1 If an Event of Insolvency occurs in relation to the Seller then the Buyer may at its option terminate this Contract.
17.2 If the Seller:(b)Abandons or unreasonably suspends performance of the Contract requirements without reasonable excuse for a period of thirty (30) days;(b) Is otherwise in breach of any of its material obligations under this Contract;(c) fails to achieve PAT that satisfies the success criteria set forth in Schedule 5 (or it deemed to have failed to achieve successful PAT pursuant to Clause 11.2(d); or(d) fails to achieve FAT that either (x) satisfies the success criteria set forth in Schedule 6 (y) falls short of the success criteria set forth in Schedule 6 but is within the Tolerated Range, or is deemed to have failed to achieve successful FAT pursuant to Clause 11.3 (e); then
The Seller shall, within thirty (30) days of receipt from Buyer of notice of default under this Clause 17.2, correct or cause to be corrected such default or make of cause to be made provision satisfactory to Buyer for correcting such default within a reasonable time thereafter, failing which Buyer may at its option terminate this Contract.
17.3 Upon any termination to Clause 17.1 or 17.2 the Buyer may, as a remedy:(a) Subject only to making payment to the Seller of any amount equal to the aggregate cost of all Plant on Site, together with the value of engineering and design, as reasonably determined by the Buyer and the Seller less the aggregate of all amounts previously paid by the Buyer to the Seller in accordance with Schedule 1. take possession of all Plant located at the Seller's facilities or the facilities of any supplier or any other supplier or subcontractor, whether or not such Plant is in a deliverable state; or
(c) Draw the full amount of the incurred damages from any outstanding Advance Payment Bond or Alternative Security or set off against payments that have been withheld pursuant to Clause 10A, as the case may be, to the extent that the Buyer has incurred damages due to such termination and such damages are not covered under other rights exercised by the Buyer. Seller shall continue to be liable for any deficiency. In the event that the Buyer intends to draw on any Advance Payment Bond or Alternative Security due to a termination the Seller shall have the opportunity, but in no case longer than thirty (30) days, to provide evidence to the Buyer of its ability to continue to perform its obligations under this Contract. If the Buyer determines in its reasonable discretion that the Seller is able to perform its obligations under this Contract in the manner initially anticipated by the Buyer then Buyer agrees to abstain from making the draw or exercising rights with respect to the Alternative Security until and unless the Seller fails to perform its obligations under this Contract.
17.4 If an Event of Insolvency occurs in relation to the Buyer then the Seller may at its option terminate this Contract.
17.5 If the Buyer is in breach of its material obligations under this Contract and has not cured this breach within thirty (30) days upon written notice by Seller, then Seller may, at its option, terminate this Contract.
17.6 Upon any termination by Seller pursuant to clause 17.4 of this Contract, the Seller shall have all rights available to it at law and equity.
17.7 If the Buyer fails to make payment of any portion of the Contract Price or Replacement Works Price, as the case may be, and such failure continues for a period of thirty (30) days after the due date of payment, then the Seller at its option may temporarily cease all work under this Contract until such time the Buyer's non-performance under this clause 17.7 is rectified.
17.8 Upon termination by either Party, the use and disposition of intellectual property rights shall be in accordance with the Licence Agreement"
"We will contact the Bank via SWIFT to ascertain the authenticity of the Bankers authentication (necessary as authentication was received via letter) as it is also signed and printed by a notary but there is no name attached to the banker's signature".
The expression "the Bank via SWIFT" refers to Blue Oak's bankers, an American bank called Regions Bank. Mr Greaves informed Mr Rumbol of this.
1. The call was not a valid call, and there were defects on the face of the call dated 11 January 2018 as the alleged breaches were not particularised and the signatory for Regions Bank was not identified.
2. The call on the guarantee was itself in breach of the terms of clause 17.3 of the Supply Contract.
3. The allegations that Tetronics was in breach of the Supply Contract were unfounded as it was not in breach as alleged.
4. There was a seriously arguable case of fraud against Blue Oak made out on the evidence of Mr Rumbol in his first witness statement.
"4. In short, [Blue Oak] submits that [Tetronics'] application and consequently the Order were founded on a misunderstanding of the applicable law. As a result, the fundamental principle of autonomy in relation to performance bonds (and equivalent instruments) was overlooked by [Tetronics] and the court. [Tetronics'] error lay in eliding (a) cases in which the applicant for the bond [Tetronics] seeks to restrain the beneficiary [Blue Oak] from calling on the bond with (b) cases in which the applicant [Tetronics] seeks to restrain the bank from complying with the beneficiary's [Blue Oak] demand. While the law provides that circumstances arising in relation to the underlying contract between the applicant and the beneficiary may sometimes justify an order restraining the beneficiary from calling on the bond, no injunction may be granted against the bank in those circumstances because such an order would contradict the autonomy principle which is fundamental to this area of law.
5. The correct analysis is that:i) [Tetronics] had and has no cause of action against HSBC so the Order should be discharged;
ii) [Tetronics] would only have a cause of action against HSBC and a basis for obtaining an injunction restraining payment under the Bond if it could show on the evidence that it is clearly established at this stage that the only realistic inference is (a) that [Blue Oak] could not honestly have believed in the validity of its demand on the Bond and (b) that HSBC was aware of the fraud. [Tetronics] cannot and has not attempted to establish either of those things;
iii) The balance of convenience inevitably requires that no injunction should be granted in this case as it does in every such case save in the most exceptional circumstances which have never been established in any other decided case and which [Tetronics] does not and cannot allege here."
"We would expect the Court to require strong corroborative evidence of the allegation [of fraud], usually in the form of contemporary documents, particularly those emanating from the buyer. In general, for the evidence of fraud to be clear, we would also expect the buyer to have been given an opportunity to answer the allegation and to have failed to provide any, or any adequate answer in circumstances where one could properly be expected. If the Court considers that on the material before it the only realistic inference to draw is that of fraud, then the seller would have made out a sufficient case of fraud."
III. The legal principles
"in interlocutory proceedings the correct test for application of the fraud exception to the strict general rule that the court would not intervene to prevent a banker from making payment under a letter of credit following a compliant presentation of documents was whether it was seriously arguable that on the material available the only realistic inference was that the beneficiary could not honestly have believed in the validity of its demands under the letter of credit and that the bank was aware of such fraud."
"the expression 'seriously arguable' was intended to be a significantly more stringent test than good arguable case, let alone serious issue to be tried; that even where it was possible to establish the test for fraud as opposed to mere possibility of fraud, the balance of convenience would almost always militate against the grant of an injunction…."
"The unique value of such a letter, bond or guarantee is that the beneficiary can be completely satisfied that whatever disputes may thereafter arise between him and the bank's customer in relation to the performance or indeed existence of the underlying contract, the bank is personally undertaking to pay him provided that the specified conditions are met. In requesting his bank to issue such a letter, bond or guarantee, the customer is seeking to take advantage of this unique characteristic. If, save in the most exceptional cases, he is to be allowed to derogate from the bank's personal and irrevocable undertaking, given be it again noted at his request, by obtaining an injunction restraining the bank from honouring that undertaking, he will undermine what is the bank's greatest asset, however large and rich it may be, namely its reputation for financial and contractual probity. Furthermore, if this happens at all frequently, the value of all irrevocable letters of credit and performance bonds and guarantees will be undermined."
At  in Alternative Power Lord Clarke considered the judge's findings on the +balance of convenience favouring the grant of an injunction. The judge below had considered that the balance of convenience "tilted heavily in favour of the CEB" as the seller was debarred from claiming the amount under the letter of credit. At  Lord Clarke stated:
"The Board accepts the submission made on behalf of [the seller] that the reasons why reported cases of injunctions being granted (or continued) under the fraud exception are so rare are (a) because it is almost never possible to establish the test for fraud as opposed to a mere possibility of fraud, but also (b) because the balance of convenience will almost always militate against the grant of an injunction".
(emphasis added by Mr Lazarus and relied upon).
The autonomy principle is that the obligation of the bank – indeed the bank itself – is autonomous from the parties' contractual relations between one another. In Sirius the beneficiary sought to put itself in a similar position to the bank itself, and take advantage of that principle. It was not permitted to do so.
"26. Letters of credit are an important commercial means of providing cash or security for those who in return provide goods or services. Typically a seller agrees to sell goods to a buyer. The buyer establishes a letter of credit with a confirming bank in favour of the seller. The terms of the letter of credit spell out the circumstances in which the beneficiary-the-seller-is entitled to draw it down. The terms will typically include presentation to the bank of specified shipping and insurance documents and the like. The bank's concern is to be satisfied that the terms of the letter of credit are fulfilled, whereupon the bank is obliged to pay the beneficiary. Because the letter of credit is, subject to its terms, the equivalent of cash, the bank is not concerned with any disputed question, not within the terms of the letter of credit itself, which may arise under the underlying sale contract between the seller and the buyer, as for instance, if the goods were said to be defective or to have arrived late: see generally United City Merchants (Investments) Ltd v. Royal Bank of Canada  1 AC 168, 183. This is also the effect of Article 3(a) of the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits (1993 revision) which was incorporated in the letter of credit in this case. Absent fraud by the seller presenting documents to the confirming bank seeking payment, the court will not restrain a bank from paying a letter of credit which is payable according to its terms, nor a beneficiary from seeking payment: see Group Josi Re (formerly Groupe Josi Reassurance SA) v Walbrook Insurance Co Ltd  1 WLR 1152, 1160-1162. Nor, again absent fraud, will the court restrain a beneficiary from drawing on a letter of credit which is payable in accordance with its terms on the application of a buyer who is in dispute with the seller as to whether the underlying sale contract has been broken – see for both these propositions the Deutsche Rückversicherung case  1 WLR 1017, 1030 where Phillips J considered the authorities. This is the autonomous nature of letters of credit. By means of it, banks are protected and the cash nature of letters of credit is maintained. There is no authority extending this autonomy for the benefit of the beneficiary of a letter of credit so as to entitle him as against the seller to draw the letter of credit when he is expressly not entitled to do so.
27 The present case is in more than one important respect a variant of the more typical. Here the relevant underlying agreement is, not the commercial transaction that the letter of credit was intended to support, as in the typical case the contract of sale or in the present case the retrocession treaties, but a related agreement regulating as between FAI and Sirius terms on which the letter of credit would be established. The terms included express contractual restrictions on the circumstances in which Sirius would be entitled to draw on the letter of credit. To that extent the letter of credit was less than the equivalent of cash and Sirius's security was correspondingly restricted. Although those restrictions were not terms of the letter of credit, and although the bank would have been obliged and entitled to honour a request to pay which fulfilled its terms, that does not mean that, as between themselves and FAI, Sirius were entitled to draw on the letter of credit if the express conditions of this underlying agreement were not fulfilled. They were not so entitled. I reject Mr Vos's submission that in the present case the parties must be taken, as between themselves, to have afforded Sirius the right to draw on the letter of credit in defiance of the conditions of this underlying contract."
Blue Oak do not stand generally in the position of the Bank. May L.J. made that distinction clear in the passage above in  when he stated "Although those restrictions were not terms of the letter of credit, and although the bank would have been obliged and entitled to honour a request to pay which fulfilled its terms, that does not mean that, as between themselves and FAI, Sirius were entitled to draw on the letter of credit if the express conditions of this underlying agreement were not fulfilled." (emphasis added)
1. It must be seriously arguable on the material available that the only realistic inference is that Blue Oak could not honestly have believed in the validity of its demands under the guarantee.
2. The Bank must have been aware of the fraud.
3. The balance of convenience must favour granting Tetronics an injunction. This must require "extraordinary facts" and Tetronics faces very considerable difficulty in having that balance found to be in favour of injunctive relief.
Validity of the call on the Guarantee
The case in fraud
It must be seriously arguable that the only realistic inference is fraud
1. Blue Oak are currently able to use the plant on a commercial basis and it commenced operation in June 2017.
2. Commissioning by Tetronics was ongoing and was at an advanced stage.
3. Blue Oak did not consider Tetronics in breach as at the date of its letter to the Bank of 13 November 2017. There had been problems "during the period June to 13 October 2017 but these had all been rectified or a plan had been agreed and shared with Blue Oak as part of the continuing commissioning…"
4. Any breach of the design obligations by Tetronics would have been likely to have been discovered by 13 November 2017.
5. A meeting was held between Blue Oak and Tetronics on 28 November 2017 at Tetronics' offices in Swindon where it was agreed by Ahab Garas, the CEO, and George Hopkins, the Chairman, of Blue Oak with Mr Rumbol and recorded in a letter drafted at the meeting, that Blue Oak "recognise that the plant has been delivered in accordance with the [Supply Contract]. No demand for payment will be made to HSBC Bank plc by us or on our behalf pursuant to the Guarantee for payments arising from the rejection of the plasma furnace based upon any alleged defects in the design, workmanship, or performance of the furnace under the terms of the supply contract as varied by the Agreement". The fact that this document was not signed by those two gentlemen and was taken away by them (but was signed by Mr Rumbol) does not mean that agreement was not reached, and this letter is a contemporaneous record of what Mr Rumbol says that agreement was.
6. All the matters referred to in the Notice of Default and Warranty dated 11 December 2017 were known about by Blue Oak prior to the letter of 13 November 2017 sent by Blue Oak to the Bank, with only two limited exceptions. Neither of the exceptions justified termination and were minor matters.
7. The Warranty had not come into effect as at that date of 11 December 2017 in any event. Changes made to the plant by Blue Oak would have invalidated the Warranty in any event.
8. The Supply Contract had not been terminated as at the date of either call.
9. Blue Oak has served neither notice of termination under clause 17 of the Supply Contract, nor notice of an intention to call on the guarantee, nor allowed Tetronics the required 30 day period set down in clause 17 as a period of grace pending termination.
10. The Supply Contract precluded, as a matter of New York law (its governing law) a call on the guarantee, as the Supply Contract had not been terminated.
11. The Board of Blue Oak knew the Supply Contract had not been terminated and knew that none of the other preconditions of a call on the Bond included within the Supply Contract had been complied with.
12. Mr Rumbol also concluded that "Blue Oak's first call on the Bond was fraudulent and that the most recent call on the Bond dated 11 January 2018 is also fraudulent" and "I cannot see that there is any innocent explanation for Blue Oak having called on the Bond in these circumstances".
Mr Lazarus submitted that the conclusions regarding fraud by Mr Rumbol were opinions, and not facts, and therefore even though Blue Oak accepted that the facts set out in Mr Rumbol's first witness statement must be assumed to be true (which in the absence of any evidence by Blue Oak was the only sensible position for him to adopt in any event) it was not accepted that the facts described by Mr Rumbol amounted to fraud, let alone constituted a seriously arguable case of fraud. Whilst Mr Rumbol's conclusions could be said to be opinion and not facts, one point Mr Rumbol made in his first statement was that there was no innocent (which in this context meant non-fraudulent) explanation. Also, the facts upon which he based those conclusions posed very serious questions in my judgment, and questions which Blue Oak simply chose not to meet or address at all. As Ackner LJ said in United Trading v Allied Arab Bank, Blue Oak was given an opportunity to answer these allegations and did not do so, in circumstances where an answer was properly to be expected.
The bank must have been aware of the fraud
1. Blue Oak's allegations of breach of contract against Tetronics "are without merit and invalid, and would likely be rejected by a court applying New York law".
2. Blue Oak was procedurally barred from calling on the guarantee (the expression used is "demanding a draw on the Bond" but it amounts to the same thing) for failing to comply with conditions precedent to such a call required by the Supply Contract.
3. The Supply Contract had not been terminated but even if it had been, and even if Blue Oak were entitled to call on the guarantee, the amount of payment under the guarantee was limited "to the extent that the Buyer has incurred damages due to such termination" under clause 17.3(c) of the Supply Contract. "Even in a circumstance where a draw on the Bond would be proper (and this is not such a circumstance for the reasons stated above) any such draw is limited by the [Supply] Contract to damages actually incurred and demonstrated."
4. There was no factual or legal basis for Blue Oak's allegation that Tetronics was in breach of its warranty in the Supply Contract.
5. The claim by Blue Oak to be entitled to claim under the warranty was "fatally flawed as a matter of law and [Blue Oak] should never have cited this warranty as a basis to induce HSBC to pay on the bond."
6. The notice of default under the Supply Contract, which was dated 11 December 2017, came only 20 days after the guarantee was issued and after Blue Oak had confirmed in the letter of 13 November 2017 that there were no breaches of warranty or contract as at that date. "There were little if any new "services" provided by Tetronics during that time period that could give rise to a claim of breach that did not exist as of November 13."
"It is simply not for a bank to make enquiries about the allegations that are being made by one side against the other. If one side wishes to establish that a demand is fraudulent it must put the irrefutable evidence in front of the bank. It must not simply make allegations and make expect the bank to check whether those allegations are founded or not…..it is not the role of a bank to examine the merits of allegations of breach of contract".
The Bank is not in the same position as a court. Mr Downes QC submitted that the "practical consequence of this is that a bank will, in almost all cases, be bound to pay and cannot be enjoined from so doing because a bank will simply not know or be required to investigate whether a demand is honest or not".
V. The balance of convenience as of 31 January 2018
VI. Events since distribution of the first draft judgment
"The Intervener submits that the application for emergency relief in the arbitration which the Claimant made to the ICC on 2 February immediately after the hearing in the TCC (and while judgment is pending) is not relevant to the merits of the application before the TCC, and further notes that the Claimant could have applied for such relief at any time after it commenced the arbitration on 17 January."
I agreed with the sentiments expressed in this letter, and I did not then consider that the commencement of the ICC proceedings was relevant to discharge or continuation of the injunction against the Bank. I did not therefore take the ICC proceedings into account in preparing my first draft judgment, and I did not consider that their existence or content affected my analysis or conclusions.
1. that it was sufficient for Tetronics to establish (only) that the Bank had knowledge of the seriously arguable case of fraud in order to bring the case within the fraud exception;
2. the court's conclusions in the first draft judgment that the delay by Blue Oak's bankers in responding to the Bank's request to clarify the signature on the demands was relevant to the balance of convenience; and
3. that it was highly material to consideration of the balance of convenience that Blue Oak must have obtained the guarantee by fraud if its demand under the guarantee was not fraudulent.
"This is not a case where the court should revisit its careful and considered judgment, delivered after full argument on all points which each of the parties wished to raise. Further it was a decision made in the light of BlueOak's tactical decision not only not to adduce any factual evidence but to invite the court to treat Tetronics' factual evidence as true. BlueOak clearly dislikes the result.
BlueOak can of course if it sees fit (as it regrettably indicates that it does) apply for permission to appeal.
Our prime position is therefore that the application should be dismissed on its face, and that judgment is formally handed down on 20 February as diarised and that a short hearing to deal with consequential matters is fixed thereafter if the parties cannot agree on the terms of an order."
"For the Court of Appeal to exercise its discretion to admit evidence it must be satisfied that the 'fresh evidence': (1) could not have been obtained with reasonable diligence for use at the hearing of the application; (2) would probably have an important, although not necessarily decisive, influence on the result; and (3) is apparently credible: see CPR Part 52 .21(2), Ladd v. Marshall  1 WLR 1489 CA and White Book 1 52.21.3."
"important new evidence disclosed by [Tetronics]…. which came to my attention late in the afternoon of Friday 16 February 2018 when I received a copy of Dr Gerbay's Order rejecting [Tetronics'] application for urgent relief in the arbitration (the "Order"). It is necessary to bring this new evidence to the attention of the court because it materially contradicts the important evidence given by Mr Rumbol at paragraphs 86-88 of his witness statement in these proceedings dated 17 January 2018".
This was a reference to Mr Rumbol's first witness statement. In my judgment, this was highly material new evidence, and given the date when it arose, plainly could not have been deployed at the hearing of 31 January 2018. Its contents were also very important in the context of the injunction proceedings, whether it should have been granted and whether it should be continued.
"At the Hearing, however, when asked by the Emergency Arbitrator to confirm the point, counsel for the Applicant conceded that the shareholders of the Applicant would in fact be able to make additional contributions to the Applicant for the purposes of satisfying a request for reimbursement by HSBC…..the shareholders would however likely not be willing to do so, unless any monies paid out by HSBC were placed in an escrow account (as requested by the Application). This concession greatly undermined Mr Rumbol's statement. The Applicant now claims that, contrary to Mr Rumbol's Statement, a shareholder injection would be forthcoming if the Bond funds are placed into escrow, and further, that such an injection would not threaten the survival of the Applicant."
(emphasis in original)
"As a matter of principle no order should be made in civil proceedings without notice to the other side unless there is a very good reason for departing from the general rule that notice must be given (eg where to give notice might itself defeat the ends of justice). To grant an interim remedy in the form of an injunction without notice "is to grant an exceptional remedy"; Moat Housing Group-South Ltd v Harris  EWCA Civ 287….
It is well established that an applicant who applies for an interim remedy without notice to the respondent is under a duty to investigate the facts and fairly present the evidence on which they rely…..In Memory Corporation plc v Sidhu (No.2)  1 WLR 1443, CA, Mummery LJ said (at p.1459) it is a "high duty" and requires the applicant 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".
67 "The applicants submit that, in making their application to Evans Lombe J in November 2007 the Petitioners owed duties of full and frank disclosure, as a series of well-known authorities establish; e.g. R v Kensington Income Tax Comrs, ex p Princess Edmond de Polignac  1 KB 486 ("the fullest possible disclosure of all material facts").
68 As Bingham, LJ, said in Siporex Trade SA v Comdel Commodities Ltd  2 Lloyd's Rep 428. 437 an applicant for ex parte relief 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 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 an 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 inquiry 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".
69 In Memory Corporation v Sidhu (No 2)  1 WLR 1443, 1459-1460 Mummery LJ said:
"It cannot be emphasised 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. It is the particular duty of the advocate that … at the hearing, the Court's attention is drawn by him to unusual features of the evidence adduced, to the applicable law and to the formalities and procedure to be observed …"
70 Amongst the principles set out by Ralph Gibson LJ in Brink's Mat Ltd -v- Elcombe  1 WLR 1350.1356 was this:
"(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."
71 In Re City Vintners Ltd, (Unreported 10th December 2001), a case in which a provisional liquidator was sought inter alia on the grounds that the assets of the company were said to be in jeopardy, Etherton J referred to the passage from Memory Corporation -v- Sidhu (No 2) quoted above, and then said:
"Full disclosure of these matters is of particular and critical importance in relation to applications for the appointment of a Provisional Liquidator."
He went on to draw attention to the passage in Paragraph 5.16 of the Chancery Guide which states:
"The representatives for the Applicant must specifically direct the Court to passages in the evidence which disclose matters adverse to the application."
72 The rationale for the duty is plain:
"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."
"The principles are well-established and well-known on applications without notice for injunctions and other interim relief, but they are fundamental to the proper functioning of the Court's process on any application without notice. It is of course the very fact that the application is made without notice to other interested parties which makes these principles so important. Other parties do not have the opportunity to correct or supplement the evidence which has been put before the Court."
(all emphasis present in original)
"85. Were an immediate demand for £3.08m made it would render the Claimant insolvent.
86. I attach [management accounts] as evidence of the Claimant's current financial position. I also exhibit a cash flow forecast……It can be seen that as a result of Blue Oak not paying the interim payment negotiated as a pre-condition to providing the new bond the Claimant is forecasted to have a working capital shortfall early February 2018 to late March 2018 of up to £600,000. Whilst shareholders are willing and able to provide the necessary working capital to bridge this immediate gap, they are very unlikely to be able to immediately inject a further £3.08m into the business to satisfy an immediate HSBC demand. Any further support from shareholders will be in the form of debt. The ongoing impact of the debt burden to repay the £3.08m, on the business should they do so, would be disastrous to the future viability of the business.
87. In summary, in satisfying a £3.08m demand from HSBC, the business would become insolvent without an immediate injection by the shareholders. They are unlikely to be able to make that injection and were they to do so it would in any event impact the debt burden to such an extent that the company would be unlikely to survive.
88. The Claimant would therefore either no longer exist or would certainly not be able to fund pursuing Blue Oak for an improper and false call on the Bond. Given that the Contract is governed by New York law and contains an arbitration clause these proceedings would be lengthy and costly. The Claimant would either not survive that long or not be able to fund them. The Claimant's only hope is therefore that HSBC does not pay out on the Bond in the first place".
1. For the Claimant, the second and third witness statements of Mr Rumbol; the first and second witness statements of Mr Sheehan; and the second and third witness statement of Mr Griffiths.
2. For the Bank, the second witness statement of Mr Weaser.
3. For Blue Oak, the first and second witness statements of Mr Haworth.
"The Applicant is stating that there was a misconstruction of its remarks at the hearing, and therefore an improper conclusion not supported by the record as to its willingness and ability of the shareholders to extend further funding to the Applicant. I have listened to the recording of the hearing again. I regret that I cannot change my mind on this issue. The Applicant made multiple statements at the hearing to the effect that the shareholders are in fact able to make contributions (in the sense that they would have the financial means) but that they were not willing to do so absent an escrow arrangement being in place. The distinction between ability and willingness to make contributions was one that I expressly raised at the hearing, repeatedly. I raised the issue in questions addressed to the Applicant directly."
(emphasis in original)
1. Were an injunction not granted, the claim made on Tetronics by the Bank would render it insolvent immediately.
2. The shareholders of Tetronics were not able to provide the cash injection necessary to avoid this.
3. Even if they could, the impact of the added debt upon Tetronics would irreparably damage the company and it would not survive.
1. Tetronics would not be made immediately insolvent. "Well, Tetronics wouldn't immediately be insolvent after meeting the claim from HSBC…."
2. The shareholders of Tetronics were able to provide the cash injection necessary.
3. However, the shareholders of Tetronics would not be willing to do so unless the Emergency Arbitrator were to order that the £3.08 million be paid into an escrow account.
There was a distinct and, in my judgment, crucial distinction made when Tetronics were making submissions to the Emergency Arbitrator, between the shareholders' ability to advance further funds, and the shareholders' willingness to do so. Such distinction was not only wholly lacking in the evidence in Mr Rumbol's first statement, but he expressly told the court that the shareholders were unable to do so.
VII Reconsideration of the balance of convenience as at 19 March 2018