Energy Venture Partners Ltd v Malabu Oil and Gas Ltd

A party seeking fortification of a cross-undertaking in damages need not prove loss on the balance of probabilities. It must show a good arguable case by providing an intelligent and realistic estimate of likely loss, a sufficient risk that loss will occur, and a causal link between the interim order and that loss.

The court should not conduct a mini-trial of disputed causation at the interlocutory stage. Where a freezing order prevents a commercial party using money that would otherwise have been paid to it, the ordinary measure of the loss of use is interest at the usual cost of borrowing an equivalent sum. Actual borrowing or a present need to borrow need not be proved.

The appellant, Energy Venture Partners Ltd, had obtained a worldwide freezing order against Malabu Oil and Gas Ltd. US$215 million that would otherwise have been paid to Malabu was paid into court. The order was supported by a cross-undertaking in damages.

Hamblen J ordered further fortification of that undertaking, assessed by reference to the US Prime Rate: [2012] EWHC 79 (Comm). The appellant appealed, challenging the legal test for fortification, the entitlement to fortification, and the rate used to assess it.

The appeal had largely become academic after the substantive action concluded, but retained possible costs consequences. The central issue was the proper interlocutory test for requiring security for a cross-undertaking in damages.

1. The appeal was dismissed. The court upheld the order requiring fortification of the cross-undertaking in damages.

2. The correct test does not require the applicant to establish loss on the balance of probabilities. The court must make an intelligent estimate of likely loss caused by the interim order, decide whether there is a sufficient risk of that loss, and be satisfied that the loss has been, or is likely to be, caused by the injunction. These requirements are linked. In this interlocutory context, a sufficient risk is synonymous with a good arguable case for fortification.

3. Causation requires a cause without which the loss would not have been suffered. If a good arguable causal case is shown, the respondent may disprove it. The court should not, however, resolve it through extensive contentious evidence and argument at an interlocutory hearing. That would produce wasteful satellite litigation.

4. Malabu had a good arguable case that, but for the freezing order, it would have received and been able to use the US$215 million. It did not need to prove that it actually would borrow replacement funds. Nor did a possible obligation to transfer the money to others defeat its prima facie claim. The ordinary compensation for loss of use of money was interest based on the usual cost of borrowing an equivalent sum.

5. For commercial parties, borrowing cost is ordinarily the relevant measure. A deposit return may be appropriate in another case, but it could not improve the appellant’s position here because the available deposit rate was higher than the borrowing rate used by Hamblen J.

6. The court also dismissed the appellant’s late applications to adduce fresh evidence and adjourn the appeal. The delay was unjustified, and admission would have required further proceedings to permit a response. Costs were apportioned by reference to the parties’ October 2013 agreement and the later conduct of the appeal.

• Court of Appeal (Civil Division) dismissed the appeal and upheld the fortification order: [2014] EWCA Civ 1295.
• High Court, Commercial Court (Field J) dismissed an application under CPR 3.1(7) to revoke the fortification order: [2012] EWHC 2215 Comm.
• High Court, Commercial Court (Hamblen J) ordered further fortification of the cross-undertaking in damages: [2012] EWHC 79 (Comm).