PROVING THINGS 128: CLAIMANT’S EVIDENCE NOT FULL, CLEAR, FRANK OR UNEQUIVOCAL IN RESPONSE TO APPLICATION FOR SECURITY FOR COSTS

In Danilina v Chernukhin & Ors [2018] EWHC 2503 (Comm) Mr Justice Teare was critical of  the quality of the evidence that the respondent adduced in response to an application for security for costs.

THE CASE

The defendants sought an order for further security for costs in relation to an action brought by the claimant.

THE CLAIMANT’S EVIDENCE IN RESPONSE.

The claimant argued that ordering £1.1 million to be paid for security for costs would stifle the claim.  However the evidence in support of the claimant’s contentions was found not to be convincing.

THE JUDGMENT ON THIS ISSUE

Is it probable that an order for security in an amount in excess of £1.1 million would stifle the claim ?
    1. The Claimant has provided a witness statement dated 6 September 2018 in which she has stated that the maximum amount of further security which she can provide is £1.1 million. She has stated that she has no regular income and that she has invested in a company known as Artel but that Artel has not made sufficient profits to provide her with an income. She has stated that she has funded her living expenses by selling jewellery, art and her Moscow flat. Those assets were exhausted, she has stated, by December 2016. Thereafter she entered into certain agreements with Mr. Deripaska.
    2. Pursuant to an Option Agreement (entered into 10 days after Mr. Deripaska had issued his section 67 challenge) Mr. Deripaska agreed to pay the Claimant $2 million (in quarterly instalments of $500,000) in consideration of the Claimant (i) producing evidence in support of Mr. Deripaska’s case (in the arbitration with Mr. Chernukhin), (ii) not cooperating with the Defendants and (iii) instituting proceedings against the Defendants to establish that she, not Mr. Chernukhin, was and is the beneficial owner of Navigator. Pursuant to a Loan Agreement (entered into at the same time) Mr. Deripaska agreed to finance the Claimant’s claim up to $3 million subject to Mr. Deripaska agreeing upon the identity of her lawyers and being kept informed of progress and strategy.
    3. The Claimant has said that she has used the funds from the Loan Agreement to pay the security ordered by Cockerill J. and that by April 2018 all of the $3 million had been spent on legal fees. The funds from the Option Agreement have been used for her living expenses and other personal liabilities. All that remains, she has said, is $150,000 which she needs for living expenses. However, she added that she had invested $800,000 in a loan to a business.
    4. She has stated that between April and July 2018 she took out a credit line of £5 million from a Moscow based bank secured on her main residence, valued at $7 million. The undrawn balance is £3.5 million. She has her own legal costs of £2.4 million to pay and so can pay no more than £1.1 million by way of further security.
    5. In addition she has other assets including two flats in St. Petersburg and a flat in Pechory. They have, she says, modest values and it would in any event take time to realise further loans secured by such properties.
    6. The burden is on the Claimant to establish the probability that her claim would be stifled if she were ordered to pay more than £1.1 million as further security for costs and her evidence has to be full, frank, clear and unequivocal; see Al-Koronky v Time Life Entertainment Group [2005] EWHC 1688 (QB) at 31. Some of the more recent authorities to the same effect are noted in Accident Exchange and another v Mclean and others[2018] EWHC 1533 (Comm) at paragraphs 10-13.
    7. There was much criticism by the Defendants of the very few documents disclosed by the Claimant in support of her evidence. However, it is to be borne in mind that her evidence had to be prepared hurriedly in circumstances where the application for additional security had been issued in August 2018. Following that criticism a further statement was provided on 12 September 2018 (the day on which the application was heard). That exhibited a copy of the public register evidencing the charge on her home in favour of the Development Capital Bank. Certain further information, and additional documentation, was given.
    8. The position remains that much of her evidence is unsupported by documentation. However, it seems tolerably clear that she has mortgaged her main residence, which suggests that she has no other source of liquidity. Mr. Chapman indeed submitted that it was to be inferred that mortgaging her home was the only way in which she was able to fund these proceedings. Some doubt was cast upon the inferences to be drawn from the fact of that mortgage by the suggestion that the bank responsible for the loan had some connection with Mr. Deripaska. The chairman of its supervisory board was a university classmate with Mr. Deripaska.
    9. The difficulty with drawing inferences from the fact of the mortgage is that there has not been exhibited any correspondence between the Claimant and the bank leading up to the credit line of £5 million. Nor have the terms of the credit line been exhibited. If the loan provides for regular payment of interest it is difficult to know how the bank could be satisfied that such payments would be made if Ms. Danilina has no regular income. The Claimant says that the agreement itself is kept by the bank. It is difficult to believe that the Claimant does not also have a copy of the facility agreement which is secured on her main residence. What has been exhibited is a letter dated 5 September 2018 (signed by the chairman of the board of the bank, not the chairman of the supervisory board who was at university with Mr. Deripaska) which refers to an “additional credit line”, a reference which the Claimant accepts she cannot explain even though the letter was, she says, requested to show to the court the remaining balance of the facility. It does not refer to a loan facility of £5 million. There has also been exhibited another letter from the bank dated 17 July 2018. That was obtained for use in the Court of Appeal hearing but it also makes no reference to the amount of the loan facility. The Claimant has said that that was deliberate. She wished to avoid disclosing the amount.
    10. No bank statements have been disclosed showing the amounts drawn down pursuant to the loan facility. There must be such statements. If efforts have been made to obtain a letter from the chairman of the bank for use in this application efforts could also have been made to place before the court the terms of the loan facility and a bank statement showing what has been drawn down and when.
    11. In the result the court has been given very little documentary support for the extent of the Claimant’s loan facility from the bank. Mr. Chapman sought to justify or explain the Claimant’s reluctance to provide such support by saying that since it was the Claimant’s case that the First Defendant had misappropriated her assets her reluctance was not surprising. Nevertheless, the court must, it seems to me, by reason of the absence of documentation which I would expect to be available, exercise caution when evaluating the Claimant’s evidence and in drawing inferences from the fact of the mortgage. That is particularly so because there are real grounds for thinking that on a previous occasion the Claimant has misled the court as to her finances.
    12. In June 2018 the Claimant had to explain her failure to make a costs payment of £55,000 which had been ordered by Knowles J. on 25 May 2018. It was said on her behalf that her delay in making payment was caused by “unexpected logistical difficulties in obtaining a loan”. No reference was made to the fact that, as she now says, she must have had at least $150,000 remaining from the $2 million paid to her by Mr. Deripaska pursuant to the Option Agreement. The Claimant states in her most recent statement that she “certainly never intended that the court should be misled” and that at the time she had legal bills of £370,000 to pay. She had a small cash reserve but that was to cover her living expenses in the short term. Nevertheless, the court was not informed that she had $150,000 remaining from the sums advanced under the Option Agreement.
    13. In addition, there is the circumstance that on her own account she has already spent the greater part of the $3 million advanced by Mr. Deripaska on her own legal fees by April 2018 and that she proposes to spend a further £2.4 million on legal fees. In addition she has invested $800,000 in a business. The expenditure of such sums does not suggest that she is being careful to limit her expenditure which is what one expect her to do if her position were truly as precarious as she suggests it is.
    14. It is well established that on applications of this nature it is necessary for a claimant to be frank not only about her own finances but also about what she can reasonably be expected to provide from third parties, such as friends and relatives; see Al Koronky v Time Life Entertainment Group at paragraph 31. It is clear from Yorke Motors v Edwards [1982] 1 WLR 444 at p. 449H that such third parties may also include “business associates”.
    15. In this case the relevant third party is Mr. Deripaska. It is clear from the agreements he has made with the Claimant that he wishes her to pursue and win these proceedings, or at any rate the TGM claim. He provided money to her to secure her agreement to commence these proceedings and not to cooperate with the Defendants. In addition he has provided money to finance her claim. He has done so, it appears, because he considers that her proceedings will assist him in his dispute with Mr. Chernukhin. In those circumstances it is to be expected that, if there is a risk that her claim may be stayed or struck out because of a failure to provide security for the Defendants’ costs, he would provide the necessary security for those costs. Otherwise the $5 million which he has provided to her would be wasted.
    16. It follows that upon an application for security for costs one would expect the Claimant to give “full, frank, clear and unequivocal evidence” that Mr. Deripaska is not willing or able to provide the security which has been sought. The Claimant has, however, addressed this matter very shortly in her evidence. She has merely said:
“My solicitors and I have approached the representatives of Mr. Deripaska to request that he assist me with the provision of security. We were recently informed that he had not agreed to do so.”
  1. I am unable to regard this evidence as “full, frank, clear or unequivocal.” No details are given as to when, how and in what terms the Claimant’s solicitors and the Claimant approached the representatives of Mr. Deripaska. No details are given of the persons who were approached. It is not stated when, how or by whom the Claimant’s solicitors or the Claimant herself were informed that “he had not agreed” to provide security. As to the statement that “he had not agreed” to provide security it is not clear whether the message was that Mr. Deripaska had not agreed to provide security in response to the Defendants’ request or whether the message was that, even if the Claimant’s claim would otherwise be stayed or struck out, he would not agree to provide security.
  2. In these circumstances, having regard to all of the above matters, I am not persuaded that it is probable that if the Claimant is ordered to pay more than £1.1 million by way of further security her claims would be stifled.