Cross-undertaking for a freezing order and whether respondent has to show it would have used frozen assets
The claimant obtained a freezing order against the defendant and, as is usual, was required to provide a cross-undertaking in damages (to compensate the defendant should it eventually transpire that the freezing order should not have been granted). The defendant applied to increase the amount of the cross-undertaking and at first instance the judge concluded that fortification of the undertaking was required. The Court of Appeal has now dismissed an appeal from that decision. This is the first time that the Court of Appeal has considered the appropriate test to apply when determining whether fortification should be provided. It held as follows:
- (Applying the decision of Briggs DJ in Harley Street v Tchigirinski , the court must make an “intelligible estimate” of the defendant’s likely loss resulting from the freezing order; the defendant must show a sufficient level of risk of loss to require fortification; and it must also show that the contemplated loss would be caused by the grant of the injunction. It would be completely contrary to principle to require proof on the balance of probabilities from the defendant – instead it must only show a good arguable case that it will suffer loss as a consequence of the freezing order.
- The normal level of compensation for the loss of the use of money (where commercial parties are involved) is an interest claim based on the usual cost of borrowing an equivalent sum. The cost of borrowing in this case (where the defendant is a Nigerian company) was claimed to be not less than the US Prime Rate (3.25% at the relevant date). The claimant had not looked like he would be good for such a sum and hence fortification had been required.
- Whether the defendant would need to, or would, in fact borrow money to replace the monies frozen by the order is irrelevant. It is also irrelevant whether the defendant has a liability to pass on the frozen monies to a third party.