“… one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success.”
“The relevant principles have been summarised in a number of recent authorities, themselves referring to many earlier authorities, including National Bank Trust vYurov[2016] EWHC 1913 (Comm) at paragraph [70] per Males J; Holyoake vCandy[2017] 3 WLR 1131 at paragraphs [34] and [59] per Gloster LJ; and PetrocelticResources v Archer[2018] EWHC 671 (Comm) at paragraph [21] per Cockerill J. The following aspects are of particular relevance to the current applications: (1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer. (2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient. (3) The risk of dissipation must be established separately against each respondent. (4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets are likely to be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty. (5) The respondent’s former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures. (6) What must be threatened is unjustified dissipation. The purpose of a freezing order is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A freezing order is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant’s ability to enforce a judgment. That would be contrary to the purpose of the freezing order jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy. (7) Each case is fact specific and relevant factors must be looked at cumulatively.”
“Where the claimant establishes a “good arguable case” that the respondent engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will point powerfully in favour of a risk of dissipation. In such circumstances, it may not be necessary to adduce any significant further evidence in support of a real risk of dissipation; but each case will depend upon its own particular facts and evidence.”
"The law is non-contentious. The following general principles can be distilled from the relevant authorities by way of summary as follows: i) The duty of an applicant for a without notice injunction is to make full and accurate disclosure of all material facts and to draw the court's attention to significant factual, legal and procedural aspects of the case; ii) It is a high duty and of the first importance to ensure the integrity of the court's process. It is the necessary corollary of the court being prepared to depart from the principle that it will hear both sides before reaching a decision, a basic principle of fairness. Derogation from that principle is an exceptional course adopted in cases of extreme urgency or the need for secrecy. The court must be able to rely on the party who appears alone to present the argument in a way which is not merely designed to promote its own interests but in a fair and even-handed manner, drawing attention to evidence and arguments which it can reasonably anticipate the absent party would wish to make; iii) Full disclosure must be linked with fair presentation. The judge must be able to have complete confidence in the thoroughness and objectivity of those presenting the case for the applicant. Thus, for example, it is not sufficient merely to exhibit numerous documents; iv) An applicant must make proper enquiries before making the application. He must investigate the cause of action asserted and the facts relied on before identifying and addressing any likely defences. The duty to disclose extends to matters of which the applicant would have been aware had reasonable enquiries been made. The urgency of a particular case may make it necessary for evidence to be in a less tidy or complete form than is desirable. But no amount of urgency or practical difficulty can justify a failure to identify the relevant cause of action and principal facts to be relied on; v) Material facts are those which it is material for the judge to know in dealing with the application as made. The duty requires an applicant to make the court aware of the issues likely to arise and the possible difficulties in the claim, but need not extend to a detailed analysis of every possible point which may arise. It extends to matters of intention and for example to disclosure of related proceedings in another jurisdiction; vi) Where facts are material in the broad sense, there will be degrees of relevance and a due sense of proportion must be kept. Sensible limits have to be drawn, particularly in more complex and heavy commercial cases where the opportunity to raise arguments about non-disclosure will be all the greater. The question is not whether the evidence in support could have been improved (or one to be approached with the benefit of hindsight). The primary question is whether in all the circumstances its effect was such as to mislead the court in any material respect; vii) A defendant must identify clearly the alleged failures, rather than adopt a scatter gun approach. A dispute about full and frank disclosure should not be allowed to turn into a mini trial of the merits; viii) In general terms it is inappropriate to seek to set aside a freezing order for non-disclosure where proof of non-disclosure depends on proof of facts which are themselves in issue in the action, unless the facts are truly so plain that they can be readily and summarily established, otherwise the application to set aside the freezing order is liable to become a form of preliminary trial in which the judge is asked to make findings (albeit provisionally) on issues which should be more properly reserved for the trial itself; ix) If material non-disclosure is established, the court will be astute to ensure that a claimant who obtains injunctive relief without full disclosure is deprived of any advantage he may thereby have derived; x) Whether or not the non-disclosure was innocent is an important consideration, but not necessarily decisive. Immediate discharge (without renewal) is likely to be the court's starting point, at least when the failure is substantial or deliberate. It has been said on more than one occasion that it will only be in exceptional circumstances in cases of deliberate non-disclosure or misrepresentation that an order would not be discharged; xi) The court will discharge the order even if the order would still have been made had the relevant matter(s) been brought to its attention at the without notice hearing. This is a penal approach and intentionally so, by way of deterrent to ensure that applicants in future abide by their duties; xii) The court nevertheless has a discretion to continue the injunction (or impose a fresh injunction) despite a failure to disclose. Although the discretion should be exercised sparingly, the overriding consideration will always be the interests of justice. Such consideration will include examination of i) the importance of the facts not disclosed to the issues before the judge ii) the need to encourage proper compliance with the duty of full and frank disclosure and to deter non-compliance iii) whether or not and to what extent the failure was culpable iv) the injustice to a claimant which may occur if an order is discharged leaving a defendant free to dissipate assets, although a strong case on the merits will never be a good excuse for a failure to disclose material facts; xiii) The interests of justice may sometimes require that a freezing order be continued and that a failure of disclosure can be marked in some other way, for example by a suitable costs order. The court thus has at its disposal a range of options in the event of non-disclosure. (See in particular Memory Corporation plc and another v Sidhu and another (No 2)[2000] 1 WLR 1443 at 1454 and 1459; Behbehani v Salem[1989] 1 WLR 723 at 735 and 730; Congentra AG v Sixteen Thirteen Marine SA (The Nicholas M)[2008] EWHC 1615 (Comm) ; [2009] 1 All ER (Comm) 479 at [62]; Bank Mellat v Nikpour[1985] FSR 87 at 89 and 90; Kazakhstan Kagazy plc v Arip[2014] EWCA Civ 381 ; [2014] 1 CLC 451 at [36] and [42] to [46]; Todaysure Matthews Ltd v Marketing Ways Services Ltd[2015] EWHC 64 (Comm) at [20] and [25]; JSC BTA Bank v Khrapunov[2018] UKSC 19 ;[2018] 2 WLR 1125 at [71] and [73]; Banca Turco Romana SA v Cortuk[2018] EWHC 662 (Comm) at [45]; PJSC Commercial Bank PrivatBank v Kolomoisky and others[2018] EWHC 3308 (Ch) at [72] and [73] to [75]; National Bank Trust v Yurov[2016] EWHC 1913 (Comm) at [18] to [21]); Microsoft Mobile Oy v Sony Europe Ltd[2017] EWHC 374 (Ch) at [203].)"
“The majority of sellers in the art market are not individual artists. Auction houses and galleries account for the bulk of the pieces sold as they have the reputations and contact networks among suitable buyers to make the effort economically feasible…Lastly, there are a host of intermediaries connecting buyers to sellers. These include banks, financial services companies, art consultants and organisations such as ourselves.”
“the secondary market for Steven Dews prints is not very strong at the moment with individual prints selling at less than£100 . Consequently these works would fall below our sale threshold.”
“I estimate that I repurchased approximately£300,000 worth of art from the clients. But it became clear to me that S&P could not survive under my watch – because if I stayed in the company, I would have to sack a lot of the sales team in the repeat clients department, and then the company would not have any business.”
“… where facts are material in the broad sense in which that expression is used, there are degrees of relevance and it is important to preserve a due sense of proportion. The overriding objectives apply here as in any matter in which the Court is required to exercise its discretion. … I would add that the more complex the case, the more fertile is the ground for raising arguments about non-disclosure and the more important it is, in my view, that the judge should not lose sight of the wood for the trees. … In applying the broad test of materiality, sensible limits have to be drawn. Otherwise there would be no limit to the points of prejudice which could be advanced under the guise of discretion.”
“It is important also not to allow a dispute about full and frank disclosure to turn into what is sometimes euphemistically described as a "mini" trial of the merits…unless both parties exercise restraint, there is a danger that applications for the grant or discharge of freezing orders may become unmanageable. Thus the claimant must disclose material facts, which will include making the court aware at the without notice stage of the issues which are likely to arise and the possible difficulties in its case, but need not extend to a detailed analysis of every possible point which may arise; and the defendant must identify with clarity (and if necessary restraint) the failures of which it complains, rather than adopting a scatter gun approach.”
“A further point which merits emphasis is that even when there has been a failure of full and frank disclosure, the interests of justice may sometimes require that a without notice order be continued and that a failure of disclosure be marked in some other way, for example by a suitable costs order. A court needs to consider the range of options available to it in such an event.”
“purchase of art as investment, misrepresentation, inflated price”
“Fraudulent investment/missing artwork”
“Finally it is necessary to consider the injustice to a claimant which may occur if an order is discharged leaving a defendant free to dissipate assets. In my judgment this injustice is a particularly powerful factor in the present case. This is a case where, as at present advised (I emphasise this qualification), and subject only to the issue of Russian law identified above, the bank appears to have a very strong case on the merits; it appears to have been the victim of a massive fraud from which the defendant has benefited to the tune of tens of millions of dollars and perhaps more; the defendant's conduct even on his own account has been dishonest; even on his account the conduct in question involved the movement of funds through a network of offshore companies with a view to disguising from the regulator the origin of the funds in question and the beneficial ownership of the companies concerned; the defendant appears to have received personally substantial funds which have not been accounted for in his disclosure of assets; and there is solid evidence of what appears to be an attempt to dissipate assets. It is hard to think of a stronger case for a freezing order.”
“When it comes to prints in both the primary and secondary markets, the markup of 100% from wholesale cost to RRP may not always apply”
“So, it appears that, first of all, the prints which were sold to investors were actually of very low value, but they were sold to them at grossly inflated prices.”
“the cost of reproduction of the print in the event that it is lost or destroyed. It was our practice, at S&P, to record the reproduction value on the item when sent to Moebel for storage. The idea for this came from the in-house master printer that we employed at the time – Darren van der Merwe. On Darren’s suggestion, I then checked with our accountant, Aidan Hassan, and he confirmed that it was reasonable to put the reproduction cost on the item for the purposes of customs into Switzerland.”
“But, in relation to the art fraud, the evidence, we say, demonstrates that the scheme worked in the following way. Investors were encouraged to buy prints which they were frequently told were limited editions, were in high demand and were going to increase in value over time. They were told that the company was an expert in buying and selling fine art and would advise upon and assist with the sale of the art or the prints to the secondary market. Investors were also told that, in order to protect the value of the prints, they needed to be stored in a specialist warehouse which the company would arrange, and the warehouse was based in Switzerland. And investors were told that the company would make its profit by charging 2 per cent on the sale to the investor and then a 5 per cent broker fee on any resale, although the 5 per cent broker fee would only be on the difference between the original sale price and the resale price. So only a small amount in each case. The investors were also told that the company was a member and of and regulated by the Fine Arts Guild.”
“We do not make any promise or guarantee that the products will be appropriate for your needs or desires” and clause 5.6.3: “We do not make any guarantee that we will be able to sell the products for you in the future if you ask us to. We do offer a resale service, but we will need to agree the terms of that specifically in the future if you wish to use this service and we agree to provide it”
“Includes a 2% broker fee, exclusive of VAT unless stipulated otherwise in the Order”
“Owning artwork carries with it a risk that it could decrease in value. We are not responsible, and shall have no liability for, any decrease in the Product(s)’s value. Any information given by us in relation to selling the Products is given as guidance only and you should obtain your own independent expert advice before selling any Product.”
“every investor was induced to invest in the Scheme as a result of fraudulent misrepresentations and thereby suffered an immediate loss because the value of the prints was significantly less than the price paid for them.”
“I was told, on more than one occasion, that their model was a 2% commission on the transaction in order to pay basic expenses i.e. running costs, rent, heating etc and then 5% commission on the profit of the resale. I was specifically told that the only way the agent made money was on the resale commission. I frequently asked the Company to waive the 2% commission and they would agree.”
“I specifically asked Mr Reis at the beginning, how he made money, and he answered that it was from the 2% trade fee that was applied each time an investor purchased art via the Company. I understood, later on, that employees also received a small base salary from the Company, bonuses and commission based on the sales they made.”
“the wider point is that the impression that was being created by the literature and what was being told to investors is that they were essentially acting as a broker, as an agent, and they made their money when they successfully sold a piece at profit; whereas what was really going on is that the company was acquiring prints for a fraction of the price that they were selling them to the investors for and that is where they were making such huge sums of money.”
“We rely on that as being a fairly weighty factor as showing that the company’s revenue was based on this significant difference between those two, that investors were not aware that that is how the company was making its money and they were led to believe that the company was just providing an art investment service, advising on the value of art, advising when to sell it and would just make a broker’s fee.”
“They were selling this to investors on the basis that they were specialists, they are not retailers, there were acting as a broker/agent whatever, to buy and sell pictures on behalf of their investors on which they expected them to make a sizeable profit… Not that they themselves would be making a profit on the resale; they will just be getting a commission?”
“The Company sold the prints to investors at grossly inflated prices. The value of the prints purchased by investors was significantly lower than the prices the Company had paid for them.”
“The pricing on our website is our suggested retail price without VAT and we gave to Mr. Sparkes, not only the regular trade discount for a gallery of 50%, but indeed very substantial additional price reductions against quantities purchased and against undertakings to purchase complete Editions over a period of time on an exclusive basis.”
“I'm [sure] you've been waiting to ask, what are the costs? When it comes to charges there will be an initial fee of 2%; however we also charge 5% on the profit.”
“which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success.”
“I agree in particular with what Lord Justice Coulson has said at [126] to [128] below about the way the failure to disclose issue was presented by the respondents, both in the court below and in this court. I sought in National Bank Trust v Yurov[2016] EWHC 1913 (Comm) at [14] and [15] to encourage a degree of restraint and a sense of proportion on the part of those seeking to set aside without notice orders on this ground, but it appears that the message has not got through. In this case we have been prepared to separate the wheat from the chaff, but I would suggest a different approach for the future. In future, if the court is presented with a long shopping list of alleged failures of disclosure, with no attempt made to identify the relatively few points which really matter, it should simply decline to consider the issue at all.”
“The draft Injunctions follow the standard form in the Chancery Guide, save that the orders against R1 and R3 include orders for the provision of information in relation to proprietary assets”