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The costs of freezing order applications

21.10.20

The question of what costs order should follow the grant of interim injunctive relief is of obvious practical significance to parties. While costs will generally be awarded against the applicant if interim relief is refused, the costs position after a grant of relief is far less predictable. Cases can be found where judges have made costs orders against respondents, or where costs issues have been deferred until trial. Most turn on their own facts and procedural histories.

In the particular case of freezing orders, the difficulty in identifying clear principles on costs is acute. Freezing orders are typically secured ex parte, and paragraph 12 of the standard-form wording attached to Practice Direction (PD) 25A provides that “the costs of this application are reserved to the judge hearing the application on the return date”. As such, the question of whether the applicant should have its costs tends to become tied up inexorably with the fate of any subsequent discharge application and events at the return date hearing.

Bravo and others v Amerisur Resources Plc was a rare case in which the underlying costs principles relating to freezing orders came to be debated at some length. The decision resolves one important issue of principle. Further, the case saw no discharge application, so the costs issues considered related simply to the costs of the application.

Background

The solicitors in a potential group action against Amerisur, an English-domiciled oil company operating in Colombia, discovered that there had been a takeover offer for the company from another oil company, and that there was to be a hearing concerning this in the Insolvency and Companies Court in January 2020. Presumably out of concern that the new corporate vehicle might be based outside the jurisdiction, they sought an undertaking that the company would keep a certain fund in escrow against which they could recover. Litigious correspondence ensued, some concerned with whether the conditions for freezing order relief were met, some concerned with whether the claimants could provide a cross-undertaking in damages. Upon the claimants not being satisfied with the responses given they applied for a freezing order, on informal (but not short) notice. Steyn J granted them the relief sought.

There was then a further interlocutory dispute about the order and its quantum, characterised by some of the demands for clarifications of position against very tight deadlines, communications with the judge’s clerk, and threats of impromptu trips back before the judge that will be not unfamiliar to practitioners. Overall, and after a second hearing before Steyn J, the claimants obtained what they sought but equally the defendant protected its position in some important ways, notably by securing a proper cross-undertaking and ancillary orders.

Given the general air of acrimony that seems to have descended on proceedings, it is perhaps less surprising than it might otherwise be that the parties then argued costs issues in a standalone application before Spencer J.

Issues

The issue of principle was whether the incidence of costs of the freezing order application should be decided by Spencer J, or should be reserved to a trial judge.

An ensuing issue of mixed principle and fact was whether Spencer J, in the event that he should decide to make an order concerning the application costs, should assess the costs immediately.

Finally, there was the issue of what order should be made given the particular procedural history.

Decision

Spencer J decided that a) he should determine the incidence of costs, b) that summary assessment was inappropriate, and c) that the claimants should have 70% of their costs of the main hearing and 50% of their costs of the second hearing.

The key issue

Spencer J identified the issue of principle as follows:

“A point of principle which arises between the parties is whether this is an application which is akin to normal interim injunctions where the court makes assumptions on the facts and also makes reference to the balance of convenience, both of which may at the final hearing be considered quite differently when the full evidence and trial has been heard, so that it is appropriate to reserve the costs so that the position when the interim injunction was made can be viewed retrospectively in the light of the matters which have emerged at trial and in respect of which the court has made its adjudication; or whether applications for freezing orders are a discreet form of order upon grounds which are not susceptible to significant re-evaluation at trial so that an order for costs can and should be made in relation to the freezing injunction rather than await the outcome of the trial.”

Resolving conflicting authorities

The parties were agreed that there was “surprisingly little authority” on the key issue. The claimants contended that it was obvious that an order should be made, but by way of authority found themselves relying on a dictum in the Court of Appeal judgment in Taylor v Burton, as follows:

“Whereas in times gone by “costs in cause” orders, or “claimants’ costs in cause” orders were commonly made on interim injunctions, nowadays they are more rarely made, and the winner of an interim application will commonly be awarded his costs there and then, regardless of what happens at the trial.”

As against this, the defendants relied on a dictum of (then) Neuberger J in Picnic of Ascot v Kalus Derigs:

“In a case without any other special factors, where a claimant obtains an interlocutory injunction on the basis of the balance of convenience, the court normally reserves the costs. While one can see an argument, particularly under the new regime, for saying that an order more favourable to the claimant should be made on the basis that the claimant has won the issue in respect of which the costs have been directly incurred – namely, whether an interlocutory injunction should be granted or not – it seems to me that the reasoning of the Court of Appeal in the so far unreported case of Richardson v Desquenne et Giral UK Ltd., indicates that an order reserving the costs is appropriate.”

Spencer J held, at paragraph 53, that Picnic of Ascot was not germane, because a freezing order was not something granted by reference to the balance of convenience, and because it was distinct from other interlocutory orders:

“The regime for the making of Freezing orders is different to the general position where interim injunctions are sought based upon balance of convenience and holding the ring pending the trial. There are, obviously, overlapping features, holding the ring being one of them. The purpose of a freezing injunction is to avoid a successful claimant being unable to enjoy the fruits of his success because there are no assets left against which the judgment can be enforced, but that is a different kind of holding of the ring to that which is involved in the usual interim injunction and balance of convenience type case.”

It followed that the claimants were, as a matter of principle, entitled to their costs. The facts did not displace that prima facie entitlement, although in the case of the second hearing the entitlement was to only 50% of costs.

Comment

This is an important decision. Its effect is to confirm that, even though freezing order applications are often not preceded by pre-action correspondence, respondents are nevertheless in principle liable for the costs of the application from the moment it has been granted ex parte. This will provide applicants with important leverage in discussions about return date orders.

By James Bickford Smith

This article was originally written for Practical Law Dispute Resolution blog.

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