Out-Law News 2 min. read

Same test applies to 'notification' injunction as other types of freezing order, appeal court rules


A 'notification' injunction, preventing a party from disposing of assets without first notifying the person with the benefit of that injunction, must meet the same strict thresholds as the 'conventional' freezing order, an appeal court has ruled.

Giving the judgment of the Court of Appeal, Lady Justice Gloster said that the injunction given in this case was "in effect a modified version of a conventional freezing order". The same legal tests should therefore apply, she said.

The "function, operation and machinery" of the order granted by the court in this case were "essentially equivalent to those of a conventional freezing order", according to the judge.

"Both are concerned with protecting the applicant against a risk that the other party will dissipate their assets so as to defeat enforcement of a possible future judgment," she said. "Both operate by prohibiting the affected party from dealing with or disposing of all their assets, subject to certain exceptions. In both cases this prohibition is supported by the threat of contempt proceedings for breach of the order, including against third parties who knowingly assist the affected party in breaching the order."

"Therefore, in order for the court to grant a notification injunction in the wide terms obtained in the present case, the applicant must, in my judgment, show a real risk, supported by solid evidence, that a future judgment would not be met because of unjustifiable dissipation. That test is the same as would be required in order to obtain a conventional freezing order ... [I]t is necessary to maintain the close regulation of the availability of injunctions which have the nuclear effect of prohibiting the affected party from dealing with his assets," she said.

The judge did, however, acknowledge that the position "might well be different in relation to a simple order requiring notice to be given of a proposed disposition of specific property".

The Court of Appeal also found that a second judge, ruling in a separate dispute between the same parties, had correctly held that an insurance policy purchased by one of the parties did not provide sufficient "fortification" of its commitment to pay up to £5 million in damages if required. This was because the case hinged on an allegation of dishonesty, which could be used by the insurer to avoid liability under the policy if accepted by the court, the judge said.

Both appeals arose in the context of a long-running claim brought by businessman Mark Holyoake against property developers Nick and Christian Candy, their company, CPC Group Ltd, and others in relation to a loan agreement. In June 2016, the High Court granted the first standalone notification injunction against the Candys and CPC, requiring them to give Holyoake's lawyers seven days notice of their intention to carry out any transactions worth over £1 million. The requirements of the injunction extended to "any transactions in the ordinary and proper course of business".

"The more novel form of 'notification junction' has been much talked about since it was first granted," said civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com. "However, this recent judgment clearly states that the original freezing injunction thresholds must still be met if the freezing order, under whatever disguise, is to be granted to the applicant."

"This is a shame for victims wishing to use a form of 'nuclear weapon' against the wrongdoer, but ultimately does mean more certainty for victims in respect of what they can expect the court to do to protect their position. If victims believe that there is a real risk of dissipation they should always consider freezing orders as they do work and are enforced to protect the assets. However, this case clearly demonstrates that victims should always seek advice from civil fraud lawyers that use these tools all the time before embarking on expensive and time-consuming litigation," he said.

The court's conclusions on fortification would also be of interest to victims of fraud, he said.

"This is appropriate as there can be so many exclusion clauses within insurance policies," he said. "As a victim, you want to make sure you have maximum protection, and really nothing beats cash by way of fortification."

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