Al-Rawas v Pegasus Energy Ltd & Ors

This is a renewed application by the claimant for permission to appeal against the order of Ramsey J. made on 6^th September 2006 discharging a search and seizure order granted by Dobbs J. on 27^th July 2006 and a worldwide freezing order in the sum of US$33 million granted by Langstaff J. on 15^th August 2006. In order to understand the context in which those orders were made and the issues which arise on this application it is necessary to describe in some detail the events leading up to the application before Ramsey J.

The first defendant, Pegasus Energy Limited (“Pegasus” or “the company”), was incorporated in Mauritius on 3^rd July 2001 for the purposes of supplying fuel oil to purchasers in southern Africa. It was the brainchild of three entrepreneurs, His Highness Sheikh Khalifa bin Hamed Al-Thani, the former Emir of Qatar, his principal man of business, Dr. Issa Al-Kawari, and Mr. Thamer Al-Shanfari, a business associate of Sheikh Khalifa and the husband of the claimant, Mrs. Al-Rawas. Following the incorporation of the company Mr. Al-Shanfari was appointed managing director and took principal responsibility for its day to day operations. The other directors were Mr. Harold (“Hap”) Palmer and Mr. David Lloyd. The funds required for the company’s initial operations were provided by the Sheikh, originally in the form of a personal loan of US$3 million and later in the form of additional loans made by companies controlled by him or his family.

The company’s authorised share capital was US$100,000 consisting of 100,000 shares of US$1 each, but initially only 100 shares were issued which were held by a nominee for the three founders in equal shares. Later, in April 2002 the shares held by the nominee were transferred to the founders and two further shares were issued so that thereafter they each held 34 shares. The day to day administration of the company was entrusted to the fourth defendant, Hawkstone Management Services Ltd, an English company with offices at 44 Catherine Place, London.

In the early months of 2003 the relationship between Mr. Al-Shanfari and the Sheikh and Dr. Al-Kawari began to break down. Various reasons have been given for that, but it is unnecessary to go into them in any detail. The upshot was, however, that on 10^th March 2003 Mr. Al-Shanfari agreed to resign from the board and to divest himself of his shareholding. In the event he transferred all his shares to Mrs. Al-Rawas, but he continued to take a close interest in the company and, as it appeared to the other shareholders, remained in a position to exercise the rights of a shareholder through his wife. However, he no longer had direct access to the company’s files and according to his own evidence by the autumn he ceased to have any significant knowledge of its affairs.

It is clear that the disagreement between the Sheikh and Dr. Al-Kawari on the one hand and Mr. Al-Shanfari on the other was of a personal nature and ran very deep. The Sheikh and Dr. Al-Kawari had certain views about how the company should develop and did not want him to interfere with their plans. Nor did they want to allow him or Mrs. Al-Rawas to benefit from the investment in the company which up to that point had been financed with funds provided entirely by the Sheikh. As a result the Sheikh and Dr. Al-Kawari with the help of their advisers began investigating ways in which they could force Mrs. Al-Rawas out of the company or reduce her influence to the point of insignificance.

Their first thoughts were simply to remove Mrs. Al-Rawas from her position as a shareholder, but they were advised by OCRA (Mauritius) Ltd (“OCRA”), the company’s agent in Mauritius, that her position was protected by the Companies Act 2001 and that it was not possible for them to remove her. The next plan was to issue enough new shares to the Sheikh and Dr. Al-Kawari to give them full control of the company. With that end in mind the board passed a resolution that the issued share capital of the company be increased by issuing a further 49,966 shares to the Sheikh and a further 24,966 shares to Dr. Al-Kawari. However, the company was advised, again by OCRA, that new shares could not lawfully be issued to the Sheikh and Dr. Al-Kawari alone, since it was a requirement of the Companies Act that they be offered to all the existing shareholders in proportion to their existing holdings.

Following these two false starts another proposal was produced by one of the company’s employees which was described step by step in a slide presentation produced at some time in January 2005. The presentation reflected the concern of the Sheikh and Dr. Al-Kawari that through his wife Mr. Al-Shanfari was still able to control the voting rights of one third of the issued shares, thereby giving him the power under the articles to block special resolutions for which the approval of 75% of shareholders present at a general meeting was required. Under the heading “Potential Solutions” various options for removing Mr. Al-Shanfari and Mrs. Al-Rawas entirely from the company’s business were canvassed. Two relatively simple solutions were rejected. The first (and perhaps most obvious) was to buy out Mrs. Al-Rawas. That was described as “untenable”, however, presumably because by that time the Sheikh could not countenance making a payment of any kind to Mr. Al-Shanfari or to Mrs. Al-Rawas in his place. The second was to sell the business into a new company, but it was thought that the disruptive effect on the company’s business relationships would be far too serious. The third solution was to reduce Mrs. Al-Rawas’s shareholding to a negligible level, thereby giving the Sheikh and Dr. Al-Kawari the degree of voting control they sought. That was to be achieved by calling in the loans made to the company by the Sheikh and the companies under his control, then amounting to approximately US$9 million, and issuing new shares as a means of raising the capital that the company would need to replace them. The author of the presentation recognised that as an existing shareholder Mrs. Al-Rawas would have to be included in the rights issue, but the hope (and indeed the expectation) was that she would not be willing or able to take up her rights and that her shares could be purchased by the Sheikh. Since it was envisaged that almost 75,000 new shares would be offered, the failure by Mrs. Al-Rawas to take up her rights would result in her shareholding falling from 33.3% to significantly less than 1%. As a shareholder she would become completely irrelevant.

The attractions of this plan were that whatever the outcome it promised to be beneficial. Either Mrs. Al-Rawas would not take up her shares, in which case her shareholding would be diluted to a negligible level (described in the presentation as “the favoured outcome”), or she would have to provide a proportionate share of the capital the company needed to continue in business. Either way she could not increase her degree of control over the company’s affairs. The presentation recognised that Mrs. Al-Rawas might bring proceedings to challenge the company’s action, but suggested that the value of her claim would be limited due to changes in the location of capital and assets within the group that were illustrated in the final two slides.

In the event a decision was taken to implement the proposal for a rights issue described in the presentation. On 4^th February 2005 Hawkstone acting in its capacity as the Sheikh’s private office gave notice to Pegasus that the Sheikh required the repayment of loans totalling US$10.405 million. Shortly thereafter the board of Pegasus resolved to issue 74,898 new shares at US$120 each and Mr. Palmer wrote from London to the shareholders on behalf of Pegasus offering each of them the opportunity to subscribe for one third of the new shares. The offer opened at 9.00 a.m. local time on 9^th February and closed at 5.30 p.m. local time on 23^rd February. It thus remained open for 15 days.

The offer letter was received at the address of Mrs. Al-Rawas in Oman on 12^th or 13^th February 2005. She clearly lost no time in consulting her lawyers because on 21^st February her London solicitors, Saunders & Co., wrote to the company asking for information about its affairs. They also demanded that the share issue be suspended and threatened to take legal action to protect their client’s interests. Mr. Palmer, writing on behalf of Pegasus, replied on 23^rd February saying that the company was not bound to provide any of the documents or information that Saunders & Co. had requested, but that Mrs. Al-Rawas was entitled to inspect its records in accordance with the terms of the articles. He assured them that the share issue was considered to be in the best interests of the company and rather disingenuously concluded the letter with an urgent request that she should continue to give it her support.

On 23^rd February the offer closed, having been accepted by the Sheikh and Dr. Al-Kawari, but not by Mrs. Al-Rawas. On 26^th February the board approved resolutions allotting to the Sheikh and Dr. Al-Kawari the shares for which they had originally subscribed and allotting to the Sheikh in addition the shares offered to Mrs. Al-Rawas. Although Saunders & Co again threatened proceedings, they took no further action and the matter then lay dormant until January 2006.

Towards the end of 2005 or in early 2006 Mrs. Al-Rawas instructed a new firm of solicitors, Hassan Khan & Co. On 16^th January 2006 they wrote to Pegasus informing it that they were acting for her and that a representative of the firm would be attending at the registered office on 18^th January to inspect the company’s documents. In the event sufficient information was obtained as a result of that inspection to enable the claimant to take the decision to commence proceedings in Mauritius.

On 18^th July 2006 two sets of proceedings were commenced in the Supreme Court of Mauritius on behalf of Mrs. Al-Rawas, one in the civil court by plaint with summons, the other in the Bankruptcy Division by petition. The first of those actions was brought against the Sheikh, Dr. Al-Kawari, the company and its directors. In it Mrs. Al-Rawas alleged that they had exercised their powers in relation to the company in contravention of the Companies Act and for the improper purpose of diluting her shareholding, thereby causing her loss in respect of which she claimed damages in the sum of US$50 million. In the second action against the same defendants, apart from the Sheikh, she sought declarations that the share issue was invalid and null and void by reason of various failures on the part of the company to comply with the requirements of the Companies Act and damages for breach of fiduciary duty, breach of trust and breach of the contract between her and the company contained in the articles of association.

In each of the actions Mrs. Al-Rawas alleged that there had been a failure to comply with the requirements of section 55 of the Companies Act 2001 and the company’s memorandum and articles of association. Section 55 deals with pre-emptive rights to new issues and provides as follows:

“55 Pre-emptive rights to new issues

(1)

Subject to its constitution, where a company issues shares which rank equally with, or in priority to existing shares as to voting or distribution rights, those shares shall be offered to the holders of existing shares in a manner which would, if the offer were accepted, maintain the relative voting and distribution rights of those shareholders.

(2)

An offer under subsection (1) shall remain open for acceptance for a reasonable time, which shall not be less than 14 days.”

The petition was supported by evidence from Mr. Al-Shanfari and Mrs. Al-Rawas. In an affidavit sworn on 18^th July 2006 Mr. Al-Shanfari described himself as the founder, managing director and former shareholder of Pegasus and its chairman for approximately three years until September 2003. He confirmed that he had played a central role in the management of the company until the latter part of 2003, but said that he had very little knowledge of its current financial position. He estimated that Pegasus might be worth in the order of US$100 million, but did not provide any basis for that figure. Throughout his affidavit Mr. Al-Shanfari referred to the loans provided by the Sheikh to Pegasus in terms which strongly implied that they were not genuine, if indeed they existed at all. He even went so far as to state in paragraph 53 that he and his wife

“. . . . . had serious misgivings as to whether the loans had ever been made, and if not, whether they were simply a scam to make my wife’s shareholding in [Pegasus] negligible.”

In the same paragraph he expressed serious doubts as to whether they had been made at all and suggested that they had been made purely for the purposes of creating a debt, the calling in of which would support the share issue.

Later, in paragraph 72 of the same affidavit, Mr. Al-Shanfari again expressed the view that there was a deliberate scam and a bogus set of transactions to render his wife’s shareholding in the company worthless. He continued

“I cannot, at this stage, say with certainty that the initial loans themselves were bogus (although I strongly suspect they were), but I am certain that the repayment of the loans via the share allocation was in fact a scam.”

and in paragraph 76 he expressed the view that

“the entire set of transactions relating to the repayment of the loans and the allotment was a sham.”

On 20^th July 2006 Mrs. Al-Rawas applied to the court in Mauritius without notice to the defendants for a search and seizure order in respect of various documents in the possession of the defendants in Mauritius, London and South Africa and an order permitting the accountants Grant Thornton to examine the company’s records in order to carry out a valuation of it. Those applications were supported by evidence from Mr. Al-Shanfari and others. In a second affidavit sworn on 18^th July 2006 he expressed the view that the share issue was part of a fraudulent scheme and that he was not aware of any commercial reason why the loans which had been called in might have been required.

On 25^th July 2006 the court ordered that the application relating to the valuation of the company be adjourned to 6^th September to be heard on notice. It granted a search and seizure order against Pegasus in relation to its offices in Mauritius, but declined to grant relief against any of the other defendants and adjourned the application for search and seizure orders in relation to the offices in London and South Africa to enable them to be heard on notice.

On 27^th July Mrs. Al-Rawas applied to the judge in chambers, Dobbs J., without notice under section 25 of the Civil Jurisdiction and Judgments Act 1982 for a search and seizure order in relation to 44 and 46 Catherine Place against Pegasus, Hawkstone, the Sheikh, Dr. Al-Kawari and his son, Mr. Talal Al-Kawari, who by that time had also been appointed a director of the company. In support of that application she relied on the affidavits sworn in the proceedings in Mauritius by Mr. Al-Shanfari and an affidavit sworn by Mr. Hassan Khan in which he made reference to them. In his affidavit Mr. Hassan Khan stated that for the reasons set out in Mr. Al-Shanfari’s main affidavit he considered that Mrs. Al-Rawas had an extremely strong prima facie case in both sets of proceedings in Mauritius. In relation to the risk of destruction of documents he said (paragraph 27):

“I would respectfully suggest that individuals who would engage in conduct such as:

(a)

deliberately setting up loans/loan documentation designed to create a series of debts (or the appearance thereof) owed by the company to a shareholder (Sheikh Khalifa) and entities owned and controlled by him, which could then be called in simultaneously in order to justify a Share Issue taking place without prior warning to Mrs. Al-Rawas alone out of the three shareholders;

(b)

using the requirement on the part of the company to repay those “loans” as a pretext for requiring the company to find the necessary US$10.4 million cash via a rights issue;

(c)

ensuring that the opportunity to subscribe to the rights issue given to Mrs. Al-Rawas alone out of the three shareholders was extremely limited, unreasonably short and remained open for acceptance for less than the 14 day minimum period required by the applicable companies legislation and thus acting in breach of section 55(2) of the Mauritius Companies Act 2001;

would be more than likely to destroy potentially incriminating documentation (relating to such conduct) in order to protect their position in proceedings, unless prevented by an order of the court.”

In the course of the hearing before Dobbs J. counsel for Mrs. Al-Rawas referred to the loans and made the comment that his client doubted whether some of the loans had been made at all, prompting the judge to ask whether Mr. Al-Shanfari did not have some idea about that since he had been a director and had kept in touch with the company’s affairs after leaving the board. Counsel told the judge that Mr. Al-Shanfari had said in his affidavit that no one had told him about the loans at the time, which was one reason why he regarded the whole thing as very suspicious. At the conclusion of the hearing Dobbs J. made the order sought. In her judgment she said that she was satisfied that there was a very strong prima facie case of fraud, that the defendants held documents relating to the fraud in London and that given the nature of the allegations it was likely that the defendants would destroy the documents to protect their position in the proceedings in Mauritius.

The search and seizure order was executed on 4^th August concurrently with a similar order obtained in South Africa. The defendants applied to Openshaw J. for a variation of the order, but that application was dismissed. On 7^th August the order was varied by Swift J. Neither of those variations is material to the issues that arise on this appeal, however.

On 15^th August Mrs. Al-Rawas applied to Langstaff J. without notice for a worldwide freezing order in the sum of US$33 million, representing her one third interest in the company which Mr. Al-Shanfari had estimated to be worth in the order of US$100 million. The application for a freezing order was supported by an affidavit of Ms Hunter who referred to the affidavits sworn by Mr. Hassan Khan in support of the application for a search and seizure order and Mr. Al-Shanfari in support of the proceedings in Mauritius. In substance, therefore the claimant relied on the evidence that had been before Dobbs J. supplemented by Ms Hunter’s affidavit. In her affidavit Ms Hunter explained that following the discovery of certain documents (including the slide presentation to which I referred earlier) as a result of the execution of the search and seizure order in London the claimant intended to join seven additional defendants consisting of subsidiaries of Pegasus and certain companies controlled by the Sheikh to the proceedings in Mauritius.

In paragraph 36 of her affidavit Ms Hunter referred to the affidavit sworn by Mr. Al-Shanfari in support of the petition in Mauritius and said

“. . . . . it was thought that the loans which were relied upon as the justification for the rights issue (loans purported to have been made by companies beneficially controlled by the Defendants) might not have been bona fide. The documentation that has been seized so far does provide evidence in support of the validity of some of the loans. There are, however, a number of suspicious circumstances connected with other aspects of the loans.”

She then referred to certain characteristics of the loans which she suggested cast doubts on whether they were bona fide.

In the course of the hearing before Langstaff J. counsel for Mrs. Al-Rawas (who had not appeared on the application before Dobbs J.) said when explaining the slide presentation to the judge:

“What actually happened is that ten or eleven million dollars of loan to Pegasus by the second and third defendants [the Sheikh and Dr. Al-Kawari] were identified and as a matter of evidence Mr. Al-Shanfari and his wife tell us they had never heard of them. I am not in a position to say that they are bogus, these loans. I am in a position to say that we did not know about them and that is very odd indeed, as a third shareholder . . . . . ”

At the conclusion of the hearing Langstaff J. granted Mrs. Al-Rawas a freezing order against nineteen defendants prohibiting them from in any way disposing of or dealing with or diminishing the value of their assets worldwide up to the value of US$33 million. The order also required each of the defendants to inform the claimant’s solicitors within 24 hours of the location, value and details of each of its assets worldwide in excess of US$10,000 in value. Clause 7 of the standard form of freezing injunction was not used, presumably because the claimant’s solicitors had been unable at that stage to identify any assets in this jurisdiction belonging to the defendants.

On any view this was a most powerful order and it is not surprising that the defendants took immediate steps to mitigate its effect. On 16^th August they obtained a variation of the order providing that on payment into court of the sum of US$33 million the order should cease to have effect without prejudice to their right to contend that it should not have been granted in the first place and that sum was paid into court the next day. On 23^rd August the defendants issued applications to discharge both the search and seizure order and the freezing order and these came before Ramsey J. on 31^st August.

The hearing before Ramsey J. occupied two days. In a judgment delivered on 6^th September he discharged both the search and seizure order and the freezing order. In his judgment the judge referred to the fact that by the time the matter had come before him Mr. Al-Shanfari had accepted that he had been aware that certain loans had been made to Pegasus by the Sheikh and his companies; he also referred to the fact that counsel then appearing for Mrs. Al-Rawas had accepted that Mr. Al-Shanfari should have mentioned that in his evidence. As a result counsel accepted that he could not rely on any suspicion about the loans as a ground for establishing his case.

The judge discharged the two orders for a variety of reasons. In summary, he held that, although it was arguable that the directors of Pegasus had acted with an illegitimate intent to dilute the claimant’s shareholding in a manner which amounted to a breach of duty or breach of contract under the law of Mauritius, her case was not the extremely strong prima facie case needed to support a search and seizure order. As to the risk that the defendants would destroy documents he said in paragraphs 75-76:

“75.

. . . . . Before Dobbs J. it is evident that the mainstay of the case on destroying the documents was as set out by Mr Hassan Khan: that individuals who would engage in conduct such as deliberately setting up loans, loan documentation, designed to create a series of debts, or the appearance thereof, and using the requirement to pay the “loans” as a pretext for the rights issue would be more than likely to destroy potentially incriminating documents.

76.

In the absence of that ground, there is little left on the case on the destruction of documents. In addition, the claimant delayed from February 2005 to July 2006 in relation to the application, and the fact that documents clearly were not destroyed in that period negates such a conclusion. In addition, the documents show that the defendants were keen to have on record all the documentation to show that the share transaction was legitimate. I do not consider that, in the absence of the loans allegation, the claimant can properly say that there was clear evidence that the defendants would destroy documentation before an inter partes hearing could take place.”

In the case of the freezing order he held that there was insufficient evidence of a real risk of dissipation of assets to justify an order of that kind.

Finally, the judge considered the implications of Mr. Al-Shanfari’s failure to inform the court that he had been aware of some at least of the loans made to Pegasus. He found on the basis of evidence filed on behalf of the defendants that, as Mr. Al-Shanfari was aware, by 28^th February 2003 (that is, before Mr. Al-Shanfari resigned as a director) loans totalling US$6.795 million had been made to Pegasus by the Sheikh and his companies. In the judge’s view there had therefore been a central and material non-disclosure which had not been innocent but had been designed to mislead the court by raising suspicions which were known not to be properly grounded. It is clear that the judge would have discharged the orders on this ground alone. In the light of his conclusions he did not need to consider whether this was a case in which it was expedient to exercise his jurisdiction under section 25 of the Civil Jurisdiction and Judgments Act.

On behalf of Mrs. Al-Rawas Mr. Charles Graham Q.C. submitted that the slide presentation and the documents that came into existence both before and after it showed beyond doubt that the Sheikh, Dr. Al-Kawari and those responsible for running the company were determined to oust Mrs. Al-Rawas by whatever means they could. Moreover, they were quite willing to construct a series of transactions to give the misleading impression that Dr. Al-Kawari had also been deprived of his shareholding in order to rebut any suggestion that she had been unfairly oppressed. There was, he submitted, a conspiracy between the directors and the other two shareholders to deprive Mrs. Al-Rawas of a valuable asset.

In my view it is quite clear from the documents that the Sheikh and Dr. Al-Kawari did intend to eject Mrs. Al-Rawas or at any rate to dilute her shareholding to the point at which it was completely irrelevant. The possibility that she might take up her entitlement to new shares was recognised in the presentation, but it was not what was intended and the offer was organised in a way that made it difficult for her to do so. It is also clear, however, that the defendants were seeking to keep within the law; whether their conduct was in fact lawful is rather less clear.

The judge approached the issues to which the applications gave rise in a careful and orderly manner, considering first the nature and strength of the claim being pursued by Mrs. Al-Rawas in Mauritius and then issues of particular relevance to the different orders before him. For my own part I find it convenient to follow broadly the same course.

The proceedings in Mauritius are founded primarily on the duties said to be owed to Mrs. Al-Rawas under the Companies Act 2001 and the company’s articles of association. This aspect of the case is set out in the petition in the Bankruptcy Division. There are two main complaints: that Pegasus acted in breach of section 55 of the Companies Act in not giving Mrs. Al-Rawas the required time to respond to the offer; and that the company was in breach of certain terms to be implied by the Civil Code into the contract with her which arises under the articles of association. Those terms are said to give rise to an obligation on the part of the company to exercise its powers lawfully and equitably, in good faith and not in a manner that would cause more harm to her than the advantage it would derive as a result. Mr. Simon Browne-Wilkinson Q.C. for the defendants submitted, however, that the requirements of section 55 of the Companies Act as they applied in this case were not clear and that the action of the company and its directors, which was designed to prevent Mrs. Al-Rawas (or as they saw it, Mr. Al-Shanfari) having any further influence over its affairs, was justified as being in the best interests of the company.

To some extent the plaint with summons builds on the allegations made in the petition, but it appears to be drafted in terms which are sufficiently broad to enable the claimant to contend that the defendants have committed a legal wrong against her even if there was no breach of the Companies Act or of her contract with the company. However, the task of assessing the strength of the claimant’s case in Mauritius is not rendered any easier by the absence of any expert evidence explaining the nature of the causes of action on which she relies. Mr. Graham sought to rely on the principle that the court will apply English law unless foreign law is proved, but that is not entirely satisfactory in a case such as the present where the language of the plaint suggests strongly that the system of law in Mauritius is not derived simply from the common law. The uncertainty is compounded by the fact that the principles of English law that are said to be relevant in this case include those relating to the tort of conspiracy, a notoriously difficult area of the law.

I refer to this because Mr. Graham submitted that, even if Mrs. Al-Rawas does not succeed on the claims in the petition, she has a claim for what in English law would be conspiracy to injure. As a cause of action this has been described as anomalous and although it is now firmly entrenched in English law, it is by no means certain that similar principles apply under the law of Mauritius. Even under English law, however, it would be necessary to establish that the defendants’ predominant purpose was to cause harm to the claimant: see Crofter Hand Woven Harris Tweed Company Ltd v Veitch [1942] A.C. 435, 444 per Viscount Simon. That seems to me to be open to doubt. What one sees in the present case is an irremediable breach of a relationship which, although existing within a corporate structure, was really more in the nature of a partnership. It is clear that the Sheikh and Dr. Al-Kawari could no longer tolerate Mr. Al-Shanfari’s having any involvement in the affairs of Pegasus, either personally or through his wife. In those circumstances it may be difficult to establish that their predominant motive in seeking to exclude her was to cause her harm rather than to further their own interests. In my view the evidence currently before the court does not tend to bear that out.

There is also the question of the claimant’s loss. The petition is drafted in a way that suggests that a failure to comply with the requirements of the Companies Act renders the share issue null and void. If that is so, however, it is difficult to see what loss Mrs. Al-Rawas will suffer if she is successful in that part of the proceedings, apart from the costs of the proceedings themselves. Mr. Graham submitted, however, that it is open to the court to refuse to declare the share issue null and void and instead to award damages in lieu in respect of the interest she has lost. It is true that the petition contains claims for equitable compensation and damages, but it is not clear what the basis of those claims is. Again, some evidence from a Mauritian lawyer might have assisted.

Mr. Graham submitted that when the judge came to consider the strength of the claimant’s case he looked at the matter too narrowly and did not take sufficient account of the essential nature of the defendants’ conduct. However, I do not think that is a fair criticism. He clearly had in mind the nature of the claimant’s arguments because he said in paragraph 50 that the facts disclosed an arguable case that “the directors proceeded with the share issue with an illegitimate intent to dilute the claimant’s shareholding in a manner which might amount to a breach of duty or a breach of contract in Mauritian law”. At all events, in view of the uncertainties to which I have referred, the evidence before him did not enable him to say that the claim to recover equitable compensation or damages was better than arguable.

As one can see from paragraphs 75 and 76 of his judgment, to which I have already referred, the judge rejected this part of the claimant’s argument mainly because he considered that it depended heavily on the inference to be drawn from the suggestion that the loans, the calling in of which underpinned the share issue, were dubious, if not altogether fraudulent. Mr. Graham submitted, however, that he was wrong in treating that as the mainstay of the claimant’s case and the inference was just as much supported by the nature of the scheme described in the slide presentation and other documents and by the recognition that it might be challenged in the courts.

In my view the judge was quite right in saying that the suggestion that the loans were simply part of a fraudulent scheme was central to the claimant’s case before Dobbs J. I have already referred to Mr. Al-Shanfari’s evidence and to the exchange between the judge and counsel at the hearing which make that clear. If one accepts that the loans were genuine, it calls into question, as he recognised, much of what was being said by the claimant about the defendants, their motives and their approach to the share issue generally. Moreover the judge was struck by the length of the delay between the flurry of activity in February 2005, when the share issue took place, and the issue of proceedings in July 2006, some seventeen months later. He said in paragraph 76

“. . . . . the claimant delayed from February 2005 to July 2006 in relation to the application, and the fact that documents clearly were not destroyed in that period negates such a conclusion. In addition, the documents show that the defendants were keen to have on record all the documentation to show that the share transaction was legitimate. I do not consider that, in the absence of the loans allegation, the claimant can properly say that there was clear evidence that the defendants would destroy documentation before an inter partes hearing could take place.”

Mr. Graham submitted that parties to a dishonest transaction are likely to destroy incriminating documents at one or other of two stages: as soon as they have fulfilled their purpose or only when it becomes apparent that they may have to be disclosed in the course of litigation. Accordingly, no importance should be attached to the fact that the documents had been preserved since February 2005. In my view, however, each case has to be judged on its own facts. Once solicitors for Mrs. Al-Rawas had come onto the scene in February 2005 it was obvious that proceedings might follow, but there is no evidence to suggest that any steps were taken to destroy documents at that stage. I find it difficult to accept the suggestion that the defendants were waiting until the time came for them to disclose them in the proceedings in Mauritius (assuming that such an obligation exists) to destroy them. In my view the judge was fully entitled to reach the conclusion that there was insufficient evidence of a real risk of destruction in this case.

Mr. Graham submitted that the judge wrongly proceeded on the basis that in order to obtain a freezing order it is necessary for a claimant to show that he has a better than even chance of success. That submission was based on paragraphs 66 and 67 of the judgment in which the judge expressed the view that the parties’ cases in relation to the claim under the Companies Act were equally arguable and that the claimant had not established that she had anything better than a simply arguable case. Mr. Graham also criticised the judge for failing to have sufficient regard to the case pleaded in the plaint with summons and to the evidence of the presentation which, he submitted, was sufficient to establish that Mrs. Al-Rawas had at least a good arguable case in conspiracy or the equivalent under the law of Mauritius.

It is well recognised that a claimant who seeks a freezing order must be able to show that he has a “good arguable case”, but I agree with Mr. Graham that that does not require him to satisfy the court that he is more likely than not to succeed at the end of the day. In my view the requirement is a flexible one and the strength of the claimant’s case should be seen as simply one of a number of factors that the court must take into account in deciding whether it is just and convenient in all the circumstances to grant relief of the kind he seeks. The stronger the claimant’s case appears to be, the more ready the court is likely to be to grant wide-ranging relief. Where the claimant’s case appears less strong, though still arguable, the court may still be willing to grant relief, perhaps of a less extensive nature. Each case must be considered on its own merits.

The judge did not decide the matter on the grounds that the claimant’s case in Mauritius was too weak to support a worldwide freezing order; he took into account the strength of her case as one, but only one, of a number of factors in reaching his decision that the order should be discharged. In my view that was the right course to take. Moreover, it is worth noting that the judge was prepared to accept for the purposes of the application that Mr. Al-Shanfari’s estimate of the value of his wife’s claim was not completely unrealistic. Again, I think that was probably the right course for him to take, but in view of the fact that Mr. Al-Shanfari did not put forward any grounds for what he himself described as a “very broad estimate”, I think the judge would have been entitled to take into account the absence of any supporting material when deciding whether the court should make an order of the kind in question.

Since the purpose of a freezing order is to prevent the defendant from disposing of his assets in a manner that would frustrate a judgment against him, it is necessary for the claimant to satisfy the court that there is a sufficient risk of his doing so to justify making the order being sought against him. In this case the claimant had mainly relied on two aspects of the evidence: the “doubtful” nature of the loans and the defendants’ intentions as disclosed in the slide presentation. The first of these ceased to play an important role once Mr. Al-Shanfari accepted that substantial loans had been made to the company by way of start-up capital before he ceased to be a director.

As I have already mentioned, the slide presentation in a page headed “Risk Analysis” drew attention to the fact that Mrs. Al-Rawas might seek to challenge the share issue in the courts, but stated that the value of her claim would be limited due to changes in the location of capital and assets in the company structures. There followed two slides which showed a transfer of two subsidiaries, VUMA Zambia and Pegasus Energy Zambia Ltd, from Pegasus to VUMA Petroleum Ltd, a company incorporated in the Seychelles which was owned entirely by the Sheikh and Dr. Al-Kawari. It had been suggested in the evidence filed in support of the application before Langstaff J. that these three slides showed how the defendants proposed to limit the damage arising from a claim by Mrs. Al-Rawas and provided strong evidence of their willingness to take whatever steps might be necessary to prevent her recovering on a judgment against them. However, Ramsey J. also had before him an affidavit sworn by the eighth defendant, Mr. Lloyd, who said that the transfer of VUMA Zambia and Pegasus Energy Zambia Ltd to VUMA Petroleum Ltd had taken place with effect from 28^th February 2004 and that the two companies had been transferred back to Pegasus with effect from 1^st January 2006. According to Mr. Lloyd’s evidence, the net effect of the transfers, so far as Pegasus was concerned, was nil.

As the judge recognised, the documents evidencing these transfers raise a number of questions that are not satisfactorily answered in Mr. Lloyd’s evidence, but he considered that Mr. Lloyd’s credibility was supported by the fact that Mr. Al-Shanfari had accepted that his evidence about the loans was correct and he concluded that the Risk Analysis was referring to events that had already occurred at the time it was written. In my view that is correct. According to Mr. Lloyd, the presentation was created by a lawyer working for Pegasus in response to a request for advice on the steps that could lawfully be taken to secure the effective removal of Mrs. Al-Rawas from the company. Although it proposes steps which may yet be held to involve a breach of the Companies Act and to render the defendants liable to Mrs. Al-Rawas under the law of Mauritius, it draws attention to various possible consequences of implementing a share issue in a relatively neutral way. In my view it is of some, albeit not of overwhelming, significance that the passage on which Mr. Graham relied states that the value of Mrs. Al-Rawas’s claim would be limited due to the changes in the location of the company’s assets, rather than could be limited by such changes.

Finally the judge had regard to the fact that Mr. Al-Shanfari had himself provided evidence that the Sheikh and Dr. Al-Kawari, the two principal personal defendants, each possess substantial assets and that there was no evidence to suggest that they might seek to dispose of them in a way that would make it more difficult to enforce a judgment against them. Mr. Graham submitted that since those assets were likely to be held through a variety of offshore companies and other entities, enforcing a judgment was likely to prove difficult. That may be, but it does not of itself provide sufficient grounds for making an order of this kind. What is required, but was lacking in this case, is evidence sufficient to establish that, in the absence of an order restraining him from disposing of his assets, there is a risk that the defendant will take active steps to place them out of the claimant’s reach.

In those circumstances I do not find it surprising that the judge reached the conclusion that the risks of a judgment going unsatisfied as a result of improper disposal of their assets by the defendants were not substantial or that, taking all the factors into consideration, he reached the decision that a worldwide freezing order could not be justified.

I have already referred in some detail to the course of the proceedings both here and in Mauritius, to the evidence relied on by Mrs. Al-Rawas and the use that was made of it in connection with the applications before Dobbs J. and Langstaff J. In his judgment Ramsey J. expressed the view that the fact that by 28^th February 2003 loans amounting to US$6.795 million had been made to Pegasus by the Sheikh or companies under his control was material to the application and that the failure of Mr. Al-Shanfari to disclose that information had been intended to mislead the court. He considered the matter to be sufficiently serious to justify setting aside the two orders on that ground alone.

Mr. Graham drew our attention to the decision of this court in Brink’s Mat Ltd v Elcombe [1988] 1 W.L.R. 1350 in which Ralph Gibson L.J., with whom Balcombe and Slade L.JJ. agreed, identified a number of principles bearing on the duty of disclosure when an application is made without notice. They include the following:

“. . . . .

(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.

. . . . .”

Mr. Graham submitted that the judge was wrong to find that Mr. Al-Shanfari had set out to mislead the court; rather, he had himself been misled by some of the documents disclosed to the representative of Hassan Khan & Co in Mauritius in January 2006 and by his knowledge that Pegasus had arranged a revolving credit for US$25 million with a major French bank. The documents included a schedule of loans attached to a letter of demand dated 4^th February 2005 which indicated that loans totalling US$2.655 million had been made to Pegasus by Beagle Equities Ltd (one of the Sheikh’s companies) in 2004 whereas a significant proportion (about US$1.6 million) was the residue of a loan that had in fact been advanced in 2002. He also submitted that the suggestion that the loans were not genuine had not been as critical to the decisions of Dobbs J. and Langstaff J. as the judge had thought.

In my view the judge was right to take the view that the repeated suggestion in Mr. Al-Shanfari’s affidavits that the loans were highly questionable, if not actually fraudulent, reinforced by the remarks made by the claimant’s counsel during the hearing before Dobbs J., played an important part in persuading the judge to grant a search and seizure order. They also played an important part in persuading Langstaff J. to grant a worldwide freezing order. Mr. Al-Shanfari ought properly to have informed the court that substantial loans had to his knowledge been made to the company by the Sheikh and companies controlled by him prior to February 2003 which, as far as he was aware, had not been repaid in their entirety. However, he failed to mention any of that until confronted with Mr. Lloyd’s evidence. In my view the judge was entitled to draw the conclusion that the omission had more to do with seeking to persuade the court of the defendants’ bad faith than with any misunderstanding of the position. In any event, however, it cannot be emphasised too strongly that a judge hearing an application by one party in the absence of the other is forced to rely heavily on the applicant to place before the court all the information in his possession that the judge might reasonably wish to have before him when coming to a decision. The judge needs to have as complete a picture as can be made available and it is the duty of the applicant to ensure that nothing material is withheld.

The court does, of course, retain a discretion to allow an order to stand even where there has been material non-disclosure, but the more serious the non-disclosure, the less likely it is to do so and in a case where the judge is satisfied that the court has been deliberately misled, he should think long and hard before exercising his discretion in the claimant’s favour. The failure of Mr. Al-Shanfari to disclose what he knew about the Sheikh’s financial support of Pegasus was both serious and persistent and played a significant part in persuading Dobbs J. and Langstaff J. to grant the two orders under consideration. In my view Ramsey J. was right to take the view that it was sufficiently serious for the court to discharge the orders on this ground alone.

Section 25(2) of the Civil Jurisdiction and Judgments Act 1982 provides that the court may refuse to grant relief under subsection (1) if it considers that the fact that it has no jurisdiction in relation to the subject-matter of the proceedings otherwise than under section 25 makes it inexpedient to grant it. Before the judge the defendants argued that it was inexpedient for the court to grant relief in this case since the court in Mauritius had directed that the claimant’s application for a search and seizure order in relation to the company’s premises in London should be heard on notice and because the claimant had not attempted to obtain a freezing order from the court in Mauritius even though it has jurisdiction over the substantive dispute and has power to make orders of that kind.

The judge did not find it necessary to decide this question and neither do I. However, I think it is worth drawing attention once again to the passage in the judgment of Lord Bingham of Cornhill C.J. in Crédit Suisse Trust S.A. v Cuoghi [1998] Q.B. 818 at pages 831-832 where this question is considered. A worldwide freezing order is, as Lord Bingham pointed out, an unusual and far-reaching order under any circumstances and its nature is a factor to be taken into account when the court is asked to grant relief in support of proceedings over which it does not itself have jurisdiction. The same may be said of a search and seizure order. I have considerable doubt whether it was expedient in the present case to grant a search and seizure order without notice when the court in Mauritius had heard a similar application in relation to the offices in London and South Africa and had directed that it should be heard on notice. As far as the freezing order is concerned, however, there do not appear to be any grounds for thinking that it would be likely to interfere with the proceedings in Mauritius and I do not think that it would have been inexpedient to make an order of that kind in this case.

There is one other factor which deserved mention in this context, namely, the tenuous connection of many of the defendants with this jurisdiction. In Motorola Credit Corporation v Uzan [2003] EWCA Civ 752; [2004] 1 W.L.R. 113 this court, having considered both Crédit Suisse Trust S.A. v Cuoghi and Refco Inc v Eastern Trading Co [1999] 1 Lloyds Rep 159, pointed out the difficulties and dangers of making worldwide freezing orders against persons whose connection with this jurisdiction is tenuous or non-existent. In the present case the manager of Pegasus, Hawkstone, has an office in London and three of the directors are resident in this country. According to Mr. Al-Shanfari the Sheikh has substantial assets, including a house in London and four other properties in this country. In the case of Dr. Al-Kawari, however, although he states that he is very wealthy, he is able to provide little evidence of any connection with this country beyond the bare assertion that he is the beneficial owner of a residential property at 46 Catherine Place, London. There is no substantial evidence that the fifth or tenth defendant has any significant connection with this country. The eleventh to nineteenth defendants are companies loosely connected to the Sheikh in one form or another, but none of them appears to have a presence or assets here. In my view this is a case in which the expediency of making worldwide freezing orders against all these defendants is open to question.

I should just like to add this. As with most contested applications of this kind, the outcome depended entirely on the judge’s assessment of the evidence and the exercise of his judgment in weighing up the different factors to be taken into account when deciding whether to uphold or discharge the orders. The case therefore provides a classic example of a decision which turned on the exercise of the judge’s discretion and was therefore one with which this court would not interfere unless it was clear that he had gone seriously wrong. It follows that an appeal based on challenging the judge’s view of the evidence or the weight to be attached to it is likely to be fruitless and is to be discouraged. As the hearing progressed it became increasingly clear that this was just such a case. The judge gave a detailed and careful judgment in which he dealt fully with the different aspects of the case before reaching conclusions which in my view were unassailable. In those circumstances an appeal had no real chance of success.

For the reasons I have already given I am satisfied that the judge was right to discharge both these orders. I would refuse permission to appeal.

I agree.

I also agree.