Abbey Forwarding Ltd & Anor v Hone & Ors

Compensation under a cross-undertaking is assessed by analogy with contractual damages, applying principles of causation, remoteness and mitigation, while retaining sufficient flexibility to protect the practical value of the undertaking.

Loss must be caused by the injunction rather than by the underlying litigation. Losses arising from post-injunction special circumstances are generally irrecoverable unless the injunctor received sufficient express notice to permit an appropriate variation. An injunctor’s unreasonable refusal may establish foreseeability where the opportunity was specifically notified, but an injunctee cannot rely on assumed refusals without making a request.

Individuals may recover general damages for emotional distress caused by a wrongly granted freezing order. Aggravated damages may also be available as an augmentation of another established head of loss.

The proceedings concerned an inquiry into compensation payable under a standard cross-undertaking given by Abbey Forwarding Limited after a freezing order was obtained against its former directors, Richard Hone, Patrick Owen and William Owen.

The underlying claim alleged negligence and dishonest involvement in excise-duty evasion. It was dismissed by Lewison J, and the freezing order was discharged. An inquiry into compensation was directed. HM Revenue & Customs, which had indemnified Abbey, was joined as a claimant and resisted the claims.

The defendants claimed special losses arising from lost business opportunities, investments, asset realisations and property transactions, together with general and aggravated damages. The principal issues were causation, foreseeability, remoteness, mitigation and the availability of compensation for emotional distress.

1. Special damages. The cross-undertaking was given to the court. It did not create a cause of action in favour of the defendants, but entitled them to seek compensation. The assessment proceeded by analogy with contractual damages, applying principles of causation, remoteness and mitigation, subject to equitable flexibility where a mechanical contractual approach would undermine the protection intended by the undertaking.
2. The defendants had to prove that the loss was suffered in fact and that the freezing order was at least an effective cause. Loss caused by the underlying liquidation or litigation, rather than by the order, was not recoverable.
3. Applying the principles of Hadley v Baxendale, loss generally had to be foreseeable when the injunction was granted. A post-injunction opportunity could be recoverable where the injunctor received express notice of the special circumstances in sufficient time to agree a variation. The supposed “knockback” theory did not remove the need to notify the liquidator of opportunities. Mitigation, including an application to vary the order, depended on the facts of each claim.
4. Most special-damages claims failed for want of proof of causation, foreseeability, or mitigation. The claim relating to one marble transaction succeeded on liability because the transaction, cost and expected profit had been notified, consent had been expressly refused, and an application to court would have been disproportionate. Quantum was reserved. The conceded tax-surcharge claim also remained recoverable.
5. General and aggravated damages. There was no absolute bar to general damages for emotional distress under a cross-undertaking. The question was fact-sensitive, having regard to the nature and duration of the order, its practical effect and the manner in which it was administered. Aggravated damages could be awarded where appropriate, but only as an addition to an established head of loss, including general damages.
6. The defendants were entitled in principle to general damages on the evidence of embarrassment, indignity, distress and reputational harm caused by the freezing order. The amount, and the question of aggravated damages, were reserved for a later hearing. The remaining special-damages claims failed, subject to the reserved issue concerning any further share-trading claim.

The judgment was a first-instance decision determining liability issues in an inquiry directed after the underlying claim was dismissed. The underlying claim was dismissed by Lewison J in [2010] EWHC 2029 (Ch), with the freezing order discharged and an inquiry directed under the cross-undertaking.