Interlocutory injunctions are a type of court order. Essentially, an interlocutory injunction stops somebody from doing something. When a court grants an interlocutory injunction in your favour to stop another party from doing something, it will usually ask you for ‘an undertaking as to damages’. This is where you agree to compensate the other party if the injunction is eventually overturned. But how are these damages assessed and are there any risks in giving an undertaking as to damages? This article will explain: 

  • why a damages undertaking is important if you need an interlocutory injunction; and 
  • what you need to know before you give one. 

What Is an Undertaking as to Damages? 

An interlocutory injunction is a court order that stops a party from doing certain things until the court makes a decision on the dispute. It is an important tool to stop a party causing any further damage while the court hearing takes place. In exchange for putting that restraint on the other party, a court will usually ask you to give an undertaking as to damages. This is a commitment by you, the party seeking the injunction, that you will pay compensation to any other party that suffers damage as a result of the injunction if the court eventually overturns the original injunction.

It is important to note that this includes third parties that may not be: 

  • a party to the proceedings; or 
  • directly subject to the injunction. 

Generally, a court will not grant an interlocutory injunction unless the party seeking it gives the undertaking as to damages. 

Why Do You Need to Give a Damages Undertaking? 

The aim of a damages undertaking is to compensate any party that is harmed by an unfair injunction. 

For example, you could seek an injunction to stop a competing business from selling a certain product in Australia. That injunction is granted, but then overturned a year later when you lose the court case. If you have given an undertaking as to damages, you will have to pay damages to the competitor business. These damages will need to cover the losses they suffered as a result of not being allowed to sell that product in Australia for a year. 

How Are the Damages Assessed? 

If a court decides to overturn an interlocutory injunction you sought against somebody, it will order you to pay an amount of compensation to any party that can show the injunction caused damage to them or their business. This may include individuals or companies that were not otherwise involved in the court proceedings. 

To determine the amount of damages they should receive, these third parties will have to show the court the extent of damage they suffered as a result of the injunction. The court will then decide on a fair amount of damages.

What Are the Risks of Giving a Damages Undertaking? 

The main risks of giving a damages undertaking are that you may need to:

  • pay a significant amount of damages; and
  • compensate any affected third parties.

It may be impossible to estimate the damages that could result from the injunction. You also have little control over how long it takes the court to determine the dispute between the parties and potentially overturn an injunction. This means that it may take years for a matter to be finalised in court. Therefore, a wrongly granted injunction could result in huge damages. If you do not wish to give a damages undertaking, an alternative could be to skip the injunction and seek damages against the party you believe is causing you or your company damage. 

Key Takeaways

An interlocutory injunction can be an effective way to stop another party causing damage to you or your business. To secure one, however, you will need to commit to paying any orders for compensation if the court overturns the injunction. Costs orders can be expensive, so you should take care to carefully weigh up the benefits and risks of seeking an injunction. Before you make any injunction application or give an undertaking as to costs, you should:

  • make a sound risk assessment; and
  • seek legal advice.

If you have any questions about obtaining an interlocutory injunction and giving a damages undertaking, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page. 

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