Complete Retreats Liquidating Trust v Logue & Ors

This is an application to discharge a worldwide freezing order in the amount of just over $9.6 million made without notice by Morgan J on 29 April 2010 against the first respondent, Mr Geoffrey Logue, and the second respondent, Hayden Holdings Foundation (“Hayden”). The order was coupled with a freezing order in more limited terms concerning only one property in the United Kingdom as against the third respondent, Ms Emma Logue, who is the sister of Geoffrey Logue.

Hayden is a Lichtenstein Stiftung of which Mr Logue is the sole beneficiary. It was previously called Eden Holdings Foundation (“Eden”). It is accepted by the first two respondents that Mr Logue is the beneficial owner of Hayden and it is not suggested that there is any material distinction between them as regards this application.

The return date of the without notice order was 13 May 2010 when it was continued at a with notice hearing by Norris J pending the hearing of the respondents’ application to discharge. On 21 May 2010, at a further hearing before Norris J, by consent the injunction against Emma Logue was discharged. There are no further proceedings against her and the only outstanding issue so far as she is concerned is her application for costs. The substantive application before me is accordingly that of the first two respondents.

The background to this matter is a business established in the United States in which the founder and driving force was a Mr Robert McGrath. The business operated so-called “destination clubs” under which individuals were invited to subscribe to membership which gave them the right to spend vacations at luxury homes in various exclusive locations around the world. There were a series of related companies, including Complete Retreats LLC (“Complete Retreats”), Preferred Retreats LLC (“Preferred Retreats”), Private Retreats LLC and Distinctive Retreats LLC (“Distinctive Retreats”) (together “the Retreats companies” and “the Retreats group”). It appears that Complete Retreats and Preferred Retreats were affiliated companies and that Preferred Retreats was the first operating company and the other operating companies may have been its subsidiaries. The corporate structure is not entirely clear on the evidence but the details are not relevant for present purposes. The different companies operated distinct “destination clubs” at different levels of luxury, and membership involved an initial investment from individuals of an amount varying between $250,000 and $1,000,000. Mr McGrath was the president and CEO of the group.

Mr Logue is a British citizen who went to business school in the United States and after working as an investment banker in New York was engaged to work in the Retreats group by Mr McGrath in about October 2002. In particular, during 2003 he was heavily engaged in assisting the companies in achieving a branding and co-operation arrangement with Abercrombie & Kent and then involved in the setting up of the second of the destination clubs, Distinctive Retreats.

In circumstances which it will be necessary for me to describe more fully, Mr Logue parted company with Mr McGrath and his business in January 2005. On 23 July 2006, the Retreats companies filed for relief under Chapter 11 of the US Bankruptcy Code, and in due course the estate of all the Retreats companies was consolidated for the purpose of the bankruptcy. On 31 December 2007, a Modified First Amended Joint Plan of Liquidation for the Retreats group became effective. All causes of action available to the Retreats companies were transferred to the Complete Retreats Liquidating Trust (“the Liquidating Trust”). It is the Liquidating Trust which is the applicant in the present proceedings and in whose favour the worldwide freezing order was granted.

On 22 July 2008, a complaint was issued on behalf of the Liquidating Trust in the US Federal Bankruptcy Court for the District of Connecticut (“the US Court”), commencing claims against Mr Logue, Mr McGrath and various other defendants under the US Bankruptcy Code (“the US proceedings”). The Complaint comprises 36 counts of which four are alleged against Mr Logue and/or Mid-Atlantic Capital Foundation, a Liechtenstein Stiftung (“Mid-Atlantic”).

The application and grant of the freezing order was made in support of the US proceedings under section 25(1) of the Civil Jurisdiction and Judgment Act 1982 as amended by the Civil Jurisdiction and Judgment Act 1982 (Interim Relief) Order 1997, section 2. Accordingly, the only relevant substantive proceedings against Mr Logue are the proceedings in the US Court. No claim is made in the US proceedings against Hayden but, as I have explained, the assets of Hayden are beneficially owned by Mr Logue.

The four counts alleged against Mr Logue essentially comprise two distinct grounds of claim under the US Bankruptcy Code, and there is also an equivalent claim under the Connecticut statute that is not suggested to add anything material for present purposes. Those two grounds are:

The “fraudulent transfer” claim under section 548 relies on two distinct transactions:

As regards the circumstances of the January payment, the Complaint alleges in the section headed “The Background” that this was made in response to a threat by Mr Logue “to expose various forms of mismanagement to the media” unless that payment was made. However, the specific count alleged against Mr Logue is not based on actual fraud or blackmail, but on constructive fraud as set out above.

The preferential transfers claim under section 547 relates only to the property transfers (presumably, because the January payment was outside the preference period).

The allegations made in the US proceedings by the Liquidating Trust rely heavily on a claim brought by the Retreats companies in April 2005 against Mr Logue in the Missouri state court (“the Retreats Claim”) and a claim brought by Mr Logue, also in April 2005, against Preferred Retreats, Complete Retreats and Mr McGrath in the US District Court for Southern District of New York (“the Logue Claim”). The reason for this was set out in the affidavit of the trustee of the Liquidating Trust, Mr Douglas Evans (who refers to the Retreats companies collectively as “the Debtors”) as follows:

“Due to the lack of proper record keeping by the Debtors, it is not entirely clear in every instance how, by whom, and on what basis, decisions were made by the Debtors. Reference has therefore been made to, amongst other things, the [Retreats Claim] and the [Logue Claim] for the purposes of understanding, inter alia, the role and responsibilities of Mr Logue for the Debtors, the transfers of property to Mr Logue, and Mr Logue’s knowledge of, and participation in, actions which contributed towards the Debtors liquidation.”

The Settlement Agreement to which I have referred was concluded between Mr Logue and the various Retreats companies and Mr McGrath in full and final settlement of the Retreats Claim and the Logue Claim. It appears that neither of those actions had progressed much, if at all, before this settlement.

The US proceedings were sent by first class post on 31 July 2008 to Mr Logue at 737 Park Avenue, New York, and then were served personally on 23 December 2008 on the porter at that apartment building after the process server had been unable to contact Mr Logue himself. There was no response from Mr Logue in the proceedings and on 16 July 2009 a “default” order was entered in the US Court. It appears that although not technically a “judgment”, this default has an effect broadly equivalent to a judgment on liability since it enables the claimant to seek an order for the assessment of damages that will then result in a formal “judgment” for a quantified sum. The Liquidating Trust accordingly filed a motion on 21 September 2009 for such a final judgment, but that was denied because the Liquidating Trust had failed to file also a request for a hearing and to serve this on Mr Logue. It appears that, as one might expect, notwithstanding the lack of response to the original service of proceedings, the request for a judgment quantifying damages has separately to be served on the defendant.

Accordingly, on 5 April 2010 the Liquidating Trust issued a new motion in the US Court for entry of a final judgment against Mr Logue quantifying damages with a request for a hearing. It will be necessary to consider in some detail below what happened as regards service of that motion on Mr Logue. On about 7 April 2010, the US Court ordered that the documents relied on to quantify the claim be served on Mr Logue by 29 April.

Following the receipt of a message from Mr Knuckey about the US proceedings on 23 April (see para 34 below), and then service of the freezing order on the solicitors who acted for Eden on the transfer of the London properties, Mr Logue has now appeared in the US Court and on 25 May 2010 he filed a motion to vacate the default. As a result of his appearance, the Liquidating Trust has now made disclosure of documents to him in the US proceedings, some of which are referred to below.

The intention of the Liquidating Trust had been to wait for the issue of a final judgment by the US Court and then apply in England for a freezing order in support of that judgment. It was because of the direction for service of documents on Mr Logue that the application was made to this court on 29 April. The Liquidating Trust stated in its evidence that it was concerned that (if service was successful) Mr Logue would learn through such documents that it knew of his beneficial interest in Hayden and thus that it would be able to enforce a judgment against the properties owned by Hayden. It alleged that there was a serious risk that Mr Logue would then seek to dissipate his assets, such that the grant of a freezing order was justified.

In support of the ‘without notice’ application, the Liquidating Trust relied on three affidavits: one each from Mr Evans (the trustee), Mr Jeffrey Wiesner, one of the attorneys at a Boston law firm who is responsible for the conduct of the proceedings in the US Court, and Mr Andrew Shaw, a partner in its London solicitors. At the hearing of the application on 29 April, Mr Jeffrey Onions QC, appearing on behalf of the Liquidating Trust, informed Morgan J. of recent events concerning the attempted service of documents in the US proceedings on Mr Logue in London by a private investigator, Mr Cliff Knuckey. In accordance with an undertaking given to the court, that information was then made the subject of a second affidavit by Mr Shaw and it is also set out more fully in an affidavit by Mr Knuckey. Those five affidavits (and their exhibits) accordingly constitute the evidence that was in effect before the court in obtaining the freezing order. Since Mr Shaw has made a total of eight affidavits in these proceedings, I shall refer to them for convenience as “Shaw 1^st, Shaw 2^nd” etc.

It is necessary to set out more fully the position regarding the London properties that were part of the challenged property transfers. These are four apartments at a luxury development, 199 Knightsbridge: apartments 1.22, 2.22, 5.06 and 8.10. It is common ground that long leases for those four units were originally to be acquired for the Retreats business, as part of the creation of a further, European, “destination club”. It is also common ground that the purchase price of the leaseholds for those London properties, of about £4.6 million (and also of the Paris property being acquired for the same purpose) would be financed as to 75% thereof by a loan from Mid-Atlantic, a Liechtenstein foundation that was effectively controlled by the Logue family.

The contracts to purchase the four London properties, which were being acquired off plan, were exchanged in about April 2004, and the purchaser under those contracts was Mr Logue. Completion took place as to three apartments in November 2005, when the lease for Apartment 2.22 was issued in the name of Ms Emma Logue and leases of two others were issued in the name of Eden; and the lease of the fourth apartment was issued to Eden in January 2006. Apartment 5.06 was sold in November 2006 for £2.15 million. That was the position as at 29 April 2010. Registration of the ownership of Apartment 1.22 was changed in August 2006 from Eden to Hayden, but the change in name of Eden is not similarly recorded for the other two apartments held by Eden/Hayden. Apartment 2.22, held by Ms Emma Logue, is currently on the market for sale.

The Respondents’ application to discharge the freezing order is based on a series of independent grounds, including (a) failure to make full and fair disclosure; (b) no real risk of dissipation of assets; and (c) no good arguable case. For this hearing, in addition to the five affidavits referable to the ‘without notice’ application, there were in the end no less than 13 further affidavits before the court, with substantial exhibits.

The Scope of the Duty

The draconian remedy of a freezing order, obtained at a “without notice” hearing where the defendant subject to the order is not present to put his case, was described by Donaldson LJ as one of the law’s two nuclear weapons (the other being a search order): Bank Mellat v Nikpour [1985] FSR 87, 92. Subsequently, Jacob J referred to it as a “thermo-nuclear weapon” because its consequences can be much more devastating than a search order: Alliance Resources Plc v O’Brien (unreported, 8 December 1995). It is in that context that the duty on the applicant to make full and fair disclosure assumes such importance.

The scope of the duty was set out and explained by Bingham J in Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyd’s Rep 428 at 437, in a passage that has been frequently been quoted:

“The scope of the duty of disclosure of a party applying ex parte for injunctive relief is, in broad terms agreed between the parties. Such an applicant must show the utmost good faith and disclose his case fully and fairly. He must, for the protection and information of the defendant, summarize his case and the evidence in support of it by an affidavit or affidavits sworn before or immediately after the application. He 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 investigate the nature of the cause of action asserted and the facts relied on before applying and identify any likely defences. 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.”

Similarly, in Memory Corporation plc v Sidhu (No 2) [2000] 1 WLR 1443 at 1460, Mummery LJ referred to the “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”, a passage cited with approval by the House of Lords in Fourie v Le Roux [2007] UKHL 1, [2007] 1 WLR 320, per Lord Scott (with whose judgment the other Law Lords agreed) at [34].

The issue of what is material was considered by the Court of Appeal in Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, where it formed the subject of the second and third of the principles formulated by Ralph Gibson LJ, with whose judgment Slade and Balcombe LJJ agreed and which has been cited many times since:

“(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: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at p. 504, citing Dalglish v. Jarvie  (1850) 2 Mac. & G. 231, 238, and Browne-Wilkinson J. in Thermax Ltd. v. Schott Industrial Glass Ltd.  [1981] FSR 289, 295.

(3)

The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] FSR 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.”

So well-established are these principles that further citation of authority is unnecessary. I would only add one observation by Dillon LJ in another of the leading cases on this subject, Lloyds Bowmaker Ltd v Britannia Arrow Plc [1988] 1 WLR 1337 at 1348F:

“The applicant owes a duty of fullest and frankest disclosure: if he puts in matters of prejudice he must put them in as fully as is necessary to be fair. He cannot pile on the prejudice and then when it is pointed out that he has told only half of the story and has left out matters which give a quite different complexion, say ‘Oh, well, it is not material. It is only prejudice, and so, on a strict analysis of the pleadings, does not have to be regarded.’”

The Alleged Breaches

A whole series of breaches of the obligation to make full and fair disclosure were alleged on behalf of the Respondents. I address what I consider to be the principal allegations.

Mr Evans, Mr Wiesner and Mr Shaw all stated that Mr Logue “is or was formerly a resident of the state of New York”. Mr Shaw further asserted that “there are good grounds to suppose that Mr Logue is seeking to evade service” (Shaw 1^st, para 47), on the basis, first, that documents served on Mr Logue in April 2010 at the Park Avenue address in New York had been returned to the Liquidating Trust as “undelivered”; secondly, that Mr Logue “would appear to be very difficult to make contact with”; and, thirdly, the unsuccessful attempts of Mr Knuckey to find him. That was relied on in part to seek an order for substituted service, but also, expressly, to support the allegation of risk of dissipation (Shaw 1^st, para 53(i)). The further evidence of Mr Knuckey strongly reinforced this picture. He stated that Mr Logue had failed to call back, as he had said he would do when they first spoke on 16 April 2010; that four days later Mr Logue had changed his mobile telephone number; and that he learnt on 22 April from a “confidential source” that Mr Logue had “in recent days gone into hiding”. Altogether, I consider that this evidence clearly painted a picture of Mr Logue as a rather ‘shady’ individual who was doing everything possible to evade the US claims.

In fact, as regards the attempted service in the United States, it has emerged that on 9 April 2010 a process server who attempted to carry out personal service on Mr Logue at 737 Park Avenue, New York, found that Mr Logue was unknown to the doorman and not listed in the resident directory there, and that the Manhattan telephone number listed for Mr Logue was no longer in service. Further, the package of documents sent to that address by post was not returned to the Liquidating Trust but the US postal service informed the Liquidating Trust that it was “undeliverable as addressed” [my emphasis]. The Liquidating Trust, and its US lawyers, were aware of all this at the time of the application to the English court. Taken together, it would clearly indicate that 737 Park Avenue was no longer Mr Logue’s address and, indeed, that he may well have left New York. (That indeed is the case: he terminated the rental of his Manhattan apartment in April 2009.) But none of this information was given to the court on 29 April. Moreover, Mr Logue has discovered the true position regarding the attempted service on him in New York only because the process server’s affidavit was subsequently disclosed in the US proceedings.

By his 7^th affidavit, Mr Shaw has now apologised to the court for not making it aware of the contents of the US process server’s affidavit at the ‘without notice’ hearing. I was told that the Liquidating Trust’s English solicitors were themselves unaware of those facts. I accept that, but that of course provides no excuse to the Liquidating Trust itself, which made the application, nor indeed to Mr Wiesner. In Mr Shaw’s 8^th affidavit, he adds this:

“I am told by Mr Wiesner that the reason why he did not mention this in his First Affidavit is because he thought it was sufficient that the Court had been told that it was believed that Mr Logue was by then in London.”

That confirms, as I would expect, that the Liquidating Trust’s US attorneys were aware of the way the case was being presented to the English court, and in his affidavit Mr Wiesner stated expressly that he was made aware of the strict obligation of full and frank disclosure. I regret to say that his reason for not furnishing the information about what occurred at the attempted service on 9 April 2010, which strongly indicated that Mr Logue had left New York, betrays a serious misunderstanding of what is required by full and fair disclosure in English proceedings when it is being alleged that the defendant is attempting to evade service.

Secondly, as regards the assertion that Mr Logue appears to be difficult to make contact with, it is now accepted that Mr Logue’s UK home number was far from secret: it was widely available on various, well-known on-line directories. Further, Mr Logue continues to use the personal email that he was using in 2006 and on which he was communicating with the attorneys then acting for the Retreats companies after they filed for Chapter 11. Although the US Court apparently made an order permitting service by email on 27 July 2006, no attempt was ever made to serve the US proceedingsonMr Logue at his email address. But leaving that aside, Mr Logue’s personal email address should have been on the email server of the Retreats companies and in the documents to which the Liquidating Trust had access. No mention is made of this anywhere in the evidence placed before the court which, as I have said, sought to paint a picture of Mr Logue as someone who was doing everything to avoid detection.

Thirdly, there is the saga of Mr Knuckey. He gives an account of a telephone conversation with Mr Logue at 5.30 pm on 16 April 2010 when he says that he told Mr Logue that he wished to meet him to serve papers relating to US proceedings, to which Mr Logue replied that he was in Italy and did not know when he would be back in England because of the volcanic ash cloud but would contact Mr Knuckey on his return. Mr Knuckey casts doubt on the veracity of that statement as he says that the dial tone of Mr Logue’s mobile indicated that it was in the UK; and that he made two further calls to that number which diverted to voice-mail, before calling again on the morning of 21 April when he received a service announcement that the number was unrecognisable. He says that he discovered (again from the “confidential source”: see para 29 above) Mr Logue’s new number which he called on the afternoon of 23 April. He then left a full message for Mr Logue, which he recorded, in which he told Mr Logue that he wanted to serve US court papers concerning a claim against him by the Liquidating Trust.

Of that account, everything except this final message and the fact that he changed his mobile number is strongly contested by Mr Logue. In his affidavit of 18 May 2010, Mr Logue states that he indeed received a telephone call on the afternoon of 16 April. At that time he was in England. He states:

“21.

…The caller asked whether I was Geoffrey Logue and I replied ‘yes’. He did not give his name but went on to say that he worked for the Saudi Royal Family and had been told that I had some very nice apartments that I might be willing to sell in London. I asked him who had informed him of that and how he had obtained my mobile number. His response was that he had been given the information by Savills. I then asked him why Savills would give him my mobile number and he said that ‘the Family’ (by which he meant the Saudi Royal Family) prefer not to use agents and like to deal directly with vendors. I regarded this story as absurd (not least because Savills would not give up the right to a sales commission by enabling direct contact with a potential vendor), but decided to play along to see what was the true reason for his call. I asked him what sort of apartment the King was looking for but he said that he would rather not talk about it on the phone and prefer a face to face meeting. I informed him that I was not prepared to meet a stranger in respect of a potential sale and that, if he wanted to pursue his enquiries, he should go through Savills. He said that the King would not buy an apartment through an agent. I asked him what the King’s budget was and his response was around £2.5 million. This was not remotely credible and I asked him if he was calling on behalf of Mr Candy. He told me that he did not work for Mr Candy and most definitely worked for the Saudi Royal Family. …

22.

That evening, I received a couple of other calls from unknown numbers which I did not answer. The next morning I received a call at 11.30 am from an unknown number. I answered the phone and the caller identified himself as being from Vodafone customer services. He informed me that he was carrying out a customer satisfaction survey and asked if I was happy with my service. He then told me I had to complete a written survey and asked for my UK address. I told him I did not live in the UK and I did not have time to complete such a survey. The caller said that he could send the survey anywhere in the world. This sounded very strange and I informed him that, obviously, Vodafone would already have my address. He responded that such information is kept in a different department. When I suggested that he ask the other department for my address be informed me that, for security reasons, it would be difficult for him to do that. He then asked me to provide him with my postcode. Once again, I told him that I did not live in the UK. At this point he became quite rude and stated that, if I did not complete the written survey, my phone would be disconnected, I then ended the call. …”

Mr Logue says that as a result of all this, and further missed calls from unknown numbers, he went to the Vodafone store at Harrods on 19 April to ask that his number be changed, which Vodafone proceeded to do.

Mr Logue’s account is supported by an email from a Vodafone customer services advisor who confirms that Mr Logue called Vodafone on 17 April to complain about a rude call from a man claiming to be from Vodafone and that Mr Logue asked to be told the number of a strange call he had received the day before from “a gentleman claiming to be a representative of the King of Saudi Arabia” (which number they could not disclose on account of data protection). The advisor further confirms that Mr Logue came to its outlet in Harrods on 19 April asking for a new telephone number.

I suppose that it is conceivable that Mr Logue invented on 17 April the elaborate story about a call from a representative of the Saudi royal family so as to recite this to Vodafone; or, as Mr Onions suggested, that he indeed received such a call on the afternoon of 16 April but from someone other than Mr Knuckey. But given that Mr Logue’s account, in an affidavit served over six weeks prior to the hearing, casts serious aspersions on Mr Knuckey’s integrity, I find it striking that there is no affidavit in response from Mr Knuckey, as I would have expected, specifically denying Mr Logue’s very specific account. The response to Mr Logue’s evidence came instead from Mr Shaw, who in his 5^th affidavit states only that “Mr Knuckey stands by the contents of his affidavit dated 6 May 2010 and … also takes issue with a number of the, largely irrelevant, matters set out at paragraphs 21-29 of Mr Logue’s affidavit.”

It clearly would not be appropriate for me to reach a firm view on the affidavits as to which of these two conflicting accounts is true. But it would be unrealistic completely to ignore my provisional view, based on all the evidence, that it is highly unlikely that Mr Logue has invented his account. Accordingly, I have regard to that, not in isolation, but as a further matter when considering whether there was full and fair disclosure on the issue of Mr Logue’s alleged attempts to evade service. I accept that there is some evidence on which the Liquidating Trust could properly rely regarding the original service in New York in late 2008 and in support of their contention that Mr Logue was aware of the US proceedings before late April 2010. But I have no doubt that a very one-sided and incomplete picture was presented to the court regarding the way Mr Logue was conducting himself in recent months.

In the Logue Claim, among the allegations made by Mr Logue against Mr McGrath was that his operation of the Retreats business involved a Ponzi scheme. In the Retreats Claim, the Retreats companies alleged that the January payment was procured by Mr Logue’s threat to Mr McGrath to expose his unlawful business practices.

In his affidavit, Mr Evans stated (at para 27(vii)):

“the concerns which Mr Logue admits to have had, and which the Retreats Claim alleged Mr Logue threatened to expose, appear to have been true, and are now the subject of claims by the Liquidating Trust against Mr McGrath;”

And further, he asserted (at para 30):

“I believe there is strong and credible evidence in the form of the complaint by the Retreats Claimants, and the affidavits of Mr Pointek and Mr Rappaport, that the payment of $3,650,000 to Mr Logue was made as a result of threats to Mr McGrath to expose unlawful business practices in relation to the Debtors’ business. As I have already noted, the allegations made regarding unlawful business practices appear to have been true, and are now the subject of claims by the Liquidating Trust against Mr McGrath.”

I consider that the impression this conveyed, and deliberately conveyed, to the court in support of the application was that:

However, the Liquidating Trust has not included in the grounds of its claims against Mr McGrath in the US proceedings that he was engaged in operating a Ponzi scheme. That is now common ground. By his sixth affidavit, Mr Shaw explains that since the “burden of proof” (by which I presume he means the standard of proof) for such an allegation of actual fraud is higher, the Liquidating Trust considered that it was sufficient for its purpose to establish its claim against Mr McGrath on the basis of constructive fraud. Whether or not that is the explanation (and the US bankruptcy lawyer who has made an affidavit for Mr Logue expresses the view that actual fraud is usually alleged if there is evidence to support it), that does not affect the simple fact that the English court was not presented with an accurate picture of the extent to which this very serious allegation was being pursued in the US proceedings.

Furthermore, and in my view of much more significance, the “evidence” referred to in support of the blackmail allegation against Mr Logue is subject to considerable qualification.

I should make clear that I am not saying that there was no evidence on which it could be alleged that Mr Logue had procured the January payment by threat, still less am I reaching a conclusion as to whether or not he made any threats. But the only evidence relied on by the Liquidating Trust, when examined with care, cannot, in my judgment, fairly be summarised as “strong and credible.” An assertion in those terms, about a matter as serious as blackmail, is self-evidently highly prejudicial.

The fact that the contracts for purchase of the London properties were in the name of Mr Logue and not a Retreats company, although the deposits were paid by Distinctive Retreats, was relied on as further evidence of suspicious dealings by Mr Logue. Mr Evans asserted that in that regard “Mr Logue’s conduct appears to be highly questionable” (para 28). Mr Shaw relied, in support of the alleged real risk of dissipation, on the fact that it was alleged in the Retreats Claim that Mr Logue had caused the London properties to be registered in his own name in breach of contract and fiduciary duty; and asserted that the fact that the sales reservation forms for the properties were in his name “appear[s] to corroborate this claim”: Shaw 1^st, para 53(iv).

However, in his evidence, Mr Logue explains that the reason the contracts were in his own name was that the funding for the loan through Mid-Atlantic was being provided by his father, who requested that the properties would be held by special purpose companies (referred to as “DR companies”) domiciled, like his father, in Northern Ireland. The DR companies were to be set up as subsidiaries of Preferred Retreats but as those companies had not yet been formed at the time when contracts were exchanged, and as the vendor would be reluctant to sell to an offshore entity, it was agreed with Mr McGrath that the contracts would be entered into in Mr Logue’s own name, with a view to eventual completion into the name of the appropriate DR company. This was done to assist the Retreats companies, and at personal risk to Mr Logue since it meant that if the Retreats group did not complete on the acquisitions, Mr Logue was personally liable. That account is supported by:

The Original Loan Agreement and Board resolutions show that Mr Logue’s involvement in contracting to purchase the London properties was not only disclosed but agreed to and indeed requested by the Retreats group, and the 24 March 2004 email demonstrates that this arrangement was agreed by Mr Logue with Mr McGrath already in January. I note that this email also gives for Mr Logue his address in County Down in Northern Ireland. I understand that Mid-Atlantic had not yet been established at the time of the Original Loan Agreement, which is why it was not a party to that agreement, necessitating a subsequent replacement agreement.

None of these documents are referred to in the evidence relied on to obtain the freezing order. In his sixth affidavit made on 2 July 2010, Mr Shaw states that the Liquidating Trust “did not know about any of the documents relied on by Mr Logue” (para 14). As regards the Original Loan Agreement and the Board resolutions, that is an extraordinary position. The underlying explanation appears to be given by Mr Shaw in that affidavit where he states that:

“the Liquidating Trust has limited funds and resources and there are multiple other Defendants in the US Proceedings”; and

“The Liquidating Trust did not have time to review all of the Debtors’ records prior to the ex-parte hearing”.

However, no intimation was given to the court at the without notice hearing that there were many documents that might be material to these issues which the Liquidating Trust had not been able to consider. On the contrary the court at that time was told that the problem faced by the Liquidating Trust was “lack of proper record keeping by the Debtors”: paragraph 13 above. And since the Liquidating Trust had been in place for well over two years prior to the application for a freezing order, the explanation subsequently put forward by Mr Shaw is a lame excuse for failing to consider properly the relevant papers. Moreover, even this cannot account for the failure to refer to Mr Logue’s position as revealed by the email of 24 March 2004 since that document was recently disclosed by the Liquidating Trust itself in the US proceedings.

Since the application for the freezing order was in support of the US proceedings, the strength of the Liquidating Trust’s claim in those proceedings was obviously very relevant. The court was told (a) that it was difficult to see how Mr Logue would be able to set aside the “default”; and (b) even if he were to succeed on that, the Trust’s claims are “very likely to be successful at trial”, or indeed that “there is no prospect of [Mr Logue] being able to defend the claims”: Mr Wiesner’s first affidavit, paras 41-43. No attempt was made to inform the court of the likely defences that Mr Logue might seek to put forward.

As regards setting aside the default, this will depend upon whether Mr Logue is able to show “good cause” under rules 55(c) of the Federal Rules of Civil Procedure. Mr Kinel, the experienced bankruptcy lawyer instructed by Mr Logue, refers in his affidavit to authority to the effect that the Second Circuit (which covers the District of Connecticut) has construed those words generously and that Mr Logue’s motion to vacate the default is likely to be granted. The Liquidating Trust’s US attorney, Mr Wiesner, adheres to his view that it will be “very difficult” for Mr Logue to have the default set aside: Shaw 5^th, para 54(i). This conflict of opinion appears to depend on the likely approach that the US Court will take, and also rests on the effect of the evidence Mr Logue has given as to why he claims he was not originally aware of the service of the US proceedings on him in 2008. The latter information was not available to the Liquidating Trust at the time when it applied for the freezing order. On this matter, therefore, I do not think that there was any material non-disclosure.

However, as regards the underlying merits of the Liquidating Trust’s claim, the position is very different, and I note that Mr Kinel says that (as one would expect) whether Mr Logue has a meritorious defence to the claim is one of the matters to which the US Court will have regard when deciding whether to set aside the default. For this purpose, the two main heads of claim have to be considered separately.

Section 548: Fraudulent transfer

To sustain this claim, the Liquidating Trust has to establish that Mr Logue did not give “reasonable equivalent value” for the benefit received. It is common ground that this is a fact-sensitive assessment. As regards the January payment of $3.65 million, the credit advice notes from Citibank, to which Mr Evans refers in his affidavit, describe the payment as being made as to $1.36 million for “back pay” and the balance for return of “Class B” investments. The Class B investments refer to the purchase Mr Logue had made of so-called “Class B units” in Distinctive Retreats in January 2004. Mr Wiesner states that at the time of the January payment, this investment was worthless on account of the Retreats companies’ insolvency. There was discussion in argument as to whether these units can be characterised as an equity investment, but I note that Mr Logue and Mr McGrath so described them in a letter agreement of 21 May 2004. But even assuming that aspect in Liquidating Trust’s favour, it does not assist as regards a payment for arrears of salary. The only explanation given by Mr Wiesner as to why such a payment should not be considered as being for “reasonable equivalent value” is that the payment was made in response to the threat not to expose a Ponzi scheme. That takes one back to the blackmail allegation for which, as I have made clear, the evidence at present is very limited. In my judgment, the Liquidating Trust should have made clear to the court that, at least as far as the January payment may have been on account of arrears of salary, Mr Logue was likely to have a well arguable defence that it was made in respect of pre-existing obligations to him under his service or employment arrangements.

Moreover, as regards the property transfer, that was clearly made pursuant to the Settlement Agreement. That was an agreement in settlement of litigation and clearly negotiated by lawyers at arms’ length. Mr Kinel states that the US courts will generally not look at the underlying merits of a compromise very carefully to determine its worth. In my judgment, the Liquidating Trust wholly failed, by Mr Wiesner, to bring this defence to the attention of the court. Indeed, Mr Wiesner remarkably stated that Mr Logue “appears to have demanded” the transfer of the properties, as well as the January payment, through blackmail: para 21 of his first affidavit. There is no basis whatever for that assertion in all the evidence before the court.

Section 547: Preferential Transfers

As explained earlier, for this head of claim the Liquidating Trust has to establish that Mr Logue was an “insider” at the time of the transfer, i.e. in September 2005 when the Settlement Agreement was entered into. The test of “insider” is determined by section 101(3) of the US Bankruptcy Code. Mr Wiesner asserted accordingly that the Liquidating Trust claimed that Mr Logue was such an insider because he was “a shareholder and a person who was able to exercise control in respect of the Debtors’ business”: para 8. However, Mr Logue’s shareholding was 3.3% of Preferred Retreats. Before me, Mr Onions accepted that this alone cannot possibly constitute Mr Logue as an “insider”. And as for the allegation of control, Mr Logue had ceased to carry out any role in the Retreats Group on 24 January 2005, some eight months prior to the time of the Settlement Agreement. Indeed, clause 6.1 of that agreement states:

“This Settlement Agreement confirms that as of January 24, 2005, Logue resigned from any and all positions (employee, consultant or otherwise) and renounced any and all rights and interests that he may have held with respect to [the various Retreats companies].”

On any view, and without of course trespassing on the province of the US Court, this must provide Mr Logue with a strongly arguable defence to the assertion that he was an “insider” at the relevant time. But there was no mention of this at all in the Liquidating Trust’s evidence, most particularly in the affidavit of Mr Wiesner who stated his belief that the Liquidating Trust’s claims “are very likely to be successful at trial”: para 42.

No proper explanation was offered for these failures and omissions in the evidence placed by the Liquidating Trust before the court at the time of the without notice application. Taking them together, I regard this non-disclosure of the defences on which Mr Logue is likely to rely as highly material.

End of the limitation period

For Mr Logue, Mr Wardell QC also relied on the failure to inform the court that the US proceedings were commenced at the very end of the applicable limitation period and that it was one of 49 claims issued by the Liquidating Trust at that time. He submitted that the claim against Mr Logue has “all the hallmarks of a protective writ”. Without reaching any view on this last contention, I agree that the court should have been told about the limitation point. But in the context of the other aspects of material non-disclosure to which I have referred, I do not regard this as very significant.

Effect of non-disclosure

The approach which the court should adopt in the event of a failure to make full and frank disclosure to obtain a freezing order was considered, upon a thorough and valuable review of the authorities, by Mr Alan Boyle QC, sitting as a Deputy High Court judge, in Arena Corp Ltd v Schroeder [2003] EWHC 1089 (Ch), which has been relied on by other judges since: see Dadourian Group International Inc v Simms [2007] EWHC 1673 (Ch) per Warren J at [29]; Alphasteel Ltd v Shirkani [2009] EWHC 2153 (Comm), per Teare J at [39]. Mr Boyle summarised at [213] nine principles derived from the authorities, as follows:

“(1)

If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(2)

Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.

(3)

That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(4)

The court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.

(5)

The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.

(6)

The court can weigh the merits of the plaintiff's claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff's case is allowed to undermine the policy objective of the principle.

(7)

The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.

(8)

The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.

(9)

There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.”

However, as Mr Boyle proceeded to emphasise, the court has a single discretion, to be exercised in accordance with all the circumstances of the case, taking account of these various factors as is appropriate.

Here, I have held that there were a series of independent breaches of the obligation to make full and fair disclosure. Save only for the matter of the limitation period, I regard each of the breaches that I have set out above as serious: they cannot be dismissed or diminished as marginal to the application for the freezing order. Taken together they led, in my judgment, to the court receiving a misleading picture as to the likely character and conduct of Mr Logue, and the strength of the case against him. Leaving aside for a moment the issue of Mr Knuckey’s evidence, I consider that it was obvious that a highly prejudicial picture of Mr Logue was being presented, without any attempt to put before the court any material that might go the other way. In part, as regards, the strength of the underlying case, which the freezing order was being sought to support, I cannot avoid the conclusion that this was deliberate. In part, it was the result of an apparent failure or inability of the Liquidating Trust to consider and digest the documents of the Retreats companies, but that in itself should have been brought to the court’s attention. And as for Mr Knuckey, if my provisional view of his evidence is correct, the criticism of the evidence placed before the court on behalf of the Liquidating Trust is still more serious, although I accept that neither the Trust’s representatives nor its solicitors had any reason at the time to doubt Mr Knuckey’s evidence.

In view of my findings on seriousness and culpability, I do not think it would be disproportionate to discharge the injunction and refuse to grant a new one. In my view, this is precisely the sort of case where such an approach is appropriate. I have noted that in the present case, the claims actually advanced in the US proceedings are of constructive fraud, not actual fraud. However, even in cases where the courts found that the claimant had established a reasonably arguable case of actual fraud, the Court of Appeal has held that a freezing injunction should be discharged (or not renewed) because of serious non-disclosure: Behbehani v Salem [1989] 1 WLR 723; Dubai Bank v Galadari [1990] 1 Lloyd’s Rep 120. Of course, each case turns very much on its facts. However, in my view, there is no good reason not to apply the “general rule” in the present case; and indeed it would emasculate the force of that rule if I was not to apply it in all the circumstances here.

My holding above is sufficient to determine this application. However, as it was fully argued, I shall consider also whether the Liquidating Trust has shown a real risk of dissipation of assets by Mr Logue absent an injunction. It is common ground that the test is whether there is a real risk that a judgment against Mr Logue would be unsatisfied by reason of conduct on his part that is unjustifiable; and that dealings with assets for normal and proper commercial purposes are therefore not relevant.

Here, the primary submission of a risk of dissipation was based on the alleged misconduct of Mr Logue in procuring the January payment by blackmail and his exchanging on the London properties in his own name. I have addressed the weakness in those allegations above.

In addition, reliance was placed on the fact that the London properties were registered in the name of Eden, later Hayden, not in Mr Logue’s name. Mr Shaw said that this suggests that he was seeking to hide his assets or keep them out of the reach of creditors: Shaw 1^st, para 53(vii). It is true that Eden/Hayden is a Liechtenstein Stiftung, but it is well-known that some wealthy individuals place their property investments in off-shore trusts or foundations, and I do not regard that as in itself an indication of a real risk of dissipation. Three of the four London apartments were placed into the name of Eden/Hayden at the time the purchases were completed, and this information has been available from HM Land Registry since 2 August 2006. The leases were obtainable from the Land Registry and show that the address for Eden/Hayden is the same as that of Mid-Atlantic, which the Liquidating Trust knew was linked to Mr Logue. As for the fourth apartment, that was in the name of Mr Logue’s sister, which is hardly the conduct of an individual seeking to hide his assets.

Moreover, the utility bills for apartment 8.10 have always been in Mr Logue’s name and an ordinary credit search, as now produced in the evidence, would have show that this was Mr Logue’s current address.

Mr Logue has interests in an Italian company, Uno Ponterosso Srl, which is involved in refurbishing a palatial building in Trieste. This information is publicly available from a simple internet search.

Although one of the Knightsbridge apartments was sold in November 2006, and more recently Mr Logue has sold at least one other residential property (not at 199 Knightsbridge) in London, since he is engaged in property investment and development, that does not justify any suspicion. Mr Onions very properly accepted that the Liquidating Trust is not in a position to challenge the evidence now before the court that Mr Logue was dealing with the properties for normal business purposes.

There remains a fundamental aspect of this part of the case, strongly emphasised by Mr Wardell. On the Liquidating Trust’s case, Mr Logue has known about the US proceedings against him since, at the latest, February 2010. But there is no evidence or even indication that in the months since then he has done anything to move these assets of which, it is alleged, there is now a real risk of dissipation.

In the light of all the evidence before the court, I find that no real risk of dissipation has been established in this case. On that basis also, therefore, I would discharge the freezing order.

To justify the grant and continuation of a freezing order, the applicant must show a good arguable case on the merits. The meaning of a “good arguable case” was considered by Waller LJ (with whose judgment Nourse LJ agreed) in the Court of Appeal in Canada Trust Co. v Stolzenberg (No. 2) [1998] 1 WLR 547, 555:

“It is also right to remember that the “good arguable case” test, although obviously applicable to the ex parte stage, becomes of most significance at the inter partes stage where two arguments are being weighed in the interlocutory context which, as I have stressed, must not become a “trial.” “Good arguable case” reflects in that context that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i.e. of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”

That case concerned the test for service out of the jurisdiction, but there seems no basis not to apply that observation in the context of a freezing order, while recognising that this does not, as it were, import the ordinary civil standard of proof by the back door: see Cherney v Deripaska [2008] EWHC 1530 Comm, per Christopher Clarke J at [44].

Where the freezing order is in support of foreign, not domestic proceedings, the test therefore involves consideration of whether the applicant has a good arguable case in those proceedings. This was addressed in Motorola Credit Corpn v Uzan (No 2) [2004] EWCA Civ 752, [2004] 1 WLR 113, where the Court of Appeal stated (at [102]):

“The requirement that the claimant must establish that Mareva -type relief would be granted if the substantive proceedings were brought in England requires a decision of the judge based on English procedures and the approach of the English court to the nature and sufficiency of the evidence in a situation where the claimant has come to England to obtain a remedy unavailable to him in the substantive foreign proceedings. It is frequently, indeed usually, the position that section 25 proceedings are brought following issue and service of the foreign proceedings but before there has been any decision of the foreign court which examines the strength or arguability of the claimant's substantive case.”

The Motorola case also concerned proceedings in the United States, but there the primary allegations against the defendants were of common law fraud and civil conspiracy. In the present case, the complaint against Mr Logue in the US proceedings is based on sections 547-548 of the US Bankruptcy Code, and consideration of whether the Liquidating Trust has a good arguable case against him involves the application of terms of art under US bankruptcy law.

I have earlier expressed the view that Mr Logue appears to have well arguable defences to at least part of those claims. However, that was in the context of holding that those were matters that should have been disclosed on the without notice application. It would be a very different task to assess, under the Canada Trust test, whether the Liquidating Trust or Mr Logue has a “better argument” on those claims. I would feel considerable unease if I had to make such a determination, albeit on a provisional basis, without much fuller evidence of US law. But in the light of my clear conclusions above that the freezing order should be discharged, and not renewed, on the grounds of both a failure to make full and fair disclosure and, independently, the lack of a real risk of dissipation of assets, I do not find it necessary to do so. These are matters currently pending before the US Court, which is self-evidently much better able to assess the position than I am.

There is one further matter. The affidavit of Mr Evans referred to official copy records of the four London properties. He commented on what is shown in those records, which he purported to exhibit. That affidavit was sworn on 26 April 2010, three days before the hearing of the without notice application before Morgan J. However, it has emerged that in fact the documents exhibited by Mr Evans were unofficial copy searches undertaken on 21 April 2010. That is not, however, how matters appeared before this court on 29 April. Two days after Mr Evans affidavit was sworn, that is on 28 April, the claimant’s solicitors undertook and obtained official searches on those properties. And then in preparing the bundle of evidence for the without notice hearing, copies of the later, official searches were included in the copy of the exhibit to Mr Evans affidavit. It follows that what was presented to the court as a copy of the exhibit to Mr Evans’ affidavit was not, in this respect, a true copy of that exhibit. This was recently picked up on the Respondents’ side of the case by reference to the dates on the official searches.

Mr Onions, who appeared also on the without notice hearing, has apologised to Court for not noticing this as Counsel before that initial hearing. I accept that apology and this is not something I would necessarily expect Counsel to notice. I also received an explanation of how this occurred, initially through Counsel and then, in response to my requirement, in the form of a further affidavit from Mr Shaw. It appears that the reference in Mr Evans’ affidavit to official searches was a mistake: he should have referred to unofficial searches. I am told that Mr Evans, as an American attorney, would not have appreciated the distinction between official and unofficial searches and thus did not realise the error in the affidavit which was prepared for him and which he swore. I accept that also.

It is acknowledged that the mistake in drafting Mr Evans’ affidavit was made by the claimant’s solicitors, Stewarts Law LLP. So also was the further and distinct mistake in the preparation of the copy exhibit in the court bundle. I am told that the contents of the exhibit were finalised by an assistant solicitor in discussion with Mr Evans’ assistant: they included the unofficial searches made on 21 April 2010. Although the documents for the exhibit were finalised in that way, and Mr Evans had received copies to which he could attest, it appears that, surprisingly, no comprehensive copy bundle of the exhibit was retained by Stewarts Law. Therefore, a litigation clerk at the firm was asked to prepare a copy of the exhibit by reference to the text of the affidavit and in doing so on 28 April 2010 he included the official searches (which had just been carried out) instead of the unofficial searches (to which Mr Evans had in fact been referring although he mistakenly described them as official searches). Although the copy exhibit prepared by the litigation clerk was checked by the assistant solicitor involved, he failed to notice this error. I am further told that although Mr Evans sent the original exhibit across from the United States to Stewarts Law by overnight delivery on 27 April, it cannot now be located.

I accept the apology for this succession of errors that Mr Shaw has tendered to the court on behalf of his firm. I would only observe that it indicates a remarkable lack of proper precaution and supervision in the preparation of the documents to be placed before the court on a without notice application. And I should add that in view of the explanation which I have received, it has not affected my decision on the substantive application.

For the reasons set out above, the freezing injunction of 29 April 2010 will be discharged and no fresh injunction will be granted.