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Notification injunction: commercial litigation

The High Court can order a defendant, pending trial, to give the claimant written notice of any disposals or dealings with their assets. The High Court can grant this notification order without a freezing order over the defendant’s assets.

Protecting assets with an injunction

This notification order now, in effect, prevents defendants disposing of their assets before a court judgment. It is more likely to succeed than a freezing order application, since the order is less invasive in its nature.

The High Court recently held it had this inherent power. In detail, when commercial litigation proceedings start, claimants can now:

  1. Apply to courts for a notification order,
    • Without a parallel freezing order;
  2. Be notified when defendants plan to dispose of an asset,
    • In which claimants are interested;
  3. Have this notification order in place until the full trial.

Like interim injunctions, time is of the essence. Claimants must ensure defendants do not dispose of assets to avoid future court judgments.

Events leading to commercial litigation

The case concerned a commercial property development, funded by a number of offshore companies. The defendant “loaned” the claimant £12m through a company purportedly owned by the defendant. However, the funds were eventually traced to a British Virgin Island company suspected of money laundering. A third party claimed against the BVI company.

Consequently, the third party sought the return of the £12m “loan” from the claimant. The claimant then claimed against the defendant as a victim of fraud. The claimant further claimed to have been blackmailed, under duress, and induced into the loan through the defendant’s statements about the lending company’s corporate structure.

The claims advanced

The claimant had rightful concerns about the defendant’s:

  • Conduct and questionable dealings; and
  • Ability to meet any court imposed judgement.

However, the claimant had no right to the defendant’s property, as the loan came from the defendant direct. Since the defendant dealt in commercial property, the claimant applied for a notification order. This order was enforceable outside the jurisdiction, so could capture all the defendant’s assets, e.g. property in foreign countries. Thus, the claimant sought:

  1. An interim injunction to restrain the defendant from disposing or dealing or otherwise engaging in transactions with their assets,
  2. Without first giving notice to the claimant’s solicitors in advance,
  3. With a view to protecting the value in the claimant’s substantial claim.

Notification injunction

This case tested the High Court’s jurisdiction to grant a notification order. The High Court’s power derives from a 1981 act. Normally, to persuade a court to grant an injunction, there must be a threat to execute an act, which constitutes an invasion of a legal or equitable right.

The High Court could not grant a freezing injunction, since the claimant had no legal or equitable right over the defendant’s assets. So, the High Court considered if a notification order was appropriate in these circumstances.

The court’s view of the injunction

The claimant’s first argument failed. The claimant submitted the High Court had a wide ranging power, under the 1981 act, to grant a modified form of an injunction, without the claimant meeting the conditions.

The High Court’s assessment

However, the High Court granted a temporary injunction in a modified form, namely:

  • The defendant must give notice to the claimant’s solicitors:
    • Immediately prior to the disposal or acquisition of assets;
    • To protect the value in the claimant’s claim.

The High Court stated that since the claimant had a good case, it need not establish a legal or equitable right in the defendant’s assets. The High Court held that:

  1. The 1981 act provides courts with the power to make orders in a form appropriate to protect a claimant,
    • Taking into account the circumstances of the case.
  2. Here, the appropriate test was “Does the claimant had a good arguable case?”,
    • It did on the merits of the facts.
  3. The claimant had established a sufficient risk that the defendant could dissipate its assets,
    • To avoid a future monetary judgment.

The High Court also stated the notification order was less drastic than a freezing order. Freezing orders prevent the disposal of assets below a certain value. Thus, the High Court granted the claimant some protection throughout the commercial litigation proceedings.

Notification injunctions: our conclusions

Claimants and defendants should welcome this case. In future:

  • Claimants: are notified when defendants wish to dispose of their assets;
  • Defendants: can still deal with or dispose of their assets,
    • Once they notify the claimant and wait a given time period;
  • A freezing order stops defendants dealing with or disposing their assets entirely.

A notification order application is more likely to succeed than a freezing order application, since notification orders are less invasive. However, the High Court stated it will use the freezing order test to determine if a notification order ought to be issued. Experience is crucial.

Alex Kleanthous heads the commercial litigation team here at Gannons. Alex is an experienced litigator, able to assess merits, and bring or defend interim applications that may be appropriate or arise during the course of a matter. 

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