Saxon Woods Investments Ltd (a company incorporated under the laws of the Bahamas) v Francesco Costa
| Jurisdiction | England & Wales |
| Judge | Raquel Agnello |
| Judgment Date | 20 April 2023 |
| Neutral Citation | [2023] EWHC 850 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2021-000718 |
[2023] EWHC 850 (Ch)
JUDGE Raquel Agnello KC
Deputy Insolvency And Companies Court
Case No: CR-2021-000718
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES COURT LIST (CHANCERY DIVISION)
IN THE MATTER OF SPRING MEDIA INVESTMENTS LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Rolls Building
London
EC4A 1NL
Mr Jack Rivett (instructed by Stephenson Harwood) for the Petitioner
Mr Richard Hill KC and Ms Hassell-Hart (instructed by Joseph Hage Aaronson LLP) for the First Respondent
Hearing date: 21 and 27 February 2023
HTML VERSION OF JUDGMENT
Judge Raquel Agnello KC:
Introduction
On 20 January 2023, the Petitioner issued an application seeking to vary the order made by me on 9 December 2022 in relation to an application seeking security for costs. At that hearing, I directed that the Petitioner provide security for the First Respondent's costs of the proceedings by paying into the Court Funds Office the sum of £1,348,910 by 6 January 2023. That sum took into account, applying a discount, of the existence of the ATE policy which the Petitioner had. Various extensions were agreed between the parties as to the date for paying into Court. Mr Rivett, acting on behalf of the Petitioner, invites me to vary that order effectively replacing the payment of £1,348,910 by the ATE policy with its anti-avoidance endorsement which its Insurer has agreed in principle to provide. The application is opposed by the First Respondent. Various grounds of opposition are raised and I will deal with each in turn.
Background
In summary, Spring Media Investments Limited (the Company) is the holding company for a group of companies which provide creative services on a fee basis model to existing fashion brands as well as beauty and luxury brands. The Petitioner owns a minority shareholding in the Company. The First Respondent is a director and Chairman of the Company who is alleged to have a substantial indirect interest via the Second to Fourth Respondents. The Second to Seventh Respondents are the other shareholders who have taken no part in these proceedings. The dispute arises under the terms of the shareholders agreement between the Petitioner and the First Respondent. The Petitioner asserts that the Company is in breach of the terms of the shareholders agreement and that the First Respondent is exclusively and/or principally responsible for the Company's breach of contract. This relates to the conduct of the exit process (being the sale of the Company) as defined and described in the agreement. It is also alleged that the conduct of the First Respondent is in breach of his duties owed to the Company. All the above is denied by the First Respondent who also makes some serious allegations as against Mr Loy, a former director of the Company, as well as, it is alleged, the controlling mind of the Petitioner. The First Respondent alleges that it was Mr Loy who is in breach of the duties owed to the Company by his actions in failing to disclose, and/or misleading the Company in relation to certain potential purchasers and the alleged proposed arrangements he was making with them which were not known to the Company.
The above is a very brief summary and it is not supposed to be comprehensive or create any impression about the merits or otherwise of the petition and the defence. I deal below in more detail with the amended points of defence as this will be important in assessing what the ATE policy and anti-avoidance endorsement covers and whether there is a real risk relating to the insurer seeking to avoid on grounds of fraud etc.
Is the Petitioner entitled to make the application?
Mr Hill, on behalf of the First Respondent, focussed heavily in his submissions on this point. He submitted that effectively what the Petitioner was seeking by its application was to be able to have a re-hearing. He relied upon well established cases, in particular, Chanel Ltd v FW Woolworth & Co ltd [1981] 1 WLR 485. Effectively this sets out the principle that a party is not entitled to a rehearing of an interlocutory matter unless there has been some significant change in circumstances or he has become aware of facts which he could not reasonably have known or found out before. He submitted that the issue of an anti-avoidance endorsement should have been before the court on 9 December 2022. He submitted that there had been no change of circumstances and accordingly the Petitioner was not entitled to seek to reopen the issue and seek a variation.
Both parties took me to the case of Recovery Partners GB Ltd v Rukadze [2018] 1 WLR 1640, a decision of Mr Nicholas Vineall KC. Briefly, undertakings had been provided by solicitors acting on behalf of the claimants in response to a threatened security for costs application. The claimants thereafter obtained an ATE insurance policy under which the insurer unconditionally and irrevocably undertook to pay the defendants any sums payable pursuant to an order in respect of the claim which finally determined the claimants' liability for the defendants' costs. The claimants also agreed to endorse the policy to ensure all monies thereunder would be paid to the defendants' solicitors directly and a deed of charge was executed in favour of the defendants.
The claimants applied to court, seeking an order permitting the undertakings to be released in exchange for the provision of security for the same costs by way of the deed of indemnity and the ATE insurance policy. The claimants sought the substitution but did not argue that they would suffer hardship or prejudice if their solicitors continued to hold the sum of money, nor that they were prejudiced from pursuing their claim.
The Judge refused the application but held that (1) where a party had previously provided an undertaking in lieu of an order for security for costs, the application to substitute this undertaking by another form of security required there to be a material change of circumstances, (2) the court thereafter had a broad discretion to decide whether or not the substitution should be effected, (3) the court did not approach the matter as if there was a de novo application for security and therefore the court's approach was not as if it was considering whether the security being offered was an acceptable form of security. Other factors may well be relevant, such as how long the old security had been in place, whether the costs secured had already been incurred, the extent of the difference between the old and new form of security, the strength of the explanation for the claimant's change of position and whether declining the substitution would cause hardship or prejudice to the claimant or inhibit its ability to pursue its claim. Taking all these factors into account, including that the security offered was an acceptable form of security, the Judge declined to order the substitution as it appeared that the substitution was sought not on grounds of hardship or prejudice but as a matter of preference.
The claim itself concerned allegations by the claimants of breaches of duty by the first to third defendants arising out of the alleged diversion of opportunity to provide lucrative services to the family of Arkadi Patarkatsishvili, the deceased Georgian billionaire. The allegations against some of the defendants included an allegation of improper diversion of the work recovering Mr Patarkatsishvili's assets. The security which was offered consisted of both a deed of indemnity as well as the ATE insurance policy. Accordingly, the Judge did not have to consider issues relating to the adequacy of the ATE policy and any issues relating to risk that the insurers would seek to avoid the policy on grounds of fraud or nondisclosure. There is no deed of indemnity being offered in the case before me.
The relevant passages in the judgment are as follows:-
‘17. 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 Tom Weisselberg QC for the claimants submitted, by analogy with Rosengrens Ltd v Safe Deposit Centres Ltd (Practice Note) [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.’
‘20. It is therefore now clearly established that the existence of ATE insurance can provide an answer to a security for costs application, and that the relevant question is whether the policy provides “sufficient protection”’.
‘36. Nothing in the wording of the undertakings gives any clue as to the circumstances in which, or basis on which, the parties intended that the undertaking might be released. In those circumstances I agree that there has to be a material change of circumstance in order to engage the court's discretion in relation to a possible release of the undertaking.’
The change of circumstances relied upon in Recovery Partners was simply that the claimants were now offering the ATE policy and the deed of indemnity by way of security. As the Judge stated, all that...
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