Tchenguiz ordered to pay £2.5m security for costs in SFO battle

The High Court has ordered the investment vehicle R20 owned by Robert Tchenguiz to surrender £2.5m by way of security for costs after the company’s sudden decision to chop its claim against the Serious Fraud Office (SFO) by £1.2m.

The £1.5m claim launched by R20 and Robert Tchenguiz against the SFO was part of a £300m case brought by Robert and his brother Vincent Tchenguiz against the agency following their arrest in a botched 2011 investigation.

The group is seeking damages for trespass, wrongful arrest, human rights breaches, misfeasance in public office and malicious prosecution (6 January 2014).

Blackstone Chambers’ James Eadie QC, instructed for the SFO, contended that R20 should surrender £6.25m in security for costs to cover the likelihood that R20 could not sover the legal costs of the case. 

However on the day of the 7 April hearing, Shearman & Sterling partner Josanne Rickard, representing R20, wrote to Slaughter and May partner Jonathan Cotton to say it was slashing its claim from £1.5m to just £312,000.

Eadie brought Mr Justice Eder’s attention to the letter at the hearing, prompting the judge to respond with: “Once again the judge is the last one to know.”

The letter revealed that R20 was abandoning £1.2m worth of claims as well as its claim for loss of trading reputation and goodwill, resulting in a slashed claim of approximately £264,000. As a result, the SFO cut its security sought in half, from £6.25m to between £3.5m and £3.95m.

The news resulted in a tussle over security for costs between both sides. The SFO argued that it had already spent £8.13m in total to the end of February and had spent over £3.79m in costs defending the Robert Tchenguiz and R20 claims, 65 per cent of which it wanted to claim in security for costs. A detailed witness statement produced overnight by Cotton submitted the SFO was prepared to put future costs at between £500,000 and £1m.

However Essex Court Chambers’ Joe Smouha QC, representing R20, said that was excessive and argued that at most, security for costs should amount to no more than £300,000.

Eadie had come under fire from the court at the hearing on 7 April for his estimates which Mr Justice Eder criticised Eadie for containing “fundamental flaws”.

However in his judgment, he rejected Smouha’s agument that £300,000 was a fair total. He said: “I remain wholly unpersuaded that the figure that [Smouha] suggested of £300,000 by way of security is the appropriate figure.

“In my view, it ignores not only the fact that the pecuniary claims were, at least until 7 April 2014, approximately £1.5m but also the additional claims that I have already referred to above.”

Eder J determined historic costs to be fixed at £2m, the amount the court would have been likely to have awarded against R20 had it pursued its claims on a stand-alone basis, and put future costs at £500,000, resulting in a final security for costs total of £2.5m.

It is the second April judgment handed down in the Tchenguiz case and the second triumph for the SFO, which also won a Court of Appeal hearing brought by R20 and Robert Tchenguiz this month (15 April). Both were appealing Eder J’s ruling that the SFO could withdraw its admission of trespass and contend it was not liable for private law damages.

The 26 March hearing in front of Lord Justice Patton, Lord Justice Pitchford and Lord Justice Vos was a debate over the distinction between public and private law. The difference between the two is vital as public law liability does not necessarily justify damages whereas private law liability does. 

The trial of all claims will commence on 1 October 2014. 

The legal line-up

For the claimant (1) Robert Tchenguiz (2) R20 Ltd

Essex Court Chambers’ Joe Smouha QC and Alex Bailin QC of Matrix leading Essex Court Chambers’ Anton Dudnikov and Essex Court’s John Robb instructed by Shearman & Sterling partner Josanne Rickard

For the defendant the Serious Fraud Office

Serle Court’s Dominic Dowley QC and Blackstone Chambers’ James Eadie QC leading One Essex Court’s Simon Colton, Blackstone Chambers’ James Segan, instructed by Slaughter and May partner Jonathan Cotton