The Coke Light of Injunctions
30 September 2016
Nimalan Devaraja explains the notification injunction.
The Mareva injunction (“Mareva”) is one of the most potent weapons in the arsenal of a litigator; like the can of invigorating Coca-Cola in your refrigerator. The Mareva strikes fear in the hearts of defendants given its far-reaching and disruptive impact therefore rendering it only being granted by the Courts in rare circumstances. The Mareva restrains a defendant from disposing of, or dealing with, his assets and has been developed into an effective offensive weapon against a defendant who tries to cheat the judicial system by rendering any adverse judgment to be worthless. However, the fact that the Mareva is usually first obtained on an ex-parte
basis means that the defendant’s assets are usually frozen even before he has a chance to oppose the application, thereby rendering it somewhat draconian.
In an attempt to find the middle-ground between a plaintiff’s legitimate concerns and a defendant’s interest, the English High Court (as usual the trailblazer in developing the common law) has brought to the forefront a new type of injunction, that is, the notification injunction.
A notification injunction is a rather creative form of injunction. Its purpose is to compel a defendant to notify the plaintiff before disposing or dealing with its assets. The reasoning behind the notification injunction is that it would alert the plaintiff of the possible need to apply for a Mareva, if circumstances warrant, before the defendant can dissipate its assets, whether in the notified transaction or otherwise. This differs from the Mareva which immediately restrains the defendant from dealing with the assets before any judgment is obtained (regardless of the purpose of the transaction) and is a less intrusive way of obtaining protection against a defendant who attempts to make himself judgment-proof. In a way, the notification injunction may be the precursor to a Mareva.
The notification injunction is not a new idea in the common law world, as it has been granted before in situations where the plaintiff has failed to meet the requirements for a Mareva. However, the recent case of Holyoake v Candy
 EWHC 970 (Ch) (“Holyoake”
) is the first time in which it has been issued as a standalone relief. In granting this injunction, the English High Court concluded that it had the jurisdiction to grant freestanding notification injunctions under section 37 of their Senior Courts Act 1981. The High Court found that if it had the power to grant a freezing injunction restraining all asset disposals, it must also have the power to grant the notification injunction, which is less invasive on a defendant’s rights.
To fully grasp how the decision to issue a standalone notification injunction was reached, we will need to briefly touch on the facts of Holyoake
. The dispute herein involved a £12 million loan made by CPC Group Limited, a company owned and controlled by the Candy Brothers (Christian and Nicholas), to a property developer, Mark Holyoake, for the purchase and redevelopment of Grosvenor Gardens in London’s exclusive Belgravia through Hotblack Holdings Limited, a company owned by Mr Holyoake.
Mr Holyoake allegedly breached the loan agreement due to the alleged deficiencies in the net asset statement which caused the loan to be immediately repayable. Mr Holyoake subsequently alleged that he had been the victim of, amongst others, a conspiracy, duress, and intimidation, particularly that he had been bullied and coerced into entering into a series of further agreements which were highly disadvantageous to him. These arrangements resulted in him having to pay approximately £37 million to CPC for the original £12 million loan and to sell the very property for which he obtained the loan, at a loss. Mr Holyoake did not get to taste even a sip of the Coca-Cola that he had paid for.
The Claimants, Mr Holyoake and Hotblack, applied for a notification injunction to restrain the Defendants from disposing, dealing or otherwise engaging in transactions with their assets in the sum of or to the value exceeding £1 million without giving seven days prior written notice to the Claimants as they had concerns that the Defendants might make it difficult, if not impossible, to enforce any judgment against them.
It is not known why the Claimants did not seek a Mareva; they only went so far as to say that they sought “no more relief than they considered reasonably necessary to protect their position, the primary purpose being that if the Defendants should attempt to enter into a transaction or transactions which the Claimants consider seriously damaging to their position, the Claimants will have the opportunity to apply to Court for a freezing injunction or take other steps to protect themselves.
Unlike the formula for Coca-Cola which is a closely guarded secret known only to a few, the Court in Holyoake
declared for one and all to know that the test for a notification injunction was to be similar to that of a Mareva, namely that: (i) the plaintiff has to show a “good arguable case”; and (ii) there is a risk that the defendant would dissipate assets.
Good Arguable Case
A “good arguable case” is one which “is more than barely capable of serious argument, yet not necessarily one which the Judge believes to have a better than a 50 percent chance of success
” (The Neidersachsen
 1 WLR 141). It is a higher threshold than the usual requirement for an interlocutory injunction, i.e. that there is a “serious issue to be tried”.
The Court found that the demonstration of merits required in an application for a Mareva must be applied to a notification injunction despite the latter being less invasive as the plaintiff would ordinarily have no right to know what the defendant’s assets are or what he plans to do with them.
The judge was satisfied that the Claimants had a good arguable case based on the serious allegations contained in their Particulars of Claim, amongst which were that Mr Holyoake had been misled by false statements and had faced a series of aggressive threats of an unpleasant and wholly unjustifiable character.
Risk of Dissipation
Just as in the case of a Mareva, there is no requirement for the plaintiff to prove that dissipation either has happened or would happen, but only that such a risk could be inferred from the objective facts.
Importantly, Nugee J took the view that as a notification injunction was less onerous on the Defendants as compared to the Mareva, the degree of risk needed to be shown before the Court would intervene was correspondingly lower.
Based on the following factors drawn from the cause papers, Nugee J was satisfied that there was a risk of dissipation in this case:
(1) The corporate structures used by the Defendants were “unusually complex” and the entities which held their assets were incorporated in jurisdictions with limited reporting requirements; these factors could be abused as they allowed parties to move or hide their assets more easily;
(2) There was no explanation from the Defendants as to the extensive corporate reorganisation that they had undergone since proceedings were first intimated;
(3) Although the Defendants’ assets comprised mainly of real property, the judge was of the view that there was no necessity for these assets to be sold in order for their value to be transferred – for example, the shares in the company that owned the property could be sold or a loan secured by the property, drawn down;
(4) No proper explanation was given for the transfer of a row of houses in Regent’s Park by one of the Defendants to his wife;
(5) The lavish lifestyle of one of the Defendants was not supported by publicly available information as to his wealth; and
(6) The nature of the allegations levelled at the Defendants was that they were persons who would be prepared to act in a way that is commercially and legally unjustifiable and morally reprehensible.
Despite finding that there was a risk of dissipation, Nugee J did not formulate an exact legal test for this lower threshold for risk of dissipation. It would be interesting to see how the English Courts will develop this position in the future. It is possible that they may leave it to be determined on a case by case basis without setting strict guidelines on the evidential burden.
Balance of Convenience
As always in determining whether an injunction ought to be granted, the Court would also need to consider the balance of convenience to both parties before making a decision.
Nugee J expressed concern that the notification injunction may disrupt the Defendants’ business and granted a modified injunction whereby notification of any transaction relating to their UK residential and commercial properties need only be given three days after completion of the transaction.
Undertaking in Damages
Like the Mareva, the plaintiff must give an undertaking in damages in the event that the Court later finds that the plaintiff is not entitled to such a relief. The Court may also order for fortification of the damages if it deems necessary.
However, as the notification injunction is likely to have far less severe consequences, the undertaking in damages should be less onerous on the plaintiff as compared to the Mareva which freezes all the defendant’s assets. There is also less risk of having the undertaking fortified as no substantial damage is likely to be incurred by the defendant from mere notification.
It is clear as a Coca-Cola is sweet that the notification injunction is far less intrusive on the defendant than a Mareva as it allows a defendant to deal with its assets as long as the plaintiff is notified in accordance with the terms of the Court Order. As such, the defendant would be free to carry on its daily affairs without undue hindrance and the burden would lie on the plaintiff, having weighed all the information at hand upon being notified, to determine if it needs to apply for a Mareva.
This means that the notification injunction should, in theory, be easier for a plaintiff to obtain as compared to the Mareva due to the lower risk of dissipation needed to be shown. Thus it is ideal for situations where the Mareva could be seen to be draconian.
The flexibility of the notification injunction also means that any concerns about confidentiality of transactions or expediency can be allayed by framing the order to require notification only for transactions that exceed a specified financial threshold, or after the transaction has been completed, or imposing a confidentiality ring over the notifications.
The freestanding notification injunction introduced in Holyoake
is a welcomed addition to a litigator’s toolkit. Just as one may sometimes prefer Coca-Cola Light to the stronger taste of Coca-Cola Classic, a plaintiff now has the option to apply for an injunction which is less invasive than a Mareva.
ARE WE READY FOR THE REAL THING?
Just as Coca-Cola is advertised and regarded by many as “the real thing
has made it clear that freestanding notification injunctions are for real.
Our Supreme Court in Aspatra Sdn Bhd & Ors v Bank Bumiputra Malaysia & Anor
 1 MLJ 97 held that section 50 of the Specific Relief Act 1950 read together with Order 29 of the Rules of the High Court 1980 (substantially reproduced in Order 29 of the Rules of Court 2012) and paragraph 6 of the Schedule of the Courts of Judicature Act 1964 was sufficient to confer jurisdiction on the Malaysian Courts to issue a Mareva. It will be interesting to see if the Malaysian Courts will apply the same legal basis to grant a notification injunction.
Perhaps the Malaysian Courts can draw inspiration from Lord Nicholls in Mercedes Benz AG v Leiduck
 AC 284, 308 where his Lordship said:
“… the jurisdiction to grant an injunction, unfettered by statute, should not be rigidly confined to exclusive categories by judicial decision. The court may grant an injunction against a party properly before it where this is required to avoid injustice … The court habitually grants injunction in respect of certain types of conduct. But that does not mean that the situations in which injunctions may be granted are now set in stone for all time.”