Dardana Limited v Yukos Oil Company

Costs should ordinarily be assessed by looking at the litigation overall. The court may make a split costs order where appropriate, but it may instead treat costs incurred at different instances as one unit. The assessment should reflect the parties’ success on the principal aims and the justification for arguments pursued. Arguments which were reasonably necessary to understand the merits should not attract a costs penalty merely because they occupied substantial time outside court. An appellate court may re-exercise the lower court’s costs discretion where the lower court proceeded on an erroneous view of the outcome.

This was an appeal concerning the costs consequences of proceedings in which Dardana Limited sought enforcement of an order against Yukos Oil Company. Dardana also sought security in the event of an adjournment. The High Court judge considered enforcement inappropriate, ordered a stay, and regarded security as appropriate. Following the Court of Appeal’s judgment, the security order was held to be wrong and neither of Dardana’s aims had been achieved. The central issue was the appropriate costs order for the proceedings below and on appeal.

1. Costs order. The court declined to make a split order. Although split orders should be contemplated in appropriate circumstances, the sensible course was to view the proceedings below and on appeal together, subject to a discount for unsuccessful or unnecessary points.
2. Dardana’s primary objective throughout was enforcement, while security was only secondary. Neither objective had been achieved. The High Court judge’s costs discretion therefore had to be re-exercised on the corrected basis that the English proceedings had effectively achieved nothing.
3. Yukos had been justified below in resisting enforcement and seeking to set aside the provisional enforcement order on the basis that there was no written arbitration agreement. It should not be penalised for arguments on the merits, since some understanding of the merits was necessary to assess the security issue.
4. Yukos had less justification for pursuing certain points on appeal, including arguments concerning the relationship between sections 100 and 103, but those matters occupied little time. An overall assessment was appropriate.
5. The court awarded Yukos 75 per cent of its costs across both instances, to be assessed if not agreed. Lord Justice Thorpe and Mr Justice Neuberger agreed with Lord Justice Mance.

• Court of Appeal (Civil Division): re-exercised the costs discretion relating to the proceedings below and on appeal, and awarded Yukos 75 per cent of its costs.
• High Court of Justice, Queen’s Bench Division, Commercial Court: the judge ordered a stay, considered security appropriate, and reserved costs pending the Swedish proceedings. The Court of Appeal held the security conclusion to be wrong and reconsidered costs accordingly.