An interim injunction is granted on incomplete evidence, before the case has been tried. The undertaking as to damages is what makes that acceptable.
The promise
The applicant undertakes that, if the Court later decides the injunction should not have been granted, they will pay such damages as the Court may assess to compensate the restrained party for loss suffered because of the order.
It is given to the Court, not to the opposing party. That has two consequences: only the Court can release the applicant from it, and breach of it is a matter for the Court’s contempt jurisdiction rather than an ordinary claim for breach of contract.
An injunction can stop a business trading, halt a construction project, freeze a bank account or prevent a sale. If the plaintiff ultimately loses, the defendant has suffered real loss because of an order that should never have been made.
The undertaking is the mechanism by which the risk of that error is placed on the party who asked for the order rather than on the party who suffered it. It is why the Court can act quickly on limited material.
Almost always
| Situation | Position |
|---|---|
| Ordinary interlocutory injunction between private parties | Required |
| Injunction obtained ex parte | Required, and scrutinised more closely |
| Freezing order or order for preservation of property | Required, often with security |
| Applicant of doubtful means | Required, and the Court may direct security or refuse relief |
| Public authority enforcing the law in the public interest | The Court may dispense with it in a proper case |
| Final injunction after trial | Not required — the rights have been determined |
The undertaking should appear in the notice of motion and in the draft order, and the supporting affidavit should show that the applicant can meet it — assets, income, or an offer of security.
This is not a formality. On the second limb of the injunction test, the Court asks whether the undertaking would in fact compensate the defendant. An applicant with no visible means asking to restrain a substantial commercial operation faces a real difficulty, and silence about it invites refusal.
Order 14 Division 4
Order 14 Division 4 of the National Court Rules 1983 deals with security, including the cases in which security may be ordered, the manner of giving security, and the consequences of failure to give security.
Where the Court doubts an applicant’s capacity to meet the undertaking, it may make the injunction conditional on security being provided — a payment into Court, a bank guarantee, or a charge over property.
Ordinarily the applicant. Where the applicant is a company of little substance, the Court may require the undertaking to be supported by a director or parent company as a condition of relief.
A lawyer does not give the undertaking on the client’s behalf and should be careful not to appear to do so. What the lawyer must do is explain the exposure to the client before it is given — it is an open-ended liability, and clients do not always appreciate that.
Where the applicant is a disabled person suing by a next friend, the undertaking and the costs exposure are matters the next friend should understand before consenting to act under Order 5 Rule 21(4).
If the undertaking is called on
- The injunction is discharged, or the plaintiff loses at trial, or discontinues.
- The restrained party applies for an inquiry as to damages on the undertaking.
- The Court decides whether to enforce it. This is discretionary — it is not automatic on the plaintiff losing.
- Damages are assessed, ordinarily on principles analogous to contract: loss caused by the injunction, of a kind reasonably foreseeable, subject to mitigation. See assessment of damages.
- Judgment is entered and enforced in the ordinary way under Order 13.
The restrained party must prove that the loss flowed from the order — not from the litigation generally, and not from a decision they would have made anyway. Contemporaneous records are what make such a claim provable, so a defendant who is restrained should document the effect from the outset.
Four things to remember
Keep the injunction no wider than necessary. The undertaking’s reach matches the order’s. A broadly drawn injunction creates a broadly drawn exposure.
Review it as the case develops. If the basis for the injunction falls away, apply to discharge it. Exposure continues while the order stands.
Deal with it in any settlement. Terms of settlement should say expressly whether the undertaking is released. See consent orders.
Do not assume discontinuance ends it. Under Order 8 Rule 61, discontinuance after the close of pleadings requires consent or leave — and the Court may grant leave on terms, which can include dealing with the undertaking.
The undertaking is given at the moment of greatest urgency, often on an ex parte application prepared overnight. That is precisely when its significance is least likely to be explained.
A client should understand three things before the application is made. The exposure is open-ended — it is measured by the defendant’s actual loss, not by the value of the plaintiff’s claim, and restraining a commercial operation can generate a liability far exceeding what the proceedings were about. It survives the injunction — discharge of the order does not discharge the undertaking in respect of the period the order was in force. And it is enforced by the Court on the defendant’s application, so the plaintiff does not control whether the question is ever raised.
Record the advice. Where the plaintiff is a company of limited means, expect the defendant to press for security for the undertaking, and be ready with evidence of the plaintiff’s financial position rather than assertions about it.
Sources
- National Court Rules 1983 — O 5 r 21; O 8 r 61; O 13; O 14 rr 9–16, Div 4; O 14 Div 6
- Golobadana No 35 Ltd v Bank of South Pacific Ltd [2002] PGNC 36; N2309
- Constitution — s 155(4)
Before relying on anything here, read the current text of the National Court Rules 1983 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.