The Court accepted that it may be the position to dispense with cross undertakings in relation to respondents but not innocent third parties.  The Court therefore ordered that when a law enforcement body is seeking through the civil Courts to enforce the law by way of a freezing injunction, which may have adverse financial implications for third parties who are innocent then as a matter of course, the usual third party undertaking as to damages should be given.

This should be dealt with at the hearing for the injunction and should not be for a third party to have to come along to court later and seek the protection. 

The Court would not enforce that third party undertaking, however, if the third party was not entirely innocent. If there were special reasons as to why the cross-undertaking in damages should not be enforced, then those can be considered when the third party seeks to enforce the undertaking.  The better approach is to require the undertaking in the first instance and then to consider whether there is or is not reason to enforce it in an appropriate case. 

Accordingly the Court ordered the usual cross-undertaking in damages in the standard form in favour of third parties and this extended to the Bank.

This is positive news for banks facing freezing injunctions made by law enforcement regulators or public enforcement authorities.

Financial Services Authority and Sinaloa Gold Plc and two others [2011] EWHC 144

The purpose of the Act was to introduce reforms to modernise the legislation which had previously been set out in the Third Parties (Rights Against Insurers) Act 1930. 

Under the Act the rights of an insolvent insured to an indemnity from its insurers under a liability policy are still transferred to a third party claimant.  However, the Act introduces 4 key changes: 

1. A third party claimant is no longer required to first establish liability against an insured before bringing proceedings against their insurers.  A new Court procedure is available to third parties.  The third party has a right to seek declarations as to the insured’s liability to them and as to the insurer’s potential liability under a contract of insurance in one set of proceedings.  If the Court or Tribunal makes such declarations it will be able to make an appropriate judgment which is likely to be a money judgment.  A third party will no longer be obliged to join the insured in proceedings against the insurer.    
2. The definition of insolvency has been widened to include companies subject to a Company Voluntary Arrangement or a Scheme of Arrangement.
3. The regime governing a third party’s ability to seek information is clarified.  The list of disclosable material is set out in the Act.  A third party will now have greater rights of access to information to establish the terms of any relevant insurance policy which will assist in deciding whether to embark on litigation.  If it can be established that there is a contract of insurance that covers, or might reasonably be expected to cover the supposed liability, information can be obtained on the identity of the insurer, the terms of the insurance, and whether there are or have been proceedings between the insurer and the insured in respect of the supposed liability. 
4. A third party claimant need not take steps to restore a dissolved insured company to the Companies House Register. 

Conclusion

The Act is intended to improve the rights of third parties and to reduce litigation, expense and delay.