Practice and procedure – Freezing order – Cross-undertakings in damages – Fortification – Appellants alleging fraudulent misrepresentations by respondents induced them to invest in property schemes – Appellants obtaining worldwide freezing order (WFO) freezing respondents’ assets – Court ordering appellants to provide further fortification for undertaking in damages – Appellants appealing – Whether respondents advancing good arguable case of loss resulting from WFO – Appeal allowed
The appellants alleged that they were induced by fraudulent misrepresentations by the respondents (among others) to invest in property investment schemes promising a fixed income of between 8% and 12% for 10 years. Between 2012 and 2019, the appellants said they paid over sums totalling approximately £45,166,210 which had been lost. The respondents denied the claim.
On 4 February 2021, on the appellants’ application without notice, the Commercial Court made a worldwide freezing order (WFO) freezing the assets of each of the respondents up to the value of £50 million. Eight of the appellants gave an undertaking in damages and further undertook to provide fortification by subscribing to an insurance policy with a limit of £500,000.
On 12 March 2021, the return date specified in the WFO, the respondents applied informally for an increase in the amount of fortification on the basis that there was a substantial risk that the existence of the WFO might cause the bank to make demand for repayment of a loan of US$9,292,719 and to realise security held for that loan in the sum of £8,888,900. The respondents asserted that, in such an eventuality, they would suffer a loss if the exchange rate was less than US$1.55 to £1, as they did not intend to redeem the loan until sterling had appreciated to that level.
The judge accepted the respondents’ evidence and found they had established a good arguable case that they would suffer loss if the US dollar loan were to be called in, estimated at £800,000, and ordered an increase in fortification in that amount. The appellants appealed.
Held: The appeal was allowed.
(1) Where a claimant had obtained a freezing order preserving assets over which it might be able to enforce on the basis of having shown the court that it had a good arguable case, it was appropriate that, if the defendant could show that it too had a good arguable case that it would suffer loss in consequence of the making of the order, it should equally be protected. It was contrary to principle to require proof on the balance of probabilities on such an application and so to do would encourage wasteful satellite litigation.
Broadly speaking, an intelligent estimate had to be made of the likely amount of any loss which might be suffered by the applicant for fortification by reason of the making of an interim order. The court had to ascertain whether there was a sufficient level of risk of loss to require fortification. The loss should have been or was likely to be caused by the granting of the injunction: Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295; [2015] 1 WLR 2309 and Jirehouse Capital v Beller [2008] EWHC 725 (Ch) followed.
Those requirements were inextricably linked. The applicant for fortification had to show a good arguable case for it. In the interlocutory context, showing a sufficient level of risk of loss to require fortification was synonymous with showing a good arguable case to that effect. In some cases, the assessment of loss might at the interlocutory stage be difficult. It was in such cases that an intelligent estimate was required. Such an estimate would be informed and realistic although it might not be entirely scientific.
(2) As to causation, it was sufficient for the court to be satisfied that the making of the order or injunction was a cause without which the relevant loss would not have been suffered. The court could make an intelligent estimate which was informed and realistic, although not necessarily entirely scientific, of the likely amount of any loss which might be suffered by the applicant by reason of the freezing order. The applicant had to show a sufficient level of risk of loss to require fortification, ie, had shown a good arguable case to that effect: Phoenix Group Foundation v Cochrane [2018] EWHC 2179 (Comm) considered.
An application for fortification could not be based on mere assertion or supposition but required an evidential foundation. However, that was not a separate requirement, but merely an obvious aspect of the need for the applicant to demonstrate a good arguable case, it being impossible to demonstrate such a case without an evidential foundation.
Further, it was important to bear in mind that it was necessary for the applicant for fortification to demonstrate that the losses would result from the grant of the injunction rather than from the underlying proceedings, referring to the decision; Although that was no more than an aspect of the causation element of the applicable requirements.
(3) In the present case, the respondents could reasonably have been expected to obtain evidence of the availability and cost of refinance for the US assets so as to replicate the physical hedge; and/or options or swaps which would have protected against the appreciation of sterling to $1.55 in respect of a notional sum equivalent to the sterling deposit. Adducing evidence that such replacement options were not reasonably available was a pre-requisite of inviting the judge to embark on the assessment of highly speculative future losses based on currency movements over indeterminate periods of time. Overall, the respondents had failed to adduce evidence demonstrating a good arguable case that they would suffer loss as a result of the grant of the WFO and the judge was wrong, as a matter of principle, to find that they had.
(4) The judge had considered the correct principles and taken into account the relevant evidence. However, the claim was for entirely speculative losses in what was in any event an unlikely scenario, one which he could in any event protect himself against simply by replacing the arrangement he feared he might lose. Accordingly, the appeal would be allowed and the judge’s order that the appellants provide further fortification for the undertaking in damages would be set aside.
Daniel Saoul QC and Matthieu Gregoire (instructed by Trowers & Hamlins LLP) appeared for the appellants; Matthew Collings QC (instructed by Simon Burn Solicitors, of Cheltenham) appeared for the respondents.
Eileen O’Grady, barrister
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