National Bank of Kazakhstan & Anor v The Bank of New York Mellon Sa/nv, London Branch

The court should generally exercise its costs discretion in accordance with a party’s contractual entitlement. An indemnity covering losses, liabilities and costs arising directly or indirectly from securities being held by a custodian may extend to the custodian’s legal costs in defending proceedings caused by that holding. An indirect causal link is sufficient. A payment on account should reflect the likely basis of assessment and the costs that the recipient must itself pay, with appropriate deductions.

Following an order that the claimants pay the defendant’s costs, two issues remained for determination on written submissions: whether those costs should be assessed on the indemnity basis and whether a payment on account should be made. The defendant relied on clause 13(d)(i) of the Global Custody Agreement, which provided an indemnity for losses, liabilities and costs arising directly or indirectly from securities being registered in or held by the defendant. The central issues were the construction and application of that clause and the appropriate amount of any payment on account.

1. Indemnity basis. The court should generally exercise its discretion as to costs in accordance with a party’s contractual entitlement. The issue was therefore whether clause 13(d)(i) conferred a contractual entitlement to the defendant’s costs on the indemnity basis.
2. Clause 13(d)(i) applied to the costs of the claimants’ proceedings. The Belgian and Dutch Orders were addressed to the defendant because the relevant securities were held in its name or at its London branch. The defendant’s freezing of the assets and the claimants’ proceedings seeking declarations which effectively challenged that freezing arose, at least indirectly, from the fact that the securities were registered in the defendant’s name or held by it. The required causal link between that fact and the defendant’s legal costs was established.
3. Payment on account. The defendant’s total costs were estimated at slightly over £750,000, including costs which it was not entitled to recover. £100,000 was attributed to the unsuccessful jurisdiction challenge and stay application, leaving £650,000 referable to the recoverable claim costs. Given assessment on the indemnity basis, 60% was an appropriate proportion for payment on account, producing £390,000. The claimants’ costs of the jurisdiction challenge and stay application were estimated at £65,000 after a reduction from £100,000. The net payment on account was therefore £325,000.

The judgment records an earlier order dated 21 December 2017 determining the parties’ liability for costs and leaving the basis of assessment and payment on account for determination on written submissions. No appellate history is stated.