Patrick Hughes v Martin Bellamy & Ors

For short-term injunctive relief sought to preserve company assets pending an unfair prejudice petition, the court may apply the American Cyanamid approach: whether there is a serious issue to be tried, whether the balance of convenience favours relief, and whether it is just and convenient to grant it. A risk of dissipation may be established by recent unexplained asset disposals, particularly where there are credible concerns about undervalue or connected-party transactions. The court may preserve the status quo where the value of the relief sought in the underlying proceedings depends on the continuing value of the companies’ assets. The order may include practical exceptions for legal expenses and notified payments.

The claimant sought urgent interim injunctions under section 25 of the Civil Jurisdiction and Judgments Act 1982 in support of unfair prejudice proceedings commenced in the Isle of Man. He had an indirect 50% interest in two English subsidiary companies through a jointly owned Isle of Man holding company.

The application followed the disposal of most of one subsidiary’s assets, allegedly to parties connected with another shareholder and possibly at an undervalue. The central issue was whether the English court should restrain further dealings with the companies’ assets until the return hearing and, potentially, pending resolution of the underlying petition.

1. Application granted. The court granted short-term injunctions restraining the second and third defendants from disposing of or dealing with their assets until the return date, subject to exceptions for legal expenses and other payments made after 24 hours’ written notice to the claimant.
2. In the context of relief sought in support of an unfair prejudice petition, the appropriate framework was the American Cyanamid test. The claimant had to show a serious issue to be tried, that the balance of convenience favoured an injunction, and that it was just and convenient to grant the relief.
3. The purpose of the injunction was to preserve the status quo of the companies’ assets pending determination of the underlying dispute. Although the third defendant submitted that the application was in substance a freezing order application, the court considered that the recent disposal of most of its assets, the claimant’s lack of prior knowledge, and credible concerns about undervalue and connected parties provided sufficient evidence of a risk of dissipation. The evidence would also have satisfied the freezing-order threshold at this interim stage.
4. There was an additional justification for relief. The claimant proposed seeking an order enabling him to buy out the other shareholder’s shares in the holding company. Those shares depended for their value on the subsidiary companies retaining valuable assets.
5. The question whether the claimant’s cross-undertaking in damages should be fortified was deferred to the return hearing, when the parties could provide fuller evidence.