Higher Level Of Security For Costs Based Upon A Potential Award Of Indemnity Costs Declined

security for costs

The defendants in this anti-competition and breach of contract case sought security for costs against the claimant, Phones 4 U (in administration). The claimant agreed with D4-D8 to provide security for 65% of their incurred and anticipated costs. However, D1-D3 sought security at a higher level than this based upon a potential award of indemnity costs at trial given the “wide ranging and serious allegations of impropriety, which may include deceit”.

The defendants’ case was based largely on the decisions in Danilina v Chernukhin [2018] EWHC 2503 (Comm) (which we reported on here) and Re Ingenious Litigation [2020] EWHC 235 (Ch). In both cases the court awarded security at 75%.

Danilina v Chernukhin [2018] EWHC 2503 (Comm)

“…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… 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… 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.”

Re Ingenious Litigation [2020] EWHC 235 (Ch)

“… even a cursory glance at [the Particulars of Claim] shows that … the claims against the Ingenious Defendants are based on … fraudulent misrepresentation and deceit … I certainly regard claims of deceit and of unlawful means conspiracy, based on fraudulent misrepresentations being the unlawful means, as serious allegations which at least open the door to the possibility of indemnity costs in the event that the claims are found at trial to be unfounded.”

However, The Hon. Mr Justice Roth declined to accept that based on either of these decisions the general test was whether there was either a real or reasonable “possibility” of indemnity costs being awarded.

“if the judgments in Danilina and Ingenious are to be interpreted as expressing a general test for such a higher level of security as being simply that there is “a real possibility” or “reasonable possibility” of an ultimate award of indemnity costs, I respectfully disagree with them.”

In any event, he went on to distinguish the nature of this claim.

“I think that there are various reasons here why the main claim by P4U could fail other than by a conclusion that there was no collusion between the Defendants. The Defendants strongly dispute P4U’s case on causation in two distinct respects… Further, even as regards collusion, the court could reject the allegations of anti-competitive conduct because P4U had failed to discharge its burden of proof…”

As a result he found that a case for a higher level of security had not been made out.

“Altogether, I accept that it is possible that P4U could be ordered to pay the costs of EE, DT and Orange on an indemnity basis. But in all the circumstances, I am wholly unable to reach a conclusion that this is such a significant possibility or, to put it another way, that there is a real prospect of such an order so as to justify a requirement to provide security for costs on that basis.”

He concluded with these general observations.

“An allegation that large companies made secret anti-competitive arrangements or agreements of the kind here alleged is not out of the norm when considered against the substance of numerous competition law decisions. Because of the difficulties of proving such arrangements or agreements, those decisions are generally made by competition authorities which have much greater powers of investigation than a private claimant. Although the protection of security for costs for defendants is important, and while I recognise that there may be some claims that are so weak as to justify an exceptional order, I think that the court should in general be cautious about awarding costs on the indemnity basis just because a claim making such allegations fails at trial, and still more so about ordering security for costs in advance at the higher-than usual rate. To do otherwise would create a further incentive against private claimants bringing such claims.”

PHONES 4U LTD V EE LTD & ORS [2020] EWHC 1943 (CH)