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Injunctions, freezing orders and costs

There have been a number of recent cases on whether costs should be reserved following an interim injunction granted on the balance of convenience.

The starting point is that, absent special circumstances, costs will normally be reserved, as at that stage, there is no winner or loser, and the purpose of an interlocutory injunction is normally to hold the ring until trial.

That rule was established in Desquenne et Giral UK Ltd v Richardson and in Picnic at Ascot Inc v Derigs, and confirmed by the Court of Appeal in Digby v Melford Capital Partners (Holdings) LLP and others, considered below.

Digby v Melford Capital Partners (Holdings) LLP and others

In this case, the Court of Appeal, allowing an appeal, held that the costs of an application for an interim injunction restraining use of confidential information, delivery up of a laptop and related relief should be reserved to trial. The judgment reiterates that, in the absence of special circumstances, costs will normally be reserved in interim injunction cases.

The appellant submitted that the judge below had made errors of judgment in his approach to costs, including that he had proceeded on the basis that the appellant had been seeking an order for costs in the case, rather than costs reserved, and had failed to follow binding authority in Desquenne. The Court of Appeal noted that this was a case involving complex issues which were, as the judge below had accepted, “incapable of even prima facie evaluation to any satisfactory extent, in interim proceedings”. Approving the commentary at paragraph 44.6.1 of the White Book 2020, it held that the judge below had fallen into error.

Desquenne is a Court of Appeal authority on the normal approach regarding costs of an application for an interim injunction that turns on the balance of convenience. In such cases, costs are usually reserved. Although special factors may call for an order for immediate payment or part-payment of costs, the judge had not identified any such factors. In such cases, “the quest for the successful and unsuccessful party … is usually fruitless”.

In the present case, the Court of Appeal held that the judge had failed to have proper regard to Desquenne as authoritative in a case where he expressly decided that he could not resolve the underlying dispute. He had been wrong to try to identify a winner or loser in these interim proceedings and exercising its own discretion as to costs, it held that it was right to follow the normal rule in Desquenne and there were no special factors justifying a contrary decision. It was helpful for parties in such cases to know that costs were likely to be reserved. The issue of costs possibly exceeding £277,000 needed wider consideration than could have been given to it on the day, which also pointed in favour of reserving costs.

Rosler v Microcredit Ltd

In this judgment, the High Court departed from the rule in Desquenne, and ordered the unsuccessful respondent to a freezing order application to pay the applicant liquidator’s costs of the two-day hearing.

The court held that an exception could be made where an injunction Is not merely granted on the balance of convenience, but where there is a winner and a loser on issues which will not be revisited at the substantive hearing: see Koza Ltd and another v Koza Altin Isletmeleri AS, where the Court of Appeal said that there was no general rule applicable in all cases, and no invariable practice (see for example, Albon (t/a NA Carriage Co) v Naza Motor Trading Sdn Bhd).

In Koza, the Court of Appeal ordered £150,000 to be paid on account, and also held that detailed assessment should only take place after the conclusion of the substantive proceedings.

14. The appellants argue that there is no basis for departing from the general rule articulated in CPR 47.1 that detailed assessment is to take place after conclusion of the proceedings; and that the principles behind that general rule apply in this case, namely avoiding time and cost being spent whilst the proceedings are progressing, avoiding multiple detailed assessments, and having an assessment which can take account of set-offs of different costs orders. I agree. The only justification for immediate assessment would be if there were an imperative for an immediate payment of the excess (if any) over the payment on account of costs. There is no such imperative in this case.

In the present case, the High Court held that the respondent’s resistance to the freezing order was unusual as it focused on the liquidator’s alleged failure to provide full and frank disclosure at the first hearing, which was dealt with by undertakings.

The court considered these to be discrete issues which would not be determined on the final disposal of the application when it came to trial. However, the usual rule that costs be reserved did apply to the drafting of the application, the evidence in support, and the first hearing. As Microcredit’s grounds for resisting a freezing order the hearing before the judge were unjustified, it was right that they should pay the liquidators costs of the hearing, with the balance of costs reserved to the substantive hearing.

Thus, the decision is similar to that in Darnitsa v Metabay Import/Export Limited, where the Commercial Court, distinguishing Bravo and Others v Amerisur Resources plc (which held that in freezing injunctions a costs order should be made on the return date), introduced the concept of a severed order.

Darnitsa v Metabay Import/Export Limited

Here, a worldwide freezing injunction was granted under section 25 of the Civil Jurisdiction and Judgments Act 1982, and at the return date, the court continued the order.

The court recognized that the starting point under the CPR was that where issues had been resolved, a costs order should be made, and in Bravo, the court held that the principle applied in contested freezing order applications, so that costs should not be reserved until trial.

Freezing injunctions were distinguished from the usual interim injunction and balance of convenience cases, where the court makes assumptions on the facts and may take a different view after hearing full evidence. The court distinguished Bravo, where there had been no ex parte hearing, and severed off the costs specifically attributable to appearing at the ex parte hearing, recognizing that the preparation and evidence was subsequently used for the inter-partes hearing.

The costs of the ex parte hearing were reserved, with the balance to be assessed and paid by the defendant and the court ordered the costs to be assessed on the indemnity basis from two days after the claimant’s solicitors had made a without prejudice save as to costs offer in relation to the inter-partes hearing.

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