Kerry Underwood

SECURITY FOR COSTS: TWO NEW CASES

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Varying Security for Costs Orders

Recovery Partners GB Limited and Another v Rukhadze and Others [2018] EWHC 95 (Comm)

the Business and Property Court, part of the Queen’s Bench Division of the High Court, gave guidance on the appropriate approach when a party seeks to change the basis on which security for costs, already ordered, is to be provided.

This was an application by the claimant’s solicitors seeking to be released from undertakings to hold sums of money as security for costs, on the basis that instead, security would be provided by a Deed of Indemnity from an insurance company that had provided the claimants with After the Event insurance (“ATE”).

The judge recognized the ATE insurance can provide security for costs and referred to

 

Harlequin v Kennedy [2015] EWHC 1122 (TCC); and

 

Premier Motorauctions Limited (in liquidation) v Price Water House Coopers LLP [2017] EWCA Civ 1872,

 

and held that the ATE policy here and the Deed of Indemnity in this case would constitute adequate security.

 

The judge treated that as the first issue and then set out the second issue as follows:

 

“3.The second issue, which might fairly be said to be the logically prior issue, is this: What approach should the court take in circumstances such as these where a party seeks to be released from an undertaking given in lieu of an order for security for costs? In particular, is it enough that the deed offered provides adequate security in the sense I have just described, or is some different approach required where security has already been given and the Claimant wants to substitute a new form of security for the security already given? If so, what is the proper approach and what is the appropriate outcome on the facts of this case?”

“8. On 6 February 2017, following requests by the Defendants for security, the Claimants’ solicitors Brown Rudnick wrote a letter giving an undertaking. So far as material, it provided as follows

This firm holds the sum of £200,000 (“the Security”) by way of security for the Defendants’ costs of these proceedings (up to and including the Case Management Conference).

Unless the parties agree and/or the Court orders otherwise, this firm irrevocably undertakes

  1. irrespective of any contrary instructions by the Claimants or any other person, to make payment from the Security of the amount of any award on costs relating to the period up to and including the first CMC … to [the Defendants’ solicitors].

 

  1. that the Security will not be used for any purpose other than that set out in paragraph 1 above.”

“9. That undertaking having been given, no application for an order for security for costs was made.”

“11. A second and similar undertaking was given by Brown Rudnick on 12 April 2017 but this time the sum held was (just short of) £366,000 and it was held “by way of security for the Defendants’ costs in respect of disclosure and work on the witness statements in these proceedings”. Again, having obtained the undertaking, the Defendants did not make the security for costs application that they had intimated.”

“12. After the undertakings were given, the Claimants obtained an after-the-event (“ATE”) “Litigation Insurance Policy” which took effect from 12 May 2017. It indemnified the Claimants for the costs of the Defendants up to a limit of £2,000,000. There was no cover for anything else.”

The judge then made this finding, at paragraph 32 of the judgement:

“32. The position is therefore that, had this been an application for security for costs, and one which I would otherwise have granted, I would have regarded the availability of the Deed of Indemnity, together with the ATE policy and the offer of an endorsement and a deed of charge, as providing sufficient security, so that no order for security was appropriate.”

The judge then address the second issue and said that he doubted that there had been the necessary “material change of circumstances” to justify a release of the undertaking, “but since the Defendants were content to proceed on the assumption that there had been, I will proceed on the same basis, without deciding the point.” (Paragraph 37).

Once there is a material change of circumstances, the court has a broad discretion, which should be exercised taking into account all relevant factors but remembering that the burden is on the party who seeks to be released from his undertaking to show that it is appropriate to allow that release.

The judge rejected the claimant’s submission that once there is a material change of circumstances, then the question should be approached simply as though it were a fresh application for security for cost.

 

The judge had this to say:

 

“39… Here, two threatened applications for security were, in effect, compromised by providing security by a London solicitor’s undertaking backed by cash, and, those deals having been struck, the Defendants incurred costs against the confidence that that security provided. What this application seeks to do is to wind back the clock and substitute for the security in fact given a different form of security. It does not seem to me to follow as a matter of logic that merely because the Court might have accepted the Deed and the ATE policy had they been available earlier this year, that it is therefore necessarily appropriate to allow them now to be substituted for the security previously given.”

Although the security offered was “clearly less attractive” to the defendants, that of itself did not determine the issue.

It might sometimes be appropriate to release an undertaking, or vary an order for security, even though the new security was marginally less attractive, if there was “some compelling consideration going the other way”, for example significant hardship to the claimant if the substitution was not made.

The burden is on the party seeking release from the undertaking and relevant factors that might be material, as in this case, include:

 

  • how long the old security has been in place and whether the costs which it secured have already been incurred;

 

  • the extent of the difference (if any) between the quality of the old security and the quality of the new security;

 

  • the strength of the explanation given for the Claimant’s change of position;

 

  • in particular, whether or not, and if so to what extent, declining to permit the change would cause hardship or prejudice to the Claimant or inhibit its ability to pursue its claim.

 

The judge then concluded:

 

“44. Applying those factors to this case: (1) the security has been in place for either 8 or 10 months and the costs it secures have all been incurred; (2) the new security offered is in a form which would be adequate to meet a security for costs application but is not, objectively, as attractive as a London solicitor’s undertaking backed with cash; (3) it is unclear whether or not the ATE policy and Deed now offered could have been offered at an earlier stage: the reason given by the Claimants to justify their change of position is simply that they would prefer to have the cash available to them; and (4) the Claimants do not suggest that they would suffer hardship or prejudice if the existing security were to stay in place.

 

  1. The fourth factor seems to me to carry particular weight. The security has been in place for some time and no strong reason is given for revisiting and changing the existing arrangements, after the event, to something less attractive to the Defendants.

 

  1. Weighing these factors I find that the Claimants have not demonstrated that it is appropriate that their solicitors be released from their undertakings. I therefore dismiss the application.”

 

Previous Litigation Findings, Timing and Quantification

In Bluewaters Communications Holdings LLC v Bayerische Landesbank Anstalt Des Offentlichen Rechts and others [2018] EWHC 78 (Comm)

 

the Business and Property Court, part of the Commercial Court, itself part of the Queen’s Bench Division of the High Court, was dealing with applications for security for costs where the claim was an alleged corrupt agreement to sell shares.

 

The second and third Defendants have made applications for security for costs pursuant to CPR 25.13(2)(a), which covers overseas claimants, and CPR 25.13(2)(c) which covers impecunious claimant companies.

 

The court granted the application.

 

On a security for costs application, the court will not consider the merits of the claim in detail unless a high degree of probability of success can be demonstrated – see Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534.

 

This case illustrates the potential challenges of meeting that threshold in factually and legally complex proceedings alleging fraud.

 

The court also commented on the timing of the application and endorsed the approach to quantification of security of costs as set out in

 

 

Vald Nielsen Holding AS v Baldorino [2017] EWHC 1033 (Comm)

 

 

described as “commonly applied” in the Commercial Court.

 

The claimant also submitted that the re-running of their previously unsuccessful defence by the defendant should not be condoned by granting security for the associated costs.

 

The judge regarded this as a quantum point and was not sufficiently certain of claimant’s success on the issue to refuse security.

 

As to the complaints by the claimant of delay, it was perfectly reasonable for the defendant to undertake most of the defence preparation work before seeking security, and in that respect the defendant had complied with the Commercial Court Guide.

 

Until the issues had been crystallised by initial exchange of detailed pleadings, the court could not have resolved any quantum-related dispute.

 

The court granted security in the amount that it considered the defendant was likely to recover on detailed assessment, if awarded standard basis costs at trial – see Vald Nielsen.

 

Here, 60 per cent of D’s costs incurred, and to be incurred to the end of the CMC, was proportionate in a claim worth US$500 million and involving serious allegations of fraud and complex factual and legal issues.

 

The total security ordered was £752,000.00.

 

The judge also gave Bluewaters liberty to apply to seek permission to provide that security in the form of an ATE insurance policy.

 

 

 

 

 

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Written by kerryunderwood

April 19, 2018 at 8:38 am

Posted in Uncategorized

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