Alexander Gorbachev v Andrey Grigoreyvich Guriev

The Court of Appeal held that costs incurred by a non-party in bringing a jurisdictional challenge to a third party disclosure application are "costs of the application" within the scope and spirit of CPR 46.1(2), so that the special rule that an applicant should ordinarily pay the third party's costs applies. The judge below was wrong to treat the jurisdiction application as a self-standing matter outside CPR 46.1 and to order costs to follow the event under CPR 44.2(2)(a).

The Court applied authorities including Totalise, SES Contracting, Miller Brewing and Cartier which embody the principle that innocent third parties resisting disclosure should not normally bear their own costs, subject to CPR 46.1(3) which permits departure from the general rule where the circumstances so justify (for example where disclosure would breach confidentiality or the third party acted unreasonably).

The Court declined to decide on the confidentiality ground on this appeal because that issue was not argued before the trial judge and would require full evidence and argument; the burden to establish such a displacement of the general rule under CPR 46.1(3) lies on the applicant. The appeal was allowed and the costs order substituted so that the successful applicant (Mr Gorbachev) must pay the Trustees' costs of the jurisdiction application.

Background and parties:

• The First Respondent, Mr Alexander Gorbachev, sought third party disclosure from Forsters LLP and, by order, from two Cyprus trustees (T.U. Reflections Ltd and First Link Management Services Ltd) in relation to two Cyprus law trusts. The applications were made under CPR 31.17 and section 34 of the Senior Courts Act 1981.
• The trustees challenged the jurisdiction of the English court to permit service out and the court's power to make disclosure orders against a foreign non-party; the trustees also argued alternatively that the court should not exercise jurisdiction because of the letter of request regime.

Procedural posture and appellate path:

• HHJ Pelling QC granted permission for service out and joinder for the trustees. The trustees applied to set aside that order. Jacobs J dismissed the trustees' jurisdiction challenge ([2022] EWHC 1907 (Comm)) and ordered the trustees to pay the claimant's costs of the jurisdiction application.
• The trustees unsuccessfully appealed the substantive jurisdiction finding to the Court of Appeal ([2022] EWCA Civ 1270) and sought, unsuccessfully, permission to appeal to the Supreme Court. The only issue before the Court of Appeal in this judgment was the correctness of the costs order made by Jacobs J.

Issues framed by the court:

• Whether costs incurred in a jurisdictional challenge to a third party disclosure application fall within the "costs of the application" governed by CPR 46.1(2).
• Whether the trial judge was right to treat the jurisdiction application as a separate, self-standing application outside CPR 46.1 and to apply the general rule in CPR 44.2(2)(a) that costs follow the event.
• Whether the general rule in CPR 46.1(2) should be displaced under CPR 46.1(3) on grounds such as confidentiality, whether the trustees acted unreasonably, or other circumstances.

Reasoning and disposition:

• The court found that both as a matter of letter and spirit, costs of the jurisdictional challenge formed part of the "costs of the [disclosure] application" because the jurisdiction challenge was one of the ways the trustees resisted the substantive disclosure application and the costs were incurred to defeat that disclosure.
• The court rejected the submission that jurisdictional points are necessarily separate in substance such that CPR 46.1 cannot apply; doing so would prioritise form over substance and undermine the rationale for CPR 46.1 which protects innocent third parties from bearing irrecoverable costs.
• On displacement under CPR 46.1(3), the court held that no such ground (for example, that the trustees were under a clear legal obligation of confidentiality) had been properly run before the trial judge; it would be inappropriate on appeal to decide the point without full evidence because the issue was not argued below and would require detailed legal analysis and evidence. The burden to establish displacement lies on the party asserting it.
• The Court of Appeal allowed the appeal on costs and substituted an order that Mr Gorbachev should pay the trustees' costs of the jurisdiction application.

Appeal allowed. The Court held that the costs of the jurisdictional challenge were properly treated as costs of the third party disclosure application within CPR 46.1(2) and thus the general rule that the applicant should pay the third party's costs applied. Jacobs J was wrong to treat the jurisdiction application as self-standing outside CPR 46.1. Displacement of the general rule under CPR 46.1(3) on confidentiality or other grounds was not decided because it was not properly argued below and would require full evidence; the burden to establish such displacement rests on the party asserting it. The costs order was substituted so that the applicant (Mr Gorbachev) must pay the trustees' costs of the jurisdiction application.

The disclosure application was made in 2021 and HHJ Pelling QC granted joinder and service out. The trustees challenged jurisdiction; Jacobs J dismissed that challenge ([2022] EWHC 1907 (Comm)) and ordered the trustees to pay the claimant's costs of the jurisdiction application. The trustees appealed the substantive jurisdiction decision to the Court of Appeal but that appeal was dismissed ([2022] EWCA Civ 1270); the trustees' application for permission to appeal to the Supreme Court was refused (4 January 2023). The present appeal to the Court of Appeal concerned only the correctness of the first instance costs order. The Court of Appeal allowed the appeal on costs and substituted an order that the applicant pay the trustees' costs of the jurisdiction application.