Alta Trading UK Ltd (Formerly Arcadia Petroleum Ltd) & Ors v Bosworth & Ors

The Claimants were members of the Arcadia group of companies (“the Arcadia

The Claimants initiated these proceedings against the Defendants alleging that they have suffered as victims of a substantial fraudulent conspiracy among a number of natural and corporate persons to divert money, allegedly some US$340 million, away from the Claimants (the Arcadia Group) and into the hands of companies owned and/or controlled by the individual Defendants, who were former senior executives of the Arcadia Group or their associates. The fraud concerned profits arising from transactions, relating to West African crude oil, involving Arcadia Group companies but which accumulated in entities outside the Arcadia Group, and were diverted into or through the Defendants or other companies associated with the individual Defendants.

Claims against four of the Defendants have been settled.

The Fifth Defendant, Mr Steven Kelbrick, was an oil trader with the First Claimant (“Arcadia London”), and thereafter a consultant to and trading partner of the Arcadia Group. Mr Kelbrick owns 50% of the beneficial interest in the Ninth Defendant (“Attock”). The other 50% is owned by Mr Salem Mounzer, who had been the Sixth Defendant in the proceedings, but with whom the Claimants have settled their claims.

The claims against the Defendants, including Mr Kelbrick and Attock, are grounded in allegations of conspiracy, dishonest assistance of breach of fiduciary duty, knowing receipt and aiding and abetting tortious acts in breach of the Swiss Code of Obligations.

The Defendants, including Mr Kelbrick and Attock, deny the claims. Mr Kelbrick’s case is that the trades were legitimate, formed the ordinary course of his business and were undertaken on the understanding that the First and Second Defendants had the relevant authority on behalf of the Arcadia Group.

On 12th February 2015, the Claimants applied for and obtained freezing injunctions against the Defendants, including Mr Kelbrick and Attock. The injunctions were later continued at the return date in July 2015. On 13th February2015, the Claimants commenced these proceedings.

At the hearing of those applications, the Claimants gave an undertaking in damages and voluntarily agreed to fortify or secure that undertaking in the sum of US$2 million.

Since 2015, the proceedings have been occupied by challenges to the Court’s jurisdiction made by the First and Second Defendants, which were first determined by the Court in 2015, but from which there have been appeals to the Court of Appeal and Supreme Court, a reference to the Court of Justice of the European Union and, following the return of the case to the Supreme Court, a remittal of a factual issue to the Commercial Court, and a further appeal to the Court of Appeal, which is listed to be heard on 5th and 6th May 2021.

In September 2017, Mr Kelbrick applied to the Court to set aside the freezing injunction but the application was dismissed by Cockerill, J.

At the hearing before me, Mr Kelbrick and Attock have applied for an increase in the fortification of the undertaking in damages by the Claimants up to US$10 million. However, by the time of the hearing, the application was pursued only by Mr Kelbrick and not by Attock. Mr Kelbrick’s alleged losses (both actual and potential) are said to arise by reason of his shareholding in Attock and a related company, Attock Oil International DMCC (“Attock Dubai”).

Mr Kelbrick’s intention of seeking an increase of the fortification of the Claimants’ undertaking was first raised in late 2017 and this application was issued in August 2020.

The Claimants resist the application to increase the level of fortification.

An undertaking in damages is given to the Court by an applicant for an interim injunction to facilitate the compensation of the respondent in respect of any losses caused by the injunction, in particular if the applicant was not entitled to such interim relief. It is a “very important, if not an essential, means of preventing injustice from being done by the court when it makes an order at an interlocutory stage, before the rights of the parties have been finally determined” (Air Express Ltd v Ansett Transport Industries (Operations) PtyLtd (1981) 146 CLR 249, 311-312, per Gibbs, J). The provision of such an undertaking, unless the Court orders otherwise, is contemplated by CPR PD 25A, para. 5(1). Whether the undertaking is enforced is a matter for the Court’s discretion (Fiona Trust & Holding Corporation v Privalov (No 2) [2016] EWHC 2163 (Comm); [2017] 2 All ER 570, para. 11).

Given the advantage provided to the applicant for an interim injunction by the grant of the injunction itself, that should be balanced by ensuring that a sufficient level of protection is afforded to the respondent in respect of any losses which are caused by an injunction. That protection resides in the undertaking in damages and if the undertaking requires financial security in the fortification of the undertaking. This is said to be a matter of “symmetry” (Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295; [2015] 1 WLR 2309, para. 52).

Provision is made for the fortification of the undertaking in the Commercial Court Guide, at para. F.15.4:

“(a)

Where the applicant for an interim remedy is not able to show sufficient assets within the jurisdiction of the Court to provide substance to the undertakings given, particularly the undertaking in damages, it may be required to reinforce the undertakings by providing security.

(b)

Security will be ordered in such form as the Judge decides is appropriate but may, for example, take the form of a payment into Court, a bond issued by an insurance company or a first demand guarantee or standby credit issued by a first-class bank.

(c)

In an appropriate case the Judge may order a payment to be made to the applicant’s solicitors to be held by them as officers of the Court pending further order. Sometimes the undertaking of a parent company may be acceptable.”

The Court has previously considered the circumstances in which such fortification should be ordered. It is ultimately a matter for the Court’s discretion, but the principles which guide the exercise of that discretion are that fortification should follow if the respondent to the injunction (the applicant for fortification) can demonstrate a good arguable case (and not to any higher standard) that:

These requirements guiding the exercise of the Court’s discretion are closely related, especially the first and second requirements. In Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295; [2015] 1 WLR 2309, after rejecting a higher standard of proof on the balance of probabilities to establish the above requirements, because such a standard would “encourage wasteful satellite litigation”, Tomlinson, LJ said (at para. 53):

“… In my judgment Briggs J was correct in Jirehouse Capital v Beller [2008] EWHC 725 (Ch) to summarise the principles as he did at para 25:

“Broadly speaking, they require an intelligent estimate to be made of the likely amount of any loss which may be suffered by the applicant for fortification (here the defendants) by reason of the making of an interim order. They require the court to ascertain whether there is a sufficient level of risk of loss to require fortification. They require that the loss has been or is likely to be caused by the granting of the injunction.”

The three requirements are of course inextricably linked. The principles could equally be summarised, as Hamblen J did at para 31 of his judgment, as a requirement that the applicant for fortification show a good arguable case for it. In this interlocutory context, showing a sufficient level of risk of loss to require fortification is synonymous with showing a good arguable case to that effect. In some cases the assessment of loss may at the interlocutory stage be difficult. It is in such cases that an intelligent estimate is required. An intelligent estimate will be informed and realistic although it may not be entirely scientific.”

The parties did not dispute these requirements in a general sense. The parties’ submissions followed these three requirements, albeit not necessarily in the same order as I have set them out above. I shall consider each of these requirements, recalling that ultimately the Court must step back and ask whether in the circumstances of the case, the increased level of fortification should or should not be ordered.

Although these requirements guide the exercise of the Court’s discretion, the Court must consider each of these requirements and the weight to be accorded to them and of course any additional factors. That said, in most cases, these requirements are important, if not critical, to the exercise of the Court’s discretion.

Mr Fionn Pilbrow QC, who appeared with Mr David Heaton on behalf of the Claimants, submitted that in determining whether the standard of a good arguable case has been met in respect of these requirements involves a consideration and scrutiny of the evidence before the Court. However, Mr Sprange QC submitted that the Court should not undertake a detailed and prolonged assessment of difficult questions, particularly as to causation, and that the assessment of any loss might be difficult and imprecise and that the mere absence of particularised evidence does not mean that there is no evidence of a risk of loss (Sinclair Investment Holdings SA v Cushnie [2004] EWHC 218 (Ch), para. 24).

In my judgment, it is not simply a case of the Court forming a general impressionistic view, but of having careful regard to the witness and documentary evidence, bearing in mind the interlocutory nature of the application and the nature and possible incompleteness of such evidence. The standard of proof is not a high one, although in some respects, especially in the context of causation, there are inherent difficulties. Those difficulties must be weighed in the balance with the evidence itself, but it is the evidence which the Court must take into account in deciding whether the standard is or is not met.

Mr Sprange QC on behalf of Mr Kelbrick submitted that:

Mr Pilbrow QC on behalf of the Claimants submitted that:

In considering these submissions, I recall that the standard of proof which Mr Kelbrick must satisfy is one of a good arguable case. Moreover, while I accept that the Court’s quantification of any estimated loss must be based on the evidence before the Court, which requires the Court to scrutinise that evidence, the Court should recognise and take into account the inherent limitations of the exercise at an interlocutory hearing. Therefore, in Fiona Trust & Holding Corporation v Privalov (No 2) [2016] EWHC 2163 (Comm); [2017] 2 All ER 570, Males, J said at para. 49-51:

“49.

There was some debate whether a ‘liberal assessment’ of damages is appropriate. The origin of this phrase is the speech of Lord Wilberforce in a case concerned with damages for patent infringement, General Tire and Rubber Co Ltd v Firestone Tyre and Rubber Co Ltd [1975] 2 All ER 173 at 177, [1975] 1 WLR 819 at 824:

‘There are two essential principles in valuing the claim: first, that the plaintiffs have the burden of proving their loss; second, that the defendants being wrongdoers, damages should be liberally assessed but that the object is to compensate the plaintiffs and not to punish the defendants.’

51.

… Nevertheless I consider that a liberal assessment of the defendants’ damages should be adopted, provided that it is clear what this means. It does not mean that a defendant should be treated generously in the sense of being awarded damages which it has not suffered. It does mean, however, that the court must recognise that the assessment of damages suffered as a result of a freezing order will often be inherently imprecise, for example because the defendant cannot say precisely what it would have done with its funds but for the freezing order; that this problem has been created by the claimant’s obtaining of an injunction to which it was not entitled; that in the light of these factors the kind of over eager scrutiny of a defendant’s evidence and minute criticism of its methodology to which Norris J referred will not be appropriate; and that it is not an answer for a claimant to say that damages cannot be awarded because the defendant’s business venture was to some extent speculative and might have resulted in a loss. Thus the defendant is not absolved from proving its damages, but these factors must be borne in mind in determining whether it has succeeded in doing so.”

Subject to the issue of causation, which I address below, in my judgment, Mr Kelbrick can demonstrate that he has a good arguable case that he has suffered losses following the grant of the injunction in February 2015 for the reasons largely given by Mr Sprange QC. I have in mind in particular the following considerations:

The quantification of such loss is difficult and as part of the exercise I am undertaking it must necessarily be one which is lacking any logical rigour or one which is inherently tentative. I have in mind that the injunction was granted in February 2015 and that it is likely to continue until the trial of this action, which may be, on Mr Sprange QC’s estimate, in 2024, or in Mr Pilbrow QC’s estimate, 2023. On either estimate, that is a considerable period of time.

Bearing in mind the sales generated by Attock Dubai prior to the grant of the injunction, I can readily see that any losses sustained by Mr Kelbrick following the injunction might be as high as US$1 million per year, which would equate with US$8-9 million

There is a question whether the Court has the jurisdiction to order fortification in respect of losses sustained prior to the order for fortification or whether the Court should make such an order in the exercise of this discretion.

In Standing v Power [2020] EWHC 1173 (Ch), para. 37-38, Mr Michael Green QC sitting as a deputy High Court judge, after considering the requirements which should be established in guiding the Court to exercise a discretion in favour of fortifying an undertaking in damages, said at para. 37-38:

“37.

Mr Asquith submitted that the test is satisfied if he shows that there is a real risk of any loss being suffered by Mr Power and there is no basis for applying the loss of a chance principles in this area. If there is a real risk of the sale being lost as a result of the injunction, then an intelligent estimate of the likely loss has to be made. I think he must be right on this and that is the approach I will take.

38.

It furthermore seems to me that I have to be so satisfied as at the date of the hearing that the evidence shows that there is a real risk of a loss being suffered from a sale falling through in the future. If the evidence indicates that the sale has already fallen through, then that has happened while there was no added fortification to the cross-undertaking and was a risk that the applicant took in delaying his application. I do not think that fortification should be ordered for losses already incurred by the time the application is heard.”

Mr Pilbrow QC initially submitted that on this authority fortification may only be ordered for future (and not past) risks of loss, though he accepted that this aspect of the decision was obiter. Mr Pilbrow QC submitted that, as most of the losses for which Mr Kelbrick seeks fortification must have occurred in the past, the Court must not order fortification in relation to such past losses. However, during his oral submissions, Mr Pilbrow QC submitted that this is a consideration which is probably best viewed as one governing the Court’s discretion.

I do not accept that the Court’s jurisdiction to order the fortification or further fortification of an undertaking in damages must relate only to losses which may be suffered in the future rather than losses which have already been incurred. If the Court considers that fortification is justified having regard to the factors referred to above, I see no reason why fortification could not be directed in relation to past losses as well as future losses. There are a number of reasons for this conclusion:

There is therefore no reason to restrict any further fortification to be ordered (assuming that the further requirements are satisfied) to future losses.

Mr Sprange QC on behalf of Mr Kelbrick submitted that:

Mr Pilbrow QC on behalf of the Claimants submitted that:

It is clear that the undertaking in damages is concerned with losses caused by the interim injunction, not losses caused by the proceedings in which the injunction is ordered or by allegations made in those proceedings. Thus, in a decision of the High Court of Australia in Air Express Ltd v Ansett Transport Industries (Operations) PtyLtd (1981) 146 CLR 249, Gibbs, J said (at pages 312-313):

“… it is perfectly clear, and it appears from the words of the undertaking themselves, that the only damages to which a defendant is entitled are those which he has sustained by reason of the grant of the injunction. The generally accepted view is that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice … However, in the present case the question is not whether loss caused by an injunction was a natural consequence of making it, but whether any loss which the appellant suffered was caused by the making of the injunction …

In a number of authorities the court has distinguished between loss which was caused by the injunction and loss which arose from the litigation … There is no reason to doubt that it is correct in principle to draw such a distinction if the facts warrant it. If the pendency of the litigation, rather than the making of the order, was the cause of the plaintiff’s loss, the terms of the undertaking have no application, since the plaintiff has not sustained loss by reason of the order. Moreover, except in certain cases analogous to malicious prosecution, a defendant is not entitled to recover damages for loss resulting from legal proceedings brought against him - the only liability of the unsuccessful plaintiff is to pay costs. The court should no doubt scrutinize with care an assertion by a plaintiff that loss which has been suffered by a defendant has resulted from the litigation rather than from the making of the interlocutory order, since a plaintiff should not be allowed to evade payment of the price which he has agreed to pay for the grant of the injunction. In the end however the question becomes one of fact: did the making of the order cause the loss? The onus of proof must, in accordance with general principles, lie on the defendant who asserts that he sustained damage by reason of the order.”

Gibbs, J then considers how to weigh in the balance the causative effect of the proceedings or the litigation on the one hand and the interim injunction on the other hand:

“It was submitted on behalf of the appellant that it is enough that the making of the order should have been a cause of the damage, so that if both the making of the order and the continuance of the litigation are concurrent causes the undertaking will be applicable. However, in almost every case in which an injunction is granted the injunction will play some part in causing the party bound by it to act in accordance with its terms. To order a plaintiff to pay damages where it appears that the party bound by the injunction would have acted as he did even if the injunction had not been granted, would be to give the undertaking an effect obviously not intended. The party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered. It was further submitted that the onus lies on the plaintiff, against whom the undertaking is sought to be enforced, to disentangle any damage arising from the litigation from that which was caused by the making of the order. However, the onus of proof does not shift in this way; the defendant, who seeks to enforce the undertaking, must prove that the damage he has sustained was caused by the making of the order.”

In Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295; [2015] 1 WLR 2309, Tomlinson, LJ said at para. 54:

“As to causation, it is sufficient for the court to be satisfied that the making of the order or injunction was a cause without which the relevant loss would not have been suffered, as Gibbs J put it in the High Court of Australia in Air Express Ltd v Ansett Transport Industries (Operations) Pty (1981) 146 CLR 249, 313. That was said in the context of an application to enforce the undertaking. At the stage of considering whether fortification of the undertaking is required, the proposition could be restated as it is sufficient for the court to be satisfied that the making of the order is or was a cause without which the relevant loss would not be or would not have been suffered. That is the hurdle which the applicant must surmount. It is of course open to the defendant to demonstrate that it has not been surmounted, as by demonstrating that there is no causal link between the granting of the injunction or order and the loss in question. If however, disproving the asserted causal link as to which a good arguable cause is shown requires the deployment of extensive contentious evidence and argument, that is not an exercise to be attempted at the interlocutory stage …”

Tomlinson, LJ approved the judgment of Floyd J, at para. 18 and 25, in Bloomsbury International Ltd v Holyoake [2010] EWHC 1150 (Ch), where it was recognised that each case must be assessed on the evidence before the Court and that the evidence before the Court at an interlocutory hearing such as this may not be easy to assess with a view to determining the respective causative effect of the proceedings on the one hand and the injunction on the other hand. However, there must be evidence to support the good arguable case that there are actual or potential losses caused by the grant of the injunction (see JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 WLR 160, para. 99).

In Fiona Trust & Holding Corporation v Privalov (No 2) [2016] EWHC 2163 (Comm); [2017] 2 All ER 570, Males, J said at para. 48:

“Thus, in summary, the freezing order need not be the sole or exclusive cause of the loss in question, but must be an effective cause; the burden is on the party who obtained the freezing order to demonstrate a failure to mitigate; and the type of loss (but not the particular loss within that type: Hone at [66]) must be within the reasonable contemplation of the parties. The courts have recognised that a freezing order can have the effect of ‘ruining a thriving business’ and, in that context, have described such orders as one of the law’s ‘nuclear weapons’ …

I should also refer to the decision of the Court of Appeal in SCF Tankers Ltd v Privalov [2017] EWCA Civ 1877; [2018] 1 WLR 5623, where Beatson, LJ said (para. 41-42):

“41.

If the court decides to enforce a cross-undertaking, the decision of the High Court of Australia in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 has been influential in relation to the approach to causation and the burden of proof. Mason J stated at p 325 that it is “for the party seeking to enforce the undertaking to show that the damage he has sustained would not have been sustained but for the injunction”. Although Mason J dissented as to the result, on burden of proof there was no division of view: see Gibbs and Stephen JJ at pp 313 and 320. The approach in the Ansett case has been followed by a number of decisions in this jurisdiction. They include the decision of this court in Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2015] 1 WLR 2309, a case concerned with whether a cross-undertaking as to damages should be fortified. Referring to the judgment of Gibbs J, in the Ansett case as to what was required to enforce the undertaking itself, Tomlinson LJ stated, at para 54, that “As to causation, it is sufficient for the court to be satisfied that the making of the order or injunction was a cause without which the relevant loss would not have been suffered”.

The person who seeks to do so must show that the loss would not have been suffered “but for” the order; that is, on the facts of this case, that the freezing order and the security undertakings were an effective cause of the Standard Maritime parties’ loss …”

As to causation, the following observations may be made in reliance on these authorities:

In my judgment, Mr Kelbrick has demonstrated that there is a good arguable case that losses have been sustained by him as a result of the grant of the interim freezing injunction for the following reasons.

First, it seems to me plain that any losses suffered by Mr Kelbrick would have been caused at least both by the proceedings and the injunction; it may well be that the losses were effectively or chiefly caused solely by the injunction. There is a palpable impact on Mr Kelbrick’s earning opportunities whether directly or through Attock Dubai before and after February 2015. In this respect, I refer to my conclusion above about the estimate of Mr Kelbrick’s loss.

Second, it is readily understandable how financial institutions and counterparties might be concerned with the impact of a freezing injunction on the business to be done with the respondent and, indeed, there is supporting evidence of the potentially adverse or at

Third, insofar as the injunction gives credence to the fraud allegations in the proceedings, that does not give priority to the causative effect of the proceedings, because without the injunction, there would be the allegations of fraud, but without the perceived (even if erroneous) justification provided by the injunction.

I therefore conclude that Mr Kelbrick has demonstrated a good arguable case of causation.

Mr Sprange QC submitted that:

Mr Pilbrow QC on behalf of the Claimants submitted that:

In my judgment, Mr Kelbrick has not demonstrated a good arguable case that there is a real or sufficient risk that the Claimants will not satisfy any award of damages pursuant to the undertaking they have given which would justify the making of an order for further fortification. In this respect, I have regard to the financial position of Arcadia London who would be responsible for such damages in accordance with the undertaking together with the other Claimants.

In Tarasov v Nassif, unreported, 29th June 1994, Dillon, LJ referred to the predecessor to para. F.15.4 of the Commercial Court Guide, which now provides that “Where the applicant for an interim remedy is not able to show sufficient assets within the jurisdiction of the Court to provide substance to the undertakings given, particularly the undertaking in damages, it may be required to reinforce the undertakings by providing security”, and said in respect of this guideline “That emphasises that the key question is whether there are assets within the jurisdiction …”.

I accept Mr Pilbrow QC’s submission that the important question for determining whether there is a real or sufficient risk of non-satisfaction depends, at least on the facts of this case, not or not only on the profitability of Arcadia London, but on or also on the current and net asset position.

It is true that Arcadia London’s financial position has declined since 2015, when its current assets were approximately US$365 million and its net assets were approximately US$35 million, compared to the position in 2020, where Arcadia London’s current and net assets were approximately US$93 million and US$24 million respectively. However, the most recent figures concerning Arcadia London’s assets, including cash in bank and at hand, are sufficient to cover an award of damages of US$6-7 million or even US$8 million. As to the prospect of the fortunes of Arcadia London declining yet further so that there is no prospect of it satisfying an award of damages in 2023-2024, there is no evidence that I have seen which convinces me that there is a good arguable case that that will be or is likely to be the position.

I have taken account of Mr Sprange QC’s submission that the available assets may be depleted by the ongoing litigation and the fact that the other Defendants may claim compensation pursuant to the undertaking, but without evidence of the costs of future litigation and the other Defendants’ losses, I am unable to give this consideration much weight.

In these circumstances, I am not convinced that there is a good arguable case that there is a real or sufficient risk that the Claimants will not satisfy an award of damages recoverable pursuant to the undertaking. As a result, in circumstances where I regard that the risk of non-satisfaction is a highly material consideration in deciding whether or not to grant Mr Kelbrick’s application, there is no justification for further fortification for the Claimants’ undertaking in damages.

Although Mr Kelbrick has a good arguable case that he will suffer losses caused by the grant of the interim injunction, in my judgment, he has failed to demonstrate that he has a good arguable case that there is a risk that any award of damages pursuant to the undertaking given by the Claimants will not be satisfied by the Claimants. This is an important consideration in the exercise of the Court’s discretion and absent a real risk of non-satisfaction, further fortification should not be ordered.

Therefore, Mr Kelbrick’s application for further fortification of the Claimants’ undertaking in damages is dismissed.