Factual and Procedural Background
This opinion concerns an appeal by the Appellants from a judgment and order of a Deputy Judge of the High Court dated 19 March 2013. The judge had ordered the First Respondent, Company A, to pay specified sums to each Appellant for losses suffered due to a freezing order obtained by Company A. The order was made pursuant to a "cross-undertaking in damages" given in that freezing order. The Appellants challenged both the sums awarded and the costs orders made against them. The Second Respondent, HMRC, cross-appealed seeking to reverse the award of damages in favor of the Appellants.
The background facts reveal that Company A operated a freight forwarding and warehousing business acquired in 2003 by Company A and controlled by the Appellants and others. Between 2008 and 2009, HMRC raised assessments against Company A for unpaid duty on alcohol shipments. In February 2009, HMRC successfully applied ex parte for the appointment of a provisional liquidator of Company A. Immediately thereafter, freezing orders were obtained against the Appellants based on allegations of breach of duty to Company A.
The freezing order included a cross-undertaking in damages by Company A and an indemnity from HMRC to Company A for that undertaking. The trial of Company A's claims against the Appellants was held in July 2010, resulting in dismissal of Company A's claims and discharge of the freezing order. The Appellants were permitted to proceed to an inquiry regarding damages caused by the freezing order.
Subsequent to the trial, the assessments underpinning HMRC's claims were vacated following an appeal process initiated by the Appellants. HMRC was joined as a party in October 2012 and took over the defense of the claims.
Legal Issues Presented
- What are the principles governing compensation recoverable under a cross-undertaking in damages given in support of a freezing order?
- Whether the judge erred in applying rules of foreseeability and remoteness to the losses claimed by the Appellants.
- Whether the judge was correct in his factual findings rejecting claims for specific lost business opportunities.
- Whether the award of general damages was adequate and whether aggravated damages should have been awarded.
- The appropriateness of the costs orders made against the Appellants.
- Whether fresh evidence should be admitted on appeal.
Arguments of the Parties
Appellants' Arguments
- The judge wrongly confined compensation to losses that were foreseeable under contractual principles of remoteness. They argued that any loss caused by the injunction should be compensable regardless of foreseeability.
- The Appellants contended that the Liquidator's obstructive attitude ("knockback theory") caused them losses by preventing them from pursuing business opportunities.
- They challenged the judge’s rejection of claims relating to specific lost opportunities involving investments in shares and trade in marble.
- The award of general damages was too low and failed to compensate for opportunity losses and distress caused by the freezing order and its administration.
- The costs orders were harsh and punitive, failing to properly reflect the conduct of all parties and the history of the litigation.
- They sought to adduce fresh evidence to address disparaging remarks and update the court on their business activities.
Respondents' Arguments
- HMRC argued that compensation should be confined to losses which were reasonably foreseeable to the injunctor at the time the freezing order was granted, applying contractual principles by analogy.
- HMRC contended that the Appellants failed to prove causation or that the losses were caused by the freezing order, particularly for the rejected heads of claim.
- HMRC opposed the admission of fresh evidence and sought to overturn the award of damages for the marble transaction.
- HMRC supported the costs orders as justified by the exaggerated and unproven nature of the claims pursued by the Appellants.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Hoffmann-La Roche & Co. AG v Secretary of State [1975] 1 AC 295 |
Principles governing enforcement of cross-undertaking in damages; measure of damages analogous to breach of contract. |
Adopted as the starting point for assessing compensation under the cross-undertaking, with allowance for equitable adjustments. |
| Smith v Day (1882) 21 Ch.D. 421 |
Application of contractual rules on remoteness and foreseeability to damages under cross-undertaking. |
Held that damages must be proximate and natural consequences of the injunction, unless special notice given. |
| Schlesinger v Bedford (1893) 9 TLR 370 |
Damages under cross-undertaking limited to losses naturally flowing from injunction and reasonably foreseeable. |
Confirmed that remote losses not fairly consequential or foreseeable are not recoverable. |
| Air Express Ltd v Ansett Transport Industries (Operations) Proprietary Ltd (1979-1981) 146 CLR 249 |
Equitable approach to damages under cross-undertaking; foreseeability as a just and equitable test rather than rigid rule. |
Supported the application of equitable discretion and the foreseeability test in assessing compensation. |
| Cheltenham & Gloucester BS v Ricketts [1993] 4 All ER 276 |
Timing and principles for ordering inquiry as to damages under cross-undertaking; discretionary nature of enforcement. |
Emphasized discretion in enforcement and analogy with contract principles; noted risks of freezing orders. |
| R v The Medicines Control Agency ex p. Smith [1999] RPC 705 |
Questioned narrowness of contract analogy in assessing damages under cross-undertaking. |
Expressed sympathy for broader interpretation of loss recoverable; suggested costs might be included. |
| Apex Frozen Foods v Ali [2007] 6 Costs LR 818 |
Scope of cross-undertaking and assessment of losses, including costs. |
Recognized possible need for wider interpretation of "damage" beyond strict contract damages. |
| Les Laboratoires Servier v Apotex Inc. [2009] FSR 3 |
Assessment of equitable compensation under cross-undertaking; liberal approach to damages. |
Applied Lord Diplock’s dictum and allowed for equitable compensation beyond strict contract rules. |
| Lilly Icos LLC & ors v 8PM Chemists Ltd. & ors. [2009] EWHC 1905 (Ch) |
Equitable compensation approach; rejected strict contractual rule application to cross-undertaking claims. |
Disagreed with strict contract analogy; favored equitable assessment with hindsight. |
| SmithKline Beecham plc v Apotex Europe Ltd. [2007] Ch 71 |
Damages for losses caused to third parties by injunctions. |
Supported view that contract basis may be too narrow in some cases. |
| Al-Rawas v Pegasus Energy Ltd. [2008] EWHC 617 (QB) |
Damages for distress and economic loss under cross-undertaking. |
Recognized that general damages may be awarded for distress and business losses caused by wrongful injunctions. |
| Bonz Group (Pty) Ltd v Cooke [2000] NZCA 44 |
Damages for emotional distress and financial loss under cross-undertaking. |
Upheld award of damages for distress in addition to financial loss following wrongful injunction. |
| Kpohraror v Woolwich BS [1996] 4 All ER 119 |
Presumption of damage arising from wrongful refusal to pay cheques; credit damage. |
Confirmed that damage arises in every case of wrongful freezing of assets, justifying compensation. |
| Excelsior Commercial & Industrial Holdings Ltd. v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 |
Principles for ordering indemnity costs based on conduct of litigation. |
Applied in assessing appropriateness of indemnity costs order against Appellants. |
Court's Reasoning and Analysis
The court began by affirming the established legal framework that a cross-undertaking in damages given in support of an interim injunction or freezing order is enforceable against the claimant if the injunction is wrongly granted, with damages assessed on principles analogous to those governing breach of contract. The leading authority is the dictum of Lord Diplock in Hoffmann-La Roche, which the court found binding but subject to equitable adjustments given the absence of an actual contract.
The court reviewed earlier authorities, including Smith v Day and Schlesinger v Bedford, confirming that damages must be for losses naturally flowing from the injunction and reasonably foreseeable by the claimant at the time the order was granted, unless special circumstances are known. The court rejected the Appellants' submission that foreseeability should not apply, holding that the remoteness principles are relevant and appropriate by analogy.
The court acknowledged that some flexibility may exist to account for cases where the defendant has no opportunity to notify the claimant or seek variation of the order, but emphasized that such exceptions are fact-specific.
Applying these principles to the facts, the court upheld the judge’s findings rejecting most of the Appellants’ claims for specific lost business opportunities on grounds of lack of causation, remoteness, or failure to notify the Liquidator of the opportunities. The court accepted the judge’s factual findings as entitled to deference.
However, the court found error in the judge’s rejection of claims for prospective losses relating to future marble transactions. The court held that the Liquidator’s unreasonable refusal to permit the first transaction clearly indicated that further similar losses were foreseeable and caused by the freezing order and its administration. The "knockback theory" was accepted in this context.
Regarding general damages, the court agreed with the judge that compensation for distress, anxiety, and loss of reputation is recoverable under the cross-undertaking, applying the contract analogy flexibly. The court found the judge’s award inadequate given the significant and unjustified restrictions imposed by the freezing order and the Liquidator’s obstructive conduct. The court concluded that general damages should also compensate for lost business opportunities and disruption caused by the injunction and its policing.
On costs, the court found the judge’s order to be wrong in principle, noting that both sides had contributed to the protracted litigation and that the Appellants had made early attempts to settle. The court indicated that a fairer costs order would reflect costs up to the expiry of a Part 36 offer awarded to the Appellants and thereafter to the Respondents.
The court refused the Appellants’ application to admit fresh evidence, finding it irrelevant to the issues on appeal.
Holding and Implications
The court allowed the Appellants' appeal in part. It ordered additional compensation of £9,300 collectively for the marble transaction losses and increased the general damages award to £15,000 per Appellant, replacing the prior awards of £8,000 each. The award to one Appellant for special damages relating to the marble transaction was upheld. The court refused HMRC's renewed application for permission to appeal the special damages award.
The court set aside the judge’s costs order as unjust and indicated that costs should be reconsidered in light of the substantive outcome, suggesting a more balanced approach reflecting the conduct of all parties.
There was no new precedent established, but the judgment clarifies the application of the principles of foreseeability and remoteness in assessing compensation under cross-undertakings in damages, emphasizing that while contractual principles apply by analogy, equitable considerations and factual circumstances may justify adjustments. The judgment also underscores the courts’ vigilance regarding the conduct of parties in freezing order litigation and the potential consequences of unjustified or unreasonably policed injunctions.