Bank St Petersburg PJSC & Anor v Arkhangelsky & Ors

Further to my judgment in the proceedings, which was handed down on 9 May 2018) (“my Main Judgment”), in this judgment I deal with the consequential matters addressed in argument at a hearing on 2 July 2018 (“the Consequentials Hearing”) which were left over for my further consideration.

Those matters concern (1) what orders should be made in respect of costs; (2) whether any interim payment should be required and, if so, in what amounts; and (3) whether any such orders should be stayed pending any application to the Court of Appeal for permission to appeal my decision in the Main Judgment. (I refused permission during the course of the Consequentials Hearing.)

This judgment assumes knowledge of my Main Judgment and the description of the issues there set out. I use the definitions in my Main Judgment, for which the neutral citation is [2018] EWHC 1077 (Ch).

The costs to be determined relate to (a) the Main Claim and (b) the Counterclaim. They are considerable: unsurprisingly, given the complexity and length of the proceedings and trial which are obvious from the length of my Main Judgment. Applying current exchange rates to costs incurred and paid in foreign currency, the Claimants have stated their total costs (including all time incurred and billed to 27 June 2018) to amount to very nearly £22 million.

The Claimants’ preference was for a composite order melding the results and costs of the Main Claim and the Counterclaim. There would be much sense in that: the Main Proceedings and the Counterclaim were closely interlinked; they arose from the same factual circumstances; and, for example, the declarations sought by the Claimants in the Main Proceedings were substantially the obverse of the claims made by the Counterclaimants in the Counterclaim. However, such a composite order also has its difficulties and downsides. I shall return to these later; but for the present, and to assist analysis, I deal with the two claims (Main Claim and Counterclaim) separately.

The general rule is that costs should follow the event (see CPR 44.2(2)) and the unsuccessful party should pay the costs of the successful party; but this may be departed from if the conduct of the successful party in the proceedings warrants such a departure (see CPR 44.2(5)).

The conduct concerned may be:

It is usual for the Trial Judge, rather than the Costs Judge, to consider whether there has been conduct such as to justify departure from the general rule. But, unless the Trial Judge otherwise states, the paying party may usually raise before the Costs Judge the issue of conduct to argue that costs incurred in supporting the particular conduct were unreasonably incurred.

CPR 44.2(6) sets out a menu of various orders that the Court may make giving a successful party less than the whole of his costs if that is what consideration of CPR 44.2(2) and (5) require. CPR 44.2(4)(b) and 44.2(6)(f) provide for so called “issue-based” orders, though CPR 44.2(7) requires the Court to consider first whether the alternative of an order for payment of a proportion of a party’s costs is practicable (in which case it is usually preferable, since experience suggests that the identification of the costs referable to a particular issue is difficult, time consuming and expensive).

Assessment will usually be on the standard basis. The indemnity basis of assessment is not ordered unless there are circumstances taking the case ‘out of the norm’ (see Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879) such that the Court is persuaded that it is just to remove from the paying party the twofold benefit of the standard basis, as compared with an order on the indemnity basis, which are that it is for the receiving party to demonstrate that its costs are (a) reasonable and (b) proportionate (and see Digicel (St Lucia) Ltd and Others v Cable & Wireless plc and Others [2010] EWHC 888 (Ch) at [19]).

Ordinarily the Court will make an order for payment on account of costs.

The Court also has power to order interest on costs from or until a certain date, including a date before judgment: CPR 44.2(6)(g).

As a preliminary matter, and as accepted by the Claimants, there are previous costs orders in favour of the Defendants in relation to the application for an anti-enforcement injunction and subsequent appeal hearing, and those costs orders should be carved out of the costs order that the Claimants seek at this hearing.

Subject to that, in the Debt Claims:

Looking at the Debt Claims in isolation, therefore, the starting point (adopting the general rule) as to the incidence of costs is that:

As to (2) above, the Claimants submitted that no deduction should be made. They submitted more particularly, that rather than such a deduction, the pragmatic solution was that they should be confined to the standard basis of costs, rather than an indemnity basis of assessment to which they suggested they would otherwise be entitled given the terms of the Main Judgment in relation to the Debt Claims, and the findings made as to Dr Arkhangelsky’s dishonesty in relation to the defence to the Debt Claims.

The Defendants to the Debt Claims did not accept that this was a proper approach. They contended, on the contrary, that there should be a substantial deduction in the Claimants’ recoverable costs to reflect the failure of the claims against Mrs Arkhangelskaya, and the further claims for declaratory relief. They did not accept that the indemnity basis of assessment would be appropriate, nor that it should be used as a set-off (as it were) against any deduction.

I accept that the Claimants would otherwise be entitled to an indemnity basis of assessment as regards the costs of the Debt Claims against Dr Arkhangelsky. I agree that the essential test of whether the circumstances are such as to take the case ‘out of the norm’ (see, for example, Excelsior Commercial & Industrial Holdings Ltd v. Salisbury Hammer Aspden & Johnson(a Firm) [2002] EWCA Civ 879 at [19] and [32]) would be satisfied. I consider that it was ‘out of the norm’ for the First Defendant to run a defence which was so implausible, especially where it involved allegations of such dishonesty, and to continue to persist in it to the bitter end; and I have held the forgery allegation to have been deployed without any real or careful deliberation as to its truth, which is not honest: see paragraphs [757] to [760] of the Main Judgment. The fact that Dr Arkhangelsky also sought publicity for his overall case and claims is further reason, in my view, to characterise them as ‘out of the norm’.

Against that, I consider that some deduction in the costs to be awarded to the Claimants would be appropriate. In that regard I have considered the Claimants’ present (necessarily rough) estimates of the costs referable to the issues on which they failed in the Debt Claims.

In the round, in my judgment, the pragmatic overall solution suggested by the Claimants is fair and appropriate; so Dr Arkhangelsky should pay the costs of the Debt Claims, but only on the standard basis of assessment. I confirm that in reaching that pragmatic solution I have taken into account paragraph [853] of my Main Judgment.

Mrs Arkhangelskaya is entitled to her costs, including all costs in respect of or connected with the Freezing Orders (whether or not previously reserved or determined to be in the case). (For the avoidance of doubt, the Claimants should not be entitled to recover any costs of the Debt Claims against her.)

Whether any additional damage (apart from costs) has been suffered by Mrs Arkhangelskaya by reason of the Freezing Order which the Claimants ought to pay pursuant to the cross-undertaking they gave was not argued before me. If that may be sought to be argued, provision to enable that should be included in the Order.

As to the Counterclaim:

The issues for consideration in that latter regard are:

By reference to these factors, Mr Stroilov pressed for a very substantial discount to be applied in reduction of the costs to be paid.

Mr Lord QC for the Claimants/Defendants by Counterclaim submitted that there was no sufficient reason for departing from the general rule that the successful party should have its costs.

The issue which has most troubled me is that relating to Renord-Invest. That issue did occupy a considerable amount of time, and I consider that the Claimants had no real basis to contest it, and should not have done so. The dispute tended to confuse and obscure the real issues; and it may even be that this was part of the intention of the Defendants by Counterclaim.

I was also concerned about the “chorus of false evidence”, and what in my Main Judgment I described (at paragraph [1136]) as my perception of

“a thoroughly disturbing tendency on the part of the Claimants and their associates to put forward sworn evidence which they consider advances their case and a propensity to require their subordinates to subscribe to and support the version of events thus put forward regardless of its truth”,

although in the end I concluded that this did not establish or give rise to an inference of conspiracy (see especially paragraphs [1136] to [1138] of my Main Judgment).

The other matters identified by Mr Stroilov as justifying a further discount seem to me of much lesser weight, especially given the general predisposition against an issue-based approach. Having sought to reflect on the time those other matters took, and having considered the rough estimates of the costs with reference to them provided by the Claimants by their Note dated 6 July 2018, I do not think those other matters would justify a departure from the general rule; at most they incline me to be a little more receptive to a discount in the round.

In my judgment, some discount is required. The “dishonest chorus”, the unreliability of some of the Bank’s evidence which it illustrated, and the further issues to which it gave rise were not only unsettling in themselves: they led to further difficulty in unravelling the true facts, especially in relation to Morskoy Bank (and thus an issue which was of some importance), and provided a readily understandable basis for the Counterclaimants’ general concerns.

Most concerning of all, to my mind, the Renord-Invest issue was a central one in terms of the time devoted to it and the importance which became attached to it by all parties. A considerable part of the cross-examination of the witnesses for the Claimants/Defendants to Counterclaim revolved around it; and the issue spawned a weight of documentation.

Of course, I must take into account (and it is an important factor) that none of the above consideration ultimately persuaded me of the conspiracy which such issues were designed to demonstrate. Nevertheless, some material discount seems to me to be warranted.

Both sides encouraged a broad-brush approach to any issue or conduct-based discount. In the round, I consider that the Claimants/Defendants by Counterclaim should be entitled to be paid 75% of their costs in the Counterclaim, assessed on a standard basis.

Mr Stroilov presented Mrs Arkhangelskaya as the victim and urged me not to make her liable jointly and severally for such costs.

I agree that the costs payable to her in respect of the Debt Claims against her should be set off against any costs for which she is liable in the Counterclaim. Further, and more generally, I have considerable sympathy for the position in which Mrs Arkhangelskaya has found herself; and I continue to think that the Bank’s pursuit of her has been over-zealous.

But the fact remains that she was a necessary party to the Counterclaim and did seek and stand to benefit by it. Subject to ensuring that credit is given for costs payable to her in respect of the failed claims against her in the Debt Claims, I do not think there is any sufficient basis for departing from the ordinary joint and several basis of liability in the case of all the Counterclaimants.

As I indicated in paragraph [5] above, Mr Lord advocated a single composite order across the proceedings as being both more likely to promote the objective of overall simplicity and consistent with enabling protection for Mrs Arkhangelskaya against any liability for costs of claims against her which had failed. Mr Stroilov appeared minded to agree.

When I asked Mr Lord to be a little more specific as to what form of order he had in mind he replied as follows:

“Your Lordship would order that Dr Arkhangelskywould pay the bank's costs of the proceedings, claim andcounterclaim, on a standard basis, to be assessed if notagreed.

Your Lordship would order that OMG Ports would paythe bank's costs of the counterclaim, to be subject todetailed assessment if not agreed. And in relation toMrs Arkhangelskaya, there would be, I think, no orderfor costs -- I think -- yes, sorry. The order would bethat's Mrs Arkhangelskaya pay a proportion of the bank'scosts of the claim and counterclaim, but you wouldreduce that by a sufficient percentage to be satisfiedthat that would protect her in terms of any costsentitlement that she may be entitled to, at the sametime as denying the bank their costs of pursuing thoseaspects. And I've got in mind their marriage contracts,freezing injunction and, arguably, the debate about thedeclaratory relief. But if one looks at the figures,one could see that even a 10% reduction would be likelyto have a £1 million adjustment in practice. Ifyour Lordship made it 15%, it would be 1.5 million.20% would be £2 million.If you think about Mrs Arkhangelskaya’ s position onher assets, it's impossible to see how costs of anythinglike that could have been incurred by her, even takinginto account denying the bank the costs that they wouldotherwise be claiming in that regard.So that's the order that we would ask your Lordshipto make, to do it that way: to work from the figures,bearing in mind that any absence of greater specificity is not really fault of us today…”

I was much tempted by this approach, especially given what I accept is a measure of factual overlap in the two sets of proceedings (Debt Claim and Counterclaim). In the end, however, I think it would be difficult to fix on a percentage reduction across the board which sufficiently fairly reflected the conclusions I have reached. Further, with provision for the protection of Mrs Arkhangelskaya such as I propose as set out below, I sense that in the longer run, and given the remaining possibility of an appeal in the Counterclaim but none in the Main Proceedings, I think that the slightly less elegant solution of two costs orders may be preferable; and that is what I propose to direct.

As previously indicated, the CPR now provides for a presumption in favour of ordering a suitable payment on account. Under CPR 44.2(8) the Court must be persuaded of good reason not to make such an order.

The point advanced by Mr Stroilov was that here there is good reason not to make an order in this case. He accepted the parties’ ability to pay is usually not a relevant consideration in considering the costs orders in principle. However, he submitted that

“it would not be appropriate for the Court simply to ignore the question of what use would be made by the Claimants of the orders it is asked to make. The Claimants’ very considerable efforts to uncover any alleged hidden assets of the Defendants have failed again and again over the past six years. Unless the events take a very unexpected turn now, the result of any judgement debt would be bankruptcies of judgement debtors; and the most significant result of that would be their inability to pursue any appeal.”

Having refused permission to appeal, I would not consider this to be a good reason to depart from the usual requirement. Whether a stay should be granted pending an application to the Court of Appeal for permission is a different issue, which I address later.

Turning to the amount of any payment on account, as stated in the Claimants’ skeleton argument, Christopher Clarke LJ reviewed the relevant authorities in Excalibur Ventures v. Texas Keystone [2015] EWHC 566 (Comm.) and noted at [23] that a reasonable sum would often be one that was an estimate of the likely level of recovery subject to an appropriate margin to allow for error in the estimation.

The Claimants submit that upon assessment on the standard basis, the Claimants would likely expect to recover about 70% of their costs. In all the circumstances, an interim payment equivalent to 50% of their costs would be an appropriate sum to reflect any reduction in their likely overall percentage costs recovery. Accordingly, Mr Lord submitted, the Court should order an overall interim payment in the sum of £10,863,172.76.

Such an exact figure is in any event to my mind somewhat unrealistic. It is so precise as to suggest calculation, whereas in reality a broad-brush approach is required. I also think the assessment of a likely 70% recovery is higher than usually suggested having regard to the need for caution. That is so even though I accept that:

Further, and as explained above, I prefer to deal separately with the Debt Claims and the Counterclaim, which also seems to me to offer the better means of ensuring that Mrs Arkhangelskaya is not unfairly exposed and the amounts due to her by way of costs in respect of the Debt Claims are properly taken into account.

Again, adopting a pragmatic approach, in my judgment, the following payments on account should be made:

I would provisionally propose that there be no order for costs of the Consequential hearing. However, since there was little or no argument, I shall consider written submissions if any party objects.

The last of the contested matters that I must adjudicate upon is whether a stay should be granted in respect of all or any of these orders pending an application to the Court of Appeal for permission to appeal.

Mr Stroilov submitted, in essence, that without such a stay, and if the orders were enforced, the individual Defendants/Counterclaimants would in all probability be made bankrupt; and though any right of appeal would probably then vest in a trustee in bankruptcy (or equivalent under applicable law), the cost and other practical impediments would frustrate any real prospect of appeal; and even if no trustee were to be appointed, any bankruptcy issues would discombobulate or even disable the appeal process. Against that, any further delay in enforcement would not substantially or permanently prejudice the Claimants in that they would be in no substantially worse position later to achieve such recovery as would be possible in light of Dr Arkhangelsky’s financial position, there being no particular reason, especially given the continuation of the freezing order against him, to suppose that it would be any worse at a later date; and, as against Mrs Arkhangelskaya, the amount she might be liable for had not yet been established, given the orders in her favour.

Mr Lord, on behalf of the Claimants, resisted any such stay. First, the general default rule is that there should be no such stay. Secondly, there was no, or no sufficient, evidence as to what other creditors of either Dr Arkhangelsky or Mrs Arkhangelskaya might successfully recover and erode their asset position in the meantime: the Freezing Order would not prohibit the payment of valid debts, and in any event did not apply to Mrs Arkhangelskaya personally. (In that context, there was a suggestion that perhaps Mrs Arkhangelskaya might offer an undertaking to provide equivalent or otherwise satisfactory comfort: but the suggestion has not been taken up.) Thirdly, there was no evidence, and it is not clear, what form bankruptcy processes might take, nor by what jurisdiction they would be governed and with what effect in terms of the appeal. Generally, no proper evidence in favour of stay had been produced.

I accept that a stay would depart from the default; and Mr Lord’s arguments carry logical weight. However, I prefer to strike a balance which in my view more nearly fits the present state of things between the parties, as I understand them to be. In particular, I understand that since the hearing, now some time ago, an application for permission to appeal has been made on behalf of the Defendants/Counterclaimants. So far as I am aware it has not yet been determined. Unless it has been so, it seems very likely that the Court of Appeal will soon be reviewing this matter. I consider that in such circumstances the appropriate and fair course is to grant a stay as regards the enforcement pending the determination of the application for permission to appeal, or further order of the Court of Appeal in the meantime. If my understanding is incorrect, then I would ask to be notified immediately. If correct, then I think it would be appropriate to advise the Court of Appeal office of this decision as soon as possible so that it too may be taken into account.

In addition to these contested matters on which my adjudication was required, the parties very helpfully co-operated to agree:

In order to enable the Counterclaimants to lodge appeal papers in time, I made a separate order recording my refusal to grant permission to appeal. The remaining mattes will also have to be recorded; and I would ask Counsel for the Claimants to prepare a draft accordingly.

Finally, I regret and apologise for my delay in providing this judgment, which has been exacerbated in circumstances explained to the parties in e-mail correspondence which it is unnecessary further to describe.