AB and Ors v CD and Ors

An agreed exception in a proprietary freezing order allowing expenditure on reasonable legal fees is construed according to its natural meaning and is not treated as shorthand for the fourth stage of the Marino test.

However, where all the defendant’s assets are subject to proprietary claims and the proposed expenditure could extinguish those claims, the court may adopt a more interventionist approach when asked to vary the order. It should make the variation only if properly satisfied, on adequate evidence, that the proposed costs and method of realisation are reasonable. Separately, where the Marino discretion applies, the court must balance the competing interests, may take account of professional representation and the complexity of the case, and may impose a limit and safeguards.

The claimants pursued proprietary claims concerning the proceeds of a mini-bond investment scheme. A proprietary freezing order and a non-proprietary worldwide freezing order had been made against the first defendant. The proprietary order contained an agreed exception permitting reasonable living expenses and reasonable legal expenses.

The first defendant sought variation of the proprietary order so that assets subject to the claim could be realised and charged to fund a conditional fee agreement for his defence. The claimants argued that the proposed arrangement would substantially extinguish their proprietary claims and that the court should scrutinise the costs under the fourth stage of Marino v FM Capital Partners Ltd. The issues were the meaning of the exception, the court’s discretion to assist with the proposed realisations, and, alternatively, the amount that should be released under the Marino principles.

1. Construction of the order. Paragraph 5 of the proprietary freezing order had the same meaning as the identical exception in the worldwide freezing order. Injunctions carrying penal consequences should be construed strictly, giving their words their natural and ordinary meaning in context. The reference to a reasonable sum concerned the reasonableness of the charges as between the defendant and his lawyers. It was not shorthand for the discretionary exercise required at stage four of Marino.

2. Variation and exceptional circumstances. The first defendant nevertheless sought the court’s assistance in realising and charging assets. The court could not ignore the consequences of the orders sought. Although the general approach under non-proprietary freezing orders is light-touch, the authorities recognise special or exceptional cases requiring more intervention. This was such a case because all the defendant’s assets were subject to proprietary claims and the proposed orders could extinguish the claimants’ recovery.

3. The court therefore required proper evidence that the proposed fixed fee was reasonable in amount and that the proposed methods of realising the house, watches and guns were reasonable and appropriate. The evidence was inadequate. The conditional fee agreement, budget, comparative costs and proposed realisation process did not establish reasonableness. The requested variations were refused.

4. Alternative Marino ruling. At the parties’ request, the court considered the amount which would have been released assuming the first three limbs of Marino were satisfied. Relevant factors included the potential prejudice to the claimants, the litigation’s size and complexity, overlapping arguments by represented defendants, the defendant’s ability to act in person, the seriousness of the allegations, the court’s interest in professional representation, and appropriate safeguards. There was no automatic right to use frozen proprietary assets, and the court could limit expenditure even where some release was justified.

5. The appropriate release was £1.2 million plus VAT, in addition to £120,000 already advanced. The application for the wider variations was dismissed.