Gallaher International Ltd v Tlais Enterprises Ltd (No. 2)

On an application for further security for costs, the court should adopt a broad-brush assessment of the costs attributable to an independently valuable counterclaim. It need not undertake a detailed allocation of every pleading, witness statement or trial-bundle item. Security should not be refused for alleged stifling unless it is probable that the claim will be stifled. The claimant must consider possible funding from outside backers, and the burden lies on the party resisting security to show that no such funds are reasonably available.

An employee may give expert evidence. Employment by a party’s associated company does not automatically make the evidence inadmissible. The court must assess the nature and extent of the connection, the expert’s relevant expertise, and whether the expert understands and can perform the duty to the court. Any remaining connection may affect weight rather than admissibility.

The judgment concerned further applications made at a pre-trial review in two related commercial actions. Gallaher International Ltd sought further security for the costs of defending substantial counterclaims brought by Tlais Enterprises Ltd. Tlais argued that Gallaher was already adequately secured and that further security would probably stifle the counterclaim.

Tlais also sought to exclude the proposed industry and markets expert evidence of Mr Goel, an employee of Gallaher’s associated company, on the ground that he lacked independence. The court also dealt with disclosure relating to forensic accountancy evidence, the timetable for market evidence and costs.

1. Further security for costs. The court held that the counterclaim contained substantial free-standing issues, including allegations concerning damaged stock, alleged breaches of good faith and best-endeavours obligations, and agreements outside the distribution agreement. The costs attributable to those issues could not be calculated reliably by counting paragraphs in witness statements or assigning every item of preparation to one side of the litigation. A broad-brush assessment was appropriate.
2. The court assessed the counterclaim-related work and trial time at approximately 22 per cent of the future total costs, producing a maximum figure of about £600,000. It discounted that figure by one third to allow for settlement or the reduction of issues and ordered Tlais Enterprises Ltd to provide an additional £400,000 security within 28 days.
3. Stifling. Applying Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534, the court held that refusal of security required it to be satisfied that stifling was probable. The court had to consider funds available from other backers or interested persons. Tlais Enterprises Ltd had not shown that there was no reasonable prospect of funding from the relevant properties, banking facilities, businesses or family members.
4. Expert evidence. The court adopted the principles summarised in Armchair Passenger Transport Ltd v Helical Bar plc [2003] EWHC 367 (QB). Employment by an associated company did not automatically disqualify Mr Goel. He had relevant expertise, had acknowledged his overriding duty to the court, and had been seconded on terms designed to protect his independence. His report was admitted and he was permitted to give evidence, although his employment could affect the weight of his evidence.
5. Tlais Enterprises Ltd was required to identify and disclose material relied on by its English accountancy expert, including relevant draft accounts prepared by the Cypriot accountant. The timetable for market evidence was aligned with the timetable for the forensic accountancy evidence. £2,800 was disallowed from Gallaher’s costs of the relief-from-sanctions application because employing three counsel was unreasonable for that interlocutory application.

The judgment was a first-instance decision arising from further applications at a pre-trial review. Earlier interlocutory decisions by Gloster J had ordered security for costs of £550,000 and then a further £500,000. The present court ordered an additional £400,000 and refused the application to exclude Mr Goel’s expert evidence.