Freezing Orders: Privy Council Considers The Recovery Of Damages Under Cross-undertakings

• Published date: 26 July 2022
• Law Firm: Herbert Smith Freehills
• Author: Mr Hussein Mithani

The Privy Council has considered the approach to assessing damages payable by an unsuccessful claimant under the standard cross-undertaking to compensate the respondent to a freezing order for any loss resulting from the order. The decision is relevant to applicants for freezing orders, who can potentially face very large claims if their substantive action fails, and to respondents with frozen assets who may wish to pursue such claims: Ennismore Fund Management v Fenris Consulting Ltd [2022] UKPC 27.

The Privy Council confirmed that damages under such cross-undertakings will generally be assessed in the same way as damages for breach of contract. Accordingly, where a respondent makes a claim for damages which reflect the profits it says it would have earned by investing the funds if they had not been frozen, the court may have regard to the market conditions at the time of the hypothetical investment and any other objective factors relevant to the question of what the respondent would have done with the funds. In the present case, the respondent's evidence in this regard was largely rejected in light of the market volatility following the 2008 financial crash.

Further, the extent of losses recoverable under a cross-undertaking will be assessed in line with the ordinary principles of causation. Here, the recoverable losses did not extend beyond the date on which the freezing order was discharged so as to include the period between the first instance judgment against the respondent and its successful appeal. The respondent's lack of access to the funds during that later period was not due to the freezing order (which had been released) but to the effect of the first instance decision.

Although Privy Council decisions are not strictly binding on the English courts, they are very...