In a prior post for the FCPA Blog, I wrote about the notification injunction granted by the High Court in Holyoake & Anor v Candy & Ors. The case was recently overturned by the England and Wales Court of Appeal, and the notification injunction ordered against the Candy brothers set aside.
On April 8, 2016, Nugee J. granted an injunction to prevent the brothers from dealing with, disposing of, or otherwise engaging in transactions with their assets, where the value exceeded £1 million ($1.25 million), without providing written notice to Holyoake’s solicitors. Thus, a notification injunction.
The court adjourned the remainder of the application, deferring the balance of convenience assessment and the precise form of the order to a second hearing.
After the second hearing, the modified order increased the minimum value to £5 million ($6.25 million) and exempted, inter alia, real property dealings and transactions in the ordinary and proper course of business. Despite conceding to the “real practical difficulties” faced by the defendants, most of the new evidence adduced by the appellants was not considered by Nugee J. in his final determination.
On appeal, Gloster L.J. concluded:
- the incorrect threshold was applied in relation to the risk of dissipation;
- the evidence available at the first hearing was insufficient to grant the injunction; and
- the judge erred in excluding further evidence concerning the risk of dissipation and the balance of convenience at the second hearing.
The appeal judgment focuses on the nature of a notification injunction and the appropriate test to be applied when it is contemplated. Gloster L.J., however, properly limits her analysis to orders cast in wide terms, asserting “ … the position might well be different in relation to a simple order requiring notice to be given of a proposed disposition of a specific property.”
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The discussion begins with a restatement of the ultimate question for courts considering conventional freezing orders, that is, whether it is just and convenient to do so. The threshold of risk required is also well established in the jurisprudence. There must be a real risk, judged objectively, that a judgment would not be met because of unjustifiable dissipation of assets.
Essentially, Gloster L.J. frames notification injunction as a modified version of a conventional freezing order, describing the relief as “ … a less onerous version of a conventional freezing order, rather than some distinct species …”
Briefly, her reasons were as follows:
- the function, operation and machinery of a notification injunction (in the wide terms of the April orders) are essentially equivalent to those of a conventional freezing order;
- both forms of order carry a reputational stigma and involve a draconian interference with the right of businessmen or corporate entities to deal with their personal or business assets;
- for third parties dealing with the affected party, the notification injunction is in practice indistinguishable from a conventional freezing order in that their activities must fall within exceptions to the prohibition;
- the scope of the exceptions to the prohibition is the only significant difference between a notification injunction and a conventional freezing order; and
- the trial judge’s finding that he had proper jurisdiction to grant the notification injunction was based on the jurisdiction to grant a conventional freezing order
This categorization of the notification injunction means that the threshold of dissipation must necessarily be the same as the conventional freezing order. Effectively, there may be variation between the types of relief, but it cannot be said that there is variation within the same species of relief, dependent upon intrusiveness of the order sought.
This line of reasoning leads Gloster L.J. to reject Nugee J.’s proposition that intrusiveness of the order is relevant to the degree of risk which must be shown before the court can be persuaded to intervene. She suggests this sliding scale of risk would lead to diluted variants of freezing orders becoming increasingly common.
Instead of a spectrum of risk, Gloster L.J. advocates for a binary threshold, which would ensure the close regulation of injunctions that have the nuclear effect of prohibiting affected parties from dealing with their assets. She maintains, however, that intrusiveness is still a material factor and “…. highly relevant … when considering the overall justice and convenience of granting the proposed injunction.”
Based on her review of the factors identified by Nugee J. as bearing on the question of risk, Gloster L.J. determined that the respondents had not managed to raise a prima facie case with respect to the threshold of risk, shifting the burden to the appellants.
As a result, the appellants were not obligated to provide further information, as “’it is not for the respondent to show that a freezing order ought not [to] be granted.’” Citing Mustill J.’s judgment in The Ninemia, Gloster L.J. emphasizes that there must first be an adverse inference to be displaced before a defendant can be expected to provide any evidence or explanation.
In her view, the evidence considered at trial, including, Christian Candy’s transfer of property to his wife, the apparent disconnect between his wealth and lifestyle, and his use of complex offshore corporate structures, taken together, “fell significantly below the level of calling for an explanation by the appellants.”
Applying Gloster L.J.’s formulation of the test to the available evidence, the threshold of risk of dissipation was not properly met and the notification injunction should not have been granted at trial. The appeal was allowed and the notification injunction was set aside.
In her judgment, Gloster L.J. confines the analysis to notification injunctions with extensive reach. Going forward, however, it will be important for parties seeking notification injunctions to properly situate them within the overarching injunctive relief framework. This includes the provision of a test that applies equally to all notification injunctions, and achieves the appropriate balance between order intrusiveness and the threshold of asset dissipation risk required.
Lincoln Caylor is a partner at Bennett Jones in Toronto. He practices commercial litigation and is internationally recognized for leading asset tracing investigations and pursuing asset recovery litigation and enforcement actions in prominent, high-value international financial frauds and other economic crimes. He’s the only Toronto member of ICC FraudNet, a worldwide network of selected lawyers specialized in asset tracing and recovery. In 2012, he was presented with the Queen Elizabeth II Diamond Jubilee Medal for his contributions to Canada.
The author is grateful to Carolin Jumaa for her contribution to this article.