Court Of Appeal Orders Claimant To Pay Over US$ 70 Million Damages For Worldwide Freezing Injunction

Co-authored by Olga Kasatkina

SCF Tankers Limited (formerly Fiona Trust & Holding Corporation) and Others v Yuri Privalov and Others (2017)

On 21 November 2017, the Court of Appeal handed down a welcomed decision concerning worldwide freezing orders in the case of SCF Tankers Limited (formerly Fiona Trust & Holding Corporation) and Others v Yuri Privalov and Others (2017). The Court clarified the principles governing the award of damages against a person who has provided a cross-undertaking in damages to obtain an injunction, where the claims which were the basis of such injunctive relief were subsequently dismissed at trial.

Background

The claimant (the appellant) obtained a worldwide freezing order (WFO)1 against the defendant, which permitted transactions in the ordinary course of business, with the exclusion of the sale and purchase of vessels, the sale and purchase of shares in any company or corporation, and the grant of security over any vessels or shares. In return, the claimant had to provide the usual cross-undertaking in damages, which was aimed at compensating the defendant if it was subsequently determined that the applicant was not entitled to the relief granted by the court.

The defendant discharged the WFO by making a payment of US $208.5 million into court, as security, and it was able to use the secured funds in the ordinary course of business (which, as set out above, did not include selling or purchasing vessels). The defendant was given liberty to apply to the court for the release of the secured funds for such excluded transactions, but did not do so.

The trial judge dismissed most of the claims brought by the claimant, and the claimant was made to honour the cross-undertaking and pay the defendant US $59.8 million in damages and US $11.04 million in interest, as compensation for the loss caused by the WFO and the security provided. The claimant appealed against this decision; however, upon analysis of the various issues set out below, the appeal was dismissed.

The issues

The Court had to determine whether or not the defendant's failure to make an application to the court for the release of the secured funds broke the legal chain of causation between the WFO and the loss.

1 - Burden of proof

It is for the party seeking to enforce the cross-undertaking to show that the damage they have sustained would not have been sustained but for the injunction. The Judge found, therefore, that the defendant had to show that the WFO...