Account of profits is not available in a cross-undertaking

In Sandoz AG v Bayer Intellectual Property GMBH, the English High Court provided important clarification that a claimant in an inquiry for damages is not entitled to an account of profits under the standard cross-undertaking as to damages. Background The Inquiry Defendants had obtained certain interim injunctions against the Inquiry Plaintiffs which were subsequently discharged. Following the discharge, the Court ordered an inquiry as to damages caused to the Inquiry Plaintiffs as a consequence of the interim injunctions, pursuant to cross-undertakings given by the Inquiry Defendants. The Inquiry Plaintiffs' principal claim was for an account of the profits that the Inquiry Defendants had made as a result of the injunctions being in place. They also made an alternative claim for loss of profits, though they pleaded that such a remedy would not provide adequate compensation in the circumstances. Terms of the cross-undertaking The cross-undertaking contained the key provision that if the Court found that the injunction "has caused loss" to the Inquiry Plaintiffs and decided that they "should be compensated for that loss", then the Inquiry Defendants would comply with any order the Court may make and would be "jointly and severally liable for any monetary award relating to such loss". The Court's analysis and decision Citing various authorities, the Court considered that the purpose of cross-undertakings is to compensate for loss caused by the injunction which was wrongly granted. In construing the terms of the cross-undertakings with regard to their underlying purpose, the Court found that the Inquiry Defendants had undertaken to comply with any order requiring them to compensate the Inquiry Plaintiffs for losses suffered as a result of the injunctions, and to be jointly and severally liable for any monetary award made to that end. However, crucially, they had not undertaken to disgorge profits they made as a result of the injunctions. The Court specifically rejected the Inquiry Plaintiffs' construction that, so long as the court decided they had suffered loss for which they should be compensated, the Inquiry Defendants had undertaken to comply with any order the court might make, even if that order was not an award of compensation for that loss. The Court found this interpretation would be inconsistent with the purpose of a cross-undertaking, which is to ensure that a party which has suffered loss as a result of an injunction that should not have been granted is compensated for that loss. The Court also rejected the argument that, under a cross-undertaking, monetary relief should be assessed as if there had been a contract in which the applicant agreed not to prevent the respondent from doing that which the injunction prevented them from doing. Significance of the decision While Harneys does not practice the law of England and Wales, this decision provides important guidance on the interpretation and scope of standard cross-undertakings given in interim injunction proceedings, which are also typically given in the offshore jurisdictions in which we practice. A standard cross-undertaking is compensatory in nature and does not extend to restitutionary remedies.