Establishing Guidelines for Security for Costs: Insights from Danilina v. Chernukhin & Ors

Introduction

Danilina v. Chernukhin & Ors ([2018] EWHC 2503 (Comm)) is a pivotal case adjudicated by the England and Wales High Court (Commercial Court) on October 2, 2018. The core issue revolved around the Defendants' application for additional security for costs against the Claimant, Ms. Danilina, in the context of substantial commercial litigation. This commentary delves into the intricate legal principles and judgments established in this case, offering a comprehensive analysis for legal practitioners and scholars alike.

Summary of the Judgment

The Defendants sought an order compelling the Claimant to provide further security for their costs in defending against significant claims related to beneficial ownership disputes and family assets. Initially, the Defendants had been granted partial security, which was later deemed insufficient by the Court of Appeal. The High Court was subsequently tasked with determining the appropriate amount of additional security. The Claimant contended that she could only provide £1.1 million, citing limited personal resources and alleging potential stifling of her claims if higher security were mandated. After a detailed examination of the parties' submissions, precedents, and factual circumstances, the Court concluded that ordering further security in the sum of approximately £3.2 million was justifiable, considering the Defendants' substantial costs and the Claimant's financial support from a wealthy third party, Mr. Deripaska.

Analysis

Precedents Cited

The Judgment extensively referenced several key precedents to underpin the Court's decision:

• Al-Koronky v Time Life Entertainment Group [2005] EWHC 1688 (QB) - Emphasized the necessity for claimants to provide comprehensive evidence regarding their financial capabilities.
• Accident Exchange and another v Mclean and others [2018] EWHC 1533 (Comm) - Reinforced the standards for evaluating the sufficiency of security for costs.
• Stavrinides v Cyprus Popular Bank Public Co. [2018] EWHC 313 - Addressed the risk of stifling claims due to security orders, influencing the Court's balancing act between access to justice and Defendants' cost protection.
• Vedatech v Crystal Decisions [2002] EWCA Civ 356 - Highlighted the increased burden on claimants when security orders are made at later stages of litigation.
• Chuku v Chuku [2017] 2 Costs LR 267 - Discussed the implications of counterclaims on security for costs orders.
• Yorke Motors v Edwards [1982] 1 WLR 444 - Expanded the definition of third-party financiers in the context of security for costs.

These precedents collectively informed the Court's approach to balancing the Defendants' need for cost protection with the Claimant's access to justice.

Legal Reasoning

The Court's legal reasoning hinged on several pivotal factors:

• Assessment of Security on Indemnity Basis: The Defendants argued that there was a reasonable possibility of costs being awarded on an indemnity basis if the Claimant lost. This was deemed sufficient to justify a higher percentage (75%) of security as opposed to the standard 60-70% applied in cases without such a possibility.
• Nature of the Claimant's Financial Support: The Claimant's financial backing from Mr. Deripaska, a wealthy individual who had already provided substantial funding, was scrutinized. The Court concluded that it was reasonable to expect Mr. Deripaska to contribute additional security if necessary, thereby alleviating the Claimant's personal financial constraints.
• Timing of the Security Order: Despite the late stage of the application, the Court found the procedural history justifying the timing. The Defendants had already incurred significant costs, and the Court deemed it appropriate to order security to prevent potential undue burden on the Defendants.
• Counterclaim Considerations: Initially, the Defendants raised counterclaims that were dismissed by the lower court. The High Court affirmed that the counterclaims did not influence the decision to grant security for costs, as they would not persist independently of the main claim.

The Court meticulously balanced the interests of both parties, ensuring that the Defendants were protected against potential costs while also safeguarding the Claimant's ability to pursue legitimate claims without undue financial impediment.

Impact

The Danilina v. Chernukhin & Ors Judgment has significant implications for commercial litigation:

• Security for Costs Threshold: By affirming that a higher percentage of security can be ordered when there is a reasonable possibility of indemnity costs, the Judgment provides clearer guidelines for courts in similar future cases.
• Role of Third-Party Financiers: The acknowledgment of third-party financial support, especially from wealthy entities like Mr. Deripaska, underscores the importance of considering all available financial resources when assessing security for costs.
• Procedural Efficiency: The case highlights the importance of early and thorough applications for security to avoid burdensome late-stage orders, promoting more efficient litigation practices.
• Balancing Access to Justice: The Judgment reinforces the judiciary's role in balancing the protection of defendants' financial interests with ensuring claimants retain access to the courts, even when personal financial resources are limited.

Consequently, legal practitioners can draw on this Judgment to better navigate applications for security for costs, ensuring a balanced approach that considers both procedural and substantive fairness.

Complex Concepts Simplified

Several legal concepts within the Judgment may require clarification:

• Security for Costs: A preemptive financial safeguard where the claimant provides funds to cover the defendant's legal costs in the event the defendant prevails. This ensures that defendants are not left bearing the cost burden if the claimant lacks sufficient resources.
• Indemnity Basis vs. Standard Basis: Costs can be awarded on a standard basis, which generally covers reasonable costs, or on an indemnity basis, which covers almost all costs regardless of reasonableness. The possibility of indemnity costs is a key factor in determining the amount of security required.
• Section 51 of the Senior Courts Act 1981: Allows for the court to make non-party costs orders, enabling parties not directly involved in litigation to be required to pay legal costs if deemed appropriate.
• Counterclaim: A claim made by a defendant against the claimant, turning the original claim around. In this case, the Defendants' counterclaims were considered but ultimately found not to influence the security for costs decision.
• Reasonable Possibility: A threshold standard indicating that there is a credible chance of a particular outcome (e.g., indemnity costs being awarded) which justifies specific judicial actions, such as ordering additional security for costs.

Understanding these concepts is crucial for comprehending the Court's decision-making process and its broader implications for future litigation.

Conclusion