Tugushev v Orlov & Ors

Factual and Procedural Background

The application before the Court was made by the First Defendant for an order requiring the Claimant to provide security for costs pursuant to CPR rule 25.12. The security related to costs arising from applications concerning the continuation of a worldwide freezing order initially granted against the First Defendant on the Claimant's application. The Claimant agreed in principle to provide security for costs by payment into Court but reserved the right to later argue that the Defendant was not entitled to such security. The dispute concerned the appropriate amount of security and the timing for its provision.

The underlying proceedings commenced on 23rd July 2018, initiated by the Claimant against the First Defendant and other Defendants, relating to ownership and operation of substantial fishing businesses, including a large Russian fishing group and a smaller Hong Kong-based group. The Claimant alleged entitlement to one third ownership or alternatively US$350 million due to an alleged conspiracy by the Defendants, which the First Defendant denied. The English proceedings are part of multi-jurisdictional litigation spanning the Isle of Man, Guernsey, Hong Kong, Norway, and Russia.

The proceedings began with two without-notice applications by the Claimant for a worldwide freezing order and permission for alternative service. The Court granted these on 23rd July 2018, subject to a cross-undertaking as to damages supported by a third party funder, as the Claimant lacked substantial assets. A return hearing on 30th July 2018 ordered the First Defendant to indicate by 10th September 2018 whether he would oppose continuation of the freezing order and/or challenge jurisdiction. The First Defendant did so, filing applications and evidence challenging jurisdiction and opposing continuation of the freezing order. The hearing of these applications was scheduled for late January 2019 and expected to last two to three days.

The First Defendant initially sought disclosure regarding the third party funder but withdrew that request after the Claimant agreed to provide security for costs with funder support. The First Defendant sought security for costs amounting to approximately £2.7 million for costs incurred and estimated from 10th September 2018 to disposal of the applications, applying a 20% discount to the total estimated costs of about £3.4 million. The First Defendant reserved rights to seek further security in the future.

Legal Issues Presented

1. What is the appropriate amount of security for costs to be ordered under CPR rule 25.12 in respect of the applications relating to the worldwide freezing order and jurisdiction challenge?
2. By what date must such security be provided?

Arguments of the Parties

First Defendant's Arguments

• The costs estimate of approximately £3.4 million, reduced by 20%, was calculated conservatively and excludes costs prior to 10th September 2018.
• The sum is neither disproportionate nor unreasonable given the complexity, scale, and hard-fought nature of the litigation involving large financial sums, allegations of fraud, and multiple jurisdictions.
• The extensive and voluminous evidence filed by both parties supports the high cost estimate.
• The ongoing management of the worldwide freezing order and its interaction with business operations generates substantial correspondence and costs.
• Security for costs applications require balancing prejudice, but doubts should be resolved in favor of the applicant to protect against the risk of unrecoverable costs.
• The 20% discount is appropriate to reflect the reasonable possibility of an indemnity costs order against the Claimant if the freezing order is discharged, due to alleged non-disclosure and the order’s potentially oppressive nature.

Claimant's Arguments

• The Claimant does not concede an obligation to provide security but is willing to provide £1,000,000.
• The total costs figure of £3.4 million is over £1.1 million higher than the original estimate without adequate explanation.
• The First Defendant has not provided a sufficiently detailed breakdown of incurred and estimated future costs, making proper scrutiny difficult.
• There is a lack of transparency, especially regarding incurred costs, which should count against the First Defendant’s claim.
• It is unclear whether some costs have already been subject to costs orders in the Claimant’s favor; however, the First Defendant’s counsel confirmed these are excluded.
• The costs figure is excessive, unreasonable, and disproportionate, contrary to the "reasonable sum" permitted for legal advice and representation under the freezing order.
• The First Defendant’s prior application invoking privilege against self-incrimination incurred disproportionate costs exceeding those of the Claimant, with a judicial remark on disproportionateness.
• Estimated future costs should not exceed costs already incurred, and the high estimate for Russian lawyers’ fees lacks adequate justification.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court’s analysis focused on determining an appropriate amount of security for costs under CPR rule 25.12, given the Claimant’s willingness to provide security but disagreement on quantum. The Court reviewed the nature and scope of the underlying litigation, noting its complexity, high value, and multi-jurisdictional aspects. It acknowledged the substantial evidence and legal work involved in the applications relating to the worldwide freezing order and jurisdiction challenge.

The Court emphasized that security for costs must be protective but not excessive, reflecting only what is reasonably expected to be recoverable. It applied established principles from cited authorities, endorsing a broad-brush, conservative approach to estimating costs, recognizing the absence of detailed cost breakdowns as a factor weighing against the applicant for security. The Court considered the lack of transparency in the First Defendant’s cost estimates and the unexplained increase in estimated costs, as well as the inadequately justified large sum for Russian lawyers’ fees, allowing only a modest amount for these.

The Court applied a 30% discount to the adjusted costs figure (excluding expert witness and disbursement costs) to reflect concerns about reasonableness and proportionality. It also applied a further 25% discount to account for the real possibility of indemnity costs being ordered against the Claimant if the freezing order is discharged, as supported by the nature of the allegations and procedural history.

After these adjustments, the Court arrived at a rounded figure of £1,500,000 as the appropriate security for costs, noting this amount is at the upper end of the range justified by the circumstances. Regarding timing, the Court accepted the Claimant’s proposed staged payment schedule due to the late application and practical constraints on arranging security, ordering £1,000,000 to be paid by 21st December 2018 and the balance of £500,000 by 15th January 2019.

Holding and Implications

The Court ordered that the Claimant provide security for costs in the sum of £1,500,000 by way of a payment into Court. The security covers costs incurred or to be incurred from 10th September 2018 until the disposal of the applications relating to the worldwide freezing order and jurisdiction challenge.

The Court directed that £1,000,000 of this security be provided by 21st December 2018, with the remaining £500,000 to be provided by 15th January 2019. This staged provision was permitted in light of the late application and the Claimant’s inability, on instructions, to provide the full amount by the earlier date.

The decision balances the need to protect the Defendant against unrecoverable costs while recognizing practical and procedural considerations affecting the Claimant’s ability to provide security. No new legal precedent was established; rather, the Court applied established principles to the facts of this case, emphasizing proportionality, reasonableness, and the need for adequate cost breakdowns in security applications.