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Take note of a new opportunity: Notification injunctions

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26/01/2017

Where there is any risk of dissipation of assets, claimants ordinarily consider obtaining a freezing injunction to try to ensure that a [potential] defendant’s assets are ‘frozen’ and remain available pending the enforcement of a court judgment. However, freezing injunctions are widely recognised as an highly invasive, draconian remedy, which place significant restrictions and inconvenience on defendants, and which demand high evidential burdens and upfront financial risk of claimants.  (For further information on the legal and practical issues surrounding freezing injunctions, please see our more detailed briefing.) As such, freezing orders are not granted lightly by the courts.

A new option for claimants

In 2016 the High Court provided rare authority [1] on a genuine alternative to the freezing order: the notification injunction.

This remedy represents something of a ‘middle ground’ in that it does not go so far as to freeze the [potential] defendant’s assets, but it does require the defendant to notify the claimant prior to disposing of any assets over a certain value. The notification injunction is significantly less intrusive upon the defendant, yet it provides a certain level of comfort for the claimant – including a framework within which the claimant would be given the opportunity to apply for a freezing order if and when the defendant actually sought to dissipate assets to avoid enforcement.

In Holyoake the High Court decided that section 37 of the Senior Courts Act 1981 provides authority for a court to grant a notification injunction, but that the court’s discretion to do so is not entirely unfettered.  A claimant cannot obtain an order which requires a defendant to disclose assets and notify as to what he or she intends to do with those assets simply because the claimant is interested in that information. As with a freezing order application, therefore, the court must be convinced that:

  • the claimant has a substantive cause of action against the [potential] defendant and a good arguable case;
  • there is a real risk of dissipation of assets; and
  • the balance of convenience must be in favour of granting the order, bearing in mind the conduct of the claimant, the rights of/ impact upon any third parties who may be affected, and whether such an order would cause legitimate and disproportionate hardship for the defendant.

The case for the alternative

In circumstances where the test for a notification injunction appears to be the same as for a freezing injunction, then, why might a claimant opt for the middle ground, rather than going for the more extensive and intrusive option? There are a number of possible advantages:

  • The High Court confirmed in Holyoake that a notification injunction is a less invasive interference with a [potential] defendant’s dealings. It is therefore conceivable that a court might more readily be willing to grant such an order.
  • The fact that a notification injunction is not such a draconian remedy might more easily tip the ‘balance of convenience’ in the claimant’s favour.
  • On an application for an interim injunction a claimant is required to provide what is known as a cross-undertaking in damages – that is, an undertaking to compensate the defendant f it is ultimately decided that the order should not have been awarded. The undertaking in damages can be very substantial in the case of a freezing order application and the claimant may, in some cases, be required to provide security. It is possible that, because it is much less likely that a requirement merely to notify will put the defendant to any significant time or cost than will an order which freezes assets, a claimant may face a much less significant and burdensome undertaking on an application for a notification injunction.
  • Apart from providing the claimant with an opportunity to apply for a freezing order if and when any notification suggests that dissipation may be imminent, it is likely that the mere existence of a notification injunction sends a strong message to any [potential] defendant – both in terms of the claimant’s attitude and approach to the management of is claim generally; and as a deterrent against dissipation in any event.

Practical advice

Many are the cases in which a claimant lender is concerned that a [potential] defendant might seek to place assets beyond the reach of any judgment (and indeed experience indicates that defendants are increasingly sophisticated at doing so), but perhaps few are the cases in which it would be appropriate and worthwhile to apply for a freezing order. In the wake of the Holyoake case, however, claimant-lenders may wish to adapt their strategic case review processes to include routine consideration of a notification injunction, in case that can provide a greater level of comfort in return for a lower level of risk.

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[1] Holyoake & Anr v Candy & Ors [2016] EWHC 970 (Ch)

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