Court of Appeal clarifies that cross-undertakings should rarely be required as a condition of security for costs

In a marked shift from previous first instance decisions, the Court of Appeal has provided guidance on the circumstances in which a defendant seeking security for costs may be required to provide a cross-undertaking in damages: Mr Nigel Rowe & Ors v Ingenious Media Holdings & Ors [2021] EWCA Civ 29.

The court held that cross-undertakings should only be required as a condition of security for costs in “rare and exceptional cases” and, where the claimants are funded by a commercial litigation funder, “even rarer and more exceptional cases”. A number of first instance decisions which had indicated an emerging practice of cross-undertakings being generally required (including a decision in the RBS Rights Issue Litigation, considered here) should no longer be followed.

The court commented that it is critical to the business of litigation funders that they are adequately capitalised such that they can meet any potential liabilities arising from the litigation they choose to fund. It follows that there should rarely be any need for security from a “properly run” litigation funder, and disallowing cross-undertakings where security is required from a litigation funder “can be expected to incentivise improvements in the way in which the commercial litigation funding market operates”.

The court also suggested that, if there were to be a new practice in this area, it would be best developed by primary or delegated legislation, particularly in light of the likely effects on the litigation funding market and the potential engagement of considerations of access to justice.

Damien Byrne Hill, John Mathew and Holly McCann consider the decision further below. Continue reading

High Court orders security for costs against member of Association of Litigation Funders  

In a recent decision in the group litigation brought in respect of the Ingenious Media film partnerships, the High Court has granted the defendants’ application for security for costs against the claimants’ litigation funder, Therium: Rowe v Ingenious Media Holdings PLC [2020] EWHC 235 (Ch).

The decision follows the court’s approach to security applications against litigation funders in the RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (considered here) and is the first successful such application against a member of the Association of Litigation Funders.

As in the RBS case, it was a significant factor in granting security that, if the claim failed, the claimants would each be liable for only a proportion of the defendant’s costs, in light of the court’s order providing for several rather than joint liability. It was also significant that the funder had provided no evidence as to its financial position, and therefore the court could not be confident that it would meet any order for costs made against it. Whilst some value was attributed to the after-the-event (ATE) insurance policies the claimants had in place in respect of their potential adverse costs liability, those policies were not a complete answer to the application given the risk that they would not respond in full.

Damien Byrne Hill, John Mathew and Holly McCann consider the decision further below.

In another recent development affecting litigation funders and defendants to funded claims, the Court of Appeal has recently found that there is no fixed limit on a funder’s liability for adverse costs when the claim fails. See our blog post on that decision here. Continue reading

A no-deal Brexit: The implications for disputes

As we approach the deadline of 31 October, it is difficult to predict what will happen. But the prospect of a no-deal Brexit – either then or at some later date – remains a very real possibility. In this blog post we consider the implications of such an outcome for commercial litigation involving the English courts. For these purposes, we assume an exit date of 31 October, but the same issues will arise if there is an extension to the current deadline followed by a no-deal Brexit at a later date.

We have also recorded a webinar which explores the issues in more detail, as part of our series of webinars exploring the implications for business of a no-deal Brexit. The series can be accessed here. Continue reading

High Court orders Russian claimant to provide security for costs despite evidence of assets in Switzerland and Cyprus

The High Court has granted an order for security for costs against a Russian claimant, on the basis that there was a real risk that any costs order against it would have to be enforced in Russia, where the court said there was a real risk of substantial obstacles to enforcement – even though there was evidence that the claimant also had assets in Switzerland and Cyprus, where there was no such risk: PJSC Tatneft v Bogolyubov [2019] EWHC 1400 (Comm).

The decision is of interest in illustrating the court’s approach to an application for security for costs against a claimant resident in a non-convention country (ie one that is not bound by the various regimes for mutual enforcement of English judgments, namely the recast Brussels Regulation or the Brussels, Lugano or Hague Conventions), but where there is evidence that the claimant has assets in a convention country. The decision suggests that the court will look at whether, despite that evidence, there is a real risk of having to attempt enforcement in a jurisdiction where there is a real risk of non-enforcement. The court may conclude that there is such a risk despite there being no evidence of a lack of probity on the part of the claimant.

Where a claimant is considering an offer of undertakings to prevent an order for security for costs, the decision suggests that this will only be effective if the undertakings “clearly and satisfactorily eliminate the risk” of non-enforcement. Continue reading

Court of Appeal confirms second claim an abuse of process after first claim struck out for non-payment of security for costs

In a recent judgment, the Court of Appeal upheld a decision to strike out a claim as an abuse of the court’s process, where the claim repeated an earlier claim which had been struck out as a result of the claimant’s failure to provide security for costs pursuant to an unless order: Harbour Castle Limited v David Wilson Homes Limited [2019] EWCA Civ 505.

It was accepted that, if the claimant’s failure to provide security had been deliberate, this would justify a finding that the present action was an abuse of process. The appeal centred on whether the High Court had been entitled to find that the failure had been deliberate, in circumstances where it was accepted that the claimant did not itself have the means to pay security but was reliant on funds being provided by its owner.

The claimant argued that the Supreme Court’s judgment in Goldtrail Travel Limited (in liquidation) v Onur Air Taşimacilik AŞ [2017] UKSC 57 (considered here) meant that the question was not whether a third party (here the claimant’s owner) could pay the required sum, but whether the claimant itself could raise the funds. Ultimately, the Court of Appeal accepted that, as the claimant’s owner and directing mind could have provided the funds if he considered it in the company’s interests to do so, the High Court had been entitled to find that his refusal to do so amounted to a deliberate breach of the unless order by the claimant.

The judgment provides a helpful illustration of the application of the principles set out in Goldtrail, in particular where the third party that would be in a position to pay the required sum on the claimant’s behalf is also the claimant’s directing mind and will. The decision suggests that, in such circumstances, there may be little distinction between the claimant’s ability to raise the funds and the third party’s ability to do so.

Francesca Ruddy, an associate in our dispute resolution team, considers the decision further below. Continue reading

Draft Civil Procedure Rule changes in the event of a no deal Brexit

The government has published a draft statutory instrument, the Civil Procedure Rules 1998 (Amendment) (EU Exit) Regulations 2019, which makes amendments to the CPR that are consequential on the various other civil justice measures that are to be implemented in the event of a no deal Brexit. These include, most importantly, the disapplication of the recast Brussels Regulation and the Lugano Convention in relation to questions of jurisdiction and enforcement of judgments (as outlined here), as well as the disapplication of the EU Service Regulation and Taking of Evidence Regulation – in each case subject to transitional provisions.

The CPR amendments, which will only take effect if there is a no deal Brexit, include sweeping changes to CPR Part 6 in relation to service of documents and Part 74 in relation to enforcement of foreign judgments, as well as changes to other rules such as the provisions in Part 25 relating to security for costs. The most significant amendments are outlined below. Continue reading

Court of Appeal rejects “sliding scale” approach to level of security for costs when real risk of non-enforcement established

The Court of Appeal has allowed an appeal against the High Court’s decision to reduce the amount of security for costs a Russian-resident claimant was ordered to pay by applying a “sliding scale” of risk where the defendants had shown a real risk of non-enforcement of a costs order in Russia: Chernukhin v Danilina [2018] EWCA Civ 1802.

The court confirmed that, once it has been established that there are substantial obstacles sufficient to create a real risk of non-enforcement, the starting point should be that the defendant should have security for the entirety of the costs. There is no room for discounting the security figure by grading the risk using a sliding scale approach. However, the quantum of security is a matter for the judge’s discretion and discretionary factors (such as delay and the risk of stifling a genuine claim) may affect the amount of security ordered.

Maria Clarke, a senior associate in our disputes team, outlines the decision below. Continue reading

Security for costs: where claim and counterclaim raise same issues

A recent High Court judgment considers the principles that apply in security for costs applications where similar issues arise on both claim and counterclaim (Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm)). Following this judgment, if a defendant seeks security for costs in circumstances where the same issues arise on both claim and counterclaim, it is likely to have to commit to abandoning its counterclaim in the event that the security is not provided and the claim is not pursued as a result. Continue reading