Here’s my piece on the Freezing order against the Ex Mayor of Tower Hamlets, and general review of Mareva Injunctions.
The Court of Appeal has for the first time given guidance on how damages are to be awarded on a cross-undertaking in damages on a freezing order. This clarifies recent uncertainty on the principles in first instance decisions.
Whenever the Court makes an interim order pending trial, such as a freezing order, search order or injunction, invariably the Court requires an undertaking from the Claimant. This “cross-undertaking” makes the Claimant pay damages to the Defendant if it is later decided that the Claimant should not have been granted the interim order.
The Court of Appeal has reiterated the analogy of contractual principles that should apply to assessment of damages under a cross-undertaking. That is with the proviso that there is in reality no contract and there has to be room for exceptions.
In Abbey Forwarding Ltd (in liquidation) and another v Hone and others (No 3)  EWCA Civ 711;  WLR (D) 236 giving the lead judgment of the Court of Appeal, McCombe LJ held
‘When determining questions of compensation for loss arising as a result of a freezing order and the undertaking in damages therein, the correct approach was that the remote consequences of obtaining an injunction were not to be taken into account in assessing damages but that logical and sensible adjustments might well be required simply because the court was not awarding damages for breach of contract but was compensating for loss caused by the injunction which was wrongly granted.’
This was the correct approach where a Defendant who is the victim of an unfair injunction should be compensated for their loss. However, a Claimant should not be fixed with liabilities that no reasonable person could have foreseen, unless the Claimant knew or ought to have known of other circumstances that were likely to give rise to that type of loss.
Terms such as “common law damages” and “equitable compensation” did not assist.
The aggreived Defendants contended that they had been successful entrepreneurs with a track record of commercial and investment success which had been impeded for some 20 months because of the wrongful freezing order. On appeal it was confirmed that whilst principles of remoteness of damage in contract ought to apply in the circumstances, there should be flexibility so as to allow logical and sensible adjustments. This was because the Court was not awarding damages for breach of contract, but was compensating for loss caused by the injunction.
Vos LJ added that general damages could also be included within the cross-undertaking in some cases where appropiate, for stress, loss of reputation and general loss of business opportunities and disruption caused by inappropriate policing of the injunction.
- For a Freezing injunction, does a Claimant need “much the better of the argument”?
- On Reflective Loss, what is a “good arguable case”?
Kazakhstan Kagazy and others -v- Arip [2014 EWCA CIV 381]
- On a Freezing injunction, a “good arguable case” is more than barely capable of serious argument, but not necessarily better than 50% prospects of success.
- The parent company’s alleged loss was the same as those of its subsidiaries. Under the reflective loss principles the parent company had no good and arguable loss of its own.
The Court of Appeal has unanimously upheld a freezing injunction in a case involving alleged inter company frauds exceeding $150M.
The Court considered issues relating to limitation, reflective loss, and the obligation on the Claimants to give full and frank disclosure on without notice applications.
The Court of Appeal held that the “good arguable case” was the appropriate test, approving the traditional test laid down by Mustill J in Ninemia Maritime Corporation -v- Trave (The Neidersachsen)  2 Lloyd’s Rep 600;
“…in the sense of a case which is more than barley capable of serious argument, and yet not necessarily which the Judge believes to have a better than 50% chance of success…“
The injunction had been granted by Judge Mackie QC in the Commercial Court adopting a somewhat higher test requiring the Claimants to show they had “much the better of the argument“.
The Court of Appeal emphasised the wide discretion of the lower Court, including all matters of alleged non-disclosure, and the Judge’s decision was well within the margins of discretion.
The Defendants deny any wrong doing. No defence had yet been required from the Defendants, and Jackson LJ commented that “… it is only by a narrow margin that (the Claimant’s) case is strong enough to support their entitlement to a freezing injunction…“. He referred to “a very real possibility that the Defendants’ limitation defence will prevail at trial on the basis of Kazakh law“. That stipulated a three year limitation period.
Elias LJ said in relation to the alleged non-disclosure and the date of knowledge from when limitation runs
“… nobody should allege dishonestly lightly. The Court should not readily conclude that fraud ought to have been apparent unless it is satisfied that the evidence would plainly justify the allegations. That is all a high hurdle…“
It was also pointed our that it is inherently unattractive for the Defendant to submit that the fraud should have been manifestly obvious, and yet at the same time to assert that he had a complete defence to the allegation (on the basis of the proceedings having been issued too late).
Avoid Mini Trial
The Court of Appeal emphasised that applications to discharge freezing injunctions should not turn into mini trials. The High Court had considerable discretion regarding allegations of non-disclosure.
Any failures to give full and frank disclosure were unintentional and ultimately not material. The Court of Appeal commented that the question of when the Claimants had the relevant knowledge, which determines when the limitation period starts should not be usually be decided on an interlocutory basis unless the facts and circumstances were very clear.
Although the injunction was upheld for £72M and this stays until the trial, the Defendant was successful in the cross appeal. According to the “reflective loss” principle, a shareholder cannot recover damages simply on the basis that the company in which the shareholder has an interest has suffered loss. Applying Johnson -v- Gore Wood [2000 UKHL65] Longmoor LJ found that it was well arguable that the claims were not time barred, but if they are, the subsidiaries ought to have been aware that their rights had been violated. In those circumstances the subsidiaries could not say that the inability to sue was no fault of their own. Accordingly, the parent company had no loss independant of the subsidiaries (the other Claimant companies).