Infinity Distribution Ltd v The Khan Partnership LLP

When determining the manner in which security for costs must be provided, the court must consider all relevant circumstances and seek a result which is just overall. Those circumstances include the financial consequences which each proposed form of security may have for both parties if the claim succeeds or fails.

A form which is least onerous to the claimant should be preferred only where all else is equal. Where an ATE-backed indemnity may expose the defendant to a substantial recoverable premium, while payment into court would not, that exposure is material. The claimant must provide evidence if it contends that payment into court would cause material difficulty, including evidence about funding potentially available from interested backers.

Infinity Distribution Ltd, a company in administration, claimed against its former solicitors, The Khan Partnership LLP, concerning fees retained from recovered VAT interest. It was common ground that Infinity should provide £350,000 as security for costs.

A Deputy Master accepted an indemnity from Infinity’s ATE insurer as adequate security, although the associated premium might be recoverable from TKP if Infinity succeeded. Mr Stuart Isaacs QC, sitting as a Deputy High Court judge, dismissed TKP’s appeal in [2020] EWHC 1657 (Ch). He held that the premium’s amount and potential recoverability were irrelevant once the indemnity gave adequate security and did not prevent Infinity pursuing its claim.

The central question on the second appeal was whether that potential liability was relevant when selecting the manner in which security should be provided.

1. The appeal was allowed. The court unanimously directed that Infinity provide the £350,000 security by payment into court rather than by an ATE-backed deed of indemnity.

2. Once a gateway under rule 25.13(2) of the Civil Procedure Rules 1998 is satisfied, the making of an order and its details are discretionary. The requirement in rule 25.13(1)(a) to consider all the circumstances probably extends to the amount, manner and timing of security. In any event, ordinary discretionary principles require all relevant matters to be considered. The overriding objective also requires justice, proportionality, fairness and, so far as practicable, equality between the parties.

3. The court must balance the consequences of each available form of security for both parties. It must consider what may happen if the claim succeeds as well as if it fails. The possible recovery from TKP of an additional £195,000 premium was therefore plainly relevant when comparing the insurer’s indemnity with payment into court. Adequacy of the security and prejudice to the claimant were relevant, but they were not the only relevant matters.

4. The principle that security should be given in the manner least onerous to its provider applies only where all else is equal. Earlier authorities did not require a different result. Those dealing with the existence of security did not address its form. Those addressing form involved no material difference to the protected party between the available methods.

5. Considering the premium did not undermine the statutory regime which preserved recoverability of ATE premiums in certain insolvency proceedings. That regime said nothing about the form of security. The potential liability arose from the interaction between the funding regime and the proposed form of security, and was properly considered in exercising the court’s discretion.

6. On re-exercising that discretion, the substantial potential cost to TKP favoured payment into court. Infinity had not alleged that payment would stifle its claim and had produced no evidence about the difficulty, cost or availability of raising the money from its secured creditor or other interested backers. There was consequently no solid evidence of prejudice to Infinity capable of outweighing the substantial disadvantage to TKP.

1. Court of Appeal (Civil Division): Allowed TKP’s second appeal from [2020] EWHC 1657 (Ch) and directed that security be provided by payment into court.

2. High Court: In [2020] EWHC 1657 (Ch), Mr Stuart Isaacs QC dismissed TKP’s appeal, holding that the premium’s amount and potential recoverability were irrelevant to the suitability of the indemnity.

3. Deputy Master: Held that the proposed deed of indemnity was adequate and acceptable security.

4. Chief Master: Ordered security of £350,000, leaving its manner to be agreed or determined at a further hearing. Payment into court was the default if an acceptable deed was not provided.