A cross undertaking in damages is a vital part of any freezing order application. It is very important to understand exactly what this is and the implications or giving this type of undertaking to the court.
Any applicant applying for a freezing injunction has to give the court what is called a cross undertaking in damages.
What this means is that the applicant agrees to pay damages to the respondent (the party who has received the freezing order) for any losses he/she/it may suffer if it is shown later on that the freezing order should not have been granted. This undertaking can sometimes be limited to a specific sum, so long as the court agrees.
What does this mean in practice?
Depending on the financial standing of the applicant, the court may
- order that money actually be deposited in court and held in a protected account until the claim is resolved at trial; or
- alternatively, the court can rely upon a written undertaking from an applicant to pay damages. This will normally be the case when the applicant is of significant financial standing, such as a bank or other financial institution.
What happens if the applicant later loses its claim?
If an applicant ultimately loses the underlying substantive claim or a defendant successfully argues that the freezing injunction should be discharged, the applicant could face a very significant claim in damages against it, either in terms of
- the legal costs of the main proceedings;
- the legal costs of the injunction application; and
- the undertaking in damages arising from the injunction, both to the respondent and third parties (subject to any limitation as described above).
In any subsequent enquiry as to damages, the defendant must prove that the losses he alleges would not have occurred but for the freezing injunction, but not that the injunction was a sole cause of the loss.
Can the cross undertaking ever be increased?
It is open to a respondent to ask the court at the freezing injunction return date for the cross undertaking in damages to be increased and fortified (which refers to mechanisms to secure payment in the event the undertaking is called on). When considering the question, the court will adopt the course which will involve the least risk of injustice. It is balancing act between having an undertaking which is of realistic value but ensuring that the fortification of it does not stifle the underlying litigation.
A cross undertaking in damages is not required where the applicant is the Crown or a law enforcement body.
Francis Wilks & Jones is the county’s leading firm of freezing injunction solicitors. We are experts in what we do including the issues of cross undertakings in damages. Speak to our experts today.