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The High Court holds that a third party can be required to fortify an applicant’s crossundertaking in damages on an unlimited basis

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

30-11-2017

Brainbox Digital Limited v Backboard Media GmbH & Anr [2017] EWHC 2465 (QB)

Facts of the case

  • An applicant for a freezing order must usually undertake to compensate the respondent for any loss caused by the order (the “crossundertaking in damages”).
  • Where there is insufficient evidence of an applicant’s ability to pay a cross-undertaking in damages, the respondent can apply for the undertaking to be fortified. This fortification can be in the form of, for example, the payment of money into court or an undertaking from a better resourced third party. The onus is on the respondent to demonstrate that there is a good arguable case for fortification, which requires it to show that there is sufficient risk that an estimated loss has been, or will be, caused by the effects of the applicant’s injunction which the applicant’s current cross-undertaking in damages may not cover.
  • In this case, the Respondent (“R“) was subject to a freezing and proprietary injunction, in circumstances where the Applicant (“A“) was no longer a viable business and was being wound down. A had previously paid £125,000 into its solicitors’ client account pending a further court order. R now sought fortification of A’s cross-undertaking in damages, in the form of an unlimited undertaking from a third party with the resources to support it.

The decision

  • The Court could require as a condition for granting or continuing an injunction that a third party fortify an applicant’s cross-undertaking in damages, including on an unlimited basis.
  • The principles of fortification require an “informed and realistic estimate” to be made of the likely loss that a respondent might suffer. In this regard, there is “a significant difference in principle between difficulty in the quantification of a loss that can be seen to be likely to occur and the absence of evidence of the likelihood of a significant loss on the other hand.
  • Accordingly, while R had a good arguable case that it had lost revenue as a result of A’s injunction, it did not have a good arguable case that any loss or damage suffered would exceed £125,000. As a result, A’s current crossundertaking in damages was sufficient and no further fortification was required.

Analysis and practical advice

  • This case highlights the court’s wide discretionnas to the conditions on which it may grant or continue an injunction. Thus, while the default position is that an applicant for an interim injunction is required to give an unlimited cross-undertaking in damages, there are circumstances in which no such undertaking may be required (eg where a law enforcement body is taking action in the public interest) as well as circumstances in which the extent of the cross-undertaking may be limited (eg in the case of a liquidator of an insolvent company). Equally, the need for any fortification of the cross-undertaking and the extent of such fortification is a matter for the discretion of the judge who grants the order.
  • The case is also a reminder that the principles which apply to fortification are different from those that apply to the cross-undertaking. The failure to establish a sufficient risk of loss is no reason for not extracting a cross-undertaking. This is not just because the cross-undertaking may be required and given at a without notic hearing before the defendant has had the opportunity to give evidence about loss. It is as Levison LJ stated in JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139, [2016] 1 WLR 160fairness rather than the likelihood of loss that leads to the requirement of a cross-undertaking” and “the cross-undertaking is regarded as the price that must be paid for the interim interference with the defendant’s freedom”.

 

 

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