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GUEST ARTICLE: Notification Orders - A Less Nuclear Option In Legal Cases?

Catherine Penny, 12 April 2017

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In cases of contested assets, it is unpleasant to be on the end of a freezing order application, and for those so affected, this article has some pointers.

An issue that has come to light in recent times is when in divorce cases and other disputes, one party tries to hide assets, or put them out of reach of the other party. Given that some of the sums involved can be large, this is clearly an issue that advisors to wealthy individuals need to be aware of. With that in mind, this publication welcomes the contribution here of Catherine Penny, senior associate at law firm Stevens & Bolton LLP. The editors here don’t necessarily endorse all the views of guest contributors, and invite responses and additions to debate. The can email tom.burroughes@wealthbriefing.com if they wish to contact us.

The so-called “nuclear” weapon in the armoury of those attempting to prevent an opponent from hiding assets, usually as part of a wider legal dispute, is the freezing injunction. This is available where a claimant is concerned that their opponent will shift assets around (for example to family members, companies or trusts) so as to avoid having to pay out to the claimant on judgment day. 

The order can freeze the defendant’s assets generally or be limited to specific assets capturing everything from bank accounts and shares, to property and jewellery. The defendant is usually permitted a limited fund to pay legal fees and modest living expenses. But as seen in the High Court as a part of the recent legal dispute between property tycoons Nick and Christian Candy and Mark Holyoake, there is an alternative to a “freezer”; the relatively novel “notification order”. This requires a defendant to notify the claimant before any assets are sold or moved. 

Convincing the Court to grant a freezing or notification order is not straightforward. A claimant has to show the Court: 

•    they have a decent claim against the defendant; 
•    there is strong evidence that there is a risk of the defendant moving their assets out of reach – the evidential threshold for this is a high one; and 
•    the ‘balance of convenience’ is in their favour. Here the judge has to weigh up the impact on the defendant if the injunction were granted and the impact on the claimant should the injunction not be granted and the defendant dissipate their assets 

Freezing orders
Usually assets will be frozen for the duration of the litigation, at most, but given that this could be over a year, significant interference could be caused to a defendant’s life. Sometimes even the stigma of the application for a freezing order being made can cause reputational damage to a defendant. 

The intrusion does not stop there; part of a freezing order typically includes the defendant providing a list of their assets so that the order can be policed. This issue is frequently one of the sticking points for high net worth and ultra-high net worth individuals: the majority of disclosure orders sought in these cases require disclosure of not only assets in their own name, but also assets in which they have a beneficial interest of a particular value or percentage. This can be a very invasive and detailed exercise, as the JSC BTA Bank vs Ablyasov litigation demonstrates. For many, disclosure of these details is an enormous invasion of their private and personal affairs, which can sometimes give rise to additional litigation.  

A freezing order application is expensive in terms of legal costs and the stakes are high, not only since a claimant will have to provide a “cross undertaking in damages” - confirmation that if the defendant suffers loss as a result of the freezing order, and it turns out it should not have been granted, the claimant will compensate the defendant (for example if they have been unable to run their business and profits have suffered; this may potentially extend to missed investment opportunities). 

Provided the criteria can be met and the court is convinced, a freezing order can considerably impact the defendant, so it also has the potential to improve the bargaining position of the claimant who successfully obtains one. But applying for a freezing order and failing will be an expensive process (the claimant will have to pay not only their own costs, but most of the defendant’s costs) and will leave a claimant with a bloody nose; not a good look in any potential settlement discussions.

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