DSA Investments Inc (A Company Registered Under the Laws of the British Virgin Islands) v Optima Worldwide Group plc and others  EWHC 2770 (Ch).
What are the practical implications of this case?
This judgment is authority for the principle that an ICO is, by nature, similar to an interim injunction. Accordingly, if not expressly set out in the ICO, by implication the applicant (and beneficiary of the order) may be held to have given a cross undertaking in damages to the respondent. That is the natural corollary for the applicant seeking (and obtaining) the benefit of a charging order on an interim basis, to ensure that applicants cannot exploit a commercial advantage over respondents.
However, the cross undertaking in damages will no longer apply when an ICO is made final. At para  of his judgment Deputy Master Linwood said that: ‘[i]t is trite law that an undertaking in damages is only implied or required when an interim injunction is made but will not apply when a final order or injunction is made.’
Further, third parties will not be able to enforce a cross undertaking in damages, which can only be enforced by the respondent to an ICO.
However, for respondents that intend to enforce a cross undertaking in damages, the burden of proof will lie with them to establish, evidentially and causally, that they have suffered loss as a result of an ICO (or an interim injunction) being in place. Respondents cannot prima facie seek an inquiry into alleged losses where no evidential or causal link has been established.
DSA Investments also shows clearly that conduct will be considered by the court when assessing liability for costs and, pursuant to its powers under CPR 44.2, the court can and most likely will make costs orders against a successful party where the conduct of that party justifies it.
What was the background?
The claimant (DSA) applied for a charging order over any beneficial interest of the first defendant (OWG) in shares of Oracle Power plc (Oracle). DSA had obtained judgment in January 2019 against OWG and OWG was ordered to pay DSA £1,700,000 plus interest and costs as a result of OWG failing to pay amounts it had agreed to pay under a settlement agreement and related Tomlin order.
As OWG did not pay the debt due under the January 2019 order, DSA commenced enforcement action which included an application for a charging order over the Oracle shares, as Oracle’s public accounts showed OWG held certain shares in Oracle.
DSA’s lawyers pursued enforcement actively and made a number of applications, which culminated in an application to orally examine the chief executive of OWG. Shortly before that hearing OWG paid the judgment debt, interest and assessed costs then totalling £1,815,929.36.
There remained, however, DSA’s costs of enforcement (circa £270,000). DSA maintained its application for a charging order and related inquiry which had been ordered into the ownership of the shares accordingly. After a number of disclosure applications and no less than six disclosure orders being made against OWG and the second defendant, Brandon Hill Capital Ltd (BHC) (a subsidiary of OWG), full disclosure was eventually provided, which led DSA to discontinue its application for a charging order.
DSA contended that OWG and BHC should pay its costs of its enforcement application, which included costs incurred in the inquiry ordered into the number of Oracle shares owned by OWG. BHC, conversely, contended that DSA should pay its costs because the charging order application was ultimately discontinued by DSA and it was, therefore, the ‘winner’ and should be awarded its costs pursuant to CPR 44.2(2)(a).
What did the court decide?
The court was principally asked to determine the costs in relation to DSA’s charging order application and related orders made in March 2019, which was an ICO, and in April 2019, which varied the March 2019 ICO by fixing the order against a specific number of shares up to the value of the judgment debt. The April 2019 order was made on application by DSA following admissions as to the ownership of the shares made in a witness statement by the chairman of BHC (although those admissions were subsequently contradicted in later witness evidence). The court also determined costs of two separate (but related) hearings.
Deputy Master Linwood determined the appropriate costs orders by reference to an agreed list of issues (summarised below):
Whether there was an implied cross undertaking in damages by virtue of the order of April 2019
In principle, a cross undertaking in damages will be implied in an ICO (if not expressly stated) because an ICO is by its nature similar to an interim injunction.
However, the April 2019 order was in fact the making of an FCO because it fixed the ICO over a specific number of the Oracle shares, notwithstanding that other shares remained charged on an interim basis and were to be subject to the ongoing inquiry as to their ownership.
If such undertaking existed, could it be enforced by BHC?
BHC, who was not the respondent to the ICO/FCO, could not have been in a position to enforce the undertaking in any event.
The respondent was the third defendant, Global Prime Partners Ltd, a broker and financial services provider, who held the title to the shares (stated to be on a ‘title transfer basis’ for BHC). CPR PD25A 5.1 provides that a cross undertaking in damages is a requirement for the respondent alone, a position supported in academic writing. Further, on the facts it had been argued that BHC did not have any proprietary interest in the shares, so it could not have had any loss against which any cross undertaking in damages could be enforced.
Should the court order an inquiry as to BHC’s damages?
There should be no inquiry into the alleged loss suffered by BHC in any event. BHC had failed to establish either the evidential or the causal basis of any such loss. It was not appropriate to order an inquiry into such loss—the burden was on BHC to establish that loss had been suffered, not the other way around.
Who should pay the costs of the application and inquiry (and related sub issues)?
As to the costs of the application and related inquiry into the ownership of the shares, DSA were to be paid 80% of the costs by OWG and BHC notwithstanding that the application, related inquiry and charging orders were ultimately discontinued (and DSA was not, therefore, the ‘winner’).
Adverse comments had been made by a number of Masters, including Deputy Master Linwood, in different judgments and hearings regarding OWG’s and BHC’s conduct and their conduct was such to justify the court exercising its discretion to make a different order other than awarding costs to the successful party under CPR 44.2(2)(b).
The Deputy Master accordingly considered the factors concerning the conduct of parties at CPR 44.2(5) and ultimately awarded DSA its costs in its application, the related inquiry and other hearings, albeit in a proportion of 80% of DSA’s costs, pursuant to CPR 44.2(7).
This article was first published on LexisPSL.