Candy & Ors v Holyoake & Anor

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:

“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.”

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:

“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.

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 temporejudgment 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:

“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. (Footnote: 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.”

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

“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.

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:

“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.”

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:

“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 orderrelief. 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 12–032 – 34 and 12–042 and the cases there cited.

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:

“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.

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:

“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.

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:

“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.”

In Flightwise Travel Service Ltd v Gill,Neuberger J made the same point:

“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.”

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:

“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.”

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:

“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.”

However, the Chancellor declined to discharge the 29 April notification order on the basis that:

“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.

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:

“[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.

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:

“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.”

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:

“[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.

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]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 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]:

“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.)

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:

“[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.”

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]:

“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.”

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:

“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.

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]:

“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].

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.