Tugushev v Orlov & Ors

Security for costs must provide effective protection without exceeding the costs reasonably expected to be recovered. The court should adopt an objective, broad-brush assessment of costs that are reasonably and proportionately incurred and reasonable and proportionate in amount. The applicant bears the burden of providing a sufficiently detailed breakdown. Where the breakdown is inadequate, uncertainty is resolved against the applicant. The court may allow for a realistic possibility of indemnity costs, but need not decide whether such an order will ultimately be made.

The claimant brought substantial claims concerning ownership interests in fishing businesses and obtained a worldwide freezing order. The first defendant challenged the jurisdiction and opposed continuation of the freezing order. He applied under CPR rule 25.12 for security for the costs of those applications.

The claimant accepted in principle that security should be provided, subject to disputing its amount and the timetable for payment. The first defendant sought £2,711,440.22, while the claimant offered £1 million. The issues were the appropriate amount of security and the dates by which it should be provided.

1. The application for security for costs was granted. The claimant was ordered to provide £1.5 million by payment into court. £1 million was to be provided by 21 December 2018 and the remaining £500,000 by 15 January 2019.

2. The purpose of security is to protect a defendant who may be unable to recover a costs order. The security must be proportionate to that purpose and cannot exceed the sum reasonably expected to be recovered. The assessment must consider the nature and stage of the litigation, the legal and evidential work required, and associated costs and disbursements.

3. Costs included in the calculation must be reasonably and proportionately incurred and reasonable and proportionate in amount. The assessment is objective and necessarily broad-brush, but the court must interrogate estimates rather than simply accept the applicant’s figures.

4. The applicant must provide a sufficiently detailed breakdown of incurred and estimated future costs. If adequate detail is provided, doubt should generally be resolved in favour of the applicant because under-security may cause prejudice. If the breakdown is inadequate, uncertainty caused by that deficiency is resolved in favour of the respondent.

5. The court may take account of a realistic possibility that costs will ultimately be assessed on the indemnity basis. That possibility does not require the court to determine the merits of the underlying applications or predict the eventual costs order.

6. The defendant’s estimate was reduced substantially because it was disproportionately high, insufficiently particularised and included an inadequately justified allowance for Russian lawyers. A 30 per cent discount was applied, subject to specified exceptions, followed by a 25 per cent discount to reflect the possible recovery of costs on the indemnity basis. The resulting figure was rounded up to £1.5 million.

7. The staged timetable proposed by the claimant was appropriate. The security application had been made relatively late, the hearing was imminent, and the defendant would not suffer unfair prejudice from receiving the balance by 15 January 2019.