Frontera Resources Corporation and Frontera International Corp v Stephen Hope and Outrider Master Fund LP - Judgment

¶ IN THE GRAND COURT OF THE CAYMAN ISLANDS FINANCIAL SERVICES DIVISION CAUSE NO: FSD 193 0F 2018 (IKJ) BETWEEN: (1) FRONTERA RESOURCES CORPORATION (2) FRONTERA 'INTERNATIONAL CORPORATION Plaintiffs -and- MR STEPHEN HOPE OUTRIDER MASTER FUND, L. P. Defendants IN CHAMBERS Appearances: Mr Peter Hayden and Mr Nicliolas Fox, Mourant Ozannes, on behalf of the Plaintiff Mr Fraser Hughes and Ms Roisin Liddy Murphy, Conyers Dill & Pearman, on behalf of the Defendants Before: The Hon. Justice Kawaley Heard: 11 Februai7 2019 Draft Ruling Circulated: 19 February 2019 Ruling Delivered: 27 February 2019 90227 In tlie Matter of Frontera Resorirces Corporation et al v Steplien Hope et al-FSD 93 of 20 8 (IKJ) Judgment HEADNOTE Ex parte application of defendants to va'ty ex parte iriterim infimction obtained by plaintiffs- application by plaintiffs to set aside variation-whether variation amounted to grarit offresh injunction to defendants-whether legal requirements for gram of quia timet injunction met- material non-disclosure JUDGMENT Introduction and Summary 1. The present case is emblematic of the sort of commercial dispute where, from the earliest interlocutory skirmishes, it is clear that the Corirt will find it difficult to impose neat legal order on a particularly rambunctious commercial contest. 2. On October 11, 2018, following an ex paite hearing, I ordered that: "1. The Defendants be restrained from taking any steps to enforce against property which is the subject of the Equitable Mortgage dated 20 December 2016 between the Second Plaintiff and the Third Defendant', whether pursuant to rights vmder that agreement or otherwise." 3. The Defendants applied ex parte to vary paragraph I of the October 11, 2018 ex parte Order ("Interim Injunction") on December 5, 2018 (although the Order was signed on and erroneously dated December 7, 2018 (the "Variation Order")). I granted that application by inserting the following new paragraphs in the Interim Injunction: "IA. The Plaintiffs shall not cause Frontera Resources Caucumts Corporation to iricur any further indebtedness or obligations in excess of US $500,000 until 18 December 2018, or such other time as the return date in respect of the Injunctiorr can be heard. IB. The Plaintiffs shall not create any liens or security interest in respect of, or othemise encunyber (directly or indirectly), the shares or property of the Plaintifjf or any of their subsidiaries until 18 December20l8, or such other time as the return date in respect of the Injuriction carr be heard." The Third Defendant, Maples FS Limited, as of December 18, 2018 is no longer a paity to the i @p@ 190227 In tlie Matter of Frontera Resotirces Corporation et.al v Steplien Hope et al-FSD }93 of 2018 (rKJ) Judgment

¶ [4] , 5 4. Following a hearing on December 18, 2018 at which Variation Order was not properly addressed, the Interim Injunction was on December 21, 2018 discharged on the grounds that: (a) it was obtained at an ex parte hearing on the basis of affidavit evidence and submissions which failed to disclose material facts and/or to fairly present the merits of the case; and (b) the Plaintiffs' case based on the evidence available at this stage has no real prospects of success and/or fails to raise a serious qriestion to be tried. 5. The Plaintiffs appealed the discharge of their Interim Injunction as of right2 and applied orally on December 21, 2018 for a stay pending appeal. I granted an interim stay until an application for a stay of the discharge of the Interim Injunction pending appeal corild be heard. The December 21, 2018 0rder, which was only recently perfected following contention as to its form, continued the Interim Injunction as modified by the December 7, 2018 0rder. 6. The Defendants in the event did not oppose the stay pending appeal application whicli I granted on February 11, 2019. The effect of the stay which I granted was to keep the Interim Injunction in effect rmtil the end of the April 2019 session of the Court of Appeal. This was on the understanding that the Plaintiffs will seek to have their appeal listed for hearing in the next session of the Cayman Islands Court of Appeal (or where that is not possible, at a special sitting of the Court of Appeal if possible). 7. The present application by the Plaintiffs to set aside the variation of the Interim Injunction is not otiose. It seeks to determine whether their ability to raise operating capital and grant security will continue to be impaired pending appeal. For the reasons which are set orit below, I find that the ex parte December 7, 2018 0rder (the "Ex Parte Variation Order") shorild be set aside on the following principal grounds: (a) it was obtained at an ex parte hearing on the basis of affidavit evidence which failed to disclose material facts and/or fairly present the merits of the case; and (b) the Defendants' December 5, 2018 ex parte Summons was in substance an application for an interim quia timet injunction and the legal requirements for the grant of such relief were not met. 2 Couit of Appeal Law section 6(f)(ii), which contains the same wording construed as conferring an appeal as of Ltd. Et al [2009] HCVAP 2009/002 (unreported, Judgment dated September 28, 2009 (George-Creque JAAS ' "t 190227 In tl'ie Matter of Frontera Resources Corporation et al v Steplien Hope et.a}-FSD 193 of 2018 (IKJ) Judginent a',,i' !!'3 : The Interim Injunction The Interim Injunction contained the following central terms: "1. The Defendants be restrained from taking any steps to enforce against property vihich is the subject of the Equitable Mortgage dated 20 December 2016 between the Second Plaintiff and the Third Defendant, whether pursuant to rights under that agreement or otherwise." Most significantly for the Interim Injunction, the Plaintiffs seek a declaration that the 2nd Defendant ("Outrider") is not entitled to enforce tlie security it has in the form of an equitable mortgage over the shares of Frontera Resources Caricusus Corporation ("FRCC"). Pivotal to the Plaintiffs case is the assertion that the events of default upon which the 2nd Defendant relies as a basis for enforcing its security were caused by the misconduct of the Is' Defendant ("Mr Hope") in his role as a director of the Ist Plaintiff ("FRC") acting in concert with Outrider. 10. The Indorsement of Claim on the Plaintiffs' Writ asserts the following claims against the Ist Defendant: "(1) Damages arisingfrom his breaches offiduciary duty owed to the First plaintiff in his capacity as director, to the detriment of the Plaintiff as the owner of the share capital of the Second Plaintiff. Such breaches inchtde, inter alia: (a) attemptingtodeprivetheFirstPlaintiffofassetsforhisownbenefit and/or for the benefit of the Second Defendarrt; (b) promoting his ovm interests over, and in conflict with, the interests of the FirstPlaintiff; (c) failing to act in what he believed to be in the best interests of the First Plaintiff; (d) acting for an improper purpose; (e) failing to exercise independerrt judgment; (f) failing to act with loyalty, horiesty and good faith." 190227 In tlie Matter of Frontera Resources Corporation et.al v Step)ien Hope et.al-FSD 193 of 2048 (IKJ) 4 Pr

¶ [11] There is a close connection between Mr Hope's position on the FRC Board and Outrider's security rights. Those arise under a Note Agreement dated December 20, 2018 in relation to the Frontera International Corporation ("FIC ") 2020 Notes, which provides, inter alia, as follows: "7.2 ... (b)so long as no Default has occurred and is continuing, the Company and its Company Subsidiaries shall be entit?ed to Incur all Permitted Indebtedness orPermittedNoteholderlndebtedness.... SCHEDULE I Permitted Indebtedmss' nqeans any or all of the following.' (1) Indebtedness of ttp to $200 million Incurred pursuant to a Credit Facility, with interest not to exceed LIBOR plus 1500 basis points, provided that any such indebtedness may onl)i be incurredwith the unanimous written consem of the members of the board of directors of FRC, and further provided that, absent such unanimous consent of the board of directors of FRC, any transaction incurring such indebtedness shall be void..."

¶ [12] Withorit beginning to undertake a comprehensive analysis of the relevant security documentation upon which I have never been fully addressed, the best preliminary view I was able to form of the role of Mr Hope on the FRC Board following the December 18, 2018 inter partes hearing was as follows. He is contractually entitled on behalf of Outrider to veto any proposed borrowing that FRC proposes to approve. The Note provided that FRC was not permitted to borrow withorit unanimous Board approval; a Settlement Agreement between the parties entitled Outrider to have its nominee on the FRC Board. The Plaintiffs' case is in effect that Mr Hope in exercising (or threatening to exercise) his veto power on the grounds that a restructuring rather than more debt financing was reqriired in the best interests of the Frontera Group was improperly motivated and seeking to achieve collateral benefits for himself and Outrider. The security documents strongly suggest that the contractually and explicitly agreed basis for Outrider's nominee being on the FRC Board is to be able to veto transactions the nominee director considers are inimical to Outrider's security interests.

¶ [13] It was against this background that I ruled on December 21, 2018 that the Plaintiffs' claims that the Defendants were not lawfully entitled throrigh Mr Hope to exercise the veto power by refusing to approve fiirther indebtedness and triggering an Event of Defarilt entitling the enforcement of the security did not have realistic prospects of success. I discharged the Interim Injunction on this merits ground alone although I found that the requirement of proving a risk of irreparable harm was met. I ruled: 190227 In tlie Matter of Frontera Resources Corporation et.al v Steplien Hope et.al-FSD 193 of 2018 (IKJ) Judginent 5 "35. The only coherent allegation advanced by the Plaintiffs is the broad complaint thatMr Hope has blocked the Company's legitimate attempts to raise debt financing with a view to he arid Outrider benefitting fron'i a default by FIC and taking control of its assets. This requires the Plaintiffs to establish that the proposed debt financing ought to hcrve been approved instead of some form of restructuring. The Plaintiffs also have to prove that the Mr Hope in contending that a restructuring was a better option having regard to the iriterests of creditors was motivated not by the interests of the Group's creditors, with which interests Outrider's were arguably aligned. The Plaintifjfs hme to prove that, instead, MrHope and Outrider were to a material extent motivated by the desire to earn restructuring fees. At this stage, based in part on FRC's own accounts and its admitted liquidity problems, it appears strongly arguable that FRC is insolvent and that the directors' primary regard ought to hctve been to the best interests of creditors. This lends more credence to the propriety of Mr Hope's general stance in opposing more debt financing and calling for decisive action than it does to the majority directors' position that debt financing was the obviously appropriate business judgment to make." The merits of the Variation Order The listing of the application and the perfection of the Variation Order

¶ [14] As the Plaintiffs' counsel complained about a lack of clarity about how the application was administratively dealt with and heard3, it seems desirable that I summarise the email record which may be regarded as notionally forming part of the electronic file in this matter.

¶ [15] At 3.35 pm on December 4, 2018, tlie Defendants' counsel (Conyers) made a request by email for an urgent hearing ex parte liearing which forwarded draft application papers. That email was forwarded to me (in Bermuda) the same day at 4.00pm. It attached a draft Order seeking relief in terms ofthe subsequently filed Summons, a draft Ex Parte Summons, a copy of the First Affidavit of Stephen Hope (sworn in response to the Interim Injunction) and a covering letter to the Court. At 7.42 pm I informed my Personal Assistant of my availability and at 8.27 pm she promised to update me the following morning.

¶ [16] The following day at 6.42am, my Personal Assistant advised Conyers that I could hear counsel at 4pm on December 5, 2018 or at 9.00am on December 6, 2018. At 9.Olam Conyers confirmed they worild attend at 4.00pm that day (December 5, 2018). My Personal Assistant at 9.28am requested Conyers to submit a hearing bundle, pay the filing fee and also provide a Word version of the proposed form of Order which was being sought. At 9.38 am this correspondence was forwarded to me and was received when I landed at Miami International Airport en route to Grand Cayman". I landed in 190227 In tlie Matter of Frontera Resorirces Corporation et.al v Steplien Hope et.al-FSD 193 of 2018 (IKJ) Jridgment 6 Grand Cayman at around 2.00pm on Wednesday December 5, 2018, returning to my Chambers at arormd 3.l5pm. At 3.57 pm Conyers forwarded an amended version of the draft Order. At 3.59pm, my Personal Assistant emailed me a Word Version of the draft Order which was substantially (in terms of content) in the form of the Variation Order as eventually formally made, although it envisaged that the First Hope Affidavit would be sworn that day5. As I can find no electronic record (in my own inbox) of a draft of the Second Hope Affidavit being forwarded to me in advance of the hearing, I believe that Mr Hayden was correct in his interpretation of page 2 of the unofficial Transcript of the December 5, 2018 hearing (Mr Hughes did not seek to correct him). I find that Mr Hughes only supplied a copy of the Second Hope Affidavit to the Couit at the beginning of the hearing.

¶ [17] FollowingthehearingonDecember5,2018,Iwasrequiredtoturnmyattentiontoan unrelated but substantial inter partes mrilti-party hearing listed for a full day hearing on December 6, 2018. At 5.15 pm that day I requested my Personal Assistant to forward a revised draft Order to Conyers which contained my own proposed changes to paragraph

¶ [1] The Defendants' wording proposed adding two unmu'nbered paragraphs to the Interim Injunction. I proposed numbering the two additional paragraphs as "IA" and "IB". I failed to notice that paragraph 4 of the draft Order incompletely provided "The First arid Second Defendants costs of this summons" and did not, so far as I now recall, consciously address what the appropriate costs order should be. The costs should obviously have been reserved.

¶ [18] The Variation Order was administratively signed on December 7, 2018 in the fori'n approved by me the previous day with the recitals still asserting that the Second Affidavit of Mr Hope had been sworn on December 5, 2018, as the Defendants' cormsel represented that it worild be by seeking an Order in those terms. The Second Affidavit was not in fact sworn rmtil December 10, 2018. Was the application in substance an application for a freestanding interim iniunction in favour of the Defendants?

¶ [19] Mr Hayden's withering criticism of the way in which the ex parte hearing was conducted by the Defendants' counsel assumed that it was obvious that the Variation Order effectively granted the Defendants freestanding injunctive relief. Mr Hughes, with a surprising degree of sangfroid, submitted that it was obvious that all that the Defendants had achieved was to vary the scope of the Interim Injunction. However, Mr Hayden in reply made two compelling points: (1) theInterimInjunction'sambitwastorestrainwhattheDefendantscould do. The Variation Order's main target was not the scope of the restraints initially imposed on the Defendants' security enforcement rights. 5 It is unclear when this email was actually reviewed by me. It is also unclear if the unofficial Transcript a correct in asserting that the liearing scheduled for 4.00pm commenced at 3.30pm. 190227 In t)ie Matter of Frontera Resources Corporation et al v Step)ien Hope et al-FSD 193 of 2018 (IKJ) Judginent 7 Rather, the aim of the 'amendments' soright was, most directly, to constrain the conduct of the Plaintiffs in relation to their borrowing actiyities; (2) the Second Hope Affidavit rmder the heading "F. CROSS TJNDERTAKING AS TO DAMAGES' in the very last paragraph of the Affidavit stated as follows: "33. In the event that the Court requires a cross undertaking as to damages in respect of the amendments sought to the Injunction, IandtheSecondDefendarrtgiveanundertakingthat, iftheCourt later finds that the proposed amerrdments to the injunction has [sic] caused loss to the Plaint4ffs, and decides that the Plaintifjfs should be compensated for that loss, the First and Secorid Defendants will comply xiith any order that the Court might make."

¶ [20] To extend the chess match metaphor I used in the course of the ex parte hearing on December 5, 2018: "Check; clieclanate". I am bound to accept the Plaintiffs' argument that the relief sought by the Defendants on December 5, 2018 was in substance an application for a fresh injunction in their favorir as against the Plaintiffs. The Defendants were legally required to meet the usual reqriirements for the grant of such relief. Was the application sufficiently urgent to require a hearing on little more than 6 hours' notice to the Plaintiffs?

¶ [21] When the evidence is critically analysed, it readily becomes clear that there was no real urgency justifying the application for the Variation Order being listed in the way it was. This conclusion can perhaps be justified ori a number of grormds, but it is only necessary to consider the most decisive one. It is a ground which also supports most directly (a) the complaint that the imminent threat requirements for obtaining a quia timet injunction were not met, as well as indirectly (b) the material non-disclosure complaint, botli of which complaints are considered below.

¶ [22] Mr Hayden's main submission was that there is no credible evidence of any imminent threat to the Defendants' security from any fresh borrowing or any fresh security. He described the following averment in the Second Hope Affidavit as a "huge mischaracterisation":

¶ [6] Since the Infimction hearirrg on October 11, 2018 and the directions hearing on November 20, 2018 the Plaintiffs have threatened to impose new debt obligatioris upon FRC in excess of US$50 million. Since this is debt of, ii-b 190227 In tlie Matter of Frontera Resources Corporation et.al v Stephen Hope et al-FSD 193 of 2018 (IKJ) Judgment company in which OMF holds security over shares, this debt would have effective priority over OMF's secured interest."

¶ [23] The deponent then proceeds to describe the Durham Proposal, considered at a Board meeting on November 27, 2018, and asserts, inter alia, that: (a) "it was ambiguous whether the term sheet... was binding or non-binding" (paragraph 14); (b) the other directors may proceed to approve the Durham Proposal without telling him because tliey have opined that he is conflicted and should abstain from voting (paragraph 15 - no particularity is given as to when this discussion occurred); (C) the term sheet prirports to grant a "P' lien on all Frontera assets" (paragraph 21). Mr Hayden described the averment in paragraph 21 of the Second Hope Affidavit as "one of the most blatant falsehoods he makes".

¶ [24] Firstly, the Term Sheet was exhibited and referred to by counsel during the hearing to substantiate the words quoted by Mr Hope about the security interest which was under consideration. But, carefully read, it is impossible to find any ambiguity about the Term Sheet's non-binding status. Secondly, a November 25, 2018 email from Mr Hope was properly exhibited to liis Second Affidavit, but not (apparently) referred to by his counsel during the ex parte hearing. The Plaintiffs relied in particular on Mr Hope's acknowledgement in that email that: "...Given that Durham's proposal will take several additional days or weeks of diligence and documentation and they will be paid to do it all....I can't understand that their side would have any urgency to complete the deal..."

¶ [25] Secondly,thedra'ftMinutesfortheNovember27,2018Boardmeeting,whichMrHope did not exhibit although he had apparently received them, recorded the following resolution rmder paragraph 3.1: "(c) Any definitive agreements referenced in the Term Sheet as may be required for the Transaction to come into effect, shall be approved by unanimous resolution of the board of directors of the Company in due COurSe." 26. This document provided even clearer confirmation that the Term Sheet had . r- 2 : =, immediate binding effect while also suggesting that the official position of the '%{ was that unanimoris approval for any future binding agreements would be required. This was not the only document which undermined the Defendants' case for urgent relief which was not disclosed. More pertinently still, Mr Hope exhibited an email chain leading up to the Board meeting but failed to disclose the complete chain including communications he had with the Board after the meeting. He deposed that he abstained at the Board meeting on approving the Durliam Proposal: "14. The outcome of this meeting was that my fellow three directors indicated their verbal approval for the Durham Proposal and I abstained on the basis thatI required additional information on the terms....and in particular answers to the nine questions I posed prior to the Board meeting which remained unanswered. I also requested that a written resolution be circulated to the Boardforconsideration, soIcoulduriderstarrdpreciselywhatwasbeingagreed as it vias ambiguous whether the term sheet in respect of the Durham Proposal was binding or non-bindirig."

¶ [27] The undisclosed post-meeting portion of the email cliain produced by the Plaintiffs' Mr Nicandros in the exhibit to his Second Affidavit revealed that two versions of a Board mimite were circulated after the meeting. The first was unsatisfactory to IS/fr Hope, and then Vice-President, General Cormsel and Corporate Secretary Mr Bakhutashvili sent the version of the Minutes quoted from above noting:'V think it addresses your corrcerns." So if at one point there was lack of clarity aborit the need for future binding agreements and a concern about Mr Hope's ability to vote, the apparently ultimately agreed form of dra'ft Minutes put those issues to bed.

¶ [28] The last email in the chain exhibited to the Second Nicandros Affidavit also seriorisly undermined the case that there was a need for rirgent relief to address the imminent risk to the Outrider security from a precipitoris consummation of the borrowing contemplated by the Term Sheet. On November 28, 2019, Mr Hope emailed Mr Bakhutashvili: "I am happy for the company to advartce discussions with Durham, including funding due diligence by Durham in an amount ttp to $150, OOO...HOWEVER...I am happy to hear specifically how the company intends to provide that junior capital in a way that certainly does NOT breach the Note Agreement..."

¶ [29] All of the above strongly suggests that Mr Hope well rmderstood that the risks to Outrider's security were risks which might crystallize into real or actual risks should a transaction, which was not even at the due diligence stage, come to fruition. Moreover these concerns arose in circumstances where any final agreements worild properly be subject to unanimoris FRC Board approval. No evidence was adduced of a major shifting of the tectonic plates between November 28, 2018 and the reqriest for an , 1 11 190227 In the Matter of Frontera Resorirces Corporation et.al v Steplien Hope et.al-FSD}93 of 2018 (IKJ) Judginent 4* -tig ET;

¶ [30] The Conyers letter of November 28, 2018 on behalf of Outrider to Mourant soright rindertakings that its security worild not be impaired"on the basis that a Default has occurred butwithoutprejudicetoyourclients'positionthatithasnotoccurred." The letter did not on its face make out any case for urgency yet sought a confirmatory response the following day, concluding: "If we do not obtain such confirmation, Outrider intends to seek an urgent attendance before the Hon. Mr. Justice Kawaley to amend the 11 0ctober injunction accordingly."

¶ [31] Mourantrespondedrobustly onNoyember30,2018,concluding: "In the circvmvstances, there is no basis for your clients to seek an injunction. Furthermore, we note that notwithstandirig your assertion that this issue is urgent, your clients have previously raised no coiriplaint about the injunction until the day before last vieek's directions hearing.... If notwithstandirig the above, your clients intend to persist in this misguided application, we reserve al7 our position as to all appropriate relief includirig costs and ask that ariy application be made on notice to our dierits and listed for a date on which our clients leading counsel can attend."

¶ [32] Mr Hayden rightly argued that there was no justification against this backgrormd for the Defendants to make no reasonable efforts to schedule their application for a mutually convenient date. Mr Hughes could only seek to argue that the Mourant request for a date convenient to the Plaintiffs' leading counsel did not call for a response. As I indicated in the course of argument, the Defendants could at a minimum have requested the Corirt to fix an early hearing withorit regard to the Plaintiffs' convenience on the basis that a mutually convenient date could not be agreed. That is the soit of request which the Court roritinely accommodates, particularly in circumstances where the Corirt cannot form a reliable preliminary view of the real urgency involved.

¶ [33] Based on an objective view of the relevant facts, there was simply no tangible justification (beyond Mr Hope's subjective and somewhat abstract concerns) for the Defendants fixing and notifying the Plaintiffs of a hearing just after 9.00am listed for 4.00 pm that same day. There was no evidential foundation for a finding that there was an imminent risk of harm. Were the legal requirements for the grant of a quia timet iniunction met?

¶ [34] In the Plaintiffs' Skeleton Argument, the nature of the relief soright by the Defendants was described as follows: 190227 In tlie Matter of Frontera Resources Corporation et al v Steplien Hope et.al-FSD 193 of 2018 (IKJ) Jridgment 11 "16. A quia timet injunction is: 'an injunction granted where no actionable wrong has been committed, to prevent the occurrence of an actionable wrong or to prevent repetitiori of an actionable wrong"'.

¶ [17] A quia timet injunction ought only to be granted if the normal American Cyanamid requirements for an interim injunction are met and in addition, the Court is convinced that there is a strong probability that, unless restrained the Plaintiffs will do something which will breach the Defendants' rights and cause them irreparable harm."

¶ [35] The settled governing principles were not contested by the Defendants' cormsel. Mr Hayden referred the Court to two passages Vastint Leeds B. V-v- Persons Unknown [2018]EWHC2456 (Ch)inthejudginentofMarcusSmithJ.Firstly: "29. Gee, similarly, suggests that the circumstances in which aquia timet infimctiorr viill be granted are relatively flexible: 'There is no fixed or "absolute" standard for measuring the degree of apprehension of a wrong which must be shown in order to justifii quia timet relief. The grmer the likely consequences, the more the court will be reluctant to consider the application as "premature". But there must be at least some real risk of art actionable wrong. '

¶ [30] However, in London Borough of Islington v. Elliott [2012] EWCA Civ 56, Patten LJ with vihom Longmore and Rafferty LJJ agreed, formulated an altogether more stringerrt test: '29 The court has an undoubtedjurisdiction to grarrt injunctive relief on a quia timet basis when that is necessary in order to prevent a threatened or apprehended act of nuisance. But because this kind of relief ordirrarily involves an interference with the rights and property of the defendant and may (as in this case) take a mandatory form requiring positive action and expenditure, the practice of the court has necessarily been to proceed with caution and to require to be satisfied that the risk of actua7 damage occurring is both imminent and real. That is particularly so when, as in this case, the injunction sought is a permanent injunction at trial rather than an interlocutory order granted onAmerican Cyanamidprinciples having regard to the balance of convenience. A permanent injunction can only be granted if the claimarrt 6 'Gee on Coininerciallnjunctions', 6'h edition, paragi'aph 2-035. 190227 In the Matter of Frontera Resources Corporation et.al v Steplien Hope et.al-FSD 193 of 2018 (IKJ) Jtidginent 12 has proved at the trial that there will be an actual infringement of his rights unless the injunction is granted."

¶ [36] The second passage in Marcus Smith J's judginent which corinsel relied upon was the following (at page 9 of the transcript): "(3) When considering whether to grant a quia timet injunction, the court follows a tviio-stage test: (a) First, is there a strong probability that, unless restrained by injunction, the defendant will act in breach of the claimant's rights? (b)Secondly, if the defendarit did an act in contraverition of the claimarrt's rights, would the harm resulting be so grave and irreparable that, notwithstanding the grant of an immediate interlocutory injunction (at the time of actual infringement of the claimant's rights) to restrain further occurrence of the acts complained of, a remedy of damages would be inadequate?"

¶ [37] Tlie tests relied ripon by Mr Hayden were formulated, both by Patten LJ and Smith J in the context of permanent injunctive relief being considered at trial. For present purposes (an interim injunction initially soright for approximately 14 days), I prefer to adopt (as regards the degree of risk which must be established) the minimum standard formrilated by Stephen Gee (and qrioted by Marcus Smith J at paragraph 29), namely that "there mustbeatleastsomerealriskofanactionablewrong." Thatriskrequirementmustof corirse be accompanied by proof that damages would not be an adequate remedy for any loss occasioned by an actual breach of the applicant's rights.

¶ [38] It follows from my findings in relation to the lack of urgency justifying the hearing being listed when it was, that I am also bound to find that there was not a "real risk of an actionable wrong" made out on the material prit before me on December 5, 2018. This speaks to the risk of imminent harm element without addressing the "actionable virong" limb of the reqriirement (i.e. the requirement of establishing a realistic prospect of proving that the conduct sought to be restrained would constitute an interference with the Defendants' rights). In all the circumstances of this aspect of the present case, the crucial issue was not whether or not depriving Outrider of its contractual security rights worild be unlawful; to my mind it obviorisly worild be unlawful. Rather the central qriestion was whether there was a sufficiently tangible and imminent risk of this occurring at all.

¶ [39] The interlocutory test for irreparable liarm is also somewhat different to that which applies at permanent injunction stage. The qriestion is worild"damages be an adequate remedy for the [applicant] in the event of his succeeding at triar': American Cyanam 190227 In the Matter of Frontera Resources Corporation et.al v Steplien Hope et.al-FSD 193 of 2018 (IKJ) Judginent v-Ethicon Ltd [1975] A.C. 396 at 408C-D. Only if the Defendants established a risk of loss for which damages worild not be an adequate remedy would the Court have to consider the corresponding loss that the Plaintiffs might suffer and the adequacy of the Defendants' cross-undertaking.

¶ [40] Neither of these important requirements for obtaining interim injunctive relief was addressed adequately in the course of the ex paite hearing. On one hand, the Defendants' evidence was that the Frontera Group was cash-flow insolvent and the harm which was threatened involved impairing Outrider's security. The Plaintiffs' case implicitly admitted casli-flow insolvency. Based on the material before me on December 5, it was self-evident that damages would not likely be an adequate remedy (a) because it worild be difficult to qriantify losses flowing from a loss of priority and (b) because the Plaintiffs' admitted liqriidity problems cast doubt on their ability to meet any significant damages award. On the other hand, the adeqriacy of the Defendants' cross-undertaking and the balance of convenience required more even-balanced assessment and these issues were not even implicitly addressed. (In my Ruling on the inter partes hearing, I did not find it necessary to consider the balance of convenience in relation to the Interim Injunction at all: see paragraph 46).

¶ [41] In short, the Defendants failed to make orit a case for the Variation Order at the ex parte hearing on December 5, 2018 and it is liable to be set aside on these grounds. Is the Variation Order liable to be set aside on the grounds of material non-disclosure? Governing principles

¶ [42] There corild be real disprite on the governing legal principles on material non- disclosure. The same legal terrain had been traversed at the December 18, 2018 inter partes hearing at which the Defendants' cormsel persuaded me that the Interim Injunction should, in part on material non-disclosure grormds, be set aside. In Froritera Resources Corporation and Frontera International Corporatiori-v- Stephen Hope and Outrider Master Fund LP, FSD 193 of 2018, Judgment dated December 21, 2018 (unreported), I adopted the principles commended to the Court by Mr Hughes on behalf of the Defendants: "19.The Defendant's counsel primarily relied on Stephen Gee, 'Commercial Injunctions', Sixth Edition, paragraphs 9.001-9.0127. The stateinent of genera7 principles set out in paragraph 9. provides: 'Any applicant to the court for relief without notice must act with the utinost goodfctith and disclose to the court all inatters which are material to be taken into account by the court in deciding whether or not to grant relief without notice, or on short notice... these paragraphs were cited in the Defendants' Skeleton Argument, only paragraphs 9.001-9.002 laced before the Court. 190227 In tlie Matter of Frontera Resotirces Corporation et.al v Stephen Hope et.al-FSD 193 of 2018 (IKJ) J+idgiiient 14 It applies notjust to disdosure offacts but to absolutely anything that the judge shotdd consider. It is part of the duty of the applicant for wit7iout notice relief to present the application fairly. Incorrect submissions or arguments, including erroneous legal subinissions, will not ainount to non-disclosure or material inisrepresentation provided that such errors do not deprive the court of knowledge of any material circuinstances. This is on the basis that the applicant has actedfairly and is entitled to advance Jiis aiguments as he wishes provided that the court receives a fair presentation of the case.'

¶ [20] In the Defendants' Skeleton the following additiona2 principles extracted fiom Gee were set out as follows: 'g) If material non-disclosure is established, the Court should be astute to ensure that a Plaintiff who obtains an ex parte injunction without fidl disclosure is deprived of any advantage he may have derived by the breach of duty. f)Although the Court has discretion notwithstanding proof of a material non- disclosure which justified or requires the immediate discharge of the ex parte order, to continue the order, or to discharge the order and iininediately re- impose it, or to make a new order on terms, this jurisdiction should be exercised 'sparingly '."

¶ [43] Having been on the wrong end of that material non-disclosure complaint, Mr Hayden, candidly admitting this was to some extent a case of "pots and lcettles", did not prill any prmches in launching his reciprocal assarilt. The Plaintiffs' counsel cited persuasive authority on the importance in ex parte injunction applications of the applicant's counsel expressly inviting the corirt to consider whether to reqriire a cross-undeitaking in damages. In Frigo-v- Culhaci [1998] NSWCA 88 (unreported), the New Sorith Waies Court of Appeal opined as follows: "The onus was on the plaintiff through his counsel to ensure that the undertaking was offered and that the judge be reminded of his intention, if he had such an intention, to include such undertaking in any coritinuation of the existing orders. '4Wn-c We regret to add that the failure to have drcrwn this matter to the atterrtion of a busy judge who 7??(X),1 have beerr inexperienced in matters of equitable jurisdiction represented a serious breach of counsers obligations to the Court. See generally Ipp, 'Lawyers Duties to the Court' (1988)114 LQR 63. His Honour should have been reminded of the legal pri-nciples, known to counsel, about an undertaking being the price' of interlocutoiy relief at the suit of a private plaintiff... Before Z/S, counsel for the plaintiff offered the undertaking mmc pro ttmc. In the circumstances of the case, where the omissions to give the vmdertaking at the 90227 In tl'ie Matter of Frontera Resorirces Corporation et al v Stephen Hope et.al-FSD 193 of 2018 (IKJ) Jridginent 15 outset and on 5 June were not an oversight, we viould dissolve the injunction this ground alone."

¶ [44] The Plaintiffs' counsel also referred the Court to the following important statement of principles taken from the judgment of Balcombe LJ in Brink's Mat Ltd.-v- Elcombe

¶ [1998] I W.L.R. 1350 at 13588 "The rule that an ex parte injunction will be discharged if it was obtained without fidl disclosure has a twofold purpose. It will deprive the wrongdoer of an advantage improperly obtained.... But it also seiaves as a deterreM to ensure that persons who make ex parte applications realise that they hcrve this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cawot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion iri the court to continue the injunction, or to grant a fresh injunctiorr in its place, notwithstanding that there may have been non-disclosure when the original ex parte infimction was obtained." Findings on material non-disclosure

¶ [45] There was and could be no coherent answer to these clear-cut material non-disclosure complaints, only mitigation. Mr Hughes insisted that lie had not said anything to the Court whicli was inconsistent with any documents which were not disclosed. I accept that he did not seek to deliberately mislead the Corirt. But he and his clients sailed very close to the wind. The Defendants' counsel was, perhaps, heady with a zeal inspired by his clients' apparent conviction in the sanctity of the rights of secured creditors.

¶ [46] Be that as it may I find that the Variation Order is liable to be set aside on the grounds of what in cutulative terms amormts to a serious case of material non-disclosure in relation to an ex parte hearing which was unjustifiably listed on an urgent basis. The most egregious points may be summarised as follows: (a) I was persuaded to list the application on the afternoon that I returned to the Island from overseas to accommodate what I assumed was gemiinely a case of serioris urgency; (b) there was no justification for seeking a hearing so urgently that the applicants' opponents were given rorighly 6 horirs' notice of the hearing and the Court was deprived an opportunity to properly prepare for the hearing; 8 Cited in Bel'ibeliani-v-Salein [1987] 1 W.L.R. 723 at 727G. }90227 In the Matter of Frontera Resources Corporation et.al v Steplien Hope et.al-FSD 193 of 2018 (IKJ) Judgment 16 9! ..- f '-l- / J /'T 7 z!'l 14 'l / z¥ (C) the application was prepared in a way which accentuated the importance of the duty of full and frank disclosure. The suppoiting draft affidavit was not made available in advance but was brought to the hearing by counsel; (d) Mr Hope in his Second Affidavit failed to disclose and/or refer to and Mr Hughes in his presentation failed to refer to facts which would have made it obvious that there was no need for the application to be heard on such an expedited basis; (e) Mr Hope in his Second Affidavit failed to disclose and/or refer to and Mr Hughes in his presentation failed to refer to facts which would have made it obvious that there was no imminent risk of one or other of the Plaintiffs entering into binding borrowing and/or security agreements which worild potentially interfere with Outrider's security rights; (f) Mr Hughes failed to address the relevant law, in particular, to identify the substantive effect ofthe application as beingto seek injunctive relief; (g) Mr Hughes failed to remind me at the end of the ex parte hearing that Mr Hope in the final paragraph of his Second Affidavit had offered a cross-undertaking in damages. 47, The last point is (in the unique factual matrix of the present case) the least serioris one, in and of itself, despite its importance as a matter of general principle. The true factual position, which emerged in the course of the present hearing, was that there was no real risk of damage being caused to the Defendants between December 5 and 18, 2018, the anticipated duration of the Variation Order. It was, in substance terms, accurately submitted at the ex parte hearing that the relief sought worild merely maintain the status qrio. Moreover as I stated in the course of the hearing when discussing the form of the Order, the variation was not intended to impair the ability of the Plaintiffs to continue progressing their capital-raising activities9: "Yes, I mean if you were to say restraining the plaintiffs from incurring any further indebtedness that would prevent them froin actually consummating any agreement but it wouldn't stop them from, you know, negotiating, preserving any agreements in principle... and that would seem to me to be less iMrusive."

¶ [48] In the event, because of time constraints, the Variation Order stayed in place long after December 18, 2018 because the best view I could form without full argument was that the quid pro quo for the Plaintiffs being granted a stay of my Order discharging the Interim Injunction was that tlie Variation Order should also stay in place. The rinanticipated extension of the duration of the Variation Order illustrates how important 9 Page 21 of the draft ex paite hearing transcript 190227 In tlie Matter of Frontera Resources Corporation et.al v Step}ien Hope et.al-FSD 193 of 2018 (IKJ) Judgment 17 it is that applicants for ex parte relief consistently comply with their duties of full and frank disclosure to the Court. Should the Variation Order be continued or the Defendants' granted a fresh injunction in similar terms?

¶ [49] Mr Hughes bravely sought to persuade the Court to continue the Variation Order even if I found it was liable to be discharged. I am unable to find that justice requires such a corirse. I accept Mr Hayden's submission that the Defendants have failed to establish a tangible risk that their rights under the Note Agreement will be infringed by the Plaintiffs. Tliere are two strands to the relevant analysis.

¶ [50] Firstly the Note Agreement itself has extensive protections for the Defendants. These protections required the Defendants to demonstrate how the Plaintiffs were likely to infringe their contractual riglits to justify any judicial restraint on the Plaintiffs' contractually constrained borrowing activities. No reference was made to the relevant contractual wording by the Defendants' counsel at all. The key provisions are as follows: (a) clause 7.2 (b) provides that Permitted Indebtedness may be incurred only"so long as no Default has occurred and is continuing"; (b) clause7.6prohibitsanyliens,apart[rom"theNotesLiensandPermitted Liem"; (c) as noted in paragrapli 11 above, Schedule 1 to the Note Agreement lists eleven forms of "Permitted Iridebtedness", the first of which provides, inter alia, that: "any such indebtedness may only be incurred with the unaniinous written consent of the members of t7ie board of directors of FRC, and further provided that, absent such unaniinous consent of the board of directors of FRC, any transaction incurring such indebtedness shall be void..."; (d) Schedule lalso defines "Permitted Liens" aiid lists 20 qualifying examples, one of wliich ((8)) is liens to secure Permitted Indebtedness, wl'iicli is a category subject to an express requirement tliat perinitted liens be subordinate to tlie Notes; (e) aDecember20,2016SideLetterforinedpaitoftheNoteExcliangeAgreement ("NEA") prirsuant to whicli tlie Note Agreement in relation to tlie 2020 Notes was executed. By tliis Side Letter, FRC and FIC agreed witli Outrider that: "l.ll...any action tliat corild be taken by FIC that requires Board of Directors approval ru'ider the NEA means approval by tlie Board of Directors of FRC but only after Stephen Hope is fully approved for tlie Board of Directors in 190227 In tlie Matter of Frontera Reso+irces Corporation et.al v Stepl'ien Hope et a}-FSD 193 of 2018 (IKJ) J+idgment 18 accordance witli paragrapli 1.10 and thereafter only if a designee of Outrider remains on tlie Board of Directors otlierwise such action or attempted action shall be void ab initio" [Empl'iasis addedl; (f) Section 18 contemplates tliat Outrider will liave security in tlie fon'n of tlie "Mortgaged Sl'iares", wliicli it is common ground are shares in tlie FIC wliolly owned subsidiary, FRCC.

¶ [51] These contractual protections for Outrider's security appear on their face to be unusually strong indeed. Mr Hughes made somewhat vague allusions to steps which could be taken at the subsidiary level to erode the value of Outrider's security. However, he did not explain on what legal basis, if this did not infringe his client's existing contractual rights, such erosion worild be legally actionable.

¶ [52] This legal lack of substance was significant because Mr Hayden secondly submitted without any challenge that the Court corild not in this contractual context grant injunctive relief which went beyond the Defendants' existing contractual rights. He relied ripon the following statement of principle found in the judgment of Kay LJ in Medina HousingAssociation-v- Case [2002] EWCA Civ 2001: "7. In myiudgment this is to mis'ymderstand the purpose of an iniunction in such circumstances. An iniunction is granted in order to prevent.future breaches of contract. The court has no power to grant arr inivmction which provides rights to a party that are not contractual rights unless a claiin in tort can.proper[y be made by that persorr. It is not suggested nor could it be suggested, that the respondent would be entitled to an infimction in tort in respect of these matters. Therefore it seems to me that once one reaches the stage where the contract comes to an end (as it would do with the grarit of possession) there is no right in the responderit to be protected by the grarrt of an injunction. The remedy in relation to a breach of contract will include an iniunction to protectfuture breaches. It would extend ttp to the time when the possession order became effective. But it cannot extend beyond that time. In my judgment there simply was no proper basis at a71for the grarit of an injunction in these circumstances."

¶ [53] MrHughesadroitlyidentifiedonepotentiallegalgap.HisclientscontendthataDefault has occurred, the Plaintiffs do not. If the Plaintiffs prevail in the present action, their entitlement to incur Permitted Indebtedness and Permitted Liens until triol gnd thereafter will be vindicated. If the Defendants prevail the undoubted interference with Outrider's enforcement rights by the Plaintiffs will not be vindicated. Where does the balance of convenience lie? In these circumstances, it seems to me, the short broad merits answer to the Defendants' application for injunctive relief at this juncture is as follows: 190227 In tlie Matter of Frontera Resorirces Corporation et.al v Steplien Hope et.a}-FSD 193 of 2018 (rKJ) 19 (a) there is no credible evidence presently before the Court which supports a finding that there is an imminent risk of the Plaintiffs consummating lending and security agreements and overriding Outrider's FRC Board veto rights, witliout prior notice to Mr Hope; (b) any lender seeking to validly gain priority over Outrider's seemingly bionic security rights worild do so on notice, by virtue of these proceedings, that the Plaintiffs' corporate autliority to approve borrowing withorit Mr Hope's consent as an FRC director is subject to doubt; (c) in these circumstances it seems doubtful that the Plaintiffs will be able take any legally efficacious action without prior notice which seriorisly prejudices the 2"d Defendant's contractual rights prior to the determination of the appeal; and (d) the parties appeared to me when I discharged the Interim Injunction on December 21, 2018 to have foolishly fought tlieir way into a stalemate position. This is why I concluded my judgment with the following words (which in fairness, the parties have not entirely ignored'o): "The present dispute cries out for a conmqercial compromise rather than a final fitdicial resolution." Conclusion

¶ [54] The Variation Order is accordingly discharged and, in the exercise of my discretion, I decline to continue or replace it with a fresh injunction until the end of the April session of the Court of Appeal, so as to run with the Plaintiffs' own stay of my Order of December 21, 2018 discharging the Interim Injunction. That stay was granted on February 11, 2019 on tlie grounds that the Plaintiffs' appeal against that decision had realistic prospects of success and that if the stay was not granted the appeal would be rendered nugatory. I saw no inconsistency between my robustly finding that the Plaintiffs' substantive breach of fiduciary claim had no realistic prospects of success, on the one hand, and on the other hand accepting that the Plaintiffs' core appellate complaint that it was not properly open to me to reach that conclusion at the interlocutory stage, had realistic prospects of success before the Corirt of Appeal.

¶ [55] Unless any party applies by letter to the Corirt within 14 days to be heard as to costs, the costs of the present discharge applicati hall !J i by the DQ d taxed n i de i i i t TFnEHONOLEMRJUSTICEIANRCK-XX"XI-EY " a JUDGEOFTHEGRANDCOURT 6 > 190227 In tlie Matter of Frontera Resorirces Corporation et.al v Steplien Hope et al-FSD )93 of 2018 (IKJ) Judginent 20