TL_Notification injunctions_4

Thought Leaders 4 FIRE

Mareva at 50

MAREVA AT 50 STRATEGIES AND TACTICS IN FREEZING INJUNCTIONS: NOTIFICATION INJUNCTIONS

Authored by: Andrew Ayres KC (Barrister) - Twenty Essex & Andrew Barns-Graham (Barrister) - 3 Hare Court

This year marks the golden anniversary of Lord Denning’s seminal decision on freezing injunctions in Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213.

(The case was reported in 1980, but the hearing took place on 23 June 1975.) To mark the occasion, Andrew Ayres KC of Twenty Essex and Andrew Barns-Graham of 3 Hare Court have published this series of articles, in which they explore the boundaries of freezing injunctions and provide their tactical and drafting recommendations. This is the fourth article in the series.

Introduction The freezing injunction is sometimes described as the court’s “nuclear weapon”, but it is not always necessary or appropriate to choose the nuclear route. An alternative option, not often used, is to seek a “notification injunction”, i.e. an injunction requiring the defendant to provide notice of its asset dealings to the applicant.

There is no generally used standardform notification injunction. It can be 1

drafted very flexibly; indeed, that is one of its main advantages.

A broad notification injunction, for example, might closely resemble an ordinary freezing injunction, e.g. it may apply to all the defendant’s worldwide assets and to all types of dealing. Its only distinguishing feature might be that, instead of imposing an outright prohibition on all asset dealings (excluding ordinary living, legal and business expenditure), it requires, say, five business days’ prior written notice of any proposed dealing, so that the claimant can then decide whether to apply for a further order prohibiting it or stipulating what might happen with the proceeds of the dealing.

A narrower notification injunction, by contrast, might only apply to a single asset located within the jurisdiction, or it might require notice of asset dealings to be given retrospectively instead of in advance.

In this article, we summarise the main authorities on notification injunctions (which are few in number). We then explain why we consider them to be a useful – and perhaps under-used – interim remedy in civil litigation.

The authorities The leading authority is Holyoake v Candy.1 The claimants brought an unlawful means conspiracy claim. They were concerned that the defendants might dissipate their assets, but they considered a full freezing injunction to be more than was reasonably necessary to protect their position, so they instead applied for a notification injunction.

Nugee J granted the injunction, in part on the footing that the notification injunction sought was less intrusive than a full freezing injunction, such that a less stringent test for risk of dissipation applied.

The defendants appealed to the Court of Appeal. Gloster LJ, giving

[2017] EWCA Civ 92; see [34]-[48].

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Thought Leaders 4 FIRE the leading judgment, held that the broad notification injunction granted

by Nugee J was, in effect, a modified version of a conventional freezing injunction. The normal test for risk of dissipation therefore applied, such that the claimants were required to show “a real risk, supported by solid evidence, that a future judgment would not be met because of unjustifiable dissipation”.

In support of this conclusion, Gloster LJ referred to the need for the courts to maintain “close regulation” of injunctions and the desirability of having a “binary threshold” for assessing the risk of dissipation, rather than a “spectrum” or “sliding scale”.

Having found that the claimants had failed to show a real risk of dissipation, she allowed the appeal and discharged the injunction.

This decision might have been the death knell for notification injunctions, but for two aspects of the Court of Appeal’s judgment.

First, the premise for Gloster LJ’s conclusion that the normal test for risk of dissipation applied was that the notification injunction granted by Nugee J had a similar breadth and effect to a full freezing injunction – indeed, in certain respects, it was even more onerous. Importantly, she observed 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”.

Second, Gloster LJ emphasized that the degree of intrusiveness of an injunction remains “highly relevant” to the question whether it is “just and convenient” (per s.37 of the Senior Courts Act 1981) for the court to grant it. In other words, even if an application passes the “good arguable case” and “real risk of dissipation” stages of the test, it may still fail at the “just and convenient” stage, but an applicant can seek to tip the balance in its favour by seeking an appropriately tailored notification injunction instead of the full panoply of a freezing injunction.

Nugee J granted a further notification injunction in Kea Investments Limited 2

[2019] EWHC 309 (Ch); see [61]-[85].

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[2023] EWHC 2655 (Comm).

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[2023] EWHC 3134 (Comm); see [58]-[59].

Mareva at 50 v Ivory Castle Limited.2 In doing so, he treated Gloster LJ’s decision in Holyoake as meaning that “a notification injunction is to be regarded as a type of freezing order”.

Butcher J held that the “good arguable case” and “real risk of dissipation” tests were satisfied as against Transneft.

Regarding the “just and convenient” test, he held:

In our view, this possibly overstates the position: Gloster LJ held in Holyoake that the particular notification injunction involved in that case was effectively a modified version of a freezing injunction, such that the normal test for risk of dissipation applied, but she left open the possibility that the test for a “simple order” might be less strict.

“I recognise that a notification order can be very onerous and potentially damaging to the party injuncted and, in the case of an entity of the size of Transneft, can be practically difficult to comply with and to monitor. I consider, however, that these features can be met in this instance, to a large degree, by a properly tailored order, which will be one which does not impose obligations on Transneft unjustified by their utility to the claimants.”

In any event, Nugee J held in Kea that the applicant’s evidence satisfied the ordinary “good arguable case” and “real risk of dissipation” tests for freezing injunctions. As regards the “just and convenient” factor, he held,

“I take the view that a notification injunction is, in principle, far less intrusive than a conventional freezing order, particularly in the case of an investment holding vehicle like [the Defendant] rather than a trading company. A requirement to notify the Claimants before disposing of assets does not seem to me to impose particularly onerous disadvantages.”

Two applications were made for notification injunctions in Magomedov v TPG Group Holdings. In the first, the claimants made unsuccessful applications against numerous defendants.3 Butcher J interpreted Gloster LJ’s decision in Holyoake as meaning that “a notification injunction in wide terms should be granted only on the basis of such evidence of dissipation as would justify a freezing order”. We agree with this interpretation, as opposed to that of Nugee J in Kea, for the reasons given above.

The claimants in Magomedov then made a further application for a notification injunction against a different defendant, Transneft, and were successful.4

There then followed a consequential hearing at which Butcher J determined what constituted a “properly tailored order”. An important consideration was that Transneft was an extremely large trading Russian state-owned oil company with US$50 billion dollars of assets, the vast majority of which of which were located in Russia.

There is no published judgment but, based on the hearing transcript and order, Butcher J accepted Transneft’s submission that a notification injunction would have limited utility in respect of the Russian assets, because an English judgment would, on the claimants’ own case, be difficult to enforce in Russia.

Butcher J therefore held that notification of proposed dealings with the Russian assets would be required only in respect of a “transformational matter”.

This translated into an order requiring 28 days’ advance notice of proposed capital reorganisations, declarations/ payments of dividends, and disposals of shareholdings exceeding US$10 million in value. However, in each case, the notification obligation only arose if the transaction would result in Transneft’s net asset position in Russia falling below US$10 billion.

As regards Transneft’s (more limited) non-Russian assets, Butcher J ordered that 14 days’ advance notice be given of any proposed cash dealings, share disposals, or redomiciling of assets into Russia, in each case if exceeding US$10 million. He also ordered Transneft to disclose its non-Russian assets to the claimants, subject to (a) thresholds of US$1 million for cash balances and US$10 million for all other assets and (b) a confidentiality club order.

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Thought Leaders 4 FIRE The order made in Magomedov was therefore not a “simple order” of the type envisaged by Gloster LJ, but neither was it close in scope to a full freezing injunction, as was the case in Holyoake. It is an apt illustration of the utility and flexibility of notification injunctions in cases where the “good arguable case” and “real risk of dissipation” tests are satisfied, but the defendant is a large trading entity such that a full freezing injunction would risk causing significant harm.

Analysis It is notable how few authorities there are relating to notification injunctions.

It appears that most applicants still default to seeking a full freezing injunction. One consequence of this is that the possibility left open by Gloster LJ in Holyoake that a less rigorous test may apply to an application for a “simple order” has remained untested.

In our view, though, notification injunctions can be a useful alternative to the full freezing injunction, especially in applications which are close to the borderline of the “just and convenient” part of the test. Some examples of this are as follows: (1) Cases which are relatively weaker or uncertain on their merits. Although the court will not conduct a mini-trial when deciding whether to grant an injunction, it still takes the merits into account when assessing the balance of justice and convenience.

Following the Court of Appeal’s recent decision that the merits test for freezing injunctions is the same low test (“serious issue to be tried”) that applies in the context of American Cyanamid applications,5 we may in due course see an increase in the number of applications which are resolved at the “just and convenient” stage of the assessment, instead of at the merits stage. This may in turn motivate applicants to seek notification injunctions in 5 6

Mareva at 50 such cases, as a less draconian alternative to full freezing injunctions.

(2) C ases where the full cost of a freezing injunction is not justified. Full freezing injunctions are expensive both to obtain and to police. In some cases – e.g. where the claim has a low value or where the defendant’s assets are expected to have a low value – this cost may not be justifiable.

Yet it is clear from Gloster LJ’s decision in Holyoake that claimants do not have to adopt an ‘all or nothing’ approach. If the expense of a full freezing injunction is disproportionate, then claimants might consider a narrow notification injunction as an alternative and more cost-effective option.

(3) C ases where the claimant wishes to limit their exposure under the cross-undertaking in damages.

The extent of the claimant’s exposure under the crossundertaking varies depending on the circumstances of the defendant.

For example, a defendant (such as Transneft in the Magomedov case) which is an active trading company generally poses a greater liability risk under the cross-undertaking than a dormant holding company.

An appropriately tailored notification injunction, which adequately protects assets from unjustified dissipation with the least possible disruption to the defendant, can be a useful compromise in such cases. It may also result in the claimant being required to provide a lesser amount of fortification for the cross-undertaking, because the defendant may find it more difficult to demonstrate a good arguable case that they may suffer a loss as a result of a notification injunction which is capable of being intelligently estimated by the court on an informed and realistic basis.6

Of course, a full freezing injunction is warranted in some cases. In others, though, such an order may not strike the right balance between, on the one hand, the need to protect assets from unjustified dissipation and, on the other, the desirability of controlling the cost of obtaining and policing the injunction and of mitigating its harmful impact.

We therefore encourage readers of this article to consider not always seeking full freezing injunctions by default. In some cases, an appropriately tailored notification injunction may be the more appropriate remedy. It is, at the very least, usually worthy of some consideration.

This article does not contain legal advice.

Anyone seeking advice on English freezing injunctions may contact the authors at aayres@twentyessex.com and andrewbarnsgraham@3harecourt.com.

(4) C ases where a full freezing injunction might cause prejudice/ hardship to third parties. A full freezing injunction is generally significantly more difficult to obtain if there is evidence that it would cause harm to third parties, such as employees or trading counterparties of the defendant. Again, the court may regard a suitably narrow notification injunction as a more appropriate remedy in such cases.

Isabel dos Santos v Unitel [2024] EWCA Civ 1109, at [106].

Per the test for fortification as articulated in Various Claimants v Spence [2022] EWCA Civ 500.

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Thought Leaders 4 FIRE

Mareva at 50

ABOUT THE AUTHORS Andrew Ayres KC Barrister Twenty Essex

Andrew Ayres KC has been obtaining and defending freezing and search orders

since 1997.

He advises on all aspects of civil fraud litigation, including early pre-emptive remedies through to enforcement, in frauds of all kinds, including trade finance, MTIC, employee, advance fee, Ponzi and crypto.

He has an established commercial disputes practice, with a core of advocacy before courts and tribunals across the globe.

He has been recommended in the legal directories in the following areas: commercial litigation, banking & finance, civil fraud, company & partnership and commercial chancery. He was also nominated for “Chancery Silk of the Year” at the 2024 Legal 500 UK Bar Awards.

Andrew has strong multi-jurisdictional connections, particularly in the Asia Pacific region, the Caribbean and within the offshore community closer to the UK. He is a leading Cayman and Eastern Caribbean advocate and adviser, focusing on all aspects of fraud, commercial, company, insolvency and trusts litigation.

Andrew has a breadth of expertise across a range of sectors and services, including aviation, banking and finance, construction and engineering, energy and natural resources, international trade, joint ventures and partnership, professional liability and risk, structured products and derivatives and TMT. Andrew Ayres KC - Twenty Essex

Andrew Barns-Graham Barrister 3 Hare Court

Andrew Barns-Graham is a civil fraud specialist who has acted on some of the most

high-profile civil fraud cases of the last decade.

The cases on his CV include National Trust Bank v Yurov, Privatbank v Kolomoisky, and Skatteforvaltningen v Sanjay Shah, all of which are have appeared in The Lawyer’s annual lists of the ‘Top 20 cases’ and have given rise to leading authorities on freezing injunctions and other civil fraud matters.

Andrew’s areas of expertise include the various causes of action associated with civil fraud, freezing injunctions (both personal and proprietary), search orders, disclosure orders (e.g. the Norwich Pharmacal and Bankers Trust jurisdictions), conflicts of laws, jurisdiction disputes, asset tracing, and enforcement remedies.

A large proportion of Andrew’s practice is international and he has worked with clients and lawyers from numerous jurisdictions around the world. He is well-versed in the challenges which arise in complex multi-jurisdictional cases involving foreign law issues or related/parallel overseas proceedings.

Andrew Barns-Graham - 3 Hare Court

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