BY
HARRISON OGALAGU, ESQ.[1]
“The object of the undertaking is to protect a party, normally the defendant, in respect of such damage as he may sustain by reason of the grant of the interim relief. Consequently, it is for the party seeking to enforce the undertaking to show that the damage he has sustained would not have been sustained but for the injunction.”[2]
1.0 introduction
Temporary injunctions are commonly obtained to preserve assets or a state of affairs until a dispute is finally resolved. These injunctions which may be interim or interlocutory constitute serious restrictions, nay infractions, on the respondent’s rights. They are usually ordered in limine, before the merits of the parties’ cases have been fully considered at trial, and the court is concerned if it is ultimately shown that the injunction should not have been granted when the full facts emerge. The court will take care that the order for an injunction is so framed that neither party will be deprived of the benefit he is entitled to, if in the event it turns out that the party in whose favour it was made is in the wrong. For this purpose it will, if necessary, impose terms upon the applicant as a condition of granting the injunction. The applicant may also be required to undertake to prosecute the action with due diligence or, if the action has reference to the payment of money, to pay the amount in dispute into court.
2.0Injunctions and undertaking as to damages
As a necessary ingredient of injunctions, an applicant is invariably obliged to promise that it will pay compensation to the person who is restrained from dealing with its assets or exercising its rights, if it is discovered that the injunction was obtained improperly and that in all the circumstances of the case injunction ought not to be given in the first place. In New South Wales, for instance, Regulation 25.8 of the Uniform Civil Procedure Rules 2005 (NSW) defines “usual undertaking as to damages” to mean:
“an undertaking to the court to submit to such order (if any) as the court may consider to be just for the payment of compensation (to be assessed by the court or as it may direct) to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking.”
Undertaking as to damages is the price which the person asking for an interlocutory or interim injunction has to pay for it and it is a reasonable provision made to indemnify a respondent or indeed a third party adversely affected by the grant of the injunction if it is adjudged later that there was no legal basis for its grant against the respondent or third party. By the undertaking the party obtaining the order undertakes to abide by any order as to damages which the court may make in case it should afterwards be of the opinion that the defendant has, by reason of the order, sustained any damages which such party ought to pay. As a general rule, the benefit of the undertaking applies to all the defendants, even though only one or some are restrained.
Put differently, an applicant will normally be obliged to undertake as a term of the order to indemnify any third party against costs and expenses reasonably incurred by the third party in seeking to comply with the order as well as all liabilities which may flow from such compliance.[3]
In Nigeria, undertaking as to damages takes a similar complexion with foreign jurisdictions. Thus, the body of case laws in Nigeria has developed the frontiers of undertaking as to damages. In Kotoye vs. CBN[4], Nnaemeka.Agu JSC at Page 450 said, obiter
‘’It is my view that a necessary corollary to the fact that an undertaking , as to damages is the price that an applicant has to pay for an order of interlocutory injunctions is that failure to give the undertaking leaves the order without a quid pro quo, and , so should be a ground for discharging the order. This ought to be more so in respect of ex parte orders in which the order is made without the other side being heard. Indeed the need for it to be so is stronger in Nigeria where no Registrar has got the power to insert the order for undertaking to be given , while drawing up the order’’
In underscoring the significance of undertaking as to damages or adequate compensation in the absence of such undertaking being extracted, the Supreme Court in Afro-cont. (Nig) Ltd vs. Ayantuyi [5] endorsed the judgment of the Court of Appeal[6] which held thus:
‘’On the issue of damages which may result from the order of injunctions, once a decision has been taken by the court of first instance after hearing the parties, such damage may occur any way whether there is an undertaking as to damages or not. What is important is that at the end of day when the case is determined, and the injunctions is no longer effective, if the party restrained has succeeded in his actions, he should be adequately compensated by damages. Where the court of first instance earlier failed to do this by ordering undertaking as to damages, it should be in the interest of such a party that he can secure such an undertaking from the Court of Appeal.’’ (Underlining for emphasis)
Development of Undertaking as to damages
The practice of requiring an undertaking as to damages became an ‘‘almost universal practice’’[7] of the Court of Chancery for applications made ex parte. The defendant who ordinarily would not present at the hearing and determination of the ex parte application could suffer immediate loss. Sir George Jessel MR said in Smith v. Day[8] that the practice had been ‘‘invented’’ by Sir James Knight Bruce following his appointment as Vice-Chancellor in 1841, and this has been repeated subsequently by Ashburner in the Principles of Equity,[9] Lord Diplock in F. Hoffman-La Roche v. Secretary of State,[10] and by judges in other cases.[11] However, the concept of imposing an appropriate term, such as requiring security from the plaintiff for the possible loss to the defendant, as the price for granting an injunction, appears in cases which predate that appointment.
It came to be recognized that with an inter partes application on motion, where the court did not know who would eventually prevail, the requirement of an undertaking in damages facilitated the court in two objectives. First, the court would be able to abstain from expressing premature views on the merits. Secondly, the procedure enabled the court to grant an injunction knowing that if the defendant prevailed he would usually obtain some compensation for having been subjected to the injunction. Accordingly, the requirement of undertaking as to damages has become an indispensable ingredient in determining the exercise of discretion of the court to granting injunctions, interlocutory or interim.
Admittedly, undertaking as to damages has assumed a growing notoriety in application for injunctions generally. It is significant to observe that undertaking as to damages has over the years become a stronger requirement of the law in respect of applications for mareva injunction.
Undertakings in Mareva injunctions
The ultimate essence of a suit is for a successful party to realize the fruits of his judgment. Often times, this goal is jeopardized because the defendant surreptitiously caused his assets to be removed from the jurisdiction of the court, thus, defeating the course of justice. Mareva injunction is granted not only in cases where the defendant intends to remove his assets from the jurisdiction of the court but also in cases where the granting of a mareva injunction will provide some form of security to the plaintiff and whenever it is just and convenient to do so. The granting of mareva injunction provides a veritable exception to the rule that a plaintiff would take his queue with other creditors of the defendant and if he obtained a judgment against the defendant he would simply be subject to the rules on priorities of debts[12].
Contrary to the classic view that an interlocutory injunction against a defendant was based upon a cause of action against him[13], this limited exception accommodates cases in which the plaintiff could seek specific performance against a defendant based on a contract solely with him, and an injunction might be granted against a stranger to the contract, against whom the plaintiff had no substantive cause of action, to preserve the position pending a decree of specific performance.[14] What marked out the Mareva injunction was the lack of connection between the substantive claim and the injunction, and its incursion into the general principle that at least up until judgment a defendant’s assets were his to be dealt with as he chose.
The development of the jurisdiction to grant orders against non parties when there is no cause of action against them also recognizes the practice of protecting persons affected by an injunction not granted against them. For ease of appreciation, we include the following illustrations;
Searose Ltd v. Seatrain UK Ltd[15] concerned a Mareva injunction which would affect an account of the defendant at a specified bank, and the bank would be put to expense. Robert Goff J required an undertaking from the plaintiffs that they would ‘‘pay reasonable costs incurred by any person (other than the defendant) to whom notice of the terms of the injunction is given, in ascertaining whether or not any asset to which the order applies . . . is within his possession or control’’. The undertaking required payment of the costs without any further exercise of discretion. The bank, although entirely innocent and unconnected with the dispute, might otherwise have to incur substantial expense which would not be reimbursed. The plaintiff ought to bear those costs and he might be able to recover them in due course as part of the costs incurred by him in the proceedings.
Clipper Maritime Co Ltd v. Mineralimportexport[16] concerned a Mareva injunction granted over a cargo on a ship in port. There, the judge was concerned with the potential effects on the port authority and required undertakings from the plaintiff to pay the actual loss of income from the berth, and administrative costs, caused by the injunction. In Z Ltd v. A-Z[17] the Court of Appeal approved the approach in Searose, and Kerr LJ said[18] that ‘‘the plaintiffs should be obliged to undertake, as a term of the order, to indemnify any third party against any costs, expenses or fees, reasonably incurred by the third party in seeking to comply with the order, as well as against all liabilities which may flow from such compliance’’. Lord Denning MR said that the purpose was so that ‘‘the bank or other innocent third party [should] not suffer in any way by having to assist and support the course of justice prescribed by the injunction’’.[19]
In Nigeria, however, courts are guided by a number of factors in determining whether or not to grant a mareva injunction. Some of these factors include;
a. existence of cause of action against defendant that is justiciable in Nigeria;
b. imminent danger or risk of evacuation of assets from jurisdiction to render judgment nugatory;
c. disclosure of material facts relevant to the application;
d. disclosure of full particulars of assets within jurisdiction;
e. balance of convenience tilting to the applicant;
f. willingness of applicant to give undertaking as to damages.
The parameters for Mareva injunction are more than for interlocutory injunction which dwells on serious issue for trial whereas Mareva injunction deals with totality of evidence. We commend the under-listed Nigerian authorities.
Ø Dr. T. Braithwaite vs. China Civil Engineering Construction Corporation[20]
Ø Efe Finance Holdings Ltd vs. Osagie, Ekeke, Otegbola & Co.[21]
Notably in A.I.C. Ltd vs. NNPC[22], the Supreme Court in referring to Sotuminu vs. Ocean Steamship[23] (1992) 5 SCNJ 17-22; (1992) 5 NWLR (Pt. 239) 1, where the jurisdiction and power to entertain and in appropriate cases grant a Mareva injunction, stated that it is to stop a defendant against whom a plaintiff has a good arguable claim from disposing of or dissipating his assets pending the determination of the case or pending payment to the plaintiff. The injunction can be granted against a person who is in possession of the defendant’s assets.
In E.S. & C.S. Ltd vs. N.M.B. Ltd[24] Akaahs J.C.A. (as he then was) while concurring with the lead judgment opined thus;
“A rather disturbing feature of this case is the devastating effect which the use of the ex parte injunction has wrecked on the business of the appellant. The appointment of a receiver/manager was totally uncalled for. Courts are ever cautious of the fact that because of its very nature, mareva injunction could be open to abuses.”
“In view of the high risk and hardship that are usually involved in an order of mareva injunction, such an undertaking is the price and a sine qua non to the grant of it. In the instant case the undertaking as to damages was not extracted from the respondent and to add insult to injury a receiver manager was appointed. I consider the action taken by the learned trial judge as a reckless exercise of discretion.”
Ogunbiyi J.C.A. (as she then was) @ 257-258 paragraphs A-B also lent eloquent voice, thus;
“In the light of the authority in Sotuminu’s case, it was incumbent upon the court in the exercise of its discretion to have carefully examined the plaintiff’s writ of summons, the statement of claim and the motion ex-parte seeking an “interlocutory” order of Mareva injunction restraining the defendant “pending the determination of the suit” as shown at pages 1-13 of the record.”
Accordingly, in Nigeria for an application to be able to properly invoke the jurisdiction of the court to order Mareva injunction, the applicant would normally not only have a reasonable cause of action against the defendant but would also give an undertaking in damages as the price of the injunction. Furthermore, the suit must have the whole plenitude of competency in the sense that the court must have jurisdiction to entertain the case as against the respondent to be affected by the mareva injunction. This is because jurisdiction is the life-wire of any action and a court that lacks jurisdiction to entertain a suit cannot make any valid order thereto.[25] If a plaintiff wishes a third party to be bound by a Mareva injunction he must give notice of it to that third party. The court will where possible implement the Mareva injunction in a manner which takes account of innocent third parties’ interests if they may be affected by the injunction.[26]
An applicant who wishes to avoid giving that undertaking ought to raise the point specifically with the court and obtain express dispensation. Not to offer the undertaking required under the Rules, to remain silent about it on the application, and afterwards to assert that the applicant did not give the required undertaking, is an abuse of the process of the court, of which the applicant cannot be permitted to take advantage. As in Oberrheinische MetallwerkeGmbH v. Cocks,[27] the court should treat the undertaking as having been given.
Scope and limit of undertaking as to damages
Often, the assessment of undertaking as to damages is approached in the same way as damages for breach of contract. A party to a contract who suffers a loss as a result of its breach is entitled to be placed in the same position with respect to damages, so far as money can do it, as if the contract had been performed[28]. The extent of recovery is limited by the rule in Hadley v Baxendale[29]. That is, a plaintiff may only recover losses that may be expected to result from the breach in the usual course of things or such damages as may reasonably be supposed to have been in the contemplation of both parties concerned at the time they made the contract as the probable result of the breach. But an undertaking as to damages is given to the court, for enforcement by the court; it is not a contract between parties or some other cause of action upon which one party can sue the other. As will be demonstrated below and subject to certain exceptions, the undertaking as to damages does not confer a distinct cause of action to the respondent adversely affected by the undertaking. In the light of this therefore, it is arguable if the enforcement of the undertaking can be carried out otherwise than through an application for enquiry to the court where the undertaking is made.
The High Court observed, in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd[30], that:
“In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases …”
It is preferred to look to the purpose served by the undertaking and to identify the causal connection which is most appropriate to that purpose. The Court usually applies the same principles relating to assessment for breach of contract; the Court assesses loss which is the natural consequence of the injunction on the facts of the particular case; and the general nature of the enquiry is to consider what the parties would have contemplated would be a “serious possibility” of the loss or damage that might flow.
It must be emphasized that where the applicant has voluntarily deposed in the affidavit in support of his application that he undertakes to pay damages, the necessity for the court to extract an undertaking in damages would not arise.[31] This point was made abundantly clear in the case of Onyesoh vs. Nnebedun[32] where it was held that:
‘’In the instance case, as Chief (Dr) Ejike-Ume correctly pointed out, plaintiffs had voluntarily deposed in the affidavits in support of the application to an undertaking as to damages as follows:
‘’3. That I and the plaintiffs, on behalf of the entire Akamkpisi Community hereby give an undertaking to defray or meet any cost if adjudged due to the defendant arising from this case, no matter the amount involved.’’
In the light of this deposition the necessity for extracting an undertaking in damages did not arise’’
Taking a cue from Onyesoh vs. Nnebedun (Supra), failure to extract an undertaking as to damages from the applicant may do no harm to an application for enquiry provided that the applicant in his affidavit in support bounds himself to indemnify the respondent. In Afro-Cont. (Nig.) Ltd’s case, the Court of Appeal drew inspiration to order undertaking as to damages from the concession or disposition of the plaintiffs/respondents who filed a Respondent notice of intention to vary the order of injunctions granted by the Ondo High Court. In Ground 7 of the grounds relied upon, the Respondents’ Notice stated as follows:
“The plaintiffs/respondents do hereby undertake to indemnify the Party Interested/appellants and the defendants/respondents against all losses, pecuniary or material that may arise from the lower court’s order of interlocutory injunction of the day if they lose the substantive suit still pending in the said lower court or which the lower court may find to have been wrongly granted in the first place.’’
The quantum of the undertaking is not a matter for consideration when an applicant in an affidavit undertakes to pay damages or when the court is extracting an undertaking. It is only an enforceable promise to pay any amount so found to have been involved. This is the dictum of Uwaifo J.C.A. (as he then was) in Onyemelukwe vs. Attamah[33]
‘’It should be realised that an undertaking in damages is meant to realistically meet any damages which may afterwards be determined to have been sustained by the defendant. It is in the form of an enforceable promise to pay any amount so found to have been involved. The undertaking will not therefore contain any specific sum’’
The raison d’être for a refrain from putting financial limit to the undertaking as to damages is because the undertaking is against loss to be suffered in the future and no proof of such loss can be ascertained as at the time of making the undertaking. The amount of damages can only be ascertained after an enquiry.
In Victory Merchant Bank vs. Pelfaco Ltd[34], Edozie J.C.A (as he then was) held thus:
‘’Counsel for the applicant submitted and I agree with him that an undertaking as to damages is the price which an applicant for interim or interlocutory injunction has to pay for its grants and that the quantum of the undertaking cannot be ascertained or limited without proof of the loss suffered by the party in whose favour it is extracted. In my judgment in the sister appeal, referred to the relevant passage in the Halsbury’s laws of England(supra) and held that as a matter of proper practice , the amount of an undertaking as to damages, to be extracted as a price for granting of an interlocutory injunction is not fixed at the time the injunctive relief is granted. It is fixed afterwards at the dissolution of the injunction or after trial and after due enquiry.’’
In Victory Merchant Bank vs. Pelfaco ltd (supra) at pages 356-357 Paragraphs H – A, the Court of Appeal dismissed the appeal but varied the order of undertaking as to damages. Edozie J.C.A. (as he then was) who delivered the leading judgment held thus:
‘’The instant case is not one of a total failure to give an undertaking and therefore does not come within the principle in Kotoye’s case supra. Even if the principle in Kotoye’s case can be reasonably stretched to extend to cases where undertakings extracted are inadequate, it is my view that this court has the power pursuant to section 16 of the Court of Appeal (sic) to impose the appropriate undertaking in the case in hand. This is so because, as the Kotoye’s case supra would appear to have been given per incuriam for which, see Anike vs. Emehelu & 3 Ors (1990) 1 NWLR (Pt. 128) 603 and the case of Afro Continental Nig. Ltd vs. Joseph Ayantunyi & Ors (1991) 3 NWLR (Pt. 178) 211 delivered by the Benin Division of this court on 1/3/91, I am of the view that Order of undertaking as to damages extracted from the respondent be varied by jettisoning that part of it that limits the undertaking to N100,000.00. Subject to this, this appeal lacks merit and is accordingly dismissed.”
In a similar vein, the court of appeal in Anike vs Emehule[35] described undertaking as an enforceable promise at large – a precautionary safeguard to pay the defendant what he might suffer by way of damages to be determined at a later stage because of the interim injunction. Uwaifo J.C.A. (as he then was) said
‘’when an undertaking is given in a case of this nature it is not predicated on what damages are known beforehand that the defendants is likely to suffer as a result of the injunction. Such damages are usually not ascertained in advance and cannot be made a wholly arbitrary figure. The undertaking to pay damages which the party obtaining the order gives is to abide by any order as to damages which the court may make in case it should afterwards be of the opinion that the defendants has , by reason of the order sustained any damages which such a party ought to pay; See Griffith vs. Blake[36]. Therefore, to all intents and purposes, an undertaking is an enforceable promise at large, a precautionary safeguard – to pay the defendants what he might suffer by way of damages to be determined at a later stage because of the interim injunction.”
The common thread running through the authorities is that it is legally impracticable to limit in the undertaking as to damages the liability of the applicant for injunction as the extent of the liability can only be determined subsequent to the making of the undertaking.
Whenever an undertaking as to damages has been given and the plaintiff ultimately fails on the merits an enquiry as to damages will be granted unless there are special circumstances to the contrary. For, example, an interlocutory injunction may be dissolved for delay or for some cause which disentitles the plaintiff to an interlocutory injunction, although not to a relief at the trial. Regard must also be had to the amount of the damage and if it is trifling or remote, the court will not be justified in granting an inquiry, nor will it be ordered where the court can satisfy itself as to the amount of the damage without it. Where an action is dismissed, but without costs, because the court thinks that it was rightly instituted, no inquiring will be ordered.[37]
Effects of undertaking:
The undertaking as to damages on an order for an injunction remains in force notwithstanding the dismissal[38] or discontinuance of the action,[39] and if the plaintiff ultimately fails on the merits the defendant is entitled to an enquiry as to damages sustained by reason of the interlocutory injunction,[40] unless there are special circumstances.[41] The undertaking applies, even if the plaintiff has not been guilty of misrepresentation, suppression or other default in obtaining the injunction,[42] and is equally enforceable whether the mistake in granting the injunction was on a point of law or on facts[43].
Lord Diplock in sifkina (cargo owner) vs. Distol Compania Naviera S.A[44]had this to say:
“A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent on there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened, by him of the legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court”.
In Kotoye vs. CBN[45], the Supreme Court said as follows:
‘’The undertaking to pay damages applies whether the plaintiff has not been guilty of misrepresentation, suppression or other default in obtaining the injunction. Griffith vs. Blake (1884) 27 Ch.D. 474 CA dissenting from contrary dictum of Jessel M.R in Smith vs. Day (supra).The undertaking is equally enforceable whether the mistake in granting the injunction was on a point of law or fact. Hunt vs. Hunt (1884) 54 L.J.Ch. 289.
It is safe to argue here that the major reason of making enquiry as to damages is that the injunction was improperly obtained or ought not to have been made in the first place. Ideally, the scope of factors that would necessitate the inference that the injunction was improperly procured or ought not to have been made is not closed. Our conviction is reinforced by the fact that the court is enjoined not to delve into the substantive issues when exercising discretion to grant or refuse injunctions. A subsequent consideration of the substance of the case may expose certain fundamental issues that would, otherwise, have operated against the grant of the injunction.
In the light of judicial opinions on the side of the authorities, fundamental legal issues such as absence of jurisdiction on the court to entertain the suit, lack of reasonable cause of action against the defendant/respondent against whom injunction was obtained, lack of competence in the suit, failure to perform a condition precedent to filing of the suit and some other points of law benefit of which can be taken by the adverse party (defendant/respondent), even in limine.
Enquiry as to damages
After the grant of injunction, interim or interlocutory, and it turns out that order of injunction has been improperly granted, the defendant is entitled to apply to the court for indemnity by way of damages occasioned by the order of injunction. The basis of the defendant’s application is the plaintiff’s undertaking as to damages. A defendant or respondent wishing to enforce an undertaking does so by applying to court for an enquiry as to damages by way of motion on notice entitled “Application for Enquiry as to Damages”[46]
The application to enforce an undertaking as to damages should be made in the High Court division in which the undertaking was given.[47] A defendant may apply for an enquiry as to damages at the trial or before trial if it is established that the injunction ought not to have been granted in the first instance. It is good practice to apply for enquiry as to damages to the court wherein the undertaking was given. Nonetheless, it is still hazy whether where the trial court struck out the suit or indeed the name of one or more of the respondents from the suit for want of jurisdiction on the trial court to entertain the suit or proceed against such respondent, an application for enquiry as to damages can be made to the same court.
It is significant to observe that the law has been settled on the strength of the authorities that where a court lacks jurisdiction to entertain any matter, it also lacks jurisdiction to issue any process in respect of same matter. We commend the case of The M.V. ‘’Med Queen’’ vs. Erinfolani[48]. A corollary to this settled state of the law in Nigeria is the fact that a defect in competence of a court is fatal to the adjudication and renders the entire proceedingsand findings invalid, nullity, null and void ab initio, however brilliantly the trial must have been conducted and concluded[49].
It is contended that undertaking as to damages derives its paternity from a subsisting suit whereof injunction has been given against a respondent. Application for enquiry as to damages pursuant to the undertaking is an incidental claim to the substantive claim in the main suit. It is almost inconceivable that when a court lacks jurisdiction to entertain the substantive suit the same court can entertain an incidental claim emanating from the same suit. In Gafar vs. Govt., Kwara State[50], the Supreme Court held thus;
“Where ancillary or incidental or accessory claims are so inextricably tied to or bound up with the main claims in a suit before the court, a court cannot adjudicate over them where it has no jurisdiction to entertain the main claims if such incidental or ancillary claims cannot be determined without a determination at the same time, of the main claims, or where the determination of such incidental or ancillary claims must necessarily involve a consideration or determination of the main claims.”
Similarly, preponderance of judicial opinion holds the view that where reasonable cause of action is absent in a suit, the court is divested of jurisdiction to entertain the suit. Cause of action impacts on the jurisdiction of the court such that when a party submits to the jurisdiction of the court for adjudication of a matter for which he is seeking redress without cause of action, it cannot clothe the court with jurisdiction to hear and determine any matter therein[51]. Taking shelter in Orji vs. Ugochukwu (Supra), it is arguable whether a court whose jurisdiction is divested on account of absence of reasonable cause of action against a defendant/respondent in the main suit, can assume jurisdiction to entertain an application for enquiry as to damages.
It is crystal clear from the foregoing authorities that there may exist circumstances where application for enquiries as to damages cannot be made to the same court wherein the undertaking as to damages was extracted. In that circumstance, resort can only be had to the court with the jurisdiction to enforce undertakings generally.
Before the court can order an enquiry it must be satisfied that the injunction was obtained improperly and that in all the circumstances of the case injunction ought not to be given. The court will not order an enquiry if the damage is trifling or remote or if it is likely to be fruitless, if there has been a great delay in making the application.
In England, the approach that is taken is to consider the relevant practice note and then apply the principle set out by Lord Diplock in Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry[52]:
“…the court exacts the undertaking for the defendant’s benefit. It retains a discretion not to enforce the undertaking if it considers that the conduct of the defendant in relation to the obtaining or continuing of the injunction or the enforcement of the undertaking makes it inequitable to do so, but if the undertaking is enforced the measure of the damages payable under it is not discretionary. It is assessed on an inquiry into damages at which principles to be applied are fixed and clear. The assessment is made on the same basis as damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction. (See Smith v Day (1882) 21 Ch D 421 at 427 per Brett LJ.)”
In Al-Rawas vs. Pegasus Energy Ltd[53], directors and shareholders of a company whose business was supplying fuel oil to purchasers in southern Africa, fell out, and one party then obtained worldwide search and freeze orders for 33m pounds upon a material misrepresentation to the court. As per the requirement in the UK practice notes, cross undertakings as to damages had been given in forms which provided: The undertaking in respect of the search and seizure order was in these terms:
“(1) 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 Applicant will comply with any order the court may make. Further if the carrying out of this order has been in breach of the terms of this order or otherwise in a manner inconsistent with the Applicant’s solicitors’ duties as officers of the court, the Applicant will comply with any order for damages the court may make.”
The undertaking in respect of the freezing order was as follows:
“If the Court later finds that this Order has caused loss to the Respondents and decides that the Respondents should be compensated for that loss, the Applicant will comply with any Order the Court may make.”
These were each in the prescribed form. As the court noted, the second sentence of the former is an addition to the form that was previously used. The orders were dissolved for non disclosure, and the court applied the principles above and allowed claims as follows:
(i) for management time in dealing with the disruption caused by the carrying out of the massive search;
(ii) (ii) general damages for loss of personal and business reputation;
(iii) (iii) punitive damages, which were granted,
with Mr. Justice Jack saying this:
“The contrast between the references to compensation and to damages in the first and second sentences of the standard undertaking given to support a search and seizure order is marked. The second sentence applies where the order has been carried out in breach of its terms or the applicant’s solicitors have acted in breach of their duty to the court. These are matters which may be considered to give rise to a possible claim for exemplary damages, and that seems the only explanation for the change in wording. The undertaking thus appears to have been framed with the distinction between compensatory and punitive damages in mind. I accept that the undertaking is to be construed in that manner. Thus the applicant for an order accepts liability for compensatory damages only, save where the second sentence applies. Further, exemplary damages are not available by reason of misrepresentation in the obtaining of the order: for the second sentence is not framed to cover that. It follows that the standard undertaking in the freezing order is to be construed in the same way: it covers only compensatory and not punitive damages.”
However, Australia has taken what appears to be a substantially different approach, at least on a conceptual level, in European Bank Ltd vs. Robb Evans of Robb Evans & Associates[54]. European Bank Ltd’s case involved the usual undertaking given as the price for an appeal to the High Court, against a judgment of the NSWCA which awarded close to $8m to the Bank. Hence the studied choice of words, viz, apparently a difference; because the High Court had before it a case regarding the construction of a rule of court regulating the usual undertaking as to damages in the context of an appeal; whereas the Al Rawas case specifically dealt with construction of the ambit of the usual undertaking in practice notes regarding freeze and search orders.
In European Bank, the money was placed in an interest bearing deposit pending the outcome of the special leave application, upon Mr. Evan’s cross undertaking as to damages. In the High Court, the special leave application met with failure, and the net effect was that the Bank was entitled to its money but had been kept out of the use of it in the interim. Had it not been kept out of its money, it would have profited from currency trading, to the tune of over $1m. Mr. Evans knew of these facts.
The test there postulated by the High Court was to emphasize that the usual undertaking is given to the court, and does not constitute an inter partes contract; that the principle has its origin in the requirement that a party seeking equitable relief must “do equity” by submitting to an order for the payment of such compensation as the court considers just; and given the diverse circumstances to which the principle applies, “the process of assessment and compensation cannot be constrained by a rigid formulation”.
However, in most cases, the just and equitable view is that damages should be those that flow directly from the order or injunction and which could have been foreseen when it was granted. The enquiry to be made is not whether the actual loss suffered was foreseen at the time the undertaking was given; rather it is whether a loss of the kind actually sustained could have been foreseen.
Conclusion
Application for enquiry as to damages pursuant to an undertaking as to damages is still novel in Nigeria. Even though injunctions are granted almost on daily basis and undertaking as to damages usually extracted. Litigants and lawyers in Nigeria are yet to explore the benefits of such undertakings, the merit of the substantive suit notwithstanding. This perhaps accounts for dearth of judicial authorities on enforcement of undertaking as to damages in Nigeria. This recondite area of the law is not, however, without some guides from foreign authorities. These foreign authorities are quite persuasive on Nigerian courts and in the absence of local authorities our courts should feel bound to follow them.
The time at which the application for an inquiry as to damages is made is material. It may be made when the injunction is dissolved or at trial, but if made when the injunction is dissolved, it will probably be ordered to stand over until the trial. Where an action is dismissed at the hearing it may be dismissed without prejudice to any application by the defendant in respect of damages; the defendant will then be required to show a prima facie case sufficient to justify an inquiry. It may be made after trial, but if so should be made speedily, and if not made within a reasonable time it may be refused[55].
The damages must be confirmed to loss which is the natural consequence of the injunction in the circumstances of which the party obtaining the injunction had notice when he makes his application[56].
[1] LLB, BL Senior Associate at Tope Adebayo LLP (www.topeadebayollp.com)
[2]Australian decision in Air Express Ltd v. Ansett Transport Industries (Operations) Ltd (1979) 146 CLR 249
[3] Z Ltd vs. A-Z and AA-LL (1982) QB 558 @ 586; (1982)1All ER 556 @572 – 573, CA per Kerr LJ
[4] (1989) 1 NWLR (Pt.98) 419
[5] (1995) 9 NWLR (Pt.420) Page411
[6] Reported in (1991) 3 NWLR (Pt.178) Page211
[7]In Chappell v. Davidson (1856) 8 De G M & G 1, 2, Knight Bruce LJ described this as the practice for
‘‘the last twelve or thirteen years’’
[8](1882) 21 Ch D 421, 424.
[9]1st edn (1902), 476
[10][1975] AC 295, 360
[11]W v. H [2001] 1 All ER 300, 310; SmithKline Beecham Plc v. Apotex Europe Ltd (No. 3) [2005] EWHC
1655 (Ch); [2005] FSR 44, [25].
[12] Sotuminu vs. Ocean Steamship Nig. Ltd (1992) 5 NWLR (Pt. 239) Page 1
[13]Siskina v. Distos SA [1979] AC 210, 256C–G, per Lord Diplock
[14]Nicholson v. Knapp (1838) 9 Sim 326; Fry on Specific Performance, 6th edn (1921), § 1162; Kerr on
Injunctions, 3rd edn (1888), 485.
[15][1981] 1 WLR 894.
[16][1981] 1 WLR 1262.
[17][1982] QB 558.
[18]Ibid, 586.
[19]Ibid, 575C–D.
[20] (2001) FWLR (Pt. 71) 1882 @, 1890 – 1 CA
[21] (2000) 5 NWLR (Pt. 658) 536
[22] (2005) 5 SC (Pt. I) 60 @ 78-9
[23] (1992) 5 SCNJ 17-22; (1992) 5 NWLR (Pt. 239) 1
[24] (2005) 7 NWLR (Pt 924) Page 215 @ 272 Paras F-G; 273 Paras D-E
[25] Uti vs. Onnoyibve (1991) 11 NWLR (Pt. 166) 175
[26] Clipper Maritime Co. Ltd of Monrovia vs. Mineral importex port (1981) 3 All ER 664; (1981) 1 WLR 1262
[27][1906] WN 127.
[28]Robinson v Harman 154 ER 363 at 365
[29](1854) 9 Exch 341
[30](1981) 146 CLR 249 at 266-267
[31] Afe Babalola (2007), Injunctions and Enforcements of Orders, 2nd Edition, Ibadan, Emmanuel Chambers
[32] (1992) 3 NWLR(Pt.229) 315@340
[33] (1993) 5 NWLR (Pt.293)350@366:
[34] (1993) 9 NWLR (Pt.317)340@356
[35](1990) 1NWLR (Pt.128) 603 @ 610
[36] (1884) Ch.D.474.
[37] Novello vs. James (1854) 24 L.J.Ch III, where the defendant was held entitled to an inquiry in the dismissal of the action, although at the time the plaintiff began his action the law was conflicting and the balance of authority in his favour.
[38] Newby vs. Harrison (1861) 3 De G.F & J 287
[39] Newcomen vs. Coulson (1878) 7 Ch.D 764
[40] Kino vs. Rudkin (1877) 6 Ch. D 160
[41] S. Griffith vs. Blake (1884) 27 Ch. D 474
[42] Griffith vs. Blake (supra)
[43] Hunt vs. Hunt (1884) 54 LJ Ch 289; See also Halsbury’s Laws of England 4th Edition – Reissue vol.24 1991 page 524-25 paragraph 983
[44] (1979) AC 201 at page 256
[45] (1989) 1 NWLR (Pt.98) 419 @ 456,
[46] Afe Babalola, Op. Cit
[47] Re Hailstone, Hopkinson vs. Carter (1910) 102 LT 877, CA
[48] (2008) 3 NWLR (Pt.1074) Page 314 @ 327
[49] George vs. S.B.N. PLC (2009)5 NWLR (Pt.1134) page 302 @ 319 Paragraph A-C.
[50] (2007) 4 NWLR (Pt. 1024) Page 375 @ 398 – 399 Paragraphs G – C.
[51] Orji vs. Ugochukwu (2009) 14 NWLR (Pt. 1161) Page 207 @ 283 – 284 Paragraphs H – D
[52] [1974] 2 All ER 1128 at 1150, [1975] AC 295 at 361
[53] [2008] EWHC 617 (QB), [2009] 1 ALL ER 346
[54] [2010] HCA 6 (10 March 2010) CLR 432; 84 ALJR 239
[55] Newby vs. Harrison (supra)
[56] Smith vs. Day (1882) 21 chD 421 @ 480, CA per Cotton LJ