Chernukhin & Orsr v. Danilina: Redefining Security for Costs in Non-Convention Jurisdictions

Introduction

The case of Chernukhin & Orsr v. Danilina ([2018] EWCA Civ 1802) presents a pivotal moment in the jurisprudence surrounding the quantum of security for costs in international litigation. The dispute revolves around Mrs. Danilina, a Russian national residing in Moscow, who brought forth claims against Mr. Chernukhin and Navigator Equities Limited, among others, involving complex international business relationships and allegations of fiduciary breaches. Central to the appeal was the appropriateness and calculation of security for costs ordered by the High Court, given Mrs. Danilina's residency in a non-Convention state, Russia.

Summary of the Judgment

The Court of Appeal scrutinized the High Court's decision to order security for costs, which was partially granted at £700,000 and £90,000 in favor of the appellants. The appellants contended that the High Court erred by applying a "sliding scale" approach to the quantum of security, contrary to established precedent. The appellate court agreed, emphasizing that once a real risk of non-enforcement is established, the default should be security covering the entirety of the anticipated costs, without discounting based on risk grading. Consequently, the appeal on the primary ground was allowed, leading to a remittance of the security for costs applications for reassessment in line with the appellate court's guidance.

Analysis

Precedents Cited

The judgment extensively referenced seminal cases that shaped the Court's understanding of security for costs in the context of international litigation:

Nasser v United Bank Of Kuwait [2002] 1 WLR 1868: Established that security for costs should be non-discriminatory, focusing on the real risk of non-enforcement rather than mere difficulty.
De Beer v Kanaar & Co [2003] 1 WLR 38: Reinforced the principle that the quantum of security should reflect the true risk of enforcing costs.
Bestfort Developments LLP v Ras Al Khaimah Investment Authority [2016] EWCA Civ 1099: Clarified that the threshold for ordering security is a real risk of substantial obstacles to enforcement, moving away from the likelihood-based test.
Texuna International v Cairn Energy Plc [2004] EWHC 1102: Demonstrated the application of security for costs in multi-jurisdictional contexts without employing a sliding scale approach.

These precedents collectively underpinned the appellate court's rejection of the High Court's sliding scale method, advocating instead for a more straightforward approach aligned with the real risk test.

Legal Reasoning

The core legal issue revolved around whether the High Court erred in applying a sliding scale to determine the quantum of security for costs. The appellate court reaffirmed that once a "real risk" of non-enforcement is established, the default position should be to secure the full amount of anticipated costs. The High Court's method of grading the risk and applying discounts was deemed inconsistent with established legal standards, specifically those articulated in Bestfort.

The appellate court emphasized that the discretion to order security should not be tied to a graded assessment of risk but should instead reflect the existence of a real risk in its entirety. This approach ensures that defendants are adequately protected without introducing unnecessary complexities or uncertainties in judicial decision-making.

Impact

This judgment has significant implications for future cases involving security for costs against claimants from non-Convention jurisdictions. By rejecting the sliding scale approach, courts are now more clearly guided to order security covering the full spectrum of anticipated costs when a real risk of non-enforcement exists. This enhances predictability and fairness for defendants in international litigations, ensuring that the burden of proof remains appropriately balanced.

Additionally, the case underscores the judiciary's commitment to upholding non-discriminatory practices under the European Convention on Human Rights (ECHR), particularly Articles 6 and 14, by focusing on substantiated risks rather than subjective assessments of enforceability.

Complex Concepts Simplified

Security for Costs

A legal mechanism ensuring that a defendant can recover litigation costs if the claimant lacks the financial means to pay. It typically requires the claimant to provide a financial guarantee.

Non-Convention State

A country not part of key international treaties like the Brussels or Lugano Conventions, affecting the ease of enforcing court judgments.

Standing to Commence Arbitration

Refers to the legal right of a party to initiate arbitration proceedings based on their involvement and interest in the matter at hand.

Sliding Scale Approach

A method of determining an amount based on varying degrees of risk or other factors, rather than applying a fixed rule or standard.

Conclusion

The Chernukhin & Orsr v. Danilina decision marks a crucial affirmation of the principles governing security for costs in international litigation. By rejecting the High Court's sliding scale approach, the appellate court reinforced the necessity of securing the full range of potential costs when a genuine risk of non-enforcement is present. This ensures that defendants are not left vulnerable in cross-border disputes and that the legal process remains equitable and robust against potential abuses. The judgment serves as a clear directive for future cases, promoting consistency, fairness, and adherence to established legal standards in the realm of international civil proceedings.