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Legal fees and applications to vary freezing injunctions

Chris Quinn
Freezing injunctions typically contain an exception so as to allow for the payment of the respondents’ reasonable legal fees. But what happens when the applicant wishes to challenge the reasonableness of the sums being claimed? The relevant principles do not appear to have been the subject of recent consideration until the hearing before Robert Englehart QC sitting as a Deputy High Court judge in Financial Services Authority v St Clair Estates Limited and Others in which Nicholas Peacock QC was instructed on behalf of the FSA and Chris Quinn of Littleton on behalf of the Second- Sixth Defendants.

D2-D6 face an ongoing claim by the FSA which alleges that they are involved in a collective investment scheme contrary to the provisions of the Financial Services and Markets Act 2000. They are subject to a freezing injunction. Having previously agreed to the release of certain sums sought by D2- D6 to allow for payment of their solicitors’ fees, the FSA refused a further request as to the same. No challenge was made to the level of Counsel’s fees incurred or sought. Accordingly D2- D6 applied for a variation of the freezing injunction to allow for payment of the further legal fees sought.

The judge endorsed the principles to be applied to such applications to vary freezing injunctions that were set out by Lewison J in Independent Trustee Services Ltd v G P Noble Trustees Ltd & Ors [2009] EWHC 161 (Ch):

“it is common ground that the approach I should adopt to the first two variations sought is set out in Ostrich Farming Corporation Ltd v Ketchell (unreported) 10 December 1997. That involves asking four questions, First, does [the applicant/ claimant] have an arguable proprietary claim to the money? Second, if yes, does [the respondent/ defendant] have arguable grounds for denying that claim? Third, if yes, has [the respondent/ defendant] demonstrated that without the release of the funds in issue it cannot effectively defend these proceedings? Fourth, if yes, where does the balance of justice lie as between, on the one hand, permitting [the respondent/ defendant] to expend funds which might belong to [the applicant/ defendant] and, on the other hand, refusing to allow [the respondent/ defendant] to expend funds which might belong to it?”

As David Richards J re-emphasised in Revenue and Customs Commissioners v Begum [2010] EWHC 2186 (Ch), the first of these questions is of fundamental importance, A distinction is to be drawn between the payment of reasonable legal costs in the defence of a non-proprietary claim (as this will not constitute the dissipation of assets) and the payment of such costs in respect of a proprietary claim. That case is also authority for the propositions that; (i) neither a claimant nor the Court is entitled to control a defendant’s choice of counsel and counsel, and the payment of their proper costs or the way in which they conduct the case; (ii) the court will not give the claimant the right to require a solicitor and own client assessment of the defendant’s costs; (iii) the court will not itself perform the function of a provisional assessor of costs; (iv) the court will not in general impose a cap on the defendant’s legal costs; (v) protection to which a claimant is entitled is in general that provided in the standard form of a freezing order, which is to the effect that the defendant may use the frozen assets for the payment of his reasonable legal costs provided that he informs the claimant as to the source of those payments.

[Author’s note: it seems doubtful that the second- fourth of these propositions will necessarily survive the new costs management regime being widely introduced in April 2013 (as to which look out for planned future Littleton seminars)]

Applying these principles to the case before him, the Judge allowed the application to vary albeit in a smaller sum than that which had been asked for.

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