Danilina v Chernukhin & Ors

On an application for further security for costs, the court may take account of a reasonable, non-speculative possibility that costs will be assessed on the indemnity basis, without investigating the merits of the claim. A claimant alleging that security would stifle the claim must provide full, frank, clear and unequivocal evidence of personal resources and reasonably available third-party funding. The court may consider funding from business associates whose interests are advanced by the litigation. A previous determination that a counterclaim would not continue independently is binding absent changed circumstances or an exceptional reason. The court must also consider the increased burden of late security, but may order security where the claimant can contribute and further funding is reasonably available.

The claimant brought claims concerning beneficial ownership of interests in a Russian real estate venture and assets held in trust. The defendants had previously obtained security for costs from Cockerill J. The Court of Appeal directed that the security already provided should be treated as payment on account of the amount to be assessed by the Commercial Court.

The defendants sought further security. The claimant accepted that some further security was appropriate but argued that a larger order would stifle her claims. The issues included the appropriate percentage of costs, the effect of a related arbitration challenge, the claimant’s resources and third-party funding, the defendants’ counterclaim, the timing of the application and the possibility of security from a non-party.

1. Application granted. Further security was ordered for the First and Second Defendants’ costs in the sum of £2,630,826 and for the Third Defendant’s costs in the sum of £584,413.
2. The court could consider whether indemnity costs were a reasonable, rather than speculative, possibility if the claimant lost. That exercise did not require an assessment of the merits. Given the nature of the claims and the possibility that adverse findings would involve dishonesty rather than mistake, security calculated by reference to 75% of incurred and expected costs was appropriate. The percentage also allowed for criticisms of the defendants’ costs estimates.
3. The claimant bore the burden of proving that security above £1.1 million would probably stifle the claims. Her evidence had to be full, frank, clear and unequivocal. That obligation extended to reasonably available assistance from third parties, including business associates, as recognised in Al-Koronky v Time Life Entertainment Group [2005] EWHC 1688 (QB) and Yorke Motors v Edwards [1982] 1 WLR 444.
4. The claimant’s limited documentary evidence, unexplained features of the mortgage facility and previous failure to disclose relevant financial information justified caution. Her evidence concerning Mr Deripaska’s refusal to provide further security was not full, frank, clear or unequivocal. His substantial financial interest in the TGM claim and previous provision of $5 million made further funding reasonably foreseeable.
5. The counterclaim point did not justify refusing security. The prior determination by Cockerill J. that the counterclaim would not continue without the claimant’s claims was a decision that the point did not arise on the facts, rather than a discretionary assessment of weight. It remained binding absent changed circumstances or an exceptional factor. The later amendment did not create one.
6. The court considered the additional burden caused by determining security shortly before trial, as discussed in Vedatech v Crystal Decisions [2002] EWCA Civ 356. On these facts, the claimant’s ability to provide £1.1 million and the reasonable prospect of further funding meant that the burden was not disproportionate.

1. Court of Appeal: allowed the defendants’ appeal from the earlier security-for-costs order and directed that security already provided should be treated as payment on account of the security to be assessed by the Commercial Court.
2. High Court (Commercial Court): ordered further security in specified sums for the defendants’ costs.