A High Court judge was entitled to penalise a firm of Russian stockbrokers for conduct that “fell below acceptable standards of conducting litigation” by ordering it to pay 75% of the other side’s costs, even though it had successfully resisted a bid to strike out its claim, the Court of Appeal has ruled.
The appeal judges agreed with the court below that Otkritie Capital’s poor behaviour was not an abuse of process and an application by Threadneedle Asset Management for a strike-out should be rejected.
Lady Justice Arden said the “plain fact” was that Otkritie was in breach of the guidelines laid down by the Court of Appeal in Aldi Stores v WSP Group.
Otkritie brought one action successfully against a number of individuals, including an employee of Threadneedle, but not Threadneedle itself. It was now seeking to make Threadneedle liable on the basis of vicarious liability in a second action.
The Aldi guidelines require a party to seek directions from the court in the first action about the possibility that the second action may be brought in respect of the same facts against another person, who may not have been a party to action 1. Otkritie did not do this.
At first instance, Mr Justice Knowles found that the second action was not an abuse of process. However, he said Otkritie’s reasons for not joining Threadneedle were that its solicitors would have had to resign because of a conflict of interest.
He held that, while there was no question of lack of honesty on Otkritie’s part, or harassment of Threadneedle, Otkritie’s conduct fell “well below” the standard of conduct which the court was entitled to expect and made the order that it pay 75% of Threadneedle’s costs of the strike-out application.
In Otkritie Capital International Ltd & Anor v Threadneedle Asset Management Ltd & Anor  EWCA Civ 274, Arden LJ first upheld the decision not to strike out the claim, and then on the costs order said counsel for Otkritie argued that it breached “a fundamental principle, namely that the winner should get his costs”.
She went on: “He submits that it would create a perverse incentive if this court as a rule decided that a party who could establish a breach of the Aldi guidelines but not abuse of process could recover its costs. It would have a free ride to use the court’s resources for an abortive application.”
However, Arden LJ concluded: “The plain fact is that Otkritie was in breach of the Aldi guidelines, and the judge found that its conduct fell below acceptable standards of conducting litigation.
“In those circumstances, it was in my judgment well within the margin of his discretion to make an order which marked the court’s disapproval of that conduct. He was entitled to hold that Otkritie should not recover any of the costs of its successful defence to the application.
“It also meant that in addition he was entitled to require Otkritie to pay costs to Threadneedle. He then assessed the appropriate percentage at 75%. This was obviously substantial but it cannot be said that it was outside the margin within which reasonable minds may differ.”
Agreeing with Arden LJ, Sir Christopher Clarke, a lord justice of appeal until last month, added: “I am bound to say that I think that the judge’s order on costs was closer to the margin of his discretion than my Lady would place it. But I am not persuaded that it was beyond the boundary.”
Lord Justice Henderson also agreed.