The Court of Appeal has held that a notification injunction (an order requiring a respondent to give notice of any dealings with or disposal of assets or other transactions that fall within the scope of the order) drawn in wide terms is, in effect, a modified version of a conventional freezing order, rather than a distinct type of injunction, such that the same test in relation to the risk of dissipation of assets applies: Candy & Ors v Holyoake & Anor  EWCA Civ 92.
This judgment provides clarity as to the proper classification of notification injunctions, and the risk of dissipation that applicants must demonstrate in order to succeed. A party seeking a notification injunction in wide terms must show a real risk, supported by solid evidence, that a future judgment would not be met because of unjustifiable dissipation.
The position may, however, be different in relation to notification injunctions which are not in wide terms. The judge suggested, albeit only obiter, that where the applicant seeks a simple order requiring notice to be given of a proposed disposition of a specific property, there may be a different test.
James Allsop, a senior associate, and James Leadill, an associate, in our dispute resolution team consider the Court of Appeal's decision further below.
The claimants alleged that the defendants conspired to intimidate the first claimant to enter into disadvantageous and oppressive agreements that benefitted the defendants. The claimants applied for an interim notification injunction against the defendants in support of their claims.
Under section 37(1) of the Senior Courts Act 1981, the High Court has jurisdiction to grant an injunction "in all cases in which it appears to the court to be just and convenient to do so". An applicant for a conventional freezing order must show (1) a good arguable case on the underlying merits; (2) that there is a real risk of dissipation; and (3) that the balance of convenience is in favour of granting an injunction.
In order to demonstrate a real risk of dissipation, an applicant for a conventional freezing order must show that there is a real risk, judged objectively and based on solid evidence, that a future judgment would not be met because of unjustifiable dissipation of assets.
High Court decision
Following a two day hearing, Nugee J granted an interim notification injunction ("the First Notification Injunction") pending a further hearing to consider, amongst other things, the balance of convenience. In brief, the First Notification Injunction required the defendants to give seven days' advance notice of dealings, disposals or transactions involving assets in excess of £1 million, including those in the ordinary course of business. An exception was made for transactions relating to UK real property, where notice was to be given within three days after completion of the disposal or acquisition. Many of the other provisions of the injunction were similar or identical in effect to the pro forma freezing order annexed to Practice Direction 25A of the CPR.
In his subsequent written reasoning, Nugee J suggested that, in an application for a notification injunction that was less intrusive than a conventional freezing order, applicants were required to show a lower level of risk of dissipation than would be required in an application for a conventional freezing order:
"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."
Having regard to the inconvenience, cost and confidentiality issues caused by the First Notification Injunction, Nugee J imposed a significantly modified notification injunction at the subsequent hearing ("the Second Notification Injunction"). Changes in the Second Notification Injunction included increasing the notification threshold from £1 million to £5 million and including a provision clarifying that the notification requirement did not prevent the defendants from dealing with or disposing of assets in the ordinary course of business.
The defendants appealed arguing, inter alia, that the correct threshold to apply in relation to the risk of dissipation for a notification injunction in wide terms was the same as that for a conventional freezing order.
Court of Appeal decision
The Court of Appeal allowed the appeal. Gloster LJ gave the lead judgment, with which Jackson LJ agreed.
The correct test to establish risk of dissipation
The court held that a notification injunction in the wide terms of the First and Second Notification Injunctions was, in effect, a modified version of a conventional freezing order, rather than a distinct type of injunction. Accordingly, the same test in relation to the risk of dissipation of assets applies, namely that there is a real risk, judged objectively and based on solid evidence, that a future judgment would not be met because of unjustifiable dissipation of assets.
Gloster LJ gave five reasons for this decision:
- The function, operation and machinery of a notification injunction in the wide terms of the First and Second Notification Injunctions were essentially equivalent to those of a conventional freezing order.
- Both forms of injunction involve a draconian interference with the respondent's rights to deal with their assets and carry a reputational stigma.
- In respect of third parties who wish to deal with the affected party, a notification injunction is in practice indistinguishable from a conventional freezing order.
- The only significant difference between a notification injunction and a conventional freezing order is the scope of the exceptions to the prohibition.
- Nugee J's conclusion that the court had jurisdiction to grant a notification injunction was based on the jurisdiction to grant a conventional freezing order necessarily subsuming a lesser form of the same relief.
In addition, Gloster LJ indicated that she considered it preferable that the same test for risk of dissipation apply for three further reasons:
- It was necessary to maintain the close regulation of the availability of injunctions which have the nuclear effect of prohibiting the affected party from dealing with their assets.
- The claimants' case, taken to its logical conclusion, would suggest that even if one cannot satisfy the threshold for a conventional freezing order, there should nonetheless be a modified form of freezing order which is appropriate. Less intrusive variants of freezing orders would then become the ubiquitous alternative to applications for a conventional freezing order, and one might well anticipate a significant increase in the number of such injunctions being granted.
- If the test were not a binary threshold, it would need careful exposition in order to be workable. Otherwise it would be impossible to anticipate or determine what level of variation from the conventional threshold would be appropriate for any given modification of a freezing order.
Notably, Gloster LJ accepted, albeit only obiter, the test for whether there is a real risk of dissipation may be different in respect of notification injunctions which are not cast in wide terms, for example, a simple order requiring notice to be given of a proposed disposition of a specific property.
Did the evidence demonstrate the requisite risk of dissipation
In considering the evidence of the risk of dissipation, Gloster LJ indicated that there are three points which inform the court's analysis:
- The burden is on the applicant to satisfy the threshold.
- Unless the applicant has raised a prima facie case to support the application, the respondent is not obliged to provide any explanation or answer any questions posed, nor can a purported failure to do so be held against the respondent.
- The requisite risk of dissipation must be established against each respondent. The fact that co-conspiracy is alleged does not mean that evidence proving a real risk of one respondent dissipating its assets transposes to the other respondents.
Gloster LJ held that the evidence available was not sufficient to demonstrate the requisite risk of dissipation. In particular, she found that the mere possibility of the defendants using their links to complex and offshore corporate structures to dissipate assets, without more, did not equate to a risk of dissipation; to hold otherwise would be reversing the burden of proof.
Further, Gloster LJ disagreed with Nugee J's reasoning that the fact that the defendants had not yet dissipated assets did not mean there was no risk they would do so in the future. She considered that this was a powerful factor militating against the application: if there had been any real risk of dissipation, it would in her view have materialised by the time of the application.
+44 20 7466 2103