Claim No: CL-2023-000687 - [2025] EWHC 1157 (Comm)

I will proceed for the purposes of this application on the basis that RSUK cannot satisfy any costs order in its favour simply by setting-off the amount due against any liability to the Claimants to pay the Balance. Clearly if no debt has arisen under the Escrow Agreement, there would be no liability against which the costs order could be set off. Ordinarily, at least, if a debt is due, but at the date of the costs order is not yet payable, then it is not available for set-off in law or equity: Smith, Fleming & Co.'s Case (1866) 1 Ch. App. 538.

Mr Turner submitted that even if Barclays refused to transfer amounts from the RSUK USD Client Account to RSUK’s office account, this would not prevent the Claimants “paying” RSUK, it being sufficient that RSUK received “the unconditional right to the immediate use of the funds transferred” into the RSUK USD Client Account (quoting from Brandon J in Tenax Steamship Co v Owners of the Motor Vessel Brimnes (The Brimnes) [1983] 1 WLR 386). In reliance on two authorities dealing with payments into nominated bank accounts under contracts where the recipients’ ability to use the funds paid into those accounts was curtailed by sanctions, Mr Turner submitted that the fact that Barclays might limit RSUK’s ability to apply the Balance did not prevent payment from having taken place.

The first of those cases was Havila Kystruten AS v STLC Europe Twenty Three Leasing Ltd [2022] EWHC 3166 (Comm), [97], in which Stephen Houseman KC rejected a contention that there had been no payment for the purposes of four finance bareboat charterparties when the contractually designated accounts into which the payments were made were in jurisdictions in which the payee was subject to sanctions. At [96]-[97], Mr Houseman KC said:

“The defendants argue that the concept of payment, or indeed receipt, requires that the payee or recipient has a right to the immediate use of the funds. Reliance is placed upon The Brimnes [1973]1 WLR 386. The answer to this lies in what the parties agreed here. They agreed that payment into the bank account described in clause 6.6(b) was required. They agreed nothing else about what payment or receipt meant or required. They therefore agreed that if such payment was made, this was sufficient for all contractual purposes, which envisaged receipt of payment.

Whether or not the payee, here the lessor, has access to or gets the benefit immediate or otherwise, of funds in such bank account is immaterial to this contractual analysis. This account was frozen when it was nominated. No other entity has access to or the benefit of such funds, and certainly not the payor, i.e. the lessee, which is what matters most.”

The second was a decision of mine, in a very similar commercial context, Gravelor Shipping Ltd v GTLK Asia M5 Ltd [2023] EWHC 131 (Comm), in which I held at [83]:

“… I do not accept Mr Smith KC's submission that if, because of characteristics or attributes of the payee (here the fact that they became a Sanctions Target), the payee may have difficulty in accessing (or indeed be wholly unable to access) the funds if paid into a particular bank account, it follows that there has been no payment within the ordinary meaning of that concept, or in accordance with clause 9 of the Charterparties:

(i)

Brandon J in The Brimnes was addressing the issue of when the process of payment was complete, and whether hire had (yet) been paid when a transfer order was received by the payee's bank correspondents, or only when the funds were actually credited to the payee's bank …

(ii)

The Chikuma is another case in which the issue was whether matters intrinsic to the receipt and processing of the payment in the banking chain, before that process had completed its ordinary course (such that the amount was not yet capable of earning interest for the payee), meant that there had been no payment. Lord Bridge approved Robert Goff J's conclusion that Brandon J's reference to 'unconditional' meant 'equivalent to unfettered and unrestricted'.

(iii)

In the present case, however, payment into an account of a bank which would seek to comply with its obligations under the EU and US sanctions regimes would not leave the payment process incomplete, nor would the Owners' difficulty in accessing those funds (or perhaps the impossibility of doing so) result from any feature of the payment process. Instead, it would be the result of an entirely external limitation arising from a perceived characteristic of the payee.

(iv)

I understood that Mr Smith KC was ultimately disposed to accept that payment into a bank account which could not be accessed by the payee because of a freezing injunction would still constitute payment and give the payor a good discharge. Whether accepted or not, the proposition is correct, and even applies when it is the paying party who has obtained the freezing order as the 'ship sale' freezing order cases show ( The P [1992] 1 Lloyd’s Rep 470, 472; Ateni Maritime Corp v Great Marine Ltd (The Great Marine) [1990] 2 Lloyd’s Rep 245, 249 ).

(v)

I also understood Mr Smith KC to accept that, if the nominated account had been an account which was 'frozen' in the sense in which the term is being used in this case (i.e. an account with a bank which will seek to comply with the EU and US sanctions regimes), payment into that account would nonetheless constitute payment for the purposes of the Charterparties. That was the conclusion reached (in my view, correctly) by Mr Houseman KC sitting as a deputy judge of the High Court in Havila Kystruten AS v STLC Europe Twenty Three Leasing Ltd [2022] EWHC 3166 (Comm), [97] …

(vi)

In my view, the position would not change if the account had become frozen after nomination. By paying into it, Gravelor would have done all that the Charterparties required.

(vii)

It is clear, therefore, that the mere fact that the transfer of funds is made into a bank account from which the Owners will have great difficulty withdrawing them does not of itself mean that payment has not taken place for the purposes of the Charterparty.”

The premise of this argument is that RSUK is holding “more than US$13m of the Claimants’ money” in the RSUK USD Client Account, and that if that amount or some part of it is “re-designated” as RSUK’s rather than the Claimants, payment will have been made even if RSUK is unable to transfer the re-designated amount from the client account to the office account. “Re-designation” appeared to involve a change in the title to the funds, and, more specifically, the Claimants surrendering any beneficial interest so that RSUK became the owner in equity as well as in law of the relevant balance, or, more specifically, the chose in action constituting it.

This was an interesting argument. However, it seems to me to involve a significant number of difficulties, and I have not found it sufficiently compelling to be able to conclude, on an interim security for costs application, that there is for this reason no “reason to believe” the Claimants will be unable to pay any costs order in RSUK’s favour for this reason alone.

First, it assumes that the Claimants (or at least Virgo) has a beneficial interest in the Balance. That is not an issue I am able to decide, but there is a considerable body of authority which I have referred to above which might weigh against it. If the actual position is that the Claimants have no beneficial interest in the Balance, but that the Claimants are either owed no debt at all by RSUK, or at least no such debt is payable when RSUK obtains a costs order in its favour, with RSUK having a debt claim against Barclays (albeit constituted by a bank account which, for SRA purposes, is subject to a number of regulatory limitations), it is not clear to me what it is said the Claimants could “re-designate” and what this would amount to in legal terms.

Second, without reaching a final decision on the matter, it seems to me that the better view is that RSUK could not re-designate funds in the RSUK USD Client Account such that they would no longer constitute “client monies” for SRA Accounting Rules purposes without transferring the relevant amount out of the client account, given the obligation in Rule 4.1 to “keep client money separate from money belonging to the authorised firm.” Further Rule 4.3 suggests that when a solicitors’ firm wishes to use money in a client account to pay fees due to it from the client, a transfer from the client account is necessary to make the payment (Rule 4.3 referring to the solicitor “transfer[ing] any client money from a client account to make the payment”). While I accept that Rule 2.1(d) might suggest that “client money” ceases to be “client money” once the solicitor has delivered a bill, that provision appears to concern money specifically paid to the solicitor by a client properly so-called on account of fees. Even in this context, the mere delivery of the bill is not sufficient to effect payment (Menzies v Oakwood Solicitors Ltd [2024] UKSC 34), so that Mr Turner’s submission that “as soon as a bill is delivered, the funds held on account of costs to which that bill relates cease to be client money” cannot be right. The argument of the unsuccessful solicitors in that case was not that payment took place while the funds were still in the client account, but when, following the submission of the bill, they were transferred to the office account: [33]. In the same case, the Court of Appeal at [2023] EWCA Civ 844 had reached a different conclusion as to the significance of the delivery of the bill, but were content at [41] to adopt a definition of payment as “a transfer of money (or its equivalent) in satisfaction of a bill with the knowledge and consent of the payer.”

Third, payment ordinarily requires acceptance on the part of the payee (Brindle and Cox, Law of Bank Payments (5^th), [1-002] and TSB Bank of Scotland Ltd v Welwyn Hatfield District Council [1993] 2 Bank LR 267). If so, it would be open to RSUK to refuse to accept payment by a “re-designation”. While a wrongful refusal to accept payment might give the putative payor a defence of tender, it is far from clear that a refusal by RSUK of payment by the “re-designation” of amounts in an account which it is unable to access (which is the present assumption) would be regarded as wrongful.

Fourth, I accept that the authorities on payment generally require the payee to have the “unconditional right to the immediate use of the funds transferred”: The Brimnes [1973] 1 WLR 386, 402 and Awilco of Oslo A/S v Fulvia SpA di Navigazione of Cagliari (The Chikuma) [1981] 1 WLR 314, 318-320, which RSUK does not presently have in relation to that part of the Balance referable to the Escrow Agreement. The decisions in Havila Kystruten and Gravelor involved payments into contractually designated accounts, where the payee’s use of the fund was constrained by characteristics of the payee existing independent of the act of payment. The former feature is not applicable to any purported discharge of a costs order in RSUK’s favour, and the latter is much less clearly present, if present at all, because Barclays’ concerns arose out of characteristics of the Claimants rather than RSUK. Further, the issues restricting RSUK’s unconditional use of the funds have arisen prior to any transfer from the current location of the funds, rather than as a result of such a transfer.

Fifth, it is open to the court to make it clear what must be done in order for payment of a court order to take place, and oust what might otherwise be permissible means of payment in the process: Parsdome Holdings Limited v Plastic Energy Global Ltd [2024] EWCA Civ 1293, [43]. If RSUK successfully defends the claim, on the premise that it has done all it has to do under the Escrow Agreement and that Barclays’ refusal to process the payment instruction it gave is something it is not responsible for, there must at least be a real possibility that RSUK could persuade the court to order that the Claimants should not be able to discharge any costs order in its favour by simply purporting to appropriate part of the Balance to RSUK.

Finally, if the Claimants had had a bank account with Barclays, and sought to make an intra-bank transfer to an RSUK account with Barclays (a situation not different in substance from the Claimants’ characterisation of the present facts), there could clearly be no payment unless the bank had decided to make the transfer, had the payee’s actual or apparent authority to accept the transfer and accepted those funds for the payee’s account (Brindle and Cox, [3-125], The Brimnes (an intra-bank transfer case) and Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia (The Laconia) [1977] AC 850). Brindle and Cox note that a scenario where the bank might decide not to accept the transfer on the payee’s behalf is if “the bank may be concerned that it will break the law by crediting the payee’s account, e.g. where regulations prohibit credits being made to the accounts of certain foreign nationals” ([3-133]).

Mr Turner’s second ground for submitting that RSUK had not shown that there was “reason to believe” that the Balance would not be available to discharge any costs order in RSUK’s favour rested on what was said to be the inadequacy of the evidence as to how Barclays would act in the event that such a costs order was made. I have concluded that this aspect of the argument is best considered at the second stage of the enquiry, namely whether I am satisfied “having regard to all the circumstances of the case that it is just to make such an order”. One reason for approaching matters in this way is that Barclays is not party to, and did not make any submissions on, the security for costs application, and yet I am being asked in the context of this issue to make findings about Barclays and its likely actions. Another is that my assessment of that issue is heavily influenced by the nature and weight of the evidence before the court.