A real risk, but how likely is it?

3 October 2018

The Court of Appeal has confirmed that where it is found that a defendant is entitled to security for its costs, the quantum of security should not be calculated by reference to a “sliding scale” depending on the likelihood of non-enforcement.

Background

Three Defendants applied for security for their costs up to the Case Management Conference (CMC) against a Claimant who was based in Russia[1]. The Defendants argued that there was a real risk that they would be unable to enforce an English order in Russia and that enforcement in Russia would be more costly.

First instance decision

Mrs Justice Cockerill held that there was a real risk of “a complete failure of enforcement”, but that this risk was not “at the high end of probability”. The greater probability was that there would be obstacles to enforcement which would not lead to a complete inability to enforce, but rather to further cost, delay and difficulty.

To reflect this, the judge applied a “sliding scale” and calculated the quantum of security by:

  1. extrapolating an (unstated) figure for the total costs up to trial from the (stated) costs up to the CMC; and
  2. applying an (unspecified) discount to the total costs to reflect the reduced risk of a complete failure of enforcement.

Court of Appeal decision

One of the Defendants appealed. The Court of Appeal allowed the appeal[2], ruling that, whilst the quantum of security is a matter of discretion:

  1. once a judge has found that there is a real risk of non-enforcement of any costs order, the starting point should be that the defendant is entitled to security for the entirety of its costs[3];
  2. there is no requirement to establish the likelihood of non-enforcement once the real risk is established; and
  3. the quantum of security should not be discounted by grading the risk using a sliding scale.

The Court of Appeal also noted that the merits of a case should not be considered unless there is a high degree of probability of success or failure – the White Book commentary which suggested that a court “must take into account the claimant’s prospects of success” should not be followed.

Conclusion

Practitioners and parties alike will welcome this decision, which confirms that security for costs applications are not to be burdened with evidence of likelihood of enforcement issues once the real risk threshold is met. Avoiding the “sliding scale” approach ought also to avoid the difficult and speculative exercise of grading the likelihood of non-enforcement seen in the first instance decision.


[1] A non-Convention state pursuant to rule 25.13(2)(a)(ii) of the Civil Procedure Rules.

[2] Chernukhin & Orsr v Danilina [2018] EWCA Civ 1802.

[3] Albeit, the court held that this is the starting point but “it by no means follows that security for all or indeed any of those costs will be ordered… the quantum of security is a matter of discretion”.


 

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