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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Candy & Ors v Holyoake & Anor [2017] EWCA Civ 92 (28 February 2017)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2017/92.html
Cite as: [2017] EWCA Civ 92, [2017] WLR(D) 146, [2017] 3 WLR 1131
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A3/2016/2060 A3/2016/2747 |
ON APPEAL FROM
THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE NUGEE
AND
THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
THE CHANCELLOR OF THE HIGH COURT
HC2015003369
Strand, London, WC2A 2LL |
||
B e f o r e :
Vice President of the Court of Appeal, Civil Division
and
LORD JUSTICE JACKSON
____________________
| NICHOLAS ANTHONY CHRISTOPHER CANDY CHRISTIAN PETER CANDY CPC GROUP LIMITED |
Appellants / Defendants |
|
| - and - |
||
| MARK ALAN HOLYOAKE HOTBLACK HOLDINGS LIMITED |
Respondents / Claimants |
____________________
Mr Roger Stewart QC and Mr Richard Fowler (instructed by Gunnercooke LLP) for the Respondents / Claimants
Hearing dates : 5-6 October 2016
____________________
Crown Copyright ©
- This is an appeal ("the notification injunction appeal") by Mr Nicholas Candy, Mr Christian Candy and CPC Group Limited (collectively, "the appellants" or "the defendants") against two orders of Nugee J, which imposed upon them, and thereafter continued in modified form, what has been described as a notification injunction.
- There is a further appeal ("the fortification appeal") by the appellants in relation to a judgment by Etherton C (as he then was) that an insurance policy taken out by Mr Mark Holyoake and Hotblack Holdings Limited ("Hotblack", together, "the respondents" or "the claimants") was satisfactory fortification of their cross-undertaking in damages given in relation to the modified notification injunction.
- On 6 October 2016 we indicated that we would allow the appeal against the orders of Nugee J and set aside the notification injunction. We said that we would give our reasons subsequently. This judgment sets out my reasons for concluding that the notification injunction appeal should be allowed. It also sets out my reasons for allowing the fortification appeal.
- The appeals arise in the context of a claim brought by the respondents against the appellants and three other defendants in relation to a loan agreement. In summary:
- Whilst the two appeals are connected in the sense that the notification injunction ordered by Nugee J ultimately gives rise to the issues concerning fortification, they are otherwise discrete. I therefore divide this judgment into two parts. The first deals with the notification injunction appeal. The second part deals with the fortification appeal.
- Both the appellants and the respondents sought to emphasise certain aspects of the chronology of the proceedings before Nugee J ("the judge"). I therefore set out the sequence of events in some detail. All dates refer to 2016.
- On 18 February the respondents issued their application for a notification injunction, supported by an affidavit and a witness statement. During the following four weeks, the appellants filed a witness statement in response and the respondents filed two further affidavits in reply.
- On 7-8 April there was a hearing before Nugee J. The judge heard argument and delivered an ex tempore judgment, adjourning the application part-heard until a further hearing (in the event, until 29 April) but also making an interim injunction against the appellants ("the 8 April notification injunction"). The critical provision of the 8 April notification injunction was paragraph 4:
- Paragraph 11 clarified that this requirement to notify also applied to any transactions in the ordinary and proper course of business.
- There were also several provisions providing clarification or dealing with ancillary points. Most of these provisions were in effect identical to the pro forma freezing order annexed to Practice Direction 25A of the CPR ("the Annex"):
- During the period from 10 April to 22 April, the appellants filed six further witness statements, including two from Mr Christian Candy and one from Mr Nicholas Candy. On 26 April the respondents filed and served a further affidavit in reply to this evidence. I refer to the evidence post-dating the hearing on 7-8 April, but pre-dating the 29 April hearing, as "the further evidence".
- On 26 April the judgment in relation to the 7-8 April hearing was circulated in draft.
- On 28 April skeleton arguments were exchanged in advance of the second hearing. Both the appellants and the respondents engaged with the further evidence.
- On 29 April there was a second hearing before Nugee J. The judge handed down judgment in relation to the 7-8 April hearing ("the judgment"). After hearing argument, the judge delivered a further ex tempore judgment imposing a significantly modified form of the 8 April notification injunction, which was to continue until trial ("the 29 April notification injunction").
- On 10 May there was a further hearing before Nugee J, because the parties were unable to agree the form of the order arising out of the hearing on 29 April. In a short ruling, the judge clarified the terms in which the 29 April notification injunction should be drawn up. The critical provision of the 29 April notification injunction was paragraph 1:
- Thus it can be seen that the significant variation from the earlier 8 April notification injunction was the provision clarifying that the notification requirement did not prevent the appellants from dealing with or disposing of assets in the ordinary and proper course of business. Again there were a number of clarificatory provisions, including those listed above as mirroring clauses of the Annex.
- I shall refer to an injunction prohibiting a party from disposing, dealing with or diminishing the value of certain assets and without a general carve out in relation to notified transactions, although of course there may be other exceptions (such as transactions in the ordinary and proper course of business) as a "conventional freezing order". In contrast, the two injunctions granted by the judge on 8 April and 29 April did contain a general carve out which permitted any transaction in respect of which there had been proper notification. Like the judge, I shall refer to an injunction of this type in the wide terms of the present order as a "notification injunction".
- At the 7-8 April hearing Nugee J indicated his conclusions briefly in an ex tempore judgment and made the 8 April notification injunction against the appellants. The reasons for these conclusions were then set out in full in his judgment handed down on 29 April. In summary he held that:
- It is instructive to consider in some detail the judge's reasoning in relation to the two final points, with which the notification injunction appeal was primarily concerned.
- Having set out certain legal principles relevant to the requirement of a risk of dissipation, the judge considered various evidential factors bearing on the issue of alleged risk of dissipation, which informed his conclusion that there was indeed such a risk. He formed the following view of the evidence:
- In that event, Nugee J concluded, in a paragraph that received considerable scrutiny on appeal, that:
- This constituted the judge's only discussion of the level of risk that was required to be shown by an applicant seeking a notification injunction, with two exceptions. First, when summarising the grounds upon which the court would exercise its jurisdiction (as found) to grant a notification injunction, the judge identified the possibility of an applicant producing
- The judge stated that, in response to concerns raised during argument, the respondents had on 8 April submitted a revised version of the injunction sought. Under this revised form of the notification order, there would be no need for advance notification of transactions in relation to UK residential and commercial property. Instead notice was to be given within three days after completion, disposal or acquisition.
- The judge decided to adjourn the hearing but to make an interim order in that revised form, as appears from the terms of the 8 April notification injunction set out at paragraph 8 above. The judge's decision to adjourn part-heard was set out in a passage that, again, was subjected to close analysis on appeal:
- It is convenient to record at this point certain other material which might be said to inform the question of what exactly the judge had adjourned:
- On 29 April the hearing resumed before Nugee J. After hearing argument in relation to the further evidence, the judge held:
- Answering this question, the judge was satisfied on the evidence before him that the 8 April notification injunction "has operated in a way which causes real practical difficulties for the defendants": paragraphs 16-20. It appears that the judge considered (only) the following evidence to fall within the scope of the issue of the practical working of the 8 April notification injunction: details as to what compliance had entailed; the inconvenience in complying; the cost of the complying; and concerns which third parties who dealt with (or otherwise might have dealt with) the appellants had in relation to confidentiality. None of the other further evidence fell to be considered.
- The judge therefore concluded that certain changes, which he regarded as "quite significant modifications", would be made to the form of the injunction. As modified the 29 April notification injunction would continue until trial: paragraphs 21-26 and 37.
- The judge then ordered fortification of the respondents' cross-undertaking in respect of the 29 April notification injunction, in the sum of £5 million: paragraphs 27-34.
- There are five principal issues in relation to the notification injunction appeal:
- The arguments developed by the appellants in their written submissions and by Mr Adam QC in oral submissions in relation to the above issues before this court may be summarised as follows:
- I have summarized these arguments briefly, since the reasons put forward by the appellants are in large part reflected in the reasons I give below for allowing the appeal.
- The arguments advanced by the respondents in written submissions and by Mr Stewart QC in oral submissions in relation to the above issues before this court were in summary as follows:
- It was common ground that the only relevant legislation was section 37(1) of the Senior Courts Act 1981, which provides:
- In my judgment, and contrary to the view apparently taken by the judge, the position is no different in respect of notification injunctions of the type under consideration in the present case. Thus I accept Mr Adam's submission that a notification injunction in the wide terms of the present order under appeal is in effect a modified version of a conventional freezing order, rather than a distinct type of injunction. (I accept that 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.)
- My reasons are as follows:
- I do not accept Mr Stewart's argument that the threshold of dissipation required in order to obtain a notification injunction in the wide terms of the present order is less than that required to obtain a conventional freezing order. His central proposition was that lesser evidence was required in order to obtain lesser relief; therefore, since a notification injunction was less onerous than a conventional freezing order, less stringent evidence was required. He cited a number of authorities in support of that line of argument, including:
- In my judgment, these authorities on a proper analysis do not assist the respondents' case for the following reasons.
- 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. The reason for this is that a notification injunction in the wide terms of the 8 April and 29 April notification injunctions is in reality merely a modified version of a conventional freezing order, and there is no reason to differ from the approach taken in that context. However, I would add that I consider this to be the preferable conclusion, for three further reasons.
- First, it 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. As Lord Bingham observed in Fourie v Le Roux [2007] 1 WLR 320:
- The second reason is that the respondents' case, taken to its logical conclusion, would suggest that there is a spectrum of the level of risk of dissipation, which one can match with a sufficiently diluted version of a conventional freezing order. In other words: even if one cannot satisfy the threshold for a conventional freezing order (perhaps by some margin), there should nonetheless be a modified form of freezing order which is appropriate. Less intrusive variants of freezing order 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. This would tend to undermine the close regulation of potent injunctions of this kind. The solution is to have a binary threshold, not a sliding scale, and for a risk of dissipation which does not satisfy that test to be inadequate to obtain a freezing order. (Of course, the extent to which the applicant exceeds the threshold may be relevant to the ultimate question of justice and convenience.)
- The third reason is a pragmatic concern that the test, if not a binary threshold, 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. I accept Mr Adam's submission that no clear exposition of the test was given by the judge; nor, indeed, was a workable form of a variable test suggested by the respondents in argument before this court.
- In light of this conclusion, I conclude that the judge did not apply the correct test in considering whether to grant the 8 April notification injunction, in relation to the level of risk of dissipation that was required to be shown. The judge accepted that a lesser degree of risk would suffice to obtain a notification injunction as opposed to a conventional freezing order. That is apparent from the judge's conclusion that it was "relevant to the degree of risk which needs to be shown" that the notification injunction was less intrusive than a conventional freezing order, at paragraph 47. It is also reflected in the judge's language in describing "such a risk of dissipation" as to justify the relief, and there being "at least some credible evidence of a threatened dissipation" (emphasis added). I do not consider that passing references to "real risk" show the judge appreciated that, if the respondents could not satisfy the evidential threshold necessary in order to obtain a conventional freezing order, they could not obtain a notification injunction. Although it is not necessary to rely on any other material in order to reach this conclusion, it is put beyond doubt by comments by the judge during both the 7-8 April and 29 April hearings.
- It is also appropriate to make the following general observations in relation to notification injunctions, arising out of certain submissions made by Mr Adam and Mr Stewart.
- The conclusion that all variants of freezing order must satisfy the same threshold in relation to risk of dissipation should not be taken to suggest that parties need only contemplate the most onerous form of a freezing order, under what would be a misapprehension that the intrusiveness of relief is immaterial. On the contrary, the intrusiveness of relief will be a highly relevant factor when considering the overall justice and convenience of granting the proposed injunction. Hence, even if there is solid evidence of a real risk of unjustifiable dissipation, an applicant should consider what form of relief a court is likely to accept as just and convenient in all the circumstances, including the scope of exceptions to the prohibition on dispositions.
- As to this last point, a court should not assume that a notification injunction is necessarily less onerous than a conventional freezing order. For example, the notification injunctions here were in certain respects more onerous than a conventional freezing order would have been:
- Conventional freezing orders, notification injunctions and other potential variations of freezing orders on the one hand should be distinguished from orders for the disclosure of information under CPR r 25.1(1)(g). In JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2016] 1 WLR 160, the Court of Appeal considered at [44]-[59] the relationship between freezing orders and orders for disclosure of information. I agree with Lewison LJ's observation at [55] that:
- Accordingly, I conclude that the judge did not apply the correct test to establish risk of dissipation.
- The next stage of the analysis is to ask whether the evidence available at 7-8 April demonstrated that there was indeed the requisite risk of dissipation. In my judgment the evidence was not sufficient so to demonstrate.
- There are three points which inform this analysis. First, it is critical to remember that the burden is on the applicant to satisfy the threshold. The court will of course decide on the basis of all the evidence before it. However, in practice, if an applicant has not adduced sufficient evidence, the application will fail. The respondent's evidence will be immaterial unless, unusually, it lent support to the application.
- Second, it follows that, unless an applicant has raised a prima facie case to support a freezing order, the respondent is not obliged to provide any explanation or answer any questions posed and nor can a purported failure to do so be held against the respondent. It is only if the applicant has raised material from which a real risk of dissipation can be inferred, that the respondent will be expected to provide an explanation. Then, in appropriate circumstances, the lack of a satisfactory explanation may give rise to an adverse inference.
- If authority were needed for this second point, it can be found in The Ninemia. At 1424B-D and 1425D-1426B, the Court of Appeal quoted with broad approval the judgment of Mustill J (as he then was) that:
- In Flightwise Travel Service Ltd v Gill, Neuberger J made the same point:
- The third and final point of general application is to emphasize that the requisite risk of dissipation must be established against each respondent. I accept Mr Adam's submission that the fact that the appellants are alleged to be co-conspirators does not without more entail that evidence proving a real risk of one appellant dissipating their assets transposes to the other appellants, and nor did the judge so conclude.
- I now turn to the evidential factors identified by the judge as bearing on the question of risk, summarized at paragraphs 20.i) vii) above.
- The first factor was the transfer of Cambridge Terrace from Mr Christian Candy to his wife; this was one of two factors to which the judge attached particular weight in reaching his decision that there was a risk of dissipation. Indeed, this was the sole evidence adduced by the respondents to suggest that Mr Christian Candy personally might dissipate his assets, beyond the fact that the respondents had established a good arguable case in relation to their allegations against the appellants (as to which see below).
- In my view, whilst prima facie this factor might provide some evidential support to the respondents' contention that there was a risk of dissipation, the strength of that support is minimal:
- The second factor, which the judge had also identified as being particularly significant, was the apparent disconnect between Mr Nicholas Candy's wealth and lifestyle. However, again the judge erred in my view by shifting the burden of proof onto the appellants. In my judgment this factor is of minimal support for the claim that there was a real risk of dissipation:
- Third, in relation to the judge's conclusion that the corporate structure of the appellants' companies and the corporate reorganisation in 2014 to 2015 were (at least) capable of contributing to the evidence of risk:
- The fourth evidential factor upon which the judge relied to support the case that there was a risk of dissipation were the allegations against the appellants in the substantive claim in respect of which the respondents had shown a good arguable case.
- However I conclude that, although the respondents' "good arguable case" in relation to the appellants' alleged conduct could theoretically be taken into account in evaluating whether there was a risk of dissipation, the evidence relating to the substance of those allegations, was not sufficiently strong to support the necessary real risk of dissipation. In coming to this conclusion I have applied the approach of this court in VTB Capital plc v Nutritek International Corp and in Thane Investments Ltd v Tomlinson [2003] EWCA Civ 1272 at [28] namely that the court should scrutinise whether what is alleged in relation to a good arguable case really justifies the inference of a risk of dissipation.
- The fifth evidential factor, (namely the "stable door" point) was in my view (and contrary to the judge's view) a powerful factor militating against any conclusion of a real risk of dissipation. If there had been a real risk of the appellants unjustifiably dissipating their assets, it would have materialised by the time of the application. The first intimation of what became the present proceedings occurred in May 2014. There was then a detailed letter of claim, with draft particulars of claim, in December 2014. A revised claim was ultimately issued in August 2015. The respondents repeatedly threatened to seek a freezing order (or similar relief) from September 2015. The application for an initial notification was made in February 2016, resulting in the 7-8 April hearing. In my view it was inherently unlikely that the appellants would unjustifiably dissipate their assets in the future, having not done so by this point.
- The reasons given by the judge as to why this factor did not rule out a risk of dissipation are unsatisfactory. The judge had already concluded with good reason that the evidence suggested that the appellants would be able to dissipate assets quickly, despite the fact that many of the assets were in the form of real property. Even if it would take time to dissipate assets, by any metric the above time frame had afforded the appellants ample opportunity to do so, if they were so minded. The judge placed undue reliance on being unable to rule out the dissipation risk.
- Overall, therefore I conclude that, applying the correct test, as at 8 April there was not a real risk, supported by solid evidence, that a future judgment would not be met because of unjustifiable dissipation in relation to any of the appellants. The respondents had not even raised a prima facie case of a real risk of dissipation. Whether there was a case calling for a response must of course be looked at holistically, in the sense that factors which individually might not require a response might do so collectively. However, here the evidence, taken together, in my judgment fell significantly below the level of calling for an explanation by the appellants.
- Since there was no real risk of dissipation, the ultimate question whether it was necessary, just and convenient to grant the 8 April notification injunction should have been answered in the negative. Even if there had been a real risk of dissipation considerations of confidentiality and commercial stigma, and their impact upon the defendants' commercial interests; would have weighed heavily in any assessment of justice and convenience.
- It is not strictly necessary to decide this point, given my conclusions above and below that no real risk of dissipation had been shown, whether looking at the evidence available on 7-8 April or the evidence available on 29 April. Nonetheless I summarise my views as follows.
- The judge decided on 29 April that it would be contrary to general principles of efficient case management to permit the appellants to adduce new evidence in relation to the risk of dissipation. He accepted that he had not yet made any order in relation to the period after 29 April until trial, so that it was jurisdictionally open to him to admit the further evidence and to consider any issues in that light. However the judge declined to do so, taking the view that if the appellants had wished to rely on the further evidence in relation to risk of dissipation they should have adduced it for the 7-8 April hearing; it would have given them a second bite of the cherry to admit it on 29 April and re-open the issue.
- Whilst this court is reluctant to interfere with case management decisions of specialist judges, I nonetheless conclude that the judge was clearly wrong not to have allowed the further evidence to be adduced, in what was a fast moving interlocutory context. Although I can understand the judge's view, applying conventional principles stated in cases such as Chanel Ltd v F W Woolworth and Co [1981] 1 WLR 485, that the further evidence should not have been admitted unless the appellants could have shown, for example, a material change of circumstances or that the judge had been misled in some way, in the specific and unusual circumstances of the case, the further evidence should have been admitted by the judge on 29 April, as it would have been unjust not to do so. The 8 April notification injunction was, as the judgment recorded, a "radical proposed modification" of the order originally sought by the respondents. It had very serious implications for the conduct of the appellants' business. There is force in Mr Adam's submission that, in effect, the respondents had been permitted to make a new application. In that context, comparable latitude should have been given to the appellants. If the respondents had been required to make a new application formally, the appellants would have been entitled to put in any further evidence they wished. The transfer of the Cambridge Terrace property one of the two main factors identified by the judge, and the only evidence against Mr Christian Candy personally was in the process of being reversed.
- The specific and unusual circumstances to which I refer distinguish this case from the position in relation to the respondents' application for a worldwide conventional freezing order, which was made on 17 May 2016 and 2 June 2016. There was no change of circumstances so as justify a further application for that relief. Etherton C made this clear in his judgment, Holyoake v Candy [2016] EHWC 1718 (Ch), at [21] and [34]-[35].
- I therefore conclude that, even if the test applied by the judge had been correct or, the evidence available at 7-8 April was sufficient to support the 8 April notification injunction, the further evidence in relation to risk of dissipation should have been admitted.
- The position in relation to the issue of justice and convenience was different from that relating to the issue of risk of dissipation. The judge in my view had adjourned making a final decision as to whether it was just and convenient to grant an injunction (or what injunction it would be just and convenient to grant).
- I do not accept Mr Stewart's submission that the judge had not adjourned the question of balance of convenience, but only the form of relief. The judge had not yet made a final decision in relation to justice and convenience, and it was therefore incumbent upon him to do so on 29 April.
- In contrast to the position in relation to risk of dissipation, then, the question whether further evidence could be adduced in relation to justice and convenience came within the territory of LTE v Thomas [2004] EWCA Civ 1622. The evidence was adduced late, but there had not been a prior decision. A further point was that the order made in respect of the 7-8 April hearing gave permission for the appellants to "file and serve further evidence in relation to the terms of the Order". In my view that order read against the background of the judgment permitted the appellants to adduce evidence in relation to the question of justice and convenience.
- Therefore, even if I were wrong on Issues (i)-(iii), I would find that the judge erred in not admitting the further evidence in relation to justice and convenience.
- It follows from my conclusions in relation to Issues (iii) and (iv) that the judge should have taken into account the further evidence in relation to risk of dissipation and in relation to justice and convenience. This would have included the following:
- Mr Stewart sought to challenge much of this evidence, or suggested that it raised more questions than it answered. In particular, it was said that the financial statements extract gave an incomplete picture, at best. I reject this submission. For the purposes of the application before the court the extract gave a sufficient indication of the overall position. If the judge had taken this evidence into account, and applied the correct test in relation to risk of dissipation, then in my judgment the only proper conclusion was that there was no real risk of dissipation and that the balance of convenience was strongly against the grant of the 29 April notification injunction.
- The further evidence highlighted the oppressiveness of the notification injunctions applying to all of the appellants' total global assets. The claim ultimately issued was for damages of £132.8 million (plus interest and costs). It was entirely disproportionate for (at least) £600 million of assets to be subjected to a general prohibition. The further evidence clearly demonstrated that there were substantial assets within the jurisdiction and that Mr Christian Candy at least was domiciled and tax resident within the jurisdiction. In such circumstances there was no basis for an injunction on 29 April. Moreover the further evidence in relation to how the injunction had worked in practice showed that the substantial interference with the appellants' business and other interests outweighed any protective effect for the respondents.
- I would allow the appeal in relation to the notification injunctions. The judge applied an incorrect test in relation to risk of dissipation. Thus the judge was wrong in: granting the 8 April notification on the evidence available at 7-8 April; in excluding the further evidence in relation to risk of dissipation and in relation to justice and convenience on 29 April; and granting the 29 April notification injunction on that date.
- As I have already said, on 29 April 2016, Nugee J ordered fortification of the respondents' cross-undertaking in damages in respect of the 29 April notification injunction. The relevant paragraphs of his order were as follows:
- On 26 May Nugee J granted an extension of time to provide fortification until the end of a forthcoming hearing, already listed for 7 June.
- On 6 June the respondents entered into an insurance policy ("the 6 June policy"), which contained a condition subsequent that it be accepted as valid fortification by 8 June; otherwise, the 6 June policy would be void ab initio.
- On 7 June there was a hearing before Etherton C ("the Chancellor"). The Chancellor held, inter alia, that the 6 June policy was not reasonably satisfactory. He said:
- However, the Chancellor declined to discharge the 29 April notification order on the basis that:
- No such written statement from the insurer was forthcoming. However, on 15 June the respondents entered into an amended policy ("the policy"). The policy was entitled "Cross Undertaking as to Damages Insurance Policy", and the 29 April notification injunction was exhibited to the policy. The relevant terms were as follows:
- On 16 June, there was a further hearing before the Chancellor to determine whether the policy was compliant fortification. In an ex tempore judgment (hereafter "the judgment"), the Chancellor said:
- The amendment to which the Chancellor referred in the final sentence of paragraph 5 related to the 6 June policy which contained an exclusion in the following terms:
- On 4 August I granted permission to appeal against the judge's decision that the policy was compliant fortification (except that I refused permission in relation to one ground of appeal, concerning procedural injustice).
- The issues arising (or potentially arising) on the fortification appeal may be summarised as follows:
- The appellants submitted in their written argument that their primary position was that the test was whether the policy was in fact acceptable to the appellants. An analogy was drawn with clauses in contracts which required consent to a particular clause not to be unreasonably withheld or clauses which required the satisfaction of one of the parties to be expressed. The respondents, on the other hand, submitted that the test was a simple and objective one and that the analogous cases suggested by the appellants were inappropriate.
- In my judgment the Chancellor was correct to treat the test as an objective one on the wording of the order. There is no element of subjectivity, beyond the fact that the appellants could in practice consent to any insurance policy being compliant fortification. The position is not equivalent to the situation where a contract confers a right or discretion upon one party. Paragraph 13 of the order contemplated the possibility of an application to the court to determine the form of the fortification, if necessary. To that extent, the position is the same if the words "in a reasonably satisfactory form" were substituted for "in a form reasonably satisfactory to the [defendants]". I can do no better than adopt the formulation set out by the Chancellor on 7 June. The question is whether a reasonable person in the position of the appellants could properly form the view that the proposed fortification of the cross-undertakings was satisfactory. This will not be the case if a person in the position of the appellants might reasonably apprehend that there was a risk that the insurer might seek to avoid the policy.
- It was common ground that a possible scenario in which insurers might challenge the respondents' rights to draw down under the policy would be if, after trial, Mr Holyoake were to lose the claim and were to be found to have been fraudulent and dishonest. It might then be the case that the respondents had also been dishonest in presenting the risk to the insurer when procuring the policy, on the basis that the respondents had necessarily not disclosed the true status of their claim (on this hypothesis, that it was a dishonest claim) to the insurer.
- The appellants identified two arguments by which the insurer might seek to deny liability in this situation, suggesting that the policy was thereby rendered objectively unsatisfactory:
- The appellants submitted that there was, at the very least, a real possibility of the insurer succeeding on one or both of the above arguments. In this context Mr Adam submitted that:
- On the other hand, the respondents submitted that there was no real prospect of an insurer succeeding on either argument. Mr Stewart submitted that:
- It was common ground that certain principles were relevant to the construction of clauses said to exclude remedies arising for fraud. Those were articulated in HIH v Chase Manhattan Bank, by Lord Bingham at [16] who said:
- I therefore accept Mr Adam's submission that there is (at a minimum) a real risk of the insurer properly arguing that as a matter of construction it would be under no liability in the case of fraud by the insured in placing the policy for. The argument would run as follows:
- The overall thrust of Mr Stewart's submissions was that the function of the policy was for the insurer to pay out even if the insured had procured the policy fraudulently, but in that case to allow the insurer then to recover from the insured. But in my judgment it is realistically arguable that, despite the Chancellor's indication of what would be required to render the policy a reasonably satisfactory form of fortification, the revised terms of the policy have not made the position clear.
- It was common ground that HIH v Chase Manhattan also supported the contention that, as a matter of public policy, a contracting party could not exclude liability arising out of his own fraud. Lord Bingham said at [16]:
- The appellants submitted that this reflected a broader rule of public policy, to the effect that it was impossible for a contracting party to restrict the other party's rights arising out of one's own fraud even if the liability of the fraudulent party was preserved and the fraudulent party derived no benefit. On this view, an insurer would always retain the right to avoid an insurance policy for the fraud of an insured (and thereby to deny liability to an innocent third party), even if the insured derived no benefit.
- The respondents submitted that the rule of public policy was narrower: that, at most, it was impossible for a contracting party to benefit from its own fraud. Relying on an exclusion of liability for fraud would be one such instance. On this analysis, there was no rule of public policy which prevented an innocent third party from benefitting where a term of the insurance policy excluded the insurer's rights in relation to the fraud of the insured.
- In support of the broader formulation, the appellants relied upon the summary of principles given in Colinvaux's Law of Insurance (11th edition, 2016), arising from HIH v Chase Manhattan, at paragraph 7-211:
- The appellants also emphasised the formulation by Coulson J in Mutual Energy v Starr Underwriting Agents [2016] EWHC 590 (TCC). In that case a clause precluded avoidance by the insurer "unless deliberate or fraudulent non-disclosure or misrepresentation or breach by that Insured is established". Coulson J said that this merely confirmed the common law position, at [38]:
- On the other hand, Mr Stewart on behalf of the respondents submitted that Hardy v Motor Insurers' Bureau [1964] 2 QB 745 supported the narrower formulation of the rule of public policy. In that case an uninsured driver had injured a security guard in a deliberate, criminal act. The MIB resisted the claim on the basis that liability for criminal acts was not a liability which the Road Traffic Act 1930 required or could require to be covered by insurance. That gave rise to an issue as to the scope of the public policy rule that persons should not be permitted to indemnify themselves against liability to pay compensation arising out of their own deliberate, criminal acts. Lord Denning said, at pp760-761:
- Patel was also said to support the respondents' formulation. There, Lord Toulson (delivering the majority judgment) set out a policy-based approach to another rule of public policy, illegality. Lord Toulson had also cited Hardy v Motor Insurers' Bureau as an illustration of the need to take into account the purpose of a statutory context in applying the rule regarding illegality. The respondents submitted that it was also relevant to take into account policy factors in determining the scope of the rule in relation to fraud, and that this strongly militated in favour of enabling an innocent third party to benefit despite the fraud of the insured.
- In my judgment this is not the case where this court needs to express a concluded view as to the scope of the public policy rule in relation to contracting out of the consequences of fraud. For present purposes it is sufficient merely to say that there is at least a real prospect that (on the hypothesis that the respondents lose the action and are found to have been dishonest) the insurer could properly argue that there is a rule of public policy which would entitle it to avoid on the grounds of the insured's fraud, regardless of the policy terms. This gives rise to an objectively reasonable appreciation of risk such as to render the policy an unsatisfactory form of fortification.
- Mr Adam appeared to accept the apparent consequence of the appellants' position on the issue of public policy was, that an insurance policy would never provide adequate fortification of a cross-undertaking in a case involving fraud. Mr Stewart relied on this as an indicator that the argument could not be correct.
- In my judgment it is not appropriate to rule out the possibility of an insurance policy being adequate fortification, even in a case where allegations of fraud were being made against a claimant. For example, it might be thought that a policy which in clear and specific terms waived the duty of disclosure altogether, coupled with an equally clear term and representation by the insurer that it would not avoid for fraud of the insured in presentation of the risk (or any other ground), would be good fortification, notwithstanding any principle of so-called public policy.
- I consider this approach to accord with first instance decisions concerning the use of ATE insurance policies to provide security for costs. In that context, the possibility of insurance policies has been accepted: see Coulson J's review and summary of the relevant authorities in Harlequin v Wilkins Kennedy [2015] EWHC 1122 (TCC) at [11]-[20]. However an insurance policy will not suffice in circumstances where an insurer can or may legitimately be able to avoid liability for fraud; see e.g. per Akenhead J in Phillips Architects v Riklin [2010] EWHC 835 (TCC) at [18(c)] and [26] and per Akenhead J in McLennan Architects v Jones [2014] EWHC 2604 (TCC).
- Accordingly, in my judgment, the Chancellor erred in finding that the policy was in a form reasonably satisfactory to the appellants. There was a real prospect of the insurer properly arguing that as a matter of construction of the policy terms it would be under no liability in the case of fraud by the insured in placing the policy. Even if the policy had purported to exclude avoidance, there was a real prospect of the insurer properly arguing that it nonetheless retained the right to avoid the policy on grounds of the insured's fraud in placing the policy. There remained an objectively reasonable apprehension of risk of avoidance.
- This court did not hear any argument in relation to this issue, namely whether the court could or should require fortification of the cross-undertaking in damages notwithstanding that the notification injunction has now been discharged. Perhaps unsurprisingly, it was not raised as an issue in argument.
- There is authority at first instance that supports the proposition that fortification of a cross-undertaking in damages cannot be required retrospectively once the injunction itself has been discharged; see for example per Popplewell J in Thai-Lao (Thailand) Co Ltd v Government of the Lao People's Democratic Republic [2013] EWHC 246 at [45]:
- There may be arguments to distinguish these cases on the basis that, in the present case, the respondents were indeed required to provide fortification of their cross-undertaking in a specific form as the price of being granted an injunction, and that they have failed to do so.
- However since these issues were not debated before us, I do not consider it appropriate for this court to determine them at this stage. If, in light of the court's decision on the fortification appeal, the appellants wish to pursue the matter, I would remit it back to the Chancery Division for the trial judge (or some other Chancery Division judge) to decide. The issue may not be academic in the event that the appellants wish to pursue a claim for damages under the cross-undertaking. Whether it would be appropriate for the Chancery Division to provide them effectively with security for such a claim would be a matter for the court hearing the application to decide; Hirst J's dictum at page 200, right hand column in The Mito would require consideration.
- For the above reasons I allowed the notification injunction appeal and would allow the fortification appeal. I would remit any renewed application for fortification back to the Chancery Division.
- I agree.
Lady Justice Gloster :
Introduction
i) Mr Holyoake claims to be a successful businessman with a background in property development. Hotblack is a Jersey registered company ultimately owned by Mr Holyoake.ii) In 2011, Mr Holyoake and Hotblack were seeking to purchase a valuable property in Grosvenor Gardens. In order to complete the £43 million purchase, the appellants approached Mr Nicholas Candy with a view to securing a loan of £12 million at very short notice.
iii) Mr Nicholas Candy is a well-known property developer and was considered by Mr Holyoake to be an old friend. Mr Christian Candy is the brother of Mr Nicholas Candy.
iv) In the event, a loan of £12 million was made to Mr Holyoake by CPC Group Ltd ("CPC), a Guernsey registered company. The relationship between CPC and Mr Nicholas Candy is a matter of dispute. The appellants say that Mr Christian Candy is the sole owner of CPC and that Mr Nicholas Candy does not own or control CPC. The respondents do not deny that Mr Christian Candy has an ownership interest, but say that Mr Nicholas Candy is also a co-owner and/or controlling mind of CPC.
v) The respondents allege that, after the loan was made the appellants, together with three directors of CPC, conspired to intimidate Mr Holyoake to enter into a series of agreements and to procure Hotblack to enter into certain of those agreements. These agreements are alleged to have been disadvantageous and oppressive to the respondents and highly advantageous to CPC.
vi) On the appellants' case, Mr Holyoake lied in obtaining the loan and repeatedly defaulted on it. They allege that, subsequently, following a series of individual compromises in respect of these defaults, the parties reached a final and binding compromise which released all claims, including those presently advanced by the respondents.
THE NOTIFICATION INJUNCTION APPEAL
Procedural chronology
"4. Until the end of the Further Hearing, or until further Order in the meantime, the [defendants] and each of them shall not deal with or dispose of or otherwise engage in transactions with their assets, whether such assets are in or outside England and Wales, where the value of any such dealing, disposal or transaction is in excess of £1,000,000 (one million pounds), without giving seven days advance notice in writing to the [claimants'] solicitors , with the exception of dealings, disposals or transactions in respect of UK residential / commercial property (which for the avoidance of doubt includes sales or acquisitions of such property by sale or acquisition of shares in a special purpose vehicle owning such property), in which case notice is to be given within three days post completion of the disposal or acquisition."
i) Paragraph 5 mirrored paragraph 6 of the Annex, providing that the restriction applied to all of the appellants' assets whether solely or jointly owned, whether legally or beneficially (or otherwise) owned, and included assets which the appellants had the power to dispose of or deal with as if they were the appellants' own assets.ii) Paragraphs 9-10 mirrored paragraphs 13-14 of the Annex, providing that the appellants could not circumvent the requirement to notify by acting through any other person.
iii) Paragraphs 12-13 mirrored paragraphs 16 and 18 of the Annex, providing respectively: that it was a contempt of court for any person notified of the order knowingly to assist in or permit a breach of the order; and that no bank needed to enquire as to the application of money withdrawn by the appellants if the withdrawal appeared to be permitted.
iv) Paragraphs 14-15 mirrored paragraphs 19-20 of the Annex, addressing persons and assets located outside England and Wales.
"1. Until after the handing down of Judgment in the Claim or until further Order in the meantime, and subject to paragraphs 2 to 6 below the [defendants] and each of them shall not remove from England and Wales, or in any way dispose of, deal with or diminish the value of their assets whether such assets are in or outside England and Wales where the value of any such dealing, disposal or diminution (a "'Transaction") is in excess of £5,000,000 (five million pounds), without giving seven days advance notice in writing to the [claimants' solicitors], save that:
(1) with regard to Transactions in the ordinary and proper course of business, no notice is required;
(2) with regard to
(i) payments by the [defendants] (or any of them or their wholly owned subsidiaries) to tax authorities, and
(ii) repayment of loans to the [defendants] (or to any of them or their wholly owned subsidiaries)
no notice is required; and
(3) with regard to Transactions in respect of UK real property (which for the avoidance of doubt includes sales or acquisitions of such property by sale or acquisition of shares in a special purpose vehicle owning such property) not falling within paragraph 1(1) or 1(2) above, in each case notice is to be given within three days post completion of the Transaction if the value of such Transaction is in excess of £5,000,000.
The 7-8 April hearing, 8 April ex tempore judgment and the judgment
Overview
i) The court had jurisdiction to grant a notification injunction as part of its jurisdiction to grant a conventional freezing order: paragraphs 5-8. The judge reasoned that:a) Where a claimant was asserting a right in specific property, the court could make an order requiring the defendant to notify the claimant before disposing of that asset instead of preventing the defendant from disposing of it.b) Similarly, where a claimant was seeking a freezing-type order over the defendant's assets generally, the court could make an order requiring the defendant to notify the claimant before a disposition, rather than a conventional freezing order which prevented a disposition. This was subject to the proviso that the notification injunction was in a form which was less onerous than a conventional freezing order.c) However, a notification order of this kind was only available where there was a risk of dissipation.ii) In order for a claimant to obtain a notification injunction, the claimant had to show a good arguable case on the underlying merits: paragraphs 9-10. That was to say, a notification order was subject to the more stringent merits test to be applied in respect of conventional freezing orders rather than the lesser test of there being a serious issue to be tried, applicable to other interim injunctions.
iii) Showing a good arguable case on the merits did not require the claimant to show that they had "much the better of the argument". The claimants needed only to show that their case was "more than barely capable of serious argument yet not one which the judge believes to have a better than 50% chance of success": paragraphs 11-15.
iv) The respondents were able to show a good arguable case: paragraphs 16-18.
v) There was such a risk of dissipation of the appellants' assets as to justify a notification injunction: paragraphs 19-47.
vi) The question of the balance of convenience should be adjourned, to an extent disputed on appeal: paragraph 48-50.
Risk of dissipation
i) The transfer of the property at Nos 6-10 Cambridge Terrace ("Cambridge Terrace") from Mr Christian Candy to his wife, paragraphs 33-34:a) The judge said that the evidence suggested that, in 2014, Mr Christian Candy had entered into a loan agreement in order to complete the purchase of a number of valuable properties, including Cambridge Terrace and 1-2 Chester Gate; he referred to the fact that thereafter Cambridge Terrace had been transferred to his wife, Mrs Emily Candy.b) There was no evidence by the appellants explaining why the property transfer was made. It was therefore"possible that one of the reasons why it was put into Mrs Candy's name was a concern by Mr Christian Candy that his family home should be immune from execution in relation to any judgment obtained against him or against any of his companies".c) The judge further accepted that this material was, absent explanation, "prima facie evidence of an act that can be characterised as dissipation".ii) The apparent disconnect between Mr Nicholas Candy's wealth and lifestyle, paragraphs 35-38:
a) The judge set out the evidence given by the respondents to the effect that: (i) Mr Nicholas Candy had, according to media reports, bought a yacht at a cost of £26 million; (ii) 1 share of the company through which the yacht was owned was given to Mrs Candy, Mr Nicholas Candy being the ultimate beneficial owner of the other 1199 shares; and (iii) it was not possible to understand from publicly available information how Mr Nicholas Candy could afford to purchase the yacht or to maintain it. It was also suggested that it would be expensive to maintain and run the yacht, although there was no material evidence on the point.b) The judge took the view that the significance of this was that:"there is a disconnect between the lavish billionaire lifestyle that Mr Nicholas Candy appears to be able to afford, including living in an opulent apartment and purchasing a luxury yacht, and any apparent means to finance that lifestyle".c) He took the view that, again, the lack of evidence from the appellants was significant. Whilst recognising that there might be an entirely legitimate explanation for the apparent disconnect, the judge concluded that:"in the absence of any evidence and in the absence of any apparent explanation, these matters do give rise to concern".d) The concern said to arise was described on appeal by Mr Stewart QC, counsel for the respondents, as a Morton's fork: he submitted that the apparent disconnect suggested that, in truth, Mr Nicholas Candy was either (i) deriving wealth from the CPC business (or more wealth from other businesses than had been declared), or (ii) unable to support his lifestyle. If the former, the public position put forward by the appellants was not the whole truth, which would suggest that Mr Nicholas Candy may have also been prepared to present a misleading picture of his assets if the respondents ever sought to execute a judgment against him. If the latter, then transactions such as those concerning the yacht would constitute significant dissipation of Mr Nicholas Candy's few assets. Either way, therefore, this unexplained disconnect supported injunctive relief to prevent the appellants from dissipating assets, in the sense of putting assets beyond the respondents' reach. Overall, the judge concluded that the state of the evidence"gave rise to a risk which is more than negligible, that Mr Nicholas Candy is prepared to be unforthcoming about his assets and conceal them".iii) The corporate structure of the appellants' companies and the corporate reorganisation in 2014 to 2015, paragraphs 23-30:
a) The judge accepted that (i) holding assets offshore and (ii) the mere fact that there were a large number of companies in the structure were not evidence of a risk of dissipation.b) However, the judge considered that:"the fact that the defendant uses complex and opaque offshore structures which make it difficult to see where value resides in a corporate structure, and which enable assets to be moved easily from one part of the structure to another, is a factor which in my judgment can legitimately be taken into account".The judge clarified that whilst this"is not in itself grounds for inferring a risk of dissipation, it is capable of being regarded as contributing to the risk if there is other material on which to infer".c) As to the corporate reorganization, the judge again noted that there was no evidence on behalf of the appellants explaining the reasons for the reorganisation or its practical effect. In that context, the judge could not"entirely rule [the threat of proceedings] out as being a possible explanation".d) It therefore appears that the judge viewed the corporate reorganisation as also being capable of contributing to a risk which had been inferred from other material.iv) The allegations against the appellants in the substantive claim, paragraphs 39-43:
a) The judge noted that the respondents had established a good arguable case in relation to their allegations that the appellants had engaged in what amounted to appalling conduct.b) The judge rejected the submission that the only allegations which could be taken into account in assessing a risk of dissipation were those which, if proved, showed a preparedness to engage specifically in the fraudulent hiding of assets.c) The judge referred to further allegations of reprehensible conduct made against the appellants by a Mr Logue in separate proceedings.d) Taking the allegations in the two cases together, the judge found there was a risk that, if the respondents' claims were successful, they might then be faced with a situation where the appellants had taken steps to evade judgment.v) The stable door point, paragraph 46:
a) The appellants had argued before the judge that if the appellants were really minded to seek to dissipate their assets, they would have done so already. They argued that the fact that they had not done so, despite the respondents referring to the possibility of seeking injunctive relief as early as September 2015, suggested that any risk of them doing so in the future was not a real one.b) The judge rejected the appellants' argument, on the basis that:"It would no doubt be a complex, lengthy and expensive process for the Defendants to rearrange their affairs in the way that the Claimants fear; and were the Defendants to be so minded, the fact that they have not yet or at any rate cannot be shown yet, to have embarked on such a process, does not I think mean that the Court should conclude that there is no risk that they might seek to do so at a later stage as the proceedings got closer to trial, especially if it appeared that judgment was likely to be given against them."vi) The nature of the appellants' assets, paragraphs 31-32:
a) The appellants contended that the nature of their assets militated against any risk of dissipation, since (i) many of the appellants' assets were real property and (ii) such assets were not susceptible to being readily dissipated.b) However, the judge considered that nonetheless it was possible for the appellants quickly to dissipate real property either by selling or by transferring the value of the property, for example by raising finance against the property.c) Moreover, in the absence of evidence showing the value of equity in properties held by the respective appellants, the judge considered that this factor was not of much assistance.vii) The appellants' links to London, paragraph 45:
a) The appellants sought to place some reliance on the business and social reputations of Mr Nicholas Candy and Mr Christian Candy, arguing that it was implausible to think the appellants would jeopardise this by seeking to evade an adverse judgment.b) However, the judge did not feel able safely to draw any conclusions from this in relation to risk of dissipation.viii) Conduct of the proceedings, paragraph 44:
a) Both the appellants and the respondents alleged that the other had been uncooperative to the point of being evasive.b) However, the judge rejected both sides' arguments that such allegations were material to the question of risk of dissipation.
"47. I am satisfied in all the circumstances that there is here material on which the Court should conclude that there is a risk of dissipation. In reaching this conclusion I have in mind particularly the unexplained transfer of a very substantial property into the name of Mr Christian Candy's wife, and the discrepancy between Mr Nicholas Candy's purchase of a very valuable yacht and any apparent means for him to be able to afford it. 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.[1] For the reasons I have given I am satisfied that there is such a risk of dissipation as to justify the Claimants' fears and to justify in principle the Claimants seeking and obtaining relief from the court in the form of a notification injunction."
"at least some credible evidence of a threatened dissipation such as would justify a freezing injunction":
paragraph 8(9). (The judge had also employed materially identical wording during his consideration of the point: paragraph 8(6).) Second, the judge twice referred to a "real risk" of dissipation as having been established: paragraphs 38 and 51.
Balance of convenience
"49. Mr McQuater [counsel for the appellants] pointed out, with some justification, that he could scarcely be expected to deal with what was quite a radical proposed modification of the order which had first surfaced in Mr Trace's reply, and that he would wish to have time to adduce evidence as to the impact of the order in its modified form on [the defendants'] businesses. That I regarded as appropriate, and I therefore adjourned the hearing to enable such evidence to be adduced and for Mr McQuater to consider with his clients the effect of the proposed modification; I did however make clear that I regarded the post-transaction notification regime suggested by Mr Trace as much less problematic than the pre-transaction notification which had originally been asked for. In those circumstances, I adjourned the application, granting a temporary injunction over the period of the adjournment in accordance with the modified form. In circumstances where the evidence was that the Defendants' businesses were largely UK based it did not seem to me that an injunction in the modified form over the short period of an adjournment would be likely to cause significant harm to the Defendants, and it would enable the operation of the Claimants' proposed modified notification regime to be tested to see what practical difficulties, if any, it gave rise to. That would mean the parties could come back on the adjourned hearing and argue the question of balance of convenience against the experience of operating the regime in the short intervening period. In those circumstances I do not propose to say any more in this judgment about where the balance of convenience lies; that will be a matter to be argued at the resumed hearing."
i) At paragraphs 51-52 of the judgment, the judge clarified that he did "not regard certain matters as being open for further argument on the adjourned hearing". The judge's list of these matters included the conclusion about risk of dissipation but did not include anything in relation to balance of convenience. The judge added that:"The purpose of the adjourned hearing will be to resolve the precise form of notification regime which should be put in place, and the question of what fortification should be required".ii) To similar effect, in the 29 April ex tempore judgment the judge distinguished (a) matters which had been settled on 8 April "namely whether the injunction could be granted in principle and whether [the claimants] made out a sufficient case both on the merits and on the risk of dissipation" and (b) "the only remaining questions being the balance of convenience, the form of order, and the fortification": paragraph 35.
iii) In the 10 May ruling the judge stated that on 29 April he had decided
"(ii) to decline to re-open the question of risk of dissipation which I had decided at that hearing [on 8 April]: and (iii) to decline therefore to admit any further evidence on that issue"without any reference to the balance of convenience: paragraph 11.iv) The order drawn up after the 7-8 April hearing, before setting out the terms of the 8 April notification injunction, had provided that:
"The [defendants] shall file and serve further evidence in relation to the terms of the Order, if so advised": paragraph 2.
The 29 April hearing and the 29 April ex tempore judgment
i) It would be contrary to general principles of efficient case management to permit the appellants to adduce new evidence in relation to the decision that there was a risk of dissipation: paragraphs 2-12.ii) It was not necessary to decide whether, in light of "evidence as to the practical working of the [8 April notification] injunction", it was open to the judge to decide to impose no injunction going forwards or whether he had previously decided that there should be an injunction, leaving only an extant question as to the form: paragraphs 13-14. This was because the judge was:
"satisfied that having concluded for the reasons that I did [on 8 April] that there was a risk of dissipation against which the claimants in principle are entitled to be protected, it is appropriate that there be some form of notification regime going forward".iii) The real question was whether the 8 April notification injunction
"is an acceptable one or whether it involves too great a risk of injustice":paragraph 15. In other words, the issue as the judge saw it was whether to recast the terms of the order in light of the further evidence in relation to how the injunction had worked in practice, or whether to consider further evidence and make a full assessment of the balance of convenience ab initio.
The issues on the notification injunction appeal
i) Did the judge apply the correct test in considering whether to grant the 8 April notification injunction, in relation to the level of risk of dissipation that was required to be shown?ii) Was the judge wrong to grant the 8 April notification injunction on the basis of the evidence available at 7-8 April?
iii) Was the judge wrong on 29 April to exclude the further evidence in relation to the risk of dissipation?
iv) Was the judge wrong on 29 April not to consider any further evidence in relation to the balance of convenience, except in relation to the practical working of the 8 April notification injunction, and not to make a full assessment of the justice and convenience?
v) Was the judge wrong to grant the 29 April notification injunction if appropriate, on any further evidence available on 29 April which the judge should have considered?
The appellants' submissions before this court
i) The correct threshold to apply in relation to the risk of dissipation that must be shown in order to obtain a notification injunction was the same as that which must be shown to obtain a conventional freezing order; namely, solid evidence of unjustifiable dissipation of assets so as to evidence a real risk that a judgment would go unsatisfied.ii) The judge had been wrong to grant the 8 April notification injunction because:
a) Applying the correct test, a sufficient risk of dissipation had not been shown by the respondents in relation to any of the appellants. As to the specific factors considered by the judge on the question of risk (identified at paragraphs 20.i) vii) above, the factor identified at paragraph 20.viii) having been effectively abandoned by both sides on appeal):i) Whilst the effect of the transfer of Cambridge Terrace by Mr Christian Candy to his wife may have been dissipatory, it was not unjustifiable. That was the only evidence said to indicate a risk of dissipation in relation to Mr Christian Candy.ii) The apparent disconnect between Mr Nicholas Candy's wealth and lifestyle amounted to nothing more than the respondents being unable to understand Mr Nicholas Candy's financial position, which he was entitled to refuse to explain.iii) The corporate structure and the corporate reorganisation should have been discounted as there was no other credible evidence to suggest a risk of dissipation.iv) The fact that the respondents had a good arguable case that the appellants had engaged in reprehensible conduct could be given little weight, absent other prima facie evidence of a risk of dissipation.v) The fact that the appellants had not sought to dissipate their assets was strongly indicative of a lack of real risk of them doing so in the future.vi) The judge should have taken into account, holistically, that the appellants were unlikely to upturn their business and social affairs to the extent that would be necessary in order to frustrate the outcome of a possible judgment against them.b) In addition, the balance of convenience was against granting the injunction.iii) The judge should have admitted the further evidence in relation to the risk of dissipation, since there was no prejudice to the respondents in doing so.
iv) The judge should have admitted any further evidence which weighed on the question of balance of convenience, since that issue had been adjourned and therefore required a full assessment. The evidence concerning the appellants' net assets went directly to this point.
v) The judge was wrong to grant the 29 April notification injunction:
a) The level of risk which had been shown by the respondents was an insufficient basis for the injunction, whether on the evidence which the judge did take into account or (even more clearly) on the evidence which the judge should have considered.b) The balance of convenience was against granting the injunction. Again this was the case even on the evidence considered by the judge, but the position was put beyond doubt by the evidence which should have been admitted.
The respondents' submissions before this court
i) The judge applied the correct test, namely:a) The relevant threshold was that of a real risk of dissipation.b) However, the 8 April notification injunction sought was less onerous than a conventional freezing order.c) The court was therefore entitled to grant the 8 April notification order on the basis of less strong evidence than might have been required in order to grant a conventional freezing order.Further, the judge was right to emphasise that it was the effect of a transaction, rather than the motive behind it, which was relevant to the question of risk.ii) The judge was right to grant the 8 April notification injunction on the evidence available at that date:
a) The evidence established the level of requisite risk of dissipation, on any view of the correct test. The judge reached the correct conclusions in relation to the specific factors discussed, in particular:i) The transfer of Cambridge Terrace was an actual dissipation. Whether there was an innocent motive for the transfer was irrelevant, although in fact there was no clear explanation as to why this transfer had occurred.ii) The purchase and running of the yacht was actual dissipation and/or presented a real risk of dissipation. In the absence of any explanation from the appellants, there arose the Morton's fork described above.iii) The corporate structure was extraordinarily complex, with more than 140 separate entities, split into three or four overarching sectors, and with no "TopCo" at the apex of the structure. Many of the companies were incorporated offshore, in jurisdictions which imposed limited reporting requirements. The extensive use of nominees and fiduciary agents obscured the ownership structures, and enabled the appellants rapidly to alter the beneficial ownership in a manner invisible to the public. The overall effect was to render it impossible to identify the net asset position or to trace assets.iv) The corporate reorganisation added to this complexity. Moreover, in circumstances where the effect of the reorganisation was unclear, the fact that it had begun around the time at which the respondents had first intimated their claim gave rise to a concern that its effect might be dissipatory.v) The respondents' real prospect of showing that the appellants had engaged in reprehensive conduct, combined with similar allegations in separate proceedings, suggested that the appellants were the sort of people who might take illegitimate steps to evade judgment.vi) The nature of the appellants' assets was of little relevance, without evidence showing the appellants' equity in any properties and in circumstances where the value could still be readily dissipated.b) Accordingly, the respondents had advanced a strong, credible case that there was a real risk of dissipation in relation to each appellant. Further, in light of the close connections between the appellants and the specific allegations, the judge was entitled to consider that evidence in relation to one appellant was relevant to the other appellants.c) The judge was therefore entitled to draw adverse inferences from the appellants' failure to adduce any evidence.d) The balance of convenience was in favour of granting of the injunction:i) The appellants had failed to give any real substantive evidence to suggest that the injunction would interfere with their business.ii) The absence of an ordinary course of business exception was perfectly appropriate in the context of a notification injunction, since such an injunction did not prevent transactions from occurring.iii) The post-transaction notification regime removed any difficulties in relation to the speed at which the high-end London property market deals.iv) A post-transaction notification system was proportionate in striking a balance between minimising interference with the appellants' business and protecting the respondents. If the respondents received notification of a transaction they considered to be suspicious, they could assess the need for further relief to avert any further transactions in the future.iii) The judge was right to exclude the further evidence in relation to the risk of dissipation. On 8 April the judge had expressed a concluded view that there was a risk of dissipation, and granted relief on an interim basis. The appellants had been seeking to reopen the issue on the basis of evidence and arguments which they could have advanced at the 7-8 April hearing. That was an abuse of process.
iv) Similarly, the judge was right to exclude all further evidence except in relation to the practical working of the 8 April notification injunction. There was no need to admit any other evidence in relation to the balance of convenience more generally: the judge had not adjourned the overall question of balance of convenience, but merely a narrow point as to the form of relief to be imposed on a final basis.
v) The judge was right to grant the 29 April notification injunction. The injunction should have been granted even if the further evidence in relation to risk of dissipation or the further evidence in relation to the balance of convenience had been admitted. As to this further evidence, the two factors which the judge had emphasised as the most important continued to indicate a risk of dissipation:
a) Even if the explanation given by Mr Christian Candy for the transfer of the Cambridge Terrace was accepted, it still constituted an actual dissipation of assets.b) There was on 29 April still no explanation for the apparent disconnect between Mr Nicholas Candy's wealth and lifestyle.c) The further evidence disclosed that a company owned by Mr Nicholas Candy had fallen into the red before the hearing on 7-8 April. This material fact had not been brought to the court's attentionvi) The balance of convenience remained in favour of the grant of the injunction. The further modifications put the reasonableness and proportionality of the 29 April notification injunction beyond doubt.
Discussion and determination
Issue (i): The correct test in relation to risk of dissipation
"The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so."
It was also common ground that the ultimate question the court must ask, in determining whether to grant a conventional freezing order, was whether it is just and convenient to do so. Nor was it in dispute that an applicant for a conventional freezing order or a notification injunction must show a good arguable case on the underlying merits. There was some debate as to what was the correct test to establish that there was a risk of dissipation such as to make it just and convenient to grant a conventional freezing injunction. However, the threshold in relation to conventional freezing orders is well established. There must be a real risk, judged objectively, that a future judgment would not be met because of unjustifiable dissipation of assets. But it is not every risk of a judgment being unsatisfied which can justify freezing order relief. Solid evidence will be required to support a conclusion that relief is justified, although precisely what this entails in any given case will necessarily vary according to the individual circumstances: see e.g Gee on Commercial Injunctions (6th edition) in particular at 12032 34 and 12042 and the cases there cited.
i) The function, operation and machinery of a notification injunction in the wide terms of the orders dated 8 and 29 April are essentially equivalent to those of a conventional freezing order. 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. 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.ii) Both forms of injunction involve a Draconian interference with the right of businessmen or corporate entities to deal with their personal or business assets. Both also carry a reputational stigma.
iii) One particular similarity is that, vis-ΰ-vis third parties who wish to deal with the affected party, a notification injunction is in practice indistinguishable from a conventional freezing order. In both instances the only prudent course for a third party on notice is to require evidence that the proposed transaction complies with an exception to the prohibition; for example that it is indeed within the "ordinary and proper course of business."
iv) The only significant difference between a notification injunction and a conventional freezing order is the scope of the exceptions to the prohibition. This is itself apparent from the terms of the 8 April notification injunction and the 29 April notification injunction, which followed the pro forma scheme of the conventional freezing order contained in the Annex but with a general exception in relation to notified transactions.
v) The judge'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.
i) Metropolitan Housing Trust Ltd v Taylor [2015] EWHC 2897 (Ch), where Warren J cited with approval the remark of Millett LJ in Lewis v Freighthire Ltd (Court of Appeal, unreported, 1 February 1996) that"A stronger case must be shown than would justify relief of a less stringent kind".The respondents submitted that this dictum, made in relation to the requirement that the applicant must show a good arguable case, also transposed to the context of risk of dissipation.ii) Mediterranean Feeders L P v Bernd Meyering Schiffahrts (Court of Appeal, unreported, 5 June 1997), where Evans LJ said:
"As regards dissipation, the learned judge dealt with the matter on this basis: he stated the law, correctly, as Mr Gee accepts, in the following terms. He quoted Mr Gee in identifying the requirement of the law as to whether there is a sufficient risk of dissipation to justify the granting of the injunction."iii) The Ninemia [1983] 1 WLR 1412, where Kerr LJ said at 1419H-1420B:
"[W]e do not think that it would be useful to seek to lay down any standard of evidence which applicants for Mareva injunctions must satisfy in order to succeed upon an ex parte application. Bare assertions that the defendants are likely to put any asset beyond the plaintiff's grasp and are unlikely to honour any judgment or award are clearly not enough by themselves. Something more is required. Viewed from this point of view, the plaintiffs' evidence in the present case can certainly be described as exiguous. In that respect it is very much of a borderline case. However, the judge presumably took the view that in all the circumstances there was just enough to justify the limited injunction which he granted, leaving it to the defendants to apply to have it discharged, as happened, and knowing that no real harm would thereby befall them which could not be dealt with by an order as to costs. Accordingly, despite the judge's implied invitation to us to do so, we would not go so far as to say that, in the exercise of his discretion, he was wrong to make the order which he made. However, the exiguousness of the plaintiffs' evidence on this aspect must naturally weigh strongly, as it did with the judge in this case, when the court comes to consider the whole of the evidence on the application inter partes to discharge the injunction."
i) Metropolitan Housing Trust Ltd v Taylor and Lewis v Freighthire Ltd were cases concerned with the issue whether the requirement to show a good arguable case on the merits, in order to obtain a conventional freezing order, required the same level of merit to be shown by the applicant as would be required: (i) to obtain some other interim injunction; or (ii) to resist a summary judgment / strike out application. In both cases the court accepted that these distinct types of relief might involve a different level of merit to be shown. The court took the view, perhaps not surprisingly, that there was a real distinction between a conventional freezing order and other interim relief, with the latter requiring a lesser degree of merit to be shown.However, in my judgment, it does not follow from the fact that there may be variation between different types of relief, that there is further variation within the same species of relief, dependent upon intrusiveness of the order sought. In light of the conclusion above that a notification injunction in the wide terms of the present order is a less onerous version of a conventional freezing order, rather than some distinct species of relief, these cases do not assist the respondents.ii) Read properly, Mediterranean Feeders simply does not stand for the proposition that the individual level of intrusiveness of a conventional freezing order influences the level of risk which is "sufficient" to obtain that injunction. Evans LJ went on to quote the judge as correctly identifying that "What is required is a real risk that a judgment or reward will remain unsatisfied".
iii) Finally, whilst The Ninemia did not seek to prescribe how an applicant could satisfy the evidential burden, Kerr LJ did envisage a certain minimum threshold of real risk being shown. That is clear from the passage at 1422H.
"3. In recognition of the severe effect which such an injunction may have on a defendant, the procedure for seeking and making Mareva injunctions has over the last three decades become closely regulated. I regard that regulation as beneficial and would not wish to weaken it in any way. The procedure incorporates important safeguards for the defendant."
For the reasons given above, the same considerations should apply to notification injunctions as they do to conventional freezing orders. One of the important safeguards is a binary threshold as to the risk of dissipation.
i) The 8 April notification injunction did not contain an exception for transactions in the ordinary and proper course of business, as would have been the case under a conventional freezing order.ii) Neither the 8 April notification injunction nor the 29 April notification injunction employed a value cap, in the way that a domestic or worldwide conventional freezing order would have. The consequence was that, regardless of the maximum conceivable value of the respondents' claims, the notification injunctions affected the appellants' total global assets.
iii) One particularly stark consequence of this was that, even if the value of the appellants' assets within England and Wales exceeded the maximum possible value of the claim, the notification injunctions applied to all proposed transactions globally. This contrasted with the position in respect of a conventional freezing order, which ordinarily will be confined to assets within England and Wales if it appears that the assets within the jurisdiction are sufficient for the purpose of enforcing any eventual judgment: see Derby & Co Ltd v Weldon (Nos.3 and 4) [1990] Ch 65 at 79. This is reflected in paragraphs 5 and 8 of the Practice Direction 25A example of a conventional freezing order.
"An order for the provision of information is far less intrusive than an order which prevents someone from dealing with assets".
That is because a requirement to disclose does not include a prohibition on dealing with assets. This essential difference explains why, when considering the evidence that was required, the court at [52] rejected the submission that "the threshold test for asking questions is the same as the threshold test for freezing assets". However, for the reasons given above, I consider that the threshold test is the same for a notification injunction as for a conventional freezing order.
Issue (ii): Applying the correct test to the evidence available at 7-8 April
"The less impressive [the defendant's] evidence, the less effective it will be to displace any adverse inferences. But there must be an inference to be displaced, if the injunction is to stand, and comment on the defendant's evidence must not be taken so far that the burden of proof is unconsciously reversed.
[Defendants] have no obligation to disclose their financial affairs, simply to answer a challenge from the [claimants] which is unsupported by solid evidence."
"32. Finally, because the point has been raised, it really should go without saying that it is for the applicant to make out his case to support a freezing order, namely an appropriately strong case against the respondent concerned, and that there is a real risk of dissipation by the respondent. It is not for the respondent to show that a freezing order ought not [to] be granted."
i) At 7-8 April, the sum of the evidence and inter partes correspondence was that Mr Christian Candy who, it was common ground, is a very wealthy property developer had personally contracted to purchase a number of valuable London properties on 30 May 2014. Some of these properties (Cambridge Terrace) were transferred to Mr Christian Candy's wife in September 2014, with a further transfer of one property in February 2015. The other properties were transferred to companies owned beneficially by Mr Christian Candy or CPC.ii) The reason for these transfers was unknown. There was a letter from the appellants' solicitors in September 2015 suggesting that Cambridge Terrace had been purchased with a view to being developed as Mr Christian Candy's family home. Later, in March 2016, the appellants' solicitors wrote to the effect that Mr Christian Candy and his wife had decided to move into another significant property elsewhere in London. This letter stated that Cambridge Terrace would instead become the property of a partnership in which Mr Christian Candy would have the majority interest, to be redeveloped. However, as the judgment notes at paragraph 34, there was no evidence from Mr Christian Candy (or anyone else) on this point, and nor would it explain the transfer of title.
iii) The bulk of the transfer to Mrs Emily Candy, in October 2014, occurred at a time when there had not yet been a clear threat to litigate, let alone the prospect of any such threat materialising. The judge summarized the first intimation of what became the present proceedings at paragraph 28 of the judgment, in which he referred to correspondence in May 2014 between solicitors for the respective parties.
iv) There was no further correspondence until 23 December 2014. (On that date the respondents sent to CPC's solicitors a letter before action, with draft particulars of claim. At this time, the claim was addressed to CPC alone and was valued at £20 million.) The transfer in October therefore took place after four months of silence from the respondents, following the appellants' robust rejection of a request for the appointment of an arbitrator by mutual agreement.
v) I accept that the transfer of what was obviously a valuable asset is in principle relevant to the question whether there is a risk of dissipation by Mr Christian Candy. The appellants did not dispute that the effect of this transfer is dissipatory, in the sense that it reduced the total value of assets available.
vi) However, viewed in its proper context, on the evidence before the court on 8 April the transfer could not have given rise to any realistic concern about a risk of dissipation. In my judgment it is an unsustainable leap of logic to suggest that because an apparently rich man such as Mr Christian Candy makes an unexplained transfer of valuable property to his wife, at a time when it may have been intended to have been a family home, and when there had not yet been any clear threat of litigation (and indeed when matters had apparently been resolved between the parties by settlement), there was a real risk that Mr Christian Candy might divest himself of very considerable assets in such a way that a future judgment would not be met. This is underscored by the fact that the impugned transfer of Cambridge Terrace took place alongside the transfer of related properties in which Mr Christian Candy retained a beneficial interest.
vii) In coming to the conclusion that the transfer did suggest a risk of dissipation, the judge in my view erred in placing an unwarranted emphasis on the lack of evidence from the respondents, and specifically the absence of an explanation as to why the transfers to Mrs Candy took place. This effectively shifted the burden of proof from the respondents to the appellants to explain a transfer which did not, on the evidence, call for explanation. In the circumstances of this case, the mere fact that a rich man had transferred a valuable residential property to his wife did not of itself suggest an unjustifiable transfer giving rise to a risk of dissipation.
i) This was not a case where the respondents had any prima facie evidence positively to suggest that Mr Nicholas Candy could not afford his way of life. The respondents were simply not able to understand on the basis of press reports, how Mr Nicholas Candy could do so. Mr Stewart suggested that the situation gave rise to the Morton's fork described above. I reject this argument. It was indeed possible that Mr Nicholas Candy was deriving more wealth from his business interests than he was disclosing, or that he was in fact unable to support his lifestyle. However, it might also be the case that Mr Nicholas Candy had some other source of funds which did not need to be publicly disclosed. There were undoubtedly other explanations, which were not in the least suggestive of a risk of dissipation.ii) In short this factor amounted to an absence of evidence which disproved any risk of dissipation, rather than any positive evidence actually suggesting a risk of dissipation. The judge's own assessment of the risk to which this factor gave rise described as being "more than negligible" reveals the scant evidential weight which could be attached to it.
iii) I agree with Mr Adam that to accept this factor as significantly supporting a conclusion of real risk of dissipation would be to reverse the burden and to place it on Mr Nicholas Candy to explain how he could afford his lifestyle. Generalized, it would mean that any individual who lived a "lavish" lifestyle would be compelled to disclose their financial information if they became subject to a freezing order application, without more. As the present facts demonstrate, it might even entail that one (very) high value purchase, which was not obviously affordable, could be used to call into question a party's entire financial position. The nuclear remedy of a freezing order would then become a commonplace threat.
i) I agree that if the appellants had shown that there was a risk of the appellants dissipating their assets the appellants' links to complex and offshore corporate structures and the potential to transfer value rapidly and invisibly through corporate reorganization could contribute to that risk. This is because a complex corporate structure or corporate reorganization could enable a party who is minded to dissipate assets to do so.ii) However, the mere possibility of a party using a complex corporate structure or corporate reorganisation to dissipate assets, without more, does not equate to a risk of dissipation. Otherwise, the burden of proof would be reversed: parties subject to a freezing order application would be compelled to show that they would not dissipate assets in that way.
iii) This emphasis is important. An applicant must show a risk of dissipation as opposed to it merely being possible (without more) that the respondent could dissipate in that way:
a) In Mediterranean Feeders, the Court of Appeal approved Tuckey J's rejection of the proposition that a freezing order was appropriate where there might be a temptation to dissipate assets but no evidence whatsoever that the respondent to the application would yield to it. Evans LJ said:"Given the nature of the Mareva jurisdiction and given the fact that it is not, as the learned judge says: "a means of obtaining advance security for a claim", it is inevitable that before the court can be satisfied that there is a risk of dissipation, in the sense in which that term has been used, the court must consider whether there is any evidence that in the particular case the asset will be dissipated rather than otherwise. If there is no such evidence then, in my view, it would be wrong for the injunction to be granted."b) Several cases have emphasised that there is nothing implicit in complex, offshore corporate structures which evidences an unjustifiable risk of dissipation. As Arnold J put it in VTB v Nutritek [2012] 2 BCLC 437 at [233] (approved by the Court of Appeal at [174] of its judgment):"It is not uncommon for international businessmen, and indeed quoted UK companies, to use offshore vehicles for their operations, particularly for tax reasons. This may make it difficult to enforce a judgment. But in that respect claimants such as VTB have to take defendants such as Mr Malofeev as they find them. More is required before the court will conclude that there is a risk of dissipation."Similarly, in Mobil Cerro Negro Ltd v Petroleos de Venezuela [2008] 2 All ER (Comm) 1034 at [62], Walker J rejected that there was anything unusual about the ready transferability of assets within a corporate structure:"It is obvious that commercial subsidiaries which sell oil and receive funds in payment of the price can, within the limits of exchange control and other restrictions, readily transfer those funds. Whether shares in joint venture companies are easily transferable will depend on the precise terms of the agreement between the joint venturers. There is nothing unusual about any of this, and it does not assist Mobil."iv) In the present case, there was no (or only minimal) evidence to suggest a risk of the appellants dissipating their assets. There was also nothing about either the corporate structure or the ongoing corporate reorganisation that was suggestive of a risk of dissipation. In relation to the corporate structure: it is not unusual to have a large number of companies without a "TopCo" in a commercial property business; there was no evidence in this case that the companies were set up or being used for wrongful purposes; and there was no allegation in the claim that any fraud was facilitated by the use of offshore companies (or similar). As to the corporate reorganisation, on the respondents' own evidence, the creation and dissolution of companies had been ongoing prior to the first intimation of the claim in May 2014.
v) Once again, the judge's reasoning reflects a shift in the burden of proof. The judge was in my view wrong to take into account that one could not entirely rule out the possibility the appellants might possibly use or reorganise the corporate structure so as to frustrate a future judgment. The possibility of doing so was not evidence which supported a real risk.
Issue (iii): Whether the judge should have admitted the appellants' further evidence in relation to the risk of dissipation at the 29 April hearing
Issue (iv): Should the judge have admitted the appellants' further evidence in relation to the balance of convenience
Issue (v): Was the judge wrong to grant the 29 April notification injunction?
i) Mr Christian Candy's explanation of the transfer of the Cambridge Terrace property to his wife, which was apparently for tax purposes;ii) Mr Christian Candy's explanation of the position regarding the yacht, which confirmed that the yacht was owned entirely by Mr Nicholas Candy.
iii) The fact that Cambridge Terrace was being transferred back to Mr Christian Candy.
iv) The information relating to the net assets of the appellants, which were, collectively, at least £600 million and likely to be in excess of that figure. Thus the evidence showed that:
a) Mr Nicholas Candy's equity in two London properties amounted to £110 million;b) CPC had audited net assets of £298 million, according to an extract of the audited consolidated financial statements provided to the respondents;c) Exclusive of any other assets, including several substantial UK properties, Mr Christian Candy was owed £199 million by CPC by way of shareholders' loans.v) Evidence as to the scale of the property development and loan business of Mr Christian Candy and CPC.
vi) Mr Christian Candy now being tax resident and domiciled in the UK.
vii) Details of how the injunction had worked in practice (which the judge did consider).
Conclusion
THE FORTIFICATION APPEAL
Procedural chronology
"11. The Claimants shall provide fortification for their undertakings given to the Court and recorded in the Schedule to this Order, such fortification to be in the sum of £5,000,000 (five million pounds) in a form reasonably satisfactory to the [Defendants] (but subject to paragraph 13 below).
12. The Claimants shall provide the aforesaid fortification by 4.00pm on 27 May 2016.
13. The parties shall have liberty to apply in the meantime (if and insofar as necessary) as to the form which such fortification shall take."
"11. The question is whether a reasonable person in the position of the relevant defendants could properly form the view that the proposed fortification of the cross-undertakings is not satisfactory. Mr. McQuater submits that, to succeed on that ground, the relevant defendants do not need to go so far as to present an open and shut case that an insurer could avoid liability because the defence alleges dishonesty on the part of the claimants. It is, he submitted, sufficient if it is arguable, that is to say properly arguable, that the insurer could advance such an argument successfully.
12. I agree with Mr. McQuater that the wording of the policy does leave open a real possibility that the insurer could properly argue, if the defendants are successful in the action, that there is no liability on the part of the insurer due to the dishonesty leading to the success of the defendants, itself leading to the liability under the cross-undertaking in damages. The insurers could have been asked to state expressly in writing that they would not avoid liability in those circumstances, but either they have not been asked so to say or they have declined to do so even though it was known from receipt of the letter of the 25th May 2016 that this was the very issue at the heart of the relevant defendants' objection to the then proposed policy."
"It may be that the insurers will expressly state that, even in the circumstances of the defence succeeding in its entirety, including findings of dishonesty against Mr. Holyoake, they will not seek to avoid payment under the policy. I do not think that the discharge of the notification order would be proportionate in all the circumstances."
Instead, the judge made an "unless" order requiring the respondents to provide compliant fortification by 16 June.
"[Clause] 1 INSURING CLAUSE
Subject to the terms and conditions of this Policy, the insurer shall indemnify the Insureds for, or pay on the insured's behalf, all Loss.
DEFINITIONS
Cross Undertaking means paragraph (1) of the Schedule to the Order.
Loss means the (liability of any Insured to pay damages and costs pursuant to and as a direct result of Final Determination of a claim against the Cross Undertaking
[CONDITIONS]
[Clause] 4.9 Representations to Insured
(i) The Insurer will not exercise any right to void, reduce or deny its liability to pay on the Insured's behalf Loss on any grounds whatsoever (including, without limitation, any breach of any term or condition of this contract other than in relation to breach of Clause 4.5(iv) [regarding notification of Loss] and Clause 4.1 of the Policy [payment of the premium]).
[I interpose to comment that neither clause 4.1 nor clause 4.5(iv) was suggested to be of any relevance to their appeal, so this caveat can be ignored.]
(ii) In the event that the Insurer has to pay on the Insured's behalf Loss where an Insured has breached an express or implied condition of the Policy or any principle of law (including, without limitation, any circumstances where the Insurer has paid Loss arising out of or in relation to a fraudulent or dishonest act of an Insured or Insureds), the Insurer reserves the right to claim or re-claim such Loss directly from the Insured or Insureds."
[Clause] 4.15 Third party rights
A person who is not a party to this Policy may not enforce any of its terms under the Contracts (Rights of Third Parties) Act 1999.
[Clause] 4.18 Entire Agreement
This Policy constitutes the entire agreement between the Insurer and the Insured concerning the subject matter of this Policy and supersedes any previous agreement, oral or written, between the parties concerning the subject matter of this Policy. Nothing in this Clause shall exclude or limit any liability or any right which any party may have in respect of any statements made fraudulently or dishonestly prior to the date of this Policy."
Again there was also a condition subsequent to the effect that if the policy were not accepted as valid fortification, it would be rendered void ab initio.
"4. I am satisfied, in view of the revised terms of the policy, that there are no reasonable grounds, objectively considered, for a reasonable apprehension that the insurer will be able to avoid the policy in the event of a successful defence by the relevant defendants. I am satisfied that the terms of clause 4.9 of the proposed policy, read against the background of the proceedings and the claims in the particulars of claim and in the defence, will preclude the insurer from avoiding liability under the policy to pay loss in relation to the cross-undertaking in damages on the ground that the defendants will have successfully relied upon and established the various allegations, including allegations in their defence of dishonest conduct on the part of the claimant.
5. I am satisfied that there is no objectively reasonable apprehension of risk of avoidance on the basis of the HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 principle. The other matter with which I was concerned, which was the express terms of the exclusion clause, is no longer relevant in view of the amendments to clause 3."
"[Clause] 3.1
The Insurer shall not be liable for any Loss arising out of:
(i) fraudulent or dishonest conduct of an Insured or the Insureds as established by the final adjudication of a competent court, tribunal or any other similar final adjudication or by the formal written admission by an Insured or the Insureds of such conduct "
This text was removed in its entirety, and has no equivalent in the policy.
The issues on the fortification appeal
i) did the relevant wording of the order "in a form reasonable satisfactory to the [Defendants]" import a subjective or objective test;ii) was the Chancellor right to conclude that there was no objectively reasonable apprehension of risk of avoidance by the insurers given the wording of the policy; and
iii) if he was wrong so to conclude
a) does the court, in the events which have happened (i.e. the discharge of the injunction), have power to require the respondents to fortify their cross-undertaking;b) should it, as a matter of discretion, now require such fortification.
Discussion and determination of the issues
Subjective or objective test?
Was the Chancellor right to conclude that there was no objectively reasonable apprehension of risk of avoidance?
i) The terms of the policy did not expressly preclude the insurer from avoiding for fraud; therefore the insurer would be entitled to do so.ii) Even if the policy terms purported to do so, an insurer's right to avoid the contract for fraud of the insured could not be restricted, as a matter of public policy.
i) The policy did not expressly and unambiguously exclude the insurer's right to avoid for fraud, as would be necessary. The context in which the policy was entered into could not transform it into a policy which included a promise to pay even if there had been fraud on the part of the insured in procuring the policy.ii) HIH v Chase Manhattan [2003] UKHL 6 stood for the proposition that a party cannot contract out of the consequences of his own fraud. Even if the policy had unambiguously excluded the insurer's right to avoid for fraud, therefore, that would be ineffective.
i) The only sensible construction of the policy, read in the relevant context, was that it did exclude the right to avoid for fraud.ii) It was clear, following Patel v Mirza [2016] UKSC 42, that there was no general prohibition as suggested by the appellants. Any principle of public policy was to the effect that the insured party could itself not benefit which would not constitute a barrier to the appellants recovering from the insurer.
"[I]t is in my opinion plain beyond argument that if a party to a written contract seeks to exclude the ordinary consequences of fraudulent or dishonest misrepresentation or deceit by his agent, acting as such, inducing the making of the contract, such intention must be expressed in clear and unmistakable terms on the face of the contract. The decision of the House in Pearson v Dublin Corp does at least make plain that general language will not be construed to relieve a principal of liability for the fraud of an agent: see in particular the speeches of Lord Loreburn LC at page 354, Lord Ashbourne at page 360 and Lord Atkinson at page 365. General words, however comprehensive the legal analyst might find them to be, will not serve: the language used must be such as will alert a commercial party to the extraordinary bargain he is invited to make."
Lord Hoffmann was of the same view:
"68. The next question is whether the words relieve Chase from liability to avoidance of the contract or damages in cases in which the misrepresentation by its agent has been fraudulent or avoidance in cases in which the non-disclosure has been dishonest. Here again I agree with Rix LJ that fraud is quite different from negligence: 'Parties contract with one another in the expectation of honest dealing', particularly in an insurance context. I think that in the absence of words which expressly refer to dishonesty, it goes without saying that underlying the contractual arrangements of the parties there will be a common assumption that the persons involved will behave honestly. As Lord Loreburn LC said of the exempting clauses in S Pearson & Son Ltd v Dublin Corp [1907] AC 351, 354, 'They contemplate honesty on both sides and protect only against honest mistakes.' "
Thus clear and specific wording is required to exclude remedies arising from dishonesty or fraud, on the assumption that it is, in principle, possible to do so.
i) The starting point is that the insurer can avoid for misrepresentation or fraud in the usual way. The only clause in the policy which arguably prevents this is clause 4.9.ii) Neither limb of clause 4.9 clearly or expressly excludes the insurer's rights to avoid for fraud of the insured:
a) Clause 4.9(i) excludes the insurers' rights to deny liability "on any grounds whatsoever". These are general words of the type contemplated in HIH by Lord Bingham, not express words as envisaged by Lord Hoffmann.b) Clause 4.9(ii) reserves the right of the insurer to recover from the insured in certain circumstances. But it does not in terms purport to limit the rights of the insurer to avoid for fraud at all.iii) Clause 4.18, which expressly preserves both parties' rights in respect of any statements made fraudulently or dishonestly, puts beyond doubt the fact that the insurer's rights in relation to fraud have not been clearly excluded.
iv) The relevant context is insufficient to dislodge the need for clear and express words in respect of an exclusion of remedies for fraud:
a) The title of the policy, and the fact that it appends the 29 April notification injunction, do not inform the point.b) Whilst it is true that the proceedings to which the policy relates involve allegations of fraud against the respondents, this is of little relevance given that clause 4.18 is an entire agreement clause. In any event, this could only be of contextual relevance in ascertaining the effect of the terms.c) Whilst clause 4.9(ii) does contemplate the possibility of situations where the insurer "has" to pay, notwithstanding breach of condition or loss arising out of fraud, this falls far short of providing that the fraud of the insured in procuring the policy is one such situation. Indeed, the clause is premised on there being some other basis for the obligation: the clause is only relevant "In the event that" the insurer is liable.d) The removal of what had been clause 3.1 is largely irrelevant. The removal of clauses is, at its very highest, an unsafe guide to construction of the policy as agreed. In any event, clause 3.1 only provided that the insurer would not be liable if the loss arose out of the fraud or dishonesty of the insured. This does not deal with fraud in relation to the placement of the policy.
Public policy
"It is clear that the law, on public policy grounds, does not permit a contracting party to exclude liability for his own fraud in inducing the making of the contract."
This was echoed by Lord Hoffmann at [76]:
"There is no doubt that a party cannot contract that he shall not be liable for his own fraud."
(This was distinguished from the position in relation to excluding liability for the fraud of an agent.)
"[I]t is permissible for the parties to include a contract term that purports to limit or exclude the right of insurers to avoid a contract of insurance for a breach of the duty of disclosure. However, there is an important limitation, in that public policy does not permit an assured to rely upon such a clause to exonerate him in the event of fraud on his part in the presentation of the risk.
[I]t is permissible for the parties to exclude or limit, by agreement, the remedies of the insurers in the event of misrepresentation by the assured or his agents. However, as in the case of non-disclosure, public policy does not allow an assured to exclude or limit remedies for a fraudulent misrepresentation made by the assured personally."
"After all, since the law is that an assured cannot exclude the insurers' rights where the assured is guilty of fraud, the entire proviso (or certainly that part dealing with fraudulent non-disclosure) may be said to be unnecessary."
"This rule is not rested on an implied exception in the policy of insurance. It is based on the broad rule of public policy that no person can claim indemnity or reparation for his own wilful and culpable crime. He is under a disability precluding him from imposing a claim. This difference is important, because if the policy of insurance should come, by assignment or otherwise, into the hands of a person who is not affected by the disability, then such a person can enforce the policy according to its terms
If [the uninsured driver] had been insured, he himself would be disabled from recovering from the insurers. But the injured third party would not be disabled from recovering from them.
Implications for the use of insurance policies as fortification
Could or should the court order fortification of the cross-undertaking notwithstanding that the injunction has been discharged?
"45. The Court cannot require a claimant to give an undertaking. When fortification of a cross undertaking is required, it is not imposed by an order of the court that it must be given. It is part of the undertaking offered by a claimant, and the grant of the order is conditional upon the undertaking being complied with. This is reflected in the standard wording of the Commercial Court freezing order. Requiring fortification is an adjunct to the undertaking offered by a Claimant, and is only "required" in the sense of being the price which the claimant will have to pay if he wants his order to operate in futuro."
To similar effect is per Hirst J in Commodity Ocean Transport Corporation v Baxford Unicorn Industries Ltd ("The Mito") [1987] 2 Lloyds Rep 197 at 199-200, cited with approval by Neuberger J in Miller Brewing Company v The Mersey Docks and Harbour Company [2005] EWHC Ch 1606 at [49].
Disposition
Lord Justice Jackson:
Note 1 All emphasis in this judgment in bold is supplied. [Back]