Shanghai Hongtou Network Technology Co Ltd v Jagex Ltd

Fortification of a cross-undertaking in damages may be ordered where the applicant shows an informed and realistic estimate of potential loss, a sufficient risk of loss, and a causal connection between the interim injunction and that loss. Precise financial evidence is helpful but not essential where commercial uncertainty makes exact calculation impossible. The court may assess an appropriate protective sum on the available evidence, while rejecting fanciful or weakly supported loss projections. The risk that an injunction will prevent a transaction during unusually favourable market conditions may justify fortification even though the resulting loss cannot be quantified scientifically.

The claimant obtained an interim injunction restraining Jagex Ltd from registering a transfer of its shares to the second and third defendants. The defendants sought fortification of the claimant’s cross-undertaking in damages. They relied on the risk that the injunction would prevent an onward sale or initial public offering during favourable market conditions, and would restrict the use of dividends.

The respondents disputed the projected losses, their causal connection with the injunction, and the practical need for security. The issue was whether fortification was required and, if so, in what amount.

1. Application granted. The cross-undertaking was ordered to be fortified in the sum of £35 million by secured cash deposit, bank guarantee or another appropriate mechanism. If fortification was not provided within 28 days, the injunction would lapse.
2. The applicable requirements, summarised in Phoenix Group Foundation v Cochrane [2018] EWHC 2179 (Comm), were that the applicant must show: an informed and realistic estimate of likely loss; a sufficient level of risk of loss; and that the injunction was a cause without which the loss would not have been suffered.
3. The absence of assets within the jurisdiction and the substantial practical difficulty of enforcing an English judgment in China established a relevant enforcement risk. That risk supported the need for fortification.
4. The projected losses based on a 2% reduction in profits, alleged customer loss and possible departures of senior managers were insufficiently supported. The court rejected those calculations as a basis for quantification. The inability to use dividends during the injunction period was more plausible, but did not determine the full amount.
5. Exact calculation was not essential. Following the approach identified in Sinclair Investment Holdings SA v Cushnie and others [2004] EWHC 218 (Ch), the court could assess an appropriate figure where the risk of loss was apparent but commercial uncertainties prevented a precise valuation.
6. There was a real possibility that the injunction would prevent a sale during unusually favourable conditions in the online gaming market and that a later sale would realise less. The injunction therefore had sufficient causal significance, and the risk was substantial enough to require protection.

The judgment concerned a first-instance application for fortification of the cross-undertaking given when the interim injunction was granted. The injunction had been granted by Mr Charles Hollander QC, sitting as a deputy High Court Judge, on 12 June 2020.