England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Andrew Smith
Claim No: 2007 Folio 482
[2011] EWHC 664 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/06/2013

Lord Justice Rimer :

Introduction

1. This appeal is against an order for costs. The order followed a trial of four actions before Andrew Smith J in the Commercial Court over 76 days between 1 October 2009 and 25 February 2010, including 61 days of factual and expert evidence. The judge's mammoth judgment, [2010] EWHC 3199 (Comm), was delivered on 10 December 2010. In the last of its 1556 paragraphs, the judge said he had 'attempted to keep [it] within (relatively) manageable limits'. He followed it with a supplementary judgment of 24 March 2011 running to 18 paragraphs, [2011] EWHC 715 (Comm), and on the same day with a separate 70-paragraph judgment dealing, amongst other things, with costs, [2011] EWHC 664 (Comm). The argument on the appeal occupied less than a day. For a comprehensive understanding of all that the judge had to and did decide, the interested reader can refer to his three judgments for their full terms.
2. The issue is this. One of the four actions was the so-called Intrigue action, which included four particular heads of claim. The claim as against three defendants succeeded on two heads but failed on the other two. The success resulted in an order for the payment of some $24.6m, including interest. Despite that success, the judge made no order as to the costs in the Intrigue action. The Intrigue claimants, with this court's permission, appeal against that order, asserting that its making reflected an error of principle. The respondents seek to uphold it as a proper exercise of discretion made following a correct direction as to the applicable principles.

Background

3. Two of the four actions were 'the Fiona action' and 'the second Fiona action'. They were brought by OAO Sovcomflot ('Sovcomflot'), a Russian ship owning and operating company, and its subsidiaries. The shares in Sovcomflot were and are owned by the Russian Federation. Sovcomflot is the 28^th claimant in the Fiona action and the third in the second Fiona action. The Fiona actions are so named after Fiona Trust & Holding Corporation, Sovcomflot's principal operating subsidiary and the first claimant in both actions. The Sovcomflot claimants asserted that Dmitri Skarga, a former director-general, and Yuri Nikitin had embarked on a course of dishonest conduct between about the end of 2000 and 2004 by which Sovcomflot companies entered into transactions with companies associated with Mr Nikitin that were adverse to the interests of the Sovcomflot group. The claimants asserted that among those engaged with Messrs Skarga and Nikitin in the impugned conduct was Yuri Privalov, the first defendant in the Fiona action. He was the managing director of Fiona Maritime Agencies Ltd, the second claimant in that action. Mr Skarga asserted that the impugned transactions were entered into in the proper course of business and were in the interests of the Sovcomflot group.
4. Mr Nikitin was the third defendant in the Fiona action and the first defendant in the second Fiona action. He operated through many companies, including Standard Maritime Holding Corporation, of which he was the sole beneficial owner and which was the fourth defendant in the Fiona action. Another of his companies was Milmont Finance Limited ('Milmont'), the fifth defendant in the Fiona action. The judge referred to the Nikitin companies that were defendants to the Fiona action (some 18 in all) as the 'Standard Maritime defendants', a phrase he also used to refer to those of Mr Nikitin's companies that were defendants to the Intrigue action.
5. The claims in the Fiona actions based on the allegedly corrupt actions of Mr Skarga and Mr Nikitin were the primary claims. The Fiona claims were, however, also advanced on an alternative basis.
6. The Intrigue action, with which this appeal is concerned, is so named after Intrigue Shipping Inc ('Intrigue'), the first of 51 claimant companies in the JSC Novorossiysk Shipping Company ('NSC') group. NSC is another Russian ship owning and operating company and the 30^th claimant; and Intrigue is the principal operating company in the group. NSC was until 2007 also owned by the Russian Federation, but in that year it became owned by Sovcomflot. The NSC claims were similar to those in the Fiona actions. It was said that between about 2002 and 2004, Tagir Izmaylov (a former president of NSC) and Mr Nikitin, the fourth defendant (sometimes with the assistance of Mr Privalov, the sixth defendant) dishonestly entered into transactions profitable to Mr Nikitin and his companies but adverse to the interests of the NSC group. Milmont was the fifth defendant. Another Nikitin company, Amon International Inc ('Amon'), was the eighth defendant. As with the Fiona actions, the claim in the Intrigue action based on the allegedly corrupt conduct of Mr Izmaylov and Mr Nikitin was the primary claim. Mr Izmaylov asserted that the impugned transactions were entered into in the proper course of business and were in the interests of the NSC group. The Intrigue claims were similarly also advanced on an alternative basis that Mr Nikitin had anyway acted dishonestly or improperly in his dealings with brokers or Mr Privalov or both.
7. The fourth action was the Southbank action, a CPR Part 20 claim brought by Nikitin companies against H. Clarkson & Sons Ltd ('Clarkson'), NSC's brokers; they also brought a similar Part 20 claim against Clarkson in the Intrigue action. Clarkson was the 28^th defendant in the first Fiona action and the first defendant in the Intrigue action, although the claimants' claims against it in both actions were settled by agreements made on 26 June 2008.
8. Mr Skarga came to England in 2006 and has not returned to Russia. The Russian Government applied unsuccessfully to have him extradited on criminal charges. Since coming to England, Mr Skarga has been living in Mr Nikitin's house. Mr Nikitin funded Mr Skarga's defence of the claims against him in the Fiona actions. Mr Izmaylov came to England in about 2005. Criminal proceedings were brought against him in Russia, but the Russian Government's extradition application also failed. Mr Nikitin has also supported Mr Izmaylov financially whilst he has been in England and funded his defence of the Intrigue claims.
9. All claimants in the four actions were represented by the same counsel and solicitors. Dominic Dowley QC (who appeared below) and Charles Dougherty (who did not) represented Intrigue and the other 50 NSC appellant companies on the appeal. Mr Skarga was represented at the trial by leading and junior counsel, but was not a respondent to, nor concerned with, the appeal. Mr Izmaylov was separately represented at the trial by leading and junior counsel, but was also not a respondent to, nor concerned with, the appeal. Steven Berry QC and Nathan Pillow, who represented Mr Nikitin and the Standard Maritime defendants at the trial, represented him and the other respondents on the appeal, Milmont and Amon.
10. The Fiona claims against Mr Privalov were compromised in October 2005 on terms that he should co-operate in the prosecution of the Fiona actions. He was called as a witness for the claimants and gave his evidence over seven days by a video-link from Moscow: criminal proceedings had been brought against him in Russia and he was not permitted by the Russian authorities to travel to England to give evidence. Without opposition from any party, the judge also stayed the Intrigue claim against him.
11. The judge was unimpressed by the quality of the evidence. He said the claimants' witness statements were shown in cross-examination to be 'distinctly unreliable'. As for the oral evidence, he found Mr Izmaylov to be generally reliable but that otherwise most of the central witnesses of fact gave dishonest or untruthful evidence. He found that Mr Privalov gave 'thoroughly dishonest' evidence. He found that Mr Oskirko, who gave evidence for the claimants relevant to the Intrigue claims, was untruthful. He found that Mr Skarga and Mr Nikitin gave dishonest evidence.
12. The judge was also critical about the claimants' disclosure. He referred in paragraphs 41 and 42 to the late disclosure they made, some of which required the judge to hear further oral evidence. He referred to the heavy demand that the late disclosure made upon the defendants and their lawyers. In response to the defendants' assertion that the claimants had still failed to make full disclosure, the judge observed in paragraph 43 that, on some issues, 'it is remarkable that more documents have not been produced', and he gave two examples. He referred also to the claimants' disclosure deficiencies having been aggravated by Sovcomflot's destruction in April 2007 of probably relevant documents, although he was 'not, however, persuaded that the claimants have deliberately withheld or destroyed relevant documentation'. The judge also noted the complaints about the inadequacies of the defendants' disclosure, including in particular by Mr Skarga and Mr Nikitin.

The issues in the actions

13. The judge, in paragraphs 47 and 48, summarised the ten types of scheme, and the transactions under them, said to be corrupt in the Fiona actions. As for the Intrigue action, he summarised in paragraph 49 the four schemes said to have been corrupt and to which Mr Izmaylov, Mr Nikitin and the Standard Maritime defendants were said to have been parties. He described the schemes as follows:

'i) The "NSC Clarkson commissions" scheme, where the claimants in the Intrigue action make allegations similar to those made in the Fiona action about the Sovcomflot Clarkson commission scheme, except that Clarkson acted as NSC's brokers only upon purchases. It is said that Milmont received over $10.5 million under the NSC Clarkson commission scheme, and Milmont and Mr Nikitin also claim some $6.7 million in the part 20 claim in the Intrigue action.

ii) The "Galbraith's commissions" scheme, which is similar to the Clarkson commissions scheme, except that the brokers were Galbraith's rather than Clarkson and it mainly, but not exclusively, concerns sales by NSC. It is said that Amon received some $7,329,052.44 under the Galbraith's commissions scheme.

iii) The "NSC time charters" scheme, which is similar to the Sovcomflot time charters scheme in the Fiona action and concerns agreements made in 2003 and 2004 for the hire of seven vessels to Henriot. It is said that, at least in some cases, the terms were designed to benefit the Standard Maritime defendants and were to the disadvantage of the claimants. The companies who owned two of the vessels at the relevant time are no longer in the NSC group, and no claim is brought in respect of the charters of them, but the claims relating to the other five vessels are for some $128 million.

iv) The "Sawyer commissions" scheme, whereby Mr Sawyer, after appointment as NSC's financial adviser, made payments to Amon of some $1.5 million which are said to have been unjustified and improper'.

14. In paragraphs 51 to 77, the judge considered how, if applicable (as the claimants said it was), English domestic law applied to the Fiona claims against Mr Skarga, to the claims against Mr Nikitin and the Standard Maritime defendants, to the claims in the Intrigue action against Mr Izmaylov, and to the claims in conspiracy in the Fiona and Intrigue actions, including against the present appellants.
15. The defendants' position was that any potential liability by them to the claimants in the Fiona and Intrigue actions was governed by Russian law. In paragraphs 78 to 139, the judge considered how Russian law applied to the claims against the defendants in those actions. He explained why Russian law was in various ways less favourable to the claimants than English law. He had the benefit of expert evidence on Russian law: Professor Sergeev for the claimants; and Professor Maggs, called jointly by Mr Skarga, Mr Nikitin, the Standard Maritime defendants and Mr Izmaylov.
16. The judge turned, in paragraphs 140 to 181, to consider which law, whether English or Russian, applied to the claims. He concluded by saying:

'I reach similar conclusions with regard to the claims in the Intrigue action for similar reasons. The parties' submissions mirrored those in the Fiona actions. I consider that, in so far as the claims are made on the basis that Mr Izmaylov was party to schemes with Mr Nikitin and others, the issues relating to those claims are governed by Russian law. The collusion between Mr Nikitin and Mr Izmaylov, which according to the claimants' primary case is the crucial relationship that involved NSC in the impugned transactions, took place in Russia, and Mr Izmaylov worked in Russia to give effect to what they had arranged. In so far as commission claims are pursued on the alternative basis that, notwithstanding there was no relevant breach of duty on the part of Mr Izmaylov, Mr Nikitin and the Standard Maritime defendants are liable for their part in schemes involving the brokers, I conclude that the issues between the parties are to be determined in accordance with English law.'

The outcome of the Intrigue action

17. Just as the Fiona actions failed on the primary basis on which they were advanced (that involving allegations as to the corrupt relationship between Mr Skarga and Mr Nikitin), so also did the Intrigue action fail on its like primary basis founded on the alleged corrupt activities of Mr Izmaylov and Mr Nikitin. Of the four heads of claim in the Intrigue action (see paragraph 13 above), the Intrigue action did, however, succeed on heads (i) and (ii) on the basis of the alternative case against Mr Nikitin, Milmont and Amon, although it failed on heads (iii) and (iv). It therefore succeeded on its claim in relation to allegedly fraudulent diversions of commissions to Milmont, the total of such commissions and interest being about $17.3m; and on its claim in relation to allegedly fraudulent diversions of commissions to Amon, totalling about $7.3m, including interest. In fact, Intrigue's total overall success in relation to commission claims was about $37m, the excess over $24.6m being represented by recoveries against brokers, Clarksons and Galbraith's, achieved on the settlement of the claims against them.
18. In concluding that the Intrigue action succeeded on the commissions claims, the judge found that Mr Nikitin, Milmont and Amon were guilty of conspiracy and dishonest assistance and that the companies were liable for knowing receipt. In paragraphs 1502 to 1508, the judge summarised his findings as to Mr Nikitin's dishonesty, also finding that he had given dishonest evidence.
19. Having succeeded to the extent they did, the Intrigue claimants sought an order for costs against Mr Nikitin, Milmont and Amon. For reasons given in his costs judgment of 24 March 2011, the judge refused to make such an order. He made no order as to costs as between those parties. I turn to that judgment.

The judge's costs judgment

20. In paragraph 35ff, the judge dealt with the question of costs as between (i) the Fiona claimants on the one hand and Mr Nikitin and the Standard Maritime defendants on the other; and (ii) as between the Intrigue claimants on the one hand and Mr Nikitin, Milmont and Amon on the other. The appeal is only concerned with the order made under (ii). Paragraph 35 reflects the polarised position the parties were taking. The Intrigue claimants asked that Mr Nikitin, Milmont and Amon ('the Nikitin parties') should pay all their costs of the action, alternatively 78%. The Nikitin parties asked that the Intrigue claimants should pay 80% of their costs; alternatively, if the Nikitin parties were ordered to pay anything towards the Intrigue claimants' costs, it should be no more than 20% of the costs of the proceedings against the Nikitin parties; alternatively, it should be no more than 10% of the claimants' total costs; and any costs liability should be reduced by $3.5m, being costs paid by Clarkson and Galbraith's on the settlement of the claims against them. Both sides asked that any costs awarded to them should be indemnity costs. My emphasised words reflect that the Intrigue parties, having failed against Mr Izmaylov, were ordered to pay his costs: and the Nikitin parties did not want any of the claimants' costs incurred in pursuing Mr Izmaylov passed on to them.
21. In paragraph 36, the judge directed himself, by reference to CPR Part 44, that the court has a discretion as to whether costs should be paid by one party to the other, and that it is not obliged to make any such order. He further directed himself that if an order is to be made, the 'general rule' is that the unsuccessful party will be ordered to pay the costs of the unsuccessful party. If such an order is to be made, the starting point is to determine who is to be regarded as the successful party. The judge noted that at least in commercial litigation, the party who ends up by receiving payment is generally regarded as that party. The claimants asserted they had been successful in the commissions claims in both the Fiona and Intrigue actions. In the latter action, they had achieved a judgment for millions of dollars against the Nikitin parties.
22. The costs issues were complicated by the facts that 12 of the claimant companies were wholly unsuccessful in the litigation and most of the Standard Maritime defendants were successful. The judge, however, recorded in paragraph 37 that Mr Nikitin and the Standard Maritime defendants:

'… accepted that I should make one composite order in respect of the two Fiona actions as between all the claimants on the one hand and Mr Nikitin and the Standard Maritime defendants on the other hand, and a single separate order in the Intrigue action.'

23. The judge expressed as follows his conclusions as to who were the successful parties in the Fiona and Intrigue actions:

'42. … it is argued that, whether or not it would be right to group together as a single "party" all the claimants and to group Mr Nikitin and the Standard Maritime defendants as another "party" (or at least so to group (i) the parties to the Fiona actions and (ii) the parties to the Intrigue action), in any event there is in reality a fundamental division between the part of the case upon which the claimants succeeded and the part of the case that they lost. The claimants lost their claims based upon their central allegation in the Fiona actions of dishonest collusion between Mr Nikitin and Mr Skarga and in the Intrigue action of dishonest collusion between Mr Nikitin and Mr Izmaylov, and that, it is said, was always their real and primary case. They succeeded upon a secondary and discrete claim against Mr Nikitin and two of the Standard Maritime defendants that they were party to "skimming" commissions through the London broking market.

43. I accept that in broad terms this submission fairly represents the result of the main judgment. However, I do not consider that Mr Nikitin and the Standard Maritime defendants are therefore to be regarded as the "successful party" for the purposes of the general rule, or that the claimants are to be regarded as the "unsuccessful party". This, as it seems to me, would be contrary to the proper application of the general rule that the Court of Appeal explained in A.L. Barnes Ltd v. Time Talk (UK) [2003] EWCA Civ 402, that the court should decide who is the successful party before segregating the litigation into different claims. …

44. I therefore conclude that for the purposes of the general rule the claimants are to be regarded as the successful party as against Mr Nikitin and the Standard Maritime defendants in both of the Fiona actions and the Intrigue action …'.

24. Having so concluded, the judge asked himself whether he should depart from the general rule, noting that CPR Part 44.3(2)(b) provided that the court may do so and 'make a different order'. He cited CPR Part 44.3(4), noting that no payment had been made into court, nor any admissible offer made. He cited CPR Part 44.3(5) as to what 'the conduct of the parties includes'. I should set out the material parts of the judge's reasoning for his ultimate decision to make 'no order' as to costs:

'47. In order to reach a fair determination upon costs as between the claimants and Mr Nikitin and the Standard Maritime defendants, I must particularly consider (i) the extent to which the claimants were successful and (ii) the conduct of these parties before and after the proceedings were brought. I have already said that the claimants' success was limited. The defendants defeated entirely the claims relating to these schemes: the RCB claim, the SLB arrangements scheme, the termination of the SLB arrangements scheme, the newbuildings scheme, the Sovcomflot time charters scheme, the Sawyer commissions scheme, the NSC time charters scheme and the "Romea Champion" commissions scheme. The claimants were successful in respect of the Sovcomflot Clarkson commissions scheme, the Tam commissions scheme, the hull no 1231 commission scheme, the Norstar commissions scheme, the NSC Clarkson commissions scheme and the Galbraith's commissions scheme. One measure of the claimants' success is that, as Mr Berry observed, in the Fiona actions the claimants recovered something less than 5% of the amounts that they claimed and in the Intrigue action the claimants recovered some 12% of their total claims. As I have said, where the claimants succeeded in respect of a scheme, they did so only on their secondary case: I rejected in respect of all the schemes their primary allegations that Mr Skarga and Mr Izmaylov were involved in collusion. I observe that, apart from the evidence of Russian law, all or practically all of the expert evidence adduced in the main actions (as opposed to the part 20 claims) was directed to allegations upon which the claimants failed.

48. The aspects of the claimants' conduct which seem to me most importantly relevant to this decision about costs are these:

i) Mr Frank, who was largely responsible for the conduct of the main Fiona actions on behalf of the claimants, was, as I concluded in the main judgment, dishonest. I give two examples here: before bringing the proceedings, the claimants arranged for private investigators to examine the affairs of Mr Skarga, Mr Nikitin, Mr Borisenko and Mr Privalov: see paras 219ff. Mr Frank dishonestly denied knowing about these investigations and any involvement with the investigators. (The defendants alleged that these investigations involved unlawful and illegal activities in different countries, including the United Kingdom, but I did not need to determine that.) Secondly, he dishonestly supported Mr Borisenko's untruthful account about Mr Skarga being party to bribing him: para 303.

ii) Mr Oskirko, part of whose duties as NSC's Vice-President of Corporate Affairs from December 200 was to deal with the litigation on behalf of the claimants in the Intrigue action, also gave thoroughly dishonest evidence: para 317.

iii) As I explained at para 36, without any significant exception the claimants' witness statements were shown to be misleading. I could not rely upon the statements even of honest witnesses because their oral evidence departed so far from them. This affected the presentation of important issues at trial: see, for example, paras 254 and 1081.

iv) The claimants' disclosure was unsatisfactory, as I explained at paras 41-43. The claimants made and pursued allegations that were obviously unsustainable when proper disclosure was eventually made, often during the trial: see, by way of example, paras 1040 and 1404. The claimants made further disclosure of significant documents after the close of final submissions, as a result of which a further hearing on 9 July 2010 was required.

v) The key witnesses called by the claimants gave dishonest evidence, in particular Mr Borisenko and Mr Privalov in the Fiona actions and Mr Oskirko and Mr Privalov in the Intrigue action. Mr Popplewell [leading counsel for the claimants at the trial] submitted that I should distinguish between the conduct of parties and the conduct of witnesses, and I accept that CPR 44.3(4)(a) refers to the conduct of "the parties". However, Mr Borisenko was a member of Sovcomflot's Executive Board when the Fiona action was brought. Moreover, CPR 44.3(4) requires the Court to have regard to "all the circumstances", and I consider it relevant that the claimants' primary contentions of corrupt conspiracies were pursued almost entirely on the basis of dishonest evidence. Further, as I stated at para 1450, many specific allegations that had been pleaded and relied upon in the claimants' opening submissions were either not developed or not supported by evidence that survived cross-examination. …

50. I must also weigh Mr Nikitin's conduct both before and during the proceedings. (It was not suggested that his conduct should not, for these purposes, be attributed to the Standard Maritime defendants.) The main judgment explains the nature and extent of his dishonesty in his dealings with Sovcomflot and Intrigue, and it shows the extent of his dishonest evidence. I need not list all the relevant findings: he paid substantial bribes to Mr Privalov, including payments under sham agreements, and, while it was not possible from the evidence to discern the reason for all the payments, he secured Mr Privalov's assistance in conducting the dishonest commissions schemes; he was party to creating forged and back-dated documents and to other dishonest devices; and his evidence on many matters was shown to be dishonest, both in relation to the commissions claims and about other schemes where the claims were dismissed.

51. The claimants urge that I should also have regard to my finding that Mr Nikitin conferred on Mr Skarga benefits which English law regards as bribes. I do not consider this an important consideration for present purposes: I have not found that this involved dishonesty on Mr Nikitin's part (or on Mr Skarga's part), and the significance of this conduct is dwarfed by the dishonest conduct and evidence both of Mr Nikitin and of the claimants.

52. I bear in mind that the claimants have recovered some part of their costs under the settlement agreement with Clarkson and Galbraith's.

53. Balancing these considerations I conclude that I should not order any payment of costs as between the claimants on the one hand and Mr Nikitin and the Standard Maritime defendants on the other hand. They should all bear their own costs. This involves a major departure from the general rule, but I consider that it is justified particularly (i) because the claimants failed in their primary case, and (ii) because of the conduct of the claimants before and during the proceedings.'

The submissions on the appeal

25. Mr Dowley accepted that there were features of the Intrigue action that would have justified the judge in depriving the Intrigue claimants of part of their costs: they had lost two of the four claims (being for much larger sums than those on which they succeeded) and one of their witnesses had given untruthful evidence. He submitted, however, that that did not justify the order made, particularly when Mr Nikitin had also lied on oath in his defence of the successful claims.
26. More particularly, Mr Dowley submitted that in criticising the Intrigue claimants for their conduct, the judge had erred in principle by failing to recognise the distinction between factors relating to the claims by the Intrigue claimants and those relating to the claims by the Fiona claimants. Second, the judge was materially influenced by the fact that the Intrigue claimants failed on their primary case, namely that involving the alleged corruption of Mr Izmaylov, who was awarded his costs against the Intrigue claimants on the indemnity basis. Mr Dowley said that consideration could not dilute the fact that the Intrigue claimants won on their secondary case; and even here, it is said that, in focusing as he did on the primary and secondary cases, the judge failed to distinguish between the three actions. Third, the Intrigue claimants' success was significant in terms of the quantum of damages recovered, and there had been no payment into court or other relevant offer by the defendants.
27. In developing these submissions, and by reference to paragraph 47 of the costs judgment, Mr Dowley pointed out that the RCB claim, the SLB arrangements scheme, the termination of the SLB arrangements scheme, the newbuildings scheme, the Sovcomflot time charters scheme and the Romea Champion scheme were all failed Fiona claims. The only Intrigue claims which failed, and to which the judge there referred, were claims in respect of the Sawyer commissions scheme and the NSC time charters scheme. The judge then turned in paragraph 47 to the claims that succeeded, of which the Sovcomflot Clarkson commissions scheme, the Tam Commissions scheme, the hull No 1231 commission scheme and the Norstar commissions scheme were again all Fiona claims. The only successful Intrigue claims were those in respect of the NSC Clarkson commissions scheme and the Galbraith's commission schemes.
28. Mr Dowley submitted that head counting of that sort was anyway an inappropriate way for the judge to assess the relative successes and failures of the claims: the judge did not recognise that the pursuit and defence of some claims will or may involve more work and expense than that of others. Mr Dowley admitted that the fact that the outcome of the listed successes and defeats was, as the judge held, that the Fiona claimants' success percentage was less than 5% of their total claims and that of the Intrigue claimants only some 12% showed that neither set of claimants had had resounding success, but he said that that was not a particularly helpful test when determining costs issues. It had, he said, always been open to the Nikitin parties to make a CPR Part 36 offer, or a payment into court, whereas they had done neither. Mr Dowley referred us to evidence from his solicitors showing that the Intrigue claimants' costs of the issues upon which they won were substantially more than their costs of those issues upon which they lost, one reason for that being that the former claims were commenced about a year earlier than the latter claims. (I add that Mr Dowley also questioned the reliability of the judge's 12% figure, suggesting that it was on the light side: his point, which was perhaps really a non-point, was that the judge had not give the claimants credit for the fact that at some point during the trial they abandoned part of what had originally been a $128m dollar claim.)
29. As for the regard the judge had to the fact that the claimants in both the Fiona actions and the Intrigue actions had failed on their 'primary' cases based on allegations of collusion between (in the Fiona actions) Mr Skarga and Mr Nikitin and (in the Intrigue action) Mr Izmaylov and Mr Nikitin, and only succeeded on their secondary cases, Mr Dowley did not dispute that these were the primary cases respectively advanced. But he said it was significant that in the Fiona actions, that was the claimants' original claim, whereas in the Intrigue action the like claim levelled against Mr Izmaylov and Mr Nikitin was only added later by amendment. Mr Dowley's point was that, at least for a year or so, the claimants' costs in the Intrigue action were incurred solely in the pursuit of the claim that ultimately succeeded. Mr Dowley submitted further that, once the claim against Mr Izmaylov was introduced, the burden of meeting it fell almost entirely on Mr Izmaylov, who was separately represented at the trial by solicitors and counsel, and was not shouldered to any material extent by the Nikitin parties.
30. Mr Dowley referred to the expert evidence that was called. In the Intrigue action, it was relatively limited and related to chartering rates, the same experts also giving evidence in the Fiona actions; and Mr Dowley informed us that the cross-examination of the experts on those issues was conducted by Mr Izmaylov's counsel, not by the Nikitin parties' counsel. There was also expert evidence relating to Russian law, such evidence being common also to the Fiona actions. Other expert evidence, relating to ship finance and valuation, was given only in the Fiona actions.
31. Moving to the judge's paragraph 48, Mr Dowley said this too failed properly to distinguish between the Fiona and the Intrigue actions. Paragraph 48(i) focused on the conduct of Mr Frank, who was largely responsible for the conduct of the Fiona actions, not for that of the Intrigue action. That was the role of Mr Oskirko, to whose conduct the judge referred and criticised in paragraph 48(ii) and whose evidence, Mr Dowley said, was subject to cross-examination not by counsel for the Nikitin parties but by Mr Izmaylov's counsel. Mr Dowley submitted that paragraph 48(i) should have played no part in the judge's conclusion as to the costs order appropriate to be made in the Intrigue action. Whilst there was common representation of the claimants in the Fiona and Intrigue actions, the claims in each action were separate, there were no common claimants in relation to any claims in the actions and the only factual witness who gave evidence in all three actions was Mr Privalov. Insofar as the judge made further criticisms of witnesses in paragraph 48(iii), he was again referring primarily to witnesses in the Fiona actions; and Mr Dowley referred us to paragraph 317 of the main judgment in which the judge recorded that Mr Izmaylov's counsel had accepted that three out of four Intrigue witnesses there referred to (the fourth being Mr Oskirko) were essentially truthful, an assessment with which the judge agreed. Against that, the judge made clear findings as to the dishonesty of Mr Nikitin's conduct and evidence. To the extent that there was justification for criticism of the claimants' evidence in the Intrigue action, it should have been regarded as cancelled out by the judge's findings in relation to Mr Nikitin.
32. In paragraph 48(iv), the judge focused on shortcomings in disclosure. He there referred back to paragraphs 41 and 42 of his main judgment, in which he was referring to the Fiona actions. Mr Dowley accepted that in paragraph 1457 the judge had referred to the late disclosure of some 400 pages of bank statements and financial information in the Intrigue action, but those documents went towards exculpating Mr Izmaylov rather than inculpating him, and so was hardly late disclosure for which the Intrigue claimants could be criticised. The judge, not surprisingly, did not refer to that in paragraph 48(iv), but he did refer to what he had said in paragraphs 1040 and 1404, both of which related only to late disclosure in the Fiona actions.
33. In paragraph 48(v), the judge referred again to the witnesses. Whilst Mr Dowley accepted that the judge was entitled to take into account his critical findings about Mr Oskirko, he submitted that he should have been less critical of Mr Privalov, who was not the subject of extensive criticism by either the Nikitin parties or on behalf of Mr Izmaylov. Mr Dowley did, however, accept that the judge was here properly distinguishing between the Fiona and the Intrigue actions. Mr Dowley also drew attention to the last sentence of paragraph 48(v), which dealt with Fiona matters, although he fairly noted that the judge might also have referred to paragraphs 1258 and 1473 of his main judgment, which recorded the abandonment of three allegations in the Intrigue action; he pointed out, however, that these abandoned allegations were against Mr Izmaylov, whilst accepting that they also implicated Mr Nikitin. They were, he said, allegations primarily relevant to costs as between the Intrigue claimants and Mr Izmaylov, and the Intrigue claimants had paid those costs.
34. In broad summary, Mr Dowley submitted that the judge's error was to tar the Intrigue claim with the Fiona brush, an error which led him to deprive substantially successful claimants of the recovery of their costs of their successful claims, when there was no principled reason for doing so.
35. Mr Berry, in response, submitted that it was wrong to start from the inquiry as to whether the general rule in CPR Part 44.3(2)(a) should be departed from. The prior question, as the judge recognised in paragraph 36, is whether it is appropriate to make an order as to costs at all: Part 44.3(1). He said it is also wrong to regard the judge as having taken into account Fiona considerations when considering Intrigue costs, but that if the judge did so, he was entitled to do so because the three actions were run and advanced together by the same team of solicitors and counsel. He said that in this particular case the judge's advantage over the Court of Appeal in dealing with the question of costs was overwhelming: the judge had not just been in charge of the 76-day trial, he had also been in charge of the pre-trial interlocutory applications, which were, in particular, concerned with disclosure issues. The judge commented only briefly in his costs judgment on disclosure shortcomings, but he had a full understanding of the disclosure issues that had been argued before him.
36. Mr Berry offered a slightly different analysis of the issues in the Intrigue action. The primary case in terms of importance, although not, he said, in terms of time, was as to Mr Nikitin's alleged corruption of Mr Izmaylov, which was said to have been directed at obtaining profitable time charters for Mr Nikitin and his companies. The claim (or original claim) under that head was for $128m and failed. Mr Berry said that it was important to recognise, as the judge would have done, that the failed primary claim in the Intrigue action was the part of the Intrigue claims to which the largest effort and costs expenditure were devoted. The secondary case, which Mr Berry described as part of the primary case in terms of importance, was that Mr Nikitin corrupted Mr Izmaylov to make the scheme for skimming broker commissions in the London market. That was a claim of some $17m, which also failed. The failures of both claims were victories for Mr Nikitin as much as they were for Mr Izmaylov. The third claim was that Mr Nikitin had dishonestly participated behind Mr Izmaylov's back in a scheme with the brokers. That claim succeeded, its success representing approximately 12% of the original claim.
37. In response to Intrigue's point that the judge had wrongly focused on features of the Fiona actions in arriving at his costs order in the Intrigue actions, Mr Berry submitted that it was misplaced. But he also submitted that even if the judge is to be regarded as having taken account of Fiona action features in dealing with Intrigue action costs, he plainly regarded them as relevant to his consideration as to what costs order to make in that action. Mr Berry referred to the judge's conclusion in paragraph 1502 that Mr Nikitin had acted dishonestly in arranging for the brokers to make payments for him and in arranging for Mr Privalov to assist the brokers to do so and to raise funds to do so; and to paragraph 1504, where the judge listed seven matters by way of explanation for his conclusion that Mr Nikitin had been dishonest in relation to the commissions schemes. Mr Berry pointed out all seven related only to Fiona and Sovcomflot. Mr Nikitin relied on that in asking the judge for permission to appeal against those conclusions, an application upon which the judge ruled on in paragraph 16ff in his judgment of 24 March 2011 ([2011] EWHC 715 (Comm)). The judge's reason for refusing the application, which reflected how closely related he regarded the Fiona commissions claims and the Intrigue commissions claims to be, was as follows:

'Para 1504 does not identify all my findings of dishonesty on the part of Mr Nikitin in relation to commissions. There were others: for an example relating to Galbraith's, see para 633. Para 1504 is largely directed to dishonesty relating to the Sovcomflot Clarkson commissions scheme, but it was never suggested during the trial that, if this scheme was dishonest, the NSC Clarkson commissions scheme or the Galbraith's commissions scheme arrangement might nevertheless have been honest. On the contrary, in their closing submissions Mr Nikitin and the Standard Maritime defendants said:

a) Of the NSC Clarkson commissions arrangement: "It is common ground that the Clarkson Agreement was extended to the Novoship business and that the nature of the agreement as it applied to Novoship was materially the same as it was with Sovcomflot": part IX para 199; and

b) Of the Galbraith's arrangement: "Again, there is no suggestion that the Galbraith's Agreement was conceptually any different from the SCF Clarkson Agreement": part IX para 206.'

38. The judge, therefore, rejected the permission application on the basis that the alternative, or tertiary, claims in the Intrigue action based on the broker schemes were the same as, or a continuation of, the Sovcomflot schemes. Whereas on this appeal, said Mr Berry, the appellants criticise the judge for failing to draw a proper distinction between the Fiona and the Intrigue actions, the judge plainly regarded the three actions, at least as regards the successful commissions claims, as having a relevant common thread. Mr Berry submitted that the Novoship broker commissions claims were carbon copies of the Fiona/Sovcomflot claims, and that the Intrigue claimants relied on the Fiona allegations in making good the claims in the Intrigue action.
39. Mr Berry also submitted that it comes ill from the appellants to seek now to draw a bright line between the Fiona actions on the one hand and the Intrigue action on the other, when their own pleaded case had been that they relied on dishonest conduct established against Mr Nikitin and his companies in the Fiona actions 'in support of their case in relation to the transactions in respect of which relief is claimed in [the Intrigue action] as evidence giving rise to an inference of dishonesty in prior and subsequent transactions'. Insofar as the judge had regard to Fiona features in the exercise of his discretion as to costs in the Intrigue action, he was, said Mr Berry, making no error of principle because there was such a close interrelation between the actions at the trial. The judge was aware of that when making his costs decision.
40. In any event, in paragraph 47 of his costs judgment the judge was not, said Mr Berry, erroneously infecting his considerations of the appropriate costs order in the Intrigue action by Fiona action considerations. The issues that the judge summarised in paragraph 47 were argued together at the trial: there was one set of submissions on them from the claimants, and a responsive set of submissions on them in answer, and in this section of his judgment the judge was dealing with the costs in both the Fiona actions and the Intrigue action. The judge cannot fairly be read as allowing the features of one action to influence his costs decision in another. Is it, he asked rhetorically, suggested that his Intrigue point in paragraph 48(ii) infected the integrity of his Fiona costs order? If, however, the judge was allowing his costs decisions to be influenced in this way, he was entitled to do so in light of the way in which the trials had been conducted.
41. Mr Berry submitted that it was also wrong to regard paragraph 48 of the judge's reasons as relating predominantly to the Fiona actions. In paragraph 48(i), the judge referred to Mr Frank's dishonest conduct of the Fiona actions, and gave 'two examples'. The first related to Mr Frank's dishonest denial of any knowledge of the pre-trial investigations to which the judge referred. The judge, said Mr Berry, could also have given another example by referring to the mirror picture in relation to the Intrigue action, as reflected in paragraph 236 of his main judgment:

'In October 2005 Mr Mednikov instructed Mr Piers Erskine of Corporate Intelligence Services Ltd … to investigate Mr Izmaylov's affairs. Mr Frank denied that he was aware of this, but I reject that evidence. Mr Frank, together with Mr Terekhin and Mr Mednikov, had a meeting about the investigation with Mr Erskine on 23 February 2006.'

So, said Mr Berry, the paragraph 48(i) point applied equally to the Intrigue action, as the judge would have known.

42. Mr Berry said that paragraph 48(ii) of the judgment was a very significant factor: Mr Oskirko was managing the Intrigue action and advancing it dishonestly. Paragraph 48(iii), as to the misleading nature of the claimants' witness statements, was illustrated by reference to witness statements in the Fiona actions, but the judge could also have referred to paragraph 1193 of the main judgment as reflecting the unreliability of the witness statements in the Intrigue action, just as he could have referred to paragraph 1258, in which he referred to a pleaded allegation in the Intrigue action that an Intrigue witness did not seek to defend. As for paragraph 48(iv), there was late disclosure in the Intrigue action, and although it was in fact helpful to Mr Izmaylov, it was disruptive of the trial: the disclosure should have been given earlier, and the judge explained in paragraph 42 of his main judgment how its lateness made heavy demands on the defendants (the judge there referred specifically to the disclosure being made shortly before Mr Izmaylov gave evidence). The judge also made no error of law in paragraph 48(v): he there referred expressly to the dishonest evidence given by Mr Oskirko and Mr Privalov in support of the Intrigue action. The judge's reference to paragraph 1450 was to a Fiona example of a pleaded case unsupported by evidence, but he could also have referred to paragraphs 1258 and 1473 as like Intrigue examples.
43. Mr Berry also submitted, more generally, that whilst one would expect that claimants, such as Intrigue, who had succeeded in a fraud case and had recovered damages ought ordinarily to recover costs, one would equally expect defendants who had defeated the bringing of a dishonest claim against them to recover the costs of their successful defeat. The outcome of the Intrigue action reflected both such features, which the judge balanced by making no order as to costs. He was entitled to do so.

Discussion and conclusion

44. I can explain my conclusion relatively shortly. The able arguments advanced to us at the hearing led me to the clear conclusion that there is here no basis for any conclusion that the judge erred in principle in making the order he did. His alleged error, if committed, could not have been more basic, namely to take account of irrelevant matters in making his decision. I am satisfied that he made no such mistake.
45. It needs to be remembered, although at times it appeared that the appellants may have forgotten it, that in the relevant part of his judgment of 24 March 2011 the judge was dealing not just with the costs of the Intrigue action, but also with the costs of the Fiona actions. He summarised in paragraph 35 the parties' respective cases as to the orders he should make in the three actions. In paragraph 36, he directed himself to CPR Part 44.3(1) and (2); and in paragraphs 37 to 43, he addressed the question of who was the successful party in each of the actions. In paragraph 44, he concluded that the answer was that it was the claimants who were the successful parties. He had already correctly noted that 'the general rule' would entitle the claimants to their costs but went on to note, also correctly, that it was nevertheless open to the court to make a different order. He then referred to CPR Part 44.3(4) and (5), which set out the well-known circumstances to which the court must have regard in deciding what order 'if any' to make. The judge's self-directions and approach to the critical questions he had to decide, namely what, if any, costs order to make, were unimpeachable.
46. In paragraph 47, the judge focused on the extent of the claimants' success in the actions. In that paragraph, he was answering the inquiry posed of him by CPR Part 44.3(4)(b). There is no justification for the criticism that the judge was there assessing the extent to which the Fiona actions succeeded or failed by way of assistance in deciding what costs order to make in the Intrigue action – or, for that matter, vice versa. He was simply summarising the extent of the successes and failures in each action: he had to do so as part of the exercise required of him in approaching the question of what, if any, costs order to make in each action.
47. In paragraph 48, the judge turned to consider the claimants' conduct in the three actions, and did so in partial answer to the inquiry posed of him by CPR Part 44.3(4)(a) and 44.3(5). Paragraph 48(i) deals with the judge's assessment, and criticism, of the man largely responsible for the conduct of the Fiona actions, Mr Frank. Mr Berry made a fair point that, in paragraph 236 of his main judgment, the judge was also critical of Mr Frank's honesty as a witness in relation to the Intrigue action, which the judge is unlikely to have forgotten. But this paragraph was not about the honesty of the claimants' witnesses generally: that was the subject of paragraph 48(v)). It was about the honesty of those responsible for the conduct of the Fiona actions. The judge was not here dealing with the Intrigue action.
48. Paragraph 48(ii) was the Intrigue counterpart to paragraph 48(i), in which the judge summarised the damning indictment he had made of the honesty of the evidence of Mr Oskirko, who was managing the Intrigue litigation. Paragraph 48(iii) was a general statement as to the misleading nature of the claimants' witness statements. The judge did not here say to which particular action or actions he was referring, and although he gave two examples (paragraphs 254 and 1081, relating to Fiona witness statements), he made clear that they were just examples, and he could equally have referred to paragraph 1193, where he explained the unreliability of the claimants' witness statements in the Intrigue action. I have no doubt that paragraph 48(iii) is not fairly to be read, nor was intended to be read, as exclusively Fiona orientated: the judge was making general criticisms of the claimants' witness statements in all the actions.
49. In paragraph 48(iv), the judge criticised the claimants' disclosure generally, including in the Intrigue action. He expressly referred to paragraphs 41 to 43 of his main judgment, where he had referred, inter alia, to the claimants' late disclosure shortly before Mr Izmaylov gave evidence. It is no answer for Mr Dowley to say that such disclosure was helpful to Mr Izmaylov and so was not the subject of just criticism. That is not the way in which the claimants should have conducted the claims and the judge was entitled to be critical of it. In paragraph 48(v), the judge was also critical of the honesty of the evidence called by the key witnesses in all the actions. He there referred specifically to the dishonest evidence of Mr Oskirko and Mr Privalov in the Intrigue action.
50. In paragraph 50, the judge turned to consider the other side of the 'conduct' coin, namely that of Mr Nikitin, which it was accepted should be attributed to the Standard Maritime defendants. The judge's assessment of Mr Nikitin's conduct speaks for itself. The final factor that the judge brought into the balance was that the claimants had recovered part of their costs under the settlement agreements with Clarkson and Galbraith's.
51. The judge expressed his conclusion in paragraph 53, which was to make no order as to costs in any of the actions. He expressly recognised that this was a 'major departure' from the general rule, so he was well aware of what he was doing, but he considered it justified 'particularly (i) because the claimants failed in their primary case, and (ii) because of the conduct of the claimants before and during the proceedings'.
52. In my judgment, the judge committed no error of principle in arriving at the costs decisions he did in the three actions, including in the Intrigue action. In summary, I regard as misplaced the submission that he took account of Fiona considerations when dealing with the Intrigue costs. In paragraphs 47 and 48, he was referring to the three actions either separately or generally but either way he was referring to features relevant to the costs order in each action. He decided to make no order in each action, because the considerations relating to each action led him to the view that was the fair way to dispose of the costs issues. In having specific regard, as he did, to the fact that the claimants failed in their primary cases, he no doubt had regard to the fact that that part of the litigation accounted for the greatest cost and effort. Whilst, as Mr Berry accepted, one might expect that claimants who nevertheless still achieved a material success on a fraud claim ought ordinarily to recover at least part of their costs, the judge took into account in deciding otherwise the claimants' dishonest conduct of their cases. That was obviously a powerful consideration: courts do not look sympathetically on dishonest litigants. It may perhaps be, particularly bearing in mind the dishonesty there was also on the part of the Nikitin parties, that other judges might have been a little more lenient, and might have awarded the claimants at least part of their costs. But whether other judges would or might have done so is neither here nor there. No-one was in a better position than this very experienced judge, after 76 days of exposure to this heavy litigation, to make a decision as to what, if any, costs order to make. In my judgment, he made no error of principle in his approach to the order he made.
53. I would dismiss the appeal.

Lord Justice Tomlinson :

54. I agree.

Lord Justice Longmore :

55. I also agree and would like to pay tribute to the obvious care with which the judge prepared his judgment on costs (as well as his judgment in the main actions). Although this court, unusually, gave permission to appeal the judge's apparently unconventional costs order, it became apparent when we had been taken through the argument that the judge's order was well within the discretion afforded to the judge. As my Lord says other judges might not have made the same order but that is nothing to the point. There was no error of principle nor any reason to suppose that the judge had not taken relevant considerations into account. A judge who conducts a 76 day trial is inevitably far better placed than this court to make a proper assessment of the incidence of costs. Mr Dowley assumed a very difficult burden in seeking to displace the judge's discretion and in the event has, not surprisingly, been unable to discharge it.