Court Of Appeal Rejects 'Sliding Scale' Approach To Level Of Security For Costs When Real Risk Of Non-Enforcement Established

The Court of Appeal has allowed an appeal against the High Court's decision to reduce the amount of security for costs a Russian-resident claimant was ordered to pay by applying a “sliding scale” of risk where the defendants had shown a real risk of non-enforcement of a costs order in Russia: Chernukhin v Danilina [2018] EWCA Civ 1802.

The court confirmed that, once it has been established that there are substantial obstacles sufficient to create a real risk of non-enforcement, the starting point should be that the defendant should have security for the entirety of the costs. There is no room for discounting the security figure by grading the risk using a sliding scale approach. However, the quantum of security is a matter for the judge's discretion and discretionary factors (such as delay and the risk of stifling a genuine claim) may affect the amount of security ordered.

Maria Clarke, a senior associate in our disputes team, outlines the decision below.

Background

The claimant is a Russian national, resident in Moscow. She brought a claim against three defendants, alleging that she is the beneficial owner of the second defendant.

The defendants issued applications for security for costs, including on the basis that the claimant was resident in a non-Convention state, ie a state which is not covered by the various reciprocal regimes which provide for enforcement of English judgments(CPR 25.13(2)(a)).

The judge at first instance found that there was a real risk of a complete failure of enforcement of a costs order in Russia (a non-Convention state) but that it was not “at the high end of probability”. For that reason she chose to apply a sliding scale to the claimed costs: she extrapolated from the figures claimed (which were up to the date of the CMC) to a total costs figure up to trial and then discounted that total figure to arrive at what she considered to be the appropriate sum for security.

The defendants appealed on various grounds, including that the judge erred in law by concluding that, notwithstanding that there was a real risk of non-enforcement in Russia, the level of security should be reduced by the application of a sliding scale of risk.

Decision

Hamblen LJ, giving the leading judgment of the Court of Appeal, concluded that the judge did err in law by adopting a sliding scale approach. He found that, once a real risk of non-enforcement has been established, as a starting point the defendant should have security for the...