National Bank Trust v Yurov & Ors

Where a claimant obtains a without-notice freezing order but substantially fails to disclose material facts, the court may mark the failure through a substantial costs sanction even if the order is continued. The claimant will normally bear its own costs of the original freezing-order application. Where the claimant succeeds on the discharge application, it ordinarily remains the successful party, but the costs awarded may be substantially reduced, or eliminated, to mark the non-disclosure, encourage full and frank disclosure and deter future breaches. The appropriate sanction remains discretionary. Relevant considerations include the seriousness and timing of the failures, the strength of the freezing-order case, issues on which the defendant failed, and unnecessary costs caused by the conduct of the application.

The claimant bank had obtained a without-notice freezing order. In the judgment reported at [2016] EWHC 1913 (Comm), the court found three failures to disclose material facts, but continued the order in the exercise of its discretion.

The court then considered the appropriate costs consequences. The failures concerned an employment contract, a civil claim ancillary to Russian criminal proceedings, and the full terms of a settlement agreement. The issue was how those failures should be reflected in the costs of the original application and of the defendants’ unsuccessful application to discharge the freezing order.

1. The court held that the claimant should bear its own costs of the original freezing-order application. Substantial breaches of important duties of disclosure in a without-notice application should normally deprive the claimant of the benefit of recovering those costs, even where the court continues the order. The rule encourages proper compliance and provides an effective deterrent, subject to possible exceptions.

2. For the discharge application, the bank remained the successful party and the starting point was therefore that it should recover its costs. Nevertheless, a substantial deduction from those costs was generally appropriate. In a suitable case the claimant might be deprived of costs altogether. The sanction should be real and effective, having regard to the court’s reliance on proper disclosure and the potentially serious consequences of freezing orders.

3. The discretion required consideration of the circumstances as a whole. Relevant matters included the strength of the freezing-order case; success on independent issues such as risk of dissipation; issues on which the defendants failed; the defendants’ conduct in formulating wide-ranging and difficult-to-identify complaints; and the lateness of admissions of non-disclosure, which could increase the costs unnecessarily incurred.

4. The approach in U&M Mining Zambia Ltd v Konkola Copper Mines Plc [2014] EWHC 3250 (Comm), where the defendant received costs despite the injunction being continued, was acknowledged as a permissible approach. The court did not cast doubt on it, but considered that the present circumstances justified a deduction from the successful claimant’s costs instead.

5. The bank was ordered to bear its own costs of the original freezing-order application. The defendants were ordered to pay 40% of the bank’s costs of the discharge application, assessed on the standard basis. No payment on account was ordered.