SCF Tankers Ltd & Ors v Privalov & Ors

To recover under a cross-undertaking in damages, the restrained party must show that the injunction was a cause without which the loss would not have occurred. Causation is approached practically and by common sense. Once a prima facie causal case is established, the court may infer that the loss would not otherwise have occurred unless contrary material displaces that inference.

A liberty to apply for release of frozen or secured funds does not itself remove the restriction. Whether the restrained party reasonably had to make such an application is fact-sensitive. The court should recognise the time, cost, opposition and practical difficulties involved. Failure to apply neither breaks causation nor constitutes a failure to mitigate where an application would be strongly resisted, uncertain and commercially impracticable.

The appellants had obtained a worldwide freezing order against the respondents in support of claims alleging bribery, corruption and diversion of assets. The order expressly excluded buying and selling vessels from the ordinary course of business. It was discharged when the respondents provided US$208.5 million in security, but the restriction remained and the respondents required the court’s permission to use the secured funds.

Most of the underlying claims were later dismissed. Following an inquiry under the cross-undertaking in damages, Males J held that the orders had prevented investment in new ships and awarded US$59.8 million plus interest: [2016] EWHC 2163 (Comm) and [2016] EWHC 2451 (Comm).

The appellants received limited permission to challenge the award. The principal issue was whether the respondents’ failure to seek permission to use the secured funds prevented them from establishing legal causation or instead raised only a question of mitigation.

1. The appeal was dismissed unanimously. The freezing order and replacement security arrangements were an effective cause of the respondents’ lost opportunity to invest in new ships. The express liberty to apply for release of funds did not alter the nature or practical effect of the restriction imposed by the orders.

2. A party enforcing a cross-undertaking must show that its loss would not have been suffered but for the injunction. The court approaches that question in a common-sense way. Once the restrained party establishes a prima facie case that the order caused the damage, the court may infer that the damage would not otherwise have occurred unless the applicant produces material displacing that inference. The respondents were not required additionally to prove that an application for release of the funds would certainly have failed.

3. The respondents had established the necessary prima facie case. The orders prohibited newbuilding transactions, and the appellants had repeatedly maintained that they would resist the use of the secured funds. At the interlocutory stage, the parties and the court had proceeded on the basis that proprietary claims were arguable. Disproving those claims would have involved extensive contentious evidence inappropriate for a miniature trial.

4. Whether a restrained party must embark upon further litigation to avoid loss is an intensely fact-specific question. The judge was entitled to find that an application would have taken time, been vigorously resisted and had only moderate prospects of success. His evaluative conclusion fell within the margin accorded to the trial judge and disclosed no appealable error.

5. There was no unreasonable failure to mitigate. The respondents faced a practical dilemma: shipyards would require a commercially concrete proposal, while the court would require sufficient detail before permitting use of the funds. The time, expense, uncertainty and expected opposition made it reasonable not to apply.

6. The lost profits were not too remote. Investment in further shipping ventures was within the parties’ reasonable contemplation, and vessel transactions had been expressly addressed in the freezing order. The loss was of the contemplated type even though the market’s unexpectedly large rise increased its amount. The judge was entitled to assess the uncertain lost opportunity on a percentage basis.

1. Court of Appeal (Civil Division): The appeal from the damages award was dismissed unanimously: [2017] EWCA Civ 1877.
2. Commercial Court: Males J dismissed the applications to set aside the inquiry order or withhold relief and held the appellants liable under the cross-undertaking: [2016] EWHC 2163 (Comm). He awarded US$59.8 million in damages and US$11.04 million interest: [2016] EWHC 2451 (Comm).
3. Commercial Court: Andrew Smith J ordered an inquiry into the respondents’ loss after most of the underlying claims had been dismissed: [2014] EWHC 3102 (Comm).