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England and Wales High Court (Chancery Division) Decisions
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Revenue and Customs v Ducas Ltd & Ors [2025] EWHC 226 (Ch) (27 January 2025)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2025/226.html
Cite as:
[2025] WLR(D) 277,
[2025] EWHC 226 (Ch)
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[2025] WLR(D) 277]
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Neutral Citation Number: [2025] EWHC 226 (Ch) |
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Case No: BL-2024-001677 |
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
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7 Rolls Building Fetter Lane, London EC4A 1NL
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Date of Hearing: 27 January 2025 |
B e f o r e :
MR JUSTICE MARCUS SMITH
____________________
Between:
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THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS
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Applicants
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- and -
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(1) DUCAS LTD (2) ENIX SERVICES LTD (3) FL CAPITAL HOLDINGS LTD
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Respondents
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____________________
Digital Transcription by Marten Walsh Cherer Ltd
2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP
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____________________
MR ADAM TOLLEY KC and MS ANNA LINTNER (instructed by HMRC Solicitor's Office and Legal Services) for the Applicants
MR CHRISTOPHER STONE KC and MR DAVID BEDENHAM (instructed by Joseph Hage Aaronson LLP) for the Respondents
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HTML VERSION OF APPROVED JUDGMENT
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Crown Copyright ©
Start Time: 12.35 Finish Time: 13.13
Page Count: |
8 |
Word Count: |
4433 |
Number of Folios: |
62 |
MR JUSTICE MARCUS SMITH:
- I have before me various applications with regard to the payment or incidence of costs arising out of three hearings. The first hearing was an application made ex parte by HMRC, which came before Thompsell J on 29 November 2024. The application was for freezing orders against three parties, who I shall not specifically identify but will simply refer to as the "Respondents". Since the application was made ex parte, the Respondents did not find out about the orders made by Thompsell J until these were served on 4 December 2024. It bears noting at this stage that the freezing orders were substantial. They froze assets in the region of £170 million. The freezing order made by Thompsell J contained a bespoke paragraph as to dealings in the ordinary course of business that was compiled by Thompsell J and which was not in line with the order sought by HMRC on 29 November.
- The second hearing was the return date for the ex parte freezing injunction, which Thompsell J set as 12 December 2024, although he did make clear that that was a date that could be pushed out if appropriate, given the extensive and intrusive nature of the orders he had made. So 12 December was very much a movable feast which could and indeed should have been moved if, in the interests of fairness, a later date would have been appropriate for the determination of such matters as might arise on the return date.
- The third hearing is today's hearing before me (27 January 2025). This hearing is the adjourned return date from 12 December 2024. The return date of 12 December 2024 took place although it would wrong to describe it as an "effective" hearing. What happened is that the judge on this occasion, Ms Salimi sitting as a Deputy High Court Judge, considered that the orders of Thompsell J should be continued without material variation until they could properly be considered at a full return date at which both sides could deploy before the tribunal all the materials that they wanted to deploy so that any matters in issue could properly and fairly be resolved.
- In the end, no such matters, apart from costs, have emerged. The parties very helpfully and sensibly have agreed an order by consent, which I made after considering it last week. The effect of that consent order is to remove from this court's and this hearing's purview the matters of substance, and leaves over simply the question of the costs that should be paid in regard to the three hearings I have described.
- Before I proceed to the substance of the history, I should make a couple of points clear. The volume of material before me is massive, and I am not in this judgment going to go through the intricacies of what, unsurprisingly, is a complex history. That would be inappropriate in dealing with and determining questions of costs which should be dealt with in a light touch way in order to look at the general way in which the parties have conducted themselves in what is, as I have said, complex and difficult litigation.
- The second point that I am going to articulate is this. I have been provided with a clip of "without prejudice save as to costs" correspondence between the parties, which began early this year and concluded a few days before this hearing. The point that is made by the Respondents (who have deployed this material) is that their without prejudice proposal made on and after 9 January 2025 is substantially the outcome as reflected in the consent order agreed between the parties. Now, that may be right, that may be wrong. I do not think the correlation between the proposals made WP by the Respondents and the consent order made by me last week particularly matters. The point that matters is that the parties were in a position to agree a sensible order that removed the key matters for dispute on this return date, and they were able to do so before the hearing. That is something which ought to mean that an argument about costs does not trouble the tribunal or the court, and in particular does not involve the parties in incurring yet further costs in resolving questions about costs. I have been addressed over the course of half a day by two leading counsel. I want to pay tribute to the clarity, succinctness and elegance of their submissions but, at the end of the day, it would have been better if this hearing could have been avoided. It seems to me the question is not whether there is close correlation between the consent order as made and the proposals by the Respondents, but why there was no ability to vacate this hearing before it had to take place.
- I go back then to consider in a little greater detail the history of the three hearings, whose costs I need to determine. The ex parte hearing before Thompsell J was an important application brought by HMRC. It was clearly going to be potentially highly disruptive of the Respondents' business. This is something that Thompsell J was very much alive to. He considered the draft order put forward by HMRC and declined to make an order in exactly the terms sought by HMRC. It is neither necessary nor appropriate to go into the wording, either that proposed by HMRC or that implemented by Thompsell J. I would only say that Thompsell J was concerned that the freezing orders as drafted by HMRC ran the risk of closing down the Respondents' business rather than simply holding the ring, and it was for that reason that he framed a bespoke wording which was slotted into paragraph 10(2) of the order that he made.
- Thompsell J was otherwise satisfied that it was appropriate, on the evidence before him, to make the order that he did ex parte. The order was notified and presumably served on the Respondents around 4 December. There was - I have not been given the details of this and it does not matter - a degree of confusion not the fault of the parties with the implementation of that order by the banks. Matters then proceeded until the second hearing, the return date before Ms Salimi.
- That hearing, as I say, took place on 12 December 2024. Before I proceed to the events of that date, it is necessary to consider some of the correspondence that took place before that hearing. On 9 December 2024, the Respondents' solicitors, Messrs Joseph Hage Aaronson LLP, wrote to HMRC attaching an application and a draft order, which was intended to deal with the matters that were at that time live on the return date. In essence, the draft order proposed the continuation of the ex parte order as made by Thompsell J. It did not concede that the injunction was properly made. It did not concede that it should continue ad infinitum. It simply was proposing a continuation beyond 12 December 2024. The timetable proposed was that:
i) HMRC should file and serve properly particularised particulars of claim by 4.00 p.m. on 3 January. That is an application which was in fact before Ms Salimi on 12 December 2024 and was, in fairly short order, dismissed by her.
ii) An application to vary or discharge the orders made by Thompsell J should be filed and served by 4.00 p.m. on 20 January 2025.
iii) There should be a bundle filed by 21 January; skeleton arguments, 23 January, and a return date for the hearing, 27 January 2025, which is of course today's date.
- The response from HMRC (in a letter responding to the Respondents' letter) was effectively to reject this proposal. What was said, amongst other things, was that the adjournment application to put off the return date was opposed (paragraph 3 of HMRC's response). HMRC identified two substantive matters to be raised by HMRC on the return date on 12 December. One of these was the question of the imposition of an unlimited cross-undertaking which Thompsell J had imposed. At paragraph 5 of HMRC's letter it was said that:
"HMRC seek a ruling from the court that an unlimited cross-understanding in damages should not be required. Our position on this issue was expressly reserved at the ex parte hearing."
- The other point that was mooted in the letter was that HMRC wanted a revisiting of the bespoke ordinary course of business provision that had been inserted by Thompsell J into HMRC's draft, appearing at paragraph 10(2) of the order. That was to be revisited. Paragraph 4 of the HMRC letter refers to a desire to vary this paragraph to revert to something more like what was in fact before the judge on 29 November and which had been rejected by him in favour of his own wording.
- That was basis for the return date the hearing before Ms Salimi. It seems to me that there was no way that the Respondents could sensibly have avoided the hearing, given the fact that the unlimited cross-undertaking and the variation of the ordinary course of business provisions were matters of quite fundamental significance to the Respondents on which they would need to be heard. On 12 December 2025, the matter came before Ms Salimi and she rendered a careful ex tempore judgment. Ms Salimi, entirely correctly, declined to revisit the orders made by Thompsell J. She pushed the true return date for the injunctions to 27 January 2025 where matters could be dealt with in light of the informed consideration of the position by the Respondents. That, if I may respectfully say so, seems entirely appropriate and right – and it was of course what the Respondents had suggested in their letter to HMRC.
- She dealt with the four matters that were before her on that day, which are set out in paragraph 6 of her judgment. The fourth of those was whether there should be a further return date set by the order, and that, for obvious reasons, Ms Salimi directed should take place. The other three matters are dealt with substantively in the judgment. I am not going to go into the detail. I am simply going to set out what the judge considered was before her on this occasion.
- The first was HMRC's application to amend the orders to narrow the scope of the provision enabling payments in the ordinary and proper course of business. That is the point about the bespoke Thompsell J wording. The second point was the unlimited cross-undertaking point. The third point was the application for amendment of the particulars of claim. That third point was dealt with in fairly short order by Ms Salimi and the application was rejected in short order for reasons that I do not need to go into. As to the other points, which were raised by HMRC:
i) The unlimited cross-undertaking in damages was continued, albeit that permission to appeal was given by Ms Salimi that point.
ii) The direction of Thompsell J that the ordinary and proper course of business order be along the lines of his wording, rather than HMRC's wording, was left over to this hearing to be dealt with by the judge on that occasion. In other words, the bespoke wording of Thompsell J was retained, and HMRC's application to vary on that date rejected in favour of standing it over to 27 Janaury 2025. Of course, the point is now entirely academic. The parties have, as I have indicated, by consent decided, and I have approved, how these matters should be disposed of.
- It is trite that costs should be exercised in a careful, discretionary way, taking into account the specific facts and matters before the court at the time the costs order is made. That being said, there are very helpful indicators in the cases as to how that discretion should be exercised. In particular, it is the practice of this court that where there is an ex parte application that succeeds for a freezing order, the costs should, generally speaking, be reserved to the outcome of the trial itself. Now, that is a sensible default, but one that has been helpfully suggested to be reconsidered by the Court of Appeal's decision in Dos Santos v Unitel [2024] EWCA Civ 1109. I stress that the decision of the Court of Appeal in Dos Santos does not say anything about this particular case. That was a case where the point was made that where there was an "all guns blazing" resistance to the granting of a freezing order which was opposed, that costs should in the usual way follow the event, and the court should be minded not to reserve costs at all but to make an order that the loser should pay the winner's costs. That, if I may respectfully say so, makes eminently good sense, but, because of the nature of freezing injunctions, it is a general approach that requires really quite careful consideration because of course freezing orders in the ordinary course, as was the case here, are made ex parte. They are made ex parte for very good reason. The point of the freezing injunction jurisdiction is to prevent a dissipation of assets. If you go on notice, then, if you are right and the assets are going to be dissipated, they will be. So you go ex parte. The problem is what does one do about the costs of an ex parte application in circumstances where it has been granted but self-evidently the Respondent has not been heard on that occasion?
- I say nothing about what the general practice should be in the individual case. It seems to me that a court must have regard to all of the relevant factors and that if, on the return date of the ex parte injunction, there has been a battle between the applicant and the respondent that enables the court to consider by relating back what might have happened or what the merits were on the ex parte application, then that is something which the court should do. For example, let us suppose, hypothetically speaking, that on a return date the respondents show that there was a slam-dunk reason why the injunction should not have been granted ex parte, and those reasons existed at the time of the application, it is just that they were not drawn to the attention of judge, or were misstated, or the judge simply got it wrong. In those circumstances, where there is a successful rejection of the continuation of the injunction, one can safely infer that had the ex parte hearing been inter partes, the same result would have pertained and therefore not only should the costs of the successful resistance to the continuation of the injunction be the respondents', so too ought the costs of the ex parte application. In other words, the costs ought to be borne by the applicant and not by the respondent in this situation.
- To take a second example at the other extreme, let us suppose that on the return date the respondents fight tooth and nail (to take the Chancellor's phrase in Dos Santos) and resist the continuation of the injunction in all manners of ways, but they fail, and they fail clearly and decisively. In those circumstances, not only should the costs of the return date be those of the applicant, but also the costs of the ex parte should follow that event because the later event is a very good indicator of what would have happened had there been notice of what was, by definition, ex parte.
- The problem is that in this case there is, and has been, no substantive determination (if I can use that word in the context of an interlocutory application) of the merits of the ex parte injunction. It cannot, or at least cannot rightly, be said that HMRC are the winner. True it is that the orders have been continued, but they have been continued because, on mature consideration, the Respondents have taken the view that they can live with the injunctions as ordered by Thompsell J and as varied by consent, and they do not wish to incur the cost of further battle. Of course, it cannot be said that HMRC are the loser because, for the same reasons, these matters have not been determined by the court.
- Now, in this situation, the court can either pretend that the matter has not been resolved by consent and hear full submissions on who is right and who is wrong for the purposes of determining costs. That is not a course to be recommended and it is not the course, thankfully, which either party has pursued before me this morning. Alternatively, one can kick the can down the road and reserve matters, and many times that may be the appropriate course because one may understand a little bit more about the relevant discretionary factors to enable the costs to be determined at a later stage. So there is good sense in the general default position, not affected by Dos Santos, of the practice in this court.
- Or one may take the view that the Respondents' approach to the ex parte freezing order that has been obtained has been so sensible and appropriate, such that even though they have not conceded that the order was properly made but they have allowed it to be continued without troubling the court further, that the costs of the ex parte application ought to be for the account of the applicant and not be paid for by the respondent. I appreciate this is not the contention that the Respondents have advanced before me, but it is my clear view as to the right answer here, and that is the course that I am minded to take. It seems to me that HMRC quite properly took a decision to seek a freezing order ex parte. They got it. Thereafter, the Respondents sought, in relation to what was, I remind myself, a very complex and thoroughly business-disruptive order, to deal with the fall-out in a pragmatic way. They did not seek to maintain the return date of 12 December, they sought to kick the matter off so that they could consider matters at greater leisure later on. In the event, that course proved to be fruitful because an agreement was reached as to how the order of Thompsell J should be dealt with. As I say, that was done by consent. So it seems to me that the inference that I should draw from the dealings after the ex parte order was made, is that, had the Respondents been told in advance (which by definition they could not have been) of the ex parte freezer and what was being sought, they would have sought a sensible accommodation with HMRC so that the interests of the taxpayer could be protected and the risk of dissipation obviated.
- So it seems to me that, as regards the hearing before Thompsell J, the costs of that application should not be borne by the Respondents no matter what the outcome of the trial in this court or more particularly in the FTT may be. I make very clear that this is not intended to be a general rule, it is simply my perception of what is the appropriate outcome on the facts of this particular case.
- Turning then to the second hearing where costs need to be resolved, the first return date on 12 December before Ms Salimi, it seems to me that the Respondents did try to kick the hearing off so that they could more maturely consider what to do in light of the freezing order that had been obtained ex parte. Although the gap between the proposal on 9 December to adjourn matters and the date of the hearing before Thompsell J on 29 November is much longer than one would like, I do consider that that gap is explained by the weekend that fell on the days after 29 November, and the complexities of enforcing a rather complex and, as I say, somewhat disruptive order that HMRC had quite properly obtained. So although in another case I would consider that the proposal on 9 December that I have referred to came far too late and would be minded to sanction that in some way, in this particular case I consider that although late it was justifiably so and I am not going to read any adverse costs consequences into that.
- It does seem to me, though, that the consequence of HMRC's response to the Respondents' proposal, which was to press on with the undertaking point and to press on with the ordinary course of business point, on both of which HMRC lost, gives a very clear indication as to how the discretion as to costs on the return date should be dealt with. It seems to me that those costs should be the Respondents in any event, but I am not going to direct that they recover all of their costs. I am going to direct, first of all, as was submitted by the Respondents themselves, there should be a deduction for the failed application to amend, and there should be a further deduction resulting in a recovery of 70% of the Respondents' costs of and arising out of the 12 December 2024 return date, to reflect the fact that I do think, as a counsel of perfection, the Respondents could have done more to push the date off. I am not explicitly criticising the lateness of the letter on 9 December - I have already said that that was justifiable - but it does seem to me that there should be a cap on recovery of 70% of the assessed costs of the Respondents in regard to the hearing that took place on 12 December.
- That brings me to the third tranche of costs that I need to assess, namely those before me today. I have already indicated that the correlation or mismatch between the WP proposals of the Respondents and the outcome in the form of a consent order is not something that particularly troubles me. I do not think the WP correspondence is relevant at all. What I am concerned about is the failure on the part of both parties to properly ensure that this hearing did not take place. The fact is the ordinary course of business dealing, the exception, was clearly in play from at least 12 December 2024. A month and a half later one only achieves agreement in the course of last week when the consent order is submitted. It does seem to me that the onus to persuade the Respondents that the order of Thompsell J should be varied lay on HMRC. The fact is that a judge of the High Court had given careful consideration of the disruptive nature of the freezer on the Respondents' business and, of his own motion, had identified a problem which he sought to rectify. It seems to me that it was incumbent upon HMRC to take careful and persuasive steps to obtain a regime that was agreeable to the Respondents and sufficiently protective of the public interests of the taxpayer. That occurred too late. It occurred too late not through any fault of the Respondents. It seems to me again that the hearing today was unnecessary for that reason and that the Respondents ought to have their costs. I am not going to order a recovery of 100% of those costs because it does seem to me that there was a degree of aggression in the manner in which the Respondents dealt with HMRC which might, had it been avoided, have resulted in an outcome earlier in terms of avoiding this hearing. It seems to me that the detailed and assessed costs of the Respondents should be paid by HMRC but capped at 60% of those assessed costs.
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