FSA not required to compensate banks for damages caused by wrongly granted injunctions


The Supreme Court last week issued its judgment in The Financial Services Authority v. Sinaloa Gold plc (and others) and Barclays Bank plc1. The decision confirms that, whereas private parties seeking an injunction must normally undertake to compensate third parties who may be affected by a wrongly granted injunction (referred to as a “cross-undertaking in damages”), there is no such general rule for public authorities enforcing the law. A cross-undertaking in damages should be required from a public authority only if particular circumstances justify this.

This means a third party – such as a bank – which receives notice of a freezing order from a public authority is only likely to recover costs of complying with the order, not any other losses suffered as a result (e.g., money spent defending claims against it by the party whose assets are frozen).

This case is also a reminder of the risks of adopting boilerplate wording. The Financial Services Authority (the “FSA”) obtained a freezing order using standard wording suggested in an annex to the English rules of procedure (the “CPR”). Lengthy legal proceedings ensued when the FSA tried to revise the order, after realising the undertakings in this standard wording were far wider than those it had intended to give.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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