England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/05/2011

Mr. Justice Andrew Smith:

1. These are my rulings upon the outstanding issues between the claimants in the Fiona actions and Mr. Skarga and between the claimants in the Intrigue action and Mr. Izmaylov. The parties have sensibly agreed that I should determine them on the basis of written submissions without hearing oral argument.

Judgments Act interest

2. In my judgment of 24 March 2011 I awarded costs in favour of Mr. Skarga and Mr. Izmaylov. The effect of section 17 of the Judgments Act 1838 and CPR 40.8 is that interest is to be paid at 8% per annum on the amount of the costs from 24 March 2011 unless I order otherwise. The claimants apply for an order to defer to 24 September 2011 the date from which Judgments Act interest should run. This is, of course, because the rate is currently considerably higher than commercial rates charged and paid.
3. I have jurisdiction to make an order of this kind. Comparable orders were made by David Steel J in Colour Quest Ltd and others v Total Downstream and others, [2009] EWHC 823 (Comm); by Tugendhat J in D Pride and Partners v Institute for Animal Health, [2009] EWHC 1617 (QB); and by Roth J in London Tara Hotel Ltd v Kensington Close Hotel Ltd, [2011] EWHC 29 (Ch). My attention has been drawn by Ms. Susannah Jones, representing Mr. Skarga, to the decision of Mann J in Schlumberger Holdings Ltd v Electromagnetic Geoservices AS, [2009] EWHC 773 (Pat). I do not understand Mann J to state that the court has no jurisdiction to make orders of this kind, and Ms. Jones does not, I think, suggest that that is the effect of his judgment. Rather he explains clearly why such orders should not routinely be made.
4. The statutory position provides general certainty and clarity, and Judgments Act interest should not be deferred simply because it is at a considerably higher rate than commercial rates. There must be something about the circumstances of the particular case that justify a departure from the usual rule, and it is for the applicant seeking deferral to show this. Typically the applicant would have to show that particular features of the case mean that the application of the general rule would be so unfair to him that justice requires departure from it. This might be because a large amount of costs is likely to be outstanding for a particularly long period and the applicant cannot be expected to avoid this by assessing what costs he will have to pay and making (or tendering) a substantial payment on account. I agree with the claimants that, if such unfairness is shown, the fact that the Judgments Act interest rate encourages the paying party to reach a compromise would not be a proper reason to refuse an order.
5. I do not consider that it is in itself a sufficient justification for deferring Judgments Act interest that the costs are likely to be unusually large. In this case the claimants rely on more than that: they submit that the nature of the litigation and complexity of the case means that significant questions of reasonableness and proportionality are bound to arise on a detailed assessment of costs, and in particular that there are bound to be difficulties in assessing whether costs claimed by Mr. Skarga and Mr. Izmaylov were, in fact, incurred in the defence of Mr. Nikitin and his companies. Further Mr. Nikitin, or companies controlled by him, were funding the defences of Mr. Skarga and Mr. Izmaylov. Accordingly it is submitted on behalf of the claimants that it is particularly difficult for them to make a sufficiently informed assessment of the costs of Mr. Skarga and Mr. Izmaylov for them reasonably to be expected to make a substantial payment on account of what they will have to pay.
6. There was, of course, a considerable overlap between the (expert and factual) evidence relied upon by Mr. Skarga and Mr. Izmaylov and by other defendants. This is not unusual. It does not in itself give rise to particular difficulties in determining whether costs were properly incurred by Mr. Skarga and Mr. Izmaylov. Nor does it seem to me that the source of the funding for their litigation costs presents relevant difficulties. I am not persuaded that the difficulties to which the claimants refer are sufficient, or sufficiently unusual, to justify departure from the normal rule. I add that in my judgment of 24 March 2011 (paras 66 and 70) I expressed my views about whether the representation at trial on behalf of Mr. Skarga and Mr. Izmaylov was proportionate and reasonable. I also observe that in the case of Mr. Izmaylov questions of proportionality do not arise in view of the order that costs be assessed on the indemnity basis.
7. I accept the submission of Mr. Skarga and Mr. Izmaylov that this is not a case where uncertainty over the amount the claimants are liable to pay justifies postponement of the usual benefit to a costs judgment creditor of 8% interest. I dismiss the applications for deferral of Judgments Act interest.

Payment on account of Mr. Skarga's costs

8. Mr. Skarga applies for a payment on account of his costs and that it should be of £4,139,716.12, 50% of £8,279,432.24, which he said was a "conservative starting point" for his total recoverable costs to 31 December 2011 plus interest to 24 February 2011 and VAT. The Fiona claimants say (i) that no payment on account should be ordered pending the determination of their application to the Court of Appeal for permission to appeal in respect of their claims against him and, in the event that their application is successful, until the appeal is determined; and (ii) that in any case the payment on account should be of only 30% of the recoverable costs, interest and VAT.
9. An appeal does not operate as a stay of any order or decision of the lower court (CPR 52.7) and, a fortiori, an application for permission to appeal does not do so. Further, I have refused permission to appeal on the grounds that I was not persuaded that the proposed appeals have any real prospect of success.
10. However that is not the end of the matter. The court must still exercise its discretion whether to make an order on account of costs, and the Fiona claimants say that in this case there is good reason not to do so. They argue that, if a payment on account of costs is made, there is very little prospect that any sum could be recovered in the event of a successful appeal. This is because Mr. Skarga's costs in the litigation have been funded by loans from companies controlled by Mr. Nikitin and it is highly likely that any sums received by Mr. Skarga would be deployed by him to discharge those loans. Mr. Skarga has no money or assets of his own from which he could meet any obligation to repay. It is rightly pointed out on behalf of Mr. Skarga that there is no direct evidence as to how Mr. Skarga would deal with any sums received on account of costs, but I accept that the Fiona claimants' submissions present a realistic assessment of the likely position. Further there is no evidence that Mr. Skarga is in pressing need of payment on account, or that he will be significantly prejudiced by not receiving some payment at this stage.
11. I decline to exercise my discretion to order a payment on account of Mr. Skarga's costs. Subject to any observations on behalf of Mr. Skarga about the precise form of the order, I shall make one in the form proposed by Mr. Fionn Pilbrow in his written submissions of 18 May 2011 (but in the amount of £4,000,000 – see below), and I shall give the parties liberty to apply so that the matter may be reconsidered if circumstances change significantly.
12. I add that, had I granted Mr. Skarga's application for some payment on account, I would have ordered payment of £4,000,000, representing approximately the 50% of their costs, interest and VAT for which the application was made. It seems to me very unlikely that, unless my orders for costs are overturned, Mr. Skarga is entitled to any lesser sum.

Costs of determining these issues

13. I shall, if necessary, receive further submissions about the costs of determining these questions, but it might assist the parties for me to state my preliminary view: that it seems sensible for the Fiona claimants and Mr Skarga to bear their own costs (since each has won on one of the two issues), and that the Intrigue claimants should pay Mr Izmaylov's costs (to be assessed on the standard basis).