Introduction

The case of Hunt v Ubhi ([2023] EWCA Civ 417) was adjudicated in the England and Wales Court of Appeal (Civil Division) on April 19, 2023. The appeal centered on Mr. Ravneet Ubhi's challenge against a decision by Mr. Robin Vos, a Deputy High Court Judge, to maintain a freezing order imposed on him. The order was initiated by Mr. Stephen Hunt, acting as provisional liquidator of "Black Capital," an alleged insolvent partnership. This comprehensive commentary delves into the case's background, judicial reasoning, the precedents cited, and the broader implications for insolvency law.

Summary of the Judgment

The appellant, Mr. Ravneet Ubhi, contested the continuation of a freezing order against him, imposed by Deputy Insolvency and Companies Court Judge Raquel Agnello KC. The freezing order was applied for by Mr. Stephen Hunt, the provisional liquidator of Black Capital, under allegations that the partnership was insolvent and operated a Ponzi scheme. The High Court Judge had initially upheld the freezing order, emphasizing the risk of asset dissipation by Mr. Ubhi. However, upon appeal, Lord Justice Newey critically examined the adequacy of the cross-undertaking provided by Mr. Hunt, ultimately ruling in favor of Mr. Ubhi by deeming the cross-undertaking insufficient. Consequently, the freezing order against Mr. Ubhi was set aside.

Analysis

Precedents Cited

The judgment extensively referenced several key cases that shape the legal landscape concerning freezing orders and provisional liquidators:

• Pugachev [2015] EWCA Civ 139: Established that the default position requires an unlimited cross-undertaking in damages unless a justified exception is presented.
• Egleton [2006] EWHC 2313 (Ch): Affirmed that freezing orders can be granted even when the applicant, such as HMRC, does not have an existing cause of action, provided certain conditions are met.
• Abbey Forwarding Ltd v Hone (No 3) [2014] EWCA Civ 711: Illustrated the application of cross-undertakings supported by creditor indemnities.
• Convoy Collateral Ltd v Broad Idea International Ltd [2022] 2 WLR 703: Discussed the necessity of an interest meriting protection in granting freezing injunctions.

Legal Reasoning

The crux of the Court's decision hinged on the adequacy of the cross-undertaking provided by Mr. Hunt. According to established precedents, especially Pugachev, an applicant for a freezing order is generally required to furnish an unlimited cross-undertaking in damages. This ensures that any potential harm to the respondent is adequately covered should the freezing order be deemed excessive or unjustified upon later review.

In this case, Mr. Hunt provided a limited cross-undertaking, restricting compensation to the liquidation estate's assets. Lord Justice Newey found this inadequate, emphasizing that the default position was not appropriately challenged or justified by Mr. Hunt. The Court scrutinized the burden placed on Mr. Hunt to justify deviating from the norm and concluded that insufficient rationale was provided.

Impact

The decision in Hunt v Ubhi reinforces the stringent requirements for provisional liquidators seeking freezing orders without unlimited cross-undertakings. Future applications by provisional liquidators will need to ensure they can robustly justify any departure from the default requirement, potentially necessitating stronger indemnities or proving exceptional circumstances that warrant a limited undertaking.

Complex Concepts Simplified

Freezing Orders

A freezing order, or Mareva injunction, is a court order preventing a party from disposing of assets to ensure that funds remain available to satisfy a potential future judgment.

Cross-Undertaking in Damages

When a freezing order is granted, the applicant typically provides a cross-undertaking in damages, promising to compensate the respondent if the order is later found to be unjustified. The standard expectation is for this to be unlimited, ensuring full protection for the respondent.

Provisional Liquidator

A provisional liquidator is appointed to oversee the affairs of a potentially insolvent entity, often involving asset preservation and investigations into financial misconduct.

Conclusion

The appellate decision in Hunt v Ubhi underscores the judiciary's commitment to maintaining rigorous standards in granting freezing orders, particularly concerning the necessity of unlimited cross-undertakings. By invalidating the limited cross-undertaking provided by Mr. Hunt, the Court has set a clear precedent that provisional liquidators must adhere strictly to established disclosure duties and justify any deviations from default procedural norms. This judgment serves as a pivotal reference point for future insolvency and injunction proceedings, ensuring that the balance between creditor protection and respondent rights is meticulously maintained.