The Court of Appeal has unanimously dismissed an appeal against an award of damages (in excess of $70 million) as compensation for the loss caused by a worldwide freezing order and later security undertakings given to the court.

Background

In 2005, the appellants had obtained a worldwide freezing injunction against the respondents, in which the appellants had given cross-undertakings to compensate the respondents for any loss caused as a result of the freezing injunction. The order allowed the respondents to enter into transactions in the ordinary course of business, but specifically excluded investment by the respondent in shipbuilding contracts.

The respondent provided over $208 million as security in order to discharge the injunction, and whilst the clause in the freezing order excluding investment in shipbuilding contracts continued to apply, the respondents were given liberty to apply to the court for the use of funds for that purpose. No such application was made.

Following trial, in which most of the appellants' claims were dismissed, the respondents sought and were granted compensation (amounting to over $70 million), for losses caused by the freezing injunction. Mr Justice Males found that the injunction and security undertakings had prevented them from investing in shipbuilding contracts. Even though the respondents had had liberty to apply to the court to use secured funds to invest in ships, such an application would have been vigorously opposed by the appellants.

Contractual principles for assessing compensation

In assessing compensation under a cross undertaking in damages, the court, as per the decision in Hone and others v Abbey Forwarding Ltd and another [2014] EWCA Civ 711, used the contractual basis for assessing damages, applying the principles of causation, remoteness and mitigation.

Mr Justice Males found that, were it not for the injunction, the respondents would have entered into shipbuilding contracts. The Court of Appeal was specifically asked to consider whether the respondents' failure to apply for funds to be released from security meant that causation was not established.

The Court of Appeal found that once a party had established a prima facie case that the damage caused to it was due to the relevant injunction, without other material evidence to displace it, the court could draw an inference that the damage would not have been sustained but for the injunction.

Even though the respondents had the liberty to apply for the release of the secured funds in order to invest in shipbuilding contracts, that did not affect the nature of the restriction imposed by the order. The respondents only needed to show that the injunction prevented them from investing in ships, and that any application to the court for the release of funds would cause them difficulties. They did not need to show that any application to the court for release of funds would fail. The appellants in this case had made it clear that they would oppose any application for release of the restriction preventing the respondents from investing in shipbuilding contracts. Mr Justice Males was therefore correct in finding that causation was established.

The Court of Appeal also held that mitigation arguments put forward by the appellants were correctly rejected at first instance, noting that the respondents would have faced difficulties in entering into shipbuilding contracts contingent upon court approval, or in applying to the court to enter into shipbuilding contracts without firm proposals of such contracts in hand for the court to assess.

Comment

Due to the draconian nature of interim injunctions applicants are invariably required to give cross undertakings to pay damages should the applicant go on to lose at trial, and the party subject to the injunction incur losses. Such damages could be substantial. Therefore parties seeking interim injunctions need to be aware of, and properly advised on, the potential repercussions of this type of interim relief.

SFC Tankers Ltd (formerly known as Fiona Trust & Holding Corp) and others v Privalov and others [2017] EWCA civ 1877 (21 November 2017)