Skatteforvaltningen (The Danish Customs And Tax Admin) v Solo Capital Partners LLP & Ors

Where a defendant seeks to use funds subject to an arguable proprietary claim to pay legal costs, the court should first identify whether the defendant has other available assets. The burden lies on the defendant seeking access to the disputed funds. If that burden is met, the court must balance the claimant’s potential injustice in having its alleged property used against it against the defendant’s potential injustice if unable to advance a possibly successful defence. A staged payment may be appropriate where assets may become available or the proposed expenditure may exceed the reasonable value of work currently required. Contractual funding arrangements cannot determine the court’s proprietary-funds discretion.

The claimant, the Danish Customs and Tax Administration, and the Sanjay Shah Defendants each asserted an arguable proprietary interest in money held in court. The defendants applied for release of a substantial sum to fund their legal fees through the litigation, relying on a whole-case conditional fee arrangement. The claimant accepted that some payment could be made but opposed immediate release of the full amount. The central issues were the availability of alternative assets, the balance of potential injustice, and whether payment should be staged and protected.

1. The court applied the principles in Marino v FM Capital Partners Ltd [2016] EWCA Civ 130 and Kea Investments Ltd v Watson [2020] EWHC 472 (Ch). The defendant seeking to use disputed funds bears the burden of showing that no other assets are available. The court must then balance the claimant’s possible injustice in having its alleged property used against it against the defendant’s possible injustice if denied the opportunity to advance a potentially successful defence.
2. The defendants had no presently available alternative assets, although some unclaimed assets might become liquid. Their uncertain liquidity, restraints and possible competing claims meant that they did not provide an equivalent substitute for the money in court.
3. It was inappropriate to release the full amount payable under the whole-case conditional fee agreement. The court ordered payment for specified outstanding and estimated costs and disbursements, subject to safeguards concerning separate holding and proper use.
4. A later undertaking to create an equivalent proprietary interest was inadequate because it would replace a proprietary claim against cash with a personal claim and leave enforcement, priority, liquidity and competing-claims risks.
5. A narrow review hearing in January 2021 was appropriate to consider material changes in assets and updated costs. The contractual fee arrangement could not override the court’s discretion.