Abbey Forwarding Ltd v Hone (No 3)

The Court of Appeal considered the principles governing compensation payable under the usual "cross-undertaking in damages" given when interim injunctions (here a worldwide freezing order) are granted. The court confirmed that assessments under such undertakings are to be approached by analogy with contractual rules on remoteness and foreseeability, following Lord Diplock's dictum in Hoffmann-La Roche, but allowed that equitable flexibility is required because no real contract exists and that logical, fact-sensitive adjustments can be made.

The court upheld the underlying approach that loss recoverable must be caused by the injunction and ordinarily be of a type reasonably foreseeable to the injunctor at the time the order was made, subject to exceptions (for example losses arising before the defendant had an opportunity to notify the claimant or apply to court). The judge below was not held to have misstated the law generally but some of his factual applications were reversed.

On the facts the court allowed the appellants' appeal in part: the appellants recovered additional compensation in respect of lost marble-trading opportunities and their awards for general damages were increased to reflect the broader disruption caused by the freezing order and its unreasonable policing. The court also refused the appellants' application to adduce fresh evidence and refused HMRC permission to pursue a further appeal on one small item.

Background and procedural posture. Abbey Forwarding obtained an ex parte worldwide freezing order (containing the usual cross-undertaking in damages) in proceedings brought in respect of large duty assessments raised by HMRC. The provisional liquidator was appointed and the freezing order was enforced. Lewison J dismissed Abbey's substantive claim at trial, discharged the freezing order and granted the defendants (the present appellants) permission to proceed to an inquiry under the cross-undertaking. An inquiry before His Honour Judge Pelling QC assessed quantum. The appellants and HMRC each appealed to the Court of Appeal; the appellants sought larger awards and different findings on causation and mitigation, HMRC sought to reduce the awards.

Nature of the claim / relief sought. The appellants sought compensation under Abbey's cross-undertaking for a variety of alleged losses said to have been caused by the freezing order, including lost trading and investment opportunities (shares, marble trading and property transactions), specific losses (one consignment of marble), surcharges, pension encashment losses, valuation losses and general damages for distress, loss of reputation and the curtailment of their business activities. They also sought costs orders and permission to adduce fresh evidence on appeal.

Issues framed by the court.

• What are the legal principles governing recoverability of loss under a cross-undertaking in damages (in particular the role of remoteness and foreseeability)?
• How should those principles be applied to the appellants' specific heads of loss (Knowledgecenter and DLB share opportunities, marble transactions) and to the claim for general damages?
• Were the factual findings of the trial judge correct, including in relation to mitigation and the so-called "knockback" theory (that the liquidator's obstructive conduct prevented the appellants from seeking consents)?
• Should fresh evidence be admitted on appeal?

Court's reasoning and disposition of the issues. The court held that the established approach—treating the inquiry under the undertaking by analogy with contractual principles of remoteness (Hadley v Baxendale), as described by Lord Diplock in Hoffmann‑La Roche—is the correct starting point but must allow equitable flexibility. The correct test is whether the claimant who gave the undertaking ought to have foreseen loss of the type suffered when the injunction was granted; the claimant need not have foreseen the precise manner in which the loss occurred. The court accepted that in exceptional circumstances losses not normally foreseeable may be recoverable where, for example, they arose before the defendant had any reasonable opportunity to notify the claimant or to apply for variation.

Applying these principles to the facts, the Court of Appeal declined to disturb the trial judge's rejection of most specific heads of claimed commercial loss (including the DLB and KCL share claims) because the trial judge's findings on beneficial ownership, notice to the liquidator and the appellants' own choices were entitled to deference. The judge was reversed, however, in part in relation to additional marble trading opportunities: the liquidator's unequivocal refusal to permit an initial marble transaction amounted to a clear "knockback" and supported compensation for subsequent lost opportunities; the court awarded an additional sum in respect of that head.

On general damages the court held that a freezing order unjustifiably obtained and unreasonably policed can give rise to compensation for upset, stress, loss of reputation and also for broader loss of opportunity and business disruption; the trial judge's award was increased to reflect those realities. The court refused the application to admit fresh evidence as not relevant to the issues before it. Costs orders below were disturbed in principle by some members of the court (on the basis that the judge had been unduly punitive in isolating criticism of the appellants without accounting for the respondents' conduct), though Lady Justice Arden considered the judge within his discretion; the judgment directed further written submissions on costs in consequence of the adjustments to awards.

Appeal allowed in part. The Court of Appeal affirmed that damages under the cross-undertaking are assessed by analogy with contractual remoteness and foreseeability principles as summarised by Lord Diplock, but with equitable flexibility; it upheld most factual conclusions of the trial judge but allowed additional sums for marble trading opportunities where the liquidator's unreasonable refusal had produced a clear "knockback", and increased awards of general damages to reflect the broader business disruption and distress caused by the freezing order and its policing. Applications to adduce fresh evidence were refused and HMRC's renewed permission to appeal on one small item was refused.

Appeal from the Chancery Division (His Honour Judge Pelling QC sitting as a Deputy Judge of the High Court), HC09C00296. Permission to appeal granted by Lady Justice Gloster (various permissions noted in the judgment). Final determination by the Court of Appeal (Arden LJ, McCombe LJ, Vos LJ) [2014] EWCA Civ 711.