Tajik Aluminium Plant v Ermatov & Ors

On 21 October 2005 I handed down judgment on applications by the defendants, other than the seventh defendant, to set aside freezing and search orders made by Etherton J on 13 May 2005. The matter came back before me briefly on 26 October to deal with various issues arising out of the judgment. Three issues were left outstanding: (1) whether the so-called proprietary injunction should remain in place as against Ansol and Mr Nazarov, (2) whether that injunction should be extended to cover other properties which, Tadaz claims, are (a) owned by members of Mr Ermatov’s family and (b) derived from improper payments by Ansol and/or Mr Nazarov, and (3) the costs of the applications. Directions were given to enable the first and second of those issues to be heard later this term. It was left that I would deal with costs on paper having first had submissions in writing from the parties.

I have since been furnished with those written submissions. What follows is my ruling on costs.

The costs in question cover the five day hearing before me in late July, the further brief hearing before me on 21 October when I handed down judgment and the later hearing on 26 October to consider issues arising out of the judgment. They also cover certain earlier hearings, namely, the without notice application to Etherton J on 12 and 13 May 2005 (being a without notice application the costs incurred were those of Tadaz alone), and hearings before Lewison J on 13 May, Park J on 16 May, Laddie J on 26 May and Etherton J on 22 June. The costs of those hearings were directed by their respective orders to be reserved, as I understand it, to the hearing of the discharge applications. There was also a further order of Etherton J made on 13 May in respect of which no order for costs was made.

The evidence before me was very considerable. Nevertheless, I am surprised at the costs estimates that have been furnished. Mr Ermatov’s costs are estimated at £170,000 odd. The costs of the second to sixth and eighth and ninth defendants (essentially the costs of Mr Nazarov and his companies and of Mr Shushko and his company - they instructed the same solicitors and counsel) are estimated at £939,000 odd. Of that sum £276,000 are the costs of RSM Robson Rhodes (which resulted in a report dated 7 June 2005 and a supplemental report dated 5 July 2005). £250,000 odd are counsel’s fees. I was not supplied with any estimate of Tadaz’s costs but they are also likely to be very considerable: Tadaz’s evidence ran to many witness statements (two of them, by Simon Bushell, are lengthy); it included reports by PwC and by John F King. Preparation of Tadaz’s evidence was said to have involved “a substantial team” from Herbert Smith; in their first report PwC referred to their work input having involved “in excess of 1000 man hours … undertaken by teams of qualified accountants … in Moscow and Tajikistan …”.

On behalf of Mr Ermatov, Mr Stanley submitted that Tadaz should pay his costs of and occasioned by his discharge application and that those costs should be assessed on the standard basis. He submitted that there should be an interim payment in his favour. In so submitting he emphasised that the discharge application had been substantially successful with only the issue of proprietary relief remaining to be dealt with (to be disposed of at a separate hearing). The possibility that at trial Tadaz might succeed was not, he said, a reason for not dealing with costs at this stage. In particular, he said, it would be wrong simply to reserve costs to be dealt with at the trial, much less to direct that they be treated as costs in the case. He pointed out that the grant, refusal or discharge of an injunction is separate and distinct from the final decision on the merits of the case; an injunction, he said, may be properly granted even though the claimant ultimately fails or may be properly refused even though the claimant ultimately succeeds. The discharge application was a wholly free-standing application and should be dealt with as such.

Accepting that some part of Mr Ermatov’s costs would have been incurred in any event (for example, taking his instructions with a view to preparing a defence), Mr Stanley submitted that the appropriate way of dealing with the matter was to make an order in principle in favour of Mr Ermatov but postpone directing a detailed assessment. He submitted that, since on any view a substantial payment would be due, an order for an interim payment should be made. Such an order, he said, was particularly appropriate given that Tadaz was an overseas entity without, so far as was known, assets in the jurisdiction and given also that just over £15,000 was outstanding and due to Mr Ermatov in respect of earlier costs orders or agreements made regarding costs in these and the related arbitration brought by Hydro. Even assuming some overlap of the costs of the discharge application with those that would have been incurred in any event, there was likely to be a substantial sum due to Mr Ermatov. He submitted that a figure of between one-third and one-half of his estimated costs (of £170,000) to be the appropriate amount of the interim payment order.

On behalf of the other defendants (other than the seventh defendant) Mr Doctor submitted that Tadaz should pay the entirety of their costs, that there should be an immediate direction for their assessment (assuming that the amount was not agreed), that they should be assessed on an indemnity basis, and that there should be a payment on account of £500,000. Their secondary position, advanced in the light of comments made by me during the course of the hearing on 26 October, was that they should be paid not less than one-third of their costs on account with the balance to be paid following their detailed assessment, the assessment to be at the end of the trial and the basis of assessment (whether standard or indemnity) to be determined by the trial judge.

In support of their primary position, Mr Doctor pointed to the following factors: (1) that his clients were successful in having the freezing and search orders set aside, (2) that it would be unfair, in view of the large sums involved, if his clients were to have to wait to the end of the trial to have their costs assessed and (3) that, having regard to the following matters, the assessment should be made on the indemnity basis. Those matters were, in summary, as follows: (1) that, having regard to the “strong overall impression” referred to in paragraph 191 of the judgment that, acting in conjunction with those now in control of Tadaz, Rusal was promoting this litigation with a view to furthering its own commercial interests and having regard also to the reasons set out in detail in paragraphs 28.1 to 28.6 of Mr Doctor’s skeleton argument for the hearing on 26 October, Tadaz’s claims were being conducted for a collateral purpose and therefore, in Mr Doctor’s submission, the litigation amounted to an abuse of process; (2) the conclusions, referred to in paragraphs 207 and 208 of the judgment, that, to some extent, Tadaz was guilty of non-disclosure when obtaining the Etherton order and (3) Tadaz’s failure adequately to explain why Ansol’s audit offer was not taken up (see paragraph 204 of the judgment) and the consequences in terms of costs to this litigation (at the very least to significant parts of it) if it had been.

He submitted that any concern on my part that the basis, outlined above, for ordering costs to be assessed on an indemnity basis might turn out, on investigation at the trial, to be wrong, was to be contrasted with the contrary concern that if my “strong overall impression” should be confirmed at the trial but costs had not in the meantime been assessed on an indemnity basis, his clients would have suffered to the extent of their unrecovered costs which, on this hypothesis, they should have received. He submitted that the balance of risk lay in favour of his clients and therefore that the assessment should be on the indemnity basis. He went on to submit that, owing to the very substantial amount of his clients’ costs, a payment on account should be ordered. That amount, he said, should be £500,000 (or just over half of the estimate) and that this was a sum which Tadaz or its funder, Rusal, should have no difficulty in paying.

As regards the secondary position, Mr Doctor submitted that, to cater for my concern that the strong overall impression to which I referred in the judgment and the other matters which led to my conclusion might prove on investigation at trial to be wrong, the basis of assessment could be reserved to the trial judge and, in the meantime, a payment on account of not less than £312,090 (or one-third of the costs’ estimate) should be ordered.

In advancing his submissions, Mr Doctor pointed out that it would be wrong to suggest that Tadaz had won on any of the issues and therefore that this should be reflected in the order made. This overlooks the fact, he said, that the court had found that the freezing and search orders should not have been obtained. It overlooks that, in any event, the finding that Tadaz had a good arguable case was only as against Mr Ermatov, Ansol and Mr Nazarov (and, but to a lesser extent, against Ashton and Mr Shushko) with the court having found that there was no case against the seventh, eighth and ninth defendants and that the finding of risk of dissipation was effectively limited to Ansol and Mr Nazarov. It also overlooks that, insofar as the issue of material misrepresentation and non-disclosure was dealt with by me, the position was, putting the matter most highly against his clients, no more than a draw and that, as regards the only other form of relief which was left in place, the proprietary injunction, the matter had yet to be argued and a decision reached. There was no need and no basis for merely reserving the costs or directing that they be costs in the case: the question whether Tadaz should have obtained freezing and search orders is entirely separate and does not depend on the outcome at trial.

He accepted that some of the costs his clients had incurred either related to the main action or were costs which would have been incurred in any event but submitted that the position should not be overemphasised: the degree of overlap was at best very small. Thus, for example, in the light of allegations made but not followed up in the particulars of claim, much of the cost of the Robson Rhodes reports, insofar as they dealt with points no longer pursued, could have been avoided. Indeed it was likely that Robson Rhodes would have to start from scratch when it came to preparing expert evidence for the trial. He submitted therefore that the degree of overlap is small and can either be disregarded altogether, alternatively on the secondary approach, could be dealt with by the costs judge when assessment is ordered at the end of the trial.

Tadaz’s primary position was that costs should be reserved or directed to be in the case. Its secondary position was that the costs should be either the defendants’ respective costs in the case or should be reserved to the trial judge with a direction that Tadaz should not be entitled to recover its costs, regardless of the result.

On behalf of Tadaz, Mr Rosen pointed to the fact that, although having regard to the evidence before me I discharged the freezing and search injunctions in part because of the perceived role of Rusal in the proceedings, I indicated that whether that was indeed the case was impossible to determine at that stage and that, on investigation at trial, the facts may turn out to be exactly as Tadaz was alleging, in particular, that there was a corrupt relationship between Messrs Nazarov and Ermatov which resulted in the contracts between Ansol and Tadaz and that, as Mr Kabirov had asserted, Tadaz had brought the action (and had applied for interim relief) purely in order to protect its position as the victim of a fraud. That was a reason, Mr Rosen submitted, for reserving costs to the trial judge who would be in a position to determine the matter. Another was to avoid giving the impression of supporting one side or another in the “wider context” to which I referred in paragraph 92 of the judgment.

Other reasons for avoiding what Mr Rosen referred to as an “in any event” order in the defendants’ favour were that (1) the defendants failed (or at least did not succeed) on the primary basis of their discharge application (namely, material misrepresentation/non-disclosure by Tadaz on its without notice application, no arguable case and no risk of dissipation), (2) as a corollary of (1) the accounting and much of the factual evidence went to issues on which Tadaz succeeded (or at least did not fail), (3) there is a substantial overlap in the issues raised in the discharge application and those that will arise for determination at the trial, (4) Tadaz has retained, at any rate as against Mr Ermatov, Ansol and Mr Nazarov (subject to the further hearing that I have directed) the proprietary injunctive relief which, as currently framed, is very extensive and potentially extends to the whole of the proceeds of the fraud of which Tadaz complains, (5) Tadaz secured important safeguards to ensure that relevant documents were not suppressed, (6) the defendants’ approach to issues such as material misrepresentation/non-disclosure was disproportionate, unhelpful and unsuccessful and (7) some of the defendants’ evidence, in particular the first Robson Rhodes report, was based upon misleading instructions.

Mr Rosen went on to submit that even if the court were not inclined simply to reserve costs to the trial judge or adopt Tadaz’s secondary position, it would be appropriate, having regard to CPR Part 44.3, to reflect the various matters summarised in the proceeding paragraph (upon which Mr Rosen expanded in paragraphs 15 to 22 of his written submissions) which, he said, militate against the making of an “in any event” order. He submitted that any additional costs relating to the sixth, eighth and ninth defendants were likely to be very small. He said that Mr Ermatov’s costs should be viewed in the light of three matters, first, that, while separately represented, Mr Ermatov was funded by Ansol and Mr Nazarov, second, that his evidence traversed the entirety of the case, largely preparing for the action as a whole, and, third, that his arguments were merely supportive of the position adopted by the second and third defendants.

There would be no practical problem, he said, in reserving costs to the trial, as having heard all the evidence, the trial judge would have no difficulty in determining whether I had come to a correct view on the matters, shortly summarised towards the end of my judgment, which had led me to discharge the freezing and search orders.

Although it is tempting to reserve costs to the trial judge, I am not persuaded that that would be correct. The fact is that Tadaz sought, obtained and thereafter fought to maintain freezing and search orders which, on the evidence that was laid before me and in the exercise of my discretion, I discharged. The fact that at trial it might be established that I was wrong to have discharged that relief is not without more a sufficient reason for reserving costs. There is very often a risk that at trial the court may take the view that at the interim stage the relief should (or as the case may be should not) have been granted. The question is whether, on the evidence as it stood at the interim stage of the proceedings, the order in question should not have been made. In the instant case, there was a very great deal of evidence, the matter was very fully argued and I decided that the relief should not have been granted. There is, I understand, to be no appeal against my order. I see no reason therefore why I should not deal with the costs of what was clearly a discrete stage in the proceedings.

Nor, for the same reasons, do I consider that costs should simply be made in the case or even defendants’ costs in the case.

I accept that to an extent some of the costs incurred by the defendants, and likewise by Tadaz, would have been incurred even if the relief had not been granted and therefore there had been no need to apply for its discharge. Although I am quite unable to determine to what extent this is so, I would be very surprised if more than 20% of the overall costs incurred on each side would have been so incurred.

I also accept that, although successful in obtaining the discharge of the freezing and search order relief, there had been issues involving much evidence which the defendants contested but on which they did not succeed, namely, whether Tadaz was able to establish a good arguable case and, if so, whether there was a real risk of dissipation. I also accept that the approach of the defendants to the question of material misrepresentation and non-disclosure was to an extent disproportionate. While I said relatively little about those matters in the judgment the fact is that I was being asked to consider over 80 complaints some of which raised issues of fact which could plainly not be resolved except at trial. These are both matters which, in my judgment, should be reflected in the order made.

It would not be sensible, even if it were possible, to deal with all of these matters (and others) on an issue by issue basis. It is better that I take a broad view of the position. Nor will it be sensible to direct an immediate assessment of costs, not least when the extent to which there may have been an “overlap” may not be apparent until much later in the litigation.

Taking that broad view I consider that the defendants (I am not concerned with the seventh defendant) are entitled to half of their respective costs of the discharge applications (and of the other costs reserved to be dealt with on these applications), that they must bear the other half themselves and that Tadaz should bear its own costs of the applications. I consider that to the extent that the costs incurred would have been incurred in any event (I estimate it to be no more than 20% of the overall costs - it may very well be rather less - but it will be for the costs judge, failing agreement, to determine the exact amount), the costs are to be costs in the cases. Although it will be a matter for the costs judge on the assessment, I would have thought that the “overlap” costs of Tadaz and of the defendants who are represented by Mr Doctor should be shared equally between the claim and the Part 20 claim. (Mr Ermatov is not a party to the Part 20 claim.) In referring to the parties’ respective costs of the discharge applications I am referring to their costs after deduction of the “overlap” costs.

I am not persuaded that I should direct that the detailed assessment of the defendants’ costs when it comes to take place should be on an indemnity basis. I shall reserve that matter to the trial judge as he will be better able than I am on the information presently available to determine whether, as Mr Doctor submits, Tadaz’s application for freezing and search order relief was improperly pursued or that other reasons exist for directing the assessment to be on the indemnity basis.

I accept that there should be payments on account. In view of the uncertainties as to the amount that will be found on assessment to be properly attributable to these applications (as distinct from costs which would have been incurred in any event) and taking into account that I am only awarding the defendants 50% of their costs of these applications, it is appropriate to be cautious about the amounts that I order. I propose to order Tadaz to pay to Mr Ermatov the sum of £35,000 on account of his recoverable costs of these applications and to order Tadaz to pay to the other defendants the sum of £200,000 on account of their recoverable costs.

I add three observations. First, although Mr Ermatov has been separately represented and has not simply adopted the stance of the other defendants on the issues which were explored before me, I see no basis, looking at matters in the round, for dealing with him differently from the other defendants. Second, I was not asked and see no need to differentiate between the defendants represented by Mr Doctor. Third, although at the time of preparing this judgment I have yet to adjudicate on whether and to what extent the proprietary injunction should be continued against Ansol and Mr Nazarov, it has not been suggested - and having looked quickly at the skeleton arguments submitted on the issue I see no reason to think - that any adjudication on costs should await the outcome of that further hearing.

The handing down of this judgment was delayed by a renewed application by Tadaz to obtain worldwide freezing order relief (this time confined to Mr Ermatov, Ansol and Mr Nazarov) issued on 28 November and, after considerable evidence had been filed, withdrawn late on 4 January. I dealt with the costs of that further application on 9 January. Because the further application made extensive reference to evidence filed in connection with the July hearing it was appropriate to await its outcome before delivering this ruling on costs.

Since preparing this judgment I have heard argument on whether the proprietary injunction should be continued and have prepared a judgment for hand-down at the same time as this costs ruling.