Serious Fraud Office & Anor v Litigation Capital Limited [2025] EWHC 3486 (Comm)

[2025] EWHC 3486 (Comm)IN THE HIGH COURT OF JUSTICE Claim No.: CL-2017-000323BUSINESS & PROPERTY COURTSOF ENGLAND & WALESCOMMERCIAL COURT (KBD)BEFORE: MR JUSTICE HENSHAW
Between
THE SERIOUS FRAUD OFFICEMR JOHN MILSON AND MR DAVID STANDISH(as joint Enforcement Receivers in respect of the realisable propertyof Gerald Martin Smith)Applicants in the Proceedings-and-
Between
LITIGATION CAPITAL LIMITED(a company incorporated in the Marshall Islands)and 45 othersRespondents in the Proceedings
Between
HARBOUR FUND II LPApplicant in the Debarring/Stay ApplicationApplicant in the Harbour October 2024 ApplicationRespondent in the Thomas Cross-Application
Between
MR NICHOLAS THOMASRespondent in the Debarring/Stay ApplicationRespondent in the Harbour October 2024 ApplicationApplicant in the Thomas Cross-ApplicationJUDGMENT on security for costs(Approved)
Digital Transcription by Epiq Europe Ltd,Lower Ground 46 Chancery Lane WC2A 1JETel No: 020 7404 1400(Official Shorthand Writers to the Court)Date 2025-11-20
[1]MR JUSTICE HENSHAW: This judgment deals with the question of whether I should order security for costs in favour of Harbour, following my judgment of 5 November 2025 on Harbour's debarment and security applications, and if so, on what terms.[2]This is essentially a short ex tempore judgment of the kind I would have given, time permitting, at the hearing on 14 November 2025 when the point was argued, save that, since then, I have had the benefit of short written submissions on the question of law about whether a different test is to be applied where a claimant has become bankrupt and his trustees adopt his litigation claim.[3]In my Judgment of the 5 November 2025, I decided to order security for costs against Mr Thomas and the CPR 3.1(5). At paragraph 107 of the Judgment, I said this:
"Mr Thomas does not dispute that the court has power to order security for costs, though he invites me to consider whether such an order should be refused or tempered on the grounds of delay on Harbour's part, and otherwise to look carefully at the appropriate figure. For completeness, I record that I am satisfied that the court does have jurisdiction to order security here, at least under CPR r3.1(5) (failure to comply without good reason with a rule, practice direction or relevant pre-action protocol). Mr Thomas has breached court orders, both in relation to costs and in relation to the [Debarring Directions Order], and an order for security is justifiable in circumstances where Mr Thomas has (in the ways I have already outlined) demonstrated a lack of “will to litigate a genuine claim or defence as economically and expeditiously as reasonably possible in accordance with the overriding objective" (Olatawura v Abiloye [2002] EWCA Civ 998 at [25])."
[4]At paragraph 110, I concluded:
"I am satisfied that it is appropriate to order security for costs to the extent that Harbour's costs are likely to be increased by reason of Mr Thomas's cross-application. That includes the costs mentioned at (i) above, and a significant part of the costs at (ii) above. Overall, I consider the just order to be for security in the sum of £200,000."
[5]At paragraph 112, I noted that following the hearing leading to that judgment, the parties notified me that on 23 September 2025 Mr Thomas was adjudged bankrupt by the Insolvency and Bankruptcy Court, and that I would hear submissions about the impact, if any, on the appropriate relief. Having heard further argument, I am not persuaded that the intervening bankruptcy order materially alters the position.[6]The trustees for Mr Thomas in bankruptcy, whom I joined to the action during the 14 November hearing, submitted that the test was different on the basis that it was exceptional to order security for costs against an insolvency officeholder. At that stage, they cited two cases.[7]First, the decision of Sir Julian Flaux CHC in Re Li Shu Chung [2021] 11 WLUK 462, which was an application for recognition of an overseas bankruptcy in England and Wales pursuant to the Cross-border Insolvency Regulations 2006. Security was sought against foreign trustees in bankruptcy under CPR Part 25 on the basis that they were individuals outside the jurisdiction. The judge accepted a submission that the court will order security against an officeholder only when the case is exceptional (para 26), but immediately went on to say that that was clear from the decision of Mrs Justice Rose in Re Dalnyaya Step LLC [2017] EWHC 756 (Ch), where she said:
"Permitting security for costs to be required from a foreign officeholder simply on the basis of his foreign residence would risk making it substantially more onerous for such officeholders to make use of the relief to which they are entitled for the orderly and fair conduct of cross-border insolvencies."
[8]Secondly, the trustees cited Marcus Smith J's decision in Absolute Living Developments Limited v DS7 Limited [208] EWHC 1432 (Ch), a case where security was sought against a company in liquidation. The evidence was that a security order would stifle the claim. The judge considered whether to order security on the basis that the liquidator might pay from his own funds. However, the judge said it would be very unusual and wrong to take that into account, bearing in mind that the liquidator would not be liable as a third party under section 51 of the Senior Courts Act, absent impropriety, and that it:
"would be contrary to the public interest in the insolvency regime that exists in this jurisdiction. It is critical in the public interest that liquidators proceed in a manner that is uninhibited in terms of deciding how to bring actions, including how those actions are framed and funded."
[9]These cases were cited for the first time in the trustees’ skeleton argument dated 17 November 2025, despite their solicitors, Keystone Law, on 26 September 2025 having indicated that the bankruptcy order ought not to have any impact on my judgment, and even though Keystone Law and their counsel team had been instructed by Mr Thomas since before the original hearing before me, and by the trustees since 28 October 2025.[10]Keystone Law then indicated in a letter of 11 November 2025 that the bankruptcy meant that security for costs should not be ordered, but failed to explain why, despite being asked in a letter of 12 October from Harcus Parker, save to suggest (without evidence) in a letter of 13 November that security must not be used to stifle a legitimate claim.[11]There was insufficient hearing time on 14 November 2025 to complete the business on the agenda or to give a ruling on security for costs, so I directed that the hearing be resumed today, 20 November 2025. I indicated that I would consider any short written submissions, limited to five pages, received by Monday 17 November on the specific question of law raised, viz whether a different test applies when security is sought against a trustee in bankruptcy.[12]On that date, I received a short submission from Harbour on that point, and one from the trustees which addresses that point, but also, as I note later, going beyond that point.[13]Having considered the authorities in the round, I reject the trustees' submission that security under CPR 3.1(5) should be ordered against a trustee in bankruptcy only in exceptional circumstances. The true position, in my view, is in summary as follows.[14]First, it is commonplace for security to be ordered against a company in liquidation under CPR 25.27(b)(ii): see, eg the comment in McPherson's Law of Company Liquidation, 5th edn., at paragraph 9-018.[15]Secondly, where a claim is brought or adopted by an insolvency officeholder who is a natural person, as distinct from a company in insolvency proceedings, the court does not ordinarily have jurisdiction under CPR 25 to make an order for security for costs: that reflects previous common law rules that security would usually not be required from an individual, even if impecunious. That is the basis of the decisions in Cowell v Taylor (1885) 31 Ch D. 34; Re Strand Wood Co Limited [1904] 2 Ch 1; and Wu v Hellard (unreported, HHJ Dight, 25 November 2013), all concerning English officeholders. That principle was subject to a common law exception, now reflected in CPR 25.27(b)(v), introduced to prevent abuse, which applied where a person sued as a nominal claimant for the benefit of others. The exception is not relevant to the present case.[16]Thirdly, where the individual officeholder is abroad, there is jurisdiction to order security under ordinary principles pursuant to CPR 25.27(b)(i). However, as Li Shu Chung indicates, the court may be reluctant to make such an order merely on the basis that the officeholder is abroad, especially in the context of the Cross-border Insolvency Regulations 2006 and the underlying principle of international cooperation in insolvency matters. The application in Li Shu Chung was founded solely on the foreign status of the officeholders, and the supposed difficulties in enforcing a costs order against them, which were found to be illusory: see paragraph 32. The application was also held to be far too late (para 32), and contrary to the policy of the cross-border insolvency regulations (para 30). Even in this context, though, Rose J stated in Re Dalnyaya Step LLC at paragraph 86 that:
"I do not consider that there is a point of principle or practice which requires the court to refrain from ordering security to be provided by a foreign representative."
[17]Another such case was Kireeva v Bedzhamov [2022] Costs LR 935, where Falk J ordered security against a foreign officeholder. The judge accepted at paragraph 16 that it was exceptional to order security against a trustee in bankruptcy, but ordered security on the facts. She noted at paragraph 31 that Cowell is authority for the proposition (only) that “security will not be required from an (English) trustee in bankruptcy who is impecunious”.[18]It is clear that what was in contemplation in that and other cases cited was security under the ordinary grounds, now set out in CPR Part 25, against a foreign officeholder against whom enforcement would be problematic, or an impecunious English officeholder. There were good reasons for the court to exercise caution before ordering security on those grounds. A major concern in those cases was the risk of stifling a good claim. That factor has no relevance here in circumstances where, as indicated in paragraphs 105 to 106 of my 5 November 2025 Judgment, there is no evidence of stifling, and on the contrary, good reason to believe that Mr Thomas is able to access funds when it suits him. There is no reason to believe the source or sources of those funds have ceased to be available, and certainly no evidence that they will not be available. The reliance in the trustees' latest submissions on safeguards regarding access to court is thus entirely misplaced.[19]These cases do not inform the court's decision on whether to order security against an English trustee on the independent grounds in CPR 3.1(3) or (5), based on making an order subject to conditions, or based on the party’s misconduct in the litigation. There, the ordinary principles apply, as perhaps illustrated by the Australian decision which Harbour mentions, Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] 67 ACSR 105. In that case, the New South Wales Court of Appeal held that security for costs could be ordered against a liquidator in the same limited circumstances in which security might be ordered against any other natural person: see paragraph 45. It was held that an order for security should be made against a liquidator who was suing for the benefit of third parties who were funding the proceedings (see paragraph 60). That was not a special rule that applied to liquidators alone, but simply a reflection of the general procedural rules in Australia regarding orders for security against individuals.[20]The other point arising is whether security should not be ordered against the trustees in the present case, on the basis that CPR 3.15 is a backward-looking provision, based on, here, Mr Thomas's past failings, by which the trustees are (it is said) not tainted. I have already decided that security should be ordered against Mr Thomas, in the light of his conduct of this litigation, for the reasons set out in my Judgment. Although an order under that provision does look back to previous events, it is nonetheless also forward-looking in the sense that it is designed to provide protection to the counterparty in the litigation, who has already had to incur substantial extra trouble and expense as a result of the conduct of the proceedings to date. It protects the counterparty from having to spend yet more time and money on the litigation, unless it is at least given security to provide a degree of comfort that its costs will be recoverable if the claim against it fails. Those considerations in themselves justify an order against trustees if they adopt – and thus step into the shoes of the individual litigant, here Mr Thomas, in – the litigation, as much as if Mr Thomas remained the direct participant.[21]I would add for completeness that I am not convinced that Harbour could take comfort here on the basis of there being real distance between Mr Thomas and the trustees. For one thing, the court still does not know who is now funding the trustees and the litigation: a point of concern given the history of collusion between Mr Thomas and Dr Smith, as indicated in my Judgment. Furthermore:- i. Mr Zoubir's witness statement of 24 June 2022, at paragraph 76, indicates that one of the current trustees, Mr Katz, was one of two individuals whom Messrs Thomas and Taylor in 2019 attempted to appoint as receivers over certain "Qatar settlement monies". That attempt was abandoned, and Messrs Thomas and Taylor were ordered to pay the Enforcement Receivers' and the SFO's costs, which they failed to do. ii. When Messrs Thomas and Taylor in July 2021, wrongly purporting to act on behalf of the trustees of the Harbour Trust, attempted to appoint their preferred trust receivers (Judgment paragraph 28), those proposed receivers were the same individuals who are now the trustees in bankruptcy of Mr Thomas. I note that that role would have involved duties to act in the interests of the Harbour Trust as a whole: the same Trust against whom the trustees now seek to litigate on behalf of Mr Thomas's bankrupt estate. iii. In Hotel Portfolio II v Marlborough Developments [2024] EWHC 3075 (Comm), a related set of proceedings to these, Bryan J held at paragraph 265 that on 13 September 2022, Mr Ruhan paid £12,500 to the firm from whom the present trustees come for advice about bankruptcy. In the context of litigation where, as Mr Justice Foxton put it, things are rarely what they seem, this further connection adds to my concern that matters may be being orchestrated behind the scenes. These factors give rise to doubt whether the present trustees really are distanced from Mr Thomas and reflect a fresh start in relation to these proceedings, notwithstanding the trustees’ conflicts checks and professional obligations which I have no reason to doubt.[22]Finally, at the hearing on 17 September 2025 leading to my 5 November 2025 judgment, leading counsel for Mr Thomas accepted that the court had jurisdiction to order security against Mr Thomas, though he invited me to consider whether I should refuse security on the grounds of delay and, in any event, to consider the amount of any security (Judgment paragraph 107). There was, I believe, no attempt to depart from that position in the written or oral submissions at the 14 November hearing. Yet in the submission filed on 17 November 2025 which I invited on the point of law that I have already dealt with, the trustees sought to resile from that position and to argue that the court had no jurisdiction to order security against Mr Thomas under CPR 3.1(5) in the first place, on the ground that security was ordered mainly on the ground of breaches of court orders and that CPR 3.1(5) does not apply to such breaches.[23]I do not consider it would be fair for the trustees now, after argument has been heard and judgment given, to resile from the position taken by Mr Thomas and by them at the hearings, and I shall not permit them to do so.[24]In any event, the contentions now raised are in my view clearly wrong. I have already quoted in paragraph 3 above what I said in paragraph 107 of my Judgment. Even in their latest (uninvited) submission, the trustees accept that the Court of Appeal's decision in Olatawura recognises that payment can be ordered under CPR 3.1(5) for want of good faith, and also cite Kitchin J's statement in Allen v Bloomsbury Publishing [2011] EWHC 770 (Ch) paragraph 32 that a party becomes amenable to such an[25]The Court of Appeal, in the paragraph of Olatawura cited in paragraph 107 of my Judgment (paragraph 25), said that good faith in this context meant a will to litigate a genuine claim or defence as economically and expeditiously as reasonably possible in accordance with the overriding objective. That is precisely the point addressed in paragraph 107 of my Judgment, where I say that "... an order for security is justifiable in circumstances where Mr Thomas (in the ways I have already outlined) demonstrated a lack of ‘will to litigate a genuine claim or defence as economically and expeditiously as reasonably possible in accordance with the overriding objective' (Olatawura v Abiloye [2002] EWCA Civ 998 at [25])." Such an approach makes perfect sense once one recalls that a failure to help the court further the overriding objective is itself a breach of CPR 1.3, which is one of the rules on which the Court of Appeal relied in paragraph 27 of its judgment in Olatawura. Mr Thomas has failed to show a will to litigate a genuine claim or defence as economically and expeditiously as reasonably possible in accordance with the overriding objective, and has flouted proper court procedures, in the ways set out in my Judgment (see in particular paragraphs 24, 27, 28, 30 and 33), in addition to his breaches of the Debarring Directions Order. Thus, even if the trustees were entitled to raise the point now, which in my view they are not, there is nothing in it.[26]For all these reasons, I conclude that I should indeed order security for costs against the trustees. In paragraph 109 of my Judgment, I concluded that the appropriate amount was £200,000, and no submission has been made to the effect that the amount should be changed by reason of the appointment of trustees in bankruptcy.[27]The final question is what should happen if security is not provided. The trustees submit that it should be only that Mr Thomas's cross-application is barred. However, Harbour's counsel made the point at the last hearing, which was not disputed as I understood it, that such an order would be ineffective since it would leave the trustees able to pursue precisely the same arguments under the guise of defending Harbour's own application. That would fail to achieve the protection to which Harbour is, in my view, entitled. The sanction for failure to provide security will therefore be that the trustees may not participate in the hearing. Epiq Europe Ltd hereby certify that the above is an accurate and complete record of the proceedings or part thereof. Lower Ground, 18-22 Furnival Street, London EC4A 1JS Tel No: 020 7404 1400 Email: civil@epiqglobal.co.uk

order

"... once he can be seen either regularly to be flouting proper court procedures or orders or otherwise has demonstrated a want of good faith ..."