High Court distinguishes between ex and inter partes hearings in its approach to the costs of a worldwide freezing order

• United Kingdom

• Financial services disputes and investigations
• Litigation and dispute management - Freezing Orders

02-08-2021

Darnitsa v Metabay Import/Export Ltd [2021] EWHC 1471 (Comm)

Facts of the Case

• Metabay Import/ Export Ltd (the “Defendant”) applied to discharge a worldwide freezing order (“WFO”) obtained by Darnitsa, a Ukrainian company (the “Claimant”), on an ex parte basis in support of substantive proceedings in the Ukraine.
• Sir Michael Burton GBE, sitting as a High Court Judge, dismissed the application, ruling that:
  • the Claimant had established (i) a good arguable case, based on the cause of action in the Ukrainian proceedings and (ii) a risk of dissipation; and
  • there had been no failure to give full and frank disclosure.
• It therefore fell to the court to consider the question of costs. The Defendant argued that these should be reserved. The Claimant, on the other hand, sought their immediate determination and on the indemnity basis, further to a without prejudice save as to costs offer which it had made in relation to the inter partes hearing and to which the Defendant had failed to respond.

The Decision

• The Judge was referred to the case of Bravo v Amerisur Resources PLC [2020] Costs LR 1329 in which Spencer J decided that, the general presumption under the CPR that costs orders should be made where issues have been disputed and resolved, applied in the case of a contested application for a freezing order (see our briefing on the case, here).
• The Judge was not persuaded that because the WFO in this instance was in support of substantive proceedings abroad, the position was any different. However, because there had been no prior ex parte hearing in Bravo, the Judge considered the proper course was to sever off the ex parte application and the costs specifically attributed to appearance at that hearing, while taking into account that all of the preparation and evidence used at that ex parte hearing was used for the inter partes hearing.
• Accordingly, the Judge ordered that costs limited to appearance at the ex parte hearing be reserved, and the balance of costs, including the inter partes hearing, be assessed and paid by the Defendant.
• As regards the application for indemnity costs, the Judge found the without prejudice offer to have been “entirely reasonable and sensible”. On the basis that such offers were to be encouraged, and that there should be some penalty for refusing or ignoring them, the Judge therefore ordered indemnity costs from a point shortly after the offer was made, so as to have allowed time for the offer to have been properly considered.

Analysis & Practical Advice

• The decision highlights again the different approach to costs as between freezing orders and other interim injunctions, which is borne of the different underlying tests, respectively a “good arguable case” and the “balance of convenience”.
• For freezing orders, even if the claim ultimately fails at trial, it does not therefore follow that the court was wrong to have found that there was a good arguable case at the interlocutory stage. From a cost perspective, this means the judge at trial is unlikely to be in a better position than the one at the return hearing to determine the issue.
• By contrast, where an interim injunction is granted on the balance of convenience, the basis on which the injunction was obtained and continued may in the end prove to have been unfounded. However, even in such cases, it should be remembered that the court’s hands are not tied and, if there are special factors present, an order for costs may be made and those costs summarily assessed, e.g. where the balance of convenience is so clear that the outcome of the hearing should have been plain to the parties.
• Finally, the case is a further reminder (if one is needed) of the cost risk of not at least engaging when offers are made.

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