Fortification of cross-undertaking in damages

Stephanie Woods

In Peak Hotels and Resorts Ltd v Tarek Investments Ltd and others, the High Court considered whether a change of circumstances had occurred to justify the reduction of a sum paid into court in fortification of a cross-undertaking in damages.  The court also considered the circumstances in which it had jurisdiction to order an interim payment.


These applications arose during proceedings in respect of the ownership and control of a group that ran a chain of small luxury hotels (the “Aman Resorts”).  In January 2014 the second defendant, a joint venture company (“JV”), acquired Aman Resorts.  A percentage of the shares in the JV were held by the claimant.

Relations between the members of the JV broke down and proceedings were commenced for breach of contract and misrepresentation.  In particular, the claimant sought recission for misrepresentation of a number of agreements it had entered into with the third and fourth defendants, including a loan agreement under which the third and fourth defendants had lent the sum of US$ 50 million to the claimant.  The third and fourth defendants counterclaimed for counter-restitution of the US$ 50 million plus interest on the basis of unjust enrichment and money had and received.

A number of judgments and orders for interim relief were given during the course of the proceedings, including orders that the claimant:

  • provide a cross-undertaking to pay “any damages which the defendants sustain as a result of the injunctions sought”;
  • provide fortification of the cross-undertaking by way of payment into court of US$ 10 million; and
  • give security for costs of £1,746,000 in respect of the second defendant’s costs and £1,392,000 in respect of the first defendant’s costs.

The claimant applied for payment out of US$ 9 million from the sum paid into court on the grounds that there was no longer a need for this sum to remain in court as fortification of the cross-undertaking.  The claimant alleged that: (1) the defendants had not adduced any evidence to substantiate any loss or damage they claimed to have suffered as a result of the injunction; (2) justice required the claimant to be put in a position where it was able to use for its own purposes the majority of the funds in court; and (3) part of the monies paid out would be used to satisfy the orders for security for costs.  The defendants submitted that the claimant had not crossed the required threshold to vary the cross-undertaking and that, in order to adjust the cross-undertaking, there needed to be either a significant change of circumstances or notification of facts of which they could not have reasonably known at the time of the order.

The third and fourth defendants applied for an interim payment to be made pursuant to Rule 25.7 for the sum of US$ 23,426,041 on the basis that, notwithstanding the fact that the court was yet to determine the claims and, regardless of whether their claims for counter-restitution were successful, they were bound to recover at least this much at trial.  The claimant submitted that there was no jurisdiction to award an interim payment as the conditions of Rule 25.7 were not satisfied and, in any event, an order for an interim payment was precluded by the set-off for damages to which the claimant was entitled.

The payment out application

Two preliminary issues were raised, namely:

  • Which of the cross-undertakings in the earlier orders the fortification applied to; and
  • Whether the third defendant was entitled to the benefit of a cross-undertaking contained in a particular order, and fortification of that undertaking.

The court held that:

  • all the cross-undertakings in the proceedings had the benefit of the US$ 10 million fortification: there was, in principle, no reason why the fortification would not be in respect of all cross-undertakings in damages given by the claimant in the proceedings. It would be anomalous and undesirable if in the same piece of litigation some, but not all, cross-undertakings in damages given by a party had the benefit of fortification; and
  • it was clear on the wording of the order that the third defendant was to benefit from the fortification. If it was an error that the third defendant was to benefit from the cross-undertaking, this should have been raised immediately.

The court considered the authorities on what equated to a change of circumstances that might justify a variation of the fortified sum.  Mr Justice Barling held that a material change of circumstances had not been established by the claimant so as to justify a withdrawal from the fortification paid into court.  The level of fortification was not set by reference to the JV’s likely loss, but was instead set at a level intended to put the whole matter beyond doubt and to remove any possible source of complaint.  The claimant would have been aware that further information regarding loss would become available at some point, yet at no stage did the claimant state that the fortification was subject to further evidence about loss.  In the circumstances, the claimant had not crossed the threshold for establishing that it could be relieved from any part of the burden of its undertaking in respect of money placed in court.  In any event, it was not possible to decide at this stage whether the cross-undertakings would be called upon in significant amounts.  In the circumstances it was not unjust or oppressive to require the claimant to maintain US$ 10 million in fortification in respect of the cross-undertakings in damages.  The claimant had not suggested that it had suffered any hardships or prejudices as a result of this money being held in court.

The interim payment application

Rule 25.7(1)(c) provides that a court may only make an order for an interim payment where it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money against the defendant from whom he is seeking an order for an interim payment.  Deutsche Bank AG v Unitech Global Limited [2014] EWHC 3117 (Comm) confirmed that references in the Civil Procedure Rules to obtaining a “judgment” ordinarily mean obtaining a judgment that gives effect to the cause of action.  In the event that a party seeks rescission of a loan agreement, the other party does not need to plead any cause of action to obtain counter-restitution of the principal sum plus interest.  Counter-restitution will automatically become a term of the order for rescission.  In the circumstances, Barling J held that a declaration of rescission given on terms that counter-restitution is made by the applicant for rescission cannot be treated as a “judgment” for a sum of money against the applicant and that, consequently, he did not have jurisdiction to grant an order for an interim payment.

Barling J held that, even if jurisdiction to order an interim payment did exist, such an order would not have been made.  Rule 25.7 provides that the court must not order an interim payment of more than a reasonable proportion of the likely amount of the final judgment and that the court must take into account any relevant set-off or counterclaim.  In the current proceedings, the claimant claimed damages for misrepresentation from the third and fourth defendants and reserved the right to put forward further particulars of loss and damage and to rely at trial on an expert accountant.  This was a substantial claim which could not be discounted sufficiently when assessing what the third and fourth defendants might ultimately recover.


This case provides a useful indication of the high threshold to be reached in order for the court to permit a party to be release in part from any fortification of a cross-undertaking in damages.  The case also confirms the court’s considerations in making an order for an interim payment.

Peak Hotels and Resorts Ltd v Tarek Investments Ltd and others [2015] EWHC 1997 (Ch)

Post By Stephanie Woods (3 Posts)


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