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Danilina v Chernukhin & Anor
Factual and Procedural Background
The applications before the court concern security for costs sought by the First, Second, and Third Defendants in relation to a claim brought by the Plaintiff, which is scheduled for a four-week trial. The claim is joined with another action sharing extensive factual and legal overlap. The dispute arises from joint venture companies, Navigator Equities Limited (Second Defendant) and Filatona Trading Limited, which held stakes in a valuable real estate entity in Moscow. The Plaintiff was named as a party to a Shareholders Agreement ("SHA") and claimed to be the beneficial owner of Navigator, whereas the Defendants contend she is a nominee for another party, the Funder.
The dispute originated from a 2009 conflict between the Funder and another businessman (Defendant), resulting in contested ownership and arbitration proceedings. The Defendants deny the Funder's party status under the SHA, but the arbitration tribunal confirmed it. Subsequently, the Defendants initiated proceedings under section 67 of the Arbitration Act 1996 against Navigator, the Funder, and related entities.
The Plaintiff entered into two agreements with the Defendants, under which the Defendants agreed to finance litigation by the Plaintiff against the Funder, with payments contingent on the Plaintiff establishing ownership of Navigator. The current court proceedings commenced in February 2017 and have been case-managed jointly with related actions.
The arbitration tribunal found the Defendant acted oppressively and ordered a buyout of the Funder's interest. The Plaintiff's claims include both issues overlapping with the arbitration and a distinct "Family claim" concerning alleged agreements about family assets, with claims of breaches of trust, contract, and fiduciary duty against the Funder. The claims are of significant monetary value.
Legal Issues Presented
- Whether the court should order security for costs under CPR 25.13(2)(a) on the basis that the Plaintiff is resident outside the jurisdiction and enforcement of costs orders in the relevant foreign jurisdiction (Russia) poses real risks and difficulties.
- Whether the Plaintiff should be considered a "nominal claimant" under CPR 25.13(2)(f), justifying security for the full amount of costs due to the Plaintiff acting as a nominee for the Funder and being unable to pay the Defendants' costs.
- The appropriate quantum of security for costs to be ordered, balancing risks of enforcement difficulties and proportionality.
Arguments of the Parties
Defendants' Arguments
- The Plaintiff is resident outside the jurisdiction, specifically Russia, where enforcement of costs orders is difficult, uncertain, costly, and slow due to lack of reciprocal treaties and the complexity of Russian enforcement law.
- The Plaintiff is acting as a nominal claimant for the Funder, who funds the litigation and stands to benefit commercially, rendering the Plaintiff unable to pay costs if ordered.
- The Plaintiff has not been candid about her financial position, claiming limited means despite owning valuable property in Russia.
- The merits of the Plaintiff's claim are weak, given arbitration findings and delays in asserting claims, especially regarding ownership of Navigator and the Family claim.
- There is a real risk of obstacles to enforcement including refusal of enforcement on grounds of non-reciprocity, public policy, procedural issues, and delays, as supported by expert evidence from Russian legal advisers.
- The Defendants seek security for costs approximating their estimated costs to date, arguing this is justified by the enforcement risks and the Plaintiff's impecuniosity.
Plaintiff's Arguments
- The risk of non-enforcement or difficulty in enforcement in Russia is overstated; expert evidence shows English judgments have been enforced in Russia consistently based on reciprocity.
- The courts in Russia, including general and arbitrazh courts, regularly recognise and enforce foreign judgments, and the possibility of refusal for public policy reasons is not relevant here.
- The Plaintiff has a significant and personal interest in the litigation outcome, including under the Option Agreement and the Family claim, and is not a nominal claimant.
- The merits of the claims are not weak; the Plaintiff was not a party to the arbitration and the Loan and Option Agreements are standard funding arrangements.
- If security is ordered, it should be proportionate and limited to additional enforcement costs, not the full amount of the Defendants' costs, and ordered in tranches with reductions for taxation.
- The Defendants' application for security is tactical and oppressive, given that many issues will still require litigation irrespective of the Plaintiff's claim.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Nasser v United Bank of Kuwait [2002] 1 WLR 1868 (CA) | Security for costs related to enforcement difficulties outside the jurisdiction; limits on quantum of security. | Used to establish that security should generally reflect additional enforcement costs, but may be full costs if enforcement is effectively impossible. |
| De Beer v Kanaar & Co (No. 1) [2001] EWCA Civ 1318; [2003] 1 WLR 38 | Security for costs may be full amount if claimant lacks probity and enforcement is risky. | Referenced as authority for ordering full security where claimant's conduct raises risk of non-enforcement. |
| Ras Al Khaimar Investment Authority v Bestfort Developments LLP [2016] EWCA Civ 1099; [2017] CP Rep 9 | Test for risk of enforcement obstacles is "real risk" rather than likelihood. | Applied to determine that a real risk of enforcement difficulties was demonstrated, justifying security. |
| Simaan v Pilkington Glass [1988] 2 WLR 761 | Courts must consider prospects of success when ordering security for costs. | Referenced by Defendants; court declined to depart from authoritative guidance limiting merits examination at this stage. |
| Texuna International Ltd v. Cairn Energy [2004] EWHC 1102 (Ch) | Evidence required to establish risk of enforcement difficulties; security quantum considerations. | Endorsed approach of ordering security reflecting real risks and costs of enforcement, including significant burdens. |
| Keary Developments v Tarmac Construction [1995] 3 AER 534 | Merits should not be examined in detail unless high probability of success or failure on security for costs application. | Guided court’s approach to merits: no detailed merits examination at this stage. |
| Kahanghi v Nourizadeh [2009] EWHC 2451 (QB) | Security for costs unlikely if there is a high degree of probability the claim will succeed. | Supported the principle that merits are relevant but not determinative at this stage. |
| Chuku v Chuku [2017] 1 WLR 3137 | Meaning of "nominal claimant" under CPR 25.13(2)(f); requirement of duplicity or window dressing. | Applied to reject the Defendants’ argument that the Plaintiff is a nominal claimant absent deliberate duplicity. |
| Watford Petroleum v. Interoil Trading SA [2003] EWHC 1806 (Ch) | Impecuniosity caused by defendant’s actions may affect security for costs discretion. | Considered but rejected on facts; no strong link between Defendants’ actions and Plaintiff’s impecuniosity. |
| Cherney v. Deripaska [2008] EWHC 1530 (Comm) | Risk of party seeking to influence Russian proceedings. | Referenced regarding influence concerns but court found no current evidence of such influence by the Funder in this case. |
Court's Reasoning and Analysis
The court first considered the jurisdictional basis for ordering security for costs under CPR 25.13(2)(a), acknowledging the Plaintiff's residence outside the jurisdiction and the lack of reciprocal enforcement treaties with Russia. The court reviewed extensive expert evidence on the practical difficulties, costs, delays, and risks of refusal of enforcement of English judgments in Russia, including the need to prove reciprocity on a case-by-case basis and potential procedural obstacles.
The court found a "real risk" of enforcement difficulties and increased costs, though not a high or serious risk of complete non-enforcement. This justified ordering security to cover more than just additional enforcement costs, but less than the full costs of the action, balancing proportionality and the risks involved. The court considered discretionary factors, including the merits and conduct of the parties, but found no compelling evidence of bad faith or want of probity on the Plaintiff's part, nor was the Plaintiff's case so strong as to negate the need for security.
Regarding the nominal claimant head under CPR 25.13(2)(f), the court applied established authority requiring an element of duplicity or window dressing. It found that the Plaintiff has a significant and personal interest in the litigation outcome, including under the Option Agreement and the Family claim, and thus is not a nominal claimant. The court declined to order security under this head.
The court determined appropriate quantum of security for costs by reference to the estimated costs to date and the risks identified, ordering substantial but not full security amounts, leaving room for future applications if circumstances change.
Holding and Implications
The court GRANTED the Defendants' applications for security for costs under CPR 25.13(2)(a) only.
Security for costs was ordered in the amounts of £700,000 in favour of the First and Second Defendants and £90,000 in favour of the Third Defendant, reflecting the real risks of enforcement difficulties and increased costs in Russia. The court rejected the submission that the Plaintiff is a nominal claimant under CPR 25.13(2)(f) and declined to order security on that basis.
The decision directly affects the parties by requiring the Plaintiff to provide substantial security for costs before proceeding. No broader legal precedent was established beyond applying settled principles to the specific facts of enforcement risk and claimant interest in this complex international commercial dispute.
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