Infinity Distribution Ltd ((in Administration)) v The Khan Partnership LLP
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moylan,Lord Justice Nugee,Lord Justice Birss |
| Judgment Date | 20 April 2021 |
| Neutral Citation | [2021] EWCA Civ 565 |
| Date | 20 April 2021 |
| Docket Number | Case No: A3/2020/1300 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 565
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Mr Stuart Isaacs QC sitting as a Deputy Judge of the High Court
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moylan
Lord Justice Nugee
and
Lord Justice Birss
Case No: A3/2020/1300
Mr Dan Stacey (instructed directly) for the Appellant
Mr Albert Sampson (instructed by CANDEY) for the Respondent
Hearing date: 11 March 2021
Approved Judgment
Introduction
This second appeal raises a question on the form of security for costs to be provided where the Court is satisfied that it is an appropriate case to order security.
In the present case the Claimant company, Infinity Distribution Ltd, ( “Infinity”) successfully argued before Deputy Master Arkush that it should provide security for costs in the form of extending its existing “after the event” or ATE policy to include a deed of indemnity. The effect of this would be that if it were successful at trial, the very substantial extra premium might be recoverable from the Defendant, The Khan Partnership LLP ( “TKP”).
On appeal by TKP, this decision was upheld by Mr Stuart Isaacs QC sitting as a Deputy Judge of the High Court. The essential ground on which he did so was that the potential recoverability of the premium was irrelevant to the question whether the deed of indemnity was a suitable form of security.
Permission for a second appeal was granted to TKP by Rose LJ. Its Grounds of Appeal effectively amount to a single ground, namely that Mr Isaacs was wrong to regard the recoverability of the premium as irrelevant.
In my judgment this ground of appeal is made out. I would allow the appeal and order Infinity to provide security by payment into court.
Background
TKP is a firm of solicitors. Infinity is a company that has been in administration since 2009, but was formerly a wholesale supplier of mobile telephones. Such trades are notoriously susceptible to being used as a means of committing VAT fraud, and in 2006 HMRC notified Infinity that it was commencing an investigation into Infinity's affairs. Infinity retained TKP to assist it in relation to the investigation.
The dispute is as to the terms of TKP's retainer. The details are unimportant for present purposes, but can be summarised as follows. In 2007 HMRC denied Infinity a repayment of input VAT for a particular quarter. Infinity, represented by TKP, appealed to the VAT & Duties Tribunal. Its appeal succeeded due to HMRC's failure to comply with an unless order, and certain monies became payable to Infinity by way of repayment of input VAT. The amount payable included a sum of nearly £840,000 by way of interest. The payment was paid into TKP's client account. TKP retained out of this money the sums which it claimed to be due to it under its retainer. That included a sum of £293,500 plus VAT (totalling £337,525) which TKP transferred to itself in December 2008 and claims to have been due as an agreed fee, calculated at 35% of the interest repaid. Infinity denies that there was any such agreement. From the pleadings this issue appears to turn mainly on the content of a telephone conversation in October 2008.
The proceedings
Infinity went into administration in September 2009. It issued the Claim Form in July 2014. In November 2014 it obtained an ATE policy in the sum of £180,000, and gave notification of the insurance to TKP. No indication of the amount of the premium was given to TKP at the time. The claim has not progressed swiftly. It took until June 2016 before a question of the extension of time for service of the Claim Form was finally resolved, and it was not until 3 May 2018 that a Costs and Case Management Conference ( “CCMC”) was held. At the CCMC directions were given for trial to take place between May and October 2019 with an estimate of 6 days, and in July 2018 it was fixed for June 2019.
Shortly before the CCMC TKP wrote to Infinity' s solicitors requesting their proposals for providing security on the grounds that the latest Progress Report from the Joint Administrators demonstrated that Infinity was unarguably insolvent. They indicated that their incurred costs were in excess of £225,000. At the CCMC costs budgets for the parties up to trial were approved by the Court (insofar as not agreed). We were told that the total costs budget for Infinity (incurred and budgeted) was about £300,000; that for TKP was over £500,000. On 18 May 2018 TKP wrote again asking for security in a sum of over £500,000. Further correspondence ensued, but it did little to resolve matters. Infinity's position was that it would agree to increase the level of cover under its ATE policy from £180,000 to £360,000; that it had made enquiries for the provision of a deed of indemnity by its insurers, which would be provided “in due course”; and that it would expect to recover any additional premium from TKP should it be successful at trial. There was no indication in that correspondence what the level of such a premium might be.
Hearing before Chief Master Marsh
On 3 October 2018 TKP issued an application for security in the sum of £500,000. The application was heard by Chief Master Marsh on 11 December 2018 and he delivered an unreserved judgment that day. At [9] he said that the first and most significant issue was the level of security to be provided, it not being in doubt that Gateway C applied, nor disputed that it was just to provide security. (The reference to Gateway C is to CPR r 25.13(2)(c) which provides that one of the circumstances in which security may be ordered is if the claimant is a company and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so.) At [10] to [23] he proceeded to consider the issue of the level of security, concluding that £350,000 would be appropriate.
At [24] he briefly considered the only other issue that arose, which was the method of providing security. He said that if Infinity was able to provide a deed of indemnity in satisfactory form, that “is something the court will accept, but it is contingent upon the source of the indemnity being sufficiently secure and the form of the deed being one which is reasonable.” He would therefore give Infinity a short period until 19 December 2018 to provide the deed in final draft form; TKP should then have an opportunity either to accept it or not; and if TKP rejected it for reasons that it thought appropriate there should be a further short oral hearing to determine whether the security was adequate. If the Court concluded that the security by way of the deed was not adequate, the default position would be that the sum of £350,000 would have to be paid into court.
By his Order dated 11 December 2018 he therefore ordered, so far as material, as follows:
“1. The Claimant give security for the Defendant's costs of these proceedings in the sum of £350,000 by providing a proposed Deed of Indemnity to the Claimant by 4pm on 19 December 2018. (Such proposed Deed of Indemnity must be in a form that Ironshore Europe Limited is unequivocally prepared to execute within 2 working days of acceptance by the Defendant.)
2. If no proposed Deed of Indemnity is provided by the date set out in paragraph 1 above the Claimant shall give security for the Defendant's costs of these proceedings in the sum of £350,000 by paying the sum of £350,000 into court by 31 December 2018, failing which all further proceedings be stayed until further order.
3. If a proposed Deed of Indemnity is provided but is not acceptable to the Defendant, all further proceedings be stayed pending further order.”
He reserved the costs and the Order also provided for a further 30 minute hearing to deal with costs which would be increased to 1 hour “if the proposed Deed of Indemnity is not acceptable to the Defendant”.
Hearing before Deputy Master Arkush
Infinity's solicitors duly produced to TKP a proposed form of deed of indemnity that its funders Ironshore would be willing to enter into. Further lengthy correspondence ensued by the end of which it had become clear that the original premium charged to Infinity by Ironshore was £120,000 for £180,000 of ATE cover; that Ironshore was willing to provide the deed of indemnity in the sum of £350,000 but only if the ATE cover was itself increased to the same sum, it being standard practice in the insurance market that the insurer would not provide such a deed for an amount higher than the insured amount; that Ironshore had quoted a single overall price of £315,000 (ie an additional £195,000 to the original £120,000 premium) for the increase in ATE cover and provision of the deed of indemnity; and that Infinity's position was that it would seek to recover the entirety of that sum if it were successful at trial. TKP's position was that this potential exposure to having to pay £315,000 in addition to Infinity's ordinary costs meant that the deed of indemnity was not a suitable form of security.
The issue was raised at a further CMC held before Deputy Master Arkush ( “the Deputy Master”) on 22 May 2019. He gave an unreserved judgment that day. At [9] he described the question as a difficult decision of principle that might be more appropriately decided at a higher level. At [13] he said he had not found it a straightforward question, but he had...
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