FSL Services Ltd & Ors v MacDonald & Ors

The court has power to bring an inquiry into damages under an undertaking to the court to a summary conclusion where its further prosecution would serve no useful purpose. That power arises under the case-management powers in the Civil Procedure Rules 1998 and the court’s inherent jurisdiction to control enforcement of its undertakings.

The power should be exercised cautiously. It is inappropriate where the legal recoverability of the losses is unsettled, relevant allegations of fraud or impropriety remain factually disputed, and the inquiry can determine those issues. In such circumstances, the existing inquiry is preferable to requiring a separate action.

The claimants obtained freezing orders against the defendants in proceedings alleging fraud, conspiracy, deceit and related matters. The orders contained an undertaking to compensate loss caused by them.

The claimants later discontinued the proceedings. Aikens J discharged the freezing orders and directed an inquiry into any loss suffered by the defendants as a result. The defendants claimed, among other matters, legal costs arising from interlocutory proceedings and costs orders which they alleged resulted from fraud or misleading evidence.

Ebsworth J refused the claimants’ application to strike out or dismiss the inquiry. The claimants appealed, arguing that the claimed losses were irrecoverable as a matter of law and that the inquiry would serve no useful purpose.

1. The appeal was dismissed. The Court of Appeal held that the court possesses power to halt an inquiry into damages summarily where its further prosecution would serve no useful purpose. The case-management powers under rule 3.1(2)(m) of the Civil Procedure Rules 1998, together with the inherent jurisdiction to control enforcement of undertakings given to the court, were sufficient.

2. The power was not appropriately exercised here. The authorities did not clearly establish that costs incurred in opposing an interlocutory order improperly obtained, including costs which the defendant had been ordered to pay, were irrecoverable on an inquiry under an undertaking. Israel Discount Bank of Canada v Genova (1992) 13 CPC (3d) 112 indicated that such costs might in some circumstances be recoverable.

3. The defendants’ allegations that the freezing orders had been obtained or maintained fraudulently or improperly remained disputed factual issues. Those allegations, and the consequences for recoverability, could be determined within the inquiry. It was procedurally preferable to resolve them there rather than require the defendants to commence a fresh action.

4. The inquiry therefore remained in place, with all issues concerning fraud and impropriety available for determination. The appeal was dismissed with agreed costs of £8,500. Permission to appeal to the House of Lords was refused.

• High Court of Justice, Queen’s Bench Division: Ebsworth J dismissed the claimants’ application to strike out or dismiss the inquiry directed by Aikens J.
• Court of Appeal (Civil Division): The appeal was dismissed with costs. Permission to appeal to the House of Lords was refused.