The High Court has considered the court's power to grant a "notification injunction" requiring the Defendants to give written notice before disposing or dealing with their assets. The decision is of interest to applicants seeking an alternative to a freezing injunction where there is concern that a respondent may deal with their assets so as to frustrate the enforcement of any future judgment.
In Holyoake v Candy the underlying dispute concerned a loan of £12 million that was made to Mark Holyoake to fund a multi-million pound property development. The lender was CPC Group Ltd (CPC), a company that is ultimately controlled by Nick Candy, and, allegedly, by his brother, Christian Candy. Holyoake used this loan to purchase the property through his company, Hotblack Holdings (the second Claimant).
Holyoake claimed that he was subsequently subjected to a campaign of threats, abuse and intimidation directed at himself and his family. He alleged that he was coerced into entering a series of further agreements with CPC that were highly disadvantageous to him. He claimed that he was ultimately forced to sell the property at a loss and had to repay a total of more than £37 million to CPC in relation to the initial £12 million loan.
The Defendants denied these allegations. They noted that Holyoake initially raised complaints against CPC in August 2013 which led to a settlement deed being entered into in October 2013. They argued that any claims that the Claimants may have had were therefore settled. They also alleged that Holyoake lied about his assets and the imminence of refinancing funds, deliberately misrepresented or failed to disclose various matters and was in breach of the loan agreement.
Notification injunction application
The Claimants sought an interim injunction amid concerns that the Defendants would make it difficult or impossible to enforce judgement against them if they were successful in the underlying action. The Claimants did not seek a freezing injunction but instead sought a "notification" injunction requiring the Defendants to notify the Claimants' solicitors seven days in advance of the Defendants disposing or dealing with assets with a value of over £1 million.
The judge granted the injunction, albeit in a modified form.
The judge found that the court had jurisdiction to grant the notification injunction under section 37 Senior Courts Act 1981 (the "SCA").
The judge explained that there was no reason why the court could not, instead of granting an injunction restraining the disposal altogether by way of a freezing order, grant a notification injunction which is "plainly a less invasive interference". He held that:
"[…] it must follow that if the Court can grant a freezing injunction restraining disposal on the ground of dissipation, it is also able to grant a modified form of restraint which only restrains disposal if made without prior notification".
If the court was satisfied that the risk of dissipation would justify a freezing injunction, the court had authority to grant a notification injunction.
- Good arguable case
The judge noted that "[…] what is needed to justify a freezing injunction in terms of the merits of the substantive claim is also needed to justify a notification injunction". It was held that the appropriate test was the need to demonstrate a good, arguable case (The Niedersachsen). Accordingly, the Claimants needed to demonstrate that the case was more than barely capable of serious argument, but did not necessarily have to have a greater than 50% chance of success.
The truth of the allegations could not be resolved on the basis of the application. However the judge said that the Claimants' claims could not be rejected as fanciful. He was satisfied that the Claimants' had demonstrated a good arguable case on the merits.
- Risk of dissipation
The judge's examination of the factors influencing the risk of dissipation are particularly pertinent for applicants considering applying for a notification injunction.
The Defendants used a large number of offshore companies, incorporated in jurisdictions with limited reporting requirements. They also made extensive use of nominee and fiduciary companies. The corporate structure of the Defendants' companies was described by the Claimants as "labryinthian", which lent itself to moving assets around at short notice without leaving any trace.
Whilst the judge accepted that the use of a large number of offshore, fiduciary and nominee companies was not, in itself, unusual, he commented that:
"It is notorious that the use of offshore trusts, and companies incorporated in jurisdictions which do not require detailed financial reporting, and the use of fiduciaries and nominees which enable beneficial ownership of assets of be switched easily and without visibility, are aspects of a structure that enables those who wish to move assets round or to hide them to do so more easily".
Whilst accepting that the complex and opaque structure of the Defendants' companies was not in itself grounds for inferring dissipation, it was a factor that could be regarded as a contributing risk if there was other material on which to infer a risk and one that could be legitimately taken into account.
Nature of the Defendants' assets
The Defendants argued that many of their assets took the form of real property which was not susceptible to dissipation. The judge did not accept this argument, noting that it is not difficult to sell real property quickly "[…] especially for those who are familiar with the property business".
The judge commented that it is not necessary to sell property in order for its value to be transferred. The example was given of a transfer of shares in a corporate vehicle which holds real property or where there is a draw down on an existing facility with respect to a property that is already subject to a charge.
Transfer of property into spouse's name
The court heard evidence that Christian Candy had transferred a row of houses in Regents Park into his wife's name with no apparent explanation. The properties were said to have been purchased with the view to creating "one of London's largest family mansions", and indeed, the explanation given by the Defendants was that the property was bought to be a family home. The judge did not accept that this was a proper explanation as to why the property was transferred into his wife's name:
"[…] there is before the Court evidence of a transaction which has the prima facie effect of removing an asset of his from being taken in execution and which is, so far as the evidence is concerned, not explained".
Nick Candy's lifestyle
The disconnect between the lavish lifestyle of Nick Candy and the means of funding this lifestyle was considered by the court.
By way of example, Nick Candy was reported to have given a £26 million yacht, with running costs of around £2.6 million per year, to his wife. The Claimants submitted that it was very difficult to ascertain from publicly available sources how he could afford this vessel. The judge commented on this apparent disconnect in his judgment:
"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 held 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 judge was satisfied that there was a risk of dissipation to justify the Claimants' fears and to justify a notification injunction.
- Balance of convenience
The Defendants argued that the draft notification order put forward by the Claimants, requiring notification seven days in advance of any disposal or dealing over £1 million, would cause serious disruption to their business.
The Claimants offered a modified proposal under which there would be no need for prior notification of transactions which related to UK residential and commercial property; in those instances notice should be given three days after the disposal or acquisition.
The judge held that this modification was "much less problematic than the pre-transaction notification which had originally been asked for". The judge granted the temporary injunction in the modified form and adjourned the hearing to enable evidence on the impact of the modified order to be adduced.
The judgment will be of interest to practitioners seeking an alternative to a freezing injunction and it is apparent that the court views a notification injunction as a far less intrusive remedy.
The judge's detailed analysis of the factors influencing the risk of dissipation will be of interest for those representing high net worth individuals. A respondent should be aware that any perceived disconnect between their lifestyle and the means of funding this lifestyle may be a contributing factor in a decision to grant a notification injunction.
The judgment is significant in illustrating that the use of offshore companies and other corporate vehicles that obscure the value residing in a corporate structure or enable the movement of assets from one part of the structure to another may be a relevant factor when considering an application for injunctive relief. This analysis of the use of offshore, fiduciary and nominee companies is especially pertinent to examine in the context of the recent brouhaha resulting from the release of the Panama Papers. The media scrutiny and adverse inferences attributed to those individuals who have used such vehicles to exploit the anonymity and tax benefits provided by offshore corporate structures has not necessarily been drawn out by the judge's comments, but it is interesting to note the judgment in this wider context.