eAlert | May 2016
Notification Injunctions – a new tool for asset preservation?
When plaintiffs sue for substantial damages they need to be confident that the defendant has assets to meet a
judgment. That does not just mean knowing that the defendant presently has assets, it means being confident
that the defendant won’t re-arrange their affairs when sued to put assets beyond reach of execution of
judgment. Where there is real risk that assets will be dissipated to defeat judgment a plaintiff has the option of
seeking an order freezing assets pending the outcome of the law suit. That, however, is an intrusive remedy
that requires good evidence of a risk of dissipation and requires the plaintiff to able to give a credible crossundertaking (often backed by security) to make good any losses the order may cause. There are cases where
an order cannot be obtained even though there is a genuine concern about dissipation because the plaintiff
cannot produce sufficient evidence to satisfy the test applied by the court for proving that the risk is “real”. In
other cases an order cannot be obtained because the plaintiff cannot provide security for the sometimes
substantial sums that may be required to back up a cross-undertaking in damages.
Following a recent
judgment in England it seems that there is a new form of protection available – the Notification Injunction.
This seems to require a lower standard of proof of dissipation risk and a lower liability on the cross-undertaking,
removing some of the difficulties for the plaintiff.
On 29 April 2016 Mr Justice Nugee handed down a judgment, in the Chancery Division of the High Court of
England & Wales, in which he considered whether as an alternative to a full blown freezing order the Court had
jurisdiction to make an order that prevents a defendant from dealing with assets without first notifying the
plaintiff. The purpose of the notification is to give the plaintiff, if so advised, the chance to make a full blown
application to freeze the asset in question. The judge based his judgment on the fact that that court has power
to prevent a party to litigation dissipating his assets so as to have the effect of rendering a later judgment to be
one that goes unsatisfied. The judge actually concluded that a defendant owes a claimant an obligation not to
behave in this way. This is a relatively novel idea and it remains to be seen how it will be received by other
judges and higher courts. Novel though the premise may be, the conclusion that the court has power to
restrain such behaviour as part of a broader package of restrictions is well founded.
The judge noted that it was well established that a full blown freezing order could properly include provisions
requiring notification of intended transactions before they occurred and reasoned that this type of order was
within the established arsenal of remedies that a court could grant to restrain potential dissipation. In order to
grant a full blown freezing order the court must be satisfied that the plaintiff’s substantive case has merit - that
it is a good arguable case. The court must also be satisfied that the plaintiff can establish that without a
freezing order there is a real risk of dissipation of assets. The judge decided that both requirements had to be
satisfied in order to obtain a notification injunction. If the matter had rested there then the notification
injunction would be of little interest, because it would be just as easy (or as difficult) to obtain a freezing order
as a notification injunction.
In assessing the evidence before him, however, Nugee J recognised that in many respects the evidence on
dissipation was inconclusive. He then made a crucial finding:
“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. For the reasons I have given I am satisfied that there is such 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.”
In other words, if you don’t have enough evidence of risk of dissipation to get a freezing order, you may
nevertheless be able to get a notification injunction. This opens up new possibilities for plaintiffs; a lesser
remedy where none existed before.
The judgment concludes with a discussion of fortification of the plaintiff’s cross-undertaking. A plaintiff who
asks for a freezing order will have to undertake to the court that it will make good any loss to the defendant
that results from the order if it should later turn out that the order should not have been made. In many cases
the court will require security to be provided for the undertaking and the security is often substantial. It can
exceed a million dollars. The difference between a freezing order and a notification injunction is that nothing is
frozen. As the judge pointed out, this may have a dramatic impact on the loss that might result from the order
and may correspondingly reduce the security needed to support the notification injunction. Again, this reduces
the cost and the difficulty of relief for a plaintiff. However, the implications for the defendant having to make
such a notification may be more wide-ranging. The benefit of requiring fortification for freezing relief is to
provide ready recourse to a fund for any proven damage. Giving notification of an imminent transaction may
give rise to an application for freezing relief for which a cross-undertaking is given but a reasonable time for
providing security is allowed. The freezing relief will fall away if the security is not provided, but in the
meantime a bargain may be lost or good will soured. The judge has dealt with this issue cautiously, adjourning
the question of providing security for the cross-undertaking to allow evidence and a greater understanding of
how the notification restriction has affected the defendant in practice.
In a final piece of good news for plaintiffs the judge also accepted that in a suitable case a notification
injunction could be granted to require notification of transactions after they occur.
This decision breaks new ground. It holds out the prospect of tailored relief that is proportionate to the needs
of plaintiffs and more readily accessible with less immediate risk to the plaintiff. It reflects what often happens
in practice on applications for freezing orders by way of compromise. It is not unusual for a defendant faced
with a freezing order to agree to give a notification undertaking in lieu of a freezing order being granted and for
the plaintiff or the court to accept that undertaking in lieu of a full blown freezing order. As the judge
remarked, orders of the sort he made have commonly been granted in practice, but this is the first decision in
which the question whether a notification order can be granted as free standing relief has received detailed
judicial consideration. Freezing orders are frequently sought and granted in offshore jurisdictions, both in
support of proceedings offshore and onshore and the rationale applied by the judge is equally applicable in
these jurisdictions. This is a developing jurisprudence that therefore deserves to be closely watched.
Key Contacts
Peter McMaster
Partner
Dispute Resolution
Cayman Islands
+ 1 345 814 2795
[email protected]
Jeremy Snead
Senior Associate
Dispute Resolution
Cayman Islands
+ 1 345 814 2793
[email protected]
Offshore Legal Services
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