Apex Frozen Foods Ltd v Ali & Ors

A cross-undertaking in damages or loss is construed according to its wording, background and purpose. Where the undertaking is given by a third party, costs incurred in injunction proceedings may constitute recoverable loss, including where the third party has since been joined to the proceedings. The court may compensate for particular items of loss without enforcing the undertaking on an all-or-nothing basis.

A costs order against a non-party under section 51 of the Supreme Court Act 1981 depends ultimately on what is just in all the circumstances. Impropriety is not essential, but something serious outside the ordinary run of litigation is ordinarily required. A provisional liquidator acting for the company and its creditors is less readily exposed to such an order than a person litigating for personal financial benefit.

The claimant company, Apex Frozen Foods Ltd, was in liquidation. Its provisional liquidator, Mr Smailes, obtained a without-notice freezing order affecting Foods (London) Ltd. The order was later discharged because the evidence was inadequate and material facts had not been properly disclosed.

Foods applied for its injunction-related costs against Mr Smailes. It relied on the cross-undertaking given by him and, alternatively, on section 51 of the Supreme Court Act 1981. The issues were whether the undertaking covered those costs, whether compensation could be ordered for that head of loss alone, and whether the circumstances justified a non-party costs order.

1. Cross-undertaking. The undertaking was a personal undertaking by Mr Smailes and was not limited to Apex’s assets. Its wording had to be construed against the purpose of protecting a respondent from detriment caused by an injunction which, with hindsight, should not have been granted.
2. Whether the contractual analogy applied strictly or was too narrow, Foods’ costs of considering and opposing continuation of the freezing order could constitute loss. Mr Smailes was a third party, so the ordinary restriction on recovering costs between parties to the same litigation did not prevent recovery. The court was not required to enforce the undertaking on an all-or-nothing basis. It could identify separate items of loss and compensate for some only.
3. The freezing order had not been justified by the evidence and would not have been made had there been proper disclosure. Foods should therefore be compensated for the costs occasioned by the order. Those costs were to be assessed on the standard basis, if not agreed.
4. Section 51. The principles in Dymocks Franchise Systems (NSW) Pty Ltd v Todd were applicable in England. The ultimate question was whether a costs order against the non-party was just. Impropriety or speculative litigation could support such an order, but neither was an indispensable condition. Material non-disclosure leading to discharge of a freezing order was capable of placing the case outside the ordinary run of litigation.
5. Nevertheless, Mr Smailes was a provisional liquidator acting for Apex and its creditors, not for his own financial advantage. His personal innocence of conscious wrongdoing, reliance on advisers, and the absence of a sufficiently serious case against him meant that it was not just to make a section 51 order. No order was made under that section.

First-instance decision. No earlier appellate decision is stated in the judgment.