Fortress Lending Fund Subsidiary Designated Activity Company v Edwin Coe LLP & Ors [2026] EWHC 1463 (Comm)
Friday, 12 June 2026
[1]This application for security for costs is brought on the basis that the condition under CPR 25.27(b)(ii), as it now is, is satisfied. That is to say, the defendants argue that there is “reason to believe” that the claimant will be unable to pay the defendants’ costs at the end of this litigation if the defendants succeed and are the recipient party therefore under a substantial costs order.[2]Subject to one key point, which the submissions of counsel have been most helpful in ultimately isolating and addressing, I agree with the premise of the application, viz. that the published accounts of the claimant do provide real reason to believe that it is unable, and will be unable, to pay a costs order. There are a number of specific strands to that, but in summary, as Mr Kirby KC emphasises:a. there is no evidence of the financial position in terms of even management accounts or other accounts since the audited accounts for the year-end 2024;b. Mr Fox, the solicitor who gives evidence on behalf of the claimant in resisting the application, wrongly fails to identify, properly or at all, any human source for any of the information that he provides that, on the face of things, goes beyond the contents of the document; andc. those accounts, on the face of things, suggest a company with only illiquid assets, essentially matched by liabilities, with very limited cash or cash equivalent relative to a potential liability of up to, say, £600,000 or £700,000 in costs.[3]The point which I have mentioned and which the submissions of counsel have ultimately, helpfully, isolated as key is that in those same accounts, it is stated, as Ms Dutton noted, that an amount of the order of $1.9 billion is “available to be drawn at the company’s discretion”. For that to be correct, and not a misunderstanding or inaccurate statement of the effect of the funding arrangements for the claimant, it would have to be the case that, as things stand, the claimant has issued the Profit Participating Notes due 2027, in respect of which the evidence includes the originating documentation, to a face value of the full $2 billion maximum issue amount to Fortress Lending I Holdings LP, so that it is a holder of that full notional amount of notes.[4]However, as it seems to me, firstly, Mr Kirby KC’s interpretation of the register that is in evidence is, on the face of that register and its terminology, and as best as it can be assessed on a security for costs application rather than at a final trial with, it may be, if it had been relevant, factual evidence from those with first-hand knowledge, far more likely than Ms Dutton’s interpretation to be correct. Mr Kirby simply reads the document as saying what it appears to say, given the language that it uses.[5]On one specific point in that respect, I should mention that, with respect, Ms Dutton’s submission as to the title of the register simply misreads the reference to the $2 billion figure. The title of the register is “Register of Subscription and Redemption Amounts of $2,000,000,000 Profit Participating Notes DUE 2027 issued by Fortress Lending Funds Subsidiary DAC”. In the normal way for capital market transactions of this kind, these are “$2,000,000,000 Profit Participating Notes DUE 2027”, whether Notes to the face value of only a dollar, or notes to the face value of $1 billion, or notes to the face value of the full $2 billion, have been issued. All Notes issued will be part of the issue of “$2,000,000,000 Profit Participating Notes DUE 2027”. The title or heading, therefore, tells the reader, in fact, that the table which follows sets out how much of that note issue has been, from time to time, issued by the claimant issuer. That, then, is why:a. the fourth column has the heading “Denominations Issued/(Redeemed)”. That tells the reader what Stated Amounts, to use the language of the originating documents, are on given dates issued to Fortress Lending I Holdings LP, so that, for example, to take the first three entries: i. the register informs the reader that on -- well, it says 1 January 2001, but that may be one of those computer errors in relation to dates -- on a date in January, which I suspect must really be January 2019, there was an initial issue of $12 million face value of that category of notes that can be described as “$2,000,000,000 Profit Participating Notes DUE 2027”, it then says in the next column that they were subscribed for their full face value of $12 million, i.ee they were in fact fully paid up as issued, meaning that at that date, the cumulative denominations in issue was $12 million. Not $2 billion, but only $12 million; ii. on 17 January, there was a redemption of $3.3 million, as the table then records, so that the cumulative denomination then standing issued was $8.7 million; iii. that was followed, five days later, by a new issue of notes, Stated Amount $2.6 million, creating a new balance of $11.3 million, and so on.b. I therefore agree with Mr Kirby that the correct reading is far more likely to be that the register ends up recording, if one goes all the way to the end, as at the most recent date entered, late April of this year, that there are issued (and, as it happens, fully paid up) only Notes with a Stated Amount (or nominal or face amount) of, rounding it off slightly, US$1.3 million;c. the register does not have the result, as is submitted on behalf of the claimant, that it has $1.987 billion-worth of entitlement to call for cash today. It means rather that there is zero entitlement to call for cash today, because the only Notes under the structure that stand issued to and held by Fortress Lending I Holdings LP are fully paid-up notes of that face value.[6]I might have paused for longer over whether, nonetheless, to accept the statement in the audited accounts, which are, after all, audited accounts, that a figure of the order of $1.9 billion was “available to be drawn at the company’s discretion”, if it were not for the explanatory table, part of the same note about the long-term borrowings of the company, which is in terms that exactly correspond, in my view, with Mr Kirby KC’s interpretation of the register. Thus, for example, for the year 2023, the respective totals of about $57 million and about $80 million, which no doubt, subject to any immaterial error of arithmetic, match the totals that one could total from the register if one totalled up all of the positive subscription amounts and then all of the negative redemption figures in the table for 2023, are described as amounts by way of “Issuance” and “Redemptions” for the year 2023, thus leaving the balance of $82.25 million, given that the opening balance for that year was $105.2 million, which is indeed, as Ms Dutton submits, and the first paragraph of the notes says, the then outstanding amount of long-term borrowing. That is also, on the face of things, as Mr Kirby submits, the then outstanding paid-up aggregate issuance of Notes, there being no other Notes at that point standing issued.[7]In those circumstances, it seems to me that, interesting and valiant though the attempt by the claimant has been, its reliance on the PPN funding structure has not provided a satisfactory or persuasive answer to the proposition and appearance on the evidence as a whole that there is real doubt over its ability to meet a substantial costs award.[8]In those circumstances, and in circumstances where it has now, and it is fair of Ms Dutton to say only now in terms of the skeleton argument, been confirmed that the counterclaim pursued at least by Edwin Coe LLP, the first defendant, will not be pursued if security is ordered and not provided and the claim as a result falls, all of the discretionary considerations are in the one direction. There has never been any suggestion that there is any question of the claim being stifled if security is ordered. There is the real concern as to the ability of the defendants to be satisfied on their costs entitlement if they achieve a victory at trial. In circumstances where the application was intimated at the appropriate early point in the proceedings and brought on for hearing, security should be ordered.[9]For the amount of that security I do take as a starting the cost-budgeted figure, net of the allowance that was in the cost budget for this very application, of around £670,000.[10]I do not accept that there is any legal principle or rule of practice that security should only be ordered in a relatively modest percentage, such as 60% or 65%, of a costs-budgeted figure when the case has been the subject of costs budgeting. In my judgment, the discretion is, in principle, unfettered to identify the amount by way of security that is just and reasonable in the particular case to be provided, properly influenced by the costs budget figure. The appropriate amount of security that it is reasonable and just to require the claimant to put up is £600,000.[11]The order will therefore be for security for costs to be provided, and I will hear from counsel very briefly in a moment on time, in the sum of £600,000, by paying that sum into the court funds office, or by providing such other form of security as may have been agreed in writing by the defendants’ solicitors.LATER
[12]I prefer in the circumstances, even though the confidence expressed on behalf of the claimant that the security is going to be provided may mean that there would be no difficulty if an unless order were made straight away, to stick to what has more typically been the practice in the Commercial Court, which is, as it were and in effect, to allow at least the possibility of a slip or a brief delay not having the calamitous result of the claim being struck out.[13]The claimant or those acting for it will obviously be hearing what I am about to say. It will not be in the order, but they must understand that, in principle, the expectation is that the security will be provided in full without difficulty by 3 July, and if that does not happen, and indeed even if in the run-up to 3 July it is looking like it might not happen, the onus should on the claimant then to seek an extension of time which is an indulgence, even if I am not immediately attaching an unless order sanction. In the context then of what should be an application by the claimant for an extension of time, any judge will then look at the question whether at that stage it should be only a very short extension of time, with an unless order sanction attached to it.[14]However, I shall spell out for the avoidance of doubt that the defendants, if so advised, may apply for the claim to be struck out on the basis of failure to comply with today’s order for security for costs, if it is not provided in full and on time, and what application and/or cross application actually then comes to be made will depend on the way the facts turn out, and hopefully no application or cross application will be necessary because the security will be provided.LATER
[15]I am grateful to Mr Kirby KC for pointing out, which I think must be correct, that on his side, I should be looking, for summary assessment, at the total before VAT, not the so-called “Grand Total”. So it is £72,438.[16]The hourly rates on the claimant’s side are a little eye-watering in comparison to guideline hourly rates. This is certainly not a case in which anything above guideline hourly rates would be recoverable on assessment. But it is not the claimant’s schedule I am looking at now, it is the defendants’. However, the defendants’ hourly rates are themselves very well above guideline hourly rates. So there would have to be a substantial cutting down of the bill for that, even if one were contemplating otherwise, broadly speaking, allowing something like the amounts of work done in full.[17]I also take the view that the amounts of work done can only, in the circumstances, reflect a no-stone unturned approach which a client is entitled to pay for, if it wishes to do so, and hoping it is doing so with its eyes open as to potentially how little of that work will generate cost recoverable from the opposing party, but which is not a reasonable or proportionate approach. Even after adjusting down not insubstantially to take account of the point on hourly rates, it therefore seems to me that the schedule of costs simply produces an unreasonable and disproportionate total for this application.[18]I balance that by the fact that the defendants have not only achieved a clear success, but have done so in the face of having offered, if I may say so, a realistic, and it should have been regarded as satisfactory, compromise in two ways: firstly, the open offer to take the guarantee from the different Fortress Funding entity that was UK based and with cash assets; and then, secondly, the offer without prejudice save as to costs to accept £500,000 as security in circumstances where the court’s assessment now is that £600,000 was the appropriate amount.[19]In those circumstances, I approach this summary assessment on this basis. For the moment, I take Mr Kirby KC’s fee off the total to get me to £57,438, to which I apply a percentage of 80% to make an adjustment for hourly rates, and I then reduce that to 75% of that amount, which gives me a figure of 34,462.[20]I do not consider, his significant seniority notwithstanding, that it was unreasonable to instruct Mr Kirby KC for this hearing, or ultimately that the brief fee charged for this hearing, which is what really matters, is an unreasonable amount for counsel to deal with this matter.[21]Adding that back in, and rounding off slightly, in my judgment, the correct amount to award summarily assessed as costs is £49,000, and that will be the order. Although the default rule is 14 days, I do not see any merit in requiring a 14-day payment for that and then a 21-day payment for the security. So I will say 21 days for that as well. ______________