Non-party disclosure respondents entitled to costs in jurisdictional challenge

The decision centred on an ongoing dispute between Alexander Gorbachev and Andrey Guriev concerning their interests in a Russian fertiliser business, which awaits trial in April 2024. Gorbachev argues that two Cypriot companies acted as trustees of two Cypriot trusts operated by close associates of Guriev. From 2006 onwards, these trustees were represented by a solicitor called Nick Jacob, who originally worked at Lawrence Graham LLP before accepting a job at Forsters LLP.

Gorbachev sought disclosure from Forsters LLP of any documents that could be relevant to the dispute. Forsters identified 4,500 electronic documents and seven physical files that were potentially relevant to the case, but told Gorbachev agreement would be needed from its clients to disclose them.

At a hearing in April 2022, Gorbachev applied for a non-party disclosure order against Forsters in respect of the documents, and obtained permission to join the Cypriot trustees to the application and to serve it on them out of the jurisdiction. The trustees subsequently applied to set aside the order on jurisdictional grounds, but their application was dismissed by the High Court. Handing down his decision, Mr Justice Jacobs also ordered them to pay Gorbachev’s costs for the jurisdictional challenge.

However, that costs decision was recently overturned by the Court of Appeal. It held that the costs incurred in relation to the jurisdiction application fall within the description “costs of the [third-party disclosure] application” under Civil Procedure Rule (CPR) 46.1(2). Even if the jurisdictional challenge is heard separately from and prior to the substantive challenge to the application, the Court of Appeal held that courts should not determine those costs separately.

Brian Booth of Pinsent Masons said: “The costs of third-party disclosure applications are one of the few circumstances where costs do not ordinarily follow the event. CPR 46.1(2) provides that a respondent to a third-party disclosure application will be granted its costs of the application and complying with any order unless it would be appropriate to depart from that rule.”

Booth said: “In circumstances where a third party is unsuccessful in resisting an application for third party disclosure the Court of Appeal has ruled that the applicant will ordinarily pay the third party’s costs. For parties who seek disclosure from foreign entities, this decision might be of some concern because it could be perceived to have supplied ammunition for unmeritorious jurisdiction defences.”

“In arriving at its decision, the Court of Appeal interpreted the phrase ‘costs of the application’ widely so as to include related satellite litigation. In this case the trustees’ application challenging the court’s jurisdiction was held to be in ‘the letter and the spirit’ of CPR 46.1(2). Though unsuccessful, the jurisdiction challenge was considered to have been a legitimate attempt by the third party to protect the privacy of the information sought,” Booth said.

He added: “The general rule at CPR 46.1(2) is sensible in most circumstances. It is usually fair that an innocent third party, who has no access to securing its costs from the actual wrongdoer, should not be prevented from recovering its costs of having to comply with a third-party disclosure application or resisting it in appropriate circumstances. Third parties are entitled to bring legitimate and reasonable challenges to such an application. However, it is important to remember that frivolous defences may still attract adverse costs consequences.”

“In his final comments Lord Justice Males was keen to stress that third parties are not given a ‘free ride’ at the expense of applicants because the court retains the discretion to make a different order in circumstances where a third party has acted unreasonably. Clearly, the courts remain live to unreasonable conduct and will depart from the general rule where it is appropriate to do so,” Booth added. He said that the decision emphasised the importance, for both applicants and respondents, of specialist legal advice on bringing or resisting an application for third-party disclosure.

Mehreen Siddiqui of Pinsent Masons said: “By overturning the High Court’s decision, the Court of Appeal has confirmed that a non-party respondent to a disclosure application will generally be entitled to their costs of an unsuccessful jurisdiction challenge. In this case, the Court of Appeal rejected the suggestion that jurisdiction disputes are separate from merits disputes, as a matter of substance as well as form. It found that to do so, as Mr Justice Jacobs had done when he previously found that a jurisdiction application was ‘free-standing’, would be to favour form over substance.”