Cross-undertaking for a freezing order and whether respondent has to show it would have used frozen assets

http://www.bailii.org/ew/cases/EWCA/Civ/2014/1295.html

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:

  1. (Applying the decision of Briggs DJ in Harley Street v Tchigirinski [2005], 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.
  2. 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.
  3. 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.