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Public bodies should be greatly shy to give cross – undertakings says Supreme Court

Date: (28 February 2013)    |    

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The Supreme Court has said that public authorities, such as the FSA, should generally not give cross-undertakings to cover costs and losses incurred by third parties as a result of injunctions.

Unless there was a circumstance which justified a different position such cross undertakings should not be given Lord Mance said.

A public authority should be shy to a greater extent before giving an undertaking rather than less at a without notice stage. At such a stage giving a blanket undertaking would not give the third parties any incentive for coming forward and identify any real concerns that they might have he added.

Lord Mance was giving the judgment of the court in FSA v Sinaloa Gold and others [2013] UKSC 11. The FSA made a without notice application for a freezing injunction against Sinaloa Gold and PH Capital Invest under Section 180 of the Financial Services and Markets Act 2000.

The court heard that the FSA accused both companies of promoting the sale of shares without authorisation. In its application for an injunction, the FSA gave an undertaking both to cover the “reasonable costs” of third parties and to compensate them for losses.

Having obtained the injunction, the regulator later applied to the court to get the wording relating to losses removed. Sinaloa had six bank accounts at Barclays and the bank intervened to oppose the FSA’s application.

The High Court rejected the regulator’s application, but the Court of Appeal accepted it, as did the Supreme Court.

Lord Mance said there was a distinction between private applications for injunctions and those by public bodies.

There is a choice, either the public authorities might be discouraged or burdened in the pursuit of claims in the public interest is to be taken as material consideration for such undertakings or authorities acting in the public interest must be expected generally to back their legal actions with the public funds with which they are entrusted to undertake their functions.

Lord Mance dismissed the bank’s appeal. Lords Neuberger, Clake and Sumption and Lady Hale contributed to the judgment.