JHA | Damages for breach of an Injunction

Damages for breach of an Injunction

May 14, 2018

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The recent decision of the UK Supreme Court in JSC BTA Bank v Ablyazov and another (No 14) [2018] 2 WLR 1125 has held that where there is a defendant who agrees with a third party to break a freezing injunction by dissipating assets covered by that injunction, and agrees to engage in conduct concealing what has happened to those assets, a cause of action is available in English law for the tort of conspiracy. A claim can be brought for damage caused to the claimant by the conspiratorial agreement and its implementation.

The Supreme Court did not have to decide, and did not decide, whether there could be a cause of action for damages caused by contempt of court. Contempt has numerous different forms. One form is where there is breach of an injunction. There have been various judicial statements supporting the proposition that breach of an injunction does not, in itself, give rise to cause of action in damages. The Supreme Court decision applies where there is a conspiracy to break an injunction causing damage.

(A) Recovering losses through a claim in the tort of conspiracy 

Conspiracy as a tort consists of two forms: (1) damage caused regardless of the use of unlawful means, when there is a conspiracy to injure and where that is the predominant purpose of the agreement and its implementation, and (2) conspiracy when unlawful means are used and the conduct is directed against the claimant, and the defendants should have known in the circumstances that injury to the claimant is likely and injury results. ‘Unlawful means’ conspiracy is not restricted to where the unlawful means themselves would be actionable by the claimant with a remedy in damages.

Where a defendant has dissipated assets in breach of a freezing order, the claimant may suffer loss because this impedes or prevents enforcement of a money judgment. As against the defendant, the claimant has the money judgment which he can enforce if he finds assets. The entitlement to claim damages could include extra costs incurred in identifying assets and seeking to enforce. It might also include loss caused through delay in enforcement caused by the conspiracy.

In relation to the third party, the damages claim provides a remedy which could involve the third party paying damages for preventing enforcement. In these circumstances, there will be issues of causation and quantum which will involve looking at what the position would have been absent the conspiracy. The defendant might have hidden assets anyway. Enforcement of a money judgment against the defendant might have faced substantial practical difficulties. In assessing causation and quantum as against the third party, it may be that the court would look at the loss of the chance of successful enforcement against the defendant and value the loss by reference to that chance. In the case before the Supreme Court, the defendant, Mr Ablyazov, has had a formidable record of disobeying court orders, resisting enforcement and has become a fugitive from justice with an unknown location. Had the third party not assisted him, it might well have been the case that a judgment against Mr Ablyazov, proved difficult or impossible to enforce. If this is the case, the damages to be awarded against the third party would need to take this into account. It might be that there would be an argument by the third party that if he had not successfully conspired with the defendant to defeat enforcement, someone else would have done so. Such an argument would encounter the difficulty that had someone else conspired they would have been liable to the claimant in damages, and the law of causation should not permit the third party to escape on this ground.

The obvious shortcoming of a claim in the tort of conspiracy is that that it requires someone who conspires with the defendant.

(B) Recovering losses where there is no conspiracy: claims against the defendant under section 50  

There can be circumstances where a claimant has suffered loss as a result of a breach of a court order by the defendant, for which he would like to recover damages against the defendant but cannot do so under the tort of conspiracy. One example is where a claimant has obtained an anti-suit injunction against a defendant restraining the defendant from unconscionable conduct in bringing proceedings abroad. If the defendant breaks the injunction he may cause costs abroad to the claimant. Another example is a claimant with a freezing injunction which has been disregarded, may find himself with extra costs which do not form part of the costs of the proceedings. These could be costs of enquiries about assets abroad or costs incurred in foreign courts seeking to identify assets which could be used to satisfy a judgment. There may be proceedings abroad which have been fruitless. In these circumstances, the claimant should have a claim for damages under section 50 of the Senior Courts Act 1981 in addition to the injunction. The freezing injunction is an injunction within the meaning of section 50. Section 50 provides:

  “50. Power to award damages as well as, or in substitution for, injunction or specific performance.

 Where the Court of Appeal or the High Court has jurisdiction to entertain an application for an injunction or specific performance, it may award damages in addition to, or in substitution for, an injunction or specific performance.”

The application of section 50 is best understood against its historical background. The previous jurisdiction under section 2 of the Chancery Amendment Act 1858 (Lord Cairns’ Act) was:

“In all cases in which the Court of Chancery has jurisdiction to entertain an application for an injunction against a breach of any covenant, contract, or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant, contract, or agreement, it shall be lawful for the same court, if it shall think fit, to award damages to the party injured, either in addition to or in substitution for such injunction or specific performance, and such damages may be assessed in such manner as the court shall direct.”

This was thought to be ‘procedural’, conferring a jurisdiction on the Court of Chancery which avoided the need for the plaintiff to sue for the damages in a common law court based on a cause of action in contract or for the ‘wrongful act’.[i] After the Judicature Acts 1873-1877, the common law courts and the Court of Chancery were replaced with a single High Court and there was no need any longer for a provision conferring this damages jurisdiction on the Court of Chancery. The Act was repealed in 1883, although the jurisdiction to award damages by reference to its principles survived; Leeds Industrial Co-operative Society v Slack [1924] AC 851. In his judgment Lord Finlay said: “Though the Act is gone, the law which it laid down still exists…”. In that case, the House of Lords held by a majority that damages could be awarded for loss not yet sustained so that instead of an injunction restraining building interfering with rights of light, compensation could be awarded which took into account loss of light for the future.

Under Lord Cairns’ Act it is sufficient that there would have been jurisdiction to entertain the application for an injunction in the particular proceedings even though, on the facts, there was no prospect of a judge exercising discretion to grant the injunction. The distinction was between absence of jurisdiction to grant the injunction in the suit, and not doing so as a matter of discretion. Freezing injunctions did not exist in 1858 or at any time prior to the repeal of Lord Cairns’ Act. They were recognised as legitimate by enactment of section 37 of the Senior Courts Act 1981, at the same time and in the same enactment as section 50. The first Mareva case was in 1975. Mareva Injunctions belong to an era commencing nearly a century after the repeal of Lord Cairns’ Act. Section 50 is not limited to cases of breach of contract or tort or for other ‘wrongful act’. In principle, it applies to any injunction which can be granted under section 37 of the same Act.

The words ‘in addition to’ in section 50, contemplate that there can be granting of an injunction and an award of damages under the section. Under Lord Cairns’ Act, which included the same expression,  the plaintiff could not obtain both specific performance or the injunction, and damages for non-performance of the contract because the plaintiff cannot have both performance of the contract and damages for its non-performance where this would be to give to the plaintiff inconsistent remedies. If there was delay in complying with an order of specific performance, damages could be granted for the loss caused by the delay because this was consistent with the defendant also carrying out the contract after the relevant delay. This might be an award of damages for losses sustained prior to the injunction being granted or for losses sustained because the injunction granted is in more restricted terms than the underlying substantive rights. An example would be where an injunction is granted against part of a building to be constructed in infringement of rights of light but where there will still be an infringement of those rights because the injunction does not afford complete protection.

In the case of extra costs which are not costs of the proceedings, but which are caused by breach of a freezing order, the injunction has been granted but has proved to be an ineffective remedy through contempt of court. In principle the wording of section 50 can cover such a situation. The damages are awarded in addition to the injunction because the injunction has not fulfilled the purpose for which it was granted. They are also awarded in substitution for the injunction because that injunction has proved to be ineffective and the damages compensate for losses which have been sustained but which would not have been sustained had there been compliance with the injunction.

Where this has happened, it is appropriate that the court has a discretion to award damages for the loss caused, the words cover such a case, and protests that section 50 somehow is limited by reference to Lord Cairns’ Act are answered by section 50 not having the procedural purpose of that Act, and not being limited to breach of contract or other wrongful act.

In Morris-Garner v One Step [2018] UKSC 20 Lord Reed with whom three other justices agreed, referred to Lord Cairns’ Act and there was mention of section 50. In that case, it was recognised that damages could be awarded on the basis of what would be a reasonable licence fee negotiated in advance for release of a contractual restriction, previously called ‘Wrotham Park Damages’ now to be called ‘Negotiating Damages’. This measure of damages is available in certain other situations where there has been wrongful interference with, or appropriation of, the claimants ‘asset’. It is a measure of damages provided for in trade secret cases by the draft Trade Secrets (Enforcement, etc.) Regulations 2018, based upon the European Directive (EU) 2016/943 on trade secrets.

(C) Damages under section 50 for breach of an injunction by third parties

Where a third party knowingly aids and abets a breach of an injunction, an injunction can be granted against the third party from continuing that conduct. If notwithstanding the granting of such an injunction the third party assists the dissipation of assets in breach of a freezing injunction, then in principle damages should be available against the third party under section 50. There are circumstances where the court will grant an injunction against a third party (a non-party) based upon the cause of action against the defendant. This injunction may be ancillary to a freezing injunction granted against the defendant, restraining the non-party from dealing with certain assets which may, in due course, through one route or another, be taken to satisfy a judgment against the defendant. In these circumstances, if an injunction is granted against the third party and is disregarded by the third party, in principle damages are available in addition to that injunction under section 50.

(D) The future 

Although its wording of section 50 to some extent echoes Lord Cairns’ Act, the context in which it was enacted, namely a hundred years after enactment of the Judicature Acts, and the difference in wording show that its effects are not limited to the constraints of Lord Cairns’ Act. The courts have yet to consider what may be the boundaries of the jurisdiction under section 50. When they do so, they will need to bear in mind that its provisions can apply to circumstances vastly different from those that could have been envisaged by Lord Cairns in 1858.

[i] There was a jurisdiction which the Court of Chancery exercised before 1858 to award damages in certain restricted categories of case; see Phelps v Prothero (1855) 7 De G.M. & G. 722 at page 744 and other cases cited in Spry on Equitable Remedies, 2001, at pp. 623-625.

 

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