Floating/Invalid Choice of Law Clauses. The Singapore High Court in Shanghai Turbo.

Marcus Teo has excellent analysis of Shanghai Turbo Enterprises Ltd v Liu Ming [2018] SGHC 172. The issue is well-known in contract law as such and takes one or two special forms in conflicts: what is the fate of a contract as a whole, and /or of contractual clauses individually, when part of a clause is defective.

In the case at issue, the relevant contractual clause read

This Agreement shall be governed by the laws of Singapore/or People’s Republic of China and each of the parties hereto submits to the non-exclusive jurisdiction of the Courts of Singapore/or People’s Republic of China.”

As far as the choice of court part of this clause is concerned, non-exclusive choice of court comes with strings attached, depending on the laws of the States concerned: under the editorship of Mary Keyes, Michiel Poesen and I have contributed to an extensive comparative volume on same wich is forthcoming. However for choice of law one need not look at the specific laws of a State to appreciate that this clause thus formulated is simply a lame duck. No clear choice of law is made at all. The pragmatic solution is to ignore the useless clause and determine the proper law of the contract in the absence of a valid expression of parties’ autonomy. Yet conceptually an argument can, and has been made that to do so ignores the very high relevance of the lex contractus in the very contract formation – a conceptual quagmire which in EU law is addressed by Rome I’s ‘bootstrap’ principle.

In the case at issue, the High Court follows a pro-validation approach (favor contractus): the invalidity of the choice of law clause does not affect the formation of the main contract. A commercially sensible solution which Marcus analysis critically in excellent detail.

Geert.

(Handbook of) EU Private international law, 2nd ed. 2016, Chapter 3, Heading 3.2.7.

 

 

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Publish and rule. The Belgian Supreme Court on scholarship and the judiciary.

Thank you Jelle Flo for alerting us to the succinct Belgian Supreme Court ruling of 21 November 2018. A judge had published a scholarly piece on an issue of law, in tempore non suspecto, expressing a point of view which the Advocate General at the Court (here effectively acting as an amicus curiae) in a later specific case, agrees with.

The judiciary does publish regularly-ish. As do solicitors and barristers. For those of us who teach as well as practice, this at most leads to interesting times when opposing counsel or the bench points out a scholarly piece seemingly expressing a different point of view than our submissions; ordinarily, things are distinguishable…

For the judiciary, the Supreme Court sees no issue as long as the piece meets with scientific standards: ‘Le fait qu’un juge ait adopté un point de vue sur une question juridique dans une publication scientifique n’implique pas qu’il ne dispose plus de l’impartialité requise pour connaître d’un litige abordant ce sujet, pourvu qu’il ait développé sa pensée dans le respect des règles de la science du droit.’

The Court does not express guidance on what such standard might be – peer review perhaps comes to mind.

Geert.

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BUAK. Bot AG on the concept of ‘court’ in the Brussels I Recast.

In Case C-579/17 BUAK (Bauarbeiter-Urlaubs- u. Abfertigungskasse v Gradbeništvo Korana d.o.o.) Bot AG opined end October – the English version is not yet (if ever) available. The case was formulated by the referring court as one on the scope of application of the Recast – in particular the social security exception, and the ‘civil and commercial’ charachter. However the AG suggests this is a question which the referring court by now ought to be able to answer itself, given the extensive case-law of the Court. Instead, the question is turned into one on admissibility, namely whether BUAK, a quango in the social security arena (here: the Construction Workers’ Leave and Severance Pay Fund requiring from a Slovenian company additional wages resulting from rules on posted workers) qualifies as a ‘court’ within the meaning of Article 53 of the Regulation.

This proviso now reads ‘The court of origin shall, at the request of any interested party, issue the certificate using the form set out in Annex I.’ The equivalent provision in Brussels I (Article 54) read ‘The court or competent authority of a Member State where a judgment was given shall issue, at the request of any interested party, a certificate using the standard form in Annex V to this Regulation.’ – emphasis added.

The Advocate General suggests that where issues relevant to Brussels I Recast (particularly: whether the issue falls at all within its scope) have not yet been discussed prior to the authority being asked to complete the Brussels I Recast form, such authority ought to be able to issue preliminary review requests to the CJEU. However (at 54) such authority qualifying as such (where it is a different authority from the court having taken the decision), ought to be exceptional: the whole point of the enforcement Title of the Regulation being speed and swiftness.

All in all an interesting turn of events.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.16.1.1.

 

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National Bank of Kazakhstan v Bank of New York Mellon. Branches’ activities, Article 7(5) Brussels I Recast and engagement of Article 30.

Thank you Ali Malek QC who acts for claimants (and who as I have noted, is a busy and efficient bee in international litigation land) for alerting me to a further episode of Kazakhstan v BNYM. This current jurisdictional challenge is part of a long-running saga relating to the enforcement of a Swedish arbitration award dated 19 December 2013 in favour of the “Stati parties”, the Second to Fifth Defendants, and against the Second Claimant, the Republic of Kazakhstan (“RoK”).

Many of the issues are ex-Brussels I Recast and /or Lugano Convention yet I report on them anyway for they reveal interesting issues on the relationship between foreign courts relevant to attachment (and enforcement generally), and courts with jurisdiction on the merits.

In [2017] EWHC 3512 (Comm) National Bank of Kazakhstan v Bank of New York Mellon (BNYM) which I reviewed here, Popplewell J had dismissed claims essentially designed to establish that BNYM is not obliged or entitled to freeze assets of the National Fund by reason of Belgian and Dutch court attachment orders.

Teare J has now held a few weeks back – helpfully in [2018] EWHC 3282 (Comm) also summarising the many proceedings which the blog has not always reported on. Trigger for this latest instalment of proceedings is claimants having sought to challenge a Belgian conservatory attachment before an “Attachment Judge” of the Belgian court. The Attachment Judge upheld the attachment order in a judgment dated 25 May 2018.

RoK seeks a declaration that the debts or assets held by BNYM(London) and said to be subject to the attachment order are in fact held by BNYM(L) solely for the National Bank of Kazakhstan (“NBK”), the First Claimant. They therefore submit that the attachment order has no subject-matter, because there are no assets to attach. The Claimants contend that this question was referred to this court by the Belgian court.

A provision of Belgian law cited by the Attachment Judge, article 1456(2) of the Belgian Judicial Code, provides as follows: “If the third-party debtor disputes the debt claimed by the creditor, the case is brought before the competent trial judge or, as the case may be, the case is referred to the competent trial judge by the enforcement court.” Further proceedings are now pending in Belgium, in which the Stati parties seek to convert the ‘conservatory’ attachment order into an ‘executory’ attachment order. In those proceedings, the Stati parties have raised a number of arguments in support of their contention that the GCA assets are properly held for RoK (rather than merely NBK). These include Belgian-law arguments relating (inter alia) to piercing of legal personality, sham trusts, and “abuse of law”.

The crucial consideration discussed by Teare J in current proceeding is that the Stati parties submit that there is no “serious issue to be tried” (hence no jurisdiction) as between the Claimants and the Second to Fourth Defendants, (i.a.) because “the declarations sought […] will not affect the Belgian Court’s decision” since that Court “faces a number of Belgian law arguments unrelated to the GCA with regard to the ROK debt question”.

There was a dispute between Belgian law experts as to precisely what had been remitted by the Attachment Judge to the High Court and it is worth repeating each assertion in full: at 28-29

‘The evidence of Mr Brijs (the Stati parties’ Belgian law expert [GAVC fellow Leuven Class of 1993] ) is that “a pure question of English contractual law will not resolve the core dispute” because “a Belgian enforcement court would still have to evaluate – amongst other things – the arguments raised by the Stati parties under Belgian attachment law” such as piercing legal personality, sham trusts, and abuse of law. Further, “the Belgian Enforcement court did not decide the arguments – not because the judge “envisaged” that these arguments should be resolved by an English Court or because the Belgian Enforcement Court found that it could not decide them (when in fact it can) – but solely because the Belgian Enforcement Court considered that it did not need to decide them… It is difficult to conceive why an English court should decide on e.g. matters that concern Belgian public policy, or on the question whether there is a sham trust structure to the prejudice of the creditors and what the sanction/effect thereof is on the Belgian attachment.”

The evidence of Mr Nuyts (the Claimants’ Belgian law expert [GAVC colleague and learned friend extraordinaire ) is that “[t]here is nothing in the Belgian judgment to show that the Belgian Court envisaged the English court deciding only some of the issues, and not the arguments raised by the Stati parties such as piercing of legal personality, sham trust, and abuse of law. These arguments had been raised at length by the Stati parties in written submissions in the Belgian proceedings, and the Belgian Court has distinctly decided not to address any of these arguments, leaving them to be decided by the English Court… The Belgian Judgment holds in general that the “challenge” relating to “the debt of the third party” must be referred to the English court… [and] that it is for the English court to decide in general “whether or not a debt exists from BNYM towards Kazakhstan”.”

It is Mr Nuyts’ evidence that convinced Tear J. At 31 ‘In this case, however [GAVC despite Meester Brijs’ correct statement that there are circumstances in which the enforcement court is competent to decide on the merits], the enforcement court has clearly decided that the English court is the competent court to decide the merits.’ At 35 the relevant passages of the Belgian Court are copied:

“The seized-debtor is entitled to challenge the declaration from the garnishee before the attachment judge. However, this challenge relates to the debt of the third party and must be referred to that trial court in the proceedings on the merits, under article 1456, 2nd para. BJC. The competent trial court is, as stated by Kazakhstan itself, the English court who must apply its own national substantive law. […] Both requests relate to the subject-matter of the attachment, notably whether or not a debt exists from BNYM towards Kazakhstan. Kazakhstan disputes the existence of such debt. The attachment judge cannot and may not settle such dispute, but only the judge on the merits. The judge on the merits is, as already mentioned above, the English court who must apply its own national law.”

That finding on the scope of referral to the English courts, also plays a role in the assessment of abuse: at 46: ‘I do not consider that it is an abuse of process for the Claimants to raise in these proceedings issues not argued before Popplewell J or the Court of Appeal in the earlier English proceedings. First, those proceedings served a different purpose, namely, the determination of BNYM(L)’s contractual entitlement to freeze the GCA assets and in particular the scope of clause 16(i). Second, it appears that the Claimants did in fact seek to raise the wider issue, or something like it, before Popplewell J. but were not permitted to because the Stati parties were not before the court. Third, it would be odd, to say the least, for this court to hold that these proceedings were an abuse of process in circumstances where the issues raised by the proceedings had been referred to it by the Belgian court. It cannot, I think, be in the public interest to frustrate the order of the Belgian court. On the contrary, comity and the public interest point to these proceedings serving a legitimate and proper purpose.’

Finally, a cursory look a the forum conveniens issue is warranted: at 58-61:

  1. Mr Sprange, for the Stati parties, submitted that “England is not a proper forum for a claim against the Second to Fourth Defendants, where that claim seeks (on the Claimants’ case) to conclusively determine issues of the validity of a Belgian executory attachment, which are properly the subject of Belgian attachment law for a Belgian attachment judge to decide”.
  2. Mr Malek, for the Claimants, submitted that the real dispute is not about “the validity of a Belgian executory attachment”, but rather “whether there is an obligation owed by BNYM London to RoK capable of forming the subject-matter of a Belgian attachment.” Further, he submitted that the effect of the Belgian Attachment Judge’s decision was to determine that England was the appropriate forum. Mr Malek relied upon this decision as giving rise to “an estoppel of a particular, autonomous, EU kind”; in the alternative, he submitted that it was a strong factor to be weighed in the analysis of the appropriate forum. Finally, Mr Malek submitted that the only realistic alternative to the jurisdiction of the English court would be the Belgian court, and that “the Belgian court is materially worse placed than this Court because it would be investigating matters by reference to an English-law governed contract, the GCA (so far as issues of Kazakh law, or facts in relation to the relationship between NBK and RoK, are concerned, the Belgian court enjoys no advantage over this Court).”
  3. I am unable to accept Mr. Sprange’s submission. This court will not be asked to determine the validity of the conservatory attachment order made in Belgium. Rather, it will be asked to determine what, if any, assets constitute the subject-matter of that order. The Belgian Attachment Judge plainly considered that a dispute concerning the content of the attachment – which, on its terms, constitutes only such assets (if any) as are held by BNYM(L) for RoK under the GCA – is a question for this court.
  4. The fact that the Belgian court has referred the dispute to this court is a cogent reason, indeed a compelling reason, for concluding that this court is a proper forum for determining the dispute. It would not be in accordance with comity to send the dispute back to Belgium. There is no need to consider Mr. Malek’s further submissions.

I quite like Ali Malek QC’s idea of “an estoppel of a particular, autonomous, EU kind”; linked to considerations of mutual trust, one assumes.

Finally, one of the defendants is based in Gribraltar and against it, (now) Article 8(2) Brussels I Recast applies, re third party proceedings. There is little to none CJEU authority. At 68 ‘I consider that the wording of article [8](2) is wide enough to encompass a situation in which a person is a proper party to a dispute between other parties to which he has a “close connection”, so long as that dispute has not been “instituted solely with the object of removing him from the jurisdiction of the court which would be competent in his case” and at 69 ‘This is a case in which “the efficacious conduct of proceedings” demands the presence of Terra Raf in this jurisdiction. I therefore find the requirements of article [8](2) to be satisfied.’

Teare J’s findings on this point also mean he need not consider (now) Article 7(5)’s jurisdiction for activities arising our of branch activity on which as I noted, I also have my doubts.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.11, Heading 2.2.14.

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Glaxo v Sandoz. Collateral use of evidence. Discovery (‘disclosure’) shopping at the High Court.

Glaxo Welcome v Sandoz et al  [2018] EWHC 3229 (Ch),  puts the spotlight on an important part of international forum shopping, namely discovery /disclosure, in particular collateral use of document obtained in one jurisdiction, in litigation in another. What is fundamentally at stake is that the launch of proceedings in a discovery friendly jurisdiction, may be simply employed as a jack for obtaining evidence to be used in a discovery-heavy jurisdiction.

Claimants apply for an order permitting the second claimant to use certain documents disclosed by some of the defendants (“the Sandoz Defendants”) in the claim in the English courts, in a claim in Belgium between the second claimant and Sandoz NV (“Sandoz Belgium”). The two claims are part of global litigation between members of the GlaxoSmithKline and Sandoz groups of companies. In Europe there are claims in several jurisdictions including England and Wales, The Republic of Ireland, Germany, The Netherlands and Belgium. The disclosure exercise between the claimants and the Sandoz Defendants has been very substantial. It involved the Sandoz Defendants reviewing 406,300 documents using 50 legally qualified reviewers. This led to the subsequent disclosure of slightly in excess of 75,000 documents to the claimants.

As Marsh CM notes at 11, ‘There is a marked contrast in the manner in which litigation is conducted in England and Wales on the one hand and Belgium (and most other Civil law countries) on the other hand. In England and Wales, the ability to obtain disclosure that is adverse to the other party’s claim is an important feature of litigation. However, the evidence provided in connection with the application shows that disclosure is only available in a very limited form in Belgium. One of the issues to be determined is whether disclosure obtained in this jurisdiction should be made available to a party that is engaged in litigation in a jurisdiction where disclosure, if not unknown, is very limited in scope.’

He is of course spot on: obtaining relevant documentation from the other party is not easily done in Belgium (and elsewhere) and often needs to be deduced from final filings of submissions or indeed at the hearing stage.

Relevant authority is discussed at 22 ff., and is really quite relevant: the discussion shows among others great consideration of rule of law concerns, mutual trust between EU Member States and Council of Europe parties, and the relevance of applicable law in the assessment (at 22(5): ‘The Belgian Claim proceeds under harmonised EU law as set out in the Trade Mark Directive. It follows that the English court is in a better position to consider initial relevance of the documents to the issues in the Belgian Claim than would be the case were the claim to be one brought under domestic Belgian law’).’

Final conclusion is in favour of collateral use of a substantial amount of documents. It is worth copying Marsh CM’s reasons in full: at 60:

(1)    The parties to this claim, and associated companies, are engaged in litigation on a very wide scale in many jurisdictions. They are part of very substantial businesses with equal resources. There is no suggestion that the application is oppressive.

(2)    Although the legal basis for this claim and the Belgian Claim are markedly different, there are similarities between some of the issues that are engaged.

(3)    The claimants have been able to satisfy the court that the majority of the documents they seek to use are likely to be relevant to the Belgian Claim. The interests of justice would therefore militate in favour of the claimants having an opportunity to obtain advice about their use in the Belgian Claim.

(4)    Use of the documents to enable the second claimant to consider whether, having obtained advice, a claim against additional parties should be pursued is, to my mind, more compelling than use of documents in connection with the Belgian Claim. There are no risks of adversely affecting the existing proceedings. The court should be slow to stand in the way of a party who wishes to obtain advice about pursuing a lawful course of action.

(5)    There is now an agreed procedure for the orderly progress of the appeal in Brussels with the second claimant filing an additional brief followed by Sandoz Belgium. The disruption, if any, by the introduction of additional documents has been minimised.

(6)    The number of documents the claimants seek to use is relatively small. Those that may be used in the Belgian Claim are not disproportionate in volume to what is at stake in those proceedings. There is no real danger that the Belgian Claim will be overwhelmed with additional documents even if all of them are deployed and Sandoz Belgium considers it is necessary to file additional documents to counter documents having been ‘cherry picked’ by the claimants.

(7)    The difference of approach between litigation in England and Belgium is a factor, but one of limited weight. There is no suggestion that the use of documents obtained in disclosure is an abuse of this court’s process. The risk of the Belgian Court’s process being subverted by the introduction of disclosure documents is marginal, particularly bearing in mind the involvement of the Belgian lawyers and the procedure that has been agreed.

(8)    I accept Mr Hickman’s submission in relation to the documents exhibited to Morris 7. The documents that are exhibited were extensively discussed in the witness statement which was read by the Deputy Judge. Although the claimants do not make an application for a declaration that they are permitted to use those documents as of right, the documents have been legitimately deployed for the purposes of an application heard in open court (subject only to the pro tem confidentiality order).

(9)    It is not open to the Sandoz Defendants to say, and they have not submitted, that if the order permitting use of the documents is made, their position in the Belgian Claim is prejudiced, in the sense that the likelihood of them successfully prosecuting the claim and/or defending the counterclaim is reduced. The interests of justice require that material which is likely to be relevant should be permitted for proper purposes. A reduction in their prospects of success is an immaterial consideration in their favour and, if anything, it weighs in the balance in favour of the claimant.

 

Geert.

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Tronex: Reverse logistics and waste back at the CJEU.

I have review of Shell at the CJEU here, and final judgment in Rotterdam here. Next Thursday the hearing takes places in C-624/17 Tronex which echoes many of the issues in Shell. When, if at all, is the definition of waste triggered in a reverse logistics chain: with a focus on the relationships between the various professional parties in the chain (that the consumer is not handling waste when returning a product in these circumstances is now fairly established).

Questions referred are below.

Geert.

Handbook of EU Waste law, 2nd ed. 2015, OUP, 1.166 ff and 1.189 ff.

 

Question 1

1.    (a) Is a retailer which sends back an object returned by a consumer, or an object in its product range that has become redundant, to its supplier (namely the importer, wholesaler, distributor, producer or anyone else from whom it has obtained the object) pursuant to the agreement between the retailer and its supplier to be regarded as a holder which discards the object, within the meaning of Article 3.1 of the Framework Directive? 1

(b) Would the answer to Question 1.(1) be different if the object is one which has an easily repairable fault or defect?

(c) Would the answer to Question 1.(1) be different if the object is one which has a fault or defect of such extent or severity that it is, as a result, no longer suitable or usable for its original purpose?

Question 2

2.    (a) Is a retailer or supplier which sells on an object returned by a consumer, or an object in its product range which has become redundant, to a buyer (of residual consignments) to be regarded as a holder which discards the object, within the meaning of Article 3.1 of the Framework Directive?

(b) Is the answer to Question 2.(1) affected by the amount of the purchase price to be paid by the buyer to the retailer or supplier?

(c) Would the answer to Question 2.(1) be different if the object is one which has an easily repairable fault or defect?

(d) Would the answer to Question 2.(1) be different if the object is one which has a fault or defect of such extent or severity that it is, as a result, no longer suitable or usable for its original purpose?

Question 3

3.    (a) Is the buyer which sells on to a (foreign) third party a large consignment of goods bought from retailers and suppliers and returned by consumers, and/or goods that have become redundant, to be regarded as a holder which discards a consignment of goods, within the meaning of Article 3.1 of the Framework Directive?

(b) Is the answer to Question 3.(1) affected by the amount of the purchase price to be paid by the third party to the buyer?

(c) Would the answer to Question 3.(1) be different if the consignment of goods also contains some goods which have an easily repairable fault or defect?

(d) Would the answer to Question 3.(1) be different if the consignment of goods also contains some goods which have a fault or defect of such extent or severity that the object in question is no longer, as a result, suitable or usable for its original purpose?

(e) Is the answer to Questions 3.(3) or 3.(4) affected by the percentage of the whole consignment of the goods sold on to the third party that is made up of defective goods? If so, what percentage is the tipping point?

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PrivatBank v Kolomoisky and Boholiubov. The High court puts the spotlight on the abuse of the anchor mechanism, on reflexive effect of lis alibi pendens, and on Article 34’s new rule.

In [2018] EWHC 3308 (Ch) PrivatBank v Kolomoisky and Boholiubov et al the High Court has set aside a worldwide freezing order (‘WFO’) granted earlier at the request of Ukraine’s PrivatBank, against Ihor Kolomoisky and Hennadiy Boholiubov – its two former main shareholders.

The case considers a high number of issues to which even a long blog post cannot do justice – I will consider these further in a paper in progress.

The issues to be determined, are

  • First, whether the Bank has a good arguable case (as pleaded in the particulars of claim) that loss of US$1.91 billion plus interest was caused to it by the alleged fraud of the Defendants. For the purposes of these applications, all Defendants do not dispute that there is a good arguable case that US$248 million of loss was caused to the Bank by the pleaded fraud, but they deny any good arguable case of loss in excess of that amount.
  • Second, whether the worldwide freezing orders should be set aside in whole or in part for non-disclosure or misrepresentation, or reduced to or reimposed in a lesser maximum sum than the current maximum sum of US$2.6 billion.
  • Third, whether the Court has jurisdiction over the First and Second Defendants under Article 6.1 Lugano by reason of the claim against the English Defendants as “anchor defendants”. Although the claims as pleaded against the First and Second Defendants and the English Defendants are closely connected, the particular issue is whether the claim against the English Defendants was brought with the sole object of removing the First and Second Defendants from Swiss jurisdiction and so was an abuse of Article 6
  • Fourth, if there is jurisdiction against the First and Second Defendants, whether the claims against them and the English Defendants should be stayed on grounds of lis pendens in Ukraine. This raises separate questions:
    • a) Whether the Court has power to stay proceedings against the First and Second Defendants (where jurisdiction only exists (if at all) under the Lugano Convention) in favour of proceedings in a non-Convention state, namely Ukraine. The First and Second Defendants argue that Article 28 of the Convention, which empowers a Convention State to stay proceedings on grounds of lis pendens in another Convention State, should be applied by analogy (or “reflexively”) in favour of proceedings in a non-Convention State.
    • b) Whether the Court should stay proceedings against the English Defendants (who are sued in accordance with Article 4 of the recast Brussels Regulation) in favour of proceedings in Ukraine. The issue here is as to the meaning, effect and application of Article 34 of the Regulation, which as from 10 January 2015 conferred a power on EU States in defined circumstances to stay proceedings in favour of proceedings in a non-Member State (“a third State”).
  • Fifth, to the extent that the Court has power to stay on grounds of lis pendens in Ukraine, whether it should exercise that power given the nature of the proceedings in Ukraine, the degree of connection between the Bank’s claim and Ukraine and the risk of irreconcilable judgments if no stay is granted.
  • Sixth, whether the Court should set aside the permission granted without notice to serve the claim form on the BVI Defendants out of the jurisdiction, or alternatively stay the proceedings against the BVI Defendants on grounds of forum non conveniens.

 

Fancourt J’s judgment implies in essence

First of all, very careful and complete consideration of the Lugano Convention’s anchor defendant mechanism.

(hence also implicating Brussels I Recast case-law, particularly Reisch Montage, Freeport and CDC), but also Sabbagh v Khoury, in which as I noted at the time the Court of Appeal struggles with the precise role for merits review in examining a potential abuse of the anchor defendant mechanism.

One assumes counsel for the defendants did an excellent job in deciphering precedent. This includes Ali Malek QC who is clearly a counsel of choice for international litigation, witness his involvement in other cases, too, this week: on which more soon on the blog.

Kolomoisky and Boholiubov may be sued in England and Wales, despite their Swiss domicile, only if the claims against them and the claims against the English Defendants are so closely connected that it is expedient to hear and determine them together, to avoid the risk of irreconcilable judgments resulting from separate proceedings: that is the wording of Article 6.1 of the Lugano Convention, as it is of (now) Article 8(1) Brussels I Recast.

As I have pointed out on various occasions (use ‘fraud’ or ‘fraus’ as a search term in the blog’s search box), abuse is not a concept easily caught in statute and given the need for high predictability in the application of the Brussels and Lugano regimes, the CJEU is not finding it easy to provide much instruction.

Justice Fancourt excellently reviews the issues 85 ff and it is best to let those paras speak for their insightful selves. One readers have done so, they will see that at 93, his conclusion is ‘any artificial fulfilment (or apparent fulfilment) of the express requirements of Article 6.1 is impermissible, and this includes a case where the sole object of the claim against the anchor defendant is to remove the foreign defendant from the jurisdiction of domicile. Bringing a hopeless claim is one example of such abuse, but the abuse may be otherwise established by clear evidence. In principle, the fact that there is a good arguable case against the anchor defendant should not prevent a co-defendant from establishing abuse on some other ground, including that the “sole object” of the claim is to provide jurisdiction against a foreign domiciled co-defendant.

Onus of proof of abuse lies on the defendant, and it was met here: the English Defendants serving as anchor, are not considered legitimate targets in their own right. Five reasons for same are listed in para 99 ff: it is clear that a single criterion will not be enough to meet the burden of proof, rather a number if indications will contribute to an overall finding of abuse.

 

Having established that the Switzerland-based defendants ought to be sued there or indeed in the Ukraine, the Court turns to the English defendants’ attempt to have it apply Brussels I Recast’s new Article 34 rule on lis alibi pendens in favour of third States. 

At 129, Justice Fancourt reviews the cases which might potentially be said to be ‘related’ to the English proceedings. At the heart of that analysis lies a defamation claim which (at 144) ‘Although the causes of action in the Ukrainian claim of the First Defendant and the claim of the Bank in the current proceedings are quite different, I am satisfied that there is considerable factual overlap between the allegations made against the Defendants in the Bank’s claim and the allegations published by the Ukrainian journal that the First Defendant seeks to challenge as unfounded and defamatory in the Ukrainian proceedings. The general subject-matter is one and the same: a fraudulent scheme to embezzle huge sums of money from the Bank, orchestrated by the First and Second Defendants and making use of a large number of shell companies, including the English and BVI Defendants, to circulate monies and conceal their whereabouts. Key issues that may have to be determined in each claim will be: whether there was a fraudulent scheme; who set it up and operated it; how did it work; what was its purpose; who benefited from the scheme, and how much money was unlawfully removed from the Bank.’

This analysis presumes, in my view correctly, that the term ‘related’ in the Article 34 rule, is to be interpreted in line with (now) Article 30 Brussels I Recast on related intra-EU actions.

At 145: ‘if the appeal in the defamation proceedings were to fail, or the claims be otherwise disposed of on a limited point of law, any stay granted under Article 34 (or by analogy with it) will be lifted.

Upon reflection, a stay of proceedings in favour of the Ukranaian case, is granted, for the reasons that

  • (the ultimate condition for applying Article 34) a potential eventual judgment in Ukraine on the defamation case is likely to be recognised and enforced in England; this is the so-called [but not so by the High Court 🙂 ] Anerkennungsprognose;
  •  the claim has a high proximity to the Ukraine: the issues raised in common by the defamation claim and the current proceedings are almost exclusively concerned with events in Ukraine; the majority of witnesses will be Ukrainian, and Ukrainian law will apply to decide both sets of proceedings. By contrast, none of the harmful acts complained of occurred in England; the matters in issue have no connection with England at all, and the existence of three English defendants is of no materiality. The proximity of the claim to Ukraine therefore points strongly in favour of a stay.
  • finally, at 158 ff: The Bank nevertheless argues that a stay would be contrary to the proper administration of justice – a core criterion to Article 34. ‘It contends that the current proceedings cry out for determination by a truly independent tribunal. But the Bank does not contend that the Ukrainian court is unable to resolve the issues or that it cannot obtain justice in Ukraine. There is no evidence on the basis of which this court can conclude that the Ukrainian courts would not provide justice to the parties. Similarly, there is no evidence before the court that would justify a conclusion that the Ukrainian judiciary is not independent. The Bank complains about how the First Defendant obtained an interim injunction against the Bank and Hogan Lovells on 15th December 2017, without proper process taking place; but this order was set aside in Ukraine on appeal, demonstrating that justice can be achieved by the Bank.’

Note that at 161 Justice Fancourt emphasises the unfinished character of the stay: ‘The argument against a stay would have greater weight if the stay to be granted under Article 34 (or by reference to its principles) were a once and for all decision, but it is clear that it should not be so confined. Under Article 34.2, these proceedings may be continued at any time when it is appropriate to do so, and so potential prejudice to the Bank in granting a stay is thereby limited. If the appeal in Ukraine is dismissed, or if though successful the claim is disposed of without a judgment on the merits, or if the First Defendant does not properly pursue the claim to judgment, the grounds for a continuing stay are likely to fall away’.

 

Fancourt J also adds obiter that had he accepted jurisdiction against the Switzerland-based defendants on the basis of the anchor mechanism, he would have granted a stay in those proceedings, too, applying the lis alibi pendens rule of Lugano reflexively, despite the absence of an Article 34 mechanism in Lugano. Consideration of this issue is at 114 ff, with of course reference to Ferrexpo. (Although even there this particular point may have been made obiter, as Justice Fancourt himself points out at 123). The suggestion is made that in accepting such reflexive, ex-Lugano effect of the Lugano lis alibi pendens rule, the courts should take instruction from the Article 34 Brussels I-Recast conditions. This is not a straightforward proposition by any means and the debate is far from settled.

 

Finally, jurisdiction against the BVI defendants is dismissed at this time on the basis of forum non conveniens: at 172 and necessarily entangled with the other findings: ‘So far as forum conveniens is concerned, the claim against the First and Second Defendants will not proceed in England. The natural forum for a trial of that claim is Ukraine though, as regards Lugano Convention States, the First and Second Defendants are entitled to be sued in Switzerland. The task of the court in exercising its discretion is to identify the forum in which the case can be suitably tried in the interests of all the parties and for the ends of justice: see Altimo Holdings at [88]. The natural forum is Ukraine, in that all the parties are Ukrainian, almost all the events occurred in Ukraine and Ukrainian law is the governing law. There is no suggestion by any party that they cannot have a fair trial in Ukraine. However, the Bank may not be willing to sue the First and Second Defendants in Ukraine: if it cannot sue them in England it may sue them in Switzerland.

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With PrivatBank v Kolomoisky and Boholiubov we now have a much more reasoned application of Article 34 than the more concise considerations in B.win v Emerald Bay and also interesting additional analysis as compared to Zavarco.

Geert.

(Handbook of) European Private International Law – 2nd ed. 2016, Chapter 2, Heading 2.2.14.5

 

 

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