Apex Frozen Foods v Ali
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE WARREN,Mr Justice Warren |
| Judgment Date | 09 March 2007 |
| Neutral Citation | [2007] EWHC 469 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC06C002171 |
| Date | 09 March 2007 |
[2007] EWHC 469 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Warren
Case No: HC06C002171
Richard King (instructed by Key2 Law LLP) for the 2 nd Defendant
Catherine Newman QC (instructed by Messrs Stewarts) for the 3rd Defendant
Hearing dates: 18th and 19th January 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
………………………..
Introduction and background
This is an application by the second Defendant (“Foods”) for an order that the third Defendant (“Mr Smailes”) pay on the indemnity basis Foods' costs of and occasioned by (i) the grant of a freezing order which I made on 26 May 2006 (ii) an unsuccessful application by the Claimant (“Apex”) to continue the freezing order and (iii) a successful application by Foods to discharge the freezing order. A payment on account of such costs is also sought. The claim is made under two heads: first, as “loss” within the cross-undertaking referred to below and secondly, pursuant to section 51 Supreme Court Act 1981 (“section 51”).
The background to the case and my reasons for discharging the freezing order are set out in my judgment dated 21 June 2006. I do not need to repeat that material here.
The original freezing order was sealed on 26 May 2006. It was subject to a cross-undertaking. I had required that undertaking to be given by Mr Smailes (who was then provisional liquidator of Apex) as a condition of granting the order. The undertaking appears in the sealed order in Schedule 2 which is headed “Undertakings given to the Court by the Applicant”. In the heading to the Order, the Applicant is shown as Apex not Mr Smailes as indeed it was.
However, in the application notice, the Applicant is shown as Mr Smailes described as provisional liquidator of Apex. Similarly, the draft order attached to the application notice showed the Applicant as Mr Smailes. The undertaking in Schedule 2 of the draft Order was to be given by the Applicant, that is to say Mr Smailes, described as provisional liquidator of Apex.
In order to take account of the fact that the Applicant was in fact Apex, the wording of the undertaking needed to be modified. The heading to Schedule 2 was not, perhaps erroneously, modified. But the undertaking itself was modified so as to read as follows:
“If the court later finds that this Order has caused loss to any of the Respondents, and decides that such Respondent should be compensated for that loss, Mr Robert Smailes as Provisional Liquidator of the Applicant will comply with any Order the court may make”.
This undertaking was repeated in relation to Foods following an inter partes hearing on 7 and 8 June 2006 at which Apex sought to continue the May order and Foods and Mr Ali sought discharge. The order was sealed on 9 June. On 21 June 2006, following my judgment, the freezing order was discharged and more limited orders made. Before the present application came before me, I understand that it was questioned on behalf of Mr Smailes whether he had in fact given a personal undertaking at all and if so whether it extended beyond the assets held by him as provisional liquidator; by the time I heard the application, he had accepted that such an undertaking had been indeed given and that it was not limited to the assets of Apex.
Mr Smailes was not represented personally at the hearing before me on 21 June 2006, although Apex appeared by Mr Morrison. Mr King asked for costs which I awarded against Apex on an indemnity basis. I also ordered that Mr Smailes be joined as a respondent in order that an application, on proper notice to him, could be made under section 51 Supreme Court Act 1981 for a costs order against him personally. So far as an enquiry into damages was concerned, Mr King made submissions to me that there should be an immediate enquiry whereas my inclination had been to leave that over to trial. I regret that, in the course of those submissions, I did not focus on the question by whom the undertaking had been given. The position was reached under which Foods would be entitled to an enquiry but the enquiry itself would not take place until, or after, the trial. At the very end of the transcript of the hearing which appears in the bundle for this application (Bundle C Tab 15 p 763) there is this exchange between Mr King and myself:
“Mr King: My Lord, one of the reasons for pressing you to ask you to decide to join Mr Smailes is that of course the inquiry in relation to damages will also be against Mr Smailes….
Judge: Of course it will, yes.”
Mr Smailes was not, however, represented before me and I could no more decide that an enquiry should be ordered as against him on the cross-undertaking than I could make a costs order against him: he was clearly entitled to notice before such an order could be made. Accordingly, what I said there is wrong (although I do not have the transcript after that exchange and more may have been said: I do not remember).
The meaning of the undertaking
I have gone into this in some detail because there is now a dispute between the parties about the meaning of the undertaking. It is said by Miss Newman QC (who appears on behalf of Mr Smailes in this application) that “loss” in the undertaking does not include the costs which Foods has incurred in relation to the freezing order and its discharge. One of her arguments is that Foods has asserted, by seeking and obtaining from me an order for an enquiry, that Apex is liable under the undertaking; but if that is so, “loss” would not include costs because loss cannot be recovered in respect of the costs of litigation to which the person against whom recovery is sought is a party.
When it comes to enforcing a cross-undertaking in an ordinary case, loss is to be established in very much the same way as damages in contract. In Hoffmann-La Roche & Co AG v SoS for Trade and Industry [1975] 1 AC 295, Lord Diplock put the position (albeit obiter) as follows at p 361:
“[The Court] 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.”
If that approach is literally applied, two results might be said to follow. First, if the cross-undertaking is enforced, all the damages flowing from the injunction having been granted (ignoring questions about forseeability and whether that is a requirement for recovery of any particular head of damage) are recoverable: it may be that there is no discretion in the Court to allow some heads of loss to be recovered but not others; it is “all or nothing”. Secondly, a cross-undertaking which is enforced against a claimant in the same action in which the cross-undertaking was given (which would be the almost universal procedure) would not be entitled to recover any part of his costs of the litigation (including the costs incurred in relation to discharge of the injunction). Costs are dealt with, as between the parties, pursuant to the Court's costs jurisdiction and cannot be recovered as damages. And that, generally speaking, is so whether he seeks costs in the very litigation itself or in another action.
It is not entirely clear how such a strict contractual approach to cross-undertakings would apply in the case of an undertaking given by a third party. Presumably the notional contract would be a warranty by the person giving the undertaking, rather than a contractual obligation by the claimant, that the claimant “would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction”. If that approach were literally applied, it would again be a case of “all or nothing”. But, in contrast with the position in relation to costs as between parties to a piece of litigation, a claimant can, in appropriate circumstances, obtain as part of his damages the costs which he has incurred in litigation with a third party. For instance, if his litigation with the third party was caused by the defendant's wrongful conduct, the costs of that litigation would be part of his damages. Applying that approach to the present case, Mr Smailes is a third party; it is true that he has now been joined to the proceedings in order to make an application that he pay costs under section 51 but that cannot, I consider, affect one way or the other his liability on his cross-undertaking. The position as I see it is that Foods has incurred costs in relation to the injunction proceedings as a result of Apex doing precisely that which Mr Smailes notionally warranted it would not do. Accordingly, if the Court decides that Mr Smailes' cross-undertaking is to be enforced, Food's damages will include its costs in considering and opposing the continuation of the freezing order.
I do not consider that it makes any difference to the conclusion that Foods is, in principle, able to recover its costs of the injunction...
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