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It is possible for your business to get into a dispute with another commercial entity. There are various ways to resolve this, and one method is through litigation action in the commercial court. Using litigation action, a court can use multiple tools for dispute resolution and settlement processes. One relevant provision is an undertaking, where one party promises the court or other party to complete or refrain from specific actions. It is critical to comply with an undertaking to avoid further consequences. This article will explain the necessity of complying with an undertaking, including the importance of public interest and the significant consequences of breaching an undertaking.
What is Undertaking?
An undertaking is a tool used by a commercial court during the settlement process. It is where a party to a dispute makes a voluntary promise as part of a settlement agreement to take or avoid certain actions. A person facing a legal dispute can make the undertaking either to the court or to the Claimant involved in the commercial proceedings. There are various types of undertakings that a commercial court can enforce, such as:
- an undertaking for damages; or
- an undertaking for costs.
An undertaking for damages can be where a party issues another with an injunction and promises to pay damages if the injunction is wrongly given, causing them a loss. In this type of undertaking, the party giving it may have to prove their financial ability to comply with it. They may also be asked to give security for the damages undertaken.
When someone is given a court order like a freezing injunction, they may need to cover the costs incurred. This particular case is called an undertaking for costs.
A court undertaking should be specific about what the business should or should not do. This prevents further disputes over its entails and any possible breach of the undertaking. Additionally, the more precise undertakings are, the more likely they are to work for the parties involved.
However, it is important to note that a party to a commercial case may be able to dispute the exact nature of an undertaking through an appeal court.
This fact sheet outlines how your business can manage a dispute.
Why is It Important to Comply With an Undertaking?
It is essential to comply with an undertaking you give to a commercial court or a Claimant in commercial court proceedings. Courts have placed weight on public policy reasons for this and, therefore, take undertakings very seriously. If you breach a court undertaking, you could face contempt of court proceedings and end up with:
- a fine; or
- a prison sentence.
If you fail to take reasonable steps with the undertaking given to a Claimant as the Defendant in the commercial dispute, this also has consequences. This is because this type of undertaking you give has a contractual effect. Therefore, if you breach it, the Claimant has a right to sue you. This could be for:
- damages; or
- breach; or
- an injunction.
Whilst it is essential to comply with an undertaking, a commercial court can refuse an offer of a contractual undertaking where it seems unsuitable. However, a court will carefully consider any refusal to accept an undertaking, looking at:
- how specific the undertaking is;
- whether the undertaking is lawful or not;
- whether the undertaking is in line with public policy or not; and
- if it is proportionate where human rights are involved.
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Key Takeaways
If your business is involved in a dispute with other corporate entities, you may end up in court proceedings. If so, you or the other party may either offer the court or each other an undertaking. This is a promise to complete or refrain from specific actions. This will be part of the settlement agreement to resolve the dispute. A court can refuse an offer of an undertaking but will consider this carefully against specific criteria. When you make an undertaking to a court or as a Defendant to a Claimant, complying with this undertaking is essential. If you fail to comply with this, you could face contempt of court proceedings. Where you fail to comply with an undertaking to the Claimant, you will face a contractual breach.
If you need help complying with an undertaking, our experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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