BL-2017-000665 - [2025] EWHC 2909 (Ch)

It is not in issue that the Bank is the successful party and is entitled to its costs of the proceedings. However, the Bank seeks its costs on the indemnity basis, which is opposed by the Defendants. In order to succeed in that application, the Bank must establish that there is something, whether it be the conduct of the relevant party or parties or the circumstances of the case, which takes the case outside the norm, a principle which requires the court to identify something “outside the ordinary and reasonable course of the proceedings”, but which does not mean “exceptional”: Esure Services Ltd v Quarcoo [2009] EWCA Civ 959 (“Esure”) at [25] and Whaleys (Bradford) Ltd v Bennett [2017] EWCA Civ 2143 at [28].

The Bank relied on a number of factors as taking this case out of the norm, the first of which was the nature of the Defendants’ wrongdoing. The Bank submitted that it is not only the conduct of the proceedings which are relevant but that the Defendants’ underlying conduct should also be considered. In this regard it relied on (a) CPR 44.2(4) to the effect that, in deciding what order to make about costs, the court will have regard to all the circumstances, including the conduct of the parties and (b) the fact that CPR 44.2(5) provides that such conduct includes conduct before, as well as during, the proceedings. It drew my attention to two cases (Eurasian Natural Resources Corporation Ltd v Dechert LLP (3.8.22; unreported) (“ENRC”), at [64] and Kazakhstan Kagazy v Zhunus [2018] EWHC 369 (Comm) (“Kazakhstan Kagazy”), at [192]) in which the court had taken into account the nature of the conduct which gave rise to the claim in ordering indemnity costs.

Ms Montgomery did not dispute that pre-litigation conduct was taken into account in the cases referred to by the Bank, but she cautioned against concluding that pre-action conduct with no connection to the proceedings themselves is sufficient in and of itself to justify making an order for indemnity costs. The same point was made by Mr Haydon in reliance on the decision of Andrew Baker J in Pisante v Logathetis [2022] EWHC 2575 (Comm). I think that Ms Montgomery was correct to advance her submission in the way that she did, but I also think that pre-action conduct relating to the underlying cause of action is capable of being relevant to an assessment of whether indemnity costs is the right order to make.

The Bank highlighted (a) the nature of the fraud being a scheme which had no underlying commercial rationale ([180] of the Judgment) and was built on dishonest foundations ([802] of the Judgment), (b) the fact that it was committed while the Individual Defendants remained members of the Supervisory Board, (c) the extent of the deception including the creation of vast numbers of sham documents (referred to in many places in the Judgment, e.g., [399]), (d) the instigation of the collusive 2014 Ukrainian Proceedings ([429] of the Judgment), (e) the artificiality of the Transformation ([748] of the Judgment) and (f) the over-inflation of the value of the Transferred Assets ([1181] of the Judgment). I have no doubt that the conclusions I reached on these aspects of the case are factors which support the Bank’s case that these proceedings are outside the norm. Whether or not the seriousness of the conduct which underpinned the cause of action can, in and of itself, be sufficient to justify indemnity costs does not arise, because the Bank relied on and established many other matters which bear on the issue of whether an order for indemnity costs is the right order to make.

One of these relates to the pre-action conduct of the Defendants, not by reference to the unlawful conduct which gave rise to their liability, but by reference to what they did in seeking to frustrate the investigation of their own wrongdoing; a factor which is more intimately connected to the proceedings themselves. This included the initiation of defamation proceedings by Mr Kolomoisky and the English Defendants, designed to create lis alibi pendens obstacles to proceedings by the Bank in England, the obtaining of confidential information relating to the Bank’s post-nationalisation investigations, which appears to have come from sources within the Bank with a continuing loyalty to the Individual Defendants, and the communications between the Individual Defendants in relation to the steps they might take in an effort to thwart the commencement of these proceedings. In my view this conduct was out of the norm in the sense described in the authorities and was on any view conduct before the proceedings commenced but which related to them so as more clearly to engage the language of CPR 44.2(5).

I accept Ms Montgomery’s submission that the evidence shows that Mr Kolomoisky was more intimately involved in this conduct than Mr Bogoyubov, but I also accept the Bank’s submission that pre-action conduct in which he was undoubtedly involved was out of the norm, including in particular what he knew from Mr Kolomoisky about the misuse of confidential information obtained from Bank employees in efforts to thwart the bringing of litigation against them both. Indeed, my finding on this issue was based on evidence, which I accepted, that Mr Kolomoisky even shared with Mr Bogolyubov his draft of a proposed injunction against Hogan Lovells.

The second factor relied on by the Bank was supported by cases such as Esure at [23] and ENRC at [8] in whichthe dishonesty of the Defendants’ defence to the proceedings was a material part of what takes the case out of the norm. The Bank illustrated this submission by pointing to six examples in the Judgment, in relation to some of which I was driven to conclude that the Defendants’ cases were inherently incredible and built on deliberate lies:

In my view, all of these instances point towards the making of an award of indemnity costs. While the focus of the Defendants’ case had shifted by the time of closing submissions to a heavy reliance on the Limitation Defence and the Repayment Defence, they continued to maintain their position throughout that they were not responsible for the unlawful conduct alleged by the Bank, a position which was argued in great detail and with considerable forcefulness by Mr Bogolyubov. I have concluded that this involved them seeking to advance a case which sought to mislead the court as to the reality of what occurred in numerous respects. In my view, the position they maintained throughout the proceedings on this aspect of their respective defences of itself justifies an award of indemnity costs.

In reaching that conclusion I bear in mind Mr Haydon’s submission that Mr Kolomoisky simply put the Bank to proof of its case as he was entitled to do. I do not think that is the right way to characterise the approach he took. He made positive denials in relation to his role in the Misappropriation – it was not simply a case of putting the Bank to proof and that was a position which was maintained in his written closing submissions.

It was also submitted that the costs of the Repayment Defence, the Limitation Defence and the Use of Funds Defence, characterised as they were by Mr Haydon as targeted defences, should be carved out of any order for indemnity costs. I do not agree.

As to the Repayment Defence, I think that the Bank was entitled to rely on the fact that what it had called the free choice element was unpleaded, while the way in which one of its essential elements (the value of the Transferred Assets and in particular the OSFs and the petrol stations) was the subject in a number of respects of misstatements and manipulations which took the matter well out of the norm. As to the Limitation Defence, I disagree for a similar sort of reason, which is also linked to the Bank’s fourth factor (see below). Much of what was argued in relation to limitation was affected by what was alleged to have been the Bank’s awareness of the violation of its rights. The Defendants’ case on attribution was constantly changing and difficult for the Bank to address. In my view this took even this aspect of the case well outside the norm. As to the Use of Funds Defence, it too developed during the course of the trial in an unsatisfactory manner, but in any event, as is apparent from [1124ff] of the Judgment, it is not capable of being analysed in a manner that is independent from the main argument relating to the underlying wrongdoing.

The third factor was evidential failings. The Bank relied on Singh v Singh [2014] EWHC 1770 (Ch) (at [7]) and ENRC (at [10]) in support of a submission that where a party adopts an “extraordinarily casual” or “very casual” approach to its disclosure obligations, this may take the case sufficiently outside the norm to justify an award of indemnity costs. I agree that the conduct of both of the Individual Defendants fell materially short of full compliance with their disclosure obligations. I recorded a summary of the position in [176] to [177] of the Judgment, having given a little more detail of the shortcomings of Mr Kolomoisky’s disclosure in [155] to [161] of the Judgment and the shortcomings of Mr Bogolyubov’s disclosure in [162] to [175]. It is not necessary to repeat my conclusions in any detail, but I was unable to be satisfied that, even taking into account what has been destroyed, all documentation in the control of the Individual Defendants relevant to the disclosure issues had seen the light of the day. The Bank is also entitled to rely on the extent to which I determined that during the course of the preparations for trial, the whole approach adopted by Mr Kolomoisky was to make the disclosure process as painful as possible for the Bank, while I expressed myself sceptical that full disclosure was ever given by Mr Bogolyubov.

The Bank also relied on the fact that neither of the Individual Defendants gave evidence at the trial and did not offer a satisfactory explanation for their failure to do so ([95]-[97] of the Judgment). I do not think that this alone would warrant an order for indemnity costs, but the context is important and, if this failure caused delay, increased costs, or otherwise impeded the efficient progress of the litigation, it is capable of justifying (or at least contributing to a justification for) indemnity costs. In the current case I think that this aspect of the way their defence was conducted, including in particular the findings I made in [89] to [99] and [181] to [184] of the Judgment, was out of the norm. Not only did they justify the drawing of a number of adverse inferences against the Defendants, the approach the Individual Defendants adopted to the evidence on which they initially proposed to rely was inimical to the efficient progress of the litigation.

On this aspect of the application, it was said on behalf of Mr Bogolyubov that he has, throughout the proceedings, taken a proportionate and reasonable approach to the conduct of the litigation. I accept that there were many occasions on which particular issues were dealt with in a cooperative manner and that it was not a full scale war of attrition in which every point was fought to the bitter end without regard to its merits. However, I do not agree that Mr Bogolyubov behaved in the manner suggested throughout. As the Bank submitted, the effect of the findings I have made is that the case he presented was built on allegations which he must have known to be untrue, and that he obfuscated and suppressed documents on a number of occasions. That is not conduct which can be characterised as a proportionate and reasonable approach throughout.

The fourth aspect of the Defendants’ conduct of the proceedings relied on by the Bank was their belated changes of case. The Bank identified a number of respects in which the Defendants both abandoned central aspects of their defences and introduced numerous new points at trial. Three examples were given by the Bank of abandoned aspects of their defence:

The Bank also relied on the decisions of the Individual Defendants not to cross-examine certain witnesses, a number of which were not made until well into the trial and at the time of maximum inconvenience to the witnesses given the travel difficulties caused by the war in Ukraine ([56] of the Judgment). Taken in isolation, all these aspects of the Defendants’ conduct, although disruptive to the proper and efficient progress of the trial, are capable of being explained as the kind of tactical decision which is directed at efficient case management once a party’s legal team have a full appreciation of the points which should be run and those which should not. This would militate against an award of indemnity costs other than in respect of the abandoned aspects of their defences. However, when combined with a number of the other criticisms that have been identified, I do not think that is the correct inference to draw.

One of the reasons for this is the way in which new points were advanced at the trial, of which a number of examples were given by the Bank. The first of these was Mr Kolomoisky’s allegation introduced at the time of the second PTR and subsequently adopted by Mr Bogolyubov by way of an amended defence that the Bank was precluded from contending that any of the Relevant, Intermediary, or New Loans, were void and voidable. This point required further expert evidence to be adduced on the Ukrainian doctrine of venire contra factum proprium, but was subsequently abandoned in closing. Another was the manner in which there was a substantial shift in Mr Kolomoisky’s case on loss (adopted by the other Defendants), which underwent a significant and unpleaded change between its pleading and closing submissions and in respect of which I concluded that an application to amend would have been refused, had it been made, on the grounds of real prejudice to the Bank (at [1094] of the Judgment).

The Bank also identified with some justification constant changes in the Defendants’ case regarding the identity of the person or persons whose knowledge was relevant for the purposes of their limitation defence, culminating in a speculative case based on the possible existence of a whistleblower ([1884ff] of the Judgment). Likewise, another example of the constantly shifting nature of the Defendants’ cases relied on by the Bank was Mr Bogolyubov’s conflicting accounts of Mr Dubilet’s role. He was described as a “very experienced and talented banker” in Mr Bogolyubov’s (withdrawn) witness evidence for trial, while by the opening of the trial, it was said that his conduct was “clandestine and contrary to all principles of prudent banking” and by the end of the trial that he was the key individual responsible for administering the Scheme without Mr Bogolyubov’s knowledge. In my view, taken together with the other matters I have referred to in this section of my judgment, these evidential issues support the award of indemnity costs.

The fifth and final factor relied on by the Bank was the conduct of the Defendants’ four expert witnesses, whom it said failed to meet their obligations under CPR Part 35, a relevant factor when considering whether a case is sufficiently outside the norm to justify an award of indemnity costs. As has been said on a number of occasions in this context, a party must bear responsibility for the failings of the witness it calls (e.g., Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 2531 (Comm) at [16]-[20] and Suez Fortune Investments Ltd v Talbot Underwriting Ltd [2019] EWHC 3300 (Comm) at [29]).

In particular, the Bank highlighted:

The court must be acute to identify the distinction between (a) a situation in which disagreement between experts is to be characterised as nothing more than a matter on which respectably held views might differ and (b) a situation in which the court is driven to conclude that the evidence does not amount to a genuinely independent expression of the expert’s own view, having taken proper account of known relevant material to the contrary. The latter is to be deprecated, but the former is not. In my view the extent to which Mr Kolomoisky’s experts (and the evidence of the four I have identified above was also adopted and relied on by the other Defendants) was unsatisfactory for the types of reason I have sought to summarise, and supports the Bank’s application for indemnity costs.

I also do not accept the submission made on behalf of Mr Kolomoisky (and to which I have already alluded) that the court should adopt an issue-by-issue approach to the basis on which costs should be assessed – standard in some respects and indemnity in others. Taken together, the factors on which the Bank relies had a pervasive impact on the proceedings generally and related directly to many of the core issues in the case. In all of these circumstances, I am satisfied that, taken in the round, the conduct I have summarised above takes this case out of the norm in a way which justifies an award of indemnity costs in respect of the proceedings as a whole. I should add that the factors which I have described are attributable to the way in which each of the Defendants either directly advanced their case or adopted a case made by one or the other Defendants. In my judgment, an order that the Bank’s costs be paid by the Defendants on the indemnity basis is the right order to make in this case.