Whilst judgment is awaited in the well-publicised and hard-fought litigation between Mark Holyoake and his former friends Christian and Nick Candy, fraud practitioners may well have been rather more interested in the outcome of one of the interlocutory hearings, and the appeal against it, than the trial itself. The substantive litigation concerns a claim, valued at more than £132m, in unlawful means conspiracy. There are some fairly lurid allegations, including allegations of dishonesty, on both sides. But the case is perhaps more notable as an instance in which the High Court and Court of Appeal fully scrutinised an application for a free-standing interim ‘notification injunction’, not ancillary to any other form of injunction, to guard against the risk of dissipation of assets by the defendants.
Three preliminary issues were decided in the High Court, namely 1) whether there is jurisdiction to make a notification injunction; 2) what the test on the merits of the substantive case should be (i.e. a ‘good arguable case’); and 3) what a ‘good arguable case’ meant in the circumstances. Although the decision was overturned by the Court of Appeal on other grounds, the rulings of the first instance judge, Nugee J, on those three issues were not challenged. Conversely, the principal issue on appeal, the threshold of risk of dissipation that needed to be met for a notification injunction, did not appear to be subject to much, if any, argument or scrutiny at first instance.
The decision of Nugee J in the two hearings in Holyoake & Or. v. Candy & Ors., is otherwise comprehensive and wide-ranging. His reasoning appears, in respect of the meaning of ‘good arguable case’, already to have been broadly endorsed in another reported case. So what is the principal significance of the decisions of the High Court and the Court of Appeal for parties seeking interim relief to prevent the dissipation of assets? Is the notification injunction a new and distinct form of relief? The Court of Appeal certainly poured some cold water on that idea, but did not dampen it altogether.
What is a notification injunction?
The injunction as originally sought by the claimants as against the defendants was to:
“restrain them from disposing, dealing or otherwise engaging in transaction with their assets in the sum of or to the value of more than £1m without first giving the Claimants’ solicitors 7 days advance notice in writing”
A further example of a notification injunction, albeit in conjunction with a freezing injunction, can be found in Lakatamia Shipping Co. Ltd. v. Su. The following are forms of ‘notification’ clauses in the order made at first instance by Burton J:
“2. MV Iron Monger 3 may not be disposed of, charged or otherwise dealt with by Iron Monger Three Co Ltd without 14 days’ notice being given to the solicitors for the Claimant.
3.The 200,000 shares in Star Bulk Carriers Corporation owned by F5 Capital (and which were pledged to RBS) may not be disposed of, charged or otherwise dealt with by F5 Capital without 14 days’ notice being given to the solicitors for the Claimant.
4. The sum of US$1,635,000 (and any interest due thereon) known as ‘the Star Bulk Dividend’ must be paid to a Cooke, Young and Keidan LLP (‘CYK’) client account where it is to be held subject to CYK’s undertaking that those funds will not be used other than with agreement of the Claimant or order of the court.”
The benefit of such terms to a claimant are plain; whilst not freezing the defendant’s assets, notice must be given of a proposed transaction that might amount to, facilitate, or point towards, the dissipation of them. Such notice having been given, the claimant may give or decline consent or seek a further order from the court, such as a freezing order.
In the event, in Holyoake, the relief sought was ultimately ‘watered-down’ at the second hearing of the application to require in some instances notification only after the transaction in question, the utility of which is less obvious. It remained, however, a wide-ranging and burdensome order.
The benefit to a claimant of a notification injunction, as opposed to a freezing injunction
A notification injunction provides a claimant with a measure of protection against dissipation in circumstances where a freezing order might not be necessary. After the initial decision in Holyoake, it might also have been thought that, as a somewhat less onerous injunction, a notification injunction would be easier to obtain than a freezing injunction. As will be seen, that is not necessarily correct.
The damages payable by an unsuccessful claimant following the discharge of a notification injunction are, however, likely in most cases to be lower than if the defendant’s assets had actually been frozen on an interim basis. Accordingly, the cross-undertaking in damages required to obtain such an order in the first place is likely to be more modest.
It can’t be done – the defendants’ argument on jurisdiction
The response to the application was entirely natural; a free-standing notification injunction to guard against the risk of dissipation of assets was wrong in principle and there was no authority for the proposition that one could be granted on that basis.
The issue of jurisdiction was therefore of primary importance before the High Court.
The application of logic shows the court has jurisdiction to make the order – the claimants’ argument
There is an attractive logic to the arguments advanced on behalf of Mr. Holyoake and his company, largely accepted by Nugee J:
- The jurisdiction under s.37 of the Senior Courts Act 1981 is unfettered. In Rasu Maritima S.A. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara at Lord Denning MR had said:
“…later decisions have made it clear that, when a statute gives a discretion, the courts must not fetter it by rigid rules from which a judge is never at liberty to depart.”
Lord Denning then went on to cite the Mareva injunction itself, the forerunner of the freezing order, as an example of that evolutionary process, of which he was a part.
- An order that can be made as ancillary to a freezing injunction can also be made as a freezing order. The example of an order for discovery was given.
- A notification order is an order that can be made ancillary to a freezing order. For this proposition the order made by Burton J in the Lakatamia Shipping case, upheld by the Court of Appeal, was authority.
The judge’s reasoning
Nugee J accepted that the power granted by s.37 is not unfettered. He held, however, that:
“what can be said is that in normal circumstances what is needed to persuade the Court to grant an injunction is a threat [which must in this context mean ‘risk’] to do an act which constitutes an ‘invasion of a legal or equitable right’”
Scenarios of a threatened invasion of a legal or equitable right are where the claimant asserts a proprietary right to the asset which it seeks to restrain (a tracing claim), or where the defendant might dispose of an asset at an undervalue in breach of contract. The threat is not of dissipation as such, in the sense of putting the asset or its proceeds beyond the claimant’s reach. Nugee J suggests that an order in those circumstances to restrain the defendant from dealing with that asset is not a freezing order, albeit the CPR (r.25(1)(f)(ii)) suggests that it is a species of such an order. In any event, the judge said that he had personal experience of free-standing notification orders being granted in such circumstances and suspects they are routinely made. No examples were cited, however.
The second situation – and the situation in Holyoake – is where it is argued that there is a threat of dissipation of the defendant’s assets such as would frustrate a judgment in the claimant’s favour. In such circumstances freezing orders are routinely granted in accordance with ‘well-established’ authority, with which practitioners will be well familiar. The basis for that jurisdiction is that, as Nugee J held:
“…a defendant must be regarded as owing an obligation to a claimant not to dissipate his assets for the purpose of, or with the effect of, rendering any judgment that may be given liable to be one that goes unsatisfied.”
It follows that the risk of a defendant rendering a judgment unenforceable would amount to the risk of the invasion of the legal or equitable right necessary (albeit not sufficient) for the making of a free-standing notification order. Such an order is, after all, reasoned Nugee J, less onerous than a freezing order and does not represent a radical expansion of the jurisdiction granted by s.37.
The strength of the claimants’ substantive case
The Court in Holyoake gave short shift to the claimants’ primary argument that they merely needed to show, in accordance with American Cyanamid v. Ethicon that there was ‘a serious issue to be tried’. As an applicant for an invasive form of order, requiring the defendant to reveal what his assets are and/or what s/he proposes to do with them, a claimant will need to demonstrate, in accordance with the principles applying to freezing injunctions from Rasu Maritima, a ‘good arguable case’.
An issue then arose about what that threshold test means. Nugee J took the opportunity to clarify this area of law, equally applicable to freezing injunctions as it is to the ‘new’ notification injunction.
There is authority to the effect that ‘good arguable case’ means that ‘one side has a much better argument on the material available’. This ‘gloss’ was applied in Canada Trust Co. v. Stolzenberg (No. 2), in the context of an application for service out of the jurisdiction. It has thereafter been taken as applying to applications for interim freezing injunctions. However, its application to such an application was deemed to be more limited in Petroleum Investment Co Ltd v. Kantupan Holdings Co Ltd and it is this, more nuanced approach that found favour with Nugee J. Tolson J in the Petroleum Investment case took the view that:
“Where the subject matter involves questions of fact on which the evidence is incomplete and contradictory, it may be very difficult for a court to form even a preliminary view as to the parties’ rival strengths.”
Holyoake is the very paradigm of such a case. Nugee J, following Tolson J, confines the ‘gloss’ from the Canada Trust case, which had been too widely applied, to those situations in which the claim depends on the construction of a document or on a point of law. He therefore asked whether the claimants had a ‘good arguable case’ in the sense of it being more than barely capable of serious argument, but not necessarily standing a greater than 50% chance of success.
That the ‘good arguable case’ test should be applied flexibly, depending on the substantive issues, appeared to find favour in November 2016’s PJSC Tatneft v. Bogolyubov and Ors., albeit the remarks were obiter. After all, Picken J accepted, both sides might have a ‘good arguable case’ on the facts at the interim stage. In cases where there is no major factual dispute, it will be interesting to see whether applicants for interim freezing orders will still need to show they have ‘much the better argument’.
The risk of dissipation
Although at first instance there was substantial evidence relevant to the risk of dissipation, and it was fiercely argued by the defendants that insufficient risk had been shown, the High Court judgment does not reveal any argument on the extent of risk that must be shown to justify a notification injunction, as opposed to a freezing injunction.
Nugee J proceeded on the uncontroversial basis that there must be objective facts from which the risk of dissipation can be inferred. He also accepted the statements of principle in respect of dissipation drawn from Mobil Cerro Negro Ltd v. Petroleos de Venezuela SA, a case dealing with a freezing order.
But the judge, in stating his conclusion on the issue of risk, thought it:
“…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.”
This approach was re-iterated in the second stage of the hearing and would in due course form the basis of one of the primary grounds of appeal. Gloster LJ held, by contrast, that the approach to risk required in applications for freezing applications was:
“…no different in respect of notification injunctions of the type under consideration in the present case.”
In effect, therefore, the wide terms of the order sought and made in the High Court in Holyoake rendered it, in effect, a modified version of a freezing order, rather than a separate species of injunction, although Gloster LJ left open the possibility that the position of a ‘basic’ notification injunction, concerning one specific property, might be different. Furthermore, in such a situation, it might be permissible for a lower level of substantive merit to be shown than would be necessary for a freezing order and it might be just and convenient to order a less onerous form of relief when it would not be just and convenient to grant a full freezing order.
If Nugee J had applied the correct test he would not have found that the requisite risk was made out. Further grounds of appeal, not of such general application, were also upheld. The order was quashed.
A free-standing notification injunction would represent a natural evolution of the jurisdiction under s.37 of the Senior Courts Act 1981. Prospective applicants will have to consider, however, whether the order they seek is tantamount in effect to a freezing order. In that case they will face the same hurdles as an applicant for that type of order. Only if they seek a much less ambitious notification order than that sought by Mr. Holyoake, limited, perhaps, to a specific asset or assets, will the Court contemplate treating it as a new species of order and might consider applying a lower threshold at each stage of the test for the making of an interim order than it would for a freezing order.