Kerry Underwood

SECURITY FOR COSTS: TWO NEW CASES

leave a comment »


Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

Substantial Obstacles To Enforcement Of Costs In Russia Justified Security For Costs

In

PJSC Tatneft v Bogolyubov and others [2019] EWHC 1400 (Comm) (5 June 2019)

the High Court of Justice Business and Property Courts of England and Wales Commercial Court(QBD) – a snappy title – ordered a claimant company incorporated in the Russian Federation, to provide security for the defendants’ costs under CPR 25.13(2)(a).

 

The Legal Basis for an Order for Security for Costs

 

CPR 25.13 provides, in part, as follows:

(1)  The court may make an order for security for costs under rule 25.12 if –

(a)  It is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and

(i)  one or more of the conditions in paragraph (2) applies

(2)  The conditions are –

(a)  the claimant is –

(i)  resident out of the jurisdiction; but

(ii)  not resident in a Brussels Contracting State, a State bound by the Lugano Convention, a State bound by the 2005 Hague Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982 .”

 

As Tatneft is a Tatarstan company, Tatarstan being part of the Russian Federation, it was common ground that the condition in 25.13(2)(a) was met.

However, the court’s discretion must be exercised in a manner which is not discriminatory for the purposes of Articles 6 and 14 of the European Convention for the Protection of Human Rights and Fundamental Freedoms – see

Nasser v United Bank of Kuwait [2002] 1 WLR 1868.

The principles were set out in paragraphs 62 – 64 of that judgment, repeated here in paragraph 7.

The evidential threshold in such cases was set out in paragraphs 73, 77, 79 and 86 of the Court of Appeal’s judgment in

Bestfort Developments LLP v Ras Al Khaimah Investment Authority [2016] EWCA Civ 1099 

set out by the court here at paragraph 8.

Detailed guidance as to the jurisdiction to order security for costs was given by the Court of Appeal in

Danilina v Chernukhin [2018] EWHC 39 (Comm)

and the relevant parts of that judgment are set out by the court here at paragraphs 10 and 11 of its judgment.

The judge held that there was a real risk of substantial obstacles to enforcement in Russia satisfying the test in

Nasser v United Bank of Kuwait [2002] 1 WLR 1868.

This was based on:

(i) evidence of recent enforcement rates in Russia;

(ii) the absence of any enforcement treaty between the UK and Russia;

(iii) “a non-fanciful risk” that the issue of “reciprocity” ,the usual basis for enforcement of English judgments in Russia, might not be established in the context of a costs award in this case particularly as no case in which the English courts have enforced a Russian costs-only judgment had been identified;

(iv) a 2004 Russian Federation Information Letter stating that rulings of foreign courts on “interim measures”, such as costs orders, would not be recognised and enforced in Russia;

(v) a “non-fanciful” risk that a Russian enforcement court might apply the public policy exception under Arbitrazh Code, Art. 244(1) in an expansive way;

(vi) sanctions imposed by the Russian government, which contributed to the risk of non-enforcement of a costs order for public policy reasons there being a real risk that the defendant might become subject to sanctions; and

(vii) overall, points (iii) to (vi) each represented a real risk of substantial obstacles to enforcement and, in light of points (i) and (ii), the position was “clear”.

This conclusion conformed with Danilina v Chernukhin [2018] EWHC 39 (Comm).

The judge was not persuaded by the Russian Federation’s attempt to oppose the application, based on CPR 25.13(2)(a)(ii), on the basis that it had assets in Switzerland and Cyprus.

The judge did not accept that, if a non-Convention resident has assets within the CPR 25.13(2)(a) zone, in the absence of lack of probity, no security can be ordered referring to

Texuna International Ltd v Cairn Energy plc [2004] EWHC 1102 (Comm) (paragraphs 27 and 28).

Here, there was a real risk that the assets within the zone would not be available or sufficient, and the judge concluded that, where the Nasser condition was met, the Russian Federation was able to put up security and had not pointed to any possible prejudice; and the defendant would potentially be prejudiced without security, it was just to order security for the entirety of the defendant’s costs.

 

Security For Costs As Sanction

In

Alba Exotic Fruit Sh Pk v MSC Mediterranean Shipping Company S.A. [2019] 6 WLUK 77 (Comm) (3 June 2019)

the High Court of Justice Business and Property Courts of England and Wales London Circuit Commercial Court dismissed the defendant’s application to strike out the claim under CPR 3.4(2)(b) or (c),  and dismissed the defendant’s application for security for costs under CPR 25.12, but required the claimant to provide the defendant with security for costs by way of sanction for failing to apply to fix the Case Management Conference for four years and seven months.

Thus the court imposed security for costs as a sanction for a long delay in progressing proceedings, in circumstances where the judge acknowledged that an order for security was not justified under CPR 25.12.

Following service of the defence, the claimant should have applied to the court for a Case Management Conference within 14 days in accordance with Practice Direction 59.7.2.

However, it failed to do so and did not take substantive steps in the proceedings for nearly four years.

Following the claimant’s service of a notice of change of solicitor and an application to amend its Particulars of Claim, the defendant applied to strike out the claim, and for security for costs.

The High Court Judge considered that, although the claimant’s delay applying to fix the Case Management Conference was inordinate and inexcusable, it had not resulted in serious prejudice to the defendant, and did not mean that a fair trial was no longer possible.

The judge therefore refused to strike out the claim as an abuse of process under CPR 3.4(2)(b).

Following the guidance in

Walsham Chalet Park Ltd (t/a Dream Lodge Group) v Tallington Lakes Ltd [2014] EWCA Civ 1607,

regarding the application under CPR 3.4(2)(c), the judge applied CPR 3.9 to decide on a sanction for the claimant’s failure to comply with Practice Direction 59.7.2.

The judge emphasised the need for a proportionate response to the default, considering strike out to be too draconian where the defendant could have applied to fix the Case Management Conference itself, and where he had found that a fair trial was still possible.

Although the risk of the defendant being unable to enforce a costs award against the claimant, an Albanian company, was not sufficiently serious to justify an order for security for costs under CPR 25.12, it was a fair and proportionate sanction to impose for the claimant’s serious default, which had delayed and increased the costs of the litigation.

The judgment contains a detailed analysis of the law in relation to striking out, a sanction that the court declined to impose in this case.

Advertisements

Written by kerryunderwood

June 25, 2019 at 11:39 am

Posted in Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: