Ennismore Fund Management Ltd v Fenris Consulting Ltd

• Jurisdiction: Cayman Islands
• Judge: (Goldring, P., Rix and Field, JJ.A.)
• Judgment Date: 15 April 2020
• Court: Court of Appeal (Cayman Islands)

ENNISMORE FUND MANAGEMENT LIMITED

and

FENRIS CONSULTING LIMITED

(Goldring, P., Rix and Field, JJ.A.)

Court of Appeal (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 of Appeal not satisfied assets would have been invested as pleaded but for injunction — when assessing compensation, court made best possible assessment of profit manager would have made

Held, allowing the appeal and awarding Fenris the sum of €558,034.89:

(1) When considering the applicable legal principles, damages pursuant to cross-undertakings in damages were to be assessed by reference to ordinary contractual principles including causation, mitigation and remoteness, although those principles might need to be applied with some flexibility to take account of the fact that the analogy with breach of contract was not exact. The party seeking compensation pursuant to an undertaking in damages bore the burden of proving the loss it claimed had been caused by the injunction supported by the undertaking. Where it was claimed that an injunction had caused loss by preventing the injuncted party from pursuing a particular course of action that would or might have been profitable, the question was a hypothetical one and the injuncted party bore the burden of proving on the balance of probabilities that, had there been no injunction, it would have pursued that course of action but, if he discharged this burden, the loss caused by being prevented from pursuing the course of action was assessed on the loss of a chance basis. Where a defendant’s loss sought to be recovered under a cross-undertaking was the loss of an opportunity to take steps that might, depending on circumstances beyond the defendant’s control, have resulted in a gain, the defendant must prove on the balance of probabilities the opportunity that had been lost but, when assessing the damages for the loss, the court would make the best possible assessment of the gain which the defendant would have made, taking account of and making allowances for the uncertainties inherent in the exercise. Unless the injunction had been obtained fraudulently or maliciously, the court was not required to conduct a “liberal assessment” of damages where the injunction supported by the cross-undertaking was a freezing order. In light of the above principles, for Fenris to establish its pleaded claim for damages for the loss it claimed to have suffered by reason of the injunction, it had, as a minimum, to prove on the balance of probabilities that, acting by Mr. Vigeland, it would have invested the whole of the frozen funds in a portfolio of European Small Caps throughout the period of February 27th, 2009 to May 25th, 2016 using broadly the same investment strategy Mr. Vigeland had used during his time with EFML. If Fenris satisfied that threshold requirement, it would be entitled to such lost profit as it could persuade the court it would have had a substantial chance of making, the court making the best assessment of the profit that it could (paras. 39–41; para. 49; para. 52; para. 55).

(2) In relation to the duration of the injunction, two phrases in the freezing order were key for the resolution of this issue: “pending determination of the plaintiff’s claim in this action” and “or until further order.” Construed in the context of the order as a whole and bearing in mind the purpose of a freezing order (i.e. to preserve the assets of the defendant so that a judgment obtained by the plaintiff would not be of no effect), the words “pending determination of the plaintiff’s claim in this action” meant until judgment had been given on EFML’s claim in the Grand Court together with the consequential orders made thereon. The words did not mean “final determination of the plaintiff’s claim in theaction” such that the freezing order was to continue until the exhaustion of all rights to appeal, including to the Privy Council. Such a construction would be fundamentally at odds with the purpose of a freezing order. What the unsuccessful defendant could do after trial was to apply for a stay of execution which the court might grant if his grounds of appeal had merit, there was a real risk that without a stay the defendant would be unable to recover sums paid to the plaintiff under the judgment if the appeal succeeded, and the defendant was willing to pay the judgment sum into court. The court also accepted the submission that the words “further order” meant an order that expressly or impliedly discharged the injunction, which was what Foster, J.’s order impliedly did by requiring Fenris to bring about the payment to EFML (paras. 106–108).

(3) The conclusion that the entirety of the freezing order ceased to have effect upon the making of Foster, J.’s order meant that it was strictly unnecessary to deal with EFML’s submission that, if the undertaking had continued until the payment of the sum ordered to be paid by the Privy Council, after Foster, J.’s order it had not been the injunction that had caused Fenris to miss the opportunity to invest the frozen funds but the transfer of those funds into the legal ownership of EFML pursuant to the order. However, since the point had been fully argued the court would deal with it briefly. It was well established that causation was a question of fact which should be decided by applying the relevant principles in a common sense way. Adopting that approach, Foster, J.’s order totally eclipsed the freezing order as the cause of Fenris’s inability to take the opportunity of using the proceeds of its retained bonus assets to invest in European Small Caps as pleaded (paras. 106–110).

(4) The court accepted EFML’s submission that the judge had misunderstood and misapplied the view expressed in several of the leading authorities that a cross-undertaking was the price the plaintiff paid in respect of an interlocutory injunction. The judge had erroneously proceeded on the basis that where some damage to the defendant could be seen to have resulted from the injunction, the plaintiff was honour bound to compensate the defendant regardless of whether that damage strictly speaking was the damage that the defendant had sued for and/or proved to the requisite standard. The judge appeared not to assess the evidence by reference to the standards applicable where there had been an ordinary breach of contract (as was required) but by reference to a presumption that a price in the form of substantial compensation had to be paid by EFML. The judge erred in rejecting EFML’s proposition that, where it was said that the injunction had caused a loss preventing the applicant from pursuing a course of action that would have been profitable, the correct approach was that the applicant bore the burden of proving on the balance of probabilities that, had there been no injunction, it would have pursued that course of action and, if he did so, the loss caused by being prevented from doing that could be assessed on a loss of a chance basis. The proposition was a correct statement of the law. Further and in any event, it was wellestablished on the authorities that the causation test in cases where a cross-undertaking was being enforced was the “but for” test, with the concept of effective cause only coming into play if there were two concurrent causes. The court agreed with EFML’s submissions that the judge seriously misdirected himself in basing his finding that Fenris would have invested the frozen funds as pleaded in its points of claim on the assertions made in evidence by Mr. Vigeland. Whether an individual would have adopted a course of conduct essential for the establishment of his or his company’s claim must be determined from all the circumstances and not on the basis of self-serving evidence given with the benefit of hindsight of what the witness believed he would have done. It followed that what the judge ought to have done was not only to consider whether he believed in Mr. Vigeland as a sincere witness but also to identify and weigh the objective features of the circumstances of the case pointing both in favour of and against Fenris’s case. The judge did not do so in the present case (para. 111; para. 116; paras. 119–120).

(5) The deficiencies in the judge’s judgment were so serious that the court should set aside his finding that, on the balance of probabilities, but for the injunction, Fenris would through Mr. Vigeland have invested the frozen funds in European Small Caps broadly following the investment strategy he had previously adopted. This finding was the result of an evaluative exercise that erroneously focused on the evidence of Mr. Vigeland and the judge’s belief that he was a truthful witness, rather than on the objective factors arising from the surrounding circumstances. The usual restriction on appellate review of a court’s finding of fact did not operate. The judge’s finding was also seriously flawed by reason of (a) the judge’s underlying starting point that EFML should pay substantial compensation to Fenris as the price for having obtained the injunction on a claim that failed at trial; (b) the judge’s various observations that (i) if Fenris proved on the balance of probabilities that it had suffered some loss that was not minor or nominal, the court should assess the damages as best it could on the available evidence; (ii) it being clear that Fenris had been deprived of the opportunity to reinvest its own resources, it was to be inferred that Fenris must have suffered at least some significant loss distinct from nominal or no loss; and (iii) once Fenris proved on a balance of probability an investment loss, the quantification of that loss was an entirely different matter; and (c) the unfair and pejorative observations and criticisms aimed at EFML, such as calling into question EFML’s good faith and criticizing EFML’s business...