Posts Tagged CDC
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  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.
[Note parties, Mr Bogolyubov specifically, earlier in the year in  EWHC 160 (Ch) successfully had applied for a declaration that they were not domiciled in the UK; hence no Article 4 jurisdiction.
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 . 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.
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.
(Handbook of) European Private International Law – 2nd ed. 2016, Chapter 2, Heading 126.96.36.199
Apple v eBizcuss. CJEU leaves open all options on choice of court and anti-trust, particularly for abuse of dominant position.
My review of Wahl AG’s Opinion gives readers necessary detail on C-595/17 Apple v eBizcuss. In 2012 eBizcuss started suing Apple for alleged anti-competitive behaviour, arguing Apple systematically favours its own, vertically integrated distribution network. Can choice of court in their original contract cover the action (meaning the French courts would not have jurisdiction).
The Court says it can, both for Article 101 TFEU (cartels) and for 102 TFEU actions (abuse of dominant position), but particularly for the latter. In both cases the final say rests with the national courts who are best placed to appreciate the choice of court provisions in their entire context.
For Article 101 TFEU actions, the window is a narrow one (at 28: ‘the anti‑competitive conduct covered by Article 101 TFEU, namely an unlawful cartel, is in principle not directly linked to the contractual relationship between a member of that cartel and a third party which is affected by the cartel’). For Article 102 TFEU, as noted by other, it is wider (‘the anti‑competitive conduct covered by Article 102 TFEU, namely the abuse of a dominant position, can materialise in contractual relations that an undertaking in a dominant position establishes and by means of contractual terms’). The overall context of appreciation is that of predictability: at 29 (referring to CDC): ‘in the context of an action based on Article 102 TFEU, taking account of a jurisdiction clause that refers to a contract and ‘the corresponding relationship’ cannot be regarded as surprising one of the parties.’
Anchor defendants in follow-up competition law cases. The High Court in Vattenfall et al v Prysmian et al.
A classic case of follow-up damages litigation in competition law, here in the high voltage power cables cartel, fines for which were confirmed by the CJEU early July. Core to the case is the application of Article 8(1)’s anchor defendants mechanism. Only two of the defendants are UK incorporated companies – UK subsidiaries of companies that have been found by the European Commission to have infringed EU competition law.
Authority cited includes of course CDC, Roche Nederland and Painer, and Cooper Tyre (sale of the cartelised products can amount to implementation of the cartel). Vattenfall confirms that for the English courts, ‘knowingly implementing’ the cartel has a low threshold.
At 89 ff the Court refers to the pending case of (what I now know to be) C-724/17 Skanska Industrial Solutions e.a.: Finnish Courts are considering the application for cartel damages against parent companies on acquiring cartelist subsidiaries, had dissolved them. Relevance for Vattenfall lies with the issue of knowledge: the Finnish courts wonder what Article 101 TFEU has to say on the degree of knowledge of the cartelist activities, relevant for the liability of the parent company. An application of fraus, or abuse in other words. Elleray DJ however, did not consider the outcome of that reference to be relevant for the case at hand, in its current stage of procedure.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 188.8.131.52
Apple v eBizcuss. Wahl AG on choice of court, anti-trust (competition law; clarifying CDC) and ‘corresponding relationships’.
Those of us who are familiar with the issue of multilingualism and international courts, will enjoy the discussion of contractual terms in Wahl AG’s Opinion in C-595/17 Apple v eBizcuss. Not only does the issue entre around the precise implications of the wording of a choice of court provision. The Opinion (not yet available in English) also highlights the difficulty of translating the original English of the contractual term, into the languages at the Court.
Current litigation is a continuation of the earlier spats between Apple and eBizcuss, which led to the Cour de Cassation’s 2015 reversed stance on the validity of unilateral choice of court – which I discussed at the time.
The 2002 Apple Authorized Reseller Agreement (in fact the 2005 version which applied after continuation of the contract) included a governing law and choice of court clause reading
„This Agreement and the corresponding relationship between the parties shall be governed by and construed in accordance with the laws of the Republic of Ireland and the parties shall submit to the jurisdiction of the courts of the Republic of Ireland. Apple reserves the right to institute proceedings against Reseller in the courts having jurisdiction in the place where Reseller has its seat or in any jurisdiction where a harm to Apple is occurring.” (emphasis added)
Footnote 3 displays the translation difficulty which I refer to above: parties disagree as to the translation of the contractual clause in French: applicant suggest this should read „et la relation correspondante”, defendant proposes „et les relations en découlant”. The AG suggest to include both for the purposes of his analysis „Le présent contrat et la relation correspondante (traduction de la requérante)/et les relations en découlant (traduction de la défenderesse) entre les parties seront régis par et interprétés conformément au droit de l’Irlande et les parties se soumettent à la compétence des tribunaux de l’Irlande. Apple se réserve le droit d’engager des poursuites à l’encontre du revendeur devant les tribunaux dans le ressort duquel est situé le siège du revendeur ou dans tout pays dans lequel Apple subit un préjudice.” In Dutch: „De door partijen gesloten onderhavige overeenkomst en de bijbehorende betrekking (vertaling van verzoekster)/de hieruit voortvloeiende betrekkingen (vertaling van verweerster) tussen partijen zullen worden beheerst door en worden uitgelegd volgens het Ierse recht, en partijen verlenen bevoegdheid aan de Ierse rechter. Apple behoudt zich het recht voor om vorderingen jegens de wederverkoper aanhangig te maken bij het gerecht in het rechtsgebied waar de wederverkoper is gevestigd of in een land waar Apple schade heeft geleden.”
This translation issue however highlights precisely the core of the discussion: ‘the corresponding relationship’ suggest a narrow reading: the relationship corresponding to the contractual arrangements. Infringement of competition law does not correspond, in my view. ‘La relation correspondante’ displays this sentiment. ‘(L)es relations en découlant’ suggests a wider reading.
In 2012 eBizcuss started suing Apple for alleged anti-competitive behaviour, arguing Apple systematically favours its own, vertically integrated distribution network.
The Cour de Cassation had rebuked the Court of Appeal’s finding of lack of jurisdiction. In its 2015 decision to quash, (the same which qualified the Court’s stance on unilateral jurisdiction clauses) it cited C-352/13 CDC, in which the CJEU held that choice of court clauses are not generally applicable to liability in tort (the clause would have to refer verbatim to tortious liability): the specific para under consideration is para 69 of that judgment in CDC:
‘the referring court must, in particular, regard a clause which abstractly refers to all disputes arising from contractual relationships as not extending to a dispute relating to the tortious liability that one party allegedly incurred as a result of its participation in an unlawful cartel’.
At issue in Apple /eBizcuss is essentially what kind of language one needs for choice of court to include infringement of competition law (for Dutch readers, I have an earlier overview in Jacques Steenbergen’s liber amicorum here).
Wahl AG emphasises (at 56) that it would not be in the spirit of Article 25 Brussels I Recast (which he analyses in extenso in the previous paras) to require parties to include the exact nature of the suits covered by the choice of court agreement. He is right of course – except those suits in my view do need to be contractual unless non-contractual liability has been clearly included: that in my view is the clear instruction of the CJEU in CDC.
The AG then continues the discussion (which will be redundant should the CJEU not follow his lead) as to whether the clause covers both follow-on (a suit for tort once a competition authority has found illegal behaviour) as well as stand-alone (private enforcement: a party claiming infringement of competition law in the absence of an authority’s finding of same) suits. He suggests there should be no distinction: on that I believe he is right.
Microsoft (Nokia) v Sony. This battery keeps on going: relatively of arbitration clauses; cartel claims contractual? anchor defendants etc.
The one sorry outcome of  EWHC 374 (Ch) Microsoft (Nokia) v Sony is that by rejecting jurisdiction, the Commercial Court did not have an opportunity to review the application of Rome II’s provisions on applicable law in the case of infringement of competition law.
The following background is by Kirsty Wright, who also alerted me to the case: the claim centred on allegations by Microsoft (who had acquired Nokia of Finland) that the Defendants had caused loss by engaging in anti-competitive conduct relating to the sale of Li-ion Batteries over a period of 12 years. In 2001 Nokia and the Sony Corporation (the mother corporation: with seat outside of the EU) concluded a Product Purchase Agreement for Li-ion Batteries. This agreement contained an English choice of law clause and required any dispute to be resolved by way of arbitration in the International Chamber of Commerce (ICC). Microsoft became the assignee of these rights following its purchase of parts of Nokia in 2013 and therefore could bring claims in contract against Sony Corporation and claims in tort against the other three Defendants. Sony Corporation is a subsidiary of Sony Europe Limited: it is the anchor defendant in this case: none of the corporations other than Sony Europe are domiciled in the EU.
Smith J in a lengthy judgment determined that the agreement between Microsoft and Sony Corporation to arbitrate in the ICC also extended to the parent company Sony Europe. Therefore proceedings against all defendants were stayed in favour of ICC arbitration subject to English law. This required him first of all to hold that under English law, the arbitration agreement (as opposed to, under EU law, for the issue of choice of court: see CDC) extends to non-contractual obligations (infringement of competition law evidently not being part of one’s contractual rights and obligations; see here for a review of the issues; in Dutch I’m afraid: must find time for an EN version) but also that the clause extended to the mother company: hence releasing the jurisdictional anchor.
Microsoft had anticipated such finding by suggesting such finding may be incompatible with EU law: its contention was that the operation of the Brussels I Regulation (Recast) must permit the effective protection of rights derived from competition law, including private law rights of action for infringement, these being rights accorded by EU law, and that an arbitration clause which caused the fragmentation of such rights of action was, for that reason, in breach of EU law (at 76). It made extensive reference to Jaaskinen AG’s call in CDC for the Brussels I Recast to be aligned with Rome II’s ambition to have one single law apply to the ensuing tort. (The jurisdictional regime as noted leads to a need to sue in various jurisdictions).
As I have noted in my review of the CJEU’s judgment, on this point the Court however disagreed with its AG. Indeed while the AG reviews and argues the issue at length (Smith J recalls it in the same length), the Court summarily sticks to its familiar view on the application of (now) Article 7(2) in competition cases; it is the CJEU’s view which the Commercial Court of course upholds.
A great case, extensively argued.
(Handbook of) EU Private International Law, Chapter 2, Heading 184.108.40.206; Heading 2.2.9; Chapter 4, Heading 4.6.2).
Towards the end of July, the Court at Amsterdam applied the recent CJEU judgment in CDC, on the application of (now) Article 8’s rule on anchor defendants. The case also involved CDC – busy bees on the competition enforcement front, this time pursuing inter alia Kemira, a Finnish company, using Akzo Nobel NV, domiciled in The Netherlands, as anchor defendants.
The court referred in extenso to the CJEU’s CDC case, noting inter alia that it is not up to CDC to show that the suit was not just introduced to remove Kemira from the Finnish judge: that Kemira suggests that introduction of the suit in The Netherlands is not very logical given the absence of factual links to that Member State, does not suffice. The court also adopted the CJEU’s finding on choice of court and liability in tort. In the absence of specific proviso in a standard contractual choice of court, the application of such choice of court to extracontactual liability [such as here, for infringement of competition law] cannot be assumed.
Finally, at 2.18, the Court also referred to argument made by Kemira that Finish and Swedish law ought to apply to the interpretation (not: the validity) of the choice of court agreement. That would have been an interesting discussion. However in light of the court’s earlier judgment on the irrelevance of the court of choice, the court did not entertain that issue.
Don’t leave the store without asking. Joinders, and the Aldi principle applied in Otkritie. On the shopping list for the EU?
Postscript 21 November 2017: For an application in Hong Kong see Far Wealth Ltd v Lo Ki Mou, reported here: proceedings dismissed as an abuse of process because the plaintiffs could have protected their position by way of a counterclaim in prior proceedings commenced against them by the defendants.
A posting out off the box here, so bear with me. Neither Brussels I nor the Recast include many requirements with respect to (now) Article 8(1)’s rule on joinders. A case against a defendant, not domiciled in the court’s jurisdiction, may be joined with that against a defendant who is so domiciled, if the cases are ‘so closely connected that it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments’. There is of course CJEU case-law on what ‘so closely connected’ means however that is outside the remit of current posting.
As I reported recently, the CJEU has introduced a limited window of abuse of process viz Article 8(1), in CDC. The Court’s overall approach to Article 8(1) is not to take into account the subjective intentions of plaintiff, who often identify a suitable anchor defendant even if is not the intended target of their action. The Court does make exception for one particular occasion, namely if it is found that, at the time the proceedings were instituted, the applicant and that defendant had colluded to artificially fulfil, or prolong the fulfilment of, (now) Article 8’s applicability.
What if at the time the proceedings were instituted, applicant artificially ignores the fulfilment of, (now) Article 8’s applicability?
The Aldi rule of the courts of England and Wales, and its recent application in Otkritie, made me ponder whether there is merit in suggesting that the CJEU should interpret Article 8(1) to include an obligation, rather than a mere possibility, to join closely connected cases. I haven’t gotten much further than pondering, for there are undoubtedly important complications.
First, a quick look at the Aldi rule, in which the Court of Appeal considered application of the Johnson v Gore Wood principles on abuse of process of the (then) House of Lords, to an attempt to strike out a claim for abuse of process on the basis that the claim could and should have been brought in previous litigation. Aldi concerned complex commercial litigation, as does Otkritie. The result of Aldi is that plaintiffs need to consult with the court in case management, to ensure that related claims are brough in one go. Evidently, the courts need to walk a fine rope for the starting point must be that plaintiffs have wide discretion in deciding where and when to bring a claim: that would seem inherent in Article 6 ECHR’s right to a fair trial.
In Otkritie [the case nota bene does not involve the Brussels Regulation], Knowles J strikes the right balance in holding that the Aldi requirement of discussing with the court had been breached (and would have cost implications for Otkritie in current proceedings) but that otherwise this breach did not amount to abuse of process.
Now, transporting this to the EU level: to what degree could /should Article 8 include a duty to join closely related proceedings? Should such duty be imposed only on plaintiff or also on the court, proprio motu? A crazy thought perhaps for the time being, but certainly worthwhile pondering for future conflicts entertainment.