The Claimants Listed in Schedule 1 to the Claim Form v Nicholas Spence & Ors.

On an application to fortify a cross-undertaking in damages supporting a freezing order, the applicant must show a good arguable case that the order will cause loss. This requires an informed and realistic estimate, a sufficient risk of loss, and causation. Evidence is essential to that case but is not a separate requirement. If the order removes a readily replaceable hedge or other protection, present loss is ordinarily limited to the cost of replacement, allowing for saved costs, rather than a speculative worst-case loss if the risk later materialises. Fortification cannot rest on a fanciful risk or an unexplained estimate of uncertain currency movements.

The claimants, who alleged that the respondents had induced investments through fraudulent misrepresentations, obtained a worldwide freezing order. Eight claimants gave undertakings in damages supported by £500,000 of insurance. On the return date, Mr Spence sought additional fortification, arguing that the order might cause Coutts to call in US dollar loans secured by a sterling deposit and thereby expose him to currency loss.

Moulder J accepted that he had a good arguable case of loss and ordered a further £800,000. The claimants appealed on the evidence of Mr Spence’s plan, the risk of a demand, the estimate of loss, and the speculative nature of the claim.

Appeal allowed. Phillips LJ gave the lead judgment, with Carr LJ and Underhill LJ agreeing. The order requiring the appellants to provide further fortification was set aside.

1. Applicable principles. The principles governing fortification were those stated in Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295, [2015] 1 WLR 2309, and summarised in Phoenix Group Foundation v Cochrane [2018] EWHC 2179 (Comm). The applicant must provide an intelligent estimate of likely loss, show a sufficient risk of loss amounting to a good arguable case, and establish that the order is a cause without which the loss would not occur. An evidential foundation is an aspect of the good arguable case, not an additional requirement.
2. Nature of the alleged loss. Mr Spence’s arrangements constituted a physical currency hedge. Realisation of the sterling deposit would not itself create a net exchange loss because the value of his US dollar assets and the deposit were intended to offset one another. His actual loss would be the loss of the hedge. Where protection can reasonably be replaced before the protected risk materialises, the relevant loss is the cost of replacement, less saved costs, rather than the prospective loss in a worst-case scenario. Mr Spence provided no evidence of the availability or cost of refinancing, options, swaps, or other replacement arrangements.
3. Risk and causation. Although Coutts could demand repayment at any time, that contractual power existed independently of the freezing order. The loans were substantially over-secured by cash, and Coutts had been aware of the order for several weeks without making demand or raising concerns. The evidence did not establish a real, rather than fanciful, risk that the order would cause the demand. The Court also treated the causation point discussed in Harley Street Capital Limited v Tchigirinski [2005] EWHC 2471 (Ch) as part of the general causation requirement, not as a separate test.
4. Estimate of loss. The proposed loss depended on uncertain currency movements over an indeterminate period and an unexplained figure of £800,000. That was intelligent guesswork, not an informed and realistic estimate. Although the Judge was entitled to accept Mr Spence’s evidence that he intended to wait for sterling to reach $1.55, the wider claim still failed.
5. Appellate intervention. The Court recognised the restraint required when reviewing a commercial judge’s assessment of what is well arguable, as stated in Lakatamia Shipping Co Ltd v Nobu Su [2012] EWCA Civ 1195. The Judge’s conclusion was nevertheless plainly wrong because the alleged loss was speculative, unlikely, and capable of protection through replacement arrangements.

• Court of Appeal (Civil Division) — In [2022] EWCA Civ 500, allowed the appeal and set aside the order for additional fortification.
• High Court, Queen's Bench Division, Commercial Court — Moulder J’s reserved judgment dated 16 April 2021 accepted a good arguable case of loss and ordered an additional £800,000 of fortification.