High Court grants first stand-alone notification injunction

David Whitehead

In Holyoake and another v Candy and others, the High Court has granted the first stand-alone “notification injunction” (or notification order), which can be viewed as a less invasive alternative to a freezing injunction.  A notification injunction requires a defendant to give notice to a claimant before disposing of or dealing with particular assets where there is concern that the defendant may dissipate these assets so as to frustrate the enforcement of a future judgment.  This gives the claimant the opportunity to apply to freeze the assets before the disposal or dealing takes place.

Although they have been described as a new type of injunctive relief, notification injunctions have previously been granted as ancillary remedies to freezing injunctions. However, in this case, Mr Justice Nugee was willing to grant a notification order where no freezing injunction had been applied for. Moreover, the prospect of a notification order providing stand-alone relief offers the potential for a new avenue of development for injunctions generally.

Background

The dispute in Holyoake v Candy concerned a loan of £12 million that was made to the property developer Mark Holyoake. The lender was CPC Group Limited (“CPC”), a company apparently owned and controlled by Christian Candy and his brother Nicholas Candy. This loan was used to purchase a property through the second claimant, Hotblack Holdings Limited (a company owned by Holyoake).

Holyoake subsequently claimed he was the victim of a conspiracy and that he and his family had been subjected to a campaign of abuse, threats and intimidation. He alleged that he was coerced into a series of further agreements with CPC that were highly disadvantageous to him. After raising complaints, in October 2013 he entered into a settlement deed with the defendants.

He then 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 defendants refuted the allegations, arguing that any claims that the claimants may have had were already settled. They alleged that Holyoake had lied about his assets, deliberately misrepresented or failed to disclose various matters and was in breach of the loan agreement.

The claimants sought an interim injunction, believing that the defendants would make it difficult or impossible to enforce judgment against them. They did not seek a freezing injunction, but instead sought an injunction to restrain the defendants from disposing, dealing or otherwise engaging in transactions with their assets in the sum of, or to the value of, £1 million without giving the claimants’ solicitors seven days’ notice in writing. This was described by the claimants as a “notification injunction”. If the defendants did attempt to enter into such a transaction, the claimants would then have the opportunity to apply to court for a freezing injunction.

Judgment

There were four questions for Nugee J to consider:

  1. Is it possible to grant a free-standing notification injunction?
  2. What threshold had to be met in respect of the strength of the substantive claim?
  3. Had that threshold been met?
  4. Was there a risk of dissipation of assets?

The judge considered there was clearly power under section 37 of the Senior Courts Act 1981 to grant a notification injunction even if a freezing injunction was not sought. A notification injunction was described as being less invasive, and therefore in circumstances in which the requirements to grant a freezing injunction had been met it would also be possible to grant a notification injunction.

Nugee J stated that a notification order was nevertheless an invasive order, and therefore justified a stringent test. He concluded that the threshold which needed to be met for a notification injunction was the same as for a freezing injunction, namely that the claimant had to demonstrate a “good arguable case”.

The court then went on to consider what was meant by a “good arguable case”, stating that in cases where a dispute related to matters of law the court may be able to assess the arguments of both parties. However, in cases involving disputes about the facts which would be dealt with through witness evidence, the appropriate test would be that laid down in The Niedersachsen [1983] 1 WLR 1412 – that a good arguable case would be one which is more than barely capable of serious argument, yet not necessarily one which the judge believes to have a better than 50% chance of success. On this basis the judge held that the claimants did indeed have a good arguable case.

Risk of dissipation

Nugee J found that the degree of risk of dissipation of assets that a claimant needs to demonstrate in order to obtain a notification injunction is less than it would be for a freezing injunction:

It is I think also relevant that the proposed notification injunction is less intrusive than a freezing order; I take the view that this is relevant to the degree of risk which needs to be shown before the Court can be persuaded to intervene” (paragraph 47 of the judgment).

Therefore, if there is insufficient evidence of risk of dissipation for a claimant to obtain a freezing injunction, they may nevertheless be able to obtain a notification injunction.

Nugee J considered a number of factors to be relevant when it came to assessing the risk of dissipation. First, the corporate structure of the defendants, which was described by the claimants as “labyrinthian”. Here, the defendants used a large number of offshore companies incorporated in jurisdictions with limited reporting requirements and made extensive use of nominee and fiduciary companies. The judge acknowledged that although a complex and opaque offshore structure such as this was not conclusive as a risk of dissipation, it was a factor which could be regarded as a contributing risk if there was other material which could be taken into account.

Second, the court looked at the nature of the assets in question. The defendants argued that many of their assets took the form of real property which was not susceptible to dissipation. The court rejected this argument, commenting that it was not necessary to sell property in order for its value to be transferred.

Third, the court heard evidence that Christian Candy had transferred a row of houses in Regent’s Park into his wife’s name. Although Nugee J acknowledged that such a transaction could have an innocent explanation, on the evidence provided it could be interpreted as dissipation.

Fourth, the court noted that there was a discrepancy between Nick Candy’s lifestyle and his apparent means of funding this lifestyle. Specifically, he was reported to have given a gift of a £26 million yacht to his wife, and the claimants submitted that it was very difficult to ascertain from publicly available sources how he could afford this. Nugee J commented that “a person who publicly flaunts his wealth, but whose declared holdings in his corporate interests do not begin to justify the wealth which he displays, is open to the charge that he is willing to say one thing and do something else“.

The judge went on to say that that if Nick Candy was “prepared to be unforthcoming about his assets and conceal them; that does in my judgment give rise to a real risk that were he to face a judgment, the Claimants might find that his position was that he no longer had any assets to meet it“.

The court considered that taking these factors together there was sufficient risk of dissipation. However, in considering the balance of convenience, the judge expressed some concerns about the disruption the order would cause to the defendants’ business, and granted a modified version of the order in which there would be no need for prior notification of transactions in relation to UK residential and commercial property. In those cases notification was to be given within three days after completion of the transaction.

Revisions to the notification regime

Three weeks after the initial hearing, Nugee J heard evidence from the defendants on the impact of the notification regime.  He accepted their evidence that the regime had caused “real practical difficulties“.  They had notified 74 transactions, which involved a “very substantial” amount of management time and legal costs of £250,000.  The judge accepted that to continue the regime as it stood until judgment would result in the defendants incurring several million pounds in legal costs and other inconveniences to the running of their businesses.  The defendants also expressed concern (which the judge was satisfied was “not a fanciful concern“) that press coverage and publication of the judgment granting the injunction would lead those who dealt with the defendants to worry about the impact of the notification regime on their own desire for confidentiality, and this could prejudice the defendants’ position in the market.  In particular, Nugee J noted that this impact would be felt even in relation to “perfectly ordinary business transactions“.

Accordingly, he made the following revisions to the notification regime:

  • the regime would not apply to transactions that were in the ordinary course of business. The judge declined, however, to clarify which transactions would be excluded, for fear of creating “scope for creative taking advantage of loopholes“;
  • notification should be subject to a “confidentiality ring”; and
  • the limit for notification would be increased from £1 million to £5 million.

Cross-undertaking in damages

In addition to the lower standard of dissipation risk that needs to be shown for a stand-alone notification injunction, another potential advantage relates to a claimant’s cross-undertaking in damages. Where the claimant can show that the notification requirement is less likely to cause serious damage than freezing the defendant’s assets, the level of the cross-undertaking which the claimant has to provide as the “cost” of obtaining the injunction may well be lower. Clearly, the claimant may not be able to demonstrate this in every case – the defendants’ evidence of the impact of being under the notification regime for three weeks illustrates that it can have significant consequences – but in the absence of clear evidence of the potential impact of the injunction, it is at least arguable that a lower level of cross-undertaking should be required. The same argument could be employed to resist an application seeking fortification of the cross-undertaking (for example, by way of a payment into court or bank guarantee), or at least to seek to reduce the sum which is to be fortified.

Here, Nugee J initially declined to assess the amount of fortification the claimants should provide in respect of their cross-undertaking, but after considering the defendants’ evidence of the impact of the notification regime, he accepted, applying Energy Venture Partners Ltd v Malabu Oil And Gas Ltd [2014] EWCA Civ 1295, that this was an appropriate case for fortification. The judge noted that the authorities required him to make an “intelligent estimate” of the likely amount of loss which the defendants might suffer by reason of the injunction, and ordered the claimants to provide fortification of £5 million. He observed that it would be open to the defendants to apply to vary that amount if it proved to be inadequate, but they would need to show “hard demonstrable evidence of [their] actual loss“.

Comment

Although the notification injunction is not strictly new, it is a novel form of relief which provides a claimant with notice of a defendant’s intention to divest itself of assets without the claimant having to bear all the burdens that attach to a standard freezing order. As such, it is another instance of the recent trend of the courts developing forms of injunctive relief to meet the demands of the modern world.

The factors which the court identified as influencing the risk of dissipation will be of interest to those representing high net-worth individuals. Any perceived disconnect between the lifestyle of a defendant and their means of funding this lifestyle may be seen as a contributing factor.

As notification injunctions offer a lower standard of proof on dissipation risk and, potentially, a lower liability on the cross-undertaking in damages, they may prove to be an attractive alternative for claimants over seeking a standard freezing injunction.

It will be interesting to see whether pure notification injunctions will become available outside the area of freezing injunctions. There appears to be no reason in principle why they should not. For example, a claimant might seek a notification order against a newspaper in relation to whether it was proposing to publish private information about him or her, where there was insufficient evidence that there would be publication to justify a prohibitory injunction. That would be a significant – and arguably useful – extension to injunctive relief.

Holyoake and another v Candy and others [2016] EWHC 970 (Ch) and [2016] EWHC B12 (Ch).  The second judgment is available on Westlaw and LexisNexis.

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