A cautionary tale: US$70 million damages order under cross-undertaking upheld by Court of Appeal

A cautionary tale: US$70 million damages order under cross-undertaking upheld by Court of Appeal

We have been involved in several injunction applications recently. A key consideration in injunctive proceedings is the potential impact of the order on a defendant. If an injunction is granted and the court later decides it should not have been, the claimant will be liable for damages caused to the defendant by the injunction.  

At the tail end of 2017, the Court of Appeal upheld a decision of the High Court to award $70 million in damages to a company for losses suffered as a result of a worldwide freezing injunction. The decision is a cautionary tale for claimants obtaining freezing injunctions, demonstrating the severe consequences should they lose at trial and the defendants suffer loss as a result.

In SCF Tankers Ltd (formerly known as Fiona Trust & Holding Corp) and others v Privalov and others [2017] EWCA Civ 1877, the appellants had obtained a worldwide freezing injunction against the respondents back in 2005 which forced the respondents to provide over $208 million as security to discharge the freezing order and prevented them from using the secured funds to invest in new shipbuilding contracts. As part of the freezing order, as is usual, the appellants had given cross-undertakings to compensate the respondents if it were later found that the injunction should not have been granted.

At trial, five years later, the respondents had successfully defended nearly all of the appellants’ claims thereby demonstrating that the freezing order was erroneously granted. The respondents then claimed damages under the cross-undertakings for losses they had suffered as a result of the freezing order. They claimed that they had lost out on lucrative shipbuilding investment contracts as a result of the security they were forced to provide and the fact that they could not enter into shipbuilding contracts using the secured funds. The High Court ordered the appellants to pay $59.8 million in damages and $11.04 million in interest to the respondents.

On appeal, the appellants argued that the respondents could not establish causation between the freezing order and the losses suffered because the order did not prevent the respondents from using other funds to enter into shipbuilding contracts and, in any event, they could have applied to the Court to use the secured funds but had not done so. However, the Court of Appeal dismissed the appeal on the basis that the appellants’ argument did not reflect the commercial reality of the situation and they would nonetheless have vigorously opposed any such application made by the respondents making it difficult to obtain a variation of the order. The Court of Appeal was satisfied that causation had been established and upheld the High Court’s decision ordering the appellants to pay damages to the respondents.

The take home message from this case is that claimants should think carefully before applying for wide ranging freezing injunctions and giving cross-undertakings. The commercial impact on the defendant of any order granted can have serious ramifications for a claimant who loses at trial.

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