The claimant brought two claims against the defendants. The first “TGM” claim concerned the indirect beneficial ownership of a Russian company, a former state-owned textiles factory which holds valuable real estate in Moscow. The second “Family Assets” claim concerned the beneficial ownership of assets held in trust.
This was an application by the defendants for an order that the claimant provide further security for the defendants’ costs of defending the claims which had been brought against them.
A payment on account of security for costs had previously been made by the claimant pursuant to an order of Cockerill J in the sum of £790,000 (£700,000 to the first and second defendants and £90,000 to the third defendant).
In the light of that there was no dispute that in principle the defendants were entitled to security for their costs.
It was accepted by the claimant that she would be required to provide some additional security. Thus, the question before the Court was how much security would be fair and just to order.
The Amount Sought
The first and second defendants sought a sum equal to 85% (originally 100% but dropped to 85% at the hearing) of their incurred and expected costs, after deducting £700,000, on the basis that if the claimant’s claim failed it was very likely that costs would be ordered to be assessed on the indemnity basis. Thus, security was sought in the sum of £3,179,936.
The third defendant sought a sum equal to 90% of his incurred and expected costs, after deducting the £90,000 payment, namely £728,295.
The Parties’ Submissions
On behalf of the claimant Mr. Chapman QC submitted that:
- the claims for security should be on the basis of 60% of the incurred and expected costs because it was impermissible for the court to consider whether indemnity costs would be ordered. That would involve delving into the merits of the claim which was something the court could not do on an application of this nature;
- the maximum amount of further security which the claimant could provide was £1.1 million as had no regular income and that she invested in a company known as Artel, which had not made sufficient profits to provide her with an income. She has stated that she had funded her living expenses by selling jewellery, art and her Moscow flat. Those assets were exhausted; and
- the first defendant’s intention was to “oppress the fair pursuit and trial of the claimant’s legitimate and genuine claims”. He referenced the first defendant’s knowledge of her “relatively limited means”, his maximising of the costs incurred by her by failing to give proper disclosure and so necessitating disclosure applications by her, his initial demand for security for costs in the sum of 100% of his incurred and estimated costs and his decision to seek security from her rather than from Mr. Deripaska, a third party funder.
On behalf of the first and second defendants Mr. Crow QC:
- accepted that the court could not delve into the merits of the claim, but submitted that if the claimant lost at trial it was highly likely that costs would be ordered to be assessed on the indemnity basis because she would have given evidence which she would have known to be false because there was no room for a mistaken recollection; and
- criticized the very few documents disclosed by the claimant in support of her evidence as to means.
MR JUSTICE TEARE:
14. The question on this application is whether an order for costs on the indemnity basis is a reasonable, not a speculative, possibility such that it is appropriate that the security ordered by the court should reflect that possibility. That does not involve a consideration of the merits of the claims. On the contrary it assumes that the Claimant loses her claims.
15. Upon that assumption it appears to me to be unlikely that the Claimant’s TGM claim, if it fails, would have been dismissed because it was founded upon a mistaken recollection by her that she was the beneficial owner of a very valuable asset. It is more likely that if she loses her claim it would be because her evidence was dishonest. Similarly, if she loses her Family Assets claim it is unlikely that that would have been because she had a mistaken recollection of agreeing that assets acquired during the Claimant’s and First Defendant’s relationship were to be divided between them. There thus appears to me to be a reasonable possibility that costs will be ordered to be assessed on an indemnity basis in the event that the Claimant loses her claims.
16. Mr. Chapman submitted that the recent, and late, disclosure by the First Defendant of documents concerning events in 2007 supports the Claimant’s case and suggests that if she loses the case that may have been brought about by a mistaken recollection by her rather than by the giving of dishonest evidence. It appears arguable that the recent disclosure supports her case, certainly the Family Assets claim. But even if they support both that claim and the TGM claim an order for indemnity costs, in the event that the claims fail, appears to be a reasonable possibility such that it is appropriate that the security ordered by the court should take that possibility into account. That conclusion does not involve an assessment of the merits of the claims but simply an appreciation of the nature of the claims. I do not say that indemnity costs will be ordered, only that there is a reasonable possibility that they will be.
17. Where there is no possibility of costs being assessed on an indemnity basis or where such possibility is no more than speculative the courts generally make orders for security for costs by reference to 60-70% of the incurred and expected costs.
Cases noted by Mr. Crow suggest a range of 60-75% but my experience suggests that 60-70% is more usual.
It appears to me that where there is a reasonable possibility of indemnity costs the order should be made (at any rate in this case where very substantial costs are involved) by reference to about 75% of the incurred and expected costs.
Criticisms were made of the quantum of costs claimed both by the First and Second Defendants and by the Third Defendants; see, for example, paragraph 29 of Ms. Boulton’s seventh witness statement dated 5 September 2018. A reduction of 25% takes proper account of those criticisms.
18. 75% of the First and Second Defendants’ costs of £4,441,101 is £3,330,826.01. 75% of the Third Defendant’s costs of £899,217 is £674,413.
Is it probable that an order for security in an amount in excess of £1.1 million would stifle the claim ?
29. The burden is on the Claimant to establish the probability that her claim would be stifled if she were ordered to pay more than £1.1 million as further security for costs and her evidence has to be full, frank, clear and unequivocal; see Al-Koronky v Time Life Entertainment Group  EWHC 1688 (QB) at 31. Some of the more recent authorities to the same effect are noted in Accident Exchange and another v Mclean and others  EWHC 1533 (Comm) at paragraphs 10-13.
30. There was much criticism by the Defendants of the very few documents disclosed by the Claimant in support of her evidence. However, it is to be borne in mind that her evidence had to be prepared hurriedly in circumstances where the application for additional security had been issued in August 2018. Following that criticism a further statement was provided on 12 September 2018 (the day on which the application was heard). That exhibited a copy of the public register evidencing the charge on her home in favour of the Development Capital Bank. Certain further information, and additional documentation, was given.
31. The position remains that much of her evidence is unsupported by documentation. However, it seems tolerably clear that she has mortgaged her main residence, which suggests that she has no other source of liquidity. Mr. Chapman indeed submitted that it was to be inferred that mortgaging her home was the only way in which she was able to fund these proceedings. Some doubt was cast upon the inferences to be drawn from the fact of that mortgage by the suggestion that the bank responsible for the loan had some connection with Mr. Deripaska. The chairman of its supervisory board was a university classmate with Mr. Deripaska.
37. It is well established that on applications of this nature it is necessary for a claimant to be frank not only about her own finances but also about what she can reasonably be expected to provide from third parties, such as friends and relatives; see Al Koronky v Time Life Entertainment Group at paragraph 31. It is clear from Yorke Motors v Edwards  1 WLR 444 at p. 449H that such third parties may also include “business associates”.
38. In this case the relevant third party is Mr. Deripaska. It is clear from the agreements he has made with the Claimant that he wishes her to pursue and win these proceedings, or at any rate the TGM claim. He provided money to her to secure her agreement to commence these proceedings and not to cooperate with the Defendants. In addition he has provided money to finance her claim. He has done so, it appears, because he considers that her proceedings will assist him in his dispute with Mr. Chernukhin. In those circumstances it is to be expected that, if there is a risk that her claim may be stayed or struck out because of a failure to provide security for the Defendants’ costs, he would provide the necessary security for those costs. Otherwise the $5 million which he has provided to her would be wasted.
39. It follows that upon an application for security for costs one would expect the Claimant to give “full, frank, clear and unequivocal evidence” that Mr. Deripaska is not willing or able to provide the security which has been sought. The Claimant has, however, addressed this matter very shortly in her evidence. She has merely said:
“My solicitors and I have approached the representatives of Mr. Deripaska to request that he assist me with the provision of security. We were recently informed that he had not agreed to do so.”
40. I am unable to regard this evidence as “full, frank, clear or unequivocal.” No details are given as to when, how and in what terms the Claimant’s solicitors and the Claimant approached the representatives of Mr. Deripaska. No details are given of the persons who were approached. It is not stated when, how or by whom the Claimant’s solicitors or the Claimant herself were informed that “he had not agreed” to provide security. As to the statement that “he had not agreed” to provide security it is not clear whether the message was that Mr. Deripaska had not agreed to provide security in response to the Defendants’ request or whether the message was that, even if the Claimant’s claim would otherwise be stayed or struck out, he would not agree to provide security.
41. In these circumstances, having regard to all of the above matters, I am not persuaded that it is probable that if the Claimant is ordered to pay more than £1.1 million by way of further security her claims would be stifled.
42. Mr. Chapman submitted, by reference to Stavrinides v Cyprus Popular Bank Public Co.  EWHC 313 at paragraph 70, that the risk of stifling should not be presumed to exist just because there has been some failure to satisfy the court as to every potential available source of funding and that the ultimate question, given that it bears upon access to justice, is whether the court is satisfied that the grant of security will not stifle the claim. If this is the ultimate question then, in the unusual circumstances of this case, where Mr. Deripaska, a very wealthy man, has caused Ms. Danilina to bring her claim and has provided finance for her to do so, I am satisfied that the requested security will not stifle her claims.
43. It may be that Mr. Deripaska would not be willing to provide security for the costs of defending the Family Assets claim. Although I was told by Mr. Chapman that TGM claim and the Family Assets claim were “not wholly distinct”, it may be the case that Mr. Deripaska has no interest in the latter claim. However, in circumstances where Ms. Danilina is able and willing to provide £1.1 million by way of further security that is likely to cover the costs of defending the Family Assets claim.
The counterclaim of the First and Second Defendants
44. If a defendant has a counterclaim which would be pursued even if the claimant’s were struck out there that is a factor which weighs in favour of a refusal to order security for costs; see Chuku v Chuku  2 Costs LR 267 at paragraphs 29-33 and 37 per Newey J. (as he then was).
55. In my judgment, in the event that the Claimant’s claims are stayed or struck out on account of a failure to provide security for costs, there would be no risk of “one-sided litigation” against the Claimant. For in that event the Defendants would not be seeking, as Mr. Crow has confirmed, a declaration against the Claimant that she was not the beneficial owner of the 50% interest in the joint venture or that there had been no 2007 agreement regarding family assets. All that would be pursued would be the Defendants’ defence of Mr. Deripaska’s s.67 arbitration challenge. In the event that the Defendants prevailed they have given notice that they will seek damages from both the Claimant and Mr. Deripaska for conspiracy. That would be a new action in which the Claimant, like Mr. Deripaska, would be able to defend herself against the claim of conspiracy brought against her. Thus there would be no “one-sided litigation”.
56. For these reasons I am unpersuaded that there is any merit in the counterclaim point.
The intention of the First and Second Defendants
58. It seems likely that Mr. Chernukhin is defending the claims brought against him aggressively. That is suggested by his (initial) demand for 100% security. However, he is entitled to request security and has been held entitled to security. The demand for 100% was dropped when this matter came on for hearing. Whilst there are questions to be asked about his approach to disclosure (which were discussed in the context of Ms. Danilina’s applications for specific disclosure), it is not possible for me to determine on this application that Mr. Chernukhin wishes to maximise the costs she must incur or that he intends to “oppress the fair trial” of her claims. In any event it has been accepted on her behalf that Mr. Chernukhin is entitled to further security and a further £1.1 million has in fact been offered. In those circumstances I am not persuaded that I should reduce the amount of security to be provided by Ms. Danilina because of what has been alleged about Mr. Chernukhin’s intention.
The stage at which this application is being determined
61. The trial of this matter is fixed for 26 November 2018. Thus the court is being asked to determine the question of security for costs some two months before the trial. This circumstance can have particularly onerous and disproportionate consequences. The claimant will already have incurred substantial costs and so, if the effect of security being ordered and remaining unpaid within a short period of time is that the claim will be struck out, the consequences to the claimant will be more onerous than if the order had been made at an earlier stage when substantial costs had not already been incurred; see Vedatech v Crystal Decisions  EWCA Civ 356 at paragraphs 15 and 20 per Ward LJ and paragraph 25 per Longmore LJ.
62. I have considered this matter and asked myself whether, on the facts of this case, it is a reason for declining to make a further order for security for costs or for moderating the sum in respect of which security is ordered.
63. Although the application is being determined at a late stage that is because of the unusual procedural history of this application. The application was in fact made at a much earlier stage and resulted in an order for security for costs to trial (although that had not been sought by the Defendants). That order was appealed and Ms. Danilina resisted the appeal. The appeal was successful and at the end of July 2018 the Court of Appeal ordered that the amount of security already paid (pursuant to the order of Cockerill J.) be on account of whatever sum was ordered by the Commercial Court. So this is not a case where there is any blame to be attached for the Defendants for the late stage at which the application is being determined.
64. However, this issue is not so much about delay as about the increased burden upon a claimant who is ordered to provide security at a late stage in an action when the claimant has already incurred substantial costs.
If an order for security for costs leads to a claim being stayed or struck out the burden on the claimant is much greater than if the order had been made at an early stage before substantial costs have been incurred. But the present case is unusual.
65. I do not consider that the burden on the Claimant on the facts of this case would be so burdensome or disproportionate that there should be no order for further security or that the amount of such security should be moderated. I have reached that conclusion for two reasons. First, she accepts that she herself can pay £1.1 million from her own (liquid) resources. Second, although Ms. Danilina is not a nominal claimant for the reasons given by Cockerill J., this is a case where Mr. Deripaska, a very wealthy man, has requested that the claim, at any rate the TGM claim, be brought and has already provided $5 million ($3 million under the loan agreement and $2 million under the option agreement) to enable it to be brought. It is likely that, faced with the risk that the claim be stayed or struck out, he would provide additional security for costs. Otherwise the $5 million he has provided would or might be wasted. At any rate, Ms. Danilina has not discharged the burden which lies on her of proving that she is unable to obtain further funding from him. There is no dispute that Mr. Deripaska is a very wealthy man and that it is within his means to provide a further sum by way of security. 75% of the costs of all three Defendants (less the sum paid on account) amounts to some £3.2 million. If Ms. Danilina provides £1.1 million, as she has said she can, there will be a further £2.1 million of security to be provided by Mr. Deripaska. It was not suggested that the provision of such security would be unduly burdensome for Mr. Deripaska. He has already provided security to the First and Second Defendants (for the arbitration award and the costs of the s.67 challenge) by way of a charge over shares worth $245 million. In those circumstances I do not consider that the late stage at which this matter is being determined is a reason for declining to make a further order for security for costs or for moderating the sum which is ordered.
66. I have sought to consider all the matters said to be relevant to the assessment of the further sums in respect of which it is just that security be provided.
67. Having done so I have concluded that it is just to order security for the First and Second Defendants’ costs in the sum of £2,630,826 and for the Third Defendant’s costs in the sum of £584,413.
68. I have noted Mr. Crow’s submissions as to how and when that security should be provided; see paragraph 73 of his skeleton argument. I do not think Mr. Chapman dealt with this matter. I am (provisionally) minded to order that £1.1 million be provided within 14 days (mid-October) and that the balance be provided within 14 days thereafter (end of October). I invite counsel to agree the terms of the order. The £1.1 million should be apportioned between the Defendants in the same ratio as the sums to be paid in respect of the First and Second Defendants’ costs and in respect of the Third Defendant’s costs bear to the total additional security to be provided.