Ennismore Fund Management Ltd v Fenris Consulting Ltd

JurisdictionCayman Islands
CourtGrand Court (Cayman Islands)
Judge(McMillan, J.)
Judgment Date18 March 2019
Date18 March 2019

(McMillan, J.)

Grand Court, Financial Services Division (Cayman Islands)

Injunctions — cross-undertaking in damages — inquiry as to damages — investment fund manager deprived of assets by injunction pending plaintiff’s unsuccessful application against it — court satisfied assets would have been invested but for injunction — investment loss not too remote — quantification necessarily imprecise

Held, ruling as follows:

(1) There were different stages of inquiry. First, the court must determine whether there was sufficient proof of any damage having been sustained. Secondly, if there was such proof, the court must determine whether the damage was too remote. Thirdly, if appropriate, quantification of loss would follow (para. 28).

(2) The court had carefully considered the evidence as to causation of loss and found Mr. Vigeland to be a credible witness. His evidence that, but for the injunction, the funds would have been invested was proved to the court’s satisfaction on a balance of probabilities. It was clear to the court that where the defendant had been deprived of the opportunity to reinvest its own resources, it could and should be inferred that this deprivation had caused the defendant at least some significant loss as distinct from no or nominal loss. The court was also satisfied that the defendant, as the party bearing the loss, was not a shell company but a substantive one, and that the loss it sustained was real and not fictitious. With respect to remoteness, the loss had arisen naturally, i.e. according to the usual course of things, from an investment entity being wrongfully deprived of its assets. The court found with no difficulty on a balance of probabilities that investment loss was a loss of a kind which the plaintiff when it sought the 2009 order should have realized was not unlikely to result from the injunction ultimately having been improperly obtained. Turning to the issue of quantification or assessment of loss, the plaintiff, as the party giving the undertaking, should have reasonably foreseen loss of the type that was actually suffered and not the particular loss within that type. The assessment exercise would often be imprecise and a liberal assessment should be adopted. The widely approved course in circumstances such as the present was not to abandon measurement of loss but instead to approach it as the exercise of a sound imagination and the wielding of a broad axe. The court was necessarily constructing and therefore imagining a situation which never arose because the plaintiff prevented it from arising. Proof of the impossible was not, of course, required, but instead assessment with a view to compensation. Bearing in mind that during their professional relationship the plaintiff and Mr. Vigeland had a shared investment philosophy and a shared sense of priorities and aspirations, and recognizing the historical affinity between the plaintiff’s returns and those of the HSBC Index, the court considered a solution based on those two factors to provide proportionate and measured compensation. The court would use an average of HSBC and the plaintiff’s returns, producing a blended figure of 210.05% of the original injuncted amount. The court was also aware of the potential opportunitiesthat could result from an aggressive shorting strategy and would allow a 10% uplift. There would be a further hearing so that the figures could be finalized (paras. 277–294).

(3) When establishing loss, the court would consider whether the loss had been caused by the injunction or, alternatively, whether the injunction was a significant determinant or operating cause of the loss. The court should not be over eager in its scrutiny of the relevant evidence of loss and should rely on a common-sense assessment of the evidence (paras. 29–44).

(4) The defendant had the burden of proving that the injunction caused it loss. The court rejected the defendant’s submission that once it established a prima facie case, the burden would then be on the plaintiff to show that the damage would not have been sustained but for the order (paras. 48–51).

(5) In relation to remoteness of damages, the defendant relied on the first, more general principle of remoteness in Hadley v. Baxendale. Thus, in the law of contract losses would be recoverable which arose naturally, i.e. according to the natural course of things, from a breach of the contract itself. The loss must be of such a kind that a breaching party when it made the contract should have realized was not unlikely to result from a breach of contract. The question was whether the loss was a type of loss for which the party could reasonably be assumed to have assumed liability. The plaintiff had given a serious undertaking to the court to obtain the injunction and paid the “price” for it (paras. 55–68).

(6) Once it had been established that damages were such as might fairly and reasonably be considered as arising naturally, i.e. according to the usual course of things, from the granting of the 2009 order, the next question for the court was as to the assessment of those damages. The assessment of damages sustained as a result of a freezing order was often inherently imprecise. The defendant could not say precisely what it would have done with its funds but for the freezing order. This problem had been created by the plaintiff’s obtaining of the injunction to which it was not entitled, and an over eager scrutiny of the defendant’s evidence and criticism of its methodology would not be appropriate. The court would assess damages as best it could on the available evidence (paras. 69–76).

(7) Contrary to the plaintiff’s submission, the undertaking continued in effect until the litigation ended in April 2016 when the Privy Council judgment was given. Great injustice would result if the undertaking were considered to have ceased to operate in February 2012, even though the proceedings continued for some years afterwards (paras. 79–81).

Cases cited:

(1)Abbey Forwarding Ltd. v. Hone (No. 3), [2014] EWCA Civ 711; [2015] Ch. 309; [2014] 3 W.L.R. 1676, considered.

(2)Allied Maples Group Ltd. v. Simmons & Simmons, [1995] 1 W.L.R. 1602; [1995] 4 All E.R. 907; [1996] C.L.C. 153, considered.

(3)Fiona Trust & Holding Corp. v. Privalov (No. 2), [2016] EWHC 2163 (Comm), considered.

(4)Hadley v. Baxendale, [1843–60] All E.R. Rep. 461; (1854), 9 Exch. 341; 156 E.R. 145; 23 L.T.O.S. 69; 18 Jur. 358, applied.

(5)Hoffmann-La Roche & Co. A.G. v. Trade & Indus. Secy., [1975] A.C. 295; [1974] 2 All E.R. 1128; (1974), 118 Sol. Jo. 500, considered.

(6)Koufos v. C. Czarnikow Ltd., [1969] 1 A.C. 350; (1967), 111 Sol. Jo. 848; sub nom. The Heron II, Koufos v. C. Czarnikow Ltd., [1967] 3 All E.R. 686; sub nom. C. Czarnikow Ltd. v. Koufos, [1967] 2 Lloyd’s Rep. 457, considered.

(7)Les Laboratoires Servier v. Apotex Inc., [2008] EWHC 2347 (Ch); [2009] F.S.R. 3, considered.

(8)One Step (Support) Ltd. v. Morris-Garner, [2018] UKSC 20; [2019] A.C. 649; [2018] 2 W.L.R. 1353; [2018] 3 All E.R. 659; [2018] 2 All E.R. (Comm) 769; [2018] IRLR 661; [2018] 1 Lloyd’s Rep. 495, considered.

(9)SCF Tankers Ltd. v. Primalov, [2017] EWCA Civ 1877; [2018] 1 W.L.R. 5623, considered.

(10)Sagicor Gen. Ins. (Cayman) Ltd. v. Crawford Adjusters (Cayman) Ltd., 2011 (1) CILR 130, applied.

(11)Smith v. Day (1882), 21 Ch. D. 421, applied.

(12)Transfield Shipping Inc. v. Mercator Shipping Inc., [2008] UKHL 48; [2009] 1 A.C. 61; [2008] 3 W.L.R. 345; [2008] 4 All E.R. 159; [2008] Bus. L.R. 1395; [2008] 2 All E.R. (Comm) 753; [2008] 2 C.L.C. 1; [2008] 2 Lloyd’s Rep. 275, considered.

The defendant sought an inquiry as to damages.

The plaintiff company was a UK-based fund manager. Mr. Vigeland had been employed by the plaintiff as a fund manager. In 2004, when he moved to Norway, Mr. Vigeland’s services had been provided by the defendant company through a consultancy services agreement. The agreement allowed the plaintiff to claw back past bonus payments in the event of poor performance of the funds. In order to do so, the plaintiff paid out only half the bonuses in cash, investing the remainder in its funds and releasing them to the portfolio manager on a rolling three-year basis. If a manager’s funds suffered any net investment losses attributable to the manager’s advice, the plaintiff would be entitled to claw back the loss from the sum invested.

In 2007 and 2008, following the general collapse in the financial markets, the funds for which the defendant was responsible suffered losses. No bonus was paid to it. The parties agreed on a sum to be clawed back by the plaintiff for 2007 but not for 2008. In 2009, the plaintiff brought a claim to claw back the 2005 and 2006 bonuses in order to cover the 2008 losses. It sought and obtained an ex parte injunction (“the 2009 order”) which provided that, pending determination of the claim, the defendant was prohibited from transferring or dealing with (a) the defendant’s redemption proceeds of 10,537.27 shares in the Ennismore Vigeland Fund (EVF); (b) any distributions from the liquidation of EVF in respect of the 3,512.42 shares held in the name of the defendant; and (c) the 7,828.22 shares in the Ennismore European Smaller Companies Hedge Fund (ESCHF) still registered in the defendant’s name. Substantially all of the defendant’s assets were the subject of the 2009 order. The redemption proceeds/shares in EVF and ESCHF were converted into cash after the injunction was granted.

The 2009 order recorded an undertaking by the plaintiff as follows: “If this Order has caused loss to the Defendant, and the Court decides that the Defendant should be compensated for that loss, the Plaintiff will comply with any order the Court may make.”

In 2012, the Grand Court (Foster, J.) held that the plaintiff was entitled to claw back the defendant’s bonus. The Court of Appeal allowed the defendant’s appeal, holding that the plaintiff could only...

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2 cases
  • Ennismore Fund Management Ltd v Fenris Consulting Ltd
    • Cayman Islands
    • Court of Appeal (Cayman Islands)
    • 15 Abril 2020
    ...plus interest of €339,320, to Fenris pursuant to EFML’s cross-undertaking in damages. The judgment of the Grand Court is reported at 2019 (1) CILR 405. On appeal, EFML submitted that the judge’s finding that, but for the injunction, Fenris would have invested the frozen funds in a portfolio......
  • Kosmos Capital Pty Ltd v Turiya Ventures Ltd
    • Cayman Islands
    • Grand Court (Cayman Islands)
    • 27 Junio 2019
    ...Inc., 2015 (1) CILR 451, applied. (2)Ennismore Fund Management Ltd. v. Fenris Consulting Ltd., 2016 (1) CILR 282; further proceedings, 2019 (1) CILR 405, referred to. (3)Harvey River Estate Pty. Ltd. v. Foster, Cause No. FSD 175 of 2015, Grand Ct., June 9th, 2016, unreported, distinguished.......

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