Costs of a jurisdiction challenge to a third-party costs order caught by CPR 46.1(Gorbachev v Guriev)

11 Apr 2023

Dispute Resolution analysis: Overturning a decision of the lower court, the Court of Appeal has concluded that the costs associated with a jurisdictional challenge to an application for third-party disclosure are caught by r. 46.1 and should usually be paid by the Applicant and should not be subject to a separate determination, even where the jurisdiction challenge fails.

Gorbachev v Guriev [2023] EWCA Civ 327

What are the practical implications of this case?

This is an interesting case concerning the correct approach to the award of costs in relation to applications for third-party disclosure and the scope and interpretation of rule 46.1 of the Civil Procedure Rules. The Court of Appeal has confirmed that where a Respondent to a third-party disclosure application disputes the application on a range of grounds, including jurisdiction, all those costs are caught by rule 46.1, CPR and, absent unreasonable conduct on the part of the Respondent, will be payable by the Applicant. Even if the jurisdictional challenge is heard separately from and prior to the substantive challenge to the application, the Court should not determine those costs separately. Whilst the Court was at pains to observe that this does not give overseas Respondents a free ride to challenge jurisdiction at the expense of the Applicant, the decision is likely to increase the attraction of challenging applications for third-party disclosure on multiple grounds.

What was the background?

Mr Gorbachev and Mr Guriev are involved in a dispute concerning their interests in a Russian fertiliser business, PJSC PhosAgro. This dispute awaits trial in April 2024. One of the issues in the proceedings is that two Cypriot companies, T.U. Reflections Ltd (“TU”) and First Link Management Services Ltd (“First Link”) (collectively, the “Trustees”) acted as trustees of two Cypriot trusts. Mr Gorbachev argues that the Trustees have been operated by close associates of Mr Guriev. From 2006 onwards, the Trustees were represented by Mr Nick Jacob, originally a solicitor at Lawrence Graham LLP and latterly of Forsters LLP. As a consequence, Forsters LLP have in their possession in this jurisdiction a range of documents which are potentially relevant to the proceedings. In 2021, solicitors for Mr Gorbachev wrote to Forsters LLP seeking disclosure of those documents. Forsters responded saying that the documents were being reviewed with the intention of seeing whether agreement could be obtained from its clients for their disclosure. Forsters identified 4,500 electronic documents and 7 physical files of potentially relevant documentation. Agreement was not reached and, in August 2021, Mr Gorbachev issued an application for non-party disclosure pursuant to section 34 of the Senior Courts Act 1981 and rule 31.17, CPR. The application came before HHJ Pelling QC on 11 April 2022. At that hearing, after being invited to do so by the judge, Mr Gorbachev applied orally and without notice for permission to join the Trustees to the application and to serve on them out of the jurisdiction. Both permissions were granted, the judge holding that there was a serious issue to be tried and concluding that the matter fell within the gateway in CPR PD6B para 3.1(20). Service out by an alternate means, namely service on Forsters was ordered and the application was duly served on the Trustees at Forsters’ offices on 12 April 2022. The Trustees applied to set aside the order of HHJ Pelling QC on jurisdictional grounds, specifically that the matter did not fall within Gateway (20), and subsequently expanded the scope of the application slightly to include arguments relating to the Convention on Taking Evidence Abroad in Civil or Commercial Matters. The jurisdictional challenge to the order was dismissed by Mr Justice Jacobs on 6 July 2022. He consequently ordered the Trustees to pay Mr Gorbachev’s costs of the jurisdictional challenge. An appeal against the jurisdictional challenge failed and an appeal against the costs order of the jurisdictional challenge was adjourned until after that substantive appeal. The disclosure application itself was then deemed to be non-compliant with CPR r.31.17. Mr Gorbachev was ordered to amend and restore it and that matter awaits determination in May 2023.

What did the court decide?

The Trustees argued their appeal on the basis of five core submissions. (1) The Judge should have applied the principle that a third party resisting a third-party disclosure application will be entitled to their costs, even if they challenge the application and the application is unsuccessful, unless they have behaved unreasonably. Unreasonable behaviour connotes more than just actively opposing the application. (2) That principle forms the rationale for CPR 46.1. The costs in this case fell within CPR 46.1, but the principle should have been applied irrespective of whether CPR 46.1 was applicable on its terms. (3) To treat the jurisdiction application as “self-standing” was to promote form over substance. The challenge to jurisdiction and to the merits of the application were simply two grounds for resisting the disclosure application. (4) It was reasonable for the Trustees to advance the jurisdiction challenge in circumstances where at the lowest there was doubt as to whether the Court had jurisdiction to order disclosure. (5) Alternatively, if the Court was persuaded that the challenge was not wholly reasonable, the appropriate order would be no order for costs. The appeal was allowed. Whilst the Court was divided on the question of whether the costs of the jurisdiction fell within the letter of rule 46.1, all agreed that they fell within its spirit and in any event that the Applicant should pay the costs of the application. Popplewell LJ said at [35]:

If it is not unreasonable for an innocent third party to resist disclosure, I can see no justification for having a different costs rule where the resistance is on the grounds that the Court has no power to make the order from that where there is resistance on any other grounds. Both are legitimate means by which the third party may seek to protect the privacy of its information.

This represented the general rule, however, the Court recognised that there would be exceptional cases in which the costs of a jurisdiction challenge to a third-party disclosure application could be treated separately, however, this was not such a case.

The Court was further satisfied that Mr Gorbachev would have grounds for seeking to recover costs paid out to the Trustees from Mr Guriev as part of the costs of the main claim if it succeeded.

The Court did not consider that this decision gave a “free ride” to an overseas third party to challenge the jurisdiction of the Court at the expense of the applicant for third party disclosure. The tactical or bad faith use of a jurisdiction challenge in this way would justify disapplying the general principles set out above on the grounds that it would constitute unreasonable conduct.

Case details

  • Court: Court of Appeal, Civil Division
  • Judges: Lord Justice Males, Lord Justice Popplewell and Lord Justice Dingemans
  • Date of judgment: 28 March 2023

Article by Phillip Patterson – first published by LexisNexis


Phillip Patterson

Call: 2008


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