Enforcement of the Undertaking as to Damages

Prior to granting a litigant an interim injunction, the court will usually require the applicant to give the Court an undertaking as to damages. That undertaking may well be called upon by the defendant if the court determines that the applicant for interim relief was not entitled to the interim relief. Often it is this “usual undertaking” which presents a potentially unknown risk to an applicant prior to making an application for interim relief, as the financial risk presented by giving undertaking is unquantified at the time the application is made.

An interim injunction is wrongly made when where all of material facts and considerations were not put before the court at the time of the application (that is, fully and properly investigated), with the result that the court would not have made the order for interim relief, and the court would have declined to grant the injunction, or granted the injunction on more restrictive or narrower terms.

Undertaking as to Damages

The undertaking often finds form in interim injunctions and other relief as follows:

“If the Court later finds that this Order or carrying it out has caused loss to the Respondent, and decides that the Respondent should be compensated for that loss, the Claimant will comply with any Order which the Court may make.”

The word “loss” (sometimes the word damages is used) implies a breach of legal or equitable rights of the respondent by the claimant by obtaining the order. An application for interim relief cannot be considered unlawful, thus the reference in order amounts to a reference to pecuniary recompense of the loss suffered by the respondent to the making of an order for interim relief.

In order for a pecuniary order to be made, the loss claimed must be suffered as a result of the making of the order of the court, that is, the interim injunction.

Usually, a successful defendant at trial will be entitled to call upon the undertaking, however circumstances may exist where interim relief was properly granted, and it was subsequent events which rendered final relief to the claimant inappropriate. In these circumstances, it is arguable that successful applicant for relief should not be required to compensate the successful defendant, on the basis that the relief was properly obtained.

Discretion to Enforce the Undertaking

When exercising its discretion to make an order for recompense of pecuniary loss caused by the wrongful making of an order, the Court may consider:

1. Whether the applicant made a material non-disclosure when making the application before the court, such as an error or suppression of material facts, error or misapplication of the law. An additional consideration is whether the claimant misled the court during the application;
2. Events prior to the obtaining of the interim relief;
3. Events between the making of the interim injunction and the trial;
4. Whether the claimant has used the injunction as an instrument of oppression;
5. Whether the imposition of the injunction was an unreasonable or inappropriate exercise of the court’s power; for instance, could the injunction have been granted on a narrower basis to achieve the ends of the applicant;
6. The conduct of the respondent in its compliance with the injunction;
7. Any other matter the court considers relevant.

In summary

The court maintains a discretion not to make any order pursuant to the undertaking where it otherwise might where the conduct of the respondent in respect to the order or continuation of the injunction would make it inequitable to make a pecuniary order. Such matters always remain in the discretion of the court in respect to equitable relief.

The power to order compensation for the undertaking is not connected to the particular legal proceedings, but rather the obligation arises as a result of the undertaking itself, and so the obligation transcends the litigation in which the undertaking was given.

There is no reason why an application for compensation cannot be made after judgment, as the standard undertaking on its terms applies without limit of time, subject to the ordinary principles applying to equitable relief, such as delay and acquiescence.