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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Candy & Ors v Holyoake & Anor [2017] EWCA Civ 92 (28 February 2017) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2017/92.html Cite as: [2017] 3 WLR 1131, [2017] WLR(D) 146, [2017] EWCA Civ 92 |
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A3/2016/2060 A3/2016/2747 |
ON APPEAL FROM
THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE NUGEE
AND
THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
THE CHANCELLOR OF THE HIGH COURT
HC2015003369
Strand, London, WC2A 2LL |
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B e f o r e :
Vice President of the Court of Appeal, Civil Division
and
LORD JUSTICE JACKSON
____________________
| NICHOLAS ANTHONY CHRISTOPHER CANDY CHRISTIAN PETER CANDY CPC GROUP LIMITED |
Appellants / Defendants |
|
| - and - |
||
| MARK ALAN HOLYOAKE HOTBLACK HOLDINGS LIMITED |
Respondents / Claimants |
____________________
Mr Roger Stewart QC and Mr Richard Fowler (instructed by Gunnercooke LLP) for the Respondents / Claimants
Hearing dates : 5-6 October 2016
____________________
Crown Copyright ©
Lady Justice Gloster :
Introduction
i) Mr Holyoake claims to be a successful businessman with a background in property development. Hotblack is a Jersey registered company ultimately owned by Mr Holyoake.ii) In 2011, Mr Holyoake and Hotblack were seeking to purchase a valuable property in Grosvenor Gardens. In order to complete the £43 million purchase, the appellants approached Mr Nicholas Candy with a view to securing a loan of £12 million at very short notice.
iii) Mr Nicholas Candy is a well-known property developer and was considered by Mr Holyoake to be an old friend. Mr Christian Candy is the brother of Mr Nicholas Candy.
iv) In the event, a loan of £12 million was made to Mr Holyoake by CPC Group Ltd ("CPC), a Guernsey registered company. The relationship between CPC and Mr Nicholas Candy is a matter of dispute. The appellants say that Mr Christian Candy is the sole owner of CPC and that Mr Nicholas Candy does not own or control CPC. The respondents do not deny that Mr Christian Candy has an ownership interest, but say that Mr Nicholas Candy is also a co-owner and/or controlling mind of CPC.
v) The respondents allege that, after the loan was made the appellants, together with three directors of CPC, conspired to intimidate Mr Holyoake to enter into a series of agreements and to procure Hotblack to enter into certain of those agreements. These agreements are alleged to have been disadvantageous and oppressive to the respondents and highly advantageous to CPC.
vi) On the appellants' case, Mr Holyoake lied in obtaining the loan and repeatedly defaulted on it. They allege that, subsequently, following a series of individual compromises in respect of these defaults, the parties reached a final and binding compromise which released all claims, including those presently advanced by the respondents.
THE NOTIFICATION INJUNCTION APPEAL
Procedural chronology
"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."
i) Paragraph 5 mirrored paragraph 6 of the Annex, providing that the restriction applied to all of the appellants' assets whether solely or jointly owned, whether legally or beneficially (or otherwise) owned, and included assets which the appellants had the power to dispose of or deal with as if they were the appellants' own assets.ii) Paragraphs 9-10 mirrored paragraphs 13-14 of the Annex, providing that the appellants could not circumvent the requirement to notify by acting through any other person.
iii) Paragraphs 12-13 mirrored paragraphs 16 and 18 of the Annex, providing respectively: that it was a contempt of court for any person notified of the order knowingly to assist in or permit a breach of the order; and that no bank needed to enquire as to the application of money withdrawn by the appellants if the withdrawal appeared to be permitted.
iv) Paragraphs 14-15 mirrored paragraphs 19-20 of the Annex, addressing persons and assets located outside England and Wales.
"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.
The 7-8 April hearing, 8 April ex tempore judgment and the judgment
Overview
i) The court had jurisdiction to grant a notification injunction as part of its jurisdiction to grant a conventional freezing order: paragraphs 5-8. The judge reasoned that:a) Where a claimant was asserting a right in specific property, the court could make an order requiring the defendant to notify the claimant before disposing of that asset instead of preventing the defendant from disposing of it.b) Similarly, where a claimant was seeking a freezing-type order over the defendant's assets generally, the court could make an order requiring the defendant to notify the claimant before a disposition, rather than a conventional freezing order which prevented a disposition. This was subject to the proviso that the notification injunction was in a form which was less onerous than a conventional freezing order.c) However, a notification order of this kind was only available where there was a risk of dissipation.ii) In order for a claimant to obtain a notification injunction, the claimant had to show a good arguable case on the underlying merits: paragraphs 9-10. That was to say, a notification order was subject to the more stringent merits test to be applied in respect of conventional freezing orders rather than the lesser test of there being a serious issue to be tried, applicable to other interim injunctions.
iii) Showing a good arguable case on the merits did not require the claimant to show that they had "much the better of the argument". The claimants needed only to show that their case was "more than barely capable of serious argument yet not one which the judge believes to have a better than 50% chance of success": paragraphs 11-15.
iv) The respondents were able to show a good arguable case: paragraphs 16-18.
v) There was such a risk of dissipation of the appellants' assets as to justify a notification injunction: paragraphs 19-47.
vi) The question of the balance of convenience should be adjourned, to an extent disputed on appeal: paragraph 48-50.
Risk of dissipation
i) The transfer of the property at Nos 6-10 Cambridge Terrace ("Cambridge Terrace") from Mr Christian Candy to his wife, paragraphs 33-34:a) The judge said that the evidence suggested that, in 2014, Mr Christian Candy had entered into a loan agreement in order to complete the purchase of a number of valuable properties, including Cambridge Terrace and 1-2 Chester Gate; he referred to the fact that thereafter Cambridge Terrace had been transferred to his wife, Mrs Emily Candy.b) There was no evidence by the appellants explaining why the property transfer was made. It was therefore"possible that one of the reasons why it was put into Mrs Candy's name was a concern by Mr Christian Candy that his family home should be immune from execution in relation to any judgment obtained against him or against any of his companies".c) The judge further accepted that this material was, absent explanation, "prima facie evidence of an act that can be characterised as dissipation".ii) The apparent disconnect between Mr Nicholas Candy's wealth and lifestyle, paragraphs 35-38:
a) The judge set out the evidence given by the respondents to the effect that: (i) Mr Nicholas Candy had, according to media reports, bought a yacht at a cost of £26 million; (ii) 1 share of the company through which the yacht was owned was given to Mrs Candy, Mr Nicholas Candy being the ultimate beneficial owner of the other 1199 shares; and (iii) it was not possible to understand from publicly available information how Mr Nicholas Candy could afford to purchase the yacht or to maintain it. It was also suggested that it would be expensive to maintain and run the yacht, although there was no material evidence on the point.b) The judge took the view that the significance of this was that:"there is a disconnect between the lavish billionaire lifestyle that Mr Nicholas Candy appears to be able to afford, including living in an opulent apartment and purchasing a luxury yacht, and any apparent means to finance that lifestyle".c) He took the view that, again, the lack of evidence from the appellants was significant. Whilst recognising that there might be an entirely legitimate explanation for the apparent disconnect, the judge concluded that:"in the absence of any evidence and in the absence of any apparent explanation, these matters do give rise to concern".d) The concern said to arise was described on appeal by Mr Stewart QC, counsel for the respondents, as a Morton's fork: he submitted that the apparent disconnect suggested that, in truth, Mr Nicholas Candy was either (i) deriving wealth from the CPC business (or more wealth from other businesses than had been declared), or (ii) unable to support his lifestyle. If the former, the public position put forward by the appellants was not the whole truth, which would suggest that Mr Nicholas Candy may have also been prepared to present a misleading picture of his assets if the respondents ever sought to execute a judgment against him. If the latter, then transactions such as those concerning the yacht would constitute significant dissipation of Mr Nicholas Candy's few assets. Either way, therefore, this unexplained disconnect supported injunctive relief to prevent the appellants from dissipating assets, in the sense of putting assets beyond the respondents' reach. Overall, the judge concluded that the state of the evidence"gave rise to a risk which is more than negligible, that Mr Nicholas Candy is prepared to be unforthcoming about his assets and conceal them".iii) The corporate structure of the appellants' companies and the corporate reorganisation in 2014 to 2015, paragraphs 23-30:
a) The judge accepted that (i) holding assets offshore and (ii) the mere fact that there were a large number of companies in the structure were not evidence of a risk of dissipation.b) However, the judge considered that:"the fact that the defendant uses complex and opaque offshore structures which make it difficult to see where value resides in a corporate structure, and which enable assets to be moved easily from one part of the structure to another, is a factor which in my judgment can legitimately be taken into account".The judge clarified that whilst this"is not in itself grounds for inferring a risk of dissipation, it is capable of being regarded as contributing to the risk if there is other material on which to infer".c) As to the corporate reorganization, the judge again noted that there was no evidence on behalf of the appellants explaining the reasons for the reorganisation or its practical effect. In that context, the judge could not"entirely rule [the threat of proceedings] out as being a possible explanation".d) It therefore appears that the judge viewed the corporate reorganisation as also being capable of contributing to a risk which had been inferred from other material.iv) The allegations against the appellants in the substantive claim, paragraphs 39-43:
a) The judge noted that the respondents had established a good arguable case in relation to their allegations that the appellants had engaged in what amounted to appalling conduct.b) The judge rejected the submission that the only allegations which could be taken into account in assessing a risk of dissipation were those which, if proved, showed a preparedness to engage specifically in the fraudulent hiding of assets.c) The judge referred to further allegations of reprehensible conduct made against the appellants by a Mr Logue in separate proceedings.d) Taking the allegations in the two cases together, the judge found there was a risk that, if the respondents' claims were successful, they might then be faced with a situation where the appellants had taken steps to evade judgment.v) The stable door point, paragraph 46:
a) The appellants had argued before the judge that if the appellants were really minded to seek to dissipate their assets, they would have done so already. They argued that the fact that they had not done so, despite the respondents referring to the possibility of seeking injunctive relief as early as September 2015, suggested that any risk of them doing so in the future was not a real one.b) The judge rejected the appellants' argument, on the basis that:"It would no doubt be a complex, lengthy and expensive process for the Defendants to rearrange their affairs in the way that the Claimants fear; and were the Defendants to be so minded, the fact that they have not yet or at any rate cannot be shown yet, to have embarked on such a process, does not I think mean that the Court should conclude that there is no risk that they might seek to do so at a later stage as the proceedings got closer to trial, especially if it appeared that judgment was likely to be given against them."vi) The nature of the appellants' assets, paragraphs 31-32:
a) The appellants contended that the nature of their assets militated against any risk of dissipation, since (i) many of the appellants' assets were real property and (ii) such assets were not susceptible to being readily dissipated.b) However, the judge considered that nonetheless it was possible for the appellants quickly to dissipate real property either by selling or by transferring the value of the property, for example by raising finance against the property.c) Moreover, in the absence of evidence showing the value of equity in properties held by the respective appellants, the judge considered that this factor was not of much assistance.vii) The appellants' links to London, paragraph 45:
a) The appellants sought to place some reliance on the business and social reputations of Mr Nicholas Candy and Mr Christian Candy, arguing that it was implausible to think the appellants would jeopardise this by seeking to evade an adverse judgment.b) However, the judge did not feel able safely to draw any conclusions from this in relation to risk of dissipation.viii) Conduct of the proceedings, paragraph 44:
a) Both the appellants and the respondents alleged that the other had been uncooperative to the point of being evasive.b) However, the judge rejected both sides' arguments that such allegations were material to the question of risk of dissipation.
"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.[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."
"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.
Balance of convenience
"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."
i) At paragraphs 51-52 of the judgment, the judge clarified that he did "not regard certain matters as being open for further argument on the adjourned hearing". The judge's list of these matters included the conclusion about risk of dissipation but did not include anything in relation to balance of convenience. The judge added that:"The purpose of the adjourned hearing will be to resolve the precise form of notification regime which should be put in place, and the question of what fortification should be required".ii) To similar effect, in the 29 April ex tempore judgment the judge distinguished (a) matters which had been settled on 8 April "namely whether the injunction could be granted in principle and whether [the claimants] made out a sufficient case both on the merits and on the risk of dissipation" and (b) "the only remaining questions being the balance of convenience, the form of order, and the fortification": paragraph 35.
iii) In the 10 May ruling the judge stated that on 29 April he had decided
"(ii) to decline to re-open the question of risk of dissipation which I had decided at that hearing [on 8 April]: and (iii) to decline therefore to admit any further evidence on that issue"without any reference to the balance of convenience: paragraph 11.iv) The order drawn up after the 7-8 April hearing, before setting out the terms of the 8 April notification injunction, had provided that:
"The [defendants] shall file and serve further evidence in relation to the terms of the Order, if so advised": paragraph 2.
The 29 April hearing and the 29 April ex tempore judgment
i) It would be contrary to general principles of efficient case management to permit the appellants to adduce new evidence in relation to the decision that there was a risk of dissipation: paragraphs 2-12.ii) It was not necessary to decide whether, in light of "evidence as to the practical working of the [8 April notification] injunction", it was open to the judge to decide to impose no injunction going forwards or whether he had previously decided that there should be an injunction, leaving only an extant question as to the form: paragraphs 13-14. This was because the judge was:
"satisfied that having concluded for the reasons that I did [on 8 April] that there was a risk of dissipation against which the claimants in principle are entitled to be protected, it is appropriate that there be some form of notification regime going forward".iii) The real question was whether the 8 April notification injunction
"is an acceptable one or whether it involves too great a risk of injustice":paragraph 15. In other words, the issue as the judge saw it was whether to recast the terms of the order in light of the further evidence in relation to how the injunction had worked in practice, or whether to consider further evidence and make a full assessment of the balance of convenience ab initio.
The issues on the notification injunction appeal
i) Did the judge 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?ii) Was the judge wrong to grant the 8 April notification injunction on the basis of the evidence available at 7-8 April?
iii) Was the judge wrong on 29 April to exclude the further evidence in relation to the risk of dissipation?
iv) Was the judge wrong on 29 April not to consider any further evidence in relation to the balance of convenience, except in relation to the practical working of the 8 April notification injunction, and not to make a full assessment of the justice and convenience?
v) Was the judge wrong to grant the 29 April notification injunction if appropriate, on any further evidence available on 29 April which the judge should have considered?
The appellants' submissions before this court
i) The correct threshold to apply in relation to the risk of dissipation that must be shown in order to obtain a notification injunction was the same as that which must be shown to obtain a conventional freezing order; namely, solid evidence of unjustifiable dissipation of assets so as to evidence a real risk that a judgment would go unsatisfied.ii) The judge had been wrong to grant the 8 April notification injunction because:
a) Applying the correct test, a sufficient risk of dissipation had not been shown by the respondents in relation to any of the appellants. As to the specific factors considered by the judge on the question of risk (identified at paragraphs 20.i) vii) above, the factor identified at paragraph 20.viii) having been effectively abandoned by both sides on appeal):i) Whilst the effect of the transfer of Cambridge Terrace by Mr Christian Candy to his wife may have been dissipatory, it was not unjustifiable. That was the only evidence said to indicate a risk of dissipation in relation to Mr Christian Candy.ii) The apparent disconnect between Mr Nicholas Candy's wealth and lifestyle amounted to nothing more than the respondents being unable to understand Mr Nicholas Candy's financial position, which he was entitled to refuse to explain.iii) The corporate structure and the corporate reorganisation should have been discounted as there was no other credible evidence to suggest a risk of dissipation.iv) The fact that the respondents had a good arguable case that the appellants had engaged in reprehensible conduct could be given little weight, absent other prima facie evidence of a risk of dissipation.v) The fact that the appellants had not sought to dissipate their assets was strongly indicative of a lack of real risk of them doing so in the future.vi) The judge should have taken into account, holistically, that the appellants were unlikely to upturn their business and social affairs to the extent that would be necessary in order to frustrate the outcome of a possible judgment against them.b) In addition, the balance of convenience was against granting the injunction.iii) The judge should have admitted the further evidence in relation to the risk of dissipation, since there was no prejudice to the respondents in doing so.
iv) The judge should have admitted any further evidence which weighed on the question of balance of convenience, since that issue had been adjourned and therefore required a full assessment. The evidence concerning the appellants' net assets went directly to this point.
v) The judge was wrong to grant the 29 April notification injunction:
a) The level of risk which had been shown by the respondents was an insufficient basis for the injunction, whether on the evidence which the judge did take into account or (even more clearly) on the evidence which the judge should have considered.b) The balance of convenience was against granting the injunction. Again this was the case even on the evidence considered by the judge, but the position was put beyond doubt by the evidence which should have been admitted.
The respondents' submissions before this court
i) The judge applied the correct test, namely:a) The relevant threshold was that of a real risk of dissipation.b) However, the 8 April notification injunction sought was less onerous than a conventional freezing order.c) The court was therefore entitled to grant the 8 April notification order on the basis of less strong evidence than might have been required in order to grant a conventional freezing order.Further, the judge was right to emphasise that it was the effect of a transaction, rather than the motive behind it, which was relevant to the question of risk.ii) The judge was right to grant the 8 April notification injunction on the evidence available at that date:
a) The evidence established the level of requisite risk of dissipation, on any view of the correct test. The judge reached the correct conclusions in relation to the specific factors discussed, in particular:i) The transfer of Cambridge Terrace was an actual dissipation. Whether there was an innocent motive for the transfer was irrelevant, although in fact there was no clear explanation as to why this transfer had occurred.ii) The purchase and running of the yacht was actual dissipation and/or presented a real risk of dissipation. In the absence of any explanation from the appellants, there arose the Morton's fork described above.iii) The corporate structure was extraordinarily complex, with more than 140 separate entities, split into three or four overarching sectors, and with no "TopCo" at the apex of the structure. Many of the companies were incorporated offshore, in jurisdictions which imposed limited reporting requirements. The extensive use of nominees and fiduciary agents obscured the ownership structures, and enabled the appellants rapidly to alter the beneficial ownership in a manner invisible to the public. The overall effect was to render it impossible to identify the net asset position or to trace assets.iv) The corporate reorganisation added to this complexity. Moreover, in circumstances where the effect of the reorganisation was unclear, the fact that it had begun around the time at which the respondents had first intimated their claim gave rise to a concern that its effect might be dissipatory.v) The respondents' real prospect of showing that the appellants had engaged in reprehensive conduct, combined with similar allegations in separate proceedings, suggested that the appellants were the sort of people who might take illegitimate steps to evade judgment.vi) The nature of the appellants' assets was of little relevance, without evidence showing the appellants' equity in any properties and in circumstances where the value could still be readily dissipated.b) Accordingly, the respondents had advanced a strong, credible case that there was a real risk of dissipation in relation to each appellant. Further, in light of the close connections between the appellants and the specific allegations, the judge was entitled to consider that evidence in relation to one appellant was relevant to the other appellants.c) The judge was therefore entitled to draw adverse inferences from the appellants' failure to adduce any evidence.d) The balance of convenience was in favour of granting of the injunction:i) The appellants had failed to give any real substantive evidence to suggest that the injunction would interfere with their business.ii) The absence of an ordinary course of business exception was perfectly appropriate in the context of a notification injunction, since such an injunction did not prevent transactions from occurring.iii) The post-transaction notification regime removed any difficulties in relation to the speed at which the high-end London property market deals.iv) A post-transaction notification system was proportionate in striking a balance between minimising interference with the appellants' business and protecting the respondents. If the respondents received notification of a transaction they considered to be suspicious, they could assess the need for further relief to avert any further transactions in the future.iii) The judge was right to exclude the further evidence in relation to the risk of dissipation. On 8 April the judge had expressed a concluded view that there was a risk of dissipation, and granted relief on an interim basis. The appellants had been seeking to reopen the issue on the basis of evidence and arguments which they could have advanced at the 7-8 April hearing. That was an abuse of process.
iv) Similarly, the judge was right to exclude all further evidence except in relation to the practical working of the 8 April notification injunction. There was no need to admit any other evidence in relation to the balance of convenience more generally: the judge had not adjourned the overall question of balance of convenience, but merely a narrow point as to the form of relief to be imposed on a final basis.
v) The judge was right to grant the 29 April notification injunction. The injunction should have been granted even if the further evidence in relation to risk of dissipation or the further evidence in relation to the balance of convenience had been admitted. As to this further evidence, the two factors which the judge had emphasised as the most important continued to indicate a risk of dissipation:
a) Even if the explanation given by Mr Christian Candy for the transfer of the Cambridge Terrace was accepted, it still constituted an actual dissipation of assets.b) There was on 29 April still no explanation for the apparent disconnect between Mr Nicholas Candy's wealth and lifestyle.c) The further evidence disclosed that a company owned by Mr Nicholas Candy had fallen into the red before the hearing on 7-8 April. This material fact had not been brought to the court's attentionvi) The balance of convenience remained in favour of the grant of the injunction. The further modifications put the reasonableness and proportionality of the 29 April notification injunction beyond doubt.
Discussion and determination
Issue (i): The correct test in relation to risk of dissipation
"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 order relief. 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 12032 34 and 12042 and the cases there cited.
i) The function, operation and machinery of a notification injunction in the wide terms of the orders dated 8 and 29 April are essentially equivalent to those of a conventional freezing order. Both are concerned with protecting the applicant against a risk that the other party will dissipate their assets so as to defeat enforcement of a possible future judgment. Both operate by prohibiting the affected party from dealing with or disposing of all their assets, subject to certain exceptions. In both cases this prohibition is supported by the threat of contempt proceedings for breach of the order, including against third parties who knowingly assist the affected party in breaching the order.ii) Both forms of injunction involve a Draconian interference with the right of businessmen or corporate entities to deal with their personal or business assets. Both also carry a reputational stigma.
iii) One particular similarity is that, vis-ΰ-vis third parties who wish to deal with the affected party, a notification injunction is in practice indistinguishable from a conventional freezing order. In both instances the only prudent course for a third party on notice is to require evidence that the proposed transaction complies with an exception to the prohibition; for example that it is indeed within the "ordinary and proper course of business."
iv) The only significant difference between a notification injunction and a conventional freezing order is the scope of the exceptions to the prohibition. This is itself apparent from the terms of the 8 April notification injunction and the 29 April notification injunction, which followed the pro forma scheme of the conventional freezing order contained in the Annex but with a general exception in relation to notified transactions.
v) The judge's conclusion that the court had jurisdiction to grant a notification injunction was based on the jurisdiction to grant a conventional freezing order necessarily subsuming a lesser form of the same relief.
i) Metropolitan Housing Trust Ltd v Taylor [2015] EWHC 2897 (Ch), where Warren J cited with approval the remark of Millett LJ in Lewis v Freighthire Ltd (Court of Appeal, unreported, 1 February 1996) that"A stronger case must be shown than would justify relief of a less stringent kind".The respondents submitted that this dictum, made in relation to the requirement that the applicant must show a good arguable case, also transposed to the context of risk of dissipation.ii) Mediterranean Feeders L P v Bernd Meyering Schiffahrts (Court of Appeal, unreported, 5 June 1997), where Evans LJ said:
"As regards dissipation, the learned judge dealt with the matter on this basis: he stated the law, correctly, as Mr Gee accepts, in the following terms. He quoted Mr Gee in identifying the requirement of the law as to whether there is a sufficient risk of dissipation to justify the granting of the injunction."iii) The Ninemia [1983] 1 WLR 1412, where Kerr LJ said at 1419H-1420B:
"[W]e do not think that it would be useful to seek to lay down any standard of evidence which applicants for Mareva injunctions must satisfy in order to succeed upon an ex parte application. Bare assertions that the defendants are likely to put any asset beyond the plaintiff's grasp and are unlikely to honour any judgment or award are clearly not enough by themselves. Something more is required. Viewed from this point of view, the plaintiffs' evidence in the present case can certainly be described as exiguous. In that respect it is very much of a borderline case. However, the judge presumably took the view that in all the circumstances there was just enough to justify the limited injunction which he granted, leaving it to the defendants to apply to have it discharged, as happened, and knowing that no real harm would thereby befall them which could not be dealt with by an order as to costs. Accordingly, despite the judge's implied invitation to us to do so, we would not go so far as to say that, in the exercise of his discretion, he was wrong to make the order which he made. However, the exiguousness of the plaintiffs' evidence on this aspect must naturally weigh strongly, as it did with the judge in this case, when the court comes to consider the whole of the evidence on the application inter partes to discharge the injunction."
i) Metropolitan Housing Trust Ltd v Taylor and Lewis v Freighthire Ltd were cases concerned with the issue whether the requirement to show a good arguable case on the merits, in order to obtain a conventional freezing order, required the same level of merit to be shown by the applicant as would be required: (i) to obtain some other interim injunction; or (ii) to resist a summary judgment / strike out application. In both cases the court accepted that these distinct types of relief might involve a different level of merit to be shown. The court took the view, perhaps not surprisingly, that there was a real distinction between a conventional freezing order and other interim relief, with the latter requiring a lesser degree of merit to be shown.However, in my judgment, it does not follow from the fact that there may be variation between different types of relief, that there is further variation within the same species of relief, dependent upon intrusiveness of the order sought. In light of the conclusion above that a notification injunction in the wide terms of the present order is a less onerous version of a conventional freezing order, rather than some distinct species of relief, these cases do not assist the respondents.ii) Read properly, Mediterranean Feeders simply does not stand for the proposition that the individual level of intrusiveness of a conventional freezing order influences the level of risk which is "sufficient" to obtain that injunction. Evans LJ went on to quote the judge as correctly identifying that "What is required is a real risk that a judgment or reward will remain unsatisfied".
iii) Finally, whilst The Ninemia did not seek to prescribe how an applicant could satisfy the evidential burden, Kerr LJ did envisage a certain minimum threshold of real risk being shown. That is clear from the passage at 1422H.
"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.
i) The 8 April notification injunction did not contain an exception for transactions in the ordinary and proper course of business, as would have been the case under a conventional freezing order.ii) Neither the 8 April notification injunction nor the 29 April notification injunction employed a value cap, in the way that a domestic or worldwide conventional freezing order would have. The consequence was that, regardless of the maximum conceivable value of the respondents' claims, the notification injunctions affected the appellants' total global assets.
iii) One particularly stark consequence of this was that, even if the value of the appellants' assets within England and Wales exceeded the maximum possible value of the claim, the notification injunctions applied to all proposed transactions globally. This contrasted with the position in respect of a conventional freezing order, which ordinarily will be confined to assets within England and Wales if it appears that the assets within the jurisdiction are sufficient for the purpose of enforcing any eventual judgment: see Derby & Co Ltd v Weldon (Nos.3 and 4) [1990] Ch 65 at 79. This is reflected in paragraphs 5 and 8 of the Practice Direction 25A example of a conventional freezing order.
"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.
Issue (ii): Applying the correct test to the evidence available at 7-8 April
"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."
"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."
i) At 7-8 April, the sum of the evidence and inter partes correspondence was that Mr Christian Candy who, it was common ground, is a very wealthy property developer had personally contracted to purchase a number of valuable London properties on 30 May 2014. Some of these properties (Cambridge Terrace) were transferred to Mr Christian Candy's wife in September 2014, with a further transfer of one property in February 2015. The other properties were transferred to companies owned beneficially by Mr Christian Candy or CPC.ii) The reason for these transfers was unknown. There was a letter from the appellants' solicitors in September 2015 suggesting that Cambridge Terrace had been purchased with a view to being developed as Mr Christian Candy's family home. Later, in March 2016, the appellants' solicitors wrote to the effect that Mr Christian Candy and his wife had decided to move into another significant property elsewhere in London. This letter stated that Cambridge Terrace would instead become the property of a partnership in which Mr Christian Candy would have the majority interest, to be redeveloped. However, as the judgment notes at paragraph 34, there was no evidence from Mr Christian Candy (or anyone else) on this point, and nor would it explain the transfer of title.
iii) The bulk of the transfer to Mrs Emily Candy, in October 2014, occurred at a time when there had not yet been a clear threat to litigate, let alone the prospect of any such threat materialising. The judge summarized the first intimation of what became the present proceedings at paragraph 28 of the judgment, in which he referred to correspondence in May 2014 between solicitors for the respective parties.
iv) There was no further correspondence until 23 December 2014. (On that date the respondents sent to CPC's solicitors a letter before action, with draft particulars of claim. At this time, the claim was addressed to CPC alone and was valued at £20 million.) The transfer in October therefore took place after four months of silence from the respondents, following the appellants' robust rejection of a request for the appointment of an arbitrator by mutual agreement.
v) I accept that the transfer of what was obviously a valuable asset is in principle relevant to the question whether there is a risk of dissipation by Mr Christian Candy. The appellants did not dispute that the effect of this transfer is dissipatory, in the sense that it reduced the total value of assets available.
vi) However, viewed in its proper context, on the evidence before the court on 8 April the transfer could not have given rise to any realistic concern about a risk of dissipation. In my judgment it is an unsustainable leap of logic to suggest that because an apparently rich man such as Mr Christian Candy makes an unexplained transfer of valuable property to his wife, at a time when it may have been intended to have been a family home, and when there had not yet been any clear threat of litigation (and indeed when matters had apparently been resolved between the parties by settlement), there was a real risk that Mr Christian Candy might divest himself of very considerable assets in such a way that a future judgment would not be met. This is underscored by the fact that the impugned transfer of Cambridge Terrace took place alongside the transfer of related properties in which Mr Christian Candy retained a beneficial interest.
vii) In coming to the conclusion that the transfer did suggest a risk of dissipation, the judge in my view erred in placing an unwarranted emphasis on the lack of evidence from the respondents, and specifically the absence of an explanation as to why the transfers to Mrs Candy took place. This effectively shifted the burden of proof from the respondents to the appellants to explain a transfer which did not, on the evidence, call for explanation. In the circumstances of this case, the mere fact that a rich man had transferred a valuable residential property to his wife did not of itself suggest an unjustifiable transfer giving rise to a risk of dissipation.
i) This was not a case where the respondents had any prima facie evidence positively to suggest that Mr Nicholas Candy could not afford his way of life. The respondents were simply not able to understand on the basis of press reports, how Mr Nicholas Candy could do so. Mr Stewart suggested that the situation gave rise to the Morton's fork described above. I reject this argument. It was indeed possible that Mr Nicholas Candy was deriving more wealth from his business interests than he was disclosing, or that he was in fact unable to support his lifestyle. However, it might also be the case that Mr Nicholas Candy had some other source of funds which did not need to be publicly disclosed. There were undoubtedly other explanations, which were not in the least suggestive of a risk of dissipation.ii) In short this factor amounted to an absence of evidence which disproved any risk of dissipation, rather than any positive evidence actually suggesting a risk of dissipation. The judge's own assessment of the risk to which this factor gave rise described as being "more than negligible" reveals the scant evidential weight which could be attached to it.
iii) I agree with Mr Adam that to accept this factor as significantly supporting a conclusion of real risk of dissipation would be to reverse the burden and to place it on Mr Nicholas Candy to explain how he could afford his lifestyle. Generalized, it would mean that any individual who lived a "lavish" lifestyle would be compelled to disclose their financial information if they became subject to a freezing order application, without more. As the present facts demonstrate, it might even entail that one (very) high value purchase, which was not obviously affordable, could be used to call into question a party's entire financial position. The nuclear remedy of a freezing order would then become a commonplace threat.
i) I agree that if the appellants had shown that there was a risk of the appellants dissipating their assets the appellants' links to complex and offshore corporate structures and the potential to transfer value rapidly and invisibly through corporate reorganization could contribute to that risk. This is because a complex corporate structure or corporate reorganization could enable a party who is minded to dissipate assets to do so.ii) However, the mere possibility of a party using a complex corporate structure or corporate reorganisation to dissipate assets, without more, does not equate to a risk of dissipation. Otherwise, the burden of proof would be reversed: parties subject to a freezing order application would be compelled to show that they would not dissipate assets in that way.
iii) This emphasis is important. An applicant must show a risk of dissipation as opposed to it merely being possible (without more) that the respondent could dissipate in that way:
a) In Mediterranean Feeders, the Court of Appeal approved Tuckey J's rejection of the proposition that a freezing order was appropriate where there might be a temptation to dissipate assets but no evidence whatsoever that the respondent to the application would yield to it. Evans LJ said:"Given the nature of the Mareva jurisdiction and given the fact that it is not, as the learned judge says: "a means of obtaining advance security for a claim", it is inevitable that before the court can be satisfied that there is a risk of dissipation, in the sense in which that term has been used, the court must consider whether there is any evidence that in the particular case the asset will be dissipated rather than otherwise. If there is no such evidence then, in my view, it would be wrong for the injunction to be granted."b) Several cases have emphasised that there is nothing implicit in complex, offshore corporate structures which evidences an unjustifiable risk of dissipation. As Arnold J put it in VTB v Nutritek [2012] 2 BCLC 437 at [233] (approved by the Court of Appeal at [174] of its judgment):"It is not uncommon for international businessmen, and indeed quoted UK companies, to use offshore vehicles for their operations, particularly for tax reasons. This may make it difficult to enforce a judgment. But in that respect claimants such as VTB have to take defendants such as Mr Malofeev as they find them. More is required before the court will conclude that there is a risk of dissipation."Similarly, in Mobil Cerro Negro Ltd v Petroleos de Venezuela [2008] 2 All ER (Comm) 1034 at [62], Walker J rejected that there was anything unusual about the ready transferability of assets within a corporate structure:"It is obvious that commercial subsidiaries which sell oil and receive funds in payment of the price can, within the limits of exchange control and other restrictions, readily transfer those funds. Whether shares in joint venture companies are easily transferable will depend on the precise terms of the agreement between the joint venturers. There is nothing unusual about any of this, and it does not assist Mobil."iv) In the present case, there was no (or only minimal) evidence to suggest a risk of the appellants dissipating their assets. There was also nothing about either the corporate structure or the ongoing corporate reorganisation that was suggestive of a risk of dissipation. In relation to the corporate structure: it is not unusual to have a large number of companies without a "TopCo" in a commercial property business; there was no evidence in this case that the companies were set up or being used for wrongful purposes; and there was no allegation in the claim that any fraud was facilitated by the use of offshore companies (or similar). As to the corporate reorganisation, on the respondents' own evidence, the creation and dissolution of companies had been ongoing prior to the first intimation of the claim in May 2014.
v) Once again, the judge's reasoning reflects a shift in the burden of proof. The judge was in my view wrong to take into account that one could not entirely rule out the possibility the appellants might possibly use or reorganise the corporate structure so as to frustrate a future judgment. The possibility of doing so was not evidence which supported a real risk.
Issue (iii): Whether the judge should have admitted the appellants' further evidence in relation to the risk of dissipation at the 29 April hearing
Issue (iv): Should the judge have admitted the appellants' further evidence in relation to the balance of convenience
Issue (v): Was the judge wrong to grant the 29 April notification injunction?
i) Mr Christian Candy's explanation of the transfer of the Cambridge Terrace property to his wife, which was apparently for tax purposes;ii) Mr Christian Candy's explanation of the position regarding the yacht, which confirmed that the yacht was owned entirely by Mr Nicholas Candy.
iii) The fact that Cambridge Terrace was being transferred back to Mr Christian Candy.
iv) The information relating to the net assets of the appellants, which were, collectively, at least £600 million and likely to be in excess of that figure. Thus the evidence showed that:
a) Mr Nicholas Candy's equity in two London properties amounted to £110 million;b) CPC had audited net assets of £298 million, according to an extract of the audited consolidated financial statements provided to the respondents;c) Exclusive of any other assets, including several substantial UK properties, Mr Christian Candy was owed £199 million by CPC by way of shareholders' loans.v) Evidence as to the scale of the property development and loan business of Mr Christian Candy and CPC.
vi) Mr Christian Candy now being tax resident and domiciled in the UK.
vii) Details of how the injunction had worked in practice (which the judge did consider).
Conclusion
THE FORTIFICATION APPEAL
Procedural chronology
"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."
"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."
"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.
"[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.
"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."
"[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.
The issues on the fortification appeal
i) did the relevant wording of the order "in a form reasonable satisfactory to the [Defendants]" import a subjective or objective test;ii) was the Chancellor right to conclude that there was no objectively reasonable apprehension of risk of avoidance by the insurers given the wording of the policy; and
iii) if he was wrong so to conclude
a) does the court, in the events which have happened (i.e. the discharge of the injunction), have power to require the respondents to fortify their cross-undertaking;b) should it, as a matter of discretion, now require such fortification.
Discussion and determination of the issues
Subjective or objective test?
Was the Chancellor right to conclude that there was no objectively reasonable apprehension of risk of avoidance?
i) The terms of the policy did not expressly preclude the insurer from avoiding for fraud; therefore the insurer would be entitled to do so.ii) Even if the policy terms purported to do so, an insurer's right to avoid the contract for fraud of the insured could not be restricted, as a matter of public policy.
i) The policy did not expressly and unambiguously exclude the insurer's right to avoid for fraud, as would be necessary. The context in which the policy was entered into could not transform it into a policy which included a promise to pay even if there had been fraud on the part of the insured in procuring the policy.ii) HIH v Chase Manhattan [2003] UKHL 6 stood for the proposition that a party cannot contract out of the consequences of his own fraud. Even if the policy had unambiguously excluded the insurer's right to avoid for fraud, therefore, that would be ineffective.
i) The only sensible construction of the policy, read in the relevant context, was that it did exclude the right to avoid for fraud.ii) It was clear, following Patel v Mirza [2016] UKSC 42, that there was no general prohibition as suggested by the appellants. Any principle of public policy was to the effect that the insured party could itself not benefit which would not constitute a barrier to the appellants recovering from the insurer.
"[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) The starting point is that the insurer can avoid for misrepresentation or fraud in the usual way. The only clause in the policy which arguably prevents this is clause 4.9.ii) Neither limb of clause 4.9 clearly or expressly excludes the insurer's rights to avoid for fraud of the insured:
a) Clause 4.9(i) excludes the insurers' rights to deny liability "on any grounds whatsoever". These are general words of the type contemplated in HIH by Lord Bingham, not express words as envisaged by Lord Hoffmann.b) Clause 4.9(ii) reserves the right of the insurer to recover from the insured in certain circumstances. But it does not in terms purport to limit the rights of the insurer to avoid for fraud at all.iii) Clause 4.18, which expressly preserves both parties' rights in respect of any statements made fraudulently or dishonestly, puts beyond doubt the fact that the insurer's rights in relation to fraud have not been clearly excluded.
iv) The relevant context is insufficient to dislodge the need for clear and express words in respect of an exclusion of remedies for fraud:
a) The title of the policy, and the fact that it appends the 29 April notification injunction, do not inform the point.b) Whilst it is true that the proceedings to which the policy relates involve allegations of fraud against the respondents, this is of little relevance given that clause 4.18 is an entire agreement clause. In any event, this could only be of contextual relevance in ascertaining the effect of the terms.c) Whilst clause 4.9(ii) does contemplate the possibility of situations where the insurer "has" to pay, notwithstanding breach of condition or loss arising out of fraud, this falls far short of providing that the fraud of the insured in procuring the policy is one such situation. Indeed, the clause is premised on there being some other basis for the obligation: the clause is only relevant "In the event that" the insurer is liable.d) The removal of what had been clause 3.1 is largely irrelevant. The removal of clauses is, at its very highest, an unsafe guide to construction of the policy as agreed. In any event, clause 3.1 only provided that the insurer would not be liable if the loss arose out of the fraud or dishonesty of the insured. This does not deal with fraud in relation to the placement of the policy.
Public policy
"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.)
"[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."
"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."
"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.
Implications for the use of insurance policies as fortification
Could or should the court order fortification of the cross-undertaking notwithstanding that the injunction has been discharged?
"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].
Disposition
Lord Justice Jackson:
Note 1 All emphasis in this judgment in bold is supplied. [Back]
