England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mrs Justice Ebsworth)

		Royal Courts of Justice Strand London WC2 Thursday 21st June, 2001

1. LADY JUSTICE HALE: I shall ask Lord Justice Jonathan Parker to give the first judgment.
2. LORD JUSTICE JONATHAN PARKER: This is an appeal by the claimants in the action (other than the first claimant, which has been struck off the Register of Companies in Ireland) against an order made by Ebsworth J on 30 November 2000 dismissing their application that an inquiry directed by Aikens J as to what (if any) loss had been suffered by the defendants in the action as a result of freezing orders granted against the defendants at an interlocutory stage in the action be struck out or dismissed. The defendants are the respondents to the appeal.
3. The appellants appear on this appeal by Mr Nigel Burroughs; the respondents by Mr John McLinden.
4. In the action, the appellants seek relief against the respondents or one or more of them on various grounds including fraudulent misrepresentation, conspiracy and deceit; and they also claim restitutionary remedies. It is not necessary for the purposes of this appeal to set out the details of the various heads of claim pleaded in the action.
5. The writ in the action was issued on 22 February 2000, and on the same day the appellants applied without notice for a freezing order against the respondents. Butterfield J acceded to that application and made a freezing order over a return date.
6. It appears that at about the same time, if not on the same day, proceedings were commenced by the respondents against the appellants in the Isle of Man, and freezing orders were obtained by the respondents against the appellants in those proceedings. It appears that little progress has, however, been made in those proceedings so far.
7. The freezing order granted by Butterfield J in this action contained an undertaking by the appellants in the following terms (so far as material):

"If the Court later finds that this Order has caused loss to the respondents and decides that the respondents should be compensated for that loss, the appellants will comply with any Order the Court may make ..."

8. On 29 February 2000, on the application of the appellants, the freezing orders were continued by Rougier J over an extended return date. The appellants subsequently applied for a further continuation of the freezing orders. That application, which was opposed by the respondents, came before His Honour Judge Richard Walker, sitting as a judge of the High Court, on 8 March 2000. By his order of that date, the judge continued the freezing orders by consent, subject to a variation. He also ordered the respondents to pay the appellants' costs of the hearing before Rougier J (which he summarily assessed at £2,000 plus VAT) and of the hearing before him (which he summarily assessed at £15,000 plus VAT). Those costs orders were not of course made by consent. The judge also reserved the remainder of the costs (which included the costs of the ex parte application to Butterfield J) to the trial judge. The respondents sought permission to appeal from those costs orders, but the judge refused such permission on 10 March.
9. On 11 April 2000 the respondents applied to strike out the claim (or part of it) under rule 3.4(2) of the Civil Procedure Rules and for the discharge of the freezing orders. The appellants countered with an application to strike out the respondents' application - a tactic the purpose of which I must confess escapes me. By order dated 18 May 2000 His Honour Judge Richard walker, sitting (once again) as a judge of the High Court, granted the appellants' application, struck out the respondents' application, and ordered the respondents to pay the appellants' costs of the hearing (which he summarily assessed at £17,000). By an order made by Burton J on 7 June 2000 the terms of the freezing orders were further varied by giving the orders worldwide effect. On 16th June 2000 the orders were continued by consent until further order.
10. The appellants subsequently applied for permission to discontinue the proceedings, pursuant to rule 38.2(2) of the Civil Procedure Rules, on the ground that due to the impecuniosity of the respondents there was no commercial purpose in proceeding with the action. By an order made by Aikens J on 30 August 2000 permission to discontinue was given, on terms that the freezing orders were discharged and that there should be an inquiry "as to what if any loss has been suffered by the Defendants as a result of the said freezing orders". Paragraph 1(b) of the order contained directions for the filing of evidence on the inquiry (the respondents' evidence to be filed first) and a direction that there should be a case management conference as soon as practicable after the evidence was complete. Paragraph 1(c) of the order imposed the further term that the appellants pay the costs of the action. That would of course include the costs reserved by Judge Walker (which in turn would include the costs of the ex parte application for the freezing orders on 22 February 2000).
11. The respondents duly filed their evidence within the time prescribed by Aikens J's order. Their evidence consisted of a witness statement by the first respondent, Mr Robert Macdonald, dated 27 September 2000. Mr Macdonald's witness statement itemises the various losses claimed by the respondents on the inquiry as being (a) their costs of their unsuccessful opposition to the making of the orders by Judge Walker dated 8 March 2000 and 18 May 2000 respectively (including the appellants' costs which the judge ordered them to pay), and (b) time and travelling costs attributable to "issues arising as a result of the freezing orders". The witness statement does not claim any losses consequent upon or caused by the existence of the restrictions imposed by the freezing orders on the respondents' ability to deal with their assets.
12. In a section of the witness statement headed "Causation", Mr Macdonald sets out the procedural history in relation to the making and continuing of the freezing orders (as I have summarised it in this judgment) and he continues (in paragraphs 6 and 7):

"The Defendants contend that the evidence which was served by the Claimants in an attempt to sustain the freezing orders on 8 March was misleading and untrue. That was the effect of the submissions made by Mr McLinden to the court on that occasion. ... As a result of the misleading and untrue evidence referred to, the Defendants were unable to pursue their application to set the freezing order aside, and were ordered to pay the Claimants' costs of £15,000 and received none of their costs of the hearing."

13. In paragraph 8 of his witness statement Mr Macdonald says this:

"On 18 May 2000 the Defendants made a further attempt to strike out the Claimants' case and to discharge the freezing orders, but that too was unsuccessful. The claimants being able to rely upon the misleading and untrue evidence that had been filed and served by them."

14. Mr Macdonald goes on to say (in paragraph 9 of his witness statement) that the respondents do not accept that the claimants' alleged reason for discontinuing the action (ie the impecuniosity of the respondents) is a true reason. He continues:

"The Defendants contend that (a) on their own evidence the Claimants knew from the outset of the proceedings of the financial position of the Defendants, and in any event certainly became aware of the financial position of the Defendants once the Defendants had provided statements of their assets pursuant to the terms of the freezing orders, on or about 10 March 2000; (b) the Claimants' case collapsed because they were unable to exchange evidence which supported their case; (c) the Claimants had failed to comply with the terms of orders relating to [a certain category of documents] which were at the heart of the case."

15. In paragraph 10 of his witness statement, Mr Macdonald says this:

"Unless the Defendants are permitted to recover their costs (including the amounts paid to the Claimants), a serious injustice will have been done. The Claimants will not only have been able to obtain and uphold the freezing orders, but also will have been able to obtain costs for themselves and deprive the Defendants of costs on an improper basis (I emphasise those words). The Defendants contend that (a) the costs would never have been incurred had the Claimants not obtained freezing orders (which they subsequently abandoned); alternatively (b) if the court had known the claimants would not maintain the freezing orders until trial, the relevant orders on 8 March and 18 May 2000 would not have been made; alternatively (c) the court would not have made the orders on 8 March and 18 May had it known that the Claimants' evidence was misleading and/or untrue."

16. A further witness statement was subsequently filed by Mr Macdonald dated 24 November 2000. This further witness statement provides further detail as to the various items of loss referred to in the first witness statement. I need not, I think, make further reference to this second witness statement.
17. By notice dated 26 October 2000 the appellants applied for an order dismissing or striking out the inquiry directed by Aikens J on the ground that Mr MacDonald's first witness statement does not disclose any loss caused to any defendant by the making of the freezing orders, and hence no loss within the terms of the inquiry. The application came before Ebsworth J on 30 November 2000 when she dismissed it. She also refused permission to appeal. The appellants now appeal that order, with permission granted by the Dyson LJ on 28 January 2001.
18. On 6 February 2001 the respondents served a Respondent's Notice, to which I shall return in due course.
19. I turn at this point to the judgment of Ebsworth J. After setting out the procedural history and after referring to Mr MacDonald's first witness statement (noting that, as she put it, "there is no application in respect of what one might call direct loss flowing from the freezing of the assets of any of the defendants") and to the appellants' application, the judge said this:

"When the matter came before me I raised immediately with Mr Burroughs the question of whether or not this application was, in all the circumstances, appropriate, and also whether or not it placed the defendants in difficulties of a kind which would make it unjust to order the matter to proceed by a somewhat broad brush approach of my undoubted powers under the rules.

There is no doubt that Aikens J considered, in the exercise of his discretion, whether or not he should order an inquiry as to whether any loss had been suffered by the defendants as a result of the freezing orders which fell with the discontinuance of the litigation. I am told, and of course I accept, that there was little debate about whether or not there should be an inquiry. The debate essentially had been confined to whether or not Aikens J should require as a condition of discontinuance an admission by the applicants that there was no basis in the allegations of fraud and deceit which were being made. The fact remains, however, that Aikens J made an order which was specific and which was followed by directions and which was not appealed.

What the claimants now seek to do, and this is why I raised it with Mr Burroughs at the outset, is circumvent the order for the inquiry by hearing as a preliminary point the question of whether or not, as a matter of law, the damages which are claimed are recoverable. Mr Burroughs argues, and argues with force, that it is simply a waste of time to serve the documents for an inquiry if, at the end of the day, the inquiry must fail as a matter of pure law.

I do accept that assertion of Mr Burroughs. If Mr Burroughs considered that an inquiry was an inappropriate and excessively expense remedy in the circumstances, his course on due consideration was to apply for leave to appeal against the order of Aikens J, if necessary seeking an extension of time, or, in the alternative, to have put in his evidence as suggested by Aikens J, but raising in that witness statement the question of a preliminary point, which could then, if the judge or master thought appropriate, at the case management conference be ordered to be dealt with as a preliminary point."

20. The judge went on to say that it was oversimplifying the matter to say that the court could determine as a pure matter of law on the material then available and the authorities whether costs and compensation were recoverable. She continued:

"Having myself read the authorities, not only the ones which were put before me today, I think that may be a slightly optimistic approach to the clarity of the law. I think it may under estimate the extent to which a judge considering an inquiry into damages is entitled to be concerned with the merits, in the broadest sense, of the action, certainly in the sense of what actually caused these costs which are claimed to be incurred. I think that an inquiry is the proper means of determining that matter, not the narrow material upon which the court is presently being asked to deal with it."

21. The judge stated her conclusions in the following passage:

"I have concluded that the application which was taken out by the claimants to strike out the inquiry is inappropriate. Firstly, as I have indicated, because I think an application to strike out an order of a High Court judge made with due deliberation and consideration of his discretion is inappropriate. The proper mechanism is an appeal. Secondly, because I am not satisfied that it is as simple a matter as Mr Burroughs seeks to maintain.

The second limb of his draft order in support of the application is that the inquiry be dismissed. The inquiry, of course, can only be dismissed after it has been heard and determined. Mr McLinden says, and he is entitled to say, that he would be embarrassed by proceeding with the inquiry on the present state of the evidence. His position, I suppose, might be otherwise if Mr Burroughs were to say, well, I am not going to put in any evidence, but he does not say that and he ought not to be put into the position of having to say that, notwithstanding the fact that the application is his application.

The second matter that is put before me is that if, in the alternative, the inquiry proceeds the time for filing witness statements by the claimants should be extended for 21 days from today. That has to be dealt with realistically.

I have decided that the application to strike out the order of Aikens J for an inquiry is misguided and that the application for dismissal of the inquiry is premature prior to the directions which he ordered."

22. Mr Burroughs' first submission is that the effect of the judge's judgment is that there can never be circumstances in which an inquiry as to damages following the discharge of an interlocutory order can be summarily dismissed or struck out, notwithstanding that the evidence relied on by the party seeking to recover damages in the inquiry does not establish any loss caused by the order, and accordingly recoverable under the inquiry. He submits that that simply cannot be right. He acknowledges that there is no specific provision in the Civil Procedure Rules which deals with inquiries of this sort, but he points to the overriding objective, and to the court's general case management power in rule 3.1(2)(m) of the Civil Procedure Rules, to

"... take any step or make any order for the purpose of managing the case and furthering the overriding objective."

23. Mr Burroughs further submits that the court has an inherent power to prevent an abuse of its procedures (a power which is recognised in rule 3.1(1) of the Civil Procedure Rules), and that it would be a clear abuse of process for an inquiry to proceed in circumstances where its further prosecution would achieve no useful purpose but would merely involve a waste of the court's resources. He accordingly submits that the court has the power to halt an inquiry as to damages where it can be seen that the prosecution of the inquiry would achieve no useful purpose.
24. In the event there is no issue on this appeal as to the existence of that power, since (as I shall record in a moment) Mr McLinden accepts that such a power must exist.
25. Mr Burroughs goes on to submit that the power in question should have been exercised in this case. He submits that the judge was wrong in suggesting that the appropriate course for the appellants would or might have been to appeal Aikens J's order. He accepts that at the time he made his order Aikens J was fully entitled to direct an inquiry (indeed, Mr Burroughs did not oppose it) since it would not have been appropriate to embark at that stage on the issue of damages pursuant to the undertaking, and that it was only when the respondents' evidence was served (in the form of the witness statement from Mr Macdonald from which I quoted earlier) that it became apparent that the respondents had not suffered any losses as a result of the freezing orders and that accordingly they would inevitably fail to recover anything on the inquiry. As to the respondents' allegation that the freezing orders were improperly obtained, Mr Burroughs accepts that for the purposes of his application that allegation must be treated as true, but he contends that even on that basis the respondents cannot recover their legal costs by way of damages under the inquiry ordered by Aikens J.
26. Mr Burroughs accepts that where an interlocutory order has been obtained fraudulently or otherwise improperly, the party against whom it was granted may be able to recover his costs of opposing the grant of the order (including costs which he has been ordered to pay) by means of a fresh action, but Mr Burroughs submits that that is essentially a different process from the inquiry directed by Aikens J and that the two processes should not be confused or amalgamated.
27. Further, he submits that it is sufficiently clear from the authorities that even in a case where (as has to be assumed in the instant case) the interlocutory order was fraudulently or otherwise improperly obtained, the costs claimed by the respondents are irrecoverable on an inquiry as to damages.
28. He referred to us a number of authorities in support of this submission, including Hoffmann La Roche v Secretary of State for Trade and Industry [1975] AC 295, where Lord Diplock said (at page 361D):

"The court has no power to compel an applicant for an interim injunction to furnish an undertaking as to damages. All it can do is to refuse the application if he declines to do so. The undertaking is not given to the defendant but to the court itself. Non-performance of it is contempt of court, not breach of contract, and attracts the remedies available for contempts, but the court exacts the undertaking for the defendant's benefit. It retains a discretion not to enforce the undertaking if it considers that the conduct of the defendant in relation to the obtaining or continuing of the injunction or the enforcement of the undertaking makes it inequitable to do so, but if the undertaking is enforced the measure of the damages payable under it is not discretionary. It is assessed on an inquiry into damages at which principles to be applied are fixed and clear. The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction... The procedure on motions is unsuited to inquiries into disputed facts. This is best left to the trial of the action, and if the plaintiff then succeeds in establishing his claim he suffers no harm from having given the undertaking, while if he fails to do so the defendant is compensated for any loss which he may have suffered by being temporarily prevented from doing that which he was legally entitled to do."

29. Mr Burroughs also cited a number of other authorities, including Smith v Day (1882) 21 Ch D 421, Harrison v McSheenan [1885] WN 207, Schlesinger v Bedford (1893) 9 TLR 370 and Air Express v Ansett Transport Industries Ltd (1979) 146 CLR 249.
30. In summary, Mr Burroughs submits that Ebsworth J should have concluded that this was a sufficiently clear case to justify striking out or dismissing the inquiry on the footing that all the losses claimed by the respondents are irrecoverable in law as being damages covered by the undertaking in the freezing orders.
31. As I indicated earlier, Mr McLinden accepts that the court has the necessary power in appropriate cases to bring an inquiry such as this to a premature halt. However, by a Respondent's Notice the respondents seek to uphold the judge's decision on various other grounds urged upon her by Mr McLinden, which are not expressly addressed in the judgment and which (in the light of her conclusion that she had no power to accede to the application before her) it was not strictly necessary for her to address.
32. Mr McLinden stresses (in his helpful written skeleton) that the high-water mark of the respondents' case is that the freezing orders were obtained by fraud (although he does not accept that the respondents will necessarily have to go so far as to establish fraud in making out a good case for the recovery of the losses which they claim). That being so, and as Mr Burroughs has acknowledged, it has to be accepted for the purposes of the application before Ebsworth J that the freezing orders were in fact obtained by fraud. Accordingly, submits Mr McLinden, to succeed in their application the appellants have to establish that as a matter of law the inquiry had no equitable jurisdiction to compensate the respondents for costs orders which had been obtained by fraud. He reminds us of the well-known adage that "fraud unravels all". He submits that in principle if a claimant has wrongly or falsely procured and/or continued a freezing order against a defendant, it is inequitable for the claimant to retain the benefit of any costs orders resulting from interlocutory hearings relating to the freezing order and/or for the defendant to be unable to recover its own legal costs incurred as a result of the claimant's conduct in procuring and/or maintaining the freezing order. He further submits that as a matter of law such losses are recoverable on the inquiry ordered by Aikens J, and he cites a number of authorities which he contends support that proposition.
33. Mr McLinden submits that it is wrong to characterise the respondents' claim for costs, made by Mr Macdonald in his witness statement, as being in substance an appeal against the costs orders made by Judge Richard Walker. He further submits that it is premature for the appellants to invite the court to address the issues raised by Mr MacDonald's witness statement on a strike out application. He submits that the relevant facts are not as yet ascertained.
34. In my judgment, if and in so far as Ebsworth J concluded that the court has no power to bring an inquiry as to damages to a summary conclusion where it becomes apparent that the further prosecution of the inquiry will serve no useful purpose, I would respectfully disagree with her. I accept Mr Burroughs submission (with which Mr McLinden does not quarrel) that the court's case management powers under the Civil Procedure Rules are amply sufficient for this purpose. In any event, as Mr Burroughs correctly submits, the court has an inherent jurisdiction to control the enforcement of undertakings which have been given to it.
35. On that footing therefore, I turn to the next and main question on this appeal, which is whether in all the circumstances the power to bring the inquiry to a summary conclusion should be exercised in the instant case.
36. In the first place, it seems to me to be very far from clear, on the authorities cited to us, that a party against whom an interlocutory order has been improperly obtained – as contrasted with a case where the claimant has merely failed at trial – cannot recover his costs of opposing the order (including costs which he has been ordered to pay) by way of damages on an inquiry of the kind directed in the instant case. None of the authorities cited to us address that question directly. As I read them, the closest one gets is the Canadian case of Israel Discount Bank of Canada v Genova (1992) 13 CPC (3d) 112, which seems to indicate that in certain circumstances such costs may indeed be recoverable.
37. All the arguments on that issue will be available to be taken and pressed at the inquiry which has been directed, and what is more they can be addressed against the background of the inquiry's factual findings. As matters stand, of course, there are no findings in relation to the respondents' allegations of fraud and impropriety. That is, needless to say, a hotly disputed factual issue which remains to be resolved.
38. In my judgment, therefore, this is not a case in which it would be appropriate to strike out or dismiss the inquiry, or otherwise bring it to a summary halt.
39. Moreover, the court hearing the inquiry would, as Mr Burroughs has rightly accepted, be fully capable of hearing and determining the issues arising from the respondents' allegations of fraud and impropriety, and it seems to me that as a matter of procedure there is in any event everything to be said for those issues being determined on the inquiry which has already been directed, rather than by in effect requiring the respondents to commence a new action for that purpose.
40. For those reasons, therefore, I would dismiss this appeal. I do so upon the footing that all the issues relating to the respondents' allegations of fraud and impropriety are available to be raised and determined at the inquiry which Aikens J directed.
41. LADY JUSTICE HALE: I agree.
ORDER: Appeal dismissed with costs agreed in the sum of £8,500; permission to appeal to the House of Lords refused. (Order not part of approved judgment)