What happens when a freezing order has been in place for a number of years, and then the underlying claim fails at trial? The respondent should get some compensation for losses it suffered as result. To do this, it must enforce the cross-undertaking in damages.
When a party applies for a worldwide freezing order, it is usually required to give a cross-undertaking in damages. This is a safeguard for the respondent so that if the underlying claim fails at trial, the respondent is compensated for the loss it suffered due to the freezing order.
However, compensation is not automatic. The party that was subject to the freezing order must apply to court to enforce it.
Enforcement is a two stage process:
1. Application for an inquiry
The cross-undertaking in damages is given to the court, not to the opposing party. So the respondent must apply to the court to enforce it.
The court will make a preliminary decision whether or not to enforce the cross-undertaking by ordering an inquiry into what loss the respondent has suffered. If the court orders an inquiry, it will usually give directions for a final hearing, which may involve live evidence, in a similar feel to a trial.
2. Conduct of the inquiry
The respondent must then prove its case on the losses it has sustained. The inquiry looks at quantum and causation.
In fraud claims, it is fairly routine for the claimant to be granted a freezing order to protect assets that have allegedly been wrongfully acquired. Giving a cross-undertaking in damages is the price of the order, and so these undertakings are similarly prevalent.
The level of damages available
The court will try to compensate the respondent for losses that were caused by the restrictions on its actions. It is equitable compensation, and not necessarily the usual measure of damages under common law.
The respondent has to show that the damage it sustained would not have been suffered but for the freezing order.
In a claim that is currently ongoing in the courts, the respondents are seeking damages caused by a freezing order that was in place for almost 10 years from 2015 to 2025. Among other things, the defendants say that they lost oil trading business, which would have made profits of around $500 million. The inquiry into damages will be carried out at a 2-week trial not before March 2026.
Key takeaways
The potential liability of a claimant under a cross-undertaking in damages is not to be taken lightly.
In Fiona Trust v Privalov [2016] EWHC 2163 (Comm), one of the defendants was awarded damages in the tens of millions of dollars, even though he was found to be dishonest in some of his business dealings. He was also found to be untruthful in the evidence he gave at trial. Regardless of this, he was awarded substantial compensation.
Parties seeking to continue a WFO for a long period of time need to be alive to the possibility of increasing compensation, which may be due if the claim fails at trial. The merits of the case should be continually analysed as the claim progresses, and the claimants should keep assessing whether the WFO is necessary in the context of the entire claim.
