Stati & Ors v The Republic of Kazakhstan

An indemnity costs order does not require exceptional circumstances. The question is whether conduct or circumstances take the case outside the norm of ordinary and reasonable litigation in a way that justifies indemnity costs. In discontinued proceedings, the court must assess the conduct during the relevant periods, without treating unresolved allegations as established. Continuing proceedings after a judgment has exposed a serious litigation risk, despite a reasonable opportunity to reconsider, may justify indemnity costs. A payment on account should reflect likely recovery after allowing for uncertainty, detailed assessment and relevant credits.

The claimants sought to enforce a Swedish arbitration award against Kazakhstan. Kazakhstan later advanced a fraud challenge. The Commercial Court directed that the challenge proceed to trial, but the claimants discontinued. The Court of Appeal upheld the discontinuance and remitted Kazakhstan’s applications for indemnity costs and a payment on account.

The claimants did not attend the hearing, although they knew of it and had provided evidence. The issues were whether the pre-discontinuance conduct justified indemnity costs, and what sum should be paid on account pending detailed assessment.

1. Outcome. Kazakhstan was awarded the claimants’ costs incurred between 1 July 2015 and 26 February 2018. Costs incurred after 19 July 2017 were to be assessed on the indemnity basis; the remainder on the standard basis. The claimants were ordered to pay £1.3 million on account.
2. An indemnity costs order depended on conduct or circumstances taking the case outside the norm of ordinary and reasonable litigation. Exceptional circumstances were unnecessary.
3. The court could not treat fraud as established or overwhelming because the proceedings ended before trial. The earlier finding was only a prima facie case, and whether the claimants had an answer remained a matter for trial.
4. The assessment was period-specific. Indemnity costs were not justified for the earlier periods, when the claimants held an award valid under its curial law and were entitled to seek enforcement in England. Enforcement in several jurisdictions was not, without more, forum shopping.
5. After the directions order following the 2017 judgment, the claimants had a reasonable opportunity to reflect on the litigation risk. Their continuation for about eight months, while substantial costs were incurred and the case proceeded as if it would reach trial, was unreasonable and outside the norm. That justified indemnity costs from the relevant later period.
6. Under CPR r 44.2(8), a reasonable payment on account was required absent good reason. The amount required an estimate of likely recovery with an appropriate margin for error, taking account of detailed assessment and relevant credits. Given the unusually high costs and likely reductions, £1.3 million was reasonable.

The Court of Appeal had allowed the claimants’ appeal from [2018] EWHC 1130 (Comm) and remitted the costs applications to the Commercial Court. The Court of Appeal decision was reported at [2018] EWCA Civ 1896 and [2019] 1 WLR 897. The present judgment determined the remitted applications.