Posts Tagged Fraus omnia corrumpit
Glaxo Welcome v Sandoz et al  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.
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.
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 18.104.22.168
The Brussels Court of Appeal on joinders in the Lugano Convention (in Re Fifa /UEFA arbitration clause).
Thank you Quentin Declève and co-authors for reporting a short while back the Brussels Court of Appeal judgment in RFC Seraing and Doyen Sports v Belgian FA /FIFA /UEFA. (Judgment may be consulted here – I also have a copy). The case in substance concerns FIFA /UEFA’s TPO, Third Party Ownership rules.
Quentin first of all reports on the reasons for the Court to find the arbitration clause between the club and UEFA /FIFA not to be binding. The judgment does not contain copy of the clause (lest I have entirely missed it – but I don’t think so). The clause would not seem to have had a specific lex causae identified: the Court of Appeal uses a mix of Belgian law and New York Convention arguments to rule it invalid.
As we are on the subject of validity of arbitration clauses: please refer to Quentin’s reporting of the Belgian Court’s Supreme Court’s confirmation of validity of NATO’s arbitration clause.
For current blog however I would like to report the findings on the anchor defendant mechanism (19 ff): the Court of Appeal applies Article 6(1) Lugano (UEFA and FIFA are Swiss domiciled), which is the same anchor mechanism as Article 8(1) Brussels I Recast: the anchor defendant being the Belgian Football Association. Freeport and Reisch Montage as well as CDC feature heavily in the Court’s analysis. FIFA and UEFA’s claim is that the Belgian FA is abusively being used as an anchor defendant. The court disagrees: FIFA and the Belgian FA share regulatory powers; the FA is empowered by FIFA statute to impose additional regulations. The FA’s presence in the proceedings is entirely justified and not artificially constructed.
(Handbook of) European Private International Law. 2nd ed. 2016, Chapter 2, Heading 2.2.12, Heading 22.214.171.124.
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 126.96.36.199
I reported earlier on the Aldi abuse of process principle: a party who intends to bring a subsequent action against existing parties or their privies must raise the issue with the court, which on case-management grounds may hold that all claims must be brought simultaneously.
In 2016 BVIHC 0059 (COM) Serena Chi Yang Hsueh et al v Equity Trustee ltd. et al Chivers J has now held that the principle applies in the British Virgin Islands. Harneys have the report here, and a big thank you to Kimberley Crabbe-Adams and Ian Mann for providing me with copy. Telling, at 94 is Chivers J’s conclusion (following review of authority) that while the specific Aldi requirement may not as such have been promulgated in BVI, there can be no doubt of the obligation of a litigant to put all their cards on the table, before the other party and the court, at an early stage. The CPR demand so, specifically as their overall objective (at 90, referring to CPR 1.1(1) is to deal with cases ‘justly’.
I have pondered before whether there ought not to be an Aldi rule in EU conflicts law, however one can see the difficulty particularly as in the EU context an Aldi principle might favour the actor sequitur forum rei rule to the detriment of special jurisdictional rules: not an outcome supported by the current rules.
Rulings on costs and their impact on the effet utile of EU civil procedure. The High Court in PABLO STAR re copyright infringement.
In  EWHC 2541 (IPEC) Pablo Star Media v Richard Bowen the issue was one over copyright infringement relating to a photograph of Dylan Thomas. Of interest to this blog is not the copyright issue or the height of damages relating to same – I am not a specialist in that area. (As far as the jurisdictional issues are concerned, there is a slightly muddled reference to the Brussels I Recast and various other Regulations including Regulation 542/2014 which I discussed here).
What did trigger my interest, though, is the ruling on costs.
At 33-34 Hacon J quotes the District Judge’s reasoning for obliging claimant (Pablo Star) to pay part of the defendant’s cost, despite having won the case. In that cost award, the District Judge scolds claimant for having initiated proceedings in Ireland as well as the UK, and for considering (or threatening, as the case may be) litigation in the US. The High Court at 38 and 41 leaves aside the proceedings in Ireland as a factor to consider, and now limits the reasoning for the award on cost to the potential proceedings in the US.
Now, costs determination largely is within the realm of national rules of civil procedure. Sometimes, EU and /or international law has a direct impact on cost determination, such as for instance in the case of Aarhus and environmental litigation; or, importantly for the case at issue, Directive 2004/48 on intellectual property rights enforcement (the enforcement Directive). This Directive provides in Article 14 on legal costs
‘Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.’
That Directive was applied in CJEU C-57/15 UVP v Telenet, expressly condemning Belgium’s restrictive regime on cost recovery in intellectual property cases. The High Court’s finding on cost may to my mind be at odds with that ruling.
More generally, the District Judge’s reference to claimant’s Irish proceedings contributing to the judge’s finding on cost, without a doubt is an infringement of the effet utile of the EU’s jurisdictional regimes. Claimant has a certain right to sue in Ireland and that possibility must in no way be disciplined. Hacon J at the High Court, purposely or not, may have insulated himself from criticism at this point, by leaving the Irish proceedings outside the consideration and only referring to the threat of US proceedings as relevant for partially shifting costs to the plaintiff.
Absolute numbers in the case are not high. Yet the principle to my mind deserves right to appeal at the CA and, from there on, potentially to the CJEU.