Cross-undertaking in damages
Disputes & Litigation

A court will in most cases require an applicant to give the cross-undertaking in damages prior to granting interim relief. In effect, the undertaking means that the applicant will be required to pay the damage caused to the defendant arising from the grant of the interim injunction, if it eventuates that the injunction should not have been ordered in the first place.

Interim injunctions are used to provide urgent relief to a claimant when it is being caused damage or is likely to be caused damage as a result of some conduct on the part of the defendant. They are sought prior to the hearing of the substantive dispute and are designed to provide temporary or transient relief to the claimant to maintain the status quo between the litigants.

Undertakings to the Court: Overview

An undertaking to the court is a promise to the court to abide by any order that the court may make. A failure to comply with an undertaking to the court is a contempt of court.

The Cross-Undertaking

The cross-undertaking is provided to secure the defendant's right to obtain compensation for loss caused by the court order where it was wrongfully made.  Unless the cross-undertaking is provided, the court will usually decline to grant an interim injunction. Thus the cross-undertaking is part of the price an applicant must pay for an interim injunction.

If it is the case that the applicant for a preliminary injunction may not be good for damages on the undertaking, this is a material fact that must be disclosed to the court. If such matters are not dealt with in the affidavit in support of a without notice application (ex parte), the court will assume that such adequate assets are and will remain in the jurisdiction to support the undertaking. In the case of freezing orders, a continuing obligation lies with the applicant to inform the defendant if there is a material deterioration of its financial position to deliver on the undertaking.

The standard form of the cross-undertaking states:

"If the court later finds that this order has caused loss to the Respondent, and decides that the Respondent should be compensated for that loss, the Applicant will comply with any order the court may make.
...
The Applicant will pay the reasonable costs of anyone other than the Respondent which have been incurred as a result of this order including the costs of finding out whether that person holds any of the Respondent's 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."

The latter paragraph extends the benefit of the cross-undertaking to third parties to the litigation.

Fortification of the Cross-Undertaking

The sum that the applicant should pay is assessed after taking into account a number of different factors. The undertaking is unlimited in quantum and thus has no financial limit. It is open to the applicant to offer a sum to be secured by payment into court by their counsel or solicitors.

The undertaking may be fortified in a number of different ways. A person other than the applicant (who is in the jurisdiction) may give an unlimited undertaking or a limited undertaking, such as a bank or other financial institution. The limit of an undertaking made by a third party is a matter in the discretion of the court. 

The limit imposed by the court is usually fixed by reference to a reasonable estimate of what the losses might be suffered by reason of the order by the party or parties covered by the undertaking.

The undertaking also applies to losses suffered by defendants not joined to an injunction and any party served with or notified of the order, because it will not be evident at the time the order for the injunction is made which of the defendants will suffer loss as a result of the injunction.