The defendant had obtained leave to use disputed funds to meet its legal costs. It sought an order (in the nature of a declaration) that such use of the funds would not make them constructive trustees. Mr Burton QC held that where leave is given to a defendant to use funds that are subject to a restraining order for his legal costs, such use is not contempt of court. But such leave does not affect a claimant’s substantive rights in the property. A claimant who subsequently obtains a judgment that he is entitled to the property may seek to trace the funds and claim them from recipients, including (potentially) the defendant’s solicitors. The judge recognised that the prospect of such claims might inhibit solicitors from acting for a defendant but noted that this is also the case where there is no interim injunction at all. Whether a tracing action would be possible would depend on the state of mind of the solicitors and that question could not be resolved on an interlocutory application for leave to use frozen funds for funding the defence of proceedings.
The defendant had obtained leave to use disputed funds to meet its legal costs. It sought an order (in the nature of a declaration) that such use of the funds would not make them constructive trustees. Mr Burton QC held that where leave is given to a defendant to use funds that are subject to a restraining order for his legal costs, such use is not contempt of court. But such leave does not affect a claimant’s substantive rights in the property. A claimant who subsequently obtains a judgment that he is entitled to the property may seek to trace the funds and claim them from recipients, including (potentially) the defendant’s solicitors. The judge recognised that the prospect of such claims might inhibit solicitors from acting for a defendant but noted that this is also the case where there is no interim injunction at all. Whether a tracing action would be possible would depend on the state of mind of the solicitors and that question could not be resolved on an interlocutory application for leave to use frozen funds for funding the defence of proceedings.
Michael Burton QC sitting as a Deputy Judge of the Chancery Division.
Times 15-Dec-1997, [1998] 1 WLR 435
England and Wales
Cited by:
Cited – XX and Others v YY and Others ChD 2-Jul-2021
The first defendant applies for an order that the claimants are not entitled to pursue legal action against his lawyers in respect of funds over which the claimants claim a proprietary interest and paid to the first defendant’s lawyers as legal fees . .
Lists of cited by and citing cases may be incomplete.
Updated: 30 October 2021; Ref: scu.90075 br>