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High Court confirms that no exception for legal costs in freezing order in “quasi-proprietary” claim

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders


Kea Investments Ltd v Watson and others [2020] EWHC 472 (Ch)

Facts of the case

  • The Claimant (“K”) had brought proceedings against Eric Watson (“W”) for fraud and breach of fiduciary duty.
  • In July 2018, Nugee J handed down judgment for K for the payment of equitable compensation up to £43.5 million, together with an entitlement for K to trace into, and elect whether to claim, assets acquired by W for the purposes of enforcing the judgment.
  • K identified that William Gibson (“G”), W’s accountant, was a beneficiary of a trust that owned the company Ivory Castle “(“IC”), which K contended was beneficially owned by W. K identified that IC was due to be paid approximately £2 million by an associated company named Aegean LP (“A”).
  • On application by K, Nugee J granted a short-term injunction against IC until 1 February 2019 restraining payment to it of the money due from A and restricting the disposition of its other assets. The injunction order allowed IC to spend up to £150,000 from its other assets on legal representation.
  • On 1 February 2019, the injunction was extended to trial. However, following submissions from IC, Nugee J removed the cap on spending on legal representation from its other assets. An injunction was later granted against G on similar terms.

Current Applications

  • IC and G applied for an order permitting IC to also use the A monies on an uncapped basis for legal fees and representation for both IC and G.
  • IC and G’s application was opposed by K on the basis that the claim in question was analogous to a proprietary claim. IC and G in turn contended that the court was unable to rule in favour of K on that point due to issue estoppel, asserting that the court had already ruled against K by not imposing a cap on the existing injunction in relation to its other assets.

The Decision

  • In reaching his decision, Nugee J considered the legal principles with regard to injunctions and the courts’ jurisdiction to allow payment of legal expenses from frozen assets, namely the following:

    • There is a well-established distinction in law between the cases of an ordinary (non-proprietary) freezing injunction and a proprietary injunction. 

    • The “ordinary rule” for freezing injunctions is that the frozen assets are owned by the defendant, who would therefore be entitled to use the frozen assets for legal representation, subject to demonstrating that it has no other assets with which to fund the litigation. 

    • However in respect of a proprietary injunction, the frozen asset is said to belong to the claimant, therefore there is no presumption in favour of allowing a defendant to use the asset to fund its legal expenses.
  • Nugee J, noting the similarities with the case of JSC BTA Bank v Ablyazov, held that K’s claim was analogous to a proprietary claim, as such, the same principles applied of there being no presumption in favour of allowing frozen assets to be spent on legal fees.
  • Nugee J also held that K was not prohibited from relying on its arguments in resisting IC/G’s claims on the basis of issue estoppel or abuse of process, as it was not K but IC who sought the re-examination of whether IC could access the A monies for its legal fees. Therefore there was nothing abusive in K resisting such an application.

Analysis and practical advice

  • The judgment demonstrates that for “quasi-proprietary” claims, where a claimant claims ownership over frozen assets over which the defendant holds beneficial ownership, these will likely be considered in the same manner as a proprietary claim and therefore will not be subject to use for reasonable legal expenses in normal circumstances.
  • Nugee J clarified in his judgment that in finely balanced cases where the defendant has no other funds available to it to fund legal expenses, the court will consider “whether the injustice of permitting the use of the funds held by defendant is outweighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may turn out to be a successful defence”.
  • This case also demonstrates that the courts are open to considering practical solutions to balancing the respective parties’ rights, with Nugee J suggesting that the parties could devise an agreement that the A monies could be utilised for legal expenses by IC but only on the condition that G first provided personal liability to K to account for such funds.
  • Finally, an argument for issue estoppel or abuse of process is unlikely to successful, where the party running such an argument is the party who is applying for that particular issue or application to be re-examined by the court.