Court’s jurisdiction to order fortification (or further fortification) of a cross undertaking in damages extends to losses already incurred

• United Kingdom

• Financial services disputes and investigations
• Litigation and dispute management - Other

12-07-2021

Alta Trading UK Ltd & Ors v Bosworth & Ors [2021] EWHC 1126 (Comm)

Background

• An applicant for an injunction will be required to give an undertaking to pay any damages sustained by the respondent as a result of the order, known as the “cross-undertaking in damages”. This is the “price” of the injunction and a recognition that injunctions, such as freezing orders, can have dire consequences for individuals and businesses alike.
• The Court also has the discretion to order fortification of such an undertaking where a respondent can demonstrate a good arguable case that:
  
  
  • It will suffer a loss; 
  • The making of the interim injunction is a cause without which the relevant loss would not be suffered; and
  • There is a sufficient level of risk of loss to require fortification, that is to say if the Court orders that the applicant for the injunction is directed to comply with its undertaking in damages and to compensate the respondent, there is a risk of the applicant not satisfying any such order.
• The security to be provided for the purposes of fortification may be in such form as the Judge decides is appropriate, e.g. a payment of money into court, a bond issued by an insurance company or a first demand guarantee or standby credit issued by a first-class bank.
• If an applicant’s financial position declines after fortification or the nature of the loss changes, the Court can order further fortification.

Facts of the Case

• The Claimants in this case (A) were oil traders, who brought proceedings against the Defendant (R), a former senior executive in A’s corporate group and part-owner of one of the Claimants (Attock), alleging fraud.
• In February 2015, A obtained a freezing order against R, which included a cross-undertaking and a voluntarily fortification of that cross-undertaking to the amount of USD 2 million.
• In August 2020, R applied for the fortification of A’s cross-undertaking in damages to be increased to USD 10 million, on the grounds that he had suffered losses following the freezing order by reason of his shareholding in Attock and a related company.

Decision

• Although the Court found that R had a good arguable case that he would suffer loss caused by the grant of the interim injunction, the Court declined the application on the basis that R had not demonstrated that there was a good arguable case that there was a real or sufficient risk that A would not satisfy any award of damages pursuant to the cross-undertaking such as to justify an order for further fortification.
• However in doing so, the Court held that its jurisdiction to order the (further) fortification of a cross-undertaking extended to losses already incurred by R, as well as future losses.
• The basis for the Court’s decision was that the purpose of a cross-undertaking in damages is to compensate a respondent for any losses suffered; as such there is no “meaningful distinction” between losses already incurred and those which might be incurred in future. To this extent, fortification is no different from an order for security for costs, which can relate to both past and future costs.
• In addition, it would be “both odd and unfair” if the Court could not order fortification of a cross-undertaking in respect of losses already incurred, for example where an applicant’s financial circumstances had worsened.

Comment

• While the standard of proof required for fortification is not a high one (a good arguable case), it is not simply a case of the Court forming a general impressionistic view. Rather the Court will have careful regard to the witness and documentary evidence before it to determine whether that standard is met, but taking into account the inherent limitations of the exercise at an interlocutory stage.
• As regards loss, that assessment will involve the applicant providing at least an "intelligent" estimate of quantum. This must be informed and realistic, but need not be “mathematically or scientifically precise or rigorous”.
• On causation, the Court will be mindful of the potential difficulty in assessing the respective causative effect of the proceedings on the one hand (especially where allegations of fraud are made) and the injunction on the other, particularly where both were instituted at the same or approximately the same time. In this regard, the injunction need not be the sole or exclusive cause of the loss in question, but it must be an effective cause such that it would not have arisen had no injunction been granted (the “but for” test). Further, that loss must be of a type which was within the reasonable contemplation of the parties.

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