Undertaking for costs: Overview, definition, and example
What is an undertaking for costs?
An undertaking for costs is a commitment by one party to cover certain expenses or costs that may arise in connection with a contract, legal proceeding, or specific activity. This undertaking is typically made in advance to ensure that the costs will be paid when due. Undertakings for costs are often required in legal disputes, where one party agrees to bear the financial burden of litigation or associated expenses.
For example, in a legal proceeding, a plaintiff might be required to provide an undertaking for costs to ensure they can cover the defendant’s legal fees if the case is unsuccessful.
Why is an undertaking for costs important?
An undertaking for costs is important because it provides financial security to the party relying on the commitment, ensuring that expenses or liabilities will be covered. It minimizes financial risk, builds trust, and ensures that parties involved in an agreement or dispute can proceed without uncertainty about who will bear specific costs.
For businesses, undertakings for costs are particularly useful in scenarios involving significant financial risk or complex legal matters. They clarify responsibilities, reduce disputes, and protect parties from unexpected financial burdens.
Understanding undertaking for costs through an example
Imagine a contractor agrees to perform maintenance work for a client. The contract includes an undertaking for costs clause, where the client commits to covering the cost of any specialized equipment or materials required for the project. This ensures the contractor can proceed with the work without incurring out-of-pocket expenses.
In another example, a foreign company initiates litigation in a jurisdiction where court rules require the plaintiff to provide an undertaking for costs. The company deposits funds in a trust account to cover the defendant’s potential legal fees if the case is unsuccessful, demonstrating their ability to pay and allowing the case to proceed.
An example of an undertaking for costs clause
Here’s how an undertaking for costs clause might look in an agreement:
“The Client agrees to provide an undertaking for costs to cover all reasonable and necessary expenses incurred by the Contractor in the performance of the Services under this Agreement. Such costs shall include, but are not limited to, materials, equipment, and third-party services, subject to prior written approval by the Client.”
Conclusion
An undertaking for costs provides financial security and clarity by ensuring that specified expenses will be covered as agreed. It reduces the risk of disputes, fosters trust between parties, and ensures that obligations can be fulfilled without financial uncertainty.
By including clear undertakings for costs in agreements, businesses can protect their interests, allocate financial responsibilities fairly, and create a structured framework for managing expenses.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.