Recovery Partners GB Ltd & Anor v Rukhadze & Ors

A party seeking release from an undertaking given in lieu of security for costs must first establish a material change of circumstance. The application is then governed by a broad discretion, with the burden on the applicant. The court should not treat it as a fresh security application. Relevant considerations include the duration and use of the existing security, the comparative quality of the proposed replacement, the explanation for the change, and any hardship or prejudice caused by refusal. Adequate replacement security may nevertheless be less attractive than existing cash-backed security. That difference does not automatically determine the application, but compelling hardship or prejudice may justify substitution.

The claimants brought proceedings concerning alleged breaches of duty and diversion of an opportunity to provide asset-recovery services. Following requests for security for costs, their solicitors gave two undertakings backed by cash, totalling approximately £566,000, instead of the defendants pursuing formal security applications.

The claimants later obtained after-the-event insurance and a deed of indemnity from an insurer. They applied to be released from the undertakings so that the insurance arrangements could replace the existing security. The court had to decide whether the deed and policy supplied adequate security and, separately, the proper approach to releasing an undertaking already given and relied upon.

1. Application dismissed. The claimants failed to show that their solicitors should be released from the cash-backed undertakings.
2. On a conventional security for costs application, the court has a wide discretion as to whether security should be ordered, its amount and the form of security. Where alternative forms provide equal protection, the less onerous form should be preferred, as recognised by Rosengrens v Safe Deposit Ltd [1984] 1 WLR 1334. An after-the-event policy may provide sufficient protection, depending on its terms and the circumstances. Objections must be realistic rather than theoretical or fanciful, following the approach discussed in Harlequin v Kennedy [2015] EWHC 1122 (TCC) and Premier Motorauctions Ltd (in liquidation) v PriceWaterhouseCoopers LLP [2017] EWCA Civ 1872.
3. The deed and policy were considered together. The deed conferred enforceable rights on the defendants. Any uncertainty about final determination affected when payment became due, rather than whether valid security existed. The risk that sums might first be paid to the claimants under the policy was possible, but the proposed policy endorsement and deed of charge neutralised that concern. The arrangements therefore constituted adequate security for a fresh application. The court was also confirmed in that view by Mayr v CMS McKenna LLP.
4. Release of an undertaking required a material change of circumstance. The court proceeded on the assumption that this threshold was met, without deciding whether the availability of alternative security alone constituted such a change. Once engaged, the court had a broad discretion, but the burden remained on the party seeking release. The application was not a de novo security application: the defendants had accepted the existing security and incurred costs in reliance on it. The threshold and discretionary approach were consistent with Gordano v Burgess [1988] 1 WLR 890.
5. The relevant factors included the period for which the old security had been in place, whether the secured costs had been incurred, the difference between the old and new security, the explanation for the change, and any hardship, prejudice or effect on the ability to pursue the claim. A solicitor’s undertaking backed by cash was more attractive than the proposed arrangements, although that difference was not conclusive. The claimants offered no compelling reason beyond a preference to use the cash and alleged no hardship or prejudice. The application was therefore dismissed. The court also emphasised the need to avoid disproportionate interlocutory expenditure.