How Long Should a Freezing Order Last?

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Here’s my piece on the Freezing order against the Ex Mayor of Tower Hamlets, and general review of Mareva Injunctions.

http://www.luptonfawcett.com/blog/how-long-should-a-freezing-order-last/

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Court of Appeal Decision: Assessing Damages on a Freezing Order Cross-Undertaking

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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) [2014] EWCA Civ 711; [2014] 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.

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Freezing Injunction: Full & Frank Disclosure – Reflective Loss

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  • For a Freezing injunction, does a Claimant need “much the better of the argument”?
  • On Reflective Loss, what is a “good arguable case”?

Case

Kazakhstan Kagazy and others -v- Arip [2014 EWCA CIV 381]

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Key Points

  1. 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.
  2. 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.

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Background

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) [1983] 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.

Reflective Loss

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).

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Planning permission no defence to private nuisance claim

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The Supreme Court has given an important judgment on the principles of private nuisance for the 21st century. The case related to a noise nuisance caused by the respondents’ motocross and speedway stadium.
A nuisance is an act (or a failure to act) on the part of a respondent, which is not otherwise authorised and which causes an interference with the claimant’s reasonable enjoyment of her land.
The Supreme Court unanimously granted the appeal by the claimants who lived near to the stadium. Lord Neuberger gave the lead judgment, concluding that:
• The respondents’ activities at the Stadium and the Track constitute a nuisance and, as the respondents failed to establish a prescriptive right to carry out these activities, the injunction granted by the judge is restored,
• It is possible to acquire a right to commit what would otherwise be a noise nuisance by prescription (over 20 years).
• It is not generally a defence to a claim in nuisance to show that the claimant “came to the nuisance” by acquiring or moving into their property after the nuisance had started. However, in some circumstances, it may be a defence that it is only because the claimant has changed the use of their land that the respondent’s pre-existing activity is claimed to have become a nuisance.
• A respondent can rely on its activities as constituting part of the character of the locality, but only to the extent that those activities do not constitute a nuisance.
• It is wrong in principle that the grant of planning permission should deprive a neighbouring property owner of a right to object to what would otherwise be a nuisance, without providing compensation. However, there will be occasions when the terms of a planning permission could be of some relevance in a nuisance case.

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• The existence of a planning permission which expressly or inherently authorises carrying on an activity in such a way as to cause a nuisance can be a factor in favour of a court refusing an injunction and compensating the claimant in damages. In a number of recent cases, judges have been too ready to grant injunctions without considering whether to award damages instead.
• The starting point is that an injunction should be granted, so the legal burden is on the respondent to show why it should not. The existence of a planning permission which expressly or inherently authorises carrying on an activity in such a way as to cause a nuisance can be a factor in favour of refusing an injunction and compensating the claimant in damages. In a number of recent cases judges have been too ready to grant injunctions without considering whether to award damages instead.
• Lord Neuberger concluded that the respondents’ activities at the Stadium and on the Track do constitute a nuisance and that, as the respondents had not established that their activities amounted to a nuisance during a period of at least 20 years, they failed to establish a prescriptive right to carry out these activities. Accordingly, the claimant’s appeal succeeded and the injunction granted by the judge restored. However, when and if the matter goes back before the judge, he should be entitled to consider whether to discharge the injunction and award damages instead.

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 Comment
• The legal burden is on the respondent to show why an injunction should not be granted. However, the Supreme Court decided that the public interest has to be taken more into account in this approach.
• A more flexible position should be adopted by a judge, when being asked to award damages instead of an injunction, than that suggested in recent cases.
• The judgment contains other important and useful observations, in particular, on reasonable user of land and the impact of planning on character of the locality.
• In some circumstances, particularly where the activity has planning permission, Nuisance claims may be more open to being settled by damages for compensation.

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 The Supreme Court’s decision is not only important for operators of noisy or controversial activities, but also to developers and Local Planning Authorities when considering the role and impact of planning permission.

 Case
Coventry and others v Lawrence and another [2014] UKSC 13

J Paul Sykes LLB LLM
First Published
March 2014

THE LAW OF UNINTENDED CONSEQUENCES

 

 

 

SUPER INJUNCTIONS, TWITTER, THE PERCEIVED IMPOTENCE OF THE ENGLISH COURTS IN THE U.S. AND SCOTLAND, CRISES IN THE CONSTITUTIONAL SETTLEMENT

….. Every day sees a new twist in the ongoing media driven frenzy. For once, this is not just over–hyped tittle tattle, laced with celebrity sex scandals; it is the sharp end of the inherent tension between the individual’s right to privacy enshrined in Article 8 of the Human Rights Act and the right to freedom of expression (Article 10.)

There is also the fundamental question of open access to justice. Are the recent rulings of the English Higher Courts out of touch with the modern day and the speed of social media and the reach of the internet? How English Court rulings can possibly be enforced abroad, or even in Scotland, let alone further afield is thought by many to be an issue which has been holding up the domestic Courts to ridicule.

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A well known English journalist has been threatened with jail for contempt of Court for revealing the identity of a star whose name had been disclosed variously on Twitter, chanted by football crowds and reported in the media. Alex Salmon, the Scottish First Minister, has defended the editor of Scotland’s Sunday Herald’s right to report the same information and publish a front page photograph of the individual. Some might see this as a constitutional crisis involving a battle for power between the Judiciary, Parliament and the media. However this is not really a major shift in the tectonic plates of our constitutional settlement, but an inevitable and welcome examination of perennial and fluid themes.

The 103 page Report of the Judicial Committee on Super Injunctions makes for stimulating reading. Published on 20 May, this seeks to reassure by pointing to the recent reduction in use of such injunctions, whilst highlighting the fact that the vast majority related to proceedings in the Family Court where privacy has been regarded as paramount since its inception. But here too, secrecy in the Family Courts is coming under increasing scrutiny from numerous sources.

The Committee helpfully set out definitions which are essential for distinguishing where the important points of principle lie:

“… the term ‘super-injunction’ can properly be defined as follows:
an interim injunction which restrains a person from: (i) publishing information which concerns the applicant and is said to be confidential or private; and, ii) publicising or informing others of the existence of the order and the proceedings (the ‘super’ element of the order).
This is to be contrasted with an ‘anonymised injunction’, which is:
an interim injunction which restrains a person from publishing information which concerns the applicant and is said to be confidential or private where the names of either or both of the parties to the proceedings are not stated.
The distinction between anonymised injunctions and super-injunctions is of obvious importance when claims are made regarding the prevalence of super-injunctions. The term super-injunction is frequently used incorrectly to refer to an anonymised injunction.
The inaccurate use of the term super-injunction to refer to anonymised injunctions, has not only led to a false view that super-injunctions are commonplace. It has also given rise to misconceptions as to how long super-injunctions endure. A claim that a super-injunction has been in place for a number of years adds credibility to the fear that a new law has been created by the judges.”

Whilst going some way towards satisfying deep concerns about the way that such injunctions have been used to thwart free speech, the Report is far from being a complete answer, but a helpful contribution to the debate. Although many of the recommendations are to be welcomed, I would highlight serious concerns about secrecy and the right to privacy being privileged over freedom of expression.

I do not believe that the Committee has entirely answered the prescient concerns expressed for example by Professor Adrian Zuckerman that a

“Kafkaesque process…. contrary to democratic principles”

is undermining the rule of law in the recent rash of

“curiosity–suppressant orders”

[CJQ Vol 29 Issue 2, 2010 p131-138]. Transparency of court proceedings and proper, responsible reporting reduces the scope for ill informed and malicious criticism of judicial decisions, and protects the Judiciary from ridicule, whilst also permitting the essential development of jurisprudence and precedent.

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Super injunctions also prevent the necessary scrutiny by the public, the media, academics, politicians, lawyers (and the judges themselves!) and analysis of the arguments deployed. After all, there ought to be due weight given to the Natural Justice principle that

“…justice should not only be done, but manifestly and undoubtedly be seen to be done…”

(R v Sussex Justices Ex p. McCarthy [1924] 1KB 256.)

Another game-changer is the unforeseen release by Twitter of confidential contact and account details of an anonymous self-styled whistle-blower calling himself “Mr Monkey”. This was prompted by proceedings brought by South Tyneside Councillors in the Californian Courts, the home of Twitter. They allege defamation by Mr Monkey, whilst his tweets allege corruption in Local Government.

Twitter’s privacy policy states that it will

 “…comply with a law, regulation or legal request…”

Their Head of European Operations says Twitter will not attempt to withhold user’s private details if they are legally required to disclose it. (The Telegraph, Richard Gray, 28 May 2011). This may constitute a watershed in how social media is perceived; with the realisation that it is not a consequence-free zone. This development is to be welcomed, not least on the basis that people should take responsibility for their actions and words. This should obviously be distinguished from the principled stands against oppression and injustice taken by civil rights activists in totalitarian and despotic regimes.

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It is salutary to note that the long arm of the English Courts may reach out across the Atlantic to snare Mr Monkey. Closer to home, commentators may have second thoughts about deliberately flouting injunctions, whether supported by MP’s under the cloak of Parliamentary privilege or not. Detractors of the Judges will however point to the lessons from King Canute and the failure of the US Authorities to prevent the wholesale and continuing circulation of mass confidential information in the Wiki leaks saga. The whole imbroglio is also reminiscent of the “Spycatcher” purported exposé of MI5’s secrets in 1987 by Peter Wright, and the UK Government’s relentless but ultimately ill-fated and counter-productive judicial attempts to block publication.

As Gordon Ramsey’s Father-in-Law amongst others will doubtless now be reflecting, when going to law to protect privacy or reputation, one universal law that should never be overlooked is the law of unintended consequences.

J Paul Sykes LLB LLM

The contents of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

First Published – 6 June 2011