Summary

Since there was a clear and principled distinction between freezing injunctions made in respect of proprietary and non-proprietary claims, there was no justification for creating a sub-category of quasi-proprietary claims in considering the scope of exceptions which should be made for the payment of legal costs.

Facts

The applicant (B) applied to vary the terms of a freezing injunction which had been imposed in favour of the respondent Revenue.

B's brother (U) had claimed to be the beneficiary of a trust but it was alleged that the assets of the trust were the proceeds of fraud and had been provided by a company controlled by U. The Revenue made various claims against U and a freezing injunction was imposed on the trust assets. Following U's death, B was joined as a defendant, to represent his estate in the action. It had been made clear that she could conduct the defence only if she was funded by the trust. The freezing order had been made at a time when the Revenue was making proprietary claims as well as personal ones. As varied, it imposed various restrictions on B's entitlement to use the frozen assets to pay her legal costs and expenses. By the time of the instant application, however, the Revenue had abandoned its proprietary claims and it was accepted that the order should be varied.

B argued that she should not be prohibited from spending the frozen assets on costs provided that she informed the Revenue where the money was to come from and her solicitors certified that any costs and expenses had been reasonably and properly incurred. The Revenue argued that the circumstances justified a departure from the standard form of order and proposed that there should be a cap of £2,500,000 and that it should be given seven clear days' notice of any proposed payment and provided with copies of invoices and fee notes.

Held

(1) The courts had created a clear distinction between freezing injunctions in support of proprietary and non-proprietary claims, and the Revenue had no proprietary interest in the frozen assets. There was no proper basis for a further sub-category of "quasi-proprietary" claims. If such a principle existed, there would be no reason why it would be confined to the proceeds of crime since there might be many cases where the funds available to the defendant resulted from the unlawful act in respect of which the claimant was suing. There was also a concern that a claimant should not be able to deprive a defendant of the ability to defend himself through the use of his own funds, Sundt Wrigley & Co Ltd v Wrigley applied. Control by the claimant or the court of a defendant's expenditure on his defence would interfere with his right of defence and his confidential relationship with his legal advisers. There were also practical considerations: by creating a freezing order, the court provided a very large measure of protection to claimants but, save in exceptional circumstances, the court could not assume the continuing burden of detailed and contentious costs applications. There had to be a consistent, standard approach to the exception for legal costs. That was set out in the standard form order and any deviation from that standard to provide a claimant with additional protection required justification by reference to special circumstances which were not generally present in these cases (see paras 34-35, 47-48, 50, 53-55, 59 of judgment). (2) The injunction would be amended to allow B to spend money on costs provided that she informed the Revenue where the money was to come from and her solicitors certified that any costs and expenses had been reasonably and properly incurred. It was not appropriate to impose a cap. However, the circumstances of the case justified the modest check of requiring B's solicitors to inform the Revenue if and when they estimated that their costs of the action were likely to exceed £2.5 million. B did not object to giving the Revenue's solicitors seven clear days' notice of any proposed payment of her costs. She would not be required to provide copies of invoices and fee notes to which those costs related since fee notes and invoices might disclose privileged information, Anglo Eastern Trust Ltd v Kermanshahchi (No.1) [2002] EWHC 3152 (Ch) and Anglo Eastern Trust Ltd v Kermanshahchi (Costs) (No.3) [2002] EWHC 2938 (Ch) applied (paras 60-61).

Application granted