ON APPEAL FROM THE HIGH COURT OF JUSTICE
HHJ David Hodge QC (sitting as a Judge of the High Court)
Case Number HC10C04532
IN PROCEEDINGS UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE PATTEN
MR JUSTICE HEDLEY
| THE FINANCIAL SERVICES AUTHORITY
(a company limited by guarantee)
|- and -
|SINALOA GOLD PLC
A person or persons trading as PH CAPITAL INVEST
GLEN LAWRENCE HOOVER
|- and -
|BARCLAYS BANK PLC
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
Richard Handyside QC and Tamara Oppenheimer (instructed by Barclays Bank Plc) for the Intervenor
Hearing date : 15th June 2011
Crown Copyright ©
Lord Justice Patten :
"(5) The Applicant will pay the reasonable costs of anyone other than the Respondents which have been incurred as a result of this order including the costs of finding out whether that person holds any of the Respondents' assets and if the court later finds that this order has caused such person loss, and decides that such person should be compensated for that loss, the Applicant will comply with any order the court may make."
"19.—(1) Neither the Authority nor any person who is, or is acting as, a member, officer or member of staff of the Authority is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of the Authority's functions.
(2) Neither the investigator appointed under paragraph 7 nor a person appointed to conduct an investigation on his behalf under paragraph 8(8) is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of his functions in relation to the investigation of a complaint.
(3) Neither sub-paragraph (1) nor sub-paragraph (2) applies—
(a) if the act or omission is shown to have been in bad faith; or
(b) so as to prevent an award of damages made in respect of an act or omission on the ground that the act or omission was unlawful as a result of section 6(1) of the Human Rights Act 1998."
"65. ….. It seems to me that an important consideration, in evaluating the effect and consequences of the dispensation principle, is that before an injunction will issue at the instance of an enforcement authority, the court must have been satisfied that the enforcement authority has raised an arguable case of wrongdoing on the part of the respondent. That is of no concern to, and does not affect the position of, an innocent third party. The real issue seems to me to be whether the potential costs which may fall upon a third party of a statutory body exercising its law enforcement functions should, in the general run of cases, and admitting that there may be particular exceptions in individual cases, fall on a wholly innocent third party or whether they should fall on the public purse from which the enforcement authority receives its costs and resources. In other words, the real issue seems to me to be one of the allocation of costs and resources.
66. In my judgment, the submissions of Miss Oppenheimer for the bank are to be preferred to those of the FSA. Whilst I acknowledge the force of certain of Mr Vineall's submissions, in my judgment they are not sufficient to override the considerations identified by Miss Oppenheimer. It does seem to me that when a law enforcement body is seeking, through the civil courts, to enforce the law by way of a freezing injunction, which may have adverse financial implications for third parties who are innocent, then, as a matter of course, the usual third party undertaking as to damages should be given. I can see no logical reason for distinguishing between third party expenses and third party loss and damage."
The origin of the cross-undertaking
"Every citizen of this country who receives notice of an injunction granted by the court will risk proceedings for contempt of court if he acts inconsistently with the injunction; and the bank, like any other citizen, must avoid any such action. But where the particular account is not identified the situation is somewhat different. I do not think it is right that the bank should incur expense in ascertaining whether the alleged account exists, without being reimbursed by the plaintiff for any reasonable costs incurred. Banks are not debt-collecting agencies: they are simply, in this context, citizens who are anxious not to contravene an order made by the court, an order which has been obtained on the application of, and for the benefit of, the plaintiff. Even where the particular branch of the bank is identified, some expense is likely to be incurred in ascertaining whether the defendant has an account at the branch. But where the branch is not identified the bank will be put in a very difficult position. It is, I think, well known that Barclays Bank has over 3,000 branches in this country, and Lloyds Bank has over 2,000 branches. Are they to circulate all their branches? If they did so, it would involve them in great expense; moreover such an exercise cannot, in ordinary circumstances, reasonably be expected of them.
It seems to me that this problem can be solved, in accordance with the guidance given by Lord Denning MR in Prince Abdul Rahman's case, by requiring the plaintiff to give an undertaking in the terms which I have indicated. The effect of this undertaking will be that a bank to whom notice of an injunction is given can, before taking steps to ascertain whether the defendant has an account at any particular branch, obtain an undertaking from the plaintiff's solicitors to pay their reasonable costs incurred in so doing. The bank will then be protected; moreover the plaintiff's solicitors will no doubt be encouraged to limit their inquiry to a particular branch, or to certain particular branches."
"… the authority of a bank or other third party to give effect to the instructions of a defendant is revoked once it has notice of the injunction in the same way, by analogy, as in garnishee proceedings: see Rekstin v. Severo Sibirsko Gosudarstvennoe Akcionernoe Obschestvo Komseverputj  1 K.B. 47. In practice, however, the position of banks creates particular problems, both for the banks themselves and also for plaintiffs. The problems for banks are discussed below. The problems which the procedure may unwittingly create for plaintiffs are due to the fact that it is now accepted that plaintiffs should be obliged to undertake, as a term of the order, to indemnify any third party against any costs, expenses or fees reasonably incurred by the third party in seeking to comply with the order, as well as against all liabilities which may flow from such compliance. The former indemnity is illustrated by Searose Ltd. v. Seatrain U.K. Ltd.  1 W.L.R. 894 and Clipper Maritime Co. Ltd. of Monrovia v. Mineralimportexport  1 W.L.R. 1262. The need for the latter has been accepted by this court in the present case."
"When the court makes an order for an injunction, it should consider whether to require an undertaking by the applicant to pay any damages sustained by a person other than the respondent, including another party to the proceedings or any other person who may suffer loss as a consequence of the order."
"… to sign not merely a blank cheque in favour of the defendant, if it turned out that he should not have been granted the injunction, but a series of blank cheques in favour of third parties of whose very existence and interest he may be unaware and for whose losses he may find himself liable even though he is entitled to his injunction."
The position of public authorities
"(1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.
(2) Any such order may be made either unconditionally or on such terms and conditions as the court thinks just."
"Since the practice of requiring an undertaking as to damages in suits between subjects was itself of comparatively recent origin, the exemption of the Crown from this requirement cannot be accounted for as one of the ancient procedural privileges of the Crown when litigating in its own courts. It would appear likely, however, that both North J. and the Court of Appeal accepted the argument advanced by Sir Richard Webster A.-G. that, since the Crown was not liable for damages in the ordinary way and the only mode of obtaining relief against the Crown was by petition of right, to require from the Crown an undertaking as to damages would involve an encroachment upon its immunity from liability except in those limited categories of cases in which relief could be obtained by the special procedure of petition of right.
If this is the true rationale of the decision in Attorney-General v. Albany Hotel Co. - and it is difficult to think of any other - with the passing of the Crown Proceedings Act 1947 it ceased to justify the differentiation between what should be required of the Crown and what should be required of the subject upon the grant of an interim injunction. Subject to the specific exceptions provided for by the Act, the Crown is now "liable for damages in the ordinary way" and the special procedure by petition of right has been abolished. It is expressly provided by section 21 (1) of the Crown Proceedings Act 1947:
"In any civil proceedings by or against the Crown the court shall, subject to the provisions of this Act, have power to make all such orders as it has power to make in proceedings between subjects, and otherwise to give such appropriate relief as the case may require: ..."
While some of former privileges of the Crown in relation to litigation are expressly preserved either in their previous or a modified form as, for instance, in respect to venue and to discovery, there is no express preservation of the Crown's former right to obtain an interim injunction without giving any undertaking in damages.
I conclude, therefore, that the reason for the former practice in favour of the Crown in not requiring an undertaking as to damages as a condition of the grant of an interim injunction disappeared with the passing of the Crown Proceedings Act 1947, and that it is open to your Lordships to consider afresh, in the light of the changes brought about by that Act, the principles upon which the court ought now to exercise its discretion as to whether or not to do so."
"I do not, however, find this reasoning persuasive. My main difficulty is that it reduces the principle enunciated by this House in the Hoffmann-La Roche case to the status of an arbitrary rule - what Dillon L.J. called "a privilege of the Crown." Yet I do not read the speeches in the Hoffmann-La Roche case as conferring a privilege on the Crown in law enforcement proceedings. On the contrary, I read them as dismantling an old Crown privilege and substituting for it a principle upon which, in certain limited circumstances, the court has a discretion whether or not to require an undertaking in damages from the Crown as law enforcer. The principle appears to be related not to the Crown as such but to the Crown when performing a particular function. It is true that, in all the speeches in that case, attention was focused upon the position of the Crown, for the obvious reason that it was the position of the Crown which was in issue in that case. But the considerations which persuaded this House to hold that there was a discretion whether or not to require an undertaking in damages from the Crown in a law enforcement action are equally applicable to cases in which some other public authority is charged with the enforcement of the law: see e.g. Lord Reid, at p. 341g, Lord Morris of Borth-y-Gest, at p. 352c, and Lord Cross of Chelsea, at p. 371b-g. In the circumstances, I find it difficult to understand why the same principle should not, in similar circumstances, apply to other public authorities when exercising the function of law enforcer in the public interest."
"In each case, therefore, be it monetary or injunctive, the remedy is one provided by statute and is provided to the Secretary of State, not for his own benefit but for the benefit of the public at large or those who have suffered from the infringement of the 1986 Act. It seems to me that in each case they are as much law enforcement as the grant of an interlocutory injunction. The fact that a worldwide Mareva injunction is a draconian remedy does not prevent the grant of it being law enforcement, but merely reflects the fact that the activities of the defendants may be worldwide.
It seems to me, therefore, that the considerations which justify not requiring a cross-undertaking in damages in relation to paras 1, 2 and 3 of the order, likewise justify not requiring such an undertaking in relation to para 4 of the order.
In addition, there are the provisions of s 187(3) of the 1986 Act. These provide that neither the SIB, as a designated agency, nor any member, officer or servant of it, is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of the functions exercisable by the agency by virtue of the delegation order; or, as the case may be, the functions exercisable by the body, by virtue of a transfer order, unless the act or omission is shown to have been in bad faith.
I do not think, contrary to the submissions of counsel for the SIB, that that subsection prevents the court from requiring a cross-undertaking in damages. Rather, it seems to me to be a clear pointer in the exercise of the discretion, which the court undoubtedly has, to indicate that no such cross-undertaking should be required where the designated agency is, in fact, seeking to discharge functions exercisable pursuant to a delegation under the 1986 Act. It seems to me that that is a matter which, in the exercise of my discretion, I should take into account in concluding that no cross-undertaking should be required."
Undertakings to third parties in law enforcement proceedings
"When granting an injunction of an interlocutory nature it is the usual practice of the court to require the plaintiff to give an undertaking as to damages. The use of the word 'damages' is perhaps inappropriate because it might suggest that the grant of the injunction involved a breach of some legal or equitable rights of the defendant. The undertaking is given to the court and is intended to provide a method of compensating the party enjoined if it subsequently appears that the injunction was wrongly granted.
From the authorities the following guidance can be extracted as to the enforcement of a cross-undertaking in damages.
(1) Save in special cases an undertaking as to damages is the price which the person asking for an interlocutory injunction has to pay for its grant. The court cannot compel an applicant to give an undertaking but it can refuse to grant an injunction unless he does.
(2) The undertaking, though described as an undertaking as to damages, does not found any cause of action. It does, however, enable the party enjoined to apply to the court for compensation if it is subsequently established that the interlocutory injunction should not have been granted.
(3) The undertaking is not given to the party enjoined but to the court.
(4) In a case where it is determined that the injunction should not have been granted the undertaking is likely to be enforced, though the court retains a discretion not to do so.
(5) The time at which the court should determine whether or not the interlocutory injunction should have been granted will vary from case to case. It is important to underline the fact that the question whether the undertaking should be enforced is a separate question from the question whether the injunction should be discharged or continued…."
"The cross-undertaking is the price which the plaintiff has to pay for obtaining an injunction before the action can be finally tried and decided; (2) the damages under the cross-undertaking are not strictly damages but compensation to the defendant for loss suffered if it is subsequently established that the interlocutory injunction should not have been granted; and (3) there is no separate cause of action for the damages and it can only be enforced by application in the action in which the injunction was granted."
Mr Justice Hedley :
Lord Justice Mummery :