Hone & Ors v Abbey Forwarding Ltd & Anor

Compensation under a cross-undertaking in damages is normally assessed by analogy with contractual damages. A defendant may recover loss naturally flowing from the wrongly granted injunction, including a foreseeable type of loss arising from known circumstances. The analogy is not rigid. The court may make sensible adjustments where the absence of a real opportunity to seek a variation makes that just.

A freezing order can also justify realistic general damages for distress, impaired credit, business and personal disruption, and unreasonable policing of the order. A general hostility to transactions will not prove every unnotified lost opportunity. But an unreasonable refusal of a notified transaction may establish loss from similar continuing opportunities.

Abbey, acting through its provisional liquidator, obtained worldwide freezing orders against its former directors after HMRC had made substantial duty assessments against Abbey. The orders contained a cross-undertaking in damages, supported by an HMRC indemnity.

Abbey's substantive claim was dismissed and the freezing orders were discharged. On the ensuing inquiry, Judge Pelling awarded each appellant £8,000 general damages and awarded Mr P Owen compensation for one lost marble transaction, but rejected most claimed business opportunities and made adverse costs orders.

The appellants challenged the legal basis of compensation, the rejection of particular opportunities, the level of general damages and costs. HMRC cross-appealed against the general-damages awards and sought permission to challenge the marble award.

1. The appeal was allowed in part. HMRC's cross-appeal against the general-damages awards failed, and its renewed application for permission to challenge the additional marble award was refused. The application to adduce fresh evidence was also refused.

2. The governing approach remains that stated in Hoffmann-La Roche & Co. AG v Secretary of State [1975] 1 AC 295. When a cross-undertaking is enforced, compensation is assessed by analogy with the damages recoverable under a notional contract not to impose the restraint. Contractual remoteness principles usually apply. Thus the claimant is not liable for a loss which no reasonable person could have foreseen, unless it knew or ought to have known circumstances likely to produce that type of loss. It need not foresee the particular transaction within that type.

3. The contractual analogy permits logical and sensible adjustments. The court is compensating loss caused by a wrongly granted injunction, not enforcing an actual contract. An unusual loss may therefore be recoverable where it arose before the defendant had a real opportunity to alert the claimant or seek a variation of an ex parte order.

4. The findings rejecting the alleged opportunities involving DLB and KCL shares were upheld. The appellants had not established entitlement to the DLB rights or that the freezing order effectively caused the failure to make the KCL investment. A generally obstructive approach to administering an order did not establish unnotified specific losses. However, the marble request gave clear notice of this type of trading. The unreasonable refusal of the first request, coupled with the evidence of continuing opportunities, established the loss of three further transactions. The court awarded an additional £9,300 collectively.

5. General damages were available for consequences of the freezing order not recoverable as special loss. The order severely restricted the appellants' ability to use their assets and damaged their practical freedom to pursue business. The judge had also accepted evidence of distress and the unreasonable policing of the order. Realistic compensation was required. The award was increased from £8,000 to £15,000 for each appellant.

6. The enlarged awards required the costs order below to be set aside. The parties were invited to make written submissions on the consequential figures and costs.

• Court of Appeal (Civil Division) — allowed the appellants' appeal in part, increased general damages and awarded further marble-trading compensation; consequential costs were left for written submissions: [2014] EWCA Civ 711.
• High Court, Chancery Division — Judge Pelling awarded £8,000 general damages to each appellant and limited special damages, while making adverse costs orders against the appellants.
• High Court, Chancery Division — Lewison J dismissed Abbey's substantive claim, discharged the freezing order and permitted an inquiry into loss caused by it.