Liquidator loses protection of a freezing order following serious failings at earlier ex parte hearing

As a result of substantial and serious failings, some apparently deliberate, Mr Justice Popplewell set aside an earlier freezing order he had made in favour of a liquidator and declined to continue it.

Background

Mr Çörtük had perpetrated a substantial fraud against Banca Turco Romana (BTR) which had ultimately led to its insolvency. Criminal and civil proceedings followed in BTR’s native Romania. Mr Çörtük was convicted of fraud and sentenced to 13 years imprisonment. He was held liable to pay BTR a sum in excess of US$70m together with interest. The judgment remained unsatisfied and Mr Çörtük evaded arrest and absconded. Criminal proceedings followed in Switzerland - where a limited recovery was achieved of c.US$2.8m - along with an action in New Jersey where Mr Çörtük now resides.

Application in London

BTR’s liquidator filed an application in London for recognition and registration for enforcement of the Romanian judgment. It also sought (and obtained) a freezing order against non-party defendants, including Mr Çörtük’s son and daughter. These individuals were said to have assisted in Mr Çörtük’s concealment of assets through a complex web of entities across multiple jurisdictions.

In accordance with basic principles of fairness – because the court was being asked to reach a decision without first hearing both sides – it was incumbent on BTR to present both the evidence and argument in an even-handed manner, drawing attention to matters which it could reasonably anticipate the absent parties to make. As Popplewell J put it, the duty is owed to the court and is necessary to ensure integrity of the court’s process.

Serious and substantial failings

At an adjourned hearing several months later, three of the non-party defendants applied to set aside the orders.

Popplewell J held that BTR failed to exhibit material documents. It had mischaracterised the nature and scope of the New Jersey proceedings in manner which was both “misleading and unsatisfactory”. The true nature of those proceedings was fundamentally at odds with the very notion that the English court should grant relief: in New Jersey it was said that the English company sitting in a particular structure was the alter-ego of Mr Çörtük and should be disregarded/pierced. In contrast, the liquidator relied on the existence of the English company as a critical jurisdictional link, emphasising that it did not challenge the separate corporate personality of entities within the structure. There were numerous other failings all of which were to be considered cumulatively.

The liquidator sought to down play its failings. However, it did not take any steps to explain how they had arisen. Popplewell J felt this gave rise to a strong inference that it did not have an innocent explanation.

Penal sanction

In conclusion, Popplewell J observed that it was not necessary to determine whether the continuation of the orders or some part of them would have been justified if BTR had complied with its obligations. The very fact that it had failed to do so was sufficiently serious to merit the orders being lifted and discontinued in full.

The decision to deny BTR the relief sought was justified both on the basis that its conduct merited a penal sanction but also because it was necessary to ensure that others would be deterred from such conduct in future. The decision underlines the risk in failing to present ex parte applications fairly. In cases where the duty to the court is overlooked, applicants run the risk of losing the benefit of the orders they have obtained, whatever the underlying merit.

To read the entire judgment click here.