In Orb A.R.L. v Ruhan, Mr Justice Cooke denied the claimants’ application to serve four proposed additional defendants out of the jurisdiction and to obtain an injunction against those defendants. He held that the claimants’ earlier “over-recovery” in respect of any wrong doing, and failure to disclose this recovery, were enough to deny permission for service out and tip “the balance of convenience… wholly against the grant of the injunctions”. The claimants had failed to come to equity with clean hands.
The case involved an alleged oral agreement made in May 2003 alongside a sale and purchase agreement and a headstay agreement. It was alleged that this oral agreement stipulated that the defendant would develop, restructure, manage and/or dispose of assets within a hotel portfolio, in order to maximise the financial benefit from such assets, and pay a share of the net financial benefit realised from such activity to the claimants. It was also alleged that the defendant owed fiduciary duties to the claimants.
The dispute arose in relation to a payment of just under £92 million derived from the sale of a company. The claimants stated that this payment represented the profits made on the sale of the hotel portfolio that was the subject of the oral agreement, as there was a sufficient causal and transactional link to render it as a substitute for tracing purposes.
The claimants applied for permission to amend their statements of case to join four additional defendants, serve those defendants out of the jurisdiction and obtain a prohibitory injunction against them. There was no dispute as to the relevant principles to be applied to these applications. The injunction could only be granted if there was a serious issue to be tried on the merits, the balance of convenience was in favour of granting an injunction and it was just and proportionate to do so (applying the well-known test in American Cyanamid v Ethicon).
The claimants successfully established that there was a serious issue to be tried on the merits. Mr Justice Cooke noted that in such a fact sensitive and complex case, there were many different matters that required investigation at trial. He agreed that there was a serious issue to be tried in relation to the existence and contents of the alleged oral agreement and considered the evidence of the protagonists, tested by cross-examination, to be necessary. Similarly, the issue of whether the alleged oral contract was unenforceable for illegality (the defendants argued that the aim of the agreement was to deceive Morgan Stanley) could not be properly resolved without a trial: “the application of what is now considered a rule of law is fact-sensitive”.
The claimants’ application crumpled at an evaluation of quantum. The claimants sought to recover at least £100 million. However, it emerged (at a very late stage) that the claimants had already recovered an amount valued between £105 million and £150 million in respect of the claims made. Whilst the claimants had said that they were prepared to bring such recoveries into account: “the reality of the matter is, on the evidence available, that they have recovered far more than any claim which they could properly justify, even if they were right on all other points”. Even if the claimants had a realistic prospect of success “the court should not countenance permitting service out of the jurisdiction when full recovery has already been made in respect of the claim for the profit shares alleged”.
Mr Justice Cooke criticised the late disclosure of these assets. The claimants had refused the defendants’ request for disclosure of the settlement documents; it was only when the court expressed an interest in seeing them, on the third day of the hearing, that the claimants volunteered to provide them: “The failure by the claimants, despite holding these assets for 9 months and disposing of some of them for considerable sums, to inform the court of the value received as against the claim made is, in my judgment, extraordinary”. This “remarkable” failure: “[did] not evidence a “clean hands” approach on the part of the claimants”.
This was a breach not only of the well-known equitable maxim, but also of the claimants’ obligation of full and frank disclosure. The claimants had accepted this obligation as the application for permission to serve three of the prosed defendants had been made on the Sphere Drake basis (i.e. they had agreed to accept service in order to avoid the inconvenience of service out of the jurisdiction, whilst preserving their right to contest the court’s jurisdiction).
These factors were enough to vitiate any permission for service out and to tip the balance of convenience against granting an injunction. In a limited success, the claimants were granted permission to amend their statements of case to plead additional facts relied on against the first defendant.
Orb A.R.L. and others v Ruhan and others  EWHC 262 (Comm)