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12 July 2018

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Indemnity costs and allegations of fraud: High Court makes an
order in case which was discontinued on the eve of trial

Posted by: Nick Mercer

Last week in the High Court Mrs Justice Rose ordered Russian airline Aeroflot to pay costs on the indemnity basis for the entirety of an eight year fraud claim that was discontinued on the eve of trial.

Aeroflot had pursued an action against Boris Berezovsky and Nikolay Glushkov – both now deceased – in which it was alleged that large amounts of money were misappropriated from the company between 1996 and 1998. It was pleaded by Aeroflot that Mr Glushkov had conspired with Mr Berezovsky to cause Aeroflot to enter into a number of substantial loan agreements with companies under his control.

Trial was set to commence on 10th April 2018, with an estimated length of 28 days. Following a period of judicial reading in time, opening submissions and evidence were expected to be given by the parties on 16th April 2018.

On Friday 13th April 2018, Aeroflot took steps to discontinue their claim against all Defendants. Due to the worldwide freezing orders in place against the Defendants, an application for permission was firstly required in order to discharge the aforesaid injunctions.

Upon hearing the Claimant’s application, Mrs Justice Rose discharged the freezing orders. Critical in her judgment however, the Judge affirmed that Where a Claimant makes serious allegations of fraud, conspiracy and dishonesty and then abandons those allegations, thereby depriving the defendant of any opportunity to vindicate his reputation, an order for indemnity costs is 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. Aeroflot gave no reason.

It is common ground that usually a successful party (or “receiving party”) will be able to recover their costs of proceedings from the unsuccessful party (or “paying party”). Costs will usually be assessed on the standard basis.

Where costs are ordered to be assessed on the standard basis, the Court will only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred. Additionally, any doubt which the Court may have as to whether costs were reasonably and proportionately incurred, or whether those costs were reasonable and proportionate in amount, will be decided in favour of the paying party.

 

Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

 

In satisfaction of the relevant tests in Clutterbuck and Paton v HSBC Plc & Ors. and Three Rivers DC v Bank of England, Mrs Justice Rose ordered Aeroflot to pay all of the Defendants’ costs to be assessed on the indemnity basis for the whole proceedings. Aeroflot were also ordered to make interim payments to the Defendants on account of their costs totalling £3.1million cumulatively.

 

A link to the Judgment is given below:

PJSC Aeroflot – Russian Airlines v Leeds & Anor (Trustees of the estate of Boris Berezovsky) & Ors [2018] EWHC 1735 (Ch),

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Nick Mercer - Costs Consultant

To discuss how Glaisyers can assist you contact Nick Mercer on [email protected] or via 0161 832 4666.

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