A possible alternative to the freezing injunction.

A judgment has recently provided helpful guidance on a creative form of injunction. The “notification order” compels a defendant to give notice to the claimant before disposing or dealing with its assets. This notification order is less onerous than a freezing injunction, and although it usually accompanies the freezing injunction, in this case, the order was issued as standalone relief. The notification would alert the claimant to apply for a freezing injunction prior to dissipation of any assets.

Background

In the case of Holyoake v Candy [2016] EWHC 970 (Ch), the defendants were the well-known Candy brothers, CPC Group Ltd (controlled by Christian Candy) and its directors. The claimants, Mr Holyoake and his company, were alleging unlawful means conspiracy. Mr Holyoake was allegedly forced to repay more than £37 million for an initial loan of £12 million to CPC, and claimed to be the subject of a long-running vitriolic campaign of threats, abuse, intimidation, and coercion. He applied for a notification injunction to protect his position.

Test for the Injunction

The test for the notification injunction was whether the claimants had a “good arguable case” in that it “has to be more than barely capable of serious argument, yet not necessarily one which the Judge believes to have a better than a 50 per cent chance of success” (The Neidersachsen [1983] 2 Ll600 at 605). There also had to be either a substantive right to prevent defendants from disposing of an asset, or a risk that the defendants would dissipate their assets. It does not have to be proven that dissipation either has happened or would happen, but only that there are objective facts from which such a risk could be inferred. In Nugee J’s view, the fact that the proposed notification order was less intrusive than a freezing order was relevant to the degree of risk which needed to be shown before the Court could be persuaded to intervene.

A Good, Arguable Case

The judge found that the claimants had shown a good, arguable case on the merits. He stated that it was not appropriate or necessary to go into the merits in any detail: the issues were hotly disputed and would remain for trial. The claimants’ claims could not be rejected as fanciful and satisfied the test.

Risk of Dissipation

The judge considered the following matters in analysing the risk of dissipation:

  1. The corporate structure of the defendants. The claimants presented an “unusually complex” and “particularly opaque” organogram. The judge stated that “those who use offshore structures . . . may do so for entirely proper and bona fide reasons, but the experience of those who practise and sit in these Courts is that such structures do lend themselves to being abused.” The structure “enables those who wish to move assets around or to hide them to do so more easily”. He concluded that although the complex, opaque and offshore structure of the defendants’ companies was not in itself grounds for inferring a risk of dissipation, it was capable of being regarded as contributing to the risk if there was other material on which to infer such risk. A large number of the defendants’ companies had been either dissolved or formed since these proceedings were initiated, and the judge could not rule out that this might have had something to do with the threat of proceedings.
  2. The nature of the defendants’ assets. The judge opined that it was not difficult to sell real property quite quickly, especially for those who are familiar with the property business. In this case, it was quite simple to transfer the shares in a corporate vehicle which holds real property. For the few properties owned by the Candy brothers in their own names, the Court was unable to determine whether substantial equity was available in either property for future enforcement.
  3. The transfer of interest in a property. One defendant had transferred into his wife’s name a row of houses in Regent’s Park. In the absence of any explanation, the Court found prima facie evidence of an act that can be characterised as dissipation.
  4. The purchase of a luxury yacht. Another defendant bought a yacht at a cost of £26 million and gave it to his wife. The claimants argued that it was impossible to discern from the publicly available information how he could afford a billionaire lifestyle. Either the defendants had misrepresented his interests in the CPC businesses or he was spending money that he did not have. The judge noted 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.” These matters gave rise to a real risk that were the defendant to face a judgment, the claimants might find that his position was that he no longer had any assets to meet it.
  5. The nature of the allegations in the proceedings. The judge stated that “what the Court is concerned with at this stage is risk, but it is striking that the broad thrust of the allegations is that the defendants are persons who are prepared to act in a way that is commercially and legally unjustifiable and morally reprehensible.”
  6. The defendants’ reaction to the proceedings. The fact that the defendants had not gone out of their way to cooperate with the proceedings was not considered material to the question of whether there was evidence of a risk of dissipation.

The judge concluded after his analysis of these factors that there was indeed risk of dissipation. He then considered whether, on a balance of convenience, relief should be granted.

Balance of Convenience

The scope of the notification injunction included assets in or outside England and Wales, where the value of the transaction was in excess of £1 million (this was later increased to £5 million). In order to reduce inconvenience, the order was modified to exclude transactions in respect of UK property, in which case notification would be three days post-transaction. Notice by email was sufficient.

A benefit in applying for the notification injunction without the freezing injunction is that the cross-undertaking in damages is less onerous. With both injunctions, the claimant must undertake to the Court to compensate the defendant if later found that the claimant was not entitled to the relief granted. With freezing injunctions, the consequences can be more severe and unpredictable than with a notification injunction. Another benefit is that a lower level of risk of dissipation is required for a notification order than for a freezing order, according to the judge. In applying for a less intrusive order, the claimant may be able to obtain a notification order where a freezing order would be deemed too draconian.

The Court’s analysis of the various factors relating to risk of dissipation may be of interest those representing high-net-worth individuals. The complex and opaque structure of companies and apparent “disconnect” between spending patterns and lack of declared holdings to evidence such wealth were taken into account by the Court.