(1) Recovery Partners GB Ltd v (1) Irakli Rukhadze
| Jurisdiction | England & Wales |
| Judge | Nicholas Vineall |
| Judgment Date | 24 January 2018 |
| Neutral Citation | [2018] EWHC 95 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000553 |
| Date | 24 January 2018 |
[2018] EWHC 95 (Comm)
Nicholas Vineall QC
SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
Case No: CL-2016-000553
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Tom Weisselberg QC and Tom Cleaver (instructed by Brown Rudnick LLP) for the Claimants
Jonathan Adkin QC (instructed by Signature Litigation LLP) for the Defendants
Hearing dates: 19 December 2017
Approved Judgment
Nicholas Vineall QC:
In February and again in April 2017 the Claimants' solicitors gave undertakings to hold sums of money as security for certain costs of the First to Fourth Defendants. By this application the Claimants seek an order permitting those undertakings to be released, in exchange for the provision of security for those same costs by way of a Deed of Indemnity from an insurance company which has provided the Claimants with ATE Insurance.
This slightly unusual application raises two issues. The first is whether this particular Deed of Indemnity (taken with the ATE policy) provides an acceptable form of security in the sense that, if this were a normal security for costs application, the court would be satisfied with the form of the security offered. I treat this as the first issue since the parties proceeded on the basis that, if the Deed did not provide adequate security, the application would fail, and also because this issue is in my view amenable to a relatively short answer. The parties, mindful of the possibility of future contested security for costs applications raising similar issues, invited me to decide this issue whatever view I ultimately took on the application as a whole.
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?
Background
The underlying claim concerns allegations by the Claimants of breaches of duty by D1–3 arising out of the alleged diversion of an opportunity to provide lucrative services to the family of the deceased Georgian billionaire Arkadi Patarkatsishvili. Mr Patarkatsishvili died unexpectedly in February 2008. Prior to his death, he had owned assets in various jurisdictions, many of which assets were held through structures which meant that they were not readily identifiable as the property of his estate and/or which left the estate's ownership of those assets under threat. The family therefore needed assistance in identifying and protecting those assets.
The Claimants' position is that the Claimants and Salford Capital Partners Inc (SCPI) provided the family with those recovery services for several years after Mr Patarkatsishvili died, but that the first three Defendants (who are individuals), in conjunction with some or all of the Fourth to Ninth Defendants, then improperly diverted that work away from SCPI and for their own benefit.
The Claimants bring these proceedings in their own right and the First Claimant claims that it has taken an assignment of any cause of action from SCPI.
Proceedings were issued on 12 September 2016, and Particulars of Claim followed on 23 December 2016. A defence was served on 3 February 2017. At that stage there were only four defendants, and in the rest of this judgment by Defendants I mean Defendants 1 to 4.
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].
2. that the Security will not be used for any purpose other than that set out in paragraph 1 above.
That undertaking having been given, no application for an order for security for costs was made.
The First CMC took place on 31 March 2017.
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.
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 subscribing insurers were International Insurance Company of Hannover SE (“Hannover”) and Elite Insurance Company Limited.
In order to head off any arguments about the adequacy of this ATE policy as a means of providing security for costs, on 5 July 2017 the Claimants obtained from Hannover a Deed of Indemnity. By clause 1 Hannover
unconditionaly and irrevocably undertakes to pay to [the Defendants] within 14 days of receipt by [Hannover] of a written demand by or behalf of any of the Defendants for any sum or sums payable by Recovery Partners GP Limited and Revoker LLP (“the Claimants”) following the issue of the Court Order, in respect of [this Claim] that finally determines the Claimants' liability for the Defendants' costs:
(i) by summary assessment of costs; or
(ii) where the Defendants' costs are to be assessed if not agreed by an Assessing Officer's Certificate for costs; or
(iii) where the Defendants' costs are to be assessed if not agreed, by agreement between the Claimants who are ordered to pay the costs and those of the Defendants who are to receive them providing always that [Hannover]'s prior written consent to any such agreement of the sum payable has been obtained, such consent not be unreasonably withheld; and/or
(iv) where the Defendants' costs are to be subject to detailed assessment and the Claimants are ordered to make a payment on account of costs pursuant to CPR r.44.2(8), by a Court Order for a payment on account of costs.
By clause 3 Hannover's total liability was not to exceed the sum of £1,000,000 less any sums paid by Hannover in respect of the Defendants' costs pursuant to the ATE policy.
Hannover was deemed to be principal debtor and not merely a surety (clause 8). The Deed was subject to English law and the exclusive jurisdiction of the English Courts (clause 11).
This application was issued on 1 September 2017. It was originally listed for 9 November but had to be adjourned. On 29 November 2017 the Defendants suggested that, the time estimate for the trial having increased from 12 to 16 days, and for other reasons, their total costs to trial would be £5m rather than the £1.9m estimated at the time of the first CMC, and in a letter of 11 December 2017 they said that their costs to the completion of witness statements was in fact just under £2.4m, in other words very much more than the sum for which security had been provided. On the evening before this hearing the Defendants issued an application for further security. I have not seen or considered that application.
The law as to adequate security
On an application for security for costs the court has a wide discretion not only as to whether, and in what sum, such security should be provided, but also as to the means by which it should be provided. Mr Weisselberg QC for the Claimants submitted, by analogy with the case of Rosengrens v Safe Deposit Ltd [1984] 1 WLR 1334 (which was a case of security pending an appeal) that if, on an application for security, two different forms of security would provide equal protection to the Defendant, the Court should, all else being equal, order the form which is least onerous to the Claimant. I accept that submission.
In Harlequin v Kennedy [2015] EWHC 1122 (TCC) Coulson J reviewed the authorities on whether ATE policies might constitute adequate security. He concluded that
(1) Adequate security for costs can be provided to a defendant by means other than a payment into court or a bank guarantee;
(2) Depending on the terms of the insurance and the circumstances of the case, an ATE insurance policy may be capable of providing adequate security;
(3) There may be provisions within the ATE policy which a defendant can point to and say that, on the happening of certain events, those provisions may reduce or obliterate the security otherwise provided;
(4) In that event, the court should approach such objections with care: in order to amount to a valid objection that an ATE policy does not provide appropriate security, the defendant's concern...
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