Introduction

Infinity Distribution Ltd v. The Khan Partnership LLP ([2021] EWCA Civ 565) is a pivotal case decided by the England and Wales Court of Appeal (Civil Division) on April 20, 2021. This case delves into the intricacies of court-ordered security for costs, particularly focusing on the appropriateness of different forms of security where the recoverability of associated premiums is in question.

The dispute arose between Infinity Distribution Ltd ("Infinity"), a company in administration and former wholesale supplier of mobile telephones, and The Khan Partnership LLP ("TKP"), a firm of solicitors retained by Infinity during an HMRC investigation into potential VAT fraud. The crux of the case centered on the form of security Infinity was required to provide to TKP to cover potential legal costs should Infinity fail in its claim.

Summary of the Judgment

The Court of Appeal addressed whether the recoverability of the premium associated with an "After the Event" (ATE) insurance policy should be considered relevant when determining the suitable form of security for costs. Initially, the Deputy Master Arkush deemed a deed of indemnity acceptable without considering the premium's recoverability. Mr. Stuart Isaacs QC upheld this decision, asserting the premium's irrelevance. However, upon review, the Court of Appeal found that the potential recoverability of the premium was indeed relevant and should have been factored into the decision. Consequently, the appeal was allowed, and Infinity was ordered to provide security by payment into court rather than through a deed of indemnity.

Analysis

Precedents Cited

The judgment extensively referenced several key cases to elucidate the parameters of ordering security for costs:

• Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609: Established the discretionary nature of ordering security, emphasizing a case-by-case approach without fixing rigid criteria.
• Rosengrens Ltd v Safe Deposit Centres Ltd [1984] 1 WLR 1334: Highlighted the flexibility in the form of security, indicating that as long as security is adequate, the method is immaterial to the court.
• Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 AER 534: Reinforced the necessity of balancing potential injustices to both claimant and defendant when ordering security.
• Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2013] EWHC 658: Clarified that the adequacy of security, especially in the form of indemnities, hinges on the creditworthiness of the indemnifying party.
• Recovery Partners GB Ltd v Rukhadze [2018] EWHC 95 (Comm): Emphasized that security should be ordered in the least onerous manner to the claimant, provided it offers equivalent protection to the defendant.

These precedents collectively underscore the court's discretion in determining not just the necessity and amount of security, but also its form, ensuring it aligns with fairness and adequacy.

Legal Reasoning

The Court of Appeal meticulously dissected the procedural and substantive elements involved in ordering security for costs. Central to its reasoning was the interpretation of CPR r 25.13(1)(a), which mandates the court to consider "all the circumstances of the case" to ensure just orders. The lower courts erred by dismissing the potential recoverability of the premium as irrelevant, focusing solely on the adequacy of the indemnity itself.

The appellate court posited that the recoverability of the premium is intrinsically linked to the justice and fairness of the order. If a significant premium is recoverable from the defendant upon the claimant's success, this imposes an additional financial burden on the defendant, which must be weighed against the protection it seeks through security. Ignoring this factor disrupts the balance intended by the rules governing security for costs.

Furthermore, the court considered the Access to Justice Act 1999 and its amendments, analyzing the continuity of provisions that allow for premium recoverability in specific contexts, notably insolvency. The decision also drew on the Supreme Court's ruling in Plevin v Paragon Personal Finance Ltd [2017] UKSC 23, which affirmed the recoverability of ATE premiums under certain conditions.

Impact

This judgment sets a significant precedent by asserting that the recoverability of premiums related to security for costs is a relevant consideration in determining the form of security. Future cases will likely reference this decision to ensure that courts holistically assess the implications of various security forms, balancing the interests of both claimants and defendants.

Legal practitioners must now be cognizant of not only the adequacy of the security provided but also the broader financial implications it may impose on the opposing party. This holistic approach aligns with the overarching objectives of the Civil Procedure Rules, promoting fairness and proportionality in litigation.

Complex Concepts Simplified

Security for Costs

Security for costs is a legal mechanism where a party (usually the claimant) is required to provide assurance (typically financial) that they can cover the defendant's legal costs should the defendant win the case. This ensures that defendants are not left bearing the cost of litigation against financially unstable claimants.

After the Event (ATE) Insurance Policy

An After the Event (ATE) insurance policy is taken out by a claimant to cover their legal costs should they lose the case. Unlike standard insurance, the premium for an ATE policy is typically contingent on the outcome of the litigation. If the claimant wins, the premium may be recoverable from the defendant as part of the costs.

Deed of Indemnity

A Deed of Indemnity is a legal document where one party promises to compensate another for certain costs or losses. In the context of security for costs, it serves as a guarantee that the claimant will cover the defendant's legal costs if the claimant is unsuccessful.

Recoverability of Premium

Recoverability of premium refers to the ability of the claimant to reclaim the cost of their insurance premium from the defendant if they win the case. This aspect can influence the appropriateness and fairness of the security's form.

Conclusion

The Infinity Distribution Ltd v. The Khan Partnership LLP judgment marks a critical development in the realm of security for costs. By recognizing the recoverability of premiums as a pertinent factor in determining the form of security, the Court of Appeal reinforced the principles of fairness and proportionality in litigation. This decision ensures that security orders are not just procedurally compliant but also substantively just, safeguarding both claimant and defendant interests.

Legal practitioners must integrate this nuanced understanding into their strategies, ensuring that security for costs orders are both adequate and equitable. As litigation evolves, such precedents will continue to shape the landscape, promoting a balanced approach to judicial discretion and party protections.