Adam Robert Giaquinto & Ors v ITI Capital Limited

an enactment permits the court to require security for costs.

I have received no confirmation that the suggested anti-avoidance endorsement supplied by the claimants will be approved by the ATE provider. Without any anti-avoidance provision at all (as in the original, and currently only, approved terms) I am bound to conclude, in accordance with case law, that the policy is inadequate in place of additional security. Whether to consider the level of indemnity provided (absent anti-avoidance), in discounted form, as partial security is better addressed in my consideration of quantum. In addition, the difficulties of being a “third party” under the policy, as described at paragraph 40, remain to be resolved.

I am not asked to determine the suitability of the final drafting suggestions from the defendant for the endorsement, but to consider a short period for the parties to seek to reconcile their differences, if I am not minded to immediately make an order for separate security. I consider it would be wasteful, and therefore inconsistent with the overriding objective, for me to ignore the ATE policy altogether, and the work already undertaken by the parties to narrow the gap in terms of suitable additional anti-avoidance provision.

I hope it is helpful to comment briefly on what appears to be one of the more significant drafting suggestions made by the defendant, although I would not make a final adjudication at this point as it has not been requested, nor have I had specific submissions from the claimants upon it. I simply say that I can see it is not without merit to draw attention to the constraining nature of the current draft in terms of facilitating proposals between the parties for overall resolution. This is in an era when dispute resolution, without the expense of a full trial, has probably never been more highly commended by policy makers and senior members of the judiciary alike. Currently under the policy terms any settlement by payment of damages, however small, or some form of discontinuance (clauses 2.5.1 and 2.5.3) without paying damages, would seem to have the potential to obliterate any adverse costs cover under the policy.

There was no contention between the parties by the time of oral submissions that the relevant “gateway” conditions are satisfied for security to be ordered, pursuant to CPR 25.13 (2), and there were no submissions that provision of security would have the effect of stifling the claim. I have also determined:

I accept the defendant’s submission that it would be deeply unjust for the individuals behind each of the corporate claimants to avail themselves of the full benefit of any recovery from the defendant, without having to bear the risk of any adverse costs award against them. I have been made aware by the claimants that their legal team is working under conditional fee agreements, and it is commonly the case that such arrangements will be backed up by insurance funding mechanisms to meet adverse costs orders. The case law is clear that anti-avoidance provisions are normally required to successfully fend off a claim for security, where other gateway conditions have been met. I therefore do not believe it should have come as any surprise to the corporate claimants that security would be required if there is no suitable ATE policy in place.

I believe that the defendant's approach has been proportionate in seeking security only from the corporate claimants, which represents less than half the overall costs bill, and also by limiting the security requested at this stage to the conclusion of the experts phase.

THE AMOUNT OF SECURITY

Indemnity/standard basis

It is first necessary to consider the basis of any costs order to be made. The defendant urged me to consider ordering an amount of security to reflect a realistic prospect of an indemnity costs order in favour of the defendant. This they said would entitle them to a 70% recovery rate for incurred costs, and a 100% recovery rate for estimated and approved costs within the budget. Counsel insisted these figures were conservative as there was good or authority for a 75% recovery rate where there is a realistic prospect of indemnity costs, and they are not budgeted.

The factors which I was asked to bear in mind when considering an indemnity costs order included the assertion that the defendant was wrongly and baselessly accused of dishonesty by the claimants in the Particulars. Also that the claim was on any view substantially overinflated, it was not properly particularised and a number of claims were improperly pleaded and baseless as they were founded on assertions that could only have been made with the benefit of expert evidence, which was not obtained.

Whilst the claimants’ skeleton argument did not expressly address indemnity basis costs, it was implicit that they did not consider this to be appropriate. Counsel sought to persuade me that any security ordered should be no more than 60% of estimated costs based upon Stokors SA v IG Markets [2012] EWCA Civ 1706.

I have now had the opportunity to read Stokors. In that case it had been submitted, at first instance, that there was a real prospect of indemnity costs because there were “serious allegations of dishonest conduct on the part of professional men, allegations which can have the outcome of ruining careers, and that in such circumstances, if such allegations were not made out, the judge might feel it appropriate to make an order for indemnity costs against the claimants”. At first instance Popplewell J had rejected the argument, because submissions that the claim was speculative and weak would involve an assessment of the merits of the case. He instead ordered security at broadly 62% of the costs as claimed. This finding was not the subject matter of the appeal, but Tomlinson LJ concluded at [42] that it had been correct not to go into the merits of the case. He commented, “I have never heard of security for costs being awarded on a more generous basis for that reason”.

More recent authorities within the bundle included Bruce MacInnes v Hans Thomas Gross [2017] EWHC 127 (QB). Coulson J (as he then was) reviewed the existing case law concerning the indemnity basis for security for costs. At [3], when summarising the principles of indemnity costs he concluded:

“Indemnity costs are appropriate only when the conduct of a paying party is unreasonable “to a high degree”. “Unreasonable in this context does not mean merely wrong or misguided in hindsight” as per Simon Brown LJ (as he then was) in Kiam v MGN Limited [2002] 1WLR 2810”.

The court must therefore decide whether there is something in the conduct of the action, or in the circumstances of the case in general, which takes it “out of the norm” in a way which justifies an order for indemnity for costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Limited v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ. 869.

The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Limited v HGP Greentree Allchurch Evans Limited [2006] BLR.

At [10] Coulson J concluded “In the round, I am confident that this is not a case which could fairly be described as being “out of the norm”. It is instead a not untypical dispute between commercial men where, on an analysis of the factual evidence and the contemporaneous material, the claim failed for a variety of separate reasons”. It should be noted, in the present context, that the learned judge was considering the correct costs basis for assessment of a payment on account and any deduction from budgeted costs, after the trial, but his conclusions concerning indemnity costs generally are nonetheless helpful.

In Danilina v Chernukhin & Others [2018] EWHC 2503 (Comm), when making an application for security, the defendants said it was highly likely that costs would be allowed on the indemnity basis, post-trial, as the claimants would have given evidence known to be false. Teare J held at [17] the court should take account of the possibility of an indemnity costs order but noted, “That conclusion does not involve an assessment of the merits of the claims but simply an appreciation of the nature of the claims”. He continued, that where indemnity costs are not a possible prospect, or it is “no more than speculative” that they would be awarded, 60-70% would be the appropriate range for a security for costs order. If there was a reasonable possibility of indemnity costs, then 75% should be ordered. I note that this case had not been budgeted so Teare J was relying on costs schedules.

Finally, the most recent case in the bundle on this topic was Mr Nigel Rowe & Others v Ingenious Media Holdings PLC & Others[2020] EWHC 235 (Ch). It was submitted for the defendants at [90] that there was “a real possibility of indemnity costs being awarded in their favour if successful”. Counsel for the claimants had said there was no real likelihood of indemnity costs at [91] despite claims of dishonesty being pleaded. Nugee J considered that as many of the representations were written, there could be little or no dispute as to what was said. Continuing at [91], Nugee J commented that the “issue will be not so much whether the Claimants are telling the truth but whether what the Defendants said was untrue, and whether the relevant Defendants knew that”.

At [92] Nugee J said, “I find it quite difficult at this stage of the proceedings to assess to what extent the individual Claimants’ cases will turn on their credibility. I will assume however that the main issue at trial will not be whether the Claimants are putting forward a deliberately false story supported by perjured evidence. But that is not necessary to justify an award of costs on the indemnity basis. As is well known, the jurisprudence in this area establishes that while there must be something to take the case out of the norm…the categories of case in which indemnity costs are justified are not closed and vary enormously…”. Then he quoted factors taking cases out of the norm, by reference to Tomlinson J in Three Rivers DC v Bank of England [2006] EWHC 816 at [25], “Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time”.

Nugee J continued, “to accuse people of fraud or dishonesty is a high-risk strategy, and if such allegations are made but not established, that can certainly in my judgment be a factor justifying indemnity costs, whether the claimants have lied or not. Of course it is not an automatic consequence ..-…but it is certainly a highly material consideration”.

Conclusions on the correct basis for assessment

Having reviewed the case authorities, listened to submissions and re-read the Particulars of Claim, I conclude that at this juncture it is not appropriate to make an order on the indemnity basis. Disclosure has not yet taken place, but paragraphs 13,14 and 15 of the Particulars refer to documentation in addition to oral representations. On this basis, the most recent authority of Rowe is instructive. I am also mindful that security is only being sought against the corporate claimants, but many of the representations made do not appear to have taken place in the presence of directors of those companies, apart from the seventh claimant. Those corporate directors, alongside other individual investors/claimants, had information “disseminated” to them after the meetings according to the Particulars, which I understand to mean by way of documentation, or at least not by oral representations of the defendant. In addition, much of the work to be undertaken in this case involves other breaches than misrepresentation.

I do not consider it helpful or necessary to delve further into the adequacy of the pleadings as a basis for making an indemnity costs basis order. They are lengthy and complex and already listed to be the subject of an early strike-out application. The defendants have indicated that they wish to apply to the court to top up the level of security once the experts phase has been completed; that would appear to be a better occasion at which to consider whether to order any further security, on an indemnity costs basis, if at all.

Amount of costs to be ordered as a percentage on the standard basis.

There was a large difference in the cases cited to me, between claims where judges were asked to review cost schedules and those cases where a budget had been approved by the court. As Coulson J (as he then was) remarked about a budgeted case, in Bruce MacInnes v Hans Thomas Gross [2017] EWHC 127 (QB) at [27], “Days of educated guesswork identified by Jacob J in Mars UK Limited v TeKnowledge Limited [1999] 2 Costs LR 44 are now gone. Instead the court can now be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate”.

Similarly in Sarpd Oil International Limited v Addax Energy SA & ANR [2016] EWCA Civ 120, Sales LJ at [39] quoting CPR 3.18, held that the court should not depart from an approved or agreed budget unless satisfied there is good reason to do so. That is a helpful indicator in respect of estimated/approved costs but does not deal with incurred costs. In the MacInnes case Coulson J nonetheless deducted 10% from estimated costs when ordering a payment on account, which is a slightly different exercise to the one I have to undertake. In the Sarpd case there had been a comment by the costs managing judge at the budgeting hearing that incurred costs appeared reasonable and proportionate which was of assistance when determining the correct award of security. No such judicial comment on the defendant’s budget in this case was recorded at the CCMC.

The figures allowed for incurred costs, in the other cases to which I was taken, all related to schedules of costs rather than more precise budgets, and therefore were overall figures for the total security claimed. These ranged from 50% (where delay reduced the more usual minimum 60% rate) up to 70% on the standard basis.

Incurred costs

Table of incurred costs sought within the security

The defendant has contended for its incurred costs to be allowed for within the security ordered. It has been confirmed by their solicitor’s statement in support of the application that all such costs (save for those relating to the CCMC) relate to the firm instructed prior to Rosenblatt taking over conduct of the case. The defendant accepted that the court might wish to impose a reduction on the basis it is unlikely 100% of incurred costs will be recovered. If security was not to be ordered on an indemnity costs basis, then 70% was contended for as an appropriate proportion. Counsel acknowledged that in Danilina v Chernukhin [2018] EWHC 2503 (Comm) at [17] a range of 60-70% was said to be appropriate for standard basis costs.

The claimants contest any allowance for such incurred costs on the basis that the defendant’s delay in making the application should deprive them of those costs, or at least they should be significantly reduced. They pointed to the large sum claimed for incurred costs (£259,350 excluding CMC) and asserted they had no indication whatsoever that such a sum could have been accruing until the defendant's application. They described the defendant’s conduct as a “deliberate delaying tactic”. They relied upon Bennet Invest Ltd [2015] EWHC 1582 (Ch) at [28] and Warren v Marsden [2014] EWHC 4410 (Comm).

I note the defendant was initially represented by Mishcon de Reya, then Bryan Cave Leighton Paisner LLP (BCLP) and from 15^th October 2021 (i.e. after the failed mediation) by the current solicitors, Rosenblatt. The summary of defendant’s pre-action and incurred costs submitted for the CCMC and signed on 8^th November 2021 states that it includes BCLP but no reference is made to Mishcon’s fees.

In fact there are no pre-action costs claimed at all in the defendant’s budget. Whilst I was without an explanation for this, on the basis that there was no claim for Mishcon’s fees, and that they were the solicitors instructed to deal with the Pre-Action Protocol response, it is perhaps unsurprising.

From the issue of proceedings, the work is clearly allocated to budgetary phases with some degree of parity between the parties, save for the statements of case phase where the defendant’s figure is much higher. However, the absence of any costs in three phases and minimal costs (i.e. £500) in one other, has the result of not vastly dissimilar totals between the parties for incurred costs overall.

On the issue of delay, or being taken by surprise as to the amount of work undertaken, I was not shown any correspondence from the claimants requesting details of costs incurred by the defendant prior to them arranging ATE cover. I do not know on what basis they made assumptions about the level of adverse costs cover required when taking out the policy. In my judgment, the only figures for incurred costs which seem particularly surprising, when comparing them with the claimants’ own costs, are the lack of any claim for pre-action work and the sum recorded for the statements of case phase. As stated above, the global totals for all relevant phases are not strikingly unalike.

I was asked to reflect on the “excessive” sum the claimants say that the defendant has spent on the statements of case phase, where the costs claimed are more than double those of the claimants. I recognise that it is often said that the claiming party will have to undertake more work to get their claim off the ground satisfactorily, in order to satisfy their burden of proof, than a defendant. There are of course exceptions, and I recognise that the rather historic nature of matters complained of, allied with allegations of misrepresentation would present the defendant with a need to undertake some substantial work to produce an adequate defence. I note that the claimants have not taken out any applications on the basis of an inadequate pleading. I am not conducting a detailed assessment, when more detailed information is to hand, and given my earlier comments, about the near symmetry in overall costs I am not inclined to make a big discount to the overall percentage recovery to be allowed, simply on account of the costs of the statements of case phase.

I have already determined that there was no “culpable” delay by the defendant. I do consider that the claimants might have been taken by surprise that the defendant’s incurred costs are said to be greater than theirs (especially as they have nine separate claimants to take instructions from, albeit that just four are relevant for my purposes in considering security) so I am prepared to take that into account. Overall, I do not believe it would be just for me to refuse to order any security for incurred costs. I would have expected the claimants to be contemplating adequate protection for adverse costs liability as a normal part of litigation management, whether or not a security for costs application was intimated. Overall, I consider that a sum of £80,000 is the correct level of security for incurred costs for the 4 corporate claimants together. This is about 65% of the incurred defendant’s costs claimed. I am mindful of the comments of Nugee J in Mr Nigel Rowe & Others v Ingenious Media Holdings PLC & Others [2020] EWHC 235 (Ch) at [103], when discussing strict mathematical percentage sums allowed for security “such figures of course have a spurious precision about them, and it is usual to take a broad brush approach”. That is what I have done in this case.

Estimated costs

The defendant sought to persuade me that in relation to budgeted costs, the appropriate figure for security should be 100% of the estimated costs and they referred to Sarpd Oil International Ltd v Addax Energy SA [2016] EWCA Civ 120 at [52]. They did mention in passing the case of MacInnes v Gross [2017] EWHC 127 (QB) where Coulson J stated that 10% was “the maximum deduction that is appropriate in a case where there is an approved costs budget” when calculating a payment on account of costs. The defendant asserted that this authority only served to reinforce the view that the full amount of budgeted costs should be used when assessing quantum for security.

The claimants however asserted that the amount of estimated costs sought, pre-CCMC in the defendant’s budget, were disproportionate and unreasonable, such that security of no more than 60% should be permitted. A revised budget was produced by the defendant which led to a greater agreement between the parties as recorded below.

Table of estimated costs sought within the security

Given the broad level of agreement between the parties over the defendant’s estimated costs, and the case authorities I have referred to, especially Sarpd, I can see no reason not to allow security for 100% of the defendant’s costs, with a pro-rata discount to reflect security being sought only against the corporate claimants. This results in additional security being ordered of £403,200 x 4/9^th = £179,200 or £44,800 each.

Contingent costs

The original application notice and supporting witness statement made no claim for any of these costs in respect of the security application, a strike-out application and a Request for Further Information application. Indeed the latter item was not even included as a contingency within the filed budgets. Furthermore, it can be seen from the table below that the estimates for the cost of these applications has varied between different iterations of the budget (there were three budgets filed by the defendant’s solicitor’s dated 21st October, 8th November and 17th November 2021).

Table of contingent costs sought within the security

The claimants made no comment in their skeleton argument about the claim for contingent sums, save that in terms of the costs of the security application, they resisted them in full. It was clear from oral submissions that they opposed providing security for all of the applications.

There was just one case authority within the bundle which touched on the question of providing security for the security for costs application. This was Frank John Warren v Stephen Richard Marsden [2014] EWHC 4410 (Comm) where Teare J declined to add the cost of the application to the security, because he considered there was otherwise a risk of the claimants having to pay the costs twice, in the sense of paying them after the application, and providing security for them. This is consistent with Sales LJ at [24] in Sarpd Oil International Limited v Addax Energy SA & ANR [2016] EWCA Civ 120 “An order for security for costs looks inevitably forward to the time when, at the end of the trial, a party is ordered to pay costs.” Sales LJ therefore seemed to have in mind that it was the prospect of a future development leaving the defendant unsecured which the application should be directed towards. When an ATE policy may be used both for security against a final costs order, and for meeting adverse costs liabilities as they arise, I fully appreciate the level of available indemnity can be eroded by answering to interim orders. That is a separate matter.

In all the circumstances I do not consider it just to add the cost of the security application to the security at this point in time. It does not appear consistent with case authorities to do so, the claim was not intimated in the initial application, and the sum sought has varied considerably over time. Furthermore, the work associated with these applications is not work that has been approved under case management powers and the applications may be compromised or may fail. And finally, any difficulty with the remaining level of indemnity under the ATE policy available, after meeting the cost of such an application, can be addressed at the future top-up security application which the defendant has indicated that they intend to issue.

As far as the other two applications are concerned, relating to strike-out and the Request for Further Information I am similarly uncomfortable to order security at this point in time. The costs associated with the applications were not included in the original request for security, the amounts claimed have varied between different versions of the budget and submissions and it is likely that if the applications are not compromised prior to any hearing, a relevant costs order will be made at that point. Once again, if there is any difficulty caused by this approach it can be taken into account at the next application for security.

Conclusions

To conclude, in my judgment I consider 65% is a fair and reasonable amount of security for incurred costs, being a mid-range figure on the standard basis, as cited from the authorities I have mentioned. I have already stated that I can understand why the claimants may have been slightly taken by surprise at the amount of incurred costs claimed, hence why I am not ordering security at 70%, but I do not consider that any of the other aspects of prejudice I was asked to take into account are made out. The figure for security for incurred costs is £80,000. I will allow security of 100% of estimated costs (£179,200), as the majority of these were agreed between the parties, in accordance with case law about the purpose of budgeting. I decline to order any security in respect of the defendant’s three applications.

In accordance with agreed convention, the sum to be paid by way of security is exclusive of VAT. It is also agreed between the parties that each of the corporate claimants will be responsible for the security on a several, rather than joint, basis. The overall total for which security is required is £259,200.

As the amount of cover available to the corporate claimants under the existing ATE policy is £140,000 (£320,000 pro-rata between nine claimants x four corporate claimants who are the subject of this application), the policy is currently “light” by £119,200 even before the question of suitability of policy terms is taken into consideration. I am aware that the claimants, by the time of hearing, were seeking to put in place a top-up to adverse costs cover so it would be £100,000 per claimant i.e. £400,000 for the corporate claimants with £170,000 of this backed with anti-avoidance provisions. If this cover was indeed secured, the policy would be adequate in place of separate security being ordered, subject only to the anti-avoidance issues, which in this case include problems of solvency and the need for consideration of a direct payment mechanism to the defendant. The latter point does not appear to have been covered off in claimants’ solicitors’ correspondence so it does need addressing. Case law suggests that it may be appropriate to still allow the cover under the ATE policy (without full anti-avoidance provisions ) but in a discounted sum, in place of separate security that might otherwise be ordered. It is possible, therefore that if £400,000 overall adverse cover is provided with a £170,000 suitable anti-avoidance endorsement, it may be adequate, provided that the solvency issue is addressed, pursuant to the approach taken by Foskett J in Bailey.

I will await submissions as to the appropriate, but brief, amount of time I should allow in my Order for the claimants to endeavour to secure acceptable ATE terms (thus to conclude the dialogue already commenced between the parties, including the solvency issue), failing which security should be satisfied by way of each of the corporate claimants making a payment into court.

As requested, I will await further submissions from the parties before making a determination on the costs of this application.