M v M [2013] EWHC 3372 (Fam)

[2013] EWHC 3372 (Fam)Case No FD10F0051
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 01/11/2013
Before
MRS. JUSTICE ELEANOR KING DBE
Between
MApplicantM1 st RespondentYURI BARKOV2 nd RespondentSNOWDEN PROPERTIES LIMITED3 rd RespondentPANKRATROV TRUST LIMITED4 th RespondentHIGHLANDS INVEST LIMITED5 th RespondentCARTER COURT LIMITED6 th Respondent
NIGEL DYER QC&JULIET CHAPMAN (instructed by Mishcon De Reya) for Applicant for (All Respondents did not attend and were not represented).Hearing Hearing dates: 29 th October 2013
JudgmentMRS. JUSTICE ELEANOR KING DBEThis judgment is being handed down in private on Friday 1 st November 2013 It consists of 11 pages and has been signed and dated by the judge. The judge hereby gives leave for it to be reported in an anonymised form only.The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the children and the adult members of their family must be strictly preserved.MRS. JUSTICE ELEANOR KING DBE
[1]This is an application for indemnity costs made by Mrs M (Wife), a judgment having been the handed down on 2 August 2013 in relation to her Part III application. The trial was the last of many hearings following the breakdown of her marriage to her former husband Mr M (Husband). The Husband neither attended the trial nor the costs hearing.[2]In addition to the Husband there were five other Respondents to the action: the 4th, 5th and 6th Respondents are respectively Pankratrov Trust, Highlands Invest Ltd and Carter Court Ltd, (the Companies) and they were represented at the trial by Mr Wagstaffe QC. The Companies' case was that they were the beneficial owners of various properties in the UK which had been bought using the husband's money but in relation to which the legal interests were held in the names of the various Companies.[3]The trial was heard in the High Court between 24 January 2013 and 1 February 2013. Judgment was thereafter reserved pending the Supreme Court delivering their judgments in Prest v Petrodel Resources Ltd and Others[2013] UKSC 34. In January 2013 both the husband and the Companies were put on notice of the wife's intention to seek indemnity costs at the conclusion of the trial. A number of schedules of costs were served on both the husband and the companies last week on the 25 October 2013.[4]It is not proposed to rehearse the facts of the case, or the detail of the court's findings in this short judgment, which should be read against the background of those findings. Suffice it to say that the court made a number of findings amounting to serious litigation misconduct on the part of both the husband and the companies. I described the case as presented by the Companies at trial as "a fantastic charade with the husband a shady puppet master in the background" (para 17 judgment).[5]Over the last 3 years there have been no less than separate 22 appearances in the High Court in addition to further litigation in 6 other jurisdictions. The final hearing listed for four weeks was actually conducted in one week due to the Husband's failure to attend; there were 31 trial bundles. The husband did not attend but, the court found, "showing singular audacity" instead, "sent his companies" in to bat"" (para 18 judgment). The court held that (para 218):
"the husband was a shadow director, and at all times the directing mind and will of each of the companies"
[6]The final order provided for the husband to transfer to the wife all of the English properties and to pay a lump sum of £38m. The Companies (the legal owners of four of the relevant English properties) were unsuccessful in asserting that they, not the husband, were the true beneficial owners of the properties. The court found that the properties which the Companies sought to defend were held by them on resulting and/or constructive trust for the Husband.[7]Neither the husband nor the Companies have attended today although Mr Wagstaffe QC with his customary courtesy contacted the court to explain that he was without instructions and would not therefore be at court.[8]In the absence of any opposition to the application, Mr Dyer QC therefore seeks a summary assessment of the wife's costs on an indemnity basis. Mr Dyer divides the costs incurred into two periods:(a) Period 1 - covering the period from 13 January 2010 until 11 December 2012. For this period W is seeking £1,041,063 from the husband calculated from the date the wife instructed her solicitors until the day before Messrs Withers came on record as representing the Companies: FPR Part 28 applies to this period.(b) Period 2 - covering the period from 12 December 2012 (the date on which Withers LLP came on the record to represent the Companies) to date. For this period W is claiming £473,535 from the Husband and the Companies on a joint and several liability basis: CPR 1998 Rule 44.2 applies to this period.

Period 1: Costs against the Husband alone

[9]In relation to this Period the wife's costs amount to £1,041,063 (£887,904.56 domestic legal costs + £136,421.45 overseas legal costs + £96,680 costs in relation to the Former Matrimonial Home, less £79,944 paid on account by the husband).[10]FPR 2010, Part 28.3 and PD 28A FPR 2010 apply as between the Husband and Wife, as these are 'financial remedy proceedings' – the definition of which includes applications under Part III of the 1984 Act. The court may make any order in relation to costs as it thinks 'just' (Part (28.1)) and the general rule in financial remedy proceedings is that the court will make 'no order' as to costs. The court may, notwithstanding the general rule, make a costs order where: "it considers it appropriate to do so because of the conduct of a party in relation to the proceedings (whether before or during them)" (Part 28.3(6)).[11]In deciding whether to make a costs order, under Part 28.3(7) the court must have regard to (inter alia):(a) any failure by a party to comply with these rules, any order of the court or any practice direction which the court considers relevant;(b) ...(c) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;(d) the manner in which a party has pursued or responded to the application of a particular allegation or issue;(e) any other aspect of a party's conduct in relation to proceedings which the court considers relevant.[12]In submitting that the conduct of the husband is such that the court should use its discretion to made an order for costs against the husband, Mr Dyer relies first of all on the court's finding in respect of the conduct of the Husband dating back to the very beginning of the litigation process, namely the filing of his Form E, in respect of which the court held:
"The Form E is a travesty. It is largely blank; it makes no mention of any Russian property. It states that the husband has no income and concludes by saying that the total value of his assets is -£473,924.60."
[13]As can be seen from the judgment, evidence was obtained and disclosed by those representing the wife exposing a BVI structure holding a number of Russian commercial properties. Altogether assets worth in excess of £100m were identified. The wife's disclosure did not result in the Husband seeking to remedy the preposterous stance adopted in his Form E, but rather, during the course of the proceedings, he dismantled the BVI structures and moved the assets to Belize in a deliberate and elaborate attempt to defeat the claims of the Wife. I agree with Mr Dyer who suggests that it is hard to imagine a worse example of blatant litigation misconduct.[14]The Wife relies in addition to the following examples of litigation misconduct drawn from findings in the judgment: i) H's "repeated contempt of court" (para 12) …"he is in contempt many times over" (para 195). ii) H's "wilful lack of disclosure and engagement" (para 204). iii) H did not have "any respect for the authority of the court" (para 13). iv) H's persistent lies (paras: 36 (stating that Yuri lived in a flat, when he never had done), 42 (Quinta Castle was to be a hotel when it was clear it was H's home), 69 (the Russian commercial properties had been let), 100 (nonsensical evidence about a 'loan' from Rekabe Ltd). v) H's failure "at every step of the way to provide any honest disclosure or to engage in the proceedings" whilst simultaneously indulging in "satellite litigation which has achieved nothing other than to be costly and distressing to the wife" (para 54). vi) H forged W's signature to deprive her of her rightful ownership of Snowden Properties Properties and Garage J (para 246). Period 2 : Costs against the Husband and the Companies on a joint and several basis.[15]In relation to Period 2 the wife's costs amount to £473,535 (£470,702 being the costs from the Companies going on + £2,833, being the sum the Wife has had to spend in order to stave of forfeiture proceedings in relation to Flat 4, Effes Road a property owned by Highlands Invest and in respect of which there are substantial outstanding service charges.)[16]On 21 December 2012, two months late and four weeks before the final hearing, the Companies filed Points of Defence in response to the Wife's application for a declaration that the UK properties were held on resulting trusts for the Husband. The defence was unsupported by any evidence of any officer of the Companies and no representative, whether Director or employee filed a statement in support or attended the hearing. The only evidence called was from the property/private client lawyers employed by the Husband in relation to the purchase of the UK properties held in the names of the Companies.[17]The Companies' disclosure was no better than that of the Husband and the court noted at para 147 that in relation to a short questionnaire which the Companies were ordered to answer on 15 January 2013: "not only were the answers produced risible, mainly saying 'to follow', but not a single document was produced. A second attempt to provide information about the business was made on 28 January 2013. This version purported to have instructions from Mr Boris Glukhov who denied any knowledge about anything and still failed to produce any documents, even the accounts promised in November 2011".[18]In relation to the key witness called on behalf of the Companies in support of their contention that the beneficial interests in the properties were held by the Companies as part of a conventional tax avoidance scheme the court held: "It is wholly misleading for Mrs Price to have given the clear impression in her statement that a bespoke tax mitigation scheme was being designed for the husband, nothing in my judgment could have been further from the truth".[19]The Companies' contempt of Court continued after the judgment was given and final order made. i) Paragraphs 3-6 of the final order (agreed by the Companies' Counsel) ordered the Companies to execute the relevant TR1 forms transferring their properties to W. The TR1 forms were to be held in escrow until any appeal was determined. Contrary to the order, the Companies did not sign the TR1 forms and an application had to be made to the court on 16th August 2013 by W's representatives. ii) Similarly the court had to grant an injunction to the wife to protect the fabric of the English properties when builders went into one of the properties and ripped out the kitchen in the days after a hearing was held when the court gave an indication of its decision (with reasons to follow) that the properties held by the Companies were to be transferred to the wife.[20]The 'no order' principle in FPR 2010 rule 28.3 only applies as between the two principal parties of the financial remedy proceedings. It does not apply to the costs of a person joined to the proceedings against his will: KSO v MJO and JMP (PSO intervening) [2009] 1 FLR 1036. In Baker v Rowe [2010] 1 FLR 761, (a case in which a third party had intervened) the Court of Appeal (applying the old FPR 1991), held that the CPR general rule that costs follow the event did not apply either as those proceedings were 'family proceedings' and under r.10.27(1)(b) the general rule was disapplied. It was submitted by the Wife, and I accept, that the same approach applies under FPR 2010 as rule 28.2(1) provides that the "general rule" in CPR costs (Part 44.2(2)) that costs follow the event, shall not be applied in family proceedings. In Judge v Judge [2009] 1 FLR 1287, CA, it was established that when there is no "general rule" as to costs for a judge to apply, he had before him a "clean sheet". However, as Wilson LJ observed in Baker v Rowe at para [25]: "the fact that one party had been unsuccessful, and must, therefore, usually be regarded as responsible for the generation of costs, would often be the decisive factor in the exercise of the judge's discretion as to costs".[21]Under CPR Part 44.2(4) (which does apply in family proceedings by virtue of FPR Part 28.2(1)), the court has a discretion as to whether costs are payable by one party to another, the amount of those costs and when they are to be paid. The court is to have regard to all the circumstances, including: a) the conduct of the parties b) whether a party has succeeded on part of its case, even if that party has not been wholly successful and c) any admissible offer to settle. The conduct of the parties includes whether is was reasonable to raise, purse or contest a particular allegation or issue.[22]In relation to Period 2, the Wife, pursuant to Mainwaring & Another v Goldtech Investments Ltd (no 2) 1 WLR 745, seeks an order that the Husband and Companies are jointly and severally liable for the costs incurred between 12 December 2012 onwards.[23]The Wife's main point in support of her application for costs is that the Respondent Companies (with H, the puppet-master in the background), defended W's claim and lost. It was entirely unreasonable she submits, to raise, purse and contest a defence based on a tax avoidance scheme that was specifically found to have never existed. The Companies and/or the Husband are responsible Mr Dyer submits, for the generation of all of the costs incurred since 12 December 2012. In particular the court's attention was drawn to the finding that "..it was blindingly obvious on the evidence…" that the beneficial interest in the properties had been retained by the husband (para 248).

Costs – should the general rule be applied?

[24]Looking at the factors set out in under Part 28.3 and CPR Part 44.2(4) I have no doubt in my mind but that the conduct of both the Husband and the Companies has been such that the making of an order for costs against both the Husband and the Companies is inevitable. The only outstanding issue is as to the basis of assessment. Mr Dyer submits that on the facts of the case the conduct of the Husband and Companies has been so extreme as to justify the making of indemnity costs orders against both.[25]CPR 44.3(3) (which applies both to 'financial remedy proceedings' and 'family proceedings') sets out that:
"where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether the costs were reasonably incurred or were reasonable in amount in favour of the receiving party"
[26]The indemnity basis of assessment differs from the standard basis, which requires the court to undertake a full analysis into the 'proportionality' of costs. When assessing on the indemnity basis, the court will have regard to all the circumstances in deciding whether costs were(i) unreasonably incurred; or(ii) unreasonable in amount (CPR 44.4(2)). The court will also have regard to the conduct of all the parties and the other factors set out in CPR 44.4(3).[27]In Excelsior Commercial and Industrial Holdings Ltd v Salisbury Ham Johnson [2002] C.P.Rep. 67, the Court of Appeal noted (at para 32) that "…there is an infinite variety of situations which can come before the courts and which justify the making of an indemnity order". At para 39, LJ Waller held that:
"The question will always be: is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs?"
[28]In Wailes v Stapleon Construction & Commercial Services Ltd [1997] 2 Lloyds' Rep.112, costs were awarded on an indemnity basis where the claimants had brought proceedings for an account of the defendant's dealings with the estate of the deceased. Nine out of the thirteen claims for damages were abandoned during the proceedings, the remainder of which were lost. At page 117, Newman J said: "In summary, the position appears to be that, where there are circumstances of a party behaving in litigation in a way which can be properly catYuriized as disgraceful, or deserving or moral condemnation, in such cases an order of indemnity costs may be appropriate".[29]The Wife submits that the following points take the case "out of the norm" in a way that justifies an order for indemnity costs in particular: i) The failure of the Husband and the Companies' to make full and frank disclosure and engage in the proceedings (para 204); ii) Their lack of respect for the authority of the court (para 13); iii) The Husband and Companies' breach of court orders to attend the PTR, and to File and Serve Replies to the W's pleadings in a timely manner; iv) The Companies' late involvement in the case – despite having been joined as parties on 31 August 2012; v) The Husband and the Companies' failure to file statements or to call witnesses in support of their case other than professional witnesses, some of who were criticised by the court. vi) The Companies running their case in the face of "blindingly obvious" evidence supporting W's case (para 248). vii) The finding that the Husband had forged the Wife's signature on 2 separate occasions.[30]In my judgment the presentation of case in its entirety and the conduct of the Husband and the Companies in particular can unhesitatingly be categorised as 'out of the norm'. The whole case has been marked by the Husband's deliberately destructive and underhand behaviour. Time and again, as set out in the judgment, he has either taken a stance in the proceedings or issued proceedings which were obviously and inevitably going to fail and do nothing other than cause distress to the wife and increase the costs. For example: i) Arguing that that the court had no power to order maintenance pending suit in Part III cases, only thereafter to pay off the arrears of over £300,000 with a metaphorical shrug. ii) Issuing TOLATA proceedings in respect of the former matrimonial home in a county court when there was no issue between the parties in relation to that property at that time. iii) Issuing proceedings in Russia based on a forged document and later issuing further proceedings in Russia for the transfer of properties from the Wife to him in relation to which properties he had said unequivocally in statements to this court that he had given to his wife as a gift.[31]The Husband, as I found in the judgment, was and is a shadow director of the Companies. He was without doubt masterminding the conduct of the litigation behind the scenes whilst ensuring that he was never exposed to cross-examination in the witness box or to being brought to book for his continuing contempt of court.[32]The Companies are separate legal entities who ran the case at considerable expense to the Wife. The initial replies of the Companies to the questionnaire were a disgrace and only compounded by the supplementary replies. I remind myself that, as parties to the proceedings, the Companies had a duty of full and frank disclosure. That part of the case that was tried (the 1st, 2nd and 3rd Respondents having taken no part), turned in its entirety upon the assertion of the Companies that they were the beneficial owners of various domestic properties in the UK used by the family. Not one document was produced by the Companies of their own volition in support of that contention.[33]This is, in my judgment, a case, if ever there was one, where an order for indemnity costs is the correct order. Litigation conduct of the type exhibited by the Husband and, at his direction, the Companies, is of the most extreme type and thankfully not often seen.[34]The Husband was wilful and cynical in his attempt to hoodwink the court by his own actions behind the scenes over the many months when the case was waiting to come on for trial. Thereafter, through the medium of his Companies - and without exposing himself - he obtained the benefit of Leading Counsel to fight the case - but to fight it only in respect of those assets where there is a relatively easy route to enforcement, namely the domestic properties within the jurisdiction of England and Wales. The Husband has wasted no money on legal representation at the trial with a view to protecting his assets held abroad, having, as he believes, put them beyond the Wife's reach through the new Belize structure. Such manipulative and contemptuous conduct must be visited by an order for costs on an indemnity basis.[35]Neither the husband nor the Companies have chosen to attend the hearing. The Wife asks for summary assessment of her costs in the sums set out above. I note that the schedules of fees are not set out in a so-called 'Woolf schedule' whereby the costs are broken down on a letter by letter basis or telephone by telephone call basis. I am told by Mr Dyer QC that to conduct such an exercise would take a fortnight of chargeable time for the solicitors and would in my judgment be a disproportionate expense, as would the costs involved in a detailed assessment of the costs. Mr Dyer submits that such additional costs may not be recoverable – I fear he may be right.[36]In therefore make an order that: i) The Husband alone to pay the Wife's costs in the sum of £1,041,063 on or before the 4 pm on 15 November 2013 ii) The Husband and the Fourth, Fifth and Sixth Respondents shall be jointly and severally liable to pay the Wife's costs to cover the period between 12 December 2012 to date in the sum of £473,535 such sum to be paid on or before 4 pm on 15 November 2013.

Cited in 3 later judgments