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23 December 2014
A recent decision has confirmed the importance of ensuring full and frank disclosure when seeking an order from the court on an ex parte basis.(1) The decision also usefully recites the legal principles regarding the consequences of not making full and frank disclosure.
The plaintiff and his two brothers acted in partnership in relation to the purchase of lands and borrowed moneys from the defendant bank to do so. Legal disputes in relation to the lands had implications for the repayment of the loan and, ultimately, the parties entered into a compromise agreement in order to assist the bank in seeking to recover as much as possible of the debt owed to it. That compromise agreement was made on March 13 2013, but defined the effective date in manuscript text initialled by the plaintiff as being three weeks from May 27 2013.
Under the compromise agreement the borrowers, including the plaintiff, assumed numerous obligations towards the bank. By contrast, the bank's obligations under the compromise agreement were twofold.
The plaintiff borrower issued proceedings against the bank on October 1 2014 on the basis that the bank had not complied with the terms of the compromise agreement and sought various reliefs, including specific performance of the compromise agreement or, alternatively, damages for breach thereof. He also sought various orders restraining the bank from taking steps that were contrary to the provisions of the compromise agreement. The alleged breaches by the bank were threefold.
Arising from the proceedings and the alleged breaches, the plaintiff applied for and was granted an ex parte interim injunction restraining the bank from taking any steps that were contrary to the compromise agreement from enforcing or recovering the loan liabilities pending the application for an introductory injunction in similar terms. On the same day, and while not having been notified of the interim injunction, the bank appointed receivers to lands that were the subject of the compromise agreement.
On October 7 2012 the bank brought an application to have the interim injunction set aside on the grounds of material non-disclosure. It contended that the plaintiff had failed to make a full and frank disclosure of the following matters.
The court noted that the obligation to make full and frank disclosure in applying for relief on an ex parte basis had been approved by Judge Clarke in Bambrick v Cobley(2) in the same terms as set down by Vice Chancellor Browne Wilkinson in Tate Access Floors Inc v Boswell.(3)
"No rule is better established, and few more important, than the rule (the golden rule) that a plaintiff applying for ex parte relief must disclose to the Court all matters relevant to the exercise of the court's discretion whether or not to grant relief before giving the defendant an opportunity to be heard. If that duty is not observed by the plaintiff, the court will discharge the ex parte order and may, to mark its displeasure, refuse the plaintiff further inter partes relief even though the circumstances would otherwise justify the grant of such relief."
The court indicated that it was satisfied that the plaintiff had failed to disclose some nine particular facts when applying for and obtaining the ex parte injunction. It went on to consider whether the undisclosed facts were material to the application for ex parte relief as made by the plaintiff. In this regard, it noted that the plaintiff would have done well to heed the caution expressed by Lord Chancellor O'Hagan in Atkin v Moran(4) that:
"The party applying is not to make himself the judge whether a particular fact is material are not. If it is such as might in any way affect the mind of the court is its duty to bring it forward."
Here, the court was satisfied that each of the relevant facts was at least capable of affecting the mind of the court and, although not necessary to do so, it went on to say that it was difficult to conceive how those facts would not have affected the mind of the court. In coming to that conclusion, it was mindful of the decision in Bambrick v Cobley that:
"The test by reference to which materiality should be judged is one of whether objectively speaking the facts could reasonably be regarded as material with materiality to be construed in a reasonable and not excessive manner."
Consequently, in this case the court found that there was a significant and material failure to disclose matters which should have been disclosed in the context of the ex parte application.
The court acknowledged that the consequence of material non-disclosure is not automatic and that the court has discretion, in cases where failure to make full and frank disclosure at the interim stage has been established, to discharge the interim injunction already granted and to refuse to grant any interlocutory injunction then sought.(5) The factors relevant to the exercise of that discretion are as follows.
Taking those factors into account, the court found that the facts not disclosed were directly relevant and reasonably material to the specific allegations made by the plaintiff with regard to the breach of the compromise agreement by the bank. While he would not go so far as to find the non-disclosure to be deliberate, it was satisfied that it involved a culpable failure on the part of the plaintiff. Finally, it concluded that no other aspect of the overall circumstances of the case was directly relevant to the exercise of the discretion at issue. Accordingly, it acceded to the application on the part of the bank to discharge the interim injunction and ruled against the application for interlocutory relief by the plaintiff.
Notwithstanding its ruling with regard to the effects of the material non-disclosure, lest it be wrong in that view, the court then went on to consider whether it would be appropriate to grant an interlocutory injunction in accordance with the relevant Campus Oil guidelines in any event.(6) It accepted that there was a bona fide question to be tried concerning the alleged breach of the compromise agreement. It also accepted that damages would not be an adequate remedy (although it noted that any cross-undertaking from the plaintiff would be of little or no value in any event). Looking at the final limb of the test (the balance of convenience), it felt that the maintenance of the status quo was best preserved. Accordingly, the court would, in any event, have declined the interlocutory application.
Although the decision does not set out new law, it does offer a useful reminder of the obligation on a party seeking an ex parte order to ensure that it fully and frankly puts all material facts before the court. Failure to do so can not only result in the interim order being set aside, but may preclude that party from obtaining the relief sought on an interlocutory basis pending the ultimate trial.
For further information please contact Gearoid Carey at Matheson by telephone (+353 1 232 2000), fax (+353 1 232 3333) or email (firstname.lastname@example.org). The Matheson website can be accessed at www.matheson.com.
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