Malhotra v Malhotra & Anor

At the stage of deciding whether to order an inquiry under a cross-undertaking in damages, the applicant need show only some credible evidence of loss which was prima facie or arguably caused by the injunction. The court should not ordinarily conduct a detailed or protracted assessment of causation, remoteness or quantum. An inquiry may be refused only where the proposed claim is plainly unsustainable.

The reflective loss principle generally prevents a shareholder recovering loss which merely reflects loss suffered by the company, including diminution in share value or lost dividends. Exceptions may arise where the shareholder’s loss is distinct, the company has no cause of action, or the company cannot pursue its claim because of the wrong. Where the issue is not free from reasonable doubt, summary dismissal is inappropriate.

The defendants sought an inquiry into damages under the claimant’s cross-undertaking supporting an injunction which had restrained Indian proceedings and prevented an extraordinary general meeting of Transauto. The injunction was later discharged.

The defendants claimed loss of rental opportunities and investment returns, together with consequential loss reflected in dividends and share values. The claimant argued that the losses were caused by Indian court orders rather than the English injunction and were irrecoverable under the reflective loss principle. The issue was whether those objections should dispose of the application summarily or be dealt with on an inquiry.

1. Inquiry threshold. Applying Yukong Line Ltd v Rendsburg Investments Corp [2001] 2 Lloyd’s Rep 113, the court has a discretion whether to enforce a cross-undertaking and may order an inquiry where the applicant produces some credible evidence of loss. An inquiry should not be ordered where the proposed claim is plainly unsustainable because the injunction was merely the factual context for unavoidable loss or the loss is clearly too remote.
2. At this interlocutory stage, the court should not ordinarily conduct protracted argument on recoverability. If the applicant shows loss which was prima facie or arguably caused by the injunction, the evidential burden concerning loss which would have occurred in any event passes to the claimant.
3. The defendants’ evidence and draft pleading disclosed an arguable case that the English injunction prevented the Transauto meeting and thereby delayed their regaining control of the affiliated companies. Although the continuing Indian orders provided a substantial causation argument for the claimant, that issue could not be finally resolved on the evidence at this stage.
4. The reflective loss rule, stated in Prudential Assurance v Newman Industries (No 2) [1982] Ch 204 and Johnson v Gore Wood & Co [2002] 2 AC 1, generally prevents shareholders recovering loss which merely reflects loss suffered by their company. The recognised exceptions include distinct shareholder loss, absence of a company cause of action, and inability of the company to pursue its claim because of the wrong.
5. The claim for lost dividends and diminution in share value appeared to fall within the general rule. However, the possible application of the exceptions, particularly whether the companies had a cause of action or could pursue it, was not free from reasonable doubt. The court could not summarily determine issues dependent on the pending Indian proceedings.
6. The claimant therefore failed to surmount the high threshold for summary disposal. An inquiry into damages was ordered, with directions to be addressed after judgment.

The judgment records that an injunction granted by Gloster J on 26 March 2012 was discharged by Walker J following judgment on 30 October 2012: [2012] EWHC 3020 (Comm). This judgment concerned the subsequent application to enforce the cross-undertaking in damages.