EWHC Case Highlights High Standards for Worldwide Freezing Injunctions and Fraud Allegations

Citation: [2020] EWHC 2027 (Comm)
Judgment on

Introduction

The judgment in Blockchain Optimization SA & Anor v LFE Market Ltd & Ors [2020] EWHC 2027 (Comm) exemplifies the legal principles surrounding applications for worldwide freezing injunctions, strike out actions, and the stringent requirements for pleading fraud in the English legal system. Sir William Blair presided over a multifaceted commercial case involving allegations of fraudulent misrepresentation and conspiracy related to a cryptocurrency project called the London Football Exchange (“LFE”).

Key Facts

The case centered on claims by Blockchain Optimization S.A. and Petrochemical Logistics Ltd, collectively identified as “Cs”, against several defendants, including LFE Market Ltd. The allegations made by Cs involved fraudulent misrepresentations about the nature and intentions of the Defendants’ business, which they claimed was operational to defraud cryptocurrency investors. Additionally, Cs accused Defendants of failing to honor an agreement to transfer 4.4 million LFE tokens as repayment for loans provided by Cs to the Defendants’ project.

There were five key applications before the Court:

  1. Defendants’ (“Ds”) application to discharge a previously granted worldwide freezing injunction due to material non-disclosure.
  2. Cs’ application to continue the injunction against select Defendants.
  3. Ds’ application to strike out parts of the claim.
  4. Ds’ alternative application for summary judgment on parts of the claim.
  5. Cs’ application to amend the Particulars of Claim.

Material Non-disclosure and Freezing Injunctions

The judgment reiterated the principle that applicants for a freezing injunction must provide full and frank disclosure of all material facts, following the precedent set in Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350. Material facts related to the solicitor’s previous engagement with the project were not disclosed in Cs’ application for the injunction. While the court found this to be a substantial omission, the injunction was not discharged as the non-disclosure was deemed innocent, and the overall interests of justice prevailed.

The Pleading of Fraud

Fraud must be pleaded with specificity and supported by primary facts that tilt the balance in favor of an inference of dishonesty, as posited in Three Rivers District Council v Governor and Company of the Bank of England (No.3) [2003] 2 AC 1. Cs’ pleaded case satisfied the threshold for a good arguable case—meaning more than capable of serious argument but not necessarily with a greater than 50% chance of success—by presenting plausible allegations that Ds made specific fraudulent representations about the LFE project.

Strike Out and Summary Judgment

In assessing whether to strike out a claim or grant summary judgment, a crucial factor is whether based on the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence, as explained in JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm). The court dismissed the majority of Ds’ strike out application except for one subparagraph; the court also found that summary judgment was inappropriate due to the factual disputes inherent in the case.

Outcomes

The Court:

  • Ordered the continuation of the worldwide freezing injunction.
  • Dismissed most of Ds’ strike out and summary judgment applications against Cs’ pleadings, save for a portion of the claim which was not adequately supported by specific allegations.
  • Directed the parties to confer and amend the Particulars of Claim in line with the judgment.

Conclusion

The Blockchain Optimization SA & Anor v LFE Market Ltd & Ors case is indicative of the rigorous standards imposed by the UK courts when considering injunctive relief and allegations of fraud. Sir William Blair’s judgment underscores the necessity of full and frank disclosure when seeking an injunction and the need for claims of fraud to be pleaded with detailed and specific averments that lend greater weight to dishonesty over innocence or negligence. This case not only highlights the judicial hesitance to readily dismiss a claim with potential merit on the basis of procedural shortcomings but also demonstrates the balancing act that courts must perform in upholding the interests of justice.