Moral: don’t arbitrate in Russia if you can help it

Decided eight weeks ago but just up on Bailii, the arbitration decision in Maximov v Open Joint Stock Company “Novolipetsky Metallurgichesky Kombinat” [2017] EWHC 1911 (Comm) is worth a brief note. Having sold a company to a buyer and faced a dispute as to the price, Nikolai Maximov got an arbitral award from a Russian tribunal for some 8 billion roubles (then about $250 million). A Russian court then proceeded at the buyer’s request to annul the award on very doubtful grounds, including those not raised by the parties. Two appeals failed. The seller sued in England under the New York Convention and at common law to enforce the award: to the buyer’s plea that the award had been set aside, the seller asked the court not to enforce that judgment on the basis that it must have been biased. Despite very grave suspicions about the propriety, let alone the correctness, of the Russian judgment, and despite evidence that the Russian judicial system left a great deal to be desired, especially when (as here) the Russian government had a strong interest in reducing or eliminating the award, the judge, Sir Michael Burton, was clear that this was not enough. Perverse and very suspicious it might be, but even here his Lordship was unable to draw the inference that the only explanation was bias.

Two further points for future reference. At [16] the judge expressed the view that a judgment given on one point out of evident bias would probably not be upheld even if there was another ground for the judgment that was not successfully challenged on that ground. And at [64] he strongly doubted a subsidiary argument by the defendant that once a court with jurisdiction had annulled an award that was an end of the matter however biased the court, since there would simply be nothing to enforce. And rightly so, we suggest: apart from anything else, the moral hazard that such a rule would engender is fairly obvious.

As we said at the beginning, arbitrate in Russia very much at your own risk.

 

EU Member States urged to ratify/accede to 2010 HNS Convention by 6 May 2021.

 

COUNCIL DECISION (EU) 2017/769 of 25.4.2017 authorises Member States to ratify or accede to the 2010 Protocol of the HNS Convention with the exception of the aspects related to judicial cooperation in civil matters. The decision also provides that they “shall endeavour to take the necessary steps to deposit the instruments of ratification of, or accession to, the Protocol of 2010 within a reasonable time and, if possible, by 6 May 2021”.

 

A parallel COUNCIL DECISION (EU) 2017/770 contains a similar authorization in relation to those aspects related to judicial cooperation in civil matters, subject to depositing the standard declaration preserving the effect of the Brussels I (Recast) Regulation, the Lugano Convention, and the 2005 agreement between the EU and Denmark in respect of judgments covered by the 2010 HNS Protocol.

Want to stymie a judgment creditor? It’s not as easy as you think.

English courts aren’t best pleased when they give judgment, only to find someone busily trying to frustrate the claimant’s efforts to collect on it. Last year, in JSC BTA Bank v Ablyazov [2016] EWHC 230 (Comm) (noted here on this blog), Teare J very rightly decided that an elusive judgment debtor’s pal was liable in tort to the judgment creditor when he helped the debtor shuffle his assets around in an elaborate “now you see them, now you don’t” exercise. Yesterday, in Marex Financial Ltd v Garcia [2017] EWHC 918 (Comm), Knowles J carried on the good work. Marex had got judgment in England for some $5 million, plus the usual freezing orders, against a couple of BVI companies controlled by SG, a globetrotting businessman. SG thereafter took care to avoid the UK, instead taking steps to spirit away the English assets of his companies to a web of entities in far-flung jurisdictions where it was difficult, if not impossible, for Marex to track them down. Marex thereupon sought permission to sue SG out of the jurisdiction, alleging a tort committed in England. What tort? In so far as SG might be deemed to have acted with the companies’ consent, inducement of breach of contract (i.e. the implicit contract by the companies to pay the judgment debt); and in so far as the companies hadn’t consented and hence he was in breach of duty to them, causing loss to Marex by unlawful means. Knowles J agreed with both limbs of the argument, swiftly disposed of a forum non conveniens point, and allowed service out, thus giving Marex at least a decent chance of getting paid.

Good news, therefore, to judgment creditors. Moreover, while this was a non-EU service out case, note that so long as any relevant monkey-business took place in England, its reasoning will apply equally to EU and EEA-based defendants under Brussels I and Lugano, because the tort “gateway” has been interpreted similarly in both cases since Brownlie v Four Seasons Holdings Inc [2015] EWCA Civ 665; [2016] 1 W.L.R. 1814.

So good luck and good hunting.

New York judgment against you? England expects you to pay up, in pretty short order.

A refreshing no-nonsense approach from Teare J today in Midtown Acquisitions LP v Essar Global Fund Ltd [2017] EWHC 519 (Comm) to a guarantor desperately trying to avoid enforcement in London of a judgment given against it in Manhattan. EGF had guaranteed a facility given to Essar Steel Minnesota LLC, a now-very-bankrupt former subsidiary of monster Indian conglomerate Essar Global. When Essar Minnesota defaulted, EGF  confessed liability ; a New York judge duly signed judgment against it in the modest sum of about $172 million. EGF applied to vacate the judgment: meanwhile the creditor, Midtown, wasted no time and applied to enforce it in England.

Teare J in quick succession demolished four arguments hopefully raised against enforcement.

(a) The New York order was based on a confession of liability, with no action technically brought. Irrelevant, he said: it was still a judgment.

(b) The outstanding application to vacate meant that the judgment wasn’t final. Nonsense: it was immediately binding as res judicata in New York unless and until set aside, and that sufficed to make it enforceable in England.

(c) The judgment was on admissions, with neither party arguing on the law or the facts. So what? It was still a judgment on the merits — i.e. whether EGF had to pay $172 million.

(d) To a half-hearted pleading of fraud, Teare J answered shortly that only a showing of conscious and deliberate dishonesty would do to establish this, and none had been pleaded or shown.

In addition he was prepared to enforce the judgment on the basis of a clause under which “The Guarantor agrees that a judgment in any such action, suit or proceeding may be enforced in any other jurisdiction by suit upon such judgment … The Guarantor hereby waives any objection it may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and … further waives any claim that any such action, suit or proceeding brought in any of the aforesaid courts has been brought in any inconvenient forum.”

The only indulgence he allowed was a short stay of execution until one week after the result of the application to vacate: unless the application was successful, execution would then follow automatically.

In our view this judgment is to be welcomed and should be widely publicised. If a creditor has a clear claim, the fact that it got judgment on it quickly, with no argument, ought to be a factor in favour of, rather than against, its being immediately able to enforce that judgment here. Furthermore, delaying tactics such as applications to vacate should generally not be allowed to derail the process. The message is simple: even outside the EU context, bring your judgments to London, and we’ll enforce them unless the other side produces a pretty convincing reason why we shouldn’t.

 

Exclusive jurisdiction: where is the obligation not to sue to be performed?

A nice point of potential importance in conflict of laws: see AMT Futures Ltd v Marzillier & Ors [2017] UKSC 13 today. If someone in Germany has a contract with you providing for exclusive jurisdiction in England and they nevertheless sue in Germany, do the English courts have jurisdiction under Brussels I to hear your claim for damages? Against the other contracting party, clearly Yes. But what if you want to sue a third party for bankrolling the action and thereby inducing the breach of the obligation? Is the harm suffered by you suffered here within Art.5.3 (Art.7.2 Recast)? No. The relevant obligation is to be construed as an obligation to refrain from suing in Germany, not an obligation to sue in England if you sue at all.

Another interesting point raised in the case was whether entertaining an action for breach of the obligation not to sue in Germany was itself contrary to the full faith and credit ethos lying behind the Brussels regime (as denied in West Tankers v Allianz [2012] EWHC 854 (Comm)). The SC refused to grasp this hot potato: perhaps wisely, since it may well not matter after Brexit.

The proper place to sue: holding companies, etc

Another transnational tort claim against a UK holding company on the lines of Chandler v Cape plc [2012] EWCA Civ 525; [2012] 1 WLR 3111 was dealt with today by Laing J: see AAA v Unilever Plc [2017] EWHC 371 (QB). Employees and others connected with a sub-subsidiary of Unilever in Kenya  suffered political violence at the hands of thugs after the 2007 Kenyan election. They sued not only the Kenyan company involved (essentially the Brooke Bond tea operation), but Unilever, alleging failure by it as holding company to make sure its local operation took care to protect them. Unilever sought to get rid of the action, on the basis of (a) Act of State (since the actions, or rather inactions, of the Kenyan police were in issue); (b) forum non conveniens; and (c) case management grounds. The attempt failed. On (a) it had to founder since Belhaj v Straw [2017] UKSC 3; [2017] 2 WLR 456 and nothing more needs to be said. On (b) her Ladyship was forced by Brussels I Recast, Art.4 and Owusu v Jackson [2005] QB 801 to refuse a stay, even though most of the connections were with Kenya, and indeed there were fairly clear indications that the claimants were only suing Unilever here in order to be able to sue the Kenyan subsidiary in the English rather than the Kenyan High Court. What is more significant is the decision on (c), the case management argument. Unilever relied on a throw-away line of Coulson J in Lungowe v Vedanta Resources Plc [2016] EWHC 975 (TCC) at [84] to argue that there might be a stay if there was no serious issue to be tried between the claimants and Unilever. But even though it was found that there was indeed no serious issue to be tried between the claimants and Unilever, Laing J refused to go down this road, regarding it as an unjustified attempt to sideline Owusu v Jackson in the absence of pending proceedings abroad such as would justify a stay under Brussels I Recast, Art.34. The only way Unilever could get rid of the action was by showing, in the old-fashioned way, that it was bound to fail.

This is an unfortunate result for defendants sued on dubious causes of action in England, if only because it is much more time-consuming and expensive to show that an action must fail than to argue that it is being brought in the wrong place. One suspects that this will add to the pressure on the government to include in its Brexit shopping-list a wholesale revision of the Brussels I provisions on jurisdiction. Indeed, if this were done, one attraction of companies setting up shop here would be precisely the protection against inappropriate lawsuits that the current EU law pointedly fails to give.

English law and jurisdiction post-Brexit

Evidence has recently been given to the EU justice sub-committee of the House of Lords that Brexit may scare off foreign businessmen from choosing English law and jurisdiction in favour of the Netherlands, Germany or Singapore. Sir Oliver Heald, Justice Minister, has pooh-poohed the idea. We suspect that, even discounting political hype, Sir Oliver may well be correct. Provided that arrangements are made for mutual recognition and enforcement of judgments between the UK and EU – something in all parties’ interests, even if the preservation of the whole of Brussels I is not – it is difficult to see how Brexit will change anything.

Act of State and the man of Straw.

 

 

Good things come to those who wait. Today, some fourteen months after hearing the case, the Supreme Court has decided in Belhaj v Straw and Rahmatullah (No 1) (Respondent) v Ministry of Defence [2017] UKSC 3 that the Act of State doctrine does not bar a tort claim brought against the former Home Secretary, Jack Straw, for alleged complicity in unlawful detention of the claimants and mistreatment overseas at the hands of foreign state officials from the US and Libya. The appeal did not concern the separate claim in Rahmatullah relating to his detention by British forces and their handing him over to US forces, which had previously been dismissed under the Crown Act of State doctrine, assuming that arrest and detention were lawful under authorised UK policy.

State immunity was no bar to the two claims. Although the acts alleged against the relevant foreign governments were sovereign acts, and the governments would have been immune if sued, they had not been sued. Only the government and agents of the United Kingdom were sued and they accepted that state immunity was not available to them.However, the appellants argued that the claims were barred by the foreign act of state doctrine, a position rejected by the Court of Appeal [2014] EWCA Civ 1394. The Supreme Court unanimously upheld that decision and the first instance decision in Rahmatullah [2014] EWHC 3846 (QB).

Lord Mance identified three types of foreign act of state rule in English law.

 

– a rule of private international law, whereby a foreign state’s legislation will normally be recognised and treated as valid, so far as it affects movable or immovable property within that state’s jurisdiction – a rule precluding a domestic court from questioning the validity of a foreign state’s sovereign act in respect of property within its jurisdiction, at least in times of civil disorder. Even if this rule extended more generally to acts directed against the person, it would be subject to a public policy exception which would permit the allegations of complicity in torture, unlawful detention and enforced rendition in this case to be pursued in the English courts.

– a rule that a domestic court will treat as non-justiciable – or will refrain from adjudicating on or questioning – certain categories of sovereign act by a foreign state abroad, even if outside the jurisdiction of that state. Non-justiciability falls to be considered on a case-by-case basis, having regard to the separation of powers and the sovereign nature of activities and will take into account whether issues of fundamental rights are engaged, including liberty, access to justice and freedom from torture as well as the international relations consequences of a court adjudicating on an issue. The circumstances here did not lead to a conclusion that the issues are non-justiciable.

Lord Sumption reached the same result by a different analysis of the foreign act of state doctrine. In his view there were two such doctrines: the municipal act of state doctrine which corresponded with Lord Mance’s first two categories; the international act of state doctrine which requires requires the English courts not to adjudicate on the lawfulness of the extraterritorial acts of foreign states in their dealings with other states or the subjects of other states. This is, however, subject to an exception where those acts involve violations of jus cogens norms of international law, such as the prohibitions on torture, arbitrary detention, and inhuman treatment falling short of torture which formed the basis of the allegations in the present cases.

 

Freezing orders and contribution

If you are sued jointly with another defendant X, and are seeking contribution against X, can you get a freezing injunction against X before you are held liable to the claimant or settle with him? Leggatt J said Yes in Kazakhstan Kagazy Plc v Zhunus & Ors [2016] EWHC 1048 (Comm) (noted in this blog here). The Court of Appeal has, entirely correctly in our view, upheld this view. See Kazakhstan Kagazy Plc v Zhunus & Ors [2016] EWCA Civ 1036, refusing to accept the pettifogging argument that any claim before that time fell foul of the principle in The Vera Cruz [1992] 1 Lloyds Rep 353 and Zucker v Tyndall Holdings [1992] 1 WLR 1127. Much relief for litigants all round.

Direct actions against insurers — EU-style

P&I clubs already have their issues with the EU, as regards (for instance) Solvency II: see our post here. Now another cloud looms. P&I clubs based in the UK jealously guard their English law and jurisdiction clauses. But where a direct action is brought in an EU state, is the jurisdiction clause compatible with EU law?

The point has arisen in Denmark and is headed for the ECJ. A Danish tug, entered with Navigators Management (UK) Ltd, caused mayhem in the Danish port of Assens. The tug’s bareboat charterers being insolvent, the port sued Navigators in Denmark under the Danish direct action statute: Navigators relied on the English law and jurisdiction clause and insisted on being sued in England. The port relied on Arts 10 and 11 of Brussels I (equivalent to Recast 12 and 13, there being no relevant difference between the two here), saying that in matters of insurance the club could be sued in Denmark as the place where the damage occurred. Navigators said that Art.13 (recast Art.15) allowed the relevant jurisdiction to be ousted by agreement. The port retorted that this was all very well, but a term in the contract between the charterers and the club could not in the nature of things be binding on it as a third party. Whereupon the club riposted that if the port wanted the advantage of the contract between it and the charterers then the port had to take that contract warts (i.e. jurisdiction clause) and all.

At this stage it’s not clear why the port wanted so much to sue in Denmark. We can only presume that, despite the cover being written under English law, Danish law would apply to the exclusion of English law to at least some aspects of the direct claim and deprive the club of some advantage or defence otherwise available.

What the ECJ will hold is anyone’s guess. One hopes it will side with the insurer: one way P&I clubs keep costs down and liabilities in check is to avoid entanglements with foreign law as far as possible, and keep in reserve the possibility of insisting on “pay to be paid” provisions — something many EU jurisdictions take a poor view of. There’s certainly some logic on that side. In particular, the right under Art.13 to exclude jurisdiction is specifically stated not to apply to direct personal injury claims against liability insurers: something that seems to suggest that but third party direct claims in general can be excluded. On the other hand, logic (if one may say so) has not always been the ECJ’s strong suit when the court has been presented with the opportunity to extend EU control over commercial activities.

If the decision goes against Navigators, we may see yet another item added to the already long UK Brexit wish-list.

Many thanks to HFW (who give the arguments in detail) for the tip-off. More detailed coverage of the affair (in English) from the Copenhagen law firm Gorrissen Federspiel can be found here.