The importance of the right cross-undertaking when applying for a freezing injunction – Hunt (as provisional liquidator of Black Capital) v Ubhi

By Katarina Morgan

Associate Solicitor

02 May 2023

Article Insights

A freezing injunction is an effective method to stop a party from dissipating assets, typically until judgment is obtained.

When an applicant applies for a freezing injunction, they will do so without notice and will be asking the Court to assess the risk of dissipation by the respondent. They are draconian orders and won’t be entered into by the Court lightly.

As a result of that, the Court will also ask the applicant to give a cross-undertaking in damages. This is an undertaking (a promise) that if the applicant has got it wrong, they will pay the respondent damages and costs as a result of the injunction and the impact of it too (or whatever else is otherwise ordered). The undertaking usually also extends to third parties affected by the injunction such as banks, creditors, etc., meaning that those parties can recover any damages and costs associated with having to comply with the freezing injunction.  

Hunt (as provisional liquidator of Black Capital) v Ubhi [2023] EWCA Civ 417

The case of Hunt (as provisional liquidator of Black Capital) v Ubhi highlights the importance of the right cross-undertaking when applying for a freezing injunction.

By way of background, a winding up petition was presented to wind up an unincorporated partnership, Black Capital on the basis that it was insolvent. The petitioners, as alleged creditors of Black Capital, also applied for Mr Hunt to be appointed as the provisional liquidator of Black Capital, meaning that if the business were wound-up, Mr Hunt would attend to the liquidation. Mr Hunt was ordered as the provisional liquidator of Black Capital with the petitioners having given a cross-undertaking limited to £200,000.

Mr Hunt applied for freezing orders to be made against Mr Ubhi and a Mr Sarju Patel which was successful for £19m. The petitioners claimed that Mr Ubhi was a partner of Black Capital, which he disputed. A cross-undertaking in damages was given by Mr Hunt but it was “limited to the amount of monies and the net realisable value of the unpledged assets of Black Capital (in provisional liquidation) taken into the custody or under the control of the Applicant in the course of the liquidation less the costs, expenses or other disbursements of the liquidation.”

There were other hearings attending to bankruptcy petitions against Mr Ubhi and Mr Patel, the winding-up petition and Mr Ubhi’s application to set aside the statutory demand served on him. The Deputy Insolvency and Company Court judge initially dismissed the petitions and set aside the statutory demand with Mr Hunt remaining provisional liquidator until the Deputy ICC judge dealt with matters arising from her judgment.

Following subsequent hearings, Deputy High Court judge, Mr Robin Vos, ordered that the freezing injunction should continue. Mr Ubhi applied to appeal Mr Vos’ decision following permission to appeal having been granted.

The appeal hearing

The appeal was granted, setting aside the freezing injunction against Mr Ubhi. The main reason was because of the cross-undertaking, but other factors were also considered by the Court of Appeal.

The extent of the cross-undertaking in damages that Mr Hunt was required to give was up to the discretion of the judge who heard the freezing injunction application. The default position in the case of JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev was that the applicant had to give an unlimited undertaking. However, if the applicant has to derive from the default position, then it is for them to show the judge why they must do so.

In this particular matter, the judge (Mr Vos) did not keep within this legal principle. His decision was therefore held to be wrong and the appeal was successful.

Implications

This case highlights the importance of the necessities in securing a freezing injunction, and in particular the need to fully justify why the applicant has to move from the default position of providing an unlimited undertaking as set out in the Pugachev case. Suffice to say, this was an extremely costly exercise for Mr Hunt, notwithstanding the impact it also had on others affected by the freezing injunction, including Mr Ubhi and third parties.  

Commercial Litigation Solicitor, Katarina Morgan acted for a third party affected by the freezing injunction.

If you find yourself affected by the same issues discussed in this article, Katarina or a member of our Commercial Litigation Department can help. Please contact us by filling an enquiry form on the website.

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