In a landmark decision, in which Tom Morris acted for the successful applicant, Mr Justice Marcus Smith in Santina Limited v Rare Art (London) Ltd [2023] EWHC 807 (Ch) continued a freezing injunction obtained ex parte. He held that the jurisdiction under section 37 of the Senior Courts Act 1981 is wide enough to grant a freezing injunction in respect of a prospective costs order where it is just and convenient to do so. The decision is an important clarification of the extent of the court’s jurisdiction to make freezing orders in respect of costs. It had previously been thought that a freezing injunction could not be made in support of a prospective costs order where there was no underlying cause of action for money: Gee on Commercial Injunctions (7th Ed.) at 12-002 and Cooke v Venulum Property Investments Ltd [2013] EWHC 4288 (Ch). Mr Justice Marcus Smith accepted that that authority was persuasive only and that the reasoning did not apply to the underlying facts of this application.
In the same decision, Mr Justice Marcus Smith dismissed the claimant’s appeal against the order of Deputy Master Glover ordering that the claimant put up security for costs in the sum of £130,000. In a separate hearing, Tom Morris also acted for the successful respondent to that appeal.
In the underlying litigation, the claimant sued the defendant for the rescission of a contract made in 2013 for the sale of two soup tureens for £181,500. Almost a decade later, the claimant sued the defendant in misrepresentation (including fraudulent misrepresentation). The defendant denied making the representations and defended the claim in its entirety. After close of pleadings, the claimant applied for an expedited trial and the defendant applied for security for costs. That application was granted by Deputy Master Glover in October 2022. The claimant did not pay the security and, instead, applied for permission to appeal. The defendant in the meantime applied under the Deputy Master’s order for the claim to be struck out and for an order for its costs of the action. That application was stayed pending the determination of the claimant’s appeal.
The defendant subsequently became suspicious that the claimant was taking steps to dissipate its assets by removing the tureens from the jurisdiction. It applied ex parte and without notice for a freezing order. Mr Justice Edwin Johnson granted a worldwide freezing order, which froze the claimant’s assets up to the value of £200,000 to cover the defendant’s unpaid costs of its application for security for costs and its costs of the action. The order specifically froze the tureens. At the return hearing before Mr Justice Marcus Smith, the claimant argued that the freezing injunction should be discharged for two reasons: alleged breaches of the duty of full and frank disclosure, and an absence of jurisdiction where there is no underlying cause of action for money.
In a reserved judgment handed down today, Mr Justice Marcus Smith rejected all the claimant’s allegations of breaches of the duty of full and frank disclosure. He then turned to the issue of jurisdiction, which is the most significant part of the judgment. The claimant had relied heavily on the decision of Mr Justice Morgan in Cooke v Venulum Property Investments, who held that the court did not have the jurisdiction to make a freezing order to secure rights which might or might not be acquired under a prospective order for costs. Mr Justice Marcus Smith accepted that the decision was not binding on him. He observed that the subject of an adverse costs order – even a contingent one – cannot be allowed to thwart an order of the court by putting beyond reach assets that might be used to satisfy that order. Critically, he accepted the submission that an unsatisfied security for costs order is the equivalent of a cause of action which may – or may not – convert into a money judgment.
The decision will be of considerable wider interest, especially to defendants who succeed on applications for security for costs against claimants who have no intention of putting up security and instead attempt to dispose of their assets so as to avoid the costs consequences. The decision on the claimant’s appeal against the order for security costs will also be of general interest, since it clarifies the principles which judges should apply where an application is defended on the basis of delay. Although Mr Justice Marcus Smith held that there is no general rule that applications for security should be made as soon as possible, defendants who do not apply promptly run the risk of reductions in the amount of security ordered. It is also noteworthy that Mr Justice Marcus Smith upheld the Deputy Master’s decision to quantify security on the basis of costs being assessed on the indemnity basis, given the allegations of fraud.
The judgment may be accessed here.
Tom Morris, instructed by Jonathan Warren and Elizabeth Russell of Teacher Stern LLP, acted for the successful applicant for the freezing injunction and for the successful respondent to the appeal.