Abbey Forwarding Ltd & Anor v Hone & Ors

These Proceedings

The Role of HM Revenue & Customs in these Proceedings

The Strike-Out Application

I struck out the relevant sub-paragraphs of the Points of Claim for detailed reasons that I gave at the time but which in summary were because, in relation to first point, as a matter of construction, the undertaking did not entitle someone other than the Defendants to make a claim or entitle the Defendants to bring a claim in respect of losses suffered by someone other than the Defendants and because the principles identified in Linden Gardens Trust Limited v. Lenesta Sludge Disposals Limited [1994] 1 AC 85 and Alfred McAlpine Construction Limited v. Panatown Limited [2001] 1 AC 518 were of no application to a claim based on a cross-undertaking applying SmithKline Beecham Plc v. Apolex Europe Limited [2006] EWCA Civ 658 [2007] Ch 71. I struck out the claim for exemplary damages following the reasoning of Jack J in Al-Rawas v. Pegasus Energy Limited and others [2008] EWHC 617 (QB) [2009] 1 All ER 346.

Case and Trial Management

Secondly, during the early evening of the 23^rd November 2012, I was informed by Mr Nathan on behalf of all the parties that they had agreed that the quantum aspects of this case would no longer form part of the hearing before me. I was not forewarned that this was a possibility and would not have acceded to such an application had it been made. By the start of the trial three extensive expert accountant reports had been prepared and cross-served, and a fourth was produced in the course of the hearing. The cost of producing this material will undoubtedly have been substantial. Inevitably the material has been prepared on a number of hypotheses concerning which claims would succeed and on various factual assumptions concerning the basis on which it had been assumed that the claims would succeed. Thus it was likely that resolving expert accounting issues would have taken rather longer at trial than was desirable. This might have led the parties to consider applying at an early stage for the initial hearing to be on all liability issues with the quantum issues being left for determination once the extent of Abbey’s liability had been established. If that course had been adopted at an early stage I can see that some costs savings might have been made. However that course was not adopted.

On 26^th November, I made clear my views as to what had been proposed but it became apparent that I had been left with no practical choice but to accede to what had been agreed by the parties. I was told that the experts had been released and were no longer available to give evidence within the period reserved for the trial. I was also told that Mr Coppel would be professionally embarrassed if I directed the trial to proceed in the following week. In fact I have been able to arrange for any quantum issues to be tried before me in Manchester starting on the 22^nd January 2013.

As noted above, HMRC’s strike out application applied not merely to the Points of Claim but also to a number of paragraphs within the expert report prepared by Mr Kevin Harding, the expert forensic accountant relied on by the Defendants. Mr Nathan declined to move that part of his application at the start of the trial because, he submitted, it would be preferable to leave that until the experts gave evidence. I acceded to that submission but in light of what has happened concerning the quantum aspects of this claim, that application was not in the end moved.

The Trial

Abbey operated a freight forwarding and goods warehousing business from premises in South East London (“the Warehouse”) that it leased informally from Wingpitch Limited, a company owned by Messrs Owen and various members of their families (“Wingpitch”). In May 2002 Abbey was granted an excise licence. Thereafter, it carried on a bonded warehouse business from the Warehouse. In 2005, Abbey entered into a movement guarantee arrangement with HMRC that enabled it to arrange transport of goods underbond from one bonded warehouse to another located either in England and Wales or elsewhere within the EU. Haulage was carried out either by road haulage operators appointed by Abbey’s customers or by operators appointed by Abbey.

HMRC alleged that there had been large scale evasions of excise duty on alcohol that had been stored in bond at the Warehouse as a result of such goods being diverted while in the course of transit from the Warehouse to another bonded facility. Abbey had been named in the documentation associated with the relevant movements as the consignor of the goods and/or the relevant movements of goods had been carried out under Abbey’s movement guarantee. In consequence, assessments in the sum of approximately £5.965m were raised by HMRC against Abbey (“the Assessments”). This represented excise duty and VAT allegedly lost to the Crown as a result of the alleged diversion of 301 separate consignments of bonded goods in transit from the Warehouse. It was Abbey’s role as consignor and/or the movement guarantee that gave rise to the alleged liability on which the Assessments were based.

HMRC presented a Petition seeking a winding up order against Abbey based on non-payment of the sums supposedly due under the Assessments. At a hearing on 4 February 2009 HMRC applied for the appointment of a provisional liquidator over Abbey. Blackburne J appointed Ms Brittain to that office. Ms Brittain then immediately applied for and was granted the Freezing Order by Blackburne J. The Freezing Order was sought in aid of the claim made in these proceedings by Abbey, acting by Ms Brittain, in which it was alleged that Abbey’s directors had been negligent in allowing Abbey to be exposed to the liability to HMRC and that the Defendants had been dishonestly complicit in the fraudulent activity that had led to the Assessments.

The Freezing Order restrained each of the Defendants from disposing, dealing with or diminishing the value of that Defendant’s assets up to a value of £5.95m or removing his assets up to that value from England and Wales. The Freezing Order as varied permitted Mr Hone to expend £10,000, Mr P Owen £3,750 and Mr W Owen £7,250 per month on living expenses. In addition, each was permitted to expend “… a reasonable sum on legal advice and representation …” and the Order expressly stated that it did not “… prohibit the Respondent from dealing with or disposing of any of his assets in the ordinary and proper course of business”. There was an express power contained in Paragraph 10(3) of the Freezing Order that permitted the parties to agree variations to the Order and liberty was given to the Defendants to apply to vary or discharge the Order on giving 72 hours notice in writing. Abbey gave the cross-undertaking which is in what is now the standard form. The cross-undertaking was in these terms:

"If the court later finds that this order has caused loss to the respondent and decides that the said respondent should be compensated for that loss, the applicant will comply with any order the court may make."

On 18^th March 2009, Abbey was ordered to be wound up on HMRC’s Petition based on the sums due on the Assessments. Ms Brittain was appointed Liquidator. She continued in that role until 29^th August 2012 when she was removed as liquidator on the application of the Defendants by an Order to which she consented. There was ostensibly an issue between the parties as to why she consented to this Order. She told me that it was for commercial reasons – Abbey was and is hopelessly insolvent, there were Liquidators’ costs and expenses outstanding of approximately £1.6m and HMRC had indicated that it was not prepared to support her activities financially beyond what it had so far paid. Mr Coppel was disposed to challenge that as being the true reason why she did not oppose the making of the Order. His client does not accept that Abbey is insolvent. It is not disputed however that there are fees outstanding to Ms Brittain as she alleges nor was it disputed that there was no prospect of them being paid at the time when she decided not to oppose her removal by Order. I accept Ms Brittain’s evidence as to why ultimately she did not oppose the making of an Order removing her as Liquidator because her evidence concerning the primary facts which she mentioned (that she was owed over £1.6m in fees that there was no prospect of her collecting and HMRC was not prepared to further support the liquidation financially) was not challenged and in those circumstances a decision not to oppose the application was obviously consistent with commercial logic.

Abbey’s claim against the Defendants was heard by Lewison J. between 6^th and 20^th July 2010 and was dismissed by a judgment delivered on 30^th July 2012 ([2010] EWHC 2029 (Ch)). By the Order made on 30^th July 2010 Lewison J dismissed the claim, discharged the freezing order with effect from 10^th September 2010 and ordered an inquiry under the cross-undertaking.

In essence the Assessments were based on an allegation that a total of 301 consignments of duty-suspended alcohol that left the Warehouse bound for other bonded warehouses had not reached their destination but had been diverted and sold illicitly. Lewison J explains in Paragraph 108 of his judgment how that allegation was based on 3 physical interceptions where the load in the vehicle did not correspond with the relevant documentation. The remaining consignments were identified by extrapolation because the goods concerned were owned by the same persons as owned the goods the subject of the interceptions relied on, the receiving warehouses and hauliers were the same and the movements concerned all took place in the period January 2007-8. Lewison J then said this at Paragraphs 109-110 of his Judgment:

“109.

The Re-Amended Particulars of Claim allege that that each of 301 consignments of duty suspended alcohol purportedly transported by the Company for purported supply to customers of SAS and W2W did not arrive at their destinations but were instead diverted within the United Kingdom. A Request for Further information of that allegation asked: “in relation to each and every of the 301 consignments referred to, please set out the basis for the … allegation that the given consignment was not received at its stated destination.” The answer (verified by a statement of truth signed by Ms Brittain) said:

“First, each of the consignments transported on behalf of …SAS and … W2W was intercepted by HMRC empty.”

110.

Although in oral evidence Ms Brittain refused to accept this, the only reasonable reading of that plea is that it was alleged that each of the 301 consignments had been intercepted by HMRC and found to be empty. This was an exaggeration by a factor of a hundred. How the allegation came to be made was unexplained; and it did no credit to Ms Brittain that she refused to accept that this was the plain allegation.

This issue gave rise to some sustained cross examination of Ms Brittain in the course of the trial before me. Whilst I accept that this material might be relevant to credit, in the end the credibility of Ms Brittain as a witness has been of little significance because most of the primary facts that are relevant were not contentious between the parties and most of the material relevant to the claim is contained in or can be decided by reference to the contemporaneous written material.

Overall Lewison J concluded that either the relevant goods had arrived at the premises of their respective consignees or it had not been proved that they had not. That was in one sense sufficient to resolve the claim. However at Paragraph 182 of his Judgment, Lewison J recorded that it was no longer alleged that Messrs Owen knew the underlying transactions were fraudulent. At Paragraph 185 of his Judgment Lewison J recorded that it had not been put to Mr Hone that he knew or suspected that the underlying transactions were fraudulent so that a finding to that effect was not open to him. The negligence claims were rejected at Paragraphs 196-206 and in the result the claim was dismissed.

Mr Coppel was severely critical of Ms Brittain for not conceding that there could be no appeal from the Order made by Lewison J earlier than the 10^th September 2010 and in consequence in not conceding that the Freezing Order should be discharged earlier than that date. I reject that criticism. First, the time frame was that established by Lewison J’s Order. That was never challenged either by application to him or by way of appeal. This is not surprising. His order had extended the time for applying for permission to appeal his Order to 10^th September 2010 and he had suspended the discharge of the Freezing Order until that date. The permission application would have had to be made to the Court of Appeal. I suspect that Lewison J made the Order he did specifically because he realised that it might be difficult to take all the necessary advice and obtain all necessary instructions and prepare Grounds of Appeal during August and because the Court of Appeal would only be able to consider an application to further suspend the discharge of the Freezing Order in September. His Order did not provide for a further suspension of the discharge in the event an application for permission to appeal was made. I am satisfied that Ms Brittain was awaiting advice from a new team of counsel and that she received the relevant advice no earlier than 10^th September 2010 – see Transcript, Day 7, page 1026, Lines 11-12. In my judgment she is not to be criticised for waiting for such advice.

In these proceedings, and aside from a claim for general, exemplary and aggravated damages, the Defendants seek to recover compensation for losses allegedly suffered by them under 13 separate heads being:

The general and aggravated damages claims are pleaded in Paragraphs 11-14 of the Points of Claim. I refer to this in more detail when I consider those claims below.

Introduction

In relation to the issues of causation, forseeability and mitigation, the starting point is Hoffman-La Roche & Co AG v. SoS T and I [1975] 1 AC 295, where Lord Diplock defined what was recoverable under a cross-undertaking by reference to contractual principles. He said at 361:

“The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the Plaintiff and the Defendant that the Plaintiff would not prevent the Defendant from doing that which he was restrained from doing by the terms of the injunction: see Smith v. Day (1882) 21 Ch.D 421 per Brett LJ at p.427”

The relevant part of the judgment of Brett LJ to which Lord Diplock was referring was his statement that in an assessment of damages due under a cross-undertaking “… the Court would never go beyond what would be given if there was an analogous contract with or duty to the opposite party. The rules as to damages are shewn in Hadley v. Baxendale (1854) 9 Ex 341”. It was suggested that the reference to “duty” raised the possibility that there was thereby incorporated into the formulation the possibility of assessment by references to breach of fiduciary duties. I do not read what Brett LJ said in this way. Not only does it plainly not accord with what Lord Diplock considered that Brett LJ was saying but the reference to Hadley v. Baxendale is consistent only with the view that Brett LJ did not intend to go further than Lord Diplock considered that he had gone, and was referring to a contractual duty. The Court of Appeal approved this approach in Cheltenham & Gloucester BS v. Ricketts [1993] 4 All ER at 282 – see proposition (8). The approach identified by Lord Diplock has been followed in a significant number of first instance decisions – see by way of example Lightman J in Triodos Bank NV v. Dobbs and others [2005] EWHC 108 – see Paragraphs 34 – 38 of his judgment, Jack J in Al-Rawas v. Pegasus Energy Limited and others [2008] EWHC 617 (QB) [2009] 1 All ER 346 – see paragraph 15 of his judgment following the judgment of Nelson J in Eliades v. Lewis [2005] EWHC 2966 (QB) to similar effect.

The effect of this in my judgment is to incorporate into this area of the law by analogy the principles relating to causation, remoteness and mitigation that are applied to claims for damages for breach of contract. However, it is to be borne in mind that the analogy is just that and it may have to be departed from to the extent necessary to take account of the fact that there is no contract between the parties, the claim is not a claim for damages for breach of the cross-undertaking but is a claim for compensation due pursuant to it and for the purpose of ensuring that an over-mechanical approach does not defeat the vital protection afforded to an injunctee by the cross-undertaking. The application by analogy of the approach adopted in relation to claims for damages for breach of contract to issues concerning causation, remoteness and mitigation does not lead necessarily to the conclusion that all the rules relating to such claims must be adopted when considering a claim for compensation in respect of losses made pursuant to a cross-undertaking. I return to this issue when considering the general damages and aggravated damages claims.

Causation

Foreseeability and Remoteness

The conventional application of these principles to claims for compensation for loss made pursuant to a cross-undertaking is that set out by Aickin J in Ansett Transport Industries (Operations) Pty Ltd v. Halton and others [1979] 25 ALR 639, a decision of the High Court of Australia (“Ansett”). This statement of principle was cited with approval in Cheltenham & Gloucester BS v. Ricketts (ante) at 282 – see proposition (8) and was described in Medicines as being “… the leading modern case …” on this issue. Aickin J said

“In a proceeding of an equitable nature it is generally proper to adopt a view that is just and equitable or fair and reasonable, in all the circumstances … the view that the damages that should be those which flow directly from the injunction and could have been foreseen when the injunction was granted, is one that will be just and equitable in most cases … circumstances may sometimes require a different approach. However it will in my opinion be seldom that it will be just and equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time”

The phrase “… at the time …” relates back to the earlier part of this statement and refers to when the injunction was granted. In my judgment the statement of principle above renders recoverable either loss suffered by the Injunctee that falls within either the first or second rule in Hadley v. Baxendale and arises from circumstances that were either actually known to the injunctor or deemed to have been known to the injunctor at the date when the injunction is granted. As stated by Jacobs J as he then was in Medicines at 713 lines 5-7 and by Jacobs LJ in SmithKline Beecham Plc. v. Apolex Europe Limited [2006] EWCA Civ 658 [2007] Ch 71, this has the effect that the injunctor will only be liable for such damage as he could reasonably foresee would be caused to the injunctee by the injunction either from his own general knowledge of the circumstances or from his knowledge of the particular circumstances. This last point is significant because although the form of cross-undertaking considered by Lord Diplock was one that referred to damage rather than loss, Jacobs LJ in SmithKline Beecham was considering a cross-undertaking in the form that was adopted in this case. This approach was also adopted by Jack J in Al-Rawas v. Pegasus Energy Limited and others (ante) at paragraph 15 of his judgment, following the judgment of Nelson J in Eliades v. Lewis (ante).

This leaves out of account losses that result from events developing after the injunction has been granted. Ordinary contractual principles would suggest losses flowing from such circumstances would not be recoverable. In this area however such an approach would be unduly narrow and would deprive the cross-undertaking of much of its practical utility and the Injunctee of much of the practical protection the cross-undertaking is meant to accord to him. It takes no account of the fact that interim injunctions can be varied by Order to take account of a change in circumstances and that freezing orders in particular conventionally contain provisions which permit variation by agreement – in this case contained in Clause 10(2) of the Freezing Order.

It was for this reason that Mr Nathan accepted that in relation to events of this sort, loss caused by the injunction would be recoverable, even though it was unforeseeable at the date when the injunction was granted, provided that express notice of the post-injunction special circumstances had been given prior to the loss being suffered in sufficient time for the parties to be able to agree the terms of an appropriate variation. In support of this proposition, he relied on the comment of Jacob J in Medicines at 714, lines 45-50 where having acknowledged obiter that there was something to be said for the view that the paying party should pay for all loss directly caused to the Injunctee by the wrongfully granted injunction, he then qualified that by saying:

“… if… once he knows of the Injunction, the Injunctee does not spell out to the Injunctor any special circumstances causing direct but, to the Injunctor, unforeseeable damage, he may not be allowed to recover for that damage. Equity would be apt to blame an Injunctee who stood by, letting the Injunctor build up a liability on the cross-undertaking of which he had no knowledge.”

This approach is consistent with that identified by Aickin J in that he was prepared to accept that there might be circumstances in which a different approach to that which is conventional might be required to achieve what was just and equitable. However in my judgment the cardinal point remains this: absent express notice of special circumstances arising after the date when the Injunction is granted, the conventional approach is that compensation will not be recoverable for events occurring after the grant of the injunction that could not be foreseen at the date when the injunction was granted.

The Defendants rely on a number of first instance decisions for the proposition that loss should be recoverable applying the principles relevant to awards of compensation for breach of fiduciary duty. These decisions have not persuaded me that it is appropriate to depart from what appears to me to be the conventional approach. These authorities are either ones that have been reached per incuriam earlier decisions of appellate courts (Lilly ICOS LLC v. 8pm Chemists Limited [2010] FSR 4) or contain views that are strictly speaking obiter (R v. Medicines Control Agency Ex P. Smith & Nephew Pharmaceuticals Limited [1999] RPC 707 at 714 and Les Laboratoires Servier v. Apotex Inc [2008] EWHC 2347 (Ch)). Apex frozen Foods (In Liquidation) v. Ali [2007] EWHC 469 (Ch) is distinguishable because it was concerned with a cross-undertaking in terms that are different from that in this case and had been given by a third party and the issue in that case concerned the liability of the third party for costs under the cross-undertaking. That point would not arise in relation to an undertaking given by a party to the litigation in which the injunction had been sought and granted. The key point to emerge from that case is that in general the formulation adopted by Lord Diplock remains the correct approach – see Paragraph 10 of the Judgment. In my judgment there is nothing in any of these authorities that entitles me to depart from the conventional approach indentified by the Lord Diplock in Hoffman-La Roche and Jacobs LJ in SmithKline Beecham (ante).

The “Knockback” Theory

Factually I do not accept that the correspondence relied on by the Defendant demonstrates either that the liquidator had adopted the stance alleged or that the Defendants or at any rate the very experienced solicitors who acted for them at all stages material to the issue I am now considering considered that the liquidator had adopted such a stance. I do accept that some of the correspondence written by Moon Beever contained points that were wrong in principle and over-aggressively expressed. Whilst worthy of criticism, such conduct does not justify the approach to foreseeability and remoteness issues adopted by the Defendants.

I turn now to the relevant correspondence. On 2^nd June 2009, Moon Beever (the solicitors acting for the liquidator) wrote to Master Price concerning various procedural issues relating to the claim. In relation to the operation of the Freezing Order they wrote:

“Provision has been made for living and legal expenses for the directors whose assets are frozen and we have thus far had no indication of any difficulties that this may be causing …”

Cripps Harries Hall (“CHH” – the solicitors then acting for the Defendants) wrote to Master Price on 5^th June 2009 responding to Moon Beever’s letter of 2^nd June. In relation to the Freezing Order they wrote:

“ … to date there have been no problems in obtaining payment of living expenses etc as duly authorised by the freezing order. However, the order has a significant impact on the ability of our clients to engage in new business and we anticipate that we shall need to make requests in this respect in due course …”

The effect of this correspondence is entirely clear. It suggests that on any view by that date (5^th June 2009) CCH had not formed the view that to make requests of the liquidator for permission to embark on new business ventures would be a waste of time or would be unreasonably rejected if made. This correspondence makes clear that no such requests had been made down to the date when the letter of 5^th June was sent and it contains a clear recognition that in relation to new business activity an approach for permission from the liquidator would be required. There is no suggestion that requests had been made, but had been rejected unreasonably, nor is there any suggestion that business activity was being prevented because the Defendants could not reasonably be expected to fund the cost of making such requests or applications to the Court if such a request was refused. This last point was also one that was relied on by the Defendants in general and Mr Hone in particular. It is a point that CHH was almost bound to have mentioned in this correspondence if the issue had arisen by that stage because the correspondence that I have so far referred to was written in the context of a challenge by Moon Beever to a trial window that had been fixed by Master Price. Had business opportunities been lost because of unreasonable refusals of permission in circumstances where the Defendant could not afford or could not reasonably be expected to fund applications to the court for variations of the Freezing Order then this point (if it was a good one) was one that CHH was bound to deploy at this point. For these reasons I conclude that there is no factual merit in the knockback theory prior to the 5^th June 2009.

The correspondence that followed does not support an inference that the Defendants or their solicitors considered that any request for a variation of the terms of the Freezing Order to accommodate new business ventures was not worth making because it was bound to be refused. I asked Mr Coppel to identify the correspondence that was relied on to support this theory. He identified a series of letters that passed between solicitors between the end of June and the end of December 2009. Many of these letters concern disputes about increases in what are properly to be regarded as living expenses and the reasonableness of legal fees rather than requests for agreement to funds being drawn down in order to finance new business ventures. I question whether challenges in relation to the former by a claimant in the position of the liquidator in this case could even arguably justify an inference that requests relating to the latter would be unreasonably refused. Probably however, whether that is so or not does not matter because in my judgment when the correspondence is viewed as a whole it is clear that no such inference had been drawn by CHH and there is nothing in the correspondence that suggests that the Defendants had in fact arrived at such a conclusion either.

By a letter dated 23^rd June 2009, CHH informed Moon Beever that (a) Mr Hone had dealt in stocks and shares prior to the making of the Freezing Order; (b) he had entered into a trade for the purchase of shares and copies of the relevant contract notes were attached; (c) £60,039.40 had to be paid by 25^th June (that is 2 days after the date of the letter) and (d) that a further sum of £36,586 had to be paid by 29^th June. It was said that the payment was to be drawn down from a particular bank account using funds credited to that account from a particular source and asserted that the transaction was one falling within Clause 10(2) of the Freezing Order, being a transaction in the ordinary course of business. The response from Moon Beever came on 25^th June 2009 and was in these terms:

“Thank you for your fax. Ordinary business does not necessarily include risk taking with assets subject to order. On this occasion our client will agree the release, as the shares appear to be good investments. The Freezing Order bites on the shares. In future we require more notice and there is no reason why substantially more notice shouldn’t have been given, the contract note being 10 days ago. …”

In my judgment no reasonable reading of this document could lead to it being read as a “knockback” in the terms suggested by the Defendants. It was a consent given within 2 days to a payment in aid of a transaction that was said to have been made in ordinary course of business but which was in relation to a type of business that had not in fact been disclosed. Mr Hone’s affidavit of means had disclosed that he owned a number of shares. That does not lead to the inference that he operated a personal business investing in stocks and shares and there was nothing in the affidavit of means that suggested that he did. It was this point that was made by Moon Beever in the letter to CHH dated 6^th July 2009 and was returned to in the letter of 13^th July 2009. There was thus a dispute as to whether share dealing was Mr Hone’s ordinary course of business. That did not mean that the liquidator would irrationally or unreasonably refuse to agree a variation so as to permit an appropriate share transaction.

Objection was taken to the comment in the 25^th June letter that “Ordinary business does not necessarily include risk taking with assets subject to order”. That was not a knockback – it was a warning as to the position that might be adopted by the liquidator in the future. The liquidator might be wrong but the warning given on her behalf was not a “knockback”. It was clearly not construed as such by CHH because by a letter dated 8^th July 2009, they informed Moon Beever that:

“With reference to the share dealing by Mr Hone we have requested out clients to give us advance notice of any such proposed transaction in order that this can be pre-emptively agreed …”

It is to be borne in mind when considering this theory that at no stage down to the date I am now considering had it been suggested that the Defendant did not have the means or the inclination to apply to court for a variation if a request for a variation was refused. It was thus highly unlikely that the liquidator would adopt an indefensible stance in relation to such a request since if she did she would be at risk of having to pay the costs of the application.

It is true to say that by a letter dated 7^th July 2009, Moon Beever objected to the expenditure by the Defendants of money on an appeal against the underlying assessments. This expenditure had been undertaken without prior consent. Plainly it did not come within the scope of the legal expenses exception within the Freezing Order which as a matter of necessary inference was in respect of legal costs incurred by the Defendants in defending the proceedings in which the Freezing Order had been sought and granted. It is significant that Mr Coppel did not seek to rely on this letter as being one that justified the knockback theory.

Thus I do not consider that anything had occurred down to the 8^th July 2009 that could reasonably be said to support the view that if a request had been made to vary the Freezing Order so as to permit a new business opportunity to be exploited it would have been rejected unreasonably. In arriving at that conclusion I make clear that in arriving at that conclusion I have taken account of the terms of each of the letters to which I have referred. It would be artificial to look at each letter relied on in isolation. I accept that it is the substance of the correspondence taken as a whole that matters.

Reliance was placed on a sentence in the letter from Moon Beever to CHH dated 20^th July 2009 in which the writer said that “… Mr Hone’s assumption that he can gamble on the stock market is also we have to say wholly misconceived …”. However this was not a knockback – that is a refusal of consent to a particular transaction or course of dealing. It was a reassertion in emphatic and perhaps over-emphatic terms of the point that the liquidator had been making via her solicitors consistently namely that she did not consider that share trading was part of Mr Hone’s ordinary course of business. It is now clear that in fact Mr Hone had been operating in a small way in the stock market prior to the making of the Freezing Order. But that fact had not been disclosed to the liquidator in the affidavit of means and the documentation now relied on had not been disclosed to Moon Beever in any of the correspondence that I have so far considered.

On 23^rd July 2009, CHH wrote to Moon Beever asserting on behalf of Mr Hone a request that he be allowed to draw down from his assets in order to meet various debts then outstanding. This letter included a statement to the effect that “… Mr Hone does not have sufficient income in order to discharge his significant outgoings. He is unable to obtain work in the freight forwarding/broking industry as he is unable to obtain credit in light of the freezing order.” It identified his annual income as being the sum of £15,000 from holiday let properties owned by him and £5,000 being rent from the Treleigh Arms. It was said that Mr Hone had “… previously earned an income from share trading (around £7,000 last year)”. The letter concluded by requesting the liquidator’s consent to various payments including “…£30,000 to be deposited with Pershing Securities in order to allow Mr Hone to make a modest living from share dealing. In this respect it should be noted that Mr Hone has been profitably trading in shares for over 12 years”. On 27^th July Moon Beever responded to this letter seeking further information though not specifically in relation to share trading activity. This issue then become lost in the correspondence which then became diverted to other matters including the practice of Mr Hone borrowing from friends and relatives without the prior consent of the liquidator being sought.

The letter which it was submitted on behalf of the Defendants constituted the slamming of the door by the liquidator to any speculative ventures is that of the 27^th August 2009. By the time this letter came to be written there were two main issues that had arisen concerning the Freezing Order. One was an ongoing dispute concerning the level of the Defendants’ living expenses and how they were being funded. I need not consider that issue further at this point. It is not material to the issue I am now concerned with which is whether the correspondence displayed on the part of the liquidator an unreasonable refusal to consider business opportunities that became available to the Defendant as and when requests for variations were received. In relation to that, the letter of 27^th August referred to “… a very odd call from Patrick Owen today seeking £14,000 to buy a container of marble. She directed him to address any requests via you to us.” This was undoubtedly a request for consent to spend money on a business venture. The letter was technically incorrect to the extent that it implied that the Freezing Order required the Defendant to apply for consent variations via their solicitors. It did not. However, Paragraph 10(3) of the Freezing Order did require such variations to be agreed with the Claimant’s solicitors. The letter then continued:

“We have repeatedly tried to ascertain what your clients are doing in terms of work or income. Their “ordinary course of business” on the basis of the information thus far supplied via you is “unemployed”. Thus clearly no releases can be made for any trading. ”

In my judgement, this last statement was one that was seriously misplaced. Paragraph 10(2) of the Freezing Order made it abundantly clear that the Defendants were entitled to deal with or dispose of their assets in the ordinary course of business. A refusal to release assets to permit trading would be a very serious and entirely unwarranted departure from the terms of the Order. The letter then concluded by demanding further information concerning the Defendants income and assets and with the threat that if full replies were not received “… we shall advise our client to reduce the living expenses agreed previously and the matter will have to be dealt with by the Court…”. This was a course that was not open to the liquidator since living expense limits had been fixed by the Order made on 18^th February 2009. A threat to unilaterally interfere with what was permitted by that Order was entirely unwarranted.

However imprudently and intemperately worded the letter of 28^th August is regarded as having been expressed, its actual effect can only be understood in context. The Defendants were represented by experienced solicitors and they responded on 28^th August in these terms:

“The request made to your client’s manager by Mr Patrick Owen in relation to the marble should not be considered in any way odd. This was a business opportunity that our clients wished to take up. As with most business opportunities they are time critical and cannot wait for our clients to inform us, for us to inform you, for you to inform your client and then potentially for your client to inform you, you inform us and us our clients of any decision.

This will effectively prevent our clients from taking up business opportunities as they arise

…

Our clients are businessmen who have over the years diversified into various projects of which you are well aware. Unfortunately, these projects are not generating money at this point. Our clients, as businessmen, are on the lookout for business opportunities in order to bring in income. If they are not allowed to explore such opportunities then their assets will be denuded by payment of living expenses and legal expenses.”

A potentially significant point to emerge from this correspondence is that it was not suggested that any business opportunities had been lost down to the date of this letter as a result of refusals of consent under Paragraph 10(3). The letter suggested that no income-earning opportunities had been lost down to the date of that letter other than the marble transaction.

The wholly unreasonable attitude of the liquidator’s legal advisors to the question of living expenses was continued in a letter from Moon Beever to CHH dated 1^st September 2009. That letter included the following remarkable statement:

“At present Messrs Hone, P.Owen and W.Owen are (by agreement with our client) being permitted £10,000, £3,750 and £7,250 p.m. respectively living expenses. This is not sustained by income and so we require lists of their reasonable living expenses … so we can review our client’s view of “reasonable living expenses”. At present the order of £500 pw initially granted seems more appropriate and if we do not receive current details we will advise our client the banks should be notified that the revised sums are withdrawn and £500 pw stands until further order. We do not consider that your clients should be recklessly spending from capital where we consider the capital possessed is likely to be at least in part the proceeds of the alleged fraud and in any event the freezing order is intended to preserve assets for satisfaction of judgment.”

This was an extraordinary statement at a number of different levels. First, the sums permitted for living expenses was not the result of an agreement by the liquidator. The sums permitted to be used for living expenses were fixed by the Order made by consent on 18^th February 2009. Secondly, what is required for living expenses is to be judged by the standard of living enjoyed before the Freezing Order was imposed not what income is available to the Defendants after the action taken by HMRC and the liquidator. Thirdly, and irrespective of that point, the threat to advise the liquidator to unilaterally reduce living expenses was a threat to advise her to breach the terms of the Order which at least arguably would be a contempt of court. Finally whatever might have been the position if the claim made by Abbey had been proprietary in nature, the fact is that it was not. That being so the reference to the Defendants’ capital being “…the proceeds of the alleged fraud …” was misplaced.

However, as I have said already the impact of this conduct in the context of the issue I am now considering must be judged against what happened subsequently in relation to requests for consent to variations in order to permit advantage to be taken of new business activity. On 11^th September 2009, CHH wrote a lengthy letter to Moon Beever specifically to address “… the various insinuations and allegations that have been made by yourselves and your client in relation to our clients financial circumstances.” The letter enclosed a summary of the financial position of each Defendant. There was also a schedule that showed the income received by the Defendant and Wingpitch from Abbey between 2005 and 2007. The letter concluded with the following statement:

“The comments in the final paragraph of your letter of 1^st September 2009 are entirely rejected. Our clients are not “recklessly spending from capital”. Their outgoings have been notified and a court order made accordingly. The fact that their outgoings need to be paid from capital is because the liquidation of Abbey … (and the consequential loss suffered by Wingpitch …) has removed our clients’ main (and in some cases sole) source of income.

With regard to replacing that income, our clients, by virtue of the liquidation of their company and the freezing injunction are unable to obtain employment in the industry which they worked in for most of their lives. Nor are they able to earn money from ancillary activities in view of your client’s unwillingness to allow our clients to use their own money in any speculative venture.

In these circumstances, it is your client that is the author of our clients having to spend their capital …”

The significant part of this letter for present purposes is the assertion that the Defendants were unable to “… earn money from ancillary activities in view of your clients unwillingness to allow our clients to use their own money in any speculative venture”. This would appear to relate back to the letter from Moon Beever of 27th August. In fact the only transaction in respect of which permission appears to have been refused was the marble transaction.

By a letter of 14^th September 2009, a request by Mr P.Owen for permission to pay an insurance premium was refused on the basis that the liquidator was not prepared to permit any further expenditure pending “… full answers to the expenses questions”. This was relied on by Mr Coppel as part of the material supporting the knockback theory but in fact the letter relates to an expenses issue not a business expenses issue. Although I accept that in some respects the issues had become elided in the correspondence they are in fact entirely separate issues.

There is further correspondence thereafter relating to legal and living expenses which canvasses the territory already summarised above. It does not take matters further. While there is much that could legitimately be regarded as objectionable and misconceived in the correspondence that was written on behalf of the liquidator by her solicitors in relation in particular to expenses, the critical issue I am now addressing is whether it was reasonably to be inferred that notifying the liquidator of business opportunities and seeking her consent to participate would be a waste of time and costs. In my judgment it does not. The correspondence relating to living and legal expenses is not material to the issue I am now considering which is whether otherwise unforeseeable losses that could be recovered normally only following notice being given of that opportunity should nonetheless be recoverable given the approach of the liquidator as set out in the correspondence. In my judgment the correspondence that relates to business opportunities does not justify such an approach at a factual level. The reality is that the Defendants were represented throughout and could and did make requests as and when they considered it appropriate to do so. So for example, by a letter dated 12^th November 2009, CHH specifically requested the agreement of the liquidator to the participation of the Defendants in a residential property re-development venture. The response was a letter dated 23^rd November. It did not reject the request but sought further information in relation to what was proposed. Indeed, on one occasion when a request was refused an application was made to the Court for a variation

Further, I question whether as a matter of law the position adopted by the Defendants is correct. Even if the approach to Inquiries of this sort proceeded on the basis that the starting point is that all loss directly caused by the injunction concerned should be recoverable under the cross-undertaking (the position favoured by Jacobs J in Medicines), that would almost be bound to be subject to a qualification to the effect that an Injunctee who stood by, letting the Injunctor build up a liability on the cross-undertaking of which he had no knowledge, would not be permitted to recover such losses. If that is so then I do not see how refusals by someone in the position of the liquidator to permit variations so as to facilitate new business ventures (however often they occur and however unreasonable they might appear or appear in retrospect) could lead to that protective exception ceasing to apply. The injunctor is entitled to consider each business proposition on its merits and either agree a variation or refuse and run the risk either of an application being made to the Court or a claim for losses being made pursuant to the cross-undertaking. The possibility or even the probability that the liquidator would refuse consent does not in my judgment justify a departure from this approach.

Mitigation

General Damages

It is convenient that I consider each of the Heads of Loss separately. I do not consider further those that I have struck out nor do I consider further the claim by Mr P.Owen to recover a tax surcharge, which has been conceded. There are thus 9 separate heads of ;oss in respect of which compensation is claimed.

The DLB Shares Purchase

Although Mr Coppel submitted in Paragraph 54 of his closing submissions that DLB was mentioned by Mr Hone in an interview with the liquidator that took place in March 2009, I regard that as immaterial for present purposes. The only material mention of DLB was on page 6 of the transcript of the interview. It refers to a role in manufacturing chairs. Mr Hone is not recorded as referring expressly or by implication to a shareholding much less one owned by the Defendants.

The shares in DLB were first mentioned in the letter of 11^th September 2009 from CHH to Moon Beever referred to above. In the schedules attached to that letter, Mr P.Owen was described as having “… an interest in …” DLB, as was Mr Hone and Mr W.Owen. There had been no mention of the company or the Defendants interest in it until that point. It is not suggested that the liquidator knew or ought to have known of any interest that the Defendants might have in DLB at any stage prior to the 11^th September 2009. Moon Beever requested further information concerning this interest and on 16^th October CHH wrote to the liquidator in these terms:

“The position in relation to [DLB] is as follows:

-

£50,000 in value of shares was purchased in this company in December 2008 by Wingpitch;

-

The money for the purchase came from Abbey Forwarding Limited. Wingpitch Limited issued a credit note to Abbey … in this sum (to be credited against the money owing from Abbey … to Wingpitch … in relation to rent);

-

This shareholding was considered to be an investment on behalf of the families of Messrs Owen and Hone but it was undecided as to how the shares should ultimately be held. Accordingly, the shares were registered in the name of the daughter of Mr [P.Owen];

-

In due course the appropriate accounting adjustments would have been made to reflect initial purchase of the shareholding by Wingpitch Limited … ”

There are a number of difficulties about all this. First, there is no formal lease between Wingpitch and Abbey. Secondly the “credit note” referred to in the letter has never been produced. The credit note was apparently issued by Wingpitch in favour of Abbey. Wingpitch is not in liquidation and remains in the control of its directors. It is unclear therefore why the credit note has not been produced. Thirdly, the sum of £50,000 does not divide into the rent ostensibly due from Abbey to Wingpitch each month of £33,000. Fourthly, the accounts for Wingpitch for the period ending 31^st December 2009 record a turnover of £49,500, a depreciation in the value of fixed assets in 2009 when compared to 2008 (which is not consistent with the acquisition of new assets at a price of £50,000, a view that is supported by Note 4 to the accounts which makes clear the only property held by Wingpitch is the Warehouse), and nowhere within the accounts either for this or the subsequent financial period is there a reference to a credit note being issued to Abbey. Fourthly, if the purchase was by or on behalf of Wingpitch (a company controlled by the Owen family in which Mr Hone had no interest), it is not at all clear why the shares were not allotted to and registered in the name of that company.

On any footing however, the shares could only have been owned beneficially on allotment either by Abbey or Wingpitch applying conventional resulting trust principles, if they were not owned beneficially by Ms Owen. There is no obvious basis on which shares purchased by Wingpitch could be owned jointly by the Defendants. If, as is common ground, the purchase money was provided by Abbey, the Defendants could jointly have become beneficial owners of the shares by debiting the sum used to purchase the shares to their respective director’s loan accounts. It is not alleged that such ever occurred however. Mr Hone gave evidence on this issue. He said in his statement that the shares had been registered in the name of Ms Owen on the advice of accountants. So they might have been but that does not assist in resolving the issue I am now considering. In his oral evidence Mr Hone said first that the shares were owned by Wingpitch and then by the Defendants. Given this level of uncertainty, I gain no real assistance from this oral evidence.

In these circumstances the only safe conclusion that can be reached and the finding I make is that the shares originally allotted to Ms Owen were owned beneficially either by Abbey or Wingpitch. Any transfer of beneficial ownership from either Abbey or Wingpitch would require a further step. The terms of the letter of 16^th October 2009, if accurate, mean that any such step would have to have been taken after that date if it occurred at all. No evidence has been produced that proves the occurrence of such a step. The fact that the shares remain registered in the name of Ms Owen suggests that in truth no such step has been taken.

Who owns the shares is important because of the nature of the loss in respect of which compensation is claimed. The claim is based upon a loss of ability to purchase shares that would otherwise have been available by way of a rights issue - that is an offer of further shares to existing shareholders in return for additional investment. This much is apparent from the letter dated 22^nd January 2010 sent to existing shareholders by DLB that refers to a resolution by which “…all existing shareholders …” were being invited to apply for further shares. Thus any loss resulting from not taking full advantage of the rights issue would be suffered by the beneficial owner of the shares originally allotted to and registered in the name of Ms Owen. If the beneficial owners of the shares were not the Defendants then any such loss would not be recoverable in these proceedings because the loss would not be their loss and because the cross-undertaking serves only to compensate the parties identified in the undertaking (the Defendants) in respect of losses caused to them or any of them – see Smith Kline Beecham Plc v Apotex Europe Ltd [2006] EWCA Civ 658; [2007] Ch. 71 at paragraphs 86-87. The remainder of this part of the judgment proceeds on the basis that this analysis is wrong. If it is right then this part of the claim must necessarily fail.

Mr Hone argues that this is wrong because the evidence establishes that he borrowed money from his mother for the purposes of exercising the rights to acquire further shares. Mr Hone’s case is that there were further shares available because the existing shareholders did not wish to take up the whole of their respective entitlements. He maintains at paragraph 36 of his witness statement that further shares would have been acquired but that the Defendants could not do so “[a]s a consequence of the freezing order …”. In my judgment this claim fails even assuming that the Defendants are to be treated as the beneficial owners of the DLB shares or that the acquisition of the additional shares would have been funded by the Defendants who would thus have acquired a beneficial interest in them. I reach that conclusion for the following reasons.

I find (and it was not in the end disputed) that there was no request made by the Defendants or any of them to the liquidator either for a consent variation so as to permit them to acquire the additional shares (assuming that the purchase of shares would not fall within the “ordinary course of business exception”) or for the liquidator to authorise any bank to permit a drawdown of the sum necessary to purchase the shares assuming that the purchase was to be treated as being in the ordinary course.

I conclude that without such notice any loss flowing from the inability of the Defendants to purchase additional shares in DLB was unforeseeable applying the principles outlined above. Although foreseeability focuses on the kinds of loss that are not unlikely to occur – see Paragraph 33 of the Defendants closing submissions and above – I do not consider that losses flowing from a failure to take up a rights issue are losses of a kind that is not unlikely to occur to the holders of shares given the terms in which losses that are not unlikely to occur have been defined in the cases identified in Paragraph 34 of the Defendants’ closing submissions. The Defendants interest in DLB was not known to the liquidator prior to the application for the Freezing Order and the only detailed information that was ever supplied was that contained in the letter of 16^th October. In my judgment losses suffered as a result of not taking up shares available as part of a rights issue that was made after the grant of an injunction will not be recoverable unless the injunctor knew of the offer and the desire of the injunctee to take up what was offered. Any losses suffered in the absence of such knowledge will be too remote in law to be recoverable. It follows from these conclusions that the question of failing to mitigate by applying to the court for a variation does not arise.

It was submitted by HMRC that if and to the extent that the purchase of the shares was in the ordinary course of business then no compensation was recoverable because it was open to the Defendants simply to proceed. If and to the extent that assets could be deployed without involving third parties anxious to avoid being complicit in a breach the Freezing Order this is technically correct since expenditure in the ordinary course of business does not require any form of prior consent under the terms of Paragraph 10(2) of the Freezing Order. The Freezing Order provides that before drawdowns for living and legal expenses are made notice must be given of where the money is to come from. That requirement has not been applied to expenditure in the ordinary course of business.

However the reality is that all the Defendants’ free assets required the interaction of either a lender or a banker in order to move funds from source to destination and the evidence in particular in relation to the payment in respect of Mr Hone’s share dealings that were authorised shows that banks are remarkably reluctant to permit funds to dissipated without the prior consent of the injunctor. Thus I am not persuaded that consent was not required. However what does emerge from this is that if the Defendants wished to use their assets in the ordinary course, and wished to do so using a bank, they knew that before the banks would permit a transaction to proceed the consent of the liquidator’s solicitor would be required. The key point is that there was never any such request.

Supplying Furniture to DLB For Onward Sale By DLB

There are two claims advanced. The first relates to the 3,200 frames. The Defendants maintain that they were excluded from the Warehouse for two months notwithstanding that they had informed the liquidator that the chairs needed to be assembled and sold on. In the result the transaction was lost. There is also a claim for future loss of profits based on an assertion that a long term trading project by which the Defendants would manufacture and supply chairs to DLB was lost because of the Freezing Order and that now the opportunity does not exist because Mr Wates has improved his relationship with his current suppliers. The substance of each of these claims is summarised by Mr Coppel as being that the Defendants “… could … not continue with the supply of the chairs because they did not have free access to their assets.”.

There are significant issues between the parties as to which entity was in fact undertaking this work. The metal frames had been ordered by Abbey Fireplaces, a partnership between the Defendants and a fourth individual called Mr Steve Duguid. The freight was paid for by Abbey and eventually the business was to be conducted through another corporate vehicle controlled by the Defendants called Purland House Limited. The key point is that all these entities were or would be VAT registered. Unless this was so all relevant VAT could not be reclaimed. However the real point is that this claim fails on causation and remoteness ground irrespective of whether this business was intended to be carried on by the Defendants or not. I reach that conclusion for the following reasons.

If the Defendants were undertaking on their own account the manufacture of chairs for DLB, then this was activity that on any view came within the “ordinary course of business” exception. The Defendants were entitled to deal with or dispose of their assets in pursuit of this activity. They were entitled to what was stored at the Warehouse because (on their case) Abbey had no title to the components stored there. At no stage prior to the date when Wingpitch recovered possession of the Warehouse was a request made specifically for the recovery of the chair components. There were requests for recovery of stock belonging to Abbey Fireplaces and the liquidator accepted that she considered this included the chair components. There was no specific mention of the chair components. The reason why this was not done is I consider obvious. On the Defendants’ case the manufacturing process was to be undertaken at the Warehouse. That ceased to be available as a result of Abbey being placed in provisional liquidation. The Freezing Order did not prevent chairs from being manufactured. The loss of use of the Warehouse did. It is not suggested that at any stage the Defendants sought to draw down funds to enable alternative premises to be acquired for this process or that any attempt to find alternative premises was ever made.

By no later than 26^th March Wingpitch resumed possession of the Warehouse following the disclaimer of the lease by the liquidator. No manufacturing took place thereafter. The reality is that there was nothing within the Freezing order that could have prevented this business being conducted. Either the business was that of Abbey Fireplaces and so was not affected at all by the Order or it was the defendants trading together independently of Abbey fireplaces in which case it was activity that fell fairly and squarely within the exception concerning ordinary course of business. They were entitled to delivery up of the components and the contrary was not suggested. They were never specifically requested however. The reality is that manufacturing required use of the Warehouse. Loss of use of the Warehouse was not the result of the Freezing Order. It was the result of Abbey being placed into provisional liquidation. Once occupation of the Warehouse could be regained no attempt was made to resume manufacturing the chairs. Why this was is obscure – but the one thing that is clear is that there was nothing within the Freezing Order that prevented it. Although there was a suggestion that funds were required but not sought because of knockbacks this is plainly not sustainable on the facts. The events with which this claim is concerned all took place in February and March 2009. As is apparent from the correspondence referred to earlier in this judgment that issue did not even arguably arise until much later.

In any event it has not been established that there would be any future orders beyond the 3,200 chairs for which components had been sourced. Future orders depended on the quality of what was produced initially, on delivery obligations being met and on price. All this depended on a number of imponderables, none of which had been resolved. The Defendants have failed to establish that the chair manufacturing opportunity was one that was lost to them as a result of the Freezing Order.

Marble

The future loss claim is without foundation. There was nothing known or that ought reasonably to have been known to the Liquidator prior to the 26^th August 2009 that ought to have alerted the liquidator to the possibility that the Defendants traded or might in the future trade in marble. The first mention of this issue came in a conversation between Mr P. Owen and Ms Claire Self, a junior employee of Deloittes who was assisting Ms Brittain in the liquidation of Abbey. According to the memo that she prepared following the conversation its effect was:

“Pat Owen called to request £14K be released from frozen assets to purchase a container of marble which he claims he already has a buyer for £21K

I informed him that I would speak to the liquidator and someone would contact him back.”

According to Mr Owen the effect of the conversation (Transcript, Day 4, page 602) was that:

“I have got a container sitting in China which I can buy for £14,000 and sell it for £21,000. The money will come from my personal bank account, come back into my personal bank account, there will be a profit of approximately £8,000 which you have got complete control of …”

The difference between Ms Self’s summary and that given by Mr Owen is immaterial for present purposes. The key point to emerge from these exchanges is that whichever version is correct, there was no mention of this being the commencement of what was intended to be a regular trading operation. Permission was being sought in relation to a single transaction. There is nothing in Moon Beever’s letter of 27^th August that suggests they had understood what was being proposed as anything other than a single trading opportunity and equally there was nothing in the response from CHH dated 28^th August which suggested that the issue that had arisen concerned anything other than a single business opportunity.

Aside from the points already made, there is no evidence that suggests the existence of similar opportunities nor were any requests made after the exchange of correspondence to which I have referred that suggests such opportunities were available to the Defendants.

The real issue is whether the Defendants have established a claim in relation to the single transaction which was the subject of the exchanges to which I have referred above.

The first issue concerns whether this was a transaction that to be carried out by Mr P Owen or the Defendants collectively on the one hand, or by Abbey Fireplaces on the other. The latter entity was as I have said a partnership. That being so, if the transaction was to be carried out for the benefit of the partnership then the losses would have to be measured by reference to the degree to which the profits of the partnership in the relevant year were affected by the transaction not taking place.

Although HMRC contended that this was a transaction that was for the benefit of Abbey Fireplaces, I am not persuaded that is so. First, although in the course of cross-examination attention was drawn to an apparent cash surplus in the bank account of Abbey Fireplaces at the relevant time, I regard that as entirely immaterial. Whether a trading entity has cash at bank at any given time is immaterial to the question whether it has the capacity to undertake a particular transaction. Trading companies will very often have cash surpluses as payments come in before expenses are incurred. What matters when considering whether a particular transaction can be undertaken is whether overall a profit is being made. The evidence given by the Defendants was that Abbey Fireplaces was fully extended and could not afford to complete the purchase. I accept that evidence. It is entirely consistent with the Abbey Fireplaces accounts for the years ending 30^th April 2009 and 2010. Those show that Abbey Fireplaces made a profit to the end of April 2009 of £4,312 and a loss in the following year (which included the period with which I am now concerned, August 2009) of £3,733.

Secondly it would make no obvious sense for Mr Owen to inject £14,000 into Abbey Fireplaces in order to enable it to make a gross profit on the transaction of in excess of £9,000 only to have to share it with all the other partners. Thirdly, if the intention had been to fund Abbey Fireplaces, then there is no reason why Mr Owen would not have said so and why CHH would not have said so either in the conversations and correspondence to which I have referred already. It may well be that initially this was an order that was placed by Abbey Fireplaces but the reality is that it could not afford to process it.

I accept that this transaction was one that would require the consent of the liquidator. That is obvious from the fact that it is not asserted that the Defendants or any of them had imported marble for their own account prior to approaching the liquidator in relation to this transaction. Mr Owen did in fact approach the liquidator for consent. This was refused by the letter dated 27^th August 2009. Contrary to what was submitted by HMRC the letter of 27^th August was a refusal. Whilst the letter did say that such requests were to be directed to the liquidator’s solicitor, that was not the end of what was said in that letter. In the final paragraph on page 1 of the letter, Moon Beever said

“We have repeatedly tried to ascertain what your clients are doing in terms of work or income. Their “ordinary course of business” on the basis of the information thus far supplied via you is “unemployed”. Thus clearly no releases can be made for any trading.”(Emphasis supplied)

That was a refusal. The loss was foreseeable because the liquidator was informed of the transaction, its cost and the likely profit that would be made. Notwithstanding that information she refused her consent. Although it is submitted by HMRC that if further information had been provided concerning the proposed transaction then use of funds would have been permitted, this assertion is flatly contrary to what the liquidator’s own solicitors said in the letter of 27^th August. If further information was required before the proposal could be considered the letter would have said so and identified the information that was required. The suggestion that CHH ought to have anticipated what information was required without being told is with respect wholly unsustainable as an approach to the policing of an injunction of this sort. If the injunctor requires information before a request for a variation can be considered then it is for the injunctor to identify the information that is required. The liquidator and her solicitors did not do so. Had the position been that judgment was being suspended pending the provision of further information, the letter could and would have said so. It did not. Consent to the transaction was not refused because the liquidator had doubts as to whether it was genuine (the point made in Paragraph 76 of HMRC’s closing submissions) but because she was seeking further information concerning the Defendants means and the sources of it which were relevant only to the substantive litigation.

In those circumstances the only remaining potential answer to the claim is one based on mitigation. As to that it is noteworthy that it is not suggested in HMRC’s closing submissions that it would have been reasonable to require the Defendants to applied to court for a variation. Plainly it would not have been. The cost relative to the profit and the time it would have taken to obtain a hearing all made such an approach impractical in the particular circumstances. There will be issues of quantum that will have to be considered but in my judgment liability has been established in relation to this head of claim. The transaction is one that I find was to be undertaken by Mr P.Owen, who is the Defendant who is entitled to recover compensation under this head of loss.

Mr Hone’s Share Trading

It is not clear to me whether any other claim is being advanced under this head by Mr Hone. By their letter dated 8^th July 2009, CHH told Moon Beever that in relation to future share dealing by Mr Hone “… we have requested our clients to give us advance notice of any such proposed transaction in order that this can be pre-emptively agreed”. As far as I can see no such requests were ever made thereafter. As noted above by the letter dated 23^rd July 2009, CHH sought the agreement of the liquidator to Mr Hone drawing down £30,000 from the Birmingham Midshires facility for the purpose of depositing it with Pershing Securities in order to permit Mr Hone to trade in shares. By a letter dated 27^th July 2009, Moon Beever said they would seek instructions on the letter of 23^rd July (described as being the “third letter” of that date). That letter was acknowledged by CHH by a letter dated 28^th July 2009. The issue concerning the Pershing Securities deposit would appear to drop out of the correspondence thereafter.

As I have said already it is unclear to me whether Mr Hone is advancing any claim in relation to share dealing other than in relation to the particular losses suffered in July 2009. No notice appears to have been given of any share transaction that Mr Hone wished to enter into other than the transactions entered into in July. The correspondence from his own solicitor contemplated that notice would be given before such transactions were entered into. The request for consent to pay a deposit to Pershing does not appear to have been pursued. Mr Hone addresses share trading in paragraphs 59 -61 of his witness statement. He does not suggest that there were any other share transactions that he wanted to enter into but was prevented from entering into as a result of the Freezing Order or the liquidator’s policing of it. It follows therefore that there is no other claim that Mr Hone could advance under this head..

Residential Property Dealing – The Farnham Property

Mr Cruise gave evidence. In his witness statement he says:

If Mr Cruise is right, his conversations with Mr W.Owen all took place in August 2009. It would appear that initially Mr Owen said that he had funds available but towards the end of August said he could not proceed because of the Freezing Order. However the Freezing Order had been in place since February 2009. Nothing occurred during August 2009 that would lead to a change of perception by Mr W.Owen concerning the effect of the Freezing Order. There was no mention of the loss of this transaction by CHH in their letter of 28^th August 2009 which amongst other things was concerned specifically with the loss of business opportunities. There was no mention of the loss of this alleged opportunity in either the letter of 11^th September or the schedule attached relating to Mr W.Owen.

At no stage was any request made to the liquidator for authority to enter into the transaction either by reference to Clause 10(3) of the Freezing Order or (assuming it to be contended that this proposed transaction was in the ordinary course of business) for consent to all relevant banks to permit the acquisition to proceed. The transaction was one that could not be delivered in any event. The registered proprietor of the property was an un-discharged bankrupt. It follows that a sale could be negotiated only by either the registered proprietor’s trustee in bankruptcy or by the mortgagee, assuming that it was in a position to exercise a power of sale. In neither case would either sell at a price that was less than the market price for obvious reasons. The trustee was under a duty to recover the most that could be recovered for the benefit of creditors and a mortgagee who was selling is under a duty not to sell at an undervalue. It follows that the chances of being able to buy the property at a discount and then sell it at a significant profit without any intervening value added activity was negligible.

Had Mr Owen wished to embark on this venture, and assuming that he contended that to do so was in the ordinary course of business, there was nothing to prevent him doing so using the Dubai funds to which he makes reference in his witness statement, subject to obtaining from the liquidator the consents necessary to ensure that any funds transferred to the UK from Dubai could be paid out by the UK Bank to which the sums were credited. There was no such request, nor any such transfer. My view is that this is a transaction that would not be in the ordinary course of business because at no stage had Mr Owen carried on business as a dealer in property. He had invested in two property transactions prior to the liquidation of Abbey – one in Dubai which had resulted in a profit and one in the West Indies that had not. Each was a personal investment. For loss not to be too remote it would be necessary for notice to be given to the liquidator of the proposed transaction. The defendants collectively had not at any stage prior to the making of the Freezing Order carried on property dealing or development.

In my judgment the probability is that this supposed project got no further than the most initial of outline discussions. This is the only basis on which the evidence of Mr Cruise and Mr Owen can be reconciled with the contemporaneous documentation to which I have referred. Had it progressed any further it would have become apparent that the registered proprietor was an un-discharged bankrupt and thus someone who could not sell the property. Aside from that, this was not a transaction that was in the ordinary course of business and any loss arising from it was not foreseeable in the absence of notice. Thus in my judgment Mr Owen has failed to establish that the opportunity was one that was available to him or that any loss caused to him as a result of not being able to participate was reasonably foreseeable to the liquidator.

Residential Property Dealing – The Herne Bay Property and the Harbledown Property

Mr Hone’s witness statement addresses this issue at paragraphs 46-52. He makes the point at Paragraph 46 that he intended to fund this project using the Midshires facility (Paragraph 49) but that he was not able to proceed for the reasons that he gives in Paragraph 52 of his statement, that is:

“As a consequence of the freezing order imposed by HMRC my facility with Birmingham Midshires BS was withdrawn and, despite requests to release funds to enable us to proceed with this venture, the liquidator refused. We have suffered financial loss as a result.”

Mr Short gave evidence as I have said. His evidence in relation to the funding issue was limited and inevitably hearsay. However in paragraph 8 of his statement, Mr Short said:

“Rick explained to me that he was subject to a freezing injunction imposed on him and his business Abbey Forwarding by HMRC. He explained that he had approached the liquidator in order to request the release of funds to proceed with our proposed venture but this request was rejected. As a consequence we were unable to proceed with the purchase of either … Herne Bay or … Harbledown …”

Whilst it was true to say that a request for consent had been made to the liquidator by CHH, it is not correct to say that there had been a refusal. On the contrary, there had been a request for further information. In my judgment the liquidator was entitled to test the robustness of what was proposed before giving her consent to a variation of the terms of the Freezing Order (which is what had been sought). The business plan that had been produced was skeletal in the extreme and there was no indication given as to who the builder was to be or what experience the builder had in projects of the sort being contemplated or when the work could be commenced or the degree to which (if at all) the costs of financing the project to a conclusion had been taken into account. No further information was ever provided. Mr Hone accepted that the request for further information was reasonable (T2/285/8). In those circumstances Mr Hone had to explain why there was no response to the request. His answer was:

“There was no reply to that because in the meantime I was talking to Jim Short about taking time off after this to do the property up, but (1) Jim could not commit unless I could commit absolutely that the funds would be in place to take the property on and (2) when I went to Birmingham Midshires that is when I found out that the actual drawdown facility had been terminated because of the freezing order that was placed on that”

The difficulty about this evidence is that there is there is no evidence at all to suggest that Mr Hone approached Birmingham Midshires seeking a drawdown in November 2009 either in relation to this project or otherwise. The decision by Birmingham Midshires to withdraw the facility did not occur until April 2010. There was never any request from any of the Defendants for consent to use any assets in connection with the proposed projects with Mr Short other than that made by Mr Hone. I am not able to reach any conclusions as to why in fact the further information was not provided. Mr Hone’s explanation does not withstand scrutiny for the reasons I have given. It would be inappropriate of me to speculate about what reasons there might have been. What is clear however is that Mr Hone has failed to prove that this transaction did not proceed because of the Freezing Order.

Similar considerations apply to the Harbledown property. The added difficulty about this project from Mr Hone’s point of view is that it was never the subject of a specific request for consent. The consent that was sought in relation to the Herne Bay property was not premised on that project being anything other than a single opportunity. If additional losses are to be claimed in relation to other property transactions in my judgment the Defendants have to show that such losses were foreseeable. Absent any indication that they wished to undertake property development on a regular basis this requirement cannot be satisfied. The Defendants have not proved that the Freezing Order caused the loss of the Harbledown project nor have they proved that any loss suffered was foreseeable.

Loss of Dividend Income (Mr P.Owen) and Pension Encashment Losses (Mr W.Owen)

In my judgment the Defendants have failed to prove that the losses claimed under these heads would not have occurred but for the making of the Freezing Order. The need to realise these assets was caused by the loss of the Defendants’ income from Abbey as a result of its liquidation and the need to finance their living and legal expenses. The need to finance their living and legal expenses would have arisen whether or not the Freezing order had been made and it has not been demonstrated that the need to realise these assets would have been avoided if the Defendants had been allowed to pursue other business options. No attempt has been made to identify which of the opportunities relied on would have eliminated this need. The assertion is little more than that. The reality is that the Defendants had finite resources available to them to fund their legal costs and living expenses. That would have been so whether or not the Freezing Order had been made. This was the overwhelming cause of the need to realise assets.

The Ferrari Claim

The following points relevant to this claim are common ground – First, normally the cost of servicing cars will be regarded as a reasonable living expense and is peculiarly likely to be so where the failure to maintain the car concerned will result in a capital loss that would not otherwise be suffered; secondly, under the Freezing Order as varied, Mr Hone was entitled to £120,000 per annum in respect of his living expenses and thirdly, at no stage did Mr Hone seek permission from the liquidator to expend money on service of his car.

It is asserted by Mr Coppel in his written closing submissions (Paragraph 75) that Mr Hone was unable to afford the costs of servicing his car from the living allowance that he was receiving. He submits that to the extent that it is suggested that Mr Hone could have asked for an increase in his living expenses the proper inference is that this would have been refused because a request by Mr P.Owen for a one-off payment to meet his car insurance costs had been refused.

In my judgment this claim fails at the first hurdle. Mr Hone has failed to prove that £120,000 was insufficient to fund his true living expenses. This is particularly startling given the income figures disclosed by his solicitors as part of the material attached to the letter of 11^th September 2009. According to the first schedule he draw £102,619 from Abbey in the year ending 31^st December 2006 and £127,159 in the year ending 31^st December 2007. In addition he received £5,000 from the Treleigh Arms, £12,000 from the holiday letting business that he operated, £5,000 from 42 Wyatt Point and up to £7,000 from share trading. This gives an asserted annual income of £156,000. This does not equate to a net income of £120,000. Put shortly, he was apparently able to afford to purchase and service the Ferrari on an gross income of £156,000 but could not afford to service it notwithstanding that he was entitled to draw up to £120,000 to expend on living expenses. Absent any evidence that explains these figures, the inference I draw is that Mr Hone’s asset position was such that he could not afford to draw up to the maximum that he was permitted under the Order and continue to defend the claim made against him, and thus that requesting an increase of that figure would serve no practical benefit. Even if this inference is wrong, it is nevertheless the case that Mr Hone’s evidence does not explain why the £120,000 per annum he was permitted to draw was not sufficient to enable him to meet the servicing costs for the car or why (if such was the case) such costs were omitted when calculating what his reasonable living expenses would be.

I am not persuaded that Mr Hone in truth regarded a request for an increase as a waste of time simply because Mr Owen’s request in relation to car insurance had been rejected. The reasons why that request was rejected were fact specific to Mr Owen and in any event the expense would not have prevented his car from depreciating in value. The whole point about servicing the Ferrari is that (on Mr Hone’s case) not servicing the car would cause a loss of capital value that would not otherwise be suffered. That is likely to be an important consideration for someone in the position of the liquidator.

Even if all that I have said so far concerning this head of claim is wrong, in my judgment the loss claimed was unforeseeable. Normally as I have said car servicing forms part of an injunctee’s normal living expenses. The provision that had been made by the liquidator for Mr Hone’s living expenses was on any view substantial. Absent notice that the car was not being serviced, there is no basis on which the liquidator can be treated as knowing that this loss will be suffered.

In summary this claim fails because Mr Hone has failed to prove that the effective cause of the loss claimed was the Freezing Order; because he has failed to show that the loss claimed was foreseeable by the liquidator and/or because he did not mitigate his loss by requesting permission to expend funds available to him on servicing his car.

The Knowledgecenter Limited (“KcL”) Shares Claim

The Defendants case is that in late 2008 they had “pledged” a further investment of £250,000 in KcL in return for a further 10% of its issued share capital, that they were prevented from entering into this investment by the Freezing Order and that in consequence they have suffered a loss because the shares in KcL that would have been acquired are worth more now than the sum that would have been paid for them.

The first point taken by HMRC is that the original shares are now owned beneficially by Purland House Limited not the Defendants, that the opportunity to invest is one that would have been taken by Purland House Limited not the Defendants and thus any loss was suffered by Purland House Limited not the Defendants and for that reason is not recoverable. I reject that submission. It is perfectly true to say that there have been a number of references in documentation prepared by or on behalf of the Defendants that suggest that the shares in KcL are owned by Purland House Limited. These are all rehearsed in Paragraph 165 of HMRC’s closing submissions and I do not need to repeat them all in this already overlong judgment. The fact remains however that the shares were allotted to and registered in the name of “Purland House” in excess of a year before Purland House Limited came into existence. Since there is no alternative suggestion for what “Purland House” is other than the Defendants together, in my judgment the shares in KcL were owned beneficially by the Defendants in equal shares as at the date when they were first allotted. If that is so, then that position could only alter if either the Defendants transferred their shares to Purland House Limited or declared themselves to hold the shares on trust for Purland House Limited.

I do not accept that the erroneous assertions that the shares were owned by Purland House Limited constitute a declaration of trust. They are as likely to be simply errors. In this regard it is significant that the accounts of Purland House Limited do not suggest that the shares belong to the company beneficially. I have no doubt that an intention was formed by the Defendants to transfer the shares to Purland House Limited. However that has not been done. Absent an unequivocal declaration of trust I conclude that the original shares are currently held by the Defendants jointly for themselves.

The other technical point that is taken is that the evidence is not sufficiently strong to support the suggestion that any further investment would have been by way of the acquisition of shares in KcL. As to this, that is not what Mr Osborn says in Paragraph 32 of his witness statement. Shares were sold to Watertrace Limited when that company invested in KcL as part of a strategic alliance between those two companies. Mr Osborn told me that the shares acquired by that company were sold to it by him (T3/434-5). That leads to the conclusion for which Ms Harman contended in her cross examination of Mr Osborn – it was not an investment by Watertrace Limited in KcL. That may be so. It does not lead to the conclusion that Mr Osborn was reluctant to share the equity with others. In any event, the relationship between him and Mr W.Owen was a close one and I have little doubt that Mr Osborn would have fewer doubts about shares being held or controlled by him than he would about shares being held by others.

The real issue concerns whether the Freezing Order was the effective cause of the claimed loss and whether any such loss was reasonably foreseeable to the liquidator. Evidentially the position is clear. Whatever the position had been before Ms Brittain was appointed liquidator, thereafter the Defendants made no attempt to carry through the investment. No notice was given to the liquidator that an agreement such as is alleged had been reached, no request was made to the liquidator either for consent to invest pursuant to Clause 10(3) of the Freezing Order or for her authorisation to any bank to facilitate the investment. The reality is that the Defendants chose not to invest further. That was likely to be because they wished to garner their resources in order to meet the two most pressing matters for them – their respective living expenses and the cost of defending the substantive proceedings brought against them in circumstances in which what was any view the main source of their income – Abbey – had been placed in liquidation.

In my judgment had the Defendants wished to proceed, the further investment would have been one that fell within the ordinary course of business exception. I say this because the Defendants had invested heavily, and planned to invest further, in KcL prior to the commencement of these proceedings. There can be no doubt that such investment was in the course of business. These were not investments held by them privately but were held by them collectively for business purposes. Thus, as is submitted by HMRC it was open to them if they chose to do so to proceed with the transaction. Thus I am not satisfied that the Defendants have proved that the effective cause of the failure to invest was the Freezing Order.

Even if this is wrong and the investment is one that would have required express consent under Clause 10(3) I conclude that the Defendants have not proved their claim. Aside from the points already made concerning the causative potency of the Freezing Order on the proposed investment, there is no proper basis on which is can sensibly be contended that losses caused by the failure to make this investment were foreseeable to the liquidator in the absence of express notice. She did not have either actual or inferred knowledge of the Defendants interest in KcL as at the date when either the Freezing Order was made or varied. The first mention of KcL to the liquidator was in an interview of Mr P.Owen that took place on 3^rd July 2009. There was no mention of the further investment at that stage. It is simply not the case that knowledge of the existence of a shareholding in a closely-held company leads to the knowledge that an injunctee might wish to invest further but will be precluded from so doing by a freezing injunction which incorporate provisions such as those in Clause 10(2) and (3) of the Freezing Order.

The Treleigh Arms Claim

This is evidence I accept because (i) Mr Welch had no reason to mislead me, (ii) it is entirely consistent with the fact that the only quote obtained was one dated in September 2008, (iii) it is entirely consistent with the fact that no request of any sort was made to the liquidator for consent to proceed even though on Mr Hone’s case the work should have been completed by June 2009 before any question of knockback arose, (iv) the sum involved was modest and Mr Hone had access to the Midshires facility from which the necessary funding could have been raised and (v) to this day the work has never been carried out. This claim is one that fails because Mr Hone has failed to prove that the Freezing Order was an effective cause of the decision not to carry out the work.

General Damages – The Principles

In assessing the compensation due pursuant to a cross-undertaking in damages the court proceeds as I said much earlier in this judgment as if the undertaking had been a contract between the claimant and the defendant that the claimant would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction – that is on the facts of this case as if there had been a contract between Abbey and the Defendants that Abbey would not prevent the Defendants from disposing, dealing with or diminishing the value of their assets up to a value of £5.95m or removing their assets up to that value from England and Wales.

I do not see why the notional contract by reference to which compensation is to be assessed is not a contract the very object of which “… is to provide freedom from molestation …” or, when an Inquiry as to the compensation due under a cross-undertaking has been ordered, why a court should be precluded from awarding compensation on the basis that “… the contrary result is procured instead…” It is very difficult to see how preventing an individual from dealing with his or her assets is anything other than molestation or why the contrary result is not the consequence of a (wrongly made) order that prevents such activity. I leave to one side cases where the injunctee is a company or other corporate entity, an LLP or a true partnership. Claims by such entities raise different issues that do not arise in cases such as this where all the Defendants are individuals.

The only authority that has been cited to me which is said to support the proposition that general damages are not recoverable is Al-Rawas v. Pegasus Energy Limited and others (ante). Jack J noted in passing at Paragraph 39 the New Zealand case of Bonz Group (Pty) Limited v. Cooke [2000] NZCA 44 where there had been an appeal from a decision of a first instance judge on an Inquiry under a cross-undertaking given on an application for a search and seizure order where ultimately the claim in aid of which that order had been granted failed and was dismissed. There had been no appeal against the judge’s decision to award $5,000 for emotional distress on a cross-undertaking. Jack J completed his analysis with a conclusion at Paragraph 40 of his judgment in these terms:

“I think the award of damages for emotional distress in the Bonz case is to be considered in the context of their particular facts. In my judgment, unless the particular facts make it appropriate as an exception, damages for emotional distress are not recoverable under a cross-undertaking. I refer to Chitty on Contracts 29^th Edition, Paragraph 26-073 and following, where the principles and authorities are considered. I do not think that the circumstances here are such as to take the case out of the general rule.”

Jack J accepted in Paragraph 39 that general damages may be awarded where a freezing order has been wrongly obtained. Such damages were to compensate:

“… the defendant for the consequences of the order which cannot be claimed as special damage. They are not however awarded for nothing. It may be obvious that the particular circumstances of the case justify an award, or it may well not be but rather the contrary. In most cases it will be necessary to have some evidence to support the award. ”

I have come to the conclusion that in principle there is no general bar to the award of general damages for emotional distress but that whether such an award is made in any given case is fact-sensitive. I consider that this approach is in keeping with that adopted by Jack J, is consistent with the current approach of the English law of damages for breach of contract and consistent too with logic. In many and perhaps most cases where injunctions are wrongly granted no question of general damages much less general damages for emotional distress will arise. However it is most likely to do so where the court is concerned with search and seizure and freezing orders where the respondents concerned are individuals.

This approach was strongly challenged by Mr Nathan in Paragraph 24 of his supplemental submissions on this point. He characterised emotional distress as “unpleasantness”. I regard that as unnecessarily belittling the potential effect on individuals against whom freezing orders have been obtained without notice. If the sole effect in a particular case has been no more than unpleasant then it is unlikely that any damages will be awarded. It does not justify the conclusion that damages for emotional distress should never be awarded notwithstanding the strength of the evidence in support of such an award.

Mr Nathan next suggested that such claims should be rejected as wrong in law because a court would otherwise have to weigh in the balance when considering whether to grant an injunction the potential emotional distress to the respondent. I reject that submission. If compensation is recoverable for such distress pursuant to a cross-undertaking then there is no need for a court to weigh such concerns in the balance to any greater extent than any other potential adverse effects. In fact if anything the court is more likely to be concerned with such issues at the application stage if compensation for such losses is not recoverable.

It is then said that if compensation for such loss was recoverable “… it would be recoverable in almost every single case where a natural person is enjoined …” I do not agree. First, such damages will only be recoverable where a natural person has been wrongly enjoined. Secondly it is not every case where an Inquiry will be ordered. Whether to order an Inquiry is discretionary. Thirdly, as I have said, such cases are likely to be acutely fact-sensitive depending on all the circumstances of each case including the nature and terms of the injunction, the length of time it was in place, the effect on the individual concerned of the injunction and how it was policed, the degree to which its grant was publicised or copies disseminated and the effects of such publicity and dissemination.

Finally it was submitted that the award of compensation is all the more inappropriate when the injunction concerned was granted in the context of a commercial dispute. I reject that submission because it focuses on the wrong issue. The question the court is concerned with is not the nature of this dispute but the effect of a wrongly obtained order on individual respondents. It is as likely that an individual will suffer emotional distress when being served with a freezing order in the context of a commercial dispute as in any other. It is the effect on the individual respondent that is important, not the nature of the dispute that led to the injunction being (wrongly) granted.

Aggravated Damages – The Principles

The Pleading Issue

Paragraph 13 of the Points of Claim expressly pleads what are alleged to be “aggravating matters”. It contains 5 sub-paragraphs. Sub-paragraphs (a) to (d) all contain assertions that various allegations made in support of the initial without notice application were without evidential justification and were not pursued at trial. Paragraph (e) contains an allegation that:

“At various points during the period in which the Freezing Order was in place the Defendants requested the release of funds. The manner in which those requests were dealt with and responded to was such as to properly give rise to an increased level of compensation.”

Paragraph 14 pleads a claim for general damages in these terms:

“The obtaining of the Freezing Order and the conduct of [Abbey] was such as to cause severe distress to the Defendants resulting in medical intervention. The Defendants therefore claim damages and/or compensation for emotional distress.”

The claim for aggravated damages is pleaded specifically in the Prayer to the Points of Claim in terms that include the phrase “…and/or increased compensation”. Damages for emotional distress are pleaded as a separate head of loss claimed in the Prayer. In my judgment a reasonable reading of the pleading as a whole shows that aggravated damages are being claimed by way of augmentation of the general damages claim.

The Losses for Which General Damages Are Awarded.

The Medical Evidence Issue

Mr Nathan’s more general submission was that a medical report was required in all cases where damages for emotional distress were claimed. I do not agree. Where it is alleged that a medically diagnosable condition has been caused by a wrongly granted injunction or the way it has been policed, such a report will almost certainly be required because an unqualified claimant would not be in a position to provide cogent evidence concerning diagnosis or causation. However where a claim for damages for emotional distress does not involve such an allegation, I do not see how or why such evidence should be required.

The General and Aggravated damages Claims.

The Defendants in principle are entitled to recover a sum by way of general damages to compensate them for the consequences of the order that cannot be claimed as special losses. Such claims might have included the time that each spent with their solicitors and in responding to questions from their solicitors and from the liquidator and her solicitors that were referable to the Freezing Order or the administration of it by the liquidator and her solicitors. However no such claim has been pleaded or intimated. In consequence it is not open to me to award damages by reference to these issues.

Mr Hone

Likewise, whilst I accept that in principle the effect of observing the effect on loved ones of a wrongly granted freezing order might on appropriate facts entitle a defendant to recover general damages, Mr Hone’s evidence does not support such a claim here. The effect described on Mr Hone’s mother was not the result of the Freezing Order because her Abbey pension was not lost to her as a result of that order. The cause of that loss was the liquidation of Abbey. Likewise the inability of Mr Hone to support his son’s ambition to go to university was not the result of the Freezing Order (the costs of supporting a dependent child at university would I think clearly form part of a defendants reasonable living expenses or ought to be permitted by express concession) but by a lack of resource. That was the result of the liquidation of Abbey. Had it been demonstrated that an effective cause of Mr Hone’s inability to support his son was the Freezing Order or the manner in which it had been administered, I would have accepted that the effect on Mr Hone of not being able to provide for his son would have been a factor to be taken into account in assessing general damages.

I accept that the liquidator or her staff attempted to contact people whose phone numbers appeared in the mobile phone records of the Defendants kept by Abbey. I accept Mr Hone’s evidence that some of these conversations were with personal friends and family members. I also accept that in at least some of these conversations the recipients were told of the Freezing Order. I accept that some embarrassment would have resulted from such discussions. However I do not accept that in truth the embarrassment caused was “enormous”. On the evidence adduced by the Defendants they willingly informed a number of business associates about the existence of the Freezing Order and it is clear that Mr Hone’s immediate family would have learned of what had occurred in any event.

There was one point in Mr Hone’s evidence when he touched upon his experience of this litigation in general which he described in these terms:

“ [Mr Hone] … Again, I draw your attention to what happened in February 2009 and, again, when our lives were devastated and we are sitting here talking as if we are a corporate conglomerate with people working for us, everything, everything was swept away. Our ambition, our lives, everything was swept away. It took some many, many months for us to actually get back off of our knees and start thinking of ways to try and earn some money, when it was clear that the Liquidator was not going to do her job properly, approach us, realise things were wrong. She could have sold the air freight department in the sea freight department. She could have come at us and said, “Would you like to take these? Would you like to buy these as a going concern?" I have a degree in logistics. I could have done that, but she never.

[Mr Nathan] Q. You never approached her and asked her?

A. Never approached her?

Q. To ask to buy it?

A. I never asked her to buy the sea freight and the air freight division? The very first day that we walked in the door, Richard Mills, who is the operations director, the very first day said, "The phone is ringing. People are trying to book cargo. Tell them that they cannot, we are closed for business." There was nothing -- she had already alienated and got rid of the business within two days. There was nothing to buy. If she had sat us down, as I think she should have and "Right, you are on gardening leave, but I want to talk to you. What can we do here? What do you think about what HMRC have said? What do you think about these assessments? Shall I appeal them?" If we had done that right at the beginning, we would not be here.

Q. Okay. That was activity, these were all consequences of the appointment of the Liquidator. Yes?

A. And the freezing orders that were put on us, I remember you said yesterday, "Why did you not buy a company off the shelf and start again?" How on earth could you go to a bank and say, "I have got freezing orders. We have got freezing orders on us"? It has been difficult enough, 18 months later, after we were found not guilty and the freezer was taken away, for the banks to talk to us now. It has been almost impossible, but we done it, but we could not have done anything then.

Q. Just let us break that down a little bit. I appreciate that the emotions which you feel.”

I found Mr Hone’s last answer to be an entirely cogent description of one effect of the wrongly granted Freezing Order on him and the other Defendants. I accept of course that there is an element of commonality between the effect of the Freezing Order and that of the liquidation of Abbey. However there is no doubt in my mind that in this section of his evidence Mr Hone accurately described the effect in practical terms of the Freezing Order on him as a self-employed businessman. It is an effect that I can legitimately take into account when assessing general damages as being a facet of the emotional distress indignity and loss of reputation that has been pleaded as the basis of the general damages claim. Mr Hone returned to this issue again in the course of the evidence he gave in re-examination when he touched on one particular effect of the Freezing Order:

“Q. To what extent, just generally, were you making her aware of your personal business predicament, how this was affecting you, Rick Hone, not to be able to have access to your private funds in order to carry out business?

A. I think in the first months we were just actually fighting what was coming at us. We thought that because Baker Tilley -- it was Baker Tilley at the time -- was in the warehouse, and they were in the warehouse for two months, we would have £60,000 coming back to us. We actually thought that then we would take the warehouse over and perhaps salvage something. But very early on, we were told by the staff that were still working at Abbey Forwarding that she was systematically shutting everything down, telling every customer that the company was insolvent, she was telling everybody, which was blatantly untrue. So, every time ----

JUDGE PELLING: Can you just go a bit more slowly? I want to take a full note of this.

A.

Sorry, sir. There was a view -- and I was talking to people, to see if there was something we could rescue, because we were mindful, also, that the rates on the warehouse were over £7,000 a month and we knew that that would then impact later on. Then it became apparent that the banks just wouldn't talk to us. The normal people we were talking to at the banks were not talking to us any more. When we went up to get our money from the local branch, we had to take our passports. On every level, it just became impossible; and me, personally, there was a point where I just could not go on.”

I have set out the quotation in full so as to establish context. The point that is relevant to the matters I am now considering is contained in the final part of Mr Hone’s answer after my intervention. It records an aspect of the effect of the Freezing Order that was plainly material to the issue I am now considering

Mr W.Owen

Mr P.Owen

Matters relevant to each of the Defendants’ Claims For Aggravated Damages.

It is not clear to me how (b) could be an aggravating factor. In relation to (b) to (d), the notion that the liquidator can distance herself from HMRC in the manner attempted by the Defence may not be a tenable position for her to adopt given that the application for the Freezing Order was made by her immediately following her appointment if she adopted the evidence that had been used to support her appointment or did not seek to dissociate herself from it. Finally as matters presently rest I do not see how the matters referred to in (b) to (d) can have an aggravating effect when none of the Defendants mention them in their witness statements as having any effect on them. These issues require further clarification. That can be done either at the hand down of this judgment or at the assessment hearing.

I make clear however that I consider the facts and matters pleaded in (c) and (d) (about which there is no factual dispute) are capable of having an aggravating effect given the findings made at trial and thus are matters that will be relevant to an assessment of aggravated damages subject to the points made in paragraph 138.

Finally I turn to (e). I regard the manner in which the liquidator and her solicitors approached the question of releasing funds for living and legal expenses to be a potentially aggravating factor in the following respects. It is entirely clear from what I have said already that two issues were at the forefront of the Defendants’ minds during the period covered by the Freezing Order – defending the claim and providing for their families and themselves. Thus a failure by the liquidator or those who acted for her to provide the necessary releases so as thereby to interfere with those objectives has the potential to increase not decrease stress distress and anxiety. Correspondence that demands prior consent before legal costs are incurred is simply not acceptable when there is no justification for such a stance in the Order itself and when it was obvious that such conduct was capable of affecting the ability of the Defendants to defend the claims made against them. Likewise delays in authorising the release of funds, particularly before a trial when it must have been apparent that a potential effect of such delay would be to interfere with the ability of the Defendants to defend the claims is unacceptable. Finally, threats to reduce unilaterally the sums that the Defendants were entitled to draw down in respect of their living expenses when the limits had been fixed by court order were equally unacceptable. The difficulty about each of these matters however is that which I have noted in relation to paragraphs (b) to (d) - whilst the correspondence supports findings in each of these categories there is no evidence as to the effect on the Defendants of these matters. Indeed they are not mentioned at all in their respective witness statements.

These points were not explored in the submissions made to me. It would be wrong to determine finally the general and aggravated damages claims without giving the parties an opportunity to address these points.

Other than in relation to the tax penalty and marble claims, and subject to the point reserved in Paragraph 81 above, the special damages claims all fail. Each of the Defendants is entitle to recover general damages by reference to the facts and matters referred to in paragraphs 130 – 136 above that are there identified as supporting those claims. Final determination of whether aggravated damages can be recovered depends upon further argument on the issues identified in Paragraphs 138 and 140 above.