The High Court has ordered indemnity costs in favour of two law firms which had been accused of breaching a worldwide freezing order (WFO) imposed on their client by accepting money provided to them by third-party funders.
Mr Justice Zacaroli ruled in April that London firm Keidan Harrison (KH) and Hertfordshire practice Rayden were not in contempt of court by using the funds to discharge their fees.
The litigation concerns Tonstate Group, a property investment business half-owned by Edward Wojakovski. The claimants sought disclosure of the source of funding for the legal advice provided to Mr Wojakovski by KH in relation to his bankruptcy and Rayden over family law proceedings.
They argued that he was in breach of the WFO made against him last August to inform them, before spending any money on legal expenses, where the money was to come from.
Further, they said that, by using the third-party funds they held when they knew that Mr Wojakovski had not complied with the WFO, the law firms were in breach of the WFO and in contempt of court.
Rayden voluntarily disclosed the two sources of its funding, which it said was provided “wholly gratuitously”. KH had not disclosed its source but its evidence too was that the funds again were given “voluntarily and gratuitously”.
Zacaroli J held that, insofar as the funds were to be used to discharge the solicitors’ fees, they were at the direction of the funder, not Mr Wojakovski, meaning the funds were not held in accordance with his instructions and their use was not in breach of the WFO.
But the judge went on to make an order against Mr Wojakovski under section 37 of the Senior Courts Act 1981 to provide details of his funders, having accepted there was a “real risk” that the ongoing funding of his legal expenses may be in breach of the WFO or a proprietary injunction issued last year – and that KH must do so if he did not.
KH did not oppose this but said it needed the protection of a court order because of confidentiality concerns. As Raydens had, by the time of the hearing, provided all the information and documents in its possession, he made no order against them.
The judge also expanded the WFO to provide that, before any further sum is paid in respect of his legal expenses by any person, Mr Wojakovski must give the applicants details of the source.
In Tonstate Group Ltd and Ors v Wojakovski and Ors (Costs) [2021] EWHC 1995 (Ch), the judge dealt with both sides’ claim for costs. The claimants sought their costs from Raydens up to the point at which the firm disclosed all of the funding information.
But Zacaroli J rejected the contention that the firm deliberately concealed information on one of the funders and that it was therefore necessary to pursue the application to obtain their disclosure, given that all the parties knew that the person in question was funding Mr Wojakovski’s fees.
The claimants contended that KH had acted unreasonably in declining the claimants’ offer of a drop-hands settlement and fighting on – at a cost to KH of more than £30,000 – to recover just £2,250 of fees.
The judge said this point cut both ways: “If it was unreasonable for KH to resist an application in order to recover such a small amount, then it could be said to be equally unreasonable for the claimants to pursue an application for the same reason.”
Second, KH suggested in advance of the hearing of the application that, since the only question was its entitlement to a relatively small amount of costs, it could be dealt with shortly and without counsel.
The claimants rejected that and continued to assert that they were entitled to disclosure on the basis of a breach of the WFO so that they could recover the costs of the application from the solicitors, knowing that Mr Wojakovski would not be able to pay them.
“Having pursued the application for that reason, and on a legal basis which failed, it hardly lies in the mouth of the claimants to contend that it was unreasonable for KH to resist,” Zacaroli J said.
“Third, by basing the application on the argument that there had been a breach of the WFO, there was much more at stake for KH than merely the outstanding costs. It gave rise to serious reputational issues. KH was justified (irrespective of the amount of money at stake) in defending the application for that reason.”
As a result, there was no reason to depart from the usual principle that costs follow the event, meaning the claimants should pay Raydens’ and KH’s costs of the application.
Zacaroli J said that, given the “aggressive approach” the claimants took to the application justified indemnity costs, “I consider that the pursuit of that application solely to make the solicitors liable for costs which could not be recovered from Mr Wojakovski was in itself unreasonable.”
Andrew Fulton QC (instructed by Rechtschaffen Law) for the claimants. Andrew Dinsmore (instructed by Keidan Harrison) for Keidan Harrison. Leonora Sagan (instructed by Rayden Solicitors) for Raydens Limited. Mr Wojakovski appeared in person