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Cite as: [2014] EWHC 2073 (Comm)

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		Neutral Citation Number: [2014] EWHC 2073 (Comm)
		Case No: 2009 Folio 83

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

Royal Courts of Justice
Strand, London, WC2A 2LL

24/06/2014

B e f o r e :

MR JUSTICE COOKE
____________________

Between:

	Deutsche Bank AG	Claimant
	- and -
	(1) Sebastian Holdings Incorporated (2) Alexander Vik (Defendant for costs purposes only)	Defendants

____________________

Miss S. Tolaney QC and Mr J. MacDonald (instructed by Freshfields Bruckhaus Deringer LLP) for the claimant
Mr S. Rubin QC and Mr A. Fulton (instructed by Cooke, Young and Keidan LLP) for the 2nd defendant
Hearing dates: 16th and 17th June 2014
____________________

HTML VERSION OF JUDGMENT
____________________

Mr Justice Cooke:

Introduction

On 8th November 2013, following trial, I gave judgment against the defendant (SHI) in the sum of US$243,023,089 and awarded the claimant (DBAG) 85% of its costs on the indemnity basis, requiring SHI to make an interim payment on account of costs of £34,517.115.30. These sums were to be paid by 4pm on 22nd November 2013. I refused permission to appeal and any stay of execution. Grounds of Appeal have been filed with the Court of Appeal but no stay of execution has been sought from it.

SHI has not paid the Judgment Debt or the Interim Costs and has said that it has insufficient funds to pay a fraction of the interim costs order. The defendant for costs purposes only, (Mr Vik) has made it clear that he will not put SHI in funds to pay the sums due.

On 3rd December 2013 I gave permission, on an application without notice, for Mr Vik to be joined by DBAG as a party to the proceedings for the purposes of costs alone and gave permission for service out of the jurisdiction upon him of an application for an order for payment by him of costs pursuant to section 51 of the Senior Courts Act 1981. I also gave directions for the service of any evidence upon which Mr Vik might wish to rely in opposition to the Non-Party Costs Application and for any challenge to the court's jurisdiction. The court's jurisdiction later became the subject of challenge on various grounds including (inter alia) the fact that permission was given to serve the proceedings by leaving the relevant documents at an address in Greenwich, Connecticut, in the USA.

On the 30th January 2014 I upheld Mr Vik's challenge to service upon him in that way, without deciding any of the other jurisdictional objections which he had raised. On that day I amended the order that I had previously made on 3rd December 2013, on the basis that service would be effected in accordance with the Hague Convention upon Mr Vik at his residence in Monaco. Under the terms of that order, Mr Vik was given 28 days from the date of service of the Non-Party Costs Application to file at court and serve on DBAG any evidence upon which he wished to rely in opposition to the application or to the court's jurisdiction. That time limit was extended in a consent order to 14th April 2014. Seventeen witness statements were filed by the parties for the purpose of this application within the timescale permitted by my order and on 9th June a further four witness statements were served by SHI in connection with the Court of Appeal proceedings in which permission to appeal is being sought against my judgment, upon which Mr Vik also relied (without objection from DBAG) in this application. (Seven of the seventeen witness statements to which I have already referred had already been filed in the Court of Appeal by SHI which were also relied on in the current applications.)

In my order of 30th January, I provided for a hearing to take place both of the Non-Party Costs Application and any application made by Mr Vik under CPR Pt 11 because it would be helpful to see the issues which were said to arise on the section 51 application in the context of the jurisdictional challenges mounted by Mr Vik on the basis of forum non conveniens and lis alibi pendens. Permission to appeal from that case management decision was refused by the Court of Appeal on 19th March 2014. In consequence, the matter came before me on 16th June when I heard the jurisdictional arguments first and dismissed Mr Vik's jurisdictional challenge. I said I would give my reasons for doing so and this judgment records those reasons first before proceeding to determine the Non-Party Costs application itself. Many of the factors relevant to the jurisdictional challenge are also relevant to the merits of the application itself and this judgment therefore contains elements of repetition.

The Jurisdictional Challenge

Material non-disclosure

Mr Stephen Rubin QC for Mr Vik submitted that DBAG had failed to tell me, on the ex parte application for service out, of its intention to commence proceedings in New York and Connecticut, which it instituted on 3rd December 2013 and 13th December 2013 respectively. It is a fair inference that DBAG had both sets of proceedings in mind at the time of seeking permission to serve the section 51 application out of the jurisdiction. There is however nothing in this objection as, at the time when I amended the order on 30th January 2013 setting aside the provision for service in Greenwich Connecticut and amending the time limits for submission of evidence following service in Monaco, I was fully aware of the New York and Connecticut proceedings as a result of reading the second witness statement of Ms Asgarian which exhibited the relevant papers setting out DBAG's complaint in each of those jurisdictions. Whilst I had not decided any points relating to jurisdiction other than service in my judgment of 30th January, any issue of non-disclosure fell away because I knew exactly what the position was when giving leave to serve out of the jurisdiction by a different method on 30th January.

Moreover, as Lord Justice Tomlinson pointed out in refusing permission to appeal my order for directions, there is no arguable oppression or irregularity in DBAG seeking to pursue alternative and distinct routes to possible recovery from Mr Vik of the expenditure incurred by it in obtaining judgment against SHI. Whilst conscious of the decisions relied on by Mr Vik, namely David Shaw Silverware, North America Limited v Denby Pottery Company Ltd [2013] EWHC 4458 (QB) at paragraphs 9 and 10, Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350, and Kazakhstan Kagazy Plc v Maksat Askaruly Arip [2014] EWCA 381, it would have made no difference to me when granting permission to serve out had I known on 3rd December 2013 of the intent to issue proceedings and their intended ambit in the USA. I did know that DBAG was intending to enforce the judgment in the United States when making my order but not of the basis upon which it was intended to pursue proceedings to enforce.

In the light of my knowledge of 30th January and the order I made on that day, Mr Vik's point has no remaining force at all.

Lis alibi pendens

As is plain from a number of authorities, an application under section 51 does not involve the assertion of a cause of action but is a request for the exercise by the English court of a statutory discretion in relation to proceedings in which the court already has jurisdiction and, as here, has usually already given judgment against a party subject to that jurisdiction. No court in any other jurisdiction could exercise this discretion (see Rix J in the Ikarian Reefer (No. 2) [1999] 2 Lloyd's Rep 603 at 626.

As Lewison LJ remarked in Threlfall v ECD Insight Ltd [2014] 2 Costs LR 129 at paragraph 13, if a non-party costs order is made against a company director or shareholder, it is wrong to characterise this as piercing or lifting the corporate veil or to say that the company and the director or shareholder are one and the same. The separate personality of a corporation, even a single member corporation, is deeply embedded in our law for the purpose of dealing with legal rights and obligations. By contrast, the exercise of the statutory discretion to make a non-party costs order leaves the rights and obligations exactly where they are. The fact that the making of such an order is discretionary demonstrates that the question is not one of rights and obligations of a non-party, for no obligation exists unless and until the court exercises its discretion. Moreover, the fact that the discretion, if exercised, is exercised against a non-party has the effect of underlining the proposition that the non-party has no substantive liability in respect of the cause of action in question.

DBAG, in the US proceedings, both in New York and in Connecticut, claim against Mr Vik as the alter ego of SHI (and, in New York, also of Beatrice). Whilst the Complaints place reliance upon certain findings in my judgment of 8th November 2013, the cause of action asserted against Mr Vik is based upon the concept, under the law of the relevant states, that Mr Vik and SHI can effectively be treated as one and the same because of his total control of the companies, his ownership of them (until 30th October 2008 in the case of Beatrice) and his use of their assets as belonging to him. It is alleged that the transfers to which reference is made in my judgment at paragraph 1435 (and other additional transfers), amounting to US$1 billion approximately, were fraudulent transfers effected upon Mr Vik's instructions which should be set aside or for which damages should be payable. It is said that Mr Vik retained the legal and/or beneficial interest in the transferred funds.

It is clear that the proceedings in the United States and the application made by DBAG under section 51 of the Senior Courts Act do not constitute the same lis. Whilst DBAG seeks a discretionary order from this court that Mr Vik be made liable for the costs order already made against SHI, both sets of proceedings in the United States proceed on the basis of a claim by DBAG of entitlement under the relevant foreign law, to recover the judgment debt and the debt constituted by the order for costs in the English proceedings, whilst seeking the setting aside of the wrongful transfers and/or damages in respect of them, on the basis of fraud. The subject matter of the application here and the proceedings in the US are not therefore the same, although there is an overlap in the relief sought.

Forum non conveniens

It was submitted by Mr Rubin QC that the US (with New York, as I understood it, preferred to Connecticut) constituted a more suitable forum for determination of the issues which would arise because all the evidence which had now been produced for the purpose of the section 51 application meant that there were serious issues which could only be determined with cross-examination of witnesses at a full hearing. Section 51 proceedings, as the CPR and various authorities make clear, are intended to be summary, without the benefit of full discovery or cross-examination of witnesses in the ordinary way, although there is nothing to prevent the court, in a proper case, from ordering that such procedures are followed.

In a number of places in my judgment I found Mr Vik's evidence to be dishonest, particularly in relation to the transfers of "Available Funds" – see paragraphs 1434-1465 of the judgment. Further evidence, in the form of witness statements from Mr Vik, Mr Johansson, SHI's solicitors and Mr Vik's solicitors, was adduced to challenge some of my findings in those paragraphs or to provide additional evidence in relation to the transfers where I had concluded that they had taken place with a view to depleting SHI's assets and making it more difficult for DBAG to seek recovery from SHI should it need to do so (see paragraphs 1455, 1460 and 1463). I concluded that I could not accept Mr Vik's explanations for the transfers and that funds were available to SHI to produce margin for Mr Said's FX trading, if Mr Vik had so wished. He could choose to utilise those funds whilst they were in SHI's accounts, whether with DBAG, HSBC or elsewhere and could equally use them once they had been transferred to Beatrice, to VBI or to himself. He moved money from one company to the other as he saw fit (paragraph 1453). There was more than enough money to meet any margin calls that DBAG might make and no compulsion upon Mr Vik and SHI to close out any of SHI's transactions. This further evidence which has been adduced by Mr Vik by way of explanation for the transfers and the bona fide commercial reasons which he asserts for them, is alleged by DBAG to be further dishonest evidence on his part.

Mr Vik, through counsel, contended that not only was there no res judicata, issue estoppel or application of the rule in Henderson v Henderson (1843) 3 Hare 100 applicable to Mr Vik in respect of my findings against SHI, but also that there was immunity from suit on the part of Mr Vik as a witness in respect of any statements which he had made, in the sense that no liability could be imposed upon him which was in any way derivative from that evidence. Moreover, my findings of fact against SHI were not even admissible in the section 51 proceedings against Mr Vik. All the new evidence would have to be tested in cross-examination if DBAG maintained its position that the evidence was dishonest.

If however I was to be called on to decide upon the truthfulness of the new evidence, that would, it was said, put both me and the parties in a difficult position because of the findings of dishonesty I had already made against Mr Vik. Although the authorities made it plain that the trial judge should hear section 51 proceedings, this would be a most invidious position for a judge in the present case and, since there was an alternative route for all such matters to be properly heard in the United States, a stay of the English proceedings should be ordered. The heart of the section 51 dispute was to be the subject of resolution in the United States where the alter ego contentions mirrored the allegation of DBAG that Mr Vik was "the real party" to the dispute in the English action.

Estoppel per rem judicatam and the rule in Henderson v Henderson

In my judgment, it is not necessary for me to carry out any investigation of the kind which is suggested by Mr Vik in order to determine the section 51 Non-Party Costs Application. The reason for this is the nature of the relationship between SHI and Mr Vik to which I refer again later in this judgment. As is plain from my judgment in the action, Mr Vik was the sole shareholder and sole director of SHI. As is plain from statements made by his solicitors in interlocutory applications prior to trial and from evidence at the trial, Mr Vik controlled the conduct of the litigation on SHI's behalf. Although Mr Johansson may have had "the day to day running" of the litigation, every decision on the conduct of the proceedings had to be taken by Mr Vik himself. Mr Vik "called the shots". He was SHI's principal witness of fact, spent many days in the witness box and gave all of SHI's evidence on the issue of available funds and transfers. He stood to benefit from success in the litigation because of his shareholding and his ability and readiness to move SHI's funds for such purposes as he saw fit.

In these circumstances the authorities compel me to the clear conclusion that Mr Vik is a "privy" of SHI and that, not only are the findings in my judgment admissible evidence in the section 51 application against Mr Vik, but he is bound by my judgment as a matter of res judicata and by my findings in the judgment by reason of issue estoppel. Furthermore the principle in Henderson v Henderson applies to him in respect of any points which should have been argued by SHI in the context of DBAG's claim against it. It would amount to an abuse of the process of the court to allow him to relitigate matters I have already decided against SHI, on most of which he gave evidence or to adduce new evidence in relation to issues raised or issues which should have been raised in that trial. That is clearly what he wishes to do.

These points emerge clearly from a number of authorities. First, reference should be made to Symphony Group Plc v Hodgson [1994] QB 179 where Balcombe LJ, at pp. 192-194 set out, as a matter of general guidance, the material considerations to be taken into account in a section 51 application. The sixth of those guidelines reads as follows:

"The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v. F. Hewthorn & Co. Ltd. [1943] K.B. 587; Cross on Evidence, 7th ed. (1990), pp. 100-101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v. Spiro [1938] 1 K.B. 176 , 192, cited with approval by this court in Bahai v. Rashidian [1985] 1 W.L.R. 1337 1343D , 1345H. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule.

(7) Again, the normal rule is that witnesses in either civil or criminal proceedings enjoy immunity from any form of civil action in respect of evidence given during those proceedings. One reason for this immunity is so that witnesses may give their evidence fearlessly: see Palmer v. Durnford Ford [1992] Q.B. 483, 487. In so far as the evidence of a witness in proceedings may lead to an application for the costs of those proceedings against him or his company, it introduces yet another exception to a valuable general principle."

These points have been reiterated and followed in numerous further decisions. Here, in circumstances where Mr Vik was not only the controlling mind and will behind SHI (keeping, as it would appear from disclosure, no books of account or corporate records for the company which he directed) but also ran the litigation in England in the sense of making all important decisions when instructing SHI's lawyers and being SHI's only witness of contemporaneous fact, giving evidence over several days, it is clear that Mr Vik's connection with SHI is so close that he could not possibly be said to suffer any injustice as a result of the findings in the judgment against SHI being admissible against him personally.

Moreover, for the self same reasons, Mr Vik is to be treated as a "privy" to SHI for the purposes of res judicata, issue estoppel and the rule in Henderson v Henderson in relation to findings in my judgment against SHI. In Secretary of State for Business, Innovation and Skills v Potiwal [2013] Lloyds Rep FC 124, Briggs J (as he then was) held that the defendant, the sole director and 40% shareholder of a company connected with the fraudulent evasion of VAT was bound by the decision of a VAT Tribunal against the company that he knew that the company was participating in the fraudulent evasion of VAT. He was in sole charge of its commercial activities and was in charge of the relevant litigation before the Tribunal. He gave all the relevant instructions to the company's solicitors and counsel. He was its only witness of fact and was cross-examined during the proceedings. He had a strong financial interest as well as a reputational interest in the appeal, coincident with that of the company.

At paragraphs 6 and 7, Briggs J reviewed the law as set out in the decision of the Court of Appeal in Secretary of State for Trade and Industry v Bairstow [2003] 3 WLR 841 in the context of collateral attacks on earlier decisions of a court of competent jurisdiction, which was said to amount to an abuse of the process of the court. At paragraph 8 he made reference to the question of privity in relation to estoppel per rem judicatam and the decision of the House of Lords in Carl Zeiss Stiftung v Rayner & Keeler Ltd (No. 2) [1961] AC 853. He referred to the dictum of Lord Reid at page 910G where he said that "privity of interest" could arise in many ways but that it seemed to him to be essential that the person said to be estopped from defending himself must have had some kind of interest in the previous litigation or its subject matter. Reference was made to Lord Guest at p. 936G, where he said that, before a person could be privy to a party, there had to be "community or privity of interest between them".

Briggs J went on to refer to Gleeson v J Whipple & Co Ltd [1977] 1 WLR 510 at 515 and the dictum of Sir Robert Megarry VC in which he stated that there had to be "a sufficient degree of identity" between the party to the action and the third party against whom the estoppel was raised.

"I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase "privity of interest"."

Furthermore, Briggs J pointed out at p. 516A that, if privity is to take effect, it had to take effect whichever party had won the previous litigation. In determining the issue of justice of such an estoppel therefore, it was useful to look at the position from both the winner's and loser's perspective.

At paragraph 10, the learned judge referred to Johnson v Gore Wood & Co [2002] AC 1 at p. 32 where Lord Bingham expressly approved the dictum of Sir Robert Megarry VC, to which I have made reference, as a correct statement of the doctrine of privity in relation to the closely related rule in Henderson v Henderson, holding that Mr Johnson was plainly a privy of a company in which he held all but two of the issued shares and which he had caused to bring a negligence claim against the defendant's solicitors in earlier proceedings.

Both Briggs J in Potiwal and Warren J in Dadourian Group International Inc v Sims [2006] EWHC 2973 (Ch) stated, as has been said elsewhere, that the question whether one person is privy to another is highly fact dependent. The question is whether or not there is a sufficient degree of identification between a party to the previous litigation and the person said to be "privy" to make it just for the latter to be bound by the decision in the earlier action. Further, in considering that matter, it is right to look at the question of whether it would be just if the decision in the earlier proceedings had gone the other way.

On the facts of Potiwal, Briggs J held that the defendant was only slightly less obviously in privity of interest with his company than Mr Johnson was with his company in Johnson v Gore Wood, but the fact that he was only a 40% shareholder by no means undermined the otherwise clear case for privity of interest between the two. The judge went on to state that the modern tendency was to treat the res judicata principle as an aspect of the law of abuse of process and subsequently stated that, if Mr Potiwal was to be permitted by a simple denial of the requisite knowledge to require the case to be proved against him a second time, hundreds of thousands of pounds of further cost would have to be incurred and such relitigation would bring the administration of justice into disrepute in the eyes of right thinking people. It was entirely fair that Mr Potiwal should be bound by the earlier proceedings against his company in which his knowledge had been established on the basis of his own evidence.

In Resolution Chemicals Ltd v H. Lundbeck A/S [2013] EWCA Civ 924, the Court of Appeal likewise approved of Sir Robert Megarry VC's dictum in Gleeson, drawing attention to his statement that a third party ought not to be bound by an earlier decision unless its standing in those other proceedings justified the conclusion that a decision against the party in those proceedings "ought fairly and truly be said to be in substance a decision against him". That statement also was said to be approved by Lord Bingham in Johnson v Gore Wood & Co. In drawing the matter together, Floyd LJ said this: "… in my judgment a court which has the task of assessing whether there is privity of interest between a new party and a party to previous proceedings needs to examine (a) the extent to which the new party had an interest in the subject matter of the previous action; (b) the extent to which the new party can be said to be, in reality, the party to the original proceedings by reason of his relationship with that party, and (c) against this background to ask whether it is just that the new party should be bound by the outcome of the previous litigation."

Having cited these authorities I need not cite the words of Lord Bingham in Johnson v Gore Wood (ibid.) at page 32 of the report where he dealt with the rule in Henderson v Henderson and said that a formulaic approach to application of the rule would be mistaken. He referred to the company in that case as "the corporate embodiment" of the claimant who held all but two of the issued shares and "made decisions and gave instructions on its behalf." He endorsed the approach formulated by Sir Robert Megarry VC.

Mr Rubin QC however relied upon a dictum of Lord Sumption in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2014] AC 160 at paragraphs 24 and 25 where he spoke of the principle in Henderson v Henderson and referred to the speech of Lord Millett in Johnson v Gore Wood (ibid.) who was the only member of the House of Lords who did not agree in terms with Lord Bingham's speech on the issue.

i) Lord Millett agreed in substance in a concurring speech but considered that the rule in Henderson v Henderson was "an ancillary and salutary principle necessary to protect the integrity of the defences of res judicata and cause of action and issue estoppel and to prevent them from being deliberately or inadvertently circumvented." He therefore regarded the rule as being concerned with the abuse of process.

ii) Lord Sumption stated that it was not the view of Lord Millett that because the principle in Henderson v Henderson was concerned with the abuse of process, it could not also be part of the law of res judicata and then went on to say that the focus in Johnson v Gore Wood was inevitably upon abuse of process because the parties to the two actions were different and neither issue estoppel nor cause of action estoppel could therefore run.

iii) In parenthesis, Lord Sumption said that Mr Johnson's counsel had conceded that he and his company were privies but Lord Millett seemed to have doubted the correctness of that concession at p. 60D/E, and so did he.

iv) When that passage in Lord Millett's speech is examined, it can be seen that Mr Johnson's personal claims raised issues which were not present in the previous action involving the company. Whilst Mr Johnson was in a position to decide whether to pursue his claim and the company's claim together or separately, it was not in the company's interest for his personal claims to be joined with its own much simpler claim and the overlap between the corporate claim and the personal claim did not mean that there was privity of interest in relation to the claims where there was no such overlap.

All that Lord Sumption's dictum does is to show that the question of privity, in the context of estoppel per rem judicatam or the rule in Henderson v Henderson is fact sensitive and, as other authorities state, greater caution is required in applying the Henderson v Henderson rule. It is noteworthy that, at paragraph 9.47 in Spencer Bower and Handley's Res Judicata, the author states this, citing a number of Commonwealth authorities:

"Since privity of interest is a matter of substance, not form, courts have been prepared to pierce the corporate veil and recognise the substantial identity between the company and its controlling directors and shareholders. In Johnson Lord Bingham held that Johnson and his companies were privies "it was the corporate embodiment of Johnson. He made decisions and gave instructions on its behalf". This also applies to a parent and its subsidiaries. … A company may also be the privy of its shareholders. The principle is now widely accepted."

All the above points in the reported cases giving rise to privity apply with even greater force to Mr Vik who, notwithstanding the most recent evidence that he has adduced, clearly had an enormous financial interest in SHI's success in the litigation with a counterclaim of $7-$8 billion. Even on his most recent evidence of SHI's indebtedness (with two further loans of which no evidence was given at the trial) the counterclaim would have resulted in billions of dollars accruing to SHI and to the value of Mr Vik's shareholding in circumstances where Mr Vik was able to and did move money between his companies as he saw fit, as found in my judgment at paragraphs 1434-1465. It would be hard to find a case where a person was more closely connected with a company than Mr Vik and SHI, whether consideration is given to their financial interrelationship, their management interrelationship or the conduct of the English litigation. The complete absence of any corporate formalities in the sense of resolutions, minutes of decisions, corporate books and records illustrate clearly the extent to which Mr Vik identified SHI as his "trading company" and Beatrice as his "savings company" where he could and did decide on the transfer of monies between them without regard to the financial obligations of each considered independently as a corporate entity.

The immunity of a witness in respect of his evidence

In Equitas Ltd v Horace Holman & Co Ltd [2008] EWHC 2287 (Comm), Andrew Smith J held that the principle of witness' immunity did not prevent his evidence being used to establish liability for costs under a section 51 application. The witness is protected against allegations that in giving evidence he committed a tortious act but the Court of Appeal has not recognised the application of the principle to section 51 proceedings, as the learned judge pointed out. In, inter alia, Petromec, the Court of Appeal referred to the evidence of the non-party in the context of the application. It appears to have been recognised in the seventh guideline in Symphony Group that the use of witness evidence in section 51 proceedings provided an exception to the general principle. Moreover, there would be illogicality in drawing a distinction between a witness' evidence simpliciter, witness evidence as recorded in a judgment, and the findings of a judge based upon such evidence which are admissible by reason of the close connection between the non-party and the unsuccessful party in the litigation and may give rise to estoppel per rem judicatam.

The impact of Estoppel per rem judicatam and the rule in Henderson v Henderson

As Mr Vik is bound by my judgment against SHI and my findings of fact within it, and the rule in Henderson v Henderson applies in relation to matters which should have been raised in that action in the context of the issues which fell to be determined, I am entitled to proceed on the basis of my findings and to ignore any new evidence which is inconsistent with them or evidence which is directed to relitigation of points raised or points which should properly have been raised in that action. This obviates the need for any extensive investigation beyond my judgment, to the extent that DBAG bases its application for a non-party costs order upon the judgment. The issue of funding of the litigation and control of it do however fall into a different category as a matter not determined in my judgment in the action, although there are some relevant findings in it which cannot be contested.

I am conscious that section 51 proceedings are intended to be a "speedy and summary process" where disclosure and cross-examination are not ordinarily part of the procedure. The court does, nonetheless, have jurisdiction to give directions for disclosure and permit cross-examination in an application of this kind. Grecoair Inc v Tilling [2009] EWHC 115 (QB) is an example of the exercise of the court's jurisdiction to permit such cross-examination. It would clearly be wrong for a defendant to a non-party costs application to be able to stymie the proceedings by raising issues which it would be impossible for a court to determine without cross-examination. The court ought not to be put in a position where it is unable to make the appropriate findings of fact for a non-party costs order because of the nature of the challenges to it put up by the defendants. The court will always bear in mind the question of proportionality and the need to avoid satellite litigation when considering what directions should be made but, for a court to say that it cannot determine disputed issues of fact because cross-examination would be required under the section 51 process (which is intended to be summary) would be a derogation from the court's duties. This appears to be the underlying assumption to paragraphs 48 of the decision of David Richards J in Total Spares & Supplies Ltd v Antares [2006] EWHC 1537 (Ch).

In Centrehigh Ltd v Karen Amen [2013] EWHC 625 (Ch) Morgan J was faced with a situation where there had been no trial on liability nor quantum. Liability had been conceded and quantum was determined on a default basis. The claimants alleged that the fourth and fifth defendants who had been joined for the purposes of costs only, directed the acts giving rise to the litigation, that they funded the litigation, that they conducted and controlled the litigation, that they acted improperly in the way they had done so and that they caused or procured assets to be removed improperly from the third defendant. The liquidator of the third defendant had made available a substantial quantity of documents to the claimants who had also obtained an order for specific disclosure of specified classes of documents to be provided by the fourth and fifth defendants in circumstances where the claimants maintained that there were deficiencies in that disclosure. The claimants wished to be allowed to cross-examine eight witnesses who had signed witness statements on behalf of the defendants with a guillotined timetable and three days permitted for such cross-examination. The intended cross-examination was to go to the whole range of factual dispute which existed between the parties, it being the claimant's case was that various witnesses were lying. It was submitted that the court could only properly make findings about their honesty and credibility by hearing oral evidence on the critical disputed facts. The judge was referred to authorities which stressed the summary nature of the proceedings and reminded that cross-examination was most unusual in applications of this kind. Reference was made to Dymocks Franchise Systems v Todd (No. 2) [2004] 1 WLR 2807 and Systemcare UK Ltd v Services Design Technology Ltd [2012] 1 BLC 14 where the inappropriateness of an order for disclosure was the subject of comment by the court and it was said that if a section 51 application could not be made on the documents readily available, it should not normally be made at all.

Morgan J at paragraphs 34-45 drew attention to the difference between a case where the court has tried the underlying dispute, has considered the documents relevant to that dispute, has possibly assessed the reliability and involvement of witnesses and officers of the various parties and has a full idea of what has led up to that point and a case where liability had been conceded and quantum had been dealt with by default. He stated however that it was right to note that even where there had been a trial of the issues in the action, the court might not have been asked to form a view, and may not have had the materials upon which it could form such a view, about the separate issues which arise in the context of a section 51 application, such as issues as to control, funding and asset stripping. Drawing attention to a number of previous decisions stating that the court had case management powers available to it and that nothing in any of the guidelines set by the Court of Appeal required a "procedural straightjacket", he stated that an applicant for an order under section 51 was not entitled to have a full trial with pleadings in the ordinary way with disclosure and cross-examination of witnesses on every matter of fact which was potentially material to the outcome of the application. He said that, normally, the court would attempt to do justice by having regard to the material before it, having regard to the documents which had been made available and having regard to witness statements which in some cases would be in conflict. The court would then resolve the matter in the best way it could in an attempt to be fair to both parties and achieve a just result. He recognised that an attempt to do justice in that way would often fall short of the very high standards which were conventionally applied where there was a full trial preceded by pre-trial procedures and involving cross-examination, but held that an applicant for a section 51 order was not entitled to the same full pre-trial and trial procedures because the approach adopted in the authorities was that section 51 applications should be kept within proper bounds. There should not be satellite litigation which required something akin to a trial.

I respectfully agree. To allow Mr Vik to retry issues determined by me in the lengthy trial in reliance on the multiple new statements and documents would make a nonsense of the section 51 jurisdiction. Even in a case of the size and complexity of this action, it would not be appropriate for Mr Vik and Mr Johansson to appear for days of cross-examination unless that was essential to determine crucial disputed factual issues which I had not already determined at the trial. Had it been essential to do so, I would not have hesitated to make the necessary order for such cross-examination but I have little doubt that, given the approach of these parties to this litigation and the substantial sums in issue, there would also have been arguments about disclosure and its adequacy and any hearing which took place would amount to a mini-trial lasting a minimum of week and probably considerably more. The fact that the current application itself has taken almost 2 days with a large body of evidence and a plethora of authorities (contrary to the admonitions of the Court of Appeal) illustrates this only too well. Because the principles of estoppel per rem judicatam and the rule in Henderson v Henderson apply, I could be confident, before moving on to hear the application itself, of being able to determine it on the basis of the findings in my judgment and the material in the witness statements, without the need for a mini-trial of the type to which I have referred.

A proper case for service out

Because no other court has the discretionary jurisdiction in respect of costs that this court has, if permission to serve out of the jurisdiction is set aside, that jurisdiction cannot be exercised at all. Logic requires that, if in the court's view, there is a good arguable case that the circumstances justify the making of a non-party costs order in respect of an action where, ex hypothesi, the court has jurisdiction over the parties to that action, leave be given to serve out of the jurisdiction on the relevant non-party.

The fact that the claimant may or may not be able to claim against a non-party on some other basis, such as the alter ego doctrine, as known in the law of other jurisdictions such as New York or Connecticut is, though not irrelevant to the question of service out, a weak factor in considering whether it is a proper case for service out and whether England is the forum conveniens.

Of much more importance is the fact that Mr Vik has raised objection to the jurisdiction of both the New York and Connecticut courts, thus showing that he does not consider any of the three courts to be an appropriate forum for the determination of any liability he may have to DBAG on any of the bases put forward in these jurisdictions. He does not want any determination of the question whether he should pay such costs to take place at all.

In these circumstances Mr Vik's argument about lis alibi pendens and forum non conveniens must fail. The issues which fall to be determined in the section 51 proceedings involve consideration of the matters set out in Symphony Group v Hodgson (ibid.) and are to be determined by myself as the trial judge. Having heard the main trial, it is appropriate that I should decide who is liable to pay the costs of that trial. As I have already said, I can do so essentially on the basis of the findings in my judgment together with the benefit of additional material in the witness statements which does not cut across it. If Mr Vik is the "real party" to the litigation then his complaint that he has no personal connection to this jurisdiction effectively falls away. Moreover it is clear that he is objecting to the jurisdiction of any court to determine whether he has personal liability of any kind for the judgment debt or costs.

A claimant is entitled to bring multiple proceedings in certain circumstances, particularly if there is a juridical advantage of such importance to him that it would cause injustice to him to deprive him of it. As the section 51 jurisdiction proceeds on a different basis from the claims made in the US, each of which is subject to jurisdictional challenge and will take time to resolve, with a trial of the alter ego and fraudulent transfer issues, with no doubt argument about the binding effect of my decision in the main action here, the juridical advantage to DBAG is evident in having the costs issue resolved on a summary basis now by me. Tomlinson LJ said there is "no arguable oppression or irregularity in DBAG seeking to pursue alternative and distinct routes to possible recovery from Mr Vik of its expenditure incurred in obtaining judgment against SHI." SHI owes DBAG large sums and Mr Vik has made it clear that SHI will not pay. Moreover, Mr Vik has no difficulty in conducting litigation in a number of jurisdictions as "a billionaire with experience of litigation".

It is doubtless the case that DBAG will persist with the litigation in the US in an attempt to recover the judgment debt, even if it should prove successful in obtaining a Non-Party Costs Order against Mr Vik here. That is, however, no reason why I should not determine the costs issue over which this court has a jurisdiction which the US courts do not have, in circumstances where this court can do so now, without the delay that will be involved in proceeding to trial in the US with, doubtless, interlocutory disputes along the way.

In my judgment this court is plainly the most natural and appropriate forum for determination of the section 51 application, being the court that has that jurisdiction and there is no good reason for staying the non-party costs application in favour of either of the US actions which proceed on a different basis, which cannot come to a resolution for some time and in courts whose jurisdiction is also contested.

The merits of the section 51 application

The guiding principles

Section 51 of the Senior Courts Act 1981, so far as relevant, reads as follows:

"(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in—

…

(b) the High Court; …

…

shall be in the discretion of the court.

…

(3) The court shall have full power to determine by whom and to what extent the costs are to be paid."

CPR Part 46.2.1 refers to the guidelines set out by Balcombe LJ in the Symphony Group decision as matters for consideration and to the variety of circumstances in which the discretion to award costs against non parties. In Symphony Group (ibid.) Balcombe LJ cited an earlier Court of Appeal decision stating that "there is only one immutable rule in relation to costs and that is that there are no immutable rules". He also expressed caution about laying down rules for the exercise of a discretion in relation to costs generally. Ultimately, as with the exercise of all discretionary powers, the court must do what is just. He nonetheless set out guidelines in nine paragraphs which put forward a number of material considerations. He stated that an order for the payment of costs by a non-party will always be exceptional and should be approached with caution by the court on any application. Such an application should normally be determined by the trial judge regardless of any expression of views in the judgment on the conduct of the non-party. I have already referred to guidelines (6) and (7) earlier in this judgment.

The Privy Council has subsequently in Dymocks Franchise Systems (NSW)Pty Ltd v Todd [2004] 1 WLR 2807, considered the ambit of non-party costs orders under the law of New Zealand, stating in paragraph 23 of the judgment that there was little material difference in the approach taken in England and New Zealand to the exercise of this discretion. Paragraph 25(1) of the judgment reads as follows:

"[25] A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows:

Although costs orders against non-parties are to be regarded as "exceptional", exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against."

The court went on to find that where a non-party funds the proceedings and also substantially controls or is to benefit from them, justice would ordinarily require that, if the proceedings failed, he should pay the successful party's costs. The reason advanced was that the non-party was not so much facilitating access to justice by the party funded but gaining access to justice for his own purposes so that he himself could be considered "a real party" to the litigation, a concept which is repeatedly invoked in the authorities relating to the exercise of this discretionary power. The judgment also pointed out that it was not necessary that the non-party be "the only real party" to the litigation provided he was "a real party in … very important and critical respects".

By reference to a series of earlier authorities, the Privy Council also stated that it was not enough for a person to be a major shareholder or dominant director in a company which was party to proceedings to impose on that person a liability for the costs in those proceedings. Where the proceedings were brought bona fide and for the benefit of the company, the company was the real claimant and the doctrine of the separate liability of the company from its shareholders or directors would be eroded unless there was some additional element which made it just for a non-party costs order to be made. The classic examples related to funding by the individual, control of the proceedings, benefit from the proceedings or impropriety on the part of the individual in the conduct of the proceedings. An "exceptional" case in the context of section 51 meant only that the case had to be "outside the ordinary run of cases where parties pursue and defend claims for their own benefit and at their own expense."

Funding of the proceedings by an individual is not a jurisdictional pre-requisite. This is clear from the decision of the Court of Appeal in Petromec Inc v Petroleo Brasileiro SA Petrobras [2007] 2 Costs LR 212 per Longmore LJ at paragraph 10 and Lewison J (as he then was) in the Court of Appeal decision in Systemcare (UK) Ltd v Services Design Technology Ltd [2012] 1 BCLC 14 at paragraphs 27, 32-33. Lewison J pointed out that it was not necessary for the non-party to both control and fund the litigation, referring earlier to Symphony Group (ibid.) and Dymocks (ibid.). He referred to the various categories that Balcombe LJ had identified in the earlier authority and said that the categories were "neither rigid nor closed". The principles were "guidance not rules" and "the ultimate question is whether it is just to make the order". He said it was wrong to treat the reported cases as providing a comprehensive checklist of factors which must be present in every case before the discretion can be exercised in a particular case. In that case he found that the non-party had effectively controlled the proceedings and had sought to derive potential benefit from them, which was enough for the court to exercise its section 51 powers.

Although many of the cases refer to the question whether the third party can be described as "a real party" to the litigation, that too is only one of the criteria in play. It may well be apt in the case of a funder or non-party who is seeking his own benefit through the proceedings or who controls them but it does not cover every situation, particularly those where impropriety may justify the making of such an order.

Similarly, although some authorities have referred to the need for the costs to be "caused" by the third party, this too is not a precondition of the exercise of the jurisdiction. In Total Spares & Supplies Ltd v Antares [2006] EWHC 1537 (Ch) David Richards J drew attention to the development in the law since Hamilton v Al Fayed [2003] QB 1175. Causation may often be a vital factor but the ultimate position remains whether or not it is just to make the order against a non-party. In that case, where assets had been transferred two weeks before trial at the instance of the non-party in order to render it more difficult for the claimant to effect recovery from the defendant, it was just to make the order.

The basis of the application

DBAG submits that, in the present case, the following factors justify the making of a non-party costs order against Mr Vik.

i) Mr Vik was responsible for the transfer of approximately $900 million of assets from SHI in October 2008 with the object of impeding recovery of DBAG of sums due to it. His conduct therefore caused or contributed to SHI's failure to meet the costs order made by the court.

ii) Mr Vik controlled the conduct of SHI's case in the litigation.

iii) Mr Vik acted with impropriety in the conduct of the litigation.

iv) Mr Vik's conduct caused the costs to be incurred in the litigation, even if some of those costs were incurred in successful or reasonable pursuit of some defences. Large elements of costs were additionally incurred in pursuing defences and cross-claims on a dishonest basis or in unreasonably running arguments which did not pass the "red face" test.

v) Mr Vik stood to benefit from the pursuit of the defences and cross-claims in the litigation.

vi) Mr Vik can be taken to have funded the litigation.

Procedural objections to the making of the order

Objections are taken by Mr Vik to the making of such an order on the basis of three procedural deficiencies on the part of DBAG:

i) The failure by DBAG at any stage to apply for security for costs against SHI;

ii) The failure by DBAG to join Mr Vik as a party to the action at any earlier stage for the purposes of costs;

iii) The failure to warn Mr Vik that he could be subject to such an application in circumstances where DBAG must have had this in mind whilst the action was progressing and before he came to give evidence at the trial.

As to the first point, it may well be the case that DBAG did not make an application for security for costs in respect of SHI's counterclaim (which undoubtedly had a life of its own, albeit connected to its defences) because it appreciated that, in the event of a failure to put up security, the remedy would likely be a stay of that counterclaim which would enable SHI's claims in the existing US proceedings to move forward to judgment in advance of any determination within the English action. There were, it can be assumed, tactical considerations which governed DBAG's decision in this respect.

The authorities show that a failure to apply for security against an insolvent company is a relevant feature if an application for a non-party costs order is subsequently made. Nonetheless, DBAG was not bound to make any such application and no doubt it would have been opposed. Neither SHI nor Mr Vik were in any way prejudiced by the lack of such an application and, as Longmore LJ remarked at paragraph 14 in Petromec, "It is no more unjust to make the backers of an insolvent company liable for the costs … than it is to require them to provide security for costs on its behalf." Furthermore, as appears in the ensuing paragraphs in relation to the second objection (failure to join Mr Vik earlier) SHI's financial position, whilst obscure, at least appeared to be strong enough to meet costs orders for hundreds of thousands of pounds made against it in the course of the litigation. This consideration therefore carries little weight, particularly in the light of the other factors to be considered.

The suggestion that Mr Vik should have been joined as a party for costs purposes at an earlier stage is perhaps a surprising submission. There was no obvious cause of action to be pursued against him personally which would have justified joinder. An action against him for an economic tort such as conspiracy or procuring SHI's breaches of contract, would have broken new ground in law and would have complicated the issues further without any obvious benefit to DBAG on its substantive claims. It would have the potential for imposing personal liability on him for damages and costs but the assertion of such a claim would have faced such difficulty in law that it would have made no sense to pursue it. Once again, there can be no doubt that Mr Vik would have opposed any application for joinder on that basis and, on the current state of the law, would have succeeded. In the context of joinder for costs, the usual practice is for a non-party to be joined after judgment and failure of the losing party in the action to pay the costs awarded. Until judgment is given it is premature to think in terms of liability for costs and payment by the opposing party. The assets available to the other party are not known, nor whether there are funders, if no disclosure is made of any such arrangement.

Here, there was considerable expenditure incurred by SHI in the pursuit of its case in the litigation, on a basis which was never clear. That expenditure exceeded £30 million, as it now appears. In its Further Information of 27th July 2012, SHI stated that all its funds and assets had been "applied or set aside, either to fund litigation or for the purposes of meeting capital calls." SHI was extremely coy about its financial dealings and the transfers in October 2008 were shrouded in mystery, with disclosure and further information extracted from it on a piecemeal basis by court order. Beatrice, the company owned by Mr Vik and apparently transferred to a family trust at the end of October 2008, refused to co-operate in providing disclosure or information, supposedly on Mrs Vik's say so.

DBAG was therefore left in a position of uncertainty about SHI's financial situation, notwithstanding Mr Vik's protestations in October 2008 in the context of meeting margin calls, that DBAG had pretty much all of SHI's assets. The "Sale Agreement" "as of 26th September 2012", produced by SHI for the purpose of this application purports to show a range of assets in SHI's possession at that point which falsifies Mr Vik's statements in October 2008, quite apart from the transfers of available funds which were conducted in the week of October 13th-18th. Interlocutory costs orders for hundreds of thousands of pounds were met by SHI during the course of the proceedings.

In these circumstances DBAG cannot be criticised for any failure to join Mr Vik for the purposes of costs before it succeeded in the action and obtained judgment and before SHI failed to pay the costs order which is the subject of the current application. I do not consider that there is any force to this point, particularly when the countervailing considerations are taken into account.

There are authorities which refer to the desirability or need for a warning to be given of a third party costs application. This third consideration, referred to by Balcombe LJ in the Symphony Group decision relates to the position where the non-party can be joined in the proceedings because there is a valid cause of action against it and states that a warning should be given to the non-party at the earliest opportunity of the possibility of an application for costs if there is no joinder, so that the non-party has the opportunity to apply to be joined if it so wishes. The point has relevance however even where there is no realistic cause of action against the non-party, but plainly has less force. In Systemcare, Lewison J stated that it was clear on the authorities that the lack of a warning was a relevant though not decisive factor, referring to Dymocks in that context. Its principal relevance was said to be whether the non-party would have behaved any differently if a warning had been given.

In Equitas Ltd v Horace Holman & Co Ltd [2008] EWHC 2287 (Comm) at paragraphs 64-68 it was said that the failure to warn could be a "highly material factor" though reference was again made to Dymocks where failure to warn was said to be "no more than a material consideration". Whilst failure to warn is not irrelevant if no specific prejudice to the non-party is identified, the situation in Horace Holman was that the question of non-party liability had been raised by the judge much earlier, when he had said that proper warning of any potential application should be given some eight months before the application was made for joinder and before evidence was given by the individual concerned.

I am entirely satisfied that a warning at an earlier stage would have made no difference to the conduct of these proceedings. In particular, the history of the transfers was an unfolding saga, not concluded until Mr Vik gave evidence and still would be, if permitted, the subject of further evidence and documentation. In the absence of express advice from SHI's solicitors, Mr Vik would probably not have been aware of his potential exposure to a non-party costs application but it does not lie in his mouth to say that his evidence would have been any different (or more truthful) or that he would have conducted the case any differently. Unlike the position of the non-party in Horace Holman where there was evidence that he would have acted differently, the position is that Mr Vik makes no such suggestion in his statements. Moreover, as appears hereafter, he said that he was prepared to accept personal liability should he be found to have acted wrongly in relation to the transfers of available funds in October 2008.

Although warnings are a relevant factor, in the context of these proceedings and the centrality of SHI's financial position, it would perhaps be surprising if Mr Vik did not receive advice from his own solicitors about the possibility of a non-party costs order being made at the end of the day, if an order for costs was made against SHI which was not met. In circumstances where many orders had been made against SHI for what would ordinarily be considered large sums by way of costs, Mr Vik is likely to have been told of the consequences of any non-payment, both in relation to striking out of defences or counterclaims and potential personal liability. Whether that is so or not – and I have no evidence on that subject – the failure to warn here is, when seen against the other considerations, of no real weight at all.

In my judgment there are, in the present case, very strong grounds for making a non-party costs order against Mr Vik and it is entirely just to do so.

The transfer of available funds

First, for the reasons set out at paragraphs 1434-1465 of my judgment in the action (at paragraphs 1455, 1460 and 1463 in particular) I found that Mr Vik transferred assets out of SHI with a view to depleting those assets and making it more difficult for DBAG to recover sums from SHI in respect of any liability owed. He sought to move assets speedily away from SHI and in particular from SHI's accounts with DBAG in order to render access to them more difficult. At paragraph 1461, I concluded that all the funds which he had transferred were still available to SHI because Mr Vik could, at a moment's notice, have procured the re-transfer of those funds to it had he chosen to do so. The funds were available to SHI to produce margin for Mr Said's FX trading at the time and Mr Vik could choose to utilise them whilst they were in SHI's accounts, whether at DBAG, HSBC or elsewhere and equally use them even after transfer to Beatrice, to VBI or to himself. Until 30th October 2008 at the earliest, Mr Vik owned Beatrice as well as SHI and moved money between these companies "as he saw fit".

SHI's financial situation was very much an issue at the trial because of the allegations of about forced close out, duress, available funds and transfers as well as the counterclaim. I found that there was no duress and that Mr Vik was not forced to close out any of SHI's transactions, whether those concluded by Mr Said or those concluded by himself, because of these available funds. The effect of the transfers was that intended. Assets available to DBAG to satisfy debts owed to it by SHI were depleted. Whatever might have happened to those funds since October 2008 in the counterfactual situation had these transfers not occurred is not relevant for this purpose. The transfer of SHI's assets, on Mr Vik's instructions, has undoubtedly caused or contributed to SHI's inability to meet the costs order of 8th November 2013.

Moreover, there was, as I have found, a strong element of impropriety in making those transfers.

Control of the proceedings and impropriety in its conduct

Notwithstanding contentions made to me at the hearing of this application to the contrary, Mr Vik did control the proceedings. Mr Johansson's evidence was that it was Mr Vik who "called the shots" as I have already mentioned in the context of the jurisdictional application. The interlocutory proceedings are full of references by SHI's solicitors of the need to take instructions from Mr Vik and the need for time to do so because effectively there was only one person from whom such instructions could be obtained. I was left in no doubt at the time that Mr Vik had to give his approval to the various elements in the case to be run by SHI and that the lawyers acting for SHI were dependent upon him for all decisions on matters of policy, strategy and direction. Whilst Mr Johansson had the day to day running on questions of detail, everything over and above that had to come from Mr Vik whose instructions were required in relation to all significant elements of the of the case to be run, on any issues of fact, on any argument to be put in relation to them and on all tactical and strategic decisions in relation to the action and its interrelationship with the proceedings in New York. Whilst Mr Vik had the benefit of legal advice and the assistance of Mr Johansson and many experts, he alone controlled the running of SHI's case in all significant respects. There was no-one else to do so.

SHI is a shell company incorporated in the Turks & Caicos. It is a special purpose vehicle which is the creature company of Mr Vik who is its sole director and shareholder. He stated that it was his "trading company", as compared with Beatrice which was, at least until 30th October 2008, his "savings company". As I found in my judgment, he moved funds from one company to another as he saw fit. It is also clear from my findings that he moved funds to other entities controlled by his family and was able to effect their re-transfer should he so wished. Apart from trading through third party managers, Mr Vik was the "embodiment of SHI". He signed all SHI's statements of case and disclosure statements. He was SHI's sole witness of contemporary fact. SHI had no employees so that, despite the use of third party managers such as Mr Said with authority to act in trading relationships, Mr Vik alone could be said to represent SHI generally. No-one else, apart from Mr Johansson, who was engaged as a consultant through a company called XXI Art Inc, had any dealings with the lawyers acting for SHI in this litigation at all.

The closeness of Mr Vik to SHI is reinforced by the absence of appropriate corporate records kept by SHI, at least as revealed by the disclosure process. SHI, as an exempted Turks & Caicos company, is subject only to a limited requirement to file documents. It is however obliged by the Companies Ordinance to keep records, including minutes and accounts and its own Articles of Association also require it to keep true accounts of all its transactions. The absence of records, minutes of resolutions or accounts illustrates the way in which Mr Vik ran SHI. Whilst he used third party managers to conduct trading, such as Mr Hanssen and Mr Said, the company's own decisions were all made by Mr Vik who decided how to deal with all the company's other assets (including Mr Said's trading profits), whether physical or intangible.

Mr Vik, as the sole owner and sole director of SHI, was responsible for SHI's case which contained claims based on his own dishonest evidence. At paragraph 77 of the judgment I referred to his invention of oral agreements that could never have been made by Mr Meidal or Mr Brügelmann and his instructions to lawyers to pursue contrived arguments which bore no relation to the agreements made in writing, nor to reality. His motivation, as I found in paragraph 84 was the advancement of SHI's case against DBAG and the desire to protect SHI's assets. I found that Mr Vik lied about the purpose of the transfers of available funds, about being forced to close out transactions because of SHI's financial situation and about its ability to keep positions open by providing collateral, should SHI have wished to do so. It was Mr Vik's own decision to close out his own trading positions on the Equities PB account after 3rd September and to close out Mr Said's FX positions under the FXPBA during the weekend prior to receipt of the first margin call. Mr Vik knew this to be the case. He knew that the starting fund for the hypothetical portfolio of US$1 billion was therefore, never a realistic figure, being based upon the document given to him by Mr Brügelmann on October 7th which did not include any element for Mr Said's FX trading.

At paragraphs 1513-1551, I concluded that the hypothetical portfolio which was intended to represent "real life trading" had elements of fabrication within it and could not possibly have existed in the form it supposedly did in January 2011. The file, as it existed in April 2012, could not reflect a complete series of trading decisions taken contemporaneously by Mr Vik by reference to the dates within it as it has purported to do. In short, a counterclaim for $7-8 billion was put forward on a dishonest basis of which both Mr Johansson and Mr Vik were aware.

The judgment speaks for itself in setting out the range of issues in the case put forward by SHI, on Mr Vik's instructions, where he must have realised that his case did not accord with the true situation which prevailed at the time and which impacted upon his defences and cross-claims in relation to the trading losses sustained on close out of his and Mr Said's trading positions, on the agreements which governed his own FX trading, on his knowledge of bank errors in October 2008, on the claim for duress in paying the margin calls and on the contention that Mr Said's trading was conducted with DB Suisse as a counterparty. The conduct of extensive parts of the defence and counterclaim was in my judgment reprehensible, involved impropriety and in a number of areas to which I have referred in the judgment, dishonesty on Mr Vik's part.

It is clear therefore, that, in my judgment, DBAG's second and third submissions, as set out at paragraph 53 are well-founded, Mr Vik did control the conduct of SHI's case in the litigation and acted with impropriety in doing so.

Mr Vik's conduct caused costs to be incurred

Mr Vik was responsible for the putting forward of the contentions to which I have already referred, contentions which failed the "red face" test and contentions which were downright dishonest. Whilst, at bottom, Mr Vik might have had a justified sense of grievance at what Mr Said, as agent for SHI had done, as expressed at paragraph 75 of the judgment, and there are elements in SHI's case which would not be characterised as reprehensible, I have to take account of the overall conduct of the case and the costs involved in circumstances where SHI lost on the vast majority of the points at issue. I took account of the points where it succeeded and also of the bank's reprehensible conduct at the time of the margin calls in misrepresenting the position to Mr Vik, (who was at the time fully aware that the bank's representatives were not telling the truth) and in consequence made an order for costs in favour of DBAG to the tune of 85% rather than 100% of the costs of the action (on the indemnity basis). The indemnity basis in itself reflects the fact that the conduct of the case was "out of the norm", which in itself was due to Mr Vik's control of it.

Mr Vik therefore caused DBAG to incur costs by virtue of SHI's pursuit of its defences and counterclaims. Whether or not some parts of those defences were reasonably pursued, it was Mr Vik's decisions in running SHI's case which caused DBAG to incur costs in pursuing its claims. As the authorities make clear, decisions made and instructions given by a director in the ordinary course of running a company's affairs which cause costs to be incurred in litigation, would not in the ordinary way be a basis for imposing personal liability for costs on that director. The position here is different because Mr Vik was the embodiment of SHI and conducted those proceedings with impropriety which resulted in huge elements of additional cost, not just in respect of the fabricated counterclaim with the Hypothetical Portfolio but also in connection with defences based on his own dishonest evidence.

Benefit

In Threlfall, Lewison LJ said that it is, of course, not enough to say that the non-party is a director of the party but the court is not fettered [in exercising its section 51 jurisdiction] by the legal realities.

"It is entitled to look at the economic realities. It is in this sense that many of the cases pose the question whether the non-party is "the real party" in the case. In the present case (1) Mr Whitney is the sole shareholder in ECD and is therefore entitled to all its economic benefits; (2) Mr Whitney is the sole director of ECD and makes all decisions on its behalf; (3) ECD was under Mr Whitney's absolute control and he ran it without regarding himself as accountable to anyone else; (4) the variation of the contract under which Mr Threlfall's entitlement arises was … made by Mr Whitney not only in his capacity as managing director, but also in his capacity as sole shareholder; (5) Mr Whitney sought to resile from that contract because it was so damaging to his own financial interests as well as the company's … (6) the failed counterclaim would also have been to Mr Whitney's financial benefit had it succeeded … (9) Mr Whitney gave evidence in support of ECD's defence, and his evidence was in part rejected and in part found not to be credible. It is quite clear, as Mr Freedman demonstrated, that on analysis this section of Mr Whitney's evidence was given in bad faith; … (11) Mr Whitney caused the company to advance a false defence which he must have known was false."

Whilst there were additional factors that I have not referred to in this citation from Threlfall, there are obvious parallels to the litigation with which I am concerned and, in addition, further features referred to in this judgment which both demonstrate benefit and militate in favour of a non-party costs order.

Mr Vik plainly stood to benefit from the proceedings, if successful, by virtue of the vast counterclaim of $7-8 billion. Even if I were to have regard to the new evidence put forward by Mr Vik and SHI of newly disclosed alleged loans from VBI and Beatrice to the tune of over NOK 5 billion it could not possibly be said, as was contended before me, that the litigation was being pursued for the benefit of SHI's creditors alone and not for Mr Vik. If SHI had succeeded in its counterclaim, substantial sums running into billions of US$ would have accrued to SHI after payment of debts to VBI and Beatrice and the value of Mr Vik's shareholding in SHI would have been correspondingly substantially increased.

As sole shareholder, he not only stood to receive the benefit of these sums in the augmented value of his shareholding, but he would have been in a position to treat the sums paid to SHI as his to do with as he saw fit, in accordance with his previous practice.

It is now suggested by Mr Vik that no economic benefit would have accrued to him as a shareholder of SHI and that Mr Vik is and has been under a duty to manage the litigation in the interests, primarily, of SHI's creditors, namely Beatrice and VBI. This indebtedness is said to arise principally from two further alleged loans to SHI for the purpose of funding its trading which were never referred to at any stage in the action. A new loan from VBI is said to have been made in 2004 and 2006 by the transfer of packages of shares to SHI whilst another loan from Beatrice is said to have been made by way of cash, shares, option transfers or payments made by Beatrice to third parties. Since SHI's financial position was directly in issue at the trial, both for purposes of the arguments about forced close out, duress, available funds and the October transfers and also in relation to the starting fund for and the continuing fund available in the Hypothetical Portfolio, there is no room for new evidence relating to SHI's financial position which contradicts the findings in my judgment or which should have been adduced in relation to the issues in the action. Even if it were to be admitted, however, it could not assist Mr Vik because the sums advanced and the indebtedness incurred, now said to amount to some NOK 11 billion on all outstanding loans, even after full repayment, would if SHI's counterclaim had succeeded, have left SHI with substantial sums in hand.

Faced with this position, Mr Rubin QC submitted that it was unfair to regard SHI's counterclaim as being one for $8 billion because paragraph 83 of the final form of defence merely referred to instructions to Mr Davies, SHI's accountancy expert in relation to the loss suffered. His calculations, however, were based on the Hypothetical Portfolio, with its dishonest elements and resulted in this large figure, with the $1 billion starting point which was intended to represent the sums which would have been available to SHI but for the alleged breaches by DBAG and the margin calls which were made and paid. The fact that the counterclaim was shown to be spurious is nothing to the point in this context. It was pursued with the utmost seriousness on the basis of Mr Vik's evidence, Mr Johansson's evidence and the evidence of experts. It was recognised that if the starting fund was different then the end calculations would be correspondingly affected but no concession was ever made on this point nor as to the notional "real life" trading set out in the hypothetical portfolio.

It does not lie in Mr Vik's mouth now to say that his "real" claim did not include the vast lost profits claim and was no more than the limited claim for which permission to appeal is now being sought from the Court of Appeal, namely a "core loss" claim relating to the aggregate of the five margin calls made on 13th-17th October, said to result from Mr Said's FX trading, less the $35 million collateral limit and $125 million owing in respect of DBAG's claim under the Equities PBA. It can avail Mr Vik nothing to say that a realistic assessment of the value of his counterclaim was not more than $423 million which is not enough to meet SHI's debts to VBI and Beatrice, as they are now said to be on the new evidence put before the court.

SHI was Mr Vik's "trading company" and his "creature" company. Whilst it was treated by DBAG as a corporate entity with legal personality, both in connection with a projected takeover of Vivendi before the disputed events, and was equally treated in the same way throughout the disputed events, it was always seen as Mr Vik's company and DBAG looked to him in respect of all matters save for those trading decisions which he had entrusted to third party managers. Mr Said, with reference to Mr Vik, referred to SHI's funds as "his money" with which he could do what he liked. That was how Mr Vik and Mr Said saw it and the reality was that proceedings were pursued because it was Mr Vik who stood to gain or lose in the event of SHI's success or failure in the action. He was therefore the "real party" to the dispute and to the action, whether or not SHI is also seen as a real party.

Funding

DBAG submitted that it should be inferred that Mr Vik had been funding the proceedings because, on the evidence adduced by Mr Vik and SHI, funds had been left in SHI following the removal of available assets in October 2008, as a result of Mr Vik's express decisions. Whilst this appears to me to be an artificial way of looking at matters the Court of Appeal has found funding in such a situation. In Petromec (ibid.) following the loss of an oil rig, Petromec received a payout of $147 million which it paid over to its parent company which was ultimately controlled by Mr Efromovich, save for $2 million which was used to fund litigation which ultimately failed. At paragraph 9 in Petromec Longmore LJ said that the sum of $2 million was only left in Petromec because its holding company chose to leave it there instead of taking it out, which meant that the owner of the parent company, Mr Efromovich was the one who decided to use the $2 million to fund the litigation. Mr Efromovich, in leaving money in Petromec which he could have taken out, even though he was not the source of the money, was thus taken to have funded the proceedings, although the sum appears to have been left there specifically for that purpose.

I found at paragraph 1453 of the judgment that Mr Vik moved money between SHI and Beatrice as he saw fit, that there were no good commercial reasons for the five transfers referred to in paragraph 1435 and that all the funds were available to SHI prior to transfer and following it because Mr Vik could, at a moment's notice, procure the transfer of those funds back to SHI, should he wish to do so. There is however no direct evidence that he funded SHI's costs in the action without reference to the concept referred to in Petromec (and Systemcare). On the evidence which has been adduced on this subject, a written Sale Agreement "as of 26th September 2012" is said to have recorded a transaction by which all of SHI's non-cash assets were sold to a third party purchaser for NOK 300 million which financed the litigation together with such other cash as SHI retained. The sale agreement has been exhibited to a statement with redactions which conceal the identity of the purchaser. The reason for this, as stated in Mr Johansson's evidence, is that the purchaser was concerned that it might become embroiled in litigation with DBAG. Mr Johansson confirms in his most recent evidence that the purchaser was not Mr Vik nor a company controlled by Mr Vik. What he does not say is whether or not the company concerned was VBI or Beatrice or some other company connected with Mr Vik's family or family interests.

I can see no proper basis for the concealment of the identity of the purchaser and it is unclear who is responsible for that redaction. Given past history, DBAG has justified suspicions about the identity of, and the true reasons for failure to disclose the purchaser and about the authenticity or arms-length nature of the Sale Agreement. DBAG points out that it has a number of unusual features, quite apart from the "as of" dating. It does not specify the assets which are being sold. It excludes "cash held by the seller" for the purpose of funding litigation without quantifying that amount. The agreement is governed by Norwegian law and contains at Article IV a provision that the assets are to be held "in trust" by the seller for the purchaser, although the concept of trust is unknown to the law of Norway. The effectiveness of such a provision is highly questionable, particularly given the out and out transfer of title recorded elsewhere in the agreement. Further, one of the assets, which is allegedly sold under the Share Agreement, is a shareholding in IFA Touristik which appears to have been transferred to another Vik company on 27th October 2008 and was therefore unavailable for sale to the purchaser under this agreement. (This shareholding is not expressly identified in the Sale Agreement as an asset being sold pursuant to the Sale Agreement, but the impression given by Mr Johansson (see paragraphs 15(b) and (d) of Mr Johansson's sixth witness statement and Johansson-8 paragraphs 14-16) is that it was included within the ambit of the Sale Agreement.)

The production of this agreement is therefore altogether unsatisfactory in establishing the resources applied by SHI to pay its own lawyers' costs. SHI has failed to produce any accounts to show its true financial position and the court is merely left with the unsatisfactory evidence of Mr Vik and Mr Johansson by reference to this Sale Agreement.

DBAG submits that it is to be inferred that Mr Vik has, directly or indirectly, funded the proceedings because SHI is Mr Vik's corporate vehicle, solely owned and controlled by him and he has controlled the conduct of this litigation for his own benefit. It is said that he treats SHI's funds as his own, considering that he can move funds between himself and his various corporate vehicles as he sees fit, a practice which is illustrated by his activities in October 2008. As recorded in my judgment, he caused capital distributions to be made by SHI to himself without regard for corporate formalities of any kind and instructed funds or assets worth hundreds of millions of dollars to be transferred to companies owned by family members for no bona fide commercial reasons. On his most recent evidence he can both determine and retrospectively change the nature of financial arrangements between SHI and Beatrice by re-characterising a distribution made to himself with an onward gift to Beatrice as a repayment of a loan made by Beatrice to SHI.

I was effectively invited by DBAG to say that SHI's assets are, in economic reality, Mr Vik's assets because he is its sole shareholder and treats SHI's funds as his own. This would break down the corporate identity of SHI and equate Mr Vik with it which is, no doubt, the thrust of the US Complaints alleging alter ego. There is no reason for me to go so far in making a section 51 order. Whilst I have difficulty with the concept of funding by leaving sums owned by a company in its possession, there is no doubt that, on my findings in the judgment, Mr Vik did move funds from SHI just as he saw fit, for his own purposes and what was left in SHI was therefore a result of his deliberate decision. On this basis and on the footing accepted by both Longmore LJ in Petromec and Lewison J in Systemcare, whatever was left in SHI by Mr Vik must be taken to be funding by him.

I do not need to reach this conclusion in relation to funding because, in my judgment, the other elements which I have found are more than sufficient to justify making an order for costs against Mr Vik personally. Mr Vik deprived SHI of assets with a view to impeding recovery by DBAG of sums due to it thus contributing to SHI's inability to pay the order for costs made against it. He controlled the conduct of SHI's case in the litigation and acted improperly in numerous respects in so doing. It was his conduct of the litigation which caused DBAG to incur costs in pursuing the action and substantial areas of those costs resulted from Mr Vik's pursuit of dishonest defences and claims or unreasonable pursuit of issues. It was Mr Vik who stood to benefit from the case run on SHI's behalf and indeed he was the only person who ultimately stood to benefit at all, since he was the embodiment of SHI.

DBAG's misconduct

It was further argued that DBAG's misconduct, to which I referred at various parts of my judgment, should preclude it from seeking an order that Mr Vik pay the costs. I can see no basis for this because I have already taken that misconduct into account in coming to my assessment of SHI's liability of 85% of DBAG's costs on the indemnity basis. Although the exercise of the court's section 51 powers is discretionary, that discretion is to be judicially exercised. In depriving DBAG of part of its costs, despite its success on the vast majority of the issues in the proceedings, I took account of the misconduct in question. The intention was that DBAG, notwithstanding that misconduct, should recover that element of its costs which I awarded. The sole question now is whether or not Mr Vik should be liable for that in addition to SHI and, in circumstances where I have found that he is "the real party" in dispute, controlled the proceedings, stood to benefit and was responsible for the transfer of assets out of SHI with a view to avoiding liabilities to DBAG, the latter's misconduct has no further part to play.

Mr Vik's evidence on Day 31

There is one further factor which I mention but which plays only a very limited part in my decision making process on this application. On day 31, in the course of cross-examination about the reason and motivation for the transfers of available funds between October 13th and October 18th, Mr Vik said:

"… If I really wanted to take money out of the reach of the bank, I would have done something completely different. I'm here. If I have done something wrong, I can pay whatever judgment my Lord decides. … I can't avoid anything. If I did something wrong, I am responsible."

It is fair to say that, in paragraph 1133 of my judgment, I appear to have alluded to this in a different context and referred to it as Mr Vik saying that SHI would pay whatever sums were found to be due and owing to DBAG. It is clear that, in this passage in his evidence, Mr Vik was talking about doing wrong in the context of the transfer of available funds. I did of course find that Mr Vik had transferred funds with the object of making recovery by DBAG more difficult and depleting SHI's assets, but I did not treat this as a guarantee by Mr Vik of SHI's liabilities. It was a statement intended to impress the court with Mr Vik's integrity. He said that the answer he gave came "from his heart".

On 8th November when counsel for SHI first said that it did not have the resources to pay, I referred to this passage, once again in loose terms which do not properly reflect the context in which Mr Vik made the statement that he did. As I have found that the transfers in October 2008 contributed to the inability of SHI to pay the costs order which I have made, I am entitled to have regard to the fact that Mr Vik was telling me that, if those transfers were wrongly made, he would make the position good. He may not have had a non-party costs order in mind, but his own statement illustrates the justice of such an order in the present case.

The new evidence

I have held earlier in this judgment that Mr Vik is precluded per rem judicatam from challenging the findings I made in my judgment. He is likewise precluded from raising any point which could and should properly have been raised in the context of the action against SHI. Contrary to submissions made, SHI's financial position was very much in issue in the action. It is thus not open to SHI to adduce any further evidence in support of the position it took at trial or in support of any new case relating to the transfers of funds and assets between October 13th and 18th or, more generally, as to its financial situation and indebtedness. This is exactly what SHI has sought to do in producing documents to the court which appear to evidence payments flowing from Fearnley Fonds to SHI with VBI as their source. These documents were apparently available at the time of the trial but their existence or supposed significance was not appreciated by any of the parties' representatives, their lawyers or experts at the time. Additionally, SHI has now produced evidence from Mr Vik and Mr Johansson purporting to show the existence of two more loans, one from VBI and one from Beatrice, each to SHI, to which no reference was made at all at the trial.

Quite apart from the impermissibility of adducing any of this evidence, the evidence itself raises as many questions as it purports to answer.

The existence of a further loan from Beatrice to SHI is wholly inconsistent with the document of 20th June 2008 which was said to represent the best evidence of the arrangements between SHI and Beatrice, albeit unsigned by Beatrice but not disavowed by Mr Vik. In paragraph 1444 of my judgment I referred to the terms of this document which purports to set out an agreement by SHI to "distribute" NOK 3 billion to Beatrice in settlement of all SHI's "debts and obligations" to it "and any claims" that Beatrice had on SHI. That payment was to be made within 120 days (expiring on 18th October 2008). There could therefore be no other sums owing above and beyond that NOK 3 billion which was said to be met by the first and second transfers referred to at paragraph 1435 of my judgment. Whilst I concluded that the 20th June document was an ex post facto fabrication, there is an obvious inconsistency in the latest evidence produced, as compared with Mr Vik's earlier evidence, which means that it is incapable of acceptance.

There is, equally, difficulty with the reallocation of the capital distribution of the Norwegian Treasury Bills with a value of approximately NOK 1.4 billion which is the third transfer referred to in paragraph 1435 of the judgment. This sum was also the subject of paragraph 1456 of the judgment where I referred to Mr Vik's evidence that this was a capital distribution to him which went to Beatrice as part of his contribution to it and his estate planning for the benefit of his family. In his seventh witness statement in April, he said that he subsequently determined that such a transfer should serve as SHI's partial repayment of the outstanding balance of the loans made by Beatrice to SHI. The date of this is not specified though it is subsequently said by Mr Johansson to be "after the full scale of the losses suffered by SHI had become clear". At that point it is said that SHI requested, and Beatrice agreed, that the transfer should be treated as a part-repayment of SHI's indebtedness to Beatrice. How anyone responsible for Beatrice could agree to this is impossible to conceive, if acting in Beatrice's interests. The effect would be to reduce Beatrice's assets. The position before the reallocation was that Beatrice had the benefit of the gift from Mr Vik and supposedly an asset in the shape of a debt due from SHI which itself supposedly had a prospect of recovery from DBAG on its substantial counterclaim. After the reallocation the debt from SHI was treated as repaid pro tanto but the gift from Mr Vik had, by the process of reallocation, disappeared. The net effect was to reduce Beatrice's capital. If this occurred before 30th October 2008 then this was Mr Vik's doing. If it occurred thereafter, those acting on Beatrice's behalf were acting in dereliction of duty. If it occurred after judgment was given on 8th November 2013, the motivation can only have been an attempt to avoid any personal liability on Mr Vik's part in respect of the distribution. The "re-characterisation" highlights the approach taken by Mr Vik in treating SHI and its assets as his own.

The inconsistencies between the statement in SHI's opening that it was solvent and the evidence given at trial, the April 2014 and the June 2014 evidence adduced by Mr Vik and SHI are usefully summarised in a table produced to the court by DBAG. Without going into any detail, it is right to say that these inconsistencies and the total absence of any contemporary documents which support the existence of arm's length loan agreements between SHI, VBI and Beatrice or of agreements for repayment, including a yet further alleged new oral agreement postponing repayment until after judgment had been issued (see paragraph 6 of Mr Vik's eighth witness statement) render the evidence incapable of acceptance. I do not reject this evidence simply because I have found Mr Vik and Mr Johansson to have told lies in the past, but the fact remains that the criticisms applicable to the earlier evidence at trial apply equally to the new evidence adduced where a large number of individual payments (including many small payments and "circular payments") have been listed as advances and repayments with no contemporaneous documentation showing loan transactions on the terms alleged. The contemporaneous documents exhibited which appear to show NOK 1.677 billion transferred by two payments in May and December 2007 from Fearnley Fonds to SHI as emanating from VBI, do not in themselves make good the deficiency in showing that there was an arms-length loan from VBI to SHI to which these transfers relate. Complex promissory notes dated 28th October 2013 and 6th February 2014 and documents now released by Beatrice and VBI which purport to evidence the loans are not consistent with their earlier evidence.

The conclusions reached in my judgment in relation to available funds, transfers out in October and SHI's financial position are not therefore affected by the rounds of new evidence emanating from Mr Vik, Mr Johansson and the solicitors acting for SHI. The points made by Mr Lees in his analysis and the valuation of SHI's financial position carry weight and are not explained away by the June evidence adduced on behalf of Mr Vik.

Conclusion

In all the circumstances I consider that it is entirely just that a non-party costs order be made against Mr Vik so that he is liable for all sums owed by SHI to DBAG in respect of costs awarded by me in my order of 8th November 2013.

It follows also that, absent any special considerations of which I am unaware, that the costs of the non-party costs application (leaving aside the costs determined by me on 30th January 2014) should be paid by Mr Vik to DBAG.

The form of the order may be capable of agreement between DBAG and Mr Vik but if there are issues which I need to resolve, I will do so.