PJSC Aeroflot - Russian Airlines v Leeds & Anor (Trustees of the estate of Boris Berezovsky) & Ors

Where serious allegations of fraud, conspiracy or dishonesty are abandoned without explanation, indemnity costs are likely to be just, because the defendants have been deprived of the opportunity to vindicate their reputations. The court retains a discretion and may consider any explanation for the abandonment.

Indemnity costs may also be justified where the conduct of proceedings is out of the norm. Relevant matters include aggressive pursuit of serious allegations, materially inaccurate information placed before the court, oppressive interim applications, and disproportionate treatment of parties. A refusal to mediate need not be penalised where the allegations are intrinsically unsuitable for mediation and the defendants were entitled to seek vindication at trial.

Aeroflot brought long-running proceedings alleging that the defendants had participated in fraud, conspiracy and the misappropriation of substantial sums. The 28-day trial was due to begin when Aeroflot served notice discontinuing the entire claim. Permission was required because freezing orders had been granted.

The court ordered Aeroflot to pay interim costs and subsequently considered applications by the Forus defendants and the representative of Mr Glushkov’s estate for indemnity costs. The central questions were whether the abandonment of serious allegations without explanation justified indemnity costs, whether the conduct of the litigation was out of the norm, and whether the refusal to mediate should affect the order.

1. Indemnity costs following abandonment. The court held that the allegations of fraud, conspiracy and dishonesty had been pursued for eight years and abandoned only hours before trial, without explanation. Following Clutterbuck and Paton v HSBC plc & others and Jarvis plc v PriceWaterhouseCoopers, the sound approach was that indemnity costs were likely to be just where serious allegations were abandoned and the defendants were deprived of an opportunity to vindicate their reputations. The court rejected the description of this as an inflexible rule. [2018] EWHC 1735 (Ch) [47]–[59].
2. Conduct out of the norm. Applying the principles described in Three Rivers DC v Bank of England, the conduct was also out of the norm. The court considered the persistence and presentation of the allegations, materially inaccurate statements in interlocutory applications, an oppressive freezing-order application, and aggressive and uncompassionate treatment of Mr Glushkov’s estate. Deliberate misleading was not required; the cumulative effect of material inaccuracies could suffice. [2018] EWHC 1735 (Ch) [60]–[87].
3. Mediation and other objections. The refusal to mediate was not taken into account. Allegations of fraud and serious wrongdoing were intrinsically unsuitable for mediation in circumstances where defendants sought vindication by trial, and the court found that mediation had no realistic prospect of success. Authorities concerning a successful but dishonest party were irrelevant because Aeroflot was not the successful party, and indemnity costs did not depend on proof that the paying party’s misconduct caused wasted costs. [2018] EWHC 1735 (Ch) [61]–[63], [88]–[96].
4. Order. Aeroflot was ordered to pay all the defendants’ costs of the proceedings, including the relevant costs of Mr Glushkov and his estate, on the indemnity basis. The order covered the whole proceedings because Aeroflot had given no explanation permitting the court to limit the period. [2018] EWHC 1735 (Ch) [97]–[98].

Not an appeal. The judgment concerned costs following Aeroflot’s discontinuance of the proceedings.