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Moskalev v Yanishevskiy - costs awarded following COMI and statutory demand dispute

In the case of Moskalev v Yanishevskiy [2021] EWHC 1575 (Ch), ICC Judge Barber considered what order for costs should be made in respect of an application to set aside a statutory demand following the Respondent's subsequent withdrawal of the demand, where both COMI and the judgment which the demand concerned were disputed.

Background

The Respondent in this case, Dmitry Yanishevskiy, served a statutory demand on the Applicant, Maxim Moskalev, in England in respect of a default judgment obtained in Hong Kong in the sum of USD6.4million. The Applicant applied to set aside the statutory demand on the basis that his centre of main interests (COMI) was not in England and Wales and he was taking steps to set aside the default judgment in Hong Kong as it was obtained in relation to a fraudulent document.

The Applicant is a Russian national with permanent residency in Cyprus. The Applicant denied his COMI was in England and Wales on the basis that although his wife and children lived in London and he visited them periodically, he resided in Cyprus.

The statutory demand was personally served on the Applicant at his wife’s London flat on 8 November 2020. On 18 November 2020, the Applicant wrote to the Respondent (both via solicitors):

  1. asserting England and Wales was not the appropriate jurisdiction for the statutory demand as the Applicant was a foreign national, did not reside in the London flat, and his COMI was not in England;
  2. stating that the statutory demand was disputed on genuine and substantial grounds as the judgment was based on a forged document and the Applicant was making an application to set it aside; and
  3. inviting the Respondent to withdraw the statutory demand.

The Respondent claimed that the COMI arguments were not convincing, there was significant evidence connecting the Applicant to the London flat, and denied there was any basis to set aside the judgment. He however offered until 7 December 2020 for the Applicant to make an application to set aside the demand and to allow time to make the application to set aside the judgment in Hong Kong, indicating he would consider further extensions if required.

On 26 and 27 November 2020 respectively, the Applicant made applications to set aside the judgment and to set aside the statutory demand. The Respondent claimed the application to set aside the demand was wholly premature as he had requested further information and granted an extension of time, with the possibility of further extensions. He offered to adjourn the application to set aside the demand pending the outcome of the judgment application, or to consent to it on the basis that there be no order as to costs.

The Applicant responded that an application to set aside a statutory demand must be made within 18 days of service of the demand, asserting it was not in the Respondent’s gift to consent or grant extensions of time and that it was the Respondent’s obligation to satisfy himself as to COMI prior to issuing the defective statutory demand, not the Applicant’s obligation to subsequently provide evidence. The Applicant did not accept the Respondent’s offers, offering instead that the demand be set aside on the basis that his costs were paid on the indemnity basis.

On 15 December 2020 the Respondent agreed to set aside the demand, but maintained there should be no order as to costs. On 30 December 2020, the Applicant offered their costs on the standard basis, which was rejected by the Respondent.

Issue before the court

ICC Judge Barber had to decide the issue of costs.

The Applicant argued the Respondent should have applied to have the judgment recognised in the UK and his refusal to withdraw the demand warranted a costs order being made against him. ICCJ Barber noted that a foreign judgment does not need to be recognised to present a statutory demand, as it does not constitute enforcement. However, the Respondent’s refusal to withdraw the demand weighed heavily in favour of a costs award.

The Respondent argued that the Applicant had ignored correspondence regarding the Hong Kong proceedings, had failed to indicate the judgment was disputed before service of the demand, had evaded service of the demand and had acted unreasonably in ignoring the offer for an extension of time.

Decision

ICCJ Barber held that the circumstances of the Hong Kong proceedings was a matter of dispute between the parties, not determined by the court, and in any event would only be one factor of several to take into account. More importantly, the Applicant took proper steps to instruct solicitors in ample time to avoid the set aside application entirely.

The judge held that the Applicant raised his reasons for dispute in plenty of time, following which the Respondent failed to withdraw the demand in a timely manner, entirely at his own risk of costs. The Insolvency (England & Wales) Rules 2016 and Practice Direction on Insolvency Proceedings did not allow for the Respondent to consent to an extension of the 18 day limit for making a set aside application and therefore it was entirely reasonable for the Applicant to issue when he did.

The general rule is that the unsuccessful party pays the successful party’s costs, and in this case the judge found it would be appropriate to make such an order. The Applicant had raised substantial grounds for disputing the debt, the Respondent subsequently withdrew the demand and therefore the Applicant was the successful party. The withdrawing party, as on discontinuance, would and should expect to pay the costs of the proceedings.

The Applicant sought costs on the indemnity basis as their offer for costs on the standard basis had been rejected. ICCJ Barber was not satisfied that the Respondent’s conduct was sufficient to get “across the line” to aware indemnity costs, and as such she granted costs on the standard basis.

For further information on this article, please contact Olivia Reader and Alan Bennett, or another member of our Restructuring & Insolvency team.

 

 

 

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