Court considers whether to set aside or stay a court order (Deutsche Bank v Sebastian Holdings)

Court considers whether to set aside or stay a court order (Deutsche Bank v Sebastian Holdings)

In Deutsche Bank v Sebastian Holdings [2017] EWHC 913 (Comm), Judge Waksman QC has refused to set aside or stay a court order dealing with detailed assessment of costs pending a decision of the European Court of Human Rights (ECtHR)—the appellant claiming his right to a fair trial had been breached. The judgment reiterates the issues the court will consider when determining whether to set aside or stay a court order and, in particular, considers the approach of the court where there are proceedings in the ECtHR.

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What are the practical implications of this case?

Where a court does not make an order for detailed assessment at the time it makes an order for an interim payment, it is implicit that the costs will be dealt with by way of detailed assessment. If a party seeking to appeal an element of the judgment wishes the detailed assessment to be stayed, the application for a stay should be made at the time the interim payment is ordered. To leave it until an order for detailed assessment is made may count as a discretionary factor against the person seeking the stay.

Where a NPCO order is made in a substantive judgment, the setting aside of an order for the detailed assessment of costs does not take the parties back to the position prior to the NPCO being ordered, the NPCO would still apply.

There are no authorities as to whether a court should or may order a stay pending a claim proceeding in the ECtHR. The court may consider whether there is a possibility that an ECtHR decision would result in any change to the underlying legislation. If not, then the real question may be whether curing a breach, if the ECtHR finds there had been a breach, would make any difference to the judgment which has already been handed down.

What was this case about?

The trial judge in a decision upheld by the Court of Appeal made Mr Vik the subject of a NPCO. Mr Vik sought to have elements of a subsequent court order for detailed assessment either set aside or, alternatively, stayed pending a decision of the ECtHR as to whether there had been a breach to his right to a fair trial (article 6 of the Human rights Convention). His argument being that he had not been given any warning during the proceedings that a NPCO may be sought.

 What were the facts?

Deutsche Bank (the Bank) succeeded in a claim against Sebastian Holdings (SHI) and sought and obtained a NPCO against Mr Vik, the sole director and shareholder of the company. Mr Vik was ordered to make, and did make, an interim payment to the Bank.

Mr Vik appealed against the NPCO before the trial judge and the Court of Appeal and in both cases the appeal was dismissed following consideration of Mr Vik's article 6 points. The Court of Appeal considered this in some detail, see paras [30]-[39] and [57] of the Court of Appeal decision and held that it was:

difficult to see in what respect Mr Vik did not have a fair opportunity to contest all the matters on which the Bank relief in support of its application. There is nothing in the veiled suggestion that the judge did not conduct the proceedings fairly or that Mr Vik's article 6 rights were infringed.'

The Bank tried to obtain payment of the remaining costs from Mr Vik but following his failure to respond the Bank sought and obtained an order for detailed assessment of the costs (the Order)—the order included a provision at para 4 for Mr Vik to pay the costs of the detailed assessment proceedings. Mr Vik was given the right to apply to have the Order varied or set aside given that it had been made on the papers and he made an application to set aside the Order and to stay the prior application of the Bank for the balance and for the detailed assessment of those costs pending the decision of the ECtHR as he intended to make a claim to that court concerning the breach of his right to a fair trial.

The elements of the Order which Mr Vik sought to set aside were paragraphs 1-4:

  1. Pursuant to s. 51 Senior Courts Act 1981, Mr Vik is to pay [the Bank's] costs awarded against the First Defendant (SHI) pursuant to paragraphs 3 and 4 of the order of Cooke J dated 8 November 2013 plus interest accrued thereon.
  2. Mr Vik shall be made a party to any detailed assessment of the costs awarded to [the Bank] against SHI pursuant to paragraphs 3 and 4 of the order of Cooke J dated 8 November 2013.
  3. Mr Vik shall be entitled to set off the sum of £36,204,891 from any amount payable under paragraph 1 above.
  4. Mr Vik is to pay [the Bank's] costs of the detailed assessment of the costs awarded to [the Bank] against SHI pursuant to paragraphs 3 and 4 of the order of Cooke J dated 8 November 2013 '.

The application before the court was in substance a rehearing of the applications which had led to the order being made.

Of relevance to the court's approach during this application was Mr Vik's conduct in the past three years since the initial NPCO was made. Mr Vik while remaining the sole owner and director of SHI had not given any guarantees for the liabilities SHI owed to the Bank and he had systematically set about depleting SHI of its assets.

The application to set aside the Order

This element of the application raised two issues:

  • what would the effect if the order were set aside?
  • should the order be set aside?

The effect of setting aside the order

The Cooke J judgment had included an order for a payment on account of costs—Mr Vik had made the payment. Such an order is only made pending detailed assessment and therefore it was implicit that detailed assessment proceedings would take place. The provisions set out in paras 1 and 2 of the Order were therefore 'an inevitable consequence of the earlier judgments'. The judge noted that while para 3 of the Order was new—it was not implicit from the previous court judgments—it entitled Mr Vik to set off the interim payment he had already made and therefore would be a condition that he would want in the court order.

The judge disagreed with the submission that setting aside the Order would effectively take the parties back to a position prior to the NPCO being made against Mr Vik. The original judgment of Cooke J, as upheld by the Court of Appeal, ordered the NPCO against Mr Vik and those judgments would continue to stand whether or not the Order was set aside.

The issue for the judge to consider was therefore on what basis the court would not make the orders set out in paras 1 -3 of the Order if there was a successful ECtHR decision in favour of Mr Vik. He concluded that this would only occur if the Court of Appeal re-opened its original judgment.

Would the Court of Appeal re-open its earlier decision?

The judge held that there was no real prospect of the Court of Appeal re-opening its earlier decision.

CPR 52.30 provides that the Court of Appeal can only do this where 'it is necessary to do so in order to avoid a real injustice' and the circumstances are exceptional—this strict approach was emphasised by the Court of Appeal in Lawal v Circle 33. The judge did not consider that Mr Vik fell within this criteria. Any decision by the ECtHR in favour of Mr Vik would not show that the Court of Appeal had been fundamentally wrong in the principles it had applied but rather that it had reached the wrong decision as to whether there had been a breach of human rights in this case. As stated in Lawal the appellant would need to show that the integrity of the earlier litigation process had been critically undermined and in this case, as set out in the Court of Appeal judgment, Mr Vik had had every opportunity to contest the relevant facts in the case.

The judge then considered whether the Court of Appeal would reach a different outcome were to re-open its earlier decision. He considered this to be 'extremely unlikely' given that it had considered an NCPO to be appropriate. Even if the ECtHR held that a lack of warning was a breach of Mr Vik's human rights it would extremely speculative to say that had Mr Vik received a warning he would have settled the claim to avoid personal costs exposure—the evidence before the Court of Appeal did not indicate that this would have been the case and if additional evidence were required to show this, should the appeal be re-opened, it could not be admitted under the principles in Ladd v Marshall.Whitbread v Falla [2000] Lexis Citation 4234, at [29].

The judge made reference to the decision in Whitbread v Falla which sets out the distinction between the approach of a court to stay an underlying claim or to stay of execution of the judgment. However, he did not consider it to be of assistance in this case.

The basis on which a stay will be ordered

A stay was not ordered in this case. While a number of issues were considered by the judge, a key consideration was the conduct of Mr Vik during the proceedings as a whole and the fact that he had consistently sought to avoid judgments made against SHI and the judge considered that there was a strong need for finality in this case.

Relevance of ECtHR proceedings

The judge noted at para [53] that he considered the ECtHR claim to be a weak one—he was entitled to consider the strength of the claim when determining how to exercise his discretion in this application.

The more general position was whether, when there are proceedings before the ECtHR, the English court must order a stay pending the decision of that court. While the authorities refer to various scenarios pending decisions in other courts, they do not deal with the position of a pending claim in the ECtHR.

The authorities referred to were that the court:

  • must order a stay 'where it has ordered a reference to the ECJ'
  • may order a stay if the case involves a legal point which is in a case 'pending before the ECJ' (Johns v Solent)

may order a stay or adjourn a case which turns on the same points as a test case or a decision under appeal to the Court of Appeal or the Supreme Court (Re Yates v Paterson)

Mr Vik sought to rely on the decision in Sparks v Harland, a case involving the ECtHR. However, the judge distinguished this on the basis that it was a claim involving the application of limitation periods in a claim for damages arising from historic sexual abuse. The ECtHR had already held that such claims were not time barred and the Sparks decision had led to a change in the provisions in the English Limitation Act 1980. The rationale as to why this case should be distinguished is set out at paras [39]-[42].

Mr Vik submitted that if the ECtHR were to find in his favour, the English court would need to take that into account even if the ECtHR judgment did not result in any change in the domestic legislation. The general position in such cases is that the UK government would have to pay compensation rather than change its underlying legislation. The judge disagreed with Mr Vik and considered it unlikely that a definitive ruling would be given which would need to be applied by the English court. It was more likely the case would deal with the application of article 6 to the specific facts in the case and such arguments had already been made and addressed in the English courts' final judgments. In his view, the judge considered that the real question was whether curing a breach, if there was found to have been one, would make any difference and this was not a question the ECtHR would be likely to decide.

The judge also considered that the fact Mr Vik did not seek to obtain a stay at the time of the order for an interim payment and only did so after the Order was made were discretionary factors against him.

When will a stay be ordered

For a stay to be ordered it is necessary to show:

  • solid grounds for the stay, and
  • the prospect of irremediable harm if the stay is not granted

While in some cases it may not seem to fair for a stay not to be granted, as set out by Eder J in Otkritie International Investment v Urumov, a stay will not normally be granted:

to prevent the kind of temporary inconvenience that any appellant is bound to face because he has to live, at least temporarily, with the consequences of an unfavourable judgment which he wishes to challenge in the Court of Appeal'.

The Court of Appeal in Hammond Suddard Solicitors v Agrichem International stressed that it was a discretion of the court as to whether to stay an order pending an appeal and that the essential question was whether there was a risk of injustice to one or both parties eg a risk that the appeal would be stifled or that an appellant would be unable to recover the monies it had been awarded.

A key consideration in this case was that the ECtHR is not an court of further appeal for English court judgments and so successful ECtHR proceedings do not generally change the underlying court judgment unless there is a change to the legislation which would result in a reversal of the earlier decision, as seen in Sparks. Consequently, unless there is a real prospect of a change in legislation, a pending claim to the ECtHR is not a basis to order a stay of the enforcement of the underlying judgment. The submission to distinguish this case on the basis that it was dealing with a stay of detailed assessment rather than a judgment was rejected by the judge.

Applying the two-tier test set out in Otkritie, the judge:

  • considered it clear that Mr Vik would not suffer irremediable harm if the court did not order a stay. Detailed assessment proceedings can take a considerable length of time and a ECtHR decision may be handed down before Mr Vik had to respond in the detailed assessment proceedings and certainly prior to the date on which he would have to pay any costs under the assessment. Even if he was successful in the ECtHR and the judgment was handed down after he had paid monies out under detailed assessment, he would be repaid those monies by the Bank and so it could not be said that he would suffer irremediable harm
  • considered that if a stay were granted the Bank would/may suffer prejudice not only by not receiving the costs it was due but also because on the evidence to date it could be seen that Mr Vik had been systematically dissipating SHI's assets and should that continue to happen during a stay the Bank would not be able to enforce the costs order
  • acknowledged that if all the orders against Mr Vik were ultimately reversed he would suffer losses in that he would not recover 1000% of the costs he had incurred but that scenario faced most appellants and it was not a strong factor in deciding whether to grant the stay or not

It should be noted that while the Bank had made arguments in the issue of funds being dissipated, Mr Vik's legal team sought to argue, in a post judgment submission, that the Bank was not entitled to make such an argument as Mr Vik had not had an opportunity to file evidence on this point. The judge considered it far too late to make that sort of submission.

What was the position in respect of payment of the cost of detailed assessment?

Paragraph 4 of the Order stated that:

Mr Vik is to pay [the Bank's] costs of the detailed assessment of the costs awarded to [the Bank] against SHI pursuant to paragraphs 3 and 4 of the order of Cooke J dated 8 November 2013'.

The issue before the court was whether such costs should be ordered prior to the commencement of detailed assessment or whether they were a matter for the costs judge and should be addressed at the end of the detailed assessment proceedings. The judge could not think of a scenario whereby Mr Vik would not be order to pay the costs but as it was not inevitable. He therefore changed the wording of the order but in doing so sought to ensure that it was aligned with the fact that Mr Vik's liability for costs was aligned to that of SHI, a point the judge considered to be important. The order therefore read:

Subject to any further or other order of the Court upon the detailed assessment Mr Vik is to pay [the Bank's] costs of the detailed assessment of the costs awarded to [the Bank] against SHI pursuant to paragraphs 3 and 4 of the order of Cooke J dated 8 November 2013 in so far as such costs of the assessment are also ordered against SHI'.

The italics being the additional wording added by the judge.

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About the author:

Janna is a dispute resolution lawyer with a Masters in Construction Law and Dispute Resolution. During her time in private practice at both Herbert Smith and Denton Wilde Sapte (now Dentons) she worked on complex international disputes, both litigation and LMAA arbitrations, dealing with technical cross border issues.

Janna deals primarily with cross border issues and is active in the work being undertaken in relation to the implications of Brexit for Dispute Resolutions lawyers. She also heads up a LexisNexis costs team bringing together expertise from across the company to deal with the costs issues facing the profession and was a contributing author for the Cook on Costs supplement dealing with the Jackson reforms. Janna is a frequent contributor to the legal and professional press, including the New Law Journal and Counsel magazine.