Lolita Vladimirovna Danilina v Vladimir Anatolevich Chernukhin
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 02 October 2018 |
| Neutral Citation | [2018] EWHC 2503 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000117 |
| Date | 02 October 2018 |
[2018] EWHC 2503 (Comm)
Mr. Justice Teare
Case No: CL-2017-000117
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, 7 Rolls Building
Fetter Lane, London EC4A 1NL
Graham Chapman QC and Tom Ford (instructed by Byrne and Partners LLP) for the Claimant
Jonathan Crow QC, James Weale and Fraser Campbell (instructed by Clifford Chance LLP) for the First and Second Defendants
Iain Pester (instructed by PCB Litigation LLP) for the Third Defendant
Hearing dates: 12 and 13 September 2018
Judgment Approved
This is an application by the Defendants for an order that the Claimant provide further security for the Defendants' costs of defending the claims which have been brought against them.
It is first necessary to recount the history of the Defendants' applications for security for costs. The Second and Third Defendants issued an application for security for costs on 14 June 2017 with a view to it being listed at the first CMC on 7 July 2017. Security was sought in tranches. The Third Defendant issued a separate application for security for costs on 3 July 2017. However, there was insufficient time to hear the application at the CMC. It was not heard until 8 December 2017 when security was sought for the costs incurred prior to that date. Judgment was handed down on 19 January 2018 by Cockerill J. who awarded the First and Second Defendants security in the sum of £700,000 and the Third Defendant security in the sum of £90,000 in respect of the costs up to and including the trial. The Defendants appealed against that order and, on 30 July 2018, the Court of Appeal found in favour of the Defendants. The Court of Appeal ordered that the security so far provided (pursuant to the order of Cockerill J.) should be treated as a payment on account of security for the costs of the action, with the Commercial Court to assess the figure in which such security should be ordered. Thus on 7 August 2018 the First and Second Defendants issued their application for security for their costs of the action and on 8 August 2018 the Third Defendant issued his application for security for his costs of the action. Those applications were listed to be heard on 12 September 2018 on an urgent basis in circumstances where the 4 week trial of these proceedings was due to commence on 26 November 2018.
The applications were heard on 12 and 13 September 2018 along with two applications by the Claimants for orders concerning disclosure and the issue of letters of request to the courts of Jersey and Guernsey. I gave judgment on those two further applications on 12 and 13 September 2018 but there was insufficient time to give judgment on the applications for security for costs.
In the light of the proceedings before Cockerill J. and the Court of Appeal there is no dispute that in principle the Defendants are entitled to security for their costs. Indeed, it is accepted by the Claimant that she will be required to provide some additional security. Thus the question before the Court is how much security is it fair and just to order.
The amount sought
Although the First and Second Defendants by their application sought security in the sum of £3,741,101, being 100% of their incurred and expected costs (after deducting £700,000 paid on account), it was recognised by the time of the hearing that such demand was unrealistic. Instead, a sum equal to 85% of their incurred and expected costs (after deducting £700,000) was sought. That percentage was sought 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 by his application initially sought security in the sum of £809,217.66 but, for the same reason as the First and Second Defendants (but using a percentage of 90%), reduced his claim to £728,295. (My understanding is that those figures allow for the payment which has already been made on account of the Third Defendant's costs.)
The submissions of the parties concerned a number of topics said to be relevant to the assessment of the sums in which security for costs should be ordered. I shall seek to deal with each in turn.
Indemnity/standard basis
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.
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 he submitted that if the Claimant lost at trial it is highly likely that costs will be ordered to be assessed on the indemnity basis because the Claimant would have given evidence which she would have known to be false because there was no room for a mistaken recollection.
To resolve this matter it is necessary to bear in mind the nature of the Claimant's claims. She has two.
The first, described as the TGM claim, concerns the indirect beneficial ownership of a Russian company, a former state-owned textiles factory which holds valuable real estate in Moscow. Ms. Danilina claims to be, through Navigator Equities Limited, the Second Defendant, the beneficial owner to the extent of 50%, the other 50% being owned by Mr. Derispaka, a wealthy Russian businessman. Her claim is supported by the terms of a shareholders' agreement made in 2005 relating to Navio Holdings Limited, the joint venture vehicle which was to develop the real estate. But the First Defendant, Mr. Chernukhin, another wealthy Russian businessman, claims that he is the beneficial owner of Navigator so that he and Mr. Deripaska were the indirect beneficial owners of the real estate held by TGM. The Claimant was, he says, only the nominal party to the shareholders' agreement. The disputed 50% interest is said to be worth of the order of $100 million.
The TGM claim is also brought against the Third Defendant. He was also signatory to the shareholders' agreement.
The second claim, described as the Family Assets claim, concerns the beneficial ownership of assets held in trust. The Claimant claims that pursuant to an agreement between her and the First Defendant, made in 2007 when their relationship had come to an end, the assets accumulated during their relationship were to be divided as agreed between them. She claims that she has a beneficial interest in assets held by a certain trust pursuant to the 2007 agreement. The First Defendant disputes the 2007 agreement.
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.
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.
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.
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...
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