Public Joint Stock Company Vseukrainskyi Aktsionernyi Bank v Maksimov & Ors [2014] EWHC 4370 (Comm)

Case No 2013-FOLIO 57[2014] EWHC 4370 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building,Fetter Lane, London, EC4A 1NLDate 19/12/2014
Before
MR JUSTICE HAMBLEN
Between
PUBLIC JOINT STOCK COMPANYClaimantVSEUKRAINSKYI AKTSIONERNYI BANKClaimant(1) SERGEY MAKSIMOV & othersDefendant
for The Claimant was not represented at the hearingMr Davies (instructed by McGuireWoods London LLP) for First DefendantHearing Hearing date: 19 December 2014
JudgmentMr Justice Hamblen :
[1]This judgment concerns the appropriate costs order to make following my judgment of 17 November 2014.[2]The full background is set out in my judgment. In summary, the Claimant Bank (“the Bank”) applied to commit the First Defendant (“Mr Maksimov”) to prison for contempt of court in breaching worldwide freezing orders made by Cooke J dated 16 January 2013 (“the Cooke Order”) and Field J dated 2 May 2013 (“the Field Order”). By the time of the hearing the Bank relied on the following alleged Grounds of Contempt:(1) Ground (1) - Mr Maksimov’s admitted failed to provide disclosure of his assets and an affidavit verifying that disclosure in accordance with paragraphs 10(1) and 11 of the Cooke Order.(2) Grounds (2) and(3) – Mr Maksimov caused or procured the 22nd Defendant, United Overseas Sales Corporation (“United”), to deal with its assets by transferring its shareholding in the 6th Defendant, Bauman Trade LLC (“Bauman”) in breach of paragraph 6(3) of the Cooke Order and/or thereby knowingly assisted in or permitted a breach of the order by those companies in breach of paragraph 17 of the Field Order. (3) Ground(4) - Mr Maksimov caused the shares owned by United and the 26th Defendant, Davidson Distribution Ltd (“Davidson”) in the 9th Defendant, Kyivrichport PJSC (“KRP”) to be disposed of or dealt with and thereby knowingly assisted in or permitted a breach of the order by those companies in breach of paragraph 17 of the Field Order. (4) Ground(5) – Bauman, United, Davidson, the 15th Defendant, Dyrect Investment LLC (“Dyrect”), the 20th Defendant, Citilink Distribution Ltd (“Citilink”), and the 23rd Defendant, Inmodal Company Ltd (“Inmodal”) failed to provide disclosure of their assets and Mr Maksimov, thereby knowingly assisted in or permitted a breach of the order by those companies in breach of paragraph 17 of the Field Order. (5) Ground (7) – Mr Maksimov failed to disclose his shares in the 25th Defendant, Cascade Ventures Ltd (“Cascade”) in breach of paragraphs 10(1) and/or 11 of the Cooke Order.[3]In my judgment I rejected all the alleged Grounds of Contempt other than Ground (1), which had already been admitted in January 2014, and Ground (5). I also made various findings relating to the admitted contempt under Ground (1).[4]The hearing of consequential matters was adjourned since it was considered by the parties that there would be insufficient time to deal with them at the time of hand down. At that time the Bank was still represented by Mr Samek QC and Mr D’Cruz instructed by Eversheds LLP. On 17 December 2014 Eversheds came off the record and the Bank has not been represented at the resumed hearing. There is some evidence that the Bank has been classified as insolvent and is under temporary administration.[5]The costs incurred in relation the Banks’ contempt proceedings are very considerable. The Bank’s own costs schedule for costs up to 22 October 2014 shows total costs of £733,638.03, of which £600,864.53 relate to costs incurred after 14 January 2014. Mr Maksimov’s total costs for the period after 14 January 2014 are £514,999.02. The case has also occupied significant periods of court time during that period, including hearings before Andrew Smith J on 14 March 2014; Teare J on 12 May 2014; Andrew Smith J on 4 August 2014; myself on 23 September 2014 followed by the four day hearing on 20-23 October 2014.[6]Leaving aside the already admitted contempt under Ground (1), the end result of that considerable expenditure of time and cost has been a single finding of contempt under Ground (5), which I described as being a “technical” contempt in paragraph 129 of the judgment in which I said as follows:
“Although I have found Mr Maksimov to be in contempt, the contempt may be said to be of a technical nature in that the Bank has had disclosure of these companies’ assets through Mr Maksimov’s own asset disclosure, as confirmed in Mr Maksimov’s 7th witness statement. What is lacking is a separate asset disclosure statement by the companies.”
[7]In these circumstances Mr Maksimov submits that he should be paid 90% of his costs since 14 January 2014.[8]The vast bulk of the time and costs since 15 January 2014 has been taken up by:(1) The Bank’s two major disputed allegations of dealings in breach of the freezing order (in relation to Bauman and the Kiev River Port shares) which were both rejected in the judgment;(2) The Bank’s unsuccessful efforts to persuade the court that Mr Maksimov’s admitted breach of the Cooke Order in failing to provide asset disclosure on time was dishonest (and therefore meriting a severe and immediate custodial sentence).(3) The question of adjournment and whether the hearing could properly go ahead without Mr Maksimov’s attendance and cross examination by video link.[9]As to (1), Mr Maksimov was successful on this issue. Further, the Bank aggressively pursued a case of dishonesty in relation to the transfer of the legal interest in the Bauman shares in circumstances where the objective facts, which were well-known to the Bank, did not support an inference of dishonesty. In particular, Mr Maksimov openly disclosed his interest in the Bauman shares in his asset disclosure on 13 January 2014 and it was inherently unlikely that, had he been engaged in a dishonest plan to conceal that interest, he would have done so. It is also the case that information as to the ownership of Bauman is publicly available in the Ukraine, meaning that there would be little purpose served by any such dishonest concealment.[10]As to (2), Mr Maksimov was successful on this issue also. Mr Maksimov admitted contempt in relation to Ground 1 shortly after instructing English solicitors in January 2014. Since that time, the Bank aggressively pursued a case that the reasons given by Mr Maksimov for not complying with the asset disclosure obligations in the Cooke Order were false and dishonest and that Mr Maksimov had been in deliberate and flagrant breach of the court’s orders. This was no doubt done in order to persuade the court to impose a lengthy term of imprisonment on Mr Maksimov. In its September 2014 skeleton argument, the Bank argued that: “… it is legitimate to infer from Mr Maksimov’s misconceived reliance on the privilege against self-incrimination that he was attempting to rely on the same in order deliberately to seek to avoid giving disclosure and to seek also to conceal assets in breach of the Court’s orders… (paragraph 105(3)) That was also the thrust of the case put to Mr Maksimov in his cross-examination.[11]As to (3), it was legitimate and proper for Mr Maksimov to insist on his right to participate in the hearing and to give oral evidence in his own defence. Further, as set out in my judgment, for the purposes of resolving the contempt application I have to proceed on the basis that there has been a threat to Mr Maksimov’s life as set out in his evidence. I accept that significant costs in this case have been incurred because the Bank wished to force the substantive hearing to go ahead without Mr Maksimov being able to participate. For example, following the adjournment of the 14 January 2014 hearing, the matter was re-listed before Andrew Smith J on 14 March 2014. The threat to Mr Maksimov’s life emerged before this hearing and, on 12 March 2014, Mr Maksimov applied for an adjournment. This application was opposed by the Bank for the reasons set out in a Note dated 13 March 2014. The Bank’s position was that the hearing should go ahead either with Mr Maksimov being cross-examined by telephone or else on the basis that Mr Maksimov would not give oral evidence at all and submissions would be made as to the weight to be attached to his evidence. Andrew Smith J granted Mr Maksimov’s adjournment application (and required the Bank to amend its Grounds of Contempt so that any further allegations of contempt were specifically pleaded). The matter then came back before Teare J on 22 May 2014 for a case management conference. The substantive contempt hearing was then listed for two days on 18/19 June 2014. Mr Makismov had once again applied for an adjournment of the substantive application in circumstances where the threat to his life was continuing and that was again opposed by the Bank. The adjournment application was granted by Teare J and the matter was re-listed to September 2014 with a longer estimate. That hearing too was part adjourned due to alleged funding issues and I ordered that Mr Maksimov was to pay the Bank any costs thrown away as a result of the adjournment.[12]In relation to the issues at the contempt hearing I accordingly accept that Mr Maksimov was the substantially successful party. I also accept that, save in relation to the September 2014 hearing, the Bank has some responsibility for the need for those adjournments and that they do not provide a reason for departing from an approach that the costs should follow the event of the contempt hearing itself.[13]There are, however, wider issues which arise which provide further reasons why a costs order should be made in favour of Mr Maksimov.[14]As Mr Maksimov points out, when asset disclosure was provided by Mr Maksimov on 13 January 2014 the Bank had a range of options as to how it could proceed:(1) It could have raised any queries in relation to that asset disclosure in the inter-solicitor correspondence;(2) It could have made a more formal request for further information about assets and sought an order that such further information be provided if it was not forthcoming;(3) It could have applied for permission to cross-examine Mr Maksimov on his assets.[15]These are the typical responses of a claimant who seeks to challenge the defendant’s asset disclosure under a freezing order. The Bank, however, decided not to pursue any of these avenues. Instead it immediately took the position that Mr Makismov had not “purged” his contempt but had instead given false and dishonest information about his assets and concealed alleged dealings in breach of the order and should therefore be sentenced to a lengthy term in prison.[16]Indeed, the Bank claimed it was entitled to pursue such a course without making further and properly particularised allegations of contempt. The Bank’s position prior to the 14 March hearing was that it was entitled to cross-examine Mr Maksimov on all its additional allegations of dishonesty and contempt as matters going to sentencing without amending its Grounds of Contempt. It was only when Andrew Smith J indicated on 14 March that the further allegations of contempt had to be properly pleaded that the Bank amended its Grounds of Contempt to include all the new grounds.[17]Thereafter the Bank pursued all of those amended grounds with considerable aggression, challenging almost every explanation given by Mr Maksimov. Some of the allegations were dropped, but only at a very late stage (for example, the other Ground 7 allegations in relation to alleged non-disclosure of assets).[18]What is particularly striking is that the allegations that Mr Maksimov had failed to disclose assets, usually the centre-piece of a case of this type, were downplayed and eventually almost completely abandoned. The only such allegation that was pursued in closing submissions was in relation to Cascade and that allegation was rejected by the court.[19]This was not therefore a normal asset disclosure case. The claimant’s central concern is usually that there is a pool of assets that the defendant has failed to disclose and the contempt proceedings are the means of both punishing the claimant for his past breaches of the order and effectively forcing the defendant to come clean and disclose his full assets.[20]Here, there was a striking absence of any real identified prejudice to the Bank. Neither the Bauman shares nor the Kiev River Port shares had been placed out of reach. Nor was there ever any real evidence that meaningful assets had been concealed.[21]In Sectorguard plc v Dienne plc [2009] EWHC 2693 (Ch) Briggs J stated as follows at [44] to [47]: “44. It is now well established, in the light of the new culture introduced by the CPR, and in particular with the requirements of proportionality referred to in CPR 1.1(2) as part of the overriding objective, that it is an abuse of process to pursue litigation where the value to the litigant of a successful outcome is so small as to make the exercise pointless, viewed against the expenditure of court time and the parties' time and money engaged by the undertaking: see Jameel v. Dow Jones & Co[2005] QB 946 per Lord Phillips at paragraphs 54, 69 and 70 (conveniently extracted in note 3.4.3.4 on page 73 of the 2009 White Book). 45. The concept that the disproportionate pursuit of pointless litigation is an abuse takes on added force in connection with committal applications. Such proceedings are a typical form of satellite litigation, and not infrequently give rise to a risk of the application of the parties' and the court's time and resources otherwise than for the purpose of the fair, expeditious and economic determination of the underlying dispute, and therefore contrary to the overriding objective as set out in CPR 1.1. The court's case management powers are to be exercised so as to give effect to the overriding objective and, by CPR 1.4(2)(h) the court is required to consider whether the likely benefit of taking a particular step justifies the cost of taking it. Furthermore, paragraph 5 of the Contempt Practice Direction makes express reference to the court's case management powers in the context of applications to strike out committal proceedings. 46 It has long been recognised that the pursuit of committal proceedings which leads merely to the establishment of a purely technical contempt, rather than something of sufficient gravity to justify the imposition of a serious penalty, may lead to the applicant having to pay the respondent's costs: see Adam Phones v. Goldschmidt (supra) per Jacob J at 495 to 6, applying Bhimji v. Chatwani [1991] 1 All ER 705. Jacob J concluded, by reference to that case: "Since that judgment the Civil Procedure Rules have come into force. Their emphasis on proportionality and on looking at the overall conduct of the parties emphasises the point that applications for committal should not be seen as a way of causing costs when the defendant has honestly tried to obey the court's order." 47. Committal proceedings are an appropriate way, albeit as a last resort, of seeking to obtain the compliance by a party with the court's order (including undertakings contained in orders), and they are also an appropriate means of bringing to the court's attention serious rather than technical, still less involuntary, breaches of them. In my judgment the court should, in the exercise of its case management powers be astute to detect cases in which contempt proceedings are not being pursued for those legitimate ends. Indications that contempt proceedings are not so being pursued include applications relating to purely technical contempt, applications not directed at the obtaining of compliance with the order in question, and applications which, on the face of the documentary evidence, have no real prospect of success. Committal proceedings of that type are properly to be regarded as an abuse of process, and the court should lose no time in putting an end to them, so that the parties may concentrate their time and resources on the resolution of the underlying dispute between them.” "Since that judgment the Civil Procedure Rules have come into force. Their emphasis on proportionality and on looking at the overall conduct of the parties emphasises the point that applications for committal should not be seen as a way of causing costs when the defendant has honestly tried to obey the court's order."[22]I respectfully endorse those comments. An increasing amount of this court’s time is being taken up with contempt applications. Claimants should give careful consideration to proportionality in relation to the bringing and continuance of such proceedings. In appropriate cases respondents should give consideration to applying to strike out such applications for abuse of process. The court should be astute to detect when contempt proceedings are not being pursued for legitimate aims. Adverse costs orders may follow where claimants bring disproportionate contempt applications.[23]There is no application to strike out for abuse of process in this case. Nor is this a case in which the contempt application had no real prospect of success. However, it is a case in which the pursuit of the proceedings has merely led to the establishment of a technical contempt rather than something of sufficient gravity to justify the imposition of a serious penalty.[24]In such circumstances, as made clear by Bhimji v. Chatwani [1991] 1 All ER 705, Adam Phones v. Goldschmidt [1999] 4 All ER 486 and Sectorguard plc v Dienne plc, the claimant may well be ordered to pay the respondent’s costs. In the present case that is a further reason why the Bank should pay Mr Maksimov’s costs.[25]For all these reasons I am satisfied that this is a case in which the Bank should be ordered to pay the bulk of Mr Maksimov’s costs since 14 January 2014.[26]Mr Maksimov recognises that he should recover less than 100% of his costs. This is because it is accepted that:(1) the relevant information and documents in relation to the dealing allegation and certain aspects of Mr Maksimov’s asset disclosure came in stages rather than all being provided in Mr Maksimov’s initial witness evidence; and(2) the Bank was successful on Ground 5, albeit that this was not a matter which took up any significant time and was ultimately of a somewhat technical nature since the Bank already has disclosure of the assets of the relevant companies through Mr Maksimov’s personal asset disclosure.[27]To that I would add that Mr Maksimov was at fault in relation to the adjournment of the September 2014 hearing and was ordered to pay the costs thrown away as a result.[28]In all the circumstances I consider that the appropriate costs order to make in the exercise of my discretion is that the Bank should pay 80% of Mr Maksimov’s costs since January 2014.[29]The total costs claimed on that basis is £411,999.38. I consider that it is appropriate that there should be an order for interim payment. That should take into account the fact that Mr Maksimov remains liable for costs claimed of £66,313.50 in respect of the period up to January 2014. In such circumstances I consider the appropriate sum for interim payment to be £175,000.

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