10 July 2018Print This Post

High Court orders indemnity costs against claimant that discontinued on eve of hearing

Aeroflot: Eight-year action

Russian state airline Aeroflot has been ordered to pay indemnity costs for the entire eight years of a fraud claim that it dropped on the eve of opening submissions.

Mrs Justice Rose said a claimant who makes serious allegations of fraud, conspiracy and dishonesty and then abandons them, “thereby depriving the defendant of any opportunity to vindicate his reputation”, should normally expect an order for indemnity costs.

In PJSC Aeroflot – Russian Airlines v Leeds & Anor (Trustees of the estate of Boris Berezovsky) & Ors [2018] EWHC 1735 (Ch), the proceedings alleged that Nikolay Glushkov together with Boris Berezovsky – both of whom are now dead – misappropriated large sums of money from Aeroflot between 1996 and 1998, and that the so-called ‘Forus defendants’ were the vehicles by which this was carried out.

The claim, issued in January 2010, was that he conspired with Mr Berezovsky to cause Aeroflot to enter into a number of substantial loan agreements with companies which he controlled in the Forus Group.

The trial of what the judge called “these complex and acrimonious proceedings” was set down for 28 days, commencing on 10 April 2018. The timetable allocated four days judicial reading time followed by opening submissions and evidence due to start in court at 2pm on Monday 16 April.

Just before 5pm on Friday 13 April, however, Pinsent Masons, solicitors for Aeroflot, sought permission to discontinue its proceedings against all defendants.

The application had to be made to the court because Aeroflot had the benefit of worldwide freezing orders against the defendants, and under CPR 38.2(2), a claimant must seek the permission of the court to discontinue where the court has granted an injunction.

Aeroflot offered to pay the costs of the Forus defendants on the standard basis as part of the discontinuance, but not Mr Glushkov.

In granting the application, Rose J discharged the freezing orders, ordered an interim payment on account of costs of £2.5m for the Forus defendants, which was about 60% of their total costs, and of £600,000 for Mr Glushkov’s costs, around 43% of his total costs.

The defendants applied for costs on the indemnity basis on two grounds. First was the High Court ruling in Clutterbuck and Paton v HSBC plc & others [2016] 1 Costs LR 13, as authority for the proposition that where a claimant proceeds with allegations of serious dishonesty and fraud against a defendant and discontinues those claims without explanation, an order for indemnity costs should usually follow.

Rose J said there was “no basis for distinguishing Clutterbuck from the present case”.

She continued: “On the contrary, the present case is stronger given that the allegations of fraud were pursued over eight years and the proceedings were prosecuted vigorously up to a few hours before the whole claim was abandoned the afternoon before the trial.”

The order for indemnity costs was likely to be the just result, “unless some explanation can be given as to why the claimant has decided that the allegations are bound to fail”.

However, Aeroflot chose not give a reason for discontinuing.

The second ground was the “more familiar test” from Three Rivers DC v Bank of England [2006] EWHC 816 (Comm) of circumstances which take the case “out of the norm”.

Again, Rose J said she had “no hesitation” in finding that the test was met.

“I have already described the seriousness of the allegations of dishonesty, conspiracy to commit fraud and theft of monies that were persisted in with vigour.

“The allegations were persisted in ‘to the bitter end’ in the sense that on 13 April 2018, only a few hours before the notice of discontinuance was served, [Pinsent Masons partner Michael] Fenn made his 26th witness statement asking the court to admit in evidence under hearsay notices the Aeroflot witness statements purporting to justify those allegations.”

The other factors she took into account were three inaccurate statements to the court during interlocutory proceedings – although the court said these were no deliberate – and the “aggressive pursuit” of some of the defendants.

Aeroflot argued that the defendants should be penalised for failing to mediate. But Rose J rejected this: “Where allegations of fraud and serious wrongdoing are made, the proceedings are intrinsically unsuitable for mediation.

“To penalise the Forus defendants in costs for the stance they took would in effect be penalising Mr Glushkov and the Forus defendants for insisting on their right to have their reputations vindicated by the decisions of the court following a trial.

“In any event I have been case managing these proceedings for some time and I am satisfied there was never any possibility of these parties making any progress in alternative dispute resolution.”

Giving guidance to the costs judge, Rose J that “since Aeroflot have declined to explain why they have discontinued these proceedings”, the appropriate order was that Aeroflot pay all the defendants’ costs to be assessed on the indemnity basis for the whole proceedings.

By Neil Rose


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