England and Wales High Court (Commercial Court) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/10/2016

Mr Justice Males :

Costs

1. This is my ruling dealing with the costs of the inquiry as to damages together with the action and application to set aside the order for an inquiry. These were all tried together and were the subject of my judgments dated 26 August and 7 October 2016 ( [2016] EWHC 2163 (Comm) and [2016] EWHC 2451 (Comm) ).
2. There is no doubt that, overall, the defendants were the successful party. They obtained a judgment for US $59.8 million on the inquiry. The claimants' application to set aside the order directing an inquiry as to the damages suffered as a result of the 2005 freezing order failed. The claimants' equivalent application in relation to the 2007 order did not arise.
3. My starting point, therefore, applying the general rule set out in CPR 44.2(2), is that the claimants should pay the defendants' costs.
4. Nevertheless there are aspects of the case which make it appropriate to depart to some extent from the general rule. These are that:

(1) Although the defendants' newbuilding case succeeded and resulted in a substantial award, this was in fact only a modest proportion of the total claim of US $387 million. To some extent this was because I applied a 50% discount to the defendants' prospects of making the profits which they claimed that they would make from the resale of such vessels (see [114] of the August judgment). However, the principal reason was that I rejected in its entirety the defendants' case as to what they would have done with the proceeds of resale. I found that there was no valid evidential foundation for this case, not because it was supported by false evidence but rather because it was not supported by any evidence at all (see [79]).

(2) For the same reason the defendants' case that they had suffered damage as a result of the 2007 order failed in its entirety (see [80]).

(3) While the fact that a claim does not succeed to its full extent is not in itself a reason to deprive the successful party of its costs, the financial investments issues on which the defendants failed (which, if successful, would have increased their recovery very significantly indeed) represented a high proportion of the costs of both parties. The claimants estimate that these issues are responsible for about 50% of the costs which they incurred.

(4) The financial investments issues were an entirely discrete area of the case. Despite the absence of evidential support for any suggestion that the defendants would in fact have invested in accordance with the financial investments case, it was reasonable and indeed inevitable that the claimants would challenge the expert evidence adduced by the defendants in support of this case. It was therefore inevitable that very significant costs would thereby be incurred. It would be unreasonable to cast the entire cost of these issues on the claimants.

(5) I found that at least part of Mr Nikitin's evidence, relating to money caught by the 2007 order which "remained at Wegelin earning interest" was inaccurate and that his reference to "modest rates of interest" was not an honest mistake (see [90]). This issue gave rise to some costs, not least on the defendants' side as they sought to adduce further evidence to explain somewhat unconvincingly why Mr Nikitin's evidence should be accepted. Although such costs were relatively limited in scope in the overall context of this case, it would nevertheless be unfair for the claimants to have to pay them.

(6) The claimants made further extensive criticisms of the defendants' conduct, but save as set out above I do not accept these criticisms as justifying a departure from the usual rule as to costs.

5. The claimants say that in these circumstances there should be no order as to costs, not least as that might well be the overall result if I were to adopt an issue-based approach. I consider, however, that while the factors listed above need to be reflected in the costs order which I shall make, and that they call for a significant reduction in the costs to be awarded to the defendants, the course proposed by the claimants would fail to recognise the overall success which the defendants achieved. I note also that the claimants have made no Part 36 offer with a view to protecting their position in costs, as they could have done.
6. Accordingly I order that the claimants must pay 50% of the defendants' costs, assessed on the standard basis if not agreed.
7. It is agreed that the defendants are entitled to various reserved costs. These are recoverable without applying a discount.

Interim payment on account of costs

8. I am prepared to make an order, as is common practice, to order payment on account of costs. The defendants estimate their total costs as a little over £3 million. Allowing for the fact that (save for the reserved costs) they will recover only 50% of their costs, I order an interim payment of two thirds of 50% of £3 million, i.e. £1 million.

Interest on costs

9. Interest on costs will be payable at Bank of England Base Rate plus 1% from the date(s) when such costs were paid to the defendants' solicitors up to the date of this judgment and at the Judgments Act rate thereafter.

Permission to appeal

10. The claimants seek permission to appeal on a number of grounds. Although I have examined these grounds and the claimants' submissions in support of them together with the defendants' response, no useful purpose would be served by setting them out or responding to them here. I will merely say that, so far as I can see, they appear largely to consist of challenges to my findings of fact while, to the extent that they appear to involve legal issues, I doubt whether any issue of principle really arises. In my view the proposed grounds have no real prospect of success. I refuse permission.

Stay pending appeal

11. The claimants seek a stay of execution pending the determination of their application to the Court of Appeal for permission to appeal and (if permission is granted) the appeal itself, on condition that they provide a guarantee from VTB Capital Plc, a Russian state owned bank in London, in the full amount of the judgment together with interest.
12. I am not prepared to grant such a stay. It is unnecessary to do so. Despite the dismissal of the claimants' claims by Andrew Smith J, the Russian state has frozen approximately US $200 million of the defendants' funds through proceedings in Switzerland brought in support of criminal prosecutions and related civil claims against the defendants in Russia. The claimants remain involved in those Russian proceedings as "civil victims" despite the dismissal of their claims here after a lengthy trial in proceedings which they chose to bring and despite also the issue of an anti-suit injunction to restrain vexatious repeat litigation in Russia. Apparently the Russian state refused to accept the claimants' request to withdraw their civil claims. The sums frozen provide the claimants with ample security in the event of a successful appeal from my judgment.