A cross-undertaking in damages is a legally binding promise to the court by the applicant to compensate the respondent to an injunction for any loss or damage it might suffer if the interim injunction is later discharged.

In the course of litigation between Ennismore and Fenris, approximately £2.2 million became the subject of an interim injunction obtained by Ennismore. While Ennismore was successful at first instance (and was paid the funds subject of the injunction), Fenris succeeded on appeal (and was then repaid the funds). Fenris then sought to enforce the undertaking as to damages given by Ennismore to the Court at the time it obtained the injunction. Fenris’s position was that, had the funds not been subject to the injunction, it would have invested those funds in a particular well-performing investment vehicle. It argued that its damage should be assessed as the amount of profit it would have made during the period between when the injunction was granted and when the funds were returned to it after its successful appeal. Notably, Fenris did not lead any alternative case about how it would have used the funds. The first instance court, accepting at face value the position of Fenris, awarded damages of approximately £5.3 million. The appellate court did not accept Fenris’s position, noting that it was inconsistent with contemporaneous evidence that indicated that Fenris would likely have made a more conservative investment. Because Fenris had not led an alternative case as to the use of the funds, the appellate court made its own assessment about how Fenris would have used the money and revised the award of damages significantly downwards to a little over £500,000. Fenris then appealed unsuccessfully to the Privy Council.

The Privy Council held that the relevant period for assessing the damages was from when the injunction was made to the point that Ennismore succeeded at first instance (and not, as Fenris contended, when Fenris obtained the funds because of its success on appeal). The question of duration of Fenris’s loss was to be resolved by applying ordinary principles of causation, and, after the first instance decision in favour of Ennismore, the cause of Fenris’s loss was no longer the injunction.

The Privy Council also held that the correct approach where a party seeks to enforce the undertaking (in this instance, Fenris) is for that party to demonstrate, on the balance of probabilities, that, but for the injunction, it would have utilised the injuncted funds profitably. Subsequently, while it is for the court to assess quantum, it is still incumbent on the injuncted party to demonstrate, on the balance of probabilities, that it would have utilised the funds in a particular way. The Privy Council cautioned against unquestioning acceptance of the injuncted party’s evidence as to what it would have done but for the injunction, which should be tested against contemporaneous documents and events.