The Financial Services Authority (a company limited by guarantee) v Sinaloa Gold plc and others and Barclays Bank plc

A public authority seeking an interim injunction to enforce the law in the public interest should not ordinarily be required to give a cross-undertaking in damages. The court must consider what is fair in the circumstances, but the starting point applies to losses sustained by defendants and innocent third parties alike.

The same approach applies at without-notice and on-notice stages. A person fearing loss should identify the risk and seek an appropriate condition. The court must remember that dispensing with an undertaking may leave loss uncompensated if the injunction later proves unjustified. A pragmatic distinction may be drawn between limited third-party compliance costs and an open-ended undertaking for consequential loss.

The Financial Services Authority obtained a freezing injunction against Sinaloa Gold plc and others under section 380(3) of the Financial Services and Markets Act 2000 and section 37(1) of the Senior Courts Act 1981. Barclays Bank plc, which held Sinaloa's accounts, intervened to preserve an undertaking compensating third parties for loss caused by the order.

HHJ David Hodge QC refused the Authority's application to remove the third-party loss provision: [2011] EWHC 144(Ch). The Court of Appeal reversed that decision, retaining an undertaking for reasonable third-party costs but excluding compensation for loss: [2011] EWCA Civ 954; [2012] Bus LR 753.

Barclays appealed. The central issue was whether, and in what circumstances, a public regulator seeking a freezing injunction in performance of its statutory duties should be required to give a cross-undertaking in damages protecting affected third parties.

1. Appeal dismissed. Lord Mance gave the judgment, with which Lord Neuberger, Lady Hale, Lord Clarke and Lord Sumption agreed. The Court of Appeal was right to remove the undertaking covering third-party loss while preserving the undisputed undertaking for reasonable third-party costs.

2. A public law-enforcement claim requires treatment different from private litigation. A private claimant acts in its own interests and will ordinarily be required to back an application for interim relief with its own assets. A public authority acts for the public, often under a duty, and has only the resources allocated to its statutory functions. Following F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295, an undertaking should not be exacted as a matter of course. Fairness must be assessed in the particular circumstances.

3. The rule was not confined to enforcement of apparently valid legislation or cases in which the authority appeared likely to succeed. Refusing an undertaking merely because a claim appeared strong would overlook its purpose, which is to address the possibility that interim relief later proves inappropriate.

4. The distinction between defendants and innocent third parties did not justify a different starting point. In either case, the undertaking protects a person who is essentially innocent from loss caused by the injunction. There was therefore no general rule requiring the Authority to compensate either category.

5. The Authority sought the injunction under section 380(3) of the Financial Services and Markets Act 2000 as the statutory means of restraining suspected unlawful activity. Its public objectives, its statutory power to impose asset requirements on authorised persons without a court order, and its exemption from conventional damages liability under Schedule 1 paragraph 19 all supported dispensing with an open-ended undertaking. Paragraph 19 did not directly prevent the court from requiring or enforcing a cross-undertaking, because the undertaking is owed to the court and does not create conventional damages liability.

6. A pragmatic distinction existed between reasonable third-party compliance costs and general consequential loss. An open-ended undertaking could inhibit enforcement and expose public resources to uncertain claims. A limited undertaking for identifiable expense did not engage those concerns to the same degree.

7. The same starting point applies when relief is sought without notice and when it is continued on notice. A defendant or third party fearing adverse effects should explain the anticipated loss and apply for continuation to be conditional on such undertaking as fairness requires. When dispensing with an undertaking, the court must recognise that an unjustified injunction may cause uncompensated loss.

1. United Kingdom Supreme Court: dismissed Barclays Bank plc's appeal and upheld the Court of Appeal's removal of the undertaking covering third-party loss: [2013] UKSC 11.

2. Court of Appeal: reversed the High Court decision. It preserved the undertaking for reasonable third-party costs but excluded compensation for third-party loss: [2011] EWCA Civ 954; [2012] Bus LR 753.

3. High Court, Chancery Division: HHJ David Hodge QC refused the Authority's application to remove the provision compensating third parties for loss: [2011] EWHC 144(Ch).