A leading city law firm were acting for the Russian airline Aeroflot in a case now discontinued where the airline has been ordered to pay indemnity costs for case which raised serious allegations of fraud.

In the ruling over costs in the case of PJSC Aeroflot – Russian Airlines v Leeds & Anor (Trustees of the estate of Boris Berezovsky) & Ors, Mrs Justice Rose accused the Claimant’s solicitors of losing sight of ‘any basic standard of decent and compassionate behaviour’ in the way it dealt with the surviving partner of a defendant its client was suing, and branded the firms conduct ‘shameful’.

The airline alleged that businessmen Nikolay Glushkov and Boris Berezovsky, who were now dead, misappropriated large sums of money from Aeroflot between 1996 and 1998. It was during the proceedings that Mr Glushkov was found dead at his house having been strangled to death, which the Metropolitan Police are still investigating. A trial was eventually set down for 28 days after many interlocutory skirmishes with opening submissions and evidence due to start on the 16th April 2018 after four days of reading time.

Just before 5pm on Friday 13th April, the Claimant’s solicitors sought permission to discontinue its proceedings against all defendants. The application had to be made because Aeroflot had the benefit of freezing orders against the defendants, and therefore under CPR 38.2(2) a claimant must seek the permission of the court to discontinue where the court has granted an injunction.

In making the application, Aeroflot had offered to pay the costs of the Forus defendants on the standard basis as part of the discontinuance, but not Mr Glushkov. Aeroflot declined, as was their right, to provide any explanation as to why they had decided to discontinue the proceedings.

The defendants applied for costs on an indemnity basis and firstly relied on the decision of David Richards J in Clutterbuck and Paton v HSBC plc & others [2016] 1 Costs LR 13 as authority for the proposition that where a claimant proceeds with allegations of serious dishonesty and fraud against a defendant and discontinues those claims without explanation, an order for indemnity costs should follow.

Rose J said that in her judgment there was no basis for distinguishing Clutterbuck from the present case, and on the contrary the present case was stronger given that the allegations of fraud were pursued over eight years and the proceedings were prosecuted vigorously up to a few hours before the whole claim was abandoned the afternoon before trial.

It was held that on the basis the proceedings made serious and consistent allegations of fraud against the Defendants and that the allegations had now been entirely abandoned without explanation, the Defendants were entitled to costs on an indemnity basis.

The second basis on which the Defendants were inviting the Court to award indemnity basis costs was based on applying the ‘more familiar test’ described by Tomlinson J in Three Rivers DC v Bank of England [2006] EWCH 816 (Comm), [2006] 5 Costs LR 714, which referred to circumstances taking the case ‘out of the norm’. Once more Rose J had no hesitation in concluding that the test was met and that Aeroflot should pay the Defendants’ costs of the litigation on an indemnity basis.

Other factors which were taken onto account, including inaccurate statements to the court during interlocutory proceedings, the aggressive pursuit of Mr Glushkov, Mr Jenni and Mr Glushkov’s estate and Aeroflot’s main argument that the Forus Defendants refused to mediate the claim and that the court should penalise the Forus Defendants in respect of costs from that point onwards.

On 12th April 2018 the Claimant’s solicitors wrote to Mr Desai, which Rose J described as ‘shameful’ and effectively berated Mr Tushin and Ms Glushkova. The letter went on to ask many intrusive and hectoring questions about what contact the clients had with others about the trial; what efforts they had made to establish whether Mr Glushkov left a will, and what assets they consider belonged to the estate and the efforts made to identify assets.

Rose J added it was, fortunately, “out of the norm” for a litigant and its legal representatives so to lose sight of any basic standard decent and compassionate behaviour as to send a letter in those terms. It was all the more shocking that given that it seemed very unlikely that at the time the letter was drafted and sent, Aeroflot had no inkling that the next day it would serve a notice of discontinuance, abandoning all claims against Mr Glushkov’s estate.

In considering submissions made, Rose J in her judgment said that it would be inappropriate to take a refusal to mediate into account and accepted that where allegations of fraud and serious wrongdoing are made, the proceedings are intrinsically unsuitable for mediation, and further that there was no possibility of the parties agreeing the identity of a mediator having considered the heated and voluminous correspondence between the parties, which was generated by the need to select an independent solicitor to simply sit in Moscow with a witness giving evidence by video link.

In considering whether it was appropriate to order indemnity costs for the whole of the proceedings or for some shorter period, since Aeroflot had declined to explain why they had discontinued the proceedings, they could not infer that the reasons were connected with developments in the evidence which occurred part way through the proceedings. Rose J ordered that Aeroflot pay all the Defendants’ costs to be assessed on the indemnity basis for the whole proceedings.


Wayne Thorpe