England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
High Court, Queen's Bench Division, Commercial Court
Mr Justice Knowles
[2015] EWHC 2329 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/04/2017

Lady Justice Arden:

ISSUES FOR DETERMINATION

1. The principal appeal before us is brought by the appellants (together "Threadneedle") against the refusal by Knowles J on 7 August 2015 to strike out as an abuse of the process of the court these proceedings, which are brought against it by the respondents (collectively "Otkritie"). The subsidiary appeal is brought by Otkritie against the judge's order for costs.
2. The application to the judge was that the proceedings should be struck out because Otkritie failed to join Threadneedle in previous proceedings ("Action 1"). It brought Action 1 successfully against a number of individuals, including an employee of Threadneedle, but not Threadneedle itself. It now seeks to make Threadneedle liable on the basis of vicarious liability in the current proceedings ("Action 2"). In breach of guidelines (called on these appeals "the Aldi guidelines") laid down by this Court in Aldi Stores Ltd v WSP Group plc [2008] 1 WLR 748, Otkritie never sought management directions from the judge in Action 1 about the most just and cost-effective way of establishing liability on the part of Threadneedle if it was right in its contentions against the individuals.
3. The Aldi guidelines require a party to seek directions from the court in Action 1 about the possibility that Action 2 may be brought in respect of the same facts against another person, who may not have been a party to Action 1. Action 1 was complex, took 46 days to try before Eder J and culminated in February 2014 in a judgment against a number of defendants, including Mr Gersamia, for over $150m, of which over $100m remains unpaid (including interest and costs).
4. The court clearly has power to strike out an action for an abuse of its process. This is not an exercise of discretion, where there may be a range of appropriate outcomes, but the exercise of a power, after evaluation of all the circumstances, and there can only be one right answer (Aldi). The decision of the court from which the appeal is brought is an evaluation of a number of factors and this Court will not set aside that evaluation unless the judge has taken into account immaterial considerations, left out of account material considerations, erred in principle, reached a perverse conclusion or is plainly wrong: see Stuart v Goldberg Linde [2008] 1 WLR 823.
5. The Aldi guidelines are to be found in a passage in the judgment of Thomas LJ in the Aldi case. They are expressed in imperative terms. They require that the court in Action 1 will, at the very least, be able to express a view as to the proper use of court resources and that that court might be able to devise a means of determining the issues concerning the party who the claimant does not propose to join in Action 1("the non-joined party"). The Aldi guidelines end with the warning that there can be "no excuse" for not raising the question of non-joinder with the judge in Action 1.
6. The relevant passage from Aldi, with which Wall and Longmore LJJ agreed, reads:

[30] Parties are sometimes faced with the issue of wishing to pursue other proceedings whilst reserving a right in existing proceedings. Often, no problem arises; in this case, Aldi, WSP and Aspinwall each in truth knew at one time or another between August 2003 and the settlement of the original action in January 2004 that there was a potential problem, but it was never raised with the court. I have already expressed the view that it should have been. The court would, at the very least, have been able to express its view as to the proper use of its resources and on the efficient and economical conduct of the litigation. It may have seen if a way could have been found to determine the issues applicable to Aldi in a manner proportionate to the size of Aldi's claim and without the very large expenditure that would have been necessary if Aldi had to participate in the trial of the actions. It may be that the court would have said that it was for Aldi to elect whether it wished to pursue its claim in the proceedings, but if it did not, that would be the end of the matter. It might have enquired whether the action against excess underwriters could have been expedited. Whatever might have happened in this case is a matter of speculation.

[31] However, for the future, if a similar issue arises in complex commercial multi-party litigation, it must be referred to the court seized of the proceedings. It is plainly not only in the interest of the parties, but also in the public interest and in the interest of the efficient use of court resources that this is done. There can be no excuse for failure to do so in the future.

OVERVIEW OF THE ISSUES AND MY CONCLUSIONS

7. In this case, the Aldi guidelines had not been followed, but the judge found that it was likely that, if they had been followed, the court would not have required Threadneedle to be joined as a party to Action 1 ("the Hypothetical Scenario"). The judge took the view that in all the circumstances it was not appropriate to strike out Action 2. One of the points which Threadneedle makes is that the judge should not have inquired into the Hypothetical Scenario and came to the wrong conclusion in any event.
8. Threadneedle's detailed contentions and my detailed reasons are set out below. In summary, in my judgment, notwithstanding the concluding words of the passage I have cited from the judgment of Thomas LJ, the Aldi guidelines do not, as Threadneedle submits, mandate striking out. The judge had to come to a broad merits-based judgment as to whether it was unfair and oppressive to Threadneedle to pursue these proceedings. The judge had to consider all the circumstances of the case, including the seriousness of the non-compliance with the Aldi guidelines. In considering the seriousness of the non-compliance, the judge had to consider the Hypothetical Scenario. The judge weighed the circumstances correctly and was right to decline to strike out Action 2. He was also entitled to make his costs order because it reflected his view of Otkritie's conduct in particular in not complying with the Aldi guidelines.

KNOWLES J: NO ABUSE OF PROCESS

9. Otkritie started its action against individuals involved in the scheme by which it was duped to purchase investments at a vastly inflated price. It obtained freezing orders against them. The judge gives more details of the scheme, but it is not necessary for me to do so. In March 2012, it added Mr Gersamia as a defendant to Action 1. He had been employed by Threadneedle at the time of the fraud on Otkritie. The judge found that Otkritie would have appreciated then that it might have a claim against Mr Gersamia's employer at that date. At no time, however, did Otkritie take any steps to join Threadneedle to Action 1 or to seek management directions from the judge to whom the action was assigned.
10. There was a case management conference in July 2012. Walker J was then dealing with the case and he took the view that it was important for Action 1 to proceed speedily to trial because of the effect of the freezing orders on the individual defendants' lives. Hamblen J repeated this message when the matter came before him in November 2012.
11. Knowles J directed himself, following the speech of Lord Bingham in Johnson v Gore Wood & Co [2002] AC 1, that a claim should be struck out as an abuse of process only if, on a broad merits-based judgment taking account of both the private and the public interests involved and all the circumstances, it was clear that Otkritie was misusing or abusing the process of the court by raising an issue which could have been raised before. The judge also cited a number of other authorities.
12. In particular, in Henley v Bloom [2010] 1 WLR 1770, Lord Neuberger MR held that a claim was not an abuse of process simply because it could have been brought in an earlier action, because that would violate the right of access to a court guaranteed by Article 6 of the European Convention on Human Rights.
13. Threadneedle urged the judge to hold that an effect of Aldi was that a party no longer had a right to bring two sets of proceedings if he wished to do so.
14. The judge took the view that, where a party had not complied with the Aldi guidelines and the court was asked whether this was an abuse of process, the court ought to go on to consider, as best it could, what would have happened if management directions had been sought. He considered that there should be a high threshold for concluding that non-compliance with the Aldi guidelines was an abuse of process.
15. The judge weighed up a large number of matters. He held that compliance with the Aldi guidelines was a matter of public interest since it affected the ability of others to access the court. Non-compliance deprived the court of the ability to protect the public interest.
16. The facts found in Action 1 would not be binding on Threadneedle in Action 2. Threadneedle wished to challenge certain findings of Eder J in Action 1. There was a risk of inconsistent findings, but that risk does arise from time to time.
17. The judge found that, even if Otkritie had complied with the Aldi guidelines, the Commercial Court would have declined to make an order to join Threadneedle because that would delay the trial. There were legitimate reasons not to delay the trial and reasons why it might be delayed: for example, Threadneedle would bring in a substantial legal team and might wish to bring contribution proceedings against seven individual defendants and their employers.
18. The judge considered that there was no hard and fast rule as to when an employer should be joined if an action was brought against an employee. The judge considered that, if Threadneedle had been given the option of being joined in Action 1, it would have refused it. It had been aware of the litigation but it had not sought to be made a party to it.
19. The judge concluded that Action 2 was not an abuse of process. He noted that in Henley v Bloom, Lord Neuberger held that a party who had not complied with the Aldi guidelines might have to bear the costs of the application. The judge observed that there might be wider costs consequences.
20. The judge found that Otkritie's reasons for not joining Threadneedle were that its solicitors would have had to resign because of a conflict of interest. He held that, while there was no question of lack of honesty on Otkritie's part, or harassment of Threadneedle, Otkritie's conduct fell "well below" the standard of conduct which the court was entitled to expect.
21. After he had given his judgment, the judge heard submissions on costs and the judge held that, for the reasons he had already given, his order was that Otkritie should pay 75% of Threadneedle's costs of the application. He gave a separate judgment making this order but his reasons are those contained in his main judgment.

SUBMISSIONS

Threadneedle's submissions

22. Mr Ali Malek QC ably presents the case for Threadneedle. He submits that the judge erred in law in considering the Hypothetical Scenario at all. Aldi was a "game changer". Thomas LJ laid down clear guidance as to what was to happen in the future. The overriding consideration was the proper use of the court's resources. It was sufficient that Threadneedle had suffered some prejudice because it had lost the opportunity to participate in Action 1, there was a risk of inconsistent findings of fact and there would be difficulties in conducting the contribution claims separately in Action 2. The public interest was also engaged because of the knock-on effects this extra litigation will have on the other court users.
23. Mr Malek relies on the fact that subsequent decisions of this Court have attached importance to observance of the Aldi guidelines: see, for example, Stuart v Goldberg Linde.
24. Mr Malek submits that the court should strike out Action 2 if it is possible that the court in Action 1, if asked for management directions, would have directed the claimant to join a particular party which it seeks to sue in Action 2. He submits that the courts have described the Aldi guidelines as mandatory: see, for example, Gladman Commercial Properties v Fisher Hargreaves Proctor [2013] EWCA Civ 1466, [2014] PNLR 11 at 65, where Briggs LJ, with whom Ryder and Longmore LJJ agreed, held:

65 As has been repeatedly stated, the conduct of civil proceedings is a process in which the stakeholders include not merely the parties, but also other litigants waiting for their cases to be tried, and the public at large, who have an interest in the efficient and economic conduct of litigation. I consider that Arnold J was correct to treat a failure by the Appellant to follow guidelines laid down as mandatory future conduct in two successive reported decisions of this court as relevant matters pointing to a conclusion that the Second Claim constituted an abuse of the process of civil litigation.

66 The shocking consequence of permitting the Second Claim to continue would be that precisely the same issues would fall to be litigated at two successive trials involving the waste of between four and six working weeks of court time and, no doubt, millions of pounds of wasted costs and lost management time, quite apart from the double jeopardy faced by Mr Bishop and Mr Hargreaves to which I have referred. The judge's conclusion was that compliance with what were by then mandatory guidelines could have entirely avoided that wasteful duplication of time, money and effort. I agree that the failure was, as described in the Aldi case, inexcusable. An inexcusable failure to do something which would have contributed so substantially to the economy and efficiency with which this dispute might have been resolved seems to me to be a primary candidate for identification as an abuse.

25. In the alternative, Mr Malek submits that it is not clear at all what order the court in Action 1 would have made, and so it was inappropriate for the judge to speculate.
26. Mr Malek submits that the difficulties attendant on determining the Hypothetical Scenario should be avoided and that the law should simply be that, once the judge (correctly) found that Otkritie should have known that it might have a claim against Threadneedle and that Otkritie's explanation for not making any application for case management directions was a bad one, there was an abuse of process.

Otkritie's submissions

27. Mr Nathan Pillow QC, for Otkritie, in his helpful submissions, adopts the opposite approach to that of Mr Malek. He seeks to downplay the importance of the Aldi guidelines by emphasising that they contemplate obtaining directions as a matter of case management.
28. He submits that the judge was right to explore the Hypothetical Scenario if he could do so without speculating, which he could and did. He further submits that the judge's conclusions on the Hypothetical Scenario were sound, and this Court should not re-open his decision. It is, on his submission, highly unlikely the court in Action 1 would have added Threadneedle as a defendant as it would have been a substantial addition; and the prejudice caused by a potential joinder (including adding two weeks to the trial and the loss of the trial date) would not have caused less prejudice than the instant litigation.
29. Mr Pillow submits the starting point is that a litigant can decide whom to sue and when unless an abuse of process is shown: see, for example, per Lord Neuberger MR in Henley v Bloom at [25] and [26]:

25…However desirable it may be for a party to bring all his claims forward in one go, the abuse principle, as the judgments in Stuart [2008] 1 WLR 823 underline, does not bar a claim simply because someone fails to raise a claim when he could have done so. The facts must be such that the second action amounts to an abuse of process before it can be struck out.

26 The importance of the general principle that every person with an arguable claim should be able to pursue it in court is enshrined in Article 6 of the European Convention. As Sir Anthony Clarke MR indicated in Stuart [2008] 1 WLR 823, paragraph 98, if the court is not satisfied that a claimant's attempt to raise his claim is actually abusive in the light of his previous failure to raise it, the claim cannot be barred from proceeding however desirable it might have been for the claimant to have raised it earlier.

30. Mr Pillow accepts that, where someone blatantly decides not to bring in an obvious party, there may be an abuse of process.
31. Mr Pillow submits that the court has to be very careful about merging case management into abuse of process because the court is then accepting that this discretionary process of efficient case management in the interests of the parties and the state can become the same question as the non-discretionary question of law, namely, is this an abuse of process, using the broad merits-based test?
32. Case management is not the same thing as an abuse of process. The desirability of informing the court about the possibility of joining yet another party has, on his submission, nothing to do with abuse of process. It is simply a matter of undesirability. Abuse of process is not the exercise of discretion. There is no room for speculation. There must be a conclusion as to which there could be no difference of view. Therefore the judge would have to have concluded that it was an abuse of process not to bring in Threadneedle.
33. Mr Pillow submits there has to be a causative effect between the failure to comply with the Aldi guidelines and any prejudice. Mr Pillow accepts that the failure to comply with the Aldi guidelines is a factor which can go into the mix, because the court is required to produce a broad merits-based judgment. He also accepts that if the court is unable to be sure as to some matter of fact it may be able to make an assumption which is favourable to the party that did not have the opportunity of being joined in pursuance of the Aldi guidelines.
34. Mr Pillow submits that it would be antithetical to the broad merits-based enquiry if the court could not consider what would have happened if the later claim had been made earlier.
35. Mr Pillow submits that the judge certainly did not speculate.
36. Mr Pillow submits that it was inherently improbable that the then existing defendants to Action 1 would have welcomed Threadneedle being joined because it was a party with a deep pocket.
37. Mr Pillow submits that the Aldi guidelines are about people who are parties to the litigation already.
38. He further submits that in any event there were legitimate and objective reasons for bringing an action against Mr Gersamia and the others first.

DISCUSSION

39. Threadneedle's appeal concerns the circumstances in which a second action will be held to be an abuse of the process of the court. This is not a rule of substantive law but "a concept which informs the exercise of the court's procedural powers" (per Lord Sumption in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2014] AC 160 at [25]). In Dexter v Vlieland-Boddy [2003] EWCA Civ 14, Clarke LJ helpfully summarised the principles on which the courts will strike out an action in these circumstances, as established by the authorities, as follows:

[49] The principles to be derived from the authorities, of which by far the most important is Johnson v Gore Wood & Co [2002] 2 AC 1, [2001] 1 All ER 481, can be summarised as follows:

i) Where A has brought an action against B, a later action against B or C may be struck out where the second action is an abuse of process.

ii) A later action against B is much more likely to be held to be an abuse of process than a later action against C.

iii) The burden of establishing abuse of process is on B or C or as the case may be.

iv) It is wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive.

v) The question in every case is whether, applying a broad merits based approach, A's conduct is in all the circumstances an abuse of process.

vi) The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment or oppression of B or C.

40. This Court approved these principles in Aldi. The facts of that case were complex but, in summary, a subcontractor sued a main contractor, who brought third party proceedings against consultants. The action was compromised. The claimant then brought a second action against the consultants. Jackson J at first instance struck out the second action as an abuse of the process but this Court reversed his decision. In the course of doing so, Thomas LJ laid down the Aldi guidelines set out at paragraph 6 of this Judgment.
41. It is a measure of the practical importance of the Aldi guidelines that they have been considered in four subsequent decisions of this Court. They each turn on their own facts but I will summarise them briefly to show the importance which this Court has consistently attached to them.
42. In Stuart v Goldberg Linde, this Court developed and applied the Aldi guidelines, allowing an appeal against an order striking out a second action to pursue a new cause of action against new defendants where the claimant was not aware of certain key facts at the date of the first action. This Court emphasised that the claimant should disclose his intention to bring a further claim for the benefit of both the other parties and the court which was managing the case. A party should place all his cards on the table.
43. In Gladman, the claimant failed to disclose to the court in the first action that there was the possibility of a second action involving the same facts against new defendants. The claimants knew the facts giving rise to the new claims at the time of the first action. This Court upheld the decision of the judge that the new claims should be struck out. They were struck out for a number of reasons, but those reasons included failure to comply with the Aldi guidelines, which were held to be mandatory.
44. Most recently, in Clutterbuck v Cleghorn [2017] EWCA Civ 137, which was heard by Kitchin and Floyd LJJ before this appeal, (with judgment being given shortly before this Judgment, but no party wished to make submissions on it) the claimants made allegations in the first action of wrongdoing under three joint venture agreements. Claims to enforce two of those agreements against one co-venturer failed, but in the new action the claimants sought to hold the defendant, who was not sued in the first action, liable. The judge struck out the claims in the second action for failure to comply with the Aldi guidelines. This Court held that the Aldi guidelines were mandatory, and that the failure to follow them was an important, but not dispositive, factor for the judge dealing with the strike out application to take into account. This Court upheld the decision of the judge in respect of two of the joint venture agreements, but held that the claim in respect of the third agreement was not in issue in the first action and that accordingly, contrary to the decision of the judge, there was no abuse of process in relation to the new claim in respect of that agreement.
45. The parties also referred to Football Datco v Stan James Abingdon Ltd [2014] EWHC 504 (Ch), in which Mr Iain Purvis QC, sitting as a deputy Judge of the Chancery Division, applied the Aldi guidelines where the claimant, following the conclusion of a trial on liability, sought to introduce by amendment to his statement of case a new claim. The amendment was disallowed.
46. In the present case, Mr Malek's submissions and those of Mr Pillow were at opposite ends of a spectrum. Mr Malek goes so far as to submit that non-compliance with the Aldi guidelines is sufficient to mean that Action 2 should be struck out. However, he also put his case at various other points at that end of the spectrum. For example, he submits that since the claim in Action 2 is based on vicarious liability, it ought to be tried in Action 1 because there is an enhanced risk of inconsistent findings. That is no doubt true of other types of claims as well, but in any event the new claim has to be seen in context. Here it appears that Threadneedle does not propose to challenge the majority of the core factual findings made by Eder J in Action 1.
47. In my judgment, when Thomas LJ held at the end of the passage set out in paragraph 6 above that there could be no excuse, he meant that there was no exception. It would not be open afterwards to a party to claim that it was not bound to seek management directions about a proposal not to join a party against which it might subsequently allege liability arising out of substantially the same facts. This appears to be the way in which this phrase has been interpreted in the four decisions of this Court summarised above.
48. If there is a view among commercial practitioners that the Aldi guidelines are subject to exceptions or optional, I would remind them that (following this decision) there will be at least five decisions of this Court when this Court has been asked to strike out proceedings because the Aldi guidelines have not been followed. Those who do not observe the practice cannot hereafter complain that they thought that it was a practice to which there were exceptions. The fact that the Aldi guidelines have not been translated into a rule of procedure in the CPR or been made the subject of a Practice Direction does not matter.
49. As to Mr Malek's submission that, once the judge found that Otkritie had acted in breach of the Aldi guidelines in Action 1, Action 2 was an abuse of process and should be struck out, in my judgment, that approach is clearly not consistent with Johnson v Gore Wood and its adherence to a broad merits-based assessment of whether a second action was an abuse of the process of the court. In my judgment, it is clear that this Court in Aldi did not intend to depart from the decision in Johnson v Gore Wood. So there is no hard-edged rule of law that a claim, which a party could have raised in one set of proceedings, will be struck out if that party seeks to bring it in another set of proceedings. The Aldi guidelines are a facet of the principle of a "broad merits-based judgment" as to whether this is the just outcome, which was established in Johnson v Gore Wood.
50. Accordingly the judge did not err in his approach. There was no excuse for Otkritie not seeking management directions about the potential joinder of Threadneedle as soon as it decided to apply to join Mr Gersamia, and it could have sought management directions on a without notice basis in the first instance in the same application. When it made Mr Gersamia a defendant in March 2012, Otkritie could not but have known that it had a claim against Threadneedle too if the claim against Mr Gersamia succeeded. Mr Pillow submits that Otkritie was only bound to make an application pursuant to the Aldi guidelines in July 2012 at the case management conference. That cannot be right because that effectively tied the court's hands: by that stage the preparations for trial were well advanced and it was clear that an early trial was required. The application should have been brought as soon as reasonably possible after Otkritie should have appreciated Threadneedle's potential liability (March 2012). However, I do not consider that it would in fact have made any difference to the ultimate result. There is no reason which undermines the evaluation of the experienced Commercial Court judge that the court was unlikely to require the joinder of Threadneedle. Worldwide freezing orders had already been sought against individuals and that gave rise to urgent, practical issues.
51. In addition, although Threadneedle submits that the trial of the claim against it would probably only have added about two weeks to what was already a substantial trial, that is because it is now content to challenge only isolated parts of Eder J's findings at trial. That was probably not its view in 2013: compare the judge's finding as to whether Threadneedle would have wished to be joined at that time.
52. In making a broad merits-based judgment, the judge was clearly entitled to assess the seriousness of the breach and so to seek to determine what would have happened if the necessary application had been made. So I reject Mr Malek's submission, which was an important part of his submissions, that he should not have attempted to determine the Hypothetical Scenario. Nor do I accept that any error has been demonstrated in his assessment of what a judge of the Commercial Court would be likely to have done. This case was different from those, such as Clutterbuck, where the court was not able to determine what the judge in the first action would have done. Furthermore, the fact that in those cases there was no determination of the Hypothetical Scenario does not of course mean that it is wrong to make the determination where it can properly be made.
53. For the same reason, the judge was bound to consider the measure of the prejudice suffered by Threadneedle. That was one of the relevant circumstances. But Mr Malek is unable to point to any very specific examples of prejudice. A party needs to show more than the generalised prejudice to obtain a strike out. In any event, Threadneedle knew all about Action 1 and could have intervened if it had wanted to do so. As Mr Pillow submits, it is difficult for a party which has never been sued by the claimant to complain that the commencement of a new action against it is oppressive or unjust, though I would not go so far as to suggest that it could never happen. Moreover, it is also a relevant factor against Threadneedle in any broad merits-based assessment that, if it successfully strikes out Action 2, it not only obtains the windfall of never having to defend Otkritie's allegations but it also altogether prevents Otkritie from having any access to the court for the purpose of determining its claim against Threadneedle. In finding that there is a high hurdle, I bear in mind that, if Threadneedle's defence is a good one, it will be able in due course to resist the claim. In those circumstances, a strike out of the claim would not be appropriate or proportionate.
54. Mr Pillow submits that a new party can almost never strike out proceedings for non-compliance with the Aldi guidelines unless, possibly, there has been bad faith. I would resist the invitation to identify situations when non-compliance will lead to a successful application for a strike out. Each case will turn on a broad merits-based assessment of the facts in that case.
55. Nor do I propose to speculate as to what directions a Commercial Court judge might give on any application for management directions pursuant to the Aldi guidelines. The submissions before us focussed inconclusively on the questions whether the court could give a direction for joinder or whether the court could make any order to protect the claimant against potential exposure to a strike out application of any subsequent action if the court approves non-joinder. What is clear is that the court could not make an order which bound a party not before it. However, from the passage set out in paragraph 6 of this judgment, it appears that one of the matters which this Court contemplated in Aldi was that through discussion the judge would be able to make some helpful proposal as to how the trial might proceed in order to reduce the complexity of a separate trial. The solution could be quite case-specific and creative. The fundamental point in Aldi was clearly that to allow a separate trial of a claim arising out of the same facts is in general undesirable and a potential waste of the finite resources of the justice system. It may also cause undesirable delay. Hence this Court in Aldi attached such considerable importance to the application for management directions.
56. I accept that Threadneedle had a legitimate interest in the trial of Action 1, but, if it was not joined and had wanted to be joined, a remedy lay in its own hands: it could make an attempt itself to intervene and seek some form of declaration. Mr Malek submits that it was not clear to Threadneedle until after  judgment was handed down in Action 1 that Otkritie intended to make a claim against Threadneedle.  Otkritie then told Threadneedle by letter that it might have claims against it and that Threadneedle should preserve its documents and notify its insurers, if had not done so already.  There was no notice of the claim until 2 May 2014. In my judgment, this is no answer. It would have known the risks of a possible claim against it following the joinder of Mr Gersamia in Action 1.
57. Otkritie has served a respondent's notice, in which it contends that it was not in breach of the Aldi guidelines because it was unable to take advice from their solicitors on the merits of the claim. Threadneedle rightly submits that this is a hopeless point because Otkritie could have taken the obvious course of instructing another firm. Otkritie also contends in its respondent's notice that Threadneedle was effectively in breach of the Aldi rule itself and that it was precluded from asserting that Otkritie was in breach. I do not agree. I do not consider that Otkritie can successfully exculpate itself from its own failure to observe the Aldi guidelines by relying on the fact that Threadneedle could have made its own application.
58. For these reasons I would dismiss the appeal and the respondent's notice.
59. I turn to Otkritie's cross-appeal on costs. Mr Pillow submits that the judge's order breaches a fundamental principle, namely that the winner should get his costs. He submits that it would create a perverse incentive if this Court as a rule decided that a party who could establish a breach of the Aldi guidelines but not abuse of process could recover its costs. It would have a free ride to use the court's resources for an abortive application.
60. Mr Pillow submits that the judge erred in principle in any of nine different ways: (1) applying the wrong test; (2) reversing the general rule on costs; (3) applying an approach contrary to authority; (4) failing to take into account relevant considerations (specifically including (5) Threadneedle's conduct); (6) justifying the costs order by marking disapproval of Aldi non-compliance; (7) justifying visiting the application's costs on Otkritie on the basis of the opportunity to consider Aldi offered by the application; (8) failing to consider the consequences of his decision; and (9) exceeding the ambit of reasonable disagreement. This Court should therefore re-make the order, disallowing no more than 25% of their own costs to reflect Aldi non-compliance.
61. Mr Malek submits that the judge's order should be affirmed on the following additional grounds:

i) Otkritie's breach of the Aldi guidelines was both deliberate and very serious.

ii) In particular, Otkritie's breach prevented the court from furthering the overriding objective in Action 1 and was therefore unreasonable or improper within the meaning of CPR 44.11(1)(b). This was of particular significance where the relevant litigation was a complex high-value dispute being conducted in the Commercial Court.

iii) Further, Otkritie never admitted acting inappropriately but sought to justify a failure to comply with the Aldi guidelines on two principal factual grounds (lack of evidence and lack of appreciation of a potential claim against Threadneedle) which were rejected by the court below. Threadneedle succeeded on those issues.

iv) The true reason for Otkritie's non-compliance with the Aldi guidelines was a desire to avoid having to change solicitors, which ignored the interests of Threadneedle and of other court users.

62. Mr Malek also submits that an order for costs was an appropriate way of marking the court's disapproval of Otkritie's conduct. This Court should not interfere with the exercise by the judge of his discretion. Mr Malek also criticised the evidence filed by Otkritie and its correspondence but it is not necessary to go into those points.
63. On costs, I reject Mr Pillow's submissions. The plain fact is that Otkritie was in breach of the Aldi guidelines, and the judge found that its conduct fell below acceptable standards of conducting litigation.
64. In those circumstances, it was in my judgment well within the margin of his discretion to make an order which marked the court's disapproval of that conduct. He was entitled to hold that Otkritie should not recover any of the costs of its successful defence to the application. It also meant that in addition he was entitled to require Otkritie to pay costs to Threadneedle. He then assessed the appropriate percentage at 75%. This was obviously substantial but it cannot be said that it was outside the margin within which reasonable minds may differ.
65. Accordingly I would dismiss the appeal, the respondent's notice and the cross- appeal.

Lord Justice Henderson

66. For the reasons given by Arden LJ, I agree that both appeals should be dismissed.

Sir Christopher Clarke

67. I agree. I am bound to say that I think that the judge's order on costs was closer to the margin of his discretion than my Lady would place it. But I am not persuaded that it was beyond the boundary. I would, therefore, dismiss both appeals.