Summary

A liquidator was liable under an undertaking he had given to pay the costs on the standard basis occasioned to a company through the grant of a freezing order against it, which was subsequently discharged.

Facts

The applicant company (F) applied for its costs on an indemnity basis, against the respondent liquidator (S), occasioned by litigation commenced by a company in liquidation. The company in liquidation had obtained a without-notice freezing order against F but the order was subsequently discharged on the basis that, amongst other things, there had been improper disclosure of the material facts at the time that the freezing order was granted. The freezing order was granted subject to S, as a provisional liquidator of the company in liquidation, giving a personal undertaking to the effect that he would be liable for any loss to F if the court found that the order had occasioned such loss and that F should be compensated for that loss. F contended that it was entitled to the costs that it occurred in relation to the freezing order, on an indemnity basis (1) as damages recoverable under the undertaking; (2) under the Supreme Court Act 1981 s.51. S contended that the reference to loss in the undertaking did not include the costs that F had incurred in relation to the freezing order and its discharge.

Held

(1) F was entitled to recover its costs, on the standard basis, occasioned by the freezing order against S and those costs were to be quantified in the same way as costs which were recoverable as damages. It was unnecessary in order to dispose of the instant matter to determine whether a strict contractual approach applied to undertakings given by third party such as S, Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry (1975) 1 AC 295, R v Medicines Control Agency Ex p Smith & Nephew Pharmaceuticals Ltd (1999) RPC 705 considered. Moreover there was nothing in the authorities which lead to the conclusion that the undertaking had to be enforced as widely as possible or not at all. The starting point for determining liability was the true construction of the undertaking in question. That was to be judged against the background and purpose of the undertaking which had been required by the court to be given in order to ensure that a mechanism was available to make good any detriment suffered by F through the grant of the freezing order if it was subsequently established that there should not have been an injunction. In the instant case F had incurred costs in relation to the injunction proceedings as a result of the freezing order being obtained in the absence of proper disclosure of material facts. The fact that S was innocent of any personal conscious failure was insufficient to absolve him from liability when such absolution would produce precisely the injustice which the undertaking was designed to guard against. Accordingly, F was entitled to recover its costs occasioned by the order as recoverable damages on the standard basis, Redbus LMDS Ltd v Jeffrey Green & Russell (A Firm) (2006) EWHC 2938, (2007) PNLR 12 and Dadourian Group International Inc v Simms (2007) EWHC 454 (Ch) applied. (2) In the circumstances of the instant case it was inappropriate to make an order against S pursuant to s.51 of the 1981 Act. Central to F's application under s.51 of the 1981 Act was the failure by the company in liquidation to make full disclosure which of itself was enough to lead to the discharge of the freezing order. Material non-disclosure leading to the discharge of a freezing order was capable of being regarded as something outside the ordinary run of litigation and thus outside the norm so as to result in a third-party costs order but in the instant case the non-disclosure was not ascribable to S's actions and it was not in the interests of justice to make an order for costs against S under s.51 of the 1981 Act.

Application granted