In Candy and others v Holyoake and another, the Court of Appeal ruled that a wide-ranging “notification injunction” granted by the High Court last year was not a distinct type of injunction. It was, in effect, a modified version of a freezing order, and the same test of risk of dissipation of assets applied as for a conventional freezing order. However, Lady Justice Gloster accepted that the position might well be different in relation to a simple order requiring notice to be given of a proposed disposition of a specific property.
On the particular facts of this case, Gloster LJ held that there was no real risk of dissipation and the balance of convenience was strongly against the grant of the notification injunction. On that basis the appeal was allowed.
The dispute in Candy v Holyoake arose following a loan of £12 million that was made to Mark Holyoake, a property developer. The lender was CPC Group Limited (“CPC”), a company connected (although the exact relationship was disputed) to Christian and Nicholas Candy, well-known property developers. The loan was used to purchase and develop a substantial property via a separate company, Hotblack Holdings Limited.
Mr Holyoake alleged that he was subsequently the victim of a conspiracy on the part of CPC and the Candy brothers. He alleged that he and his family were subjected to a campaign of abuse, threats and intimidation. A settlement was reached between the parties in October 2013.
Mr Holyoake subsequently issued proceedings, alleging fraudulent misrepresentation, duress, intimidation, extortion and blackmail. He further alleged that he had been forced to sell the property at a loss and repay more than £37 million to CPC in relation to the original £12 million loan. The claim was refuted by CPC, which argued that any claims were now settled by way of the settlement deed.
At a hearing on 7 and 8 April 2016 (previously reported on the blog here), Mr Justice Nugee granted Mr Holyoake a notification injunction restraining CPC and the Candy brothers from disposing, dealing or otherwise engaging on transactions with their assets worth more than £1 million without first giving Mr Holyoake’s solicitors seven days’ notice in writing.
At a subsequent hearing, CPC and the Candy brothers produced evidence that the notification regime was causing them real practical difficulties in running their business, not least that adhering to the regime had already cost them an estimated £250,000 in legal fees. On the basis of that evidence, a number of changes were made to the regime; most notably the threshold for notification was raised to £5 million and those transactions made in the ordinary course of business were excluded.
Notification injunction appeal
The Candy brothers and CPC appealed the notification injunction. The Court of Appeal was asked to decide on the following issues:
- Had the High Court applied the correct test in considering whether to grant the notification injunction?
- On the evidence, was a notification injunction justified?
Correct test for notification injunction
The Court of Appeal heard detailed submissions from both sides as to the correct test to be applied for a notification injunction to be ordered. However, it was the arguments put forward by the Candy brothers and CPC that Gloster LJ found more persuasive. She held that, contrary to the view taken by Nugee J in the High Court, “the position is no different in respect of notification injunctions of the type under consideration in the present case” than for standard freezing injunctions.
Gloster LJ set out her reasoning:
- The function, operation and machinery of a notification injunction in the wide terms of the order in this case were “essentially equivalent to those of a conventional freezing order“. In practice the two had the same aim and effect.
- Both forms of injunction involved a Draconian interference with the right of the businessman or company to deal with its assets. There was a concurrent reputational stigma to both.
- For any third party dealing with an affected party, a notification injunction was in practice indistinguishable from a conventional freezing order.
- The only significant difference between a notification injunction and a conventional freezing order was the scope of the exceptions to the prohibition on dealing.
The judge also rejected Mr Holyoake’s argument that the threshold of risk of dissipation required to obtain a notification injunction in such wide terms was less than that required to obtain a conventional freezing order. In her view, an applicant had to show a real risk, supported by solid evidence, that a future judgment would not be met because of unjustifiable dissipation. That test was the same as would be required to obtain a conventional freezing order.
In reaching that conclusion, Gloster LJ stated that:
- It is necessary to regulate closely the availability of injunctions which have the “nuclear effect” of preventing a party from dealing with their assets.
- Taking Mr Holyoake’s argument to its logical conclusion would suggest that there is a spectrum of risk of dissipation, which one can match with a sufficiently diluted version of a conventional freezing order. In other words, if the threshold for a conventional freezing order is not met, there should nonetheless be a modified form of freezing order which takes it place. Gloster LJ rejected that notion, stating that what was required was a “binary threshold” and not “a sliding scale“.
- Unless there was such a binary threshold, the relevant test would need careful exposition in order to be workable. Nugee J had not provided any clear explanation of the test in his judgment, nor had Mr Holyoake put forward any workable form of test on the appeal.
Gloster LJ clarified that whilst the same threshold for the risk of dissipation applied for both wide-ranging notification injunctions or freezing orders, this did not mean that parties should only consider the most onerous form of freezing order. The type of relief sought, and how onerous its implications, would be highly relevant factors when considering the overall justice and convenience of granting the proposed injunction.
Was the test for an injunction met?
Once Gloster LJ had established the correct test to be applied, the judgment turned to whether there was sufficient evidence before Nugee J to demonstrate the requisite risk of dissipation. Before considering the relevant evidence, Gloster LJ emphasised that the burden of proof to satisfy the threshold was upon the applicant (here, Mr Holyoake) and not the respondent. It followed that unless an applicant had made a prima facie case to support a freezing order, the respondent was not obliged to provide an explanation, and that could not be held to count against him. Finally, the risk of dissipation had to be established against each respondent. In this case, the allegation that the Candy brothers and CPC were “co-conspirators” was insufficient to demonstrate the risk of dissipation by one of them as against them all.
Transfer of property: A transfer of property in London from Christian Candy to his wife provided minimal evidential support. Although the reason for this transfer was unknown, it occurred before there had been a clear threat to litigate and in the context of a number of different transfers. Gloster LJ held too much emphasis had been placed on the transfer.
Disconnect between wealth and lifestyle: The disconnect between Nicholas Candy’s wealth and lifestyle (particularly following press reports he had purchased a £26 million yacht for his wife which it was argued he had insufficient wealth to maintain) had been identified as significant in the High Court, but this conclusion had been reached as the result of the wrongful shift of the burden of proof onto Mr Candy.
Complex corporate structure: The Candy brothers’ business used a “complex and offshore corporate structure” which could be argued to contribute to the risk of dissipation. However, Gloster LJ stated that the mere possibility of a party using such a structure to dissipate assets, without more, did not equate to a risk of dissipation.
Good arguable case: Although the fact that Mr Holyoake had a “good arguable” case on his allegations in the substantive claim could theoretically be taken into account when considering risk of dissipation, the evidence of that case was insufficiently strong.
Opportunity to dissipate: Nugee J had concluded that the fact that the Candy brothers and CPC had not yet begun dissipating assets did not mean that there was no risk that they would not do so in the future. Gloster LJ disagreed and reached the opposite view: if there had been a real risk of the Candy brothers and CPC dissipating their assets, this would have been apparent by the time of the application.
Taken together, Gloster LJ concluded there was insufficient evidence showing a real risk of dissipation and that the balance of convenience was strongly against the grant of the notification injunction.
The judgment rows back from the High Court’s decision last year, at least in respect of wide-ranging notification injunctions of the type granted in this case, which cover a significant proportion of the respondent’s assets and impose onerous notification requirements. The Court of Appeal has found that such injunctions are a species of freezing order, rather than a distinct type of injunction. As a result, the same test of risk of dissipation used for a conventional freezing order should be applied.
The Court of Appeal has, however, left the door open for the existence of a free-standing form of notification injunction requiring the applicant to show a lower level of risk of dissipation than for a conventional freezing order, although such an injunction is unlikely to look much like the order granted in this case. The ruling carefully identifies itself as applying to “a notification injunction in the wide terms of the orders dated 8 and 29 April ” (those granted by Nugee J), and Gloster LJ recognised that “the position might well be different in relation to a simple order requiring notice to be given of a proposed disposition of a specific property“. It will be interesting to see if the “simple” notification injunction establishes itself as a distinct form of relief.
Finally, Gloster LJ also provided some helpful guidance on the factors to be taken into account when considering evidence in relation to dissipation, in particular emphasising that the onus remains on the applicant to make its case.