UK: Injunction Developments

This House of Lords decision related to the issue of the costs payable by Mr Fourie, the liquidator of two South African companies, in relation to a freezing injunction granted by Mr Justice Park in the English High Court in his favour.

Mr Fourie had applied for a freezing injunction against Mr Le Roux and various other parties after forming the view that Mr Le Roux, who had been in control of the companies over which Mr Fourie was appointed, had fraudulently stripped one of those companies of its assets and transferred some of the assets to England. The freezing injunction application was made without notice to Mr Le Roux or the other parties.

As regular readers will be aware, a freezing injunction is a relatively draconian but very effective legal measure by which a defendant’s assets are frozen, thus preventing the defendant from dissipating his assets with the intention of frustrating enforcement of a prospective court judgment. A freezing injunction is therefore a supplementary remedy, granted so that assets are protected and the subsequent court proceedings are effective.

It follows that a freezing injunction is not an end in itself – it is a remedy to be used where a claim has already been, or is about to be, started. It is therefore standard procedure, where a claim has not already been commenced, for an applicant for an injunction to undertake to issue and serve a claim as soon as practicable.

In this case, however, Mr Fourie gave no such undertaking, and indeed at the time of the application no substantive claim against Mr Le Roux or the other parties had been formulated. Mr Fourie did give the standard cross-undertaking in damages, however, and on this basis a freezing injunction was granted by the High Court on 23 July 2004.

By the end of September 2004 Mr Fourie had still not brought a claim, and Mr Le Roux applied to have the freezing injunction discharged. That application was successful, the injunction was discharged, and the court awarded Mr Le Roux costs on an indemnity (ie full) basis and made a declaration that Mr Fourie’s cross-undertaking in damages be immediately enforced (so that any financial loss suffered by Mr Le Roux caused by the injunction would be paid straight away by Mr Fourie).

Mr Fourie hurriedly commenced proceedings and, on the back of those proceedings, obtained a second freezing injunction and subsequently a third one. Nonetheless, Mr Fourie appealed against the discharge of the first injunction to the Court of Appeal, in order to reverse the court’s order for indemnity costs and immediate enforcement of the cross-undertaking in damages.

The Court of Appeal ruled that the High Court had not had jurisdiction to make the first freezing injunction, because of the lack of a substantive claim against Mr Le Roux or an undertaking by Mr Fourie that he would start one immediately.

On appeal the House of Lords held that the High Court had in fact had jurisdiction to grant an injunction, strictly speaking, in that the defendants were within the territorial jurisdiction of the court. However, the House of Lords ruled that on the facts the court had been wrong to make the injunction, so upheld the award of costs made against Mr Fourie.

Full indemnity costs are usually awarded only against a party who has acted in a particularly unreasonable way, and Lord Hope in the House of Lords was of the opinion that a lesser award of costs should be made in favour of Mr Le Roux. A majority of the Lords took the view, though, that costs awards are primarily the responsibility of first-instance judges, with the Court of Appeal available to correct obvious errors. Here the Court of Appeal had affirmed the indemnity costs award, so by majority the House of the Lords ruled that the award of indemnity costs should stand.

The Lords did, however, overrule the High Court’s direction that Mr Fourie’s crossundertaking in damages be enforced immediately. Such a direction was clearly inappropriate in circumstances where Mr Fourie had a reasonably arguable case against Mr Le Roux for a serious fraud. Any loss suffered by Mr Le Roux would only be compensated under the cross-undertaking if he was eventually found not to be liable for that fraud.

Freezing injunctions can be very useful tools for office-holders and creditors to use in litigation where there is a risk that misappropriated company assets will be dissipated. There are well-developed rules and standard procedures governing the granting of injunctions, however, and care should be taken to ensure that these are complied with. Unfortunately Mr Fourie got slightly ahead of himself by applying for and obtaining a freezing injunction before he had formulated a claim against his intended defendants, and he suffered a heavy costs consequence as a result.

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